Halozyme Therapeutics, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Good afternoon and welcome to the Halozyme Therapeutics First Quarter 2017 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce our host, Jim Mazzola, Vice President of Investor Relations at Halozyme. Mr. Mazzola, you may now begin your conference.

[Jim Mazzola:]

Thank you, Carrie, and good afternoon, everyone. Welcome to Halozyme’s first quarter 2017 financial results conference call. Following market close today, we issued a news release with a summary of our financial results and posted a short slide presentation to accompany this call. We also filed an 8-K noting our planned management transition in the CMO role. You will find these materials on the Investors page at halozyme.com. Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley, who will provide an overview and update on our business. Then Laurie Stelzer, our Chief Financial Officer will review the financial results for the March quarter followed by a Q&A period. Before we begin, let me remind you that during the conference call, we will be making 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 risks, please refer to our quarterly and annual filings with the Securities and Exchange Commission. Now, let me turn the call over to Helen.

[Helen Torley:]

Hi good afternoon and thank you for joining us today. I’ll begin the call with the key takeaways for the quarter. Firstly, we continue to make strong progress in our clinical studies of PEGPH20. HALO-301 our ongoing global Phase 3 study in pancreatic cancer continues to enroll in line with our expectations. During the quarter we continued to increase the number of centers screening and enrolling patients at sites around the world. We are also pleased that the data from our Phase 2 study of HALO-202 was selected for an oral [ph] presentation at the American Society of Clinical Oncology and releasing in June. In parallel we continue to enroll non-small cell lung and gastric cancer patients in the dose expansion portion of our KEYTRUDA combination study. And I'm also pleased to update that we've received [indiscernible] and protocols are under finalization to enable the start of our collaborative studies with Genentech's Tecentriq in the second half of the year. Secondly, momentum continues to build for our ENHANZE technology as we've seen significant developments in four of our partner's programs. This progress includes nearing the action date for the approval of rituximab SC in the United States, Janssen developing a rapid delivery subcutaneous formulation of daratumumab to confirm dose selection for their upcoming Phase 3 study planned to begin later this year. Roche is making strong progress in their Phase 1 combination study of Herceptin SC and subcutaneous Perjeta and Lilly progressing across multiple targets with their preclinical and clinical studies this year and next. And thirdly our financial results continue to demonstrate the strength of our business model. Laurie will review these details shortly. The key highlights included 23% increase in year-over-year royalty revenue and entering the second quarter with $179 million in cash. For additional details on our progress I will start with an overview of our strategy. As a diversified oncology biotech company we operate our business and make investment decisions in two strategic pillars. The first pillar is our oncology pipeline with investigational drug PEGPH20 at the core. PEGPH20 temporarily degrades hyaluronan, a glycosaminoglycan or chain of natural sugars in that body that can accumulate around certain tumors and constrict the tumor vasculature. In animal models, we have demonstrated that degrading hyaluronan or HA reduces tumor pressure, increasing blood flow and thereby the access of cancer treatments into the tumor. Additionally and as shown in our poster presentations at the recent American Association of Cancer Research Annual Meeting a preclinical model PEGPH20 also serves to remodel the tumor microenvironment stimulating an immune response and increasing the effectiveness of [indiscernible] immunotherapy. We are most advanced in evaluating PEGPH20 in pancreatic cancer and as I will update in a moment each year more than 100,000 patients in the U.S. and EU5 are diagnosed with pancreatic cancer of which an estimated 65,000 have metastatic disease. PEGPH20 is a targeted therapy being developed for patients with high levels of HA and in the U.S. and the EU5 it is estimated that there were approximately 25,000 high any I estimated that there are currently 25,000 high HA metastatic pancreatic cancer patients diagnosed annually. With five-year survival for patients with metastatic disease at just 3% there remains a major unmet need and we would expect the high degree of market penetration upon the approval of PEGPH20. We are also evaluating the pan-tumor potential of PEGPH20 in a range of solid tumors. And on an annual basis project there are an additional 50,000 non-small cell lung cancer, gastric cancer and breast cancer patients who are HA high in the U.S. and EU5. Our work in oncology is funded in part by the second pillar of our strategy, which is centered on our enhanced licensing agreements with six marquee partners including Roche, Baxalta, Pfizer, Janssen, AbbVie and Eli Lilly. And we also filed an update on recent developments in our PEGPH20 program. In January we reported positive data from our randomized Phase 2 HALO-202 study of PEGPH20 in combination with ABRAXANE and gemcitabine compared to ABRAXANE and gemcitabine alone. At ASCO in June Dr. Sunil Hingorani, principal investigator for HALO-202 will expand the topline results we showed in January with additional data from this study based on the December 2016 status snapshot. Importantly, the improvement in the key efficacy findings on progressing free survival and overall survival from HALO-202 are supportive of our ongoing HALO-301 Phase 3 study which is being conduction in a similar patient population. An overview of HALO-301 is shown on Slide 2. HALO-301 is a global double blind, placebo controlled, randomized trial of patients with Stage 4 pancreatic ductal adenocarcinoma, prospectively identified and randomized based on high levels of HA. The protocol includes one interim analysis when the target number of progression-free survival events is reached. At the time of the interim analysis if the progression-free survival data shows a significant benefit in the PEGPH20 treatment arm, and both the overall survival and overall risk benefits are supportive, these data may form the basis for marketing application in the United States and a conditional marketing authorization in Europe. Since our last call, we've continued to make good progress and are actively screening or ready to screen patients in over 200 of our global 5. Enrollment is proceeding in line with our expectations and we continue to achieve our three to five-day targets to analyze patient biopsies and report HA levels. Additionally, our Data Safety Monitoring Committee recently met in March to review the ongoing safety data from the trial and informed us the study should proceed as planned. Turning now to Slide 3, I'd like to provide an update on our clinical development progress to assess the potential of PEGPH20. Beginning with our trials in combination with checkpoint inhibitors the PEGPH20 plus KEYTRUDA or pembrolizumab trial is enrolling Stage 3B and Stage 4 non-small cell lung cancer patients and metastatic gastric adenocarcinoma patients who are still at least one chemotherapy regimen. At the end of 2016, we moved into the dose expansion phase of the study, where we are now selecting for HA high patients with the target enrollment of approximately 50 patient at 30 U.S. sites. Since that time we're seeing strong interest in this study as reflected by good screening activity and depending on the pace of enrolling and counter responses believe we may be in position to share initial response data by the year end. We are well advanced in our planning of the three initial studies that are part of our collaboration with Genentech to study PEGPH20 with their cancer immunotherapy Tecentriq or tezolizumab, an anti-PDL1 monoclonal antibody in up to eight different tumor types. The first two studies will be a Phase 1b/2 open-label, multi-arm randomized global trial led by Genentech in up to six tumor types. Genentech's initially focus will include pancreatic and gastric cancers as part of their MORPHEUS immunotherapy clinical platform. Halozyme will also conduct a Phase 1b open-label randomized study of Tecentriq in combination with PEGPH20 in chemotherapy in advanced metastatic biliary and gallbladder cancers. In addition to receiving feedback from the SC for each of these three studies we work closely with Genentech to select our CROs and are now finalizing the study protocols. Site selection is ongoing in anticipation of initiating our studies in the second half of 2017 and further details on the protocol designs will be posted to clinical trials in the coming months. Turning now to chemotherapy combinations in July of last year a Phase 1/b2 clinical trial was initiated to evaluate HALAVEN in combination with PEGPH20 and patients with HER2 negative metastatic breast cancer. Enrollment is ongoing in the Phase 1 dose finding portion of this study. And finally, as announced at the end of March SWOG, independent network of researchers that design and conduct cancer clinical studies stopped enrollment in our Phase 1/b2 trial evaluating PEGPH20 plus modified FOLFIRINOX versus modified FOLFIRINOX alone in patients with previously untreated metastatic pancreatic cancer. PEGPH20 is a targeted investigational therapy for patients with high levels of HA. The SWOG study will enroll patients irrespective of HA levels referred to as an all comer population. During the planned early continuity analysis SWOG independently the monitoring committee that is based on preliminary data that the addition of PEGPH20 given every two weeks the modified FOLFIRINOX in this all comer population would be unlikely to demonstrate a statistically significant improvement in the primary endpoint of overall survival. So as further reported, that a high rate of death was observed in the PEGPH20 treatment arm versus the modified FOLFIRINOX lone arm. So they stopped the study and continued this ongoing efforts to collect and clean understanding data. Upon completion, Halozyme will work with SWOG, analyze and evaluate the data set. I'm also pleased to report that we have recently presented several posters at the American Association of Cancer Research Annual Meeting that illustrates the benefits of PEGPH20 in combination with immunotherapies. The preclinical studies further elucidate the mechanism of option of PEGPH20 demonstrating a significant increase in the accumulation of cancer fighting CD8+ T cells in mice due to the PEGPH20 and the PEGPH20 significantly increased the effectiveness of an anti-PD-L1 therapy and has [indiscernible]. We remain committed to continuing both preclinical and clinical studies of PEGPH20 with the immunoncology targeted agents as we have built a strong base of preclinical work now the combinations with checkpoint inhibitors. Let me now move to the second pillar of our strategy where we licensed our rUpH20 enzyme to leading company. Slide 4, provides an overview of our current enhanced portfolio and the potential future opportunity associated with the technology. Beginning of the current opportunity at the top left of this slide, the innovative products that today utilize our ENHANZE technology reported total 2016 royalty eligible sales in some improved geographies in excess of $8 billion. The subcutaneous portion of these sales will depend on the number of indications approved and the degree of market penetration over time and is based on a mid-single digit royalty on average on the net sales of the subcutaneous products. Looking ahead, in 2017 we expect continued growth in all three products. During the recent quarterly call and sales update Roche indicated that MabThera SC had been launched in an additional 18 countries in the first quarter bringing the total number of launched countries to 41. With MabThera SC contributing approximately half of the sales growth of Roche's CD20 franchise we continue to be very pleased with the strong market conversion in countries outside of the United States. Roche previously reported Herceptin SC conversion rates are approaching half of the total Herceptin sales volumes in launched countries and shared on a quarterly call their expectation for further conversion in 2017. Moving now to the products and development shown in the middle of the slide, we were pleased with the outcome of the FDA's oncologic drug advisory committee in March for subcutaneous rituximab which resulted in an unanimous vote of 11 to 0 that the benefit risk of rituximab with hyaluronidase for subcutaneous injection was favorable in the proposed indications of follicular lymphoma, diffuse large B-cell lymphoma and chronic lymphocytic leukemia. We look forward to the action date in June as the next milestone in this program. Upon approval subcutaneous rituximab would offer a new treatment option for U.S. patients. It could reduce the administration time for rituximab to 5 to 7 minutes as compared with the one and a half hours or more needed for the intravenous administration. On their recent quarterly call Roche discussed their initial considerations for bringing subcutaneous program to the United States. As a result of the capacity constraints that face many practices today and the potential time and cost savings associated with subcutaneous administration, Roche now believes the U.S. marketplace is receptive to a subcutaneous product. In addition to the potential benefits for patients and the healthcare system, a potential U.S. approval represents a significant new royalty revenue opportunity for Halozyme with oncology sales of rituximab in the United States estimated to have exceeded $3 billion in 2016. I recall we receive an average in mid-single digit royalty on net sales, but those are our potential being based on the number of indications proved and the degree of market penetration. Now let's look at the future opportunities and these in our partner pipeline includes subcutaneous formulations of Janssen's Darzalex and Roche's Perjeta. In December 2016 Janssen presented data at ASH indicating a subcutaneous formulation of daratumumab using our enhanced technology was well tolerated and had an efficacy and pharmacokinetic profile consistent with the IV formulation in patients with relapse and refractory multiple myeloma. The data demonstrated feasibility of a 30-minute, 90 ml dosing which would offer a shorter treatment duration for patients and caregivers compared to the current multi-hour IV infusion. Since our last update, Janssen has developed an even faster delivery subcutaneous formulation of daratumumab using the enhanced technology and recently dosed the first patients to confirm dose selection for their Phase 3 study. We're working closely with Janssen to support the clinical development leading to the Phase 3 study which is planned to begin later this year based on the results of the Phase 3 affinity [ph] study of IV Herceptin and Perjeta to be presented at ACTA [ph] in June. Roche commented on their recent call that they continue to expect growth from the HER2 franchise despite the entrants of biosimilars. Roche also has an ongoing Phase 1 study to examine the combination of Herceptin SC and a subcutaneous formulation of Perjeta using ENHANZE. We look forward to continuing to support Roche in this study of a single injection of Herceptin SC and subcutaneous Perjeta which could potentially provide more convenience for patients. With Roche and other sources projecting future sales on daratumumab and Perjecta totaling greater than $10 billion we're very excited to be working with Roche and Janssen to evaluate the potential of a combined product and to develop additional product offerings. And finally we have four other targets that have been selected but not disclosed by our partners and 26 additional targets that have been licensed. There is a last update, the collaboration with Lilly using Halozyme's enhanced technology is progressing across multiple targets with preclinical and clinical studies this year and next. We also continue to assess new collaborative agreements to expand the value of enhanced portfolio and believe many targets are still available that may benefit from our technology. In addition to the progress of our already marketed products and move in clinical developments our pipeline of active partner discussion is robust and as a result our franchise has never been stronger. While it is always difficult to predict the timing it remains our goal to find another agreement in 2017. Now before I turn the call over to Laurie, as we've announce prior to the call, Dr. Athena Countouriotis, our Chief Medical Officer will be leaving Halozyme later this month. This is a mutual decision and I wish Athena the very best as she pursues new opportunities. Athena has made numerous contributions the PEGPH20 program as we've transition from our early clinical work to where we stand today by the targeted by market-driven investigational therapy. We are very well prepared for Athena's transition and today promoted Dr. Demetrius Chondros to the role of Chief Medical Officer. Demetrius joined us in 2015 from Genentech to lead the PEGPH20 clinical development program including the HALO-301 Phase 3 study. With his deep experience which is again developing a vaccine in GI cancers he has done an excellent job initiating 301 study and building the nation's [indiscernible] global investigators. We are in a strong position with oncology experts like Demetrius and I look forward to introducing him to you in the coming quarters. With that, I would now like to turn the call over to Laurie to discuss our financial results in greater detail. Laurie?

[Laurie Stelzer:]

Thank you, Helen. I will begin on Slide 5 where you will see that revenue for the fourth quarter was $29.6 million compared to $42.5 million in the prior year period. The decrease was anticipated due to the $15.5 million we recorded in license and milestone payments in the first quarter of 2016 from Lilly, AbbVie and Pfizer. Royalty revenue which totaled $14 million increased 23% from the first quarter of 2016 and was down slightly from last quarter due to the impact of foreign exchange largely related to the Roche products. Note the underlying global sales volume for both, Herceptin SC and MabThera SC increased as compared to the prior quarter. Both sales of rHuPH20 totaled $8.2 million, Hylenex product sales totaled $3.2 million and other collaboration revenue totaled $4.2 million. Turning to Slide 6 for a more detailed breakdown of our P&L, cost of product sales was $7.5 million in the quarter nearly even with $7.8 million in the prior year period. Research and development expenses for the quarter were $36.9 million compared to $40.1 million in the first quarter of 2016. The decrease was driven by drug product purchases for the HALO-301 study as well as one-time costs related to companion diagnostic development and was in line with our expectations. Selling, general and administrative expenses were $12.6 million compared to $10.8 million for the first quarter of 2016. The increase was primarily due to personnel expenses including stock-based compensation for the period. Net loss for the quarter was $32.9 million or $0.26 per share compared to a net loss of $19.8 million or $0.16 per share in the first quarter of 2016 driven by the $15.5 million in revenue we recorded from the license and milestone payments from Lilly, AbbVie and Pfizer in Q1 of 2016. Cash, cash equivalents and marketable securities were $179 million at March 31, 2017 compared to $205 million at December 31, 2016. Finally, I would like to reiterate our 2017 guidance ranges we provided on our last call as shown on Slide 7. For the full year 2017 we continue to expect net revenue of $115 million to $130 million which does not include the potential revenue from new enhanced partnerships. Operating expenses of $240 million to $250 million, operating cash burn of $75 million to $85 million which excludes the impact of financing and debt principal repayment and year-end cash balance of a $110 million to $125 million. With that, let me turn the call back to Helen, who will provide the closing comments.

[Helen Torley:]

Thank you, Laurie. In summary, I am very encouraged by the developments over the quarter in our PEGPH20 clinical program and by the advances across our ENHANZE portfolio. As we continue to enroll patients in our HALO-301 global Phase 3 trial support from opinion leaders and investigators remain high and we look forward to expanding upon the topline results from HALO-202 to Phase 2 study during the upcoming oral presentation at ASCO. We also look forward to the possibility of sharing initial response rate data from patients from the KEYTRUDA combination study by the end of the year as we further explore the pan-tumor potential of PEGPH20. Our ENHANZE portfolio continues to drive value for the company at currently marketed products advancing to new geographies as products progress into and through the clinic. In 2017 key events include the potential approval of rituximab SC in the United States and advances in the subcutaneous development programs for daratumumab and PERJETA. These programs serve to create our next inflection point and enhance growth. Above all we remain confident with the investments we're making in both pillars of our strategy and that they will generate near and long term value for our shareholders and partners. I'd like to close by expressing my ongoing gratitude and appreciation to the talented Halozyme team for their continued hard work to advance our program and in support of our partners and patients. And we're now ready to take your questions. Operator, please would you open the call?

[Operator:]

Thank you. [Operator Instructions] Our first question will be from Andrew Peters with Deutsche Bank.

[Andrew Peters:]

Hi, thanks for taking my questions. I guess first just regarding the Atezo collaboration with Roche and PEGPH20. Can you discuss what some of the kind of key questions coming from FDA were ahead of the collaboration? And then you mentioned you may you may have response rate data from the KEYTRUDA study available by yearend, what are some of the limiting steps there in terms of having that availability or not, would you wait for all patients to have data or would you be able to give us an interim look? Thanks.

[Helen Torley:]

Yes, thanks Andrew. Well, to begin with the types of question we've been getting with just being clarifications with them some of the inclusion exclusion criteria for the population being studied in areas around thromboembolic disease and questions with regard to the approach we're taking to the use of low-molecular weight heparin, and all very straightforward questions that we are working through to address with the FDA and we remain nicely on track with our plans to get both our study and the Roche study started in the second half of the year. For the KEYTRUDA study, you know I mentioned it would be initial response rate data. Well we're targeting enrolling 50 patients. What we're seeing is a trend today we're seeing a nice growth in enrollment where we believe by yearend If we continue this rate we'll have a sufficient number of patients to evaluate the initial response data. As you know Andrew with immunotherapies we can sometimes see a longer time to respond and that’s one of the key unknowns that we have as to whether we're actually going to be able to provide an update by the end of this year, but based on our estimates of enrollment continues as it's going and we see responses in line with where KEYTRUDA's seeing responses, we're very hopeful we'll be able to given an initial readout by later this year.

[Andrew Peters:]

Okay great. And then just regarding the SWOG update do you have any sense of the timing as it relates to some of the analysis around HA status et cetera from that data set I think that would be important just to see to really draw some conclusions about that that trial as opposed to just the all comers as you mentioned, so any timing there would be great.

[Helen Torley:]

Yes, thank you, Andrew and SWOG is actively at work first of all to complete all of the data that was missing from the initial security [ph] analysis, but also in initiating the process to start collecting so that we can analyze the tissue samples for HA status. So, while that work has started I don't have a firm timeline of exactly when it's going to be completed, but I can say that SWOG is committed to collecting all of this data and supporting our plans to analyze our HA status.

[Andrew Peters:]

Great thank you.

[Operator:]

Thank you. Our next question will be Charles Duncan with Piper Jaffray.

[Charles Duncan:]

Hi guys. Thanks for taking a question, sorry if this has been handled on the prepared remarks, I was hopping between calls, but I'm wondering if you could provide some additional color on how the 301 trial is going specifically in terms of that number of sites started and any thoughts on enrolment patterns at this point?

[Helen Torley:]

Yes, thanks Charles, and so we have, I got over 200 sites now actively screening or ready to start screening which is right on track with our expectations. And I did also mention in the prepared remarks that enrollment is tracking with our expectations. I recall last year was very much the year of getting all of the sites running. What we said in 2017 is that we've made good progress towards our enrolment goals and that's indeed what we are seeing. So everything is going well where we continue to see a lot of opinion leader and investigator interest in PEGPH20 certainly supported by the encouraging Phase 2 data that we reported that in January.

[Charles Duncan:]

Okay, that's helpful and then regarding the CMO change I'm wondering what the plan is, is it to hire an interim CMO or go it alone at this point?

[Helen Torley:]

Yes, thanks so much Charles and what I did mentioned in the prepared remarks is we have already made successor in-house and his name is Dr. Dimitrios Chondros. He's been with us since 2015 and we actually hired him to lead the PEGPH20 clinical development program and yes so he has been leading the 301 study since it started. So Dimitrios will be stepping up and taking over from Athena as she transitions out of the company.

[Charles Duncan:]

Okay, that's helpful and then last question is regarding daratumumab. Congrats on seeing that program started. You're probably not going to be able to answer this, but what is it that, as soon as looking forward in that Phase 1 in terms of a successful outcome of that study?

[Helen Torley:]

Yes, as you know and as of last year they demonstrated success with a 30 minute injection subcutaneously all daratumumab using ENHANZE. What they are seeking to do is to make it come even shorter and I think the study is going to identify exactly how much shorter it can be, but I think they are looking for something that really does bring a convenient benefit some for patients by being able to inject the dose in under 30 minutes. And so they have a Phase 1 study where the dose first patient testing this factor infusion or subcutaneous injection of DARZALEX and then we will use the approach and dose selected to start their Phase 3 study this year.

[Charles Duncan:]

Thank you for the added color. Congrats on the progress in the quarter.

[Helen Torley:]

Thanks so much Charles.

[Jim Mazzola:]

Thanks Charles.

[Operator:]

Thank you. Our next question will be from Jim Birchenough with Wells Fargo.

[Jim Birchenough:]

Yes, hi guys just a few follow ups. Just on the feasibility of a now analyzing SWOG data by HA status, did all patients in that study get baseline biopsies?

[Helen Torley:]

Jim, that's information we don't have. All patients as you know when they are staged four or diagnosed with pancreatic cancer do you have a biopsy. So we expect the majority will be just do not have confirmation because that is not that data that SWOG has collected to date, but is initiating the process of how they're going to go about doing that.

[Jim Birchenough:]

And from a process perspective you have rights to the data or is that something still to be negotiated with SWOG and what are kind of the gating items between you getting access to the data to analyze it or is it just you provide the assay and SWOG will analyze it?

[Helen Torley:]

So in general terms this is SWOG's data, but per the agreement we have certainly anything that relates to safety is that something that SWOG shares with us in an ongoing manner and so as we are planning to do the HA analysis the approach that we will use is that SWOG will provide us with the tissue samples and we will arrange that [indiscernible] does the analysis for them. But it is SWOG data and SWOG will be the one to communicate this to the clinical community when the results are available.

[Jim Birchenough:]

Great and then just on the 301 study Helen, can you remind us what your expected rate of HA tie is in the study and if you're screening confirming that rate are you seeing the same rate of high HA is what you'd expect going into the study?

[Helen Torley:]

Yes, based on the 202 study we've projected a 35% to 40% rate for HA high and what we're seeing is very in line with that so we're screen failing about 60% to 65% for not being HA high.

[Jim Birchenough:]

And then just one final one ENHANZE, may be hard to say at this point, but when you look at the partner discussions you're having are you focused more on commercial stage assets, late stage development assets or early stage candidates? Just trying to get a sense of what we should expect in terms of the type of deal you're trying to work towards?

[Helen Torley:]

I can say there is certainly is a range as there is in our current agreement so, studies that are already marketed products as well as studies that are and products that are in early development. I would say that is probably a preponderance of that marketed products where this becomes more of a discussion of the life cycle or offering new dosing option for patients, but we certainly are in discussions on both ends of the drug development spectrum.

[Jim Birchenough:]

Thanks for taking the questions and congrats on the progress.

[Helen Torley:]

Thanks Jim.

[Operator:]

Thank you. Our next question will be from Jessica Fye with JP Morgan.

[Jessica Fye:]

Hi this is [indiscernible] on the call for Jessica. Thank you for taking our questions. Regarding the SWOG study do you see any retreads your ongoing Phase 3 study at 301 and also could you give also give any more details on the higher rate of deaths observed in the PEGPH20?

[Helen Torley:]

Yes, thanks for the question so, we do not see any read through for 301, 301 continues unchanged so far the data that we have received from SWOG is preliminary and so we are waiting SWOG to complete their data collection and analysis for us to be able to analyze and evaluate this data itself. So I can't provide any additional color other than the comments we've made so far because that really is all we know to date from SWOG.

[Jessica Fye:]

Thank you.

[Operator:]

Thank you. Our next question will be from Jason Butler with JMP Securities.

[Jason Butler:]

Hi, this is [indiscernible] for Jason. Thanks for taking the question. I had follow up on the Andrews question about the KEYTRUDA study about the number of patients, do you have a certain threshold for data from a certain number of patients you need to see before presenting that data?

[Helen Torley:]

Thanks, there are there obviously is we need to see a decent number of patients where we can make it certain to say this is the same or different from a KEYTRUDA was the used alone and so what we will do is we will look at the background rate so in each of the tumors and then assure with come up with a sufficiently enough some sample size to be able to draw at least some initial inferences to whether this is trending same or different to the use of KEYTRUDA alone.

[Jason Butler:]

Okay great, and then considering the recent preclinical data for the immunotherapy work just wanted to give us a sense where you are thinking and going for maybe cell based therapies and maybe throat cancer vaccines in that bucket as well? Thanks.

[Helen Torley:]

Yes and that's certainly both areas of interest as we begin to elucidate the effects of PEGPH20 on the immunology of tumor micro environment. I can say we do have experiments and collaborations and going evaluating the potential impact, the PEGPH20 with RT agents and at this only with the cancer vaccines. These are all at preliminary where we're just beginning to generate some early data so, I don't really have any updates I can give. But based on the mechanism by which we believe PEGPH20 may add on to these therapies, they certainly are very valid areas for us to pursue and identify and can we see a benefit of PEGPH20.

[Jason Butler:]

Okay. Thank you.

[Operator:]

You next question will be from Joel Beatty with Citi.

[Joel Beatty:]

Hi, thanks for taking the questions. The first question is related to the SWOG trial and your on Phase 2 PEGPH20 trial in pancreatic cancer that showed encouraging trends, could you discuss the differences between the two trials that might explain the different results?

[Helen Torley:]

Yes, thanks Joel. I think as you know, the SWOG study is being run in an all comer population so at this point in them - that’s been provided is irrespective of HA status. Its studying PEGPH20 with modified FOLFIRINOX regimen as opposed to our Phase 2 study which was looking ABRAXANE and Gemcitabine. And interestingly the dosing is also different between the two studies within the modified the for PEGPH20 being does out once every two weeks were in the ABRAXANE and Gemcitabine study we dose six times in the first month and then three times a month thereafter. So a very different profile in terms of this, the design of the clinical studies.

[Joel Beatty:]

Okay great and then one other question. The first part of revenue just reported is on a run rate for around $118 million a year which is right in the range of the guidance of $115 million to $130 other seems to be multiple opportunities for revenue growth such as you mentioned the Roche partner drugs launching in more countries in Europe. Next month it will be you know potentially U.S. approval of daratumumab and then also potential existing ENHANZE partners could opt in for other products so, could you help into perspective of the flat revenue guidance with revenue growth opportunities? Thanks.

[Helen Torley:]

Yes, thanks Joel. Let me ask Laurie to address that.

[Laurie Stelzer:]

Hi Joe, you are right. We do have a number of opportunities for revenue growth throughout the year and you've named most of them. I do think in any new ENHANZE deal as we said isn't included in guidance and it will be additive. The underlying growth in our royalty revenue is expected and we talked about I think in a previous call that there are some components of our revenue that aren't necessarily steady and where the math of multiplying times 4 or for you know that sort of math would work. So things like our API sales or sponsored research or reimbursed research and so, I think that's where maybe the you know kind of taking it and just trending out for fourth quarter affects the map there, but again we are expecting a good growth in our royalties for the remainder of the year and we continue to look forward to the potential upside of new ENHANZE deals.

[Joel Beatty:]

Thank you.

[Operator:]

Thank you. Our next question will be from Do Kim with BMO Capital Markets.

[Do Kim:]

Hi, thank you for taking my question. I was hoping that you could go over the percentage of HA high you would expect in other tumor types and if you're getting a sense of the HA distribution from the enrolment in your earlier studies?

[Helen Torley:]

Hi, thank you Do. The more our other clinical studies, so particularly for gastric non-small cell lung and gastric and breast cancer patients sorry, we have an assumption that this will be approximately 30% of patients, but what we don't have for these cancers though is an assessment that all wouldn’t look at the patient population we're studying and have been developed based on our response rate. And so what we've done for those studies and when we say we're looking HA high we're enriching the studies for patients who have high levels of HA. And that will allow us to go back over time once we generate a response data to identify what the cap point would be for HA high where we see that nice differential and response that we've seen with PEGPH20 and pancreas cancer for example. So our working assumption is 30%, but that needs to be confirmed by generating data in the target populations of patients that we are studying and confirming that that truly is where we would see a nice differential in response to PEGPH20 and that work is still ongoing and will be generated in part through the studies that we've initiated this year.

[Do Kim:]

Thanks and for rituximab SC how do you think about that rug to capture the 3 billion in IV sales with the possible bio similar coming to market?

[Helen Torley:]

Yes, I think what's important about the rituximab SC they can more of from how it’s been launched successfully in markets outside the U.S. where a lot of this same dynamics will be present in the United States. For patients imagine the increased convenience of them instead of having to be at the infusion center for at least one and a half hours but often more versus being able to get a five to seven minute injection. And as Roche mentioned in their prepared remarks and this was the conversation also at the ODAC within the U.S. there are long waiting lengths or space in infusion centers. And still the idea that there's now a therapy where the patient can have a shorter visit to an infusion center and get rituximab SC is attracted to many centers who are looking to manage the getting all of the patients treated. And so, I do expect because of the convenience for patients the need that exists for getting patient gain and treated at these infusion centers. I'm very hopeful we will see the same type of uptake that we've seen in countries outside the U.S which is robust and driven by the value proposition that we've touched on SC offers.

[Do Kim:]

Thank you. That was very helpful.

[Jim Mazzola:]

Thanks Do. Next question?

[Operator:]

Our next question will be from Arlinda Lee with Canaccord Genuity.

[Jim Mazzola:]

Hi Arlinda.

[Arlinda Lee:]

Hi, guys. May be another follow up on the partnerships. You mentioned that you had a number of partners have selected but not disclosed other targets. How does that factor into your guidance and when we might we start hearing about that? And then secondarily and I'm sorry if you said this earlier, but could you maybe help frame what we might see in terms of the KEYTRUDA combination in terms of response rate at the end of the year? Thanks.

[Helen Torley:]

All right, I’ll ask Laurie to address the first part of your question which is for the undisclosed targets that have been named are they in this year’s guidance?

[Laurie Stelzer:]

They are not it in this year’s guidance. We typically would include them in guidance when they you know have a definitive start to their program.

[Helen Torley:]

All right and then for the KEYTRUDA response how we're looking at that, Arlinda it will all depend on the number of patients we enrol and the time it takes to get to response, but this is an open study so we're going to monitor the response rate in this study and if we have a robust enough sample size where we can draw any conclusions to say that this is different for all the use of KEYTRUDA alone that those are the, the markers are used as to can we communicate any preliminary data out by the end of the year.

[Arlinda Lee:]

Okay great and then I guess maybe two follow ups, what would you consider robust enough sample size? And then on the partner disclosure does that mean that they've not decided to move forward yet with or they haven’t passed the certain threshold of advancements or I guess I'm not clear on what that really means? Thanks.

[Helen Torley:]

So, just for some of our partners and for competitive reasons and other reasons they want to do a lot of their preclinical or and even normal volunteer studies without disclosing that they're doing the study. So they are taking advantage of what we see as a competitive situation. So, sometimes if we say that partner has taken a target and not disclosed it they may be just thinking about it, but they also to be well advanced into their preclinical and early clinical testing as well. And the reason they don't disclose is for competitive reasons.

[Arlinda Lee:]

Okay.

[Helen Torley:]

On the KEYTRUDA response, I'll just give an illustrative example. If any of these tumors for example the background response was 20% I would want to have enough patients where it would be clear that there was a difference between 20% and whatever the response rate was. So if I would saying in five patients I had one response and it was 20% and it was as good as KEYTRUDA that obviously wouldn't be compelling. That's how we look at it. There's no hard or fast rule for this Arlinda, it just has to be that a comparison can be drawn from the historical data with KEYTRUDA alone. And so it does need to be a decent sample size of patients so that we all can get some confidence and conviction that there is a signal there.

[Arlinda Lee:]

Okay great thanks.

[Jim Mazzola:]

Thanks, Linda. Operator, any other questions?

[Operator:]

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

[Helen Torley:]

Thank you so much and I'd like thank everyone for joining us today. I will look forward to speaking with you on our next call. Have a great evening. Thank you.