Halozyme Therapeutics, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Aug 2017

[Operator:]

Good afternoon and welcome to the Halozyme Therapeutics Second 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:]

Great thank you and good afternoon, everyone and welcome to Halozyme’s second 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. 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 band then Laurie Stelzer, our Chief Financial Officer will review 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:]

Thank you Jim. Good afternoon and thank you for joining us today. I will begin the call with the key takeaways for the quarter. Firstly, I want to highlight the continued momentum of ENHANZE technology. The recent significantly developments in our partner program include the FDA approval an U.S. launch of Genentech’s RITUXAN HYCELA really initiating its first clinical study as part of our collaboration agreement and Janssen progressing toward their Phase III study of a pain relief five minutes subcutaneous delivery of DARZALEX enabled by ENHANZE technology. Secondly, we continue to expect well in our clinical studies of PEGPH20 including HALO-301 our global Phase III study in pancreas cancer patients. And thirdly, our second quarter financial results continue to demonstrate the strength of our business model. Key highlights include a 20% in year-over-year royalty revenue and entering the third quarter well financed with nearly $300 million in cash. With all the progress we’ve made since our last call in the ENHANZE business, I will begin with an update of this strategic pillar where we licensed our rHuPH20 enzyme to leading companies including Roche, Baxalta, Pfizer, Janssen, AbbVie and Eli Lilly. Slide 2 provides an overview of our current portfolio. The potential market opportunity is shown on the left side of the Slide with innovative products to-date that use our ENHANZE technology reporting 2016 sales and approved geographies in excess of $10 billion. The subcutaneous portion of these sales will depend on the number of indication approved and the degree of market penetration overtime, and based on an average mixing completed royalty on net sales. We and Genentech were pleased on the approval of RITUXAN HYCELA in June for indication of diffuse large B-cell lymphoma, follicular lymphoma and chronic lymphocytic leukemia. This approval will provide U.S. patients the option to receive a five to seven minutes subcutaneous injection as compared to multi-hour intravenous infusion. In addition, the U.S. Healthcare system has the potential to realize time and cost savings using the co-formulation as has been demonstrated in other global markets. This 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. With the U.S. launch, subcutaneous RITUXAN is now approved in more than 60 countries and Herceptin SC in nearly 80 countries. On its most recent earnings call, Roche reported Herceptin SC conversion rates are near 50% of the total Herceptin sale unit volume in launched countries than Europe with further conversion expected in 2017. On the right side of the Slide we have outlined the opportunity of our partner pipeline, which includes subcutaneous formulations of Janssen's DARZALEX and Roche's PERJETA. In December 2016 Janssen presented data at ASH indicating its subcutaneous formulation of daratumumab using our ENHANZE technology was well tolerated and had an efficacy and pharmacokinetic profile consistent with the IV formulation in patients with relapse and refractory multiple myeloma. Since our last update, Johnson and Johnson hosted their Annual Pharmaceutical Business Review during which they highlighted the subcutaneous formulation of DARZALEX as a key component of their expansion strategy. A Phase I trial is underway to examine a co-formulation of daratumumab and our ENHANZE technology that is expected to reduce infusion time from hours down to potentially five minutes. This trial will determine the safety, pharmacokinetic and dose confirmation for a Phase III study planned to begin later this year. Market reception to the IV formulation of DARZALEX remains strong with J&J recently reporting second quarter sales growth of 17% over the first quarter and now reporting $300 million per quarter. I remain very excited about the potential for DARZALEX. Continuing on the right side of the Slide 2, Roche also has an ongoing Phase I study to examine the combination of Herceptin SC and the subcutaneous formulation of PERJETA using ENHANZE. We continue to support Roche in the ongoing study and look forward to the potential of a subcutaneous formation of PERJETA or a single subcutaneous injection of herceptin and PERJETA. With analysis and other sources projecting future sales of PERJETA totaling greater than $10 billion we are excited to be working with Rose and Janssen to evaluate the potential of our combined technologies and to develop additional product offering. And finally we are pleased to announce Lilly recently initiated a Phase I study of a new investigational therapy with ENHANZE, this is the first of Lilly’s three selected targets to enter the clinic and we look forward to continuing our support as they additional targets to enter the clinic. And we continue to effect new collaborative agreements to expand the value of the ENHANZE portfolio and believe many target are still available that may benefit from our technology. In addition to the progress of our already marketed product and those in clinical development our pipeline of active partners discussing is robust and as a result our look for ENHANZE has never been stronger. I remain confident we will achieve our goal to signing new agreement in 2017. I will now turn to our oncology seller and our investigational drug PEGPH20. PEGPH20 temporarily degrades hyaluronan or HA a glycosaminoglycan or chain of natural sugars in that body that can accumulate around certain tumors and constrict the tumor vasculature. This is a biomarker driven approach and we are setting PEGPH20 with a companion diagnostic developed with our partner’s Antena to identify patients with HA high tumors. We are most advanced in evaluating PEGPH20 and pancreas cancer where each year more than 100,000 patients in the U.S. and EU5 are diagnosed of woman estimated 65,000 have metastatic disease. In the U.S. EU5, it is estimated that there are approximately 25,000 HA high metastatic pancreatic cancer patients diagnosed annually. And 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. On Slide 3 as an over view of our Phase III study evaluating PEGPH20 in combination with ABRAXANE and gemcitabine in first line pancreatic cancer patient. HALO-301 is a global double blind placebo controlled randomized trial of patients with stage 4 pancreatic ductal adenocarcinoma for prospectively identified and randomized based on high levels of HA. The protocol includes one interim analysis when the target number of progression free survival event is reached. I’m pleased to report that since our last call screening and enrolment has continued to proceed in-line with our expectation. Recall this is an event driven study and it remains too early to project when we will achieve the target number of PFA events for the interim analysis. Now at the time of the interim analysis which is also the final read for PFA’s endpoint, it’s a progression free survival data showing a significant benefit in the PEGPH20 treatment arm and both the overall survival and the overall risk benefit are supportive. These data may form the basis for our marketing application in the United States and a conditioning marketing authorization in Europe. Our team is executing well and global investigators remain highly engaged in the study encouraged by the potential for their patients of a biomarker driven therapy in pancreatic cancer. Turning now to Slide 4, I will provide an update on our clinical development progress to assess the potential of PEGPH20 in other genotype. Beginning with our trials in combination of 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. At the end of 2016, we moved into the dose expansion phase of the study, where we are now selecting for patients with higher HA levels with the target enrollment of approximately 50 patients at 30 U.S. sites. We continue to see strong interest and screening activity in the study. And depending on the pace of enrollment and time to responses, believe we may be in a position to share a snapshot of response rate data in the initially enrolled patients at year-end. We are well underway in our collaboration with Genentech to study PEGPH20 with their cancer immunotherapy TECENTRIQ or atezolizumab, an anti-PDL1 monoclonal antibody in up to eight different tumor types. As we announced last month, a Phase Ib/2 open-label, multi-arm randomized global trial funded and operated by Genentech was initiated in patients with previously treated metastatic pancreatic ductal adenocarcinoma and we look forward to providing an update as the trial advances. The study is part of Genentech's MORPHEUS immunotherapy clinical trial platform in which we will evaluate PEGPH20 and TECENTRIQ in up to five additional tumor types. And Genentech remains on-track to begin their study in gastric cancer later this year. Halozyme plans to conduct a Phase Ib open-label randomized study of TECENTRIQ in combination with PEGPH20 and chemotherapy in advanced metastatic biliary and gallbladder cancers in the second half of this year. A protocol is finalized and we have received Initial Investigational Review Board approval. As details on the design will be posted to clinicaltrials.gov in the coming weeks. And finally enrollment is ongoing in the Phase Ib dose finding portion of [E5] (Ph) clinical trial to evaluate HALAVEN in combination with PEGPH20 and patients with HER2 negative metastatic breast cancer. In summary, this was our quarter strong execution against our two pillar strategy. The progress we have made delivered value during the quarter and sets us on a new growth trajectory for the future particularly as our partnered ENHANZE program to reach the market and expand largely. With that, I will now turn the call over to Laurie to discuss to 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 second quarter was $33.8 million compared to $33.3 million in the prior year period. Royalty revenue totaled $14.7 million, an increase of 20% from the second quarter of 2016. Both sales of rHuPH20 totaled $8.9 million, a decline of 7% from the prior year as our new Roche manufacturing site comes online. Hylenex product sales totaled $3.9 million and other collaboration revenue totaled $6.2 million. Turning to Slide 6 for a more detailed breakdown of our P&L, cost of product sales was $7.8 million in the quarter compared to $8.3 million in the prior year period. Research and development expenses for the quarter were $38.3 million, an increase of 8% from $35.5 million in the second quarter of 2016 driven by cost for our Phase III study of HALO-301. Selling, general and administrative expenses were $13.1 million compared $11.2 million for the second quarter of 2016. The increase was primarily due to personal expenses including stock based compensation for the period. Net loss for the quarter was $30.8 million or $0.23 per share compared to a net loss of $26.9 million or $0.21 per share in the second quarter of 2016. Cash, cash equivalents and marketable securities were $297.5 million at June 30, 2017 compared to $179 million at March 31, 2017. This includes net proceeds of $134.9 million from the secondary stock offerings completed on May 24. Finally I would like to update our year-end cash guidance and reiterate our other 2017 guidance ranges 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 potential revenue from new ENHANZE partnership. Operating expense of $240 million to $250 million and operating cash burn of $75 million to $85 million. We are increasing our year-end cash balance to $245 million to $260 million an increase from the prior range of $110 million to $125 million to reflect the net proceeds from our recent secondary offering. With that let me turn the call back to Helen who will provide closing comments.

[Helen Torley:]

Thank you, Laurie. In summary, we seen great strides across all of our strategy during the second quarter. Our ENHANZE portfolio continue to deliver value at currently marketed products as currently marketed products advance into new geographies and new therapies progressed in their clinical development. Momentum for ENHANZE continue to build with the RITUXAN HYCELA now available at CUS patients. Lilly entering clinic and our pipeline of new opportunities remaining very active. Upcoming milestones include Janssen advancing development of subcutaneous DARZALEX with the start of their Phase III trial by year-end and the potential of new ENHANZE deal. In the oncology seller conviction and support from opinion leaders and investigators remain high as we continue the strong execution of HALO-301 study and our other studies examining the pan-tumor potential of PEGPH20. A key potential upcoming mile stone is the initial response rate data from our study with KEYTRUDA by year-end. And above all, we remain confident that the investments we are making in both pillars of our strategy will generate year and long-term value for our shareholders and partners. I want to close by expressing my ongoing gratitude and appreciation for talented Halozyme team for their continued hard work advance our program and support of partners and patients. We are now ready to take your questions. Operator please would you open the call?

[Operator:]

Thank you [Operator Instructions] Our first question will be from Jim Birchenough with Wells Fargo Securities.

[Unidentified Analyst:]

Congratulation on the progress made this quarter, its [indiscernible] in for Jim Birchenough. Just a couple of questions on the cash flows that you get form the ENHANZE product royalties. How do you see those cash flows beyond the investment in PEGPH20?

[Helen Torley:]

I’m going to ask Laurie to address that question.

[Laurie Stelzer:]

Yes, so we see this as kind of the beauty of our business model with the two pillar strategy. So the cash flow is coming in from the ENHANZE business. There is really two uses, two immediate uses. One is, we are funding our PEGPH20 program with that cash inflow and the second is, just a reminder that we are starting to pay down our royalty backed debt with 50% of the royalties that we receive in 2017 and then that will go to a 100% in 2018 and of course that’s subject to quarterly Cap,. I don’t know if that answers your question?

[Unidentified Analyst:]

No, that does. And the second question I had was do you see pursuing other assets to invest in or would getting to the profitability be your goal?

[Helen Torley:]

So, at this time, Historically we have a two pillar strategy. Our focus is PEGPH20 and really getting the pancreas cancer program to assessable for read outs for that while we continue to as you heard focus on delivering more growth and more value from ENHANZE platform. So that is our focus at this time.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

Our next question will come from Do Kim with BMO Capital Markets.

[Do Kim:]

Hi, good afternoon. Thank you for taking my questions. For the KEYTRUDA and PEGPH20 in non-small cell lung cancer, how do you see that combination fitting into the treatment landscape, that could potentially change pretty quickly with all the other different combinations with PD-1 and PD-L1 inhibitors? Do you think you might have to move up to a triple combo to keep up with all these changes?

[Helen Torley:]

I think it’s a great question. Our focus at the moment is obviously evaluating the right dose and potential for PEGPH20 to add on the efficacy of KEYTRUDA in actually first and second and third line patients. I think once we have got some initial data, which we hope to have by year-end; we will be in a great position then to identify what is the standard-of-care and what the next steps would that be. Because this is obviously we are in our Phase I/b2 portion and have the opportunity to identify what the strategy would be next if dual therapy is not the standard , but what we are very hopeful for is that the approach we are taking is that with addition of PEGPH20 we can expand the population who will respond to KEYTRUDA irrespective of PD-L1 status. So lots of good insights from this study to inform where we might go with it and the potential that we can expand the number of patients who respond to KEYTRUDA.

[Do Kim:]

Right, okay, great. And for that data that we may see at year-end, how do you avoid any bias in that read out since is it open-label study and you are looking for KEYTRUDA I mean PEGPH20 benefit over KEYTRUDA, would it be too easy to just take the interim look when you start seeing a response better in KEYTRUDA alone?

[Helen Torley:]

Like with standard studies we will be having the response to patients measured using the RESIST criteria which are often used. It is a single-arm study. And so what we will be doing is comparing this to historical rates that are found. But I think most people agree when you use something like this and have an independent radiologist reading it that will give you certainly at this stage of study a good solid signal as to what your efficacy is.

[Do Kim:]

Okay. Thank you. And one last question on the ENHANZE platform, how do you think about the opportunity for the co-formulation of Herceptin and PERJETA versus a separate formulation for the two, do you think that one would have better return than the other?

[Helen Torley:]

Well certainly Roche has evaluated both the options having gotten approval already in Europe for Herceptin SC and in Phase I study looking at Herceptin and PERJETA. So we actually believe there is value to pursuing both of those approaches and I think we will have to leave it for Roche to provide updates as to which one or both they trying to pursue. But when we think about the potential value to patient is the ability to instead of having a 1.5 to four hour infusion to get a five to seven minute injection subconsciously. So from a healthcare system perspective, from a patient perspective and just for health flow in the clinics perspective, our technology would bring significant value to either approach the combination or single therapy.

[Do Kim:]

Great. Thanks for taking that questions Helen.

[Operator:]

Our next question will come from Andrew Peters with Deutsche Bank.

[Andrew Peters:]

Hi, thanks for taking my questions and congrats on all the progress in the first half of the year. So, first one from me coming back to the KEYTRUDA data expected around year-end, do you have the clear sense of kind of internally in terms of what you would need to see for kind of a go-no-go decision in moving forward with that program or you mentioned kind of some cross trial comparisons, how important is it going to be to kind of match up on a baseline characteristics spaces to really understand that data or it is kind of the go forward decision more related to seeing substantial separation between prior data sets and what you would expect maybe can you just describe that thought process a bit more. Thank you.

[Helen Torley:]

Thanks Andrew. So recall our population are going to HA high enrich, but we are enrolling people irrespective of their PD-L1 status and what we proposed to do is we will take a luke respectively at the data with different cuts based on their PD-L1 level and if we look at what Merck has reported as an example an all comer based on the PD-L1 status for gastric cancer, the response rate reported after this year was about 11%. So what we would be looking forward is and you are absolutely right, we try and find as matched studies as possible and we are looking for substantially higher number of responders than that. So that gives you a sense at it being as low as 11% as to how we might be able to see a broader respond in that. And if you look at non-small cell lung cancer again irrespective to all of their PD-L1 status is about 18%. So we will look for clinically meaningful recognizing first trial comparisons are always a bit challenging, but this is why we will look for something quite meaningful in terms of the difference.

[Andrew Peters:]

Okay. Great. And then just I guess a related question to that. Now that the Roche collaboration with TECENTRIQ is kind of up in running have you or Roche looked at tissue samples of patients treated with TECENTRIQ and seen if there is any sort of relationship between HA status at all, is that something that you have gone back and looked at kind of prospective basis?

[Helen Torley:]

Not for more at this time in the ongoing TECENTRIQ studies which obviously are just starting. We certainly from the point of view of preclinical work and on tissue samples that we have acquired have worked ongoing to look at overlap between high HA expression and high PD-L1 expression, but we haven’t done in the clinical settings yet, but that will be evaluated overtime.

[Andrew Peters:]

Okay. So there are tissue samples that you can look at to determine response relative to HA status for prior PD-1 patients.

[Helen Torley:]

Certainly from the point of view of samples that we have been able to acquire and the team is looking at yet.

[Andrew Peters:]

Okay. Great, thank you.

[Operator:]

Okay. Thank you. Our next question will come from Charles Duncan with Piper Jaffray.

[Unidentified Analyst:]

Hi, this is [Sara] (Ph) on for Charles. I have two questions today. First on RITUXAN HYCELA, anything you can say about the early feedback you and Genentech are getting on this formulation from prescribers or payers and you are expecting conversion to track in a similar way in the U.S. market than it hasn’t some of European ones?

[Helen Torley:]

Yes. Thanks Sara. We don’t have any feedbacks yet. Roche had indicated they were going to launch [indiscernible] we do expect that update soon. But I don’t have any update I can provide you today on how the launch is going. I do know that based on the expectations before the launch and the reception that was being given to the concept by the patients and by infusion centers the ability to be able to give it in just five to seven minutes. There was a lot of excitement and anticipation for the approval and to the launch. And because of that, I certainly do anticipate we will see a robust update just as we saw in Europe as the benefit of reduced time and the potential for cost savings are seen by the U.S. marketplace as well.

[Unidentified Analyst:]

Great, thanks. And then just one more. It sounds like enrollment in the pancreatic cancer trial is going well. Anything you can say about the group of patients enrolled on a blinded basis compared with the Phase II in terms of age or performance status for primary tumor location?

[Helen Torley:]

I can’t say anything specifically about the studies Sara. What I can say is that one of things we thought to do was to limit any changes in it between the inclusion, exclusion criteria in Study 202 and 301 for the goal is to seeking to get a similar population as possible. So that was our intent, but we do not liquidate while the study is ongoing to know if that is the case, but it would be my expectation we will have a similar population to 202.

[Unidentified Analyst:]

Great. Thanks for taking my questions.

[Operator:]

Thank you. Our next question will come from Joel Beatty with Citi.

[Joel Beatty:]

Hi, thanks for taking the questions. I think you mentioned earlier in the call that enrollment of the Phase III PEGPH20 trial remains in line with expectations. Would you be able to provide any information on the timing of those expectations?

[Helen Torley:]

Thanks Joel. What we are obviously - because this is an event driven study what we are really focused on is getting to the target number of progression free survival event. So one enrollment is an important part of that, what is very important is the event numbers and it’s really too early at this point in time for us to be able to comment or project off of that.

[Joel Beatty:]

Got it. Thank you.

[Operator:]

[Operator Instructions] And our next question will come from Jason Butler with Securities.

[Unidentified Analyst:]

Hi [indiscernible] for Jason. Thanks for taking the question. I just had a quick one on the TECENTRIQ combos studies being conducted by Roche and for the four additional indications beyond pancreatic and gastric cancers, those already been selected and is there any getting info from the first two studies to conducting with trials.

[Helen Torley:]

Yes. When we announced the collaboration there were some additional tumors listed there they include I believe that non-small cell lung cancer and colon cancer and I’m not aware of any specific gating on it. What Roche indicated that was they want to start with the second line pancreatic cancer, which is now underway. The next study will start later this year which is gastric and I know Roche is evaluating after that at what the next order tumors would be, but they had a firm idea when signed to collaboration as to which tumors they would focus on.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

Okay. At this time there are no further questions in the queue. Dr. Torley, I would like to turn the call back to you for closing remarks.

[Helen Torley:]

That’s terrific. Well, thank you everybody for joining us today. As you heard we are strong progress across both of our pillars and we look forward to speaking with you on our next call as to provide the next update. Have a good evening. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today’s teleconference and you may now disconnect.