Halozyme Therapeutics, Inc.
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

Good afternoon and welcome to Halozyme Therapeutics First Quarter 2016 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 your host, Jim Mazzola, Vice President of Investor Relations at Halozyme. Mr. Mazzola, you may begin your conference.

[Jim Mazzola:]

Okay, thank you, Brandon, and good afternoon, everyone. Welcome to Halozyme’s first quarter 2016 financial results conference call. Following market close today, we issued a news release with the summary of our results and posted a short slide presentation to accompany this call. You will find both of them on the Investors page at halozyme.com. Leading our call today is Halozyme’s President and Chief Executive Office, 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. Also with us for today’s call is Dr. Athena Countouriotis, our Chief Medical Officer. Before we begin, let me remind you that during this conference call, we will be make 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:]

Good afternoon, everyone, and thank you for joining us today. I’ll begin with the key takeaways for the quarter. Firstly, we demonstrated strong execution against our strategy in our PEGPH20 pillar. In March, we dosed the first patient in our Phase 3 HALO-301 study in pancreatic cancer and received approval from the FDA allowing Halozyme to use the Ventana companion diagnostic to prospectively identify HA high patients. Since then, we continued to execute against our plan to initiate sites participating in this study. Secondly, we continue to build value in our ENHANZE pillar. Highlights during the quarter include Eli Lilly nominating their third target to be studied with ENHANZE triggering an $8 million milestone and Pfizer nominating an additional target triggering a $1.5 million milestone. We also had several positive developments expanding the study of Baxalta’s HYQVIA on Roche’s co-formulated therapy. Thirdly, as we continue to make progress with our lead asset PEGPH20, we also announced two new pre-clinical programs presented for the first time last month. An immune checkpoint inhibitor targeting adenosine and a novel antibody-drug conjugate targeting epidermal growth factor receptor. Preclinical data from both assets were shared during the 2016 American Association for Cancer Research Annual Conference. And we believe both have great potential for our future as we continue to demonstrate our expertise in oncology and the tumor micro environment. And lastly, we experienced strong year-on-year revenue growth with revenue royalty for the first quarter growing 68% to $11.4 million and total revenue growing 128% to $42.5 million, up from $18.7 million in the first quarter of 2015. Product sales to our ENHANZE partners combined with the milestones from Lilly and Pfizer led to increases in our revenue and cash guidance ranges for the full year and Laurie is going to discuss these in detail a little later in the call. For additional details on our progress now let’s start on Slide 3 with an overview of our strategy. We operate the business and make investment decisions in two strategic pillars. The first pillar is our oncology business with our investigational drug PEGPH20 at the core. PEGPH20 temporarily degrades hyaluronan a glycosaminoglycan or chain of natural sugars in the body that can accumulate around – at certain tumors and can constrict the tumor vasculature. In animal models, we’ve demonstrated that degrading hyaluronan or HA reduces tumor pressure, increasing the blood flow, and thereby the access of cancer treatment into the tumor. We are currently studying PEGPH20 in pancreatic, non-small cell lung and gastric cancer patients. But see broader potential applicability for its use in multiple tumor types in combination with immuno-oncology agents, monoclonal antibodies, and chemotherapies. Our work in oncology is funded in part by the second pillar of our strategy, which is centered on our licensing agreements with marquee partners, including Roche, Baxalta, Pfizer, Janssen, AbbVie, and Eli Lilly. These partners co-formulate or co-administer their therapies with our ENHANZE technology platform, which temporarily degrades HA under the skin to enable larger fluid volumes or molecules to be delivered with a subcutaneous injection or in a less frequent dosing schedule. Both ENHANZE and PEGPH20 are based on our proprietary rHuPH20 enzyme. Now let me begin by providing some additional details on PEGPH20. We are making progress on our ongoing clinical studies to evaluate the pan-tumor potential of PEGPH20. As previously announced, in March, the FDA approved the investigational device exemption or IDE for the companion diagnostic developed with Ventana. This diagnostic was developed to detect and score levels of HA in tumor biopsy based on an algorithm second by pathologists around the world with low intra and inter-router variability. The IDE approval represents another significant milestone in support of our HALO-301 trial in pancreatic cancer by enabling the selection of patients with high HA tumors. Its use in this study is an integral part of the co-development of PEGPH20 in the companion diagnostic to support final regulatory approval. An overview of the Phase 3 study design is shown in Slide 5. Study 301 will be a 420 patient global, double-blind, placebo controlled, randomized trial of patients with stage-4 pancreatic ductal adenocarcinoma who are prospectively identified and included based on high levels of HA. We are preceding in this study two primary endpoints, progression-free survival and overall survival and plan to conduct an interim analysis from the target number of progression-free survival events is reached. Based on the interim analysis, the data monitoring committee will have an option to recommend we stop the study based on efficacy, continue it to the target enrollment of 420 patients, increase enrollment to up to 570 patients for the final overall survival assessment, or stop the study for futility. 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 US and a conditional marketing authorization in Europe. Approximately, 200 sites in 20 countries have agreed to participate in this study and with the first patient dosing in March, global site initiations are now well underway. In the United States, to support patient awareness, and potential enrollment, we have initiated a digital media approach to inform people searching for information on stage-4 pancreatic cancer about study 301. Turning to Europe, since receiving approval under the voluntary harmonization procedure in 11 participating European countries, we have since obtained multiple clinical trial authorizations or CTA approval. Each represents a separate national group of process required by each country. This weekend, we will be hosting our first ex-US investigator meeting with representatives from almost 100 sites attending. Interest in our study has never been higher and we are making strong progress towards our target of having greater than 90% of the centers ready to start screening patients by the end of this year. In addition to the ongoing activities for HALO-301 study, we plan to present the final analysis of data from stage-1 of our randomized study 202 of PEGPH20 in combination with ABRAXANE and gemcitabine at the 2016 American Society of Clinical Oncology Conference. This analysis utilizes the companion diagnostic assay developed with Ventana and we’ll update the dataset we shared in January to include further follow-up in the same patient population. We also remain on track to share mature response rate and progression-free survival data from stage-2 of study 202 in the fourth quarter of this year. Now what was farthest the long in our study of PEGPH20 in pancreatic cancer, our pre-clinical model support the potential for PEGPH20 in a broad range of solid tumors and it’s our goal to demonstrate the pan-tumor potential. Slide 6 shows our currently active and planned clinical trials. In addition to pancreatic cancer, Halozyme is conducting two separate additional trials to evaluate the pan-tumor potential. Each study has an all comer dose escalation phase followed by a dose expansion phase in which only HA high patients will be enrolled. Our primal study is evaluating PEGPH20 in combination with docetaxel in locally advanced and metastatic non-small cell lung cancer patients who did not respond adequately, or lost their response to a platinum-based regimen, and it’s designed to identify the dose and safety of PEGPH20 plus docetaxel. In addition to the PRIMAL study, we are in a very good position to adapt to the changing landscape in the treatment of non-small cell lung cancer with our Phase 1b study of PEGPH20 in KEYTRUDA or pembrolizumab. The PEGPH20 plus pembrolizumab trial will enroll relapsed-refractory Stage-3b and Stage-4 non-small cell lung cancer patients who will be treated with at least, one platinum-based regimen or recurrent locally advanced or metastatic gastric adenocarcinoma patients, who failed at least one chemotherapy regimen. I’d now like to provide an update on each trial. In our primal study, we are now evaluating patients at a PEGPH20 dose of 2.2 micrograms per kilogram. We will continue to advance through the escalation phase until we reach the maximum tolerated dose of PEGPH20 at which time we will move into cohort expansion where we will select only HA high patients and explore the efficacy of the combination. I am pleased to report that with our partner Ventana, we have identified the technical cut-off for our companion diagnostic to prospectively select HA high non-small cell lung cancer patients for this study. In summary, we are making excellent progress towards the expansion phase of the primal study and it remains our goal to start the expansion phase in the second half of this year. In our study in combination with KEYTRUDA, after advancing into the second dose cohort, we recently submitted a protocol amendment to the FDA based on bleeding events observed in heavily pre-treated relapse gastric cancer patients. These events were not classified as dose-limiting toxicities or determined by investigators related to PEGPH20. We have initiated the dialogue with the FDA and upon approval of the amendment we plan to resume enrollment in the second dosing cohort. Interest from our investigators remains high for this combination study and it remains our goal to identify the maximum tolerated dose of PEGPH20, so we may move into the dose expansion phase in the second half of this year. Key factors affecting the timing will include the timeframe to receive FDA approval of the protocol amendment and the number of dose cohorts to evaluate and determine the maximum tolerated dose. Finally, and also reflected in this slide, we have our planned Phase 1/B2 clinical trial with our collaboration partner Eisai to evaluate Halaven or eribulin in combination with PEGPH20 in HER2-negative HA high metastatic breast cancer patients. Since our last update, Eisai has expanded this protocol for this study since we have second line patients in order to further explore the applicability of PEGPH20 with eribulin in a larger patient population. Eisai is on track to initiate the study in the second quarter of 2016 and we look forward to updating you once the first patient is dosed. The primary objectives of this trial are to determine the safety tolerability and recommended dose in the Phase 1/B portion and to determine the objective response rate of eribulin mesylate in combination with PEGPH20 in the Phase 2 portion. And in addition to the ongoing development of PEGPH20, I would now like to turn your attention to Slide 7 and briefly highlight our two new pre-clinical programs presented for the first time during the 2016 American Association for Cancer Research Annual Conference last month. Both pipeline assets are complements to our lead asset PEGPH20 and demonstrate our expertise in the tumor microenvironment and our progress in oncology. A summary of the first program is shown on Slide 8. The study of an immune checkpoint inhibitor targeting adenosine which we call PEG-ADA2. The accumulation of adenosine in our youngsters in solid tumors is the lead to contributes to suppressed immune response and PEG-ADA2 which is a PEGylated human enzyme engineered to decrease the concentration of adenosine in the tumor microenvironment. In preclinical studies, PEG-ADA2 demonstrated tumor growth envision in certain colon, lung and pancreatic cancer animal models, as well as an increase in infiltration of T-cells and decrease in tumor adenosine levels. This program is a lead optimization with a goal of identifying a candidate molecule for development by the end of this year. A second pre-clinical program shown in Slide 9 and involves HTI-1511, a novel antibody drug conjugate or ADC targeting epidermal growth factor receptor or EGFR. And this speaks to address two key limitations with the current anti-EGFR therapeutics, skin rashes and downstream activating mutations that may limit efficacy. HTI-1511 was engineered to bind to EGFR at the low PH of the tumor microenvironment while decreasing or attenuating binding at the neutral PH of skin. It has been developed to the next generation ADC with a potent cytotoxin to treat EGFR-positive patients including those with KRAS and BRAF mutation. In preclinical studies, HTI-1511 has demonstrated tumor growth inhibition or regression in colon, lung and cholangiocarcinoma animal model. CMT development activities are now ongoing and initial toxicology studies are planned for 2017 to support an IND filing in the first half of 2018. We look forward to updating you future scientific as we progress these programs. Now let me move to Slide 10 for a discussion in the second pillar of our strategy, our ENHANZE platform. Our ENHANZE platform remains a key driver of value for the company as our existing partners continue to nominate targets and announce plans to initiate clinical trials involving our proprietary technology. Among the reasons for the wide licensing of ENHANZE, is that the platform can be used in combination with a variety of other drugs and is applicable across many therapeutic categories. The value proposition is shown on Slide 11 and includes life cycle management with the opportunity to prolong the exclusivity period for the combined product and the ability to reduce dosing frequency and duration by taking drugs from an IV to a subcutaneous formulation, or lung for higher volumes to be infused at one time. Turning to Slides 12 and 13, through our recent progress, we currently have six marquee partners generating milestone revenues, three approved products generating royalty revenues, at four new products in the clinic that have the potential to generate future milestones and royalties and three potential new indications for existing approved products in development. I am very pleased with the strong progress we are seeing in our ENHANZE program with a growing list of partners generating more than $64 million in upfront payments and milestone, just in the last 12 months. Our partners have initiated four separate Phase 1 trials. These include clinical trials including Pfizer’s Rivipansel for vaso-occlusive crisis and sickle cell patients; Janssen anti-CD38 daratumumab for multiple myeloma patients; AbbVie HUMIRA to help reduce the number of induction injections at higher doses and Pfizer’s Phase I trial evaluating safety, tolerability, and pharmacokinetics of bococizumab, an investigational PCSK9 inhibitor all using our ENHANZE platform. More recently, and further supporting the growing momentum, Lilly nominated their third target resulting in an $8 million milestone and Pfizer nominated an additional target resulting in a $1.5 million milestone. Now let me turn to Roche and Baxalta. We benefit today from sales of Roche’s Herceptin SC and MabThera SC in countries outside the United States and Baxalta’s HYQVIA in the U.S. and multiple other countries. As Roche indicated during their most recent quarterly call and as shown in Slide 14, Herceptin SC is now available in 51 countries and its sales account for approximately 41% of the total Herceptin sales in Europe. Also in their last quarterly call, Roche announced that after their filing in Europe in the fourth quarter of 2014, MabThera SC has received a positive opinion from the committee from additional products that can used for patients with previously untreated chronic lymphocytic leukemia representing positive development for our co-formulation with MabThera. And in terms of new studies, Roche recently published plans to study Perjeta in combination with ENHANZE in a Phase 1 trial in early breast cancer patients. Moving on to our other marketed products, Baxter’s HYQVIA combined immunoglobulin infusion 10% with our rHuPH20 and it’s currently indicated for adults with primary immunodeficiency or PID. PID is a chronic condition and HYQVIA is the only once-a-month subcutaneous treatment for adult patients. As Baxalta announced last week, HYQVIA received a positive opinion from the committee for medicinal products for human use recommending marketing authorization in Europe for pediatric indication. Pending approval from the European Commission, this will represent the first pediatric indication approved for use with our ENHANZE platform. And finally, after receiving orphan drug designation for HYQVIA for the treatment of Chronic Inflammatory Demyelinating Polyneuropathy or CIDP, Baxalta recently initiated a Phase 3 trial for treatment in patients with this disease. We are pleased with the evidence continued progress in our ENHANZE platform, both commercially and in the clinic. As a company, we constantly review our potential new collaboration and support all of our current partners to advance our programs with the goal of helping as many patients as possible. With that, I am now pleased to turn the call over to Laurie to discuss our financial results for the first quarter in greater detail. Laurie?

[Laurie Stelzer:]

Thank you, Helen. I will begin on Slide 16, where you will see that revenue for the first quarter was $42.5 million, compared to $18.7 million for the first quarter of 2015, driven primarily by the $8 million milestone from Lilly which was recorded in the first quarter and will be received in the second quarter, $5 million milestone payments from AbbVie for the dosing of their first patient in their study of HUMIRA, as well as another strong year-on-year increase in royalty revenue. During the quarter, royalty revenue totaled $11.4 million, an increase of $1.8 million sequentially from last quarter and $4.6 million above the fist quarter of last year. The year-on-year increase came largely from higher sales of Roche’s Herceptin SC during the fourth quarter of 2015. Bulk sales of rHUPH20 totaled $9 million, Hylenex product sales totaled $3.9 million, and other collaboration revenue totaled $18.2 million, which includes the milestones from Lilly and AbbVie. Turning to Slide 17 for a more detailed break down of our P&L, cost of product sales was $7.8 million in the quarter, compared to $6.5 million in the prior year. This increase in manufacturing cost primarily reflects our increase in product sales to partners. Research and development expenses for the first quarter were $40.1 million, compared to $16.7 million for the first quarter of 2015, a continuation of the planned increase we have discussed for several quarters to support our growing clinical and manufacturing activities for PEGPH20 mainly the launch of our Phase 3 trial in pancreatic cancer in March. Selling, general and administrative expenses were $10.8 million, compared to $9.4 million for the first quarter of 2015. The increase was primarily due to personnel expenses including stock-based compensation for the period. Overall, our operating expenses increased by $26.1 million from the first quarter of 2015. Net loss for the quarter was $19.8 million, or $0.16 per share, compared to a net loss of $15.1 million, or $0.12 per share in the first quarter of 2015. Cash, cash equivalents and marketable securities were $238.6 million at March 31, 2016, compared to $108.3 million at December 31, 2015 and $128.5 million in the first quarter of last year. With the completion of the $150 million non-dilutive royalty-backed debt financing in January, we remained well capitalized for our 2016 plans and into 2017. Our ability to finance the company in this manner is another differentiator of our business model with the foundation of our ENHANZE franchise supporting our investment in a promising oncology franchise. Finally, I would like to touch on the updates to our 2016 financial guidance as shown on Slide 18. As previously indicated, our guidance range of $110 million to $125 million did not include revenue from new ENHANZE partnerships or new target nomination. As a result of the milestones earned from Lilly and Pfizer’s new target nominations, as well as an increase in product sales and research to support our ENHANZE partners, we are increasing our full year revenue guidance to a range of $130 million to $145 million. In addition, we are narrowing the bottom-end of the full year expense guidance to a range of $245 million to $260 million, as a result of the increase in cost to support our new ENHANZE partners. We are also raising our full year cash flow guidance to a range of $45 million to $65 million and year-end cash guidance to a range of $150 million to $170 million. With that, let me turn the call back to Helen, who will provide some closing comments.

[Helen Torley:]

In summary, we’ve reported another strong quarter of performance. We met our key milestones for our Phase 3 trial in pancreatic cancer and we are moving ahead preparing our sites around the globe to treating patients. In addition, we continued our exploration of the pan-tumor potential of PEGPH20 and announced the expansion of our oncology pipeline with two promising preclinical assets that target components of the tumor micro environment. At the same time, we experienced yet another quarter of milestones and growing royalty revenues with nomination of two additional targets and the announcement of another study with our proprietary ENHANZE technology. I remain enthusiastic about our strong execution as well as the investments we are making to build and deliver even greater value for the future. And I’d like to close by expressing my gratitude and appreciation for the talented Halozyme team for their continued hard work in advancing our programs in support of our partners. We are now ready to take your questions. Operator, please could you open the call for questions?

[Operator:]

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question will come from Jessica Fye with JPMorgan. Please go ahead.

[Jessica Fye:]

Hey there. Thanks for taking my questions. I have a couple. The first is, can you remind us how you are thinking about – I know in the past you said, you would be prepared to file on your Phase 2 data. But can you just remind us how you are thinking about that potential? Second, I know you kind of updated the Stage 1 data at the healthcare conference earlier this year for the new Roche Diagnostic. Is that what we’ll see at ASCO of the real data presentation under that diagnostic? And finally, can you just elaborate a little bit on the safety signal that you saw in the pembro combo study? Any color on what’s going on there? Thanks.

[Helen Torley:]

Great, I will take the first question, Jessica with regard to the potential filing base on Phase 2 data and I’ll ask Athena to take the next two questions. With regard to the potential to file based on the Phase 2 data, we mentioned that on our last call to say, that this was a very unlikely scenario. But in light of the unmet need that exists for patients with stage-4 pancreatic cancer, we were preparing to be able to do that and that remains our intent. We are cleaning the data as those patients are continuing the study. We expect to report out the data or project report the data in the fourth quarter. And if the data is supportive, then we would proceed to have a conversation with the FDA to see if there would be support on their site for us potentially using this data for accelerated approval. But again, just to say that we don’t think this is a likely scenario, but we certainly will be prepared. Athena, would you like to comment on the other two questions?

[Athena Countouriotis:]

Good afternoon, Jessica. In regards to your second question, you are correct and that Helen did show the stage-1 data with the new diagnostic at your healthcare conference back in January. That was essentially the progression-free survival and response rate data. It’s our intent at ASCO to show the final dataset in the same patient population. So it’s still the same 43 HA high patients. Yet it will be the entire study. So, we will also be showing data from the HA low patients as well as safety data. I think it’s equally important to say that even though the data is embargoed, it continues to give us confidence in the current Phase 3 design. In regards to your third question, from the KEYTRUDA update, the one thing I would say is that, Helen mentioned bleeding events, so let me give you a little bit more information. There have been three cases of bleeding events in the combination with KEYTRUDA study and I do think it’s important to focus on two key additional points. The first is that, these patients remember have been pre-treated. They have been treated with multiple lines of therapy and they are unfortunately are very sick and prone to bleeding. Now having said that, you can see in the literature rates of bleeding anywhere between 20% to 40% in the second-line setting and we are essentially treating third-line and greater patients in this study. The second point to emphasize is that, these were not theme-related by our investigators to PEGPH20, nor were they classified as dose-limiting toxicities. Yet, we did make a modification to the protocol with feedback from our investigators with the intent of decreasing the potential risk of future bleeding in additional patients that are enrolled and it is our full belief that we will continue enrolling in this trial at the current dose of 2.2 micrograms per kilo upon approval of the FDA of the amendment.

[Jessica Fye:]

Okay, got it. Yes, it just seems like through the opposite signal is what you saw in pancreatic. So, is the – you are saying it’s not drug-related, so are these patients – they are just prone to bleeding. Is that?

[Athena Countouriotis:]

I do think, Jessica, and if you look in the literature in regards to gastric cancer, unfortunately they are in both case, they do have an incidence rate of thromboembolic events and yet they also because of where their tumor is located and also the therapies that they have received previously. They are at risk of bleeding. And again, we took a step to make modifications with guidance from our investigators. We’ve submitted the amendment to the FDA in the most recent days and we anticipate their feedback and re-starting enrollment.

[Jessica Fye:]

Okay, got it. Thank you.

[Jim Mazzola:]

Thanks, Jessica. Next question please.

[Operator:]

Thank you. The next question will come from Jon Eckard of Barclays. Please go ahead.

[Jonathan Eckard:]

Good afternoon. Thanks for taking my questions. I guess, my first question comes to Helen’s comments about the HA cut-off for non-small cell lung cancer. I just was wondering, since you have shown in the dose escalation phase of this trial, what is that that you can learn during the phase of the trial, that could give you confidence that the HA cut-off is the right cut-off?

[Helen Torley:]

Thanks, Jonathan. Yes, we call as a technical cut-off, because we really used a lot of pathological specimens if you like to identify a cut-off that will allow us to enrich the population, going into the study and so, we will do the same as we did in pancreas cancer. We will now witness in rich population be able to look as we enroll patients to be able to correlate response with HA levels and allow us to further refine it towards a cut-off for formal testing in later-stage studies as we go forward. So if you like, consider this technical cut-off more of an enrichment strategy at this stage to allow us to generate efficacy data to be able to correlate with the HA levels at moving forward.

[Jonathan Eckard:]

Great. And then, this is kind of a housekeeping question, but, your increased top-line guidance, it seems to reflect the – quite a reasonable amount more of those products – because I am backing into the numbers, so, is that bulk sales, is that was something like for example you said, Baxalta is starting its Phase 3. Is that the type of event that could trigger bulk purchase of material and if so, how should we think about the revenue line? I know it’s not going to be massive, but that revenue line has some of these partnered products starts moving into more advanced clinical trials?

[Helen Torley:]

Yes, thanks, Jon. Let me ask Laurie just give a little update on the color of the elements of the revenue that was reported.

[Laurie Stelzer:]

Yes, hi, Jonathan. I think you have to think, but you are right, we did reflect not only an increase due to our new targets being named but as well, bulk sales and research that we provide to our partners. I think you have to think about the bulk sales, chosen product sales, those are the sales of bulk for marketed products and for our partners that are in the clinic, that cost shows up in R&D and then in the revenue through sponsored research. So I think it’s safe to say that we are seeing an increase due to increased activity with our partners. But we don’t break it down any further.

[Jonathan Eckard:]

Okay, thank you very much.

[Jim Mazzola:]

Thank you. Next question please.

[Operator:]

Thank you. The next question will come from Arlinda Lee with Canaccord. Please go ahead.

[Arlinda Lee:]

Hi guys.

[Helen Torley:]

Hi, Arlinda.

[Arlinda Lee:]

Hi. I had a couple questions for Laurie. On the milestone payments, you guys have increased guidance by $20 million and I think you outline $10 million in the first quarter so far, could you give us some guidance on where the additional $10 million is coming from? Is that from milestones? Is it from increase in royalties or how should we think about that?

[Laurie Stelzer:]

Yes, it’s a combination. You are right, $10 million extra that were unplanned in milestone. As I said before, increased bulk sales to our partners as well as increased sponsored research. And it’s really just a combination of a number of items in our revenue line that’s increasing our range.

[Arlinda Lee:]

Okay, and then, I guess on the cash use though, that – those increases were on the order of, I think $1 million, it wasn’t $20 million could you help us walk through what the differences were? Thanks.

[Laurie Stelzer:]

Yes, it’s offset as I said, we brought at the bottom-end of our expense range. It’s really some of these for instance sales of bulk, it’s really creating an increase in the cost of goods sold and an increase in our R&D as well, to support our partners.

[Arlinda Lee:]

Okay, great. Thanks.

[Jim Mazzola:]

Thanks Arlinda. Next question please.

[Operator:]

Thank you. The next question will come from Joel Beatty with Citi. Please go ahead.

[Joel Beatty:]

Hi, thanks for taking the questions. First question is on the combination trial with KEYTRUDA. Is prophylaxis with low-molecular-weight heparin being used in that trial?

[Helen Torley:]

Yes, let me ask Athena to address that.

[Athena Countouriotis:]

Hi, Joel, yes, and it’s somewhat of the question Jessica had made earlier. It’s just a reminder, gastric cancer is one of the higher tumor types in regard to the incidence of PRN, so we are giving low-molecular-weight heparin prophylaxis in the KEYTRUDA trial to our gastric cancer patients. Remember, they have the second arm which is relapsed non-small cell lung cancer and in those patients were not getting prophylaxis.

[Joel Beatty:]

Have you looked to see whether activity related to the prophylaxis – the bleeding events?

[Athena Countouriotis:]

I do think it’s premature to speculate on this specific cause, as Helen commented in her prepared remarks we are in our initial dialogues with the FDA and we are awaiting their feedback. And given the fact that this is an ongoing database. It’s premature to speculate.

[Joel Beatty:]

Sure, and then, one last question, on the primal cut-off that’s been announced, would you expect a similar percent of patients to meet their cut-off as you see in the pancreatic cancer trial?

[Athena Countouriotis:]

I think, it’s premature to comment on that. What we are doing is seeking to enrich this and we know in pancreas cancer, we are estimating a 35% to 40% of patients using the Ventana diagnostic. We don’t have an answer to that, Joel, but we do know that based on, at some of our earlier works we were estimating 30% to 40% of non-small cell lung cancer patients. But used in the companion diagnostic, we are going to have to await the data from the studies we are doing now to answer that question.

[Joel Beatty:]

Sure, thank you.

[Jim Mazzola:]

Thanks, Joel. Other questions operator?

[Operator:]

Yes sir, at this time, the next is from Charles Duncan with Piper Jaffray. Please go ahead.

[Charles Duncan:]

Hi guys. First of all, congrats on a good quarter progress and secondly, thanks for taking my questions. I have two quick ones. On the 202 trial, besides possibly informing a regulatory strategy, what else do you hope to learn from it that could modify or inform the conduct of 301 trials?

[Helen Torley:]

I’ll start that, maybe I’ll ask Athena to comment. When we started study to stage-2, one of the primary objectives of it was to test the effectiveness of our intervention to see if the addition of low-molecular-weight heparin and other changes we made were going to be effective in reducing the rate of thromboembolic events. We’ve reported on that at several meetings and we continue to be pleased with the progress that we see here. So that’s one of the important areas. And so, Athena, any other comments?

[Athena Countouriotis:]

Thanks, Charles. I do think the only other point would be obviously, stage-2 is an uninterrupted treatment patient population. So, what we can learn from the potential additional efficacy without the interruption for PEG, it’s important to remember in the stage-1 dataset that over 40% of the patients had to stop PEGPH20 at the time of the clinical hold. So we are very intrigue to see how the data will pan out once we have the stage 2 final dataset show interrupted PEG dosing.

[Charles Duncan:]

But it really could enhance your conviction on the clinical benefit you are anticipating or powering assumptions behind 301?

[Helen Torley:]

That’s correct. I think it’s very well said, Charles. We are looking at that way although as Athena commented earlier, we continue and we will report at it in ASCO that the stage-1 population and it strongly supports the approach we are taking for 301 already. But it will be good to have another dataset doing that.

[Charles Duncan:]

Okay, and then my second question is more on, kind of broader speculative, but, we have now seen three pancreatic cancer trials or programs not delivered good. You folks have a very differentiated approach, we’ve done a compare and contrast in the past. But I guess, I am wondering if there was one or two things that you could highlight that really differentiates your approach and gives you confidence in the pancreatic cancer indication.

[Helen Torley:]

Yes, I think, Charles, for me, all comes down to the science. We have strong pre-clinical data supporting the importance of HA in pancreas cancer patients and the approach we are taking which is a targeted therapy to take those patients to have high HA who believe are having issues with the drug therapy getting into the tumors where it needs to work is why we have such conviction that PEGPH20 is going to be able to add on to the efficacy of ABRAXANE and gemcitabine. We continue in dialogue with experts in the field to support this and certainly as we are talking with these 200 centers around the world, there is strong support for the mechanism of action and testing this in our Phase 3 study. Let me ask Athena to add on.

[Athena Countouriotis:]

I think, the other thing I’d additionally say, Charles, is remember the unique aspect of our Phase 3 design is that, we have two primary endpoints. Those progression-free survival and overall survival and in likely the three cases you are referring to, all of which had overall survival primary endpoints and then we all know it’s very difficult to win in those settings. So I do think the uniqueness of our design, as well as what Helen said, the fact that we are using a companion diagnostic that we worked very hard with Ventana to get to, to be able to prospectively test HA higher or two differentiation factors.

[Charles Duncan:]

Got it. Just wanted to hear it again. Appreciate that. You guys are taking a different approach. Thank you.

[Helen Torley:]

Thank you, Charles.

[Jim Mazzola:]

Thanks, Charles. Next question please?

[Operator:]

Thank you. [Operator Instructions]

[Helen Torley:]

All right, if there is no further questions, I’d just like to thank everyone for joining us today. You’ve heard a report of another strong quarter’s performance and we look forward to updating you next quarter with our continued progress. Thank you so much and have a good evening.

[Operator:]

Thank you, ladies and gentlemen. This concludes today’s conference. You may now disconnect your lines.