Halozyme Therapeutics, Inc.
Q1 2013 Earnings Call Transcript

Published: 8 May 2013

[Operator:]

Greetings, and welcome to the Halozyme Therapeutics First Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Kurt Gustafson, Chief Financial Officer at Halozyme Therapeutics. Thank you, Mr. Gustafson. You may begin your conference.

[Kurt A. Gustafson:]

Thank you, and good afternoon. Welcome to Halozyme's quarterly update conference call. Joining me on the call today is Gregory Frost, President and Chief Executive Officer. This afternoon, Halozyme released financial results for the first quarter of 2013. If you have not received this news release or if you would like to be added to our company distribution list, please e-mail Temre Johnson at [e-mail]. This call is also being webcast live over the Internet at www.halozyme.com, and a replay will be available on the company's website for the next 14 days. Before we begin, let me remind you that during this conference call, we will be making forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor for forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute forward-looking statements. The matters referred to in forward-looking statements could be affected by the risks and uncertainties of Halozyme's business, both known and unknown. Such risks inherent in the company's business are described in our filings with the SEC, as well as our own news releases. The company's actual results may differ materially from those expressed in or indicated by such forward-looking statements. With that, I would like to turn the call over to Gregory Frost, Halozyme's President and CEO.

[Gregory I. Frost:]

Thanks, Kurt, and good afternoon to everyone. We appreciate you joining us on Halozyme's First Quarter 2013 Earnings Call. This afternoon, we'll be providing further detail on the items in the press release issued earlier today. I'll provide an update on the status of our key clinical programs, including significant progress made with our wholly owned programs, as well as some updates on our collaborations. Kurt will then provide additional detail on our financial results. At our 4Q earnings call in February, I indicated that 2013 would be a pivotal year for Halozyme with a number of near-term catalysts. In Q1, we saw significant momentum towards key milestones with important developments in both our partnered and proprietary programs. Let's start with our partnered programs. We're encouraged by the progress that we've seen from all of our partners. We now have the potential for up to 3 product launches over the next 12 months based on our rHuPH20 platform. As reported in the first quarter, CHMP adopted a positive opinion recommending marketing authorization for Baxter's HyQvia product for replacement therapy for adult patients with primary and secondary immunodeficiencies. This product will represent the second product approval in our portfolio and the first regulatory approval in Europe for our partnered programs. As many of you know, we have 2 added partner programs currently under EMA review, Herceptin SC and MabThera SC. At the development stage, ViroPharma reported on their quarterly call that Cinryze has fully enrolled in the Phase IIb trial. And finally, we're very pleased with our initial interactions with our newest partner, Pfizer, and the speed with which the teams are moving forward towards clinical development. We look forward to providing you additional updates on all of these programs as they become available. Now with our proprietary products and programs, I'd like to start with Hylenex. First, I want to congratulate our commercial team as Hylenex achieved 50% market share in the 16th month after our launch. And while this initial market is modest, I think this milestone serves as a testament to the quality of our commercial team and their ability to successfully execute with customers across broad markets. As we continue to develop and grow this brand, let me share with you some additional progress we've made with the development of Hylenex for the insulin pump market. At the end of last quarter, we initiated a Phase IV clinical trial called CONSISTENT 1, which evaluates the use of Hylenex in conjunction with rapid Analog Insulins for people with type 1 diabetes on insulin pump therapy. People with type 1 diabetes on insulin pumps face many challenges to maintain good metabolic control, everything from pump occlusions to carbohydrate counting to name a few. But the data suggests that an additional challenge comes from insulin absorption from the subcutaneous tissue, which is suboptimal for many patients and can lead to a challenging balance between hypo and hyperglycemia. Our goal is to see if Hylenex can deliver a more physiologic insulin profile for patients on pumps, which could help some people better manage their diabetes. This trial is designed to capture more real world results, taking into account the various challenges and variables this population faces. For example, some people with type 1 diabetes struggle to bring down their A1C. Others have challenges with the glucose excursions, while for some, the biggest challenge is hypoglycemia. Studying this broader population in a Phase IV setting will ensure clinicians understand how Hylenex works in all of these settings. Additionally, this study will help support the continued safety of exposure in the specific patient population when used across various insulins, pumps and infusion sets. CONSISTENT 1 is a multicenter, randomized, Phase IV trial that includes approximately 400 subjects in 40 centers across the country. This study is designed to evaluate treatment differences in safety and key outcomes, with endpoints at 4 and 12 months measuring A1C, postprandial glucose and rates of hypoglycemia, among many other safety parameters. And while the primary analysis is at 4 months, this study will continue to monitor patients for up to 2 years. As discussed previously, we plan to run some additional smaller studies in the future to support the type 1 diabetes community and continued commercialization of the brand. CONSISTENT 1 represents the largest of those studies, but we'll provide more details on the others as they mature. But to date, CONSISTENT 1 is enrolling very well, with nearly 30 sites activated. As I mentioned, this study will enroll up to 400 adults with type 1 diabetes on insulin pumps, but I'm very pleased to say that we've already enrolled over 25% of the planned 400 subjects, with 160 patients screened as of today. This enrollment rate has greatly exceeded our internal expectations, and we're very much looking forward to evaluating this therapeutic option for a representative patient population in a real world setting and testing the impact of Hylenex activity in combination with all types of rapid acting insulins for Type 1 diabetes on various insulin pumps. Now in addition to the CONSISTENT 1 study, I'm also very excited that investigators at Yale have now received FDA clearance to begin a new clinical trial of the artificial pancreas, incorporating hyaluronidase into the system. This investigator-initiated study is being funded by a nonprofit organization. But the artificial pancreas project represents the persistent innovation in diabetes research whereby scientists have attempted to close the loop by fully integrating continuous glucose monitoring with subcutaneous insulin delivery using a sophisticated algorithm that is intended to automatically dose insulin in response to a patient's changing blood glucose levels. Now one technical challenge that has plagued the progress towards closing the loop with the artificial pancreas has been the variable delay between systemic insulin delivery and the glucose response. By shortening that time period, reducing variability of absorption, the goal is that by tightening this feedback mechanism between the insulin pump and the glucose monitor, the closed loop algorithm may be able to more quickly respond real time to a patient's changing blood glucose levels. The study protocols have recently received FDA clearance, and more details will follow. We're very pleased about this innovative development as it certainly reflects the growing enthusiasm amongst the diabetes thought leaders about the potential of hyaluronidase to contribute towards the goal of closing the loop for patients in the future. And of course, as we look at opportunities to advance insulin pump therapy for the management of type 1 diabetes, these programs will significantly contribute to the growing body of clinical research on Hylenex. Now switching gears to a very different part of the pancreas with our PEGPH20 program in oncology, we recently announced the initiation of 124-patient randomized Phase II trial evaluating PEGPH20 as a first line therapy for stage 4 metastatic pancreatic cancer in combination with gemcitabine and ABRAXANE. We all know how terrible pancreatic cancer can be. Its tendency to metastasize prior to diagnosis makes it the fourth deadliest cancer with less than a 6%, 5-year relative survival rate and more than 38,000 people succumbing to this disease each year. We and many of our academic collaborators have been carefully studying the microenvironment these tumor cells generate for some time and have consistently found that these tumors produce a hyaluronan-rich matrix environment. In fact, in earlier stages of disease, the presence of this matrix component appears to be an indicator of poor prognosis after surgery. And while the underlying pathways are still not completely understood, this hyaluronan-rich matrix appears to influence the biology of these tumors, making them both more hypoxic and resistant to therapy. So the underlying hypothesis has been that by depleting this component of the tumor matrix with our systemically acting enzyme, PEGPH20, the tumor environment is rapidly altered, rendering these tumors both more vulnerable and accessible to many types of anticancer therapies. And as this PEGylatedenzyme is most potent in a mildly acidic environment, such as deep hypoxic tumors, the ability of PEGPH20 to remove substrate from these cancers is remarkably efficient. The pharmacodynamicactivity from initial studies of this enzyme alone as a single agent in patients with very advanced solid tumors were recently presented at AACR. But earlier this year, we completed enrollment of 28 patients in the single-arm Phase Ib trial in patients with stage 4 metastatic pancreatic ductal adenocarcinoma treated with PEGPH20 in combination with gemcitabine. So the context of this study is to establish the safety of PEGPH20 when used in combination with chemotherapy and to evaluate the overall response to therapy and the relationship to the status of the HA target in the valuable biopsies of these patients. To put this in perspective, the response rate in this patient population to gemcitabine alone has historically been quite consistent with an objective response rate of only 5% to 10%. So despite being a single-arm study, this very low response rate makes this study and size quite useful to assess the relative activity of PEGPH20 in pancreas cancer. Two abstracts have been submitted from the study and an oral discussions session has been selected for presentation at ASCO, June 3. As many of you know, these embargoes lift in just a few days. So with the recent success of gemcitabine and ABRAXANE in their Phase III MPACT study reported earlier this year, we anticipate that the combination of gemcitabine with ABRAXANE chemotherapy will likely become a standard of care over gemcitabine in metastatic stage 4 pancreatic cancer. It's currently in the NCCN treatment guidelines for PDA, which we feel would make a gemcitabine-only arm difficult to justify for patients. So based upon extensive discussions with our collaborators and rather impressive findings in preclinical pharmacology models that compare PEGPH20 as a triplet therapy with both gemcitabine and ABRAXANE compared to these agents used alone, we initiated last month the randomized Phase II trial in 124 patients that will receive gemcitabine and ABRAXANE with and without PEGPH20. The primary outcome will be to measure progression-free survival between patients administered PEGPH20 and those who were not. Additionally, all patients will have biopsies evaluated for scoring the HA target in these tumors using a new recombinant diagnostic reagent we developed to establish relevance to response in therapy. So we look forward to seeing many of you at ASCO for our first look at the activity of PEGPH20 in combination with gemcitabine, and we're very excited about getting this new trial underway. In addition to our studies, SWOG, one of the 5 cooperative groups that together comprise the National Cancer Institute's trial network, has informed us of their intent to run 140-patient randomized Phase II trial of modified FOLFIRINOX with and without PEGPH20 in pancreatic ductal adenocarcinomas in the second half of 2013. SWOG will be funding this study, and we're in the process of finalizing protocols and drug supply for them. We believe this underscores the excitement amongst the pancreatic cancer community to the emerging data as a leading group putting their resources behind testing PEGPH20. As we've talked about previously, this FOLFIRINOX regimen is recommended for a more narrow patient population than the gem-ABRAXANE regimen. But with completion of the SWOG study and our own randomized Phase II with gem-ABRAXANE, we will have tested PEGPH20 against the most effective standards of care available to patients with stage 4 metastatic pancreatic carcinoma. And we think that's the right thing to do for patients and for the molecule. Finally for our HTI-501 program, it's progressing well, and we're happy to announce that we're targeting the World Congress of Cosmetic Dermatology conference in Athens, Greece in June to present preliminary results of the randomized clinical trial of our HTI-501 program in aesthetic dermatology. This presentation is scheduled for June 29, and the lead investigator, Dr. Perez, will be presenting. So with that, I'll turn the call back over to Kurt Gustafson who can provide more detail on our financial results released earlier this morning.

[Kurt A. Gustafson:]

Thanks, Greg. Earlier today, we announced our financial results for the first quarter of 2013. The net loss for the first quarter of 2013 was $19.3 million or $0.17 per share compared with the net loss for the first quarter of 2012 of $15.1 million or $0.14 per share. Revenues for the first quarter of 2013 were $11.8 million compared to $7.4 million for the first quarter of 2012. Research and development expenses for the first quarter of 2013 were $22 million compared to $15.9 million for the first quarter of 2012. I want to make one additional point about our R&D expenses. Just as in 2012, approximately 25% of our R&D expense for the year is expected to go towards the manufacturer of launch inventory for our partners. This is material for which we have firm orders, so not material that we are building at risk. This has the effect of grossing up our P&L as we report the R&D expense for this material as it's made, and then you'll see offsetting revenues under our collaboration agreements. However, one additional point to note is that the revenue and expense may not always be in the same period as revenue will typically lag the expenses. Moving on, our SG&A expenses for the first quarter of 2013 were $7.6 million compared to $6.6 million for the first quarter of 2012. And our cash plus marketable securities were $87.4 million at the end of the quarter, and net cash used in the quarter was approximately $12 million. Finally, our financial guidance for 2013, which was announced on January 7, remains unchanged, with net cash burn expected to be between $45 million and $50 million for the year. I will now turn the call back over to Greg who will provide some parting thoughts.

[Gregory I. Frost:]

Thanks, Kurt. Before the close of this part of today's call, I just want to again take a moment to acknowledge and thank all the employees at Halozyme whose hard work and dedication enabled the numerous accomplishments in the first quarter. We've delivered on several important milestones that position us for significant achievements this year and will help us build long-term shareholder value as we advance patient care through truly innovative therapies. I'll now ask the operator to open up the lines for questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Jason Butler of JMP Securities. Jason N. Butler - JMP Securities LLC, Research Division First one on the insulin study. Can you talk about any statistical parameters for the endpoints that you're looking at or how we should interpret the results given that this is a Phase IV study?

[Gregory I. Frost:]

Sure, Jason. Unfortunately, this is a study which has been enrolling very, very quickly. But it should be up on clinicaltrials.gov hopefully within the next 24 hours or so. But what you've got obviously for the HbA1C, you're looking at a non-inferiority margin of, I believe, 0.4, and then the other components from a power as far as hypoglycemia, PPG, et cetera, are similar to other trial designs that we've run in the past. But perhaps what would be best to do is we could follow-up after that clinicaltrials.gov posting is up there. Jason N. Butler - JMP Securities LLC, Research Division Okay, great. And then of the PEGPH20 data we're going to see at ASCO, can you tell us what data will be included in the abstract next week? Is there actually response rate data in the there? Is it from all the patients, some of the patients? And just any color you can give us.

[Gregory I. Frost:]

Well, obviously, with embargoed abstract, there's not much detail I can give beyond what's in there, but of course, there is the safety and response rates, I don't actually have a good sense. I'd have to check with the folks as far as the exact number that went into the abstract. It's not the complete set, but I think it will give folks some good color of that, and then, of course, all the other parameters. Jason N. Butler - JMP Securities LLC, Research Division Great. And then just last question, briefly. The 501 results, are you planning on putting out a press release with the data or top line data before the 29th of June? Or is the 29th of June the first time we'll see the data?

[Gregory I. Frost:]

I think it's probable we'd go through and we'll be talking about when the data are presented. That's something we like to do, is let the science get out there and let everyone look at it.

[Operator:]

Our next question comes from the line of Ying Huang of Barclays. Ying Huang - Barclays Capital, Research Division Great, congratulations on getting that insulin program started. I have 2 questions. First of all, on PEGPH20, is it safe for us to assume that you have seen some [indiscernible] results rate data before you, I guess, roll over that trial into the PEGPH20 plus gemcitabine plus Abraxane trial? And then secondly, on the insulin program, so I know you have talked to FDA about this, but can you clarify a little bit whether the 400 patients for a 12-month follow-up should be sufficient for safety purposes?

[Gregory I. Frost:]

Sure. Let me start with the PEGPH20. And of course, to put this in context, the rationale of what we did in this trial was to expand out the recommended Phase II dose. They have 24 patients at that dose. And the thought process that went into that, of course, is knowing that the historical response rate of gemcitabine in pancreatic ductal adenocarcinoma in that stage 4 population has been very solid in the 5% to 10% range. So what we did from those numbers essentially put us in a position of having confidence that, if you will, that on a response rate alone, that you have something that you know is hitting the activity mark. Beyond that, from the standpoint of any other detail, that's something we'd have to wait till after, I think, up with ASCO would be good. In the context of your questions regarding the insulin program, first, what I'd say is #1, the agency has not requested this study, it was a study that's been initiated based on our own assessment of the needs of the patient population and detailed discussions with all of the thought leaders in this space. So the study protocols, of course, have been submitted into an IRB dialogue with the agency to confirm the use of the product in that Phase IV design now.

[Operator:]

[Operator Instructions] The next question comes from the line of Don Greco, a private investor.

[Don Greco:]

Pretty much all my the questions were answered. On the PEGPH20 and the cosmetic, I was just wondering when maybe that may be able to go on to the market?

[Gregory I. Frost:]

Well, thanks for calling. Just to be clear, HTI-501 is actually a different enzyme. It's a collagen-degrading enzyme of the cathepsin family. But from a timeframe on this, I think after this particular proof-of-concept study, there are a large number of studies that would be necessary before that's ready for commercial introduction.

[Operator:]

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

[Gregory I. Frost:]

I'd like to thank everyone for joining us today, and look forward to seeing you at conferences coming up.

[Operator:]

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