Halozyme Therapeutics, Inc.
Q2 2014 Earnings Call Transcript

Published: 11 Aug 2014

[Operator:]

Good afternoon, and welcome to the Halozyme Therapeutics Second Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Schond Greenway, Executive Director, Strategy and Investor Relations at Halozyme Therapeutics. Thank you. Mr. Greenway, you may begin your conference.

[Schond Greenway:]

Thank you, operator. Good afternoon, everyone, and welcome to Halozyme's Second Quarter 2014 Financial Results Conference Call. Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley. Helen will provide an overview and update on our business. Next, David Ramsay, our Chief Financial Officer, will review our financial results followed by closing remarks from Helen. Afterwards, we will then open the call to your questions. Before we begin, let me remind you that during this conference call, we will be making forward-looking statements. All statements made during this conference call that are not statements of historical fact constitute 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 the risks that may affect the outcome, please refer to the quarterly and annual filings with the Securities and Exchange Commission. I will now turn the call over to Helen.

[Helen I. Torley:]

Thank you, Schond. Good afternoon, everyone, and thank you for joining us today. Since our last call, Halozyme has made tremendous progress across our key product development and partner programs. I'm particularly excited with our progress on our PEGPH20 program and by the recent positive Blood Products Advisory Committee review of Baxter's HyQvia, which is a combination of immunoglobulin 10% and Halozyme's rHuPH20. Let me begin by providing an update on PEGPH20. Our Phase II trial, Study 202, evaluating PEGPH20 in patients with pancreatic cancer, resumed patient enrollment and dosing in July. As you may recall, in April, we temporarily halted patient enrollment and dosing of PEGPH20 following the Data Monitoring Committee observation of a possible difference in thromboembolic event rate in patients treated with PEGPH20, Abraxane and gemcitabine compared to the group receiving Abraxane and gemcitabine alone. Following data assessment and development of protocol amendment in May, the Data Monitoring Committee indicated their support of a resumption of PEGPH20 dosing. And in June, the FDA agreed to remove the clinical hold. We immediately initiated the process of gaining independent review board approvals for the protocol amendment, and I'm pleased to report that approximately 75% of the anticipated clinical sites have already received IRB approval with additional approvals expected in the coming weeks. Patient enrollment and dosing resumed in the first sites a few weeks ago and we expect more clinical sites to begin enrolling additional patients in the near term. The goal of Study 202 protocol amendment is to exclude patients who may be at higher risk for thromboembolic events and to seek to reduce the risk of events through the addition of treatment with low-molecular-weight heparin. A second primary endpoint had been added to assess the thromboembolic event rate in the PEGPH20 treatment arm following the amendment compared to the event rate prior to the protocol amendment. We plan to enroll approximately 100 more patients, adding to the over 100 patients already enrolled. These new patients will be randomized at a ratio of 2

[David A. Ramsay:]

Thanks, Helen, and welcome to the call, everyone. Earlier today, we announced our financial results for the second quarter of 2014. Revenues for the second quarter of 2014 were $18.4 million compared to $14.5 million for the second quarter of 2013. Revenues in the second quarter of 2014 included $6 million in product sales of bulk rHuPH20 for use and manufacturing products under the Roche collaboration; $7.2 million dollars in collaboration revenues; $3 million in Hylenex product sales; and $1.7 million in royalties, up from $0.8 million in the first quarter. The key driver of this increase in royalties has been increasing sales of Herceptin SC in the early launch markets. Collaboration revenues benefited from the recognition of $5 million in deferred revenue related to Roche manufacturing scale-up activities. Our Q2 2014 revenues included royalties from Roche and Baxter of $1.7 million, reflecting Q1 sales as a result of the 1-quarter lag in royalty reports. Roche represented the majority of these royalties. As we continue to see new countries launching, we expect over the next several quarters to gain a fuller picture of the EU uptake and sales trajectory of these partnered products. Research and development expenses for the second quarter of 2014 were $18.6 million compared with $28 million for the second quarter of 2013. The decrease was largely driven by the shift in manufacturing costs into cost of goods sold. As you may recall, prior to Herceptin SC approval, manufacturing costs associated with bulk rHuPH20 supplied to Roche was included in research and development expense. Subsequent to Herceptin SC approval, these costs are now included in cost of goods sold. The timing of various manufacturing scale-up activities also contributed to the reduction in research and development expenses. Selling, general and administrative expenses for the second quarter of 2014 were $8.8 million compared to a $7.3 million for the second quarter of 2013. The increase was primarily due to an increase in compensation costs and patent expenses. The net loss for the second quarter of 2014 was $16.3 million or $0.13 per share compared with a net loss for the second quarter of 2013 of $22.9 million or $0.20 per share. Cash, cash equivalents and marketable securities were $147.6 million at June 30, 2014, compared with $164.5 million at March 31, 2014. Finally, I want to mention that a couple of our directors are approaching the 10-year expiration date of some stock options in the next 2 months. Thus, we expect there will transactions that will be reported in connection with these exercises, such as sales to cover the exercise prices and taxes. You will be seeing Form 4s related to these exercises. I will now turn the call back to Helen who will provide some closing comments.

[Helen I. Torley:]

Thank you, David. As you've heard, this has really been an important and a strong quarter for Halozyme with key highlights, including the restart of Study 202; significant progress in our planning for the end of-year initiation of our next PEGPH20 trial, which will be in non-small cell lung cancer; the launch of MabThera SC in Europe; and the acceleration of royalties driven by the strong performance of Herceptin SC. We're now ready to take your calls. Operator, would you please open up the call for questions.

[Operator:]

[Operator Instructions] Our first question comes from Cory Kasimov with JPMorgan.

[Brittany R. Terner:]

This is Brittany on for Cory. Can you comment on your commercial strategy for Hylenex for insulin pump users and how do you plan to position this product? And then secondly, what's the approximate percentage of pancreatic cancer patients that are at higher risk of thromboembolic events?

[Helen I. Torley:]

Thanks, Brittany. So with our Hylenex in pump, I think you've heard that, at this point in time, we're engaged in an active dialogue with the FDA to understand what the path is going to be for approval of that product. Our focus will be on type 1 patients and particularly those patients who are wanting to get that tighter glycemic control. And so our strategy is really going to be getting to agreement with the FDA of what it's going to take to give us a label update. We're in process, as I mentioned, of assessing our commercial profile, in market research with physicians, payors and with patients and now we're going to be continuing to review that data and decide on our final commercial strategy at that point in time. Just turning now to your PEGPH20 question, the literature is very wide as to what the background rate of thromboembolic event rate is on pancreatic cancer patients. If you look at the literature, it goes anything from the teens up to 60%. But there's probably an emphasis of data that is in the 20% to 30% range, I would say, in terms of the background rate of all thromboembolic events. But there is a wide range.

[Operator:]

Our next question comes from Andrew Peters with UBS.

[Andrew R. Peters:]

I was wondering if you could get into some of the rationale from a kind of mechanism perspective for why you chose non-small cell lung cancer as kind of the next solid tumor indication. And then you mentioned kind of looking at the treatment landscape going forward in lung cancer. If you could also get into any data, if you have it, or potential combinations with some of the newer types of agents, including the immuno-oncology PD-1 type drugs?

[Helen I. Torley:]

Thanks, Andrew. As we were deciding what our next tumor will be, certainly the percentage of patients we estimate will have high HA expression was an important part of that. If we look at non-small cell lung cancer, probably about 40% of those patients will have high HA. If we look at squamous patients within that, there's probably an even higher percentage of patients, about 50%. That was one of the factors that was very important for us in considering where we'd study. A second factor is looking at our preclinical data. We have done experiments looking in models of non-small cell lung cancer and being able to demonstrate that the addition of PEGPH20 on different therapy had an impact of doubling overall survival in that particular animal model. So those were important factors for us in determining would we study it. Now we are in process. We've done some work in our animal experiments with the immune therapies, in particular. That is a program that we're very focused on and we're planning to expand in our preclinical models. And so I can say, at this point in time, we don't have any clinical data with immune therapies or any animal model in immune therapies in lung cancer, specifically, but that is an area of focus moving forward.

[Andrew R. Peters:]

Great. And then just a quick follow-up for David. The $5 million related to the MabThera, is that going to show up in 3Q?

[David A. Ramsay:]

Yes, it will, Andrew. Absolutely.

[Operator:]

Our next question comes from Charles Duncan with Piper Jaffray.

[Charles C. Duncan:]

My question was related to PEGPH20 enrollment. On ClinicalTrials.gov, it looks like there were -- I'm not sure of this data, I didn't generate it, it actually came from my associate. 237-or-so patients enrolled and we estimate 132 before the hold. Is that approximately correct? Or is that data that is -- needs to be updated?

[Helen I. Torley:]

So our target for enrollment will be 237 patients, Charles. That number is correct. What we've said is that we exceeded 100 patients before we went on temporary hold with the trial. So the 132 number is directionally correct.

[Charles C. Duncan:]

Okay, that's helpful. And I think you mentioned approximately 75% of sites had received IRB approvals. Does that imply they've actually enrolled patients? Or is that jumping the gun a little bit?

[Helen I. Torley:]

That's jumping the gun a little bit. A number of centers have started enrolling. A number of centers -- I would say every week we have additional centers who have been trained and are ready to start enrolling. So we're going to see these centers ready to start screening and enrolling their patients, just coming on everyday and every week moving forward. But a handful at the moment are actively enrolling.

[Charles C. Duncan:]

Okay. And I can -- I guess, I can assume -- we've talked about this before, but is it still the case that those patients who were prior to the re-enrollment maybe going to be exposed to or there's going to be some kind of subgroup analysis to break them out and you'll be looking at different populations in the analysis of their response from the study?

[Helen I. Torley:]

Yes, the primary analysis will be based on patients who have had no treatment interruptions. So the patients who had their events before the temporary hold and the patients who were enrolled after the amendment had gone into place. But as you mentioned, there'll be a cohort of patients who had a treatment interruption. We still think there will be things to learn from those patients. So they're part of a secondary efficacy analysis, but the primary efficacy analysis will be based on patients who have not had any treatment interruption.

[Charles C. Duncan:]

Okay. And then, Helen, last question, if we could go back to the questions on Hylenex. The previous person was asking regarding your commercial strategy and maybe regulatory strategy. Do you have a goal in mind as to when you may be ready to update that plan?

[Helen I. Torley:]

Well, Charles, we continue in an active dialogue with the FDA. And I think just to bring a little color as to why it's not as straightforward as we might or you might be hoping for, really when you think about Hylenex, it is a pretreatment of patients who are receiving insulin. The metabolism division has got guidances for insulin, mixes of insulin, oral hypoglycemic agents. We're a little bit different and unique. There's not been anything quite like this. And so that's why we're having such an active and productive dialogue with the FDA, it's just what are the expectations for this type of approval. So just given that there is no clear precedent for it, it's hard to pin down an exact time wall [ph] of clarity. But what I can say is we're working very hard and are actively engaged with the FDA to get that clarity just as soon as possible.

[Operator:]

Our next question comes from Joel Beatty with Citigroup.

[Joel Beatty:]

This is Joel Beatty on for Jon Eckard. The first question is would it be reasonable to expect the launch of MabThera subcu and to progress similarly to the Herceptin subcu launch? Or are there differences between those 2 products to keep in mind? And then I have a follow-up.

[Helen I. Torley:]

I think in their prepared remarks, Roche hasn't shared any reasons for any differences nor have they exactly said they expect it to be the same as Herceptin. So I really -- I don't think I can comment with knowledge on that. I can say that, Roche, in a similar way for Herceptin, generated data that showed strong patient preference for MabThera SC, as well as similar time and motion studies that showed cost savings for the health care system and time savings for patients. So a lot of the aspects of the Herceptin SC update, which are the savings for the health care system are also going to be present for MabThera. Additionally, Roche similarly priced it at parity. So I can observe that Roche is taking a very similar strategy. They just haven't commented on their expectations for uptake.

[Joel Beatty:]

That's helpful. And then as a last question, just with the collaboration with Roche appearing to go well, could we expect to see more of subcu drugs from them such as a subcu version of Gazyva?

[Helen I. Torley:]

Roche -- the contract we have with Roche is for 8 products. Roche is really in the lead with when they make it public. Are they working on a program or are they advancing a program, I'm not really in a position to say anything at this time.

[Operator:]

Our next question comes from Jason Butler with JMP Securities.

[Jason N. Butler:]

Just another follow-up on the Hylenex diabetes opportunity. Could you maybe give us a little more color on what your target indication would be or what your label claims that you would view as necessary to make this commercial opportunity attractive? And conversely, is there a scenario here where you think that there is not an attractive label opportunity to make you move forward?

[Helen I. Torley:]

So Jason, thanks for that question. And in terms of the indication, we're wanting an indication that says Hylenex can be used in pretreatment of type 1 diabetics using CSII, so it can be used with any of the commonly used prandial insulin. And what we'd really like to get is data into the package insert, the Hylenex package insert, that allows our representative to have a dialogue with the physicians about the efficacy data seen and also the safety data seen because, clearly, it's important we're able to articulate the risk-benefit of our drug to physicians. And it's important that data is in the label to allow that type of dialogue that would need to happen. It's our goal to pursue the dialogue with the FDA to understand what is going to take to get the indication we want and that data in the label. And at this point in time, we're continuing in a productive dialogue. So that really is where we're focused at this time.

[Jason N. Butler:]

Okay, great. Just to follow up on that. When you talk about the efficacy data, is that in your mind relative to standard of care? Or is that a placebo comparator?

[Helen I. Torley:]

So the clinical study, the one clinical study we've done, CONSISTENT 1, which is in a 455 patients, we compared Hylenex on top of continuous infusion versus continuous infusion alone. So the data would be relative to no treatment. So just the standard of care, I guess, to answer your question.

[Operator:]

Our next question comes from Jason Zhang with Edison Investment Research.

[Jason Zhang:]

Helen, this is Jason. Now that dosing has resumed, when do you think you will be ready to give us an update about when the enrollment will be complete for the PH20 program?

[Helen I. Torley:]

Thanks, Jason. Enrollment has just started and what we are wanting to do is obviously see, with the restart of the study, what the new rate of enrollment is going to be. We obviously had strong enrollment before we had the clinical hold. I'm pleased to report investigator enthusiasm for the trial remains high, but I want to see some data points in terms of what the new enrollment rate is before we project out when we think enrollment will be complete. As I'm sure you understand, there's been some changes to the enrollment criteria. So let's just wait for some data before we forecast that one out for you.

[Jason Zhang:]

Okay. And then are you still on track to initiate a clinical trial for the second indication of PH20?

[Helen I. Torley:]

Yes, our goal is working hard to initiate a study in non-small cell lung cancer by the end of this year. We haven't provided any more details as we're still finalizing the protocol on the line of therapy or the combination we'll be studying. But as we finalize that at the appropriate time, we will obviously make that public to you.

[Operator:]

Our next question comes from Eun Yang with Jefferies.

[John Ryan:]

This is John in for Eun. So assuming you guys get the label update that you want for Hylenex in an [ph] insulin pump, how should we think about the number of reps needed for commercial launch? And then i have a quick follow-up.

[Helen I. Torley:]

John, the part of the work we're doing at the moment is really seeking to understand the patient segment, who we will be going after with the clinical profile that we have and identify how many endocrinologists are going to be looking after this type of patient. As you realize, not every endocrinologist is looking after pump patients. We do think this is a small segment of endocrinologists, but that's work that we're still doing to refine that information, so it would be premature to comment. But I think in terms of rep field force size, it'll be a relatively modest one because it's a small specialist group of endocrinologists who would be looking after this indication.

[John Ryan:]

Okay. And then if you could provide any color on the in HTI-501 program and Intrexon's A1AT in preclinic, that would be great.

[Helen I. Torley:]

Okay. So with regard to HTI-501, we reported at the end of March our positive proof of concept data that showed in a clinical setting we were able to improve the appearance of cellulite by a number of measures. As we took a step back and looked at that program, we recognize that within Halozyme, we don't have expertise in the development of aesthetic products. And we initiated a process to identify a strategic partner with whom we could advance the program. That assessment and dialogue is still ongoing and I've nothing I can update you on that at this point in time. With regard to the Intrexon program, Intrexon determined for business reasons to not proceed with that and actually terminated their agreement with Halozyme. I think that was reported last quarter and so we don't have any ongoing activities with Intrexon at this time.

[Operator:]

[Operator Instructions] There are no further questions at this time.

[Helen I. Torley:]

All right. Thank you, everyone for joining us today. Obviously, strong progress, and we look forward to speaking with you on our next call. Have a good evening.

[Operator:]

Thank you, ladies and gentlemen, this concludes today's conference. You may now disconnect.