Halozyme Therapeutics, Inc.
Q3 2014 Earnings Call Transcript

Published: 11 Nov 2014

[Operator:]

Good afternoon, and welcome to the Halozyme Therapeutics Third 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 Third Quarter 2014 Financial Results Conference Call. Leading our call today is Haloyzyme’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 description of the risks that may affect the outcome, please refer to our quarterly and annual filings with the Securities and Exchange Commission. I will now turn the call over to Helen.

[Helen Torley:]

Thank you, Schond. Good afternoon, everyone, and thank you for joining us. Today, I’ll begin my remarks with an update on our corporate strategy. During the course of 2014, I’ve taken a hard look at all of our assets, the R&D programs, our core capabilities and also our overall business strategy. Based on this assessment, I’ve made the following decisions that will result in greater focus on the highest value opportunities for Halozyme. I’m pleased to reaffirm that PEGPH20 and the enhanced platform are a priority programs for investment representing the two highest value drivers for Halozyme direct efforts. While the dialog with the FDA is still ongoing regarding the path and requirements for a label update for Hylenex in diabetes, we have made two decisions. Firstly, we are discontinuing the second year of CONSISTENT 1 study as with all patients having completed 12 months on this trial, we have determined that we do not need the data contribution of the second year. And secondly, we will be seeking to enter into collaborations with third parties and exploring other strategic alternatives to complete the development and commercialization of Hylenex in diabetes once clarity is gained on the regulatory pathway. And finally we completed a corporate restructure to align to the new strategy resulting in the elimination of a total of 22 positions or 13% of the workforce. These decisions free up meaningful resources that we’ll be reallocating through our high value opportunities. Let me now provide some of the context and background for these decisions. PEGPH20 our investigational PEGylated form of our proprietor will accommodate human hyaluronidase which is under development for the systemic treatment of tumors that accumulate hyaluronan with a key reason that I joined Halozyme. Our scientists have continued to generate compelling pre-clinical data providing strengthening evidence of the pan-tumor potential for PEGPH20 demonstrating across multiple tumor models that PEGPH20 can increase the effectiveness of not just small molecules and monoclonal antibodies, but also immunotherapies. Investigator enthusiasm for the science and participation in our expanding clinical trial program is strong as we plan for initiation of our non-small cell lung cancer trial in December adding to the two ongoing pancreatic cancer trials. I believe this is just the beginning for PEGPH20 as we continue to learn from both our preclinical and clinical experience. And our goal now is to focus on generating the required clinical data that can result in regulatory approvals. Turning now to ENHANZE, the launch success of Roche’s Herceptin SC in Europe since at second half 2013 launch and the 2014 approvals of both Roche’s MabThera SC in Europe and Baxter’s HyQvia in the US have served to provide strong validation of our ENHANZE platform. We have demonstrated that with our rHuPH20 technology, we can facilitate the SC administration of both large molecules and large fluid volumes and gain approval in both Europe and the United States. With these approvals, I can say that we’re seeing increased interest from companies wanting to learn more about our technology. Revenue growth through expanding utilization of ENHANZE is and remains a key part of our strategy moving forward. When I joined Halozyme in January of this year efforts had been initiated to gain stable update for Hylenex use in Type 1 diabetes as a potential opportunity to expand the indication and increase sales of Hylenex. We’ve been in discussions with the FDA throughout the year and while these discussions are still ongoing we’ve made a number of determinations that we included in the portfolio assessment which then resulted in key decisions regarding this program. We determined that we do not need the additional data contribution from continuation of CONSISTENT 1 and we’ll be stopping the CONSISTENT 1 study as all patients will have completed 12 months. And also that additional clinical data is likely going to be required for a label update translating to potentially higher projected cost and a longer-time to market than had originally been anticipated. In the ongoing weeks we intend to seek clarity with FDA on what data will be required if any. However, as we have completed the portfolio evaluation and our decisions regarding the strategy, we’ve made the decisions that we will seek to enter into collaborations with third parties and explore other strategic alternatives to complete development and commercialization once clarity is gained on the regulatory pathway. These decisions result in a more focused Halozyme strategy and provide the opportunity to increase our attention and resources to advance our lead oncology asset PEGPH20 and also ENHANZE, the two top opportunities for value creation and growth. Now let me provide the program updates. We have two studies currently exploring PEGPH20 in advance pancreatic cancer. Study 202 sponsored by Halozyme is examining the combination of PEGPH20 with gemcitabine and Abraxane. And Study S1313 which is sponsored by SWOG is examining the combination of PEGPH20 with modified FOLFIRINOX. Study 202 resumed in July of this year following an amendment to a protocol to exclude patients who maybe at higher risk for thromboembolic events and with the addition of prophylactic use of low-molecular weight heparin in both treatment arms to help mitigate a potential risk. A secondary prime – a second primary endpoint to assess the thromboembolic event rate and the PEGPH20 treatment arm has been added with the goal of evaluating the effectiveness of the interventions in reducing the event rate. The Data Monitoring Committee will monitor occurring sub TE [ph] events following the event rate rules established in the protocol. 42 of 44 clinical centers participating in this trial have now received IRB approval to resume the study. And screening for eligible patients is underway at the majority of these sites. I’m pleased to report that enrollment is progressing well with 25 of the target approximately 100 new patients enrolled to date, reflecting I believe good ongoing interest and enthusiasm for this trial. As a reminder new patients are being randomized at a ratio of two to one to PEGPH20 Abraxane and gemcitabine versus the Abraxane and gemcitabine alone to allow us to achieve a robust number of patients with uninterrupted treatment in both treatment arms for our safety and efficacy assessments. The significant need for new treatment options for pancreatic cancer patients with advance disease with further reinforced by the US Food and Drug Administration granting Fast Track designation for PEGPH20 in combination with gemcitabine and nab-paclitaxel for the treatment of patients with metastatic pancreatic cancer. The Fast Track program is designated to facilitate frequent interactions with the FDA review team to expedite clinical development and submission of a BLA for maintenance with the potential to treat serious or life threatening conditions and address unmet medical needs. The agency also granted Orphan Drug designation for PEGPH20 for the treatment of pancreatic cancer. Receiving both of these designations allows us to collaborate more closely with the FDA to facilitate development of PEGPH20 in this disease setting. And receipt of these designations is part of our core strategy to bring PEGPH20 to patients as rapidly as possible. With respect to S1313 in September the FDA removed the clinical hold on patient enrollment and dosing in this Phase 1b/2 SWOG trial. Patients screening is now ongoing and the first patient has already been enrolled. This study is designed to enroll approximately 140 patients and will only evaluate PEGPH20 in combination with the modified FOLFIRINOX chemotherapy regimen in patients with metastatic pancreatic adenocarcinoma. Study S1313 along with our 202 study will provide important data for evaluating the potential role of PEGPH20 in patients with Stage 4 metastatic pancreatic cancer. We’ve continued to automate strong progress in our plans to initiate our Stage 1-B2 trial for PEGPH20 in patients with non-small cell lung cancer with the goal of initiating the study in December. In determining the population and regimen to evaluate in this study, we relied on strong preclinical data and worked with global leaders in lung cancer carefully considering the potential evolution of care for this cancer to assure we evaluate a regimen that will remain a mainstay of treatment for a large population of patients even with new entrance. The outcome of this detailed assessment is that we will evaluate PEGPH20 and second line non-small cell lung cancer patients in combination with docetaxel. In the United States alone there are an estimated approximately 40,000 patients undergoing treatment for second line non-small cell lung cancer where the median life expectancy is just 6 to 8 months. The study were enrolled previously treated patients with locally advanced metastatic non-small cell lung cancer who have failed the platinum-based regimen and its design to evaluate and identify the dose, the schedule and the safety of PEGPH20 plus docetaxel. Patients that have failed the platinum-based regimen and have been exposed to a vaccine [ph], an EGFR or ALK-inhibitor as part of their first-line therapy are eligible for the study. Upon identification of the dose and schedule, the study will be expanded to evaluate safety and efficacy. I want to also highlight some upcoming data presentations and publications for our PEGPH20 program. In December, we will present new preclinical data at the San Antonio Breast Cancer Symposium which shows the use of PEGPH20 with monoclonal antibodies in breast cancer animal models as well as providing additional supportive information our random use of HA as a biomarker. And in January of 2015, we’ll be presenting the final PFS and OS clinical data in high and low tumor HA patients from our Stage 1-B trial Study 201 at the ASCO GI Conference. As reminder, Study 201 examines the combination of PEGPH20 and gemcitabine in metastatic pancreatic cancer patients. Now let me discuss HyQvia. In September, the FDA approved HyQvia, Baxter’s subcutaneous treatment for adult patients with primary immune deficiency. HyQvia consists of immunoglobulin 10% with Halozyme’s recombinant human hyaluronidase and is the first subcutaneous immune globulin treatment approved with the dosing regimen requiring only one infusion up to once per month and one injection site per infusion to deliver the full therapeutic dose. Today many patients received IV infusions in the doctor’s office, infusion centers or hospitals and current subcutaneous treatments require weekly or biweekly treatment with multiple infusion sites for treatment. Of the total sales of immune globulins, Baxter estimates that the global market for PI or primary immune deficiency is approximately $2 billion with only approximately 35% of patients receiving subcutaneous administration today, providing a unique opportunity for HyQvia as a differentiated therapy. Baxter is in line to shipment [ph] of its first commercial orders for HyQvia on October 20th. As a leap forward to the US launch by Baxter’s commercial team, Baxter is currently evaluating regulatory requirements and initiation of additional clinical trials for new indications. Moving now to our collaboration with Roche, Roche’s MabThera SC received European approval during the first quarter of 2014, sub-treatment of follicular lymphoma and diffused large B-cell lymphoma. In June, Roche introduced the product and its first country market in the EU and they continue to introduce MabThera SC into additional countries. With an administration time of approximately five minutes compared to the approximately 2.5 hour infusion time for intravenous MabThera, this innovative subcutaneous formulation offered another treatment option that could potentially save time for patients, physicians and other healthcare providers in Europe. It is important to note that with the first launch only entering in June, this quarter’s royalties which reflect April through June 2014 sales, have very minimal contribution from MabThera and we can expect our next report to reflect the first full quarter of launch in the initial launch country. We continue to be pleased with the uptake we’ve seen for Herceptin SC, the first product approved from our Roche partnership. A notable recent milestone is a reimbursement approval of and launch in France traditionally with the largest EU oncology market. The Herceptin SC launch is reported to be progressing very well with Roche reporting approximately 20% overall share in the 29 launch markets with many markets still at an early stage. A few markets are launching each month. In some markets that have launched either earlier or have healthcare systems that have reviewed and recognized the value of SC administration, shares of about 50% have already been achieved even at this early stage of the launch. This continued expansion in the number of launch markets to 29 and in particular a France launching late in the third quarter and the growth in share signal continued future growth. And finally, let me provide you with an update to our collaboration with Pfizer. We entered into a partnership program with Pfizer at the end of 2012. Under the terms of the agreement, Halozyme granted Pfizer a worldwide license to develop and commercialize products combining our enhanced technology with Pfizer’s proprietary biologics directed at up to six targets. These targets may be selected on an exclusive or non-exclusive basis. Pfizer disclosed PCSK9 as the first target in the third quarter of 2013. The second target, and the first product candidate within the partnership, to be ready to move into clinical testing, was recently posted on clinicaltrials.gov. This is a subcutaneous administration using our enhanced technology and Rivipansel, an investigational compound under evaluation for the treatment of basal occlusive crisis in individuals with sickle cell disease. Rivipansel, which has received both Fast Track and Orphan Drug designations from the FDA, is currently under evaluation via intravenous dosing. The timing and start for this trial has not been disclosed. Now with that overview, I’ll turn the call over to David Ramsay who will discuss our financial results.

[David Ramsay:]

Thank you Helen, and welcome to the call, everyone. As Helen mentioned earlier, we recently completed a corporate reorganization to align with our strategic priorities. This resulted in a workforce reduction of about 13% or 22 employees. We will incur a one-time charge in the fourth quarter of 2014 that will be largely offset by reduced compensation expenses during the quarter. In addition, we’ll be winding down our consistent one study. The future savings from these two initiatives will be allocated to our PEGPH20 program and enhance programs, assets that we have determined to provide the greatest opportunity to enhance shareholder value. Revenues from the third quarter of 2014 were $14.6 million compared to $16 million for the third quarter of 2013. Revenues in the third quarter included $5.8 million in product sales of bulk RQPH20 for use in manufacturing Roche’s collaboration products, $3.6 million in Hylenex product sales, $2.9 million in royalty revenue from sales of products under our collaboration, and $2.1 million in collaboration revenues. In particular, royalty revenue grew 71% sequentially, $2.9 million in the third quarter from $1.7 million in the second quarter. A key driver of this 71% sequential increase in royalties has been the increasing sales of Herceptin SC in the early launch markets. As a reminder, the royalty revenue reflects April to June sales as a result of the one quarter lag in royalty report. As we continue to see new countries launching Herceptin SC and MabThera SC, coupled with the recent launch of HyQvia in the US and EU markets, we expect over the next several quarters to see continued uptake and sales of these partnered products. Research and Development expenses for the third quarter of 2014 were $19.9 million compared with $25.7 million for the third quarter of 2013. The decrease was primarily due to the inclusion in this quarter of manufacturing expenses and cost-to-product sales instead of research and development expenses as in the prior period last year. Selling, general and administrative expenses for the third quarter of 2014 were $8.6 million compared to $8.1 for the third quarter of 2013. This increase was mainly due to an increase in patent expenses. Net loss for the third quarter of 2014 was $20.3 million or $0.16 per share compared with the net loss for the third quarter of 2013 of $19.3 million or $0.17 per share. Cash, cash equivalents and marketable securities were $134.5 million at September 30, 2014 compared with $147.6 million at June 30, 2014. Net cash used in the third quarter of 2014 was approximately $13.1 million. We are leading our 2014 net cash burn guidance unchanged at $45 million to $55 million for the year. If we consummate an enhanced deal prior to the end of the year, our cash burn will be at the low-end or just below this range, while if we do not close the transaction prior to the end of the year our cash burn will be at the high-end or just above this range. I will now turn the call back to Helen who will provide some closing comments.

[Helen Torley:]

Thank you, David. And as we’ve demonstrated the third quarter with another strong quarter in terms of performance for Halozyme but equally importantly we made some key decisions on our corporate strategy that I believe will help drive increased success. With the highly talented and committed team here at Halozyme who already begun implementing the plan. Our near-term priorities are clear, advancing PEGPH20 including continued strong enrolment in Study 202 and initiation of our lung cancer trial, supporting and accelerating at hand while continuing to pursue regulatory clarity for Hylenex and diabetes. Our balanced business model continues to generate the growing stream of revenues from royalties, milestones, and manufacturing activities from three improved products and our balance sheet remains strong. We’re now ready to take your questions. Operator, could you please open the call for questions?

[Operator:]

Yes, thank you. At this time we will open the floor for questions. (Operator Instructions) Our first question comes from Charles Duncan with Piper Jaffray & Co.

[Unidentified Analyst:]

Hi, guys, it’s Roy [ph] for Charles, thanks for taking the question. Question on the PEGPH20 program and pancreatic cancer, do you guys have an estimate of the impact of the new trial requirements on patient recovery [ph] so far versus what you saw with the old protocol?

[Helen Torley:]

Thanks, Roy. It’s still quite early in the enrolment. As you know we had said that because we have got different exclusion criteria we do it back to see some kind of impact, so far it looks to be modest, but we’re really quite early on in our ramp, but so far I’m very pleased with the 25 of the approximately 100 patients already being enrolled.

[Unidentified Analyst:]

Okay, great. And again on the insulin program, so can you indicate the level of partnering I guess interest to date that you guys have had for that? Or is that a process that’s going to start once you get feedback from the FDA?

[Helen Torley:]

As you know we previously had communicated that we were proposing to commercialize the – pump opportunity ourselves, so what our goal now is, is once we get regulatory clarity to really initiate assessing at what the right partnering approach would be and who the potential partners would be.

[Unidentified Analyst:]

Okay. And then onto Rivipansel. So is there any reimbursement for R&D on that program in the 3Q revenues?

[David Ramsay:]

No, there’s really not.

[Unidentified Analyst:]

No.

[David Ramsay:]

Hi, Roy, this is David. No, there’s really not, it was minimal.

[Unidentified Analyst:]

Okay, great. Thank you.

[Operator:]

Our next question comes from Andrew Peters with UBS Investment Research

[Andrew Peters:]

Hey, guys, thanks for taking the question and congrats on the progress. So, I guess the first question is on the ENHANZE partnerships and a potential for a deal, I just wanted to get you thoughts on how you think about economics for the program versus what you had signed with Roche and now that you have kind of three approved products, it’s more of a validated program, so how do you think about economics there? And then on the CONSISTENT 1 data how do you characterize the biggest point of feedback or concern from the FDA that’s causing you to kind of reassess? Any color there would be very helpful.

[Helen Torley:]

Terrific. Thanks, Andrew. Well, with regard to ENHANZE it’s certainly – you point out the excellent point that we have a validated and approved platform now, so while I don’t foreshadow anything moving forward that’s certainly something we have taken into consideration that in our ongoing dialogues. With regard to CONSISTENT 1 I think just to be clear for diabetes, it really was the result of our portfolio assessment which was to take a look and see across our entire portfolio where the biggest value opportunities were. And that’s where PEGPH20 clearly emerged as the highest value driver for Halozyme. And so while we do continuing dialogue with the FDA, the decision is less based on feedback from the FDA about any issues on CONSISTENT 1, more of the value of PEGPH20 was, but also the recognition that it is likely additional clinical data will be needed for diabetes. And the fact that we want to assure all focus and resources that we need are on PEGPH20 that led us to the decision to say let’s seek a partner for the future development and commercialization of diabetes.

[Andrew Peters:]

Okay. But I guess just so we’re then clear, partner – the decision was indeed as a result of regulatory feedback in addition to just more of a priority review, I guess, or is that –

[Helen Torley:]

I think, so to say, the need for likely additional clinical data played a part into our decision as we were looking at our portfolio assessment. That is their say. The dialogue with the FDA is ongoing and we do expect to continue that in the coming weeks.

[Andrew Peters:]

Okay. And then just from a partnering standpoint, would you expect to kind of target more of the device makers or where do you think kind of the value would be best monetized from the partnering standpoint?

[Helen Torley:]

As I mentioned, we really, our first goal is to get the regulatory clarity and then we’ll articulate at that point in time our partnering strategy. As we have talked to opinion leaders with regard to the CONSISTENT 1 data continue to seek to understand the unmet needs that exist today in Type 1 diabetes. There definitely remains an unmet need in this marketplace. So we believe there will be interest in our product. A number of parties will be seeking to exploit and explore all of those.

[Andrew Peters:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from Eun Yang with Jefferies & Company.

[Eileen Flowers:]

Hi, it’s actually Eileen Flowers in for Eun tonight. Thanks for taking my questions. So the first one on PEGPH20. Based on the enrollment update that you just gave, what’s your most updated timeline for enrollment completion in Phase 2 data read-out?

[Helen Torley:]

So, Eileen, thanks for that question. We still are in the early part of our enrollment ramp. And obviously these two elements are going to go in to when we can have data first for the completion of enrollment and the second because there is an event-based study as the event-rate. Because we are still early on the ramp and early in looking at event rate in the newly accrued [ph] patients, it is really is premature for me to give that specificity. But all work is going to get to this data obviously as quickly as possible.

[Eileen Flowers:]

Okay, understood. And for the non-small cell lung cancer, you mentioned, how many patients do you plan on enrolling in that one?

[Helen Torley:]

So the first part of this study is going to be focused on dose and dose schedule. That will be a classic three plus three regimen and so we believe that will be between 20 and 30 patients. That’s just for the 1b portion. We’ll then expand into the Phase 2 portion. Still working on some final assumptions for that so I’m not prepared to comment on the size of that expansion but it will be large enough for us to assess the comparative efficacy between PEG plus docetaxel and docetaxel alone.

[Eileen Flowers:]

Okay. And then on a higher – next, just to be clear, is your plan for a potential partner to fund it and conduct [ph] the potential trials for the clinical data that the FDA is requesting?

[Helen Torley:]

That is our goal. Yes. Anchor and commercialize the product. Yes, ideally something with the commercial infrastructure program that makes a lot of sense and is a very attractive opportunity.

[Eileen Flowers:]

Okay. And then if I can just squeeze one more in. On the cellulite program, can you give an update on your partnership discussions there? Thank you.

[Helen Torley:]

We are still in dialogue with regard to partnering HTI-501. I don’t have any updates to that program I can give you.

[Eileen Flowers:]

Okay. Thank you for taking the questions.

[Helen Torley:]

Thank you.

[David Ramsay:]

Thank you.

[Operator:]

Thank you. Again, if you would like to ask a question, please press star one. Our next question comes from Joel Beatty with Citigroup.

[Joel Beatty:]

Hi. This is Joel, on for Jonathan Eckerd. Thanks for taking the questions. My first question is regarding HyQvia. What are some of the additional indications that this drug may be used then?

[Helen Torley:]

It really will be for Baxter I think to provide the full list of that. What they did mention on their analyst call was an interesting exploring of some CNS indications and so that’s what we’re aware of so far.

[Joel Beatty:]

Sure and thanks. And then another question on the ENHANZE platform with Pfizer previously making comments about using a technology with the PCSK9 product, and then Roche also commenting about using your product with Gazyva – could 2015 be set up for a busy year and is slow with partnering with these programs and others for the ENHANZE platform?

[Helen Torley:]

Joel, thank you. I mean that really – as we looked at the portfolio assessment of where the opportunities lie, we landed on PEGPH20 but also ENHANZE for exactly the reasons you talked about. Since we have seen the approval of HyQvia in the US and since the launched success of Herceptin has been noted, we definitely have seen a lot of increased interest in ENHANZE; so not just with our current partners but in new partners. So, yes, that certainly is our goal to have a lot of news flow in ENHANZE in 2015.

[Joel Beatty:]

Okay. Thank you.

[Operator:]

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

[Helen Torley:]

Well, thank you everybody. We appreciate you joining us for the call today. This is an important quarter for Halozyme as we mentioned, good progress but also making some important strategic decisions that we believe are going to increase our focus and our resources and our chances of success with our highest value assets. Thank you very much.