Halozyme Therapeutics Inc
NASDAQ:HALO
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Halozyme Therapeutics Inc
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Good afternoon, everyone. I would now like to turn the conference over to Al Kildani, Vice President of Investor Relations and Corporate Communications for Halozyme Therapeutics. Mr. Kildani, please begin.
Good afternoon, and welcome to our Second Quarter 2019 Financial Results Conference Call. In addition to our press release issued today after the close, you can find a supplementary slide presentation that will be referenced on today's call in the Investor Relations section of our website.
Leading the call will be Dr. Helen Torley, Halozyme's President and Chief Executive Officer, who will provide an update on our business; and Laurie Seltzer, our Chief Financial Officer, who will review our financial results for the second quarter 2019. During the call, we will be making forward-looking statements. I refer you to our SEC filings for a full listing of the risks and uncertainties.
I'll now turn the call over to Helen.
Good afternoon, everyone and thank you for joining us today. I'm pleased to provide an update on the strong progress at Halozyme during the second quarter of 2019. For today's call, we also welcome Dr. Alison Armour, our Senior Vice President of Research and Development, who will join us for the Q&A portion of the call. Alison joined us in May and has over 15 years in practice as a clinical oncologist along with significant experience in leading all stages of oncology, drug development and overseeing regulatory submission.
Let me begin with a summary of all the key recent developments. Firstly, our second quarter total revenue was $39.1 million, up 11% year-over-year. And we finished the quarter in a strong financial position with $287.5 million in cash, cash equivalents and marketable securities. Secondly, we continue to make tremendous progress in executing our ENHANZE strategy highlighted by the recent regulatory submissions by Jansen for the subcutaneous formulation of DARZALEX in the U.S. and in the E.U. Our partners continue to make progress in the clinic with Argenx recently commencing first phase in dosing and a phase one study of Efgartigimod or ARGX-113.
And thirdly, our HALO-301 pivotal Phase 3 trial evaluating PEGPH20 and metastatic pancreas cancer is on track for the announcement of top-line results by this December. With those key highlights, I'll now provide a more detailed review of our recent progress and results beginning with ENHANZE.
Turning the Slide 2 for a review of the long term potential for royalty revenues from our ENHANZE business. We have licensed rHuPH20 enzyme to 9 leading pharmaceutical and biotech companies covering over 50 potential drug targets in total. The potential royalty revenues from our 3 marketed products plus the 12 products that we expect to be in clinical development in 2019, result in the potential for approximately $1 billion in royalty revenue in 2027. This assumes approval in multiple indications, global launches and on average a mid-single-digit royalty on net sales of ENHANZE formulated products.
Also illustrated on the slide with a yellow dotted line is the pro forma ENHANZE business operating expense estimate, which excludes cost of goods sold. As you will note the estimated operating expenses are similar to the projected royalty revenues. And with the projected growth and revenue inflection associated with the next launch, we project incremental revenues would drop to the bottom line in an ENHANZE only business. In addition, between now and the end of 2021, we continue to project potential cumulative milestone payments of $225 million to $300 million that will provide an important source of capital for the company. And I'd like to just add that this illustration does not reflect any potential contribution from new collaborations. As always, we remain in active dialogue with potential new enhanced partners, ranging from large pharmaceutical companies to development stage by technology companies.
I'll move now to Slide 3 and provide an update on the currently marketed product utilizing our enhanced drug delivery technologies. As you can note on the top row, there are 3 currently marketed products utilizing ENHANZE that are available to patients in most of the major developed markets. These are HYQVIA, the subcutaneous formulation of rituximab, and the subcutaneous formulation of trastuzumab. These 3 initial launches have provided important validation of our ENHANZE drug delivery technology across the globe while providing a strong foundation of revenues for Halozyme. Looking ahead, we're very excited about the blockbuster product in our partners' development pipeline.
Moving to the middle row of the slide, you can see some of these exciting pipeline products. We continue to expect that by the end of 2019 there will be 3 ENHANZE-based products in Phase 3 clinical testing or undergoing regulatory review. These include Janssen's DARZALEX, Roche's fixed-dose combination of Perjeta and Herceptin and a third product which is currently in Phase 1 testing. Let me now provide a few more details on these products.
DARZALEX is a blockbuster therapy transforming the lives of patients with multiple myeloma. We're delighted that Janssen submitted regulatory applications in the U.S. and E.U. last month based on data from its COLUMBA study and data from its Phase 2 study. Data from the COLUMBA study was the subject of an oral presentation at the 2019 American Society of Clinical Oncology annual meeting held in early June. The co-primary endpoints of the COLUMBA study were overall response rate and maximum trough concentration on Day 1 of the third treatment cycle. The reported results of non-inferior efficacy and pharmacogenetics for the subcutaneous formulation of DARZALEX compared to the intravenous administration on these 2 endpoints. The median duration for each subcutaneous injection was 5 minutes, which compared to more than 3 hours of the IV administration. And we know that for many patients administration can take 4 to 6 hours or sometimes even longer.
The results of the COLUMBA trial demonstrate the value proposition that may be offered by the subcutaneous formulation of DARZALEX. The substantial savings and administration time may have potential benefits for patients, caregivers and the healthcare system. Janssen has also stated that the availability of the subcutaneous form of DARZALEX will allow expansion even further into earlier lines of therapy and into the community setting. An important potential benefit given the current oncology infusion center capacity constraints. Janssen is contained with a broad clinical development program to support the potential commercialization. All the subcutaneous form of DARZALEX, including 7 already initiated Phase 3 studies.
Importantly, the subcutaneous formulation of DARZALEX could be the first product utilizing ENHANZE launch where the IV version of the drug is still in the early stages of growth. For the second quarter of 2019, J&J reported 41% growth of DARZALEX sales globally and analysts currently project $2.8 billion in sales for 2019 with the potential to exceed $7 billion in worldwide sales by 2025.
I'll move back to the next ENHANZE-based product and late-stage clinical development, which is Roche's fixed-dose combination of Perjeta and Herceptin. This product candidate is currently being studied in HER2-positive early breast cancer. As a reminder, patients currently receive Perjeta and Herceptin by sequential intravenous administration, which can take up to 2.5 hours for the loading dose and between 1 and 2.5 hours for subsequent doses. With a subcutaneous fixed-dose combination, the times are substantially shorter with a loading dose expected to take 7 to 8 minutes and the subsequent doses 5 minutes.
Roche completed enrollment in a Phase 3 study evaluating the fixed-dose combination of Perjeta and Herceptin in comparison to the IV form in the fourth quarter of 2018. They recently indicated they expect results from this trial in the second half of this year and hope to file regulatory submission in the first half of 2020. According to Roche, the market addressed by this combined therapy is approximately 75,000 patients in the U.S. and E.U5. Roche on their most recent quarterly call commented that fixed-dose combination may provide an immediate benefit to patients in terms of convenience. And that it also provides an opportunity to consider the value proposition for the 2 drugs combined and what the right price is for that combination. We look forward to further developments with this program in the coming quarters.
And lastly, with regard to our partners' Phase 3 development programs, we continue to expect one additional product that is currently in Phase 1 to advance into Phase 3 clinical testing before the end of 2019.
Turning next to the bottom row of Slide 3 I'm going to give an update on the Phase 1 program utilizing ENHANZE. We continue to expect that by the end of 2019, there will be 9 products in Phase 1 clinical testing. We currently have 6 products in Phase 1 development by our partners Argenx, Alexion, Bristol-Myers Squibb, Lilly and Roche. we were pleased to announce last month that Argenx had dealt with the first patient in a Phase 1 trial, evaluating the safety pharmacogenetics and pharmacogenomics of Efgartigimod or ARGX-113 utilizing ENHANZE. This achievement marks the fastest time from the signing of an ENHANZE collaboration agreement to first patient dosing in a Phase 1 study at just over five months. This triggered a $5 million payment to Halozyme.
And Argenx stated on their quarterly calls that they expect results from this study by year-end 2019. During the second quarter, Argenx also selected a second target under our Collaboration and License Agreement, human commitment factor C2, which is associated with the product candidate ARGX-117. Selection of a second target triggered a $10 million milestone payment to pay Halozyme. The CTA filing for the first patient testing is expected by year-end 2019. We could not be more delighted with the progress of our collaboration with Argenx and look forward to continue to work closely together.
Alexion now has completed their Phase 1 study of subcutaneous ALXN1210 co-administered with our ENHANZE drug delivery technology, a next-generation subcutaneous formulation called ALXN1810. Alexion strategic planning around its C5 portfolio is ongoing, including its plans for late-stage development for ALXN1810. In addition, Alexion submitted the initial CTA application to the medicines and health care products regulatory agency in the U.K. for the initiation of a Phase 1 study of ALXN1720 which is novel anti-C5 albumin-binding bi-specific mini-body that binds and prevents activation of human C. The planned study is expected to start in late 2019 and will evaluate ALXN1720 with ENHANZE.
Bristol Myers Squibb is continuing with 2 Phase 1 studies for anti-CD73 and Opdivo. Eli Lilly is continuing with its Phase 1 development of an undisclosed target. And Roche continues with a Phase 1b2 study evaluating a subcutaneous formulation of TECENTRIQ in stage 4 non-small cell lung cancer patients. In addition to the 6 ongoing Phase 1 trial, we anticipate 3 additional Phase 1 trial starts in 2019, including ALXN1720, which we just discussed. And there'll be 2 additional starts that remain undisclosed at this time.
As you've just heard, our ENHANZE business continues to build momentum in the clinic. And one of our most exciting partner programs in the pipeline subcutaneous DARZALEX subsidy has now entered the regulatory review process. We look forward to this being followed by regulatory submissions for the Perjeta and Herceptin fixed-dose combination in the first half of 2020. With our partners' clinical development programs expanding and key regulatory submissions in process and on the horizon, you can see why we have conviction that the ENHANZE platform has the potential to deliver approximately $1 billion in royalty revenue in 2027. And I'll mention again that in addition, we remain in active discussions with potential new ENHANZE partners that could further add to this potential.
Now turning to our oncology pillar, which is shown in Slide 4. This is a very exciting time for our oncology pillar as we near the announcement of top-line results for our pivotal Phase 3 study in metastatic pancreas cancer, HALO-301. The oncology pillar represents Halozyme's second high revenue potential business currently centered around the development of PEGPH20, which is a targeted therapy that temporarily degrades the hyaluronan or HA that can accumulate around certain tumors and increase intra-tumor pressure and as a result, constrict the tumor vasculature and reduce access of cancer therapy. We're setting PEGPH20 with a companion diagnostics developed with our partner Roche tissue diagnostics, formerly Ventana to identify patients with high levels of HA in their tumors.
As a reminder, HALO-301 is a randomized, double-blind, global Phase 3 study evaluating PEGPH20 in combination with ABRAXANE and gemcitabine in first-line metastatic pancreas cancer patients with high HA tumors. HALO-301 has single primary endpoint or overall survival. We completed enrollment of HALO-301 in December of 2018 with approximately 500 patients. In May June, this year, we announced that HALO-301 reached the target number of 330 overall survival events and that we plan to conduct the final overall survival analysis upon data maturity, which would occur when all patients enrolled have been followed for at least 8.5 months. Based on the timing of data maturity, we expect that as top-line results for HALO-301 by December of this year.
Let's now turn to Slide 5 and an update on our evaluation of PEGPH20 in other tumor types. Roche is evaluating PEGPH20 combined with Tecentriq in their MORPHEUS second-line pancreas cancer Phase 1b/2 study. Enrollment in the arm with PEGPH20 is completed. And in the Halozyme-led Phase 1b2 study in cholangiocarcinoma and gallbladder cancer, enrollment for the initial cohort was completed with a total of 74 patients. The study is ongoing following patients still on therapy and those who have discontinued. And we're enrolling another cohort for approximately 15 patients to assess a different dosing schedule. We expect to be able to enhance initial data from the first cohort of these 2 trials before the end of this year. Without a doubt, this is an exciting time for our oncology pillar and we look forward to HALO-301 trial results later this year.
With that, I'll now turn the call over to Laurie who will discuss our financial results in greater detail. Laurie?
Thank you, and good afternoon, everyone. Turning to Slide 6 for a discussion of our second quarter financial results. Total revenue for the second quarter was $39.1 million compared to $35.2 million in the prior year period. This 11% increase was driven primarily by higher collaboration revenue from our enhanced partner, Argenx. Royalty revenue for the quarter totaled $18.1 million, a decrease of 10% compared to the second quarter of 2018. With a decrease driven by lower sales of Herceptin SC by Roche due to the continuing impact of biosimilars in Europe, which was partially offset by higher sales of RITUXAN HYCELA by Roche and HYQVIA by Takeda. Product sales in the quarter which are comprised mainly of bulk rHuPH20 and Hylenex totaled $5.8 million up 28% compared to $4.5 million in the prior year period. Collaboration revenue in the quarter totaled $15.3 million, compared to $10.7 million in the prior year period. We're collecting licensing fees from Argenx of $10 million for the selection of a second target and $5 million for the first patient dose in a phase one study.
Turning to Slide 7 For a more detailed breakdown of our P&L. I'll now move on to total operating expenses, which were $53.1 million in the second quarter, down slightly from $55.3 million in the prior year period. Cost of product sales was $1.9 million in the quarter compared $0.8 million in the prior year period. Research and Development expenses for the quarter were $33.9 million, compared to $40.1 million in the second quarter of 2018 reflecting reduced clinical trial activity with the completion of enrollment in HALO-301. Selling general and administrative expenses were $17.3 million, compared to $14.4 million in the prior year period. Net loss for the quarter was $14.6 million or $0.10 per share, compared to a net loss of $22.9 million or $0.16 per share in the second quarter of 2018 which reflected the impact of higher collaboration revenues. And cash, cash equivalents and marketable securities were $287.5 million at June 30, 2019, compared to $354.5 million at December 31, 2018.
Now turning to Slide 8, I would like to update our 2019 guidance. We continue to expect total revenues to be in the range of $205 million to $215 million, including revenue from royalties of $72 million to $74 million. As discussed last quarter product sales related to API are expected to fluctuate quarter-to-quarter and be higher in the second half of the year. For the third quarter specifically, we expect API sales in excess of $20 million, followed by API sales in the fourth quarter similar to the level we reported in the first quarter of this year. We now expect operating expenses of $255 million to $265 million, which is down from our prior guidance at $265 million to $275 million due to lower spending related to a modest production and clinical commercial and people-related expenses as the projected date for our data readout based on events attainment and data maturity became clear.
Accordingly, we now expect operating expenses excluding Cost of Goods sold of $215 million to $225 million, down from our prior guidance of $225 million to $235 million. As a result, operating cash burn is now expected to be $40 million to $50 million, down from $45 million to $55 million. Not included in operating cash burn, we expect debt repayment of approximately $90 million in 2019. Furthermore, we expect to pay off the remainder of our royalty back debt by the second quarter of 2020. And we now expect our year-end cash balance to range from $220 million to $230 million up from our prior expectation of $210 million to $220 million as our balance sheet continues to provide the company with great operational flexibility.
And with that, let me turn the call back to Helen who will provide closing comments.
Thank you, Laurie. We've made strong progress in 2019. Having accomplished multiple key milestones already. And in the remainder of the year, we expect multiple additional events and milestones. For our ENHANZE pillar, this include potential announcement of Phase 3 results for Roche's [ph] fixed-dose combination of Perjeta and Herceptin, potential advancement of a new product candidate into Phase 3, potential initiation of 3 additional Phase 1 studies. And of course, while we can never predict the timing, we are continuing to pursue additional collaborations.
And for our ecology pillar, we expect top-line data from our HALO-301 pivotal Phase 3 study by December of this year. I want to close by expressing my ongoing gratitude and appreciation to the talented Halozyme team for their continued hard work and advancing our program in support of patients and our partners.
And with that, we're now ready to take your questions. Operator, would you please open up the call?
Thank you. [Operator Instructions] Your first question comes from a line of Charles Duncan from Cantor Fitzgerald. Your line is open.
Good afternoon. Helen and Laurie, congrats on a nice quarter. Thanks for taking our questions. Had a quick question for you. It seems like your espresso machine is really kicked up this afternoon. Because, Helen, you're speaking so fast I missed. I think you said something about estimated milestone payments of a certain amount and over a certain period of time. Can you just state that again and your thoughts behind that?
Happy to, Charles. It's a call on the slide we have that shows our projection on the royalty revenue potential for ENHANZE, which is you know is estimated at a potential of $1 billion by 2027. People often underestimate or forget that we also have substantial revenue potential coming in from milestones. And in the period between 2019 and 2021, we have a projection of milestones of $225 million to $300 million, in addition to the royalty revenue projections that are on that slide. And so it really does reflect the benefit of having multiple partners in development, as well as the partners getting into the market and generating those royalty revenues as well.
Yes, that's helpful. We may have left that off our recent calculations. Should leverage the balance sheet. With regard to account collaborations, in terms of new collaborations, I guess, how do you see large versus small or very broad versus smaller ones? How do you see earlier stage use of the technology versus later stage use? Where's the interest? Where does it seem to come from? Obviously, you've got enough going on but I'm wondering kind of get some more insights on the future.
Hey, Charles, I'll turn that over to Laurie just to comment on the range of conversations we're involved in.
Hi, Charles, how are you doing? We continue to be in conversations with multiple potential partners and the beauty of the Argenx seal is a great example of more of a biotech versus the larger pharma type of partners that we had -- we've contracted with in the past. And we are seeing our partners, not only be interested in already marketed products like Vivo, for instance, with CMS, but also earlier stage part products like CD73. So we're really starting to see a wide range of type of partners, size of partners, as therapeutic areas, as we've seen with a recent Alexion and Argenx molecules, as well as different stages in the life cycle. And there are targets that enhance will benefit across the gamut of those things.
Okay, that's helpful. The last question is regarding the timing on 301 data. I know it's an in precise science, because it depends on events. But I'm wondering if your current thoughts with regard to I think by end of December, is that different? Is that new? It seems like that's what you've been saying but then perhaps there was some thought that it could be earlier in the second half? Is there any new information in that that we should maybe read into?
No new information, Charles, since our last update. We have attained the 330 events and now we're waiting for data maturity. That is all patients followed for 8.5 months. So we do have a very good line of sight that we will have the data by December.
Okay, that's helpful. Thanks for the reminder. Good quarter.
Your next question comes from line of Jim Birchenough from Wells Fargo. Your line is open.
Hi, guys, congrats on all the progress. A few questions. I guess just first Helen on the billion in target royalties. It seems that that target has been available before we had much visibility on our Argenx progress. And so I'm just wondering, is Argenx royalties’ part of the billion target royalties? Or is that above and beyond?
Yes, let me ask Laurie to just comment on that, Jim.
Hi, Jim. So when we set that projection for $1 billion by 2027, it was looking at a portfolio of products. And as we had new partnerships or programs move into the clinic, it's just increased our conviction around that $1 billion. So we're still projecting $1 dollars by 2027.
I was going to say it includes all of the 15 products we're talking about, 3 marketed and the 12 that we project will be in the clinic by the end of this year.
Got it? And then a question we get is, we know you're planning for success with 301, but you've alluded to the contingency where it doesn't work and becoming an ENHANZE only company. And so how crisply and timely will be the guidance on what and ENHANZE only company looks like in the event that 301 doesn't work out? Will it start a clock to studying this further or is your thinking along the lines of that contingency pretty far along as well?
I can say that contingency as far as prudent business planning, it will be ready to be talked about in the event we do negative payment 301 data. I will stress that is not our based planning assumption for the company. But we do recognize we need to be ready with that. And we will have information as to what the size of the company is and what the path to profitability is for that ENHANZE only company.
And then just maybe one final question, Helen just on 301. Just overall, would you say your level of conviction has remained high -- has become higher? How are you feeling just confidence-wise heading into that data? And if there's anything that's either biologically or pre-clinically or anything that's making you more or less confident going into the 301 data?
Jim, my conviction is unchanged from the set of facts we had when we got the Stage 2 results, some which were recorded in December of 2016. If you recall, that was based on a mature data set. And when we looked at the HJ high population, we had a very good estimate of the treatment effect in the HJ high population. And that we could define at HJ high with a patient passed all the other 50%. And so you know the truth to answer that question is HALO-301 which is the only study was done sufficiently sized and powered to address that question. But we do believe strongly in the science. We believe that perhaps by having the control Stage 2 data, we got a much better line of sight into the potential treatment effects and many other products that haven't succeeded in pancreas cancer. So those were the facts that gave us our conviction. And my conviction is unchanged there based on those facts.
Well, thanks for taking the question.
Thanks, Jim.
Thank you. Your next question comes from line of Jason Butler from JMP securities. Your line is open.
Hi, thanks for taking the questions. First one just on the Tecentriq, the additional cohort that's being added to the gallbladder trial. Can you speak to the rationale there and specifically what you're looking for with the different dosing schedule? And then a second question on Tecentriq for both the gallbladder and the pancreatic cancer trial. I think you said data for both later this year. Just any details you can give us around patient numbers or expected maturity of data with that update. Thanks.
Thanks. And I'd like to take this if I can, Jason. Hi, I'm Alison Armour, the new Head of R&D. It's not unusual to explore an alternative regimen in Phase 1 development. And with the collegial carcinoma study, we had an additional PK information that came from the 202 study during the conduct of the study. Now, you will remember that in collegial carcinoma, the regimen is slightly different. It's platinum, given every 3 weeks. A pancreas is, Jim a black thing which is given every 4 weeks. So the regimens were slightly different. So when we got additional data from the 202 trial and it showed us that the C12 level might be important, then we decided to make the dozing in the collegial study more similar in fact, to the pancreatic one. So we're just using that information and then doing good science here.
And then Jason, I can sort of pick up on what we might expect to see. The data is still maturing as we think about what the initial data would be. It would be a response rate. And if the data is mature enough, perhaps even PFS in these populations, but it would be a first look at the initial cohort by the end of this year.
Great. Thanks, Helen. And then just maybe a quick one on Herceptin. There was a pretty significant impacted biosimilars in Europe this quarter, any thoughts going forward about how that franchise looks and how you'd expect biosimilars to impact the market in the U.S. as well? Thanks.
Let me ask Laurie to address that.
Hi, Jason. We continue to watch this closely. We're very confident still in our forecasts of $72 million to $74 million for royalties this year. We are continuing to see the impact of biosimilars. You are correct and in Europe, on Herceptin but we still feel confident in the $72 million to $74 million. As far as biosimilars in the U.S. we did project that there would be biosimilars coming to the U.S. in the second half and that was part of our plan this year. Now to the extent there are multiple entrance into the market or there are aggressive price actions we may need to look at that. It may have a greater than anticipated impact on our projections. But we did anticipate biosimilars in the second half. So we're still within that range.
Okay, great. Thanks for taking the questions.
[Operator Instructions] Your next question comes from the line of Joel Beatty form Citi. Your line is open.
Hi, thanks for taking the question. The question is on the kind of market dynamics of the subcutaneous formulation of ENHANZE IV and sub Q. Some of the products decrease the delivery time by quite a bit, an hour and then sometimes a little bit shorter. Have you identified kind of maybe a threshold where that seems to make a big difference in terms of giving the edge to the ENHANZE partner product?
Thanks, Joel. As you point out, we've seen a difference in the products that we've launched to date. Herceptin is a very good example, where the IV is anything from usually 60 to 90 minutes and the subQ was 5 to 10. Now with that difference, what we did see in Europe was 60% share of sales volume for the subQ. So that was a -- certainly in Europe a very attractive value proposition because all of the potential benefits for patients but also as Roche demonstrated in reduced cost for the healthcare system. You're quite right in pointing out with DARZELEX as an example, the value proposition appears even stronger, being able to go for many patients as 4 to 6 hours, down to just 5 minutes. And so I think we are still would get some 3 products approved so far. DARZELEX with the five-minute injection. I still think we need to find what is the minimal difference that would make a difference. But that's certainly the Roche product, that value propositions, which are all those ones today. Certainly, seem to be very attractive for healthcare professionals and patients based on the share adoption.
That's great. Maybe a question on the milestone payments coming up of $225 million to $300 million, are you able to provide a breakdown of those or you just give a sense to if they're mostly development milestones or a substantial portion of commercial milestones or a large amount coming from any particular product?
Laurie will address that.
Hi, Joel? Well, we haven't provided a breakdown of that $225 million to $300 million. What I can say is that it is primarily development milestones as our partners are moving those by the end of the year, the 9 products in Phase 1 and the 3 products in Phase 3. And as those programs continue to move through the development cycle, I think the majority of those milestones will be associated with development program.
Thank you.
There are no further questions at this time, Dr. Helen Torley, President and CEO, I turn the call back over to you.
Thank you all for being here. And thanks to everyone for joining us today. As you've heard, we're continuing to make very nice progress. here at Halozyme, we look forward to providing you with an update in the next quarter. Have a great evening.
This concludes today's conference call. You may now disconnect.