Greetings, and welcome to the Halozyme Therapeutics Fourth Quarter and Year Ended 2011 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Anne Erickson, Executive Director of Investor Relations at Halozyme Therapeutics. Thank you, Ms. Erickson, you may begin your conference.

Good morning, and welcome to Halozyme's quarterly update conference call. Joining me on the call today are Gregory Frost, President and Chief Executive Officer; and Kurt Gustafson, Chief Financial Officer. This morning, Halozyme released fourth quarter and year ended 2011 financial results. If you've not received this news release or if you'd like to be added to the company's distribution list, please e-mail me aerickson@halozyme.com. The 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'll 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 uncertainty of Halozyme's business, both known and unknown. Such risks inherent in the company's business are described in our filings with the Securities and Exchange Commission, as well as in our news releases. The company's actual results may differ materially from those expressed in or indicated by such forward-looking statements. With that, I'd like to turn the call over to Gregory Frost, Halozyme's President and CEO.

Thanks, Ann and good morning to everyone. We appreciate you joining us on our fourth quarter and year end call for 2011. This morning, we'll elaborate on the press release issued this -- earlier this morning. In a few minutes, Kurt Gustafson, Halozyme's CFO, will provide additional details on the quarter and year-end underlying financial results and comment on our outlook for 2012. I'll provide an update on the status for key clinical programs, including significant progress made with our wholly-owned programs, as well as the clinical programs from our collaborators. Before I do that, I want to highlight some new information we announced this morning. Roche's submission of a Line Extension Application for subcutaneous formulation of Herceptin to the European Medicines Agency for the treatment of patients with HER2-positive breast cancer. While this finally triggers a $4 million milestone payment to Halozyme from Roche, it most notably marks a major achievement for the overall subcutaneous Herceptin development program and demonstrates significant progress from our long-standing collaboration. This formulation of Herceptin uses Halozyme's Enhanze Technology to enable the subcutaneous injection, just under the skin, of a full intravenous dose medication. If approved, this would result in faster administration times versus IV administrated Herceptin for both patients and their health care providers. Improving the efficiency and convenience of care with this patient population is very important. Roche is also in clinical studies with pre-filled auto-injected device that could potentially allow some women to self-administer at home. With this device, dosing time could take approximately 5 minutes versus anywhere from 30 to 90 minutes for the IV administration. This may offer a significant advance over having to travel to infusion centers for treatment. In October of last year, we announced positive top line results from Roche's Phase III registration trial. The full…

Thanks, Greg, and good morning to everyone. This morning, we announced our financial results for the fourth quarter and the year ended December 31, 2011. The net loss for the fourth quarter of 2011 was $18.4 million or $0.18 per share compared with a net loss for the fourth quarter of 2010 of $16.9 million or $0.17 per share. For the year ended December 31, we reported a net loss of $19.8 million or $0.19 per share compared to a net loss of $53.2 million or $0.56 per share for 2010. Revenue for the fourth quarter of 2011 was $2.4 million compared to $3.6 million for the fourth quarter of 2010. Research and development expenses for the fourth quarter of 2011 were $14.9 million compared with $15.9 million for the fourth quarter of 2010. The decrease is primarily due to decreases in clinical trial activities and partially offset by an increase in manufacturing activities. SG&A expenses for the fourth quarter of 2011 were $5.9 million compared with $4.6 million for the fourth quarter of 2010. The increase is primarily from higher marketing and market research expenses during the quarter. We ended the fourth quarter with a cash balance of $53 million, and our net cash burn for the fourth quarter of 2011 was approximately $13.5 million and for the full year of 2011 was $30 million. So let me switch gears now to our financial guidance for 2012. If we exclude the recent financing, approximately $82 million, we are forecasting that our net cash burn for 2012 will be between $50 million and $55 million. And if you go back to 2011 and exclude the business development deals that we signed in 2011, this net cash burn guidance is in line with what we originally provided to start the year…

Thanks, Kurt. Before the close of our prepared remarks, I want to take a moment to acknowledge and thank the employees of Halozyme whose hard work and dedication enabled the numerous accomplishments of 2011. We delivered on some several significant milestones that position us for even greater achievement this year, will help us build long term shareholder value and will enable us to advance patient care through truly innovative therapies. And I'll now ask the operator to open up the lines for questions.

[Operator Instructions] Our first question is coming from the line of Ying Huang with Barclays Capital.

My first question is first of all, should we expect any near-term news on the partnership? And then secondly, we know that in the pump use for insulin, sometimes they do -- the end users tend to work upon 1 or 3 days. I was wondering if you have any plans to conduct a trial in this setting for more than 3 days.

First with regards to partnership question, obviously, we're always actively involved discussions with folks regarding partnerships, but we don't typically go through and talk about them usually until the 8-K is filed. So that's typically the way we look at that. As far as pump use is concerned, obviously, there is from a used most of the applications where people have these are essentially registered and tested for use for changing infusion sites every 3 to 3.5 days. And so that's not something we have the ability to go through and change as far as changing the entire system of what they're approved for beyond that period of time. There are some -- most of the studies that we've looked try to go through and ensure that we're covering that duration of currently approved use, however.

Our next question is coming from Eun Yang with Jefferies & Company.

When did exactly the Roche filed this Line Extension Application for subcutaneous Herceptin?

Eun, it's Kurt, and the actual date they filed was on March 2.

So you're going to be booking $4 million in the first quarter?

Yes, from a revenue standpoint, we would book the revenue in the first quarter.

Okay. And then, Kurt, in your $50 million to $55 million cash burn guidance for this year, what's your assumption for stock option expenses?

For stock option expenses?

Yes.

That number is going to be fairly similar to what it has been in past year. So I think if you go take a look at, I mean, we don't have a major growth in the number of employees. So I think assuming that it's fairly similar to previous years would be a good starting point.

So what was the previous year, is it in the...

I think you look about historically, we're in the 5, 6 sort of range.

Our next question is coming from the line of Jason Butler with JMP Securities.

Looking forward to the Herceptin data presentation later this month. Could you maybe walk us through, obviously, the data is positive, Roche have confidence and that they filed off that. What are the key points that you would be focusing on in that data set, and what should we be looking for maybe we're not necessarily expecting?

Well, Jason, obviously, as far as detail these presentations are, as you know, are embargoed until presentation. But what I always would go through and direct folks to first and foremost are the primary endpoints of this study. And those are really 2, which co-primaries, one whose focus is upon the exposure of the product relative to the intravenous administration. This was an innovative approach taken by Roche obviously, going to a fixed dose of trastuzumab for all patients versus a variable dose. And the second component, which is the co-primary's the pathologic complete response rate or the percentage of patients experiencing a histologic complete response to therapy. So those are the 2 key components I think that would be most valuable for people to think about this particular program. And, of course, that data sets going to be on the 23rd in Vienna.

Okay. Great. And then second, I just wanted to come back to your comment about achieving a cash flow positive state in 2013. I assume you don't mean for the full year of 2013 you would be cash flow positive, but could you maybe walk us through, obviously that's growing revenue and new royalty streams, but how do you think about expenses and just broadly strategically, how you get to that state?

I'll let Kurt answer that one.

Yes, Jason. I think that, obviously, as we look forward to Baxter launching and hitting the timeline they've articulated later this year and as we move into 2013, Roche has articulated that they'd be filing Herceptin this year, which we now have seen and that later in the year. Those are assumptions that we'll see product launches for those in 2013. And as we see from the revenues associated with those programs, along with certain milestones, those will drive -- that's what drives us to the cash flow positivity I guess, if that's a word. It's not a function of us really bringing down our expenses, if you will, in 2013. So assuming success of our clinical programs, we're going to continue to spend on these, and so the primary driver here, which kind of dwarfs anything we're going to do on the OpEx side is really that revenue growth.

The next question is coming from the line of David Moskowitz with Roth Capital Partners.

So just have a few questions. One, could you give us a little bit about the market opportunity you guys see for HYLENEX? I think, Greg, in your comments you mentioned a relatively small market. We kind of had an idea what Baxter thought when they have the product. So from you guys in terms of what you think that product could do and also would there be a potential to out license the product? I also want to ask another question with regard to inventory build that you talked about and your cash guidance. Is it possible, Kurt, for you to tease out the inventory build out of your cash guidance? I'd love to hear it with respect to just partnership inventory build. But if you could at least tell us what that cash number is for overall inventory build that would be great?

Sure, David. Well, I'll let Kurt handle the questions regarding inventory build, but with regards to HYLENEX first and foremost, the application that we're looking at there's really the first wave of this, which is something that actually Baxter hasn't really looked at, and it's a very simple component in mainly the hospital and ambulatory surgical care market, is simply the use of the enzyme specifically in areas for drug extravasation and filtration and for periocular use. Those 2 applications are relatively small market, but that was really one of the key things that drove these enzymes through the drug shortage list initially, and so it's an important application, but it's a relatively straightforward conversion. And so for that particular application, it's quite small. From that perspective, it's less than $20 million. So we don't typically focus on that as far as what the impact would be to top line revenue. But effectively, it's something where we have an infrastructure in place that we feel comfortable that we'll be profitable. Second, with regards to the use in hydration, this is a use where obviously, there is existing hospitals around formulary where we're going through and introducing that and from the standpoint of that particular use, we'll be doing a tempered analysis of that based upon our introduction into the hospitals and ASEs, specifically for the established uses. So effectively, the way that we look at that first piece is the first piece we feel very comfortable about our ability to go through and be profitable from that, and the second piece on the creation market, if you will, that's something where we're spending the time to look at it. And so we'll go through, and we'll give more updates as we see the progress in those secondary tiers.

I heard a $20 million opportunity. Is that what I heard?

It's less than a $20 million opportunity if you look at the total application. So it's less than I think 600,000 to 800,000 doses or so that are used annually.

So, David, on the inventory side, I'm not going to provide any sort of specific breakouts between partnership and what we're building for our own use. But if you kind of think about the message that Greg just gave you, you could imagine that a very significant portion of this is for the partnership given the forecast that we I guess, are not providing for HYLENEX. But I think the other thing that I'd want to just be clear, just so you're kind of following our financial statements and taking a look at building your models out from a standpoint of the accounting treatment on inventory, pre-approval. So anything that we're making for Baxter and for Roche, the material that they have ordered, we will be expensing that as R&D expense up until the point at which that product is approved. It doesn't mean it's not going to be used for commercial purposes. Just from an accounting standpoint, it's going to run through the P&L as an R&D expense and then post-approval, you'll actually show it out, see it come up on the balance sheet as inventory. So I just don't want kind of taking look at first in quarter balance sheet that we'll have and say wow, there's no inventory. There is inventory there. It just was expenses opposed to put on the balance sheet from an accounting standpoint. Does that makes sense?

Absolutely. I'm just trying to the cost guidance, 15% increases, I think a little bit more than we were expecting. So I'm just trying to understand out of that percentage increase, how much of that is inventory build overall?

Yes. So and if you read into then what guidance I just provided you, a significant portion of the inventory that we'll be building obviously is going to be -- going through R&D expense, and so part of that expense figure as opposed to just cash flow that's in the balance sheet.

So can you tell us what R&D might look like with and without the inventory? And I'm just trying to understand how much of that factors into the overall increase in cash burn above what one might be -- might have been expecting.

Yes, I can't provide that, David.

Okay, and then just one last question for Greg. Greg, in your prepared comments, I heard you talk about the second half of the year, and I believe you talked about recapping on where you stand with the PH20 insulin asset or franchise. Does that mean that's when we might expect resolution partnership? I mean, it sounds to me like it means there's nothing on the table that's imminent at this point.

I wouldn't read anything into that from that nature kind of in light of my first comment, but what I would say is there's 2 pieces here in the equation as far as CSII and MDI. And so from the CSII or pump opportunity that we're looking at we're focusing #1, evaluating and sizing of that market and essentially what that ROI might look like to us. And so we're doing that in parallel with partnership discussions such that we'll be in a position of knowing essentially the value of this asset to someone else versus in our hands versus the combination or separating the 2. And so those really, as far as putting all those together, I think we're running those in parallel. We like what we're seeing so far from the standpoint on the pump side, but we're not done. And from the discussion standpoint, we've run those alongside, and so that we can put all this together and make a decision. So this has been a big investment for what we've done as far as the overall insulin franchise, and we're thinking about this methodically.

Our next question is coming from the line of Chris Holterhoff with Oppenheimer & Co.

Just on HyQvia, could you comment on whether or not you received a payment from Baxter upon the potential approval? I know that I think, under the terms of the agreements, Baxter's obligated to pay up to an additional $37 million or so. But does not -- not sure if any of these are going to be approved or not.

Yes. So the next milestone for the contract is on first commercial sale. So not specifically approval it's when they actually launch the product. I think just to clarify the number I believe there's actually only $34 million left of milestones from Baxter.

Okay. Great and then also on HyQvia, can you just comment kind of on your expectation for when Baxter might launch or you do get approval at the end of April?

I think Baxter's going through from the perspective and has articulated some of the things on their strategy. I would kind of guide you back to take a look at what their statements on that.

Okay, fair enough. And then last on the accounting treatment for this $4 million milestone payment from Roche in the first quarter, are you likely to recognize that all in the first quarter or could this be kind of spread out over the year?

For milestone payments so we recognize those during the period in which we achieve them. Q1 even.

[Operator Instructions] We do have a follow-up question coming from the line of Eun Yang with Jefferies & Company.

Kurt, you might have mentioned this about the product sales in the fourth quarter, any part of it is coming from HYLENEX?

There was some sales from HYLENEX in Q4. I mean, we launched this in December. So you can imagine it's not a big number because of the way that we were booking it since we're not booking it based on wholesaler, you didn't get kind of that first bolus based on a wholesaler loading.

Okay, and then now that Roche have filed a subcutaneous Herceptin and they expected to file for subcu formulation by the end of this year, do you know -- is there any color you can give us when Roche might be moving a third product into late-stage clinical development?

No. Well, as you know, Eun, there's kind of 2 different pieces here. One is the way that this relationship is set up there are. Both target specifically for which we have provided exclusivity to Roche on. So, for example, Herceptin covers the HER2 target, and so they have rights to that target with any therapeutic antibody, for example, hitting that target same thing holds true with CD 20 as a target as well. But we received, as far as millstones and things of that nature, only for the first set. So from that perspective, if a follow-on or adjunct were used in the setting of that nature, you'd not hear about it until it became material for Roche. So wouldn't expect anything there. And as far as the new targets and other processes are concerned, that's one that I'd go through and look to Roche for providing additional guidance on.

The next question is coming from the line of Jonathan Aschoff of Brean Murray, Carret.

I was wondering, any reason that you can give us as to why Baxter is so cautious when they talk about the launch pace of HyQ? And certainly a peer of Baxter didn't exactly have a slow launch of their subcu, and I'm just wondering can you help us understand why when they talk about it, they're quite conservative, very, very, very conservative about the pace of that launch.

I'll let Kurt comment on that one.

Yes, I've seen the same stuff out there, Jonathan, and I think Parkinson's been out there making a few comments about the same things like a controlled launch, but I think, at least based on what I've seen, is that they have a situation from a supply standpoint where they took down a fractionation facility, and they're trying to bring that volume back up. And they want to make sure that they're -- I think they're excited about the subcu product and they want to make sure they're not in a situation where if they went out to aggressively that they don't run out of products. I think that they have limited supplies of IgG, and they just want to make sure that they build this thing out in a profitable way. That's the way I read his comments.

The only addition I could make to that is as far as the infrastructure I think that seen in place bioscience HyQ. I've been very pleased as far as the planning and it's been put from a marketing perspective on their side. I think this has been very well planned out as far as market introductions concerned, and I'm certainly happy with it.

Okay, one final one. So what was the time you gave earlier for the next cellulite data set?

Yes. So the first stage of that we gave just top line data was reported because it was at an International World Congress for plastics. And so effectively, as you know, there's kind of both 2 concentrations of activator, if you will, and then there's an escalation of concentration of enzyme. And so we expect to have that trial wrapped up this year and so effectively as it blows out into a 5-field injection, one site is placebo-controlled and one site with 5 injections of activator and then monitoring on that. We'll have the primary reads going through obviously quite quickly on this, but then we will be catching a little bit a follow-up as well. So we'll have that data wrapped up this year.

Our next question is coming from the line of John Sonnier with William Blair & Company.

Maybe a question for Greg. You mentioned and I agree you guys have invested a substantial amount of capital over the last few years in the diabetes program, and I feel like this is kind of when the rubber meets the road. You have data basically, a Phase III ready data package. You have a great balance sheet now. I guess, I haven't heard you guys comment in awhile on what exactly you'd expect like structurally what type of transaction do we look for? Historically, I think it was not going to be a clinical Roche-like deal, but what are reasonable expectations for the -- for partnering the diabetes program?

Well, John, I've always gone through when you look at the different potential partners that are out there, I look at them both from the standpoint of what the value is that we provide from the perspective of the product opportunity and what it can mean for them. And as far as looking at this on the basis of when you look at commercializing such an asset. In some cases, you're looking on the basis of what's the value of the asset itself in a particular partner's hands. And in some cases, that value can be different based upon the established infrastructure that particular group has, based upon their current experience. So I try and look at this on the perspective of saying I think that the value is very big. I don't go on the basis of what do we see the NPD because it actually does vary based upon in whose hands they have that. But needless to say, I think we've been very thoughtful of how we've modeled this out, and I think the value that we can provide on this is something we could get a better look at when they see the data at ADA.

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

This concludes today's conference call. Thanks for joining us. You can disconnect your lines at this time.