Halozyme Therapeutics, Inc. (HALO) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Antares First Quarter 2013 Operating and Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Jack Howarth, Antares Vice President of Corporate Affairs. Please go ahead, sir.

Thank you, Craig, and good morning, everyone. Thank you for joining us on today's call. We announced first quarter 2013 financial and operating results earlier this morning, and a press release can be found on the Antares website at www.antarespharma.com under the Investor Relations tab. Before we begin, please be advised that during the course of this call, we may make forward-looking statements concerning the company that are not historical facts. These forward-looking statements may include, but are not limited to, statements concerning the timing of product sales, market estimates, market potential and growth prospects, technology platforms and working capital needs. Forward-looking statements provide Antares' current expectation or forecast of future events. Antares' results could differ materially from those reflected in these forward-looking statements due to decisions of regulatory authorities and Antares' ability to execute on its development plans, capital needs and general financial, economic, regulatory and political conditions affecting the pharmaceutical industry generally. Additional information concerning these risks and uncertainties are contained in the Risk Factors section of Antares' annual report on Form 10-K and in Antares' periodic filings and other filings made with the Securities and Exchange Commission. Antares is providing this information as of the date of this release and does not undertake any obligation to update any forward-looking statements contained in this earnings call as a result of new information, future events or circumstances after the date, hereof, except as required by law or otherwise. The company cautions investors not to place undue reliance on these forward-looking statements. Joining me on the call today are Dr. Paul Wotton, President and Chief Executive Officer; Robert Apple, Chief Financial Officer and President of the Parenteral Products Group; and Leroux Jooste, Senior Vice President of Pharmaceutical Sales and Marketing. After the presentation, we'll open the lines for Q&A. I'll now turn the call over to Paul Wotton. Paul?

Thanks, Jack. Good morning, everyone. By now, I'm sure you've all had a chance to review this morning's release, so I'd like to briefly highlight some of the first quarter accomplishments. And one of the most important goals that I set for the company and for our shareholders got one step closer last quarter when the New Drug Application for OTREXUP was accepted by -- as filed by the FDA. By submitting the application in December of last year, we met the criteria for 10-month review with a target decision date of October 14, 2013. And while October still seems to be months away, we recently just completed our OTREXUP NDA mid-cycle review with FDA. Our product development group has been working closer with the FDA during the review of the application and has also been working on another important project, which I'd get to shortly. The potential FDA approval and launch of OTREXUP will be a major milestone for our company. So our next goal would then be the successful commercialization of OTREXUP, and this you can see from today's results, the increased investment in sales and marketing expense, an increase of over $0.75 million versus the first quarter of last year is part of the ramp-up necessary for successful commercial launch. We have built a marketing and trade team that is highly experienced in successfully commercializing rheumatology products. Every member of this team has worked on one or more of the current biological agents used to treat rheumatoid arthritis and all share the excitement of the opportunity that is OTREXUP. In addition to filling out the marketing and trade team, we have identified our target markets for early visible success, begun strategic third-party reimbursement discussions, initiated a publication strategy and identified all the necessary third-party vendors that will help us carry out our launch plan. I'm extremely confident in the decision that we made to market the product by ourselves pending FDA approval and even more confident in the commercialization plan based on the physician-patient pricing and reimbursement feedback that we have received to date. Further validation of our launch plan came in, in the form of independent research we commissioned to challenge our decision to go at it alone and eventually hired 25 to 30 sales reps to target the highest prescribing rheumatologists. We also validated this decision to market this product as small but well-defined physician population that requires a focused sales force. This was always part of the strategic plan. We believe the controlled yet highly appropriate spending for the launch of our first products means that the risk-reward ratio is potentially favorable for our shareholders and readily affordable for Antares. I'm convinced that our strategic plan was the right plan. One of the most important traits of a specialty pharmaceutical company is agility as relates to speed of action. Because of our size and because we believe we hired some of the best talents in the industry, we were able to also work multiple projects simultaneously. Today, I am pleased to announce that we successfully completed the first user study of the VIBEX QS T in male patients with testosterone deficiency. This is one component of our development plan and it showed that our QS devices easy to use in the target patient population. Overall, the development program is similar in scope and design to our OTREXUP program, and we continue to believe that the product will go to market in 2016. We also believe that the subcutaneous route of administration is highly appropriate for testosterone, possessing advantages over current intramuscular products, for example, that generally require medical supervision to give. And our market research has confirmed that this is a potentially large product opportunity for Antares. Moving on to another significant milestone we reached last quarter. We announced in late March the first shipment of commercial-ready VIBEX auto-injector devices to Teva. This order for the prelaunch quantities of the epinephrine auto-injector represents the first of many shipments that we will take place this year. Needless to say, we are pleased with the progress we have made with respect to our partnership with Teva and on our proprietary VIBEX platform as it relates to demonstrating our ability to manufacture devices on the large commercial scale. The experience we have gained while successfully scaling up and making VIBEX devices for Teva will be directly applicable to the commercial manufacture of the OTREXUP product this year and it is an important point for any one familiar with commercializing pharmaceutical products. Another area that we are working simultaneously this quarter was the area of intellectual property. Two significant milestones were reached and recently announced, the notice of allowance for new patents on our VIBEX QS or Quick Shot device and an issuance of a new patent on the VIBEX device platform. The Notice of Allowance on the patent application was for the quick shot device, a device that offers dose capacity of up to 1 milliliter. And with that design capabilities, it could be scaled for larger volumes. The device design emphasizes enhanced performance on the attributes most critical to patient success: speed, comfort and discretion. The new QS design also accommodates fast injection of highly viscous drug products that stall with less powerful conventional auto-injectors. As you may know, many self-injectable products currently marketed and in clinical development are formulated to be administered in 1-mill dose and tend to be of higher viscosity. The second VIBEX device platform patent that was recently issued describes a unique device color design, which comes in contact with the skin surrounding the injection site where the injector is used. And this interface design, which amongst other thing, optimizes the distribution of the drug beneath the skin surface, can be applied to all of the Antares VIBEX devices. We view our intellectual property as a valuable asset, and we will continue to actively protect the enhanced device technologies that are being applied to both established and to new drugs. Over the past 15 months, we have filed 30 patent applications and received 8 new patents. Many, if not all, of our intellectual property revolves around the unique device features for the home setting where we believe a growing number of injectables are being used. Before I turn the call over to Bob for his financial discussion, I wanted to just spend a minute on the first quarter revenues. In Q1 2012, we were heavily dependent on onetime revenues, such as milestone payments in the manufacturing of the initial launch quantity and sample supplies for Gelnique. And in the first quarter of 2012 last year, we recognized revenue of $4.1 million in connection with the aforementioned supply of the initial launch quantities, one time manufacturing startup activities and one time milestone payments from Actavis and Daewoong. Making a direct comparison for the first quarter of 2013 is difficult because almost 60% of the reported revenue from the first quarter of 2012 resulted from onetime events. In the quarter just finished, the revenue mix is a better balance of reproducible revenues, which is obviously a better place to be for Antares. We believe that the launch of OTREXUP will ultimately result in a significant positive change in the nature of our revenue base as we begin to control our own destiny. I will now turn the call over to Bob to discuss the first quarter results. After Bob is finished, I will return to close out the call with some final thoughts. Bob?

Thanks, Paul. Good morning, everyone. Before I get into the details of the first quarter results, I'd like to expand on Paul's thoughts regarding our revenue mix. I'd also like to remind everyone, as I said in previous calls, that we continue to derive revenues from multiple sources and each one of those sources can fluctuate quarter-to-quarter. We believe that moving away from a top line royalty-driven business model to a product revenue business model with OTREXUP and quick-shot testosterone as prime examples of potential product revenue not only will we grow our top line revenue, but we may also drive[ph] more consistent and sustainable top line growth in the future. So although this quarter's total revenue was lower than the first quarter of 2012, much of that can be attributable to certain onetime and nonrecurring events in 2012, which I will get into shortly. We still anticipate product revenue will grow between 20% to 40% this year without the benefit of any new product launches and total revenue growth of 10% to 20% depending on the level of business development and licensing revenue we generate this year. And as you can also see from today's results, the ramp-up in sales and marketing expenses has begun, and we will make the appropriate investments in OTREXUP to ensure its successful product launch. Total revenues were $4.5 million and $6.9 million for the 3 months ended March 31, 2013, and 2012 respectively. In the 3 months ended March 31, 2012, the company recognized revenue of approximately $3 million in connection with onetime milestone payments for our 3% oxybutynin gel from Actavis and Daewoong Pharma. Product sales were $2.5 million for both the 3 months ended March 31, 2013, and 2012. Product sales in the first quarter of 2013 includes $600,000 of initial sales to Teva for prelaunch quantities of our VIBEX auto-injector for Teva's epinephrine auto-injector product. Product sales in the first quarters of 2013 and 2012 included $0.5 million and $0.8 million, respectively, of sales of our topical oxybutynin gel 3% product to Actavis in connection with their marketing of Gelnique 3%, which was launched in April 2012. The balance of our product sales in each period were primarily sales of reusable needle-free injected devices and disposable components to Teva and Ferring. Development revenues were $0.8 million and $3 million for the 3 months ended March 31, 2013, and 2012, respectively. The development revenue in the first quarter of 2013 was primarily due to auto-injector and pen injector development work for Teva while the development revenue in the first quarter of 2012 was primarily due to a nonrecurring FDA approval milestone payment of $2.5 million recognized in connection with our Gelnique license agreement with Actavis. Licensing revenue was $0.1 million and $0.6 million for the 3 months ended March 31, 2013, and 2012, respectively. The licensing revenue in the first quarter of '13 was primarily due to the recognition of revenue deferred in prior years under agreements with Ferring, and licensing revenue in the first quarter of 2012 was primarily due to an upfront fee received in connection with our license agreement with Daewoong Pharma. Revenue from royalties was $1.2 million and $0.8 million for the 3 months ended March 31, 2013, and 2012, respectively. The majority of the royalty revenue in each period consisted of royalties received from Teva on their sales of hGH, Tev-Tropin. The increase in royalty revenue was primarily due to royalties received from Actavis on sales of Gelnique in the first quarter of 2013. No royalties were received in the first quarter of 2012 from Actavis as Gelnique 3% was launched in April 2012. Total operating expenses were approximately $5.9 million and $5.0 million in the first quarters of 2013 and 2014, respectively. The increase was primarily due to an increase in OTREXUP commercialization and marketing activities in anticipation of the 2014 launch. That loss was approximately $3.4 million and $0.1 million for the first quarters of 2013 and 2012, respectively, and net loss per share was $0.03 and $0.00 in the first quarters of 2013 and 2012. At March 31, 2013, Antares had approximately $80.3 million in cash and investments. With that, I'll now turn the call back over to Paul for some final comments.

Okay. Thanks, Bob. So there's 3 words that best described the strategic process we have undertaken at Antares over the past 4.5 years: fixed, focus and growth. We stated that our goal was to reposition the technology company dependent on royalty streams and partnerships into a revenue-generating specialty pharmaceutical company that will enjoy the bulk of the revenues resulting from a growing product pipeline with control of its own commercial destiny. Four years ago, I envisioned that strategic investments and innovation were required in order to build a pipeline of novel products that would deliver the best long-term value for our shareholders. We're now on the verge of realizing that goal and I'm extremely pleased that the vision is becoming reality. We're a marketing-led company and data-driven. When I became CEO, we commissioned extensive primary market research. This showed us that the injectable market was about to grow rapidly and that Antares had a comprehensive technology platform that could play a role in the exciting growth of this segment. In the U.S. alone the value of generic injectable drugs amounts to approximately $6 billion, and segments such as rheumatoid arthritis are valued at over $17 billion where the bulk of the value is attributed to injectable medications such as Enbrel and Humira. The recent flurry of M&A activity in the injectable space is confirmed, that the outcome of our market research-driven strategy is correct as others now seek to capture value in this segment, and in fact, copy our strategic approach. Studies have shown that our VIBEX system can enable patients to self-administer a subcutaneous parenteral drug in the nighttime setting with a high level of convenience and confidence as taking a tablet and enhanced safety over intramuscular injections administered with a needle and syringe. Our technology has created product opportunities, such as OTREXUP for rheumatoid arthritis and psoriasis, and QS T for male testosterone replacement therapy. And as we receive validation of our technology through future product approvals, we will continue to add product candidates to pipeline that meet our criteria for success. We have only just begun to scratch the surface in terms of the overall value and number of products that our platforms can create. In 2013, we have clear goals. Our highest priorities are to obtain the FDA approval of OTREXUP, as I said before, the FDA has indicated that the PDUFA goal date is October 14, 2013; and to complete the first clinical study for QS T, a once-weekly subcutaneous product for male testosterone replacement, which is a large and growing market opportunity and projected by industry analysts to be worth over $5 billion by 2017. We anticipate launching this product, as I mentioned earlier, in 2016. There are numerous other goals as we continue to execute against our business plan, including seeking additional partnerships for our products in international territories. In addition, we will continue to build the infrastructures that we've prepared for the commercial launch of OTREXUP. We now have the building blocks and the firepower to expand and accelerate our commercialization strategy and pipeline growth as a result of the financing completed in October 2012. Antares has never been stronger, and in my view, is well positioned now for the foreseeable future. Thank you for your continued support, and we will now open the lines for your questions. Operator?

[Operator Instructions] And our first question does come from the line of Louise Chen with Guggenheim.

I had a few. So the first one I had was on the OTREXUP product. And this is the question that we've gotten is you don't have a head-to-head trial per se, but why do you feel confident that doctors and payers will choose your product over other options? And what do you expect to be in your label on the trials that you have done? And then my second question is on the AB rating for EpiPen. Just wondering here how many people that buy the EpiPen actually use this product, so wondering how -- is the argument that it has to be exactly alike, how strong is that? And the last question is on the VIBEX 3 product, the QS M. Just wondering if you'd give more details on that and if you have a VIBEX 4 product also in development?

Thanks, Louise. So we have 3 questions, 1 on OTREXUP, 1 on EpiPen and 1 on QS M. So with OTREXUP, actually, what I think the best thing to do is to hand that over to Leroux who can talk about the label. And with -- from the market research we've done, what we know is that there is a need out there for a subcutaneous methotrexate product. All of the work we've done, and in fact we just validated that with third-party research, has shown that physicians like the product concept that we have. So let me just hand over to Leroux to give some flavor on the marketing elements that we're proposing.

Good morning. Thank you, Louise. Great question and certainly a question that we have looked at in depth as you might imagine during all of our target product profile and market research as we talked with rheumatologists and payers. And clearly, the use of subcutaneous methotrexate is fairly well known. In fact, I think it's very well known and the data that exists -- publications that have already been published, as well as the data that we are looking at from a variety of different registries and databases that would make up our publication strategy would support the use of subcutaneous methotrexate in providing the benefits that we have talked about in the past, extending the time to the need to add or switch to the biologic; in other words, enhancing and expanding the optimal use of methotrexate. It's well recognized as a benefit that OTREXUP will provide. Your second part of that question related to the labeling, I will address some of that and perhaps Paul will add to that. Clearly, we have not yet had feedback from the FDA in terms of what they will accept in the label that we have submitted as part of the NDA. However, I think we are pretty confident that the studies that we did, the bioavailability pharmacokinetic data, the actual human use study, the human factor study, that all of those data would be included in the label. In addition, we included many references to this subcutaneous methotrexate providing the evidence in publications out there that would update the label as the existing methotrexate label is quite outdated and does not reflect subcutaneous use at all.

Yes, thanks. And the other thing, Louise, which we'd -- there was a-head-to-head study in a sense, which would be availability of the injectable methotrexate using our device compared to all availability of doses between 10 and 25 milligram. And that data we actually have included in our draft label. It's available because it's on our website presentation. But when you are giving talks to investor groups, including physicians in the audience and they all get the value of the methotrexate given using our OTREXUP product, when you get to doses above and beyond 15 milligrams, they'd like the precision that patients get. They like the fact that physicians are giving patients a reproducible dose that gives you better systemic availability of the drug and avoid some of the gastrointestinal side effects that you see with high doses of oral where patients may be getting more drug, but they're not necessarily getting more drug to where it needs to be. So I think that what we have is a good package here. And all of the work we do in terms of the market research, and we continue to talk to people on this front, this is a sticky product and we believe it's going to work well. The next product we've had you mentioned was the EpiPen. And actually you asked a great question, which is how many people actually use an EpiPen. And from the work we've done actually, I believe that 99%, possibly higher, of all EpiPens are never used at all. And patients typically they obviously have to have more than one EpiPen in their home to provide a backup, but they also have EpiPen kits in their cars, at their office and now there's a movement to put the EpiPen into schools. With respect to AB substitutability, we believe that the device we have will be AB rated and all of the work and feedback we've received is indicated that will be the case and we've only ever had comments back from the FDA based on this being an ANDA-approvable product.

I think, too, Louise -- this is Bob. I think the FDA has been pretty open about the fact that the devices don't have to be identical. They have to operate in a similar manner. They entered that in a number of citizen petitions a few years ago and clearly we believe our device operates in the same exact manner as the epinephrine product in the market. So we feel pretty confident that our device is very similar in the way it works and that the FDA is going to continue to review of it as an ANDA.

Yes. And Louise, I think the last question was on the QS M product, which we did announce is a new pipeline program for us this year. This is a program that will be actually in urology and we will announce that program once we have actually completed all of the work necessary to reinvent the intellectual property around the assets. So typically what we do with methotrexate and what we did with testosterone was start working on that, develop the data, file the patents. And once we've actually filed more than 1 patents around that, we would then announce what the product was and that's the same intent here with QS M. There's also going to be a -- we are looking at a fourth pipeline product to add to the pipeline. And this is important because this is a pipeline story. What we've discovered here is a very effective way -- cost-effective way, indeed, of generating an NDA to creating these combination product opportunities with our own technology platform. And a lot of the early intellectual property that we filed in the earlier part of this decade is going to give us good protection, we believe, for us to be able to dominate the subcutaneous injectable space using auto-injectors. So I think there's a nice pipeline opportunity here for this company. That's where the real value is of Antares today. And going forward, as we mentioned earlier, we'll be marketing OTREXUP ourselves and we intended to use the same type of model, focused field force into specialty segments where combination products can make a real difference to the patient.

[Operator Instructions] And at this time, I'm showing no further questions. I would like to turn the call back over to Jack Howarth for any closing comments.

Thanks, Craig. Thanks again for listening today's conference call. If you have any follow-up questions, please give us a call at (609) 359-3016. That completes today's call.

Thank you very much. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation on today's call. You may now disconnect your lines at this time.