Schond Greenway - Executive Director, Strategy and IR Helen Torley - President, CEO David Ramsay – VP, CFO

Jessica Fye - JPMorgan Andrew Peters - UBS Jim Birchenough - BMO Capital Arlinda Lee - MLV & Company Roy Buchanan - Piper Jaffray John Shaw - Jefferies & Company

Good afternoon, and welcome to the Halozyme Therapeutics Fourth Quarter and Full Year 2014 Financial Results Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this 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.

Thank you, operator. Good afternoon, everyone, and welcome to Halozyme's fourth quarter and full year 2014 financial results conference call. Leading our call today is Halozyme's President and Chief Executive Officer, Dr. Helen Torley. Helen will provide an overview and update on our business. Following on, David Ramsay, our Chief Financial Officer, will review our financial results. Helen will then issue some closing remarks after which, we will 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.

Thank you, Schond. Good afternoon everyone and thank you for joining us today. 2014 has certainly been a year of tremendous progress and strong execution across both our partner programs with two approvals and launches and also our proprietary PEGPH20 program with encouraging new data in forming the benefit risk and program expansion and acceleration. In 2015, our goal is to continue this momentum by executing our strategy to drive value through continued expansion of enhanced partnerships and through advancing the PEGPH20 program in both pancreas and non-small cell lung cancers. With this clear focus on the two value driving businesses, the next chapter of our story begins with a more focused Halozyme that is positioned for growth. Let me begin by briefly providing a high-level overview of our financial achievement in the fourth quarter and full year 2014. We are pleased to report $30 million in revenue for the fourth quarter and $75 million for the year, a year-over-year increase of approximately 37%. These are both record revenues for Halozyme driven by growth in royalty and by signing of the Janssen collaboration. These revenues contributed to our 2014 net cash burn of $44 million, which is slightly below the lower end of the $45 million to $55 million guidance. Royalty revenue grew approximately 40% to $4 million in the fourth quarter reflecting predominantly Herceptin SC summer month sales in July, August and September of 2014. We expect to ramp-in partner product sales to continue in 2015 and anticipate our total first quarter royalty revenues which reflect sales in October to December of 2014 and include HyQvia to be in the range of $6 million to $7 million. Turning now to the PEGPH20 program accomplishments, Study 202 is the ongoing Phase 2 study of our investigational drug PEGPH20 in combination with gemcitabine and ABRAXANE in patients with previously untreated metastatic pancreatic ductal adenocarcinoma. A key objective of this study is to evaluate whether the addition of PEGPH20 to ABRAXANE and gemcitabine will increase progression free-survival in patients whose tumors accumulate high-level of hyaluronan or HA, which is the sugar that PEGPH20 targets and which has been associated with a worst prognosis in patients with pancreatic cancer. In July of 2015 at the PEGPH20 Analyst Day, we presented interim efficacy and safety data from Stage I of Study 202. Today, I will be highlighting select data but a full data set is available on our Web site. Response rate by hyaluronan level was assessed in patients who had at least one efficacy assessment, which per protocol was to occur after every two treatment cycles or upon progression by the time of our April 2014 clinical hold and also had a tumor sampled that was analyzable for hyaluronan levels. In patients whose tumors accumulated high levels of hyaluronan, they demonstrated a higher response rate when PEGPH20 was used with ABRAXANE and gemcitabine with 71% overall response rate compared to just 29% for patients with high hyaluronan levels who received ABRAXANE and gemcitabine alone. This result was statistically significant. Progression free-survival was assessed in all treated patients who had a tumor sample that was analyzable for HA levels and were followed up through December of 2014. The median progression free-survival was increased in patients with high HA tumors receiving PEGPH20 plus ABRAXANE and gemcitabine with a more than doubling of the medium progression free-survival to 9.2 months in the PEGPH20 treatment arm versus just 4.3 months in the ABRAXANE and gemcitabine alone arm. This result was also statistically significant. Data to evaluate overall survival is still maturing and it's our goal to present this at an appropriate scientific forum in 2015. PEGPH20 in combination with ABRAXANE and gemcitabine was generally well-tolerated with peripheral edema, muscle spasms and neutorpenia, the most frequent treatment related adverse events reported to be occurring at a high rate in the PEGPH20 treatment arm. Thromboembolic events also occurred more frequently in the PEGPH20 treatment arm at a rate of 42% compared to 25% in the AG alone arm. We are certainly encouraged by the Stage 1 data especially in the patients with high HA accumulation in their tumors and we plan to discuss the PEGPH20 benefit risk and our plan for a potential registration enabling study in high HA patients with the FDA in the next weeks. Pending positive FDA feedback, it would be our goal to initiate the plan registration trial in the fourth quarter of 2015 or the first quarter of 2016 timeframe. Study 202 Stage 2 is continuing and our goal is to complete enrollment of the target 114 patients in Stage 2 by the end of 2015. Patients have been randomized at a ratio of 2:1 to PEGPH20 ABRAXANE and gemcitabine versus ABRAXANE and gemcitabine alone to allow us to achieve a robust number of patients with uninterrupted treatment in both treatment arms for the full efficacy and safety assessments. Now at the Analyst Day, we also presented a comprehensive set of preclinical data further elucidating the mechanism of action and the potential for PEGPH20 across a broad range of solid tumors which accumulate high HA levels. With this promising early clinical data now in hand from 2 clinical studies in the pancreatic cancer setting, this shows a PEGPH20 has the potential to improve the targeting of co-administered drug, we’ve begun exploring PEGPH20 in additional tumor settings beginning with the non-small cell lung cancer. PRIMAL is an international Phase 1b/2 randomized clinical study designed to evaluate PEGPH20 in combination with docetaxel as a second line therapy for patients with locally advanced and metastatic non-small cell lung cancer. This study will enroll previously treated patients who failed to respond adequately or lost the response to a platinum-based regimen and is designed to evaluate and identify the dose, schedule and safety of PEGPH20 plus docetaxel. Our patients who filled the platinum-based regimen and have been exposed to Avastin an anti-EGFR or ALK-inhibitor as part of their first line therapy are also eligible for the study. Patient enrollment and dosing is currently underway and IRB approvals for new clinical sites are ongoing. We expect to complete the Phase 1b portion of the trial in the second half of 2015, the timing of which will depend on the number of dose escalation cohorts required. The start of the Phase 2 portion of the PRIMAL study will follow the evaluation of the Phase 1b data. To explore the full potential of PEGPH20 non-small cell lunch cancer, we are also planning to evaluate PEGPH20 in combination with a PD-1 inhibitor in previously treated patients. Our goal is to initiate this study in the second half of 2015. PEGPH20 is a novel approach that we certainly believe has the potential to improve the targeting of co-administered drugs ranging from small molecule chemotherapy agents to monoclonal antibodies and immune therapy agents in multiple tumor settings. Expanding and accelerating the program is the top priority in 2015. Now let's turn to review the progress we have been making with ENHANZE. Less than 100 days after receiving the first U.S. approval of a biologics license application for our ENHANZE technology with the approval of Baxter's HyQvia, our platform gained further validation and expansion with the December announcement of a global collaboration with Janssen. We granted Janssen a world-wide license to develop and commercialize products for up to five targets combining our rHuPH20 enzyme with Janssen's proprietary compounds. The agreement provides for milestone payments totaling up to $566 million in addition o the $50 million upfront payment and future royalty payments based on net sales of product using the ENHANZE technology. Janssen joins Roche, Pfizer and Baxter as a partner in our ENHANZE franchise and it is our goal to further increase the number of ENHANZE partnerships in 2015. We continue to garner interest from marquee pharmaceutical and biotechnology companies to license our technology and we look forward to providing you with an update on these initiatives in the future. Now, let's review our existing partner programs beginning with the most recent launch in Baxter's HyQvia. On it's fourth quarter conference call Baxter described HyQvia which was launched in the U.S. in October of 2014 as a transformational, subcutaneous treatment for adult patients with primary immunodeficiency. Baxter estimates that the global market for primary immunodeficiency is approximately $2 billion with only approximately 35% of patients receiving subcutaneous therapy to-date. As reported by Baxter in January, the U.S. launch is progressing well with more than 400 physicians prescribing HyQvia at that time. And Baxter reported U.S. HyQvia sales in the fourth quarter of approximately $35 million which reflects an impact of initial stocking orders by customers and also a favorable reception of the product in the marketplace. Baxter also provided 2015 HyQvia sales guidance of $100 million and sees ongoing growth in its immunoglobulin therapy division of between 6% to 8% driven by strong market demand for HyQvia. With the launch now well underway Baxter is evaluating additional potential indications for HyQvia. Now turning to our product development programs with Roche. As I mentioned earlier in the call, Herceptin SC, the first product approved from our Roche partnership continues to gain market adoption throughout the second half of 2014. With the country by country rollout of MabThera SC now underway beginning in June of 2014, we look forward to reporting launch progress over the next quarters as market introductions occur following reimbursement approvals. With that, I will now turn the call over to David Ramsay to discuss our financial results for the quarter in greater detail. David?

Thank you, Helen, and welcome to the call everyone. 2014 was a record year for Halozyme in terms of revenues and the success driven in large part by the growth in value derived from our enhanced partnerships allows to enter 2015 with strong momentum. Let me begin my remarks with our 2015 financial guidance. Our revenue forecast for 2015 is $85 million to $95 million. This reflects an increase over 2014 that is primarily driven by the increase in royalty revenues. For operating expenses we are forecasting $145 million to $155 million for the year, a slight increase over 2014 despite a significant expansion in our clinical development program. We expect to see the additional expenditure on advancing and accelerating PEGPH20 is being partially offset by reductions in spending on our diabetes program. And finally, we are forecasting a cash burn between $35 million to $45 million for 2015 and we do not anticipate any need for dilutive financing to fund operations this year. Now, turning to the fourth quarter and full year 2014 results, revenues for the fourth quarter of 2014 were $30.4 million compared to $12.5 million for the fourth quarter of 2013. Contributing to this significant increase in our revenues was $5.9 million in product sales of bulk rHuPH20 for use in manufacturing Roche's collaboration products; $4.1 million in Hylenex product sales; $4 million in royalty revenue from sales of products under our collaborations; and $16.2 million in collaboration revenues which includes the $15 million licensing fees from Janssen. As Helen previously mentioned royalty revenue grew approximately 40% to $4 million in the fourth quarter reflecting sales in the July to September of 2014 period, this is up from $2.9 million in the prior quarter. The key driver of this increase in royalties has been the increasing sales of Herceptin SubCu. We anticipate first quarter 2015 royalty revenue which reflects October to December 2014 sales to be in the range of $6 million to $7 million. With new country launches and growth in adoption at MabThera SC and Herceptin SC and the recent launch of HyQvia in the U.S., we expect continued up tick in sales growth of these partnered products. Research and development expenses for the fourth quarter of 2014 were $19.7 million compared with $20.9 million for the fourth quarter of 2013. The decrease was primarily due to a decrease in clinical trial expenses due to the winding down of our insulin study. Selling, general and administrative expenses for the fourth quarter of 2014 were $8.4 million compared to $9.4 million for the fourth quarter of 2013. This decrease was primarily due to a decrease in expenses related to our diabetes program. Net loss for the fourth quarter of 2014 was $5.3 million or $0.04 per share compared with a net loss for the fourth quarter of 2013 of $22 million or $0.19 per share. Cash, cash equivalents and marketable securities were $135.6 million at December 31, 2014 compared with $134.5 million at September 30, 2014. Net cash used for the year was approximately $44 million. I will now turn the call back to Helen, who provide some closing comments.

Thank you, David. And if you just heard building on a strong 2014/2015 promises to be a very exciting year with multiple milestones that are going to drive our continued momentum and growth. With the encouraging interim data from Study 202, we are focused on executing on our development plans for PEGPH20 in both pancreatic cancer and non-small cell lung cancer. We are excited about the commercial potential to lever ENHANZE franchise, which continues to gain recognition from patients and peers and potential partners. We intend to continue exploring potential partnerships and helping our current partners expand the markets for their products and potentially create new market opportunities. We are now ready to take your questions. Operator, could you please open the call for questions.

Thank you, ma'am. At this time, we will open the floor for questions. [Operator Instructions] Our first question comes from Jessica Fye from JPMorgan.

Thanks for taking the question. Just on the potential to combine PEGPH20 with PD-1 in lung cancer, are you having this discussions now with those companies and when can we expect to hear what asset you’ll study in combination with PEGPH20? And then also do you have any data around overall survival or PFS in high HA non-small cell lung cancer patients relative to low HA or the overall patient population? Thanks.

Thanks Jessica. We are in discussions with companies and importantly also investigators with regard to the potential design of study of PEGPH20 in combination with a PD-1 inhibitor. We are making the decision as to whether we will partner this or as you are aware we also could purchase the drug with a number of products being available. So I can't give you a specific update on when we plan to announce exactly what the trial design and which drug we’ll combine with. However, we do plan to initiate that study in the second half of this year. With regard to survival rates in high versus low HA in non-small cell lung cancer, I'm aware of data in a range of solid tumors, Jessica obviously, we would talk mostly about pancreas cancer, there is small data sets available in, I believe non-small cell lung cancer and colon cancer and we will get back to you with that. But, it's been replicated in a number of solid tumors this finding that HA is associated with a worst prognosis.

And then, can I maybe just ask one follow-up on that, if you are going to be studying in combination with PD-1, which I think some people think is going to rapidly become part of the standard of care in second line lung cancer, do you still need to do the Phase 2 just in combination or sorry, Phase 2 without the PD-1 or [indiscernible] is PD-1 kind of a priority?

When we were talking with thought leaders in this area, people who are following the course, I think the belief is that some PD-1 inhibitors will establish a place in frontline therapy. Therefore patients who are in second line will probably have the opportunity to receive some other form of therapy and it was their opinion that chemotherapy and particularly docetaxel would remain a main stay of care. This is something obviously that we will continue to monitor, how the competitive environment is evolving and we obviously will take where the practice patterns are at the time, we would initiative that study Jessica.

Got it. Thanks.

Thank you.

Thank you. Our next question comes from Andrew Peters from UBS.

Hi. Guys, congrats on the progress and thanks for taking my question. I guess the first one is, as you are getting ready for the meeting with the FDA later this month, how are you thinking about treatment duration for the potential Phase 3 study given that the impressive data for what was essentially kind of a treatment interruption, is that something you are considering as a variable or a different cohort in the Phase 3 study. And then a question for David just wanted to understand any impact on FX in terms of royalty revenue or guidance and is that built into kind of the 1Q guidance number?

Yes. Hi. Andrew, this is David. I will take your financial question first. So we did see a negative impact in the fourth quarter number we reported of $4 million of about 3% to 4%. The conversion is done according to the terms of our collaboration at the end of each calendar quarter. So it would be the last day of September, last day of December. And so that negative impact was about 3% to 4%. And the number that – the first quarter number that we gave already reflects the impact of any currency impact in Q1 as well.

All right. Now on the approach to the FDA, our goal in talking to the FDA is obviously to review with them the latest data we have based on the Study 202 on the benefit risk and seek their feedback on potential clinical endpoint and a trial design for registration enabling study. Clearly, the progression free-survival data that we have in hand is something we will be discussing with the FDA and discussing whether that would be an acceptable end point in this higher risk population who have high HA. Our overall survival data is still maturing as I mentioned on the call Andrew. So it was certainly all of the bits of data we have will go into our discussion with the FDA and our ongoing assessment as to the design and powering all the clinical study.

Great. Thanks. And just one final one, in terms of the HA assay, can you just remind me of the status or the turnaround for getting patients HA status, just trying to understand the feasibility of perspective study versus retrospective analysis like in the Study 202 just in terms of screening time and things like that? Thanks.

Yes. So for Study 202 as you recall, we looked at the samples retrospectively, so we don't have any data we’ve generated ourselves on what the timeframe would be to be able to have a sample analyzed. I certainly know this is something we are very focused on and we are targeting in the range of a week which is what is available in the marketplace today and certainly deemed acceptable. But this is something that we are continuing to work on as we select a partner to work with to make sure we can achieve exactly what you are talking about something that fits into the current standard of care. That's our goal.

Great. Thanks and congrats again.

Thank you, Andrew.

Thanks Andrew.

Thank you. Our next question comes from Jim Birchenough from BMO Capital.

Hey, guys, congratulations on all the progress. Couple of questions, I guess first on just a thought around PD-1 combination with PEGPH20, are any prospective partners doing work on the effective PD-1s in patients with high versus low HA status? I guess one would assume you’d get less immune cell infiltration in a patient with high HA status and that might blunt the effect of a PD-1, but has there been any data that suggest that when a patient [indiscernible] effective [ph] PD-1s according to HA status?

Jim, I'm not aware of any data on that. I haven't seen anyone publish on that at this time.

Is that something that prospective partners are looking at, do you think?

I certainly can say that in scientific fora there have been discussions with different companies on topics like that. But I can't confirm that any company is actually studying it. But, certainly an area of interest in question to us.

And just in terms of – maybe a broader question on business development activities, any insight as to whether Roche [indiscernible] move forward with Herceptin SubCu strategy in U.S., do you have any sense of when they might approach FDA, is that something you might expect to see? And then separately just in terms of broadly doing more deals with platforms, should we expect a certain number of deals over the next 12 to 18 months?

Let me begin with the Herceptin SC in the U.S., and that really is going to be for Roche to announce event they are intent, they have made no public comments about that. And we as their partner really not in a position to ever announce anything in advance of them. So I can't provide any update there. In terms of deals obviously, it's always hard to know exactly how many one can sign, but I can tell you the priority within the company to continue the momentum we have created with the Pfizer deal, now the Janssen deal there are many more targets out there that we believe could benefit from ENHANZE to allow them to be taken from IV to SubCu. And we are actively pursuing certainly seeking to sign multiple deals in the timeframe you are talking about.

Great. Thanks for taking the question.

Thank you, Jim.

Thanks Jim.

Thank you. Our next question comes from Arlinda Lee from MLV & Company.

Hey, guys, thanks for taking my question. On the 202 data and what you presented to FDA on the survival front, can you maybe give us an update of when you provide – if you provided that information to FDA? And maybe update us on what the – from the 202 data that you presented at your Analyst Day, how far long are we tracking on overall survival right now? Thanks.

Thanks Arlinda. So yes, we are still waiting for the overall survival data to mature as I mentioned in my call. We didn't follow-up for patients at the moment is by 7.5 months and if you recall from the [dermabrasion] [ph] registration study, the median overall survival there was 8.5 months. So we are still following at that data and waiting for it to mature. And when we do have that data, it would be our goal to present it at scientific forum in 2015.

Great. Thank you very much.

Thank you. Our next question comes from Charles Duncan from Piper Jaffray.

Hey, guys, its Roy in for Charles. Thanks for taking my questions. Quick follow-up on the FX is that really a function of Swiss franc or is that I guess drive from the country of sale?

It's both Roy. What we have visibility into is the Swiss franc, so per our collaboration agreement, the conversion to U.S. dollars happens at quarter end. And so certainly in our calendar of Q3, calendar Q4, we saw a negative impact of both of those items, but that's reflected in the $4 million royalty we reported and also in the $6 million to $7 million guidance we gave for Q1.

Okay. And I appreciate the guidance on the royalty for 1Q, just wondered if – if you give us a sense of maybe for the rest of year, if you expect to kind of a steady ramp or more of an acceleration with countries coming online?

I can't give you a royalty number for the year at this point. But, we are comfortable with the Q1 guidance that we gave.

Okay. Good enough. Thank you.

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

Hi. Guys, this is John in for Eun. Thanks for taking my question. Regarding the Pfizer partnership, can you provide us with an update on the status of Pfizer's clinical trial for inhibitor PCSK-9 inhibitor using ENHANZE technology?

So Pfizer is continuing to work with us with regard to their PCSK-9 program. They have not provided any public comments about when they find to start the clinical program. So John, I'm not in a position to comment on that. But, I can say that we are continuing to work with and collaborate with them on the program. You may also be aware Pfizer has cleared Rivipansel is a second target using the ENHANZE technology that's being studied in vaso-occlusive crisis in sickle cell patients. And again, they have posted a clinical trial design on [indiscernible] Phase 1 study in clinicaltrials.gov. But have not announced exactly when that study will start.

Thank you.

Thank you. Again, we are now holding for questions. [Operator Instructions] Dr. Torley, there are no further questions at this time. I'd now like to turn the floor back over for closing remarks.

That's great. I would like to thank everyone for joining us and listening in today. I think you can agree we had a strong 2014, now started 2015 with a lot of momentum. Our priorities are clear, our focus is crystal clear. And we look forward to continuing to update you and demonstrate strong progress against our strategy. Thank you so much.

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