Memorandum

Halozyme 3Q14 – Company will not pursue further development of Hylenex for insulin pumps without a partner – November 17, 2014

Executive Highlights

  • Halozyme has decided not to pursue further development of Hylenex pretreatment for use with insulin pumps without a partner.
  • This decision resulted from a portfolio review intended to focus resources on the most valuable assets, as well as from discussions with the FDA indicating that additional clinical studies would be needed for an updated label.

Halozyme reported 3Q14 financial results last week in a call led by CEO Dr. Helen Torley. Below we include the top five highlights from the call, followed by selected Q&A.

1. Notably, Halozyme has decided not to pursue further development of Hylenex pretreatment for use with insulin pumps without a partner; after it receives more regulatory clarity from the FDA on what is needed, the company will seek out a partner with the capacity to conduct future trials and commercialize the product. We imagine this could be on either the drug or device side.

2. Management indicated that the FDA will likely require additional clinical data on the use of Hylenex with insulin pumps before a label update can be approved. FDA has taken a pretty tough stance on hypoglycemia claims for insulin (e.g., Afrezza’s label, insulin degludec Ad Comm), and such an update was Halozyme’s goal following the CONSISTENT 1 data.

3. The decision to de-prioritize Hylenex development also resulted from a portfolio review designed to focus company resources toward the most valuable assets. This was not entirely surprising to see, given the slow and uncertain rate at which regulatory discussions have progressed, the improving ultra-rapid-acting insulin landscape (Afrezza approval, Novo Nordisk’s ultra-rapid aspart in phase 3), and the cost of Halozyme commercializing on its own.

4. Halozyme will not continue the CONSISTENT 1 trial for a second year.

5. As of September 30, Halozyme had cash, cash equivalents, and marketable securities of $135 million, down from $148 million as of June 30.

Top Five Highlights

1. Halozyme has decided not to pursue further development of Hylenex pretreatment for use with insulin pumps without a partner; as a reminder, the product is already approved to increase the dispersion and absorption of injected drugs. This decision resulted both from a recent portfolio review and from discussions with the FDA regarding requirements for a label update (see below). During Q&A, management indicated that the company is still awaiting “regulatory clarity” from the FDA before beginning serious partnership discussions. Overall, the slow pace of regulatory feedback has been incredibly frustrating to see –the 440-patient CONSITENT 1 trial was fully enrolled as of March 2014 (Halozyme’s 4Q13 call) when discussions with the FDA were in the “early” stages. We wish there had been more clarity, so the trial could have been better designed to satisfy the Agency’s desires.

  • The ideal partner would be an established player with the capacity to conduct future clinical trials and commercialize Hylenex pretreatment on its own. Given the drug/device combination in the case of Hylenex (infusion set connecter + drug), we imagine an existing insulin manufacturer or a pump maker would be in the realm of possibility – perhaps Eli Lilly or Medtronic. Management still expressed confidence that there will be broad interest in Hylenex given the level of unmet need in type 1 diabetes. Based on results from the CONSISTENT 1 trial, Hylenex pretreatment did confer a significant advantage on hypoglycemia. However, the regulatory path to a label update, including the need for future trials, is a major unknown. As well, cost has always been a major consideration, and there was concern that adding costs for complementary therapies (rather than substitutes) did present a roadblock.

2. Management indicated that the FDA will likely require additional clinical data on the use of Hylenex with insulin pumps before a label update could be approved. Halozyme has been in discussions with the FDA about this issue since at least the 4Q13 call in March, and as of 2Q14, those discussions had not yet led to a clear path forward. In Halozyme’s 2Q14 update, management explained that much of the delay is due to a lack of precedent, as the FDA does not have specific guidance for products like Hylenex – an adjunct to insulin that does not lower blood glucose, but reduces hypoglycemia. This call revealed that additional clinical data (beyond CONSISTENT 1) would likely be required for a label update, leading to higher costs and a longer time to market than originally anticipated; management acknowledged during Q&A that this news contributed at least in part to the decision to seek a partner, though the portfolio review sounds like it was more of a driver.

  • Halozyme did not provide specifics as to what sort of additional studies would be required; one possibility would be trials specifically designed to show a hypoglycemia advantage with Hylenex. As a reminder, the primary endpoint of CONSISTENT 1 was A1c non-inferiority, with many secondary endpoints (hypoglycemia, hyperglycemia, mean glucose excursions, variability). The primary endpoint was A1c non-inferiority, and Hylenex easily met that endpoint. However, it also resulted in significant improvements in hypoglycemia. That makes the story somewhat nuanced, and hard to capture without clear Agency acceptance of time-in-range.
  • Hypoglycemia claims have been a point of contention with the FDA and new insulins. The Afrezza label, for context, does not include a hypoglycemia advantage despite a clear benefit in the type 1 trial. As we understood from Mr. Al Mann’s comments at DTM 2014, FDA contended that under-dosing of Afrezza may have contributed to the lower rate of hypoglycemia. At the Advisory Committee for MannKind’s Afrezza, the FDA’s Dr. Jean-Marc Guettier (Acting Division Director, Division of Metabolism and Endocrinology Products) went as far to say that it would be “very, very challenging for any sponsor to claim a hypoglycemia benefit for any product.” To do so, the Agency would want to see a dedicated hypoglycemia study where A1c was matched between the two groups. This was a point of contention at the insulin degludec advisory committee as well, where the FDA also called into question a hypoglycemia advantage. In our view, this is a prime example of where CGM can collect the data and truly establish a hypoglycemia benefit or not. Overall, we would love to see a change in perspective on the drug side of the agency on the need to move beyond A1c – the device side certainly got this right in the Final Guidance on the Artificial Pancreas. We hope that the November 3 FDA-Patient Dialogue on Unmet Needs in Diabetes was a move in the right direction, where patients implored the FDA to think beyond A1c towards endpoints like time-in-range.
  • As we understand it, there is also some uncertainty as to the appropriate predicate product/class for Hylenex. Hylenex is not an active anti-diabetic substance – it simply makes insulin work better. In that sense, it’s hard to say if the traditional insulin guidance should apply. Overall, the FDA is in unchartered territory on this one, though the impact on future drug development for type 1 diabetes could be significant – were the FDA to accept a hypoglycemia claim for Hylenex, it would represent admission that diabetes therapies can have significant benefits even if they don’t change A1c.  

3. The decision to de-prioritize Hylenex development also resulted from a portfolio assessment designed to focus company resources toward the most valuable assets. Based on this review, management determined that Halozyme’s oncology agent PEGPH20 and its ENHANZE delivery platform represented the two highest value drivers for the company, and it plans to redirect resources away from Hylenex toward those programs. The review also led to a corporate restructuring effort that involved the elimination of 13% of the workforce in order to free up resources for those high-priority programs.

  • We continue to wonder about the potential of combining Halozyme’s PH20 technology in a co-formulation with insulin. We have not heard an update on the status of Halozyme’s program to co-formulate hyaluronidase with insulin in a very long time. At the 2012 Analyst Day, management characterized this program as “phase 3 ready,” and the plan was to partner it to target the MDI market. Sanofi and Lilly are both very logical partners (Novo Nordisk has its own ultra-rapid-acting version of Novolog in phase 3), and we wonder why this program hasn’t seemed to move at all.

4. Halozyme announced that it will not continue the CONSISTENT 1 trial for a second year. Management indicated that all participants have now reached the 12-month mark and that the company did not see any further value in collecting data for another year as originally planned. Six-month data from the trial (ClinicalTrials.gov Identifier: NCT01848990), which tested insulin pump therapy with Hylenex pretreatment (n=113) vs. standard pump therapy with rapid-acting insulin alone (n=113), was presented at EASD 2014, as well as in a late-breaking poster at ADA 2014. The trial met its primary endpoint of a non-inferior A1c reduction (0.4% margin) at six months between the two groups (0.14% reduction with Hylenex vs. 0.18% with standard pump therapy; baseline = 7.7%), and Hylenex appeared to confer an advantage with regard to hypoglycemia: hypoglycemic events <56 mg/dl dropped by 23% (p=0.02); nocturnal hypoglycemic events (≤70 mg/dl) fell by 21% (p=0.02); and the rate of severe hypoglycemic events (requiring assistance) dropped by 61% (p=0.08).

5. As of September 30, Halozyme had cash, cash equivalents, and marketable securities of $135 million, down from $148 million as of June 30. Management confirmed that the net cash burn for 2014 is still estimated at $45-$55 million, meaning the company should still have ample financial resources for at least the next couple of years.

Questions and Answers

Q: Can you indicate the level of partnering interest that you have had for the insulin program to date, or is that a process that’s going to start once you get feedback from the FDA?

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

Q: On the CONSISTENT 1 data, how would you characterize the biggest point of feedback or concern from the FDA that’s causing you to reassess?

A: It really was the result of our portfolio assessment, which was to take a look and see across our entire portfolio where the biggest value opportunities were, and that’s where PEGPH20 [oncology asset] clearly emerged as the highest value driver for Halozyme. And so while we do have a continuing dialogue with the FDA, the decision is based less on feedback from the FDA about any issues with CONSISTENT 1 and more on the value of PEGPH20, and the recognition that additional clinical data will likely be needed for diabetes, that led us to decide to seek a partner for the future development and commercialization for diabetes.

Q: But is it fair to say part of the decision was indeed as a result of regulatory feedback in addition to the priority review?

A: I think it’s fair to say that the need for likely additional clinical data played a part in our decision as we were looking at our portfolio assessment. The dialogue with the FDA is ongoing, and we do expect to continue that in the coming weeks.

Q: From a partnering standpoint, would you expect to target the device makers, or where do you think the value would be best monetized?

A: Our first goal is to get the regulatory clarity and then we’ll articulate our partnering strategy. As we have talked to opinion leaders with regard to the CONSISTENT 1 data and continue to seek to understand the unmet needs that exist today in type 1 diabetes, there definitely remains an unmet need in this marketplace. And so we believe there will be interest in our product from a number of parties and we’ll be seeking to exploit and explore all of those.

Q: Is your plan for the potential partner to fund and conduct the potential clinical trials for the clinical data that the FDA is requesting?

A: That is our goal, yes, and to commercialize the product. Somebody with a commercial infrastructure program would make a lot of sense and be a very attractive opportunity.

 

-- by Emily Regier, Adam Brown, and Kelly Close