What a difference two summers can make in the life of a young biotechnology company.
In the summer of 2003, Halozyme Therapeutics Inc.’s fiscal woes were so deep that Dr. Jonathan Lim, the company’s president, chairman and chief executive officer, and other top executives gave up their pay for a short time to fund the firm’s enzyme technology research.
This summer, Lim is set to launch the San Diego company’s first approved product, Cumulase.
Cumulase, a human-based enzyme used for preparing eggs in in-vitro fertilization procedures, won marketing approval from U.S. regulators April 19, just four months after European regulators gave it the green light.
Investors were pleased, sending Halozyme’s stock up 16 cents, or 10 percent, to close at $1.76 on April 19. Halozyme’s shares closed at $1.72 on April 21 at press time.
The Sorrento Valley-based company has already signed nonexclusive distribution agreements with three key suppliers: MediCult, a Denmark-based company with large distribution clout in Europe; MidAtlantic Diagnostics Inc., of Marlton, N.J., whose strength is the North American market; and Cook Ob/Gyn Inc., of Spencer, Ind., which covers Australia and Asia.
“We are sampling products to clinics so that they can try it and start selling product as soon as possible,” Lim said in an interview April 20.
However, challenges remain.
Among the biggest ones will be doctors’ willingness to replace existing animal-derived enzymes with this first-ever approved human-based enzyme.
Cumulase will compete against products from six major suppliers, including Santa Ana-based Irvine Scientific and the animal-derived products made by MediCult and Cook Ob/Gyn.
Pricing will also be an issue. Cumulase will be priced at a twofold to threefold premium compared with existing products, which run $9 to $20 a vial, Lim said.
Big Hopes For Second Product
The firm is already gearing up for the anticipated approval of a second product this year.
On April 6, the FDA granted Enhanze SC priority review status (which is given to drugs that are expected to be better than existing products) for use as a spreading agent to enhance the delivery of drugs such as local anesthesia, contrast agents and subcutaneous fluid replacement.
Halozyme has landed health care giant Baxter Healthcare Corp., of Deerfield, Ill., as its marketing partner.
Initially, the two companies will try to bring Enhanze SC to ophthalmologists for use as an adjunct to anesthetics for cataract surgeries. The firms will then try to expand the product for other uses.
Lim’s business strategy is to take the money gained from the sales of Cumulase and Enhanze SC, and reinvest it in an effort to develop a cancer drug, Chemophase. That would open the door to a $500 million marketing opportunity.
“For us the $10 million market (for Cumulase) is modest by pharmaceutical means, but it’s important for us to demonstrate that we can commercialize this enzyme very rapidly as well as generate some early cash flow that can be reinvested into other programs,” Lim said.
If all goes as planned, Lim will start testing Chemophase in cancer patients in the second half of the year.
Chemophase is expected to boost the effects of chemotherapy in penetrating and killing tumor cells.
Like most young biotechs, Halozyme operates in the red, having reported no revenues since its inception.
Last year the company posted a net loss of $9.1 million, compared with a net loss of $2.1 million in 2003.
It had a cumulative net loss of $1.9 million from 1998 through 2002, Lim said.
Yet, in terms of FDA successes, 6-year-old Halozyme is doing better than most young companies. Most biotech firms take up to a decade to develop a single drug.
Jonathan Aschoff, an analyst for New York-based Brean Murray & Co. Inc., is bullish on Halozyme.
In his March 28 research report on the company, Aschoff reiterated his “buy” rating and a target price of $6.
He anticipates that Halozyme’s stock which has been trading in the $1 range since mid-February to “benefit primarily from several projected catalysts over the next 12 months.”
“We have reason to believe that Enhanze SC should receive approval by the fourth quarter of 2005, when Baxter and Halozyme can market the product,” Aschoff wrote.
Aschoff also revised an earlier three-year projection on earnings per share to a negative 14 cents for 2006, 5 cents for 2007 and 31 cents for 2008. That’s up from a negative 21 cents, negative 2 cents, and 30 cents for the same three years, respectively.
“We note that Halozyme has achieved every milestone that it has promised in a timely fashion,” Aschoff wrote.
Part of the company’s success could lie in its unusual technology.
Spun out of the San Diego Sidney Kimmel Cancer Center in 1998, all products are based on a genetically engineered enzyme, hyaluronidase, which occurs naturally in the human body.
The enzyme breaks down hyaluronic acid, a space-filling gellike substance that is a major component of skin and cartilage, and other tissue.
By breaking down the protective barrier, the enzyme could be used as a “helper” agent to deliver injectable drugs into the skin or muscle, thereby improving the absorption or diffusion of other drugs, Lim explained.
For instance, “When mixed with local anesthetic and injected around the eye, ophthalmologists can safely proceed with the surgery while the eye is immobilized and it reduces the pain for the patient,” Lim said.
Lim wants doctors to replace current bovine- and ovine-derived products, which he believes have the potential to cause allergic reactions and also have a theoretical risk of transmitting “mad cow disease.”
Dr. Gordon Montgomery, an ophthalmologist with offices in National City and Ramona, said, however, that he hasn’t used a needle to inject anesthetic in cataract patients in 10 years.
Even back then, he said, eye doctors had already progressed from doing retrobulbar injections , a technique used to deliver anesthetics with a spreading agent , to a new technique called peribulbar injections, which Montgomery felt didn’t require the use of a spreading agent.
“Then, eight years ago, we progressed to topical anesthetics , where you put a drop of anesthetic in the eye , and don’t do any injections,” Montgomery said.
He added, “There may be someone out there using retrobulbar or peribulbar injections during cataract surgery , but they are behind the times.”
Lim agreed that most doctors no longer use needles for cataract surgery.
Still, he said that 45 percent of eye doctors prefer injections over drops to prevent eye movement during surgery and reduce postoperative pain.
He strongly disagreed with Montgomery, who said “there is no market opportunity.”
But Montgomery and Lim did agree on the possibility of expanding the use of Enhanze SC in hypodermoclysis, or subcutaneous injection of saline.
Lim hopes that U.S. doctors will eventually use the enzyme to subcutaneously inject saline as an alternative to starting intravenous lines, for example, in patients with difficult-to-find veins and emergency-room patients.
It would require a different way of thinking.
“Hypodermoclysis is more often used in Canada and Europe, where it is a more common practice,” Lim said. “U.S. doctors are mostly used to using IVs.”
Lim’s researchers are also testing Enhanze SC in combination with other drugs, such as anti-rheumatic monoclonal antibodies, to see if patients reap greater benefits.
“Patients could potentially receive subcutaneous injections rather than having to go to the hospital for intravenous injections,” Lim said, citing one potential benefit.
“This is the basis for further business development activities where we might have discussions with other biotechnology and pharmaceutical companies that have injectable drugs and create some additional partnerships,” Lim said.
He also takes pride in his company for being frugal.
According to recent industry statistics, most biotech startups burn through $800 million while taking up to a decade to bring a drug to market.
Since its inception in 1998, Halozyme has lost a cumulative $13.1 million.
Lim said he’s keeping his nose to the grindstone. There was no sound of champagne corks popping or caviar being served after the company won FDA approval for Cumulase last week.
“We celebrated briefly and then we moved on,” Lim said.
