The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 20192021 was approximately $2.5$5.6 billion based on the closing price on the NASDAQ Global Select Market reported for such date. Shares of common stock held by each officer and director and by each person who is known to own 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 138,226,070137,703,510 as of February 14, 2020.2022.
Portions of the registrant’s definitive Proxy Statement to be filed subsequent to the date hereof with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20202022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report.
HALOZYME THERAPEUTICS, INC.
INDEX
| | | | | | | | | | | |
| | | Page |
|
| | | |
Item 1. | | | Page |
Item 1A. | | | |
Item 1B. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
| | | |
|
Item 1.5. | | | |
Item 1A. | | | |
Item 1B. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
| | | |
|
Item 5. | | | |
Item 6. | | | |
Item 7. | | | |
Item 7A. | | | |
Item 8. | | | |
Item 9. | | | |
Item 9A. | | | |
Item 9B. | | | |
Item 9C. | | | |
| | | |
|
Item 10. | | | |
Item 11. | | | |
Item 12. | | | |
Item 13. | | | |
Item 14. | | | |
| | | |
|
Item 15. | | | |
Item 16. | | | |
| | |
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the “safe harbor” provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. All statements, other than statements of historical fact, included herein, including without limitation those regarding our future product development and regulatory events and goals, product collaborations, our business intentions and financial estimates and anticipated results, are, or may be deemed to be, forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,” “continue,” “potential,” “likely,” “opportunity,” “project” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Annual Report. Additionally, statements concerning future matters such as the development or regulatory approval of new partner products, enhancements of existing products or technologies, timing and success of the launch of new products by our collaborators, third party performance under key collaboration agreements, the ability of our bulk drug manufacturers to provide adequate supply for our collaboration partners, revenue, expense, and cash burn levels, anticipated amounts and timing of share repurchases, anticipated profitability and expected trends, expected repaymentthe potential impact of the Royalty backed LoanCOVID-19 global pandemic on our business and trends, anticipated progress toward achieving our goals and targets in human capital and other ESG areas and other statements regarding matters that are not historical are forward-looking statements.
Although forward-looking statements in this Annual Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include without limitation those discussed under the heading “Risk Factors” in Part I, Item 1A below, as well as those discussed elsewhere in this Annual Report. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
References to “Halozyme,” “the Company,” “we,” “us,” and “our” refer to Halozyme Therapeutics, Inc. and its wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s indirect wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC,subsidiary Halozyme Switzerland GmbH and direct wholly owned subsidiary Halozyme Switzerland Holdings GmbH. References to “Notes” refer to the Notes to Consolidated Financial Statements included herein (refer to Part II, Item 8).
PART I
Item 1.Business
Overview
Halozyme Therapeutics, Inc. is a biopharma technology platform company that provides innovative and disruptive solutions with the goal of improving patient experience and outcomes. Our proprietary enzyme, rHUPH20rHuPH20, is used to facilitate the delivery of injected drugs and fluids. We license our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE®ENHANZE® drug delivery technology with the collaborators’ proprietary compounds.
Our approved product and our collaborators’ approved products and product candidates are based on rHuPH20, our patented recombinant human hyaluronidase enzyme. rHuPH20 is the active ingredient in our first commercially approved product, Hylenex® recombinant (hyaluronidase human injection) (Hylenex)(“Hylenex”), and it works by breaking down hyaluronan (or HA)“HA”), a naturally occurring carbohydrate that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage. This temporarily increases dispersion and absorption allowing for improved subcutaneous delivery of injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids. We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE® Drug Delivery Technology (ENHANZE)drug delivery technology (“ENHANZE”). We license the ENHANZE technology to form collaborations with biopharmaceutical companies that develop or market drugs requiring or benefiting from injection via the subcutaneous route of administration. In the development of proprietary intravenous (IV) drugs combined with our ENHANZE technology, data have been generated supporting the potential for ENHANZE to reduce treatment burden, as a result of shorter duration of subcutaneous (SC) administration. ENHANZE may enable fixed-dose SC dosing compared to weight-based dosing required for IV administration, and potentially allow for lower rates of infusion related reactions. ENHANZE may enable more flexible treatment options such as home administration by a healthcare professional or potentially the patient. Lastly, certain proprietary drugs co-formulated with ENHANZE have been granted additional exclusivity, extending the patent life of the product beyond the one of the proprietary IV drug.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (Roche)(“Roche”), Baxalta US Inc. and Baxalta GmbH (now members(members of the Takeda group of companies, following the acquisition of Shire plc by Takeda Pharmaceutical Company Limited in January 2019) (Baxalta)companies) (“Baxalta”), Pfizer Inc. (Pfizer)(“Pfizer”), Janssen Biotech, Inc. (Janssen)(“Janssen”), AbbVie, Inc. (AbbVie)(“AbbVie”), Eli Lilly and Company (Lilly)(“Lilly”), Bristol-Myers Squibb Company (BMS)(“BMS”), Alexion Pharma Holding (Alexion)International Operations Unlimited Company (an indirect wholly owned subsidiary of AstraZeneca PLC)(“Alexion”), argenx BVBA (“argenx”), Horizon Therapeutics plc. (“Horizon”) and ARGENX BVBA (argenx)ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (“ViiV”). We receive royalties from twothree of these collaborations, including royalties from sales of one product from the Baxalta collaboration, and twothree products from the Roche collaboration and one product from the Janssen collaboration. Future potential revenues from royalties and fees from ENHANZE collaborations and the sales and/or royalties of our approved products product candidates, and ENHANZE collaborations will depend on the ability of Halozyme and our collaborators to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.
On November 4, 2019, we announced that our HALO-301 Phase 3 clinical study evaluating PEGylated recombinant human hyaluronidase (PEGPH20) in combination with ABRAXANE® (nab-paclitaxel) and gemcitabine as a first-line therapy for treatment of patients with metastatic pancreatic cancer failed to reach the primary endpoint of overall survival. The study failed to demonstrate an improvement in overall survival compared to gemcitabine and nab-paclitaxel alone (11.2 months median overall survival compared to 11.5 months, HR=1.00, p=0.9692). Due to the results of the study, we halted development activities for PEGPH20, closed our oncology operations and implemented an organizational restructuring to focus our operations on ENHANZE.
We closed all ongoing oncology clinical studies including the Phase 3 clinical testing for PEGPH20 with ABRAXANE and gemcitabine in stage IV pancreatic ductal adenocarcinoma (“PDA”) (HALO-301) and the Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with cholangiocarcinoma and gall bladder cancer (HALO 110-101/MATRIX). The Roche -Genentech sponsored MORPHEUS PDA and gastric cancer studies closed the arms containing PEGPH20 to enrollment. All patients who were treated in PEGPH20 arms are off PEGPH20 treatment and are in follow up, per study protocol.
Our principal offices and research facilities are located at 11388 Sorrento Valley Road, San Diego, California 92121. Our telephone number is (858) 794-8889 and our e-mail address is info@halozyme.com. Our website address is www.halozyme.com.www.halozyme.com. Information found on, or accessible through, our website is not a part of, and is not incorporated into, this Annual Report on Form 10-K. Our periodic and current reports that we filed with the SEC are available on our website at www.halozyme.com, free of charge, as soon as reasonably practicable after we have electronically filed such material with, or furnished them to, the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports.
Technology
rHuPH20 can be applied as a drug delivery platform to increase dispersion and absorption of other injected drugs and fluids, potentially reducing treatment burden. For example, rHuPH20 has been used to convert drugs that must be delivered intravenously into subcutaneous injections or to reduce the number of subcutaneous injections needed for effective therapy. When ENHANZE technology is applied subcutaneously, the rHuPH20 acts locally and transiently, with a tissue half-life of less than 15 minutes. HA at the local site reconstitutes its normal density within a few days and, therefore, the effect of rHuPH20 on the architecture of the subcutaneous space is temporary.
Strategy
We are a leader in converting IV biologics to subcutaneous delivery using our commercially-validated ENHANZE technology. Our ENHANZE technology also has the potential for subcutaneous delivery of small molecules, including those developed as long-acting injectables and other therapies that might benefit from larger dose/larger volume subcutaneous delivery. We collaborate with leading pharmaceutical and biotechnology companies to help them develop products that combine our ENHANZE technology with their proprietary compounds. We target large, attractive markets, where ENHANZE-enabled subcutaneous delivery has the potential to deliver competitive differentiation and other important benefits to our partners, such as larger injection volumes administered rapidly, extended dosing intervals, and reduced treatment burden and healthcare costs. In addition, ENHANZE has been demonstrated to enable the combination of two therapeutic antibodies in a single injection, as well as the development of new co-formulation intellectual property. We leverage our strategic, technical, regulatory and alliance management skills in support of our partners' efforts to develop new subcutaneously delivered products. We currently have nineeleven collaborations with threefive current product approvalsapproved products and additional product candidates in development using our ENHANZE technology. We intend to work with our existing collaborators to expand our collaborations to add new targets and develop targets and product candidates under the terms of the operative collaboration agreements. We will also continue our efforts to enter into new collaborations to further derive additional value from our proprietary technology.
Product and Product Candidates
We currently have one marketed proprietary product and threefive marketed partnered products. The following table summarizes our proprietary product, marketed partnered products and product candidates under development with our collaborators:
Proprietary Product
Hylenex Recombinant (hyaluronidase human injection)
Hylenex recombinant is a formulation of rHuPH20 that facilitates subcutaneous fluid administration for achieving hydration, to increase the dispersion and absorption of other injected drugs and, in subcutaneous urography, to improve resorption of radiopaque agents. Hylenex recombinant is currently the number one prescribed branded hyaluronidase.
ENHANZE Collaborations
Roche Collaboration
In December 2006, we and Roche entered into a collaboration and license agreement under which Roche obtained a worldwide license to develop and commercialize product combinations of rHuPH20 and up to thirteentwelve Roche target compounds (the Roche Collaboration). Under this agreement, Roche elected a total of eight targets, two of which are exclusive.
In September 2013, Roche launched a subcutaneous (SC) formulation of Herceptin® (trastuzumab) (Herceptin SC) in Europe for the treatment of patients with HER2-positive breast cancer followed by launches in additional countries. This formulation utilizes our ENHANZE technology and is administered in two to five minutes, compared to 30 to 90 minutes with the standard intravenous form. In September 2018, we announced that Roche received approval from Health Canada for Herceptin SC for the treatment of patients with HER2-positive breast cancer. In February 2019, we announced that Roche received approval from the FDAU.S. Food and Drug Administration (“FDA”) for Herceptin SC under the brand name Herceptin Hylecta™ (trastuzumab and hyaluronidase-oysk). In April 2019, Roche made Herceptin Hylecta available in the U.S.
Directed at In June 2020, the same target, Roche initiated a Phase 1 studyFDA approved the fixed-dose combination of Perjeta® (pertuzumab) and Herceptin (trastuzumab) usingfor subcutaneous injection (Phesgo™) utilizing ENHANZE technology infor the treatment of patients with HER2-positive breast cancer. In December 2020, the European Commission (EC) also approved Phesgo for the treatment of patients with early breast cancer in March 2016. In June 2018, Roche initiated a global Phase 3 study of a fixed-dose combination of Perjeta and Herceptin using ENHANZE technology in patients withmetastatic HER2-positive early breast cancer. In August 2019, the global phase 3 study met its primary endpoint. The study results demonstrated non-inferior levels of Perjeta in the blood (pharmacokinetics) compared to standard intravenous (IV) infusion of Perjeta plus Herceptin and chemotherapy in patients with HER2-positive early breast cancer. The study also demonstrated that the safety profile of the fixed dose subcutaneous combination of Perjeta and Herceptin was consistent with the safety profile of Perjeta and Herceptin administered intravenously. In December 2019, the full data from the study was presented at the San Antonio Breast Cancer Symposium. Based on the results of this study, BLA and MAA submissions are expected to be completed in the first quarter of 2020.
In June 2014, Roche launched MabThera® SC in Europe for the treatment of patients with common forms of non-Hodgkin lymphoma (NHL) followed by launches in additional countries. This formulation utilizes our ENHANZE technology and is administered in approximately five minutes compared to the approximately 1.5 to 4 hour intravenous infusion. In May 2016, Roche announced that the EMAEuropean Medicines Agency (EMA) approved Mabthera SC to treat patients with chronic lymphocytic leukemia (CLL). In June 2017, the FDA approved Genentech’s RITUXAN HYCELA™HYCELA®, a combination of rituximab and rHuPH20using ENHANZE technology (approved and marketed under the MabThera SC brand in countries outside the U.S. and Canada), for CLL and two types of NHL, follicular lymphoma and diffuse large B-cell lymphoma. In March 2018, Health Canada approved a combination of rituximab and rHuPH20 (approved and marketed under the brand name RITUXAN® SC) for patients with CLL.
In September 2017, we and Roche entered into an agreement providing Roche the right to develop and commercialize one additional exclusive target using ENHANZE technology. The upfront license payment may be followed by event-based payments subject to Roche’s achievement of specified development, regulatory and sales-based milestones. In addition, Roche will pay royalties to us if products under the collaboration are commercialized.
In October 2018, we entered into an agreement with Roche for the right to develop and commercialize one additional exclusive target and an option to select two additional targets within four years using our ENHANZE technology. The upfront license payment may be followed by event-based payments subject to Roche’s achievement of specified development, regulatory and sales-based milestones. In addition, Roche will pay royalties to us if products under the collaboration are commercialized. Roche subsequently returned the rights for the first exclusive target.
In December 2018, Roche initiated a Phase 1b/2 study in patients with non-small cell lung cancer for TecentriqTECENTRIQ® (atezolizumab) using ENHANZE technology. In September 2020, Roche presented a poster with data from Part 1 of its Phase 1b study (IMscin001) evaluating TECENTRIQ for subcutaneous administration utilizing ENHANZE technology in patients with locally advanced or metastatic non-small cell lung cancer at the ESMO Virtual Congress 2020. The poster concluded that atezolizumab utilizing ENHANZE technology provided similar exposure as atezolizumab IV and that results support further development of subcutaneous atezolizumab in IMscin001 Part 2, a confirmatory Phase 3 study. In December 2020, Roche initiated a Phase 3 study in patients with non-small cell lung cancer for TECENTRIQ using ENHANZE technology.
In August 2019, Roche initiated a Phase 1 study evaluating OCREVUS® (ocrelizumab) with ENHANZE Technologytechnology in subjects with multiple sclerosis.
In October 2019, Roche nominated a new undisclosed exclusive target to be studied using ENHANZE technology, triggeringtechnology. In November 2021, Roche initiated a $10 million milestone payment.Phase 1 study with the undisclosed target and ENHANZE.
Baxalta Collaboration
In September 2007, we and Baxalta entered into a collaboration and license agreement under which Baxalta obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20 with GAMMAGARD LIQUID (HYQVIA)(HYQVIA®) (the Baxalta Collaboration). HYQVIA is indicated for the treatment of primary immunodeficiency disorders associated with defects in the immune system.
In May 2013, the European CommissionEC granted Baxalta marketing authorization in all EU Member States for the use of HYQVIA (solution for subcutaneous use) as replacement therapy for adult patients with primary and secondary immunodeficiencies. Baxalta launched HYQVIA in the first EU country in July 2013 and has continued to launch in additional countries.
In September 2014, HYQVIA was approved by the FDA for treatment of adult patients with primary immunodeficiency in the U.S. HYQVIA is the first subcutaneous immune globulin (IG) treatment approved for adult primary immunodeficiency patients with a dosing regimen requiring only one infusion up to once per month (every three to four weeks) and one injection site per infusion in most patients, to deliver a full therapeutic dose of IG. The FDA’s approval of HYQVIA was a significant milestone for us as it represented the first U.S. approved BLA which utilizes our rHuPH20 platform.
In May 2016, Baxalta announced that HYQVIA received a marketing authorization from the European CommissionEC for a pediatric indication, which was launched in Europe to treat primary and certain secondary immunodeficiencies. In September 2020, Takeda announced that the EMA approved a label update for HYQVIA broadening its use and making it the first and only facilitated subcutaneous immunoglobulin replacement therapy in adults, adolescents and children with an expanded range of secondary immunodeficiencies (SID).
In October 2021, Baxalta initiated a Phase 1 single-dose, single-center, open-label, three-arm study to assess the tolerability and safety of immune globulin subcutaneous (human), 20% solution with ENHANZE (TAK-881) at various infusion rates in healthy adult subjects.
Pfizer Collaboration
In December 2012, we and Pfizer entered into a collaboration and license agreement, under which Pfizer has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Pfizer proprietary biologics directed to up to six targets in primary care and specialty care indications. Targets may be selected on an exclusive or non-exclusive basis. Pfizer has elected five targets and has returned two targets.
Janssen Collaboration
In December 2014, we and Janssen entered into a collaboration and license agreement, under which Janssen has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Janssen proprietary biologics directed to up to five targets. Targets may be selected on an exclusive basis. Janssen has elected CD38 as the first target on an exclusive basis. In October 2017, Janssen has initiated its firstseveral Phase 3 study of subcutaneous deliverystudies, Phase 2 studies and Phase 1 studies of DARZALEX® (daratumumab), directed at CD38, using ENHANZE technology, in multiple myeloma patients. Janssen has initiated seven Phase 3 studies, two Phase 2 study and one Phase 1 study of daratumumab using ENHANZE technology in patients with amyloidosis, smoldering myeloma and multiple myeloma.
In February 2019, Janssen’s development partner, Genmab, announced positive Phase 3 trial results from the COLUMBA study evaluating subcutaneous DARZALEX in comparison to intravenous DARZALEX IV in patients with relapsed or refractory multiple myeloma. DARZALEX SC® (utilizing ENHANZE technology) was found to be non-inferior to DarzalexDARZALEX IV with regard the co-primary endpoints of Overall Response Rate and Maximum Trough concentration. In July 2019,May 2020, we announced that Janssen submittedreceived US FDA approval and launched the commercial sale of DARZALEX FASPRO® in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients. As a BLAfixed-dose formulation, DARZALEX FASPRO can be administered over three to five minutes, significantly less time than DARZALEX IV which requires multi-hour infusions. In June 2020, we announced that Janssen received European marketing authorization and launched the commercial sale of DARZALEX SC utilizing ENHANZE in the European Union. Subsequent to these approvals, Janssen received several additional regulatory approvals for additional indications and patient populations in the US, EU, Japan and China. Beginning with the US, in January 2021, Janssen received FDA approval for DARZALEX FASPRO in combination with bortezomib, thalidomide, and dexamethasone in newly diagnosed multiple myeloma patients who are eligible for autologous stem cell transplant. In January 2021, Janssen received accelerated approval from the FDA for DARZALEX FASPRO in combination with bortezomib, cyclophosphamide and an extension application to the EMAdexamethasone (D-VCd) for the subcutaneous deliverytreatment of adult patients with newly diagnosed AL amyloidosis (not recommended for the treatment of patients with AL amyloidosis who have NYHA Class IIIB or Class IV cardiac disease or Mayo Stage IIIB outside of controlled clinical trials). In July 2021, Janssen received FDA approval for DARZALEX FASPRO in combination with pomalidomide and dexamethasone (D-Pd) for patients with multiple myeloma after first or subsequent relapse. In July 2021, Janssen received FDA approval for DARZALEX FASPRO in combination with D-Pd for patients with multiple myeloma after first or subsequent relapse. In December 2021, Janssen received FDA approval for DARZALEX FASPRO in combination with
Kyprolis® (carfilzomib) and dexamethasone for patients with relapsed or refractory multiple myeloma who have received one to three prior lines of therapy. In the EU, in June 2021, we announced that Janssen received marketing authorization from the EC for DARZALEX SC in two new indications, in combination with D-VCd in newly diagnosed adult patients with AL amyloidosis and in combination with D-Pd in adult patients with relapsed or refractory multiple myeloma. In Japan in March 2021, Janssen announced the approval from Japan’s Ministry of Health, Labour and Welfare (MHLW) for the subcutaneous formulation of DARZALEX (known as DARZQURO) in Japan) for the treatment of multiple myeloma, and in May 2021 Janssen commenced commercial sale in Japan. In August 2021, Janssen received approval of DARZQURO (Daratumumab SC) for systemic AL amyloidosis in Japan. In China in October 2021, Janssen’s DARZALEX FASPRO was approved by the China National Medical Products Administration (NMPA) for the treatment of primary light chain amyloidosis, in combination with D-VCd in newly diagnosed patients.
In December 2019, Janssen elected targets EGFR and cMET as a bispecific antibody (amivantamab) target on an exclusive basis, as part of the bispecific antibody (JNJ-61186372), which is being studied in solid tumors. In November 2020, Janssen initiated a Phase 1 study of amivantamab and ENHANZE.
In July 2021, Janssen elected the target HIV reverse transcriptase limited to non-nucleoside reverse transcriptase inhibitors. In December 2021, Janssen initiated a Phase 1 clinical trial combining rilpivirine and ENHANZE. Janssen and ViiV are exploring the possibility of an ultra-long acting version of CABENUVA using ENHANZE.
AbbVie Collaboration
In June 2015, we and AbbVie entered into a collaboration and license agreement, under which AbbVie has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with AbbVie proprietary biologics directed to up to nine targets. Targets may be selected on an exclusive basis. AbbVie elected one target on an exclusive basis, TNF alpha, for which it has discontinued development and returned the target.
Lilly Collaboration
In December 2015, we and Lilly entered into a collaboration and license agreement, under which Lilly has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Lilly proprietary biologics directed to up to five targets. Targets may be selected on an exclusive basis. Lilly has elected two targets on an exclusive basis and one target on a semi-exclusive basis. In August 2017, Lilly initiated a Phase 1 study of an investigational therapy in combination with rHuPH20.
BMS Collaboration
In September 2017, we and BMS entered into a collaboration and license agreement, which became effective in November 2017, under which BMS has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with BMS immuno-oncology targetsproducts directed at up to eleven targets. Targets may be selected on an exclusive basis, with the exception of one co-exclusive target.basis; BMS has selected eight targets to-date. BMS has designated multiple immuno-oncology targets including programmed death 1 (PD-1) and has an option to select 3 additional targets within five years from the effective date.by November 2022. In October 2018, BMS dosed the first patient in a Phase 1/2a study evaluating the safety, pharmacokinetics and pharmacodynamics of BMS-986179, an investigational anti-CD-73 antibody alone and in combination with nivolumab, using ENHANZE technology. BMS is also conducting a Phase 1/2 study of nivolumab using ENHANZE technology, in patients with solid tumors.which was subsequently discontinued. In October 2019, BMS initiated a Phase 1 study for Relatlimabof relatlimab, an anti-LAG 3 antibody, in combination with nivolumab andusing ENHANZE technology. In April 2021, BMS initiated a Phase 1/2 study of BMS-986258, an anti-TIM-3 antibody, alone and in combination with nivolumab in advanced malignant tumors. In June 2021, BMS initiated a Phase 3 study of nivolumab using ENHANZE technology, for patients with advanced or metastatic clear cell renal cell carcinoma, leveraging data and insights from Phase 1/2 CA209-8KX study in patients with solid tumors.
Alexion Collaboration
In December 2017, we and Alexion entered into a collaboration and license agreement, under which Alexion has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Alexion’s portfolio of products directed at up to four targets. Targets may be selected on an exclusive basis. Alexion elected two targets on an exclusive basis, including a
C5 complement inhibitor and has an option to select two additional targets within five years from the effective date. In August 2018,September 2019, Alexion announced that it initiated a Phase 1 trial toI study of ALXN1720, a next-generation subcutaneous formulation of ALXN1210 usingnovel anti-C5 albumin-binding bispecific mini-body, in combination with ENHANZE technology. In February 2022, Alexion believes this next-generation subcutaneous formulation, called ALXN1810, hasnotified us that it was relinquishing its rights to the potential to extend the dosing interval from once a week to greater than two weeks between doses. In January 2020, Alexion announced plans to conduct a phase 2 basket trial in renal indications for ALXN1810.C5 complement inhibitor target.
argenx Collaboration
In February 2019, we and argenx entered into an agreement with argenx for the right to develop and commercialize one exclusive target, the human neonatal Fc receptor FcRn, which includes argenx's lead asset efgartigimod (ARGX-113), and an option to select two additional targets using ENHANZE technology. In May 2019, argenx nominated a second target to be studied using ENHANZE technology, a human complement factor C2 associated with the product candidate ARGX-117, which is being developed to treat severe autoimmune diseases.diseases in Multifocal Motor Neuropathy (MMN).
In July 2019, argenx dosed the first subject in a phase 1 clinical trial evaluating the safety, pharmacokinetics and pharmacodynamics of efgartigimod (ARGX-113), using ENHANZE technology. In December 2019, argenx reported that based on data from the phase 1 study and internal company analysis, a one minute injection administered every 2 weeks may be possible. In December 2020, argenx initiated a Phase 3 study of ARGX-113 using ENHANZE technology for patients with immune thrombocytopenia (ITP), an immune disorder in which the blood does not clot normally. In January 2021, argenx initiated a Phase 3 study of ARGX-113 using ENHANZE technology in pemphigus vulgaris and foliaceus (PV), a rare autoimmune disease that causes painful blisters on the skin and mucous membranes. In February 2021, argenx initiated a Phase 3 study of ARGX-113 using ENHANZE technology for patients with chronic inflammatory demyelinating polyneuropathy (CIDP) and initiated a Phase 3 study of ARGX-113 using ENHANZE technology in myasthenia gravis (MG), an autoimmune disorder of the musculoskeletal system caused by IgG autoantibodies. In December 2021, argenx announced the FDA approval of efgartigimod (VYVGARTTM) for the treatment of generalized myasthenia gravis for the IV dosing regimen.
In October 2020, we and argenx entered into agreement to expand the collaboration relationship. Under the newly announced expansion, argenx gained the ability to exclusively access our ENHANZE technology for three additional targets upon nomination for a total of up to six targets under the existing and newly expanded collaboration.
Horizon Collaboration
In November 2020, we and Horizon entered into a global collaboration and license agreement that gives Horizon exclusive access to ENHANZE technology for subcutaneous formulation of medicines targeting IGF-1R. Horizon intends to use ENHANZE to develop a SC formulation of TEPEZZA® (teprotumumab-trbw), indicated for the treatment of thyroid eye disease, a serious, progressive and vision-threatening rare autoimmune disease, potentially shortening drug administration time, reducing healthcare practitioner time and offering additional flexibility and convenience for patients. In March 2021, Horizon completed dosing in a Phase 1 study exploring the SC formulation of TEPEZZA. The trial is a small, single-dose Phase 1 pharmacokinetic trial which includes evaluating ENHANZE technology for a SC formulation.
ViiV Healthcare
In June 2021, we entered into a global collaboration and license agreement with ViiV. The license gives ViiV exclusive access to our ENHANZE technology for four specific small and large molecule targets for the treatment and prevention of HIV. These targets are integrase inhibitors, reverse transcriptase inhibitors limited to nucleoside reverse transcriptase inhibitors (NRTI) and nucleoside reverse transcriptase translocation inhibitors (NRTTIs), capsid inhibitors and broadly neutralising monoclonal antibodies (bNAbs), that bind to the gp120 CD4 binding site. In December 2021, ViiV initiated enrollment of a Phase 1 study to evaluate cabotegravir administered subcutaneously with ENHANZE.
NIH CRADA
In June 2019, we announced a Cooperative Research and Development Agreement (CRADA) with the National Institute of Allergy and Infectious Diseases’ Vaccine Research Center (VRC), part of National Institute of Health (NIH), enabling the VRC’s use of ENHANZE technology to develop subcutaneous formulations of VRC07-523LS and N6LS broadly neutralizing antibodies (bnAbs) against HIV for HIV treatment. In March 2021, we were notified that the first patient was dosed with N6LS and rHuPH20 in VRC 609 Phase 1 dose-escalation study to evaluate safety, tolerability, and pharmacokinetics of N6LS using ENHANZE technology.
CAPRISA
In September 2020, we entered into a collaboration with the Centre for the AIDS Programme of Research in South Africa (CAPRISA), a non-profit company, to evaluate safety, tolerability and pharmacokinetics of a human monoclonal antibody (CAP256V2LS) in HIV-negative and HIV-positive women in South Africa. In October 2020, we were notified that the first patient was dosed with CAP256V2LS and rHuPH20 in CAPRISA 012B Phase 1 dose-escalation study to evaluate safety, tolerability, and pharmacokinetics of CAPR256V2LS alone and in combination with VRC07-523LS using ENHANZE technology. In January 2021, we were notified the first patient was dosed with CAP256V2LS and rHuPH20 in combination with VRC07-523LS and rHuPH20 in CAPRISA 012B Phase 1 study. VRC07-523LS broadly neutralizing antibody was supplied by the NIH/VRC under a research collaboration with CAPRISA.
For a further discussion of the collaboration agreements, refer to Note 2, Summary of Significant Accounting Policies - Revenues under Collaborative Agreements.
Customers
The following table indicates the percentageImpact of total revenues in excess of 10% with any single customer:
|
| | | | | | | | |
| Year Ended December 31, |
| 2019 | | 2018 | | 2017 |
Roche | 40 | % | | 72 | % | | 38 | % |
argenx | 23 | % | | — | % | | — | % |
Janssen | 18 | % | | 2 | % | | 6 | % |
BMS | 1 | % | | 4 | % | | 32 | % |
Alexion | 1 | % | | 3 | % | | 13 | % |
For additional information regarding our revenues from customers, refer to Note 2, Summary of Significant Accounting Policies — Concentrations of Credit Risk, Sources of Supply and Significant Customers,COVID-19 to our consolidated financial statements.Business
In March 2020, the World Health Organization declared a disease caused by a strain of novel coronavirus (“COVID-19”) to be a pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. In an effort to protect the health and safety of our employees and in compliance with state regulations, we instituted working from home, limited the number of people that work
on site at any one time, and suspended employee travel. As an organization we continue to effectively operate with the majority of our employees working from home and not traveling. Importantly, our suppliers continue to operate without interruption related to COVID-19. We recognize that the duration of the pandemic and its continued impact on the global economy as a whole remains unknown at this time. We are not clear the extent to which long term operational and economic impacts of COVID-19, if any, will have on our business, including the effects on our suppliers, collaborators, customers, employees, and prospects. We will continue to monitor the COVID-19 situation closely.
Patents and Proprietary Rights
Patents and other proprietary rights are essential to our business. Our success will depend in part on our ability to obtain patent protection for our inventions, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. Our strategy is to actively pursue patent protection in the U.S. and certain foreign jurisdictions for technology that we believe to be proprietary to us and that offers us a potential competitive advantage. Our patent portfolio includes 4342 issued patents in the U.S., more than 520470 issued patents in Europe and other countries in the world and more than 7050 pending patent applications. In general, patents have a term of 20 years from the application filing date or earlier claimed priority date. Our issued patents will expire between 20232024 and 2035. We have multiple patents and patent applications throughout the world pertaining to our recombinant human hyaluronidase and methods of use and manufacture, including an issued U.S. patent which expires in 2027 and an issued European patent which expires in 2024, which we believe cover the products and product candidates under our existing
collaborations and Hylenex recombinant .recombinant. In addition, we have, under prosecution throughout the world, multiple patent applications that relate specifically to individual product candidates under development, the expiration of which can only be definitely determined upon maturation into our issued patents. We believe our patent filings represent a barrier to entry for potential competitors looking to utilize these hyaluronidases.
In addition to patents, we rely on unpatented trade secrets, proprietary know-how and continuing technological innovation. We seek protection of these trade secrets, proprietary know-how and innovation, in part, through confidentiality and proprietary information agreements. Our policy is to require our employees, directors, consultants, advisors, collaborators, outside scientific collaborators and sponsored researchers, other advisors and other individuals and entities to execute confidentiality agreements upon the start of employment, consulting or other contractual relationships with us. These agreements provide that all confidential information developed or made known to the individual or entity during the course of the relationship is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees and some other parties, the agreements provide that all inventions conceived by the individual will be our exclusive property. Despite the use of these agreements and our efforts to protect our intellectual property, there will always be a risk of unauthorized use or disclosure of information. Furthermore, our trade secrets may otherwise become known to, or be independently developed by, our competitors.
We also file trademark applications to protect the names of our products and product candidates. These applications may not mature to registration and may be challenged by third parties. We are pursuing trademark protection in a number of different countries around the world. There can be no assurances that our registered or unregistered trademarks or trade names will not infringe on rights of third parties or will be acceptable to regulatory agencies.
Research and Development Activities
Our research and development expenses consist primarily of costs associated with the product development, quality and regulatory work required to maintain the ENHANZE platform, development and manufacturing of product candidates performed on behalf of our partners, compensation and other expenses for research and development personnel, supplies and materials, facility costs and amortization and depreciation. We charge all research and development expenses to operations as they are incurred. Prior to our November 2019 restructuring, our research and development activities were primarily focused on the development of PEGPH20.
Manufacturing
We do not have our own manufacturing facility for our product and our partners’ products and product candidates, or the capability to package our products. We have engaged third parties to manufacture bulk rHuPH20 and Hylenex.
We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc. (Avid) and Catalent Indiana LLC (formerly Cook Pharmica LLC) (Catalent) to produce supplies of bulk rHuPH20. These manufacturers each produce bulk rHuPH20 under current Good Manufacturing Practices (cGMP) for clinical and commercial uses. Catalent currently produces bulk rHuPH20 for use in Hylenex and collaboration product candidates. Avid currently produces bulk rHuPH20 for use in collaboration products. We rely on their ability to successfully manufacture these batches according to product specifications. It is important for our business for Catalent and Avid to (i) retain their status as cGMP-approved manufacturing facilities; (ii) successfully scale up bulk rHuPH20 production; and/or (iii) manufacture the bulk rHuPH20 required by us and our collaborators for use in our proprietary and collaboration products and product candidates. In addition to supply obligations, Avid and Catalent will also provide support for data and information used in the chemistry, manufacturing and controls sections for FDA and other regulatory filings.
We have a commercial manufacturing and supply agreement with Patheon Manufacturing Services, LLC (Patheon) under which Patheon will provide the final fill and finishing steps in the production process of Hylenex recombinant. Under our commercial services agreement with Patheon, Patheon has agreed to fill and finish Hylenexrecombinant product for us until December 31, 2021, subject to further extensions in accordance with the terms of the agreement.
Sales, Marketing and Distribution
Hylenex Recombinant
Our commercial activities currently focus on Hylenex recombinant. We have a team of sales specialists that provide hospital and surgery center customers with the information about Hylenex recombinant and information needed to obtain formulary approval for, and support utilization of, Hylenex recombinant. Our commercial activities also include marketing and related services and commercial support services such as commercial operations, managed markets and commercial analytics. We also employ third-party vendors, such as advertising agencies, market research firms and suppliers of marketing and other sales support related services to assist with our commercial activities.
We sell Hylenex recombinant in the U.S. to wholesale pharmaceutical distributors, who sell the product to hospitals and other end-user customers. We engage Integrated Commercialization Solutions (ICS), a division of AmerisourceBergen Specialty Group, a subsidiary of AmerisourceBergen, to act as our exclusive distributor for commercial shipment and distribution of Hylenex recombinant to our customers in the United States. In addition to distribution services, ICS provides us with other key services related to logistics, warehousing, returns and inventory management, contract administration and chargebacks processing and accounts receivable management. In addition, we utilize third parties to perform various other services for us relating to regulatory monitoring, including call center management, adverse event reporting, safety database management and other product maintenance services.
Competition
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary therapeutics. We face competition from a number of sources, some of which may target the same indications as our product or product candidates, including large pharmaceutical companies, smaller pharmaceutical companies, biotechnology companies, academic institutions, government agencies and private and public research institutions, many of which have greater financial resources, drug development experience, sales and marketing capabilities, including larger, well established sales forces, manufacturing capabilities, experience in obtaining regulatory approvals for product candidates and other resources than us. We face competition not only in the commercialization of Hylenex but also for the out-licensing of our ENHANZE technology. Our ENHANZE technology may face increasing competition from alternate approaches and/or emerging technologies to deliver medicines SC. In addition, our collaborators face competition in the commercialization of the product candidates for which the collaborators seek marketing approval from the FDA or other regulatory authorities.
Hylenex Recombinant
Hylenex recombinant is currently the only FDA approved recombinant human hyaluronidase on the market. The competitors for Hylenex recombinant include, but are not limited to, Valeant Pharmaceuticals International,Bausch Health Companies, Inc.’s product, Vitrase®, an ovine (ram) hyaluronidase, and Amphastar Pharmaceuticals, Inc.’s product, Amphadase®, a bovine (bull) hyaluronidase. In addition, some commercial pharmacies compound hyaluronidase preparations for institutions and physicians even though compounded preparations are not FDA approved products.
Government Regulations
The FDA and comparable regulatory agencies in foreign countries regulate the manufacture and sale of the pharmaceutical products that we or our partners have developed or that our partners currently are developing. The FDA has established guidelines and safety standards that are applicable to the laboratory and preclinical evaluation and clinical investigation of therapeutic products and stringent regulations that govern the manufacture and sale of these products. The process of obtaining regulatory approval for a new therapeutic product usually requires a significant amount of time and substantial resources.
Regulatory obligations continue post-approval and include the reporting of adverse events when a drug is utilized in the broader patient population. Promotion and marketing of drugs is also strictly regulated, with penalties imposed for violations of FDA regulations, the Lanham Act and other federal and state laws, including the federal anti-kickback statute.
We currently intend to continue to seek, through our collaborators, approval to market products and product candidates in foreign countries, which may have regulatory processes that differ materially from those of the FDA. Our partners may rely upon independent consultants to seek and gain approvals to market our proposed products in foreign countries or may rely on other pharmaceutical or biotechnology companies to license our proposed products. We cannot guarantee that approvals to market any of our partners’ products can be obtained in any country. Approval to market a product in any one foreign country does not necessarily indicate that approval can be obtained in other countries.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of drug products. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency or reviewing courts in ways that may significantly affect our business and development of our partners’ product candidates and any products that we may commercialize. It is impossible to predict whether additional legislative changes will be enacted, or FDA regulations, guidance or interpretations changed, or what the impact of any such changes may be.
Information about our Executive Officers
Information concerning our executive officers, including their names, ages and certain biographical information can be found in Part III, Item 10, Directors, Executive Officers and Corporate Governance. This information is incorporated by reference into Part I of this report.
EmployeesHuman Capital Management
The experience, expertise and dedication of our employees drive the progress and accomplishments of Halozyme.
As of February 14, 2020,2022, we had 132145 full-time employees. None of our employees are unionized and we believe our employee relations to be good.
Recognizing the value of our employees and the contributions they make in achieving our business objectives and overall success, we focus on creating and providing an inclusive and safe work environment where employees are respected and rewarded for their contributions, work together as one team, have opportunities to grow and develop their careers, and support the communities in which we work. We also believe this approach to human capital management is essential to attracting and retaining employees in the highly competitive biotechnology and pharmaceutical labor market. To achieve this supportive working environment, our human capital management efforts focus on: Corporate Values and Ethics:
The foundation of our human capital management strategy is contained in our corporate values statement and our Code of Conduct and Ethics (the “Code of Conduct”), both of which provide uniform guidance to all our employees regarding expectations for proper workplace behavior. Our corporate values emphasize respecting and valuing fellow team members and acting with integrity and honesty to uphold the highest ethical standards. We believe these values provide an environment in which all employees can feel proud and motivated to contribute their valued talents to achieving corporate goals and objectives. Our values also emphasize empowering employees and personal accountability as a means to fulfill our commitments to patients, partners, shareholders and each other.
Our Board of Directors adopted and regularly reviews the Code of Conduct, which applies to all of our employees, officers and directors. Adherence to the Code of Conduct helps ensure that all employees can feel a part of an organization that emphasizes adherence to laws and policies covering the industry in which we work. Our Code of Conduct also emphasizes each employee’s accountability for making decisions and taking actions in a highly ethical manner with a focus on honesty, fairness and integrity and treating all fellow employees in a respectful and inclusive manner. We have established a reporting hotline that enables employees to file anonymous reports of any suspected violations of the Code of Conduct. We believe that providing an ethical environment in which to work is vital to our efforts to attract, retain and develop our employees.
Diversity and Inclusion:
We seek to build and maintain a diverse team of employees that is passionate about and committed to having a positive impact on the lives of patients and their families. We value and celebrate the unique talents, backgrounds and perspectives each employee contributes to achieving our mission and corporate objectives. In support of this philosophy, we adopted the Biotechnology Innovation Organization’s principles on workforce development, diversity and inclusion. Our diverse and inclusive culture is key to attract, develop and retain our talent pool within the globally competitive biotechnology industry. Our dedication to these principles has resulted in a diverse and inclusive employee base consisting of 46% female and 47% non-white/Caucasian employees as of February 14, 2022.
As an equal opportunity employer, we strive to attract and connect with diverse talent who best match our core values and who will be successful and thrive at Halozyme. Our recruiting team partners with hiring managers and we select diverse interview panels to help provide insight at every stage of the process to identify the best possible candidate – whether internal or external – to fill open roles in the company. We evaluate our recruitment and retention efforts based on a variety of metrics, including offer acceptance rate, time-to-hire, turnover and diversity of our employees.
Professional Development for Employees at All Levels:
We are firmly committed to employee development as an essential driver of our future growth and overall success of Halozyme. We understand that high performing employees are always seeking a challenge and reaching for ways to broaden, deepen and develop their skills and grow professionally. To support our employees, we conduct an individual development plan process to give employees the opportunity and accountability to document their career goals and the actions necessary to achieve those goals. Our senior leader development program is focused on advancing business acumen and leadership skills. Our learning and development curriculum for the entire organization is focused on personal, professional, team and leadership development opportunities and grounded in our established leadership attributes which identify the knowledge, skills, abilities and behaviors that contribute to individual and organizational performance. In addition, everyone attends compliance, harassment prevention, and safety training and we offer education assistance for college and university course, training seminars and educational conferences to all employees
To monitor progress, we review our succession plan for key senior management positions as part of our annual talent review and identify development opportunities to help ensure potential successor readiness.
Employee Engagement:
Building trust and a high performing culture is a top priority for Halozyme. We achieve this by providing a platform for employees to give feedback, collaborate on solutions, and discuss how to make changes to help improve our experience at work. Over the years, we have regularly conducted employee engagement surveys to better understand what we do well and where there are opportunities for improvement. We consistently achieve high participation rates of 92% or more - well above benchmark response scores.
Based on the insights gained from past surveys, we have focused on strengthening cross-functional teamwork including how teams communicate and how we hold each other accountable. Examples of specific actions we have taken in response to employee survey feedback include all-employee training on cross-functional teamwork and a learning series to equip employees to give and receive constructive feedback.
In 2021 we transitioned to a new survey platform which provides us with opportunities for more regular pulse surveys to stay abreast of employee engagement trends. This enables us to act quickly in response to employee sentiment. Our process continues to allow for meaningful conversations and encourages everyone at all levels to take action toward focus areas.
We hold frequent all-employee meetings that serve as an open forum to share progress on strategy and corporate goals as well as potential at-risk areas, celebrate achievements, and share best practices and learnings. In 2020 and continuing in 2021 we have increased the frequency of our all-employee meetings from monthly to semi-monthly while implementing our work-from-home strategy in response to COVID-19 to keep employees well-informed, connected and to provide them with a setting to ask questions and discuss solutions
Management tracks and assesses retention and attrition and interviews departing employees in order to identify any addressable trends.
Compensation & Benefits:
Our compensation and benefits programs, with oversight from the Compensation Committee of our Board of Directors, are designed to attract, retain and reward employees through competitive salaries, annual bonus eligibility, long-term incentive awards, Employee Stock Purchase Plan, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, and employee assistance programs. Each year we conduct surveys to benchmark our salaries and benefits and confirm we are satisfied with the competitiveness of our total compensation offering. We also provide
a variety of peer-to-peer and corporate recognition programs to celebrate and recognize our employees for their hard work and contributions.
Employee Health and Safety:
We are dedicated to promoting the health and safety of our employees because we believe it fosters employee productivity and job performance. We have developed and implemented annual workplace safety training which is intended to remind our employees of workplace safety procedures that may be useful in the event of emergency situations and to assist our employees in helping to prevent workplace accidents. We have established a Safety Committee which meets on a quarterly basis to review workplace safety and adherence to safety policies which reports to the CEO and Board Chair. Further, our Code of Conduct emphasizes our commitment to preventing unlawful employment discrimination and workplace harassment including mandatory, on going sexual harassment training and provides a mechanism for reporting any violations of this policy.
Our response to COVID-19:
Because we take the health and safety of our employees, their families and our local communities very seriously, we have implemented the following actions to protect against the transmission of COVID-19 in our office and in the local community, while ensuring that critical work continues:
•Restricted access to our office to only those individuals vaccinated against COVID-19 and continue to require masking while onsite.
•Employees are primarily working from home.
•Required weekly COVID-19 testing for all personnel coming onsite.
•Preferred virtual, rather than in-person, interactions to continue to meet the needs of our customers, partners and contractors.
•Disinfection of all common areas, door handles, restrooms, and kitchens multiple times daily, and regular after-hours disinfection of all non-laboratory areas with state-of-the-art electrostatic sanitization.
•Upgraded all HVAC systems to MERV-13 filtration throughout our campus and introduction of supplementary HEPA filtration in conference rooms and select open office areas.
Corporate Citizenship:
We believe in supporting the community in which we work and provide our employees multiple opportunities to contribute to the community, including providing company-wide community service days/volunteerism supporting:
•Health disparities;
•STEM education;
•Human services (e.g., food drives, home builds, meal services);
•Environmental organizations (e.g., lagoon cleanup events, park restoration); and
•Children in underserved communities and our /Military (e.g., school supply drives, holiday adopt-a-family, playhouse builds, paracord builds);
Item 1A.Risk Factors
Risks Related To Our Business
We recently initiated a significant corporate restructuring including a substantial reduction in our workforce to reduce our operating costs. As a result of this initiative, we may experienceBusiness interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development of our collaboration partners’ product candidates and commercialization of approved products, impede our ability to supply bulk rHuPH20 to our business operations. In addition, we may not realize all of the expected cost savings from our corporate restructuring which could have an adverse effect onpartners or procure and sell Hylenex and otherwise adversely impact our business orand results of operations.
In November 2019, we announced thatPublic health crises such as pandemics or similar outbreaks could adversely impact our HALO-301 Phase 3 clinical study evaluating investigational new drug PEGPH20 as a first-line therapy for treatmentbusiness and results of patients with metastatic pancreatic cancer failed to reachoperations by, among other things, disrupting the primary endpoint of overall survival. As a result, we have closed all ongoing oncology clinical studies including all development activities for PEGPH20. In connection with this decision, we have initiated a significant restructuring, including a staff reduction of approximately 55 percent of our total workforce. This restructuringcollaboration partners’ product candidates and staff reduction is aimed at reducing operating costscommercialization of our partners’ approved products, disrupting our ability to enter into new ENHANZE collaborations with potential partners in a timely manner, causing disruptions in the operations of our third party contract manufacturing organizations upon whom we rely for the production and focusingsupply of our resources on our ENHANZE technologycommercial product Hylenex and Hylenex. Our restructuring initiative and staff reduction may cause disruptionthe bulk rHuPH20 we supply to our businesspartners, and causing other disruptions to our operations. For example, the reduction in forceoutbreak of a coronavirus, which causes COVID-19, has resultedrapidly evolved into a global pandemic and has spread to most regions of the world including the city of San Diego, California where our main office is located.
The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which COVID-19 and its variants impacts our operations and/or those of our collaboration partners will depend on future developments, which are highly uncertain and unpredictable, including the duration or recurrence of the outbreak, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the loss ofshort and long term, among others.
We have responded to the COVID-19 pandemic by taking a number of long-termactions including closing our offices in San Diego in March 2020, requesting that most of our personnel work remotely and restricting access to our facilities mostly to personnel who perform critical activities that must be completed on-site in accordance with California’s initial statewide shelter-in-place order and ongoing guidances. Increased reliance on personnel working from home may have a negative impact on productivity, or disrupt, delay or otherwise adversely impact business, by, among other things, increasing cyber security risk, impeding access to information that would be helpful to pursue our business objectives or disrupting our communications. We are continuing to monitor the situation to determine the timing for all employees to return to working from the office.
The business disruptions associated with a global pandemic could impact the business, product development priorities and operations of our collaboration partners, including potential delays in manufacturing their product candidates or approved products. For example, some membersof our collaboration partners are conducting or are planning to conduct clinical trials in geographies affected by the COVID-19 pandemic. The progress or completion of these clinical trials could be adversely impacted by the pandemic. Additionally, interruption or delays in the operations of the senior management team,FDA, the lossEMA and other similar foreign regulatory agencies, or changes in regulatory priorities to focus on the COVID-19 pandemic, may affect required regulatory review, inspection, clearance and approval timelines. Disruptions such as these could result in delays in the development programs of institutional knowledgeour collaboration products or impede the commercial efforts for approved products, resulting in potential reductions or delays in our revenues from collaborator royalty or milestone payments.We do not know the extent to which our collaboration partners’ development programs or product commercialization efforts will be impacted or delayed.
We rely on third party manufacturers to manufacture the bulk rHuPH20 that we supply to our collaboration partners for their commercial products and expertiseproduct candidates, as well as our commercial product Hylenex. If any such third party manufacturer is adversely impacted by the COVID-19 pandemic and related consequences, including staffing shortages, production slowdowns and disruptions in delivery systems, availability of raw materials, reagents or components or if they divert resources or manufacturing capacity to accommodate the reallocation and combinationdevelopment of certain roles and responsibilities acrosscoronavirus treatments or vaccines, our supply chain may be disrupted, limiting our ability to sell Hylenex or supply bulk rHuPH20 to our collaboration partners. Any such disruptions could result in reductions or delays in our revenues.
The effects of COVID-19 could worsen in countries that are already afflicted with the organization, all ofcoronavirus which could further adversely affectimpact our operations. ability to conduct our business and could have a material adverse impact on our operations, financial condition and results. We do not yet know the full extent of the impact that COVID-19 may or will have on our business.
In addition, we may not be able to effectively realize all the cost savings anticipated by the restructuring initiativetrading prices for our common shares and reduction-in-force and we may incur unanticipated charges or make cash paymentsother biopharmaceutical companies have been highly volatile as a result of our restructuring initiative that were not previously contemplated whichmarket and investor reactions to the COVID-19 pandemic and its potential consequences. As a result, access to sources of financing, should those be needed, may be more difficult and/or expensive. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could result in an adverse effect onmaterially and adversely affect our business or results of operations.
Our inability to attract, hire and retain key management and scientific personnel could negatively affect our business.
Our success depends on the performance of key management and scientific employees with relevant experience. We depend substantially on our ability to hire, train, motivate and retain high quality personnel, especially our scientists and management team which may be adversely affected by our recent restructuring and reduction in force. Particularly in view of the small number of employees on our staff to manage our alliance programs and key functions, if we are unable to retain existing personnel or identify or hire additional personnel, we may not be able to adequately support current and future alliances with strategic collaborators. Our use of domestic and international third-party contractors, consultants and staffing agencies also subjects us to potential co-employment liability claims.
Furthermore, if we were to lose key management personnel, we would likely lose some portionvalue of our institutional knowledge and technical know-how, potentially causing a substantial disruption or delay in one or more of our partnered development programs until adequate replacement personnel could be hired and trained. In addition, we do not have key person life insurance policies on the lives of any of our employees which would help cover the cost of associated with the loss of key employees.
We have generated only limited revenues to date and we have a history of net losses and negative cash flowscommon shares.
Relative to expenses incurred in our operations, we have generated only limited revenues from product sales, royalties, licensing fees, milestone payments, bulk rHuPH20 supply payments and research reimbursements to date. Through December 31, 2019, we have incurred aggregate net losses of $603.7 million. Although we expect to achieve sustainable profitability beginning the second quarter of 2020, unexpected declines in revenues and increases in expenses could inhibit our ability to achieve and sustain profitability.
If partners’ product candidates do not receive and maintain regulatory approvals, or if approvals are not obtained in a timely manner, such failure or delay would substantially impair our ability to generate revenues.
Approval from the FDA or equivalent health authorities is necessary to manufacture and market pharmaceutical products in the U.S. and the other countries in which we anticipate doing business have similar requirements. The process for obtaining FDA and other regulatory approvals is extensive, time-consuming, risky and costly, and there is no guarantee that the FDA or other regulatory bodies will approve any applications that may be filed with respect to any of our partners’ product candidates, or that the timing of any such approval will be appropriate for the desired product launch schedule for a product candidate. We and our collaborators attempt to provide guidance as to the timing for the filing and acceptance of such regulatory approvals, but such filings and approvals may not occur when we or our collaborators expect, or at all. The FDA or other foreign regulatory agency may refuse or delay approval of our partners’ product candidates for failure to collect sufficient clinical or animal safety data and require our collaborators to conduct additional clinical or animal safety studies which may cause lengthy delays and increased costs to our partners’ development programs. Any such issues associated with rHuPH20 could have an adverse impact on future development of our partners’ products which include rHuPH20, future sales of Hylenex recombinant, or our ability to maintain our existing collaborations or enter into new collaborations.
We and our collaborators may not be successful in obtaining approvals for any additional potential products in a timely manner, or at all. Refer to the risk factor titled “Our collaboration product candidates may not receive regulatory approvals or their development may be delayed for a variety of reasons, including delayed or unsuccessful clinical trials, regulatory requirements or safety concerns” for additional information relating to the approval of product candidates.
Additionally, even with respect to products which have been approved for commercialization, in order to continue to manufacture and market pharmaceutical products, we or our collaborators must maintain our regulatory approvals. If we or any of our collaborators are unsuccessful in maintaining our regulatory approvals, our ability to generate revenues would be adversely affected.
Use of Hylenex and the products and product candidates of our partners’ could be associated with side effects or adverse events.
As with most pharmaceutical products, use of Hylenex and the products and product candidates of our collaborators could be associated with side effects or adverse events which can vary in severity (from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of Hylenex and the products or product candidates of our collaborators may be observed at any time, including in clinical trials or when a product is commercialized, and any such side effects or adverse events may negatively affect our or our collaborators’ ability to obtain or maintain regulatory approval or market such products and product candidates. Side effects such as toxicity or other safety issues associated with the use of Hylenex and the products and product candidates of our collaborators could require us or our collaborators to perform additional studies or halt development or commercialization of these products and product candidates or expose us to product liability lawsuits which will harm our business. For example, we experienced a clinical hold on patient enrollment and dosing in our phase 2 study of PEGPH20 in patients with PDA (a discontinued program), which was not resolved until we implemented steps to address an observed possible difference in TE event rates between the arms of the study. We or our collaborators may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our pharmaceutical products or product candidates which we have not planned or anticipated. Furthermore, there can be no assurance that we or our collaborators will resolve any issues related to any product or product candidate side effects or adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition.
If our contract manufacturers or vendors are unable to manufacture and supply to us bulk rHuPH20 or other raw materials, reagents or components in the quantity and quality required by us or our collaborators for use in the production of Hylenex or our partners’ products and product candidates, our Hylenex commercialization efforts or our partners’ product development and commercialization efforts could be delayed or stopped and our business results of operations and our collaborations could be damaged.harmed.
We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc. (Avid) and Catalent Indiana LLC (Catalent) to produce bulk rHuPH20. These manufacturers each produce bulk rHuPH20 under cGMP for use in Hylenex recombinant, and for use in collaboration products and product candidates.Catalent currently producescandidates. We rely on their ability to successfully manufacture bulk rHuPH20 for use in Hylenex recombinant and collaborationaccording to product candidates.specifications. In addition to supply obligations, Avid and Catalentour contract manufacturers will also provide support for the chemistry, manufacturing and controls sections for FDA and other regulatory filings. We also rely on their abilityvendors to successfully manufacture bulk rHuPH20 accordingsupply us with raw materials to product specifications.produce reagents and other materials for bioanalytical assays used to support our partners’ clinical trials. We also have a commercial manufacturing and supply agreement with Patheon under which Patheon provides the final fill and finishing steps in the production process of Hylenex recombinant. If either Avidany of our contract manufacturers or Catalent:vendors: (i) is unable to retain its status as an FDA approved manufacturing facility; (ii) is unable to otherwise successfully scale up bulk rHuPH20 production to meet corporate or regulatory authority quality standards; (iii) is unable to procure raw materials, reagents or (iii)components necessary to produce bulk rHuPH20, Hylenex recombinant or our
bioanalytical assays or (iv) fails to manufacture and supply bulk rHuPH20 in the quantity and quality required by us or our collaborators for use in Hylenex and collaboration products and product candidates for any other reason, our business will be adversely affected. In addition, a significant change in such parties’ or other third party manufacturers’ business or financial condition could adversely affect their abilities to fulfill their contractual obligations to us. We have not established, and may not be able to establish, favorable arrangements with additional bulk rHuPH20 manufacturers and suppliers of the ingredients necessary to manufacture bulk rHuPH20 should the existing manufacturers and suppliers become unavailable or in the event that our existing manufacturers and suppliers are unable to adequately perform their responsibilities. We have attempted to mitigate the impact of a potential supply interruption through the establishment of excess bulk rHuPH20 inventory where possible, but there can be no assurances that this safety stock will be maintained or that it will be sufficient to address any delays, interruptions or other problems experienced by Avid and/or Catalent.any of our contract manufacturers. Any delays, interruptions or other problems regarding the ability of Avid and/or Catalentour contract manufacturers to supply bulk rHuPH20 or the ability of other third party manufacturers, to supply other raw materials or ingredients necessary to produce our products on a timely basis could: (i) cause the delay of our partners’ clinical trials or otherwise delay or prevent the regulatory approval of our partners’ product candidates; (ii) delay or prevent the effective commercialization of Hylenex or collaboration products and product candidates; and/or (iii) cause us to breach contractual obligations to deliver bulk rHuPH20 to our collaborators. Such delays would likely damage our relationship with our collaborators, and they would have a material adverse effect on royalties and thus our business and financial condition. Additionally, we rely on third parties to manufacture, prepare, fill, finish, package, store and ship our product and partners’ product candidates on our behalf. If the third parties we identify fail to perform their obligations, the progress of partners’ clinical trials could be delayed or even suspended and the commercialization of approvedour product candidatesand partner products could be delayed or prevented.
If we or any party to a key collaboration agreement fail to perform material obligations under such agreement, or if a key collaboration agreement, is terminated for any reason, our business could significantly suffer.
We have entered into multiple collaboration agreements under which we may receive significant future payments in the form of milestone payments, target designation fees, maintenance fees and royalties. We are heavily dependent on our collaborators to develop and commercialize product candidates subject to our collaborations in order for us to realize any financial benefits, including revenues from milestones, royalties and product sales from these collaborations. Our collaborators may not devote the attention and resources to such efforts that we would ourselves, change their clinical development plans, promotional efforts or simultaneously develop and commercialize products in competition to those products we have licensed to them. Any of these actions could not be visible to us immediately and could negatively impact our ability to forecast and our ability to achieve the benefits and revenue we receive from such collaboration. In addition, in the event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could negatively impact our operations and our commercialization efforts for Hylenex.operations. In addition, the termination of a key collaboration agreement by one or more of our collaborators could have a material adverse impact on our ability to enter into additional collaboration agreements with new collaborators on favorable terms, if at all. In certain circumstances, the termination of a key collaboration agreement would require us to revise our corporate strategy going forward and reevaluate the applications and value of our technology.
Hylenex and our partners’ products and product candidates rely on the rHuPH20 enzyme, and any adverse development regarding rHuPH20 could substantially impact multiple areas of our business, including current and potential collaborations, as well as any proprietary programs.
rHuPH20 is a key technological component of Hylenex and our ENHANZE technology and most of our collaboration products and product candidates, including the current and future products and product candidates under our ENHANZE collaborations. If there is an adverse development for rHuPH20 (e.g., an adverse regulatory determination relating to rHuPH20, if we are unable to obtain sufficient quantities of rHuPH20, if we are unable to obtain or maintain material proprietary rights to rHuPH20 or if we discover negative characteristics of rHuPH20), multiple areas of our business, including current and potential collaborations, as well as proprietary programs would be substantially impacted. For example, elevated anti-rHuPH20 antibody titers were detected in the registration trial for Baxalta’s HYQVIA product as well as in a former collaborator’s product in a Phase 2 clinical trial with rHuPH20, but have not been associated, in either case, with any adverse events. We monitor for antibodies to rHuPH20 in our collaboration and proprietary programs, and although we do not believe at this time that the incidence of non-neutralizing anti-rHuPH20 antibodies in either the HYQVIA program or the former collaborator’s program will have a significant impact on our proprietary product and our partners’ product and product candidates, there can be no assurance that there will not be other such occurrences in the foregoing programs or that concerns regarding these antibodies will not also be raised by the FDA or other health authorities in the future, which could result in delays or discontinuations of our Hylenex commercialization activities, the development or commercialization activities of our partners, or deter our entry into additional collaborations with third parties.
We routinely evaluate, and may modify, our
Our business strategy and our strategic focus is currently limited to only a few fields or applications of our technology which may increase the risk for potential negative impact from adverse developments. Future expansion of our strategic focus to additional applications of our technology may require the use of additional resources, result in increased expense and ultimately may not be successful.
We routinely evaluate our business strategy, and may modify this strategy in the future in light of our assessment of unmet medical needs, growth potential, resource requirements, regulatory issues, competition, risks and other factors. As a result of these strategic evaluations, we may focus our resources and efforts on one or a few programs or fields and may suspend or reduce our efforts on other programs and fields. For example, in the fourth quarter of 2019, we decided to focus our resources on our ENHANZE technology and our commercial product, Hylenex. By focusing on these areas, we increase the potential impact on us if one of those partner programs does not successfully complete clinical trials, achieve commercial acceptance or meet expectations regarding sales and revenue. Our decision to focus on one or a few programsWe may also reduce the value of programs that are no longer withinexpand our principal strategic focus by seeking new therapeutics applications of our technology which could impairmay require the use of additional resources, increased expense and would require the attention of senior management. There can be no assurance that any such investment of resources would ultimately result in additional approved collaboration products or commercial success of new therapeutic applications of our ability to pursue collaborations or other strategic alternatives for those programs we are not pursuing.technology.
Our collaboration product candidates may not receive regulatory approvals or their development may be delayed for a variety of reasons, including delayed or unsuccessful clinical trials, regulatory requirements or safety concerns.
Clinical testing of pharmaceutical products is a long, expensive and uncertain process, and the failure or delay of a clinical trial can occur at any stage, including the patient enrollment stage. Even if initial results of preclinical and nonclinical studies or clinical trial results are promising, our collaborators may obtain different results in subsequent trials or studies that fail to show the desired levels of dose safety and efficacy, or our collaborators may not, obtain applicable regulatory approval for a variety of other reasons. Preclinical, nonclinical, and clinical trials for collaboration product candidates could be unsuccessful, which would delay or preclude regulatory approval and commercialization of the product candidates. In the U.S. and other jurisdictions, regulatory approval can be delayed, limited or not granted for many reasons, including, among others:
•during the course of clinical studies, the final data may differ from initial reported data, and clinical results may not meet prescribed endpoints for the studies or otherwise provide sufficient data to support the efficacy of our collaborators’ product candidates;
•clinical and nonclinical test results may reveal inferior pharmacokinetics, side effects, adverse events or unexpected safety issues associated with the use of our collaborators’ product candidates;
•regulatory review may not find that the data from preclinical testing and clinical trials justifies approval;
•regulatory authorities may require that our partners change their studies or conduct additional studies which may significantly delay or make continued pursuit of approval commercially unattractive;
•a regulatory agency may reject partner trial data or disagree with their interpretations of either clinical trial data or applicable regulations;
•a regulatory agency may require additional safety monitoring and reporting through Risk Evaluation and Mitigation Strategies or conditions to assure safe use programs;
•a partner may decide to not pursue regulatory approval for such a product;
•a regulatory agency may not approve our manufacturing processes or facilities, or the processes or facilities of our collaborators, our contract manufacturers or our raw material suppliers;
•a regulatory agency may identify problems or other deficiencies in our existing manufacturing processes or facilities, or the existing processes or facilities of our collaborators, our contract manufacturers or our raw material suppliers;
•a regulatory agency may change its formal or informal approval requirements and policies, act contrary to previous guidance, adopt new regulations or raise new issues or concerns late in the approval process; or
•a partner product candidate may be approved only for indications that are narrow or under conditions that place the product at a competitive disadvantage, which may limit the sales and marketing activities for such product candidate or otherwise adversely impact the commercial potential of a product.
If a collaboration product candidate is not approved in a timely fashion or obtained on commercially viable terms, or if development of any product candidate is terminated due to difficulties or delays encountered in the regulatory approval process, it could have a material adverse impact on our business, and we would become more dependent on the development of other collaboration product candidates and/or our ability to successfully acquire other technologies. There can be no assurances that any collaboration product candidate will receive regulatory approval in a timely manner, or at all. There can be no assurance that partners will be able to gain clarity as to the FDA’s requirements or that the requirements may be satisfied in a commercially feasible way, in which case our ability to enter into collaborations with third parties or explore other strategic alternatives to exploit an opportunity will be limited or may not be possible.
We anticipate that certain collaboration products will be marketed, and perhaps manufactured, in foreign countries. The process of obtaining regulatory approvals in foreign countries is subject to delay and failure for the reasons set forth above, as well as for reasons that vary from jurisdiction to jurisdiction. The approval process varies among countries and jurisdictions and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. Foreign regulatory agencies may not provide approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.
Our third party collaborators are responsible for providing certain proprietary materials that are essential components of our collaboration products and product candidates, and any failure to supply these materials could delay the development and commercialization efforts for these collaboration products and product candidates and/or damage our collaborations.
Our development and commercialization collaborators are responsible for providing certain proprietary materials that are essential components of our collaboration products and product candidates. For example, Roche is responsible for producing the Herceptin and MabThera required for its subcutaneous products and Baxalta is responsible for producing the GAMMAGARD LIQUID for its product HYQVIA. If a collaborator, or any applicable third party service provider of a collaborator, encounters difficulties in the manufacture, storage, delivery, fill, finish or packaging of the collaboration product or product candidate or component of such product or product candidate, such difficulties could (i) cause the delay of clinical trials or otherwise delay or prevent the regulatory approval of collaboration product candidates; and/or (ii) delay or prevent the effective commercialization of collaboration products. Such delays could have a material adverse effect on our business and financial condition.
If we or our collaborators fail to comply with regulatory requirements applicable to promotion, sale and manufacturing of approved products, regulatory agencies may take action against us or them, which could significantly harm our business.
Any approved products, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for these products, are subject to continual requirements and review by the FDA, state and foreign regulatory bodies. Regulatory authorities subject a marketed product, its manufacturer and the manufacturing facilities to continual review and periodic inspections. We, our collaborators and our respective contractors, suppliers and vendors, will be subject to ongoing regulatory requirements, including complying with regulations and laws regarding advertising, promotion and sales of drug products, required submissions of safety and other post-market information and reports, registration requirements, cGMP regulations (including requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation), and the requirements regarding the distribution of samples to physicians and recordkeeping requirements. Regulatory agencies may change existing requirements or adopt new requirements or policies. We, our collaborators
and our respective contractors, suppliers and vendors, may be slow to adapt or may not be able to adapt to these changes or new requirements.
In particular, regulatory requirements applicable to pharmaceutical products make the substitution of suppliers and manufacturers costly and time consuming. We have minimal internal manufacturing capabilities and are, and expect to be in the future, entirely dependent on contract manufacturers and suppliers for the manufacture of our products and for their active and other ingredients. The disqualification of these manufacturers and suppliers through their failure to comply with regulatory requirements could negatively impact our business because the delays and costs in obtaining and qualifying alternate suppliers (if such alternative suppliers are available, which we cannot assure) could delay our partners’ clinical trials or otherwise inhibit our or partners’ ability to bring approved products to market, which would have a material adverse effect on our business and financial condition. Likewise, if we, our collaborators and our respective contractors, suppliers and vendors involved in sales and promotion of our products do not comply with applicable laws and regulations, for example off-label or false or misleading promotion, this could materially harm our business and financial condition.
Failure to comply with regulatory requirements may result in any of the following:
•restrictions on our or our partners’ products or manufacturing processes;
•warning letters;
•withdrawal of our or our partners’ products from the market;
•voluntary or mandatory recall;
•fines;
•suspension or withdrawal of regulatory approvals;
•suspension or termination of any of our partners’ ongoing clinical trials;
•refusal to permit the import or export of our or our partners’ products;
•refusal to approve pending applications or supplements to approved applications that we submit;
•product seizure;
•injunctions; or
•imposition of civil or criminal penalties.
We may need to raise additional capital in the future and there can be no assurance that we will be able to obtain such funds.
We may need to raise additional capital in the future to fund our operations and for general corporate purposes if revenues do not occur as expected. Our current cash reserves and expected revenues may not be sufficient for us to fund general operations and conduct our business at the level desired. In addition, if we engage in acquisitions of companies, products or technologies in order to execute our business strategy, we may need to raise additional capital. We may raise additional capital in the future through one or more financing vehicles that may be available to us including (i) new collaborative agreements; (ii) expansions or revisions to existing collaborative relationships; (iii) private financings; (iv) other equity or debt financings; (v) monetizing assets; and/or (vi) the public offering of securities.
If we are required to raise additional capital in the future, it may not be available on favorable financing terms within the time required, or at all. If additional capital is not available on favorable terms when needed, we will be required to raise capital on adverse terms or significantly reduce operating expenses through the restructuring of our operations or deferral of strategic business initiatives. If we raise additional capital through a public offering of securities or equity, a substantial number of additional shares may be issued, which may negatively affect our stock price and these additional shares will dilute the ownership interest of our current investors.
We currently have significant debt and failuremay incur additional debt. Failure by us to fulfill our obligations under the applicable loandebt agreements may cause the repayment obligations to accelerate.
The aggregate amount of our consolidated indebtedness, net of debt discount, as of December 31, 20192021 was $402.6$876.7 million, which includes $460.0$90.9 million in aggregate principal amount of 1.25%the 2024 Convertible Senior Notes due 2024 (Convertible Notes) and an outstanding balance on our Royalty-backed Loan$805.0 million in aggregate principal amount of $19.5 million,the 2027 Convertible Notes, net of unamortized debt discount of $77.0 million. We currently estimate that the Royalty-backed Loan will be repaid in the second quarter$1.5 million and of 2020.$17.7 million, respectively. We also may incur additional indebtedness in the future.
Our indebtedness may:
•make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on our indebtedness;
•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general corporate purposes;
•limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions, share repurchases or other general business purposes;
•require us to use a portion of our cash flow from operations to make debt service payments;
•limit our flexibility to plan for, or react to, changes in our business and industry;
•place us at a competitive disadvantage compared to our less leveraged competitors; and
•increase our vulnerability to the impact of adverse economic and industry conditions.
Our ability to make payments on our existing or any future debt will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. It will also depend on financial, business or other factors affecting our operations, many of which are beyond our control. We will need to use cash to pay principal and interest on our debt, thereby reducing the funds available to fund operations, strategic initiatives and working capital requirements. If we are unable to generate sufficient cash to service our debt obligations, an event of default may occur under any of our debt instruments which could result in an acceleration of such debt upon which we may be required to repay all the amounts outstanding under some or all of our debt instruments. Such an acceleration of our debt obligations could harm our financial condition. From time to time, we may seek to retire or repurchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Any such repurchases or exchanges would be on such terms and at such prices as we determine, and will depend on current market conditions, our liquidity needs, any restrictions in our contracts and other factors. The amounts involved in such transactions could be material.
The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.
In the event the conditional conversion feature of the Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert the notes at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. Even if holders of the Convertible Notes do not elect to convert their notes, we could beare required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability
when the conditional conversion feature is triggered, which would resultresults in a material reduction of our net working capital. For example, as of December 31, 2021, the conditional conversion feature was triggered and our 2024 Convertible Notes are classified as a current liability.
Conversion of our Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.
The conversion of some or all of our Convertible Notes, to the extent we deliver shares upon conversion, will dilute the ownership interests of existing stockholders. Any sales in the public market of the Convertible Notes or our common stock issuable upon conversion of the Convertible Notes could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.
The accounting method for the Convertible Notes could have a material effect on our reported financial results.
Pursuant to Financial Accounting Standards Board Accounting Standards Codification Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash (such as our Convertible Notes) in a manner that reflects the issuer’s economic interest cost for non-convertible debt. The liability component of our Convertible Notes was initially be valued at the fair value of a similar debt instrument that does not have an associated equity component and was reflected as a liability in our consolidated balance sheet. The equity component of the Convertible Notes was included in the additional paid-in capital section of our stockholders’ equity on our consolidated balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component. This original issue discount will be amortized to non-cash interest expense over the term of the notes, and we will record a greater amount of non-cash interest expense in current periods as a result of this amortization. Accordingly, we will report lower net income in our financial results because ASC 470-20 will require the interest expense associated with the notes to include both the current period’s amortization of the debt discount and the notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Convertible Notes.
In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted net income per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected. For example, the FASB recently published an exposure draft proposing to amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the ‘‘if-converted’’ method. Under that method, if it is adopted, diluted net income (loss) per share would generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning of the reporting period. The application of the ‘‘if-converted’’ method may reduce our reported diluted net income per share.
If collaboration product candidates are approved for marketing but do not gain market acceptance resulting in commercial performance below that which was expected or projected, our business may suffer and we may not be able to fund future operations.
Assuming that existing or future collaboration product candidates obtain the necessary regulatory approvals for commercial sale, a number of factors may affect the market acceptance of these newly-approved products, including, among others:
•the degree to which the use of these products is restricted by the approved product label;
•the price of these products relative to other therapies for the same or similar treatments;
•the extent to which reimbursement for these products and related treatments will be available from third party payors including government insurance programs (Medicare and Medicaid) and private insurers;
•the introduction of generic or biosimilar competitors to these products;
•the perception by patients, physicians and other members of the health care community of the effectiveness and safety of these products for their prescribed treatments relative to other therapies for the same or similar treatments;
•the ability and willingness of our collaborators to fund sales and marketing efforts; and
•the effectiveness of the sales and marketing efforts of our collaborators.
If these collaboration products do not gain or maintain market acceptance or experience reduced sales resulting in commercial performance below that which was expected or projected, the royalties we expect to receive from these products will be diminished which could harm our ability to fund future operations, including conduct acquisitions, execute our planned share repurchases, or affect our ability to use funds for other general corporate purposes and cause our business to suffer.
In addition, our partners’ product candidates will be restricted to the labels approved by FDA and applicable regulatory bodies, and these restrictions may limit the marketing and promotion of the ultimate products. If the approved labels are restrictive, the sales and marketing efforts for these collaboration products may be negatively affected.
Our ability to license our ENHANZE technology to our collaboration partners depends on the validity of our patents and other proprietary rights.
Patents and other proprietary rights are essential to our business. Our success will depend in part on our ability to obtain and maintain patent protection for our inventions, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. We have multiple patents and patent applications throughout the world pertaining to our recombinant human hyaluronidase and methods of use and manufacture, including an issued U.S. patent which expires in 2027 and an issued European patent which expires in 2024, which we believe cover the products and product candidates under our existing collaborations, and Hylenex. Although we believe our patent filings represent a barrier to entry for potential competitors looking to utilize these hyaluronidases, upon expiration of our patents other pharmaceutical companies may (if they do not infringe our other patents) seek to compete with us by developing, manufacturing and selling biosimilars to the active drug ingredient in our ENHANZE technology used by our collaboration partners in combination with their products. Any such loss of patent protection or proprietary rights could lead to a reduction or loss of revenues, incentivize one or more of our key ENHANZE collaboration partners to terminate their relationship with us and impact our ability to enter into new collaboration and license agreements.
Developing and marketing pharmaceutical products for human use involves significant product liability risks for which we currently have limited insurance coverage.
The testing, marketing and sale of pharmaceutical products involves the risk of product liability claims by consumers and other third parties. Although we maintain product liability insurance coverage, product liability claims can be high in the pharmaceutical industry, and our insurance may not sufficiently cover our actual liabilities. If product liability claims were to be
made against us, it is possible that the liabilities may exceed the limits of our insurance policy, or our insurance carriers may deny, or attempt to deny, coverage in certain instances. If a lawsuit against us is successful, then the insurance coverage may not be sufficient and could materially and adversely affect our business and financial condition. Furthermore, various distributors of pharmaceutical products require minimum product liability insurance coverage before purchase or acceptance of products for distribution. Failure to satisfy these insurance requirements could impede our ability to achieve broad distribution of our proposed products, and higher insurance requirements could impose additional costs on us. In addition, since many of our collaboration product candidates include the pharmaceutical products of a third party, we run the risk that problems with the third party pharmaceutical product will give rise to liability claims against us.
Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.
Our operations, including laboratories, offices and other research facilities, are located in multiple buildings in San Diego, California. We depend on our facilities and on our collaborators, contractors and vendors for the continued operation of our business. Natural disasters or other catastrophic events, interruptions in the supply of natural resources, political and governmental changes, wildfires and other fires, floods, explosions, actions of animal rights activists, earthquakes and civil unrest could disrupt our operations or those of our collaborators, contractors and vendors. Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we may suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage. Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results. Moreover, any such event could delay our partners’ research and development programs.
If our collaborators do not achieve projected development, clinical, or regulatory goals in the timeframes publicly announced or otherwise expected, the commercialization of our collaboration products may be delayed and, as a result, our stock price may decline, and we may face lawsuits relating to such declines.
From time to time, our collaborators may publicly articulate the estimated timing for the accomplishment of certain scientific, clinical, regulatory and other product development goals. The accomplishment of any goal is typically based on numerous assumptions, and the achievement of a particular goal may be delayed for any number of reasons both within and outside of our and our collaborators’ control. If scientific, regulatory, strategic or other factors cause a collaboration partner to not meet a goal, regardless of whether that goal has been publicly articulated or not, our stock price may decline rapidly. Stock price declines may also trigger direct or derivative shareholder lawsuits. As with any litigation proceeding, the eventual outcome of any legal action is difficult to predict. If any such lawsuits occur, we will incur expenses in connection with the defense of these lawsuits, and we may have to pay substantial damages or settlement costs in connection with any resolution thereof. Although we have insurance coverage against which we may claim recovery against some of these expenses and costs, the amount of coverage may not be adequate to cover the full amount or certain expenses and costs may be outside the scope of the policies we maintain. In the event of an adverse outcome or outcomes, our business could be materially harmed from depletion of cash resources, negative impact on our reputation, or restrictions or changes to our governance or other processes that may result from any final disposition of the lawsuit. Moreover, responding to and defending pending litigation significantly diverts management’s attention from our operations.
In addition, the consistent failure to meet publicly announced milestones may erode the credibility of our management team with respect to future milestone estimates.
Future acquisitions could disrupt our business and harm our financial condition.
In order to augment our product pipeline or otherwise strengthen our business, we may decide to acquire additional businesses, products and technologies. As we have limited experience in evaluating and completing acquisitions, our ability as an organization to make such acquisitions is unproven. Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following:
•we may have to issue additional convertible debt or equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock;
•an acquisition may negatively impact our results of operations because it may require us to amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;
•we may encounter difficulties in assimilating and integrating the business, products, technologies, personnel or operations of companies that we acquire;
•certain acquisitions may impact our relationship with existing or potential collaborators who are competitive with the acquired business, products or technologies;
•acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not generate sufficient value to justify acquisition costs;
•we may take on liabilities from the acquired company such as debt, legal liabilities or business risk which could be significant;
•an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;
•acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and
•key personnel of an acquired company may decide not to work for us.
If any of these risks occurred, it could adversely affect our business, financial condition and operating results. There is no assurance that we will be able to identify or consummate any future acquisitions on acceptable terms, or at all. If we do pursue any acquisitions, it is possible that we may not realize the anticipated benefits from such acquisitions or that the market will not view such acquisitions positively.
Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
Cyberattacks, security breachesOur effective tax rate is derived from a combination of applicable tax rates in the various places that we operate. In preparing our financial statements, we estimate the amount of tax that will become payable in each of such places. Nevertheless, our effective tax rate may be different than experienced in the past due to numerous factors, including changes in the mix of our profitability between different tax jurisdictions, the results of examinations and audits of our tax filings, our inability to secure or system breakdownssustain acceptable agreements with tax authorities, changes in accounting for income taxes and changes in tax laws. Any of these factors could cause us to experience an effective tax rate significantly different from previous periods or our current expectations and may disruptresult in tax obligations in excess of amounts accrued in our operationsfinancial statements.
In addition, on September 30, 2021, we determined, based on our facts and harmcircumstances, that it was more likely than not that a substantial portion of our deferred tax assets would be realized and, as a result, substantially all of our valuation allowance against our deferred tax assets was released. This resulted in substantially and disproportionately increasing our reported net income and our earnings per share compared to our operating results for 2021. Historical and reputation.
Wefuture comparisons to these amounts are not, and our partners are subject to increasingly sophisticated attempts to gain unauthorized access to our information technology storage and access systems and are devoting resources to protect against such intrusion. Cyberattacks could render us or our partners unable to utilize key systems or access important data needed to operatewill not be, indicative of actual profitability trends for our business. The wrongful use, theft, deliberate sabotage or any other type of security breach with respectBeginning in 2022, we expect to any of our or any of our vendors and partners’ information technology storage and access systems could result in the breakdown or other service interruption, or the disruption of our ability to use such systems or disclosure or dissemination of proprietary and confidential informationcommence recording income tax expense at an estimated tax rate that is electronically stored, including intellectual property, trade secrets, financial information, regulatory information, strategic plans, sales trends and forecasts, litigation materials or personal information belonging to us, our staff, our patients, customers and/or other business partnerswill likely approximate statutory tax rates, which couldwould result in a material adverse impact onsignificant reduction in our business, operating resultsnet income and financial condition. We continue to invest in monitoring, and other security and data recovery measures to protect our critical and sensitive data and systems. However, these may not be adequate to prevent or fully recover systems or data from all breakdowns, service interruptions, attacks or breaches of our systems. Furthermore, any physical break-in or trespass of our facilities could result in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data or damage to our research and development equipment and assets. Such adverse effects could be material and irrevocable to our business, operating results, financial condition and reputation.
net income per share.
Risks Related To Ownership of Our Common Stock
Our stock price is subject to significant volatility.
We participate in a highly dynamic industry which often results in significant volatility in the market price of common stock irrespective of company performance. The high and low sales prices of our common stock during the twelve months ended December 31, 20192021 were $19.73$56.40 and $13.84,$31.79, respectively. We expect our stock price to continue to be subject to significant volatility and, inIn addition to the other risks and uncertainties described elsewhere in this Annual Report on Form 10-K and all other risks and uncertainties that are either not known to us at this time or which we deem to be immaterial, any of the following factors may lead to a significant drop in our stock price:
•the presence of competitive products to those being developed by our partners;
•failure (actual or perceived) of our collaborators to devote attention or resources to the development or commercialization of products or product candidates licensed to such collaborator;
•a dispute regarding our failure, or the failure of one of our third party collaborators, to comply with the terms of a collaboration agreement;
•the termination, for any reason, of any of our collaboration agreements;
•the sale of common stock by any significant stockholder, including, but not limited to, direct or indirect sales by members of management or our Board of Directors;
•the resignation, or other departure, of members of management or our Board of Directors;
•general negative conditions in the healthcare industry;
•pandemics or other global crises;
•general negative conditions in the financial markets;
•the cost associated with obtaining regulatory approval for any of our collaboration product candidates;
•the failure, for any reason, to secure or defend our intellectual property position;
•the failure or delay of applicable regulatory bodies to approve our partners’ product candidates;
•identification of safety or tolerability issues;
•failure of our partners’ clinical trials to meet efficacy endpoints;
•suspensions or delays in the conduct of our partners’ clinical trials or securing of regulatory approvals;
•adverse regulatory action with respect to our and our collaborators’ products and product candidates such as loss of regulatory approval to commercialize such products, clinical holds, imposition of onerous requirements for approval or product recalls;
•our failure, or the failure of our third party collaborators, to successfully commercialize products approved by applicable regulatory bodies such as the FDA;
•our failure, or the failure of our third party collaborators, to generate product revenues anticipated by investors;
•disruptions in our clinical or commercial supply chains, including disruptions caused by problems with a bulk rHuPH20 contract manufacturer or a fill and finish manufacturer for any product or product collaboration candidate;
•the sale of additional debt and/or equity securities by us;
•our failure to obtain financing on acceptable terms or at all;
•a restructuring of our operations.operations;
•an inability to execute our share repurchase program in the time and manner we expect due to market, business, legal or other considerations; or
•a conversion of the Convertible Notes into shares of our common stock.
Future transactions where we raise capital may negatively affect our stock price.
We are currently a “Well-Known Seasoned Issuer” and may file automatic shelf registration statements at any time with the SEC. Sales of substantial amounts of shares of our common stock or other securities under our current or future shelf registration statements could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.
Anti-takeover provisions in our charter documents, the IndentureIndentures and Delaware law may make an acquisition of us more difficult.
Anti-takeover provisions in our charter documents, the IndentureIndentures and Delaware law may make an acquisition of us more difficult. First, our Board of Directors is classified into three classes of directors. Under Delaware law, directors of a corporation with a classified board may be removed only for cause unless the corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation, as amended, does not provide otherwise. In addition, our bylaws limit who may call special meetings of stockholders, permitting only stockholders holding at least 50% of our outstanding shares to call a special meeting of stockholders. Our amended and restated certificate of incorporation does not include a provision for cumulative voting for directors. Under cumulative voting, a minority stockholder holding a sufficient percentage of a class of shares may be able to ensure the election of one or more directors. Finally, our bylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates for election as directors and stockholder proposals.
These provisions in our charter documents may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by our board of directors.
Further, in connection with our recent Convertible Notes issuance,issuances, we entered into an indenture, dated as of November 18, 2019, (“Indenture”and an indenture dated as of March 1, 2021 (the“Indentures”) with The Bank of New York Mellon Trust Company, N.A., as trustee. Certain provisions in the Indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such takeover. In either case, and in other cases, our obligations under the Convertible Notes and the IndentureIndentures could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger with, or acquisition of, us.
These provisions may deter an acquisition of us that might otherwise be attractive to stockholders.
Risks Related to Our Industry
Our partners’ products must receive regulatory approval before they can be sold, and compliance with the extensive government regulations is expensive and time consuming and may result in the delay or cancellation of collaboration product sales, introductions or modifications.
Extensive industry regulation has had, and will continue to have, a significant impact on our business. All pharmaceutical companies, including ours, are subject to extensive, complex, costly and evolving regulation by the health regulatory agencies including the FDA (and with respect to controlled drug substances, the U.S. Drug Enforcement Administration (DEA)) and equivalent foreign regulatory agencies and state and local/regional government agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other domestic and foreign statutes and regulations govern or influence the testing, manufacturing, packaging, labeling, storing, recordkeeping, safety, approval, advertising, promotion, sale and distribution of our product and our partners’ products and product candidates. We are dependent on receiving FDA and other governmental approvals, including regulatory approvals in jurisdictions outside the United States, prior to manufacturing, marketing and shipping our products. Consequently, there is always a risk that the FDA or other applicable governmental authorities, including those outside the United States, will not approve our partners’ products or may impose onerous, costly and time-consuming requirements such as additional clinical or animal testing. Regulatory authorities may require that our partners’ change our studies or conduct additional studies, which may significantly delay or make continued pursuit of approval commercially unattractive to our partners. For example, the approval of Baxalta’s HYQVIA BLA was delayed by the FDA until we and Baxalta provided additional preclinical data sufficient to address concerns regarding non-neutralizing antibodies to rHuPH20 that were detected in the registration trial. Although these antibodies have not been associated with any known adverse clinical effects, and the HYQVIA BLA was ultimately approved by the FDA, the FDA or other foreign regulatory agency may, at any time, halt our and our collaborators’ development and commercialization activities due to safety concerns. In addition, even if our product or partners’ products are approved, regulatory agencies may also take post-approval action limiting or revoking our or our partners’ ability to sell these products. Any of these regulatory actions may adversely affect the economic benefit we may derive from our product or our partners’ products and therefore harm our financial condition.
Under certain of these regulations, in addition to our partners, we and our contract suppliers and manufacturers are subject to periodic inspection of our or their respective facilities, procedures and operations and/or the testing of products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we and our contract suppliers and manufacturers are in compliance with all applicable regulations. The FDA also conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems, or our contract suppliers’ and manufacturers’ processes, are in compliance with cGMP and other FDA regulations. If our partners, we, or our contract suppliers, fail these inspections, our partners may not be able to commercialize their products in a timely manner without incurring significant additional costs, or at all.
In addition, the FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the Internet.
We may be subject, directly or indirectly, to various broad federal and state healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.
Our business operations and activities may be directly, or indirectly, subject to various broad federal and state healthcare laws, including without limitation, anti-kickback laws, the Foreign Corrupt Practices Act (FCPA), false claims laws, civil monetary penalty laws, data privacy and security laws, tracing and tracking laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion and other business arrangements. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as sales, marketing and education programs. Many states have similar healthcare fraud and abuse laws, some of which may be broader in scope and may not be limited to items or services for which payment is made by a government health care program.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. While we have adopted a healthcare corporate compliance program, it is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our operations or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid
and other federal healthcare programs, contractual damages, reputational harm, diminished
profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.
In addition, any sales of products outside the U.S. will also likely subject us to the FCPA and foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
We may be required to initiate or defend against legal proceedings related to intellectual property rights, which may result in substantial expense, delay and/or cessation of the development and commercialization of our products.
We primarily rely on patents to protect our intellectual property rights. The strength of this protection, however, is uncertain. For example, it is not certain that:
•we will be able to obtain patent protection for our products and technologies;
•the scope of any of our issued patents will be sufficient to provide commercially significant exclusivity for our products and technologies;
•others will not independently develop similar or alternative technologies or duplicate our technologies and obtain patent protection before we do; and
•any of our issued patents, or patent pending applications that result in issued patents, will be held valid, enforceable and infringed in the event the patents are asserted against others.
We currently own or license several patents and also have pending patent applications applicable to rHuPH20 and other proprietary materials. There can be no assurance that our existing patents, or any patents issued to us as a result of our pending patent applications, will provide a basis for commercially viable products, will provide us with any competitive advantages, or will not face third party challenges or be the subject of further proceedings limiting their scope or enforceability. Any weaknesses or limitations in our patent portfolio could have a material adverse effect on our business and financial condition. In addition, if any of our pending patent applications do not result in issued patents, or result in issued patents with narrow or limited claims, this could result in us having no or limited protection against generic or biosimilar competition against our product candidates which would have a material adverse effect on our business and financial condition.
We may become involved in interference proceedings in the U.S. Patent and Trademark Office, or other proceedings in other jurisdictions, to determine the priority, validity or enforceability of our patents. In addition, costly litigation could be necessary to protect our patent position.
We also rely on trademarks to protect the names of our products (e.g. Hylenex recombinant). We may not be able to obtain trademark protection for any proposed product names we select. In addition, product names for pharmaceutical products must be approved by health regulatory authorities such as the FDA in addition to meeting the legal standards required for trademark protection and product names we propose may not be timely approved by regulatory agencies which may delay product launch. In addition, our trademarks may be challenged by others. If we enforce our trademarks against third parties, such enforcement proceedings may be expensive.
We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect with confidentiality agreements with employees, consultants and others with whom we discuss our business. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of these agreements, and we might not be able to resolve these disputes in our favor.
In addition to protecting our own intellectual property rights, third parties may assert patent, trademark or copyright infringement or other intellectual property claims against us. If we become involved in any intellectual property litigation, we may be required to pay substantial damages, including but not limited to treble damages, attorneys’ fees and costs, for past infringement if it is ultimately determined that our products infringe a third party’s intellectual property rights. Even if infringement claims against us are without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from other business concerns. Further, we may be stopped from developing, manufacturing or selling our products until we obtain a license from the owner of the relevant technology or other intellectual property rights. If such a license is available at all, it may require us to pay substantial royalties or other fees.
Patent protection for protein-based therapeutic products and other biotechnology inventions is subject to a great deal of uncertainty, and if patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize products based on our discoveries.
Patent protection for protein-based therapeutic products is highly uncertain and involves complex legal and factual questions. In recent years, there have been significant changes in patent law, including the legal standards that govern the scope of protein and biotechnology patents. Standards for patentability of full-length and partial genes, and their corresponding proteins, are changing. Recent court decisions have made it more difficult to obtain patents, by making it more difficult to satisfy the patentable subject matter requirement and the requirement of non-obviousness, have decreased the availability of injunctions against infringers, and have increased the likelihood of challenging the validity of a patent through a declaratory judgment action. Taken together,
these decisions could make it more difficult and costly for us to obtain, license and enforce
our patents. In addition, the Leahy-Smith America Invents Act (HR 1249) was signed into law in September 2011, which among other changes to the U.S. patent laws, changes patent priority from “first to invent” to “first to file,” implements a post-grant opposition system for patents and provides for a prior user defense to infringement. These judicial and legislative changes have introduced significant uncertainty in the patent law landscape and may potentially negatively impact our ability to procure, maintain and enforce patents to provide exclusivity for our products.
There also have been, and continue to be, policy discussions concerning the scope of patent protection awarded to biotechnology inventions. Social and political opposition to biotechnology patents may lead to narrower patent protection within the biotechnology industry. Social and political opposition to patents on genes and proteins and recent court decisions concerning patentability of isolated genes may lead to narrower patent protection, or narrower claim interpretation, for isolated genes, their corresponding proteins and inventions related to their use, formulation and manufacture. Patent protection relating to biotechnology products is also subject to a great deal of uncertainty outside the U.S., and patent laws are evolving and undergoing revision in many countries. Changes in, or different interpretations of, patent laws worldwide may result in our inability to obtain or enforce patents, and may allow others to use our discoveries to develop and commercialize competitive products, which would impair our business.
If third party reimbursement and customer contracts are not available, Hylenex and our partners’ products may not be accepted in the market resulting in commercial performance below that which was expected or projected.
Our ability to earn sufficient returns on Hylenex and our partners’ ability to earn sufficient returns on their products will depend in part on the extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers, managed care organizations and other healthcare providers.
Third-party payors are increasingly attempting to limit both the coverage and the level of reimbursement of new drug products to contain costs. Consequently, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Third party payors may not establish adequate levels of reimbursement for the products that we and our partners commercialize, which could limit their market acceptance and result in a material adverse effect on our revenues and financial condition.
Customer contracts, such as with group purchasing organizations and hospital formularies, will often not offer contract or formulary status without either the lowest price or substantial proven clinical differentiation. If, for example, Hylenex is compared to animal-derived hyaluronidases by these entities, it is possible that neither of these conditions will be met, which could limit market acceptance and result in a material adverse effect on our revenues and financial condition.
The rising cost of healthcare and related pharmaceutical product pricing has led to cost containment pressures from third-party payers as well as changes in federal coverage and reimbursement policies and practices that could cause us and our partners to sell our products at lower prices, and impact access to our and our partners’ products, resulting in less revenue to us.
Any of our proprietary or collaboration products that have been, or in the future are, approved by the FDA may be purchased or reimbursed by state and federal government authorities, private health insurers and other organizations, such as health maintenance organizations and managed care organizations. Such third party payors increasingly challenge pharmaceutical product pricing. The trend toward managed healthcare in the U.S., the growth of such organizations, and various legislative proposals and enactments to reform healthcare and government insurance programs, including the Medicare Prescription Drug Modernization Act of 2003 and the Affordable Care Act of 2010 (ACA), could significantly influence the manner in which pharmaceutical products are prescribed and purchased, resulting in lower prices and/or a reduction in demand. Such cost containment measures and healthcare reforms could adversely affect our ability to sell our product and our partners’ ability to sell their products.
In the U.S., our business may be impacted by changes in federal reimbursement policy resulting from executive actions, federal regulations, or federal demonstration projects. For example, in May 2018, the U.S. presidential administration released a drug pricing “blueprint” and requested public comment on an array of policy ideas intended to increase competition, improve the negotiating power of the federal government, reduce drug prices and lower patient out-of-pocket costs. This blueprint includes a number of policy ideas with the potential to significantly impact, whether individually or collectively, our industry. Such proposals include moving coverage and reimbursement for Medicare Part B drugs into Medicare Part D, and instituting a competitive acquisition program for Part B drugs in which competing third-party vendors take on the financial risk of acquiring drugs and billing Medicare.
Since that time, theThe federal administration and/or agencies, such as CMS, have announced a number of demonstration projects, recommendations and proposals to implement various elements described in the drug pricing blueprint. CMS, the federal agency responsible for administering Medicare and overseeing state Medicaid programs and Health Insurance Marketplaces, has substantial power to implement policy changes or demonstration projects that can quickly and significantly affect how drugs, including our products, are covered and reimbursed. For example, in October 2018,November 2020, former President Trump announced the interim final rule to implement the Most Favored Nations drug pricing model seeking to tie Medicare payment rates to an international index price. This final rule is currently subject to a preliminary injunction. Additionally, a number of Congressional committees have also held hearings and evaluated proposed legislation on drug pricing and payment policy which may affect our business. For example, in July 2019, the Senate Finance Committee advanced a bill that CMS was evaluating a pilot program proposed to initially cover fifty percent of spending onin part would penalize pharmaceutical manufacturers for increasing drug list prices covered by Medicare Part B single-sourceand Part D, faster than the rate of inflation, and cap out-of-pocket expenses for Medicare Part D beneficiaries. Several other proposals have been introduced that, if enacted and implemented, could affect access to and sales of our and our partners’ products, allow the federal
government to engage in price negotiations on certain drugs, referred to as the “International
Price Index” that would, amongand allow importation of prescription medication from Canada or other things, set the Medicare payment amount for such single-source drugs to more closely align with international drug prices.countries.
In this dynamic environment, we are unable to predict which or how many federal policy, legislative or regulatory changes may ultimately be enacted, toenacted. To the extent federal government initiatives decrease or modify the coverage or reimbursement available for our or our partners’ products, limit or impact our decisions regarding the pricing of biopharmaceutical products or otherwise reduce the use of our or our partners’ U.S. products, such actions could have a material adverse effect on our business and results of operations.
Furthermore, individual states are considering proposed legislation and have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third party payors or other restrictions could negatively and materially impact our revenues and financial condition. We anticipate that we will encounter similar regulatory and legislative issues in most other countries outside the U.S.
In addition, private payers in the US, including insurers, pharmacy benefit managers (PBMs), integrated healthcare delivery systems, and group purchasing organizations, are continuously seeking ways to reduce drug costs. Many payers have developed and continue to develop ways to shift a greater portion of drug costs to patients through, for example, limited benefit plan designs, high deductible plans and higher co-pay or coinsurance obligations. Consolidation in the payer space has also resulted in a few large PBMs and insurers which place greater pressure on pricing and utilization negotiations for our and our partners’ products in the U.S., increasing the need for higher discounts and rebates and limiting patient access and utilization. Ultimately, additional discounts, rebates and other price reductions, fees, coverage and plan changes, or exclusions imposed by these private payers on our and our partners’ products could have an adverse event on product sales, our business and results of operations.
We also face risks relating to the reporting of pricing data that affects the reimbursement of and discounts provided for our products. Government price reporting regulations are complex and may require a manufacturer to update certain previously submitted data. If our submitted pricing data are incorrect, we may become subject to substantial fines and penalties or other government enforcement actions, which could have a material adverse effect on our business and results of operations. In addition, as a result of restating previously reported price data, we also may be required to pay additional rebates and provide additional discounts.
We face intense competition and rapid technological change that could result in the development of products by others that are competitive with or superior to our proprietary and collaboration products, including those under development.
Our proprietary and collaboration products have numerous competitors in the U.S. and abroad including, among others, major pharmaceutical and specialized biotechnology firms, universities and other research institutions that have developed competing products. Many of these competitors have substantially more resources and product development, manufacturing and marketing experience and capabilities than we do. The competitors for Hylenex recombinant include, but are not limited to, Valeant Pharmaceuticals International,Bausch Health Companies, Inc.’s FDA-approved product, Vitrase®, an ovine (ram) hyaluronidase, and Amphastar Pharmaceuticals, Inc.’s product, Amphadase®, a bovine (bull) hyaluronidase. For our ENHANZE technology, such competitors may include major pharmaceutical and specialized biotechnology firms. These competitors may develop technologies and products that are more effective, safer, or less costly than our current or future proprietary and collaboration products and product candidates or that could render our and our partners’ products, technologies and product candidates obsolete or noncompetitive.
Our inability to attract, hire and retain key management and scientific personnel could negatively affect our business.
Our success depends on the performance of key management and scientific employees with relevant experience. We depend substantially on our ability to hire, train, motivate and retain high quality personnel, especially our scientists and management team. If we are unable to identify, hire and retain qualified personnel, our ability to support current and future alliances with strategic collaborators could be adversely impacted. Our use of domestic and international third-party contractors, consultants and staffing agencies also subjects us to potential co-employment liability claims.
Furthermore, if we were to lose key management personnel, we may lose some portion of our institutional knowledge and technical know-how, potentially causing a disruption or delay in one or more of our partnered development programs until adequate replacement personnel could be hired and trained. In addition, we do not have key person life insurance policies on the lives of any of our employees which would help cover the cost of associated with the loss of key employees.
Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.
Our operations, including laboratories, offices and other research facilities, are located in multiple buildings in San Diego, California. We depend on our facilities and on our collaborators, contractors and vendors for the continued operation of our business. Natural disasters or other catastrophic events, pandemics, interruptions in the supply of natural resources, political and governmental changes, wildfires and other fires, floods, explosions, actions of animal rights activists, earthquakes and civil unrest could disrupt our operations or those of our collaborators, contractors and vendors. Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we may suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage. Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results. Moreover, any such event could delay our partners’ research and development programs.
Cyberattacks, security breaches or system breakdowns may disrupt our operations and harm our operating results and reputation.
We and our partners are subject to increasingly sophisticated attempts to gain unauthorized access to our information technology storage and access systems and are devoting resources to protect against such intrusion. Cyberattacks could render us or our partners unable to utilize key systems or access important data needed to operate our business. The wrongful use, theft, deliberate sabotage or any other type of security breach with respect to any of our or any of our vendors and partners’ information technology storage and access systems could result in the breakdown or other service interruption, or the disruption of our ability to use such systems or disclosure or dissemination of proprietary and confidential information that is electronically stored, including intellectual property, trade secrets, financial information, regulatory information, strategic plans, sales trends and forecasts, litigation materials or personal information belonging to us, our staff, our patients, customers and/or other business partners which could result in a material adverse impact on our business, operating results and financial condition. We continue to invest in monitoring, and other security and data recovery measures to protect our critical and sensitive data and systems. However, these may not be adequate to prevent or fully recover systems or data from all breakdowns, service interruptions, attacks or breaches of our systems. In addition, our cybersecurity insurance may not be sufficient to cover us against liability related to any such breaches. Furthermore, any physical break-in or trespass of our facilities could result in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data or damage to our research and development equipment and assets. Such adverse effects could be material and irrevocable to our business, operating results, financial condition and reputation.
| |
Item 1B. | Unresolved Staff Comments |
Item 1B.Unresolved Staff Comments
None.
Item 2.Properties
Our administrative offices and research facilities are currently located in San Diego, California. During 20192021 we leased an aggregate of approximately 80,00050,000 square feet of office and research space, which we plan to reduce to approximately 48,000 square feet subsequent to our November 2019 restructuring.space. We believe our facilities are adequate for our current and near-term needs.
Item 3.Legal Proceedings
From time to time, we may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of our business. Any of these claims could subject us to costly legal expenses and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial position.
| |
Item 4. | Mine Safety Disclosures |
Item 4.Mine Safety Disclosures
Not applicable.
Our common stock is listed on the NASDAQ Global Select Market under the symbol “HALO.” As of February 14, 2020,2022, we had approximately 19,87743,988 stockholders of record and beneficial owners of our common stock.
We have never declared or paid any dividends on our common stock. We currently intend to retain available cash for funding operations, stock repurchases and stock repurchases;other capital initiatives; therefore, we do not expect to pay any dividends on our common stock in the foreseeable future. In addition, the provisions of our borrowing arrangements limit, among other things, our ability to pay dividends and make certain other payments. Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements, contract restrictions, business prospects and other factors our board of directors may deem relevant.
In November 2019, we announced that the Board of Directors authorized the initiation of a capital return program to repurchase up to $550.0 million of outstanding common stock over a three-year period.
Notwithstanding any statement to the contrary in any of our previous or future filings with the SEC, the following information relating to the price performance of our common stock shall not be deemed to be “filed” with the SEC or to be “soliciting material” under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and it shall not be deemed to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing.
The graph below compares Halozyme Therapeutics, Inc.’s cumulative five-year total shareholder return on common stock with the cumulative total returns of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes (with the reinvestment of all dividends) from December 31, 20142016 to December 31, 2019.2021. The historical stock price performance included in this graph is not necessarily indicative of future stock price performance.
In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the Part I, Item 1A, Risks Factors, and elsewhere in this Annual Report. References to “Notes” are Notes included in our Notes to Consolidated Financial Statements.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (Roche), Baxalta US Inc. and Baxalta GmbH (now members(members of the Takeda group of companies, following the acquisition of Shire plc by Takeda Pharmaceutical Company Limited in January 2019)companies) (Baxalta), Pfizer Inc. (Pfizer), Janssen Biotech, Inc. (Janssen), AbbVie, Inc. (AbbVie), Eli Lilly and Company (Lilly), Bristol-Myers Squibb Company (BMS), Alexion Pharma HoldingInternational Operations Unlimited Company (an indirect wholly owned subsidiary of AstraZeneca PLC) (Alexion) and ARGENX, argenx BVBA (argenx), Horizon Therapeutics plc. (Horizon) and ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (ViiV). We receive royalties from twothree of these collaborations, including royalties from sales of one product from the Baxalta collaboration, and twothree products from the Roche collaboration and one product from Janssen collaboration. Future potential revenues from royalties and fees from ENHANZE collaborations and the sales and/or royalties of our approved products product candidates, and ENHANZE collaborations will depend on the ability of Halozyme and our collaborators to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.
Our 20192021 and recent key events are as follows:
Janssen
•In November 2019, we entered into an Accelerated Share Repurchase (ASR) agreement with Bank of America to repurchase $50.0 million of common stock. At inception we took an initial delivery of 2.1 million shares. In February 2020, we finalized the transaction andDecember 2021, Janssen received an additional 0.5 million shares.
In November 2019, we completed the sale of $460.0 million aggregate principal amount of Convertible Senior Notes due 2024.
In November 2019, we announced the initiation of a capital return program, to repurchase up to $550.0 million of our outstanding common stock over a three-year period.
In November 2019, following the results of our HALO-301 study, we announced strategic actions to reposition the Company with a focus solely on ENHANZE. Headcount will be reduced by approximately 55% or approximately 160 positions. Upon completion of the restructuring and after recording all related one-time charges, we anticipate becoming a sustainably profitable company, beginning in the second quarter of 2020.
In November 2019, we announced that our HALO-301 study, a Phase 3 clinical study evaluating PEGylated recombinant human hyaluronidase (PEGPH20)FDA approval for DARZALEX FASPRO in combination with ABRAXANE® (nab-paclitaxel)Kyprolis® (carfilzomib) and gemcitabine as a first-line therapydexamethasone for treatment of patients with metastatic pancreatic cancer failed to reach the primary endpoint of overall survival. The study failed to demonstrate an improvement in overall survival compared to gemcitabine and nab-paclitaxel alone (11.2 months median overall survival compared to 11.5 months, HR=1.00, p=0.9692).
In October 2019, Roche nominated a new undisclosed target to be studied using ENHANZE technology, triggering a $10 million milestone payment.
In October 2019, BMS initiated a Phase 1 study for Relatlimab in combination with nivolumab and ENHANZE Technology.
| |
• | In September 2019, Roche announced that the global Phase 3 FeDeriCa study met its primary endpoint. The FeDeriCa study investigated a fixed-dose combination of pertuzumab (Perjeta®) and trastuzumab (Herceptin®) for subcutaneous administration using Halozyme's ENHANZE drug delivery technology in combination with intravenous chemotherapy. The study results demonstrated non-inferior levels of Perjeta in the blood (pharmacokinetics) compared to standard intravenous (IV) infusion of Perjeta plus Herceptin and chemotherapy in patients with HER2-positive early breast cancer. The study also demonstrated that the safety profile of the fixed dose subcutaneous combination of Perjeta and Herceptin was consistent with the safety profile of Perjeta and Herceptin administered intravenously.
|
| |
• | In August 2019, Roche initiated a Phase 1 study evaluating OCREVUS® (ocrelizumab) with ENHANZE Technology in subjects with multiple sclerosis.
|
In July 2019, Janssen announced that it submitted a Biological License Application (BLA) to the U.S. Food and Drug Administration (FDA) and an extension application to the European Medicines Agency (EMA) for the subcutaneous delivery of DARZALEX (daratumumab) for patients with multiple myeloma. Janssen’s regulatory submissions follow the announcement of positive results from its phase 3 COLUMBA study, which investigated subcutaneously administered DARZALEX in comparison to intravenous DARZALEX in patients with relapsed or refractory multiple myeloma.myeloma who have received one to three prior lines of therapy.
•In October 2021, Janssen’s DARZALEX FASPRO was approved by the China National Medical Products Administration (NMPA) for the treatment of primary light chain amyloidosis, in combination with bortezomib, cyclophosphamide and dexamethasone (D-VCd) in newly diagnosed patients. This followed a similar approval Janssen Pharmaceutical K.K. received in August 2021 from Japan’s Ministry of Health, Labour and Welfare for DARZQURO® (Daratumumab SC) for the additional indication of systemic AL amyloidosis.
•In July 2019, argenx dosed2021, Janssen elected the first subjecttarget HIV reverse transcriptase, resulting in a phase$2.0 million milestone fee. In December 2021, Janssen initiated a Phase 1 clinical trial evaluatingstudy combining Janssen’s rilpivirine and ENHANZE resulting in a $2.0 million milestone payment.
•In July 2021, we announced that Janssen received FDA approval for DARZALEX FASPRO in combination with pomalidomide and dexamethasone (D-Pd) for patients with multiple myeloma after first or subsequent relapse.
•In June 2021, we announced that Janssen was granted two marketing authorizations by the safety, pharmacokineticsEuropean Commission (EC) for DARZALEX SC in two new indications in the European Union. The first authorization is for use in combination with D-VCd in newly diagnosed adult patients with systemic light chain (AL) amyloidosis. The second authorization is for use in combination with D-Pd in adult patients with relapsed or refractory multiple myeloma.
•In May 2021, Janssen Pharmaceutical K.K. commenced commercial sale for the subcutaneous formulation of DARZALEX (known as DARZQURO® in Japan) for the treatment of multiple myeloma. This followed the March 2021 approval from Japan's Ministry of Health, Labour and pharmacodynamics of efgartigimod (ARGX-113), using ENHANZE technology, triggeringWelfare (MHLW) which resulted in a $5.0 million milestone payment.
•In January 2021, we announced that Janssen received accelerated approval from the U.S Food and Drug Administration (FDA) for DARZALEX FASPRO (daratumumab hyaluronidase human-fihj) in combination with D-VCd for the treatment of adult patients with newly diagnosed light chain (AL) amyloidosis. AL amyloidosis is a rare and potentially fatal disease that develops when plasma cells in the bone marrow generate abnormal light chains, which form amyloid deposits in vital organs and lead to organ deterioration. There were no approved therapies for these patients prior to DARZALEX FASPRO.
ViiV
•In December 2021, ViiV initiated enrollment of a Phase 1 study arm to evaluate cabotegravir administered subcutaneously with ENHANZE.
•In June 2019,2021, we announcedentered into a Cooperative Researchglobal collaboration and Development Agreement (CRADA)license agreement with ViiV. The license gives ViiV exclusive access to our ENHANZE technology for four specific small and large molecule targets for the treatment and prevention of HIV. These targets are integrase inhibitors, reverse transcriptase inhibitors limited to nucleoside reverse transcriptase inhibitors (NRTI) and nucleoside reverse transcriptase translocation inhibitors (NRTTIs), capsid inhibitors and broadly neutralizing monoclonal antibodies (bNAbs), that bind to the gp120 CD4 binding site. Under the terms of the agreement, we received an upfront payment of $40 million and ViiV is obligated to make potential future payments of up to $175 million in development and commercial milestones per target, subject to achievement of specified development and commercial milestones, including certain specified sales milestones. We will also be entitled to receive mid-single digit royalties on sales of commercialized medicines using the ENHANZE technology.
Roche
•In November 2021, Roche initiated a Phase 1 SC study with an undisclosed exclusive ENHANZE target.
Baxalta
•In October 2021, Baxalta initiated a Phase 1 single-dose, single-center, open-label, three-arm study to assess the tolerability and safety of immune globulin subcutaneous (human), 20% solution with ENHANZE (TAK-881) at various infusion rates in healthy adult subjects.
BMS
•In June 2021, BMS initiated a Phase 3 study of nivolumab using ENHANZE® technology for patients with advanced or metastatic clear cell renal cell carcinoma, resulting in a $25.0 million milestone payment.
Horizon
•In March 2021, Horizon completed dosing in a Phase 1 study exploring the SC formulation of TEPEZZA for the treatment of thyroid eye disease, a progressive and vision-threatening rare autoimmune disease. The trial is a small, single-dose Phase 1 pharmacokinetic trial which includes evaluating the use of ENHANZE technology for an SC formulation.
NIH CRADA
•In March 2021, the National Institute of Allergy and Infectious Diseases’ Vaccine Research Center (VRC), part of National Institute of Health enabling(NIH), dosed the VRC’s use of ENHANZE technology to develop subcutaneous formulations offirst patient with N6LS, a broadly neutralizing antibodies (bnAbs)antibody against HIV, for HIV treatment.
In May 2019, argenx nominated a second target to be studied using ENHANZE technology in a human complement factor C2 associated with the product candidate ARGX-117, which is being developedPhase 1 study to treat severe autoimmune diseases, triggering a $10.0 million payment.optimize subcutaneous administration of N6LS for HIV treatment.
argenx
•In February 2019,2021, argenx initiated a Phase 3 study of ARGX-113 using ENHANZE technology for patients with chronic inflammatory demyelinating polyneuropathy (CIDP) and initiated a Phase 3 study of ARGX-113 using ENHANZE technology in myasthenia gravis (MG), an autoimmune disorder of the musculoskeletal system caused by IgG autoantibodies.
•In January 2021, argenx initiated a Phase 3 study of ARGX-113 utilizing ENHANZE in pemphigus vulgaris (PV), a rare autoimmune disease that causes painful blisters on the skin and mucous membranes.
Corporate
•In December 2021, we entered into a credit agreement with Bank of America that provides for secured revolving loans and letters of credit in an aggregate amount of up to $75.0 million. The credit agreement contains an expansion feature, which allows us, subject to certain conditions, to increase the aggregate principal amount of the facility to $250.0 million, provided we remain in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the credit agreement.
•In December 2021, we announced that Genentech,our second share repurchase program, to repurchase up to $750.0 million of our outstanding common stock over a member of the Roche Group, received approval from the FDA for Herceptin Hylecta™ (trastuzumab and hyaluronidase-oysk), a co-formulation of trastuzumab and rHuPH20 marketed as Herceptin SC outside of the U.S. Herceptin Hylecta is approved for the treatment of certain people with HER2-positive early breast cancer and is a ready-to-use formulation that can be administeredthree-year period. Also in two to five minutes, compared to 30 to 90 minutes for intravenous trastuzumab. In April 2019, Roche made Herceptin Hylecta available in the U.S.
In February 2019, Janssen’s development partner, Genmab, announced positive Phase 3 trial results from the COLUMBA study evaluating subcutaneous DARZALEX® in comparison to DARZALEX IV in patients with relapsed and refractory multiple myeloma. DARZALEX SC (utilizing ENHANZE technology) was found to be non-inferior to DARZALEX IV with regard the co-primary endpoints of Overall Response Rate and Maximum Trough concentration.
In February 2019,December 2021, we entered into an ASR agreement with argenxBank of America to repurchase $150.0 million of common stock under the second share repurchase program.
•In October 2021, we repurchased 0.3 million shares of common stock for the right$10.3 million, completing our capital return program that began in November 2019 to develop and commercialize one exclusive target, the human neonatal Fc receptor FcRn, which includes argenx's lead asset efgartigimod (ARGX-113), and an option to select two additional targets using our ENHANZE technology for an upfront payment of $30.0 million. We will receive payments of $10.0 million per target for future target nominations and potential milestone payments ofrepurchase up to $160.0$550.0 million of outstanding common stock over a three-year period. Under the program we repurchased a total of 22.3 million shares for $550.0 million at an average price per target, subjectshare of $24.72.
•In March 2021, we completed the sale of $805.0 million aggregate principal amount of the 2027 Convertible Senior Notes. We used a portion of the net proceeds to facilitate an induced conversion of 80% of the achievement of specific development, regulatory2024 Convertible Senior Notes. In connection with the induced conversion, we paid the holders $370.2 million in cash and sales-based milestones. We will receive mid-single digit royalties on sales of commercialized products.issued 9.08 million shares.
Results of Operations
Comparison of Years Ended December 31, 20192021 and 20182020
Royalties – Royalty revenue was $69.9$203.9 million in 20192021 compared to $79.0$88.6 million in 2018 .2020. The decreaseincrease was mainly driven by sales of DARZALEX FASPRO by Janssen following the product launches in the U.S. and EU in the second quarter of 2020 and sales of Phesgo by Roche following the product launch in the US in the third quarter of 2020 and subsequently in the EU, partially offset by slightly lower sales of Herceptin SC and MabThera SC by Roche, partially offset by higher sales of RITUXAN HYCELA in the U.S. by Roche and higher sales of HyQvia by Baxalta. In general, weRoche. We expect royalty revenue to decline in the near term priorcontinue to grow as a result of our nextrecent ENHANZE partner product launch, primarily attributable tolaunches, offsetting the ongoing impact from biosimilars in Europe.Europe related to our mature ENHANZE partner products.
Product Sales, Net – Product sales, net were as follows (in thousands):
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2019 | | 2018 | | Dollar Change | Percentage Change |
Sales of bulk rHuPH20: | | | | | | | |
Janssen | | $ | 31,956 |
| | $ | 2,510 |
| | 29,446 |
| 1,173 | % |
Roche | | 6,963 |
| | 6,767 |
| | 196 |
| 3 | % |
Baxalta | | 5,657 |
| | 1,820 |
| | 3,837 |
| 211 | % |
Other | | 3,709 |
| | 1,632 |
| | 2,077 |
| 127 | % |
Sales of ENHANZE drug product | | 768 |
| | 460 |
| | 308 |
| 67 | % |
Sales of Hylenex | | 16,995 |
| | 15,045 |
| | 1,950 |
| 13 | % |
Total product sales, net | | $ | 66,048 |
| | $ | 28,234 |
| | $ | 37,814 |
| 134 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31,
|
| | 2021 | | 2020 | | Dollar Change | Percentage Change |
Sales of bulk rHuPH20 | | $ | 80,961 | | | $ | 38,956 | | | $ | 42,005 | | 108 | % |
| | | | | | | |
Sales of Hylenex | | 23,263 | | | 17,031 | | | 6,232 | | 37 | % |
Total product sales, net | | $ | 104,224 | | | $ | 55,987 | | | $ | 48,237 | | 86 | % |
Product sales, net increased $37.8by $48.2 million in 20192021 compared to 2018,2020, primarily due to an increase in the salehigher sales of bulk rHuPH20 to our partners Janssen in addition to an increase in sales of bulk rHuPH20 to Baxalta and an increase in sales of Hylenex.Roche. We expect that product sales of bulk rHuPH20 and ENHANZE drug product will fluctuate in future periods based on the needs of our collaborators.
The increase in Product sales, net was also driven in part by an increase in sales of Hylenex, due to an increase in sales in 2021 following a temporary interruption of elective surgeries in 2020. In March 2020, the US Surgeon General advised hospitals to cancel elective surgeries due to COVID-19. Hylenex is used in cataract surgery and other ophthalmologic surgeries, and therefore the advisory resulted in a decrease in sales of Hylenex in the second quarter of 2020. Most states resumed elective surgeries in April and May of 2020 which supported an increase in sales in the second half of 2020 and into 2021. We expect that future product sales of Hylenex to be relatively flat as we experience modest market growth offset by competition for market share.a reduction in COVID-19 backlog.
Revenues Under Collaborative Agreements – Revenues under collaborative agreements were as follows (in thousands):
| | | | Year Ended December 31, | | Year Ended December 31,
|
| | 2019 | | 2018 | | Dollar Change | Percentage Change | | 2021 | | 2020 | | Dollar Change | Percentage Change |
Upfront license fees, license fees for the election of additional targets, event-based payments, license maintenance fees and amortization of deferred upfront and other license fees: | | | | | | | | Upfront license fees, license fees for the election of additional targets, event-based payments, license maintenance fees and amortization of deferred upfront and other license fees: | | | | | | |
Janssen | | Janssen | | $ | 59,000 | | | $ | 42,000 | | | $ | 17,000 | | 40 | % |
ViiV | | ViiV | | 45,000 | | | — | | | 45,000 | | 100 | % |
Horizon | | Horizon | | — | | | 30,000 | | | (30,000) | | (100) | % |
Roche | | Roche | | 5,000 | | | 17,000 | | | (12,000) | | (71) | % |
argenx | | $ | 45,000 |
| | — |
| | $ | 45,000 |
| 100 | % | argenx | | — | | | 20,000 | | | (20,000) | | (100) | % |
Roche | | 10,000 |
| | 31,000 |
| | (21,000 | ) | (68 | )% | |
BMS | | BMS | | 25,000 | | | 12,264 | | | 12,736 | | 104 | % |
Other | | 3,500 |
| | 11,336 |
| | (7,836 | ) | (69 | )% | Other | | — | | | 500 | | | (500) | | (100) | % |
Subtotal | | 58,500 |
| | 42,336 |
| | 16,164 |
| 38 | % | Subtotal | | $ | 134,000 | | | $ | 121,764 | | | $ | 12,236 | | 10 | % |
Reimbursements for research and development services: | | 1,545 |
| | 2,311 |
| | (766 | ) | (33 | )% | Reimbursements for research and development services: | | 1,186 | | | 1,247 | | | (61) | | (5) | % |
Total revenues under collaborative agreements | | $ | 60,045 |
| | $ | 44,647 |
| | $ | 15,398 |
| 34 | % | Total revenues under collaborative agreements | | $ | 135,186 | | | $ | 123,011 | | | $ | 12,175 | | 10 | % |
Revenue from license fees increased $16.2$12.2 million in 2019,2021, compared to 20182020 mainly due to $45.0 million recognizedthe recognition of an upfront license fee related to the ViiV collaboration and development and commercial milestones related to the ViiV, BMS and Janssen collaborations in connection with the argenx Collaboration in 2019,current year, partially offset by a reduction of milestones earned from other collaboration agreements.Horizon, argenx and Roche. Revenue from upfront licenses fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments vary from period to period based on our ENHANZE collaboration activity. We expect these revenues to continue to fluctuate in future
periods based on our collaborators’ ability to meet various clinical and regulatory milestones set forth in such agreements and our abilitiesability to obtain new collaborative agreements.
Revenue from reimbursements for research and development services decreased in 2019, compared to the same period in 2018 mainly due to a decrease in services provided to Janssen and Roche. Research and development services rendered by us on behalf of our collaborators are at the request of the collaborators; therefore, the amount and timing of future revenues related to reimbursable research and development services is uncertain.
Cost of Product Sales – Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, freight costs, internal costs and manufacturing overhead associated with the production of Hylenex recombinant and bulk rHuPH20–. Cost of product sales were $45.5$81.4 million in 20192021 compared to $10.1$43.4 million in 2018.2020. The increase of $35.4$38.0 million in cost of product sales was mainly due to an increase in aggregate sales of bulk rHuPH20 to Janssen. There were $1.5 millionJanssen and Roche and an increase in sales of costs of bulk rHuPH20 and ENHANZE drug product sales in 2019 that were previously expensed as research and development.Hylenex.
Research and Development – Research and development expenses consist of external costs, salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing, clinical trials, preclinical and regulatory activities. Research and development expenses incurred were as follows (in thousands):
|
| | | | | | | | | | | | | | |
| | Year Ended December 31, | |
| | 2019 | | 2018 | | Dollar Change | Percentage Change |
Programs | | | | | | | |
PEGPH20 | | $ | 103,150 |
| | 131,064 |
| | $ | (27,914 | ) | (21 | )% |
Restructuring | | 17,201 |
| | — |
| | 17,201 |
| 100 | % |
ENHANZE collaborations and rHuPH20 platform | | 18,896 |
| | 17,242 |
| | 1,654 |
| 10 | % |
Other | | 1,584 |
| | 1,946 |
| | (362 | ) | (19 | )% |
Total research and development expenses | | $ | 140,831 |
| | $ | 150,252 |
| | $ | (9,421 | ) | (6 | )% |
Research and development expenses relating to our PEGPH20 programs for 2019 decreased by 21%, compared to the same period in 2018, primarily due to decreased clinical trial activities resulting from the completion of enrollment of HALO-301 in December 2018 and decreased clinical trial activities related to the close out of the HALO-202 study and the HALO 107-101 study, partially offset by an increase in clinical trial activities in the HALO 110-101/MATRIX study. On November 4, 2019, we announced that the HALO-301 clinical study failed to reach the primary endpoint of overall survival. As a result, we halted development activities for PEGPH20, closed our oncology operations and began the close out process for all our clinical trials. We began to implement an organizational restructuring to focus our operations solely on ENHANZE, which will result in a reduction in research and development expenses in the near term. In the fourth quarter of 2019 we incurred restructuring and other one-time charges of $17.2 million, of which $12.0 million related to personnel costs and $5.2 million related to asset impairments and contract cancellations. Refer to Note 13 to the Financial Statements for further details on the organizational restructuring.
Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform for 2019 increased by 10%,platform. Research and development expenses were $35.7 million in 2021 compared to 2018,$34.2 million in 2020. The increase of $1.5 million is primarily due to increasedan increase in costs to support new partners andadditional ENHANZE targets related to our ENHANZE collaboration activity,entering clinical development, partially offset by a decrease in support for one-time partner research and development projects. We expect research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform to increaseone time costs in the near term as the rHuPH20 platform is burdened with a higher allocation of overhead costs. The rHuPH20 platform includes research, development and manufacturing expensesprior year related to the discontinuation of our proprietary rHuPH20 enzyme. These expenses were not designated to a specific program at the time the expenses were incurred.development activities for PEGPH20 and closure of our oncology operations.
Selling, General and Administrative – Selling, general and administrative (SG&A) expenses consist primarily of salaries and related costs for personnel in executive, selling and administrative functions as well as professional fees for legal and accounting, business development, commercial operations support for Hylenex and alliance management and marketing support for ENHANZE. SG&A expenses were $77.3$50.3 million in 20192021 compared to $60.8$45.7 million in 2018.2020. The increase of $16.5$4.6 million, or 27%10%, was primarily due to an increase in compensation expense, including stockshare-based compensation, and an increasefor personnel to support additional ENHANZE targets entering clinical development, partially offset by one time costs in commercial expensesthe prior year related to market research and educational activities as we prepared for a potential commercial launchthe discontinuation of PEGPH20. On November 4, 2019, we announced that the HALO-301 clinical study failed to reach the primary endpoint of overall survival. As a result, we haltedour development activities for PEGPH20 closedand closure of our oncology operations and began to implement an organizational restructuring to focus our operations solely on ENHANZE, which will result in a reduction in commercialization activities and compensation expense in the near term. In the fourth quarter of 2019 we incurred restructuring and other one-time charges of $11.2 million, of which $7.5 million related to personnel costsoperations.
and $3.7 million related to asset impairments and contract cancellations. Refer to Note 13 to the Financial Statements for further details on the organizational restructuring.
Interest Expense – Interest expense was $11.6$7.5 million in 20192021 compared to $18.0$20.4 million in 2018.2020. The decrease of $6.4$12.9 million was primarily due to a decrease in the Royalty-backed Loan principal balance, offset by an increase in $0.7 million of interest expense related to the Convertible Notes.Notes as the non-cash interest expense associated with the amortization of the equity component of the Convertible Notes is eliminated upon adoption of ASU 2020-06 and discontinuation in interest expense for the Royalty-backed Loan following the repayment of that obligation.
Income Taxes – Income tax benefit was $11 thousand for 2019,$154.2 million in 2021 compared to income tax expense of $0.5$0.2 million for 2018in 2020. The increase in income tax benefit is due to a decrease in estimated state taxes. The 2018 amount was comprised primarilythe release of state income tax. The U.S. federal AMT was eliminated via the Tax Cuts and Jobs Act that was enacted on December 22, 2017. The AMT credit carryovers will be used to offset regular tax liability for any taxable year beginning after 2017. If not utilized before 2022, any remaining AMT credit carryforward amount is fully refundable. The remaining AMT credit carryforward of $1.7 million was recognized as a deferred tax asset at December 31, 2018 as realization is certain. For the year ended December 31, 2018, we generated taxable incomevaluation allowance in the U.S., which was offset by utilizing net operating losses carried forward from earlier years.current year.
Comparison of Years Ended December 31, 20182020 and 20172019
For discussion related to changes in financial condition and the results of operations for fiscal year 20182020 compared to fiscal year 2017,2019, refer to Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2020, which was filed with the SEC on February 21, 2019.23, 2021.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale marketable securities. As of December 31, 2019,2021, we had cash, cash equivalents and marketable securities of $421.3$740.9 million. On November 4, 2019, we announced a significant workforce reduction and our intention to solely focus on ENHANZE. Upon completion of the restructuring and after recording all related one-time charges, we anticipate becoming a sustainably profitable company, beginning in the second quarter of 2020.
We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. We expect to fund our operations going forward with existing cash resources, anticipated revenues from our existing collaborations and cash that we may raise through future transactions. We may raise cash through any one of the following financing vehicles: (i) new collaborative agreements; (ii) expansions or revisions to existing collaborative relationships; (iii) private financings; (iv) other equity or debt financings; (v) monetizing assets; and/or (vi) the public offering of securities.
In May 2017, we completed an underwritten public offering pursuant to which we sold 11.5 million shares of common stock, generating $134.9 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses. We may, in the future, draw on our existing line of credit, offer and sell additional equity, debt securities and warrants to purchase any of such securities, either individually or in units to raise capital to raise funds for additional working capital, capital expenditures, share repurchases, acquisitions or for other general corporate purposes. Our material cash requirements include the following contractual and other obligations.
Long-term debt
Our long-term debt consists of convertible notes. The aggregate principal amount of our convertible notes is $895.9 million, with $90.9 million classified as short term. Future interest payments associated with our convertible notes total $11.5 million, with $3.1 million payable within 12 months.
Leases
We have lease arrangements related to our office and research facilities and certain autos under non-cancelable operating leases. As of December 31, 2021, we have lease payment obligations of $2.9 million, with $2.7 million payable within 12 months.
Third-party manufacturing obligations
We have contracted with third-party manufacturers for the supply of bulk rHuPH20 and fill/finish of Hylenex recombinant. Under these agreements, we are required to purchase certain quantities each year during the terms of the agreements. Contractual obligations for purchases of goods or services include agreements that are enforceable and legally binding to us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts disclosed here were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee. As of December 31, 2021, we had third-party manufacturing obligations of $84.6 million, payable within 12 months.
Other purchase obligations
Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services. As of December 31, 2021, we had other purchase obligations of $1.4 million, with $1.1 million payable within 12 months.
The expected timing of payments of the obligations above is estimated based on information we have as of December 31, 2021. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Our future capital uses and requirements and anticipated sources of funds to satisfy these requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the following:
•the costs of investments in our ENHANZE platform and development of new versions of rHuPH20;
•the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
•the costs to develop and validate additional manufacturers of rHuPH20;
•the costs to expand the number of collaboration partner products developed and launched by partners including costs to scale-up manufacturing;
•the amount of royalties and milestones from our collaborators;
•the effect of competing technological and market developments;
•the terms and timing of any collaborative, licensing and other arrangements that we may establish; and
•the extent to which we acquire or in-license new products, technologies or businesses and invest in development.
Cash Flows
Operating Activities
Net cash used inprovided by operations was $85.4$299.4 million in 20192021 compared to $49.5$55.5 million in 2018.2020. The $35.9$243.9 million increase in utilization of cash inprovided by operations was mainly due to an increase in collaboration partner license fees, royalties and product sales and a decrease in working capital spend in 2019for 2021 compared to the corresponding period in the prior year, offset by an increase in cash received related to the argenx license fees of $40.0 million.
year.
Investing Activities
Net cash used in by investing activities was $5.5$406.3 million in 20192021 compared to $2.5 million net cash provided by investing activities $78.4 million in 2018.2020. The increase in net cash used in investing activities was primarily due to an increase in purchase of marketable securities in 2019, offset by a decrease in purchase of property and equipment.2021.
Financing Activities
Net cash provided by financing activities was $153.2$77.9 million in 2019,2021, compared to net cash used in financing activities of $63.8$106.3 million in 2018,2020, mainly due to $784.9 million cash received from the net proceeds from issuance2027 Convertible Notes offering and $19.6 million cash payment for the Royalty-backed loan in the prior year, partially offset by $369.1 million related to the induced conversion of the 2024 Convertible Notes, a $199.9 million increase in repurchase of $447.4 millioncommon stock and a $0.5$50.9 million increasedecrease in net proceeds from the issuance of common stock under equity incentive plans, offset by an increase in the amount long-term debt repayment of $30.6 million due to the settlement of our loan with Oxford Finance and SVB and the repurchase of shares of $200.0 million in 2019.plans.
Share Repurchases
TheIn November 2019, our Board of Directors approved a $550 million share repurchase program, pursuant to which we maycould repurchase our issued and outstanding shares of common stock from time to time. The CompanyWe completed the share repurchase program in October 2021 and retired the repurchased shares. In December 2021, we announced our second share repurchase program, to repurchase up to $750.0 million of our outstanding common stock over a three-year period. See Note 8. Stockholders’ Equity, within the notes to the consolidated financial statements for additional information regarding our share repurchases.
Long-Term Debt
0.25% Convertible Notes due 2027
In November 2019,March 2021, we completed the sale of $460.0$805.0 million in aggregate principal amount of 1.25%0.25% Convertible Senior Notes due in2027 (the “2027 Convertible Notes” and collectively with the 2024 (Convertible Notes) in a private placement to qualified institutional buyers. We receivedConvertible Notes the “Convertible Notes”). The net proceeds fromin connection with the offering2027 Convertible Notes, after deducting the initial purchasers’ fee of $20.1 million, was approximately $447.4$784.9 million. We used $200.0 million ofalso incurred additional debt issuance costs totaling $0.4 million. Debt issuance costs and the net proceeds from the offering to repurchase shares of our common stock, including approximately $143.1 million to repurchase approximately 8.1 million shares of common stock concurrently with the offering in privately negotiated transactions, $6.9 million in open market purchases and $50.0 million to repurchase approximately 2.6 million shares of common stock through an accelerated share repurchase agreement.
We used approximately $26.1 million of the net proceeds from the offering to repay all outstanding amounts under our loan agreement with Oxford Finance and Silicon Valley Bank and intend to use the remainder of the net proceeds for general corporate purposes, including additional share repurchases subsequent to the offering, and working capital.initial purchasers’ fee are presented as a debt discount.
The 2027 Convertible Notes will pay interest semi-annually in arrears on JuneMarch 1st and DecemberSeptember 1st of each year beginning on June 1, 2020, at an annual rate of 1.25% and will be convertible into cash, shares of common stock or a combination of cash and shares of common stock, at our election, based on the applicable conversion rate at such time.0.25%. The 2027 Convertible Notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2027 Convertible Notes, will rank equally in right of payment with all existing and future liabilities that are not so subordinated, will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries. The 2027 Convertible Notes have a maturity date of March 1, 2027.
Holders may convert their 2027 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on our common stock, as described in the offering memorandum for the 2027 Convertible Notes; (4) if we call such notes for redemption; and (5) at any time from, and including, September 1, 2026 until the close of business on the scheduled trading day immediately before the maturity date. The Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, September 1, 2026 until the close of business on the scheduled trading day immediately preceding the maturity date. As of December 31, 2021, the 2027 Convertible Notes are not convertible.
Upon conversion, we will pay cash for the settlement of principal and for the premium, if applicable, we will pay cash, deliver shares of common stock or a combination of cash and shares of common stock, at our election. The initial conversion rate for the 2027 Convertible Notes is 12.9576 shares of common stock per $1,000 in principal amount of 2027 Convertible Notes, equivalent to a conversion price of approximately $77.17 per share of our common stock. The conversion rate is subject to adjustment.
1.25% Convertible Notes due 2024
In November 2019, we completed the sale of $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (“2024 Convertible Notes”). The net proceeds in connection with 2024 Convertible Notes, after deducting the initial purchases’ fee of $12.7 million, was approximately $447.3 million. We also incurred debt issuance cost totaling $0.3 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount.
The 2024 Convertible Notes pay interest semi-annually in arrears on June 1st and December 1st of each year, beginning on June 1, 2020, at an annual rate of 1.25%. The 2024 Convertible Notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2024 Convertible Notes, will rank equally in right of payment with all existing and future liabilities that are not so subordinated, will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of the our current or future subsidiaries. The 2024 Convertible Notes have a maturity date of December 1, 2024.
Holders may convert their 2024 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of Company’sour common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on Company’sour common stock, as described in the offering memorandum;memorandum for the 2024 Convertible Notes; (4) if we call such notes for redemption; and (5) at any time from, and including, June 1, 2024 until the close of business on the scheduled trading day immediately
before the maturity datedate. As of December 1, 2024. The31, 2021, the 2024 Convertible Notes will beare convertible regardlessand are classified as a current liability
In January 2021, we notified the note holders of our irrevocable election to settle the principal of the foregoing circumstances, at any time from,2024 Convertible Notes in cash and including, June 1, 2024 untilfor the close of business on the scheduled trading day immediately preceding the maturity date.
Upon conversion, we will pay orpremium, if applicable, to deliver as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at our election.stock. The initial conversion rate for the 2024 Convertible Notes will be 41.9208 shares of common stock per $1,000 in principal amount of 2024 Convertible Notes, equivalent to a conversion price of approximately $23.85 per share of our common stock. The conversion rate is subject to adjustmentadjustment.
In March 2021, we completed a privately negotiated induced conversion of $369.1 million principal amount of the 2024 Convertible Notes (“Note Repurchases” or the “Induced Conversion”). In connection with the Induced Conversion, we paid approximately $370.2 million in cash, which includes principal and accrued interest, and issued approximately 9.08 million shares of our common stock representing the intrinsic value based on the contractual conversion rate and incremental shares as describedan inducement for conversion. As a result of the Induced Conversion, we recorded $21.0 million in induced conversion expense which is included in Other income (expense) of the Condensed Consolidated Statements of Operations for the twelve months ended December 31, 2021. The induced conversion expense represents the fair value of the common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2024 Convertible Notes.
Revolving Credit Facility
In December 2021, we entered into a credit agreement with Bank of America and the other lenders party thereto (the “Credit Agreement”) evidencing a revolving credit facility (the “Facility”) that provides for secured revolving loans and letters of credit in an aggregate amount of up to $75.0 million. The Credit Agreement contains an expansion feature, which allows us, subject to certain conditions, to increase the aggregate principal amount of the Facility to $250.0 million, provided we remain in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the Indenture.Credit Agreement. The facility matures on December 23, 2024.
Borrowings under the Facility bear interest, at our option, at a rate equal to an applicable margin plus: (a) the applicable Bloomberg Short-Term Bank Yield Index rate (or the “BSBY Rate,” as defined in the Credit Agreement), or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the Bank of America prime rate, (3) the BSBY Rate plus 1.00%, and (4) 1.00%. The margin for the Facility ranges, based on our consolidated total net leverage ratio, from 0.00% to 0.75% in the case of base rate loans and from 1.00% to 1.75% in the case of BSBY Rate loans. In addition to paying interest on any outstanding principal under the Facility, we will pay (i) a commitment fee in respect of the unutilized commitments thereunder and (ii) customary letter of credit fees and agency fees. The commitment fees range from 0.15% to
0.30% per annum based on our consolidated net leverage ratio. As of December 31, 2021, the revolving credit facility was undrawn.
Royalty-backed Loan
In January 2016, through our wholly-owned subsidiary Halozyme Royalty LLC (Halozyme Royalty), we received a $150 million loan (the Royalty-backed Loan) pursuant to a credit agreement (the Credit Agreement) with BioPharma Credit Investments IV Sub, LP and Athyrium Opportunities II Acquisition LP (the Royalty-backed Lenders). Under the terms of the Credit Agreement, Halozyme Therapeutics, Inc. transferred to Halozyme Royalty the right to receive royalty payments from the commercial sales of ENHANZE products owed under the Roche Collaboration and Baxalta Collaboration (Collaboration Agreements). The royalty payments from the Collaboration Agreements will bewere used to repay the principal and interest on the loan (the Royalty Payments). The Royalty-backed Loan bearsbore interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate iswas subject to a floor of 0.7% and a cap of 1.5%. The interest rate as of December 31, 2019 was 10.25%. The outstanding balance of the Royalty-backed Loan net of unamortized discount as of December 31, 2019 was $19.5 million.
The Credit Agreement provides that none of the Royalty Payments were required to be applied to the Royalty-backed Loan prior to January 1, 2017, 50% of the Royalty Payments were required to be applied to the Royalty-backed Loan between January 1, 2017 and January 1, 2018 and thereafter all Royalty Payments must be applied to the Royalty-backed Loan. However, the amounts available to repay the Royalty-backed Loan are subject to caps of $13.75 million per quarter in 2017, $18.75 million per quarter in 2018, $21.25 million per quarter in 2019 and $22.5 million per quarter in 2020 and thereafter. Amounts available to repay the Royalty-backed Loan will be applied first, to pay interest and second, to repay principal on the Royalty-backed Loan. Any accrued interest that is not paid on any applicable quarterly payment date, as defined, will be capitalized and added to the principal balance of the Royalty-backed Loan on such date. Halozyme Royalty will be entitled to receive and distribute to Halozyme any Royalty Payments that are not required to be applied to the Royalty-backed Loan or which are in excess of the foregoing caps.
The final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050. Currently, we estimate that the loan will be repaid in the second quarter of 2020. This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected. Under the terms of the Credit Agreement, at any time after January 1, 2019, Halozyme Royalty may, subject to certain limitations, prepay the outstanding principal of the Royalty-backed Loan in whole or in part, at a price equal to 105% of the outstanding principal on the Royalty-backed Loan, plus accrued but unpaid interest. The Royalty-backed Loan constitutes an obligation of Halozyme Royalty, and is non-recourse to Halozyme. Halozyme Royalty retains its right to the Royalty Payments following repayment of the loan.
Oxford and SVB Loan and Security Agreement
In June 2016,2020, we entered into a Loan and Security Agreement (the Loan Agreement) with Oxford Finance LLC (Oxford) and Silicon Valley Bank (SVB) (collectively, the Lenders), providing a senior secured loan facility of up to an aggregate principal amount of $70.0 million, comprising a $55.0 million draw in June 2016 and an additional $15.0 million tranche, which we had the option to draw during the second quarter of 2017 and did not exercise. The proceeds were partially used to pay the outstanding principal and final payment owed on a previous loan agreement with the Lenders. The remaining proceeds were used for working capital and general business requirements. The Loan Agreement repayment schedule provided for interest only payments for the first 18 months, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date of January 1, 2021. The Loan Agreement provided for a final payment equal to 5.50% of the initial $55 million principal amount. The final payment was due when the Loan Agreement becomes due or upon the prepayment of the facility. We had the option to prepay the outstanding balance of the Loan Agreement in full and exercised this option in November 2019, at which point we paid
the full remaining balance and final payment of $26.1$2.9 million thereby satisfying and discharging all obligations under, and terminating, the Loan Agreement.
Off-Balance Sheet Arrangements
As of December 31, 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Contractual Obligations
As of December 31, 2019, future minimum payments due under our contractual obligations are as follows (in thousands):Royalty-backed Loan.
|
| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period |
Contractual Obligations | | Total | | Less than 1 Year | | 1-3 Years | | 4-5 Years | | More than 5 Years |
Long-term debt, including current portion(1) | | $ | 479,560 |
| | $ | 19,560 |
| | $ | — |
| | $ | 460,000 |
| | $ | — |
|
Interest on long-term debt(2) | | 29,540 |
| | 6,540 |
| | 11,500 |
| | 11,500 |
| | — |
|
Operating leases(3) | | 7,244 |
| | 3,355 |
| | 3,819 |
| | 70 |
| | — |
|
Third-party manufacturing obligations(4) | | 36,333 |
| | 36,333 |
| | — |
| | — |
| | — |
|
Purchase obligations | | 622 |
| | 377 |
| | 245 |
| | — |
| | — |
|
Total | | $ | 553,299 |
| | $ | 66,165 |
| | $ | 15,564 |
| | $ | 471,570 |
| | $ | — |
|
_______________
| |
(1). | Long-term debt consists of the Royalty-backed Loan and the Convertible Notes. Obligations include future quarterly principal payments for the Royalty-backed Loan based on an estimate of future royalty amounts. This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected. |
| |
(2). | Interest on long-term debt includes quarterly interest payments on the Royalty-backed Loan and semi-annual interest payments on the Convertible Note. The Royalty-backed Loan bears interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate is subject to a floor of 0.7% and a cap of 1.5%. Future interest obligations for the Royalty-backed Loan were estimated using rates in effect as of December 31, 2019. The Convertible Note bears interest at an annual rate of 1.25%. |
| |
(3). | Includes minimum lease payments related to leases of our office and research facilities and certain autos under non-cancelable operating leases. |
| |
(4). | We have contracted with third-party manufacturers for the supply of bulk rHuPH20 and fill/finish of Hylenex recombinant. Under these agreements, we are required to purchase certain quantities each year during the terms of the agreements. The amounts presented represent our estimates of the minimum required payments under these agreements. |
Contractual obligations for purchases of goods or services include agreements that are enforceable and legally binding to us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.
For certain restricted stock units and performance stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that we pay in cash to the appropriate taxing authorities on behalf of our employees. The obligation to pay the relevant taxing authority is not included in the preceding table, as the amount is contingent upon continued employment. In addition, the amount of the obligation is unknown, as it is based in part on the market price of our common stock when the awards vest.
The expected timing of payments of the obligations above is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on the time of receipt of goods or services, or changes to agreed-upon amounts for some obligations.
Our future capital uses and requirements depend on numerous forward-looking factors. These factors may include, but are not limited to, the following:
the rate of progress and cost of research and development activities;
the number and scope of our research and development activities;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
our ability to establish and maintain product discovery and development collaborations, including scale-up manufacturing costs for our collaborators’ product candidates;
the amount of royalties and milestones from our collaborators;
the amount of product sales for Hylenex recombinant;
the costs of obtaining and validating additional manufacturers of rHuPH20;
the effect of competing technological and market developments;
the terms and timing of any collaborative, licensing and other arrangements that we may establish; and
the extent to which we acquire or in-license new products, technologies or businesses.
Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We review our estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Our significant accounting policies are outlined in Note 2 to the Consolidated Financial Statements included in the Form 10-K. We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.
| | | | | | | | | | | | | | |
Revenue Recognition | | | | |
Methodology | | Judgment and Uncertainties | | Effect if Actual Results Differ From Assumptions |
| | | | |
Revenue Recognition | | | | |
Methodology | | Judgment and Uncertainties | | Effect if Actual Results Differ From Assumptions |
| | | | |
For collaborative agreements, we are entitled to receive event-based payments subject to the collaboration partner's achievement of specified development and regulatory milestones. We recognize revenue when it is deemed probable that these milestones will be achieved, which could be in a period prior to its actual occurrence. At the end of each reporting period, we re-evaluate the probability of achievement of such milestones, and if necessary, adjust our estimate of the overall transaction price. | | Revenue is recognized when we determine it is probable a milestone will be achieved. This assessment is based on our past experience with our collaboration partners, market insight and partner communication. | | A revenue reversal will be required in the event it is determined that achievement of a milestone, previously deemed probable, will not occur. This reversal may be material. |
|
| | | | |
For collaborative agreements, royalty revenue is recognized in the period the underlying sales occur, but we do not receive final royalty reports from our collaboration partners until after we complete our financial statements for a prior quarter. Therefore, we recognize revenue based on estimates of the royalty earned, which are based on preliminary reports provided by our collaboration partners. | | The amount of royalty revenue recognized for the quarter is estimated using our knowledge of past royalty payments, market insight and an estimate made by our collaboration partners provided in a preliminary report. | | A final royalty report and associated royalty payment is received approximately 60 days after quarter-end. If necessary, a true-up is recorded at that time if there is a difference from the initial estimated royalty revenue recorded. To date, the true-up entries have not been material. |
For collaborative arrangements, when necessary, we perform an allocation of the upfront amount based on relative stand-alone selling prices (SSP) of licenses for individual targets. We determine license SSP using an income-based valuation approach utilizing risk-adjusted discounted cash flow projections.
| | The inputs used in the valuation model to determine SSP are based on estimates utilizing market data and information provided by our collaboration partners. | | Differences in the allocation of the transaction price between delivered and undelivered performance obligations can impact the timing of revenue recognition but do not change the total revenue recognized under any agreement. |
| | | | | | | | | | | | | | |
| | | | |
Debt ClassificationShare-Based Payments | | | | |
Methodology | | Judgment and Uncertainties | | Effect if Actual Results Differ From Assumptions |
| | | | |
The short-term and long-term classification of outstanding debt represents our best estimate of the timing of the amounts to be repaid. These estimates are based on contractual obligations, anticipated timing of royalty payments received and changes in LIBOR interest rates. | | Royalty payments are estimated using partner insight to the marketplace, historical trends and our knowledge of the therapeutic space. | | The short-term and long-term portion of the debts may change and the repayment term may be shortened or extended depending on the actual level of royalty payments received. The actual repayment period could vary materially from our estimate to the extent that royalty payments from our partners are lower than our current estimates, which could arise due to factors beyond our control, such as competitive factors, decreased market acceptance or a failure by our partners to successfully commercialize in territories where regulatory approval has been received.
Currently, we do not believe that we have significant amount of risk relative to the repayment of the debt. A 10% reduction in the amount of anticipated royalties would not change our expected repayment period at maximum contractual interest rates.
|
Share-Based Payments | | | | |
Methodology | | Judgment and Uncertainties | | Effect if Actual Results Differ From Assumptions |
| | | | |
We maintain a Stock Incentive Plan, which provides for share-based payment awards, including stock options, restricted stock and performance awards. We determine the fair value of our stock option awards and performance awards at the date of grant using a Black-Scholes model. We determine the fair value of our restricted stock awards at the date of grant using the closing market value of our common stock on the date of grant. | | Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the future volatility of our stock price, expected dividend yield and future employee stock option exercise behaviors. Changes in these assumptions can materially affect the fair value estimate.
Our performance awards require management to make assumptions regarding the likelihood of achieving long-term Company goals.
| | We do not currently believe there is a reasonable likelihood that there will be a material change in estimates or assumptions we use to determine stock-based compensation expense. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.
If actual results are not consistent with the assumptions used, the share-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the share-based compensation. A 10% change in our share-based compensation expense for the year ended December 31, 20192021 would have affected pre-tax earnings by approximately $3.5$2.1 million in 2019.2021. |
Valuation Allowance | | | | |
We periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings, forecasts of future pretax income, utilization of net operating losses and tax credits prior to their expiration. | | We will consider future taxable income and tax planning strategies to periodically re-assess the need for a valuation allowance. Both future taxable income and tax planning strategies include a number of estimates. | | Prior to the third quarter of 2021, we had recorded a valuation allowance that fully offset our deferred tax assets. In 2021, based on our evaluation of various factors, such as our profitability and cumulative pretax income as well as forecasted income growth, we released the valuation allowance against federal and state deferred tax assets. Release of the valuation allowance resulted in a net benefit from income taxes of $154.2 million. We will periodically re-assess the need for a valuation allowance against our deferred tax assets. |
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, of our consolidated financial statements for a discussion of recent accounting pronouncements and their effect, if any, on us.
We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash, cash equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. All of our cash equivalents and marketable securities are recorded at fair market value.
Our financial statements are annexed to this report beginning on page F-1.
None.