可供出售市場流通證券包括抵押資產支持證券、公司債務證券、美國國庫證券、機構債券和商業票據，根據層次1和層次2輸入進行公允價值計量。層次2金融工具使用的是 less active 市場的市場價格和具有可觀察輸入的專有定價估值模型，包括利率、收益曲線、到期日、發行日、結算日、報告交易、經紀人報價、報價價差、基準證券或其他市場相關數據。我們從我們的投資經理處獲得層次2投資的公允價值，該經理從第三方定價來源處獲取這些公允價值。我們通過將這些公允價值與第三方定價來源進行比較來驗證我們的投資經理提供的層次2金融工具的公允價值。
根據我們的ENHANZE合作和許可協議，如果合作產品被商業化，我們的合作伙伴將以銷售的平均中位數百分比率向我們支付專利費用。對我們所欠的所有金額，在觸發事件發生後是不可取消的，並且一旦支付就不可退款。除非根據其條款提前終止，通常合作關係將繼續生效，直至最後的特定產品和國家的版稅繳納期限到期，每個版稅期從該產品的首次商業銷售開始，以以下時間結束: （i）協議中規定的指定期限或期限，或（ii）最後到期的有效專利索權的過期，該有效索權覆蓋在合作開發下的產品。通常情況下，當特定專利在某個國家中不再具有有效權利時，我們的rHuPH20專利到期後，該國家的版稅率將降低。Janssen公司的DARZALEX SC專利不會影響這種版稅減免的時間。合作伙伴可以在寫了提前通知我們的天數之後，在其全部或特定目標的基礎上提前終止協議。在任何這樣的終止情況下，授予合作伙伴的許可證（總體上或相對於終止目標而言）將終止；不過，在協議到期的情況下（而非終止），已經授予的持續許可可能成爲永久，非獨佔和完全支付的。基於銷售的里程碑和版稅，將在發生相關銷售或里程碑時進行確認。我們從ENHANZE合作伙伴那裏直到完成上一個季度的財務報表後才收到最終專利費報告。因此，我們根據內部估計和合作夥伴提供的可用初步報告，估算所賺取的專利費用並識別收入。如果必要，當收到最終專利費報告後，我們將在下個季度記錄調整。迄今爲止，我們沒有記錄任何重大調整。 90 days prior written notice to us. 在任何此類終止情況下，授予的許可將全部撤銷。
The Term Facility requires quarterly scheduled repayments of the term loans in each of the first, second, third and fourth years following the closing in annual amounts equal to 2.50%, 5.00%, 7.50% and 10.00% of the initial principal amount of the term loans, respectively. The term loans are also subject to mandatory prepayments from the proceeds of certain asset sales, subject to our right to reinvest the proceeds thereof.
Borrowings under the 2022 Facility bear interest, at our option, at a rate equal to an applicable margin plus: (a) the applicable Term Secured Overnight Financing Rate (“SOFR”) (which includes a SOFR adjustment of 0.10%), 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 Term SOFR rate for an interest period of one month plus 1.10%, and (4) 1.00%. The margin for the 2022 Facility ranges, based on our consolidated total net leverage ratio, from 0.25% to 1.25% in the case of base rate loans and from 1.25% to 2.25% in the case of Term SOFR rate loans. In addition to paying interest on the 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 0.35% per annum based on our consolidated net leverage ratio.
28
As of September 30, 2024, the Revolving Credit Facility was undrawn. We incurred a total of $3.6 million in third-party costs related to the 2022 Credit Agreement which are recorded as debt issuance cost within prepaid expenses and other assets in our condensed consolidated balance sheets. As of September 30, 2024, the unamortized debt issuance cost related to the revolving credit facility was $1.7 million.
29
8. Share-based Compensation
The following table summarized share-based compensation expense included in our condensed consolidated statements of income related to share-based awards (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Research and development
$
3,598
$
3,159
$
9,511
$
9,931
Selling, general and administrative
8,980
6,208
22,412
17,025
Total share-based compensation expense
$
12,578
$
9,367
$
31,923
$
26,956
Share-based compensation expense by type of share-based award was as follows (in thousands):
During the nine months ended September 30, 2024 and 2023, we issued an aggregate of 1,107,442 and 455,702 shares of common stock, respectively, in connection with the exercises of stock options at a weighted average exercise price of $27.03 and $18.10 per share, respectively, for net proceeds of approximately $29.9 million and $8.2 million, respectively. For the nine months ended September 30, 2024 and 2023, we issued 347,502 and 328,115 shares of common stock, respectively, upon vesting of certain RSUs and PSUs for which the RSU and PSU holders surrendered 88,825 and 70,733 RSUs and PSUs, respectively. Stock options and unvested restricted units totaling approximately 7.4 million and 7.8 million shares of our common stock were outstanding as of September 30, 2024 and December 31, 2023, respectively.
Share Repurchases
In December 2021, the Board of Directors authorized a second capital return program to repurchase up to $750.0 million of outstanding stock over a three-year period which we completed in June 2024. A total of 19.1 million shares were repurchased over the three-year period at an average price per share of $39.31. All shares repurchased under our capital return programs have been retired and have resumed their status of authorized and unissued shares.
In February 2024, our Board of Directors authorized a new capital return program to repurchase up to $750.0 million of our outstanding common stock.
32
10. Earnings per share
Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Outstanding stock options, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and the Convertible Notes are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive.
Potentially dilutive common shares issuable upon vesting of stock options, RSUs and PSUs are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Convertible Notes are determined using the if-converted method. Since we have committed to settle the principal amount of the Convertible Notes in cash upon conversion only, the number of shares for the conversion spread will be included as a dilutive common stock equivalent.
A reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations is as follows (in thousands, except per share amounts):
截至9月30日的三個月
截至9月30日的九個月
2024
2023
2024
2023
分子
淨利潤
$
137,011
$
81,837
$
307,079
$
196,206
分母
基本每股收益的加權平均普通股份流通量
126,850
131,965
126,969
132,896
潛在稀釋普通股份流通量
股票期權
2,174
1,830
1,844
1,882
RSUs、PSUs和ESPP
817
288
615
378
可轉換債券
293
—
98
77
稀釋每股收益的加權平均普通股份在外情況
130,134
134,083
129,526
135,233
每股收益
基本
$
1.08
$
0.62
$
2.42
$
1.48
攤薄
$
1.05
$
0.61
$
2.37
$
1.45
Shares which have been excluded from the calculation of diluted earnings per common share because their effect was anti-dilutive include the following (shares in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Anti-dilutive securities (1)
24.0
27.4
26.1
27.6
(1) The anti-dilutive securities include outstanding stock options, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and Convertible Notes.
33
11. Commitments and Contingencies
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 condensed consolidated statements of income and balance sheets. 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 our opinion, individually or in the aggregate, would have a material adverse effect on our condensed consolidated statements of income or balance sheets.
34
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this Quarterly Report on Form 10-Q, unless the context suggests otherwise, references to “Halozyme,” “the Company,” “we,” “our,” “ours,” and “us” refer to Halozyme Therapeutics, Inc., its wholly owned subsidiaries, Halozyme, Inc., Antares Pharma Inc., and Antares Pharma Inc.’s wholly owned subsidiaries, Antares Pharma IPL AG and Antares Pharma AG. References to “Notes” refer to the notes to the condensed consolidated financial statements included herein (refer to Item 1 of Part I).
The following information should be read in conjunction with the condensed consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023, included in our Annual Report on Form 10-K for the year ended December 31, 2023. Past financial or operating performance is not necessarily a reliable indicator of future performance, and our historical performance should not be used to anticipate results or future period trends.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, provisions of Section 21E of the securities and Exchange Act, as amended, and Section 27A of the Securities Act of 1933, as amended. All statements in this report 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 statements 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 Quarterly Report on Form 10-Q. 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 us and our partners, third-party performance under key collaboration agreements, the ability of our bulk drug and device part manufacturers to provide adequate supply for our partners, revenue, expense, cash burn levels and our ability to make timely repayments of debt, anticipated amounts and timing of share repurchases, anticipated profitability and expected trends and other statements regarding our plans and matters that are not historical are forward-looking statements. Such statements reflect management’s current forecast of certain aspects of our future business, are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in our forward-looking statements due to a number of factors including, but not limited to, the Risk Factors set forth in our most recent Annual Report on Form 10-K referred to below under the section entitled “Risks Factors” and elsewhere in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. 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 Quarterly Report on Form 10-Q.
In August 2018, we entered into a development agreement with Pfizer to jointly develop a combination drug device rescue pen utilizing the QuickShot auto-injector and an undisclosed Pfizer drug. Pfizer has provided the intellectual property rights for further development of the product to us and has retained an option to assist in the marketing, distribution and sale if we complete development of the product and submit for regulatory approval. We are continuing to evaluate the next steps for this program.
Idorsia Agreement
In November 2019, we entered into a global agreement with Idorsia to develop a novel, drug-device product containing selatogrel. A new chemical entity, selatogrel is being developed for the treatment of a suspected acute myocardial infarction (“AMI”) in adult patients with a history of AMI.
In March 2024, the recruitment of the Phase 3 study with selatogrel for acute myocardial infarction had reached approximately 6,000 patients.
Otter Agreement
In December 2021, we entered into a supply agreement with Otter to manufacture the VIBEX auto-injection system device, designed and developed to incorporate a pre-filled syringe for delivery of methotrexate, assemble, package, label and supply the final OTREXUP product and related samples to Otter at cost plus mark-up. Otter is responsible for manufacturing, formulation and testing of methotrexate and the corresponding pre-filled syringe for assembly with the device manufactured by us, along with the commercialization and distribution of OTREXUP. OTREXUP is a SC methotrexate injection for once weekly self-administration with an easy-to-use, single dose, disposable auto injector, indicated for adults with severe active rheumatoid arthritis (“RA”), children with active polyarticular juvenile idiopathic arthritis and adults with severe recalcitrant psoriasis. Further, we entered into a license agreement with Otter in which we granted Otter a worldwide, exclusive, fully paid-up license to certain patents relating to OTREXUP that may also relate to our other products for Otter to commercialize and otherwise exploit OTREXUP in the field as defined in the license agreement.
45
Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Royalties – Royalties were as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Royalties
$
155,061
$
114,433
$
40,628
36
%
The increase in royalties was primarily driven by continued sales uptake of DARZALEX SC by Janssen and Phesgo by Roche in all geographies, and the prior year launch of VYVGART Hytrulo by argenx. We expect royalty revenue to further grow as a result of anticipated increasing partner product sales of DARZALEX SC and Phesgo, and sales of recently launched ENHANZE partner products, VYVGART Hytrulo, TECENTRIQ SC and OCREVUS SC. We expect modest price erosion to continue on earlier launched ENHANZE partner products, Herceptin and MabThera.
Product Sales, Net– Product sales, net were as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Proprietary product sales
$
39,925
$
31,511
$
8,414
27
%
Bulk rHuPH20 sales
31,493
37,001
(5,508)
(15)
%
Device partnered product sales
15,241
18,057
(2,816)
(16)
%
Total product sales, net
$
86,659
$
86,569
$
90
—
%
Product sales, net were flat primarily due to contributions from our proprietary products, offset by lower sales of device partner products and bulk rHuPH20 driven by the timing of partner demand. We expect sales of our proprietary products will continue to grow in future years as we continue to gain market share in the TRT market. We expect product sales of bulk rHuPH20 and device partnered products to fluctuate in future periods based on the needs of our partners.
Revenues Under Collaborative Agreements– Revenues under collaborative agreements were as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
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 and target nomination fees
$
27,000
$
—
$
27,000
100
%
Event-based development milestones and regulatory milestones and other fees
18,000
13,000
5,000
38
%
Device licensing and development revenue
3,364
2,031
1,333
66
%
Total revenues under collaborative agreements
$
48,364
$
15,031
$
33,333
222
%
The increase in revenues under collaborative agreements was primarily due to the timing of milestones achieved. 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 partners’ ability to meet various clinical and regulatory milestones set forth in such agreements and our ability to obtain new collaborative agreements.
46
Operating expenses –Operating expenses were as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Cost of sales
$
49,426
$
54,823
$
(5,397)
(10)
%
Amortization of intangibles
17,762
20,341
(2,579)
(13)
%
Research and development
18,458
17,321
1,137
7
%
Selling, general and administrative
41,241
35,269
5,972
17
%
Cost of Sales – Cost of 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 our proprietary products, device partnered products and bulk rHuPH20. The decrease in cost of sales was primarily due to lower device and bulk rHuPH20 sales.
Amortization of intangibles –Amortization of intangibles consists primarily of expense associated with the amortization of acquired device technologies and product rights. The decrease in amortization of intangibles expense was primarily due to an impairment charge of $2.5 million recognized in the prior year to fully impair the TLANDO product rights intangible asset.
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, preclinical and regulatory activities related to our collaborations, and our development platforms. The modest increase in research and development expense was primarily due to increased compensation expense.
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 proprietary products and alliance management and marketing support for our collaborations. The increase in SG&A expense was primarily due to increased compensation expense and consulting and professional service fees.
Investment and other income, net – investment and other income, net was as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Investment and other income, net
$
6,474
$
4,786
$
1,688
35
%
Investment and other income, net consists primarily of interest income on our cash, cash-equivalent and marketable securities. The increase in investment and other income, net was primarily due to an increase in the average invested balance.
Interest Expense– Interest expense was as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Interest expense
$
4,524
$
4,505
$
19
—
%
Interest expense consists primarily of costs related to our convertible notes and revolving credit facility. Interest expense was flat year over year.
Income Tax Expense – Income tax expense was as follows (in thousands):
Three Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Income tax expense
$
28,136
$
19,923
$
8,213
41
%
The increase in income tax expense was primarily due to higher income before income tax expense, partially offset by an increase in tax benefits mainly related to a share-based compensation windfall and a Foreign Derived Intangible Income (“FDII”) deduction recognized in the current period. Our annual effective tax rate is estimated to be approximately 19% for 2024, which differs from the U.S. federal statutory rate primarily due to a decrease from a share-based compensation windfall tax benefit, FDII deduction, and research and development credit generation, partially offset by state income tax and Section 162(m) disallowance.
47
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Royalties – Royalties were as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Royalties
$
400,572
$
325,813
$
74,759
23
%
The increase in royalties was primarily driven by continued sales uptake of DARZALEX SC by Janssen and Phesgo by Roche in all geographies, and the prior year launch of Vyvgart Hytrulo by argenx.
Product Sales, Net– Product sales, net were as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Sales of proprietary products
$
119,319
$
91,765
$
27,554
30
%
Sales of bulk rHuPH20
66,637
86,203
(19,566)
(23)
%
Sales of device partnered product
38,172
43,284
(5,112)
(12)
%
Total product sales, net
$
224,128
$
221,252
$
2,876
1
%
The increase in product sales, net was primarily due to contributions from our proprietary products, partially offset by lower sales of bulk rHuPH20 and device partnered products driven by the timing of partner demand.
Revenues Under Collaborative Agreements – Revenues under collaborative agreements were as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
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 and target nomination fees
$
27,000
$
—
$
27,000
100
%
Event-based development milestones and regulatory milestones and other fees
57,500
46,000
11,500
25
%
Device licensing and development revenue
8,116
6,149
1,967
32
%
Total revenues under collaborative agreements
$
92,616
$
52,149
$
40,467
78
%
The increase in revenues under collaborative agreements was primarily due to the timing of milestones achieved.
Operating expenses - Operating expenses were as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Cost of sales
$
117,362
$
140,063
$
(22,701)
(16)
%
Amortization of intangibles
53,287
56,011
(2,724)
(5)
%
Research and development
58,607
55,027
3,580
7
%
Selling, general and administrative
112,086
111,574
512
—
%
Cost of Sales – The decrease in cost of sales was primarily due to lower bulk rHuPH20 and device sales, partially offset by higher proprietary product sales.
Amortization of intangibles –The decrease in amortization of intangibles expense was primarily due to an impairment charge of $2.5 million recognized in the prior year to fully impair the TLANDO product rights intangible asset.
Research and Development– The increase in research and development expense was primarily due to planned investments in ENHANZE related to the development of our new high-yield rHuPH20 manufacturing processes.
Selling, General and Administrative – The increase in SG&A expense was primarily due to increased compensation expense and consulting and professional service fees, partially offset by planned reductions in commercial marketing expense.
48
Investment and other income, net- Investment and other income, net was as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Investment and other income, net
$
16,499
$
10,957
$
5,542
51
%
The increase in investment and other income, net was primarily due to an increase in the average invested balance.
Interest Expense– Interest expense was as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Interest expense
$
13,555
$
13,542
$
13
—
%
Interest expense was flat year over year.
Income Tax Expense – Income tax expense was as follows (in thousands):
Nine Months Ended
Increase / (Decrease)
September 30,
2024
2023
Dollar
Percentage
Income tax expense
$
71,839
$
50,948
$
20,891
41
%
The increase in income tax expense was primarily due to higher income before income tax expense, partially offset by an increase in tax benefits mainly related to with a share-based compensation windfall and a FDII deduction recognized during the current period.
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Liquidity and Capital Resources
Overview
Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale marketable securities. As of September 30, 2024, we had cash, cash equivalents and marketable securities of $666.3 million. 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 collaborative agreements 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.
We may, in the future, draw on our existing line of credit or offer and sell additional equity, debt securities and warrants to purchase any of such securities, either individually or in units to raise capital for additional working capital, capital expenditures, share repurchases, acquisitions or for other general corporate purposes.
Cash Flows
Nine Months Ended September 30,
(in thousands)
2024
2023
Change
Net cash provided by operating activities
$
300,597
$
286,217
$
14,380
Net cash used in investing activities
(292,203)
(88,618)
(203,585)
Net cash provided by (used in) financing activities
27,554
(158,067)
185,621
Net increase in cash, cash equivalents and restricted cash
$
35,948
$
39,532
$
(3,584)
Operating Activities
The increase in net cash provided by operations was primarily due to an increase in revenue, partially offset by higher working capital spend.
Investing Activities
The increase in net cash used in investing activities was primarily due to an increase in net purchases of marketable securities, partially offset by a decrease in capital spend for property and equipment.
Financing Activities
The decrease in net cash used in financing activities was primarily due to the repurchase of $150.1 million in common stock in the prior year and $13.5 million in cash paid on the conversion of our 2024 Convertible Notes in the prior year, partially offset by an increase in net proceeds from the issuance of common stock under our equity incentive plan.
Share Repurchases
In December 2021, our Board of Directors approved a share repurchase program to repurchase up to $750.0 million of our outstanding common stock which we completed in June 2024. In February 2024, our Board of Directors authorized a new capital return program to repurchase up to $750.0 million of our outstanding common stock. Refer to Note 9, Stockholders’ Equity, of our condensed consolidated financial statements for additional information regarding our share repurchases.
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Long-Term Debt
1.00% Convertible Notes due 2028
In August 2022, we completed the sale of $720.0 million in aggregate principal amount of 1.00% Convertible Senior Notes due 2028 (the “2028 Convertible Notes”). The net proceeds in connection with the issuance of the 2028 Convertible Notes, after deducting the initial purchasers’ fee of $18.0 million, was approximately $702.0 million. We also incurred additional debt issuance costs totaling $1.0 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount.
The 2028 Convertible Notes pay interest semi-annually in arrears on February 15th and August 15th of each year at an annual rate of 1.00%. The 2028 Convertible Notes are general unsecured obligations and rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2028 Convertible Notes, rank equally in right of payment with all existing and future liabilities that are not so subordinated, are effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries. The 2028 Convertible Notes have a maturity date of August 15, 2028.
Holders may convert their 2028 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022, 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 2028 Convertible Notes; (4) if we call such notes for redemption; and (5) at any time from, and including, February 15, 2028 until the close of business on the second scheduled trading day immediately before the maturity date. As of September 30, 2024, the 2028 Convertible Notes were 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 2028 Convertible Notes is 17.8517 shares of common stock per $1,000 in principal amount of 2028 Convertible Notes, equivalent to a conversion price of approximately $56.02 per share of our common stock. The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest.
Capped Call Transactions
In connection with the offering of the 2028 Convertible Notes, we entered into capped call transactions with certain counterparties (the “Capped Call Transactions”). The Capped Call Transactions are expected generally to reduce potential dilution to holders of our common stock upon conversion of the 2028 Convertible Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the principal amount of such converted 2028 Convertible Notes. The cap price of the Capped Call Transactions is initially $75.4075 per share of common stock, representing a premium of 75% above the last reported sale price of $43.09 per share of common stock on August 15, 2022, and is subject to certain adjustments under the terms of the Capped Call Transactions. As of September 30, 2024, no capped calls had been exercised.
Pursuant to their terms, the capped calls qualify for classification within stockholders’ equity in our condensed consolidated balance sheets, and their fair value is not remeasured and adjusted as long as they continue to qualify for stockholders’ equity classification. We paid approximately $69.1 million for the Capped Calls, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital in our condensed consolidated balance sheets. The Capped Call Transactions are separate transactions entered into by us with the capped call Counterparties, are not part of the terms of the Convertible Notes, and do not affect any holder’s rights under the Convertible Notes. Holders of the Convertible Notes do not have any rights with respect to the Capped Call Transactions.
0.25% Convertible Notes due 2027
In March 2021, we completed the sale of $805.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2027 (the “2027 Convertible Notes”). The net proceeds in connection with the issuance of the 2027 Convertible Notes, after deducting the initial purchasers’ fee of $20.1 million, was approximately $784.9 million. We also incurred additional debt issuance costs totaling $0.4 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount.
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The 2027 Convertible Notes pay interest semi-annually in arrears on March 1st and September 1st of each year at an annual rate of 0.25%. The 2027 Convertible Notes are general unsecured obligations and 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, are effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and are 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. As of September 30, 2024, the 2027 Convertible Notes were 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 (the “2024 Convertible Notes”). The net proceeds in connection with the issuance of the 2024 Convertible Notes, after deducting the initial purchasers’ 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 were presented as a debt discount.
In January 2021, we notified the note holders of our irrevocable election to settle the principal of the 2024 Convertible Notes in cash and for the premium, to deliver shares of common stock. The conversion rate for the 2024 Convertible Notes was 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 was subject to adjustment.
In January 2023, we issued a notice for the redemption of 2024 Convertible Notes. Holders of the notes could convert their notes at any time prior to the close of the business day prior to the redemption date. In March 2023, holders of the notes elected to convert the 2024 Convertible Notes in full. In connection with the conversion, we paid approximately $13.5 million in cash which included principal and accrued interest, and issued 288,886 shares of our common stock representing the intrinsic value based on the contractual conversion rate.
Revolving Credit and Term Loan Facilities
In May 2022, we entered into a credit agreement, which was subsequently amended in August 2022 (the “Amendment”), with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders and L/C Issuers party thereto (the “2022 Credit Agreement”), evidencing a credit facility (the “2022 Facility”) that provides for (i) a $575 million revolving credit facility (the “Revolving Credit Facility”) and (ii) a $250 million term loan facility (the “Term Facility”). Concurrently, with the entry into the Amendment, we repaid the entire outstanding Term Loan Facility and repaid all outstanding loans under the Revolving Credit Facility under the 2022 Credit Agreement. The 2022 Facility will mature on November 30, 2026 unless either the Revolving Credit Facility or the Term Facility is extended prior to such date in accordance with the 2022 Credit Agreement.
The Term Facility requires quarterly scheduled repayments of the term loans in each of the first, second, third and fourth years following the closing in annual amounts equal to 2.50%, 5.00%, 7.50% and 10.00% of the initial principal amount of the term loans, respectively. The term loans are also subject to mandatory prepayments from the proceeds of certain asset sales, subject to our right to reinvest the proceeds thereof.
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Borrowings under the 2022 Facility bear interest, at our option, at a rate equal to an applicable margin plus: (a) the applicable Term Secured Overnight Financing Rate (“SOFR”) (which includes a SOFR adjustment of 0.10%), 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 Term SOFR rate for an interest period of one month plus 1.10%, and (4) 1.00%. The margin for the 2022 Facility ranges, based on our consolidated total net leverage ratio, from 0.25% to 1.25% in the case of base rate loans and from 1.25% to 2.25% in the case of Term SOFR rate loans. In addition to paying interest on the outstanding principal under the 2022 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 0.35% per annum based on our consolidated net leverage ratio.
As of September 30, 2024, the revolving credit facility was undrawn.
Additional Capital Requirements
Our expected working capital and other capital requirements are described in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. As of September 30, 2024, there have been no material changes to our expected working capital and other capital requirements described in our Annual Report on Form 10-K for the year ended December 31, 2023.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our condensed 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.
Our significant accounting policies are described in Part II, Item 8, Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023. The accounting policies and estimates that are most critical to a full understanding and evaluation of our reported financial results are described in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023. There were no material changes to our critical accounting policies or estimates during the nine months ended September 30, 2024.
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, of our condensed consolidated financial statements for a discussion of recent accounting pronouncements and their effect, if any.
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Item 3.Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our market risks during the quarter ended September 30, 2024.
As of September 30, 2024, our cash equivalents and marketable securities consisted of investments in money market funds, asset-backed securities, U.S. Treasury securities, corporate debt securities, agency bonds and commercial paper. These investments were made in accordance with our investment policy which specifies the categories, allocations, and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Some of the financial instruments that we invest in could be subject to market risk. This means that a change in prevailing interest rates may cause the value of the instruments to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of that security may decline. Based on our current investment portfolio as of September 30, 2024, we do not believe that our results of operations would be materially impacted by an immediate change of 10% in interest rates.
We hedge a portion of foreign currency exchange risk associated with forecasted royalties revenue denominated in Swiss francs to reduce the risk of our earnings and cash flows being adversely affected by fluctuations in exchange rates. These transactions are designated and qualify as cash flow hedges. The cash flow hedges are carried at fair value with mark-to-market gains and losses recorded within AOCI in our condensed consolidated balance sheets and reclassified to royalty revenue in our condensed consolidated statements of income in the same period as the recognition of the underlying hedged transaction. We do not 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.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1.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 condensed consolidated statements of income and balance sheets. 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 our opinion, individually or in the aggregate, would have a material adverse effect on our condensed consolidated statements of income or balance sheets.
Item 1A.Risk Factors
There have been no material changes to the risk factors set forth under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
In December 2021, the Board of Directors authorized a capital return program to repurchase up to $750.0 million of outstanding stock over a three-year period which we completed in June 2024.
In February 2024, our Board of Directors authorized a new capital return program to repurchase up to $750.0 million of our outstanding common stock. There were no share repurchases made during the third quarter of 2024.
Item 3.Defaults Upon Senior Securities
Not applicable.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
During the three months ended September 30, 2024, the following director and officer each adopted a Rule 10b5-1 trading arrangement (as such terms are defined pursuant to Item 408(a) of Regulation S-K) as noted in the table below.
Trading Arrangement
Name and Title
Action
Date
Rule 10b5-1*
Non-Rule 10b5-1**
Total Shares To Be Sold
Expiration Date
Jeffrey W. Henderson
Adoption
9/17/2024
X
25,000
The earlier of 04/30/2025 or date all shares are sold
Director (Board Chair)
Michael J. LaBarre
Adoption
9/18/2024
X
40,000
The earlier of 08/27/2025 or date all shares are sold
Senior Vice President and Chief Technical Officer
* Contract, instruction or written plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act.
** Non-Rule 10b5-1 trading arrangement as defined in Item 408(c) of Regulation S-K under the Exchange Act.
Instance Document - the instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document (filed herewith)
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (filed herewith)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Halozyme Therapeutics, Inc.
(Registrant)
Dated:
October 31, 2024
/s/ Helen I. Torley, M.B. Ch.B., M.R.C.P.
Helen I. Torley, M.B. Ch.B., M.R.C.P. President and Chief Executive Officer (Principal Executive Officer)
Dated:
October 31, 2024
/s/ Nicole LaBrosse
Nicole LaBrosse Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)
