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2017 ANNUAL REPORT
Strategic Partnerships.
Focus on Patients.
Halozyme Therapeutics, Inc.
11388 Sorrento Valley Road
San Diego, CA 92121
858-794-8889
info@halozyme.com
www.halozyme.com
Copyright © 2018. Halozyme, Inc.
All rights reserved. All trademarks belong
to their respective owners.
On the cover:
In 2017, Halozyme hosted meetings with investigators
and clinicians in cities around the world to prepare more
than 200 sites in 22 countries for the screening and
enrolling of pancreatic cancer patients in the company’s
Phase 3 HALO-301 Pancreatic clinical study.
PRODUCT PIPELINE
PRODUCT, COLLABORATION PRODUCTS
THERAPEUTIC
RESEARCH FOCUS/
DEVELOPMENT
AND PRODUCT CANDIDATES
AREA
INDICATION (PARTNER)
STAGE
Oncology Pipeline
and Product
Candidates
PEGPH20 with ABRAXANE®
(nab-paclitaxel) and gemcitabine
Oncology
Pancreas Cancer
Phase 3
PEGPH20 with KEYTRUDA®
Oncology
Gastric Cancer/Non-
Phase 1
(pembrolizumab)
Small Cell Lung Cancer
PEGPH20 with HALAVEN®
Oncology
Breast Cancer
Phase 1*
PEGPH20 with TECENTRIQ®
Oncology
Pancreas Cancer
Phase 1
(eribulin)
(atezolizumab)
(atezolizumab)
(atezolizumab)
PEGPH20 with TECENTRIQ®
Oncology
PEGPH20 with TECENTRIQ®
Oncology
(Eisai)
(Genentech)
Gastric Cancer
(Genentech)
Gall Bladder Cancer/
Cholangiocarcinoma
Phase 1
Phase 1
PEG-ADA2: PEGylated-Human
Oncology
Various
Preclinical
Adenosine Deaminase 2
*No further clinical development planned on the Phase 2 portion of this study.
Proprietary
Approved Product
HYLENEX® recombinant
(hyaluronidase human injection)
Various
Adjuvant for subcutaneous
U.S. Approved
fluid delivery for dispersion
& absorption of other
injected drugs
ENHANZE®
Collaboration
Approved Products
Roche
HERCEPTIN® SC (trastuzumab)
Oncology
Breast Cancer
Oncology
Multiple blood
Cancers
Cancers
Oncology
Multiple blood
U.S. approved
EU approved and other
countries outside U.S.
EU approved and other
countries outside U.S.
MABTHERA® SC (rituximab)
(Outside of the U.S.)
RITUXAN HYCELA®
(rituximab/hyaluronidase human)
(U.S.)
Baxalta
10% (Human) with Recombinant
Human Hyaluronidase]
HYQVIA® [Immune Globulin Infusion
Immunology
Primary
Immunodeficiency
ENHANZE®
Collaboration
Product Candidates
Roche (Total of 9 potential targets)
PERJETA® (pertuzumab)
Oncology
Breast Cancer
Phase 1
Approved for adults in
the EU, U.S., Puerto Rico
and Australia; Pediatric
indication approved in EU
(Plans for Phase 3 fixed-
dose combination with
Herceptin in 2018)
Phase 1
Phase 3
Phase 3
Phase 3
Phase 3
Phase 2
Phase 1
Phase 1
Preclinical
Preclinical
Oncology
Amyloidosis
Smoldering Myeloma
Multiple Myeloma (2L+)
Multiple Myeloma (4L)
Multiple Myeloma (1L+)
Multiple Myeloma (3L+)
Undisclosed
Pfizer (Total of 6 potential targets)
Janssen (Total of 5 potential targets)
DARZALEX® (daratumumab)
AbbVie (Total of 9 potential targets)
Lilly (Total of 5 potential targets)
Undisclosed
Bristol-Myers Squibb
(Total of 11 potential targets)
PD-1 target
Oncology
Alexion (Total of 4 potential targets)
ALXN1210 SC
Various
All trademarks belong to their respective owners.
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2017 ANNUAL REPORT
Strategic Partnerships.
Focus on Patients.
Halozyme Therapeutics, Inc.
11388 Sorrento Valley Road
San Diego, CA 92121
858-794-8889
info@halozyme.com
www.halozyme.com
Copyright © 2018. Halozyme, Inc.
All rights reserved. All trademarks belong
to their respective owners.
On the cover:
In 2017, Halozyme hosted meetings with investigators
and clinicians in cities around the world to prepare more
than 200 sites in 22 countries for the screening and
enrolling of pancreatic cancer patients in the company’s
Phase 3 HALO-301 Pancreatic clinical study.
PRODUCT PIPELINE
PRODUCT, COLLABORATION PRODUCTS
AND PRODUCT CANDIDATES
THERAPEUTIC
AREA
RESEARCH FOCUS/
INDICATION (PARTNER)
DEVELOPMENT
STAGE
Oncology Pipeline
and Product
Candidates
PEGPH20 with ABRAXANE®
(nab-paclitaxel) and gemcitabine
PEGPH20 with KEYTRUDA®
(pembrolizumab)
PEGPH20 with HALAVEN®
(eribulin)
PEGPH20 with TECENTRIQ®
(atezolizumab)
PEGPH20 with TECENTRIQ®
(atezolizumab)
PEGPH20 with TECENTRIQ®
(atezolizumab)
PEG-ADA2: PEGylated-Human
Adenosine Deaminase 2
Oncology
Pancreas Cancer
Phase 3
Oncology
Oncology
Oncology
Oncology
Oncology
Gastric Cancer/Non-
Small Cell Lung Cancer
Breast Cancer
(Eisai)
Pancreas Cancer
(Genentech)
Gastric Cancer
(Genentech)
Gall Bladder Cancer/
Cholangiocarcinoma
Phase 1
Phase 1*
Phase 1
Phase 1
Phase 1
Oncology
Various
Preclinical
*No further clinical development planned on the Phase 2 portion of this study.
Proprietary
Approved Product
HYLENEX® recombinant
(hyaluronidase human injection)
Various
Adjuvant for subcutaneous
fluid delivery for dispersion
& absorption of other
injected drugs
U.S. Approved
ENHANZE®
Collaboration
Approved Products
Roche
HERCEPTIN® SC (trastuzumab)
Oncology
Breast Cancer
MABTHERA® SC (rituximab)
(Outside of the U.S.)
RITUXAN HYCELA®
(rituximab/hyaluronidase human)
(U.S.)
Baxalta
Oncology
Oncology
Multiple blood
Cancers
Multiple blood
Cancers
HYQVIA® [Immune Globulin Infusion
10% (Human) with Recombinant
Human Hyaluronidase]
Immunology
Primary
Immunodeficiency
ENHANZE®
Collaboration
Product Candidates
Roche (Total of 9 potential targets)
PERJETA® (pertuzumab)
Oncology
Breast Cancer
Amyloidosis
Smoldering Myeloma
Multiple Myeloma (2L+)
Multiple Myeloma (4L)
Multiple Myeloma (1L+)
Multiple Myeloma (3L+)
Undisclosed
Pfizer (Total of 6 potential targets)
Janssen (Total of 5 potential targets)
DARZALEX® (daratumumab)
Oncology
AbbVie (Total of 9 potential targets)
Lilly (Total of 5 potential targets)
Undisclosed
Bristol-Myers Squibb
(Total of 11 potential targets)
PD-1 target
Oncology
Alexion (Total of 4 potential targets)
ALXN1210 SC
Various
All trademarks belong to their respective owners.
EU approved and other
countries outside U.S.
EU approved and other
countries outside U.S.
U.S. approved
Approved for adults in
the EU, U.S., Puerto Rico
and Australia; Pediatric
indication approved in EU
Phase 1
(Plans for Phase 3 fixed-
dose combination with
Herceptin in 2018)
Phase 1
Phase 3
Phase 3
Phase 3
Phase 3
Phase 2
Phase 1
Phase 1
Preclinical
Preclinical
CEO’S LETTER
CORPORATE INFORMATION
CORPORATE INFORMATION
ABOUT HALOZYME, INC.
ABOUT HALOZYME, INC.
Dear Fellow
Dear Fellow
Shareholders —
Shareholders —
25%
25%
Royalty revenue increase
Royalty revenue increase
over the previous year.
over the previous year.
$469M
$469M
Cash position exiting 2017
Cash position exiting 2017
The past 30 years
of my career have
been dedicated to the
development, launch
and commercialization
of many leading
therapeutics. Through
that pursuit, I have
had the privilege to
lead or serve on many
great teams, relished
many challenges and
believed deeply in the
power of therapeutics
to transform the lives
of patients.
I begin my annual letter with that backdrop because for me,
2017 was among the greatest in my career for the long-term
value our team created for patients, shareholders and each other.
This past year was truly transformational for Halozyme. Through
a disciplined focus at all levels of the organization, we executed
well against the two-pillar strategy I first outlined for you in
2014. Under this strategy – where we maximize the value of our
proprietary recombinant human hyaluronidase, rHuPh20 – we
established our ENHANZE® technology as an industry standard
for converting intravenous medications to subcutaneous
administration, and we took steps to derisk our late-stage
investigational oncology drug, PEGPH20 (pegvorhyaluronidase
alfa). We continue to believe this two-pillar approach affords
shareholders the greatest opportunities for substantial value
creation, and we offered a demonstration of its potential during
the year.
Beginning with the ENHANZE technology pillar, we began
2017 with confidence that our team would sign a new global
collaboration and licensing agreement, and we exited the year
with two new agreements plus an extension of an existing
collaboration. These agreements – with Bristol-Myers Squibb,
Alexion and Roche – punctuated a year with many highlights,
including:
• Upfront payments from the three new agreements totaling
$175 million, the largest amount in company history;
• Royalty growth of 25 percent from commercialized
products using ENHANZE;
• A successful FDA oncology drug advisory committee that
led to the U.S. approval and launch of Roche’s RITUXAN
™
™ (rituximab/hyaluronidase human) in certain
HYCELA™ (rituximab/hyaluronidase human) in certain
blood cancer indications;
• Initiation of four Phase 3 clinical studies of Darzalex SC,
a subcutaneous forumulation of Janssen’s Darzalex®
a subcutaneous forumulation of Janssen’s Darzalex®
a subcutaneous forumulation of Janssen’s Darzalex
(daratumumab) using ENHANZE. Analysts project Darzalex
to achieve peak sales of $7 billion, which has the potential
to create a sizable inflection in royalties to Halozyme.
Our newest collaborations include exciting targets, such as
Bristol-Myers Squibb’s selection of the PD-1 target to create their
first subcutaneous version using ENHANZE, and Alexion’s
selection of the complement c5-inhibitor target for a next-
generation ALXN 1210. In fact, we project royalty potential of
generation ALXN 1210. In fact, we project royalty potential of
pancreatic and gastric cancer. In addition, we dosed the
pancreatic and gastric cancer. In addition, we dosed the
approximately $1 billion in 2027 from multiple indication
approximately $1 billion in 2027 from multiple indication
first patients in a study to evaluate the combination in
first patients in a study to evaluate the combination in
approvals and global launches of our currently commercialized
approvals and global launches of our currently commercialized
cholangiocarcinoma and gall bladder cancer patients;
cholangiocarcinoma and gall bladder cancer patients;
products using ENHANZE and seven other targets in clinical
products using ENHANZE and seven other targets in clinical
development or planned for clinical development with
development or planned for clinical development with
ENHANZE. Actual royalties will depend on indications
ENHANZE. Actual royalties will depend on indications
approved, geographies launched and market share attained.
approved, geographies launched and market share attained.
• Advancing our exploration of PEGPH20’s pan-tumor potential,
• Advancing our exploration of PEGPH20’s pan-tumor potential,
with the possibility of reporting response-rate data from two
with the possibility of reporting response-rate data from two
Phase 1 studies in the second half of 2018.
Phase 1 studies in the second half of 2018.
With the progress we made in 2017, it is easy to see why we
With the progress we made in 2017, it is easy to see why we
PEGPH20 is a targeted therapy, with a companion diagnostic
PEGPH20 is a targeted therapy, with a companion diagnostic
are so optimistic about the road ahead and the long-term value
are so optimistic about the road ahead and the long-term value
to select patients most likely to respond to it. The combination
to select patients most likely to respond to it. The combination
created for shareholders by the ENHANZE technology.
created for shareholders by the ENHANZE technology.
of a deep body of preclinical evidence, the encouraging
of a deep body of preclinical evidence, the encouraging
Turning to our oncology pillar, which is anchored by PEGPH20,
Turning to our oncology pillar, which is anchored by PEGPH20,
2017 began with a major derisking event as we reported
2017 began with a major derisking event as we reported
encouraging data from our randomized, controlled HALO-202
encouraging data from our randomized, controlled HALO-202
Phase 2 study in approximately 270 patients. These results
Phase 2 study in approximately 270 patients. These results
garnered excellent attention through oral presentations at
garnered excellent attention through oral presentations at
major medical fora during the year and supported strong
major medical fora during the year and supported strong
HALO-202 data and the diagnostic support a good potential for
HALO-202 data and the diagnostic support a good potential for
PEGPH20 to make a meaningful difference in the lives of
PEGPH20 to make a meaningful difference in the lives of
patients with devastating and difficult to treat HA-High
patients with devastating and difficult to treat HA-High
pancreas cancer. This is what motivates me and our team, and
pancreas cancer. This is what motivates me and our team, and
what we believe will ultimately provide the greatest returns to
what we believe will ultimately provide the greatest returns to
our shareholders.
our shareholders.
progress in enrollment in our HALO-301 Phase 3 study in
progress in enrollment in our HALO-301 Phase 3 study in
We look forward to achieving the target number of
We look forward to achieving the target number of
metastatic pancreatic cancer patients with the same
metastatic pancreatic cancer patients with the same
progression-free survival events in our Phase 3 study late in
progression-free survival events in our Phase 3 study late in
chemotherapy combination of PEGPH20 plus ABRAXANE®
chemotherapy combination of PEGPH20 plus ABRAXANE®
the fourth quarter of 2018, at which time we expect to have
the fourth quarter of 2018, at which time we expect to have
(nab-paclitaxel) and gemcitabine. HALO-202 showed a
(nab-paclitaxel) and gemcitabine. HALO-202 showed a
approximately 500 patients enrolled.
approximately 500 patients enrolled.
statistically significant progression-free survival improvement
statistically significant progression-free survival improvement
in patients retrospectively identified to have high levels of
in patients retrospectively identified to have high levels of
hyaluronan (HA), and data from the study were recently
hyaluronan (HA), and data from the study were recently
published in the peer reviewed Journal of Clinical Oncology.
published in the peer reviewed Journal of Clinical Oncology.
In HALO-301, we are prospectively selecting patients with the
In HALO-301, we are prospectively selecting patients with the
HA-High biomarker. PEGPH20 temporarily degrades HA, a
HA-High biomarker. PEGPH20 temporarily degrades HA, a
glycosaminoglycan or a chain of natural sugars in the body that
glycosaminoglycan or a chain of natural sugars in the body that
can accumulate around certain tumor types and impede
can accumulate around certain tumor types and impede
access of cancer therapies to the tumor.
access of cancer therapies to the tumor.
In addition to the progress with HALO-301, we achieved a
In addition to the progress with HALO-301, we achieved a
number of value-enhancing goals and milestones in the
number of value-enhancing goals and milestones in the
PEGPH20 program, including:
PEGPH20 program, including:
The milestones we achieved in 2017 have also put us in the
The milestones we achieved in 2017 have also put us in the
strongest financial position in company history. Revenue for
strongest financial position in company history. Revenue for
the year was $317 million, and we exited the year very
the year was $317 million, and we exited the year very
well-financed with $469 million in cash.
well-financed with $469 million in cash.
I want to thank you for your continued investment, support,
I want to thank you for your continued investment, support,
encouragement, questions and thoughtful input. During 2017,
encouragement, questions and thoughtful input. During 2017,
we saw the benefits of our strategy taking hold. I also want to
we saw the benefits of our strategy taking hold. I also want to
thank patients who participate in our clinical studies. Without
thank patients who participate in our clinical studies. Without
their courage, our work would not be possible. Finally, we
their courage, our work would not be possible. Finally, we
would not be where we are today as a company without the
would not be where we are today as a company without the
dedication of our entire Halozyme team. I am deeply grateful
dedication of our entire Halozyme team. I am deeply grateful
for their commitment and look forward to the progress we will
for their commitment and look forward to the progress we will
• Expanding our Phase 1b study of PEGPH20 in combination
• Expanding our Phase 1b study of PEGPH20 in combination
continue to make in 2018.
continue to make in 2018.
with KEYTRUDA® (pembrolizumab) in lung and gastric
with KEYTRUDA® (pembrolizumab) in lung and gastric
cancer patients;
cancer patients;
Best regards,
Best regards,
• Dosing the first patients in three clinical studies under an
• Dosing the first patients in three clinical studies under an
agreement with Genentech, a member of the Roche
agreement with Genentech, a member of the Roche
Group, formed in 2016 to evaluate PEGPH20 and
Group, formed in 2016 to evaluate PEGPH20 and
TECENTRIQ® (atezolizumab) in up to eight different
TECENTRIQ® (atezolizumab) in up to eight different
tumor types. This is an efficient way for Halozyme to
tumor types. This is an efficient way for Halozyme to
expand the study of PEGPH20, with Roche funding and
expand the study of PEGPH20, with Roche funding and
conducting studies in up to six tumor types, beginning with
conducting studies in up to six tumor types, beginning with
Corporate Headquarters
Corporate Headquarters
11388 Sorrento Valley Road
11388 Sorrento Valley Road
San Diego, CA 92121
San Diego, CA 92121
858-794-8889
858-794-8889
info@halozyme.com
info@halozyme.com
www.halozyme.com
www.halozyme.com
Outside Legal Counsel
Outside Legal Counsel
DLA Piper LLP (U.S.)
DLA Piper LLP (U.S.)
San Diego, California
San Diego, California
Independent Auditors
Independent Auditors
Ernst & Young LLP
Ernst & Young LLP
San Diego, California
San Diego, California
Transfer Agent
Transfer Agent
Corporate Stock Transfer, Inc.
Corporate Stock Transfer, Inc.
3200 Cherry Creek Drive South,
3200 Cherry Creek Drive South,
Suite 430
Suite 430
Denver, CO 80209
Denver, CO 80209
303-282-4800
303-282-4800
Form 10-K Annual Report
Form 10-K Annual Report
Each Stockholder may receive
Each Stockholder may receive
without charge a copy of the
without charge a copy of the
Annual Report on form 10-K filed
Annual Report on form 10-K filed
with the Securities and Exchange
with the Securities and Exchange
Commission by written request
Commission by written request
addressed to Investor Relations.
addressed to Investor Relations.
Stock Listing
Stock Listing
Halozyme Therapeutics, Inc.
Halozyme Therapeutics, Inc.
common stock trades on the
common stock trades on the
Nasdaq Stock Market under the
Nasdaq Stock Market under the
symbol HALO.
symbol HALO.
Halozyme Therapeutics is a biotechnology company focused on developing and commercializing
Halozyme Therapeutics is a biotechnology company focused on developing and commercializing
novel oncology therapies that target the tumor microenvironment. Halozyme’s lead proprietary
novel oncology therapies that target the tumor microenvironment. Halozyme’s lead proprietary
program, investigational drug PEGPH20, applies a unique approach to targeting solid tumors,
program, investigational drug PEGPH20, applies a unique approach to targeting solid tumors,
allowing increased access of co-administered cancer drug therapies to the tumor in animal
allowing increased access of co-administered cancer drug therapies to the tumor in animal
models. PEGPH20 is currently in development for metastatic pancreatic cancer, non-small cell
models. PEGPH20 is currently in development for metastatic pancreatic cancer, non-small cell
lung cancer, gastric cancer, metastatic breast cancer and has potential across additional cancers in
lung cancer, gastric cancer, metastatic breast cancer and has potential across additional cancers in
combination with different types of cancer therapies. In addition to its proprietary product portfolio,
combination with different types of cancer therapies. In addition to its proprietary product portfolio,
Halozyme has established value-driving partnerships with leading pharmaceutical companies
Halozyme has established value-driving partnerships with leading pharmaceutical companies
including Roche, Shire/Baxalta, Pfizer, Janssen, Abbvie, Lilly, Bristol-Myers Squibb and Alexion for
including Roche, Shire/Baxalta, Pfizer, Janssen, Abbvie, Lilly, Bristol-Myers Squibb and Alexion for
its ENHANZE® drug delivery technology. Halozyme is headquartered in San Diego, California.
its ENHANZE® drug delivery technology. Halozyme is headquartered in San Diego, California.
For more information visit www.halozyme.com.
For more information visit www.halozyme.com.
Jean-Pierre Bizzari, M.D.
Jean-Pierre Bizzari, M.D.
Helen Torley, M.B. Ch.B., M.R.C.P
Helen Torley, M.B. Ch.B., M.R.C.P
Former Executive Vice President and Global
Former Executive Vice President and Global
President and Chief Executive Officer
President and Chief Executive Officer
Head of Oncology, Celgene Corporation
Head of Oncology, Celgene Corporation
James M. Daly
James M. Daly
Former Executive Vice President and Chief
Former Executive Vice President and Chief
Chief Medical Officer
Chief Medical Officer
Commercial Officer, Incyte Corporation
Commercial Officer, Incyte Corporation
Dimitrios Chondros
Dimitrios Chondros
Senior Vice President and
Senior Vice President and
Advisory Director to Berkshire Partners LLC;
Advisory Director to Berkshire Partners LLC;
Program Lead, CMC Operations
Program Lead, CMC Operations
Jeffrey W. Henderson
Jeffrey W. Henderson
Former Chief Financial Officer,
Former Chief Financial Officer,
Cardinal Health, Inc.
Cardinal Health, Inc.
Kenneth J. Kelley
Kenneth J. Kelley
Trustee, Sabin Vaccine Institute
Trustee, Sabin Vaccine Institute
Randal J. Kirk
Randal J. Kirk
Chairman and Chief Executive Officer,
Chairman and Chief Executive Officer,
Intrexon Corporation; Senior Managing
Intrexon Corporation; Senior Managing
Director and Chief Executive Officer, Third
Director and Chief Executive Officer, Third
Security, LLC
Security, LLC
Connie L. Matsui
Connie L. Matsui
Chairman of the Board, Halozyme
Chairman of the Board, Halozyme
Therapeutics; Former Executive Vice
Therapeutics; Former Executive Vice
President, Knowledge and Innovation
President, Knowledge and Innovation
Networks, Biogen Idec
Networks, Biogen Idec
William J. Fallon
William J. Fallon
Senior Vice President, Global ENHANZE
Senior Vice President, Global ENHANZE
& Strategic Alliances
& Strategic Alliances
Michael J. LaBarre, Ph.D.
Michael J. LaBarre, Ph.D.
Vice President and Chief Scientific Officer
Vice President and Chief Scientific Officer
Harry J. Leonhardt, Esq.
Harry J. Leonhardt, Esq.
Senior Vice President, General Counsel,
Senior Vice President, General Counsel,
Chief Compliance Officer and
Chief Compliance Officer and
Corporate Secretary
Corporate Secretary
Jim S. Mazzola
Jim S. Mazzola
Vice President, Corporate Communication
Vice President, Corporate Communication
and Investor Relations
and Investor Relations
Michael E. Paolucci
Michael E. Paolucci
Vice President and Chief Human
Vice President and Chief Human
Resources Officer
Resources Officer
Matthew L. Posard
Matthew L. Posard
President and Chief Commercial Officer,
President and Chief Commercial Officer,
GenePeeks, Inc.
GenePeeks, Inc.
Laurie D. Stelzer
Laurie D. Stelzer
Senior Vice President and Chief
Senior Vice President and Chief
Financial Officer
Financial Officer
Helen Torley, M.B. Ch.B., M.R.C.P.
Helen Torley, M.B. Ch.B., M.R.C.P.
President and Chief Executive Officer,
President and Chief Executive Officer,
Halozyme Therapeutics
Halozyme Therapeutics
Kristina Vlaovic
Kristina Vlaovic
Vice President, Regulatory and Safety
Vice President, Regulatory and Safety
Homa Yeganegi
Homa Yeganegi
Program Lead
Program Lead
Senior Vice President, Global PEGPH20
Senior Vice President, Global PEGPH20
SAFE HARBOR STATEMENT
SAFE HARBOR STATEMENT
This Annual Report contains forward-looking statements regarding our products in development,
This Annual Report contains forward-looking statements regarding our products in development,
anticipated clinical, regulatory and commercial milestones, business intentions, financial conditions
anticipated clinical, regulatory and commercial milestones, business intentions, financial conditions
and results of operations and prospects and other statements concerning future matters. Words
and results of operations and prospects and other statements concerning future matters. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar
expressions or variations of such words are intended to identify forward-looking statements, but
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 the Annual Report. Actual
are not the exclusive means of identifying forward-looking statements in the Annual Report. Actual
results could differ materially from the expectations contained in forward-looking statements as a
results could differ materially from the expectations contained in forward-looking statements as a
result of several factors, including unexpected expenditures and costs, unexpected results or delays
result of several factors, including unexpected expenditures and costs, unexpected results or delays
in development and regulatory review, regulatory approval requirements, unexpected adverse
in development and regulatory review, regulatory approval requirements, unexpected adverse
events and competitive conditions. These and other factors that may result in differences are
events and competitive conditions. These and other factors that may result in differences are
discussed in greater detail in the Company’s reports on Forms 10-K, 10-Q, and other filings with the
discussed in greater detail in the Company’s reports on Forms 10-K, 10-Q, and other filings with the
Securities and Exchange Commission.
Securities and Exchange Commission.
GENERAL INFORMATION
GENERAL INFORMATION
BOARD OF DIRECTORS
BOARD OF DIRECTORS
EXECUTIVE TEAM
EXECUTIVE TEAM
Dear Fellow
Shareholders —
Royalty revenue increase
over the previous year.
25%
$469M
Cash position exiting 2017
CORPORATE INFORMATION
ABOUT HALOZYME, INC.
This past year was truly
transformational for Halozyme.
Through a disciplined focus at
all levels of the organization,
we executed well against the
two-pillar strategy.
GENERAL INFORMATION
BOARD OF DIRECTORS
EXECUTIVE TEAM
Corporate Headquarters
11388 Sorrento Valley Road
San Diego, CA 92121
858-794-8889
info@halozyme.com
www.halozyme.com
Outside Legal Counsel
DLA Piper LLP (U.S.)
San Diego, California
Independent Auditors
Ernst & Young LLP
San Diego, California
Transfer Agent
Corporate Stock Transfer, Inc.
3200 Cherry Creek Drive South,
Suite 430
Denver, CO 80209
303-282-4800
Form 10-K Annual Report
Each Stockholder may receive
without charge a copy of the
Annual Report on form 10-K filed
with the Securities and Exchange
Commission by written request
addressed to Investor Relations.
Stock Listing
Halozyme Therapeutics, Inc.
common stock trades on the
Nasdaq Stock Market under the
symbol HALO.
generation ALXN 1210. In fact, we project royalty potential of
approximately $1 billion in 2027 from multiple indication
approvals and global launches of our currently commercialized
products using ENHANZE and seven other targets in clinical
development or planned for clinical development with
ENHANZE. Actual royalties will depend on indications
approved, geographies launched and market share attained.
With the progress we made in 2017, it is easy to see why we
are so optimistic about the road ahead and the long-term value
created for shareholders by the ENHANZE technology.
Turning to our oncology pillar, which is anchored by PEGPH20,
2017 began with a major derisking event as we reported
encouraging data from our randomized, controlled HALO-202
Phase 2 study in approximately 270 patients. These results
garnered excellent attention through oral presentations at
major medical fora during the year and supported strong
progress in enrollment in our HALO-301 Phase 3 study in
metastatic pancreatic cancer patients with the same
chemotherapy combination of PEGPH20 plus ABRAXANE®
(nab-paclitaxel) and gemcitabine. HALO-202 showed a
statistically significant progression-free survival improvement
in patients retrospectively identified to have high levels of
hyaluronan (HA), and data from the study were recently
published in the peer reviewed Journal of Clinical Oncology.
In HALO-301, we are prospectively selecting patients with the
HA-High biomarker. PEGPH20 temporarily degrades HA, a
glycosaminoglycan or a chain of natural sugars in the body that
can accumulate around certain tumor types and impede
access of cancer therapies to the tumor.
In addition to the progress with HALO-301, we achieved a
number of value-enhancing goals and milestones in the
PEGPH20 program, including:
• Expanding our Phase 1b study of PEGPH20 in combination
with KEYTRUDA® (pembrolizumab) in lung and gastric
cancer patients;
• Dosing the first patients in three clinical studies under an
agreement with Genentech, a member of the Roche
Group, formed in 2016 to evaluate PEGPH20 and
TECENTRIQ® (atezolizumab) in up to eight different
tumor types. This is an efficient way for Halozyme to
expand the study of PEGPH20, with Roche funding and
conducting studies in up to six tumor types, beginning with
pancreatic and gastric cancer. In addition, we dosed the
first patients in a study to evaluate the combination in
cholangiocarcinoma and gall bladder cancer patients;
• Advancing our exploration of PEGPH20’s pan-tumor potential,
with the possibility of reporting response-rate data from two
Phase 1 studies in the second half of 2018.
PEGPH20 is a targeted therapy, with a companion diagnostic
to select patients most likely to respond to it. The combination
of a deep body of preclinical evidence, the encouraging
HALO-202 data and the diagnostic support a good potential for
PEGPH20 to make a meaningful difference in the lives of
patients with devastating and difficult to treat HA-High
pancreas cancer. This is what motivates me and our team, and
what we believe will ultimately provide the greatest returns to
our shareholders.
We look forward to achieving the target number of
progression-free survival events in our Phase 3 study late in
the fourth quarter of 2018, at which time we expect to have
approximately 500 patients enrolled.
The milestones we achieved in 2017 have also put us in the
strongest financial position in company history. Revenue for
the year was $317 million, and we exited the year very
well-financed with $469 million in cash.
I want to thank you for your continued investment, support,
encouragement, questions and thoughtful input. During 2017,
we saw the benefits of our strategy taking hold. I also want to
thank patients who participate in our clinical studies. Without
their courage, our work would not be possible. Finally, we
would not be where we are today as a company without the
dedication of our entire Halozyme team. I am deeply grateful
for their commitment and look forward to the progress we will
continue to make in 2018.
Best regards,
HELEN TORLEY, M.B. Ch. B., M.R.C.P.
PRESIDENT AND CEO
Halozyme Therapeutics is a biotechnology company focused on developing and commercializing
novel oncology therapies that target the tumor microenvironment. Halozyme’s lead proprietary
program, investigational drug PEGPH20, applies a unique approach to targeting solid tumors,
allowing increased access of co-administered cancer drug therapies to the tumor in animal
models. PEGPH20 is currently in development for metastatic pancreatic cancer, non-small cell
lung cancer, gastric cancer, metastatic breast cancer and has potential across additional cancers in
combination with different types of cancer therapies. In addition to its proprietary product portfolio,
Halozyme has established value-driving partnerships with leading pharmaceutical companies
including Roche, Shire/Baxalta, Pfizer, Janssen, Abbvie, Lilly, Bristol-Myers Squibb and Alexion for
its ENHANZE® drug delivery technology. Halozyme is headquartered in San Diego, California.
For more information visit www.halozyme.com.
Jean-Pierre Bizzari, M.D.
Helen Torley, M.B. Ch.B., M.R.C.P
Former Executive Vice President and Global
President and Chief Executive Officer
Head of Oncology, Celgene Corporation
James M. Daly
Former Executive Vice President and Chief
Chief Medical Officer
Commercial Officer, Incyte Corporation
Dimitrios Chondros
Senior Vice President and
Advisory Director to Berkshire Partners LLC;
Program Lead, CMC Operations
Jeffrey W. Henderson
Former Chief Financial Officer,
Cardinal Health, Inc.
Kenneth J. Kelley
Trustee, Sabin Vaccine Institute
Randal J. Kirk
Chairman and Chief Executive Officer,
Intrexon Corporation; Senior Managing
Director and Chief Executive Officer, Third
Security, LLC
Connie L. Matsui
Chairman of the Board, Halozyme
Therapeutics; Former Executive Vice
President, Knowledge and Innovation
Networks, Biogen Idec
William J. Fallon
Senior Vice President, Global ENHANZE
& Strategic Alliances
Michael J. LaBarre, Ph.D.
Vice President and Chief Scientific Officer
Harry J. Leonhardt, Esq.
Senior Vice President, General Counsel,
Chief Compliance Officer and
Corporate Secretary
Jim S. Mazzola
Vice President, Corporate Communication
and Investor Relations
Michael E. Paolucci
Vice President and Chief Human
Resources Officer
Matthew L. Posard
President and Chief Commercial Officer,
GenePeeks, Inc.
Laurie D. Stelzer
Senior Vice President and Chief
Financial Officer
Helen Torley, M.B. Ch.B., M.R.C.P.
President and Chief Executive Officer,
Halozyme Therapeutics
Kristina Vlaovic
Vice President, Regulatory and Safety
Homa Yeganegi
Program Lead
Senior Vice President, Global PEGPH20
SAFE HARBOR STATEMENT
This Annual Report contains forward-looking statements regarding our products in development,
anticipated clinical, regulatory and commercial milestones, business intentions, financial conditions
and results of operations and prospects and other statements concerning future matters. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” 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 the Annual Report. Actual
results could differ materially from the expectations contained in forward-looking statements as a
result of several factors, including unexpected expenditures and costs, unexpected results or delays
in development and regulatory review, regulatory approval requirements, unexpected adverse
events and competitive conditions. These and other factors that may result in differences are
discussed in greater detail in the Company’s reports on Forms 10-K, 10-Q, and other filings with the
Securities and Exchange Commission.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 001-32335
___________________________
HALOZYME THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
___________________________
Delaware
(State or other jurisdiction of incorporation or organization)
88-0488686
(I.R.S. Employer Identification No.)
11388 Sorrento Valley Road, San Diego, CA
(Address of principal executive offices)
92121
(Zip Code)
(858) 794-8889
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 Par Value
Name of Each Exchange on Which Registered
The NASDAQ Stock Market, LLC
Securities registered under Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
No
Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting
company
Emerging growth
company
(Do not check if a smaller
reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).
Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as
of June 30, 2017 was approximately $1.3 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 143,076,590 as
of February 13, 2018.
DOCUMENTS INCORPORATED BY REFERENCE
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 2018 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Annual Report.
HALOZYME THERAPEUTICS, INC.
INDEX
PART I
Item 1.
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 10.
Item 11.
Item 12.
Item 13.
Item 14.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 15.
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16. . . Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
1
16
31
31
31
31
32
34
35
47
47
47
48
50
50
51
51
52
52
52
55
56
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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 forward-looking statements. Words such as “expect,”
“anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,”
“continue,” “potential,” “likely,” “opportunity” 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 products,
enhancements of existing products or technologies, third party performance under key collaboration agreements, revenue
and expense levels 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 wholly owned subsidiaries, Halozyme Holdings Ltd.,
Halozyme Royalty LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH. References to “Notes”
refer to the Notes to Consolidated Financial Statements included herein (refer to Part II, Item 8).
Item 1. Business
Overview
PART I
Halozyme Therapeutics, Inc. is a biotechnology company focused on developing and commercializing novel oncology
therapies. We are seeking to translate our unique knowledge of the tumor microenvironment to create therapies that have
the potential to improve cancer patient survival. Our research primarily focuses on human enzymes that alter the extracellular
matrix and tumor microenvironment. The extracellular matrix is a complex matrix of proteins and carbohydrates surrounding
the cell that provides structural support in tissues and orchestrates many important biological activities, including cell
migration, signaling and survival. Over many years, we have developed unique technology and scientific expertise enabling
us to pursue this target-rich environment for the development of therapies.
Our proprietary enzymes are used to facilitate the delivery of injected drugs and fluids, potentially enhancing the
efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit. We exploit
our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing
our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2)
licensing our technology to biopharmaceutical companies to collaboratively develop products that combine our technology
with the collaborators’ proprietary compounds.
1
The majority of our approved product 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,
and it works by temporarily breaking down hyaluronan (or HA), a naturally occurring complex carbohydrate that is a major
component of the extracellular matrix in tissues throughout the body such as skin and cartilage. We believe this temporary
degradation creates an opportunistic window for the 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® Technology. 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.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (Roche),
Baxalta US Inc. and Baxalta GmbH (Baxalta Incorporated was acquired by Shire plc in June 2016) (Baxalta), Pfizer Inc.
(Pfizer), Janssen Biotech, Inc. (Janssen), AbbVie, Inc. (AbbVie), Eli Lilly and Company (Lilly), Bristol-Myers Squibb
Company (BMS) and Alexion Pharma Holding (Alexion). We receive royalties from two of these collaborations, including
royalties from sales of one product from the Baxalta collaboration and two products from the Roche collaboration. Future
potential revenues from 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 proprietary development pipeline consists primarily of pre-clinical and clinical stage product candidates in
oncology. Our lead oncology program is pegvorhyaluronidase alfa (PEGPH20, PEGylated recombinant human
hyaluronidase), a molecular entity we are developing in combination with currently approved cancer therapies as a candidate
for the systemic treatment of tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it
can cause higher pressure in the tumor, reducing blood flow into the tumor and with that, reduced access of cancer therapies
to the tumor. PEGPH20 has been demonstrated in animal models to work by temporarily degrading HA surrounding cancer
cells resulting in reduced pressure and increased blood flow to the tumor thereby enabling increased amounts of anticancer
treatments administered concomitantly gaining access to the tumor. Through our efforts and efforts of our partners and
collaborators, we are currently in Phase 3 clinical testing for PEGPH20 with ABRAXANE® (nab-paclitaxel) and
gemcitabine in stage IV pancreatic ductal adenocarcinoma (“PDA”) (HALO 109-301), in Phase 1b clinical testing for
PEGPH20 with KEYTRUDA® (pembrolizumab) in non-small cell lung cancer and gastric cancer (HALO 107-101), in
Phase 1b/2 clinical testing for PEGPH20 with HALAVEN® (eribulin) in patients treated with up to two lines of prior therapy
for HER2-negative metastatic breast cancer, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq® (atezolizumab)
in patients with previously treated metastatic PDA, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients
with gastric cancer and in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with cholangiocarcinoma and
gall bladder cancer (HALO 110-101/MATRIX).
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. 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. Further copies of these reports are located at the SEC’s Public
Reference Room at 100 F Street, N.W., Washington, D.C. 20549, and online at http://www.sec.gov.
Technology
rHuPH20 can be applied as a drug delivery platform to increase dispersion and absorption of other injected drugs and
fluids that are injected under the skin or in the muscle thereby potentially enhancing efficacy or convenience. 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 has a tissue half-life of less than 15 minutes. HA at the local site reconstitutes its normal
density within a few days and, therefore, we anticipate that any effect of rHuPH20 on the architecture of the subcutaneous
space is temporary.
2
Additionally, we are expanding our scientific work to develop other enzymes and agents that target the extracellular
matrix’s unique aspects, giving rise to potentially new molecular entities with a particular focus on oncology. We are
developing a PEGylated version of the rHuPH20 enzyme (PEGPH20), that lasts for an extended period in the bloodstream
(half-life of one to two days), and may therefore better target solid tumors that accumulate HA by degrading the surrounding
HA and reducing the interstitial fluid pressure within malignant tumors to allow better penetration by co-administered
agents.
Strategy
During 2017, we continued our strategy of focusing on developing our oncology pipeline and expanding our
collaborations for ENHANZE Technology. This business model allows for revenue garnered from collaboration products
to help fund our investment in PEGPH20 clinical development, with the goal of a future product approval that will support
sustained growth.
Key aspects of our corporate strategy include the following:
•
•
Focus on our oncology pipeline. We are currently developing PEGPH20, our investigational new drug
candidate, in multiple different tumors that accumulate high levels of HA. PEGPH20 is in Phase 3
development in stage IV PDA and multiple Phase 1b/2 studies for various tumor types. Over time, it is
our goal to study additional types of cancer and to advance this program toward regulatory approval and
commercial launch. In addition, we have a novel oncology preclinical asset.
Focus on our ENHANZE platform. We currently have eight collaborations with three current product
approvals and additional product candidates in development. 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 agreements. In addition, we will continue our efforts to enter into new
collaborations to further derive additional value from our proprietary technology.
3
Product and Product Candidates
We have one marketed proprietary product, three partnered products, one proprietary product candidate targeting
several indications in various stages of development, and one preclinical product candidate. The following table summarizes
our proprietary product and product candidate as well as products and product candidates under development with our
collaborators:
4
Proprietary Pipeline
Hylenex Recombinant (hyaluronidase human injection)
Hylenex recombinant is a formulation of rHuPH20 that has received U.S. Food and Drug Administration (FDA)
approval to facilitate 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.
PEGPH20
We are developing PEGPH20 in combination with currently approved cancer therapies as a candidate for the systemic
treatment of tumors that accumulate HA. ‘PEG’ refers to the attachment of polyethylene glycol to rHuPH20, thereby creating
PEGPH20. One of the novel properties of PEGPH20 is that it lasts for an extended duration in the bloodstream and, therefore,
can be administered systemically to maintain its therapeutic effect to treat disease.
Cancer malignancies, including pancreatic, lung, breast, gastric, and biliary tract cancers can accumulate high levels
of HA and therefore we believe that PEGPH20 has the potential to help patients with these types of cancer when used with
certain currently approved cancer therapies. Among solid tumors, PDA has been reported to be associated with the highest
frequency of HA accumulation. There are approximately 65,000 annual diagnoses of PDA in the United States and the
European Union, and we estimate that 35-40% have high levels of HA.
The pathologic accumulation of HA, along with other matrix components, creates a unique microenvironment for the
growth of tumor cells compared to normal cells. We believe that degrading the HA component of the tumor microenvironment
with PEGPH20 remodels the tumor microenvironment, resulting in tumor growth inhibition in animal models. Removal of
HA from the tumor microenvironment results in expansion of previously constricted blood vessels allowing increased blood
flow, potentially increasing the access of activated immune cells and factors in the blood into the tumor microenvironment.
If PEGPH20 is administered in conjunction with other anti-cancer therapies, the increase in blood flow may allow anti-
cancer therapies to have greater access to the tumor, which may enhance the treatment effect of therapeutic modalities like
chemotherapies, monoclonal antibodies and other agents.
5
We are developing PEGPH20 as a targeted therapy, for patients who have tumors with high levels of HA. We have a
collaboration with Ventana Medical Systems Inc. (Ventana), a member of the Roche Group, to develop, and for Ventana to
ultimately commercialize, a companion diagnostic assay for use with PEGPH20. The companion diagnostic assay is being
used to identify high levels of HA in tumor biopsies, and may be the first diagnostic to target tumor-associated HA and
possibly the first companion diagnostic assay in pancreatic cancer.
Pancreatic cancer indications:
HALO 109-201:
In January 2015, we presented the final results from HALO 109-201, a multi-center, international open label dose
escalation Phase 1b clinical study of PEGPH20 in combination with gemcitabine for the treatment of patients with stage
IV PDA at the 2015 Gastrointestinal Cancers Symposium (also known as ASCO-GI meeting). This study enrolled 28 patients
with previously untreated stage IV PDA. Patients were treated with one of three doses of PEGPH20 (1.0, 1.6 and 3.0 μg/
kg twice weekly for four weeks, then weekly thereafter) in combination with gemcitabine 1000 mg/m2 administered
intravenously. In this study, the confirmed overall response rate (complete response + partial response confirmed on a second
scan as assessed by an independent radiology review) was 29 percent (7 of 24 patients) for those treated at therapeutic dose
levels of PEGPH20 (1.6 and 3.0 μg/kg). Median progression-free survival (PFS) was 154 days (95% CI, 50-166) in the
efficacy-evaluable population (n = 24). Among efficacy-evaluable patients with baseline tumor HA staining (n = 17), the
median PFS in patients with high baseline tumor HA staining (6/17 patients) was substantially longer, 219 days, than in the
patients with low baseline tumor HA staining (11/17 patients), 108 days. Median overall survival (OS) was 200 days (95%
CI, 123-370) in the efficacy-evaluable population (n = 24). Among efficacy-evaluable patients with baseline tumor HA
staining (n = 17), the median OS in patients with high baseline tumor HA staining (6/17 patients) was substantially longer,
395 days, than in the patients with low baseline tumor HA staining (11/17 patients), 174 days. The most common treatment-
emergent adverse events (occurring in 15% of patients) were peripheral edema, muscle spasms, thrombocytopenia, fatigue,
myalgia, anemia, and nausea. Thromboembolic (TE) events were reported in 8 patients (28.6%) and musculoskeletal events
were reported in 21 patients (75%) which were generally grade 1/2 in severity.
HALO 109-202:
In the second quarter of 2013, we initiated HALO 109-202 (HALO-202), a Phase 2 multicenter randomized clinical
trial evaluating PEGPH20 as a first-line therapy for patients with stage IV PDA. The study was designed to enroll patients
who would receive gemcitabine and nab-paclitaxel (ABRAXANE®) either with or without PEGPH20. The primary endpoint
is to measure the improvement in PFS in patients receiving PEGPH20 plus gemcitabine and ABRAXANE (PAG arm)
compared to those who are receiving gemcitabine and ABRAXANE alone (AG arm). In April 2014, after 146 patients had
been enrolled, the trial was put on clinical hold by Halozyme and the FDA to assess a question raised by the Data Monitoring
Committee regarding a possible difference in the TE events rate between the group of patients treated in the PAG arm versus
the group of patients treated in the AG arm. This portion of the study and patients in this portion are now referred to as
Stage 1. At the time of the clinical hold all patients remaining in the study continued on gemcitabine and ABRAXANE. In
July 2014, HALO-202 was reinitiated (Stage 2) under a revised protocol, which excludes patients that are expected to be
at a greater risk for TE events. The revised protocol provides for thromboembolism prophylaxis of all patients in both arms
of the study with low molecular weight heparin, and adds evaluation of the TE events rate in Stage 2 PEGPH20-treated
patients as a co-primary end point. Stage 2 of HALO-202 enrolled an additional 133 patients, to add to the 146 patients
already in the clinical trial, with a 2:1 randomization for the PAG arm compared to the AG arm.
In March 2016, our partner Ventana received approval for an investigational device exemption (IDE) application from
the FDA for our companion diagnostic test to enable patient selection in our Phase 3 Study HALO-301 of PEGPH20 in
HA-High patients. Based on the cutpoint for the Ventana diagnostic, we expect approximately 35 to 40 percent of stage IV
PDA patients to have HA-High tumors, similar to the previously reported interim results from Stage 1 of Study HALO-202
using the Halozyme prototype assay.
6
In January 2017, we announced topline results from the combined analysis of Stage 1 and Stage 2, and Stage 2 alone,
based on a December 2016 data cutoff. The combined analysis included 135 treated patients in Stage 1, of whom a total of
45 patients (24 in the PAG arm and 21 in the AG arm) were determined to have high HA, and 125 treated patients in Stage
2, of whom a total of 35 patients (24 in the PAG arm and 11 in the AG arm) were determined to have high HA. This analysis
of secondary and exploratory endpoints was conducted using the Ventana companion diagnostic to prospectively identify
high levels of HA. The key results showed in the combined Stage 1 and Stage 2 dataset:
• The primary endpoint of PFS in the efficacy evaluable population (total of 231 patients) was met with statistical
significance with a median PFS of 6.0 months in the PAG arm compared to 5.3 months in the AG arm, hazard ratio
(HR) with a 95% confidence interval (CI): 0.73 (0.53, 1.00); p=0.048;
• The secondary endpoint of PFS in the HA-High intent to treat population (total of 84 HA-High patients) was met
with statistical significance with a median PFS of 9.2 months in the PAG arm compared to 5.2 months in the AG
arm, HR 0.51 (95% CI: 0.26, 1.00); p=0.048;
• The exploratory analysis of median OS was 11.5 months vs. 8.5 months in the PAG vs. AG arms, respectively.
Factors potentially having an impact on these results include less aggressive disease among patients in the AG arm
within the Stage 1 patient population, and 9 of the 24 patients in the PAG arm (approximately 40 percent)
discontinued PEGPH20 treatment at the time of the clinical hold, resulting in many patients receiving AG alone
in both arms.
In the Stage 2 cohort population, in a total of 35 HA-High patients, the key results showed:
• Median PFS was 8.6 months in the PAG arm compared to 4.5 months in the AG arm, hazard ratio of 0.63 (95%
CI: 0.21, 1.93);
• Median overall survival (OS) was 11.7 months in the PAG arm compared to 7.8 months in the AG arm, hazard
ratio of 0.52 (95% CI: 0.22, 1.23);
• The primary safety endpoint of decreasing the rate of TE events in Stage 2 was also met with the rate of TE events
reducing from 43 percent to 10 percent in the PAG arm and from 25 percent to 6 percent in the AG arm, following
a protocol amendment that excluded patients at high risk of TE events and with the introduction of prophylaxis
with low molecular weight heparin (enoxaparin) in Stage 2 of the study with the current 1mg/kg/day dose of
enoxaparin prophylaxis given in both treatment arms of the study.
In June 2017, results from Study HALO-202 were presented at the ESMO World Congress of Gastrointestinal Cancer
and the Annual Meeting of the American Society of Clinical Oncology (ASCO). HALO-202 is an ongoing study with an
open database, and has completed enrollment. We continue to collect and receive data on both Stage 1 and Stage 2
patients. When the database is considered complete and locked, an updated analysis and Final Study Report will be generated.
HALO 109-301:
In March 2015, we met with the FDA to discuss both the interim efficacy and safety data from HALO-202, which
included the potential risk profile including TE event rate. Based on the feedback from that meeting, we proceeded with
HALO 109-301 (HALO-301), a Phase 3 clinical study of PEGPH20 in patients with stage IV PDA, using a design allowing
for potential marketing application based on PFS (accelerated approval pathway) or OS. The study will enroll patients whose
tumors accumulate high levels of HA measured using the Ventana companion diagnostic test. The FDA provided feedback
on the current companion diagnostic approach and confirmed that an approved IDE is required for the Phase 3 study.
The use of PFS as the basis for marketing approval will be subject to the overall benefit and risk associated with
PEGPH20 combined with gemcitabine and ABRAXANE therapy, including the:
• Magnitude of the PFS treatment effect observed;
• Toxicity profile; and
Interim OS data.
•
In June 2015, we received scientific advice/protocol assistance from the European Medicines Agency (EMA) regarding
our Phase 3 study. The EMA agreed to the patient population, and the use of both PFS and OS as co-primary endpoints
stating that OS is the preferred endpoint and that ultimate approval would require an overall positive benefit:risk balance.
7
In March 2016, we dosed the first patient in HALO-301, a Phase 3 multicenter randomized clinical trial evaluating
PEGPH20 as a first-line therapy for patients with stage IV PDA. The study will evaluate the effects on PFS and OS of
PEGPH20 with gemcitabine and ABRAXANE compared with gemcitabine and ABRAXANE alone in stage IV PDA patients.
In September 2017, our independent Data Safety Monitoring Committee met to review ongoing safety data from the trial
and informed us the study should proceed as planned. Approximately 235 sites in 22 countries located in North America,
Europe, South America and Asia have been initiated to participate in the HALO-301 study. An interim analysis will be
conducted for our first primary endpoint when we achieve the target number of PFS events. We project that the target number
of PFS events will be achieved in the fourth quarter of 2018. At that time we project we will have enrolled approximately
500 patients.
SWOG Study S1313:
In October 2013, SWOG, a cancer research cooperative group of more than 4,000 researchers in over 500 institutions
around the world, initiated a 144 patient Phase 1b/2 randomized clinical trial in some of their study centers, examining
PEGPH20 in combination with modified FOLFIRINOX chemotherapy compared to modified FOLFIRINOX treatment
alone in patients with stage IV PDA (funded by the National Cancer Institute). As announced in March 2017, SWOG stopped
enrollment in the Phase 1b/2 trial. While PEGPH20 is a targeted investigational therapy for patients with high levels of HA,
the SWOG study was enrolling patients irrespective of HA levels, referred to as an all-comer population. During a planned
early futility analysis, SWOG’s independent Data Monitoring Committee found, based on preliminary data, that the addition
of PEGPH20 given every two weeks to modified FOLFIRINOX in this all-comer population would be unlikely to
demonstrate a statistically significant improvement in the primary endpoint of overall survival. SWOG further reported that
a higher rate of death was observed in the PEGPH20 arm versus modified FOLFIRINOX alone. SWOG has stopped the
study and continues its ongoing effort to collect and clean outstanding data. In January 2018, SWOG presented final data
of the all-comers population at the ASCO-GI conference. The median overall survival was 7.7 months for the PEGPH20
arm vs. 14.4 months in the modified FOLFIRINOX alone arm. Also, increased GI-toxicities and substantially shorter median
treatment duration for modified FOLFIRINOX were reported for the PEGPH20 arm compared to the modified FOLFIRINOX
alone arm. Collection of biopsy samples from participating sites, to the extent available, is ongoing to potentially enable
an HA biomarker subgroup analysis. Our PEGPH20 studies and clinical collaborations in combination with agents other
than modified FOLFIRINOX continue unchanged.
Clinical collaboration:
In October 2016, we announced that PEGPH20 will be included in a pancreatic cancer clinical trial initiative called
Precision Promise, an initiative that aims to change the current treatment approach to pancreatic cancer by offering options
to patients based on the molecular profile of their tumor. This is being accomplished through the Pancreatic Cancer Action
Network leading a collaboration that brings together clinicians, researchers, and drug developers. Pancreatic Cancer Action
Network continues to work to finalize the trial design and protocol which is expected to include a potential PEGPH20 trial
arm or trial in 2019.
Other indications outside of pancreatic cancer:
HALO 107-101:
In November 2015, we initiated a Phase 1b study exploring the combination of PEGPH20 and KEYTRUDA®, an
immuno-oncology agent in relapsed non-small cell lung cancer (NSCLC) and gastric cancer. In December 2016, we identified
a dose of PEGPH20, namely 2.2 ug/kg, to move into the dose expansion phase of the study with KEYTRUDA in combination
with PEGPH20. We are enrolling both NSCLC and gastric cancer patients prospectively based on a patient being determined
to be HA-High using the Ventana companion diagnostic test. In September 2017, our standing Independent Data Monitoring
Safety Committee met to review ongoing safety data from the trial and informed us that the study should proceed with study
protocol modifications to exclude patients at risk and increase liver safety monitoring, after observing clinical and laboratory
signs of hepato-biliary dysfunction.
8
Clinical collaborations:
In July 2015, we entered into a clinical collaboration agreement with Eisai Co., Ltd. (Eisai) to evaluate Eisai's
HALAVEN® (eribulin) with PEGPH20 in HER2-negative metastatic breast cancer. In July 2016, the first patient was dosed
in a Phase 1b/2 study for patients treated with up to two lines of prior therapy for HER2-negative metastatic breast cancer.
In January 2018, the Phase 1b portion of the study closed enrollment. As a result of an Eisai portfolio decision, no further
clinical development is planned on the Phase 2 portion of this study. Data analysis is ongoing and a submission of the results
of this study to a scientific forum is expected in the second half of 2018. Halozyme and Eisai jointly share the costs to
conduct this global study.
In November 2016, we entered into an agreement with Genentech, a member of the Roche Group, to collaborate on
clinical studies to evaluate their cancer immunotherapy Tecentriq, an anti-PD-L1 monoclonal antibody, in combination with
PEGPH20, in up to eight different tumor types. Genentech initiated a Phase 1b/2 clinical trial in patients with previously
treated metastatic PDA in July 2017 and a Phase 1b/2 clinical trial in patients with gastric cancer in October 2017, as part
of its Morpheus master protocol. We will supply PEGPH20 for the Genentech-funded studies. In October 2017, we initiated
a Phase 1b/2 clinical trial to assess Tecentriq with PEGPH20 in patients with cholangiocarcinoma and gall bladder cancer
(HALO 110-101/MATRIX). Genentech will supply Tecentriq for the Halozyme sponsored study.
Regulatory
The FDA has granted Fast Track designation for our program investigating PEGPH20 in combination with gemcitabine
and nab-paclitaxel for the treatment of patients with stage IV PDA to demonstrate an improvement in OS. The Fast Track
designation process was developed by the FDA to facilitate the development and expedite the review of drugs to treat serious
or life-threatening diseases and address unmet medical needs.
The FDA has granted Orphan Drug designation for PEGPH20 for the treatment of pancreatic cancer. The FDA Office
of Orphan Products Development’s mission is to advance the evaluation and development of products (drugs, biologics,
devices, or medical foods) that demonstrate promise for the diagnosis and/or treatment of rare diseases or conditions.
Similarly, the European Committee for Orphan Medicinal Products of the EMA designated PEGPH20 an orphan medicinal
product for the treatment of pancreatic cancer.
Other Pipeline Assets
HTI-1511: HTI-1511 is a novel antibody-drug conjugate (ADC) targeting epidermal growth factor receptor (EGFR)
to treat solid tumors, including those with drug-resistant mutations. At this time, we have discontinued further development
of this program.
PEG-ADA2: PEGylated adenosine deaminase 2, or PEG-ADA2, is an immune checkpoint inhibitor that targets
adenosine, which may accumulate to high levels in the tumor microenvironment and has been linked to immunosuppression.
We are currently in preclinical development with PEG-ADA2 and are exploring potential collaboration or partnership
interest in this program prior to making additional investments in the development of PEG-ADA2.
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 thirteen Roche target
compounds (the Roche Collaboration). Roche initially had the exclusive right to apply rHuPH20 to three pre-defined Roche
biologic targets with the option to develop and commercialize rHuPH20 with ten additional targets. Roche had the right to
exercise this option to identify additional targets for ten years. As of the ten year anniversary of the Roche Collaboration
in December 2016, Roche had elected a total of eight targets, two of which are exclusive.
9
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. This formulation utilizes our patented ENHANZE
Technology and is administered in two to five minutes, compared to 30 to 90 minutes with the standard intravenous form.
Roche received European marketing approval for Herceptin SC in August 2013. Breast cancer is the most common cancer
among women worldwide. HER2-positive cancer is reported to be a particularly aggressive form of breast cancer. Directed
at the same target, Roche initiated a Phase 1 study of rHuPH20 with PERJETA® (pertuzumab) in patients with early breast
cancer in March 2016.
In June 2014, Roche launched MabThera SC in Europe for the treatment of patients with common forms of non-
Hodgkin lymphoma (NHL). This formulation utilizes our patented ENHANZE Technology and is administered in
approximately five minutes compared to the approximately 1.5 to 4 hour infusion time for intravenous MabThera. The
European Commission approved MabThera SC in March 2014. In May 2016, Roche announced that the EMA approved
Mabthera SC to treat patients with chronic lymphocytic leukemia (CLL). In June 2017, the FDA approved Genentech’s (a
member of the Roche Group) RITUXAN HYCELA™, a combination of rituximab and rHuPH20 (approved and marketed
under the MabThera SC brand in countries outside the U.S.), for CLL and two types of NHL, follicular lymphoma and
diffuse large B-cell lymphoma.
In September 2017, we and Roche entered into an agreement providing Roche the right to develop and commercialize
one additional exclusive target using our ENHANZE Technology (the 2017 Roche Collaboration). 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 January 2018, Roche initiated a Phase 1 study of an undisclosed target with ENHANZE Technology.
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) (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 Commission 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. Prior to the approval of HYQVIA, the majority
of primary immunodeficiency patients received intravenous infusions in a doctor’s office or infusion center, and other
subcutaneous IG treatments require weekly or bi-weekly treatment with multiple infusion sites per treatment. 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 Commission
for a pediatric indication, which is being launched in Europe to treat primary and certain secondary immunodeficiencies.
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 on an exclusive basis and returned two targets.
10
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 November 2015, Janssen initiated dosing in a Phase 1b clinical trial evaluating subcutaneous
delivery of DARZALEX (daratumumab), directed at CD38, using ENHANZE Technology, in multiple myeloma patients.
In December 2016, Janssen announced results of the trial, which supported continued development of daratumumab with
rHuPH20. In December 2017, Janssen announced data which demonstrated that subcutaneous administration of
DARZALEX and rHuPH20 was well-tolerated, with rates of infusion reactions lower than those observed with IV
administration of DARZALEX. Janssen has initiated four Phase 3 studies and one Phase 1 study of daratumumab combined
with the ENHANZE Technology in patients with Amyloidosis, Smoldering Myeloma and Multiple Myeloma. A Phase 2
study of daratumumab combined with the ENHANZE Technology is planned in 2018 for patients with multiple myeloma.
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 new 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 targets directed at up to eleven targets. Targets may be selected on an
exclusive basis, with the exception of one co-exclusive target. BMS has designated multiple immuno-oncology targets
including programmed death 1 (PD-1) and has an option to select additional targets within five years from the effective
date.
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. Alexion plans to initiate a Phase 1 trial in 2018 to study a next-generation subcutaneous formulation
of ALXN1210 (ALXN1210 SC) with ENHANZE.
For a further discussion of the material terms of our collaboration agreements, refer to Note 4, Collaborative Agreements
to our consolidated financial statements.
11
Customers
The following table indicates the percentage of total revenues in excess of 10% with any single customer:
Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baxalta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lilly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2017
2016
2015
38%
32%
13%
7%
—
—
63%
—
—
12%
6%
4%
42%
—
—
7%
19%
17%
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, to our consolidated financial
statements.
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 33 issued patents in the U.S., more than 370 issued patents in Europe and other countries in the world and more
than 170 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 2022 and 2032. 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, Hylenex recombinant, PEGPH20 and our
endocrinology product candidates. 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.
12
Research and Development Activities
Our research and development expenses consist primarily of costs associated with the development and manufacturing
of our product candidates, compensation and other expenses for research and development personnel, supplies and materials,
costs for consultants and related contract research, clinical trials, facility costs and amortization and depreciation. We charge
all research and development expenses to operations as they are incurred. Our research and development activities are
primarily focused on the development of our various product candidates.
Due to the uncertainty in obtaining the FDA and other regulatory approvals, our reliance on third parties and competitive
pressures, we are unable to estimate with any certainty the additional costs we will incur in the continued development of
our proprietary product candidates for commercialization. However, we expect our research and development expenses for
PEGPH20 to increase as our program advances into additional tumors and later stages of clinical development.
Manufacturing
We do not have our own manufacturing facility for our product and product candidates, or the capability to package
our products. We have engaged third parties to manufacture bulk rHuPH20, PEGPH20 and Hylenex recombinant.
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 recombinant, product candidates 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. In addition, we validated and qualified a new facility operated by Avid
as a manufacturer of bulk rHuPH20 for use in the products and product candidates under the Roche Collaboration. 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 Hylenex recombinant product for
us until December 31, 2019, subject to further extensions in accordance with the terms of the agreement. In addition, we
scaled up our manufacturing of PEGPH20 with third party suppliers to support additional clinical trials, including the Phase
3 trial, and ultimately, if approved, potential commercial supply.
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.
13
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
recombinant, but also for the in-licensing or acquisition of additional product candidates, and the out-licensing of our
ENHANZE Technology. 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, 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 have developed or 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. The steps typically
required before a product can be introduced for human use include:
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animal pharmacology studies to obtain preliminary information on the safety and efficacy of a drug; or
laboratory and preclinical evaluation in vitro and in vivo including extensive toxicology studies.
The results of these laboratory and preclinical studies may be submitted to the FDA as part of an IND application.
The sponsor of an IND application may commence human testing of the compound 30 days after submission of the IND,
unless notified to the contrary by the FDA.
The clinical testing program for a new drug typically involves three phases:
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Phase 1 investigations are generally conducted in healthy subjects (in certain instances, Phase 1 studies that determine
the maximum tolerated dose and initial safety of the product candidate are performed in patients with the disease);
Phase 2 studies are conducted in limited numbers of subjects with the disease or condition to be treated and are
aimed at determining the most effective dose and schedule of administration, evaluating both safety and whether
the product demonstrates therapeutic effectiveness against the disease; and
Phase 3 studies involve large, well-controlled investigations in diseased subjects and are aimed at verifying the
safety and effectiveness of the drug.
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Data from all clinical studies, as well as all laboratory and preclinical studies and evidence of product quality, are
typically submitted to the FDA in a new drug application (NDA). The results of the preclinical and clinical testing of a
biologic product candidate are submitted to the FDA in the form of a BLA, for evaluation to determine whether the product
candidate may be approved for commercial sale. In responding to a BLA or NDA, the FDA may grant marketing approval
or request additional information. If additional information is requested we may provide such information or withdraw our
application. Although the FDA’s requirements for clinical trials are well established and we believe that we have planned
and conducted our clinical trials in accordance with applicable regulations and guidelines, these requirements may be subject
to change. Accordingly, we could be required to conduct additional trials beyond what we had planned due to the FDA’s
safety and/or efficacy concerns or due to differing interpretations of the meaning of our clinical data or a change in the
therapeutic landscape. (See Part I, Item 1A, Risk Factors.)
The FDA’s Center for Drug Evaluation and Research must approve an NDA and the FDA’s Center for Biologics
Evaluation and Research must approve a BLA for a drug before it may be marketed in the United States. If we begin to
market our proposed products for commercial sale in the U.S., any manufacturing operations that may be established in or
outside the U.S. will also be subject to rigorous regulation, including compliance with cGMP. We also may be subject to
regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substance Control
Act, the Export Control Act and other present and future laws of general application. In addition, the handling, care and use
of laboratory animals are subject to the Guidelines for the Humane Use and Care of Laboratory Animals published by the
National Institutes of Health.
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, directly or through our collaborators, approval to market our products and
product candidates in foreign countries, which may have regulatory processes that differ materially from those of the FDA.
We anticipate that we will 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 proposed 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 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.
Segment Information
We operate our business as one segment, which includes all activities related to the research, development and
commercialization of human enzymes and other drug candidates. This segment also includes revenues and expenses related
to (i) research and development activities conducted under our collaboration agreements with third parties and (ii) product
sales of Hylenex recombinant. The chief operating decision-maker reviews the operating results on an aggregate basis and
manages the operations as a single operating segment. Our long-lived assets located in foreign countries had minimal book
value as of December 31, 2017 and 2016.
Executive Officers of the Registrant
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.
Employees
As of February 13, 2018, we had 255 full-time employees. None of our employees are unionized and we believe our
employee relations to be good.
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Item 1A.
Risk Factors
Risks Related To Our Business
We have generated only limited revenues from product sales to date; we have a history of net losses and negative cash
flows, and we may never achieve or maintain profitability.
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 and we may never
generate sufficient revenues from future product sales, licensing fees and milestone payments to offset expenses. Even if
we ultimately do achieve significant revenues from product sales, royalties, licensing fees, research reimbursements, bulk
rHuPH20 supply payments and/or milestone payments, we expect to incur significant operating losses over the next few
years and we may never become profitable on an extended basis. Through December 31, 2017, we have incurred aggregate
net losses of $522.4 million.
If our 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 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 product candidates for failure to collect sufficient
clinical or animal safety data and require us or our collaborators to conduct additional clinical or animal safety studies which
may cause lengthy delays and increased costs to our programs. For example, the approval of Baxalta’s HYQVIA BLA in
the U.S. was delayed 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 approved by the FDA in September 2014,
we cannot assure you that they will not arise and have an adverse impact on future development of products which include
rHuPH20, future sales of Hylenex recombinant, our ability to enter into collaborations, or be raised by the FDA or other
health authorities in connection with testing or approval of products including rHuPH20.
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 proprietary and collaboration product candidates or companion
diagnostic assays 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.
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 continue the development of our product candidates or for
other current corporate purposes. Our current cash reserves and expected revenues during the next few years will not be
sufficient for us to continue the development of our proprietary product candidates, 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) the public offering of securities; (ii) new collaborative
agreements; (iii) expansions or revisions to existing collaborative relationships; (iv) private financings; (v) other equity or
debt financings; and/or (vi) monetizing assets.
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In view of our stage of development, business prospects, the nature of our capital structure and general market
conditions, if we are required to raise additional capital in the future, the additional financing may not be available on
favorable terms, 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 one or more product development programs. If we raise additional capital, 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.
Use of our product candidates or those of our collaborators could be associated with side effects or adverse events.
As with most pharmaceutical products, use of our product candidates or those 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 our product candidates or those 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
our product candidates. Side effects such as toxicity or other safety issues associated with the use of our product candidates
or those of our collaborators could require us or our collaborators to perform additional studies or halt development or
commercialization of these product candidates or expose us to product liability lawsuits which will harm our business. 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 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 related 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. For example, in April 2014, a clinical hold was placed on patient enrollment and dosing of PEGPH20
in Study HALO-202 as a result of a possible difference in the TE event rate that had been observed at that time in the trial
between the group of patients treated with PEGPH20 versus the group of patients treated without PEGPH20. The clinical
hold was lifted by the FDA in June 2014, and we have completed enrollment and continue to monitor ongoing patients who
remain either on treatment or in follow-up on Study HALO-202 under a revised clinical protocol.
If our contract manufacturers are unable to manufacture and supply to us bulk rHuPH20 or other raw materials in
the quantity and quality required by us or our collaborators for use in our products and product candidates, our product
development and commercialization efforts could be delayed or stopped and our collaborations could be damaged.
We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc. (Avid) and
Catalent Indiana LLC (formerly Cook Pharmica LLC) (Catalent) to produce bulk rHuPH20. These manufacturers each
produce bulk rHuPH20 under cGMP for clinical uses. Catalent currently produces bulk rHuPH20 for use in Hylenex
recombinant, product candidates and collaboration product candidates. Avid currently produces bulk rHuPH20 for use in
collaboration products. In addition to supply obligations, Avid and Catalent will also provide support for the chemistry,
manufacturing and controls sections for FDA and other regulatory filings. We rely on their ability to successfully manufacture
these batches according to product specifications. If either Avid or Catalent: (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; or (iii) fails to manufacture and supply bulk rHuPH20 in the quantity and quality
required by us or our collaborators for use in our proprietary 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 delays, interruptions or other problems regarding the ability of Avid and/or Catalent 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 clinical trials or otherwise delay or prevent the regulatory approval
of proprietary or collaboration product candidates; (ii) delay or prevent the effective commercialization of proprietary or
collaboration products; and/or (iii) cause us to breach contractual obligations to deliver bulk rHuPH20 to our collaborators.
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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.
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 dependent on our
collaborators to develop and commercialize product candidates subject to our collaborations in order for us to realize any
financial benefits 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 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 delay or suspend our product development activities for some of our product
candidates, as well as our commercialization efforts for some or all of our products. Specifically, the termination of a key
collaboration agreement by one of our collaborators could materially impact 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.
Most of our current proprietary and collaboration 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 proprietary programs.
rHuPH20 is a key technological component of ENHANZE Technology and our most advanced proprietary and
collaboration products and product candidates, including the current and future products and product candidates under our
ENHANZE collaborations, our PEGPH20 program, and Hylenex recombinant. 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 other proprietary and other collaboration product candidates, there can be no assurance that there
will not be other such occurrences in the foregoing programs or our other 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 development or commercialization activities or deter entry into additional collaborations with third parties.
We routinely evaluate, and may modify, our business strategy and our strategic focus to only a few fields or applications
of our technology which may increase the risk for potential negative impact from adverse developments.
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 third quarter of 2014, we decided to focus
our resources on advancing PEGPH20 and expanding utilization of our ENHANZE Technology. While we believe these
are applications with the greatest potential value, we have reduced the diversification of our programs and increased our
dependence on the success of the areas we are pursuing. By focusing on one or a few areas, we increase the potential impact
on us if one of those programs or product candidates 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 programs may also
reduce the value of programs that are no longer within our principal strategic focus, which could impair our ability to pursue
collaborations or other strategic alternatives for those programs we are not pursuing.
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Our proprietary and collaboration product candidates or companion diagnostic assays 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, we or our collaborators may obtain different results in subsequent trials or
studies that fail to show the desired levels of safety and efficacy, or we may not, or our collaborators may not, obtain
applicable regulatory approval for a variety of other reasons. Preclinical, nonclinical, and clinical trials for any of our
proprietary or collaboration product candidates or development of any collaboration companion diagnostic assays could be
unsuccessful, which would delay or preclude regulatory approval and commercialization of the product candidates or
companion diagnostic assays. In the U.S. and other jurisdictions, regulatory approval can be delayed, limited or not granted
for many reasons, including, among others:
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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 product candidates;
clinical and nonclinical test results may reveal side effects, adverse events or unexpected safety issues
associated with the use of our product candidates; for example, in April 2014, a clinical hold was placed on
patient enrollment and dosing of PEGPH20 in Study HALO-202 as a result of a possible difference in the TE
event rate that had been observed at that time in the trial between the group of patients treated with PEGPH20
versus the group of patients treated without PEGPH20. The clinical hold was lifted by the FDA in June 2014,
and we have completed enrollment and continue to monitor patients who remain either on treatment or in
follow-up on Study HALO-202 under a revised clinical protocol;
completion of clinical trials may be delayed for a variety of reasons including the amount of time it may take
to identify and enroll patients with high levels of HA in our target population, and the ability to procure drug
supply required in clinical trial protocols;
clinical trial results may be negatively impacted if our companion diagnostic does not accurately identify
patients most likely to respond to the therapy, including the level of HA in patients;
third parties, such as contract research organizations, upon whom we rely to help conduct and manage our
clinical trials may not perform satisfactorily, fulfill their contractual obligations to us, meet expected deadlines
or conduct our clinical trials in accordance with regulatory requirements or our stated protocols;
regulatory review may not find a product candidate safe or effective enough to merit either continued testing
or final approval;
regulatory review may not find that the data from preclinical testing and clinical trials justifies approval;
regulatory authorities may require that we change our studies or conduct additional studies which may
significantly delay or make continued pursuit of approval commercially unattractive;
a regulatory agency may reject our trial data or disagree with our interpretations of either clinical trial data or
applicable regulations;
a regulatory agency may approve only a narrow use of our product or may require additional safety monitoring
and reporting through Risk Evaluation and Mitigation Strategies or conditions to assure safe use programs;
the cost of clinical trials required for product approval may be greater than what we originally anticipate, and
we 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 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.
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If a proprietary or collaboration product candidate or companion diagnostic assay is not approved in a timely fashion
or obtained on commercially viable terms, or if development of any product candidate or a companion diagnostic assay 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 proprietary or collaboration
product candidates and/or our ability to successfully acquire other products and technologies. There can be no assurances
that any proprietary or collaboration product candidate or companion diagnostic assay will receive regulatory approval in
a timely manner, or at all. There can be no assurance that we 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 this opportunity will be limited or may not be possible.
We anticipate that certain proprietary and 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.
We rely on third parties to manufacture, prepare, fill, finish and package our products and product candidates, and
if such third parties should fail to perform, our commercialization and development efforts for our products and
product candidates could be delayed or stopped.
We rely on third parties to manufacture, prepare, fill, finish, package, store and ship our products and product candidates
on our behalf. If we are unable to locate third parties to perform these functions on terms that are acceptable to us, or if the
third parties we identify fail to perform their obligations, the progress of clinical trials could be delayed or even suspended
and the commercialization of approved product candidates could be delayed or prevented. In addition, we are scaling up
our manufacturing of PEGPH20 with third party suppliers to support additional clinical trials, including the Phase 3 trial,
and ultimately, if approved, potential commercial supply. If our contract manufacturers are unable to successfully
manufacture and supply PEGPH20, the progress of our clinical trials could be delayed or halted for a period of time.
If we are unable to sufficiently develop our sales, marketing and distribution capabilities or enter into successful
agreements with third parties to perform these functions, we will not be able to fully commercialize our products.
We may not be successful in marketing and promoting our approved product, Hylenex recombinant, or any other
products we develop or acquire in the future. Our sales, marketing and distribution capabilities are very limited. In order
to commercialize any products successfully, we must internally develop substantial sales, marketing and distribution
capabilities or establish collaborations or other arrangements with third parties to perform these services. We do not have
extensive experience in these areas, and we may not be able to establish adequate in-house sales, marketing and distribution
capabilities or engage and effectively manage relationships with third parties to perform any or all of such services. To the
extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if
we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, whose
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efforts may not meet our expectations or be successful. These third parties would be largely responsible for the speed and
scope of sales and marketing efforts, and may not dedicate the resources necessary to maximize product opportunities. Our
ability to cause these third parties to increase the speed and scope of their efforts may also be limited. In addition, sales and
marketing efforts could be negatively impacted by the delay or failure to obtain additional supportive clinical trial data for
our products. In some cases, third party collaborators are responsible for conducting these additional clinical trials, and our
ability to increase the efforts and resources allocated to these trials may be limited.
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 clinical trials or otherwise
inhibit our 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 products or manufacturing processes;
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voluntary or mandatory recall;
fines;
suspension or withdrawal of regulatory approvals;
suspension or termination of any of our ongoing clinical trials;
refusal to permit the import or export of our products;
refusal to approve pending applications or supplements to approved applications that we submit;
product seizure;
injunctions; or
imposition of civil or criminal penalties.
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We currently have significant debt and failure by us to fulfill our obligations under the applicable loan agreements
may cause the repayment obligations to accelerate.
In December 2015, our subsidiaries, Halozyme, Inc. (Halozyme) and Halozyme Royalty LLC (Halozyme Royalty)
entered into a credit agreement (the Credit Agreement) with BioPharma Credit Investments IV Sub, LP and Athyrium
Opportunities II Acquisition LP (the Royalty-backed Lenders) pursuant to which we borrowed $150 million through
Halozyme Royalty (the Royalty-backed Loan). The Royalty-backed Loan will be repaid primarily from a specified
percentage of the royalty payments we receive under our collaboration agreements with Roche and Baxalta (the Royalty
Payments).
The obligations of Halozyme Royalty under the Credit Agreement to repay the Royalty-backed Loan may be accelerated
upon the occurrence of certain events of default under the Credit Agreement, including but not limited to:
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if any payment of principal is not made within three days of when such payment is due and payable or
otherwise made in accordance with the terms of the Credit Agreement;
if any representations or warranties made in the Credit Agreement or any other transaction document
proves to be incorrect or misleading in any material respect when made;
if there occurs a default in the performance of affirmative and negative covenants set forth in the Credit
Agreement or any other transaction document;
the failure by either Baxalta or Roche to pay material amounts owed under our collaboration agreements
because of an actual breach or default by us under the collaboration agreements;
the voluntary or involuntary commencement of bankruptcy proceedings by either Halozyme or Halozyme
Royalty and other insolvency related defaults;
any materially adverse effect on the binding nature of any of the transaction documents or the collaboration
agreements with Baxalta and Roche; or
• Halozyme ceases to own, of record and beneficially, 100% of the equity interests in Halozyme Royalty.
The Credit Agreement also contains covenants applicable to Halozyme and Halozyme Royalty, including certain
visitation, information and audits rights granted to the collateral agent and the lenders and restrictions on the conduct of
business, including continued compliance with the Baxalta and Roche collaboration agreements and specified affirmative
actions regarding the escrow account established to facilitate payment of Royalty Payments to the Royalty-backed Lenders
or other specified parties. The Credit Agreement also contains covenants solely applicable to Halozyme Royalty, including
restrictions on incurring indebtedness, creating or granting liens, making acquisitions and making specified restricted
payments. These covenants could make it more difficult for us to execute our business strategy.
In connection with the Royalty-backed Loan, Halozyme Royalty granted a first priority lien and security interest
(subject only to permitted liens) in all of its assets and all real, intangible and personal property, including all of its right,
title and interest in and to the Royalty Payments.
In June 2016, 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 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 initial proceeds were partially
used to pay the outstanding principal and final payment owed on our previous loan agreement with the Lenders. The
remaining proceeds are to be used for working capital and general business requirements. The Loan Agreement is secured
by substantially all of the assets of the Company and its subsidiary, Halozyme, Inc., except that the collateral does not
include any equity interests in Halozyme, Inc., any intellectual property (including all licensing, collaboration and similar
agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations,
warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose
of certain of our assets; engage in any business other than the businesses currently engaged in by us or reasonably related
thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur,
assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted
payments; make certain investments; make payments on any subordinated debt; and enter into transactions with any of our
affiliates outside of the ordinary course of business or permit our subsidiaries to do the same. In addition, subject to certain
exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and commodities, and
to do the same for our domestic subsidiary. Complying with these covenants may make it more difficult for us to successfully
execute our business strategy.
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The Loan Agreement also contains customary indemnification obligations and customary events of default, including,
among other things, our failure to fulfill certain of our obligations under the Loan Agreement and the occurrence of a material
adverse change which is defined as a material adverse change in our business, operations or condition (financial or otherwise),
a material impairment of the prospect of repayment of any portion of the loan, or a material impairment in the perfection
or priority of the Lender’s lien in the collateral or in the value of such collateral.
Our ability to make payments on our 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. We will need to use cash to pay
principal and interest on our debt, thereby reducing the funds available to fund our research and development programs,
strategic initiatives and working capital requirements. If we are unable to generate sufficient cash to service our debt
obligation, an event of default may occur. In the event of default by us under the Credit Agreement or the Loan Agreement,
the lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which
we may be required to repay all amounts then outstanding under the Credit Agreement or the Loan Agreement which could
harm our financial condition.
If proprietary or collaboration product candidates are approved for marketing but do not gain market acceptance, our
business may suffer and we may not be able to fund future operations.
Assuming that our proprietary or collaboration product candidates obtain the necessary regulatory approvals for
commercial sale, a number of factors may affect the market acceptance of these existing product candidates or any other
products which are developed or acquired in the future, including, among others:
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the price of products relative to other therapies for the same or similar treatments;
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;
our ability to fund our sales and marketing efforts and the ability and willingness of our collaborators to fund
sales and marketing efforts;
the degree to which the use of these products is restricted by the approved product label;
the effectiveness of our sales and marketing efforts and the effectiveness of the sales and marketing efforts of
our collaborators;
the introduction of generic competitors; and
the extent to which reimbursement for our products and related treatments will be available from third party
payors including government insurance programs (Medicare and Medicaid) and private insurers.
If these products do not gain market acceptance, we may not be able to fund future operations, including the development
or acquisition of new product candidates and/or our sales and marketing efforts for our approved products, which would
cause our business to suffer.
In addition, our proprietary and collaboration 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 products may be negatively affected.
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 lack or
insufficiency of insurance coverage 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.
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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. For
example, in order to pursue our current business strategy, we will need to recruit and retain personnel experienced in oncology
drug development which is a highly competitive market for talent. We depend substantially on our ability to hire, train,
motivate and retain high quality personnel, especially our scientists and management team. Particularly in view of the small
number of employees on our staff to cover our numerous programs and key functions, if we are unable to retain existing
personnel or identify or hire additional personnel, we may not be able to research, develop, commercialize or market our
products and product candidates as expected or on a timely basis and 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 portion of our institutional
knowledge and technical know-how, potentially causing a substantial delay in one or more of our development programs
until adequate replacement personnel could be hired and trained. We currently have a severance policy applicable to all
employees and a change in control policy applicable to senior executives.
We do not have key man life insurance policies on the lives of any of our 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 four buildings in San Diego,
California. In addition, we have a satellite office in South San Francisco, 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 research and
development programs.
If we or our collaborators do not achieve projected development, clinical, regulatory or sales goals in the timeframes
we publicly announce or otherwise expect, the commercialization of our products and the development of our product
candidates 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, we or 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 control. If scientific, regulatory, strategic or other factors cause us to not meet a goal, regardless
of whether that goal has been publicly articulated or not, our stock price may decline rapidly. For example, the announcement
in April 2014 of the temporary halting of our Phase 2 clinical trial for PEGPH20 caused a rapid decline in our stock price.
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.
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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 convertible debt or equity securities to complete an acquisition, which would dilute our
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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
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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.
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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.
Security breaches may disrupt our operations and harm our operating results.
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 disruption of our ability
to use such systems or disclosure or dissemination of our proprietary and confidential information that is electronically
stored, including research or clinical data, resulting in a material adverse impact on our business, operating results and
financial condition. Our security and data recovery measures may not be adequate to protect against computer viruses,
break-ins, and similar disruptions from unauthorized tampering with our electronic storage 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 and financial condition.
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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, 2017 were $21.13 and $9.68, respectively. We expect our stock price to continue to be subject to
significant volatility and, in 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:
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the presence of competitive products to those being developed by us;
failure (actual or perceived) of our collaborators to devote attention or resources to the development or
commercialization of 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;
general negative conditions in the financial markets;
the cost associated with obtaining regulatory approval for any of our proprietary or collaboration product
candidates;
the failure, for any reason, to secure or defend our intellectual property position;
for those products that are not yet approved for commercial sale, the failure or delay of applicable regulatory
bodies to approve such products;
identification of safety or tolerability issues;
failure of clinical trials to meet efficacy endpoints;
suspensions or delays in the conduct of clinical trials or securing of regulatory approvals;
adverse regulatory action with respect to our and our collaborators’ products and product candidates such as
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 candidate;
the sale of additional debt and/or equity securities by us;
our failure to obtain financing on acceptable terms or at all; or
a restructuring of our operations.
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. In February 2017, we filed an automatic shelf registration statement on Form S-3 (Registration
No. 333-216315) 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.
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Anti-takeover provisions in our charter documents and Delaware law may make an acquisition of us more difficult.
Anti-takeover provisions in our charter documents 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, as amended, 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 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.
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 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 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 products. 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 products or may impose onerous, costly and time-consuming
requirements such as additional clinical or animal testing. Regulatory authorities may require that we change our studies
or conduct additional studies, which may significantly delay or make continued pursuit of approval commercially
unattractive. 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 approved by the FDA in September 2014, 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 products are approved, regulatory agencies may also take post-approval action limiting or revoking our ability
to sell our products. Any of these regulatory actions may adversely affect the economic benefit we may derive from our
products and therefore harm our financial condition.
Under certain of these regulations, 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 we, or our contract supplier, fail these inspections, we may not be able to
commercialize our product in a timely manner without incurring significant additional costs, or at all.
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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, 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 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;
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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.
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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.
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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, our products may not be accepted in the
market.
Our ability to earn sufficient returns on our products will depend in part on the extent to which reimbursement for our
products and related treatments will be available from government health administration authorities, private health insurers,
managed care organizations and other healthcare providers.
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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
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 that
could cause us to sell our products at lower prices, resulting in less revenue to us.
Any of the 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, 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 products.
In March 2010, the U.S. adopted the Patient Protection and Affordable Care Act, as amended by the Health Care and
Education Reconciliation Act (the PPACA). This law substantially changes the way healthcare is financed by both
governmental and private insurers, and significantly impacts the pharmaceutical industry. The PPACA contains a number
of provisions that are expected to impact our business and operations, in some cases in ways we cannot currently predict.
Changes that may affect our business include those governing enrollment in federal healthcare programs, reimbursement
changes, fraud and abuse and enforcement. These changes will impact existing government healthcare programs and will
result in the development of new programs, including Medicare payment for performance initiatives and improvements to
the physician quality reporting system and feedback program.
Additional provisions of the PPACA may negatively affect our revenues in the future. For example, the PPACA imposes
a non-deductible excise tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S.
government programs that we believe will impact our revenues from our products. In addition, as part of the PPACA’s
provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program, we will also be
required to provide a 50% discount on branded prescription drugs dispensed to beneficiaries under this prescription drug
program. Recently, Congress and the current administration have proposed and taken various steps to revise, repeal or delay
implementation of, various aspects of the Healthcare Reform Act. We expect that the PPACA, as it may be amended, and
other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry
generally and on our ability to maintain or increase our product sales or successfully commercialize our product candidates
and could limit or eliminate our future spending on development projects.
Furthermore, individual states 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.
We face intense competition and rapid technological change that could result in the development of products by others
that are superior to our proprietary and collaboration products 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. The competitors for Hylenex recombinant include, but are not limited to, Valeant Pharmaceuticals
International, Inc.’s FDA-approved product, Vitrase®, an ovine (ram) hyaluronidase, and Amphastar Pharmaceuticals, Inc.’s
product, Amphadase®, a bovine (bull) hyaluronidase. For our PEGPH20 product candidate, such competitors may include
30
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 product candidates or that
could render our technologies and product candidates obsolete or noncompetitive. Many of these competitors have
substantially more resources and product development, manufacturing and marketing experience and capabilities than we
do. In addition, many of our competitors have significantly greater experience than we do in undertaking preclinical testing
and clinical trials of pharmaceutical product candidates and obtaining FDA and other regulatory approvals of products and
therapies for use in healthcare.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our administrative offices and research facilities are currently located in San Diego, California. We lease an aggregate
of approximately 76,000 square feet of office and research space. In addition, we have an office in South San Francisco,
California, where we lease approximately 10,000 square feet of office space. We believe our facilities are adequate for our
current and near-term needs, and, if necessary, we will be able to locate additional facilities as needed.
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
Not applicable.
31
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
Market Information
Our common stock is listed on the NASDAQ Global Select Market under the symbol “HALO.” The following table
sets forth the high and low sales prices per share of our common stock during each quarter of the two most recent fiscal
years:
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
High
$15.20
$15.05
$17.62
$21.13
Low
$9.68
$11.51
$11.41
$16.58
High
$17.51
$12.33
$12.75
$14.38
Low
$6.96
$7.70
$8.43
$8.18
On February 13, 2018, the closing sales price of our common stock on the NASDAQ Global Select Market was $17.84
per share. As of February 13, 2018, we had approximately 21,200 stockholders of record and beneficial owners of our
common stock.
Dividends
We have never declared or paid any dividends on our common stock. We currently intend to retain available cash for
funding operations; 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.
32
Stock Performance Graph and Cumulative Total Return
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, 2012 to December 31, 2017. The historical stock price performance included in this
graph is not necessarily indicative of future stock price performance.
Halozyme Therapeutics, Inc. . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . .
NASDAQ Biotechnology . . . . . . . . . . . . . . .
12/31/2012
$100
$100
$100
12/31/2013
$223
$140
$166
12/31/2014
$144
$161
$223
12/31/2015
$258
$172
$249
12/31/2016
$147
$187
$196
12/31/2017
$302
$243
$239
33
Item 6. Selected Financial Data
The selected consolidated financial data set forth below as of December 31, 2017 and 2016, and for the years ended
December 31, 2017, 2016 and 2015, are derived from our audited consolidated financial statements included elsewhere in
this report. This information should be read in conjunction with those consolidated financial statements, the notes thereto,
and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected
consolidated financial data set forth below as of December 31, 2015, 2014 and 2013, and for the years ended December 31,
2014 and 2013, are derived from our audited consolidated financial statements that are contained in reports previously filed
with the SEC, not included herein.
Summary Financial Information
Year Ended December 31,
Statement of Operations Data:
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share, basic. . . . . . . . . . . .
Net income (loss) per share, diluted . . . . . . . . . .
Shares used in computing net income (loss) per
share, basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing net income (loss) per
share, diluted. . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
$ 316,613
$ 62,971
0.46
$
0.45
$
136,419
2014
2013
2016
2015
(in thousands, except for per share amounts)
$ 146,691
$ 54,799
$ 75,334
$ 135,057
$ (103,023) $ (32,231) $ (68,375) $ (83,479)
(0.74)
$
(0.74)
$
112,805
(0.25) $
(0.25) $
(0.56) $
(0.56) $
(0.81) $
(0.81) $
122,690
127,964
126,704
139,068
127,964
126,704
122,690
112,805
Balance Sheet Data:
2017
2016
2015
2014
2013
As of December 31,
(in thousands)
Cash and cash equivalents and available-for-
sale marketable securities . . . . . . . . . . . . . . . . .
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (deficit) . . . . . . . . . . . . . . .
$ 469,214
$ 379,044
$ 519,945
$ 60,865
$ 125,140
$ 311,579
$ 208,366
$ 108,339
$ 204,981
$ 109,315
$ 201,947
$ 181,789
$ 261,515
$ 53,223
$
44,618
$ 27,971
$ 199,228
$ 293,996
$ 138,790
$ (32,481) $ 42,999
$ 135,623
$ 136,990
$ 165,977
$ 54,634
$ 49,860
$ 124,625
$ 41,352
$ 71,503
$ 70,293
$ 101,793
$ 53,143
$ 49,772
$ 121,783
$ (19,991)
34
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
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.
Overview
Halozyme Therapeutics, Inc. is a biotechnology company focused on developing and commercializing novel oncology
therapies. Our proprietary enzymes are used to facilitate the delivery of injected drugs and fluids, potentially enhancing the
efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit. We exploit
our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing
our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2)
licensing our technology to biopharmaceutical companies to collaboratively develop products that combine our technology
with the collaborators’ proprietary compounds.
The majority of our approved product and product candidates are based on rHuPH20, our patented recombinant human
hyaluronidase enzyme. Our proprietary development pipeline consists primarily of pre-clinical and clinical stage product
candidates in oncology. Our lead oncology program is PEGPH20 (PEGylated recombinant human hyaluronidase), a
molecular entity we are developing in combination with currently approved cancer therapies as a candidate for the systemic
treatment of tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it can cause higher
pressure in the tumor, reducing blood flow into the tumor and with that, reduced access of cancer therapies to the tumor.
Through our efforts and efforts of our partners and collaborators, we are currently in Phase 3 clinical testing for PEGPH20
with ABRAXANE® (nab-paclitaxel) and gemcitabine in stage IV pancreatic ductal adenocarcinoma (“PDA”) (HALO
109-301), in Phase 1b clinical testing for PEGPH20 with KEYTRUDA® (pembrolizumab) in non-small cell lung cancer
and gastric cancer (HALO 107-101), in Phase 1b/2 clinical testing for PEGPH20 with HALAVEN® (eribulin) in patients
treated with up to two lines of prior therapy for HER2-negative metastatic breast cancer, in Phase 1b/2 clinical testing for
PEGPH20 with Tecentriq® (atezolizumab) in patients with previously treated metastatic PDA, in Phase 1b/2 clinical testing
for PEGPH20 with Tecentriq in patients with gastric cancer and in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq
in patients with cholangiocarcinoma and gall bladder cancer (HALO 110-101/MATRIX).
We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE® Technology.
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. We currently have ENHANZE
collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (Roche), Baxalta US Inc. and Baxalta GmbH
(Baxalta Incorporated was acquired by Shire plc in June 2016) (Baxalta), Pfizer Inc. (Pfizer), Janssen Biotech, Inc. (Janssen),
AbbVie, Inc. (AbbVie), Eli Lilly and Company (Lilly), Bristol-Myers Squibb Company (BMS) and Alexion Pharma Holding
(Alexion).We receive royalties from two of these collaborations, including royalties from sales of one product from the
Baxalta collaboration and two products from the Roche collaboration. Future potential revenues from 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.
35
Our 2017 and recent key accomplishments and events are as follows:
ENHANZE collaborations
•
•
In January 2018, Roche initiated a Phase 1 study for an unnamed target with the ENHANZE Technology, triggering
a $1.0 million milestone payment.
In December 2017, we and Alexion entered into a collaboration and license agreement, under which Alexion has
the worldwide license to develop and commercialize product combining our rHuPH20 enzyme with up to four
targets from Alexion’s portfolio of products for an upfront payment of $40.0 million. 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 of the agreement.
• During the fourth quarter of 2017, Baxalta and Roche achieved sales milestones for commercial products using
the ENHANZE Technology, triggering $5.0 million and $7.0 million in milestone payments, respectively.
• During the fourth quarter of 2017, Janssen initiated the first of four currently active Phase 3 studies of daratumumab
combined with the ENHANZE Technology in amyloidosis patients, multiple myeloma patients and smoldering
myeloma patients, triggering a $15.0 million milestone payment.
•
•
•
•
In September 2017, we entered into a collaboration and license agreement with BMS, under which BMS has the
worldwide license to develop and commercialize products combining our ENHANZE Technology with BMS
immuno-oncology targets directed at up to eleven targets for an upfront payment of $105.0 million. BMS has
designated multiple immuno-oncology targets including programmed death 1 (PD-1) and has an option to select
additional targets within five years from the effective date.
In September 2017, we entered into an agreement with Roche for the right to develop and commercialize one
additional exclusive target using our ENHANZE Technology for an upfront payment of $30.0 million.
In August 2017, Lilly initiated a Phase 1 study of an investigational new therapy in combination with rHuPH20.
In June 2017, the FDA approved Genentech’s RITUXAN HYCELA™, a combination of rituximab and rHuPH20,
for CLL and two types of NHL, follicular lymphoma and diffuse large B-cell lymphoma.
Clinical trials
•
•
•
•
•
•
In January 2018, the Phase 1b portion of the study of HALAVEN (eribulin) with PEGPH20 in HER2-negative
metastatic breast cancer closed enrollment. As a result of an Eisai portfolio decision, no further clinical development
is planned on the Phase 2 portion of the study. Data analysis is ongoing and a submission of the results of this study
to a scientific forum is expected in the second half of 2018.
In October 2017, Genentech initiated a Phase 1b/2 clinical trial evaluating PEGPH20 in combination with Tecentriq
in patients with gastric cancer.
In October 2017, we initiated the second study in our clinical agreement with Genentech, a Phase 1b/2 open-label
randomized study to assess Tecentriq in combination with PEGPH20 and chemotherapy in patients with
cholangiocarcinoma and gall bladder cancer.
In July 2017, Genentech initiated a Phase 1b/2 clinical trial evaluating PEGPH20 in combination with Tecentriq
in patients with previously treated metastatic PDA.
In June 2017, results from Study HALO-202 were presented at the European Society for Medical Oncology (ESMO)
World Congress of Gastrointestinal Cancer and the Annual Meeting of the American Society of Clinical Oncology
(ASCO). The presentations expanded on the topline results announced in January 2017 with additional data from
the study as of December 2016.
In April 2017, we presented at the annual meeting of the American Association of Cancer Research (AACR) that,
in preclinical models, PEGPH20 increases the number of cancer-fighting white blood cells accumulating in the
tumor and the effectiveness of immunotherapies, which builds upon prior preclinical findings and continues to
support the potential benefits of remodeling the tumor microenvironment.
36
•
•
In March 2017, SWOG, an independent network of researchers that design and conduct cancer clinical trials,
stopped enrollment in a Phase 1b/2 trial evaluating PEGPH20 plus modified FOLFIRINOX chemotherapy versus
modified FOLFIRINOX alone in patients with previously untreated metastatic pancreas cancer. SWOG’s
independent Data Monitoring Committee found, based on preliminary data, that the addition of PEGPH20 given
every two weeks to modified FOLFIRINOX would be unlikely to demonstrate a statistically significant
improvement in the primary endpoint of overall survival. SWOG further reported that a higher rate of death was
observed in the PEGPH20 arm versus modified FOLFIRINOX alone. In January 2018, SWOG presented final
overall survival (OS) and progression-free survival (PFS) data from the study at the ASCO-GI conference, which
was consistent with the preliminary data findings. Our PEGPH20 studies and clinical collaborations in combination
with agents other than modified FOLFIRINOX continue unchanged.
In January 2017, we announced topline results from the combined analysis of Stage 1 and Stage 2, and Stage 2
alone, of the Study 109-202, based on a December 2016 data cutoff. Among the findings, the overall study population
showed a statistically significant increase in PFS in the 84 total HA-High patients treated with PEGPH20 plus
ABRAXANE and gemcitabine when compared to HA-High patients receiving ABRAXANE and gemcitabine
alone. Stage 2 of the study, which completed enrollment in February 2016, showed a 91 percent improvement in
median PFS for HA-High patients in the PEGPH20 arm, 8.6 months compared to 4.5 months in the control arm,
and achieved its primary endpoint to evaluate and demonstrate a reduction in the rate of TE events in the PEGPH20
arm.
Financing
•
In May 2017, we completed an underwritten public offering pursuant to which we sold 11.5 million shares of
common stock, including 1.5 million shares sold pursuant to the full exercise of an option to purchase additional
shares granted to the underwriters. All of the shares were offered at a public offering price of $12.50 per share,
generating approximately $134.9 million in net proceeds, after deducting underwriting discounts and commissions
and other offering expenses. We intend to use the net proceeds from this offering to fund continued development
of our PEGPH20 oncology program and for other general corporate purposes.
Results of Operations
Comparison of Years Ended December 31, 2017, 2016 and 2015
Product Sales, Net – Product sales, net were as follows (in thousands):
2017
Change
2016
Change
2015
Sales of bulk rHuPH20:
Roche . . . . . . . . . . . . . . . . . . . . . . . . . .
Baxalta . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of Hylenex . . . . . . . . . . . . . . . . . . . . . .
Total product sales, net . . . . . . . . . . . .
$
$
22,325
11,717
1,204
15,150
50,396
(10)% $
5 %
(10)%
(6)%
(6)% $
24,786
11,117
1,332
16,157
53,392
9% $
73%
73%
—
16% $
22,773
6,410
772
16,127
46,082
Product sales, net decreased in 2017 compared to 2016, mainly due to decreases in the sales of bulk rHuPH20 to
Roche and Hylenex, offset by an increase in sales of bulk rHuPH20 to Baxalta. Product sales, net increased in 2016 compared
to 2015 due to an increase in the sales of bulk rHuPH20 to Baxalta and Roche. In 2017 and 2016, we performed services
for Roche to bring on-line a second contract manufacturing facility for bulk rHuPH20. This new facility will become the
primary source for Roche of bulk rHuPH20 once it receives regulatory approval. As a result, we anticipate Roche will
deplete their existing inventory of rHuPH20 ahead of the transition to the new facility, which will result in lower bulk
product sales in 2018. We anticipate Baxalta will deplete their existing inventory of rHuPH20 as part of a planned change
to a more efficient manufacturing process, which will also result in lower bulk rHuPH20 product sales in 2018. We expect
that future product sales of Hylenex to be flat or experience modest growth, although there may be periods with declining
revenue as we experience competition for market share.
37
Royalties – Royalty revenue was $63.5 million in 2017 compared to $51.0 million in 2016 and $31.0 million in 2015.
The increase was driven by higher sales of Herceptin SC and MabThera SC (RITUXAN HYCELA™ in the U.S.) by Roche
and of HYQVIA by Baxalta. We recognize royalties on sales of the collaboration products by the collaborators in the quarter
following the quarter in which the corresponding sales occurred. In general, we expect royalty revenue to increase in future
periods reflecting expected increases in sales of collaboration products, although there may be periods with flat or declining
royalty revenue as sales of products under collaborations vary.
Revenues Under Collaborative Agreements – Revenues under collaborative agreements were as follows (in thousands):
Upfront license fees, license fees for the election of
additional
license
maintenance fees and amortization of deferred upfront
and other license fees:
targets, event-based payments,
BMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Janssen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baxalta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lilly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pfizer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reimbursements for research and development services:
Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Janssen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baxalta . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues under collaborative agreements. . .
2017
Change
2016
Change
2015
$ 101,400
n/a
40,000
n/a
33,330
902 %
15,000
5,900 %
6 %
810
— (100)%
— (100)%
— (100)%
$ —
—
3,328
250
765
8,000
6,000
2,500
814 % 20,843
190,540
6,900
3,302
1,585
383
12,170
$ 202,710
(63)% 18,700
2,051
61 %
386
311 %
14 %
335
(43)% 21,472
379 % $ 42,315
n/a
n/a
2%
n/a
$ —
—
3,269
—
765
—
(68)% 25,000
(74)% 23,000
2,000
25 %
54,034
(61%)
2,556
632%
834
146 %
292
32%
284
18%
3,966
441%
(27%) $ 58,000
Revenue from license fees increased in 2017, compared to 2016 due to $171.4 million upfront license revenue for the
2017 Roche, BMS and Alexion agreements, and $15.0 million for clinical milestones under the Janssen Collaboration. In
2016, we recognized $15.5 million in license fee and milestone revenue in connection with the Lilly, AbbVie and Pfizer
collaborations. In 2015, we recognized $48.0 million in license fee revenue in connection with the Lilly and AbbVie
collaborations related to upfront payments. Revenue from upfront licenses fees, license fees for the election of additional
targets, event-based payments, license maintenance fees and amortization of deferred upfront and other license fees 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’ abilities to meet various clinical and regulatory milestones set forth in such
agreements and our abilities to obtain new collaborative agreements.
Revenue from reimbursements for research and development services, including clinical supply of rHuPH20, decreased
in 2017 compared to 2016 mainly due to a decrease in services provided to Roche related to the validation of a new
manufacturing facility, partially offset by an increase in services provided to Baxalta and an increase in clinical supply of
rHuPH20 provided to Janssen. The validation of the new Roche facility was completed in the second quarter of 2017 and,
therefore, we expect to continue to see a decrease in research and development service revenue associated with this project
going forward. Revenue from reimbursements for research and development services increased in 2016 compared to 2015
mainly due to services provided for the new manufacturing facility for Roche. Research and development services rendered
by us on behalf of our collaborators are at the request of the collaborators; therefore, the amount of future revenues related
to reimbursable research and development services is uncertain. We expect the non-reimbursement revenues under our
collaborative agreements to continue to fluctuate in future periods based on our collaborators’ abilities to meet various
clinical and regulatory milestones set forth in such agreements and our abilities to obtain new collaborative agreements.
38
Cost of Product Sales – Cost of product sales were $31.2 million in 2017 compared to $33.2 million in December 31,
2016 and $29.2 million in 2015. The decrease of $2.0 million in cost of product sales in 2017 compared to 2016 was mainly
due to a decrease in sales of bulk rHuPH20 to Roche. The increase of $4.0 million in cost of product sales in 2016 compared
to 2015 was due to a $5.8 million increase in cost of product sales of bulk rHuPH20 due to an increase in sales to collaboration
partners, partially offset by a $1.8 million decrease in Hylenex recombinant cost of product sales, due to a decrease in
manufacturing costs.
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):
2017
Change
2016
Change
2015
Programs
PEGPH20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ENHANZE collaborations and rHuPH20
platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total research and development expenses . . . .
$ 123,932
15 % $108,102
43% $ 75,616
19,197
7,514
$ 150,643
(37)%
(39)%
—
30,398
12,342
$150,842
10,514
189%
7,106
74%
62% $ 93,236
Research and development expenses relating to our PEGPH20 program increased in 2017 by 15% compared to 2016,
and increased in 2016 by 43% compared to 2015, primarily due to increased clinical trial activities. We expect these expenses
to continue to increase in future periods reflecting expected increases in our PEGPH20 development activities.
Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform in 2017
decreased by 37%, compared to 2016, primarily due to a decrease in manufacturing expenses related to Roche, due to work
associated with bringing on-line a second contract manufacturing facility. As we completed the validation of the new
manufacturing facility in the second quarter of 2017, we expect these expenses to continue to decrease going forward. The
rHuPH20 platform includes research, development and manufacturing expenses related to our proprietary rHuPH20 enzyme.
These expenses were not designated to a specific program at the time the expenses were incurred. Research and development
expenses relating to our ENHANZE collaborations and our rHuPH20 platform in 2016 increased by 189% compared to
2015, primarily due to a $17.0 million increase in manufacturing expenses related to bringing on-line the new Roche
manufacturing facility.
Research and development expenses related to other programs in 2017 decreased by 39% compared to 2016 primarily
due to a decrease in preclinical development of HTI-1511 and PEG-ADA2. Research and development expenses related to
other programs in 2016 increased by 74% compared to 2015, primarily due to expenses incurred in our preclinical product
programs.
Selling, General and Administrative – Selling, general and administrative (SG&A) expenses increased in 2017
compared to 2016 by $8.0 million, or 17%, and increased in 2016 compared to 2015 by $5.8 million, or 15%, primarily due
to increases in compensation expense including stock compensation. We expect SG&A expenses to increase moderately in
future periods as our operations expand and we prepare for commercial launch.
Interest Expense – Interest expense included interest expense and amortization of the debt discount related to the
long-term debt. Interest expense increased by $2.0 million in 2017 compared to 2016, and increased by $14.8 million in
2016 as compared to 2015, primarily due to interest expense incurred on the Royalty-backed Loan we received in January
2016.
Income Taxes – Income tax benefit was $1.4 million in 2017 compared to income tax expense of $1.2 million in 2016
and was primarily comprised of U.S. federal alternative minimum tax expense in the amount of $4.1 million offset by a
U.S federal alternative minimum tax credit of $5.5 million. 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 AMT credit carryforward of $5.5 million was recognized as a deferred tax asset at December 31, 2017 as
realization is certain. For the years ended December 31, 2017 and 2016, we generated taxable income in the U.S., which
was partially offset by utilizing net operating losses carried forward from earlier years. No income tax expense was recognized
during the year ended December 31, 2015.
39
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, 2017, we had cash, cash equivalents and marketable securities of $469.2 million. We will continue to
have significant cash requirements to support product development activities. The amount and timing of cash requirements
and cash on hand will depend on the progress and success of our clinical development programs, regulatory and market
acceptance, the resources we devote to research and commercialization activities and the achievement of various milestones
and royalties under our existing collaborative agreements.
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) the public offering of securities; (ii) new collaborative agreements;
(iii) expansions or revisions to existing collaborative relationships; (iv) private financings; (v) other equity or debt
financings; and/or (vi) monetizing assets.
In February 2017, we filed an automatic shelf registration statement on Form S-3 (Registration No. 333-216315) with
the SEC, which allow us, from time to time, to offer and sell equity, debt securities and warrants to purchase any of such
securities, either individually or in units. 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, offer and sell additional equity, debt securities and
warrants to purchase any of such securities, either individually or in units to raise capital to fund the continued development
of our product candidates, the commercialization of our products or for other general corporate purposes.
Our existing cash, cash equivalents and marketable securities may not be adequate to fund our operations until we
become profitable, if ever. We cannot be certain that additional financing will be available when needed or, if available,
financing will be obtained on favorable terms. If we are unable to raise sufficient funds, we may need to delay, scale back
or eliminate some or all of our research and development programs, delay the launch of our product candidates, if approved,
and/or restructure our operations. If we raise additional funds by issuing equity securities, substantial dilution to existing
stockholders could result. If we raise additional funds by incurring debt financing, the terms of the debt may involve
significant cash payment obligations, the issuance of warrants that may ultimately dilute existing stockholders when
exercised and covenants that may restrict our ability to operate our business.
Cash Flows
Operating Activities
Net cash provided by operations was $134.1 million in 2017 compared to net cash used in operations of $50.4 million
in 2016. The increase in cash provided by operations was mainly due to an increase in operating income driven by license
payments and milestones achieved and changes in working capital for the year ended December 31, 2017 compared to the
corresponding period in the prior year.
Net cash used in operations was $50.4 million in 2016 compared to $37.1 million in 2015. The $13.3 million increase
in utilization of cash in operations was mainly due to an increase in operating losses compared to the prior year, partially
offset by the timing of the collection of accounts receivable.
Investing Activities
Net cash used in investing activities was $163.7 million in 2017 compared to net cash used in investing activities of
$76.8 million in 2016. The increase in net cash used in investing activities was primarily due to net purchases of marketable
securities using cash provided by operating and financing activities.
Net cash used in investing activities was $76.8 million in 2016 compared to net cash provided of $5.9 million in 2015.
The change was primarily due to net purchases of marketable securities using the proceeds from the Royalty-backed Loan.
40
Financing Activities
Net cash provided by financing activities was $131.7 million in 2017, primarily due to $134.9 million in net proceeds
from the sale of common stock in May 2017, compared to cash provided by financing activities of $150.6 million in 2016,
when we drew net proceeds of $148.0 million on the Royalty-backed Loan.
Net cash provided by financing activities was $150.6 million in 2016 compared to $13.1 million in 2015. Net cash
provided by financing activities in 2015 consisted of $13.1 million in net proceeds from options exercised.
Long-Term Debt
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 be used to repay the principal
and interest on the loan (the Royalty Payments). 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%. The interest rate
as of December 31, 2017 was 10.3%. The outstanding balance of the Royalty-backed Loan as of December 31, 2017 was
$146.5 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 first 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, 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 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 are being used for working capital and general business requirements. The Loan Agreement repayment schedule
provides 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 provides for a final payment equal
to 5.50% of the initial $55 million principal amount. The final payment is due when the Loan Agreement becomes due or
upon the prepayment of the facility. We have the option to prepay the outstanding balance of the Loan Agreement in full,
41
subject to a prepayment fee of 2% in the first year and 1% in the second year of the term loan. The outstanding term loan
balance was $55.9 million as of December 31, 2017.
The Loan Agreement is secured by substantially all of the assets of the Company and its subsidiary, Halozyme, Inc.,
except that the collateral does not include any equity interests in Halozyme, Inc. and any intellectual property (including
all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement
contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease,
transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently
engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain
change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay
dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt;
enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do
the same; and make any voluntary prepayment of or modify certain terms of the Royalty-backed Loan. In addition, subject
to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and
commodities, and to do the same for our domestic subsidiary.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including,
among other things, our failure to fulfill certain of our obligations under the Loan Agreement and the occurrence of a material
adverse change which is defined as a material adverse change in our business, operations or condition (financial or otherwise),
a material impairment of the prospect of repayment of any portion of the loan, a material impairment in the perfection or
priority of the Lender’s lien in the collateral or in the value of such collateral or the occurrence of an event of default under
the Royalty-backed Loan. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise
their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts
then outstanding under the Loan Agreement, which could harm our financial condition.
Off-Balance Sheet Arrangements
As of December 31, 2017, 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.
42
Contractual Obligations
As of December 31, 2017, future minimum payments due under our contractual obligations are as follows (in
thousands):
Payments Due by Period
Contractual Obligations(1)
Long-term debt, including current portion(2) . . . . . . .
Interest on long-term debt(3) . . . . . . . . . . . . . . . . . . .
Operating leases(4) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third-party manufacturing obligations(5). . . . . . . . . .
Purchase obligations . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 205,157
26,792
13,113
12,257
445
$ 257,764
Less than
1 Year
$ 77,211
16,914
2,415
7,507
386
$104,433
1-3 Years
$ 127,946
9,878
8,079
4,750
59
$ 150,712
_______________
More than
5 Years
4-5 Years
$
— $
—
2,619
—
—
$ 2,619
$
—
—
—
—
—
—
(1) Does not include milestone or contractual payment obligations contingent upon the achievement of certain
milestones or events if the amount and timing of such obligations are unknown or uncertain. Our in-license
agreement is cancelable by us with written notice within 90 days. We may be required to pay up to approximately
$8.0 million in milestone payments, plus sales royalties, in the event that regulatory and commercial milestones
under the in-license agreement are achieved. Also excludes contractual obligations already recorded on our
consolidated balance sheet as current liabilities.
(2) Long-term debt consists of the Royalty-backed Loan and the Loan Agreement. 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. Obligations also include future quarterly principal payments and a final payment
of $3.03 million for the Loan Agreement due in January 2021.
(3)
Interest on long-term debt includes future monthly interest payments for the Loan Agreement based on a fixed
rate of 8.25%. Interest on long-term debt also includes quarterly interest payments on the Royalty-backed Loan,
which 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, 2017.
(4)
Includes minimum lease payments related to leases of our office and research facilities and certain autos under
non-cancelable operating leases.
(5) 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.
43
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 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 from our collaborators;
the amount of product sales for Hylenex recombinant;
the costs of obtaining and validating additional manufacturers of Hylenex recombinant;
the effect of competing technological and market developments;
the costs of preparing for and launching a new commercial product;
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.
44
Revenue Recognition
Methodology
Judgment and Uncertainties
For collaborative arrangements, we
generally recognize revenues and income for
each identified unit of accounting within the
multiple element arrangements based on the
nature and timing of the delivery process.
Management performs detailed reviews of
all of our significant contracts. At the
inception of the arrangement, consideration
is allocated to all identified units of
accounting based on their relative selling
price. On an ongoing basis, the units of
accounting are evaluated against revenue
recognition criteria.
Debt Classification
The relative selling price for each
deliverable is determined using
vendor specific objective evidence
(“VSOE”) of selling price or third-
party evidence of selling price if
VSOE does not exist. If neither
VSOE nor third-party evidence of
selling price exists, we use our best
estimate of the selling price for the
deliverable.
Methodology
Judgment and Uncertainties
The short-term and long-term classification
of outstanding debt represents management's
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.
Effect if Actual Results Differ From
Assumptions
Changes in the allocation of the
sales price between delivered
and undelivered elements can
impact the timing of revenue
recognition but do not change
the total revenue recognized
under any agreement.
Effect if Actual Results Differ From
Assumptions
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.
45
Share-Based Payments
Methodology
Judgment and Uncertainties
Effect if Actual Results Differ From
Assumptions
The Company maintains 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.
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.
Our performance awards require
management to make assumptions
regarding the likelihood of
achieving long-term Company
goals.
Research and Development Expenses - Clinical Trial Accruals
Methodology
Judgment and Uncertainties
All of our clinical trials have been executed
with support from contract research
organizations, (CROs), and other vendors.
We accrue costs for clinical trial activities
performed by CROs based upon the
estimated amount of work completed on
each trial.
For clinical trial expenses, the
significant factors used in
estimating accruals include the
number of patients enrolled, the
activities to be performed for each
patient, the number of active clinical
sites, and the duration for which the
patients will be enrolled in the trial.
We monitor patient enrollment
levels and related activities to the
extent possible through internal
reviews, correspondence with CROs
and review of contractual terms.
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, 2017,
would have affected pre-tax
earnings by approximately $3.1
million in 2017.
Effect if Actual Results Differ From
Assumptions
We base our estimates on the
best information available at the
time. However, additional
information may become
available to us, which may allow
us to make a more accurate
estimate in future periods. If we
do not identify costs that we
have begun to incur or if we
underestimate or overestimate
the level of services performed
or the costs of these services,
our actual expenses could differ
from our estimates. There were
no such significant changes
during the years ended
December 31, 2017, 2016 or
2015.
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.
46
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2017, our cash equivalents and marketable securities consisted of investments in money market
funds, U.S. Treasury securities, corporate debt obligations 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 will probably decline. Based on our current investment portfolio as of December 31,
2017, we do not believe that our results of operations would be materially impacted by an immediate change of 10% in
interest rates.
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.
Item 8. Financial Statements and Supplementary Data
Our financial statements are annexed to this report beginning on page F-1.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
47
Item 9A. 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 Annual Report on Form 10-K.
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 December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange
Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected
by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only
in accordance with authorizations of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework) (the COSO criteria). Based
on our assessment, management concluded that, as of December 31, 2017, our internal control over financial reporting is
effective based on the COSO criteria. The independent registered public accounting firm that audited the consolidated
financial statements that are included in this Annual Report on Form 10-K has issued an audit report on the effectiveness
of our internal control over financial reporting as of December 31, 2017. The report appears below.
48
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Halozyme Therapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Halozyme Therapeutics, Inc.’s internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Halozyme Therapeutics,
Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31,
2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related
consolidated statements of operations, comprehensive loss, cash flows, and stockholders’ equity (deficit) for each of the
three years in the period ended December 31, 2017 , and the related notes and the financial statement schedule listed in the
Index at Item 15(a) and our report dated February 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Diego, California
February 20, 2018
49
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item regarding directors is incorporated by reference to our definitive Proxy Statement
(the Proxy Statement) to be filed with the Securities and Exchange Commission in connection with our 2018 Annual Meeting
of Stockholders under the heading “Election of Directors.” The information required by this item regarding compliance
with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference to the information
under the caption “Compliance with Section 16(a) of the Exchange Act” to be contained in the Proxy Statement. The
information required by this item regarding our code of ethics is incorporated by reference to the information under the
caption “Code of Conduct and Ethics and Corporate Governance Guidelines” to be contained in the Proxy Statement. The
information required by this item regarding our audit committee is incorporated by reference to the information under the
caption “Board Meetings and Committees—Audit Committee” to be contained in the Proxy Statement. The information
required by this item regarding material changes, if any, to the process by which stockholders may recommend nominees
to our board of directors is incorporated by reference to the information under the caption “Board Meetings and Committees
—Nominating and Governance Committee” to be contained in the Proxy Statement.
Executive Officers
Helen I. Torley, M.B. Ch. B., M.R.C.P. (55), President, Chief Executive Officer and Director. Dr. Torley joined
Halozyme in January 2014 as President and Chief Executive Officer and as a member of Halozyme’s Board of Directors.
Throughout her career, Dr. Torley has led several successful product launches, including Kyprolis®, Prolia®, Sensipar®,
and Miacalcin®. Prior to joining Halozyme, Dr. Torley served as Executive Vice President and Chief Commercial Officer
for Onyx Pharmaceuticals (Onyx) from August 2011 to December 2013 overseeing the collaboration with Bayer on
Nexavar® and Stivarga® and the U.S. launch of Kyprolis. She was responsible for the development of Onyx's commercial
capabilities in ex-US markets and in particular, in Europe. Prior to Onyx, Dr. Torley spent 10 years in management positions
at Amgen Inc., most recently serving as Vice President and General Manager of the US Nephrology Business Unit from
2003 to 2009 and the U.S. Bone Health Business Unit from 2009 to 2011. From 1997 to 2002, she held various senior
management positions at Bristol-Myers Squibb, including Regional Vice President of Cardiovascular and Metabolic Sales
and Head of Cardiovascular Global Marketing. She began her career at Sandoz/Novartis, where she ultimately served as
Vice President of Medical Affairs, developing and conducting post-marketing clinical studies across all therapeutic areas,
including oncology. Within the past five years, Dr. Torley served on the board of directors of Relypsa, Inc., a
biopharmaceutical company. Before joining the industry, Dr. Torley was in medical practice as a senior registrar in
rheumatology at the Royal Infirmary in Glasgow, Scotland. Dr. Torley received her Bachelor of Medicine and Bachelor of
Surgery degrees (M.B. Ch.B.) from the University of Glasgow and is a Member of the Royal College of Physicians (M.R.C.P).
Laurie D. Stelzer (50), Senior Vice President, Chief Financial Officer. Ms. Stelzer joined Halozyme in June 2015 as
Senior Vice President, Chief Financial Officer. Prior to joining Halozyme, Ms. Stelzer served from April 2014 to January
2015 as the Senior Vice President of Finance supporting R&D, Technical Operations and M&A at Shire, Inc., a
biopharmaceutical company. Prior to that she was the Division CFO for the Regenerative Medicine Division and the Head
of Investor Relations at Shire from March 2012 to April 2014. Prior to Shire, Ms. Stelzer held positions of increasing
responsibility for 15 years at Amgen, Inc., a biopharmaceutical company, including Interim Treasurer, Head of Emerging
Markets Expansion, Executive Director of Global Commercial Finance and Head of Global Accounting. Early in her career,
she held various finance and accounting positions in the real estate and banking industries. Ms. Stelzer received her MBA
from the Anderson School at the University of California, Los Angeles, and a Bachelor of Science in Accounting from
Arizona State University.
50
Harry J. Leonhardt, Esq. (61), Senior Vice President, General Counsel, Chief Compliance Officer and Corporate
Secretary. Mr. Leonhardt joined Halozyme in April 2015 as Senior Vice President, General Counsel, Chief Compliance
Officer and Corporate Secretary. Mr. Leonhardt brings more than 30 years of executive management, corporate legal,
intellectual property, compliance, business development and mergers and acquisitions experience to Halozyme, with an
extensive background in the biotechnology industry. Prior to joining Halozyme, Mr. Leonhardt was an arbitrator before the
International Centre for Dispute Resolution and a consultant in the biotechnology industry from January 2013 to April 2015.
He served as Senior Vice President, Legal and Compliance, and Corporate Secretary at Amylin Pharmaceuticals, Inc., a
biotechnology company, from September 2011 to January 2013 and previously served in other senior management legal
positions at Amylin since September 2007. Prior to Amylin, he served as Senior Vice President, General Counsel and
Corporate Secretary at Senomyx, Inc. from September 2003 to September 2007. From February 2001 to September 2003,
Mr. Leonhardt was Executive Vice President, General Counsel and Corporate Secretary at Genoptix, Inc. and from July
1996 to November 2000, he served as Vice President and then Senior Vice President, General Counsel and Corporate
Secretary at Nanogen, Inc. Prior to Nanogen, Mr. Leonhardt held positions of increasing responsibility at Allergan, Inc.
including Chief Litigation Counsel and General Counsel for European Operations. Early in his career, he was an attorney
at Lyon & Lyon LLP where he represented a number of prominent clients in the biotech, pharmaceutical and consumer
products industries. Mr. Leonhardt received a B.S. in Pharmacy from the University of the Sciences and a Juris Doctorate
from the University of Southern California School of Law.
Item 11. Executive Compensation
The information required by this item is incorporated by reference to the information under the caption “Executive
Compensation” to be contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Other than as set forth below, the information required by this item is incorporated by reference to the information
under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”
to be contained in the Proxy Statement.
Equity Compensation Plan Information
The following table summarizes our compensation plans under which our equity securities are authorized for
issuance as of December 31, 2017:
Plan Category
Equity compensation plans approved by stockholders (1) . . .
Equity compensation plans not approved by stockholders. .
_____________________
Number of
Shares to be
Issued upon
Exercise of
Outstanding
Options
and Restricted
Stock Units
(a)
13,023,641
—
13,023,641
(2)
Weighted
Average
Exercise Price
of Outstanding
Options
(b)
$12.24
—
$12.24
Number of Shares
Remaining Available
for Future Issuance
under Equity
Compensation
Plans (Excluding
Shares Reflected
in Column (a))
(c)
6,552,249
—
6,552,249
(1) Represents stock options, restricted stock units, and performance restricted stock units under the Amended and
Restated 2011 Stock Plan, 2008 Stock Plan and 2006 Stock Plan.
(2) This amount does not include restricted stock units and performance restricted stock units as there is no exercise
price for such units.
51
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference to the information under the caption “Certain
Relationships and Related Transactions” and “Corporate Governance - Director Independence” to be contained in the
Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the information under the caption “Principal
Accounting Fees and Services” to be contained in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Documents filed as part of this report.
1. Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets at December 31, 2017 and 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations for Each of the Years Ended
December 31, 2017, 2016 and 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss) for Each of the Years Ended
December 31, 2017, 2016 and 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for Each of the Years Ended
December 31, 2017, 2016 and 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity (Deficit) for Each of the Years Ended
December 31, 2017, 2016 and 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-1
F-2
F-3
F-4
F-5
F-6
F-7
2. List of all Financial Statement schedules.
The following financial statement schedule of Halozyme Therapeutics, Inc. is filed as part of this Annual Report
on Form 10-K and should be read in conjunction with the consolidated financial statements of Halozyme
Therapeutics, Inc.
Schedule II: Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
F-40
All other schedules are omitted because they are not applicable or the required information is shown in the Financial
Statements or notes thereto.
3. List of Exhibits required by Item 601 of Regulation S-K. See part (b) below.
52
(b)
Exhibits.
Exhibit Title
Herewith
Form
File No.
Date Filed
Incorporated by Reference
Filed
Composite Certification of Incorporation . . . . . . . . . . . . . . . . . . . . . .
10-Q
001-32335
8/7/2013
Bylaws, as amended . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8-K
001-32335 12/19/2016
License Agreement between University of Connecticut and
Registrant, dated November 15, 2002 . . . . . . . . . . . . . . . . . . . . . . . . .
First Amendment to the License Agreement between University of
Connecticut and Registrant, dated January 9, 2006 . . . . . . . . . . . . . .
SB-2
333-114776 4/23/2004
8-K
001-32335
1/12/2006
Halozyme Therapeutics, Inc. 2006 Stock Plan . . . . . . . . . . . . . . . . . .
8-K
001-32335
3/24/2006
Form of Stock Option Agreement (2006 Stock Plan) . . . . . . . . . . . . .
10-Q
001-32335
8/8/2006
Form of Restricted Stock Agreement (2006 Stock Plan) . . . . . . . . . .
10-Q
001-32335
8/8/2006
Halozyme Therapeutics, Inc. 2008 Stock Plan . . . . . . . . . . . . . . . . . .
8-K
001-32335
3/19/2008
Form of Stock Option Agreement (2008 Stock Plan) . . . . . . . . . . . . .
10-Q
001-32335
8/7/2009
Form of Restricted Stock Agreement (2008 Stock Plan) . . . . . . . . . .
10-Q
001-32335
8/7/2009
Exhibit
Number
3.1
3.2
10.1
10.2
10.3#
10.4#
10.5#
10.6#
10.7#
10.8#
10.9#
Halozyme Therapeutics, Inc. 2011 Stock Plan (as amended through
May 4, 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.10#
Form of Stock Option Agreement (2011 Stock Plan) . . . . . . . . . . . . .
10.11#
10.12#
10.13#
Form of Stock Option Agreement for Executive Officers (2011
Stock Plan). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Restricted Stock Units Agreement for Officers (2011 Stock
Plan). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Restricted Stock Award Agreement for Officers (2011
Stock Plan). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.14#
Form of Restricted Stock Units Agreement (2011 Stock Plan). . . . . .
10.15#
Form of Restricted Stock Award Agreement (2011 Stock Plan) . . . . .
10.16#
10.17#
10.18#
10.19#
Form of Stock Option Agreement (2011 Stock Plan -grants made on
or after 11/4/2015) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Restricted Stock Units Agreement (2011 Stock Plan -
grants made on or after 11/4/2015) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Restricted Stock Award Agreement (2011 Stock Plan -
grants made on or after 11/4/2015) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form of Restricted Stock Units Agreement (2011 Plan - grants
made on or after 2/22/2017) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEF-14
A
8-K
8-K
001-32335
3/23/2016
001-32335
5/6/2011
001-32335
5/6/2011
10-Q
001-32335
8/10/2015
10-Q
001-32335
8/10/2015
8-K
8-K
001-32335
5/6/2011
001-32335
5/6/2011
10-Q
001-32335
11/9/2015
10-Q
001-32335
11/9/2015
10-Q
001-32335
11/9/2015
10-K
001-32335
2/28/2017
10.20#
Form of Indemnity Agreement for Directors and Executive Officers.
8-K
001-32335 12/20/2007
53
Exhibit
Number
Exhibit Title
Herewith
Form
File No.
Date Filed
Incorporated by Reference
Filed
10.21#
Severance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10-Q
001-32335
5/9/2008
10.22#
Form of Amended and Restated Change In Control Agreement with
Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10-Q
001-32335
11/9/2015
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Lease (11404 and 11408 Sorrento Valley Road), effective as of June
10, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Amendment to Lease (11404 and 11408 Sorrento Valley
Road), dated June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amended and Restated Lease (11388 Sorrento Valley Road),
effective as of June 10, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Amendment to Amended and Restated Lease (11388 Sorrento
Valley Road), dated June 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . .
8-K
001-32335
6/16/2011
8-K
001-32335
7/5/2017
8-K
001-32335
6/16/2011
8-K
001-32335
7/5/2017
Lease (11436 Sorrento Valley Road), effective as of April 2013 . . . .
10-K
001-32335
3/1/2013
First Modification to Lease (11436 Sorrento Valley Road). . . . . . . . .
10-Q
001-32335
5/8/2013
Second Modification to Lease (11436 Sorrento Valley Road), dated
June 30, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8-K
001-32335
7/5/2017
10.30*
Credit Agreement, dated December 30, 2015 . . . . . . . . . . . . . . . . . . .
10-K
001-32335
2/29/2016
10.31#
Halozyme Therapeutics, Inc. Executive Incentive Plan . . . . . . . . . . .
DEF-14
A
001-32335
3/23/2016
10.32
10.33
10.34
10.35#
10.36#
21.1
23.1
31.1
31.2
Loan and Security Agreement, dated June 7, 2016 . . . . . . . . . . . . . . .
10-Q
001-32335
8/9/2016
Consent, Release, and First Amendment to Loan and Security
Agreement, dated December 21, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
10-K
001-32335
2/28/2017
Consent, Release, and Second Amendment to Loan and Security
Agreement, dated November 21, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
X
Transition Services Agreement and General Release of Claims,
dated May 8, 2017, and Consulting Agreement, dated May 9. 2017,
by and between the Registrant and Dr. Athena Countouriotis. . . . . . .
Transition Services Agreement and General Release of Claims,
dated September 29, 2017, and Consulting Agreement, dated
September 30, 2017, by and between the Registrant and Mark J.
Gergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consent of Independent Registered Public Accounting Firm . . . . . . .
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as amended .
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
and 15d-14(a) of the Securities Exchange Act of 1934, as amended .
X
X
X
X
8-K
001-32335 5/9/2017
8-K
001-32335 9/29/2017
54
Exhibit Title
Herewith
Form
File No.
Date Filed
Incorporated by Reference
Filed
Exhibit
Number
32
Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.INS XBRL Instance Document. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
101.SCH XBRL Taxonomy Extension Schema . . . . . . . . . . . . . . . . . . . . . . . . .
101.CAL XBRL Taxonomy Extension Calculation Linkbase. . . . . . . . . . . . . . .
101.DEF XBRL Taxonomy Extension Definition Linkbase. . . . . . . . . . . . . . . .
101.LAB XBRL Taxonomy Extension Label Linkbase . . . . . . . . . . . . . . . . . . .
101.PRE XBRL Taxonomy Presentation Linkbase . . . . . . . . . . . . . . . . . . . . . .
_______________
X
X
X
X
X
X
X
*
#
Confidential treatment has been granted (or requested) for certain portions of this exhibit. These portions have
been omitted from this agreement and have been filed separately with the Securities and Exchange Commission.
Indicates management contract or compensatory plan or arrangement.
(c)
Financial Statement Schedules. See Item 15(a) 2 above.
Item 16. Form 10-K Summary
None.
55
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date:
February 20, 2018
Halozyme Therapeutics, Inc.,
a Delaware corporation
By:
/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
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Helen
I. Torley and Laurie D. Stelzer, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all
amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all
said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/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), Director
February 20, 2018
/s/ Laurie D. Stelzer
Laurie D. Stelzer
/s/ Connie L. Matsui
Connie L. Matsui
/s/ Jean-Pierre Bizzari
Jean-Pierre Bizzari
/s/ James M. Daly
James M. Daly
/s/ Jeffrey W. Henderson
Jeffrey W. Henderson
/s/ Kenneth J. Kelley
Kenneth J. Kelley
/s/ Randal J. Kirk
Randal J. Kirk
/s/ Matthew L. Posard
Matthew L. Posard
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
February 20, 2018
Chair of the Board of Directors
February 20, 2018
Director
Director
Director
Director
Director
Director
56
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
February 20, 2018
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Halozyme Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Halozyme Therapeutics, Inc. (the Company) as
of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss, cash flows,
and stockholders’ equity (deficit) for each of the three years in the period ended December 31, 2017, and the related notes
and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects,
the financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2017, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (2013 framework) and our report dated February 20, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2006.
/s/ Ernst & Young LLP
San Diego, California
February 20, 2018
F-1
HALOZYME THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31,
2017
December 31,
2016
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities, available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of long-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 9)
Stockholders’ equity (deficit):
Preferred stock - $0.001 par value; 20,000 shares authorized; no shares
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock - $0.001 par value; 200,000 shares authorized; 142,789 and
129,502 shares issued and outstanding at December 31, 2017 and 2016,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’ equity (deficit). . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
168,740
300,474
22,133
5,146
13,879
510,372
3,520
5,553
500
519,945
7,948
39,601
6,568
77,211
131,328
54,297
125,140
814
66,764
138,217
15,680
14,623
21,248
256,532
4,264
219
500
261,515
3,578
28,821
4,793
17,393
54,585
39,825
199,228
358
—
—
143
731,044
(450)
(522,371)
208,366
519,945
$
130
552,737
(6)
(585,342)
(32,481)
261,515
See accompanying notes to consolidated financial statements.
F-2
HALOZYME THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenues:
Product sales, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Royalties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues under collaborative agreements . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Cost of product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income (expense):
Investment and other income, net . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Year Ended December 31,
2017
2016
2015
50,396
63,507
202,710
316,613
31,152
150,643
53,816
235,611
81,002
2,592
(21,984)
61,610
(1,361)
62,971
0.46
0.45
$
$
$
$
53,392
50,984
42,315
146,691
33,206
150,842
45,853
229,901
(83,210)
1,326
(19,977)
(101,861)
1,162
(103,023)
(0.81)
(0.81)
$
$
$
$
46,082
30,975
58,000
135,057
29,245
93,236
40,028
162,509
(27,452)
422
(5,201)
(32,231)
—
(32,231)
(0.25)
(0.25)
Shares used in computing net income (loss) per share:. . . . . . . . . . . . .
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,419
139,068
127,964
127,964
126,704
126,704
See accompanying notes to consolidated financial statements.
F-3
HALOZYME THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
62,971
$
Other comprehensive income (loss):
2017
2016
(103,023)
Unrealized (loss) gain on marketable securities . . . . . . . . . . . .
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . .
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(430)
(14)
62,527
93
—
(102,930)
$
2015
(32,231)
(58)
—
(32,289)
$
$
Year Ended December 31,
See accompanying notes to consolidated financial statements.
F-4
HALOZYME THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment-in-kind interest expense on long-term debt . . . . . . .
(Accretion of discounts) amortization of premiums on
marketable securities, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of equipment . . . . . . . . . . . . . . . . . . . . . . . .
Deferral of unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of deferred revenue . . . . . . . . . . . . . . . . . . . . . . .
Deferral of rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . .
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . .
Investing activities:
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities of marketable securities. . . . . . . . . . . . .
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . . .
Financing activities:
Proceeds from issuance of common stock, net. . . . . . . . . . . . . . . .
Proceeds from issuance of long-term debt, net. . . . . . . . . . . . . . . .
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under equity incentive
plans, net of taxes paid related to net share settlement. . . . . . . . . .
Net cash provided by financing activities . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash, cash equivalents and restricted cash. .
Cash, cash equivalents and restricted cash at beginning of period . . . .
Cash, cash equivalents and restricted cash at end of period . . . . . . . . .
Supplemental disclosure of cash flow information:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosure of non-cash investing and financing activities:
Amounts accrued for purchases of property and equipment . . . . . . . .
$
$
$
$
Year Ended December 31,
2017
2016
2015
$
62,971
$
(103,023)
$
(32,231)
30,670
2,161
1,761
—
(303)
46
22,759
(6,512)
13
(185)
(16)
(6,453)
9,477
2,035
15,629
134,053
(398,187)
235,805
(1,350)
(163,732)
134,874
—
(15,995)
12,776
131,655
101,976
67,264
169,240
20,295
3,015
189
$
$
$
$
25,585
2,410
2,896
13,184
552
8
701
(9,304)
—
(370)
—
16,730
(5,134)
5,626
(244)
(50,383)
(155,412)
81,783
(3,137)
(76,766)
—
203,006
(54,250)
1,865
150,621
23,472
43,792
67,264
3,886
1,441
75
$
$
$
$
$
20,838
1,677
1,243
879
—
8
4,379
(5,789)
441
(276)
—
(23,261)
(3,083)
(15,774)
13,866
(37,083)
(71,482)
79,730
(2,360)
5,888
—
—
—
13,098
13,098
(18,097)
61,889
43,792
3,775
—
473
See accompanying notes to consolidated financial statements.
F-5
HALOZYME THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
Common Stock
Shares
Amount
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
BALANCE AT JANUARY 1, 2015 . . . . . .
125,721
$
126
$ 491,694
$
(41)
$
(450,427)
$
Share-based compensation expense . . . . . .
Issuance of common stock pursuant to
exercise of stock options and vesting of
restricted stock units, net. . . . . . . . . . . . . . .
Issuance of restricted stock awards, net . . .
Other comprehensive loss . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
2,056
375
—
—
BALANCE AT DECEMBER 31, 2015. . . .
128,152
Adjustment to beginning retained earnings.
Share-based compensation expense . . . . . .
Issuance of common stock pursuant to
exercise of stock options and vesting of
restricted stock units and performance
restricted stock units, net. . . . . . . . . . . . . . .
Issuance of restricted stock awards, net . . .
Other comprehensive income . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
570
780
—
—
BALANCE AT DECEMBER 31, 2016. . . .
129,502
Share-based compensation expense . . . . . .
—
Issuance of common stock for cash, net . . .
11,500
Issuance of common stock pursuant to
exercise of stock options and vesting of
restricted stock units and performance
restricted stock units, net. . . . . . . . . . . . . . .
Cancellation of restricted stock awards, net
Other comprehensive loss . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
1,796
(9)
—
—
—
2
—
—
—
128
—
—
1
1
—
—
130
—
11
2
—
—
—
20,838
13,096
—
—
—
525,628
(339)
25,585
1,947
(84)
—
—
552,737
30,670
134,863
12,774
—
—
—
—
—
—
(58)
—
(99)
—
—
—
—
93
—
(6)
—
—
—
(444)
—
—
—
—
—
(32,231)
(482,658)
339
—
—
—
—
(103,023)
(585,342)
—
—
—
41,352
20,838
13,098
—
(58)
(32,231)
42,999
—
25,585
1,948
(83)
93
(103,023)
(32,481)
30,670
134,874
12,776
—
(444)
62,971
62,971
BALANCE AT DECEMBER 31, 2017. . . .
142,789
$
143
$ 731,044
$
(450)
$
(522,371)
$
208,366
See accompanying notes to consolidated financial statements.
F-6
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements
1. Organization and Business
Halozyme Therapeutics, Inc. is a biotechnology company focused on developing and commercializing novel oncology
therapies. We are seeking to translate our unique knowledge of the tumor microenvironment to create therapies that have
the potential to improve cancer patient survival. Our research primarily focuses on human enzymes that alter the extracellular
matrix and tumor microenvironment. The extracellular matrix is a complex matrix of proteins and carbohydrates surrounding
the cell that provides structural support in tissues and orchestrates many important biological activities, including cell
migration, signaling and survival. Over many years, we have developed unique technology and scientific expertise enabling
us to pursue this target-rich environment for the development of therapies.
Our proprietary enzymes are used to facilitate the delivery of injected drugs and fluids, potentially enhancing the
efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit. We exploit
our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing
our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2)
licensing our technology to biopharmaceutical companies to collaboratively develop products that combine our technology
with the collaborators’ proprietary compounds.
The majority of our approved product 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,
and it works by temporarily breaking down hyaluronan (or “HA”), a naturally occurring complex carbohydrate that is a
major component of the extracellular matrix in tissues throughout the body such as skin and cartilage. We believe this
temporary degradation creates an opportunistic window for the 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® Technology. 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.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc.
(“Roche”), Baxalta US Inc. and Baxalta GmbH (Baxalta Incorporated was acquired by Shire plc in June 2016) (“Baxalta”),
Pfizer Inc. (“Pfizer”), Janssen Biotech, Inc. (“Janssen”), AbbVie, Inc. (“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol-
Myers Squibb Company (“BMS”) and Alexion Pharma Holding (“Alexion”).We receive royalties from two of these
collaborations, including royalties from sales of one product from the Baxalta collaboration and two products from the
Roche collaboration. Future potential revenues from 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 proprietary development pipeline consists primarily of pre-clinical and clinical stage product candidates in
oncology. Our lead oncology program is Pegvorhyaluronidase alfa (“PEGPH20”, PEGylated recombinant human
hyaluronidase), a molecular entity we are developing in combination with currently approved cancer therapies as a candidate
for the systemic treatment of tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it
can cause higher pressure in the tumor, reducing blood flow into the tumor and with that, reduced access of cancer therapies
to the tumor. PEGPH20 has been demonstrated in animal models to work by temporarily degrading HA surrounding cancer
cells resulting in reduced pressure and increased blood flow to the tumor thereby enabling increased amounts of anticancer
treatments administered concomitantly gaining access to the tumor. Through our efforts and efforts of our partners and
collaborators, we are currently in Phase 3 clinical testing for PEGPH20 with ABRAXANE® (nab-paclitaxel) and gemcitabine
in stage IV pancreatic ductal adenocarcinoma (“PDA”) (HALO 109-301), in Phase 1b clinical testing for PEGPH20 with
KEYTRUDA® (pembrolizumab) in non-small cell lung cancer and gastric cancer (HALO 107-101), in Phase 1b/2 clinical
testing for PEGPH20 with HALAVEN® (eribulin) in patients treated with up to two lines of prior therapy for HER2-negative
metastatic breast cancer, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq® (atezolizumab) in patients with
previously treated metastatic PDA, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with gastric cancer
and in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with cholangiocarcinoma and gall bladder cancer
(HALO 110-101/MATRIX).
F-7
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,”
“our,” and “us” in these notes to condensed consolidated financial statements refer to Halozyme Therapeutics, Inc. and its
wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd.,
Halozyme Royalty LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Halozyme Therapeutics, Inc. and our wholly owned
subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty
LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH. All intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
(“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our consolidated
financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are
based on historical and anticipated results and trends and on various other assumptions that management believes to be
reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such,
actual results may differ from management’s estimates.
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within ninety days or
less from the date of purchase. As of December 31, 2017, our cash equivalents consisted of money market funds and
commercial paper.
Marketable securities are investments with original maturities of more than ninety days from the date of purchase that
are specifically identified to fund current operations. Marketable securities are considered available-for-sale. These
investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current
balance sheet date which reflects management’s intention to use the proceeds from the sale of these investments to fund
our operations, as necessary. Such available-for-sale investments are carried at fair value with unrealized gains and losses
recorded in other comprehensive gain (loss) and included as a separate component of stockholders’ equity (deficit). The
cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such
amortization or accretion is included in investment and other income, net in the condensed consolidated statements of
operations. We use the specific identification method for calculating realized gains and losses on marketable securities sold.
Realized gains and losses and declines in value judged to be other-than-temporary on marketable securities, if any, are
included in investment and other income, net in the consolidated statements of operations.
Restricted Cash
Under the terms of the leases of our facilities, we are required to maintain letters of credit as security deposits during
the terms of such leases. At December 31, 2017 and 2016, restricted cash of $0.5 million was pledged as collateral for the
letters of credit.
Fair Value of Financial Instruments
The authoritative guidance for fair value measurements establishes a three tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in
active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly
observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity
to develop its own assumptions.
F-8
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable,
prepaid expenses and other assets, accounts payable, accrued expenses and long-term debt. Fair value estimates of these
instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective
in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.
The carrying amount of cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable and
accrued expenses are generally considered to be representative of their respective fair values because of the short-term
nature of those instruments. Based on Level 3 inputs and the borrowing rates currently available for loans with similar
terms, we believe the fair value of long-term debt approximates its carrying value.
Available-for-sale marketable securities consist of corporate debt securities, U.S. Treasury securities and commercial
paper, and are measured at fair value using Level 1 and Level 2 inputs. Level 2 financial instruments are valued using market
prices on less active markets and proprietary pricing valuation models with observable inputs, including interest rates, yield
curves, maturity dates, issue dates, settlement dates, reported trades, broker-dealer quotes, issue spreads, benchmark
securities or other market related data. We obtain the fair value of Level 2 investments from our investment manager, who
obtains these fair values from a third-party pricing source. We validate the fair values of Level 2 financial instruments
provided by our investment manager by comparing these fair values to a third-party pricing source.
Concentrations of Credit Risk, Sources of Supply and Significant Customers
We are subject to credit risk from our portfolio of cash equivalents and marketable securities. 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. We maintain our cash and cash equivalent balances
with one major commercial bank and marketable securities with another financial institution. Deposits held with the financial
institutions exceed the amount of insurance provided on such deposits. We are exposed to credit risk in the event of a default
by the financial institutions holding our cash, cash equivalents and marketable securities to the extent recorded on the
consolidated balance sheets.
We are also subject to credit risk from our accounts receivable related to our product sales and revenues under our
license and collaborative agreements. We have license and collaborative agreements with pharmaceutical companies under
which we receive payments for license fees, milestone payments for specific achievements designated in the collaborative
agreements, reimbursements of research and development services and supply of bulk formulation of rHuPH20. In addition,
we sell Hylenex® recombinant in the United States to a limited number of established wholesale distributors in the
pharmaceutical industry. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is
not required. Management monitors our exposure to accounts receivable by periodically evaluating the collectibility of the
accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial
health of the customer and historical experience. Based upon the review of these factors, we recorded no allowance for
doubtful accounts at December 31, 2017 and 2016. Approximately 86% of the accounts receivable balance at December 31,
2017 represents amounts due from Roche and Baxalta. Approximately 81% of the accounts receivable balance at
December 31, 2016 represents amounts due from Roche and Baxalta.
The following table indicates the percentage of total revenues in excess of 10% with any single customer:
Roche. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alexion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Baxalta. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lilly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
63%
—
—
12%
6%
4%
2015
42%
—
—
7%
19%
17%
2017
38%
32%
13%
7%
—
—
F-9
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
We attribute revenues under collaborative agreements, including royalties, to the individual countries where the
collaborator is headquartered. We attribute revenues from product sales to the individual countries to which the product is
shipped. Worldwide revenues from external customers are summarized by geographic location in the following table (in
thousands):
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Switzerland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2017
196,274
119,136
1,203
2016
2015
$
52,292
$
93,067
1,332
77,149
57,136
772
316,613
$
146,691
$
135,057
As of December 31, 2017 and 2016, we had less than $0.1 million of research equipment in Germany.
We rely on two third-party manufacturers for the supply of bulk rHuPH20 for use in the manufacture of Hylenex
recombinant and our other collaboration products and product candidates. Payments due to these suppliers represented 4%
and 13% of the accounts payable balance at December 31, 2017 and 2016, respectively. We also rely on a third-party
manufacturer for the fill and finish of Hylenex recombinant product under a contract. Payments due to this supplier represented
1% and 2% of the accounts payable balance at December 31, 2017 and 2016, respectively.
Accounts Receivable, Net
Accounts receivable is recorded at the invoiced amount and is non-interest bearing. Accounts receivable is recorded
net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees and chargebacks. We recorded
no allowance for doubtful accounts at December 31, 2017 and 2016 as the collectibility of accounts receivable was reasonably
assured.
Inventories
Inventories are stated at lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Net
realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of
completion, disposal, and transportation. Inventories are reviewed periodically for potential excess, dated or obsolete status.
We evaluate the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated
future sales compared to quantities on hand, the price we expect to obtain for products in their respective markets compared
with historical cost and the remaining shelf life of goods on hand.
Prior to receiving marketing approval from the U.S. Food and Drug Administration (“FDA”) or comparable regulatory
agencies in foreign countries, costs related to purchases of bulk rHuPH20 and raw materials and the manufacturing of the
product candidates are recorded as research and development expense. All direct manufacturing costs incurred after receiving
marketing approval are capitalized as inventory. Inventories used in clinical trials are expensed at the time the inventories
are packaged for the clinical trials.
As of December 31, 2017 and 2016, inventories consisted of $2.9 million and $2.3 million, respectively, of Hylenex
recombinant inventory, net, and $2.2 million and $12.3 million, respectively, of bulk rHuPH20 for use in the manufacture
of Baxalta’s and Roche’s collaboration products.
Property and Equipment, Net
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Equipment is depreciated
using the straight-line method over its estimated useful life of three years and leasehold improvements are amortized using
the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter.
F-10
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Impairment of Long-Lived Assets
We account for long-lived assets in accordance with authoritative guidance for impairment or disposal of long-lived
assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may
not be recoverable. For the years ended December 31, 2017 and 2016, there was no impairment of the value of long-lived
assets.
Deferred Rent
Rent expense is recorded on a straight-line basis over the initial term of the lease. The difference between rent expense
accrued and amounts paid under lease agreements is recorded as deferred rent and is included in accrued expenses and other
long-term liabilities, as applicable, in the accompanying consolidated balance sheets.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during the period from transactions and other events
and circumstances from non-owner sources.
Revenue Recognition
We generate revenues from product sales and payments received under collaborative agreements. Collaborative
agreement payments may include nonrefundable fees at the inception of the agreements, license fees, milestone and event-
based payments for specific achievements designated in the collaborative agreements, reimbursements of research and
development services and supply of bulk rHuPH20, and/or royalties on sales of products resulting from collaborative
arrangements.
We recognize revenues in accordance with the authoritative guidance for revenue recognition. We recognize revenue
when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or
services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably
assured.
Product Sales, Net
Hylenex Recombinant
We sell Hylenex recombinant in the U.S. to wholesale pharmaceutical distributors, who sell the product to hospitals
and other end-user customers. Sales to wholesalers provide for selling prices that are fixed on the date of sale, although we
offer discounts to certain group purchasing organizations (“GPOs”), hospitals and government programs. The wholesalers
take title to the product, bear the risk of loss of ownership and have economic substance to the inventory. Further, we have
no significant obligations for future performance to generate pull-through sales.
We have developed sufficient historical experience and data to reasonably estimate future returns and chargebacks of
Hylenex recombinant. As a result, we recognize Hylenex recombinant product sales and related cost of product sales at the
time title transfers to the wholesalers.
Upon recognition of revenue from product sales of Hylenex recombinant, we record certain sales reserves and
allowances as a reduction to gross revenue. These reserves and allowances include amounts for product returns (based
primarily on an analysis of historical return patterns), distribution fees, prompt payment discounts, and GPO fees and other
discounts and fees.
We recognize product sales reserves and allowances as a reduction of product sales in the same period the related
revenue is recognized. Because of the shelf life of Hylenex recombinant and our lengthy return period, there may be a
significant period of time between when the product is shipped and when we issue credits on returned product. If actual
product return results differ from our estimates, we will be required to make adjustments to these allowances in the future,
which could have an effect on product sales revenue and earnings in the period of adjustments.
F-11
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Bulk rHuPH20
Subsequent to receiving marketing approval from the FDA or comparable regulatory agencies in foreign countries,
sales of bulk rHuPH20 for use in collaboration commercial products are recognized as product sales when the materials
have met all the specifications required for the customer’s acceptance and title and risk of loss have transferred to the
customer. Following the receipt of European marketing approvals of Roche’s Herceptin SC product in August 2013 and
MabThera® SC product in March 2014 and Baxalta’s HYQVIA product in May 2013, revenue from the sales of bulk
rHuPH20 for these collaboration products has been recognized as product sales.
Revenues under Collaborative Agreements
We have entered into license and collaboration agreements under which our collaborators obtained worldwide rights
for the use of our proprietary rHuPH20 enzyme in the development and commercialization of their biologic compounds
identified as targets. These agreements may also contain other elements. Pursuant to the terms of these agreements,
collaborators could be required to make various payments to us for each target, including nonrefundable upfront license
fees, exclusivity fees, payments based on achievement of specified milestones designated in the collaborative agreements,
annual maintenance fees, reimbursements of research and development services, payments for supply of bulk rHuPH20
used by the collaborator and/or royalties on sales of products resulting from collaborative agreements.
In order to account for the multiple-element arrangements, we identify the deliverables included within the collaborative
agreement and evaluate which deliverables represent units of accounting. We then determine the appropriate method of
revenue recognition for each unit based on the nature and timing of the delivery process. Analyzing the arrangement to
identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or
license to use an asset, or another performance obligation. The deliverables under our collaborative agreements include
(i) the license to our rHuPH20 technology, (ii) at the collaborator’s request, research and development services which are
reimbursed at contractually determined rates, and (iii) at the collaborator’s request, supply of bulk rHuPH20 which is
reimbursed at our cost plus a margin. A delivered item is considered a separate unit of accounting when the delivered item
has value to the collaborator on a standalone basis based on the consideration of the relevant facts and circumstances for
each arrangement. We base this determination on the collaborators’ ability to use the delivered items on their own without
us supplying undelivered items, which we determine taking into consideration factors such as the research capabilities of
the collaborator, the availability of research expertise in this field in the general marketplace, and the ability to procure the
supply of bulk rHuPH20 from the marketplace.
Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based
on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective
evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor
third-party evidence of selling price exists, we use our best estimate of the selling price for the deliverable. The amount of
allocable arrangement consideration is limited to amounts that are not contingent upon the delivery of additional items or
meeting other specified performance conditions. The consideration received is allocated among the separate units of
accounting and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation
of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total
revenue recognized under any agreement.
Nonrefundable upfront license fees are recognized upon delivery of the license if facts and circumstances dictate that
the license has standalone value from the undelivered items, which generally include research and development services
and the manufacture of bulk rHuPH20, the relative selling price allocation of the license is equal to or exceeds the upfront
license fee, persuasive evidence of an arrangement exists, our price to the collaborator is fixed or determinable and
collectibility is reasonably assured. Upfront license fees are deferred if facts and circumstances dictate that the license does
not have standalone value. The determination of the length of the period over which to defer revenue is subject to judgment
and estimation and can have an impact on the amount of revenue recognized in a given period.
F-12
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
When collaborators have rights to elect additional targets, the rights are assessed as to whether they represent
deliverables at the inception of the arrangement. In assessing these contingent deliverables, we consider whether the right
is a substantive option. We consider a right to be a substantive option if the election of the additional targets is not essential
to the functionality of the other elements in the arrangement and if we are truly at risk of the right being exercised. If the
right is determined to be a substantive option, we further consider whether the right is priced at a significant and incremental
discount that should be accounted for as an element of the arrangement. If a right is determined to be a substantive option
and is not priced at a significant and incremental discount, it is not treated as a deliverable in the arrangement and receives
no allocation at the inception of the arrangement of the original arrangement consideration. The right is then accounted for
when and if it is exercised. When collaborators have a right to return targets, the right is assessed as to whether the target
may be returned for a refund of the purchase price, for a credit applied to amounts owed, or in exchange for other dissimilar
products. We also assess if we have sufficient history to estimate the likelihood of return. If a right of return is considered
to exist and we determine there is not sufficient history to estimate the likelihood of return, the consideration allocated to
returnable targets is recorded as deferred revenue on the consolidated balance sheet until the right of return is exercised or
expires.
Certain of our collaborative agreements provide for milestone payments upon achievement of development and
regulatory events and/or specified sales volumes of commercialized products by the collaborator. We account for milestone
payments in accordance with the provisions of ASU No. 2010-17, Revenue Recognition - Milestone Method (“Milestone
Method of Accounting”). We recognize consideration that is contingent upon the achievement of a milestone in its entirety
as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone
is considered substantive when it meets all of the following criteria:
1. The consideration is commensurate with either the entity’s performance to achieve the milestone or the
enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s
performance to achieve the milestone;
2. The consideration relates solely to past performance; and
3. The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.
A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s
performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is
substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result
in additional payments being due to the vendor.
Reimbursements of research and development services are recognized as revenue during the period in which the
services are performed as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable and
collection of the related receivable is reasonably assured. Revenue from the manufacture of bulk rHuPH20 is recognized
when the materials have met all specifications required for the collaborator’s acceptance and title and risk of loss have
transferred to the collaborator. We do not directly control when any collaborator will request research and development
services or supply of bulk rHuPH20; therefore, we cannot predict when we will recognize revenues in connection with
research and development services and supply of bulk rHuPH20.
Since we receive royalty reports 60 days after quarter end, royalty revenue from sales of collaboration products by
our collaborators is recognized in the quarter following the quarter in which the corresponding sales occurred.
The collaborative agreements typically provide the collaborators the right to terminate such agreement in whole or
on a product-by-product or target-by-target basis at any time upon 30 to 90 days prior written notice to us. There are no
performance, cancellation, termination or refund provisions in any of our collaborative agreements that contain material
financial consequences to us.
Refer to Note 4, Collaborative Agreements, for further discussion on our collaborative arrangements.
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
for use in approved collaboration products. Cost of product sales also consists of the write-down of excess, dated and
obsolete inventories and the write-off of inventories that do not meet certain product specifications, if any.
F-13
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Research and Development Expenses
Research and development expenses include salaries and benefits, facilities and other overhead expenses, external
clinical trial expenses, research related manufacturing services, contract services and other outside expenses. Research and
development expenses are charged to operating expenses as incurred when these expenditures relate to our research and
development efforts and have no alternative future uses. After receiving approval from the FDA or comparable regulatory
agencies in foreign countries for a product, costs related to purchases and manufacturing of bulk rHuPH20 for such product
are capitalized as inventory. The manufacturing costs of bulk rHuPH20 for the collaboration products, Herceptin SC,
MabThera SC (RITUXAN HYCELA™ in the U.S.) and HYQVIA, incurred after the receipt of marketing approvals are
capitalized as inventory.
We are obligated to make upfront payments upon execution of certain research and development agreements. Advance
payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and
development activities are deferred. Such amounts are recognized as expense as the related goods are delivered or the related
services are performed or such time when we do not expect the goods to be delivered or services to be performed.
Milestone payments that we make in connection with in-licensed technology for a particular research and development
project that have no alternative future uses (in other research and development projects or otherwise) and therefore no
separate economic value are expensed as research and development costs at the time the costs are incurred. We currently
have no in-licensed technologies that have alternative future uses in research and development projects or otherwise.
Clinical Trial Expenses
We make payments in connection with our clinical trials under contracts with contract research organizations that
support conducting and managing clinical trials. The financial terms of these agreements are subject to negotiation and vary
from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work
to be performed at a fixed fee, unit price or on a time and materials basis. A portion of our obligation to make payments
under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of
other clinical trial milestones.
Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers
regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the
clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the
amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the
clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions
to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision
become reasonably certain.
Share-Based Compensation
We record compensation expense associated with stock options, restricted stock awards (“RSAs”), restricted stock
units (“RSUs”), and RSUs with performance conditions (“PRSUs”) in accordance with the authoritative guidance for stock-
based compensation. The cost of employee services received in exchange for an award of an equity instrument is measured
at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over
the requisite service period of the award. Share-based compensation expense for an award with a performance condition is
recognized when the achievement of such performance condition is determined to be probable. If the outcome of such
performance condition is not determined to be probable or is not met, no compensation expense is recognized and any
previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of share-based
compensation expense as they occur.
F-14
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Income Taxes
We provide for income taxes using the liability method. Under this method, deferred income tax assets and liabilities
are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities
at each year end and their respective tax bases and are measured using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Significant judgment is required by management to determine our provision
for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax
assets, which are based on complex and evolving tax regulations throughout the world. Deferred tax assets and other tax
benefits are recorded when it is more likely than not that the position will be sustained upon audit. While we have begun
to utilize certain of our net operating losses, we have not yet established a track record of profitability. Accordingly, valuation
allowances have been recorded to reduce our net deferred tax assets to zero, with the exception of the alternative minimum
tax ("AMT") credit carryover. Under the Tax Cuts and Jobs Act enacted in December 2017, the AMT credit carryover will
either be utilized, or if unutilized fully refunded in 2022. For all other deferred tax assets the valuation allowance will reduce
the net value to zero until such time as we can demonstrate an ability to realize them.
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income (loss) 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 RSAs, unvested RSUs and unvested PRSUs 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. For the years ended December 31, 2017, 2016 and 2015, approximately 7.1 million, 13.8 million, and 9.8 million
shares, respectively, of outstanding stock options, unvested RSAs, unvested RSUs and unvested PRSUs were excluded from
the calculation of diluted net income (loss) per common share because their effect was anti-dilutive. A reconciliation of the
numerators and the denominators of the basic and diluted net income (loss) per common share computations is as follows
(in thousands, except per share amounts):
Year Ended December 31,
2017
2016
2015
Numerator:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
62,971
$ (103,023) $ (32,231)
Denominator:
Weighted average common shares outstanding for basic
net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net effect of dilutive common stock equivalents . . . . . . . . . . . . . . . .
Weighted average common shares outstanding for diluted
net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
136,419
2,649
127,964
—
126,704
—
139,068
127,964
126,704
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.46
0.45
$
$
(0.81) $
(0.81) $
(0.25)
(0.25)
Segment Information
We operate our business in one segment, which includes all activities related to the research, development and
commercialization of our proprietary enzymes. This segment also includes revenues and expenses related to (i) research
and development and bulk rHuPH20 manufacturing activities conducted under our collaborative agreements with third
parties and (ii) product sales of Hylenex recombinant. The chief operating decision-maker reviews the operating results on
an aggregate basis and manages the operations as a single operating segment. Our long-lived assets located in foreign
countries had minimal book value as of December 31, 2017 and 2016.
F-15
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Adoption and Pending Adoption of Recent Accounting Pronouncements
The following table provides a brief description of recently issued accounting standards, those adopted in the current
period and those not yet adopted:
Standard
Description
Effective Date
Effect on the Financial
Statements or Other Significant
Matters
In July 2015, the FASB
issued ASU
2015-11, Inventory:
Simplifying the
Measurement of
Inventory.
In November 2015, the
FASB issued ASU
2015-17, Income Taxes
(Topic 740), Balance
Sheet Classification of
Deferred Tax Assets
In August 2016, the
FASB issued ASU
2016-15, Statement of
Cash Flows:
Classification of
Certain Cash Receipts
and Cash Payments.
In November 2016, the
FASB issued ASU
2016-18, Statement of
Cash Flows: Restricted
Cash.
The new guidance requires that for entities that
measure inventory using the first-in, first-out
method, inventory should be measured at the
lower of cost or net realizable value. Topic 330,
Inventory, currently requires an entity to
measure inventory at the lower of cost or
market. Market could be replacement cost, net
realizable value, or net realizable value less an
approximate normal profit margin. Net
realizable value is the estimated selling price in
the ordinary course of business, less reasonably
predictable costs of completion, disposal, and
transportation.
The amendments in this update simplify the
presentation of deferred income taxes by
requiring that deferred tax liabilities and assets
be classified as noncurrent in a classified
statement of financial position.
Current U.S. GAAP either is unclear or does not
include specific guidance on the eight cash flow
classification issues included in ASU 2016-15.
The new guidance is an improvement to U.S.
GAAP and is intended to reduce the current and
potential future diversity in practice. ASU
2016-18 provides additional classification
guidance for restricted cash, which requires that
restricted cash be included with cash and cash
equivalents when reconciling the beginning-of-
period and end-of-period total amounts shown
on the statement of cash flows.
January 1, 2017. The adoption did not have a
material impact on our
consolidated financial
position or results of
operations.
January 1, 2017
The adoption of this
guidance did not have a
significant impact on the
Company’s financial
statements.
January 1, 2018.
We have elected
to early adopt as
of January 1,
2017.
Cash and cash equivalents at
the beginning-of-period and
end-of-period total amounts
in the Consolidated
Statements of Cash Flows
have been adjusted to include
$0.5 million of restricted
cash for each of the periods
presented.
F-16
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Description
Effective Date
Effect on the Financial
Statements or Other Significant
Matters
January 1, 2018. We currently do not hold
equity securities, and we are
evaluating the effect the
updated standard will have
on our consolidated financial
statements and related
disclosures.
Standard
In January 2016, the
FASB issued ASU
2016-01, Financial
Instruments - Overall;
Recognition and
Measurement of
Financial Assets and
Financial Liabilities.
In May 2014, the
FASB issued ASU
2014-09, Revenue
from Contracts with
Customers (Topic
606). In March, April,
May and December
2016, the FASB issued
additional guidance
related to Topic 606.
The new guidance supersedes the guidance to
classify equity securities with readily
determinable fair values into different categories
(that is, trading or available-for-sale) and
requires equity securities to be measured at fair
value with changes in the fair value recognized
through net income. The new guidance requires
public business entities that are required to
disclose fair value of financial instruments
measured at amortized cost on the balance sheet
to measure that fair value using the exit price
notion consistent with Topic 820, Fair Value
Measurement.
The new standard will supersede nearly all
existing revenue recognition guidance. Under
Topic 606, an entity is required to recognize
revenue upon transfer of promised goods or
services to customers in an amount that reflects
the expected consideration to be received in
exchange for those goods or services. Topic 606
defines a five-step process in order to achieve
this core principle, which may require the use of
judgment and estimates, and also requires
expanded qualitative and quantitative
disclosures relating to the nature, amount,
timing and uncertainty of revenue and cash
flows arising from contracts with customers,
including significant judgments and estimates
used. The new standard also defines accounting
for certain costs related to origination and
fulfillment of contracts with customers,
including whether such costs should be
capitalized. The new standard permits adoption
either by using (i) a full retrospective approach
for all periods presented in the period of
adoption or (ii) a modified retrospective
approach where the new standard is applied in
the financial statements starting with the year of
adoption. Under both approaches, cumulative
impact of the adoption is reflected as an
adjustment to retained earnings (accumulated
equity (deficit)) as of the earliest date presented
in accordance with the new standard.
In February 2016, the
FASB issued ASU
2016-02, Leases.
The new guidance requires lessees to recognize
assets and liabilities for most leases and
provides enhanced disclosures.
January 1, 2019.
Early adoption
is permitted.
F-17
January 1, 2018.
Early adoption
is permitted.
We plan to implement the
new guidance on January 1,
2018 using the modified
retrospective approach. We
have substantially completed
our evaluation of the effect
that the updated standard will
have on our consolidated
financial statements and
related disclosures. Adoption
of the new guidance will
impact the timing of
recognition of payments
related to certain of our
license and collaboration
agreements (1) and the timing
of recognition of our sales-
based royalties.(2) This
standard will have a material
impact on our consolidated
financial statements.
We are currently evaluating
the effect the updated
standard will have on our
consolidated financial
statements and related
disclosures and do not intend
to early adopt. We anticipate
recognition of additional
assets and corresponding
liabilities related to our
leases on our consolidated
balance sheet.
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Description
The standard amends the impairment model by
requiring entities to use a forward-looking
approach based on expected losses to estimate
credit losses for most financial assets and
certain other instruments that aren’t measured at
fair value through net income.
Effective Date
January 1, 2020
Effect on the Financial
Statements or Other Significant
Matters
The Company does not
believe the adoption will
have a material impact on
our consolidated financial
position or results of
operations.
Standard
In June 2016, the
FASB issued ASU
2016-13, Financial
Instruments - Credit
Losses (Topic 326),
Measurement of Credit
Losses on Financial
Instruments
_______________
(1) Under the new standard, we are required to assess whether licenses granted under our collaboration and license
agreements are distinct in the context of the agreement from other performance obligations and functional when
granted. We expect that license-related amounts, including upfront payments, exclusive designation fees, annual
license maintenance fees, additional target fees, development, regulatory and sales-based milestones will be
recognized, generally, at a point in time when earned. Currently, these amounts related to certain of our license
and collaboration agreements are being amortized over the term of the collaboration agreement. For example,
during the year ended December 31, 2017, we recognized revenue from amortization of license payments of
$4.1 million. Total deferred revenue related to license payments under collaboration agreements as of December
31, 2017 was $51.8 million, which will be eliminated and recorded as a reduction to our accumulated deficit
upon adoption of Topic 606. Under the new standard, license revenues would have totaled $198.4 million for
the year ended December 31, 2017.
(2) Under the new standard, we expect sales-based royalties will be recognized in the quarter they are earned based
on estimates, with a true-up to actual results following in the subsequent quarter. Sales-based royalty revenue
earned under our collaboration and license agreements is presently recognized when the royalty reports are made
available. Upon adoption of Topic 606, we will reduce our accumulated deficit and increase our accounts
receivable, net, by the amount earned but not yet reported in our consolidated balance sheet of approximately
$19.4 million. In 2017, we recognized royalty revenues of $63.5 million. Under the new standard, royalty revenues
would have totaled $68.9 million for the year ended December 31, 2017. We have established a process to
estimate sales-based royalty revenues in the quarter in which the sales occur going forward.
3. Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
$
$
— $
—
—
— $
(235) $ 117,192
(201)
66,400
116,882
—
(436) $ 300,474
Amortized
Cost
$ 117,427
66,601
116,882
$ 300,910
Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortized
Cost
40,221
$
94,002
4,000
$
$ 138,223
$
F-18
December 31, 2016
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair Value
1
24
—
25
$
$
40,207
94,010
(15) $
(16)
4,000
—
(31) $ 138,217
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
As of December 31, 2017, 28 available-for-sale marketable securities with a fair market value of $183.6 million were
in a gross unrealized loss position of $0.4 million, all of which had been in such position for less than 12 months. Based on
our review of these marketable securities, we believe we had no other-than-temporary impairments on these securities as
of December 31, 2017, because we do not intend to sell these securities and it is not more-likely-than-not that we will be
required to sell these securities before the recovery of their amortized cost basis.
Contractual maturities of available-for-sale debt securities are as follows (in thousands):
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
After one but within five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
December 31, 2016
Estimated Fair Value
213,426
$
87,048
300,474
$
132,221
5,996
138,217
$
$
The following table summarizes, by major security type, our cash equivalents and available-for-sale marketable
securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in
thousands):
December 31, 2017
December 31, 2016
Level 1
Level 2
Total
estimated
fair value
Level 1
Level 2
Total
estimated
fair value
Cash equivalents:
Money market funds. . . . . .
Commercial paper . . . . . . .
$ 142,091
—
$
— $ 142,091
15,700
15,700
$
$
60,916
—
— $
—
60,916
—
Available-for-sale
marketable securities:
Corporate debt securities . .
U.S. Treasury securities . . .
Commercial paper . . . . . . .
—
66,400
—
$ 208,491
117,192
—
116,882
$ 249,774
117,192
66,400
116,882
$ 458,265
—
94,010
—
$ 154,926
$
40,207
—
4,000
44,207
40,207
94,010
4,000
$ 199,133
There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the year ended December 31,
2017. We had no instruments that were classified within Level 3 as of December 31, 2017 and 2016.
4. Collaborative Agreements
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 thirteen Roche target
compounds (the “Roche Collaboration”). Roche initially had the exclusive right to apply rHuPH20 to three pre-defined
Roche biologic targets with the option to develop and commercialize rHuPH20 with ten additional targets. Roche had the
right to exercise this option to identify additional targets for ten years. As of the ten year anniversary in December 2016,
Roche had elected a total of eight targets, two of which are exclusive.
F-19
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
In August 2013, Roche received European marketing approval for its collaboration product, Herceptin SC, for the
treatment of patients with HER2-positive breast cancer and launched Herceptin SC in the European Union (“EU”) in
September 2013. In March 2014, Roche received European marketing approval for its collaboration product, MabThera
SC, for the treatment of patients with common forms of non-Hodgkin lymphoma (“NHL”). In June 2014, Roche launched
MabThera SC in the EU. In May 2016, Roche announced that the EMA approved Mabthera SC to treat patients with chronic
lymphocytic leukemia (“CLL”). In June 2017, the FDA approved Genentech’s (a member of the Roche Group) RITUXAN
HYCELA™, a combination of rituximab and rHuPH20 (approved and marketed under the MabThera SC brand in countries
outside the U.S.), for CLL and two types of NHL, follicular lymphoma and diffuse large B-cell lymphoma. Following FDA
approval, Genentech launched RITUXAN HYCELA in the U.S.
Roche assumes all development, manufacturing, clinical, regulatory, sales and marketing costs under the Roche
Collaboration, while we are responsible for the supply of bulk rHuPH20. We are entitled to receive reimbursements for
providing research and development services and supplying bulk rHuPH20 to Roche at its request.
Under the terms of the Roche Collaboration, Roche pays us a royalty on each product commercialized under the
agreement consisting of a mid-single digit percent of the net sales of such product. Unless terminated earlier in accordance
with its terms, the Roche Collaboration continues in effect until the expiration of Roche’s obligation to pay royalties. Roche
has the obligation to pay royalties to us with respect to each product commercialized in each country, during the period
equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents
developed under the Roche Collaboration which valid claim covers the product in such country or (b) ten years following
the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate
is reduced for the remaining royalty term.
Payments received from Roche, excluding royalties and reimbursements for providing research and development
services and supplying bulk rHuPH20, since inception of the Roche Collaboration are as follows (in thousands):
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets . . . .
Election of additional exclusive targets and annual license maintenance fees for the
right to designate the remaining targets as exclusive targets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Clinical development milestone payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory milestone payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales-based milestone payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
20,000
23,000
13,000
8,000
22,000
86,000
As of December 31,
2017
Due to our continuing involvement obligations (for example, support activities associated with rHuPH20) under the
Roche Collaboration, revenues from the upfront payment, exclusive designation fees, annual license maintenance fees and
sales-based milestone payments were deferred and are being amortized over the remaining term of the Roche Collaboration.
For each of the years ended December 31, 2017, 2016 and 2015, we recognized $3.3 million of Roche deferred
revenues, excluding reimbursements for providing research and development services and supplying bulk rHuPH20, as
revenues under collaborative agreements. Total Roche deferred revenues, excluding deferred revenues related to
reimbursements for providing research and development services and supplying bulk rHuPH20, were $39.4 million and
$35.7 million as of December 31, 2017 and 2016, respectively.
F-20
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
In September 2017, we and Roche entered into an agreement providing Roche the right to develop and commercialize
products with one additional exclusive target using our ENHANZE Technology for an upfront payment of $30.0 million
(the “2017 Roche Collaboration”). 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 consisting of a mid-single digit percent of the net sales of such
product. Unless terminated earlier in accordance with its terms, the 2017 Roche Collaboration continues in effect until the
expiration of Roche’s obligation to pay royalties. Roche has the obligation to pay royalties to us with respect to each product
commercialized in each country, during the period equal to the longer of: (a) the duration of any valid claim of our patents
covering rHuPH20 or other specified patents developed under the 2017 Roche Collaboration which valid claim covers the
product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In
the event such valid claims expire, the royalty rate is reduced for the remaining royalty term. Roche may terminate the
agreement prior to expiration for any reason in its entirety upon 90 days prior written notice to us. Upon any such termination,
the license granted to Roche (in total or with respect to the terminated target, as applicable) will terminate provided, however,
that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
At the inception of the 2017 Roche Collaboration, we identified the deliverables in the arrangement to include the
license, research and development services and supply of bulk rHuPH20 and determined that each individually represent
separate units of accounting, because each deliverable has standalone value. The estimated selling prices for the units of
accounting we identified were determined based on market conditions, the terms of comparable collaborative arrangements
for similar technology in the pharmaceutical and biotech industry and entity-specific factors such as the terms of our previous
collaborative agreements, our pricing practices and pricing objectives. The arrangement consideration was allocated to the
deliverables based on the relative selling price method and the nature of the research and development services to be
performed for the collaborator. The amount allocable to the delivered unit or units of accounting is limited to the amount
that is not contingent upon the delivery of additional items or meeting other specified performance conditions (non-contingent
amount). As such, we excluded from the allocable arrangement consideration the event-based payments, milestone payments
and royalties regardless of the probability of receipt. Based on the results of our analysis, we allocated the $30.0 million to
the license fee deliverable. We determined that the upfront payment was earned upon the granting of the worldwide, exclusive
right to our technology to Roche. As a result, we recognized the $30.0 million license fee under the 2017 Roche Collaboration
as revenues under collaborative agreements for the year ended December 31, 2017.
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 HYQVIA, a combination of Baxalta’s current product
GAMMAGARD LIQUID™ and our patented rHuPH20 enzyme (the “Baxalta Collaboration”). In 2013, the European
Commission granted Baxalta marketing authorization in all EU Member States for the use of HYQVIA (solution for
subcutaneous use), a combination of GAMMAGARD LIQUID and rHuPH20 in dual vial units, as replacement therapy for
adult patients with primary and secondary immunodeficiencies, and Baxalta launched HYQVIA in the EU. In 2014, Baxalta
launched HYQVIA in the U.S following the FDA’s approval of HYQVIA for treatment of adult patients with primary
immunodeficiency. In May 2016, Baxalta announced that HYQVIA received a marketing authorization from the European
Commission for a pediatric indication, which is being launched in Europe to treat primary and certain secondary
immunodeficiencies.
The Baxalta Collaboration is applicable to both kit and formulation combinations. Baxalta assumes all development,
manufacturing, clinical, regulatory, sales and marketing costs under the Baxalta Collaboration, while we are responsible
for the supply of bulk rHuPH20. We perform research and development activities and supply bulk rHuPH20 at the request
of Baxalta, and are reimbursed by Baxalta under the terms of the Baxalta Collaboration. In addition, Baxalta has certain
product development and commercialization obligations in major markets identified in the Baxalta Collaboration.
Under the terms of the Baxalta Collaboration, Baxalta pays us a royalty consisting of a mid-single digit percent of the
net sales of HYQVIA. Unless terminated earlier in accordance with its terms, the Baxalta Collaboration continues in effect
until the expiration of Baxalta’s obligation to pay royalties to us. Baxalta has the obligation to pay royalties to us, with
respect to each product commercialized in each country, during the period equal to the longer of: (a) the duration of any
valid claim of our patents covering rHuPH20 or other specified patents developed under the Baxalta Collaboration which
valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product
in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term.
F-21
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Payments received from Baxalta, excluding royalties and reimbursements for providing research and development
services and supplying bulk rHuPH20, since inception of the collaboration agreement are as follows (in thousands):
As of December 31,
2017
Upfront license fee payment for the application of rHuPH20 to the initial exclusive target. . . . .
Regulatory milestone payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales-based milestone payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
10,000
3,000
9,000
22,000
Due to our continuing involvement obligations (for example, support activities associated with rHuPH20 enzyme),
the upfront license fee and sales-based milestone payments were deferred and are being recognized over the term of the
Baxalta Collaboration.
For each of the years ended December 31, 2017, 2016 and 2015, we recognized $0.8 million of Baxalta deferred
revenues, excluding reimbursements for providing research and development services and supplying bulk rHuPH20, as
revenues under collaborative agreements. Total Baxalta deferred revenues, excluding reimbursements for providing research
and development services and supplying bulk rHuPH20, were $12.4 million and $8.2 million as of December 31, 2017 and
2016, respectively.
Other Collaborations
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 patented rHuPH20 enzyme with Alexion
proprietary biologics directed at up to four targets (the “Alexion Collaboration”). Targets, once selected, will be on an
exclusive, global basis. As of December 31, 2017, Alexion has elected two specific exclusive targets. Alexion has the right
to elect up to two additional targets for additional fees. The upfront license payment may be followed by event-based
payments subject to Alexion’s achievement of specified development, regulatory and sales-based milestones. In addition,
Alexion will pay royalties to us if products under the collaboration are commercialized. Unless terminated earlier in
accordance with its terms, the Alexion Collaboration continues in effect until the later of: (i) expiration of the last to expire
of the valid claims of or patents covering rHuPH20 or other specified patents developed under the collaboration which valid
claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product
developed under the collaboration. The royalty term of a product developed under the Alexion Collaboration, with respect
to each country, consists of the period equal to the longer of (a) duration of any valid claim of our patent covering rHuPH20
or other specified patents developed under the collaboration which valid claim covers the product in such country or (b)
ten years following the date of the first commercial sale of such product in such country. In the event such valid claims
expire, the royalty rate is reduced for the remaining royalty term. Alexion may terminate the agreement prior to the expiration
for any reason in its entirety upon 90 days prior written notice to us. Upon such termination, the license granted to Alexion
(in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration
of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
In September 2017, we and BMS entered into a collaboration and license agreement, effective November 2017, under
which BMS has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with BMS
proprietary biologics directed at up to eleven targets (the “BMS Collaboration”). Targets, once selected, will be on an
exclusive, global basis, with the exception of one co-exclusive target. As of December 31, 2017, BMS has elected several
specified exclusive targets, including programmed death 1 (PD-1), and has the right to elect additional targets, some of
which are subject to additional fees. The upfront license payment may be followed by event-based payments subject to
BMS’s achievement of specified development, regulatory and sales-based milestones. In addition, BMS will pay royalties
to us if products developed under the collaboration are commercialized. Unless terminated earlier in accordance with its
terms, the BMS Collaboration continues in effect until the later of: (i) expiration of the last to expire of the valid claims of
our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a
product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed
under the collaboration. The royalty term of a product developed under the BMS Collaboration, with respect to each country,
consists of the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other
specified patents developed under the collaboration which valid claim covers the product in such country or (b) ten years
following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the
F-22
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
royalty rate is reduced for the remaining royalty term. BMS may terminate the agreement prior to expiration for any reason
in its entirety upon prior written notice to us. Upon any such termination, the license granted to BMS (in total or with respect
to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement,
the licenses granted will become perpetual, non-exclusive and fully paid.
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 patented rHuPH20 enzyme with Lilly proprietary biologics
directed at up to five targets (the “Lilly Collaboration”). Targets, once selected, will be on an exclusive, global basis, with
the exception of one semi-exclusive target. As of December 31, 2017, Lilly has elected two specified exclusive targets and
one specified semi-exclusive target. Lilly has the right to elect up to two additional targets for additional fees. The upfront
license payment may be followed by event-based payments subject to Lilly’s achievement of specified development,
regulatory and sales-based milestones. In addition, Lilly will pay royalties to us if products under the collaboration are
commercialized. Unless terminated earlier in accordance with its terms, the Lilly Collaboration continues in effect until the
later of: (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents
developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration
of the last to expire royalty term for a product developed under the collaboration. The royalty term of a product developed
under the Lilly Collaboration, with respect to each country, consists of the period equal to the longer of: (a) the duration of
any valid claim of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid
claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in
such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term. Lilly may
terminate the agreement prior to expiration for any reason in its entirety upon 60 days prior written notice to us. Upon any
such termination, the license granted to Lilly (in total or with respect to the terminated target, as applicable) will terminate
provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive
and fully paid.
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 patented rHuPH20 enzyme with AbbVie proprietary biologics
directed at up to nine targets (the “AbbVie Collaboration”). Targets, once selected, will be on an exclusive, global basis. As
of December 31, 2017, AbbVie has elected one specified exclusive target, and subsequently returned the target. AbbVie has
the right to elect up to eight additional targets for additional fees. The upfront license payment may be followed by event-
based payments subject to AbbVie’s achievement of specified development, regulatory and sales-based milestones. In
addition, AbbVie will pay tiered royalties to us if products under the collaboration are commercialized. Unless terminated
earlier in accordance with its terms, the AbbVie Collaboration continues in effect until the later of: (i) expiration of the last
to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration
which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term
for a product developed under the collaboration. The royalty term of a product developed under the AbbVie Collaboration,
with respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents
covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in
such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event
such valid claims expire, the royalty rate is reduced for the remaining royalty term. AbbVie may terminate the agreement
prior to expiration for any reason in its entirety or on a target-by-target basis upon 90 days prior written notice to us. Upon
any such termination, the license granted to AbbVie (in total or with respect to the terminated target, as applicable) will
terminate provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual,
non-exclusive and fully paid.
F-23
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
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 patented rHuPH20 enzyme with Janssen
proprietary biologics directed at up to five targets (the “Janssen Collaboration”). Targets, once selected, will be on an
exclusive, global basis. As of December 31, 2017, Janssen has elected one specified exclusive target. Janssen has the right
to elect four additional targets in the future upon payment of additional fees. In addition, Janssen will pay royalties to us if
products under the collaboration are commercialized. Unless terminated earlier in accordance with its terms, the Janssen
Collaboration continues in effect until the later of (i) expiration of the last to expire of the valid claims of our patents covering
rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under
the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration. The
royalty term of a product developed under the Janssen Collaboration, with respect to each country, consists of the period
equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents
developed under the collaboration which valid claim covers the product in such country or (b) ten years following the date
of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced
for the remaining royalty term. Janssen may terminate the agreement prior to expiration for any reason in its entirety or on
a product-by-product basis upon 90 days prior written notice to us. Upon any such termination, the license granted to Janssen
(in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration
of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
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 patented rHuPH20 enzyme with Pfizer proprietary
biologics directed at up to six targets (the “Pfizer Collaboration”). Targets may be selected on an exclusive or non-exclusive
basis. As of December 31, 2017, Pfizer has elected five specified exclusive targets and has returned two of its elected targets.
Pfizer has the right to elect three additional targets in the future, two of which are contingent on payment of additional fees.
In addition, Pfizer will pay royalties to us if products under the collaboration are commercialized. Unless terminated earlier
in accordance with its terms, the Pfizer Collaboration continues in effect until the later of (i) expiration of the last to expire
of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which
valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a
product developed under the collaboration. The royalty term of a product developed under the Pfizer Collaboration, with
respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents
covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in
such country or (b) ten years following the date of the first commercial sale of such product in such country. Royalties are
subject to adjustment as set forth in the agreement. Pfizer may terminate the agreement prior to expiration for any reason
in its entirety or on a target-by-target basis upon 30 days prior written notice to us. Upon any such termination, the license
granted to Pfizer (in total or with respect to the terminated target, as applicable) will terminate, provided, however, that in
the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
Payments received under collaboration agreements for upfront license fees, license fees for the election of additional
targets, maintenance fees and event-based payments since inception of the collaboration agreements are as follows (in
thousands):
Alexion Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BMS Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lilly Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Janssen Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pfizer Collaboration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total payments received. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
40,000
105,000
33,000
29,000
30,250
16,500
253,750
As of December 31,
2017
F-24
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
At the inception of the Pfizer, Janssen, AbbVie, Lilly, BMS and Alexion arrangements, we identified the deliverables
in each arrangement to include the license, research and development services and supply of bulk rHuPH20. We have
determined that the license, research and development services and supply of bulk rHuPH20 individually represent separate
units of accounting, because each deliverable has standalone value. We determined that the rights to elect additional targets
in the future upon the payment of additional license fees are substantive options that are not priced at a significant and
incremental discount. Therefore, we determined for each collaboration that the rights to elect additional targets are not
deliverables at the inception of the arrangement. The estimated selling prices for the units of accounting we identified were
determined based on market conditions, the terms of comparable collaborative arrangements for similar technology in the
pharmaceutical and biotech industry and entity-specific factors such as the terms of our previous collaborative agreements,
our pricing practices and pricing objectives. The arrangement consideration was allocated to the deliverables based on the
relative selling price method and the nature of the research and development services to be performed for the collaborator.
The amount allocable to the delivered unit or units of accounting is limited to the amount that is not contingent upon
the delivery of additional items or meeting other specified performance conditions (non-contingent amount). As such, we
excluded from the allocable arrangement consideration the event-based payments, milestone payments, annual exclusivity
fees and royalties regardless of the probability of receipt. Based on the results of our analysis, we allocated the following
amounts to the license fee deliverable under the arrangement (in thousands):
Consideration
allocated to
license fees:
Alexion Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BMS Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lilly Collaboration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AbbVie Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Janssen Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pfizer Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total consideration allocated to license fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
40,000
101,400
33,000
23,000
15,250
12,500
225,150
We determined that the consideration allocated to the license fees were earned upon the granting of the worldwide,
exclusive right to our technology to the collaborators in these arrangements. As a result, we recognized the consideration
allocated to license fees as revenues under collaborative agreements in the period when such license fees were earned. We
recognized revenue related to event-based payments or milestone payments under these collaborations of $15.0 million,
$6.0 million, and $1.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
The collaborators are each solely responsible for the development, manufacturing and marketing of any products
resulting from their respective collaborations. We are entitled to receive payments for research and development services
and supply of bulk rHuPH20 if requested by any collaborator. We recognize amounts allocated to research and development
services as revenues under collaborative agreements as the related services are performed. We recognize amounts allocated
to the sales of bulk rHuPH20 as revenues under collaborative agreements or product sales, as appropriate, when such bulk
rHuPH20 has met all required specifications by the collaborators and the related title and risk of loss and damages have
passed to the collaborators. We cannot predict the timing of delivery of research and development services and bulk rHuPH20
as they are at the collaborators’ requests.
Pursuant to the terms of the Roche Collaboration and the Pfizer Collaboration, certain future payments meet the
definition of a milestone in accordance with the Milestone Method of Accounting. We are entitled to receive additional
milestone payments under our collaboration agreements with Roche and Pfizer for the successful development of the elected
targets in the aggregate of up to $62.5 million upon achievement of specified clinical development milestone events and
up to $12.0 million upon achievement of specified regulatory milestone events in connection with specified regulatory
filings and receipt of marketing approvals.
F-25
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
5. Certain Balance Sheet Items
Accounts receivable, net consisted of the following (in thousands):
Accounts receivable from product sales to collaborators . . . . . . . . . . . . . . . . .
Accounts receivable from revenues under collaborative agreements . . . . . . . .
Accounts receivable from other product sales . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for distribution fees and discounts. . . . . . . . . . . . . . . . . . . . . . . . . .
Total accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories consisted of the following (in thousands):
Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other assets consisted of the following (in thousands):
Prepaid manufacturing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less long-term portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total prepaid expenses and other assets, current . . . . . . . . . . . . . . . . . . . . .
December 31,
2017
December 31,
2016
$
$
$
$
$
$
18,475
2,142
2,075
22,692
(559)
22,133
December 31,
2017
377
2,131
2,638
5,146
December 31,
2017
2,337
7,793
2,585
6,717
19,432
5,553
13,879
$
$
$
$
$
$
7,854
6,151
2,234
16,239
(559)
15,680
December 31,
2016
761
12,850
1,012
14,623
December 31,
2016
9,663
8,613
1,661
1,530
21,467
219
21,248
Prepaid manufacturing expenses include slot reservation fees and other amounts paid to contract manufacturing
organizations. Such amounts are reclassified to work-in-process inventory once the manufacturing process has commenced.
Property and equipment, net consisted of the following (in thousands):
Research equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer and office equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
10,970
3,725
2,715
17,410
(13,890)
3,520
$
$
10,479
3,373
2,331
16,183
(11,919)
4,264
December 31,
2017
December 31,
2016
Depreciation and amortization expense was approximately $2.2 million , $2.4 million, and $1.7 million for the years
ended December 31, 2017, 2016 and 2015, respectively.
F-26
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Accrued expenses consisted of the following (in thousands):
December 31,
2017
December 31,
2016
Accrued outsourced research and development expenses . . . . . . . . . . . . . . . . .
Accrued compensation and payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued outsourced manufacturing expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less long-term portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total accrued expenses, current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
18,757
13,384
2,504
5,396
40,041
440
39,601
Deferred revenue consisted of the following (in thousands):
Collaborative agreements
License fees and event-based payments:
Roche . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Reimbursement for research and development services . . . . . . . . . . . . . . . . .
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
$
December 31,
2017
39,379
15,999
55,378
—
5,487
60,865
6,568
54,297
$
$
$
$
9,522
11,539
3,225
4,552
28,838
17
28,821
December 31,
2016
35,709
8,209
43,918
700
—
44,618
4,793
39,825
6. Long-Term Debt, Net
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 be used to repay the principal
and interest on the loan (the “Royalty Payments”). 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%. The interest
rate as of December 31, 2017 and 2016 was 10.25% and 9.71%, respectively.
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 are 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.
F-27
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Because the repayment of the term loan is contingent upon the level of Royalty Payments received, the repayment
term may be shortened or extended depending on the actual level of Royalty Payments. 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 first 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.
As of December 31, 2017, we were in compliance with all covenants under the Royalty-backed Loan and there was
no material adverse change in our business, operations or financial condition.
During the year ended December 31, 2016, accrued interest in the amount of $13.2 million was capitalized and added
to the principal balance of the Royalty-backed Loan. We began making principal and interest payments against the Royalty-
backed Loan in the first quarter of 2017 and therefore had no capitalized interest in the year ended December 31, 2017. In
addition, we recorded accrued interest, which is included in accrued expenses, of $0.7 million as of December 31, 2017
and 2016, respectively.
In connection with the Royalty-backed Loan, we paid the Royalty-backed Lenders a fee of $1.5 million and incurred
additional debt issuance costs totaling $0.4 million, which includes expenses that we paid on behalf of the Royalty-backed
Lenders and expenses incurred directly by us. Debt issuance costs and the lender fee have been netted against the debt as
of December 31, 2017, and are being amortized over the estimated term of the debt using the effective interest method. For
the years ended December 31, 2017 and 2016, the Company recognized interest expense, including amortization of the debt
discount, related to the Royalty-backed Loan of $16.4 million and $14.5 million, respectively. The assumptions used in
determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make
estimates that could impact the short- and long-term classification of these costs, as well as the period over which these
costs will be amortized. The outstanding balance of the Royalty-backed Loan as of December 31, 2017 was $146.5 million,
net of unamortized debt discount of $0.8 million.
Oxford and SVB Loan and Security Agreement
In December 2013, we entered into an Amended and Restated Loan and Security Agreement (the “Original Loan
Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (collectively, the “Lenders”),
amending and restating in its entirety our previous loan agreement with the Lenders, dated December 2012. The Original
Loan Agreement provided for an additional $20 million principal amount of new term loan, bringing the total term loan
balance to $50 million. The amended term loan facility was scheduled to mature on January 1, 2018.
In January 2015, we entered into the second amendment to the Original Loan Agreement with the Lenders, amending
and restating the term loan repayment schedules of the Original Loan Agreement. The amended and restated term loan
repayment schedule provided for interest only payments through January 2016, followed by consecutive equal monthly
payments of principal and interest in arrears starting in February 2016 and continuing through the previously established
maturity date of January 1, 2018. Consistent with the original loan, the amended Original Loan Agreement provided for a
7.55% interest rate on the term loan and a final payment equal to 8.5% of the original principal amount, or $4.25 million,
which was due when the term loan became due or upon the prepayment of the facility.
F-28
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
In June 2016, we entered into a Loan and Security Agreement (the “Loan Agreement”) with 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 initial proceeds carry an interest rate of 8.25% and were partially used to pay the outstanding principal
and final payment of $4.25 million owed on the Original Loan Agreement with the Lenders. The remaining proceeds are
being used for working capital and general business requirements. The repayment schedule provides 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 provides for a final payment equal to 5.50% of the initial
$55.0 million principal amount. The final payment is due when the Loan Agreement becomes due or upon the prepayment
of the facility. We have the option to prepay the outstanding balance of the Loan Agreement in full, subject to a prepayment
fee of 2% in the first year and 1% in the second year of the Loan Agreement.
In connection with the Loan Agreement, the debt offering costs have been recorded as a debt discount in our condensed
consolidated balance sheets which, together with the final payment and fixed interest rate payments, are being amortized
and recorded as interest expense throughout the life of the loan using the effective interest rate method.
The Loan Agreement is secured by substantially all of the assets of the Company and our subsidiary, Halozyme, Inc.,
except that the collateral does not include any equity interests in Halozyme, Inc., any of our intellectual property (including
all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement
contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease,
transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently
engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain
change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay
dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt;
enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do
the same; and make any voluntary prepayment of or modify certain terms of the Royalty-backed Loan. In addition, subject
to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and
commodities, and to do the same for our subsidiary, Halozyme, Inc.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including,
among other things, our failure to fulfill certain of our obligations under the Loan Agreement and the occurrence of a material
adverse change which is defined as a material adverse change in our business, operations, or condition (financial or otherwise),
a material impairment of the prospect of repayment of any portion of the loan, a material impairment in the perfection or
priority of the Lender’s lien in the collateral or in the value of such collateral or the occurrence of an event of default under
the Royalty-backed Loan. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise
their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts
then outstanding under the Loan Agreement, which could harm our financial condition.
As of December 31, 2017, we were in compliance with all covenants under the Loan Agreement and there was no
material adverse change in our business, operations or financial condition.
Interest expense, including amortization of the debt discount, related to the Loan Agreement totaled $5.5 million,
$20.0 million and $5.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Accrued interest, which
is included in accrued expenses, was $0.4 million and $1.1 million as of December 31, 2017 and 2016, respectively. The
outstanding term loan balance was $55.9 million as of December 31, 2017, inclusive of $1.3 million of accretion of the
final payment and net of unamortized debt discount related to offering costs of $0.4 million.
F-29
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Future maturities and interest payments of long-term debt as of December 31, 2017, are as follows (in thousands):
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less amount representing interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross balance of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Present value of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current portion and unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . .
$
94,125
105,758
27,311
4,755
—
231,949
(26,792)
205,157
(2,806)
202,351
(77,211)
125,140
$
7. Share-based Compensation
We currently grant stock options, restricted stock awards and restricted stock units under the Amended and Restated
2011 Stock Plan (“2011 Stock Plan”), which was approved by the stockholders on May 6, 2016 and provides for the grant
of up to 44.2 million shares of common stock to selected employees, consultants and non-employee members of our Board
of Directors as stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance
awards. The 2011 Stock Plan was approved by the stockholders. Awards are subject to terms and conditions established by
the Compensation Committee of our Board of Directors. During the year ended December 31, 2017, we granted share-
based awards under the 2011 Stock Plan. At December 31, 2017, 13,023,641 shares were subject to outstanding awards and
6,552,249 shares were available for future grants of share-based awards.
Total share-based compensation expense related to share-based awards was comprised of the following (in
thousands):
Research and development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expense . . . . . . . . . . . . . . . . . . . $
13,080
17,590
30,670
$
$
11,470
14,115
25,585
$
$
9,795
11,043
20,838
Share-based compensation expense by type of share-based award (in thousands):
Year Ended December 31,
2017
2016
2015
Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSAs, RSUs and PRSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2017
2016
2015
$
$
19,583
11,087
30,670
$
$
16,544
9,041
25,585
$
$
11,145
9,693
20,838
F-30
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Total unrecognized estimated compensation cost by type of award and the weighted-average remaining requisite
service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):
December 31, 2017
Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
36,914
4,610
15,965
Unrecognized
Expense
Remaining
Weighted-
Average
Recognition
Period
(years)
2.4
1.6
2.6
Cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options
exercised (excess tax benefits) are classified as cash inflows provided by financing activities and cash outflows used in
operating activities.
Stock Options. Options granted under the Plans must have an exercise price equal to at least 100% of the fair market
value of our common stock on the date of grant. The options generally have a maximum contractual term of ten years and
vest at the rate of one-fourth of the shares on the first anniversary of the date of grant and 1/48 of the shares monthly
thereafter. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans).
A summary of our stock option award activity as of and for the years ended December 31, 2017, 2016 and 2015 is as
follows:
Shares
Underlying
Stock Options
Weighted
Average Exercise
Price per Share
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
Outstanding at January 1, 2015 . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled/forfeited. . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2015 . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled/forfeited. . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2016 . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled/forfeited. . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2017 . . . . . . . . . . . .
Vested and expected to vest at December 31, 2017
Exercisable at December 31, 2017 . . . . . . . . . . . . .
6,353,892
3,973,604
(1,926,368)
(407,936)
7,993,192
4,466,306
(413,248)
(955,054)
11,091,196
2,717,614
(1,514,826)
(1,185,518)
11,108,466
11,108,466
5,493,802
$9.18
$16.26
$7.49
$10.64
$13.03
$9.03
$6.88
$12.42
$11.70
$12.60
$9.24
$11.89
$12.24
$12.24
$12.31
7.0
7.0
6.1
$90.8 million
$90.8 million
$44.7 million
The weighted average grant date fair values of options granted during the years ended December 31, 2017, 2016 and
2015 were $7.86 per share, $5.36 per share and $9.60 per share, respectively. The total intrinsic value of options exercised
during the years ended December 31, 2017, 2016 and 2015 was approximately $10.0 million, $1.4 million and $16.2 million,
respectively. Cash received from stock option exercises for the years ended December 31, 2017, 2016 and 2015 was
approximately $14.0 million, $2.8 million and $14.4 million, respectively.
F-31
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant.
The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model
(“Black-Scholes model”). Expected volatility is based on historical volatility of our common stock. The expected term of
options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest
rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of
the grant. The dividend yield assumption is based on the expectation of no future dividend payments. The assumptions used
in the Black-Scholes model were as follows:
Year Ended December 31,
2017
2016
2015
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Average expected term (in years) . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69.8-71.7%
5.6
1.73-2.13%
—
67.5-71.9%
5.4
1.00-1.90%
—
66.2-67.4%
5.6
1.34-1.92%
—
Restricted Stock Awards. RSAs are grants that entitle the holder to acquire shares of our common stock at zero cost.
The shares covered by a RSA cannot be sold, pledged, or otherwise disposed of until the award vests and any unvested
shares may be reacquired by us for the original purchase price following the awardee’s termination of service. The RSAs
will generally vest at the rate of one-fourth of the shares on each anniversary of the date of grant. Annual grants of RSAs
to the Board of Directors typically vest in approximately one year.
The following table summarizes our RSA activity during the years ended December 31, 2017, 2016 and 2015:
Unvested at January 1, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
1,158,451
515,695
(721,990)
(140,676)
811,480
968,652
(296,831)
(180,198)
1,303,103
98,945
(514,613)
(108,485)
778,950
Weighted
Average
Grant Date
Fair Value
$10.26
$15.00
$10.11
$11.84
$13.13
$8.41
$12.76
$10.33
$10.09
$14.15
$10.23
$9.62
$10.59
The estimated fair value of the RSAs was based on the closing market value of our common stock on the date of
grant. The total grant date fair value of RSAs vested during the years ended December 31, 2017, 2016 and 2015 was
approximately $5.3 million, $3.8 million and $7.3 million, respectively. The fair value of RSAs vested during the years
ended December 31, 2017, 2016 and 2015, was approximately $6.6 million, $2.5 million and $13.9 million, respectively.
F-32
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Restricted Stock Units. A RSU is a promise by us to issue a share of our common stock upon vesting of the unit. The
RSUs will generally vest at the rate of one-fourth of the shares on each anniversary of the date of grant.
The following table summarizes our RSU activity during the years ended December 31, 2017, 2016 and 2015:
Unvested at January 1, 2015 . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2015 . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2016 . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2017 . . . . . . . . . . . . . . .
Number of
Shares
462,322
422,492
(134,088)
(84,512)
666,214
796,582
(218,279)
(77,948)
1,166,569
1,378,273
(378,406)
(251,261)
1,915,175
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Term (yrs)
Aggregate
Intrinsic
Value
$11.12
$14.75
$10.93
$10.86
$13.49
$8.17
$12.74
$10.99
$10.16
$12.13
$10.48
$11.11
$11.39
1.4
$38.8 million
The estimated fair value of the RSUs was based on the closing market value of our common stock on the date of
grant. The total grant date fair value of RSUs vested during the years ended December 31, 2017, 2016 and 2015 was
approximately $4.0 million, $2.8 million and $1.5 million, respectively. The fair value of RSUs vested during the years
ended December 31, 2017, 2016 and 2015 was approximately $4.7 million, $2.1 million and $1.8 million, respectively.
Performance Restricted Stock Units. A PRSU is a promise by us to issue a share of our common stock upon achievement
of a specific performance condition.
The following table summarizes our PRSU activity during the years ended December 31, 2017, 2016 and 2015:
Outstanding at January 1, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding at December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-33
Number of
Shares
431,238
118,209
(83,380)
(156,360)
309,707
—
(30,037)
(79,415)
200,255
—
—
(200,255)
—
Weighted
Average
Grant Date
Fair Value
$8.91
$11.19
$9.48
$9.21
$9.48
—
$9.49
$9.44
$9.49
—
—
$9.49
—
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
The estimated fair value of the PRSUs was based on the closing market value of our common stock on the date of
grant. The total grant date fair value and intrinsic value of PRSUs vested during the years ended December 31, 2017, 2016
and 2015 was approximately zero, $0.3 million and $0.8 million, respectively.
8. Stockholders’ Equity (Deficit)
In May 2017, we completed an underwritten public offering pursuant to which we sold 11.5 million shares of common
stock, including 1.5 million shares sold pursuant to the full exercise of an option to purchase additional shares granted to
the underwriters. All of the shares were offered at a public offering price of $12.50 per share, generating $134.9 million in
net proceeds, after deducting underwriting discounts and commissions and other offering expenses. We intend to use the
net proceeds from this offering to fund continued development of our PEGPH20 oncology program and for other general
corporate purposes.
During the years ended December 31, 2017, 2016 and 2015, we issued an aggregate of 1,514,826, 413,248 and
1,926,368 shares of common stock, respectively, in connection with the exercises of stock options, for net proceeds of
approximately $14.0 million, $2.8 million and $14.4 million, respectively. For the years ended December 31, 2017, 2016
and 2015, we issued 281,398, 134,944 and 82,069 shares of common stock, respectively, upon vesting of certain RSUs for
which the RSU holders surrendered 97,008, 83,335 and 52,019 RSUs, respectively, to pay for minimum withholding taxes
totaling approximately $1.9 million, $0.8 million and $0.7 million, respectively. In addition, we canceled 9,540 shares of
common stock, net of issuances and issued 780,066 and 375,019 shares of common stock, net of cancellations in connection
with grants of RSAs during the years ended December 31, 2017, 2016 and 2015, respectively.
9. Commitments and Contingencies
Operating Leases
Our administrative offices and research facilities are located in San Diego, California. We lease an aggregate of
approximately 76,000 square feet of office and research space in four buildings. The leases commenced in June 2011 and
November 2013 and continue through January 2023. The leases are subject to approximately 3.0% annual increases
throughout the terms of the leases. We also pay a pro rata share of operating costs, insurance costs, utilities and real property
taxes. We received incentives under the leases, including tenant improvement allowances and reduced or free rent, for which
the unamortized deferred rent balances associated with these incentives was $0.3 million and $0.4 million as of December
31, 2017 and 2016, respectively.
In November 2015, we opened a satellite office in South San Francisco, California. We lease approximately 10,000
square feet of office space. The lease commenced in November 2015 and continues through January 2021. The lease is
subject to approximately 3.0% annual increases throughout the term of the lease. We also pay a pro rata share of operating
costs, insurance costs, utilities and real property taxes. We received incentives under the lease, including tenant improvement
allowances and reduced or free rent, for which the unamortized deferred rent balances associated with these incentives was
$0.3 million and $0.4 million as of December 31, 2017 and 2016, respectively.
Additionally, we lease certain office equipment under operating leases. Total rent expense was approximately $2.3
million, $2.2 million and $1.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Approximate annual future minimum operating lease payments as of December 31, 2017 are as follows (in thousands):
Year:
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Operating
Leases
2,415
2,785
2,824
2,470
2,506
$
13,000
F-34
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Other Commitments
In March 2010, we entered into a second Commercial Supply Agreement with Avid (the “Avid Commercial Supply
Agreement”). Under the terms of the Avid Commercial Supply Agreement, we are committed to certain minimum annual
purchases of bulk rHuPH20 equal to three quarters of forecasted supply. In addition, Avid has the right to manufacture and
supply a certain percentage of bulk rHuPH20 that will be used in the collaboration products. At December 31, 2017, we
had a $7.2 million minimum purchase obligation in connection with this agreement.
In June 2011, we entered into a services agreement with Patheon for the technology transfer and manufacture of
Hylenex recombinant. At December 31, 2017, we had a $0.3 million minimum purchase obligation in connection with this
agreement.
Contingencies
We have entered into an in-licensing agreement with a research organization, which is cancelable at our option with
90 days written notice. Under the terms of this agreement, we have received a license to the know-how and technology
claimed, in certain patents or patent applications. We are required to pay fees, milestones and/or royalties on future sales
of products employing the technology or falling under claims of a patent, and some of the agreements require minimum
royalty payments. We continually reassess the value of the license agreement. If the in-licensed and research candidate is
successfully developed, we may be required to pay milestone payments of approximately $8.0 million over the life of this
agreement in addition to royalties on sales of the affected products. Due to the uncertainties of the development process,
the timing and probability of the remaining milestone and royalty payments cannot be accurately estimated.
Legal 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 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.
10. Income Taxes
The Tax Cuts and Jobs Act (the “Act”) was enacted in December 2017. The Act reduces the U.S. federal corporate
tax rate from 35% to 21%. As of December 31, 2017, we have not completed our accounting for the tax effects of the Act;
however, we have made a reasonable estimate of the effects on our existing deferred tax balances. We remeasured certain
deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. However, we are
still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of
these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the
remeasurement of our deferred tax balance was $17.1 million. The provisional amount of $17.1 million was fully offset by
a change in the valuation allowance.
Total income (loss) before income taxes summarized by region were as follows (in thousands):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2017
160,938
(99,328)
61,610
2016
2015
$
$
$
6,384
(108,245)
(101,861) $
11,724
(43,955)
(32,231)
F-35
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Significant components of our net deferred tax assets/(liabilities) were as follows (in thousands):
Deferred tax assets:
Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development and orphan drug credits . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Alternative minimum tax credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance for deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets, net of valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
December 31,
2017
2016
$
32,630
$
103,296
8,815
75,224
7,423
5,532
2,270
131,894
(126,189)
5,705
15,354
73,701
8,844
1,494
1,021
203,710
(203,370)
340
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
(173)
(173)
5,532
$
(340)
(340)
—
A valuation allowance of $126.2 million and $203.4 million has been established to offset the net deferred tax assets
as of December 31, 2017 and 2016, respectively, as realization of such assets is uncertain. Under the Act, the AMT credit
carryovers can be used to offset regular tax liability for taxable years beginning after 2017. If not utilized before 2022, any
remaining AMT credit carryover will be fully refundable. Accordingly, the recognized deferred tax asset, on a provisional
basis, as of December 31, 2017 is the AMT credit carryover that will either be utilized or refunded.
Income tax expense was comprised of the following components (in thousands):
Current - federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current - state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred - federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred - state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2017
2016
2015
$
$
4,051
$
120
(5,532)
—
(1,361) $
1,145
$
17
—
—
1,162
$
—
—
—
—
—
F-36
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
The provision for income taxes on earnings subject to income taxes differs from the statutory federal income tax rate
due to the following (in thousands):
Federal income tax expense (benefit) at 34% . . . . . . . . . . . . . . . .
State income tax benefit, net of federal income tax impact. . . . . .
(Decrease) increase in valuation allowance. . . . . . . . . . . . . . . . . .
Enactment of the Tax Cuts and Jobs Act . . . . . . . . . . . . . . . . . . . .
Foreign income subject to tax at other than federal statutory rate.
Shared-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-deductible expenses and other . . . . . . . . . . . . . . . . . . . . . . . .
Research and development credits, net . . . . . . . . . . . . . . . . . . . . .
Orphan drug credits, net of federal add back. . . . . . . . . . . . . . . . .
Year Ended December 31,
2017
2016
2015
$
20,947
$
930
(77,181)
17,132
33,674
525
5,779
4,162
(7,329)
(1,361) $
$
(34,633) $
(653)
11,252
—
36,803
3,735
698
(1,084)
(14,956)
1,162
$
(10,959)
5,524
4,045
—
14,945
(4,990)
6,457
(3,861)
(11,161)
—
At December 31, 2017, our unrecognized tax benefit and uncertain tax positions were $14.4 million. None of this
amount would affect the effective tax rate and $14.4 million would affect the effective tax rate in the event the valuation
allowance was removed. Of the unrecognized tax benefits, we do not expect any significant changes to occur in the next
12 months. Interest and/or penalties related to uncertain income tax positions are recognized by us as a component of income
tax expense. For the years ended December 31, 2017, 2016 and 2015, we recognized no interest or penalties.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
Year Ended December 31,
2017
2016
2015
Gross unrecognized tax benefits at beginning of period . . . . . . . .
Increases in tax positions for prior years . . . . . . . . . . . . . . . . . . . .
Decreases in tax positions for prior years . . . . . . . . . . . . . . . . . . .
Increases in tax positions for current year . . . . . . . . . . . . . . . . . . .
Gross unrecognized tax benefits at end of period . . . . . . . . . . . . .
$
12,799
$
4,898
$
—
(2,518)
4,147
5,615
(4,898)
7,184
$
14,428
$
12,799
$
—
—
—
4,898
4,898
At December 31, 2017, we had federal, California and other state tax net operating loss carryforwards of approximately
$88.5 million, $243.1 million and $13.9 million, respectively.
The following table shows key expiration dates of the federal and California net operating loss carryforwards (in
thousands):
Net Operating
Loss
2018
Expires in:
2021 and
beyond
2028 and
beyond
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
88,516
243,080
— $
88,516
—
—
— $
243,080
At December 31, 2017, we had federal and California research and development tax credit carryforwards of
approximately $19.1 million and $11.7 million, respectively. The federal research and development tax credits will begin
to expire in 2024 unless previously utilized. The California research and development tax credits will carryforward
indefinitely until utilized. Additionally, we had Orphan Drug Credit carryforwards of $57.3 million which will begin to
expire in 2035.
F-37
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
Pursuant to Internal Revenue Code Section 382, the annual use of the net operating loss carryforwards and research
and development tax credits could be limited by any greater than 50% ownership change during any three year testing
period. As a result of any such ownership change, portions of our net operating loss carryforwards and research and
development tax credits are subject to annual limitations. A Section 382 analysis regarding the limitation of the net operating
losses and research and development credits was completed as of November 1, 2017. Based upon the analysis, we do not
believe an ownership change occurred during 2017. Based upon previous analysis it was determined that ownership changes
occurred in prior years; however, the annual limitations on net operating loss and research and development tax credit
carryforwards will not have a material impact on the future utilization of such carryforwards.
We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiaries as it is our intention
to utilize those earnings in the foreign operations for an indefinite period of time. At December 31, 2017 and 2016, there
were no undistributed earnings in foreign subsidiaries.
We are subject to taxation in the U.S. and in various state and foreign jurisdictions. Our tax years for 1998 and forward
are subject to examination by the U.S. and California tax authorities due to the carryforward of unutilized net operating
losses and research and development credits.
A new Swiss subsidiary, Halozyme Switzerland GmbH, was formed during the fourth quarter of 2016 and obtained
a tax ruling from Canton of Basel Stadt for its operations in Switzerland. The tax ruling is dated December 21, 2016, and
will continue for a period of ten years, not to extend beyond December 31, 2026. The combined income tax burden at the
federal, cantonal and communal level will not exceed 10% during the period covered by the ruling. As a result of foreign
losses and a full valuation allowance, no net tax benefit was derived for the year ended December 31, 2017 as a result of
the tax ruling.
11. Employee Savings Plan
We have an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code. All employees are
eligible to participate, provided they meet the requirements of the plan. We are not required to make matching contributions
under the plan. However, we voluntarily contributed to the plan approximately $1.2 million, $1.0 million and $0.7 million
for the years ended December 31, 2017, 2016 and 2015, respectively.
F-38
Halozyme Therapeutics, Inc.
Notes to Consolidated Financial Statements — (Continued)
12. Summary of Unaudited Quarterly Financial Information
The following is a summary of our unaudited quarterly results for the years ended December 31, 2017 and 2016 (in
thousands):
Quarter Ended
2017 (Unaudited):
Total revenues (1) (2) . . . . . . . . . . . . . . . . . . . . . . .
Gross profit on product sales. . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares used in computing net income (loss) per
share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 (Unaudited):
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit on product sales. . . . . . . . . . . . . . . .
Total operating expenses . . . . . . . . . . . . . . . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss per share, basic and diluted . . . . . . . . . .
Shares used in computing basic and diluted net
loss per share . . . . . . . . . . . . . . . . . . . . . . . . . .
_______________
$
$
$
$
$
$
$
$
$
$
$
March 31,
June 30,
33,750
September 30,
63,731
$
December 31,
189,564
$
29,568
3,890
$
$
$
57,094
(32,897) $
4,992
$
$
59,228
(30,763) $
5,257
55,654
2,749
$
$
$
$
$
5,105
63,635
123,882
0.87
0.85
(0.26) $
(0.26) $
(0.23) $
(0.23) $
0.02
0.02
128,615
128,615
134,013
134,013
141,190
143,236
141,718
145,633
Quarter Ended
March 31,
June 30,
42,499
5,178
$
$
58,668
$
(19,816) $
(0.16) $
33,336
September 30,
31,853
$
December 31,
39,003
$
5,391
$
4,197
$
5,420
55,059
$
(26,875) $
(0.21) $
54,596
$
(28,946) $
(0.23) $
61,578
(27,386)
(0.21)
127,615
127,958
128,154
128,185
(1) Revenues for the quarter ended December 31, 2017 included $101.4 million, $40.0 million and $15.0 million
in revenue under collaborative arrangements from BMS, Alexion and Janssen, respectively.
(2) Revenues for the quarter ended September 30, 2017 included $30.0 million in revenue under collaborative
arrangements from the 2017 Roche Collaboration.
F-39
Halozyme Therapeutics, Inc.
Schedule II
Valuation and Qualifying Accounts
(in thousands)
Balance at
Beginning of
Period
Additions
Deductions
Balance at
End of Period
For the year ended December 31, 2017
Accounts receivable allowances (1) . . . . . . . . . . . . .
For the year ended December 31, 2016
Accounts receivable allowances (1) . . . . . . . . . . . . .
For the year ended December 31, 2015
Accounts receivable allowances (1) . . . . . . . . . . . . .
$
$
$
_______________
559
967
611
$
$
$
4,645
4,795
4,150
$
$
$
(4,645) $
(5,203) $
(3,794) $
559
559
967
(1) Allowances are for chargebacks, prompt payment discounts and distribution fees related to Hylenex recombinant
product sales.
F-40
Dear Fellow
Shareholders —
25%
Royalty revenue increase
over the previous year.
$469M
Cash position exiting 2017
CORPORATE INFORMATION
ABOUT HALOZYME, INC.
Halozyme Therapeutics is a biotechnology company focused on developing and commercializing
novel oncology therapies that target the tumor microenvironment. Halozyme’s lead proprietary
program, investigational drug PEGPH20, applies a unique approach to targeting solid tumors,
allowing increased access of co-administered cancer drug therapies to the tumor in animal
models. PEGPH20 is currently in development for metastatic pancreatic cancer, non-small cell
lung cancer, gastric cancer, metastatic breast cancer and has potential across additional cancers in
combination with different types of cancer therapies. In addition to its proprietary product portfolio,
Halozyme has established value-driving partnerships with leading pharmaceutical companies
including Roche, Shire/Baxalta, Pfizer, Janssen, Abbvie, Lilly, Bristol-Myers Squibb and Alexion for
its ENHANZE® drug delivery technology. Halozyme is headquartered in San Diego, California.
For more information visit www.halozyme.com.
GENERAL INFORMATION
BOARD OF DIRECTORS
EXECUTIVE TEAM
Corporate Headquarters
11388 Sorrento Valley Road
San Diego, CA 92121
858-794-8889
info@halozyme.com
www.halozyme.com
Outside Legal Counsel
DLA Piper LLP (U.S.)
San Diego, California
Independent Auditors
Ernst & Young LLP
San Diego, California
Transfer Agent
Corporate Stock Transfer, Inc.
3200 Cherry Creek Drive South,
Suite 430
Denver, CO 80209
303-282-4800
Form 10-K Annual Report
Each Stockholder may receive
without charge a copy of the
Annual Report on form 10-K filed
with the Securities and Exchange
Commission by written request
addressed to Investor Relations.
Stock Listing
Halozyme Therapeutics, Inc.
common stock trades on the
Nasdaq Stock Market under the
symbol HALO.
generation ALXN 1210. In fact, we project royalty potential of
pancreatic and gastric cancer. In addition, we dosed the
approximately $1 billion in 2027 from multiple indication
first patients in a study to evaluate the combination in
approvals and global launches of our currently commercialized
cholangiocarcinoma and gall bladder cancer patients;
products using ENHANZE and seven other targets in clinical
development or planned for clinical development with
ENHANZE. Actual royalties will depend on indications
approved, geographies launched and market share attained.
• Advancing our exploration of PEGPH20’s pan-tumor potential,
with the possibility of reporting response-rate data from two
Phase 1 studies in the second half of 2018.
With the progress we made in 2017, it is easy to see why we
PEGPH20 is a targeted therapy, with a companion diagnostic
are so optimistic about the road ahead and the long-term value
to select patients most likely to respond to it. The combination
created for shareholders by the ENHANZE technology.
of a deep body of preclinical evidence, the encouraging
Turning to our oncology pillar, which is anchored by PEGPH20,
2017 began with a major derisking event as we reported
encouraging data from our randomized, controlled HALO-202
Phase 2 study in approximately 270 patients. These results
garnered excellent attention through oral presentations at
major medical fora during the year and supported strong
HALO-202 data and the diagnostic support a good potential for
PEGPH20 to make a meaningful difference in the lives of
patients with devastating and difficult to treat HA-High
pancreas cancer. This is what motivates me and our team, and
what we believe will ultimately provide the greatest returns to
our shareholders.
progress in enrollment in our HALO-301 Phase 3 study in
We look forward to achieving the target number of
metastatic pancreatic cancer patients with the same
progression-free survival events in our Phase 3 study late in
chemotherapy combination of PEGPH20 plus ABRAXANE®
the fourth quarter of 2018, at which time we expect to have
(nab-paclitaxel) and gemcitabine. HALO-202 showed a
approximately 500 patients enrolled.
statistically significant progression-free survival improvement
in patients retrospectively identified to have high levels of
hyaluronan (HA), and data from the study were recently
published in the peer reviewed Journal of Clinical Oncology.
In HALO-301, we are prospectively selecting patients with the
HA-High biomarker. PEGPH20 temporarily degrades HA, a
glycosaminoglycan or a chain of natural sugars in the body that
can accumulate around certain tumor types and impede
access of cancer therapies to the tumor.
In addition to the progress with HALO-301, we achieved a
number of value-enhancing goals and milestones in the
PEGPH20 program, including:
The milestones we achieved in 2017 have also put us in the
strongest financial position in company history. Revenue for
the year was $317 million, and we exited the year very
well-financed with $469 million in cash.
I want to thank you for your continued investment, support,
encouragement, questions and thoughtful input. During 2017,
we saw the benefits of our strategy taking hold. I also want to
thank patients who participate in our clinical studies. Without
their courage, our work would not be possible. Finally, we
would not be where we are today as a company without the
dedication of our entire Halozyme team. I am deeply grateful
for their commitment and look forward to the progress we will
• Expanding our Phase 1b study of PEGPH20 in combination
continue to make in 2018.
with KEYTRUDA® (pembrolizumab) in lung and gastric
cancer patients;
Best regards,
• Dosing the first patients in three clinical studies under an
agreement with Genentech, a member of the Roche
Group, formed in 2016 to evaluate PEGPH20 and
TECENTRIQ® (atezolizumab) in up to eight different
tumor types. This is an efficient way for Halozyme to
expand the study of PEGPH20, with Roche funding and
conducting studies in up to six tumor types, beginning with
Jean-Pierre Bizzari, M.D.
Former Executive Vice President and Global
Head of Oncology, Celgene Corporation
Helen Torley, M.B. Ch.B., M.R.C.P
President and Chief Executive Officer
James M. Daly
Former Executive Vice President and Chief
Commercial Officer, Incyte Corporation
Jeffrey W. Henderson
Advisory Director to Berkshire Partners LLC;
Former Chief Financial Officer,
Cardinal Health, Inc.
Kenneth J. Kelley
Trustee, Sabin Vaccine Institute
Randal J. Kirk
Chairman and Chief Executive Officer,
Intrexon Corporation; Senior Managing
Director and Chief Executive Officer, Third
Security, LLC
Connie L. Matsui
Chairman of the Board, Halozyme
Therapeutics; Former Executive Vice
President, Knowledge and Innovation
Networks, Biogen Idec
Dimitrios Chondros
Senior Vice President and
Chief Medical Officer
William J. Fallon
Senior Vice President, Global ENHANZE
Program Lead, CMC Operations
& Strategic Alliances
Michael J. LaBarre, Ph.D.
Vice President and Chief Scientific Officer
Harry J. Leonhardt, Esq.
Senior Vice President, General Counsel,
Chief Compliance Officer and
Corporate Secretary
Jim S. Mazzola
Vice President, Corporate Communication
and Investor Relations
Michael E. Paolucci
Vice President and Chief Human
Resources Officer
Matthew L. Posard
President and Chief Commercial Officer,
GenePeeks, Inc.
Laurie D. Stelzer
Senior Vice President and Chief
Financial Officer
Helen Torley, M.B. Ch.B., M.R.C.P.
President and Chief Executive Officer,
Halozyme Therapeutics
Kristina Vlaovic
Vice President, Regulatory and Safety
Homa Yeganegi
Senior Vice President, Global PEGPH20
Program Lead
SAFE HARBOR STATEMENT
This Annual Report contains forward-looking statements regarding our products in development,
anticipated clinical, regulatory and commercial milestones, business intentions, financial conditions
and results of operations and prospects and other statements concerning future matters. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” 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 the Annual Report. Actual
results could differ materially from the expectations contained in forward-looking statements as a
result of several factors, including unexpected expenditures and costs, unexpected results or delays
in development and regulatory review, regulatory approval requirements, unexpected adverse
events and competitive conditions. These and other factors that may result in differences are
discussed in greater detail in the Company’s reports on Forms 10-K, 10-Q, and other filings with the
Securities and Exchange Commission.
H
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2017 ANNUAL REPORT
Strategic Partnerships.
Focus on Patients.
Halozyme Therapeutics, Inc.
11388 Sorrento Valley Road
San Diego, CA 92121
858-794-8889
info@halozyme.com
www.halozyme.com
Copyright © 2018. Halozyme, Inc.
All rights reserved. All trademarks belong
to their respective owners.
On the cover:
In 2017, Halozyme hosted meetings with investigators
and clinicians in cities around the world to prepare more
than 200 sites in 22 countries for the screening and
enrolling of pancreatic cancer patients in the company’s
Phase 3 HALO-301 Pancreatic clinical study.
PRODUCT PIPELINE
PRODUCT, COLLABORATION PRODUCTS
THERAPEUTIC
RESEARCH FOCUS/
DEVELOPMENT
AND PRODUCT CANDIDATES
AREA
INDICATION (PARTNER)
STAGE
Oncology Pipeline
and Product
Candidates
PEGPH20 with ABRAXANE®
(nab-paclitaxel) and gemcitabine
Oncology
Pancreas Cancer
Phase 3
PEGPH20 with KEYTRUDA®
Oncology
Gastric Cancer/Non-
Phase 1
(pembrolizumab)
Small Cell Lung Cancer
PEGPH20 with HALAVEN®
Oncology
Breast Cancer
Phase 1*
PEGPH20 with TECENTRIQ®
Oncology
Pancreas Cancer
Phase 1
(eribulin)
(atezolizumab)
(atezolizumab)
(atezolizumab)
PEGPH20 with TECENTRIQ®
Oncology
PEGPH20 with TECENTRIQ®
Oncology
(Eisai)
(Genentech)
Gastric Cancer
(Genentech)
Gall Bladder Cancer/
Cholangiocarcinoma
Phase 1
Phase 1
PEG-ADA2: PEGylated-Human
Oncology
Various
Preclinical
Adenosine Deaminase 2
*No further clinical development planned on the Phase 2 portion of this study.
Proprietary
Approved Product
HYLENEX® recombinant
(hyaluronidase human injection)
Various
Adjuvant for subcutaneous
U.S. Approved
fluid delivery for dispersion
& absorption of other
injected drugs
ENHANZE®
Collaboration
Approved Products
Roche
HERCEPTIN® SC (trastuzumab)
Oncology
Breast Cancer
Oncology
Multiple blood
Cancers
Cancers
Oncology
Multiple blood
U.S. approved
EU approved and other
countries outside U.S.
EU approved and other
countries outside U.S.
MABTHERA® SC (rituximab)
(Outside of the U.S.)
RITUXAN HYCELA®
(rituximab/hyaluronidase human)
(U.S.)
Baxalta
10% (Human) with Recombinant
Human Hyaluronidase]
HYQVIA® [Immune Globulin Infusion
Immunology
Primary
Immunodeficiency
ENHANZE®
Collaboration
Product Candidates
Roche (Total of 9 potential targets)
PERJETA® (pertuzumab)
Oncology
Breast Cancer
Phase 1
Approved for adults in
the EU, U.S., Puerto Rico
and Australia; Pediatric
indication approved in EU
(Plans for Phase 3 fixed-
dose combination with
Herceptin in 2018)
Phase 1
Phase 3
Phase 3
Phase 3
Phase 3
Phase 2
Phase 1
Phase 1
Preclinical
Preclinical
Oncology
Amyloidosis
Smoldering Myeloma
Multiple Myeloma (2L+)
Multiple Myeloma (4L)
Multiple Myeloma (1L+)
Multiple Myeloma (3L+)
Undisclosed
Pfizer (Total of 6 potential targets)
Janssen (Total of 5 potential targets)
DARZALEX® (daratumumab)
AbbVie (Total of 9 potential targets)
Lilly (Total of 5 potential targets)
Undisclosed
Bristol-Myers Squibb
(Total of 11 potential targets)
PD-1 target
Oncology
Alexion (Total of 4 potential targets)
ALXN1210 SC
Various
All trademarks belong to their respective owners.