What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-11 · 113 added, 108 removed, 608 unchanged (27% of the section changed)

29 unchanged sentences

300,000 shares authorized;

135,364 and 136,713 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively

136,671 and 136,713 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

8 unchanged sentences

Three Months Ended

Six Months Ended

Product sales, net

6 unchanged sentences

Total operating expenses

Operating (loss) income

Operating income (loss)

Other income (expense):

1 unchanged sentence

Interest expense

Net (loss) income before income taxes

Net income (loss) before income taxes

Income tax expense

Net (loss) income

Net (loss) income per share:

Shares used in computing net (loss) income per share:

Net income (loss)

Net income (loss) per share:

Shares used in computing net income (loss) per share:

See accompanying notes to condensed consolidated financial statements.

3 unchanged sentences

Three Months Ended

Net (loss) income

Other comprehensive (loss) income:

Unrealized gain (loss) on marketable securities

Six Months Ended

Net income (loss)

Other comprehensive income (loss):

Unrealized gain on marketable securities

Foreign currency translation adjustment

Unrealized gain on foreign currency

Total comprehensive loss

Unrealized gain (loss) on foreign currency

Total comprehensive income (loss)

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

Operating activities:

Net (loss) income

Net income (loss)

Adjustments to reconcile net loss to net cash used in operating activities:

19 unchanged sentences

Repayment of long-term debt

Payment of debt issuance cost

Repurchase of common stock

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)

Three Months Ended March 31, 2020

(Unaudited) (in thousands)

Three Months Ended June 30, 2020

Comprehensive Loss

Stockholders’

BALANCE AS OF MARCH 31, 2020

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

Repurchase of common stock

Other comprehensive loss

BALANCE AS OF JUNE 30, 2020

Six Months Ended June 30, 2020

Comprehensive Loss

Stockholders’

BALANCE AS OF DECEMBER 31, 2019

1 unchanged sentence

Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net

Cancellation of restricted stock awards, net

Issuance of restricted stock awards, net

Repurchase of common stock

Equity component of convertible notes

Other comprehensive loss

Other comprehensive income

BALANCE AS OF JUNE 30, 2020

Three Months Ended June 30, 2019

Comprehensive Loss

Stockholders’

BALANCE AS OF MARCH 31, 2019

Three Months Ended March 31, 2019

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 income

BALANCE AS OF JUNE 30, 2019

Six Months Ended June 30, 2019

Comprehensive Loss

3 unchanged sentences

Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net

Cancellation of restricted stock awards, net

Issuance of restricted stock awards, net

Other comprehensive income

BALANCE AS OF MARCH 31, 2019

BALANCE AS OF JUNE 30, 2019

See accompanying notes to condensed consolidated financial statements.

13 unchanged sentences

ENHANZE may enable fixed-dose SC dosing compared to weight-based dosing required for IV administration, and potentially allow for lower rates of infusion related reactions.

ENHANZE may enable more flexible treatment options such as home administration by a healthcare professional or potentially the patient.

Lastly, certain proprietary drugs co-formulated with ENHANZE have been granted additional exclusivity, extending the patent life of the product beyond the one of the proprietary IV drug.

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(“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol-Myers Squibb Company (“BMS”), Alexion Pharma Holding (“Alexion”) and ARGENX BVBA (“argenx”).

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.

We receive royalties from three of these collaborations, including royalties from sales of one product from the Baxalta collaboration, three products from the Roche collaboration and one product from the Janssen collaboration.

Future potential revenues from royalties and fees from ENHANZE collaborations and the sales and/or royalties of our approved products 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.

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The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments.

There was no change to net cash used in operating activities.

Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year.

10 unchanged sentences

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 March 31, 2020 , our cash equivalents consisted of money market funds.

As of June 30, 2020 , our cash equivalents consisted of money market funds.

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.

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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 March 31, 2020 and December 31, 2019 , restricted cash of $ 0.5 million was pledged as collateral for the letters of credit.

At June 30, 2020 and December 31, 2019 , restricted cash of $ 0.5 million was pledged as collateral for the letters of credit.

Fair Value of Financial Instruments

8 unchanged sentences

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 asset-backed securities, corporate debt securities, U.S.

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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.

Bulk rHuPH20 formulations manufactured for partner use prior to our partner receiving marketing approval from the U.S.

Food and Drug Administration (“FDA”) or comparable regulatory agencies in foreign countries and with no alternative future use are recorded as research and development expense.

All direct manufacturing costs incurred after the partner receives marketing approval are capitalized as inventory.

Bulk rHuPH20 formulations manufactured for general partner and internal use, which can potentially be used by any collaboration partner or by us in Hylenex, and ENHANZE drug product used by our partners in clinical trials, is considered to have alternative future use and all manufacturing costs are capitalized as inventory.

As of March 31, 2020 , and December 31, 2019 , inventories consisted of $ 1.6 million and $ 1.4 million , respectively, of Hylenex inventory, net and $ 39.8 million and $ 28.0 million , respectively, of bulk rHuPH20.

As of June 30, 2020 , and December 31, 2019 , inventories consisted of $ 1.7 million and $ 1.4 million , respectively, of Hylenex inventory, net and $ 46.6 million and $ 28.0 million , respectively, of bulk rHuPH20.

The Company has entered into operating leases primarily for real estate and automobiles.

13 unchanged sentences

We generate revenues from payments received under collaborative agreements and product sales.

As of January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (ASC 606) which affects how we recognize revenues in these arrangements.

We applied the provisions of ASC 606 using the modified retrospective approach, with the cumulative effect of the adoption recognized as of January 1, 2018, to all contracts that had not been completed as of that date.

Under ASC 606, w e recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

To determine revenue recognition for contracts with customers we perform the following five steps:

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(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, which is determined separately for each country.

In the event such valid claims expire prior to the last to expire royalty term, the royalty rate is reduced for the remaining royalty term following such expiration.

In the event such valid claims expire prior to the end of the applicable royalty term, the royalty rate is reduced for the remainder of such royalty term.

The collaboration partner may terminate the agreement prior to expiration for any reason in its entirety or on a target-by-target basis generally upon 90 days prior written notice to us.

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The exercise price of these options includes a combination of the target selection fees, event-based milestone payments and royalties.

When these amounts in aggregate are not offered at a discount that

exceeds discounts available to other customers, we conclude the option does not contain a material right, and we consider grants of additional licensing rights upon option exercises to be separate contracts (target selection contracts).

When these amounts in aggregate are not offered at a discount that exceeds discounts available to other customers, we conclude the option does not contain a material right, and we consider grants of additional licensing rights upon option exercises to be separate contracts (target selection contracts).

We provide standard indemnification and protection of licensed intellectual property for our customers.

89 unchanged sentences

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 and ENHANZE drug product that has alternative future use.

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.

Prior to bulk rHuPH20 and ENHANZE drug product having alternative future use, all costs related to the manufacturing of those products were charged to research and development expenses in the periods such costs were incurred.

Of the bulk rHuPH20 and ENHANZE drug product that has alternative future use on hand as of March 31, 2020 , approximately $ 0.1 million in manufacturing costs were previously recorded as research and development expenses.

We expect to sell this inventory by the end of 2020.

Research and Development Expenses

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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.

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.

4 unchanged sentences

Share-Based Compensation

We record compensation expense associated with stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) in accordance with the authoritative guidance for stock-based compensation.

We record compensation expense associated with stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance stock units (“PSUs”) 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.

7 unchanged sentences

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 of $ 1.7 million which will either be utilized, or if unutilized, fully refunded in 2020 as further discussed below.

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.

Accordingly, valuation allowances have been recorded to reduce our net deferred tax assets to zero until such time as we can demonstrate an ability to realize them.

In response to the coronavirus (COVID-19) pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S.

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Other than the refundability of the AMT credit, at this time, we do not believe that the CARES Act will have a material impact on our financial statements.

Net (Loss) Income Per Share

Net Income (Loss) Per Share

Basic net (loss) income per common share is computed by dividing net (loss) income for the period by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents.

Outstanding stock options, unvested RSAs, unvested RSUs and the Convertible Notes are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive.

For the three months ended March 31, 2020 and 2019 , approximately 29.2 million and 7.7 million shares, respectively, of outstanding stock options, unvested RSAs, unvested RSUs and the Convertible Notes were excluded from the calculation of diluted net (loss) income per common share because their effect was anti-dilutive.

The 19.3 million shares underlying the conversion option of the Convertible Notes will not have an impact on our diluted earnings per share when net income is reported until the average market price of our common stock exceeds the conversion price of $ 23.85 per share, as we intend and have the ability to settle the principal amount of the Convertible Notes in cash upon conversion.

We compute the potentially dilutive impact of the shares of common stock related to the Convertible Notes using the treasury stock method.

Outstanding stock options, unvested RSAs, unvested RSUs, unvested PSUs and the Convertible Notes are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive.

For the three and six months ended June 30, 2020 and 2019 , approximately 6.7 million and 15.7 million shares, respectively, of outstanding stock options, unvested RSAs, unvested RSUs, unvested PSUs and the Convertible Notes were excluded from the calculation of diluted net (loss) income per common share because their effect was anti-dilutive.

The 19.3 million shares underlying the conversion option of the Convertible Notes does not have an impact on our diluted earnings per share when net income is reported when the average market price of our common stock is less than the conversion price of $ 23.85 per share, as we intend and have the ability to settle the principal amount of the Convertible Notes in cash upon conversion.

When the average market price of our common stock exceeds the conversion price, we compute the potentially dilutive impact of the shares of common stock related to the Convertible Notes using the treasury stock method.

A reconciliation of the numerators and the denominators of the basic and diluted net (loss) income per common share computations is as follows (in thousands, except per share amounts):

Three Months Ended

Net (loss) income

Six Months Ended

Net income (loss)

Weighted average common shares outstanding for basic

3 unchanged sentences

net (loss) income per share

Net (loss) income per share:

Net income (loss) per share:

Segment Information

26 unchanged sentences

Available-for-sale marketable securities consisted of the following (in thousands):

March 31, 2020

June 30, 2020

Amortized Cost

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Commercial paper

As of March 31, 2020 , 20 available-for-sale marketable securities with a fair market value of $ 129.9 million were in a gross unrealized loss position of $ 0.6 million .

Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of March 31, 2020 , 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.

As of June 30, 2020 , none of our available-for-sale marketable securities were in a gross unrealized loss position.

Contractual maturities of available-for-sale debt securities are as follows (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

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):

March 31, 2020

June 30, 2020

December 31, 2019

8 unchanged sentences

Commercial paper

We had no instruments that were classified within Level 3 as of March 31, 2020 and December 31, 2019 .

We had no instruments that were classified within Level 3 as of June 30, 2020 and December 31, 2019 .

Our disaggregated revenues were as follows (in thousands):

Three Months Ended

Six Months Ended

Product sales, net

9 unchanged sentences

Total revenue

During the three months ended March 31, 2020 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of $ 16.8 million , which represents royalties earned in the current period.

We recognized revenue of $ 0.6 million during the three months ended March 31, 2020 that had been included in deferred revenues at December 31, 2019 .

During the three months ended June 30, 2020 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of $ 40.8 million .

This amount represents royalties earned in the current period in addition to $ 25.0 million of variable consideration in the contracts where uncertainties have been resolved and the development milestones were expected to be achieved or were achieved.

We recognized revenue of $ 3.3 million during the three months ended June 30, 2020 that had been included in deferred revenues at December 31, 2019 .

During the six months ended June 30, 2020 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of $ 57.7 million .

We recognized revenue of $ 3.9 million during the six months ended June 30, 2020 that had been included in deferred revenues at December 31, 2019 .

We did not recognize any adjustments to reduce sales reserves and allowances liability related to Hylenex recombinant sales in prior periods.

Accounts receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

1 unchanged sentence

Deferred revenues

As of March 31, 2020 , the amounts included in the transaction price of our contracts with customers, including collaboration partners, and allocated to goods and services not yet provided were $ 11.8 million , of which $ 7.1 million relates to unfulfilled product purchase orders and $ 4.7 million has been collected and is reported as deferred revenues.

As of June 30, 2020 , the amounts included in the transaction price of our contracts with customers, including collaboration partners, and allocated to goods and services not yet provided were $ 8.0 million , of which $ 6.6 million relates to unfulfilled product purchase orders and $ 1.4 million has been collected and is reported as deferred revenues.

The unfulfilled product purchase orders are estimated to be delivered during the remainder of 2020.

Of the total deferred revenues of $ 1.4 million , $ 0.7 million is expected to be used by our customers within the next 12 months.

There were no contract assets related to collaborative agreements at March 31, 2020 .

There were no contract assets related to collaborative agreements at June 30, 2020 .

While we may become entitled to receive additional event-based development and regulatory milestones and other fees under our collaborative agreements, which relate to intellectual property licenses granted to collaboration partners in prior periods, no amounts were probable.

The following table presents amounts under our collaborative agreements included in the transaction price (i.e.

cumulative amounts triggered or probable) as of March 31, 2020 (in thousands):

cumulative amounts triggered or probable) as of June 30, 2020 (in thousands):

Collaboration partner and agreement date:

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Sales-based milestone amounts

Through March 31, 2020 , our collaboration partners have completed development, obtained marketing authorization approvals for certain indications and commenced commercialization of the following products:

Through June 30, 2020 , our collaboration partners have completed development, obtained marketing authorization approvals for certain indications and commenced commercialization of the following products:

Roche, for Herceptin SC (trastuzumab) in the European Union (“EU”) in August 2013;

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Herceptin SC in Canada in September 2018;

and Herceptin Hylecta (trastuzumab and hyaluronidase-oysk) in the US in February 2019.

Herceptin Hylecta (trastuzumab and hyaluronidase-oysk) in the US in February 2019;

and Phesgo™ (pertuzumab/trastuzumab/hyaluronidase-zzxf) in the US in June 2020.

Baxalta, for HYQVIA (Immune Globulin Infusion 10% (Human) with Recombinant Human Hyaluronidase) in the EU and in the US in May 2013.

Janssen, for DARZALEX FASPRO™ (daratumumab hyaluronidase human-fihj) in US in May 2020 and Darzalex in the EU in June 2020.

The remaining targets and products are currently in the process of development by the collaboration partners.

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Property and equipment, net

Depreciation and amortization expense was approximately $ 0.9 million and $ 1.0 million , inclusive of ROU asset amortization of $ 0.5 million and $ 0.4 million for the three months ended March 31, 2020 and 2019 respectively.

Depreciation and amortization expense was approximately $ 0.8 million and $ 1.0 million , inclusive of ROU asset amortization of $ 0.4 million and $ 0.4 million for the three months ended June 30, 2020 and 2019 respectively.

Depreciation and amortization expense was approximately $ 1.7 million and $ 2.0 million , inclusive of ROU asset amortization of $ 0.9 million and $ 0.8 million for the six months ended June 30, 2020 and 2019 respectively.

Accrued expenses consisted of the following (in thousands):

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Total accrued expenses, current

Expense associated with the accretion of the lease liabilities was approximately $ 0.1 million and $ 0.2 million for the three months ended March 31, 2020 and 2019 respectively.

Total lease expense for the three months ended March 31, 2020 and 2019 was $ 0.6 million and $ 0.6 million respectively.

Cash paid for amounts related to leases for the three months ended March 31, 2020 and 2019 was $ 0.8 million and $ 0.7 million , respectively.

Expense associated with the accretion of the lease liabilities was approximately $ 0.2 million and $ 0.2 million for the three months ended June 30, 2020 and 2019 respectively.

Total lease expense for the three months ended June 30, 2020 and 2019 was $ 0.6 million and $ 0.7 million respectively.

Expense associated with the accretion of the lease liabilities was approximately $ 0.3 million and $ 0.4 million for the six months ended June 30, 2020 and 2019 , respectively.

Total lease expense for the six months ended June 30, 2020 and 2019 , $ 1.2 million and $ 1.3 million respectively.

Cash paid for amounts related to leases for the three months ended June 30, 2020 and 2019 was $ 0.9 million and $ 0.8 million , and $ 1.7 million and $ 1.5 million for the six months ended June 30, 2020 and 2019 respectively.

Deferred revenue consisted of the following (in thousands):

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In connection with the Convertible Notes, we paid the initial purchasers of the Convertible Notes a fee of $ 12.7 million and incurred additional debt issuance costs totaling $ 0.3 million , which includes expenses that we paid on behalf of the initial purchasers and expenses incurred directly by us.

Debt issuance costs, the initial purchasers’ fee and the equity component is presented as a debt discount as of March 31, 2020 in the amount of $ 73.4 million , and will be amortized over the remaining estimated term of 5 years using the effective interest method, utilizing an effective interest rate of 5.10 % .

The net carrying amount of the debt as of March 31, 2020 is $ 386.6 million .

For the quarter ended March 31, 2020 , we recognized interest expense of $ 4.9 million , including contractual coupon interest of $ 1.4 million and amortization of the debt discount of $ 3.5 million .

As of March 31, 2020 , we were in compliance with all covenants under the Indenture and there was no material adverse change in our business, operations or financial condition.

Debt issuance costs, the initial purchasers’ fee and the equity component is presented as a debt discount as of June 30, 2020 in the amount of $ 69.9 million , and will be amortized over the remaining estimated term of 4.3 years using the effective interest method, utilizing an effective interest rate of 5.10 % .

The net carrying amount of the debt as of June 30, 2020 is $ 390.1 million .

The fair value of the Convertible Notes, which was estimated using trading levels obtained from third-party service provider (Level 2), was $ 585.8 million at June 30, 2020 and $ 461.1 million at December 31, 2019 .

For the three months ended June 30, 2020 , we recognized interest expense of $ 4.9 million , including contractual coupon interest of $ 1.4 million and amortization of the debt discount of $ 3.5 million .

For the six months ended June 30, 2020 , we recognized interest expense of $ 9.9 million , including contractual coupon interest of $ 2.9 million and amortization of the debt discount of $ 7.0 million .

As of June 30, 2020 , we were in compliance with all covenants under the Indenture and there was no material adverse change in our business, operations or financial condition.

Royalty-backed Loan

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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 March 31, 2020 was 9.64 % .

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.

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 second quarter of 2020.

This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected.

Under the terms of the Credit Agreement, at any time after January 1, 2019, Halozyme Royalty may, subject to certain limitations, prepay the outstanding principal of the Royalty-backed Loan in whole or in part, at a price equal to 105 % of the outstanding principal on the Royalty-backed Loan, plus accrued but unpaid interest.

The Royalty-backed Loan constitutes an obligation of Halozyme Royalty and is non-recourse to Halozyme.

Halozyme Royalty retains its right to the Royalty Payments following repayment of the loan.

As of March 31, 2020 , 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.

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 three months ended March 31, 2020 .

In addition, we recorded accrued interest, which is included in accrued expenses, of $ 12.3 thousand and $ 0.1 million as of March 31, 2020 and December 31, 2019 , 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 March 31, 2020 and are being amortized over the estimated term of the debt using the effective interest method.

For the three months ended March 31, 2020 and 2019 , we recognized interest expense, including amortization of the debt discount, related to the Royalty-backed Loan of $ 0.4 million and $ 2.2 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 March 31, 2020 was $ 2.9 million .

The royalty payments from the Collaboration Agreements were used to repay the principal and interest on the loan (the “Royalty Payments”).

The Royalty-backed Loan bore interest at a per annum rate of 8.75 % plus the three-month LIBOR rate.

The three-month LIBOR rate was subject to a floor of 0.7 % and a cap of 1.5 % .

In June 2020, we paid the full remaining balance and final payment of $ 2.93 million thereby satisfying and discharging all obligations under, and terminating, the Royalty-backed Loan.

Oxford and SVB Loan and Security Agreement

4 unchanged sentences

The repayment schedule provided for interest only payments for the first 18 months , followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date of January 1, 2021 .

The Loan Agreement provided

for a final payment equal to 5.50 % of the initial $ 55.0 million principal amount, which was due when the Loan Agreement becomes due or upon the prepayment of the facility.

The Loan Agreement provided for a final payment equal to 5.50 % of the initial $ 55.0 million principal amount, which was due when the Loan Agreement becomes due or upon the prepayment of the facility.

We had the option to prepay the outstanding balance of the Loan Agreement in full and exercised this option in November 2019, at which point we paid the full remaining balance and final payment of $ 26.1 million , thereby satisfying and discharging all obligations under, and terminating, the Loan Agreement.

2 unchanged sentences

Three Months Ended

Six Months Ended

Research and development

3 unchanged sentences

Three Months Ended

Six Months Ended

Stock options

RSAs and RSUs

We granted stock options to purchase approximately 1.3 million and 2.2 million shares of common stock during the three months ended March 31, 2020 and 2019 , respectively.

RSAs, RSUs and PSUs

We granted stock options to purchase approximately 0.1 million and 0.7 million shares of common stock during the three months ended June 30, 2020 and 2019 , respectively, and $ 1.4 million and $ 2.9 million shares of common stock during the six months ended June 30, 2020 and 2019 , respectively.

The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant.

7 unchanged sentences

Three Months Ended

Six Months Ended

Expected volatility

3 unchanged sentences

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):

March 31, 2020

June 30, 2020

Weighted-Average

2 unchanged sentences

Stockholders’ Equity

During the three months ended March 31, 2020 and 2019 , we issued an aggregate of 1,792,043 and 163,421 shares of common stock, respectively, in connection with the exercises of stock options at a weighted average exercise price of $ 12.56 and $ 9.66 per share, respectively, for net proceeds of approximately $ 22.5 million and $ 1.6 million , respectively.

For the three months ended March 31, 2020 and 2019 , we issued 563,603 and 478,037 shares of common stock, respectively, upon vesting of certain RSUs for which 140,525 and 123,095 RSUs were withheld from the RSU holders, respectively, to pay for minimum withholding taxes totaling approximately $ 5.4 million and $ 2.0 million , respectively.

Stock options and unvested restricted units totaling approximately 9.9 million shares and 13.6 million shares of our common stock were outstanding as of March 31, 2020 and December 31, 2019 , respectively.

During the six months ended June 30, 2020 and 2019 , we issued an aggregate of 3,124,650 and 556,323 shares of common stock, respectively, in connection with the exercises of stock options at a weighted average exercise price of $ 13.08 and $ 11.10 per share, respectively, for net proceeds of approximately $ 40.9 million and $ 6.2 million , respectively.

For the six months ended June 30, 2020 and 2019 , we issued 564,841 and 496,850 shares of common stock, respectively, upon vesting of certain RSUs for which 140,525 and 131,315 RSUs were withheld from the RSU holders, respectively, to pay for minimum withholding taxes totaling approximately $ 5.4 million and $ 2.1 million , respectively.

Stock options and unvested restricted units totaling approximately 8.3 million shares and 13.6 million shares of our common stock were outstanding as of June 30, 2020 and December 31, 2019 , respectively.

Share Repurchases

13 unchanged sentences

First quarter (1)

Second quarter

(1) This is in addition to 0.5 million shares delivered in February upon completion of the ASR.

7 unchanged sentences

Our commitments include payments related to our commenced operating leases.

Approximate annual future minimum operating lease payments as of March 31, 2020 are as follows (in thousands;

excluding the three months ended March 31, 2020 ):

Approximate annual future minimum operating lease payments as of June 30, 2020 are as follows (in thousands;

excluding the six months ended June 30, 2020 ):

Total minimum lease payments

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements