What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 121 added, 99 removed, 626 unchanged (26% of the section changed)

8 unchanged sentences

Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,” “continue,” “potential,” “likely,” “opportunity,” “project” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report.

Additionally, statements concerning future matters such as the development or regulatory approval of new partner products, enhancements of existing products or technologies, timing and success of the launch of new products by our collaborators, third party performance under key collaboration agreements,the ability of our bulk drug manufacturers to provide adequate supply for our collaboration partners, revenue, expense and cash burn levels, anticipated amounts and timing of share repurchases, anticipated profitability and expected trends, expected repayment of the Royalty-backed Loan, the potential impact of the COVID-19 global pandemic on our business and trends and other statements regarding matters that are not historical are forward-looking statements.

Additionally, statements concerning future matters such as the development or regulatory approval of new partner products, enhancements of existing products or technologies, timing and success of the launch of new products by our collaborators, third party performance under key collaboration agreements,the ability of our bulk drug manufacturers to provide adequate supply for our collaboration partners, revenue, expense and cash burn levels, anticipated amounts and timing of share repurchases, anticipated profitability and expected trends, the potential impact of the COVID-19 global pandemic on our business and trends and other statements regarding matters that are not historical are forward-looking statements.

Such statements reflect management’s current forecast of certain aspects of our future, are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in our forward-looking statements due to a number of factors including, but not limited to, those set forth below under the section entitled “Risks Factors” and elsewhere in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K.

12 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.

7 unchanged sentences

(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 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 first quarter of 2020 and recent key events include:

In May 2020, we announced that The Janssen Pharmaceutical Companies of Johnson and Johnson received US FDA approval of DARZALEX FASPRO TM in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients.

As a fixed-dose formulation, DARZALEX FASPRO can be administered over three to five minutes, significantly less time than IV DARZALEX which requires multi-hour infusions.

In April 2020, we announced that Janssen-Cilag International NV (Janssen) received a Committee for Medicinal Products for Human Use (CHMP) Positive Opinion from the European Medicines Agency (EMA) recommending approval of a DARZALEX ® (daratumumab) SC formulation for the treatment of adult patients with multiple myeloma in frontline and relapsed/refractory settings.

The CHMP’s Positive Opinion for daratumumab SC formulation applies to multiple current daratumumab indications including newly diagnosed and transplant-ineligible patients, as well as relapsed or refractory patients.

In April 2020, we announced the submission of a New Drug Application (NDA) to Japan's Ministry of Health, Labour and Welfare (MHLW) by Janssen Pharmaceutical K.K.

(Janssen) seeking approval of a new SC formulation of daratumumab, an intravenous (IV) treatment approved for patients with multiple myeloma.

In March 2020, we repurchased approximately 3.2 million shares of common stock in open market purchases for $51.6 million.

Since the inception of our capital return program in November 2019 to repurchase up to $550.0 million of outstanding common stock over a three-year period, we have repurchased a total of 14.3 million shares for $251.6 million as of 3/31/2020.

In March 2020, Hylenex, which was approved in an NDA, was deemed to be an approved Biologics License Application (BLA) under section 351(a) of the Public Health Service Act (PHS Act).

A portion of our competition comes from compounding pharmacies, which are prohibited from compounding biologic products per the Drug Quality & Security Act (DQSA).

As hyaluronidase is now considered a biologic, this change may benefit sales of Hylenex.

In February 2020, we announced that the FDA has accepted a BLA from Genentech, a member of the Roche Group, for the fixed-dose combination of pertuzumab (Perjeta ® ) and trastuzumab (Herceptin ® ) for subcutaneous administration using ENHANZE technology in combination with IV chemotherapy for the treatment of eligible patients with HER2-positive breast cancer and the PDUFA date of October 18, 2020 was assigned.

Our second quarter of 2020 and recent key events include:

In June 2020, we announced that Roche received FDA approval of Phesgo™ (pertuzumab, trastuzumab, and hyaluronidase-zzxf) (fixed-dose combination of Perjeta ® and Herceptin ® for subcutaneous injection) utilizing ENHANZE technology for the treatment of patients with HER2-positive breast cancer.

In June 2020, we announced that Janssen received European marketing authorization and launched the commercial sale of the subcutaneous formulation of DARZALEX ® (daratumumab) utilizing ENHANZE in the European Union, triggering a $10 million milestone payment.

The approval applies to all current daratumumab indications in frontline and relapsed/refractory settings.

In June 2020, we announced findings from Janssen’s phase 3 ANDROMEDA (AMY3001) study evaluating subcutaneous daratumumab utilizing ENHANZE in light-chain Amyloidosis were presented at the European Hematology Association 25th Annual Congress.

Janssen reported that the study met the primary endpoint of percentage of patients with hematologic complete response.

In June 2020, BMS selected 3 targets on an exclusive basis and exercised their option to convert a co-exclusive license to an exclusive license, triggering a $5 million payment.

BMS has selected eight targets on an exclusive basis to-date.

In May 2020, we announced that Janssen received US FDA approval of DARZALEX FASPRO TM in four of six regimens approved for the intravenous form in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients and launched the commercial sale, triggering a $15 million milestone payment.

In April 2020, we announced the submission of a New Drug Application (NDA) to Japan's Ministry of Health, Labour and Welfare (MHLW) by Janssen seeking approval of a new SC formulation of daratumumab, an intravenous (IV) treatment approved for patients with multiple myeloma.

Product and Product Candidates

We currently have one marketed proprietary product and four marketed or approved partnered products.

We currently have one marketed proprietary product and five marketed partnered products.

The following table summarizes our proprietary product, marketed partnered products and product candidates under development with our collaborators:

18 unchanged sentences

In December 2019, the full data from the study was presented at the San Antonio Breast Cancer Symposium and subsequently BLA and MAA submissions were completed based on these results.

The FDA accepted the BLA and a PDUFA date of October 18, 2020 was assigned.

In June 2020, the FDA approved Phesgo (fixed-dose combination of Perjeta and Herceptin for subcutaneous injection) utilizing ENHANZE technology for the treatment of patients with HER2-positive breast cancer.

In June 2014, Roche launched MabThera SC in Europe for the treatment of patients with common forms of non-Hodgkin lymphoma (NHL) followed by launches in additional countries.

14 unchanged sentences

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.

17 unchanged sentences

DARZALEX SC (utilizing ENHANZE technology) was found to be non-inferior to Darzalex IV with regard the co-primary endpoints of Overall Response Rate and Maximum Trough concentration.

In May 2020, we announced that Janssen received US FDA approval of DARZALEX FASPRO in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients.

In May 2020, we announced that Janssen received US FDA approval and launched the commercial sale of DARZALEX FASPRO in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients.

As a fixed-dose formulation, DARZALEX FASPRO can be administered over three to five minutes, significantly less time than IV DARZALEX which requires multi-hour infusions.

In April 2020, we announced that Janssen received a Committee for Medicinal Products for Human Use (CHMP) Positive Opinion from the EMA recommending approval of a daratumumab SC formulation for the treatment of adult patients with multiple myeloma in frontline and relapsed/refractory settings.

In June 2020, we announced that Janssen received European marketing authorization and launched the commercial sale of the subcutaneous formulation of DARZALEX utilizing ENHANZE in the European Union.

In April 2020, we announced the submission of a New Drug Application (NDA) to Japan's Ministry of Health, Labour and Welfare (MHLW) by Janssen seeking approval of daratumumab SC.

10 unchanged sentences

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.

Targets may be selected on an exclusive basis.

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.

2 unchanged sentences

In October 2019, BMS initiated a Phase 1 study for relatlimab in combination with nivolumab and ENHANZE technology.

In June 2020, BMS initiated a Phase 1/2 study of ipilimumab in combination with nivolumab and ENHANZE technology.

In June 2020, BMS selected 3 targets on an exclusive basis and exercised their option to convert a co-exclusive license to an exclusive license.

BMS has selected eight targets on an exclusive basis to-date.

Alexion Collaboration

2 unchanged sentences

Alexion elected two targets on an exclusive basis, including a C5 complement inhibitor and has an option to select two additional targets within five years from the effective date.

In August 2018, Alexion announced that it initiated a Phase 1 trial to study a next-generation subcutaneous formulation of ALXN1210 using ENHANZE technology.

Alexion believes this next-generation subcutaneous formulation, called ALXN1810, has the potential to extend the dosing interval from once a week to greater than two weeks between doses.

In August 2018, Alexion announced that it initiated a Phase 1 trial to study a next-generation subcutaneous formulation of ALXN1210 using ENHANZE technology (ALXN1810).

In April 2020 Alexion announced it would no longer proceed with a study of ALXN1810 in renal disease.

argenx Collaboration

3 unchanged sentences

In December 2019, argenx reported that based on data from the phase 1 study and internal company analysis, a one minute injection administered every 2 weeks may be possible.

The Phase 2 efgartigimod clinical trial is enrolling chronic inflammatory demyelinating polyneuropathy (CIDP) patients.

The Phase 2 efgartigimod clinical trial has been initiated and is enrolling chronic inflammatory demyelinating polyneuropathy (CIDP) patients.

In June 2019, we announced a Cooperative Research and Development Agreement (CRADA) with the National Institute of Allergy and Infectious Diseases’ Vaccine Research Center (VRC), part of National Institute of Health (NIH), enabling the VRC’s use of ENHANZE technology to develop subcutaneous formulations of broadly neutralizing antibodies (bnAbs) against HIV for HIV treatment.

The initiation of this study has been impacted by COVID-19 and is delayed.

For a further discussion of the collaboration agreements, refer to Note 4, Revenue .

3 unchanged sentences

In an effort to protect the health and safety of our employees and in compliance with state regulations, we instituted working from home, limited the number of people that work on site at any one time, and suspended employee travel.

We anticipate that the global health crisis caused by COVID-19 will have an impact across the globe.

The duration of the pandemic and the potential impact of the pandemic on the global economy as a whole is unknown.

It is not clear what, if any, near and the long term effects the operational and economic impacts may have on our business, including the effects on our suppliers, collaborators, customers, employees, and prospects.

We anticipate that the global health crisis caused by COVID-19 will continue to have an impact across the globe.

As an organization we continue to effectively operate with the majority of our employees working from home, which we expect will continue for the foreseeable future.

Importantly, our suppliers continue to operate without interruption related to COVID-19.

However, the duration of the pandemic and its continued impact on the global economy as a whole is unknown at this time.

We are not clear the extent to which near term and long term operational and economic impacts of COVID-19, if any, will have on our business, including the effects on our suppliers, collaborators, customers, employees, and prospects.

We will continue to monitor the COVID-19 situation closely.

Results of Operations

Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019

Royalties – Royalty revenue was $16.8 million for the three months ended March 31, 2020 compared to $18.0 million for the three months ended March 31, 2019 .

The decrease was mainly driven by lower sales of Herceptin SC by Roche, partially offset by higher sales of RITUXAN HYCELA in the U.S.

by Roche and higher sales of HyQvia by Baxalta.

In general, we expect royalty revenue to decline in the near term prior to our next ENHANZE partner product launch, primarily attributable to the ongoing impact from biosimilars in Europe.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Royalties – Royalty revenue was $15.8 million for the three months ended June 30, 2020 compared to $18.1 million for the three months ended June 30, 2019 .

The decrease was mainly driven by lower sales of Herceptin SC by Roche.

We expect royalty revenue to grow as a result of our recent ENHANZE partner product launches, offsetting the ongoing impact from biosimilars in Europe and COVID-19 related to our mature ENHANZE partner products.

Product Sales, Net – Product sales, net were as follows (in thousands):

4 unchanged sentences

Total product sales, net

Product sales, net decreased $0.2 million in the three months ended March 31, 2020 compared to the same period in 2019 , due to a decrease in the sale of bulk rHuPH20 to Roche, partially offset by an increase in the sale of rHuPH20 to Baxalta and other partners and an increase in sales of Hylenex.

Product sales, net increased $0.6 million in the three months ended June 30, 2020 compared to the same period in 2019 , due to an increase in the sale of bulk rHuPH20 to Roche and Baxalta, partially offset by an a decrease in the sale of rHuPH20 to other partners and a decrease in sales of Hylenex.

We expect that product sales of bulk rHuPH20 and ENHANZE drug product will fluctuate in future periods based on the needs of our collaborators.

In March 2020, the Surgeon General advised hospitals to cancel elective surgeries due to COVID-19.

Hylenex is used in cataract surgery and other ophthalmologic surgeries, and therefore the advisory may have a negative impact on Hylenex sales, depending on the duration of the canceled surgeries.

We currently do not expect an interruption in our ability to sell our products as a results of COVID-19.

Hylenex is used in cataract surgery and other ophthalmologic surgeries, and therefore the advisory resulted in a decrease in sales of Hylenex in the second quarter of 2020.

Most states resumed elective surgeries in April and May of 2020, but the restrictions in place during the COVID-19 pandemic may continue to have a negative impact on the sale of Hylenex in additional quarters.

We currently do not expect an interruption in our ability to manufacture our products as a results of COVID-19.

Our contract manufacturers continue to operate as an essential business during the pandemic and have communicated that they have not identified any significant risk, delay, or concern that may have a substantial effect on delivery of any product.

6 unchanged sentences

Total revenues under collaborative agreements

Revenue from license fees decreased in the three months ended March 31, 2020 , compared to the same period in 2019 mainly due to $30.0 million recognized in connection with the argenx Collaboration in 2019 .

Revenue from license fees increased in the three months ended June 30, 2020 , compared to the same period in 2019 mainly due to $32.3 million recognized in connection with the Janssen and BMS collaborations in the second quarter of 2020.

Revenue from upfront licenses fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments vary from period to period based on our ENHANZE collaboration activity.

1 unchanged sentence

To date, based on current partner communications, we have not identified any COVID-19 related delays that will materially impact our ENHANZE milestone revenue.

We will continue to monitor the ENHANZE development activities of our partners and the impact of their plans on our milestone revenue, as there may be potential for COVID-19 related delays.

Revenue from reimbursements for research and development services decreased in the three months ended March 31, 2020 , compared to the same period in 2019 mainly due to a decrease in services provided to Baxalta.

Research and development services rendered by us on behalf of our collaborators are at the request of the collaborators;

therefore, the amount and timing of future revenues related to reimbursable research and development services is uncertain.

Cost of Product Sales – Cost of product sales were $5.8 million for the three months ended March 31, 2020 compared to $4.6 million for the three months ended March 31, 2019 .

The increase of $1.2 million in cost of product sales was mainly due to an increase in costs supporting our product platform and an increase in sales of bulk rHuPH20 to Baxalta and other collaborators, partially offset by a decrease in sales of bulk rHuPH20 to Roche.

continue to monitor the ENHANZE development activities of our partners and the impact of their plans on our milestone revenue, as there may be potential for COVID-19 related delays.

Cost of Product Sales – Cost of product sales were $5.7 million for the three months ended June 30, 2020 compared to $1.9 million for the three months ended June 30, 2019 .

The increase of $3.8 million in cost of product sales was mainly due to an increase in sales of bulk rHuPH20 to Roche and Baxalta and an increase in period costs to support our product platform, partially offset by a decrease in the sales of Hylenex.

Research and Development – Research and development expenses consist of external costs, salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing, clinical trials, preclinical and regulatory activities.

3 unchanged sentences

Total research and development expenses

Research and development expenses relating to our PEGPH20 programs for the three months ended March 31, 2020 decreased by 81% , compared to the same period in 2019 , primarily due to decreased clinical trial activities.

Research and development expenses relating to our PEGPH20 programs for the three months ended June 30, 2020 decreased by 92% , compared to the same period in 2019 , primarily due to decreased clinical trial activities.

On November 4, 2019, we announced that the HALO-301 clinical study failed to reach the primary endpoint of overall survival.

As a result, we halted development activities for PEGPH20, closed our oncology operations and began the close out process for all our clinical trials.

We implemented an organizational restructuring to focus our operations solely on ENHANZE, which resulted in a reduction in research and development expenses.

Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform for the three months ended March 31, 2020 increased by 5% , compared to the same period in 2019 , primarily due to increased costs to support new partners and targets related to our ENHANZE collaboration activity.

We implemented an organizational restructuring to focus our operations solely on ENHANZE, which was completed in the second quarter of 2020 and resulted in a reduction in research and development expenses.

Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform for the three months ended June 30, 2020 increased by 33% , compared to the same period in 2019 , primarily due to increased costs to support additional ENHANZE targets.

We expect research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform to increase in the near term as the rHuPH20 platform is burdened with a higher allocation of overhead costs.

1 unchanged sentence

These expenses were not designated to a specific program at the time the expenses were incurred.

Selling, General and Administrative – Selling, general and administrative (SG&A) expenses were $12.6 million for the three months ended March 31, 2020 compared to $18.0 million for the three months ended March 31, 2019 .

Selling, General and Administrative – Selling, general and administrative (SG&A) expenses were $11.0 million for the three months ended June 30, 2020 compared to $17.3 million for the three months ended June 30, 2019 .

The decrease of $6.3 million , or 37% , was primarily due to a decrease in compensation expense and discontinuation of commercial expenses related to market research and educational activities as we prepared for a potential commercial launch of PEGPH20.

The discontinuation of our development activities for PEGPH20 and closure of our oncology operations resulted in a reduction in commercialization activities and compensation expense.

Interest Expense – Interest expense was $5.3 million for the three months ended March 31, 2020 compared to $3.2 million for the three months ended March 31, 2019 .

The increase of $2.1 million was primarily due to interest expense related to the Convertible Notes, offset by a decrease in the Royalty-backed Loan and the Oxford and SVB Loan principal balances.

Interest Expense – Interest expense was $5.0 million for the three months ended June 30, 2020 compared to $2.6 million for the three months ended June 30, 2019 .

The increase of $2.4 million was primarily due to interest expense related to the Convertible Notes, offset by a decrease in interest expense for the Royalty-backed Loan and the Oxford and SVB Loan.

Income Tax Expense – Income tax expense was $58.0 thousand for the three months ended June 30, 2020 , compared to $17.0 thousand for the three months ended June 30, 2019 due to an increase in estimated state taxes.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Royalties – Royalty revenue was $32.7 million for the six months ended June 30, 2020 compared to $36.1 million for the six months ended June 30, 2019 .

The decrease was mainly driven by lower sales of Herceptin SC by Roche.

Product Sales, Net – Product sales, net were as follows (in thousands):

Six Months Ended

Sales of bulk rHuPH20:

Sales of ENHANZE drug product

Sales of Hylenex

Total product sales, net

Product sales, net increased $0.3 million in the six months ended June 30, 2020 compared to the same period in 2019 , due to an increase in the sale of rHuPH20 to Baxalta, partially offset by a decrease in the sale of bulk rHuPH20 to Roche and other partners and a decrease in sales of Hylenex.

Revenues Under Collaborative Agreements – Revenues under collaborative agreements were as follows (in thousands):

Six Months Ended

Upfront license fees, license fees for the election of additional targets,

license maintenance fees and other license fees and event-based

Reimbursements for research and development services

Total revenues under collaborative agreements

Revenue from license fees decreased $12.2 million in the six months ended June 30, 2020 , compared to the same period in 2019 mainly due to the recognition of $32.3 million related to the Janssen and BMS collaborations in the current year, as compared to $45.0 million recognized in connection with the argenx Collaboration in 2019 ,

Cost of Product Sales – Cost of product sales were $11.5 million for the six months ended June 30, 2020 compared to $6.5 million for the six months ended June 30, 2019 .

The increase of $5.0 million in cost of product sales was mainly due to an increase in sales of bulk rHuPH20 to Baxalta and an increase in period costs to support our product platform, partially offset by a decrease in sales of bulk rHuPH20 to Roche.

Research and development expenses incurred were as follows (in thousands):

Six Months Ended

ENHANZE collaborations and rHuPH20 platform

Total research and development expenses

Research and development expenses relating to our PEGPH20 programs for the six months ended June 30, 2020 decreased by 87% , compared to the same period in 2019 , primarily due to decreased clinical trial activities.

On November 4, 2019, we announced that the HALO-301 clinical study failed to reach the primary endpoint of overall survival.

As a result, we halted development activities for PEGPH20, closed our oncology operations and began the close out process for all our clinical trials.

Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform for the six months ended June 30, 2020 increased by 19% , compared to the same period in 2019 , primarily due to increased costs to support additional ENHANZE targets.

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.

Selling, General and Administrative – Selling, general and administrative (SG&A) expenses were $23.6 million for the six months ended June 30, 2020 compared to $35.3 million for the six months ended June 30, 2019 .

The decrease of $11.7 million , or 33% , was primarily due to a decrease in compensation expense and discontinuation of commercial expenses related to market research and educational activities as we prepared for a potential commercial launch of PEGPH20.

The discontinuation of our development activities for PEGPH20 and closure of our oncology operations resulted in a reduction in commercialization activities and compensation expense.

Interest Expense – Interest expense was $10.4 million for the six months ended June 30, 2020 compared to $5.8 million for the six months ended June 30, 2019 .

The increase of $4.6 million was primarily due to interest expense related to the Convertible Notes, offset by a decrease in interest expense for the Royalty-backed Loan and the Oxford and SVB Loan.

Income Tax Expense – Income tax expense was $69.0 thousand for the six months ended June 30, 2020 , compared to $39.0 thousand for the six months ended June 30, 2019 due to an increase in estimated state taxes.

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale marketable securities.

As of March 31, 2020 , we had cash, cash equivalents and marketable securities of $368.2 million .We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months.

As of June 30, 2020 , we had cash, cash equivalents and marketable securities of $385.4 million .We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months.

We expect to fund our operations going forward with existing cash resources, anticipated revenues from our existing collaborations and cash that we may raise through future transactions.

8 unchanged sentences

Operating Activities

Net cash used in operations was $4.8 million for the three months ended March 31, 2020 compared to $4.4 million for the three months ended March 31, 2019 .

The $0.4 million increase in utilization of cash in operations was mainly due to a decrease in cash received related to the argenx license fees of $30.0 million in the prior year period with no license fees received in the current year period, offset by a decrease in working capital spend for the three months ended March 31, 2020 compared to the corresponding period in the prior year.

Net cash used in operations was $1.6 million for the six months ended June 30, 2020 compared to $29.2 million for the six months ended June 30, 2019 .

The $27.6 million decrease in utilization of cash in operations was mainly due to a decrease in cash received related to the argenx license fees of $45.0 million in the prior year period, offset by $30.0 million owed from Janssen and BMS for license fees and a decrease in working capital spend for the six months ended June 30, 2020 compared to the corresponding period in the prior year.

Investing Activities

Net cash provided by investing activities was $38.1 million for the three months ended March 31, 2020 compared to $28.8 million for the three months ended March 31, 2019 .

The increase in net cash provided by investing activities was primarily due to an increase in proceeds from maturities of marketable securities for the three months ended March 31, 2020 , a decrease in purchases of property and equipment and an increase in cash proceeds from the disposal pf property and equipment.

Net cash provided by investing activities was $50.0 million for the six months ended June 30, 2020 compared to $76.3 million for the six months ended June 30, 2019 .

The decrease in net cash provided by investing activities was primarily due to a decrease in proceeds from maturities of marketable securities for the six months ended June 30, 2020 , a decrease in purchases of property and equipment and an increase in cash proceeds from the disposal pf property and equipment.

Financing Activities

Net cash used in financing activities was $48.6 million for the three months ended March 31, 2020 , compared to $21.7 million for the three months ended March 31, 2019 , mainly due to a $51.6 million in repurchase of common stock, offset by a $20.2 million increase in net proceeds from the issuance of common stock under equity incentive plans and a decrease in the amount of repayments of long-term debt of $4.6 million in the three months ended March 31, 2020 .

Net cash used in financing activities was $35.0 million for the six months ended June 30, 2020 , compared to $38.0 million for the six months ended June 30, 2019 , mainly due to a $53.6 million in repurchase of common stock, offset by a $34.1 million increase in net proceeds from the issuance of common stock under equity incentive plans and a decrease in the amount of repayments of long-term debt of $22.4 million in the six months ended June 30, 2020 .

Share Repurchases

25 unchanged sentences

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 outstanding balance of the Royalty-backed Loan net of unamortized discount as of March 31, 2020 was $2.9 million .

The Credit Agreement provides that none of the Royalty Payments were required to be applied to the Royalty-backed Loan prior to January 1, 2017, 50% of the Royalty Payments were required to be applied to the Royalty-backed Loan between January 1, 2017 and January 1, 2018 and thereafter all Royalty Payments must be applied to the Royalty-backed Loan.

However, the amounts available to repay the Royalty-backed Loan are subject to caps of $13.75 million per quarter in 2017, $18.75 million per quarter in 2018, $21.25 million per quarter in 2019 and $22.5 million per quarter in 2020 and thereafter.

Amounts available to repay the Royalty-backed Loan will be applied first, to pay interest and second, to repay principal on the Royalty-backed Loan.

Any accrued interest that is not paid on any applicable quarterly payment date, as defined, will be capitalized and added to the principal balance of the Royalty-backed Loan on such date.

Halozyme Royalty will be entitled to receive and distribute to Halozyme any Royalty Payments that are not required to be applied to the Royalty-backed Loan or which are in excess of the foregoing caps.

The final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050.

Currently, we estimate that the loan will be repaid in the second quarter of 2020.

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

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

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

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

The royalty payments from the Collaboration Agreements were used 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

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 $70.0 million, comprising a $55.0 million draw in June 2016 and an additional $15.0 million tranche, which we had the option to draw during the second quarter of 2017 and did not exercise.

The proceeds were partially used to pay the outstanding

principal and final payment owed on a previous loan agreement with the Lenders.

The proceeds were partially used to pay the outstanding principal and final payment owed on a previous loan agreement with the Lenders.

The remaining proceeds were used for working capital and general business requirements.

4 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2020 , 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.

As of June 30, 2020 , 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.

5 unchanged sentences

As described in our 2019 Form 10-K, the most critical accounting policies and estimates upon which our condensed consolidated financial statements were prepared were those relating to revenue recognition, debt classification, stock compensation and research and development expenses - clinical trials.

We have reviewed our policies and estimates and determined that these remain the most critical accounting policies and estimates for the three months ended March 31, 2020 .

We have reviewed our policies and estimates and determined that these remain the most critical accounting policies and estimates for the six months ended June 30, 2020 .

Readers should refer to our 2019 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” and Note 1 to the accompanying financial statements for descriptions of these policies and estimates.

3 unchanged sentences

Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our collaboration partners’ product candidates and commercialization of approved products, impede our ability to supply bulk rHuPH20 to our partners or procure and sell Hylenex and otherwise adversely impact our business and results of operations.

Public health crises such as pandemics or similar outbreaks could adversely impact our business and results of operations by, among other things, disrupting the development of our collaboration partners’ product candidates and commercialization of our partners’ approved products, causing disruptions in the operations of our third party contract manufacturing organizations upon whom we rely for the production and supply of our commercial product Hylenex and the bulk rHuPH20 we supply to our partners and causing other disruptions to our operations.

For example, the outbreak of a coronavirus, which causes COVID-19, has rapidly evolved into a global pandemic.

As of April 2020, the coronavirus had spread to most regions of the world including the city of San Diego, California where our main office is located.

Public health crises such as pandemics or similar outbreaks could adversely impact our business and results of operations by, among other things, disrupting the development of our collaboration partners’ product candidates and commercialization of our partners’ approved products, disrupting our ability to enter into new ENHANZE collaborations with potential partners in a timely manner, causing disruptions in the operations of our third party contract manufacturing organizations upon whom we rely for the production and supply of our commercial product Hylenex and the bulk rHuPH20 we supply to our partners and causing other disruptions to our operations.

For example, the outbreak of a coronavirus, which causes COVID-19, has rapidly evolved into a global pandemic and has spread to most regions of the world including the city of San Diego, California where our main office is located.

The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures.

The extent to which COVID-19 impacts our operations and/or those of our collaboration partners will depend on future developments, which are highly uncertain and unpredictable, including the duration or recurrence of the outbreak, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long term, among others.

We have responded to the COVID-19 pandemic by taking a number of actions including closing our offices in San Diego, requesting that most of our personnel work remotely and restricting access to our facilities mostly to personnel who perform critical activities that must be completed on-site in accordance with the California statewide shelter-in-place order.

We have responded to the COVID-19 pandemic by taking a number of actions including closing our offices in San Diego in March 2020, requesting that most of our personnel work remotely and restricting access to our facilities mostly to personnel who perform critical activities that must be completed on-site in accordance with California’s initial statewide shelter-in-place order and ongoing guidances.

Increased reliance on personnel working from home may have a negative impact on productivity, or disrupt, delay or otherwise adversely impact business, by, among other things, increasing cyber security risk, impeding access to information that would be helpful to pursue our business objectives or disrupting our communications.

We are continuing to monitor the situation and currently do not have an estimate of the timing for all employees returning to the office for work.

The business disruptions associated with a global pandemic could impact the business, product development priorities and operations of our collaboration partners, including potential delays in manufacturing their product candidates or approved products.

For example, some of our collaboration partners are, or planning on, conducting clinical trials in geographies affected by the COVID-19 pandemic.

For example, some of our collaboration partners are conducting or are planning to conduct clinical trials in geographies affected by the COVID-19 pandemic.

The progress or completion of these clinical trials could be adversely impacted by the pandemic.

3 unchanged sentences

We rely on third party manufacturers to manufacture the bulk rHuPH20 that we supply to our collaboration partners for their commercial products and product candidates, as well as our commercial product Hylenex.

If any such third party manufacturer is adversely impacted by the coronavirus pandemic and related consequences, including staffing shortages, production slowdowns and disruptions in delivery systems, our supply chain may be disrupted, limiting our ability to sell Hylenex or supply bulk rHuPH20 to our collaboration partners.

If any such third party manufacturer is adversely impacted by the COVID-19 pandemic and related consequences, including staffing shortages, production slowdowns and disruptions in delivery systems, or if they divert resources or manufacturing capacity to accommodate the development of coronavirus treatments or vaccines, our supply chain may be disrupted, limiting our ability to sell Hylenex or supply bulk rHuPH20 to our collaboration partners.

Any such disruptions could result in reductions or delays in our revenues.

1 unchanged sentence

We do not yet know the full extent of the impact that COVID-19 may or will have on our business.

In addition, the trading prices for our common shares and other biopharmaceutical companies have been highly volatile as a result of market and investor reactions to the coronavirus pandemic and its potential consequences.

In addition, the trading prices for our common shares and other biopharmaceutical companies have been highly volatile as a result of market and investor reactions to the COVID-19 pandemic and its potential consequences.

As a result, access to sources of financing, should those be needed, may be more difficult and/or expensive.

19 unchanged sentences

Relative to expenses incurred in our operations, we have generated only limited revenues from product sales, royalties, licensing fees, milestone payments, bulk rHuPH20 supply payments and research reimbursements to date.

Through March 31, 2020 , we have incurred aggregate net losses of $609.8 million .

Although we expect to achieve sustainable profitability beginning the second quarter of 2020, unexpected declines in revenues and increases in expenses could inhibit our ability to achieve and sustain profitability.

Through June 30, 2020 , we have incurred aggregate net losses of $584.0 million .

Although we expect to achieve sustainable profitability going forward, unexpected declines in revenues and increases in expenses could inhibit our ability to achieve and sustain profitability.

If partners’ product candidates do not receive and maintain regulatory approvals, or if approvals are not obtained in a timely manner, such failure or delay would substantially impair our ability to generate revenues.

8 unchanged sentences

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.

of our collaborators are unsuccessful in maintaining our regulatory approvals, our ability to generate revenues would be adversely affected.

Use of Hylenex and the products and product candidates of our partners’ could be associated with side effects or adverse events.

29 unchanged sentences

We are heavily dependent on our collaborators to develop and commercialize product candidates subject to our collaborations in order for us to realize any financial benefits 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.

Our collaborators may not devote the attention and resources to such efforts that we would ourselves, change

their clinical development plans, promotional efforts or simultaneously develop and commercialize products in competition to those products we have licensed to them.

Any of these actions could not be visible to us immediately and could negatively impact our ability to forecast and our ability to achieve the benefits and revenue we receive from such collaboration.

In addition, in the

event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could negatively impact our operations and our commercialization efforts for Hylenex.

In addition, in the event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could negatively impact our operations and our commercialization efforts for Hylenex.

In addition, the termination of a key collaboration agreement by one or more of our collaborators could have a material adverse impact our ability to enter into additional collaboration agreements with new collaborators on favorable terms, if at all.

10 unchanged sentences

By focusing on these areas, we increase the potential impact on us if one of those partner programs does not successfully complete clinical trials, achieve commercial acceptance or meet expectations regarding sales and revenue.

Our decision to focus on one or a few 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.

Our collaboration product candidates may not receive regulatory approvals or their development may be delayed for a variety of reasons, including delayed or unsuccessful clinical trials, regulatory requirements or safety concerns.

37 unchanged sentences

We have minimal internal manufacturing capabilities and are, and expect to be in the future, entirely dependent on contract manufacturers and suppliers for the manufacture of our products and for their active and other ingredients.

The disqualification of these manufacturers and suppliers through their failure to comply with regulatory requirements could negatively impact our business because the delays and costs in obtaining and qualifying alternate suppliers (if such alternative suppliers are available, which we cannot assure) could delay our partners’ clinical trials or otherwise inhibit our

or partners’ ability to bring approved products to market, which would have a material adverse effect on our business and financial condition.

The disqualification of these manufacturers and suppliers through their failure to comply with regulatory

requirements could negatively impact our business because the delays and costs in obtaining and qualifying alternate suppliers (if such alternative suppliers are available, which we cannot assure) could delay our partners’ clinical trials or otherwise inhibit our or partners’ ability to bring approved products to market, which would have a material adverse effect on our business and financial condition.

Likewise, if we, our collaborators and our respective contractors, suppliers and vendors involved in sales and promotion of our products do not comply with applicable laws and regulations, for example off-label or false or misleading promotion, this could materially harm our business and financial condition.

24 unchanged sentences

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.

The aggregate amount of our consolidated indebtedness, net of debt discount, as of March 31, 2020 was $389.4 million , which includes $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (Convertible Notes) and an outstanding balance on our Royalty-backed Loan of $2.9 million , net of unamortized debt discount of $73.4 million .

We currently estimate that the Royalty-backed Loan will be repaid in the second quarter of 2020.

The aggregate amount of our consolidated indebtedness, net of debt discount, as of June 30, 2020 was $390.1 million , which includes $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (Convertible Notes), net of unamortized debt discount of $69.9 million .

We also may incur additional indebtedness in the future.

30 unchanged sentences

If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected.

For example, the FASB recently published an exposure draft proposing to amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the ‘‘if-converted’’ method.

Under that method, if it is adopted, diluted net income (loss) per share would generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning of the reporting period.

For example, the FASB recently published an accounting standard update to limit the use of the treasury stock method for convertible instruments and instead require application of the ‘‘if-converted’’ method.

Under that method, when it is adopted, diluted net income (loss) per share would generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning of the reporting period.

The application of the ‘‘if-converted’’ method may reduce our reported diluted net income per share.

29 unchanged sentences

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.

Natural disasters or other catastrophic events, pandemics, interruptions in the supply of natural resources, political and governmental changes, wildfires and other fires, floods, explosions, actions of animal rights activists, earthquakes and civil unrest could disrupt our operations or those of our collaborators, contractors and vendors.

Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we may suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage.

39 unchanged sentences

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 March 31, 2020 were $22.06 and $12.71 , respectively.

The high and low sales prices of our common stock during the twelve months ended June 30, 2020 were $27.22 and $12.71 , 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 Quarterly Report on Form 10-Q 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:

154 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 2. Management’s Discussion and Analysis