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Item 7. Management’s Discussion and Analysis

2023-02-21 compared with 2022-02-22 · 175 added, 122 removed, 168 unchanged (64% of the section changed)

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Halozyme Therapeutics, Inc.

is a biopharma technology platform company that provides innovative and disruptive solutions with the goal of improving patient experience and outcomes.

Our proprietary enzyme, rHuPH20, is used to facilitate the delivery of injected drugs and fluids.

We license our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE ® drug delivery technology with the collaborators’ proprietary compounds.

Our approved product and our collaborators’ approved products and product candidates are based on rHuPH20, our patented recombinant human hyaluronidase enzyme.

rHuPH20 is the active ingredient in our first commercially approved product, Hylenex ® recombinant, and it works by breaking down hyaluronan (or HA), a naturally occurring carbohydrate that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage.

This temporarily increases dispersion and absorption allowing for improved subcutaneous delivery of injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids .

We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE ® drug delivery technology (“ENHANZE”).

We license the ENHANZE technology to form collaborations with biopharmaceutical companies that develop or market drugs requiring or benefiting from injection via the subcutaneous route of administration.

In the development of proprietary intravenous (IV) drugs combined with our ENHANZE technology, data have been generated supporting the potential for ENHANZE to reduce treatment burden, as a result of shorter duration of subcutaneous (SC) administration.

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

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

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

We currently have ENHANZE collaborations with F.

is a biopharma technology platform company that provides innovative and disruptive solutions with the goal of improving the patient experience and potentially outcomes.

Our proprietary enzyme, rHuPH20, is used to facilitate the subcutaneous (“SC”) delivery of injected drugs and fluids.

We license our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE ® drug delivery technology (“ENHANZE”) with the partners’ proprietary compounds.

Our first commercially approved product Hylenex ® recombinant (“Hylenex”), and our ENHANZE partners’ approved products and product candidates are based on rHuPH20, our patented recombinant human hyaluronidase enzyme.

rHuPH20 is the active ingredient Hylenex ® , that works by breaking down hyaluronan (“HA”), a naturally occurring carbohydrate that is a major component of the extracellular matrix of the SC space.

This temporarily reduces the barrier to bulk fluid flow allowing for improved and more rapid SC delivery of high dose, high volume injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids .

We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as ENHANZE.

We license the ENHANZE technology to form collaborations with biopharmaceutical companies that develop or market drugs requiring or benefiting from injection via the SC route of administration.

In the development of proprietary intravenous (“IV”) drugs combined with our ENHANZE technology, data have been generated supporting the potential for ENHANZE to reduce patient treatment burden, as a result of shorter duration of SC administration with ENHANZE compared to IV administration.

ENHANZE may enable fixed-dose SC dosing compared to weight-based dosing typically required for IV administration, extend the dosing interval for drugs that are already administered subcutaneously 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 or caregiver.

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

We currently have ENHANZE collaborations and licensing agreements with F.

Hoffmann-La Roche, Ltd.

and Hoffmann-La Roche, Inc.

(Roche), Baxalta US Inc.

and Baxalta GmbH (members of the Takeda group of companies) (Baxalta), Pfizer Inc.

(“Roche”), Takeda Pharmaceuticals International AG and Baxalta US Inc.

(“Takeda”), Pfizer Inc.

(“Pfizer”), Janssen Biotech, Inc.

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(“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol-Myers Squibb Company (“BMS”), Alexion Pharma International Operations Unlimited Company (an indirect wholly owned subsidiary of AstraZeneca PLC)(“Alexion”), argenx BVBA (“argenx”), Horizon Therapeutics plc.

(Horizon) and ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (ViiV).

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 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.

(“Horizon”), ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (“ViiV”) and Chugai Pharmaceutical Co., Ltd (“Chugai”).

In addition to receiving upfront licensing fees from our ENHANZE collaborations, we are entitled to receive event and sales-based milestone payments, revenues from the sale of bulk rHuPH20 and royalties from commercial sales of approved partner products co-formulated with ENHANZE.

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

Future potential revenues from ENHANZE collaborations and from the sales and/or royalties of our approved products will depend on the ability of our partners, in some areas supported by Halozyme, to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.

Through our recent acquisition of Antares Pharma, Inc.

(“Antares”), we also develop, manufacture and commercialize, for ourselves or with our partners, drug-device combination products using our advanced auto-injector technologies.

Also as a result of our acquisition of Antares, our commercial portfolio of proprietary products includes XYOSTED ® , TLANDO ® and NOCDURNA ® .

We have commercialized auto-injector products with several pharmaceutical companies including Teva Pharmaceutical Industries, Ltd.

(“Teva”), Covis Group S.a.r.l.

(“Covis”) and Otter Pharmaceuticals, LLC (“Otter”).

We have development programs including auto-injectors with Idorsia Pharmaceuticals Ltd.

(“Idorsia”) and Pfizer.

Our 2022 and recent key events are as follows:

• In December 2021, Janssen received FDA approval for DARZALEX FASPRO in combination with Kyprolis ® (carfilzomib) and dexamethasone for patients with relapsed or refractory multiple myeloma who have received one to three prior lines of therapy.

• In October 2021, Janssen’s DARZALEX FASPRO was approved by the China National Medical Products Administration (NMPA) for the treatment of primary light chain amyloidosis, in combination with bortezomib, cyclophosphamide and dexamethasone (D-VCd) in newly diagnosed patients.

This followed a similar approval Janssen Pharmaceutical K.K.

received in August 2021 from Japan’s Ministry of Health, Labour and Welfare for DARZQURO ® (Daratumumab SC) for the additional indication of systemic AL amyloidosis.

• In July 2021, Janssen elected the target HIV reverse transcriptase, resulting in a $2.0 million milestone fee.

In December 2021, Janssen initiated a Phase 1 study combining Janssen’s rilpivirine and ENHANZE resulting in a $2.0 million milestone payment.

• In July 2021, we announced that Janssen received FDA approval for DARZALEX FASPRO in combination with pomalidomide and dexamethasone (D-Pd) for patients with multiple myeloma after first or subsequent relapse.

• In June 2021, we announced that Janssen was granted two marketing authorizations by the European Commission (EC) for DARZALEX SC in two new indications in the European Union.

The first authorization is for use in combination with D-VCd in newly diagnosed adult patients with systemic light chain (AL) amyloidosis.

The second authorization is for use in combination with D-Pd in adult patients with relapsed or refractory multiple myeloma.

• In May 2021, Janssen Pharmaceutical K.K.

commenced commercial sale for the subcutaneous formulation of DARZALEX (known as DARZQURO ® in Japan) for the treatment of multiple myeloma.

This followed the March 2021 approval from Japan's Ministry of Health, Labour and Welfare (MHLW) which resulted in a $5.0 million milestone payment.

• In January 2021, we announced that Janssen received accelerated approval from the U.S Food and Drug Administration (FDA) for DARZALEX FASPRO (daratumumab hyaluronidase human-fihj) in combination with D-VCd for the treatment of adult patients with newly diagnosed light chain (AL) amyloidosis.

AL amyloidosis is a rare and potentially fatal disease that develops when plasma cells in the bone marrow generate abnormal light chains, which form amyloid deposits in vital organs and lead to organ deterioration.

There were no approved therapies for these patients prior to DARZALEX FASPRO.

• In December 2021, ViiV initiated enrollment of a Phase 1 study arm to evaluate cabotegravir administered subcutaneously with ENHANZE.

• In June 2021, we entered into a global collaboration and license agreement with ViiV.

The license gives ViiV exclusive access to our ENHANZE technology for four specific small and large molecule targets for the treatment and prevention of HIV.

These targets are integrase inhibitors, reverse transcriptase inhibitors limited to nucleoside reverse transcriptase inhibitors (NRTI) and nucleoside reverse transcriptase translocation inhibitors (NRTTIs), capsid inhibitors and broadly neutralizing monoclonal antibodies (bNAbs), that bind to the gp120 CD4 binding site.

Under the terms of the agreement, we received an upfront payment of $40 million and ViiV is obligated to make potential future payments of up to $175 million in development and commercial milestones per target, subject to achievement of specified development and commercial milestones, including certain specified sales milestones.

We will also be entitled to receive mid-single digit royalties on sales of commercialized medicines using the ENHANZE technology.

• In November 2021, Roche initiated a Phase 1 SC study with an undisclosed exclusive ENHANZE target.

• In October 2021, Baxalta initiated a Phase 1 single-dose, single-center, open-label, three-arm study to assess the tolerability and safety of immune globulin subcutaneous (human), 20% solution with ENHANZE (TAK-881) at various infusion rates in healthy adult subjects.

• In June 2021, BMS initiated a Phase 3 study of nivolumab using ENHANZE ® technology for patients with advanced or metastatic clear cell renal cell carcinoma, resulting in a $25.0 million milestone payment.

• In March 2021, Horizon completed dosing in a Phase 1 study exploring the SC formulation of TEPEZZA for the treatment of thyroid eye disease, a progressive and vision-threatening rare autoimmune disease.

The trial is a small, single-dose Phase 1 pharmacokinetic trial which includes evaluating the use of ENHANZE technology for an SC formulation.

• In March 2021, the National Institute of Allergy and Infectious Diseases’ Vaccine Research Center (VRC), part of National Institute of Health (NIH), dosed the first patient with N6LS, a broadly neutralizing antibody against HIV, using ENHANZE technology in a Phase 1 study to optimize subcutaneous administration of N6LS for HIV treatment.

• In February 2021, argenx initiated a Phase 3 study of ARGX-113 using ENHANZE technology for patients with chronic inflammatory demyelinating polyneuropathy (CIDP) and initiated a Phase 3 study of ARGX-113 using ENHANZE technology in myasthenia gravis (MG), an autoimmune disorder of the musculoskeletal system caused by IgG autoantibodies.

• In January 2021, argenx initiated a Phase 3 study of ARGX-113 utilizing ENHANZE in pemphigus vulgaris (PV), a rare autoimmune disease that causes painful blisters on the skin and mucous membranes.

• In December 2021, we entered into a credit agreement with Bank of America that provides for secured revolving loans and letters of credit in an aggregate amount of up to $75.0 million.

The credit agreement contains an expansion feature, which allows us, subject to certain conditions, to increase the aggregate principal amount of the facility to $250.0 million, provided we remain in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the credit agreement.

• In December 2021, we announced our second share repurchase program, to repurchase up to $750.0 million of our outstanding common stock over a three-year period.

Also in December 2021, we entered into an ASR agreement with Bank of America to repurchase $150.0 million of common stock under the second share repurchase program.

• In October 2021, we repurchased 0.3 million shares of common stock for $10.3 million, completing our capital return program that began in November 2019 to repurchase up to $550.0 million of outstanding common stock over a three-year period.

Under the program we repurchased a total of 22.3 million shares for $550.0 million at an average price per share of $24.72.

• In March 2021, we completed the sale of $805.0 million aggregate principal amount of the 2027 Convertible Senior Notes.

We used a portion of the net proceeds to facilitate an induced conversion of 80% of the 2024 Convertible Senior Notes.

• In August 2022, Roche announced that the Phase 3 IMscin001 study evaluating a subcutaneous formulation of Tecentriq® (atezolizumab) with ENHANZE met its co-primary endpoints.

The study showed non-inferior levels of Tecentriq in the blood (pharmacokinetics), when injected subcutaneously, compared with IV infusion, in cancer immunotherapy-naïve patients with advanced or metastatic non-small cell lung cancer for whom prior platinum therapy has failed.

The safety profile of the SC formulation was consistent with that of IV Tecentriq.

In November 2022, Roche submitted a BLA to the FDA and a MAA to the EMA for SC atezolizumab with ENHANZE across all approved indications of IV Tecentriq.

In January 2023, the FDA accepted the BLA with a PDUFA goal date of September 15, 2023.

• In November 2022, Roche submitted an Initial Market Application (IMA) for Mabthera SC to the Center for Drug Evaluation (CDE) in China.

• In October 2022, Roche Pharmaceuticals China announced the approval of Herceptin SC (trastuzumab injection subcutaneous with ENHANZE) in China for the treatment of patients with early-stage and metastatic HER2-positive breast cancer.

• In July 2022, Roche submitted an IMA for the fixed-dose combination of Perjeta ® (pertuzumab) and Herceptin for subcutaneous injection (Phesgo™) to the CDE in China.

• In April 2022, Roche initiated a phase 3 study evaluating OCREVUS (ocrelizumab) with ENHANZE in subjects with multiple sclerosis.

• In November 2022, argenx announced the acceptance of the BLA for SC efgartigimod for the treatment of adults with generalized myasthenia gravis (gMG).

In January 2023, argenx announced that FDA extended the PDUFA date to June 20, 2023.

• In November 2022, argenx announced the submission of a Marketing Authorization Application to the EMA for SC efgartigimod for the treatment of adults with gMG.

• In June 2022, argenx initiated a phase 2 study evaluating efgartigimod with ENHANZE in subjects with bullous pemphigoid.

• In March 2022, argenx announced that data from argenx’s phase 3 ADAPT-SC study evaluating SC efgartigimod (1000mg efgartigimod-PH20) for the treatment of gMG achieved the primary endpoint of total IgG reduction from baseline at day 29, demonstrating statistical non-inferiority to VYVGART ® (efgartigimod alfa-fcab) intravenous IV formulation in gMG patients.

• In September 2022, Chugai Pharmaceutical Co., Ltd.

(a Member of the Roche Group) announced the submission of a NDA in Japan for the fixed-dose SC combination of pertuzumab and trastuzumab (same monoclonal antibodies as in Perjeta and Herceptin) with ENHANZE ® .

• In May 2022, Chugai initiated a Phase 1 study to evaluate the pharmacokinetics, pharmacodynamics, and safety of a targeted antibody administered subcutaneously with ENHANZE.

• In March 2022, we entered into a global collaboration and license agreement with Chugai Pharmaceutical Co., Ltd.

The license gives Chugai exclusive access to ENHANZE drug delivery technology for an undisclosed target.

Under the terms of the agreement, we received an upfront payment of $25 million and Chugai is obligated to make future payments of up to $160 million, in the aggregate, subject to achievement of specified development, regulatory and sales-based milestones.

We will also be entitled to receive royalties on sales of commercialized medicines using our ENHANZE technology.

• In November 2022, Janssen initiated a Phase 2 study of amivantamab with ENHANZE in multiple regimens in patients with advanced or metastatic solid tumors including epidermal growth factor receptor (EGFR)-mutated non-small cell lung cancer (PALOMA-2).

• In September 2022, Janssen initiated a Phase 3 study of lazertinib and amivantamab with ENHANZE in patients with EGFR-mutated advanced or metastatic non-small cell lung cancer (PALOMA-3).

• In June 2022, ViiV initiated enrollment of a Phase 1 single dose escalation study in subjects with HIV to evaluate pharmacokinetics, safety and tolerability of long-acting cabotegravir administered subcutaneously with ENHANZE.

• In March 2022, ViiV initiated enrollment of a Phase 1 study to evaluate the safety and pharmacokinetics of N6LS, a broadly neutralizing antibody, administered subcutaneously with ENHANZE.

• In December 2022, Takeda achieved a sales milestone for HYQVIA, triggering a payment of $10 million.

• In July 2022, Takeda filed a sBLA for the potential expanded use of HYQVIA for pediatric indication for primary immunodeficiency.

• In July 2022, Takeda announced positive topline results from pivotal Phase 3 trial evaluating HYQVIA ® (Immunoglobulin infusion 10% (Human) with rHuPH20), for maintenance treatment of chronic inflammatory demyelinating polyradiculoneuropathy (CIDP), and Takeda confirmed its intention to submit regulatory applications in the United States and European Union in its fiscal year 2022.

• BMS plans to initiate a Phase 3 trial in early 2023 to demonstrate the drug exposure level of nivolumab and relatlimab fixed-dose combination with ENHANZE is not inferior to IV administration in participants with previously untreated metastatic or unresectable melanoma (Relativity-127).

• In August 2022, BMS initiated a Phase 3 trial to compare the drug levels of nivolumab with ENHANZE administered subcutaneously versus IV administration in participants with melanoma following complete resection (CheckMate-6GE).

• In June 2022, BMS nominated an undisclosed target resulting in a $5 million payment.

• In January 2023, we elected to redeem on March 17, 2023 all of our remaining outstanding 1.25% convertible senior notes due 2024.

• In August 2022, we completed the sale of $720.0 million aggregate principal amount of the 2028 Convertible Senior Note.

We used a portion of the net proceeds to facilitate an induced conversion of a portion of the 2024 Convertible Senior Notes.

In connection with the induced conversion, we paid the holders $77.6 million in cash and issued 1.51 million shares.

We also used a portion of the net proceeds to repay the $250.0 million term loan facility due 2026 and the $120.0 million revolving credit facility.

• In August 2022, we entered into an amendment to our credit agreement that increased the size of our revolving credit facility from $350 million to $575 million.

• In the third quarter of 2022, we accelerated $100 million share repurchase from 2023 into 2022.

We repurchased 2.1 million shares of common stock in open market purchases for $90.2 million at an average price per share of $43.09 and entered into an ASR agreement to repurchase $109.8 million of our common stock for which we took an initial delivery 2.0 million shares.

In December 2022, we finalized the ASR transaction and received an additional 0.4 million shares for a total of 2.4 million shares at an average price per share of $45.62.

During 2022, we repurchased a total of 4.5 million shares for $200.0 million at an average price per share of $44.44.

As of December 31, 2022, we repurchased a total of 8.4 million shares for $350.0 million at an average price per share of $41.69 under our $750 million 3-year share repurchase plan.

• In June 2022, we completed an $150 million ASR that was initiated in December of 2021, resulting in the total repurchase of 3.9 million shares at a price of $38.51 per share.

• In June 2022, we announced the commercial launch of TLANDO ® (testosterone undecanoate), an oral treatment indicated for testosterone replacement therapy in adult males for conditions associated with a deficiency or absence of endogenous testosterone (primary or hypogonadotropic hypogonadism).

TLANDO ® was approved by the U.S.

Food and Drug Administration (FDA) on March 28, 2022.

• In May 2022, we completed the acquisition of Antares resulting in an expansion of our commercial portfolio of proprietary and partnered products and the potential for future growth through new agreements.

• In May 2022, in connection with the closing of Antares acquisition, we entered into a credit agreement that provided for a $350 million revolving credit facility and a $250 million term loan facility.

The proceeds from a $120 million draw on the revolving credit facility and the $250 million term facility were used to fund a portion of the Antares acquisition, refinance Antares’ existing debt and pay fees and expenses in connection with the acquisition.

• In March 2022, we entered into an agreement for assignment and assumption of a lease with Seismic Software, Inc.

pursuant to which effective January 1, 2023 we assumed Seismic’s office lease, as amended with Kilroy Realty L.P.

for approximately 73,238 square feet of space in office and research facilities.

The premises are intended to serve as our new headquarters which we occupied on January 1, 2023.

Results of Operations

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Royalties – Royalty revenue was $360.5 million in 2022 compared to $203.9 million in 2021.

The increase was mainly driven by sales of DARZALEX FASPRO by Janssen following the product launches in the U.S.

and EU in the second quarter of 2020 and sales of Phesgo by Roche following the product launch in the US in the third quarter of 2020 and subsequently in the EU, partially offset by slightly lower sales of Herceptin SC and MabThera SC by Roche.

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

The increase was mainly driven by continued sales uptake of DARZALEX FASPRO by Janssen and Phesgo by Roche in all geographies and contribution from new device royalty revenue as a result of the Antares acquisition, partially offset by slightly lower sales of Herceptin SC and MabThera SC by Roche.

We expect royalty revenue to continue to grow as a result of our 2020 ENHANZE partner product launches, offsetting the ongoing impact from biosimilars related to our mature ENHANZE partner products.

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

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Sales of bulk rHuPH20 $ 82,084 $ 80,961 $ 1,123 1 %

Sales of Hylenex 23,263 17,031 6,232 37 %

Sales of proprietary products 72,849 23,263 49,586 213 %

Sales of device partnered products 36,097 — 36,097 100 %

Total product sales, net $ 191,030 $ 104,224 $ 86,806 83 %

Product sales, net increased by $48.2 million in 2021 compared to 2020, primarily due to higher sales of rHuPH20 to our partners Janssen and Roche.

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

The increase in Product sales, net was also driven in part by an increase in sales of Hylenex, due to an increase in sales in 2021 following a temporary interruption of elective surgeries in 2020.

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

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

Most states resumed elective surgeries in April and May of 2020 which supported an increase in sales in the second half of 2020 and into 2021.

We expect that future product sales of Hylenex to be relatively flat as we experience modest market growth offset by a reduction in COVID-19 backlog.

Total product sales, net increased by $86.8 million in 2022 compared to 2021, primarily due to contribution from our proprietary and device partnered products as the result of the Antares acquisition.

We expect that sales of proprietary products will grow in future years as we work to expand market share in the TRT market.

We expect that product sales of bulk rHuPH20 and device partnered products will fluctuate in future periods based on the needs of our partners.

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

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Upfront license fees, license fees for the election of additional targets, event-based payments, license maintenance fees and amortization of deferred upfront and other license fees:

BMS $ 30,000 $ 25,000 $ 5,000 20 %

Chugai 25,000 — 25,000 100 %

Roche 19,000 5,000 14,000 280 %

Janssen 15,000 59,000 (44,000) (75) %

Takeda 10,000 — 10,000 100 %

ViiV — 45,000 (45,000) (100) %

Horizon — 30,000 (30,000) (100) %

Roche 5,000 17,000 (12,000) (71) %

argenx — 20,000 (20,000) (100) %

BMS 25,000 12,264 12,736 104 %

Other — 500 (500) (100) %

Subtotal $ 99,000 $ 134,000 $ (35,000) (26) %

Reimbursements for research and development services:

1,186 1,247 (61) (5) %

Device licensing and development revenue 9,611 1,186 8,425 710 %

Total revenues under collaborative agreements $ 108,611 $ 135,186 $ (26,575) (20) %

Revenue from license fees increased $12.2 million in 2021, compared to 2020 mainly due to the recognition of an upfront license fee related to the ViiV collaboration and development and commercial milestones related to the ViiV, BMS and Janssen collaborations in the current year, partially offset by Horizon, argenx and Roche.

Revenue from license fees decreased by $35.0 million in 2022, compared to 2021 primarily due to the timing of milestones driven by partner activities.

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

We expect these revenues to continue to fluctuate in future

periods based on our collaborators’ ability to meet various clinical and regulatory milestones set forth in such agreements and our ability to obtain new collaborative agreements.

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 .

We expect these revenues to continue to fluctuate in future periods based on our partners’ ability to meet various clinical and regulatory milestones set forth in such agreements and our ability to obtain new collaborative agreements.

Cost of Sales – Cost of sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, freight costs, internal costs and manufacturing overhead associated with the production of our proprietary and device partnered products and bulk rHuPH20 .

Cost of product sales were $139.3 million in 2022 compared to $81.4 million in 2021.

The increase of $38.0 million in cost of product sales was mainly due to an increase in aggregate sales of bulk rHuPH20 to Janssen and Roche and an increase in 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, preclinical and regulatory activities related to our ENHANZE collaborations and our rHuPH20 platform.

The increase of $57.9 million in cost of product sales was mainly due to an increase in sales in our proprietary, partnered products as a result of the Antares acquisition and amortization of inventory step-up associated with purchase accounting for the Antares acquisition.

Amortization of intangibles – Amortization of intangibles expense was $43.1 million for 2022.

The amortization of intangibles expense is due to the acquisition of Antares in May 2022, in which we acquired intangible assets that are amortized over their useful lives.

Research and development expenses were $66.6 million in 2022 compared to $35.7 million in 2021.

The increase of $1.5 million is primarily due to an increase in costs to support additional ENHANZE targets entering clinical development, partially offset by one time costs in the prior year related to the discontinuation of our development activities for PEGPH20 and closure of our oncology operations.

Selling, General and Administrative – Selling, general and administrative (SG&A) expenses consist primarily of salaries and related costs for personnel in executive, selling and administrative functions as well as professional fees for legal and accounting, business development, commercial operations support for Hylenex and alliance management and marketing support for ENHANZE.

The increase of $30.9 million is primarily due to planned investments in ENHANZE and an increase in compensation expense related to the ongoing combined larger workforce as a result of the Antares acquisition.

Selling, General and Administrative – Selling, general and administrative (SG&A) expenses consist primarily of salaries and related costs for personnel in executive, selling and administrative functions as well as professional fees for legal and accounting, business development, commercial operations support for proprietary products and alliance management and marketing support for our collaborations.

SG&A expenses were $143.5 million in 2022 compared to $50.3 million in 2021.

The increase of $4.6 million, or 10%, was primarily due to an increase in compensation expense, including share-based compensation, for personnel to support additional ENHANZE targets entering clinical development, partially offset by one time costs in the prior year related to the discontinuation of our development activities for PEGPH20 and closure of our oncology operations.

The increase of $93.2 million, was primarily due to one-time Antares Pharma acquisition costs and an increase in compensation expense related to the ongoing combined larger workforce.

Interest Expense – Interest expense was $16.9 million in 2022 compared to $7.5 million in 2021.

The decrease of $12.9 million was primarily due to a decrease in interest expense related to the Convertible Notes as the non-cash interest expense associated with the amortization of the equity component of the Convertible Notes is eliminated upon adoption of ASU 2020-06 and discontinuation in interest expense for the Royalty-backed Loan following the repayment of that obligation.

Income Taxes – Income tax benefit was $154.2 million in 2021 compared to income tax expense of $0.2 million in 2020.

The increase in income tax benefit is due to the release of the valuation allowance in the current year.

The increase of $9.4 million was primarily due an increase in interest expense related to the 2022 term loans, the revolving credit facility and the 2028 Convertible Notes.

Income Taxes – Income tax expense was $46.8 million in 2022 compared to income tax benefit of $154.2 million in 2021.

The increase in income tax expense is due to the recording of our first year of income tax expense in the current year whereas in the prior year period there was an income tax benefit due to the release of the valuation allowance.

Comparison of Years Ended December 31, 2021 and 2020

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Third-party manufacturing obligations

We have contracted with third-party manufacturers for the supply of bulk rHuPH20 and fill/finish of Hylenex recombinant.

We have contracted with third-party manufacturers for the supply of bulk rHuPH20, fill/finish of Hylenex recombinant, other proprietary products and partnered products.

Under these agreements, we are required to purchase certain quantities each year during the terms of the agreements.

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As of December 31, 2022, we had third-party manufacturing obligations of $97.8 million, payable within 12 months.

Other purchase obligations

Other purchase obligations and commitments

Purchase obligations represent an estimate of all open purchase orders and contractual obligations in the ordinary course of business for which we have not received the goods or services.

As of December 31, 2021, we had other purchase obligations of $1.4 million, with $1.1 million payable within 12 months.

We also have commitments which represents minimum royalty payments to be paid in accordance with the TLANDO exclusive license agreement with Lipocine.

As of December 31, 2022, we had other purchase obligations and other commitments of $48.7 million, with $44.2 million payable within 12 months.

The expected timing of payments of the obligations above is estimated based on information we have as of December 31, 2022.

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These factors may include, but are not limited to, the following:

• the costs of investments in our ENHANZE platform and development of new versions of rHuPH20;

• the costs of investments in our ENHANZE platform and auto-injector technology including development of new versions of rHuPH20 and auto-injector devices;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

• the costs to develop and validate additional manufacturers of rHuPH20;

• the costs to develop and validate additional manufacturing processes of rHuPH20, auto-injectors, and testosterone replacement therapies;

• the costs to expand the number of collaboration partner products developed and launched by partners including costs to scale-up manufacturing;

• the amount of royalties and milestones from our collaborators;

• the amount of royalties and milestones from our partners;

• the effect of competing technological and market developments;

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Net cash provided by operations was $240.1 million in 2022 compared to $299.4 million in 2021.

The $243.9 million increase in cash provided by operations was mainly due to an increase in collaboration partner license fees, royalties and product sales and a decrease in working capital spend for 2021 compared to the prior year.

The $59.3 million decrease in cash provided by operations was mainly due to an increase in transaction expenses associated with the Antares acquisition and an increase in working capital spend, partially offset by an increase in royalties revenue for 2022 compared to the prior year.

Investing Activities

Net cash used in by investing activities was $406.3 million in 2021 compared to net cash provided by investing activities $78.4 million in 2020.

The increase in cash used in investing activities was primarily due to an increase in purchase of marketable securities in 2021.

Net cash used in investing activities was $487.0 million in 2022 compared to net cash used in investing activities of $406.3 million in 2021.

The increase in cash used in investing activities was primarily due to the acquisition of Antares, partially offset by an increase in cash from the sale of marketable securities and the sale of assets in 2022.

Financing Activities

Net cash provided by financing activities was $77.9 million in 2021, compared to net cash used in financing activities of $106.3 million in 2020, mainly due to $784.9 million cash received from the 2027 Convertible Notes offering and $19.6 million cash payment for the Royalty-backed loan in the prior year, partially offset by $369.1 million related to the induced conversion of the 2024 Convertible Notes, a $199.9 million increase in repurchase of common stock and a $50.9 million decrease in net proceeds from the issuance of common stock under equity incentive plans.

Net cash provided by financing activities was $362.4 million in 2022, compared to net cash provided by financing activities of $77.9 million in 2021, mainly due to $702.0 million cash received from the 2028 Convertible Notes offering and $291.6 million decrease related to the 2024 Convertible Notes induced conversion, a $150.1 million decrease in repurchase of common stock and a $1.5 million increase in net proceeds from the issuance of common stock under equity incentive plans, partially offset by, $784.9 million cash received from the 2027 Convertible Notes offering in the prior year and a $69.1 million payment for the Capped Call Transactions during the current year.

Share Repurchases

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1.00% Convertible Notes due 2028

In August 2022, we completed the sale of $720.0 million in aggregate principal amount of 1.00% Convertible Senior Notes due 2028 (the “2028 Convertible Notes” and collectively with the 2024 and the 2027 Convertible Notes the “Convertible Notes”).

The net proceeds in connection with the issuance of the 2028 Convertible Notes, after deducting the initial purchasers’ fee of $18.0 million, was approximately $702.0 million.

We also incurred additional debt issuance costs totaling $1.0 million.

Debt issuance costs and the initial purchasers’ fee are presented as a debt discount.

The 2028 Convertible Notes pay interest semi-annually in arrears on February 15th and August 15th of each year at an annual rate of 1.00%.

The 2028 Convertible Notes are general unsecured obligations and rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2028 Convertible Notes, rank equally in right of payment with all existing and future liabilities that are not so subordinated, are effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries.

The 2028 Convertible Notes have a maturity date of August 15, 2028.

Holders may convert their 2028 Convertible Notes at their option only in the following circumstances:

(1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2022, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

(2) during the 5 consecutive business days immediately after any 5 consecutive trading day period (such 5 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

(3) upon the occurrence of certain corporate events or distributions on our common stock, as described in the offering memorandum for the 2028 Convertible Notes;

(4) if we call such notes for redemption;

and (5) at any time from, and including, February 15, 2028 until the close of business on the second scheduled trading day immediately before the maturity date.

As of December 31, 2022, the 2028 Convertible Notes are not convertible.

Upon conversion, we will pay cash for the settlement of principal and for the premium, if applicable, we will pay cash, deliver shares of common stock or a combination of cash and shares of common stock, at our election.

The initial conversion rate for the 2028 Convertible Notes is 17.8517 shares of common stock per $1,000 in principal amount of 2028 Convertible Notes, equivalent to a conversion price of approximately $56.02 per share of our common stock.

The conversion rate is subject to adjustment in some events but will not be adjusted for any accrued or unpaid interest.

0.25% Convertible Notes due 2027

In March 2021, we completed the sale of $805.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2027 (the “2027 Convertible Notes” and collectively with the 2024 Convertible Notes the “Convertible Notes”).

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and (5) at any time from, and including, September 1, 2026 until the close of business on the scheduled trading day immediately before the maturity date.

The Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, September 1, 2026 until the close of business on the scheduled trading day immediately preceding the maturity date.

The Notes will be convertible, regardless of the foregoing circumstances, at any time from, and

including, September 1, 2026 until the close of business on the scheduled trading day immediately preceding the maturity date.

As of December 31, 2022, the 2027 Convertible Notes are not convertible.

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The induced conversion expense represents the fair value of the common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2024 Convertible Notes.

Revolving Credit Facility

In December 2021, we entered into a credit agreement with Bank of America and the other lenders party thereto (the “Credit Agreement”) evidencing a revolving credit facility (the “Facility”) that provides for secured revolving loans and letters of credit in an aggregate amount of up to $75.0 million.

The Credit Agreement contains an expansion feature, which allows us, subject to certain conditions, to increase the aggregate principal amount of the Facility to $250.0 million, provided we remain in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the Credit Agreement.

The facility matures on December 23, 2024.

In August 2022, we completed a privately negotiated induced conversion of $77.4 million principal amount of the 2024 Convertible Notes (“2022 Note Repurchases” or the “2022 Induced Conversion”).

In connection with the 2022 Induced Conversion, we paid approximately $77.6 million in cash, which includes principal and accrued interest, and issued approximately 1.51 million shares of our common stock representing the intrinsic value based on the contractual conversion rate and incremental shares as an inducement for conversion.

As a result of the 2022 Induced Conversion, we recorded $2.7 million in induced conversion expense which is included in other income (expense) of the consolidated statements of income.

The induced conversion expense represents the fair value of the common stock issued upon conversion in excess of the common stock issuable under the original terms of the 2024 Convertible Notes.

In January 2023, we issued a notice for the redemption of 2024 Convertible Notes, and we expect to make cash payment of $13.5 million to effect the redemption in March 2023.

Revolving Credit and Term Loan Facilities (May 2022)

In May 2022, in connection with the closing of the Antares acquisition, we entered into a credit agreement with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders and L/C Issuers party thereto (the “2022 Credit Agreement), evidencing a credit facility (the “2022 Facility”) that provides for (i) a $350 million revolving credit facility (the “Revolving Credit Facility”) and (ii) a $250 million term loan facility (the “Term Facility”).

The proceeds from a $120 million draw on the Revolving Credit Facility and the $250 million Term Facility were used to fund a portion of the Antares acquisition, refinance Antares’ existing debt and pay fees and expenses in connection with the acquisition.

The 2022 Credit Agreement contains an expansion feature, which allows us, subject to certain conditions, to increase the aggregate principal amount of the 2022 Facility, provided we remain in compliance with underlying financial covenants on a pro forma basis including the consolidated interest coverage ratio and the consolidated net leverage ratio covenants set forth in the 2022 Credit Agreement.

The 2022 Facility will mature on November 30, 2026 unless either the Revolving Credit Facility or the Term Facility is extended prior to such date in accordance with the 2022 Credit Agreement.

The Term Facility requires quarterly scheduled repayments of the term loans in each of the first, second, third and fourth years following the Closing in annual amounts equal to 2.50%, 5.00%, 7.50% and 10.00% of the initial principal amount of the term loans, respectively.

The term loans are also subject to mandatory prepayments from the proceeds of certain asset sales, subject to our right to reinvest the proceeds thereof.

Borrowings under the 2022 Facility bear interest, at our option, at a rate equal to an applicable margin plus:

(a) the applicable Bloomberg Short-Term Bank Yield Index rate (or the “BSBY Rate,” as defined in the Credit Agreement), or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the Bank of America prime rate, (3) the BSBY Rate plus 1.00%, and (4) 1.00%.

The margin for the Facility ranges, based on our consolidated total net leverage ratio, from 0.00% to 0.75% in the case of base rate loans and from 1.00% to 1.75% in the case of BSBY Rate loans.

In addition to paying interest on any outstanding principal under the Facility, we will pay (i) a commitment fee in respect of the unutilized commitments thereunder and (ii) customary letter of credit fees and agency fees.

The commitment fees range from 0.15% to

0.30% per annum based on our consolidated net leverage ratio.

(a) the applicable Term Secured Overnight Financing Rate (SOFR) (which includes a SOFR adjustment of 0.10%), or (b) a base rate determined by reference to the highest of (1) the federal funds effective rate plus 0.50%, (2) the Bank of America prime rate, (3) the Term SOFR rate for an interest period of one month plus 1.10%, and (4) 1.00%.

The margin for the 2022 Facility ranges, based on our consolidated total net leverage ratio, from 0.25% to 1.25% in the case of base rate loans and from 1.25% to 2.25% in the case of Term SOFR rate loans.

In addition to paying interest on the outstanding principal under the Facility, we will pay (i) a commitment fee in respect of the unutilized commitments thereunder and (ii) customary letter of credit fees and agency fees.

The commitment fees range from 0.15% to 0.35% per annum based on our consolidated net leverage ratio.

In August 2022, we entered into Amendment No.

1 to the Credit Agreement (the “Amendment”) among the Company, the Guarantors (as defined in the Credit Agreement), each L/C Issuer from time to time party thereto, Bank of America, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) and swing line lender (in such capacity, the “Swing Line Lender”), and each lender party thereto, which amends the Credit Agreement dated as of May 24, 2022 (the “Credit Agreement”) among the Company, the Guarantors, the Administrative Agent, the Swing Line Lender, each Lender and the L/C Issuers.

The Amendment, among other things, increases the size of the revolving credit facility from $350 million to $575 million.

The terms of the revolving credit facility are otherwise unchanged.

Concurrently with the entry into the Amendment, the Company repaid the entire outstanding term loan facility and repaid all outstanding loans under the revolving credit facility under the Credit Agreement.

As of December 31, 2022, the revolving credit facility was undrawn.

Royalty-backed Loan

In January 2016, through our wholly-owned subsidiary Halozyme Royalty LLC (Halozyme Royalty), we received a $150 million loan (the Royalty-backed Loan) pursuant to a credit agreement (the Credit Agreement) with BioPharma Credit Investments IV Sub, LP and Athyrium Opportunities II Acquisition LP (the Royalty-backed Lenders).

Under the terms of the Credit Agreement, Halozyme Therapeutics, Inc.

transferred to Halozyme Royalty the right to receive royalty payments from the commercial sales of ENHANZE products owed under the Roche Collaboration and Baxalta Collaboration (Collaboration Agreements).

The royalty payments from the Collaboration Agreements 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 $2.9 million thereby satisfying and discharging all obligations under, and terminating, the Royalty-backed Loan.

Critical Accounting Estimates

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A 10% change in our share-based compensation expense for the year ended December 31, 2022 would have affected pre-tax earnings by approximately $2.4 million in 2022.

Valuation Allowance

We periodically re-assess the need for a valuation allowance against our deferred tax assets based on various factors including our historical earnings, forecasts of future pretax income, utilization of net operating losses and tax credits prior to their expiration.

We will consider future taxable income and tax planning strategies to periodically re-assess the need for a valuation allowance.

Both future taxable income and tax planning strategies include a number of estimates.

Prior to the third quarter of 2021, we had recorded a valuation allowance that fully offset our deferred tax assets.

In 2021, based on our evaluation of various factors, such as our profitability and cumulative pretax income as well as forecasted income growth, we released the valuation allowance against federal and state deferred tax assets.

Release of the valuation allowance resulted in a net benefit from income taxes of $154.2 million.

We will periodically re-assess the need for a valuation allowance against our deferred tax assets.

Business Combinations

In connection with the Antares acquisition, as disclosed in Note 3, the acquisition of Antares has been accounted for using the acquisition method of accounting in accordance with ASC 805, under the acquisition method of accounting we recognized the identifiable assets acquired and the liabilities assumed at their fair values as of the date of acquisition.

We measured the goodwill as the excess of consideration transferred, which we also measure at fair value, over the net of the acquisition date fair values of the identifiable assets acquired and liabilities assumed.

Significant estimates and assumptions used in estimating the fair value of acquired technology and other identifiable intangible assets include future cash flows that we expect to generate from the acquired assets.

If the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could record impairment charges.

In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate amortization expense.

If our estimates of the economic lives change, amortization expenses could be accelerated or slowed.

Contingent Liability

A contingent liability with a value of $15.7 million was assumed related to TLANDO.

The fair value was measured using the income approach, specifically the probability weighted expected return method for the development milestone payments and the option pricing methodology using the Monte Carlo simulation for commercial milestone payments and royalty payments.

We remeasure the fair value of the contingent liability on a quarterly basis.

The inputs used in the Monte Carlo simulation include significant estimates and assumptions which include forecasted revenues, cost of debt, risk free rate, weighted average cost of capital, revenue market price risk and revenue volatility.

Estimates and assumptions used in the income approach include the probability of achieving certain milestones and a discount rate.

If there is a change in the inputs and assumptions used to fair value the contingent liability, that could have a material impact on our consolidated balance sheet and statements of income.

Goodwill and Intangibles

We estimate the fair value of acquired intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.

We test for potential impairment of goodwill and other intangible assets that have indefinite useful lives annually in the second fiscal quarter or whenever indicators of impairment arise.

Significant estimates and assumptions used in estimating the fair value of the intangible assets.

A change in any of the estimates and assumptions used may result an impairment charge in our consolidated statement of income.

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis