What changed in this filing

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Item 9A. Controls and Procedures

2023-02-21 compared with 2022-02-22 · 590 added, 332 removed, 1081 unchanged (46% of the section changed)

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Changes in Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

On May 24, 2022, we completed the acquisition of Antares.

Under guidelines established by the SEC, companies are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year of an acquisition while integrating the acquired company.

In conducting our evaluation of the effectiveness of our internal control over financial reporting, we excluded the internal control activities of Antares from our evaluation for the period ended December 31, 2022.

We are in the process of integrating Antares into our system of internal control over financial reporting.

Except as noted above, there have been no significant changes in our internal control over financial reporting that occurred during the period ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

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Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have included the financial results of Antares in the consolidated financial statements from the date of acquisition.

Antares represented approximately 9% of total assets as of December 31, 2022 and 17% of total revenues, for the year ended December 31, 2022.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.

In conducting its assessment of the effectiveness of our internal control over financial reporting, our management excluded the internal control activities of Antares from its evaluation for the period ended December 31, 2022.

In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework) (the COSO criteria).

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria .

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 22, 2022 expressed an unqualified opinion thereon.

As indicated in the accompanying Management’s Report On Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Antares Pharma, Inc., which is included in the 2022 consolidated financial statements of the Company and constituted 9% of total assets as of December 31, 2022 and 17% of total revenues, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Antares Pharma, Inc.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) and our report dated February 21, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

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She began her career at Sandoz/Novartis, where she ultimately served as Vice President of Medical Affairs, developing and conducting post-marketing clinical studies across all therapeutic areas, including oncology.

Torley serves on the board of directors of Quest Diagnostics Incorporated, a diagnostic information services company.

Within the past five years, Dr.

Torley served on the board of directors of Relypsa, Inc., a biopharmaceutical company.

Torley served on the board of directors of Quest Diagnostics Incorporated, a diagnostic information services company.

Before joining the industry, Dr.

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LaBrosse was an auditor with PricewaterhouseCoopers, LLP from 2004 to 2015.

She received her B.S.

She received a certified public accounting license after receiving a B.S.

degree in corporate finance and accounting and her M.S.

degree in accounting from Bentley College and is a certified public accountant.

degree in accounting from Bentley College.

Mark Snyder (56), Senior Vice President, General Counsel, Chief Compliance Officer and Secretary.

Snyder joined Halozyme in January 2022 as Senior Vice President, General Counsel, Chief Compliance Officer and Secretary.

Snyder has nearly 30 years of experience in legal and business management roles.

Snyder has over 30 years of experience in legal and business management roles.

Prior to joining Halozyme, from January 2008 to December 2021, Mr.

from April 2016 to December 2021 and Vice President, Patent Counsel, from October 2010 to April 2016.

Before Qualcomm, Mr.

Snyder served in various senior positions in the legal department at Qualcomm Incorporated, a wireless communications company, including his most recent positions as Senior Vice President & Deputy General Counsel, Litigation, from April 2016 to December 2021 and Vice President, Patent Counsel, from October 2010 to April 2016.

Before Qualcomm,

Snyder served as Lead Intellectual Property Counsel at Kyocera Wireless Corp., a wireless communications company, and has held legal and business management roles in two smaller companies.

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(1) Represents stock options, restricted stock units, and performance stock units under the Amended and Restated 2021 Stock Plan.

This includes 2,650,103 shares available for future purchase under our ESPP plan.

(2) This amount does not include performance stock units as there is no exercise price for such units.

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Consolidated Balance Sheets at December 31, 2022 and 2021 F- 4

Consolidated Statements of Operations for Each of the Years Ended December 31, 2021, 2020 and 2019 F- 4

Consolidated Statements of Comprehensive Income (Loss) for Each of the Years Ended December 31, 2021,

Consolidated Statements of Income for Each of the Years Ended December 31, 2022, 2021 and 2020 F- 5

Consolidated Statements of Comprehensive Income for Each of the Years Ended December 31, 2022,

2021 and 2020 F- 6

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and The Bank of New York Mellon Trust Company, N.A., as trustee, and the Registrant

4.5 Indenture, dated August 18, 2022, between Halozyme Therapeutics, Inc.

and The Bank of New York Mellon Trust Company, N.A., as trustee and registrant .

8-K 8/18/2022

4.6 Form of Note, dated August 18, 2022, between Halozyme Therapeutics, Inc.

and The Bank of New York Mellon Trust Company, N.A., as trustee, and the Registrant (included within Exhibit 4.5)

8-K 8/18/2022

4.7 Description of Securities

10.1 Credit Agreement, dated as of December 23, 2021, by and among the Company, the Guarantor, Bank of America N.A.

10-K 2/22/2022

10.1 Form of Capped Call Confirmation

8-K 8/18/2022

10.2 Credit Agreement, dated as of May 24, 2022, by and among Halozyme Therapeutics, Inc., the Guarantors, Bank of America N.A.

and each of those additional Lenders that are a party to such agreement.

8-K 5/24/2022

10.2 Security Agreement, dated as of December 23, 2021, by and among the Company, the Guarantor and Bank of America N.A.

10.3 Security Agreement, dated as of May 24, 2022, by and among Halozyme Therapeutics, Inc., the Guarantors and Bank of America N.A

8-K 5/24/2022

10.3 License Agreement between University of Connecticut and Registrant, dated November 15, 2002

SB-2 4/23/2004

10.4 First Amendment to the License Agreement between University of Connecticut and Registrant, dated January 9, 2006

10.4 Amendment No.

1 to the Credit Agreement

8-K 8/19/2022

10.5 Agreement for Assignment and Assumption of Lease, Del Mar Corporate Centre I Office Lease and First Amendment to Office Lease

10-Q 5/10/2022

10.6 Lease Agreement, dated July 1, 2019, by and between Antares Pharma, Inc.

and Whitewater Properties I, LLC.

10.7# Halozyme Therapeutics, Inc.

2021 Employee Stock Purchase Plan

10-Q 11/8/2022

10.8# Halozyme Therapeutics, Inc.

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10.9# Form of Stock Option Agreement (2021 Stock Plan)

10.8# F orm of Restricted Stock Units Agreement for Officers (2021 Stock Plan)

Incorporated by Reference

Exhibit Filed

Number Exhibit Title Herewith Form Date Filed

10.10# Form of Restricted Stock Units Agreement for Officers (2021 Stock Plan)

10.11# Form of Restricted Stock Units Agreement (2021 Stock Plan)

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10.14# Form of Directors Restricted Stock Units Agreement (2021 Stock Plan)

10.13# Form of Restricted Stock Units Agreement for Irish Participants (2021 Stock Plan)

10-Q 8/9/2021

Halozyme Therapeutics, Inc.

2011 Stock Plan (as amended through May 2, 2018)

Incorporated by Reference

Exhibit Filed

Number Exhibit Title Herewith Form Date Filed

Form of Stock Option Agreement (2011 Stock Plan)

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10-Q 11/9/2015

Form of Restricted Stock Award Agreement (2011 Stock Plan - grants made on or after 11/4/2015)

10-Q 11/9/2015

10.22# Form of Restricted Stock Units Agreement (2011 Plan - grants made on or after 2/22/2017)

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10.26# Severance Policy

8-K 12/13/2018

10.27# Form of Amended and Restated Change In Control Agreement with Officer

10-Q 11/8/2022

10.28 Lease (11404 and 11408 Sorrento Valley Road), effective as of June 10, 2011

8-K 6/16/2011

10.29 First Amendment to Lease (11404 and 11408 Sorrento Valley Road), dated June 30, 2017

10.30 Second Amendment to Lease (11404 and 11408 Sorrento Valley Road), dated March 23, 2018

10.27# Form of Amended and Restated Change In Control Agreement with Officer

10-Q 11/9/2015

10.31 Amended and Restated Lease (11388 Sorrento Valley Road), effective as of June 10, 2011

8-K 6/16/2011

Incorporated by Reference

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Number Exhibit Title Herewith Form Date Filed

10.32 First Amendment to Amended and Restated Lease (11388 Sorrento Valley Road), dated June 30, 2017

10.33 Second Amendment to Amended and Restated Lease (11388 Sorrento Valley Road), dated March 23, 2018

10-Q 5/10/2018

10.34 Lease (11436 Sorrento Valley Road), effective as of April 2013

10-K 3/1/2013

10.35 First Modification to Lease (11436 Sorrento Valley Road)

10-Q 5/8/2013

10.36 Second Modification to Lease (11436 Sorrento Valley Road), dated June 30, 2017

10.28# Halozyme Therapeutics, Inc.

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Non Qualified Deferred Compensation Plan Adoption Agreement

10-K 2/22/2022

10.30# Halozyme Therapeutics, Inc Directors Deferred Equity Compensation Plan

10-K 2/22/2022

21.1 Subsidiaries of Registrant

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Nicole LaBrosse (Principal Financial and Accounting Officer)

/s/ Jeffrey W.

Henderson Chair of the Board of Directors February 21, 2023

/s/ Connie L.

Matsui Chair of the Board of Directors February 22, 2022

Matsui Director February 21, 2023

/s/ Jean-Pierre Bizzari Director February 21, 2023

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Daly Director February 21, 2023

/s/ Jeffrey W.

Henderson Director February 22, 2022

/s/ Barbara Duncan Director February 21, 2023

Barbara Duncan

/s/ Matthew L.

Posard Director February 21, 2023

/s/ Moni Miyashita Director February 21, 2023

Moni Miyashita

Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Halozyme Therapeutics, Inc.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, cash flows and stockholders’ equity for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 21, 2023 expressed an unqualified opinion thereon.

Adoption of ASU No.

As discussed in Note 2 to the consolidated financial statements, in 2021 the Company adopted Accounting Standards Update (ASU) No.

2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40).

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of this critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Estimation of Overall Transaction Price for Collaboration Agreements

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of these critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating these critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Determination of Overall Transaction Price for Collaboration Agreements

Description of the Matter

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During 2022, the Company recognized $ 59.0 million of variable consideration in the transaction price under their collaboration arrangements.

Auditing management’s conclusions related to determining the probability of achievement of milestones is complex and highly judgmental as a result of the uncertainties and limited visibility by the Company into the progression of developing and commercializing the combined targets as completed by the collaboration partners.

Auditing management’s conclusions related to determining the probability of achievement of milestones is complex and highly judgmental as a result of the uncertainties given the progression of developing and commercializing the combined targets is completed by the collaboration partners.

How We Addressed the Matter in Our Audit

We obtained an understanding and evaluated the design and tested the operating effectiveness of controls over the Company’s process to routinely evaluate the probability of achievement of milestones and any related constraint for each collaboration, in addition to the controls over the completeness and accuracy of determining the population of agreements and potential milestone payments.

To test the milestone amounts included, or excluded, from the transaction price, we performed audit procedures that included, among others, observing the quarterly meetings with accounting and Alliance Managers discussing the status of each collaboration.

For each milestone, we examined available evidence including correspondence with the collaboration partner and evaluated management’s conclusions on the probabilities of achievement.

To test the milestone amounts included, or excluded, from the transaction price, we performed audit procedures that included, among others, observing the meetings of the Company’s accounting and alliance managers discussing the status of each collaboration agreement.

For each milestone, we examined evidence including correspondence with the collaboration partner and evaluated management’s conclusions on the probabilities of achievement.

We reviewed supporting documentation to corroborate that milestones were included in the transaction price when determined to be probable of achievement.

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We performed a lookback analysis to validate the company’s accuracy of determining the probability of achieving these milestones.

Valuation of intangible assets acquired in connection with the Antares Pharma, Inc.

Description of the Matter As disclosed in Note 3 of the consolidated financial statements, the Company completed the acquisition of Antares Pharma, Inc.

(“Antares”) on May 24, 2022 for total consideration of approximately $1,045.7 million.

The transaction was accounted for as a business combination.

The Company recorded intangible assets of $589.8 million, which includes in-process research and development (“IPR&D”) of $48.7 million.

Auditing the Company’s accounting for its acquisition of Antares was complex due to the significant estimation uncertainty in determining the fair value of the intangible assets.

A significant emphasis is placed on the appropriateness of the estimate considerations used by management to determine the fair value of the acquired intangible assets due to sensitivity of the respective fair values to the underlying assumptions.

The Company used an income approach to measure the intangible assets.

The significant assumptions used to estimate the value of the intangible assets included discount rates and revenue growth rates.

These significant assumptions related to the intangible assets are forward looking and could be affected by future economic and market conditions.

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process for determining the fair value of intangible assets acquired in connection with the Antares acquisition.

This included controls over management’s development of the above-described assumptions used in the valuation models applied.

To test the estimated fair value of the intangible assets, we performed audit procedures that included, among others, evaluating the Company’s use of the income approach and testing the significant assumptions used in the valuation model, as described above.

We evaluated the completeness and accuracy of underlying data used in supporting the assumptions and estimates.

We evaluated the reasonableness of projected revenue growth used within the valuations against analyst expectations, industry trends, and other market information.

In addition, we involved valuation specialists to assist in assessing the significant assumptions and methodologies used by the Company.

/s/ Ernst & Young LLP

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Inventories 100,123 53,908

Prepaid expenses and other assets 40,482 28,274

Prepaid expenses and other current assets 45,024 40,482

Total current assets 739,013 926,287

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Prepaid expenses and other assets 26,301 13,414

Goodwill 409,049 —

Intangible assets, net 546,652 —

Deferred tax assets, net 44,426 155,434

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Other long-term liabilities 30,433 544

Contingent liability 15,472 —

Commitments and contingencies (Note 12)

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Additional paid-in capital 27,368 256,347

Accumulated other comprehensive (loss) income ( 620 ) 22

Accumulated deficit ( 58,912 ) ( 474,593 )

Accumulated other comprehensive loss ( 922 ) ( 620 )

Retained earnings (Accumulated deficit) 143,217 ( 58,912 )

Total stockholders’ equity 169,798 196,953

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HALOZYME THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

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Operating expenses:

Cost of product sales 81,413 43,367 45,546

Cost of sales 139,304 81,413 43,367

Amortization of intangibles 43,148 — —

Research and development 66,607 35,672 34,236

1 unchanged sentence

Total operating expenses 392,585 167,408 123,339

Operating income (loss) 275,902 144,255 ( 67,610 )

Operating income 267,531 275,902 144,255

Other income (expense):

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Interest expense ( 16,947 ) ( 7,526 ) ( 20,378 )

Net income (loss) before income taxes 248,518 129,302 ( 72,251 )

Income tax (benefit) expense ( 154,192 ) 217 ( 11 )

Net income (loss) $ 402,710 $ 129,085 $ ( 72,240 )

Net income (loss) per share:

Net income before income taxes 248,918 248,518 129,302

Income tax expense (benefit) 46,789 ( 154,192 ) 217

Net income $ 202,129 $ 402,710 $ 129,085

Net income per share:

Basic $ 1.48 $ 2.86 $ 0.95

Diluted $ 1.44 $ 2.74 $ 0.91

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

Shares used in computing net income per share:

Basic 136,844 140,646 136,206

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HALOZYME THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

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2022 2021 2020

Net income (loss) $ 402,710 $ 129,085 $ ( 72,240 )

Other comprehensive (loss) income:

Unrealized (loss) gain on marketable securities ( 683 ) ( 164 ) 508

Net income $ 202,129 $ 402,710 $ 129,085

Other comprehensive income:

Unrealized loss on marketable securities ( 349 ) ( 683 ) ( 164 )

Foreign currency translation adjustment 8 15 ( 32 )

Unrealized gain (loss) on foreign currency 39 26 ( 22 )

Total comprehensive income (loss) $ 402,068 $ 128,867 $ ( 71,723 )

Total comprehensive income $ 201,827 $ 402,068 $ 128,867

See accompanying notes to consolidated financial statements.

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Operating activities:

Net income (loss) $ 402,710 $ 129,085 $ ( 72,240 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Net income $ 202,129 $ 402,710 $ 129,085

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation 24,397 20,820 17,204

Depreciation and amortization 6,493 2,997 3,284

Amortization of intangible assets 43,148 — —

Amortization of debt discount 7,839 3,642 14,136

Amortization of premiums (accretion of discounts) on marketable securities 2,257 839 ( 2,469 )

(Gain) loss on disposal of equipment — ( 772 ) 1,431

Amortization of (accretion of discounts) premiums on marketable securities 1,106 2,257 839

Realized loss on marketable securities 1,727 — —

Loss (gain) on disposal of equipment 129 — ( 772 )

Deferral of unearned revenue — — 4,632

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Loss on impairment of right-of-use asset — — 577

Loss on extinguishment of debt — — 401

Induced conversion expense related to convertible notes 2,712 20,960 —

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Accounts payable and accrued expenses 24,535 1,167 ( 41,208 )

Net cash provided by (used in) operating activities 299,440 55,454 ( 85,423 )

Net cash provided by operating activities 240,110 299,440 55,454

Investing activities:

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Proceeds from maturities of marketable securities 746,127 247,683 305,967

Acquisitions of business, net of cash acquired ( 999,120 ) — —

Purchases of property and equipment ( 4,810 ) ( 1,457 ) ( 2,504 )

Proceeds from disposal of property and equipment — 1,076 —

Proceeds from sale of assets 26,006 — 1,076

Net cash (used in) provided by investing activities ( 487,005 ) ( 406,289 ) 78,354

Financing activities:

Proceeds from issuance of long-term debt, net 784,875 — 447,350

Proceeds from term loan 250,000 — —

Repayment of term loan ( 250,000 ) — —

Proceeds from revolving credit facilities 120,000 — —

Repayment of revolving credit facilities ( 120,000 ) — —

Proceeds from issuance of 2027 Convertible Notes, net — 784,875 —

Repayment of long-term debt ( 77,453 ) ( 369,064 ) ( 19,560 )

Proceeds from issuance of 2028 Convertible Notes 702,000 — —

Purchase of capped call ( 69,120 ) — —

Payment of debt issuance cost ( 7,104 ) ( 424 ) —

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Net cash provided by (used in) financing activities 362,371 77,865 ( 106,284 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 28,984 ) 27,524 62,243

Net increase (decrease) in cash, cash equivalents and restricted cash 115,476 ( 28,984 ) 27,524

Cash, cash equivalents and restricted cash at beginning of period 119,219 148,203 120,679

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Interest paid $ 6,107 $ 3,296 $ 6,534

Income taxes (received) paid, net $ ( 375 ) $ 180 $ 188

Income taxes paid (received), net $ 16,224 $ ( 375 ) $ 180

Supplemental disclosure of non-cash investing and financing activities:

Amounts accrued for purchases of property and equipment $ 6,229 $ 72 $ 117

Debt issuance cost included in accounts payable $ — $ — $ 68

Right-of-use assets obtained in exchange for lease obligation $ 34,435 $ 318 $ 1,746

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Comprehensive

Income (Loss) Accumulated

Income (Loss) Retained Earnings (Accumulated

Deficit) Total

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BALANCE AT DECEMBER 31, 2019

136,713 $ 137 $ 695,066 $ 240 $ ( 603,678 ) $ 91,765

Share-based compensation expense — — 17,204 — — 17,204

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Equity component of convertible notes ( 65 ) ( 65 )

Other comprehensive income — — — 517 — 517

Net loss — — — — ( 72,240 ) ( 72,240 )

Other comprehensive loss — — — ( 218 ) — ( 218 )

Net lncome — — — — 129,085 129,085

BALANCE AT DECEMBER 31, 2020

135,030 $ 135 $ 625,483 $ 22 $ ( 474,593 ) $ 151,047

Cumulative adjustment from adoption of ASU 2020-06 ( 65,535 ) 12,971 ( 52,564 )

Share-based compensation expense — — 20,820 — — 20,820

Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net 5,278 5 63,388 — — 63,393

Issuance of restricted stock awards, net 61 — — — — —

Issuance of common stock for the induced conversion related to convertible notes 9,083 9 13,095 13,104

Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units and performance stock units, net and shares issued under ESPP plan 1,497 2 12,534 — — 12,536

Repurchase of common stock ( 8,112 ) ( 8 ) ( 350,050 ) ( 350,058 )

Equity component of convertible notes ( 65 ) ( 65 )

Other comprehensive loss — — — ( 642 ) — ( 642 )

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BALANCE AT DECEMBER 31, 2021

Cumulative adjustment from adoption of ASU 2020-06 — — ( 65,535 ) — 12,971 ( 52,564 )

137,498 $ 138 $ 256,347 $ ( 620 ) $ ( 58,912 ) $ 196,953

Share-based compensation expense — — 24,397 — — 24,397

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Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units and performance stock units, net and shares issued under the ESPP plan 1,077 1 14,049 — — 14,050

Capped call transaction ( 69,120 ) ( 69,120 )

Repurchase of common stock ( 4,933 ) ( 5 ) ( 199,997 ) ( 200,002 )

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BALANCE AT DECEMBER 31, 2022

135,154 $ 135 $ 27,368 $ ( 922 ) $ 143,217 $ 169,798

See accompanying notes to consolidated financial statements.

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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 (“Hylenex”), 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 in 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.

(“Janssen”), AbbVie, Inc.

(“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol-Myers Squibb Company (“BMS”), Alexion Pharma Holding (AstraZeneca PLC announced the completion of its acquisition of Alexion Pharmaceuticals, Inc.

in July 2021) (“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 and 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.

(“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”), 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.

Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,” “our,” and “us” in these notes to consolidated financial statements refer to Halozyme Therapeutics, Inc.

and its wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH.

and each of its directly and indirectly wholly owned subsidiaries disclosed in Note 2.

Halozyme Therapeutics, Inc.

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The consolidated financial statements include the accounts of Halozyme Therapeutics, Inc.

and our wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH.

and our wholly owned subsidiaries, Halozyme, Inc.

and Antares Pharma, Inc., and Antares Pharma, Inc.’s wholly owned Swiss subsidiaries, Antares Pharma IPL AG and Antares Pharma AG.

All intercompany accounts and transactions have been eliminated.

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generally accepted accounting principles (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances.

By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

GAAP”) requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that we believe to be reasonable under the circumstances.

By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from our estimates.

Cash Equivalents and Marketable Securities

Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within ninety days or less from the date of purchase.

As of December 31, 2021, our cash equivalents consisted of money market funds and treasury bills.

Marketable securities are investments with original maturities of more than ninety days from the date of purchase that are specifically identified to fund current operations.

Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within 90 days or less from the date of purchase.

As of December 31, 2022, our cash and cash equivalents consisted of money market funds, bank certificate of deposits and demand deposits at commercial banks.

Marketable securities are investments with original maturities of more than 90 days from the date of purchase that are specifically identified to fund current operations.

Marketable securities are considered available-for-sale.

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Such available-for-sale investments are carried at fair value with unrealized gains and losses recorded in other comprehensive income (loss) and included as a separate component of stockholders’ equity.

The cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such amortization or accretion is included in investment and other income, net in the consolidated statements of operations.

We use the specific identification method for calculating realized gains and losses on marketable securities sold.

None of the realized gains and losses and declines in value judged to be as a result of credit loss on marketable securities, if any, are included in investment and other income, net in the consolidated statements of operations.

None of the realized gains and losses and declines in value that were judged to be as a result of credit loss on marketable securities, if any, are included in investment and other income, net in the consolidated statements of operations.

Restricted Cash

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and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and long-term debt.

Fair value estimates of these instruments are made at a specific point in time, based on relevant market information.

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Treasury securities and commercial paper, and are measured at fair value using Level 1 and Level 2 inputs.

Level 2 financial instruments

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

are valued using market prices on less active markets and proprietary pricing valuation models with observable inputs, including interest rates, yield curves, maturity dates, issue dates, settlement dates, reported trades, broker-dealer quotes, issue spreads, benchmark securities or other market related data.

Level 2 financial instruments are valued using market prices on less active markets and proprietary pricing valuation models with observable inputs, including interest rates, yield curves, maturity dates, issue dates, settlement dates, reported trades, broker-dealer quotes, issue spreads, benchmark securities or other market related data.

We obtain the fair value of Level 2 investments from our investment manager, who obtains these fair values from a third-party pricing source.

We validate the fair values of Level 2 financial instruments provided by our investment manager by comparing these fair values to a third-party pricing source.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Concentrations of Credit Risk, Sources of Supply and Significant Customers

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We have license and collaborative agreements with pharmaceutical companies under which we receive payments for royalties, license fees, milestone payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and supply of bulk formulation of rHuPH20.

In addition, we sell Hylenex ® recombinant in the United States to a limited number of established wholesale distributors in the pharmaceutical industry.

In addition, we sell proprietary products in the United States to a limited number of established wholesale distributors in the pharmaceutical industry.

Credit is extended based on an evaluation of the customer’s financial condition, and collateral is not required.

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Based upon the review of these factors, we recorded no allowance for doubtful accounts at December 31, 2022 and 2021.

Approximately 90 % of the accounts receivable balance at December 31, 2021 represents amounts due from Janssen, Roche and Baxalta.

Approximately 74 % of the accounts receivable balance at December 31, 2020 represents amounts due from Janssen, Roche and Baxalta.

Approximately 52 % of the accounts receivable balance at December 31, 2022 represents amounts due from Janssen and Roche.

Approximately 90 % of the accounts receivable balance at December 31, 2021 represents amounts due from Janssen, Roche and Takeda.

The following table indicates the percentage of total revenues in excess of 10% with any single customer:

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Partner D — % 10 % — %

Partner E 10 % — % — %

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

We attribute revenues under collaborative agreements, including royalties, to the individual countries where the customer is headquartered.

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Total revenues $ 660,116 $ 443,310 $ 267,594

We rely on two third-party manufacturers for the supply of bulk rHuPH20 for use in the manufacture of Hylenex recombinant and our other collaboration products and product candidates.

Payments due to these suppliers represented 36 % and 75 % of the accounts payable balance at December 31, 2021 and 2020, respectively.

We also rely on a third-party manufacturer for the fill and finish of Hylenex recombinant product under a contract.

There were no payments due to this supplier at December 31, 2021 and 2020.

Accounts Receivable, net

Accounts receivable is recorded at the invoiced amount and is non-interest bearing.

Accounts receivable is recorded net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees and chargebacks.

Accounts receivable is recorded net of, cash discounts for prompt payment, distribution fees and chargebacks.

We recorded no allowance for doubtful accounts at December 31, 2022 and 2021 as the collectability of accounts receivable was reasonably assured.

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Cost is determined on a first-in, first-out basis.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal,

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

and transportation.

Inventories are reviewed periodically for potential excess, dated or obsolete status.

We evaluate the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared to quantities on hand, the price we expect to obtain for products in their respective markets compared with historical cost and the remaining shelf life of goods on hand.

As of December 31, 2021 and 2020, inventories consisted of $ 1.6 million and $ 1.3 million, respectively, of Hylenex inventory, net and $ 52.3 million and $ 59.4 million, respectively, of bulk rHuPH20.

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

These leases have terms which range from 3 years to 6 years.

We have entered into operating leases primarily for real estate and automobiles.

These leases have contractual terms which range from 3 years to 12 years.

We determine if an arrangement contains a lease at inception.

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Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

We have lease agreements with lease and non-lease components, which are generally accounted for separately.

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Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during the period from transactions and other events and circumstances from non-owner sources.

Comprehensive Income

Comprehensive income is defined as the change in equity during the period from transactions and other events and circumstances from non-owner sources.

Business Combinations

Under the acquisition method of accounting, we allocate the fair value of the total consideration transferred to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the date of acquisition.

These valuations require us to make estimates and assumptions, especially with respect to intangible assets.

We record the excess consideration over the aggregate fair value of tangible and intangible assets, net of liabilities assumed, as goodwill.

Costs that we incur to complete the business combination, such as legal and other professional fees, are expensed as incurred.

If the initial accounting for a business combination is incomplete by the end of a reporting period that falls within the measurement period, we report provisional amounts in our financial statements.

During the measurement period, we adjust the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

We record these adjustments to the provisional amounts with a corresponding offset to goodwill.

Any adjustments identified after the measurement period are recorded in the consolidated statements of income.

Goodwill, Intangible Assets and Other Long-Lived Asset

Assets acquired, including intangible assets and in-process research and development (IPR&D), and liabilities assumed are measured at fair value as of the acquisition date.

Goodwill, which has an indefinite useful life, represents the excess of cost over fair value of the net assets acquired.

Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts.

Upon reaching the end of the relevant research and development project (i.e., upon commercialization), the IPR&D asset is amortized over its estimated useful life.

If the relevant research and development project is abandoned, the IPR&D asset is expensed in the period of abandonment.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Goodwill and IPR&D are not amortized;

however, they are reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment.

Goodwill and IPR&D are considered to be impaired if the carrying value of the reporting unit or IPR&D asset exceeds its respective fair value.

We perform our goodwill impairment analysis at the reporting unit level, which aligns with our reporting structure and availability of discrete financial information.

During the goodwill impairment review, we assess qualitative factors to determine whether it is more likely than not that the fair values of our reporting units are less than the carrying amounts, including goodwill.

The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, and our overall financial performance.

If, after assessing the totality of these qualitative factors, we determine that it is not more likely than not that the fair values of our reporting units are less than the carrying amounts, then no additional assessment is deemed necessary.

Otherwise, we proceed to compare the estimated fair values of the reporting units with the carrying values, including goodwill.

If the carrying amounts of the reporting units exceed the fair values, we record an impairment loss based on the difference.

We may elect to bypass the qualitative assessment in a period and proceed to perform the quantitative goodwill impairment test.

Our identifiable intangible assets with finite useful lives are typically comprised of acquired device technologies and product rights.

The cost of identifiable intangible assets with finite lives is generally amortized on a straight-line basis over the assets’ respective estimated useful lives.

We perform regular reviews to determine if any event has occurred that may indicate that intangible assets with finite useful lives and other long-lived assets are potentially impaired.

If indicators of impairment exist, an impairment test is performed to assess the recoverability of the affected assets by determining whether the carrying amount of such assets exceeds the undiscounted expected future cash flows.

If the affected assets are not recoverable, we estimate the fair value of the assets and record an impairment loss if the carrying value of the assets exceeds the fair value.

Factors that may indicate potential impairment include a significant decline in our stock price and market capitalization compared to the net book value, significant changes in the ability of a particular asset to generate positive cash flows for our strategic business objectives, and the pattern of utilization of a particular asset.

Revenue Recognition

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

We generate revenues from payments received (i) as royalties from licensing our ENHANZE technology and other royalty arrangements, (ii) under collaborative agreements and (iii) from sales of our proprietary and partnered products.

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

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and (v) recognize revenue when (or as) we satisfy the performance obligations.

Revenues under Collaborative Agreements

ENHANZE and Device Royalties

Under the terms of our ENHANZE collaboration and license agreements, our partners will pay us royalties at an on average mid-single digit percent rate of their sales if products under the collaboration are commercialized.

All amounts owed to us are noncancelable after the underlying triggering event occurs, and nonrefundable once paid.

Unless terminated earlier in accordance with its terms, collaborations generally continue in effect until the last to expire royalty payment term, as determined on a product by product and on a country by country basis, with each royalty term starting on the first commercial sale of that product and ending the later of:

(i) a specified period or term set forth in the agreement or (ii) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration.

When there are no valid claims during the applicable royalty term in a given country, the royalty rate is reduced for those sales.

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

Upon any such termination, the license granted to partners (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement (as opposed to a termination), the on-going licenses granted will become perpetual, non-exclusive and fully paid.

Sales-based milestones and royalties are recognized in the period the underlying sales or milestones occur.

We do not receive final royalty reports from our ENHANZE partners until after we complete our financial statements for a prior quarter.

Therefore, we recognize revenue based on estimates of the royalty earned, which are based on internal estimates and available preliminary reports provided by our partners.

We will record adjustments in the following quarter, if necessary, when final royalty reports are received.

To date, we have not recorded any material adjustments.

In addition to the royalties received from licensing our ENHANZE technology, we also earn royalties in connection with licenses granted under license and development arrangements with our device partners as a result of our acquisition of Antares.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

These royalties are based upon a percentage of commercial sales of partnered products with rates ranging from mid-single digits to low double digits and are tiered based on levels of net sales.

These sales-based royalties, for which the license was deemed the predominant element to which the royalties relate, are estimated and recognized in the period in which the partners’ commercial sales occur.

The royalties are generally reported and payable to us within 45 to 60 days of the end of the period in which the commercial sales are made.

We base our estimates of royalties earned on actual sales information from our partners when available or estimated, prescription sales from external sources and estimated net selling price.

We will record adjustments in the following quarter, if necessary, when final royalty reports are received.

To date, we have not recorded any material adjustments.

Revenue under ENHANZE and Device Collaborative Agreements

ENHANZE Collaboration and License Agreements

Under these agreements, we grant the collaboration partner a worldwide license to develop and commercialize products using our ENHANZE technology to combine our patented rHuPH20 enzyme with their proprietary biologics directed at up to a specified number of targets.

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While these collaboration agreements are similar in that they originate from the same framework, each one is the result of an arms-length negotiation and thus may vary from one to the other.

We collect an upfront license payment from collaboration partners, and are also entitled to receive event-based payments subject to collaboration partners’ achievement of specified development, regulatory and sales-based milestones.

We generally collect an upfront license payment from collaboration partners, and are also entitled to receive event-based payments subject to collaboration partners’ achievement of specified development, regulatory and sales-based milestones.

In several agreements, collaboration partners pay us annual fees to maintain their exclusive license rights if they are unable to advance product development to specified stages.

We earn separate fees for bulk rHuPH20 supplies and research and development services.

In addition, collaboration partners will pay us royalties at an on average mid-single digit percent rate of their sales if products under the collaboration are commercialized.

All amounts owed to us are noncancelable after the underlying triggering event occurs, and nonrefundable once paid.

When there are no valid claims during the applicable royalty term in a given country, the royalty rate is reduced for those sales.

Collaboration partners may terminate the agreement prior to expiration for any reason in its entirety or on a

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

target-by-target basis generally upon 90 days prior written notice to us.

Upon any such termination, the license granted to collaboration partners (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement (as opposed to a termination), the on-going licenses granted will become perpetual, non-exclusive and fully paid.

Although these agreements are in form identified as collaborative agreements, we concluded for accounting purposes they represent contracts with customers and are not subject to accounting literature on collaborative arrangements.

This is because we grant to collaboration partners licenses to our intellectual property, and provide supply of bulk rHuPH20 and research and development services which are all outputs of our ongoing activities, in exchange for consideration.

Under these collaborative agreements, we do not develop assets jointly with collaboration partners, and do not share in significant risks of their development or commercialization activities.

This is because we grant to partners licenses to our intellectual property and provide supply of bulk rHuPH20 and research and development services which are all outputs of our ongoing activities, in exchange for respective consideration.

Under these collaborative agreements, our partners lead development of assets, and we do not share in significant financial risks of their development or commercialization activities.

Accordingly, we concluded our collaborative agreements are appropriately accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers.

Under all of our collaborative agreements, we have identified licenses to use functional intellectual property as the only performance obligation.

The intellectual property underlying the license is our proprietary ENHANZE ® technology which represents application of rHuPH20 to facilitate delivery of drugs or fluids.

Each of the licenses grants the collaboration partners rights to use our intellectual property as it exists and is identified on the effective date of the license, because there is no ongoing development of the ENHANZE technology required.

Therefore, we recognize revenue from licenses at the point when the license becomes effective and the collaboration partner has received access to our intellectual property, usually at the inception of the agreement.

When collaboration partners can select additional targets to add to the licenses granted, we consider these rights to be options.

Under all of our ENHANZE collaborative agreements, we have identified licenses to use functional intellectual property as the only performance obligation.

The intellectual property underlying the license is our proprietary ENHANZE technology which represents application of rHuPH20 to facilitate delivery of drugs.

Each of the licenses grants the partners rights to use our intellectual property as it exists and is identified on the effective date of the license, because there is no ongoing development of the ENHANZE technology required.

Therefore, we recognize revenue from licenses at the point when the license becomes effective and the partner has received access to our intellectual property, usually at the inception of the agreement.

When partners can select additional targets to add to the licenses granted, we consider these rights to be options.

We evaluate whether such options contain material rights, i.e.

have exercise prices that are discounted compared to what we would charge for a similar license to a new collaboration partner.

have exercise prices that are discounted compared to what we would charge for a similar license to a new partner.

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

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

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

Generally, we provide indemnification and protection of licensed intellectual property for our customers.

These provisions are part of assurance that the licenses meet the agreements’ representations and are not obligations to provide goods or services.

We also fulfill purchase orders for supply of bulk rHuPH20 and perform research and development services pursuant to projects authorization forms for our collaboration partners, which represent separate contracts.

Additionally, we price our supply of bulk rHuPH20 and research and development services at our regular selling prices, called standalone selling price or (“SSP”).

Therefore, our collaboration partners do not have material rights to order these items at prices not reflective of SSP.

We also fulfill purchase orders for supply of bulk rHuPH20 and perform research and development services pursuant to projects authorization forms for our partners, which represent separate contracts.

In addition to our licenses, we price our supply of bulk rHuPH20 and research and development services at our regular selling prices, called standalone selling price or (“SSP”).

Therefore, our partners do not have material rights to order these items at prices not reflective of SSP.

Refer to the discussion below regarding recognition of revenue for these separate contracts.

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Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved.

Apart from the upfront license payment (or target selection fees in the target selection contracts), all other fees we may earn under our collaborative agreements are subject to significant uncertainties of product development.

Achievement of many of the event-based development and regulatory milestones may not be probable until such milestones are actually achieved.

This generally relates to milestones such as obtaining marketing authorization approvals.

With respect to other development milestones, e.g.

dosing of a first patient in a clinical trial, achievement could be considered probable prior to its actual occurrence, based on the progress towards commencement of the trial.

In order to evaluate progress towards commencement of a trial, we assess the status of activities leading up to our collaboration partner’s initiation of a trial such as feedback received from the applicable regulatory authorities, completion of IND or equivalent filings, readiness and availability of drug, readiness of study sites and our collaboration partner’s commitment of resources to the program.

We do not include any amounts subject to uncertainties into the transaction price until it is probable that the amount will not result in a significant reversal of revenue in the future.

Apart from the upfront license payment (or target selection fees in the target selection contracts), all other fees we may earn under our collaborative agreements are subject to

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

end of each reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.

When target exchange rights are held by collaboration partners, and the amounts attributed to these rights are not refundable, they are included in the transaction price.

significant uncertainties of product development.

Achievement of many of the event-based development and regulatory milestones may not be probable until such milestones are actually achieved.

This generally relates to milestones such as obtaining marketing authorization approvals.

With respect to other development milestones, e.g., dosing of a first patient in a clinical trial, achievement could be considered probable prior to its actual occurrence, based on the progress towards commencement of the trial.

In order to evaluate progress towards commencement of a trial, we assess the status of activities leading up to our partner’s initiation of a trial such as feedback received from the applicable regulatory authorities, completion of IND or equivalent filings, readiness and availability of drug, readiness of study sites and our partner’s commitment of resources to the program.

We do not include any amounts subject to uncertainties in the transaction price until it is probable that the amount will not result in a significant reversal of revenue in the future.

At the end of each reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.

When target exchange rights are held by partners, and the amounts attributed to these rights are not refundable, they are included in the transaction price.

However, they are recorded as deferred revenues because we have a potential performance obligation to provide a new target upon an exchange right being exercised.

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When allocation is needed, we perform an allocation of the upfront amount based on relative SSP of licenses for individual targets.

We determine license SSP using income-based valuation approach utilizing risk-adjusted discounted cash flow projections of the estimated return a licensor would receive.

We determine license SSP using an income-based valuation approach utilizing risk-adjusted discounted cash flow projections of the estimated return a licensor would receive.

When amounts subject to uncertainties, such as milestones and royalties, are included in the transaction price, we attribute them to the specific individual target licenses which generate such milestone or royalty amounts.

We also estimate SSP of bulk rHuPH20 and research and development services, to determine that our collaboration partners do not have material rights to order them at discounted prices.

For supplies of bulk rHuPH20, because we effectively act as a contract manufacturer to our collaboration partners, we estimate and charge SSP based on the typical contract manufacturer margins consistently with all of our collaborative partners.

We also estimate SSP of bulk rHuPH20 and research and development services, to determine that our partners do not have material rights to order them at discounted prices.

For supplies of bulk rHuPH20, because we effectively act as a contract manufacturer to our partners, we estimate and charge SSP based on the typical contract manufacturer margins consistently with all of our partners.

We determine SSP of research and development services based on a fully-burdened labor rate.

Our rates are comparable to those we observe in other collaborative agreements.

We also have a history of charging similar rates to all of our collaboration partners.

Upfront amounts allocated to licenses to individual targets are recognized as revenue when the license is transferred to the collaboration partner, as discussed above, if the license is not subject to exchange rights, or when the exchange right expires or is exercised.

Development milestones and other fees are recognized in revenue when they are included in the transaction price, because by that time we have already transferred the related license to the collaboration partner.

Sales-based milestones and royalties cannot be recognized until the underlying sales occur.

We do not receive final royalty reports from our collaboration partners until after we complete our financial statements for a prior quarter.

Therefore, we recognize revenue based on estimates of the royalty earned, which are based on internal estimates and available preliminary reports provided by our collaboration partners.

We will record a true-up in the following quarter if necessary, when final royalty reports are received.

To date, we have not recorded any material true-ups.

We also have a history of charging similar rates to all of our partners.

Upfront amounts allocated to licenses to individual targets are recognized as revenue when the license is transferred to the partner, as discussed above, if the license is not subject to exchange rights, or when the exchange right expires or is exercised.

Development milestones and other fees are recognized in revenue when they are included in the transaction price, because by that time we have already transferred the related license to the partner.

In contracts to provide research and development services, such services represent the only performance obligation.

The fees are charged based on hours worked by our employees and the fixed contractual rate per hour, plus third-party pass-through costs, on a monthly basis.

We recognize revenues as the related services are performed based on the amounts billed, as the collaboration partner consumes the benefit of research and development work simultaneously as we perform these services, and the amounts billed reflect the value of these services to the customer.

We recognize revenues as the related services are performed based on the amounts billed, as the partner consumes the benefit of research and development work simultaneously as we perform these services, and the amounts billed reflect the value of these services to the customer.

Device License, Development and Supply Arrangements

We have several license, development and supply arrangements with pharmaceutical partners as a result of our acquisition of Antares, under which we grant a license to our device technology and provide research and development services that often involve multiple performance obligations and highly-customized deliverables.

For such arrangements, we identify each of the promised goods and services within the contract and the distinct performance obligations at inception of the contract and allocate consideration to each performance obligation based on relative SSP, which is generally determined based on the expected cost plus mark-up.

If the contract includes an enforceable right to payment for performance completed to date and performance obligations are satisfied over time, we recognize revenue over the development period using either the input or output method depending on which is most appropriate given the nature of the distinct deliverable.

For other contracts that do not contain an enforceable right to payment for performance completed to date, revenue is recognized when control of the product is transferred to the customer.

Factors that may indicate that the transfer of control has occurred include the transfer of legal title, transfer of physical possession, the customer has obtained the significant risks and rewards of ownership of the assets and we have a present right to payment.

Our typical payment terms for development contracts may include an upfront payment equal to a percentage of the total contract value with the remaining portion to be billed upon completion and transfer of the individual deliverables or satisfaction

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

of the individual performance obligations.

We record a contract liability for cash received in advance of performance, which is presented within deferred revenue and deferred revenue, long-term in the condensed consolidated balance sheets and recognized as revenue in the condensed consolidated statements of income when the associated performance obligations have been satisfied.

License fees and milestones received in exchange for the grant of a license to our functional intellectual property, such as patented technology and know-how in connection with a partnered development arrangement, are generally recognized at inception of the arrangement, or over the development period depending on the facts and circumstances, as the license is generally not distinct from the non-licensed goods or services to be provided under the contract.

Milestone payments that are contingent upon the occurrence of future events are evaluated and recorded at the most likely amount, and to the extent that it is probable that a significant reversal will not occur when the associated uncertainty is resolved.

Refer to Note 5 Revenue, for further discussion on our collaborative arrangements.

Product Sales, Net

Proprietary Product Sales

Hylenex Recombinant

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We have no significant obligations to wholesalers to generate pull-through sales.

Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when wholesalers sell Hylenex recombinant at negotiated discounted prices to members of certain group purchasing

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

organizations (“GPOs”) and government programs.

We also pay quarterly distribution fees to certain wholesalers for inventory reporting and chargeback processing, and to GPOs as administrative fees for services and for access to GPO members.

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Although wholesalers have product return rights, we do not believe they have a significant incentive to return the product to us.

Upon recognition of revenue from product sales of Hylenex recombinant, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, and GPO fees are included in sales reserves, accrued liabilities and net of accounts receivable.

Upon recognition of revenue from product sales of Hylenex recombinant, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, and GPO fees are included in accrued liabilities and net of accounts receivable in the consolidated balance sheet.

We monitor actual product returns, chargebacks, discounts and fees subsequent to the sale.

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However, as revenue from product sales is recognized upon delivery to the wholesaler, which occurs shortly after we receive a purchase order, we do not capitalize these commissions and other costs, based on application of the practical expedient allowed within the applicable guidance.

We sell bulk rHuPH20 to collaboration partners for use in research and development;

subsequent to receiving marketing approval, we sell it for use in collaboration commercial products.

Sales are made pursuant to purchase orders subject to the terms of the collaborative agreement, and delivery of units of bulk rHuPH20 represent performance obligations under each purchase order.

Other Proprietary Product Sale s

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

As a result of our acquisition of Antares, our commercial portfolio of proprietary products includes XYOSTED, TLANDO and NOCDURNA, which we sell primarily to wholesale and specialty distributors.

Revenue is recognized when control has transferred to the customer, which is typically upon delivery, at the net selling price, which reflects the variable consideration for which reserves and sales allowances are established for estimated returns, wholesale distribution fees, prompt payment discounts, government rebates and chargebacks, plan rebate arrangements and patient discount and support programs.

The determination of certain reserves and sales allowances requires us to make a number of judgements and estimates to reflect our best estimate of the transaction price and the amount of consideration to which we believe we would be ultimately entitled to receive.

The expected value is determined based on unit sales data, contractual terms with customers and third-party payers, historical and estimated future percentage of rebates incurred on sales, historical and future insurance plan billings, any new or anticipated changes in programs or regulations that would impact the amount of the actual rebates, customer purchasing patterns, product expiration dates and levels of inventory in the distribution channel.

The estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, rebates and customer co-pay support programs are included in accrued liabilities and net of accounts receivable in the condensed consolidated balance sheets.

Partnered Product Sales

We sell bulk rHuPH20 to partners for use in research and development and, subsequent to receiving marketing approval, we sell it for use in collaboration commercial products.

Sales are made pursuant to purchase orders subject to the terms of the collaborative agreement or a supply agreement, and delivery of units of bulk rHuPH20 represent performance obligations under each purchase order.

We provide a standard warranty that the product conforms to specifications.

We use contract manufacturers to produce bulk rHuPH20 and have concluded we are the principal in the sales to collaboration partners.

We use contract manufacturers to produce bulk rHuPH20 and have concluded we are the principal in the sales to partners.

The transaction price for each purchase order of bulk rHuPH20 is fixed based on the cost of production plus a contractual markup, and is not subject to adjustments.

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At that time, the partners take control of the product, bear the risk of loss of ownership, and have an enforceable obligation to pay us.

As a result of our acquisition of Antares, we are party to several license, development, supply and distribution arrangements with pharmaceutical partners, under which we produce and are the exclusive supplier of certain products, devices and/or components.

Revenue is recognized when or as control of the goods transfers to the customer as discussed below.

We are the exclusive supplier of the Makena ® subcutaneous auto-injector product to Covis and the exclusive supplier of OTREXUP ® to Otter Pharmaceuticals, LLC (“Otter”).

Because these products are custom manufactured for each customer with no alternative use and we have a contractual right to payment for performance completed to date, control is continuously transferred to the customer as the product is produced pursuant to firm purchase orders.

Revenue is recognized over time using the output method based on the contractual selling price and number of units produced.

The amount of revenue recognized in excess of the amount shipped/billed to the customer, if any, is recorded as contract assets in the condensed consolidated balance sheets due to the short-term nature in which the amount is ultimately expected to be billed and collected from the customer.

All other device partnered product sales are recognized at the point in time in which control is transferred to the customer, which is typically upon shipment.

Sales terms and pricing are governed by the respective supply and distribution agreements, and there is generally no right of return.

Revenue is recognized at the transaction price, which includes the contractual per unit selling price and estimated variable consideration, such as volume-based pricing arrangements or profit-sharing arrangements, if any.

We recognize revenue, including the estimated variable consideration we expect to receive for contract margin on future commercial sales, upon shipment of the goods to our partner.

The estimated variable consideration is recognized at an amount we believe is not subject to significant reversal based on historical experience and is adjusted at each reporting period if the most likely amount of expected consideration changes or becomes fixed.

Revenue Presentation

In our statements of operations, we report as revenues under collaborative agreements the upfront payments, event-based development and regulatory milestones and sales milestones.

In our consolidated statements of income, we report as revenues under collaborative agreements the upfront payments, event-based development and regulatory milestones and sales milestones.

We also include in this category revenues from separate research and development contracts pursuant to project authorization forms.

We report royalties received from collaboration partners as a separate line in our statements of operations.

We report royalties received from partners as a separate line in our consolidated statements of income.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Revenues from sales of Hylenex recombinant, bulk rHuPH20 and ENHANZE drug product are included in product sales, net.

In the footnotes to our financial statements, we provide disaggregated revenue information by type of arrangement (product sales, net, collaborative agreements and research and development services), and additionally, by type of payment stream received under collaborative agreements (upfront license fees, event-based development and regulatory milestones and other fees, sales milestones and royalties).

Cost of Product Sales

Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, freight costs, internal costs and manufacturing overhead associated with the production of Hylenex recombinant and bulk rHuPH20 and ENHANZE drug product.

Cost of product sales also consists of the write-down of excess, dated and obsolete inventories and the write-off of inventories that do not meet certain product specifications, if any.

Revenues from sales of our proprietary and partnered products are included in product sales, net in our consolidated statements of income.

In the footnotes to our consolidated financial statements, we provide disaggregated revenue information by type of arrangement (product sales, net, collaborative agreements and research and device licensing, and development revenues), and additionally, by type of payment stream received under collaborative agreements (upfront license and target nomination fees, event-based development and regulatory milestones and other fees, sales milestones and royalties).

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 proprietary and partnered products.

Cost of sales also consists of the write-down of excess, dated and obsolete inventories and the write-off of inventories that do not meet certain product specifications, if any.

Research and Development Expenses

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Such amounts are recognized as expense as the related goods are delivered or the related services are performed or such time when we do not expect the goods to be delivered or services to be performed.

Clinical Trial Expenses

We make payments in connection with our clinical trials under contracts with contract research organizations that support conducting and managing clinical trials.

The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows.

Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis.

A portion of our obligation to make payments under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones.

Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials.

Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain.

If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis.

Revisions to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.

Share-Based Compensation

We record compensation expense associated with stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance stock units (“PSUs”) and shares issued under our employee stock purchase plan (“ESPP”) in accordance with the authoritative guidance for stock-based compensation.

We record compensation expense associated with stock options, restricted stock units (“RSUs”), performance stock units (“PSUs”) and shares issued under our employee stock purchase plan (“ESPP”) in accordance with the authoritative guidance for stock-based compensation.

The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period of the award.

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Forfeitures are recognized as a reduction of share-based compensation expense as they occur.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

We provide for income taxes using the liability method.

Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities at each year end and their respective tax bases and are measured using enacted tax rates in effect for the year in which the differences are expected to reverse.

Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulations throughout the world.

We measure deferred tax assets and liabilities using enacted tax rates for the year in which the differences are expected to reverse.

Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and any associated valuation allowances recorded against our net deferred tax assets, which are based on complex and evolving tax regulations.

Deferred tax assets (“DTA”) and other tax benefits are recorded when they are more likely than not to be realized.

We maintain a full valuation allowance on our DTAs until there is sufficient evidence to support the reversal of all or some portion of these allowances.

On a periodic basis, we reassess the valuation allowance of our DTAs, weighing all positive and negative evidence, to assess if it is more-likely-than-not that some or all of our DTAs will be realized.

In 2021, we demonstrated profitability and cumulative pretax income and are forecasting income growth.

After assessing both the positive and negative evidence, we determined that it was more likely than not that our DTAs would be realized and released the valuation allowance related to federal and state DTAs .We will continue to evaluate the need for valuation allowances for our DTAs.

On a quarterly basis, we assess the need for valuation allowance on our DTAs, weighing all positive and negative evidence, to assess if it is more-likely-than-not that some or all of our DTAs will be realized.

Segment Information

We operate our business in one segment, which includes all activities related to the research, development and commercialization of our proprietary enzymes.

This segment also includes revenues and expenses related to (i) research and development and bulk rHuPH20 manufacturing activities conducted under our collaborative agreements with third parties and (ii) product sales of Hylenex recombinant.

As a result of the acquisition of Antares, we assessed the organization of our business and concluded that we continue to operate our business in one operating segment, which includes all activities related to the research, development and commercialization of our proprietary enzymes and devices.

This segment also includes revenues and expenses related to (i) research and development and manufacturing activities conducted under our collaborative agreements with third parties, and (ii) product sales of proprietary and products.

The chief operating decision-maker reviews the operating results on an aggregate basis and manages the operations as a single operating segment .

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Statements or Other Significant Matters

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)

The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments.

It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions.

In addition, the new guidance requires that the if-converted method is used in computing diluted EPS for all convertible instruments

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from contracts with customers

The new guidance requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts.

January 1, 2023

(Early adoption permitted effective January 1, 2021)

We early adopted ASU 2020-06 as of January 1, 2021 on a modified retrospective basis, which resulted in an approximately $ 65.6 million decrease in additional paid in capital from the derecognition of the bifurcated equity component, $ 52.6 million increase in debt from the derecognition of the discount associated with the bifurcated equity component and $ 13.0 million decrease to the opening balance of accumulated deficit, representing the cumulative non-cash interest expense recognized related to the amortization of the bifurcated conversion option related to the 2024 Convertible Notes.

We derecognized the related deferred tax liabilities of $ 11.8 million with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment to retained earnings.

As we committed to settle the principal amount of the convertible notes in cash upon conversion, shares used for diluted EPS will continue to be limited to the excess conversion value over the principal amount of the convertible note.

Diluted earnings per share is also impacted due to the elimination of non-cash interest expense associated with the amortization of the equity component.

(Early adoption is permitted, including adoption in an interim period)

We early adopted ASU 2021-08 on April 1, 2022.

The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Business Combination

On May 24, 2022, we acquired all outstanding equity interests of Antares Pharma, Inc.

according to the terms and conditions of the Agreement and Plan of Merger, dated as of April 12, 2022 (the “Merger Agreement”).

Antares is a specialty pharmaceutical company focused primarily on the development and commercialization of pharmaceutical products and technologies that address patient needs in targeted therapeutic areas.

We acquired Antares as a part of our strategy to expand as a drug delivery company and include specialty products.

The total purchase consideration of Antares was $ 1,045.7 million.

Each share of Antares common stock issued and outstanding was converted into the right to receive $ 5.60 in cash without interest, less any applicable withholding taxes (“Merger Consideration”).

Additionally, in connection with the transaction, each Antares equity award granted and outstanding as of May 24, 2022 under the Antares’ equity compensation plans was converted into the right to receive Merger Consideration.

Other components of purchase consideration include cash paid at closing to settle Antares existing debt of $ 19.7 million and seller transaction costs paid by us on behalf of Antares of $ 22.9 million.

The acquisition of Antares was funded by cash on hand and borrowings under the new credit agreement with Bank of America, N.A.

(“BofA”) and other lenders 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”, collectively with the Revolving Credit Facility, the “2022 Facility”) as described in Note 8.

We recognized transaction costs of $ 21.9 million in the twelve months ended December 31, 2022.

These costs are reported in selling, general and administrative expenses in our condensed consolidated statements of income.

Transaction costs include, but are not limited to, investment banker, advisory, legal, and other professional fees.

Purchase Consideration

The total purchase consideration was comprised of the following (in thousands):

Cash consideration for Antares shares outstanding as of May 24, 2022 $ 956,886

Consideration for Antares equity compensation awards (a)

Consideration for seller transaction costs paid by Halozyme 22,906

Consideration related to Antares closing indebtedness settled by Halozyme 19,683

Cash consideration related to cash bonus awards paid by Halozyme

Total purchase consideration

(a) Consideration for Antares equity compensation awards consists of $ 32.2 million paid for vested equity awards as well as $ 13.6 million paid for the pre-combination portion of unvested equity awards that were accelerated as part of the Merger Agreement.

The fair value of the unvested equity awards attributable to the post-combination period of $ 8.7 million is included in our consolidated statements of income in twelve months ended December 31, 2022.

Fair Value of Assets Acquired and Liabilities Assumed

The acquisition of Antares has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with Halozyme treated as the accounting acquirer, which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair value on the acquisition date.

Acquisition accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement.

The process for estimating the fair values of identifiable intangible assets and certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.

The table below presents the preliminary estimated fair values of assets acquired and liabilities assumed on the acquisition date based on valuations and management estimates.

Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions.

The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

We are still finalizing the allocation of the purchase price, therefore, the fair value estimates assigned to intangible assets, goodwill and the related tax impacts of the acquisition, among other items, are subject to change as additional information is received to complete our analysis and certain tax returns are finalized.

As a result, the preliminary estimates may be revised during the measurement period.

These differences could change the value of the intangible assets acquired, the contingent liability assumed, and the tax impacts related to the acquisition and could have a material impact on our results of operations and financial position.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Amounts (in thousands)

Amounts recognized as of Acquisition date (as initially reported) Measurement period adjustment Amounts recognized as of Acquisition date (as adjusted )

Total purchase consideration, net of $ 46,548 cash acquired

$ 999,120 $ — $ 999,120

Short-term investments 498 — 498

Accounts receivable, net 82,160 — 82,160

Inventories, net 34,379 ( 6,311 ) 28,068

Prepaid expenses and other assets 5,241 — 5,241

Property and equipment, net 28,661 — 28,661

Intangibles, net 987,500 ( 397,700 ) 589,800

Accounts Payable 7,197 — 7,197

Accrued expenses 33,705 7,949 41,654

Deferred revenue, current portion 2,509 — 2,509

Deferred revenue, net of current portion 1,207 — 1,207

Deferred tax liabilities, net 159,094 ( 88,092 ) 71,002

Other long-term liabilities 135,088 ( 114,300 ) 20,788

Net assets acquired, excluding goodwill $ 799,639 $ ( 209,568 ) $ 590,071

Goodwill $ 199,481 $ 209,568 $ 409,049

Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined company and assembled workforce.

Goodwill will be allocated entirely to the single reportable unit.

Goodwill recognized as a result of the acquisition is not deductible for tax purposes.

A contingent liability with a preliminary value of $ 130.0 million was assumed related to TLANDO.

We assumed an obligation to pay development milestone payments as well as commercial milestone payments and minimum tiered royalty payments based on TLANDO net sales which are contingent upon future events.

The acquisition date 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 recorded measurement period adjustments in fourth quarter of 2022 to decrease intangible assets as a result of revised future cash flow estimates from the initial purchase price allocation and adjustments to accrued expenses.

These measurement period adjustments were made to reflect facts and circumstances that existed as of the acquisition date.

We also recorded a measurement period adjustment in the fourth quarter of 2022 to reduce the acquisition-date fair value of contingent liability by $ 114.3 million as a result of revised future cash flow estimates.

The measurement period adjustment has been recorded to reflect facts and circumstances that existed as of the acquisition date.

Identifiable Intangible Assets

The estimated fair values of identifiable intangible assets were prepared using the excess earnings method which calculates the present value of the incremental after-tax cash flows attributable solely to each intangible asset.

The estimated useful lives are based on forecasted periods of benefit for each intangible asset which consider commercialization dates, the estimated revenue cycle based on the products’ competitiveness in the market, and the loss of exclusivity timing with subsequent trending down of revenue.

For the ATRS-1902 IPR&D, the useful life is considered indefinite as the asset has not been placed into service.

As such, the ATRS-1902 IPR&D will be tested annually for impairment and will not be amortized.

Useful lives and preliminary values are presented in the table below.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Amount (in thousands) Useful life (years)

Auto-Injector technology platform $ 402,000 7

XYOSTED proprietary product 136,200 10

TLANDO product rights 2,900 10

ATRS-1902 (IPR&D) 48,700 Indefinite

Estimated fair value of intangible assets acquired $ 589,800

Unaudited Pro Forma Results

Our consolidated financial statements include Antares’ results of operations from the date of acquisition on May 24, 2022 through December 31, 2022.

Total revenues and net loss after taxes attributable to Antares during this period and included in our consolidated financial statements for the twelve months ended December 31, 2022 total $ 112.7 million and $ 67.6 million, respectively.

The following unaudited pro forma financial information summarizes combined results of operations of Halozyme and Antares as if the companies had been combined as of the beginning of our fiscal year 2021.

Twelve Months Ended

Total Revenues $ 712,683 $ 627,292

Net income $ 218,723 $ 295,634

The unaudited pro forma financial information for all periods presented includes the business combination accounting effects resulting from this acquisition.

The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on preliminary valuations of assets as well as certain material non-recurring transaction adjustments related to the acquisition.

Adjustments to interest expense, financing costs and investment income were made to reflect the capital structure of the combined entity.

Adjustments to income tax expense also were made to reflect the anticipated effective tax rate of the combined entity.

The unaudited pro forma financial information as presented is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2021, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, cost savings from operating efficiencies, potential synergies, and the impact of incremental costs incurred in integrating the businesses.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Fair Value Measurement

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Treasury securities 111,469 — ( 934 ) 110,535

Non-US Government securities 17,232 — ( 12 ) 17,220

Agency bonds 2,783 2 ( 1 ) 2,784

Commercial paper 7,004 — — 7,004

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Treasury securities 231,230 — ( 469 ) 230,761

Government Securities 17,232 — ( 12 ) 17,220

Commercial paper 282,731 — — 282,731

$ 622,823 $ — $ ( 620 ) $ 622,203

As of December 31, 2021, 31 available-for-sale marketable securities with a fair market value of $ 344.5 million were in a gross unrealized loss position of $ 620 thousand.

As of December 31, 2022, 20 available-for-sale marketable securities with a fair market value of $ 117.2 million were in a gross unrealized loss position of $ 0.9 million.

Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of December 31, 2022, because we do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of their amortized cost basis.

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Money market funds $ 191,704 $ — $ 191,704 $ 118,707 $ — $ 118,707

Commercial paper — — — — 7,000 7,000

Available-for-sale marketable

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Non-US Government securities — — — — 17,220 17,220

Agency bonds 2,784 — 2,784

Commercial paper — 7,004 7,004 — 282,731 282,731

$ 305,023 $ 15,280 $ 320,303 $ 349,468 $ 391,442 $ 740,910

We had no instruments that were classified within Level 3 as of December 31, 2021 and 2020.

We had no available for sale securities that were classified within Level 3 as of December 31, 2022 and 2021.

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

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

Estimates and assumptions used in the Monte Carlo simulation 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.

These unobservable inputs represent a Level 3 measurement because they are supported by little or no market activity and reflect our own assumptions in measuring fair value.

Changes in the fair value subsequent to the acquisition date is recognized in our consolidated statements of income.

Halozyme Therapeutics, Inc.

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Sales of bulk rHuPH20 82,084 80,960 38,956

Sales of Hylenex 23,263 17,031 16,995

Sale of proprietary products 72,849 23,264 17,031

Sale of Device Partnered Products 36,097 — —

Total product sales, net $ 191,030 $ 104,224 $ 55,987

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Sales-based milestones 10,000 50,000 15,000

Research and development services 1,186 1,247 1,545

Device Licensing and development revenue 9,611 1,186 1,247

Total revenues under collaborative agreements $ 108,611 $ 135,186 $ 123,011

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During the year ended December 31, 2022 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of $ 429.5 million.

This amount represents royalties and sales milestones earned in the current period, as well as $ 37.0 million of variable consideration in the contracts where uncertainties have been resolved and the development milestones are probable of being achieved or were achieved.

This amount represents royalties and sales milestone earned in the current period, as well as $ 59.0 million of variable consideration in the contracts where uncertainties have been resolved and the development milestones are probable of being achieved or were achieved.

We also recognized revenue of $ 2.0 million during the year ended December 31, 2022 that had been included in deferred revenues at December 31, 2021.

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

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

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

December 31, 2022 December 31, 2021

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Of the total deferred revenues of $ 5.5 million, $ 3.2 million is expected to be used by our customers within the next 12 months.

There were no contract assets related to collaborative agreements at December 31, 2021.

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

We recognized contract assets of $ 44.1 million as of December 31, 2022, which related to development milestones deemed probable of receipt for intellectual property licenses granted to partners in prior periods and for goods or services when control has transferred to the customer, and corresponding revenue is recognized on an over time basis but is not yet billable to the customer in accordance with the terms of the contract.

Halozyme Therapeutics, Inc.

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Certain Balance Sheet Items

Accounts receivable, net consisted of the following (in thousands):

Accounts receivable consisted of the following (in thousands):

2022 December 31,

Accounts receivable from product sales to collaborators $ 18,504 $ 25,198

Accounts receivable from product sales to partners $ 62,979 $ 18,504

Accounts receivable from revenues under collaborative agreements 18,776 5,422

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Accounts receivable from other product sales 6,229 4,634

Other contract assets — 7,000

Contract assets 44,102 —

Subtotal $ 232,986 $ 92,115

Allowance for distribution fees and discounts ( 1,914 ) ( 1,140 )

Total accounts receivable, net $ 90,975 $ 97,730

Total accounts receivable $ 231,072 $ 90,975

Inventories consisted of the following (in thousands):

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Accrued outsourced manufacturing expenses 12,190 6,514

Income taxes payable — 1,439

Product returns and sales allowance 30,261 706

Other accrued expenses 29,771 3,648

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Notes to Consolidated Financial Statements — (Continued)

Goodwill and Intangible Assets

On May 24, 2022, we acquired all outstanding equity interests of Antares.

A Goodwill balance of $ 409.0 million was recognized for the excess of the consideration transferred over the net assets acquired and represents the expected revenue and cost synergies of the combined company and assembled workforce.

A summary of the activity impacting goodwill is presented below (in thousands):

Balance as of December 31, 2021 $ —

Goodwill acquired 409,049

Balance as of December 31, 2022

Intangible Assets

Our acquired intangible assets are amortized using the straight-line method over their estimated useful lives of seven to ten years .

The following table shows the cost, accumulated amortization and weighted average remaining life in years for our acquired intangible assets as of December 31, 2022 (in thousands).

Weighted average remaining life (in years) Gross Carrying Value Accumulated Amortization Net Carrying Value

Auto-Injector technology platform 7 $ 402,000 $ 34,735 $ 367,265

XYOSTED proprietary product 10 136,200 8,238 127,962

TLANDO product rights 10 2,900 175 2,725

Total definite-lived intangibles, net $ 541,100 $ 43,148 $ 497,952

ATRS-1902 (IPR&D) Indefinite 48,700

Total Intangibles, net $ 546,652

The estimated future annual amortization of finite-lived intangible assets is shown in the following table.

Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures, and asset impairments, among other factors.

Amortization (in thousands)

2023 $ 71,339

Thereafter 141,257

Total $ 497,952

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Long-Term Debt, Net

1.00 % Convertible Notes due 2028

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”).

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.

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

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

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

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

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

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

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

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

(4) if we call such notes for redemption;

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

As of 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.

As of December 31, 2022, we were in compliance with all covenants and there was no material adverse change in our business, operations or financial condition.

Capped Call Transactions

In connection with the offering of the 2028 Convertible Notes, we entered into capped call transactions with certain counterparties (the “Capped Call Transactions”).

The Capped Call Transactions are expected generally to reduce potential dilution to holders of our common stock upon conversion of the 2028 Convertible Notes or at our election (subject to certain conditions) offset any cash payments we are required to make in excess of the principal amount of such converted 2028 Convertible Notes.

The cap price of the Capped Call Transactions is initially $ 75.4075 per share of common stock, representing a premium of 75 % above the last reported sale price of $ 43.09 per share of common stock on August 15, 2022, and is subject to certain adjustments under the terms of the Capped Call Transactions.

As of December 31, 2022, no capped calls have been exercised.

Pursuant to their terms, the capped calls qualify for classification within stockholders’ equity in the condensed consolidated balance sheets, and their fair value is not remeasured and adjusted as long as they continue to qualify for stockholders’ equity classification.

We paid approximately $ 69.1 million for the Capped Calls, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital in the Condensed Consolidated Balance Sheets.

The Capped Call Transactions are separate transactions entered into by us with the capped call Counterparties, are not part of the terms of the Convertible Notes, and do not affect any holder’s rights under the Convertible Notes.

Holders of the Convertible Notes do not have any rights with respect to the Capped Call Transactions.

0.25 % Convertible Notes due 2027

The net proceeds in connection with the issuance of the 2027 Convertible Notes, after deducting the initial purchasers’ fee of

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

$ 20.1 million, was approximately $ 784.9 million.

We also incurred additional debt issuance costs totaling $ 0.4 million.

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

The 2027 Convertible Notes pay interest semi-annually in arrears on March 1st and September 1st of each year at an annual rate of 0.25 %.

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The 2024 Convertible Notes have a maturity date of December 1, 2024.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Holders may convert their 2024 Convertible Notes at their option only in the following circumstances:

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As of December 31, 2022, the 2024 Convertible Notes are convertible and are classified as a current liability

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

In January 2021 we notified the note holders of our irrevocable election to settle the principal of the 2024 Convertible Notes in cash and for the premium, if applicable, to deliver shares of common stock.

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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.

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.

As of December 31, 2022, we were in compliance with all covenants and there was no material adverse change in our business, operations or financial condition.

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.

Borrowings under the 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 the our consolidated net leverage ratio.

As of December 31, 2021, the revolving credit facility was undrawn.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

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.

Net Carrying Amounts of the Convertible Notes

The carrying amount and fair value of our Convertible Notes were as follows as of the dates indicated.

As disclosed in Note 2, we early adopted ASU 2020-06 as of January 1, 2021 on a modified retrospective basis which adoption is reflected in the following table (in thousands).

2021 January 1,

The carrying amount and fair value of our Convertible Notes were as follows as of the dates indicated (amount in thousands).

2022 December 31,

Principal amount:

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2027 Convertible Notes 805,000 805,000

2028 Convertible Notes 720,000 —

Total Principal Amount $ 1,538,483 $ 895,936

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2027 Convertible Notes ( 14,359 ) ( 17,745 )

2028 Convertible Notes ( 17,875 ) —

Total unamortized debt discount $ ( 32,383 ) $ ( 19,262 )

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2027 Convertible Notes 790,641 787,255

2028 Convertible Notes 702,125 —

Total carrying amount $ 1,506,100 $ 876,674

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2027 Convertible Notes 784,770 718,889

2028 Convertible Notes 849,823 —

Total fair value of outstanding notes $ 1,666,769 $ 878,567

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2024 Convertible Notes 1.9 2.9

2027 Convertible Notes 4.2 5.2

2028 Convertible Notes 5.6 n/a

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2027 Convertible Notes 2,013 1,677

2028 Convertible Notes 2,660 —

Total Coupon Interest $ 5,444 $ 3,583

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2027 Convertible Notes 3,386 2,804

2028 Convertible Notes 1,124 —

Total amortization of debt discount $ 4,867 $ 3,642

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2027 Convertible Notes 5,399 4,481

2028 Convertible Notes 3,784 —

Total interest expense $ 10,311 $ 7,225

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2024 Convertible Notes 1.8 % 1.8 %

2027 Convertible Notes 0.7 % 0.7 %

2028 Convertible Notes 1.5 % n/a

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, which was subsequently amended, 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”).

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, repay 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.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

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

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

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

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

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

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, increased 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, we repaid the entire outstanding Term Loan Facility and repaid all outstanding loans under the Revolving Credit Facility under the 2022 Credit Agreement.

As of December 31, 2022, the Revolving Credit Facility was undrawn.

We incurred a total of $ 3.6 million in third-party costs related to the 2022 Credit Agreement which is recorded as debt issuance cost within prepaid expenses and other assets in the condensed consolidated balance sheets.

As of December 31, 2022, the unamortized debt issuance cost related to the revolving credit facility was $ 3.1 million.

Future maturities and interest payments of long-term debt as of December 31, 2022, are as follows (in thousands):

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At December 31, 2022, 6,550,075 shares were subject to outstanding awards and 14,764,481 shares were available for future grants of share-based awards.

Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):

Total share-based compensation expense related to share-based awards excluding the acceleration of Antares equity awards was comprised of the following (in thousands):

Year Ended December 31,

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Offering periods shall commence on or about the sixteenth day of June and December of each year and end on or about the fifteenth day of the next December and June respectively, occurring thereafter.

During the three months ended December 31, 2021, 17,773 shares were issued pursuant to the ESPP.

During the twelve months ended December 31, 2022, 32,124 shares were issued pursuant to the ESPP.

Halozyme Therapeutics, Inc.

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Outstanding at December 31, 2021

4,965,374 $ 20.76

Granted 1,773,912 $ 37.25

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Outstanding at December 31, 2022

5,368,225 $ 24.99 6.48 $ 171.3

Vested and expected to vest at December 31, 2022

5,368,225 $ 24.99 6.48 $ 171.3

Exercisable at December 31, 2022

3,176,691 $ 17.22 4.92 $ 126.0

The weighted average grant date fair values of options granted during the years ended December 31, 2022, 2021 and 2020 were $ 14.22 per share, $ 18.21 per share and $ 20.74 per share, respectively.

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Notes to Consolidated Financial Statements — (Continued)

Restricted Stock Awards .

RSAs are grants that entitle the holder to acquire shares of our common stock at zero cost.

The shares covered by a RSA cannot be sold, pledged, or otherwise disposed of until the award vests and any unvested shares may be reacquired by us for the original purchase price following the awardee’s termination of service.

The RSAs will generally vest at the rate of one-fourth of the shares on each anniversary of the date of grant.

Annual grants of RSAs to the Board of Directors typically vest in approximately one year .

The following table summarizes our RSA activity during the year ended December 31, 2021:

Shares Weighted

Unvested at December 31, 2020 61,803 $ 22.66

Granted — $ 0.00

Vested ( 61,803 ) $ 22.66

Forfeited — $ 0.00

Unvested at December 31, 2021 — $ 0.00

The estimated fair value of the RSAs was based on the closing market value of our common stock on the date of grant.

The total grant date fair value of RSAs vested during the years ended December 31, 2021, 2020 and 2019 was approximately $ 1.4 million, $ 2.4 million and $ 3.3 million, respectively.

The fair value of RSAs vested during the years ended December 31, 2021, 2020 and 2019, was approximately $ 3.1 million, $ 4.3 million and $ 4.2 million, respectively.

Restricted Stock Units .

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Outstanding at December 31, 2021

858,742 $ 29.54

Granted 706,096 $ 39.18

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Outstanding at December 31, 2022

1,039,381 $ 35.76 1.25 $ 59.1

The estimated fair value of the RSUs was based on the closing market value of our common stock on the date of grant.

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The fair value of RSUs vested during the years ended December 31, 2022, 2021 and 2020 was approximately $ 11.3 million, $ 19.0 million and $ 14.0 million, respectively.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Performance Stock Units .

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Outstanding at December 31, 2021

69,382 $ 40.66

Granted 129,773 $ 41.42

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Outstanding at December 31, 2022

142,844 $ 46.01

The estimated fair value of the PSUs was based on the closing market value of our common stock on the date of grant.

The fair value of PSUs vested during the years ended December 31, 2021 and 2020 was $ 0.1 million and zero , respectively.

The fair value of PSUs vested during the years ended December 31, 2022 and 2021 was $ 0.2 million and $ 0.1 million, respectively.

Stockholders’ Equity

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Also in December 2021, as part of the second capital return program, we entered into an ASR agreement to repurchase $ 150.0 million of common stock.

At inception pursuant to the agreement, we paid $ 150.0 million to Bank of America and took initial delivery of 3.5 million shares.

We retired the repurchased shares and they resumed the status of authorized and unissued shares.

At inception pursuant to the agreement, we paid $ 150.0 million and took initial delivery of 3.5 million shares.

In June 2022, we finalized the transaction and received an additional 0.4 million shares.

In August 2022, concurrent with the sale of 2028 Convertible Notes and the 2022 Induced Conversion, we repurchased 2.1 million shares of common stock in open market purchases for $ 90.2 million.

Also, in August 2022, we entered into an ASR agreement to repurchase $ 109.8 million of our common stock.

At inception, pursuant to the agreement, we paid $ 109.8 million and took an initial delivery of 2.0 million shares.

In December 2022, we finalized the transaction and received an additional 0.4 million shares.

We retired the repurchased shares and they resumed their status of authorized and unissued shares.

We had the following activity under the approved share repurchase programs (dollars in thousands, except share and per share data)

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First quarter — $ 0.00 $ 0

1,775,945 $ 42.89 $ 76,179

Second quarter — $ 0.00 $ 0

Third quarter (2)

Fourth quarter 273,210 $ 37.75 $ 10,320

4,500,216 $ 44.44 $ 200,000

Accelerated share repurchase (3)

Fourth quarter — $ 0.00 $ 0

4,500,216 $ 44.44 $ 200,000

(1) Included in the total cost of shares purchased is a commission fee of $ 0.02 per share.

(2) This includes the 0.5 million shares delivered in April upon completion of the ASR.

(3) Purchased under the share repurchase program authorized in December 2021 through an ASR agreement to repurchase $ 150.0 million of common stock.

In December 2021 we took initial delivery of 3.5 million shares.

The final shares will be delivered on or before June 14, 2022.

Net Income (loss) per share

(2) Included is 0.4 million shares delivered in December 2022 upon completion of the ASR.

Net Income per share

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

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20.7 13.8 18.6

The anti-dilutive securities include outstanding stock options, unvested RSAs, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and Convertible Notes.

The anti-dilutive securities include outstanding stock options, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and Convertible Notes.

Halozyme Therapeutics, Inc.

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Operating Leases

Our properties consist of leased office, laboratory, warehouse and manufacturing facilities.

Our administrative offices and research facilities are located in San Diego, California.

We lease an aggregate of approximately 50,000 square feet of office and research space in two buildings.

The leases commenced in June 2011, November 2013 and June 2018 and continue through January 2023.

The leases are subject to approximately 3.0 % annual increases throughout the terms of the leases.

In addition, we have an office in Ewing, New Jersey.

We also lease a building in Minnetonka, Minnesota consisting of office, laboratory, manufacturing and warehousing space.

We lease an aggregate of approximately 194,000 square feet of space.

In March 2022, we entered into an agreement for assignment and assumption of 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 which commenced on December 1, 2022.

We also pay a pro rata share of operating costs, insurance costs, utilities and real property taxes.

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Approximate annual future minimum operating lease payments as of December 31, 2022 are as follows (in thousands):

Thereafter 17,133

Total minimum lease payments $ 47,015

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The weighted-average remaining lease term of our operating leases is approximately 7.64 years.

Other Commitments

We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc.

(“Avid”) and Catalent Indiana LLC (formerly Cook Pharmica LLC) (“Catalent”) to produce supplies of bulk rHuPH20.

Under the terms of the agreements, we are committed to certain minimum annual purchases of bulk rHuPH20.

At December 31, 2021, we had a $ 79.9 million minimum purchase obligation in connection with these agreements.

In June 2011, we entered into a services agreement with Patheon for the technology transfer and manufacture of Hylenex recombinant.

At December 31, 2021, we had a $ 4.3 million minimum purchase obligation in connection with this agreement.

Legal Contingencies

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Foreign — 447 ( 1,125 )

Net income (loss) before income taxes $ 248,518 $ 129,302 $ ( 72,251 )

Net income before income taxes $ 248,918 $ 248,518 $ 129,302

Significant components of our net deferred tax assets/(liabilities) were as follows (in thousands).

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ASC 842 lease liability 2,480 600

Capitalized research expense 10,168 —

Transaction related expense 2,354 —

Inventory related reserves 18,395 —

Interest expense limitation — —

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Deferred tax liabilities:

Non-deductible book amortization ( 115,578 )

Depreciation ( 2,559 ) ( 1,185 )

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In 2021, we have demonstrated profitability and cumulative pretax income and are forecasting income growth.

After assessing both the positive and negative evidence, we determined that it was more likely than not that our DTAs would be realized and released the valuation allowance related to federal and state DTAs resulting in a net benefit from income taxes of $ 154.2 million.

We will continue to evaluate the need for valuation allowance for our DTAs.

After assessing both the positive and negative evidence, we determined that it was more likely than not that our DTAs would be realized and released the valuation allowance in 2021.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

On May 24, 2022, we acquired the outstanding shares of Antares Pharma Inc.

This transaction was treated as a non-taxable acquisition, we have increased our deferred tax liabilities by approximately $ 119.7 million related to acquired intellectual property and a step-up to the value of inventory the amortization of which will not be tax deductible.

Income tax (benefit) expense was comprised of the following components (in thousands):

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$ 46,789 $ ( 154,192 ) $ 217

The provision for income taxes on earnings subject to income taxes differs from the statutory federal income tax rate due to the following (in thousands):

The provision for income taxes on earnings subject to income taxes differs from the statutory federal income tax rate due to the following:

Year Ended December 31,

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Foreign-derived intangible income ( 5.06 ) % ( 1.18 ) % — %

Research and development credits, net — — ( 1,091 )

Orphan drug credits, net of federal add back — — ( 5,718 )

Convertible note discount in APIC — — 13,776

Transaction costs 0.88 % — % — %

18.80 % ( 62.05 ) % 0.17 %

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For the years ended December 31, 2022, 2021 and 2020, we recognized an immaterial amount of interest and penalties.

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

The following table summarizes the activity related to our unrecognized tax benefits (in thousands):

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Decreases in tax positions for prior years and lapse in statue of limitations ( 1,148 ) ( 1,496 ) ( 2,357 )

Increases in tax positions related to business acquisition 2,151 — —

Increases in tax positions for current year 787 — —

Gross unrecognized tax benefits at end of period $ 19,482 $ 17,692 $ 19,167

Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

At December 31, 2022, we had federal, California and other state tax net operating loss carryforwards of approximately $ 31.2 million, $ 237.4 million and $ 63.4 million, respectively.

The following table shows key expiration dates of the federal and California net operating loss carryforwards (in thousands):

Net Operating Loss 2021 2022 and beyond 2028 and beyond

Federal $ 116,534 $ — $ — $ 116,534

California $ 235,061 $ — $ — $ 235,061

At December 31, 2021, we had federal and California research and development tax credit carryforwards of approximately $ 24.2 million and $ 17.0 million, respectively.

The California and Minnesota net operating loss carryforwards begin to expire in 2028 and 2022, respectively.

As a result of the acquisition of Antares, we acquired federal and Minnesota research and development credits of approximately $ 7.4 million and $ 0.72 million, respectively.

We expect to be able to fully utilize these attributes without limitation.

At December 31, 2022, we had federal, California and Minnesota research and development tax credit carryforwards of approximately $ 30.8 million, $ 17.0 million and $ 0.7 million, respectively.

The federal research and development tax credits will begin to expire in 2030 unless previously utilized.

The California research and development tax credits will carryforward indefinitely until utilized.

The Minnesota research and development credit will begin to expire in 2023 unless previously utilized.

Additionally, we had Orphan Drug Credit carryforwards of $ 70.0 million which will begin to expire in 2034.

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Halozyme Therapeutics, Inc.

Notes to Consolidated Financial Statements — (Continued)

Halozyme Therapeutics, Inc.

Valuation and Qualifying Accounts

(in thousands)

Balance at Beginning of Period Additions Deductions Balance at End of Period

Balance at Beginning of Period Acquired Additions Deductions Balance at End of Period

For the year ended December 31, 2022

8 unchanged sentences

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(1) Allowances are for chargebacks, prompt payment discounts and distribution fees related to Hylenex recombinant product sales.

(1) Allowances are for chargebacks, prompt payment discounts and distribution fees related to proprietary product sales.

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 9A. Controls and Procedures