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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-21 · 160 added, 173 removed, 170 unchanged (66% of the section changed)

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In addition to historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties.

Actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the Part I, Item 1A, Risks Factors, and elsewhere in this Annual Report.

References to “Notes” are Notes included in our Notes to Consolidated Financial Statements.

Halozyme Therapeutics, Inc.

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

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

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

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

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

is a biopharmaceutical company advancing disruptive solutions to improve patient experiences and outcomes for emerging and established therapies.

As the innovators of ENHANZE ® drug delivery technology (“ENHANZE”) with our proprietary enzyme, rHuPH20, our commercially validated solution is used to facilitate the subcutaneous (“SC”) delivery of injected drugs and fluids with the goal of reducing the treatment burden for patients.

We license our technology to biopharmaceutical companies to collaboratively develop products that combine ENHANZE ® with our partners’ proprietary compounds.

We also develop, manufacture and commercialize, for ourselves or with our partners, drug-device combination products using our advanced auto-injector technologies that are designed to provide commercial or functional advantages such as improved convenience, reliability and tolerability, and enhanced patient comfort and adherence.

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

rHuPH20 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 .

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(“Janssen”), AbbVie, Inc.

(“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”).

(“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol Myers Squibb Company (“BMS”), argenx BVBA (“argenx”), ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (“ViiV”), Chugai Pharmaceutical Co., Ltd (“Chugai”) and Acumen Pharmaceuticals, Inc.

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 currently earn royalties from four of these collaborations, including royalties from sales of one product from the Takeda collaboration, four products from the Roche collaboration, one product from the Janssen collaboration and one product from the argenx collaboration .

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”).

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

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

(“Idorsia”) and Pfizer.

Our commercial portfolio of proprietary products includes Hylenex ® , utilizing rHuPH20, and our specialty product XYOSTED ® , utilizing our auto-injector technology.

Our 2023 and recent key events are as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TLANDO ® was approved by the U.S.

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

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

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

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

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

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

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

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

• In January 2024, Roche received EC marketing authorization for Tecentriq SC for all approved indications of Tecentriq IV for multiple cancer types.

• In September 2023, Chugai, a member of the Roche Group, announced that it had obtained regulatory approval for Phesgo from the MHLW in Japan.

We are entitled to receive royalties for Phesgo ® sales in Japan under our agreement with Roche.

• In September 2023, Roche informed us that there will be a delay in the projected launch timing for Tecentriq SC in the U.S.

as a result of Roche’s need to update CMC processes for Tecentriq SC.

Roche expects a potential launch of Tecentriq SC in the U.S.

• In August 2023, Roche announced the approval of Tecentriq SC with ENHANZE by the MHRA in Great Britain, resulting in an $8.0 million milestone payment to us and the right to receive royalties on net product sales.

• In July 2023, Roche announced that the Phase III OCARINA II trial evaluating ocrelizumab SC with ENHANZE as a twice a year 10-minute SC injection met its primary and secondary endpoints in patients with relapsing forms of MS, RMS or PPMS.

Subsequently, Roche filed with regulatory authorities in the EU, UK and U.S.

• In February 2024, argenx announced that the FDA had accepted for priority review a sBLA for VYVGART Hytrulo for the treatment of CIDP.

The application has been granted a PDUFA action date of June 21, 2024.

In July 2023, argenx reported positive data from the ADHERE study evaluating VYVGART Hytrulo with ENHANZE in adults with CIDP.

The study met its primary endpoint resulting in a 61% reduction in risk of relapse compared to placebo.

• In January 2024, argenx received regulatory approval in Japan for VYVDURA (efgartigimod alfa and hyaluronidase-qvfc) co-formulated with ENHANZE for the treatment of adult patients with gMG including options for self-administration, resulting in a $5.0 million milestone payment.

• In November 2023, argenx received EC approval of VYVGART SC (efgartigimod alfa and hyaluronidase-qvfc) co-formulated with ENHANZE for the treatment of gMG in adult patients who are AChR antibody positive, and in December 2023 VYVGART SC was made available to patients, resulting in $23.0 million in milestone payments.

The European approval of VYVGART SC provides the option for patient self-administration.

• In September 2023, Zai Lab limited (argenx commercial partner for China) announced the CDE of the NMPA granted Breakthrough Therapy Designation for efgartigimod alfa injection (SC injection) (efgartigimod SC) for the treatment of patients with CIDP.

The Breakthrough Therapy Designation for efgartigimod SC was supported by data from both global and Chinese patients enrolled in the ADHERE study.

• In June 2023, argenx received U.S.

FDA approval for VYVGART Hytrulo injection with ENHANZE for SC use for the treatment of gMG in adult patients who are AChR antibody positive and in July 2023 VYVGART Hytrulo was made available to patients, resulting in $33.0 million in milestone payments and the right to receive royalties on net product sales.

• In January 2024, Janssen announced submission of a sBLA to the FDA seeking approval of a new indication for DARZALEX FASPRO in combination with D-VRd for induction and consolidation treatment and with D-R for maintenance treatment of adult patients who are NDMM and are eligible for ASCT.

• In August 2023, ViiV initiated a Phase 2b study to evaluate the efficacy, safety, PK and tolerability of VH3810109 (N6LS) administered subcutaneously with ENHANZE in combination with cabotegravir.

• In August 2023, ViiV achieved a development milestone resulting in a $5.0 million milestone payment to us.

• In February 2024, Takeda submitted a New Drug Application in Japan seeking approval for TAK-771, subcutaneous 10% human immunoglobulin with ENHANZE, for treatment of primary immunodeficiency.

• In January 2024, Takeda received FDA and EC approval for HYQVIA for the treatment of CIDP as maintenance therapy to prevent the relapse of neuromuscular disability and impairment in adults.

• In October 2023, Takeda initiated a Phase 2/3 study to evaluate PK, safety, and tolerability of subcutaneous administration of TAK-881 in adult and pediatric participants with PIDD.

• In April 2023, Takeda announced that the U.S.

FDA approved a sBLA to expand the use of HYQVIA to treat primary immunodeficiency in children.

• In October 2023, BMS reported positive topline results from the Phase 3 CheckMate-67T trial evaluating a SC formulation of Opdivo (nivolumab) with ENHANZE in patients with ccRCC who have received prior systemic therapy.

The study met its co-primary PK endpoints and a key secondary endpoint.

• In March 2023, BMS initiated a Phase 3 trial to demonstrate the drug exposure levels of nivolumab and relatlimab fixed-dose combination with ENHANZE is not inferior to IV administration in participants with previously untreated metastatic or unresectable melanoma (RELATIVITY-127).

• In November 2023, we and Acumen entered into a global collaboration and non-exclusive license agreement that provides Acumen access to ENHANZE for a single target.

Acumen intends to explore the potential use of ENHANZE for ACU193, Acumen’s clinical stage monoclonal antibody candidate to target Amyloid-β Oligomers for treatment of early Alzheimer’s disease.

• In November 2023, Teva announced FDA approval of the generic version of Forteo, featuring our multi-dose auto-injector pen platform for the treatment of osteoporosis among certain women and men.

• In February 2024, we announced our third capital return program to repurchase up to $750.0 million of our outstanding common stock.

• During 2023, we repurchased 4.2 million shares of common stock in open market transactions for $150.0 million at an average price per share of $36.01.

In November 2023, we accelerated the initiation of our planned 2024 share repurchases and entered into an ASR agreement with Bank of America to accelerate the remaining $250.0 million of share repurchases under the $750.0 million approved capital return program.

We paid $250.0 million to Bank of America and took initial delivery of 5.5 million shares.

• In August 2023, we announced positive results of a clinical study with our high-volume auto-injector demonstrating SC administration of 10 mL of a representative biologic product co-formulated with our ENHANZE ® drug delivery technology in approximately 30 seconds.

The results were presented at the 13th annual Partnership Opportunities in Drug Delivery (“PODD”) conference in October 2023.

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

In March 2023, the outstanding amount of the 2024 Convertible Notes converted in full and we paid $13.5 million in cash and issued 288,886 shares.

Results of Operations

Comparison of Years Ended December 31, 2023 and 2022

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

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

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

Royalties – Royalties were as follows (in thousands):

Year Ended December 31,

2023 2022 Change Percentage Change

$ 447,865 $ 360,475 $ 87,390 24 %

The increase in royalties was primarily driven by continued sales uptake of DARZALEX SC by Janssen and Phesgo by Roche in all geographies and contributions from new device royalty revenue as a result of the Antares acquisition in May 2022, partially offset by slightly lower sales of Herceptin SC and MabThera SC by Roche.

We expect royalty revenue to continue to grow as a result of our 2020 and 2023 ENHANZE partner product launches, offsetting the ongoing impact from IV biosimilars on pricing of mature partner products delivered SC with ENHANZE and the expected royalty rate reduction in March of 2024 for certain sales of DARZALEX SC outside of the U.S.

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

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2023 2022 Dollar Change Percentage Change

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

Sales of proprietary products $ 130,834 $ 72,849 $ 57,985 80 %

Sales of bulk rHuPH20 115,442 82,084 33,358 41 %

Sales of device partnered products 54,578 36,097 18,481 51 %

Total product sales, net $ 300,854 $ 191,030 $ 109,824 57 %

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

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

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

The increase in product sales was primarily due to contributions from our proprietary and device partnered products as the result of the Antares acquisition in May 2022 and higher sales of bulk rHuPH20 driven by partner demand.

We expect sales of our proprietary products will grow in future years as we continue to gain market share in the TRT market.

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

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

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

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

Chugai 25,000 — 25,000 100 %

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

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

Takeda 10,000 — 10,000 100 %

ViiV — 45,000 (45,000) (100) %

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

Upfront license and target nomination fees

$ 2,000 $ 30,000 $ (28,000) (93) %

Event-based development milestones and regulatory milestones and other fees

69,000 59,000 10,000 17 %

Sales-based milestone

— 10,000 (10,000) (100) %

Device licensing and development revenue

9,534 9,611 (77) (1) %

Total revenues under collaborative agreements $ 80,534 $ 108,611 $ (28,077) (26) %

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

The decrease in revenue from license fees was primarily due to the timing of milestones driven by partner activities.

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

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

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

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

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

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

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

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

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

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

Operating expenses – Operating expenses were as follows (in thousands):

Year Ended December 31,

2023 2022 Change Percentage Change

Cost of sales $ 192,361 $ 139,304 $ 53,057 38 %

Amortization of intangibles 73,773 43,148 30,625 71 %

Research and development 76,363 66,607 9,756 15 %

Selling, general and administrative 149,182 143,526 5,656 4 %

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

The increase in cost of sales was primarily due to an increase in sales of our proprietary and device partnered products as a result of the Antares acquisition in May 2022 and higher bulk rHuPH20 sales.

Amortization of intangibles – The increase in amortization of intangibles expense was due to the recognition of a full year amortization expense during the current year for our acquired intangible assets and an impairment charge of $2.5 million to fully impair the TLANDO product rights intangible asset as a result of the license agreement termination notice provided to Lipocine in September 2023.

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

The increase in research and development expenses was primarily due to an increase in compensation expense related to the ongoing combined larger workforce from the Antares acquisition to support the device platform in regulatory, quality and manufacturing, as well as planned investments in ENHANZE, partially offset by one-time transaction costs incurred in the prior year.

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

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

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

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

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

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

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

The increase in SG&A expenses was primarily due to an increase in compensation expense related to the ongoing combined larger workforce, including the addition of commercial resources in sales and marketing for TRT products, partially offset by one-time transaction costs incurred in the prior year.

Investment and other income (expense) , net - Investment and other income (expense), net was as follows (in thousands):

Year Ended December 31,

2023 2022 Change Percentage Change

Investment and other income, net $ 16,317 $ 1,046 $ 15,271 1,460 %

Investment and other income (expense), net consists primarily of interest income on our cash, cash-equivalent and marketable securities.

The increase in investment and other income, net was primarily due to a significant increase in market interest rates as well as an increase in the average invested balance.

Interest Expense – Interest expense was as follows (in thousands):

Year Ended December 31,

2023 2022 Change Percentage Change

Interest expense $ 18,762 $ 16,947 $ 1,815 11 %

The modest increase in interest expense was primarily due to an increase in interest expense related to our 2028 Convertible Notes, partially offset by the repayment of our 2022 Term Facility and outstanding Revolving Credit Facility during the third quarter of 2022 and a reduction in interest expense related to our 2024 Convertible Notes which were converted in the first quarter of 2023.

Income Taxes – Income taxes were as follows (in thousands):

Year Ended December 31,

2023 2022 Change Percentage Change

Income tax expense

$ 66,735 $ 46,789 $ 19,946 43 %

The increase in income tax expense was primarily due to higher income before taxes recognized during the current year, partially offset by federal research and development credits.

Comparison of Years Ended December 31, 2022 and 2021

For discussion related to changes in financial condition and the results of operations for fiscal year 2021 compared to fiscal year 2020, refer to Part II - Item 7.

For discussion related to changes in financial condition and the results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021, refer to Part II - Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 21, 2023.

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As of December 31, 2023, we had cash, cash equivalents and marketable securities of $336.0 million.

We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months.

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

We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next 12 months.

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

We may raise cash through any one of the following financing vehicles:

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and/or (vi) the public offering of securities.

We may, in the future, draw on our existing line of credit, offer and sell additional equity, debt securities and warrants to purchase any of such securities, either individually or in units to raise capital to raise funds for additional working capital, capital expenditures, share repurchases, acquisitions or for other general corporate purposes.

We may, in the future, draw on our existing line of credit or offer and sell additional equity, debt securities and warrants to purchase any of such securities, either individually or in units to raise capital for additional working capital, capital expenditures, share repurchases, acquisitions or for other general corporate purposes.

Our material cash requirements include the following contractual and other obligations.

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Our long-term debt consists of convertible notes.

The aggregate principal amount of our convertible notes is $1,538.5 million, with $13.5 million classified as short term.

The aggregate principal amount of our convertible notes is $1,525.0 million.

Future interest payments associated with our convertible notes total $39.7 million, with $9.2 million payable within 12 months.

We have lease arrangements related to our office and research facilities and certain autos under non-cancelable operating leases.

We have lease arrangements related to our office and research facilities and certain vehicles under non-cancelable operating leases.

As of December 31, 2023, we have lease payment obligations of $40.7 million, with $6.6 million payable within 12 months.

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and the approximate timing of the transaction.

For obligations with cancellation provisions, the amounts disclosed here were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.

For obligations with cancellation provisions, the amounts disclosed were limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.

As of December 31, 2023, we had third-party manufacturing obligations of $107.4 million, payable within 12 months.

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

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

As of December 31, 2023, we had other purchase obligations and other commitments of $20.3 million, with $19.1 million payable within 12 months.

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• the extent to which we acquire or in-license new products, technologies or businesses and invest in development.

Year Ended December 31,

2023 2022 Change

Net cash provided by operating activities $ 388,571 $ 240,110 $ 148,461

Net cash used in investing activities (96,909) (487,005) 390,096

Net cash (used in) provided by financing activities (407,987) 362,371 (770,358)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (116,325) $ 115,476 $ (231,801)

Operating Activities

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

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

The increase in net cash provided by operations was primarily due to an increase in revenue and a decrease in working capital spend.

Investing Activities

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

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

The decrease in net cash used in investing activities was primarily due to the acquisition of Antares in the prior year, partially offset by a decrease in cash from the sale and maturity of marketable securities, an increase in purchases of marketable securities as we continue to invest excess cash, a decrease in proceeds from the sale of assets, and an increase in capital spend for the purchase of manufacturing equipment and new facility improvements.

Financing Activities

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

The increase in net cash used in financing activities was primarily due to $702.0 million in cash received in the prior year from the issuance of our 2028 Convertible Notes, $202.5 million increase in the repurchase of common stock and a $6.2 million reduction in net proceeds from the issuance of common stock under equity incentive plans.

The increase was partially offset by $69.1 million cash paid for our Capped Call Transaction in the prior year, $64.0 million reduction in cash paid on the conversion of our 2024 Convertible Notes, and $7.1 million cash paid for debt issuance costs in the prior year.

Share Repurchases

In November 2019, our Board of Directors approved a $550 million share repurchase program, pursuant to which we could repurchase our issued and outstanding shares of common stock from time to time.

We completed the share repurchase program in October 2021 and retired the repurchased shares.

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

Stockholders’ Equity , within the notes to the consolidated financial statements for additional information regarding our share repurchases.

In December 2021, our Board of Directors authorized a share repurchase program to repurchase up to $750.0 million of our outstanding common stock over a three-year period.

In February 2024, our Board of Directors authorized a new capital return program to repurchase up to $750.0 million of our outstanding common stock.

Refer to Note 10, Stockholders’ Equity , of our consolidated financial statements for additional information regarding our share repurchases.

Long-Term Debt

1.00% Convertible Notes due 2028

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

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

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

(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;

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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.

As of December 31, 2023, the 2028 Convertible Notes were 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.

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0.25% Convertible Notes due 2027

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

The net proceeds in connection with the 2027 Convertible Notes, after deducting the initial purchasers’ fee of $20.1 million, was approximately $784.9 million.

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”).

The net proceeds in connection with the issuance of the 2027 Convertible Notes, after deducting the initial purchasers’ fee of $20.1 million, was approximately $784.9 million.

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

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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%.

The 2027 Convertible Notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2027 Convertible Notes, will rank equally in right of payment with all existing and future liabilities that are not so subordinated, will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries.

The 2027 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 2027 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 2027 Convertible Notes have a maturity date of March 1, 2027.

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

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

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

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

As of December 31, 2023, the 2027 Convertible Notes were not convertible.

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1.25% Convertible Notes due 2024

In November 2019, we completed the sale of $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (“2024 Convertible Notes”).

The net proceeds in connection with 2024 Convertible Notes, after deducting the initial purchases’ fee of $12.7 million, was approximately $447.3 million.

In November 2019, we completed the sale of $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (the “2024 Convertible Notes”).

The net proceeds in connection with the issuance of the 2024 Convertible Notes, after deducting the initial purchasers’ fee of $12.7 million, was approximately $447.3 million.

We also incurred debt issuance cost totaling $0.3 million.

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

The 2024 Convertible Notes pay interest semi-annually in arrears on June 1st and December 1st of each year, beginning on June 1, 2020, at an annual rate of 1.25%.

The 2024 Convertible Notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2024 Convertible Notes, will rank equally in right of payment with all existing and future liabilities that are not so subordinated, will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of the our current or future subsidiaries.

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

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

(1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, 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;

(3) upon the occurrence of certain corporate events or distributions on our common stock, as described in the offering memorandum for the 2024 Convertible Notes;

(4) if we call such notes for redemption;

and (5) at any time from, and including, June 1, 2024 until the close of business on the scheduled trading day immediately before the maturity date.

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

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.

The conversion rate for the 2024 Convertible Notes will be 41.9208 shares of common stock per $1,000 in principal amount of 2024 Convertible Notes, equivalent to a conversion price of approximately $23.85 per share of our common stock.

The conversion rate is subject to adjustment.

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

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, to deliver shares of common stock.

The conversion rate for the 2024 Convertible Notes was 41.9208 shares of common stock per $1,000 in principal amount of 2024 Convertible Notes, equivalent to a conversion price of approximately $23.85 per share of our common stock.

The conversion rate was subject to adjustment.

In March 2021, we completed a privately negotiated, induced conversion of $369.1 million principal amount of the 2024 Convertible Notes (“2021 Note Repurchases” or the “2021 Induced Conversion”).

In connection with the 2021 Induced Conversion, we paid approximately $370.2 million in cash, which includes principal and accrued interest, and issued approximately 9.08 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 2021 Induced Conversion, we recorded $21.0 million in induced conversion expense which is included in Other income (expense) of the Condensed Consolidated Statements of Operations for the twelve months ended December 31, 2022.

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 connection with the 2021 Induced Conversion, we paid approximately $370.2 million in cash, which included principal and accrued interest, and issued approximately 9.08 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 2021 Induced Conversion, we recorded $21.0 million in induced conversion expense which was included in other income (expense) of our consolidated statements of income in 2021.

The induced conversion expense represented 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.

In connection with the 2022 Induced Conversion, we paid approximately $77.6 million in cash, which included 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 was included in other income (expense) of our consolidated statements of income in 2022.

The induced conversion expense represented 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.

Holders of the notes could convert their notes at any time prior to the close of the business day prior to the redemption date.

In March 2023, holders of the notes elected to convert the 2024 Convertible Notes in full.

In connection with the conversion, we paid approximately $13.5 million in cash which included principal and accrued interest, and issued 288,886 shares of our common stock representing the intrinsic value based on the contractual conversion rate.

Revolving Credit and Term Loan Facilities (May 2022)

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

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

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 Antares 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.

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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%.

(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.

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

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

The terms of the revolving credit facility are otherwise unchanged.

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

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 were 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, 2023, the revolving credit facility was undrawn.

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The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles, or U.S.

generally accepted accounting principles (“U.S.

The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

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Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are outlined in Note 2 to the Consolidated Financial Statements included in the Form 10-K.

Our significant accounting policies are outlined in Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included in the Annual Report on Form 10-K.

We believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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We determine the fair value of our stock option awards at the date of grant using a Black-Scholes model.

We determine the fair value of our restricted stock awards at the date of grant using the closing market value of our common stock on the date of grant.

We determine the fair value of our restricted stock unit awards at the date of grant using the closing market value of our common stock on the date of grant.

We determine the grant date fair value for the PSU awards using a Monte Carlo simulation pricing model.

Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards.

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Our performance awards require management to make assumptions regarding the likelihood of achieving long-term Company goals.

We do not currently believe there is a reasonable likelihood that there will be a material change in estimates or assumptions we use to determine stock-based compensation expense.

We do not currently believe there is a reasonable likelihood that there will be a material change in estimates or assumptions we used to determine stock-based compensation expense.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in share-based compensation expense that could be material.

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A 10% change in our share-based compensation expense for the year ended December 31, 2023 would have affected pre-tax earnings by approximately $3.7 million in 2023.

Business Combinations

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

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

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

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

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

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

Contingent Liability

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

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

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

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

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

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

Goodwill and Intangibles

Methodology Judgment and Uncertainties Effect if Actual Results Differ From Assumptions

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

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

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

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

In the year of acquisition, significant estimates and assumptions are used to estimate the fair value of the intangible assets.

Subsequent to the initial recognition, we monitor these assets for impairment indicators.

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

Recent Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis