HALOZYME THERAPEUTICS, INC. 10-Q

Item 1. Financial Statements HALOZYME THERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except per share amounts) March 31, 2026 December 31, 2025 ASSETS Current assets Cash and cash equivalents $ 309,749 $ 133,820 Marketable securities, available-for-sale 8,873 9,000 Accounts receivable, net and contract assets 457,989 441,273 Inventories 155,467 176,475 Prepaid expenses and other current assets 70,958 64,639 Total current assets 1,003,036 825,207 Property and equipment, net 82,230 82,137 Prepaid expenses and other assets 50,915 53,551 Goodwill 582,323 580,360 Intangible assets, net 951,955 981,467 Restricted cash 2,260 2,601 Total assets $ 2,672,719 $ 2,525,323 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 14,098 $ 20,899 Accrued expenses 140,369 156,193 Current portion of long-term debt, net 208,743 — Total current liabilities 363,210 177,092 Long-term debt, net 1,935,896 2,142,630 Other long-term liabilities 106,448 113,863 Deferred tax liabilities, net 47,529 42,924 Total liabilities 2,453,083 2,476,509 Commitments and contingencies (Note 11) Stockholders’ equity Preferred stock - $ 0.001 par value; 20,000 shares authorized; no shares issued and outstanding — — Common stock - $ 0.001 par value; 300,000 shares authorized; 118,523 and 117,782 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively 118 118 Additional paid-in capital 27,386 12,002 Accumulated other comprehensive loss ( 12,703 ) ( 18,092 ) Retained earnings 204,835 54,786 Total stockholders’ equity 219,636 48,814 Total liabilities and stockholders’ equity $ 2,672,719 $ 2,525,323 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents HALOZYME THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended March 31, 2026 2025 Revenues Royalties $ 240,681 $ 168,192 Product sales, net 130,424 78,041 Revenues under collaborative agreements 5,603 18,628 Total revenues 376,708 264,861 Operating expenses Cost of sales 79,238 48,403 Amortization of intangibles 29,512 17,762 Research and development 25,560 14,799 Selling, general and administrative 57,881 42,362 Total operating expenses 192,191 123,326 Operating income 184,517 141,535 Other income (expense) Investment and other income, net 1,318 6,818 Interest expense ( 5,508 ) ( 4,525 ) Income before income tax expense 180,327 143,828 Income tax expense 30,278 25,733 Net income $ 150,049 $ 118,095 Earnings per share Basic $ 1.27 $ 0.96 Diluted $ 1.22 $ 0.93 Weighted average common shares outstanding Basic 118,144 123,215 Diluted 122,875 126,644 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents HALOZYME THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) Three Months Ended March 31, 2026 2025 Net income $ 150,049 $ 118,095 Other comprehensive income Unrealized (loss) gain on marketable securities, net ( 3 ) 189 Foreign currency translation adjustment 45 — Unrealized gain (loss) on derivative instruments, net 4,022 ( 7,223 ) Realized loss (gain) on derivative instruments, net 1,325 ( 208 ) Comprehensive income $ 155,438 $ 110,853 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents HALOZYME THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended March 31, 2026 2025 Operating activities Net income $ 150,049 $ 118,095 Adjustments to reconcile net income to net cash provided by operating activities: Share-based compensation 16,637 10,673 Depreciation and amortization 4,221 2,687 Amortization of intangible assets 29,512 17,762 Amortization of debt discount 2,245 1,846 Accretion of premium on marketable securities, net ( 30 ) ( 1,709 ) Lease payments recognized 214 253 Deferred income taxes 3,428 ( 2,858 ) Changes in operating assets and liabilities Accounts receivable, net and contract assets ( 19,547 ) 3,834 Inventories 27,379 ( 586 ) Prepaid expenses and other assets ( 9,108 ) ( 4,995 ) Accounts payable and accrued expenses ( 24,922 ) 9,219 Net cash provided by operating activities 180,078 154,221 Investing activities Purchases of marketable securities ( 8,846 ) ( 139,639 ) Proceeds from sales and maturities of marketable securities 9,000 50,167 Proceeds from working capital adjustments on acquisition 710 — Purchases of property and equipment ( 3,741 ) ( 950 ) Net cash used in investing activities ( 2,877 ) ( 90,422 ) Financing activities Taxes paid related to net share settlement, net of proceeds from issuance of common stock under equity incentive plans ( 1,613 ) ( 3,321 ) Net cash used in financing activities ( 1,613 ) ( 3,321 ) Net increase in cash and cash equivalents 175,588 60,478 Cash and cash equivalents at beginning of period 136,421 115,850 Cash and cash equivalents at end of period $ 312,009 $ 176,328 Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets Cash and cash equivalents $ 309,749 $ 176,328 Restricted cash 2,260 — Total cash, cash equivalents and restricted cash $ 312,009 $ 176,328 Supplemental disclosure of non-cash investing and financing activities Amounts accrued for purchases of property and equipment $ 1,747 $ 488 Right-of-use assets obtained in exchange for lease obligation $ 170 $ 95 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents HALOZYME THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (in thousands) Three Months Ended March 31, 2026 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Loss Retained Earnings Total Stockholders’ Equity Shares Amount BALANCE AS OF DECEMBER 31, 2025 117,782 $ 118 $ 12,002 $ ( 18,092 ) $ 54,786 $ 48,814 Share-based compensation expense — — 16,997 — — 16,997 Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock and performance stock units, net 741 — ( 1,613 ) — — ( 1,613 ) Other comprehensive income — — — 5,389 — 5,389 Net income — — — — 150,049 150,049 BALANCE AS OF MARCH 31, 2026 118,523 $ 118 $ 27,386 $ ( 12,703 ) $ 204,835 $ 219,636 Three Months Ended March 31, 2025 Common Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Stockholders’ Equity Shares Amount BALANCE AS OF DECEMBER 31, 2024 123,138 $ 123 $ — $ 3,829 $ 359,869 $ 363,821 Share-based compensation expense — — 10,673 — — 10,673 Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock and performance stock units, net 484 — ( 3,321 ) — — ( 3,321 ) Repurchase of common stock ( 452 ) — 244 — 244 Other comprehensive loss — — — ( 7,242 ) — ( 7,242 ) Net income — — — — 118,095 118,095 BALANCE AS OF MARCH 31, 2025 123,170 $ 123 $ 7,596 $ ( 3,413 ) $ 477,964 $ 482,270 See accompanying notes to condensed consolidated financial statements. 7 Table of Contents HALOZYME THERAPEUTICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Organization and Business Halozyme Therapeutics, Inc. 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 improving the patient experience with rapid SC delivery and reduced treatment burden. We license our technology to biopharmaceutical companies to collaboratively develop products that combine ENHANZE with our partners’ proprietary compounds. We are also developing partner products with Hypercon™ drug delivery technology (“Hypercon technology”) and developing Surf Bio’s drug delivery technology to expand the breadth of our drug delivery technology portfolio. Hypercon technology is an innovative microparticle technology that has been demonstrated in non-clinical testing to enable hyperconcentration of drugs and biologics and reduce the injection volume for the same dosage and potentially expanding opportunities for at-home and health care provider administration. The Surf Bio hyperconcentration technology has similarly been demonstrated in non-clinical studies to achieve biologic concentrations of up to 500 mg/mL, for potential delivery in a single auto-injector shot for at-home or in a health care provider’s office use. 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, 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 our ENHANZE technology to form collaborations with biopharmaceutical companies that develop and/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”), 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”), argenx BVBA (“argenx”), ViiV Healthcare (the global specialist HIV Company majority owned by GlaxoSmithKline) (“ViiV”), Chugai Pharmaceutical Co., Ltd. (“Chugai”), Acumen Pharmaceuticals, Inc. (“Acumen”), Merus N.V. (“Merus”), Skye Bioscience, Inc. (“Skye Bioscience”) and GlaxoSmithKline plc (“GSK”). 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 earn royalties from the sales of ten commercial products including sales of five commercial products from the Roche collaboration, two commercial products from the Janssen collaboration and one commercial product from each of the Takeda, argenx and BMS collaborations. Through our recent acquisition of Elektrofi, Inc. (“Elektrofi”), subsequently renamed Halozyme Hypercon, Inc. (“Hypercon”), we have Hypercon collaboration and license agreements with Janssen, Lilly, argenx, Vertex Pharmaceuticals Incorporated (“Vertex”) and Oruka Therapeutics, Inc. (“Oruka”). In addition to receiving upfront license fees from our Hypercon collaborations, we are entitled to receive event and sales-based milestone payments and royalties from commercial sales for approved partner products co-formulated with Hypercon. 8 Table of Contents We have commercialized auto-injector products with Teva Pharmaceutical Industries, Ltd. (“Teva”). We have development programs including our auto-injectors with McDermott Laboratories Limited, an affiliate of Viatris Inc. (“Viatris”). Our commercial portfolio of proprietary products includes Hylenex ® , utilizing rHuPH20, and XYOSTED ® , utilizing our auto-injector technology. Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,” “our,” and “us” in these notes to our condensed consolidated financial statements refer to Halozyme Therapeutics, Inc. and each of its directly and indirectly wholly owned subsidiaries as disclosed in Note 2, Summary of Significant Accounting Policies . 9 Table of Contents 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying interim unaudited condensed consolidated financial statements have been prepared for purposes of and in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 17, 2026. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year. The accompanying condensed consolidated financial statements include the accounts of Halozyme Therapeutics, Inc. and our wholly owned subsidiaries, Halozyme, Inc., Antares Pharma, Inc., Antares Pharma, Inc.’s two wholly-owned Swiss subsidiaries, Antares Pharma IPL AG and Antares Pharma GmbH, Halozyme Hypercon, Inc., Halozyme Hypercon, Inc.’s wholly-owned subsidiary, Elektrofi Security Corp., and Halozyme Surf Bio, Inc. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our condensed 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, which mature within 90 days or less from the date of purchase. As of March 31, 2026, 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. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from the sale of these investments to fund our operations, as necessary. Such available-for-sale investments are carried at fair value with unrealized gains and losses recorded in other comprehensive income 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 our condensed consolidated statements of income. 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 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 our condensed consolidated statements of income. Restricted Cash Under the terms of the leases of our facilities and other agreements, we are required to maintain letters of credit as security deposits during the terms of such leases. At March 31, 2026, restricted cash of $ 2.3 million was pledged as collateral for the letters of credit and other agreements. Fair Value of Financial Instruments The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. 10 Table of Contents Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses, long-term debt and contingent liabilities. Fair value estimates of these instruments are made at a specific point in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore, cannot be determined with precision. The carrying amount of cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. As of March 31, 2026, our available-for-sale marketable securities consisted of United States (“U.S.”) Treasury securities, and were measured at fair value using Level 1. 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. Accounts Receivable, net and Contract Assets Accounts receivable is recorded at the invoiced amount and is non-interest bearing. Accounts receivable is recorded net of estimated prompt pay discounts, distribution fees and chargebacks. Contract assets are recorded when revenue is earned but an invoice has not been issued for payment. Contract assets relate 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 but is not yet billable to the customer in accordance with the terms of the contract. Inventories Inventories are stated at lower of cost or net realizable value. 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. 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. Leases We have entered into operating leases primarily for real estate and automobiles. These leases have contractual terms which range from three years to twelve years . We determine if an arrangement contains a lease at inception. Right of use (“ROU”) assets and liabilities resulting from operating leases are included in property and equipment, accrued expenses and other long-term liabilities on our condensed consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the discount rate to calculate the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our leases often include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that we will exercise that option. Short-term leases with an initial term of 12 months or less are not recorded on our condensed consolidated balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain leases, such as automobiles, we account for the lease and non-lease components as a single lease component. Property and Equipment, Net Property and equipment, which includes internal-use software and leasehold improvements, are recorded at cost, less accumulated depreciation and amortization. Equipment and internal-use software are depreciated using the straight-line method over its estimated useful life ranging from three years to ten years and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter. 11 Table of Contents Impairment of Long-Lived Assets We account for long-lived assets in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate their carrying value may not be recoverable. 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. Convertible Notes The 2027 Convertible Notes, the 2028 Convertible Notes, the 2031 Convertible Notes and the 2032 Convertible Notes (collectively, the “Convertible Notes”) are accounted for in accordance with authoritative guidance for debt and derivatives. We evaluate all the embedded conversion options contained in the Convertible Notes to determine if there are embedded features that require bifurcation as a derivative as required by U.S. GAAP. Based on our analysis, we account for each of our Convertible Notes as single units of accounting, a liability, because we concluded that the conversion features do not require bifurcation as a derivative under embedded derivative authoritative guidance. Cash Flow Hedges - Currency Risks We utilize a cash flow hedging program to mitigate foreign currency exchange risk associated with forecasted royalty revenue denominated in Swiss francs. Under the program, we can hedge these forecasted royalties up to a maximum of four years into the future. We hedge these cash flow exposures to reduce the risk of our earnings and cash flows being adversely affected by fluctuations in exchange rates. In accordance with the hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and are highly effective in offsetting changes to future cash flows on hedged transactions. Both at inception of the hedge and on an ongoing basis, we assess whether the foreign currency forward contracts are highly effective in offsetting changes in cash flows of hedged items on a prospective and retrospective basis. If we determine a (i) foreign currency forward contract is not highly effective as a cash flow hedge, (ii) foreign currency forward contract has ceased to be a highly effective hedge or (iii) forecasted transaction is no longer probable of occurring, we would discontinue hedge accounting treatment prospectively. We measure effectiveness based on the change in fair value of the forward currency forward contract and the fair value of the hypothetical foreign currency forward contract with terms that match the critical terms of the risk being hedged. No portion of our foreign currency forward contracts were excluded from the assessment of hedge effectiveness. As of March 31, 2026, all hedges were determined to be highly effective. The assets or liabilities associated with our hedging contracts are recorded at fair market value in prepaid expense and other current assets, prepaid expenses and other assets, accrued expenses, or other long-term liabilities, respectively, in our condensed consolidated balance sheets. Gains and losses related to changes in the fair market value of these hedging contracts are recorded as a component of accumulated other comprehensive income (loss) (“AOCI”) within stockholder’s equity in our condensed consolidated balance sheets and reclassified to royalty revenue in our condensed consolidated statements of income in the same period as the recognition of the underlying hedged transaction. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, within the defined hedge period, we reclassify the gains or losses on the related cash flow hedge from AOCI to royalties revenue in our condensed consolidated statements of income. Settlements from the cash flow hedge are included in operating activities on the condensed consolidated statements of cash flows. Since the fair market value of these hedging contracts is derived from current market rates, the hedging contracts are classified as derivative financial instruments. We do not use derivatives for speculative or trading purposes. As of March 31, 2026, the amount expected to be recognized as a net loss out of AOCI into our condensed consolidated statements of income during the next 12 months is $ 6.2 million. 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 incurred to complete a 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 12 Table of Contents 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 our condensed consolidated statements of income. Asset Acquisitions We evaluate acquisitions of assets and other similar transactions to assess whether the transaction should be accounted for as a business combination or asset acquisition by first applying a test to determine if substantially all of the fair value of the gross assets acquired is concentrated into a single identifiable asset or group of similar identifiable assets. If the test is met, we account for the transaction as an asset acquisition by recognizing net assets based on the consideration paid, which includes transaction costs, on a relative fair value basis. In an asset acquisition where the cost allocated to acquire in-process research and development (“IPR&D”) has no alternative future use, we immediately recognize the cost of the acquired IPR&D on our condensed consolidated statements of income. In an asset acquisition, contingent consideration is not recognized as of the acquisition date but instead is recognized as part of the cost of the assets acquired at the time the consideration is paid. Goodwill, Intangible Assets and Other Long-Lived Asset Assets acquired, including intangible assets and 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. Goodwill and indefinite-lived intangible assets 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 indefinite-lived intangible assets are considered to be impaired if the carrying value of the reporting unit or indefinite-lived intangible asset exceeds its respective fair value. We perform our goodwill impairment analysis at the reporting unit level, which is one level below our reporting and operating segment structure. We assigned goodwill to reporting units at the time of acquisition. 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 unit is less than the carrying amount, 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 value of our reporting unit is less than the carrying amounts, then no additional assessment is deemed necessary. Otherwise, we proceed to compare the estimated fair value of the reporting unit with the carrying value, including goodwill. If the carrying amount of the reporting unit exceeds the fair value, 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. During the indefinite-lived intangible asset impairment review, we may elect to start by performing a qualitative assessment. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, asset-specific commercial and regulatory developments and changes to key personnel or strategy. If the qualitative assessment indicates that it is not more likely than not that the fair value of the indefinite-lived intangible asset exceeds its carrying amount, we compare the estimated fair value of the indefinite-lived intangible asset with its carrying value. Determining fair value requires the exercise of judgment about product pricing, market assumptions, discount rates, and the amount and timing of expected future cash flows. If the carrying value of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Our identifiable intangible assets with finite useful lives are typically comprised of acquired technologies, customer relationships, 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 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. 13 Table of Contents Revenue Recognition 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. To determine revenue recognition for contracts with customers, we perform the following five steps: (i) identify the promised goods or services in the contract; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations. 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 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. In general, when there are no valid claims of a specified patent developed under the collaboration covering the product in a given country, the royalty rate is reduced for those sales in that country upon the expiration of our patents covering rHuPH20. Janssen’s patents covering the SC formulation of DARZALEX (“DARZALEX SC”) do not impact the timing for this royalty reduction. 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 may 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. We also earn royalties in connection with our licenses granted under license and development arrangement with our device partner. 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 after 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, Device and Hypercon Technology 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. Targets are usually licensed on an exclusive, global basis. Targets selected subsequent to inception of the arrangement generally require payment of an additional license fee. The collaboration partner is responsible for all development, manufacturing, clinical, regulatory, sales and marketing costs for any products developed under the agreement. We are responsible for supply of bulk rHuPH20 based on the collaboration partner’s purchase orders, and may also be separately engaged to perform research and development services. 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 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 14 Table of Contents advance product development to specified stages. We earn separate fees for bulk rHuPH20 supplies and research and development services. 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 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 U.S. GAAP. 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 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). 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 project 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 prices (“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. Transaction price for a contract represents the amount to which we are entitled in exchange for providing goods and services to the customer. 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 partner’s initiation of a trial such as feedback received from the applicable regulatory authorities, completion of investigational new drug 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. These amounts are recognized in revenue when the right of exchange expires or is exercised. Because our agreements have one type of performance obligation (licenses) which are typically all transferred at the same time at agreement inception, allocation of transaction price often is not required. However, allocation is required when licenses for some of the individual targets are subject to rights of exchange, because revenue associated with these targets cannot be recognized. 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 an income-based valuation approach utilizing risk-adjusted discounted cash flow projections of the estimated return a licensor would receive where applicable, or an alternative valuation method such as indicative value from historical transactions. When amounts subject to uncertainties, such as milestones and royalties, are 15 Table of Contents 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 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 consistent 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 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 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. Hypercon Technology Collaboration and Licensing Agreements We have several collaboration and license agreements with collaboration partners who are attempting to formulate Hypercon technology with their existing drugs to develop an additional administrative option. The collaboration partner is responsible for all development, manufacturing, clinical, regulatory, sales and marketing costs for any products developed under the agreement; however, the agreement also includes Hypercon performing certain research and development (“R&D”) services to support the collaboration partner in their efforts. We assessed the nature of the promised goods and services in the contract which includes the license of the Hypercon technology representing a functional license of intellectual property to our customers, R&D services, and manufacturing technology transfer. These promises are not capable of being distinct performance obligations at this time due to the exclusive proprietary know-how and certain regulatory requirements associated with the manufacturing of the product. The collaboration partner simultaneously receives and consumes the benefits of the combined performance obligations as data is generated to support regulatory approval submissions. A significant component of the cost of R&D relates to our clinical trial research consultants, who are assisting with the monitoring of the Hypercon technology to ensure the successful combination of the Hypercon technology with the collaboration partner’s drug. The agreements include milestone payments, royalties, and an initial upfront payment. This upfront payment was received from the collaboration partner upon inception of the agreement and recorded as deferred revenue to be recognized as we perform certain R&D services to support the collaboration partner in their efforts to successfully combine Hypercon technology with previously developed products. While the services are being provided, we allocate a portion of each deferred payment to the individual drug targets. Revenue is then recognized based upon the expected costs to complete as a percentage of the budget. These agreements are designed in a way that the R&D services are being completed in partnership with the collaboration partner at the approximate costs; therefore, the deferred revenue is being recognized as the work is completed for each partner’s drug. We may incur additional expenses outside of the R&D contract which are invoiced and recognized separately from the upfront payment. Deferred revenue associated with a target that has not been identified or no work has been performed is classified as other long-term liabilities on the condensed consolidated balance sheets. Deferred revenue for expenses expected to be incurred within the next 12 months are classified as accrued expenses on the condensed consolidated balance sheets. Device License, Development and Supply Arrangements We have license, development and supply arrangements with pharmaceutical partners, 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 transfer of control has occurred include the transfer of legal title, transfer of physical 16 Table of Contents possession, the customer has obtained the significant risks and rewards of ownership of the assets, and we have a present right to payment. Our 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 of the individual performance obligations. We record a contract liability for cash received in advance of performance, which is presented as deferred revenue within accrued expense and other long-term liabilities in our condensed consolidated balance sheets and recognized as revenue in our 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 of revenue 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 Our commercial portfolio of proprietary products includes XYOSTED and Hylenex recombinant which we sell primarily to wholesale pharmaceutical distributors and specialty pharmacies, who sell the products to hospitals, retail chain drug stores and other end-user customers. Sales to wholesalers are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual packages of products represents performance obligations under each purchase order. We use contract manufacturers to produce our proprietary products and third-party logistics vendors to process and fulfill orders . We concluded we are the principal in the sales to wholesalers because we control access to services rendered by both vendors and direct their activities. We have no obligations to wholesalers to generate pull-through sales. 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. We recognize revenue from product sales and related cost of sales upon product delivery to the wholesaler location. At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership, and have an enforceable obligation to pay us. They also have the ability to direct sales of product to their customers on terms and at prices they negotiate. Although wholesalers have product return rights, we do not believe they have a significant incentive to return the product to us. The determination of certain reserves and sales allowances requires us to make a number of judgments 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 expenses and accounts receivable, net in our condensed consolidated balance sheets upon recognition of revenue from product sales. We monitor actual product returns, chargebacks, discounts and fees subsequent to the sale. If these amounts differ from our estimates, we make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment. Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when wholesalers sell our products at negotiated discounted prices to members of certain group purchasing organizations, pharmacy benefit managers and government programs. We also pay quarterly distribution fees to certain wholesalers for inventory reporting and chargeback processing, and to pharmacy benefit managers and group purchasing organizations as administrative fees for services and for access to their members. We concluded the benefits received in exchange for these fees are not distinct from our sales of our products, and accordingly we apply these amounts to reduce revenues. Wholesalers also have rights to return unsold product nearing or past the expiration date. Because of the shelf life of our products and our lengthy 17 Table of Contents return period, there may be a significant period of time between when the product is shipped and when we issue credits on returned product. We estimate the transaction price when we receive each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler arising from all of the above factors. We have compiled historical experience and data to estimate future returns and chargebacks of our products and the impact of the other discounts and fees we pay. When estimating these adjustments to the transaction price, we reduce it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known. Each purchase order contains only one type of product and is usually shipped to the wholesaler in a single shipment. Therefore, allocation of the transaction price to individual packages is not required. In connection with the orders placed by wholesalers, we incur costs such as commissions to our sales representatives. 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. Partnered Product Sales Bulk rHuPH20 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 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. Allocation of the transaction price to individual quantities of the product is usually not required because each order contains only one type of product. We recognize revenue from the sale of bulk rHuPH20 as product sales and related cost of sales upon transfer of title to our partners. 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. Devices We are party to 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. We recognize revenue from the sale of certain products, devices and/or components as product sales and related costs of sales at the point in time in which control is transferred to the customer, which is typically upon shipment of the goods to our partner. Sales terms and pricing are governed by the respective supply and distribution agreements, and there is generally no right of return. We provide a standard warranty that the product conforms to specifications. We use contract manufacturers to produce certain products, devices and/or components, and have concluded we are the principal in the sales to partners. Revenue is recognized at the transaction price, which includes the contractual per unit selling price. Allocation of the transaction price to individual quantities of the product is usually not required because each order contains only one type of product. 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. 18 Table of Contents Research and Development Expenses Research and development expenses include salaries and benefits, allocation of facilities and other overhead expenses, research related manufacturing services, contract services, and other outside expenses related to manufacturing, preclinical and regulatory activities and our partner development platforms. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to our research and development efforts and have no alternative future uses. We are obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are deferred. 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. Share-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 share-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. Share-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of share-based compensation expense as they occur. Income Taxes 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 and their respective tax basis at each reporting period. 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. Deferred tax assets (“DTA”) and other tax benefits are recorded when they are more likely than not to be realized. 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. We recorded a provision for income tax of $ 30.3 million with an effective tax rate of 16.8 % for the three months ended March 31, 2026. The difference between our effective tax rates and the U.S. federal statutory rate of 21% is primarily due to decreases from share-based compensation windfall tax benefit, Foreign Derived Deduction Eligible Income benefit, and research and development credit generation, partially offset by state income tax and Section 162(m) disallowance. Segment Information We generate revenues from payments received (i) as royalties from licensing our ENHANZE technology and other royalty arrangements, (ii) under collaborative agreements with our partners and (iii) from sales of our proprietary and partnered products. There are no intra-entity sales or transfers. We operate our business in one operating segment, which includes all activities related to the research, development and commercialization of our proprietary enzymes, devices, Hypercon technology and the Surf Bio technology. This operating segment also includes revenues and expenses related to (i) research and development and manufacturing activities conducted under our collaborative agreements with third parties, (ii) product sales of proprietary and partnered products and (iii) associated selling, general and administrative expenses. The chief operating decision-maker (“CODM”), our Chief Executive Officer, reviews the operating results on an aggregate basis and manages the operations as a single operating segment. The CODM assesses the segment’s performance and decides how to allocate resources based on consolidated net income that is reported in our condensed consolidated statements of income. The measure of segment assets is reported on the condensed consolidated balance sheets as total consolidated assets. The significant expense categories regularly provided to the CODM include cost of sales, research and development, amortization of intangibles, and selling, general and administrative expenses. These expense categories are reported as separate line items in our condensed consolidated statements of income. 19 Table of Contents Adoption and Pending Adoption of Recent Accounting Pronouncements The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted: Standard Description Effective Date Adoption Method Effect on the Financial Statements or Other Significant Matters In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The new guidance is intended to enhance expense disclosures by requiring disaggregation of certain expenses included in the consolidated statements of income into specified expense categories in the notes to the consolidated financial statements. Annual periods beginning after December 15, 2026 (our 2027 Form 10-K), and interim reporting periods beginning after December 15, 2027 (our Q1 2028 Form 10-Q) - Early adoption is permitted. Prospective or Retrospective We are currently evaluating the impact of the standard on our consolidated financial statements and related disclosures. 20 Table of Contents 3. Business Combinations Elektrofi, Inc. On November 18, 2025, we acquired all outstanding equity interests of Elektrofi, Inc. according to the terms and conditions of the Agreement and Plan of Merger dated as of September 30, 2025 (the “Elektrofi Merger Agreement”). Elektrofi is a biopharmaceutical company with an innovative microparticle technology that has been demonstrated in non-clinical testing to enable hyperconcentration of drugs and biologics and reduce the injection volume for the same dosage, potentially expanding opportunities for at-home and health care provider administration. We acquired Elektrofi as a part of our strategy to expand our drug delivery technology offerings. Hypercon technology is an innovative microparticle technology that has been demonstrated in non-clinical testing to enable hyperconcentration of drugs and biologics and reduce the injection volume for the same dosage, potentially expanding opportunities for at-home and health care provider administration. The total purchase consideration of Elektrofi was $ 810.4 million. Each share of Elektrofi common stock issued and outstanding was converted into the right to receive $ 28.80 per share in cash without interest, less any applicable withholding taxes (“Merger Consideration”). Additionally, in connection with the transaction, $ 56.5 million was paid to Elektrofi option holders for options granted and outstanding as of November 18, 2025 under the Elektrofi 2015 Equity Compensation Plan. Other components of purchase consideration included an estimated fair value of contingent consideration of $ 23.0 million related to future milestone payments, and cash paid at closing to settle seller transaction costs of $ 18.4 million paid by us on behalf of Elektrofi. The acquisition of Elektrofi was funded by cash on hand and rollover equity. We recognized transaction costs of $ 13.7 million in the year ended December 31, 2025. These costs are reported in selling, general and administrative expenses in our 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 payments to stockholders and option holders as of November 18, 2025 $ 787,392 Estimated fair value of contingent consideration 23,000 Total purchase consideration $ 810,392 Fair Value of Assets Acquired and Liabilities Assumed The acquisition of Elektrofi 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 (in thousands). 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 21 Table of Contents 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. Amounts recognized as of acquisition date (as initially reported) Measurement period adjustments (3) Amounts recognized as of March 31, 2026 (as adjusted) Assets acquired Cash and cash equivalents $ 84,427 $ 710 $ 85,137 Accounts receivable, net 4,755 ( 2,831 ) 1,924 Prepaid expenses and other current assets 879 — 879 Total current assets 90,061 ( 2,121 ) 87,940 Property and equipment, net 7,338 — 7,338 Operating lease right-of-use assets 8,441 — 8,441 Goodwill (1) 163,539 1,963 165,502 Intangible assets 705,000 — 705,000 Other assets 182 — 182 Total assets acquired $ 974,561 $ ( 158 ) $ 974,403 Liabilities assumed Accounts payable $ ( 929 ) $ — $ ( 929 ) Accrued expenses and other current liabilities ( 26,803 ) 158 ( 26,645 ) Deferred revenue, current ( 5,674 ) — ( 5,674 ) Operating lease liabilities, current ( 3,440 ) — ( 3,440 ) Other current liabilities ( 51 ) — ( 51 ) Total current liabilities ( 36,897 ) 158 ( 36,739 ) Deferred revenue, net of current portion ( 19,974 ) — ( 19,974 ) Operating lease liabilities, net of current portion ( 4,484 ) — ( 4,484 ) Other liabilities (2) ( 102,816 ) — ( 102,816 ) Total liabilities assumed $ ( 164,171 ) $ 158 $ ( 164,013 ) Net assets acquired 810,392 — 810,392 Less cash acquired ( 84,427 ) ( 710 ) ( 85,137 ) Total purchase price, net of cash acquired $ 725,965 $ ( 710 ) $ 725,255 (1) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected synergies of the combined operations and the assembled workforce acquired in the acquisition. Goodwill recognized as a result of the acquisition is not expected to be deductible for tax purposes. (2) Includes $ 102.8 million of deferred tax liabilities. (3) The measurement period adjustments have been recorded to reflect facts and circumstances that existed as of the acquisition date. 22 Table of Contents Identifiable Intangible Assets The estimated fair value of the Hypercon developed technology platform asset was prepared using the replacement cost method which calculates present-day cost of replacing that asset with a similar asset in a similar condition. The estimated fair value of customer relationship assets were prepared using the multi-period excess earnings method which calculates the present value of the incremental after-tax cash flows attributable solely to each customer relationship. The estimated fair value of the trade name asset was prepared using the relief from royalty method which calculates the value of the trade name based on royalties that would be paid if licensed by a third party. The estimated useful lives are based on forecasted periods of benefit for each intangible asset. Useful lives and preliminary values are presented in the table below. Amount (in thousands) Useful life (years) Hypercon developed technology platform $ 230,000 15 Customer relationships 470,000 15 Trade name 5,000 15 Estimated fair value of intangible assets acquired $ 705,000 Surf Bio, Inc. On December 22, 2025, we acquired all outstanding equity interests of Surf Bio, Inc. according to the terms and conditions of the Agreement and Plan of Merger dated as of December 18, 2025 (the “Surf Bio Merger Agreement”). Surf Bio is a preclinical biopharmaceutical company that is transforming how antibodies and biologics are delivered to patients. We acquired Surf Bio as a part of our strategy to expand our drug delivery technology offerings. The total purchase consideration of Surf Bio was $ 305.0 million to selling shareholders, inclusive of $ 10.2 million in transaction expenses. We acquired $ 6.4 million in cash and restricted cash, of which $ 4.3 million was used to fund seller payments and transaction expenses. An incremental $ 100.0 million in consideration is contingent to the sellers in the form of milestone payments which are dependent on the occurrence of future events. The acquisition of Surf Bio was not considered a business combination as Surf Bio did not meet the definition of a business under ASC 805-10, Business Combinations. Rather, the asset purchase transaction was accounted for under the authoritative guidance for asset acquisitions within ASC 805-50, whereby the underlying asset was deemed an IPR&D asset with no alternative future use. We allocated the cost of the acquisition, or $ 294.2 million, among the assets acquired based on the relative fair value of such assets. The $ 294.2 million consisted of $ 294.8 million in consideration paid to the sellers, plus $ 10.2 million of transaction expenses, less $ 10.8 million in accelerated stock-based compensation expense. The acquired assets’ value is predominately concentrated in the IPR&D asset. In accordance with ASC 805-50, the fair value allocated to the IPR&D asset, or $ 284.9 million, was recorded in the consolidated statements of income in the year ended December 31, 2025. The fair value of other assets acquired and liabilities assumed were capitalized to the consolidated balance sheet. The $ 100.0 million in contingent consideration will be recognized in the future when and if milestones are met (i.e., when the contingent consideration is paid or payable) and does not meet the definition of a derivative. 23 Table of Contents 4. Fair Value Measurement Available-for-sale marketable securities consisted of the following (in thousands): March 31, 2026 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. treasury securities $ 8,878 $ — $ ( 5 ) $ 8,873 Total marketable securities, available-for-sale $ 8,878 $ — $ ( 5 ) $ 8,873 December 31, 2025 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. treasury securities $ 9,002 $ — $ ( 2 ) $ 9,000 Total marketable securities, available-for-sale $ 9,002 $ — $ ( 2 ) $ 9,000 As of March 31, 2026, all available-for-sale marketable securities with a fair market value of $ 8.9 million were in an immaterial gross unrealized loss position. Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of March 31, 2026 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. The estimated fair value of our contractual maturities of available-for-sale debt securities were as follows (in thousands): March 31, 2026 December 31, 2025 Estimated Fair Value Due within one year $ 8,873 $ 9,000 Due after one year but within five years — — Total estimated fair value of available-for-sale securities $ 8,873 $ 9,000 The following table summarizes, by major security type, our cash equivalents and available-for-sale marketable securities measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands): March 31, 2026 December 31, 2025 Level 1 Level 2 Total Estimated Fair Value Level 1 Level 2 Total Estimated Fair Value Assets Cash equivalents Money market funds $ 509 $ — $ 509 $ 175 $ — $ 175 Available-for-sale marketable securities U.S. treasury securities 8,873 — 8,873 9,000 — 9,000 Derivative instruments Currency hedging contracts (1) — 740 740 — — — Total assets measured at fair value $ 9,382 $ 740 $ 10,122 $ 9,175 $ — $ 9,175 Liabilities Derivative instruments Currency hedging contracts (1) $ — $ 17,106 $ 17,106 $ — $ 22,891 $ 22,891 (1) Based on observable market transactions of spot currency rates, forward currency rates or equivalently-termed instruments. Carrying amounts of the financial assets and liabilities are equal to the fair value. As of March 31, 2026, the derivative assets recorded within prepaid expenses and other current assets and prepaid expenses and other assets in our consolidated balance sheets were $ 0.4 million and $ 0.3 million , respectively. The derivative liabilities recorded within accrued expenses and other long-term liabilities in our condensed consolidated balance 24 Table of Contents sheets were $ 6.6 million and $ 10.5 million , respectively. As of December 31, 2025, the derivative liabilities recorded within accrued expenses and other long-term liabilities in our condensed consolidated balance sheets were $ 7.7 million and $ 15.1 million , respectively. We had no available-for-sale securities that were classified within Level 3 as of March 31, 2026 and December 31, 2025. A contingent liability with a preliminary value of $ 23.0 million was assumed as part of the Elektrofi acquisition related to future milestone payments. The acquisition date fair value of contingent consideration was measured using the income approach, specifically the probability weighted expected return method for the development milestone payments. The fair value of the contingent liability will be remeasured quarterly. Estimates and assumptions used in the valuation include probability of achieving certain milestones, the expected timing of achieving these 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 will be recognized in our condensed consolidated statements of income. 25 Table of Contents 5. Revenue Our disaggregated revenues were as follows (in thousands): Three Months Ended March 31, 2026 2025 Royalties $ 240,681 $ 168,192 Product sales, net Proprietary product sales 41,873 36,341 Bulk rHuPH20 sales 73,497 27,025 Device partnered product sales 15,054 14,675 Total product sales, net 130,424 78,041 Revenues under collaborative agreements Upfront license and target nomination fees — 220 Sales-based milestones — 15,000 Device licensing and development revenue 5,603 3,408 Total revenues under collaborative agreements 5,603 18,628 Total revenues $ 376,708 $ 264,861 During the three months ended March 31, 2026, we recognized revenue related to licenses granted to partners in prior periods in the amount of $ 240.7 million. This amount represents royalties earned in the current period. We recognized $ 2.4 million revenue during the three months ended March 31, 2026 that had been included in accrued expense and other long-term liabilities in our condensed consolidated balance sheets as of December 31, 2025. Accounts receivable, net, other contract assets and deferred revenues (contract liabilities) from contracts with customers, including partners, consisted of the following (in thousands): March 31, 2026 December 31, 2025 Accounts receivable, net $ 457,989 $ 426,273 Other contract assets — 15,000 Deferred revenues 32,945 35,482 As of March 31, 2026, the amounts included in the transaction price of our contracts with customers, including collaboration partners, and allocated to goods and services not yet provided were $ 298.7 million, of which $ 265.8 million relates to unfulfilled product purchase orders and $ 32.9 million has been collected and is reported as other long-term liabilities in our condensed consolidated balance sheets. The unfulfilled product purchase orders are estimated to be delivered by the first quarter of 2028. Of the total deferred revenues of $ 32.9 million, $ 5.7 million is expected to be used by our customers within the next 12 months. There were no contract assets related to collaboration agreements as of March 31, 2026. 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. 26 Table of Contents 6. Certain Balance Sheet Items Accounts receivable, net and contract assets consisted of the following (in thousands): March 31, 2026 December 31, 2025 Product sales to partners $ 105,833 $ 69,832 Revenues under collaborative agreements 9,908 40,020 Royalty payments 298,116 259,298 Other product sales 54,388 65,117 Other receivable — 1,612 Contract assets — 15,000 Total accounts receivable and contract assets 468,245 450,879 Allowance for distribution fees and discounts ( 10,256 ) ( 9,606 ) Total accounts receivable, net and contract assets $ 457,989 $ 441,273 Inventories consisted of the following (in thousands): March 31, 2026 December 31, 2025 Raw materials $ 21,902 $ 21,869 Work-in-process 35,039 30,920 Finished goods 113,365 144,454 Total inventories 170,306 197,243 Less long-term portion (1) ( 14,839 ) ( 20,768 ) Total inventories, current $ 155,467 $ 176,475 (1) Long-term portion of inventories represents inventory expected to remain on hand beyond one year and therefore is included in prepaid expenses and other assets in the condensed consolidated balance sheets. Prepaid expenses and other assets consisted of the following (in thousands): March 31, 2026 December 31, 2025 Prepaid manufacturing expenses $ 75,285 $ 71,925 Other prepaid expenses 16,460 14,563 Long-term inventories 14,839 20,768 Other assets 15,289 10,934 Total prepaid expenses and other assets 121,873 118,190 Less long-term portion ( 50,915 ) ( 53,551 ) Total prepaid expenses and other assets, current $ 70,958 $ 64,639 Prepaid manufacturing expenses include raw materials, slot reservation fees and other amounts paid to contract manufacturing organizations. Such amounts are reclassified to work-in-process inventory as materials are used or the contract manufacturing organization services are complete. 27 Table of Contents Property and equipment, net consisted of the following (in thousands): March 31, 2026 December 31, 2025 Research equipment $ 19,195 $ 18,305 Manufacturing equipment 45,053 41,863 Computer and office equipment 8,435 8,034 Internal-use software 1,945 1,878 Leasehold improvements 7,521 7,521 Subtotal 82,149 77,601 Accumulated depreciation and amortization ( 35,215 ) ( 33,159 ) Subtotal 46,934 44,442 Right of use of assets 35,296 37,695 Total property and equipment, net $ 82,230 $ 82,137 Depreciation and amortization expense was approximately $ 4.2 million and $ 2.7 million, inclusive of ROU asset amortization of $ 2.6 million and $ 1.5 million for the three months ended March 31, 2026 and 2025, respectively. Accrued expenses consisted of the following (in thousands): March 31, 2026 December 31, 2025 Accrued compensation and payroll taxes $ 18,135 $ 28,621 Accrued outsourced manufacturing expenses 9,107 11,775 Taxes payable 48,014 44,148 Product returns and sales allowance 44,546 46,594 Other accrued expenses 94,598 104,349 Lease liability 32,417 34,569 Total accrued expenses 246,817 270,056 Less long-term portion ( 106,448 ) ( 113,863 ) Total accrued expenses, current $ 140,369 $ 156,193 Expense associated with the accretion of the lease liabilities was approximately $ 0.7 million and $ 0.5 million for the three months ended March 31, 2026 and 2025, respectively. Total lease expense for the three months ended March 31, 2026 and 2025 was $ 3.1 million and $ 2.0 million, respectively. Cash paid for amounts related to leases for the three months ended March 31, 2026 and 2025 was $ 2.9 million and $ 1.8 million, respectively. 28 Table of Contents 7. Goodwill and Intangible Assets, net Goodwill A summary of the activity impacting goodwill is presented below (in thousands): Balance as of December 31, 2025 $ 580,360 Measurement period adjustment 1,963 Balance as of March 31, 2026 $ 582,323 Intangible Assets, net Our acquired intangible assets are amortized using the straight-line method over their estimated useful lives of seven to fifteen years . The following table shows the cost, accumulated amortization and weighted average useful life in years for our acquired intangible assets as of March 31, 2026 (in thousands). Weighted Average Useful Life (in years) Gross Carrying Value Accumulated Amortization Net Carrying Value Auto-injector technology platform 7 $ 402,000 $ 221,378 $ 180,622 XYOSTED proprietary product 10 136,200 52,503 83,697 Hypercon developed technology platform 15 230,000 5,665 224,335 Customer relationships (1) 15 470,000 11,576 458,424 Trade name 15 5,000 123 4,877 Total intangible assets, net $ 1,243,200 $ 291,245 $ 951,955 (1) A partner is currently evaluating the potential return of a target. Through discussions with the partner, we expect the partner will make a decision by September 2026. If the partner does decide to return the target in the future without nominating an alternative target with similar future cash flows, we would be required to evaluate the impact to our acquired customer relationship intangibles associated with the Elektrofi acquisition, along with other identified intangibles and goodwill of the reporting unit. Such assessment could result in a material interim impairment charge to intangibles and/or goodwill, depending on the facts and circumstances. The following table shows the cost, accumulated amortization and weighted average useful life in years for our acquired intangible assets as of December 31, 2025 (in thousands). Weighted Average Useful Life (in years) Gross Carrying Value Accumulated Amortization Net Carrying Value Auto-injector technology platform 7 $ 402,000 $ 207,021 $ 194,979 XYOSTED proprietary product 10 136,200 49,098 87,102 Hypercon developed technology platform 15 230,000 1,831 228,169 Customer relationships 15 470,000 3,743 466,257 Trade name 15 5,000 40 4,960 Total intangible assets, net $ 1,243,200 $ 261,733 $ 981,467 Estimated future annual amortization of finite-lived intangible assets is shown in the following table (in thousands). 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. 29 Table of Contents Year Amortization Expense Remainder of 2026 $ 88,535 2027 118,049 2028 118,049 2029 83,314 2030 60,620 Thereafter 483,388 Total $ 951,955 30 Table of Contents 8. Long-Term Debt, Net 0.875 % Convertible Notes due 2032 In November 2025, we completed the sale of $ 750.0 million in aggregate principal amount of 0.875 % Convertible Senior Notes due 2032 (the “2032 Convertible Notes”). The net proceeds from the issuance of the 2032 Convertible Notes, after deducting the initial purchasers’ fee of $ 15.0 million, was approximately $ 735.0 million. We also incurred additional debt issuance costs totaling $ 0.5 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount. The 2032 Convertible Notes pay interest semi-annually in arrears on May 15th and November 15th of each year at an annual rate of 0.875 %. The 2032 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 2032 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 2032 Convertible Notes have a maturity date of November 15, 2032. Holders may convert their 2032 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2026, 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 indenture for the 2032 Convertible Notes; (4) if we call such notes for redemption; and (5) at any time from, and including, May 15, 2032, until the close of business on the second scheduled trading day immediately before the maturity date. As of March 31, 2026, the 2032 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. The initial conversion rate for the 2032 Convertible Notes is 11.4683 shares of common stock per $1,000 in principal amount of 2032 Convertible Notes, equivalent to a conversion price of approximately $ 87.20 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 March 31, 2026, we were in compliance with all covenants. 2032 Capped Call Transactions In connection with the offering of the 2032 Convertible Notes, we entered into capped call transactions with certain counterparties (the “2032 Capped Call Transactions”). The 2032 Capped Call Transactions are expected generally to reduce potential dilution to holders of our common stock upon conversion of the 2032 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 2032 Convertible Notes. The cap price of the 2032 Capped Call Transactions is initially $ 136.78 per share of common stock, representing a premium of 100 % above the last reported sale price of $ 68.30 per share of common stock on November 5, 2025, and is subject to certain adjustments under the terms of the 2032 Capped Call Transactions. As of March 31, 2026, no 2032 Capped Call Transactions had been exercised. Pursuant to their terms, the 2032 Capped Call Transactions qualify for classification within stockholders’ equity in our 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 $ 106.8 million for the 2032 Capped Call Transactions, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital in our condensed consolidated balance sheets. The 2032 Capped Call Transactions are separate transactions entered into by us with certain counterparties, are not part of the terms of the 2032 Convertible Notes, and do not affect any holder’s rights under the 2032 Convertible Notes. Holders of the 2032 Convertible Notes do not have any rights with respect to the 2032 Capped Call Transactions. 0.00 % Convertible Notes due 2031 In November 2025, we completed the sale of $ 750.0 million in aggregate principal amount of 0.00 % Convertible Senior Notes due 2031 (the “2031 Convertible Notes”). The net proceeds from the issuance of the 2031 Convertible Notes, after deducting the initial purchasers’ fee of $ 15.0 million, was approximately $ 735.0 million. We also incurred additional debt issuance costs totaling $ 0.5 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount. 31 Table of Contents The 2031 Convertible Notes will not bear regular interest and the principal amount of the 2031 Convertible Notes will not accrete. The 2031 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 2031 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 2031 Convertible Notes have a maturity date of February 15, 2031. Holders may convert their 2031 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2026, 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 indenture for the 2031 Convertible Notes; (4) if we call such notes for redemption; and (5) at any time from, and including, August 15, 2030, until the close of business on the scheduled trading day immediately before the maturity date. As of March 31, 2026, the 2031 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. The initial conversion rate for the 2031 Convertible Notes is 11.4683 shares of common stock per $1,000 in principal amount of 2031 Convertible Notes, equivalent to a conversion price of approximately $ 87.20 per share of our common stock. The conversion rate is subject to adjustment. As of March 31, 2026, we were in compliance with all covenants. 2031 Capped Call Transactions In connection with the offering of the 2031 Convertible Notes, we entered into capped call transactions with certain counterparties (the “2031 Capped Call Transactions”). The 2031 Capped Call Transactions are expected generally to reduce potential dilution to holders of our common stock upon conversion of the 2031 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 2031 Convertible Notes. The cap price of the 2031 Capped Call Transactions is initially $ 136.78 per share of common stock, representing a premium of 100 % above the last reported sale price of $ 68.30 per share of common stock on November 5, 2025, and is subject to certain adjustments under the terms of the 2031 Capped Call Transactions. As of March 31, 2026, no 2031 Capped Call Transactions had been exercised. Pursuant to their terms, the 2031 Capped Call Transactions qualify for classification within stockholders’ equity in our 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 $ 104.0 million for the 2031 Capped Call Transactions, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital in our condensed consolidated balance sheets. The 2031 Capped Call Transactions are separate transactions entered into by us with certain counterparties, are not part of the terms of the 2031 Convertible Notes, and do not affect any holder’s rights under the 2031 Convertible Notes. Holders of the 2031 Convertible Notes do not have any rights with respect to the 2031 Capped Call Transactions. 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”). The net proceeds from the issuance of the 2028 Convertible Notes, after deducting the initial purchasers’ fee of $ 18.0 million, was approximately $ 702.0 million. We also incurred additional debt issuance costs totaling $ 1.0 million. Debt issuance costs and the initial purchasers’ fee are presented as a debt discount. The 2028 Convertible Notes pay interest semi-annually in arrears on February 15th and August 15th of each year at an annual rate of 1.00 %. The 2028 Convertible Notes are general unsecured obligations and rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the 2028 Convertible Notes, rank equally in right of payment with all existing and future liabilities that are not so subordinated, are effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to all indebtedness and other liabilities (including trade payables) of our current or future subsidiaries. The 2028 Convertible Notes have a maturity date of August 15, 2028. 32 Table of Contents 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 indenture 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 March 31, 2026, 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. 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. In connection with the offering of the 2032 Convertible Notes and 2031 Convertible Notes, we used a portion of the net proceeds of the offering to enter into privately negotiated agreements with certain holders of the outstanding 2028 Convertible Notes to repurchase their 2028 Convertible Notes for cash. In connection with the repurchases, we paid approximately $ 342.9 million in cash, which included a premium, inducement expense and accrued interest. As of March 31, 2026, we were in compliance with all covenants. 2028 Capped Call Transactions In connection with the offering of the 2028 Convertible Notes, we entered into capped call transactions with certain counterparties (the “2028 Capped Call Transactions”). The 2028 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 2028 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 2028 Capped Call Transactions. As of March 31, 2026, no 2028 Capped Call Transactions had been exercised. Pursuant to their terms, the 2028 Capped Call Transactions qualify for classification within stockholders’ equity in our 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 2028 Capped Call Transactions, including applicable transaction costs, which was recorded as a reduction to additional paid-in capital in our condensed consolidated balance sheets. The 2028 Capped Call Transactions are separate transactions entered into by us with certain counterparties, are not part of the terms of the 2028 Convertible Notes, and do not affect any holder’s rights under the 2028 Convertible Notes. Holders of the 2028 Convertible Notes do not have any rights with respect to the 2028 Capped Call Transactions. 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”). The net proceeds from 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. 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 %. 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. 33 Table of Contents Holders may convert their 2027 Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2021, 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 indenture for the 2027 Convertible Notes; (4) if we call such notes for redemption; 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. As of March 31, 2026, the 2027 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. The initial conversion rate for the 2027 Convertible Notes is 12.9576 shares of common stock per $1,000 in principal amount of 2027 Convertible Notes, equivalent to a conversion price of approximately $ 77.17 per share of our common stock. The conversion rate is subject to adjustment. In connection with the offering of the 2032 Convertible Notes and 2031 Convertible Notes, we used a portion of the net proceeds of the offering to enter into privately negotiated agreements with certain holders of the outstanding 2027 Convertible Notes to repurchase their 2027 Convertible Notes for cash. In connection with the repurchases, we paid approximately $ 676.8 million in cash, which included a premium, inducement expense and accrued interest. As of March 31, 2026, we were in compliance with all covenants. 34 Table of Contents Net Carrying Amounts of our Convertible Notes The carrying amount and fair value of our Convertible Notes were as follows (in thousands). March 31, 2026 December 31, 2025 Principal amount 2027 Convertible Notes $ 209,575 $ 209,575 2028 Convertible Notes 469,999 469,999 2031 Convertible Notes 750,000 750,000 2032 Convertible Notes 750,000 750,000 Total principal amount $ 2,179,574 $ 2,179,574 Unamortized debt discount 2027 Convertible Notes $ ( 833 ) $ ( 1,058 ) 2028 Convertible Notes ( 5,040 ) ( 5,561 ) 2031 Convertible Notes ( 14,378 ) ( 15,108 ) 2032 Convertible Notes ( 14,684 ) ( 15,217 ) Total unamortized debt discount $ ( 34,935 ) $ ( 36,944 ) Carrying amount 2027 Convertible Notes $ 208,742 $ 208,517 2028 Convertible Notes 464,959 464,438 2031 Convertible Notes 735,622 734,892 2032 Convertible Notes 735,316 734,783 Total carrying amount $ 2,144,639 $ 2,142,630 Fair value based on trading levels (Level 2) 2027 Convertible Notes $ 218,048 $ 229,736 2028 Convertible Notes 607,107 624,690 2031 Convertible Notes 733,433 755,655 2032 Convertible Notes 742,245 764,213 Total fair value of outstanding notes $ 2,300,833 $ 2,374,294 35 Table of Contents The following table summarizes the components of interest expense and the effective interest rates for each of our Convertible Notes (in thousands). Three Months Ended March 31, 2026 2025 Coupon interest 2027 Convertible Notes $ 131 $ 503 2028 Convertible Notes 1,175 1,800 2032 Convertible Notes 1,641 — Total coupon interest $ 2,947 $ 2,303 Amortization of debt discount 2027 Convertible Notes $ 226 $ 862 2028 Convertible Notes 521 787 2031 Convertible Notes 730 — 2032 Convertible Notes 532 — Total amortization of debt discount $ 2,009 $ 1,649 Interest expense 2027 Convertible Notes $ 357 $ 1,365 2028 Convertible Notes 1,696 2,587 2031 Convertible Notes 730 — 2032 Convertible Notes 2,173 — Total interest expense $ 4,956 $ 3,952 Effective interest rates 2027 Convertible Notes 0.7 % 0.7 % 2028 Convertible Notes 1.5 % 1.5 % 2031 Convertible Notes 0.4 % 0.4 % 2032 Convertible Notes 1.2 % 1.2 % Revolving Credit and Term Loan Facilities In May 2022, we entered into a credit agreement, which was subsequently amended (i) in August 2022 (the “First Amendment”), (ii) in March 2023 (the “Second Amendment”) and (iii) in November 2025 (the “Third Amendment”) 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 credit agreement as amended by the First Amendment, the Second Amendment and the Third Amendment, the “2022 Credit Agreement”), evidencing a credit facility (the “2022 Facility”) that provides for a $ 750 million revolving credit facility (the “Amended Revolving Credit Facility”). The Amended Revolving Credit Facility will mature on the earlier of (a) November 5, 2030 and (b) the Springing Revolver Maturity Date (as defined in the 2022 Credit Agreement), unless the Amended Revolving Credit Facility is extended prior to such date in accordance with the 2022 Credit Agreement. Borrowings under the Amended Revolving Credit Facility bear interest at a rate equal to an applicable margin plus: (a) the applicable Term SOFR (as defined in the Credit Agreement) rate, 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 1.00 %, and (4) 1.00 %. The applicable margin for the Amended Revolving Credit 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 Amended Revolving Credit 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. 36 Table of Contents 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 2022 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. As of March 31, 2026, the Revolving Credit Facility was undrawn. We incurred a total of $ 7.3 million in third-party costs related to the 2022 Credit Agreement which are recorded as debt issuance cost within prepaid expenses and other assets in our condensed consolidated balance sheets. As of March 31, 2026, the unamortized debt issuance cost related to the revolving credit facility was $ 4.4 million. 37 Table of Contents 9. Stockholders’ Equity Share-based Compensation The following table summarizes share-based compensation expense included in our condensed consolidated statements of income related to share-based awards (in thousands): Three Months Ended March 31, 2026 2025 Research and development $ 5,044 $ 3,229 Selling, general and administrative 11,593 7,444 Total share-based compensation expense $ 16,637 $ 10,673 Share-based compensation expense by type of share-based award was as follows (in thousands): Three Months Ended March 31, 2026 2025 Stock options $ 5,541 $ 3,809 RSUs, PSUs and ESPP 11,096 6,864 Total share-based compensation expense $ 16,637 $ 10,673 We granted stock options to purchase approximately 0.3 million and 0.4 million shares of common stock during the three months ended March 31, 2026 and 2025, respectively. The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model (“Black-Scholes Model”). Expected volatility is based on historical volatility of our common stock. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments. The assumptions used in the Black-Scholes Model were as follows: Three Months Ended March 31, 2026 2025 Expected volatility 29.91 - 41.95 % 39.68 - 39.68 % Average expected term (in years) 4.7 4.8 Risk-free interest rate 3.62 - 3.83 % 4.34 - 4.34 % Expected dividend yield — — In February 2021, our Board of Directors approved our 2021 ESPP and our stockholders approved the plan in May 2021. The 2021 ESPP enables eligible employees to purchase shares of our common stock at the end of each offering period at a price equal to 85 % of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Share purchases are funded through payroll deduction of at least 1 % and up to 15 % of an employee’s compensation for each payroll period, and no employee may purchase shares under the 2021 ESPP that exceeds $ 25,000 worth of our common stock for a calendar year. As of March 31, 2026, 2.5 million shares were available for future purchase. The offering period is generally for a six-month period. 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. 38 Table of Contents Total unrecognized estimated compensation cost by type of award and the weighted-average remaining requisite service period over which such expense is expected to be recognized was as follows (in thousands, unless otherwise noted): March 31, 2026 Unrecognized Expense Remaining Weighted-Average Recognition Period (in years) Stock options $ 36,478 2.44 RSUs 75,290 2.83 PSUs 28,145 2.25 ESPP 112 0.16 Share Repurchases 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. During 2024, we repurchased approximately 4.7 million shares for $ 250.0 million at an average price of $ 53.95 per share. In May 2025, we announced the second $ 250.0 million share repurchase tranche under the $ 750.0 million approved program from February 2024. The second $ 250.0 million share repurchase was completed in June 2025, resulting in a total purchase of approximately 4.8 million shares at an average price of $ 52.09 per share. In June 2025, we initiated the third $ 250.0 million share repurchase tranche under the $ 750.0 million approved program from February 2024. As of September 30, 2025, $ 92.3 million has been used to repurchase approximately 1.7 million shares at an average price of $ 52.89 per share. All shares repurchased under our capital return programs have been retired and have resumed their status of authorized and unissued shares. 39 Table of Contents 10. Earnings per share Basic earnings per 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. Outstanding stock options, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and the Convertible Notes are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive. Potentially dilutive common shares issuable upon vesting of stock options, RSUs and PSUs are determined using the average share price for each period under the treasury stock method. Potentially dilutive common shares issuable upon conversion of the Convertible Notes are determined using the if-converted method. Since we have committed to settle the principal amount of the Convertible Notes in cash upon conversion only, the number of shares for the conversion spread will be included as a dilutive common stock equivalent. A reconciliation of the numerators and the denominators of the basic and diluted earnings per share computations is as follows (in thousands, except per share amounts): Three Months Ended March 31, 2026 2025 Numerator Net income $ 150,049 $ 118,095 Denominator Weighted average common shares outstanding for basic earnings per share 118,144 123,215 Dilutive potential common stock outstanding Stock options 1,934 2,071 RSUs, PSUs and ESPP 1,074 900 Convertible Notes 1,723 458 Weighted average common shares outstanding for diluted earnings per share 122,875 126,644 Earnings per share Basic $ 1.27 $ 0.96 Diluted $ 1.22 $ 0.93 Shares which have been excluded from the calculation of diluted earnings per common share because their effect was anti-dilutive include the following (shares in millions): Three Months Ended March 31, 2026 2025 Anti-dilutive securities (1) 27.9 24.1 (1) The anti-dilutive securities include outstanding stock options, unvested RSUs, unvested PSUs, common shares expected to be issued under our ESPP and Convertible Notes. 40 Table of Contents 11. Commitments and Contingencies From time to time, we may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of our business. Any of these claims could subject us to costly legal expenses and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our condensed consolidated statements of income and balance sheets. Additionally, any such claims, whether or not successful, could damage our reputation and business. We currently are not a party to any legal proceedings, the adverse outcome of which, in our opinion, individually or in the aggregate, would have a material adverse effect on our condensed consolidated statements of income or balance sheets. 41 Table of Contents