Halozyme Therapeutics, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; the supplied filing text does not provide a clear Q4-only financial breakdown.
Business context
Halozyme is a biopharma technology platform company whose rHuPH20 enzyme enables subcutaneous delivery of injectable medicines through its ENHANZE technology. It earns revenue from royalties, bulk rHuPH20 and Hylenex sales, and collaboration fees and milestones. The company reported 11 ENHANZE collaborations, five marketed partnered products, and its own marketed product, Hylenex.
Financial results and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $443.3 million | $267.6 million |
| Royalties | $203.9 million | $88.6 million |
| Product sales, net | $104.2 million | $56.0 million |
| Collaborative-agreement revenue | $135.2 million | $123.0 million |
| Operating income | $275.9 million | $144.3 million |
| Net income | $402.7 million | $129.1 million |
| Diluted EPS | $2.74 | $0.91 |
| Cash provided by operations | $299.4 million | $55.5 million |
Revenue grew approximately 66%; operating income was about 62% of revenue. Net income included a $154.2 million income-tax benefit from releasing substantially all of the deferred-tax valuation allowance, so reported earnings materially exceeded pre-tax operating performance. Pre-tax income was $248.5 million. The company also recorded $21.0 million of induced-conversion expense related to its 2024 convertible notes.
Royalty growth primarily reflected sales of Janssen’s DARZALEX FASPRO and Roche’s Phesgo following launches in 2020. Product-sales growth reflected higher bulk rHuPH20 sales to partners and recovery in Hylenex sales after COVID-related elective-surgery interruptions in 2020. Cost of product sales increased to $81.4 million from $43.4 million; R&D was $35.7 million and SG&A was $50.3 million.
At year-end, cash, cash equivalents and marketable securities totaled $740.9 million, including $118.7 million cash and equivalents. Current assets were $926.3 million and current liabilities $117.1 million. Convertible-note debt had a carrying value of $876.7 million ($895.9 million principal); $89.4 million was classified as current because the 2024 notes were convertible. The $75 million revolving facility was undrawn. Operating cash flow rose substantially; investing activities used $406.3 million, largely due to purchases of marketable securities, and financing activities provided $77.9 million.
Halozyme repurchased $200.0 million of shares under its prior program during 2021 and completed that $550 million program in October. A new $750 million, three-year program was authorized in December, including a $150 million accelerated share repurchase. It issued $805 million principal of 2027 convertible notes and used part of the proceeds in an induced conversion of $369.1 million principal of 2024 notes.
Changes, outlook and risks
- Management expects royalty revenue to continue growing as recent partner-product launches contribute, partly offset by biosimilar effects on mature Roche products. Bulk rHuPH20 sales may fluctuate with partner demand; Hylenex sales were expected to be relatively flat as market growth is offset by normalization of the COVID-related backlog.
- Beginning in 2022, the company expected to record income-tax expense at a rate likely approximating statutory rates. Management cautioned that comparisons with 2021 net income and EPS are not indicative of underlying profitability trends.
- Collaboration fees and milestones are variable and depend on partner development, regulatory and commercial progress. The company relies on partners to develop and market products and on third parties for manufacturing; supply interruptions, approval delays, adverse safety findings, weak product uptake, or partner termination could reduce revenue.
- Other material risks include competition and biosimilars, patent protection and expirations, reimbursement and pricing pressure, COVID-19 and other operational disruptions, and debt-service or conversion-related liquidity and dilution effects. The filing notes that a key U.S. patent expires in 2027 and a key European patent in 2024.
- The company reported no legal proceeding expected by management to have a material adverse effect. Its financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- How much of recurring revenue and future growth is supported by royalty-bearing products, particularly DARZALEX FASPRO and Roche products, and how partner concentration evolves.
- The sustainability of earnings excluding the $154.2 million tax benefit, including the expected 2022 tax expense and operating cash generation.
- Convertible-note repayment, conversion and dilution exposure, especially the current classification of the 2024 notes, alongside planned share repurchases.
- Partner product launches, clinical and regulatory milestones, and any changes in partner programs or target rights.
- Bulk rHuPH20 supply capacity, the $84.6 million of manufacturing obligations, and the ability of contract manufacturers to meet quality and delivery requirements.