Halozyme Therapeutics, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also presents unaudited fourth-quarter results. Halozyme is a clinical-stage biopharmaceutical company developing its rHuPH20 enzyme technology for drug delivery and other therapies; Hylenex recombinant is its sole proprietary marketed product. Most revenue comes from collaborations and product supply, not Hylenex sales.
Financial performance and liquidity
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Total revenue | $54.8 million | $42.3 million |
| Product sales, net | $24.4 million | $2.9 million |
| Collaborative agreement revenue | $30.4 million | $39.4 million |
| Operating expenses | $135.2 million | $96.0 million |
| Operating loss | $80.4 million | $53.6 million |
| Net loss | $83.5 million | $53.6 million |
| Basic and diluted loss per share | $0.74 | $0.48 |
| Net cash used in operating activities | $49.3 million | $64.3 million |
Product sales less cost of product sales imply gross profit of approximately $18.2 million, or 74% of product sales. This margin is not representative of a steady-state product margin: $10.0 million of manufacturing costs for collaboration products were expensed in research and development before European approvals, rather than included in cost of sales.
FY 2013 revenue rose 29%, driven chiefly by $14.8 million of bulk rHuPH20 sales for Herceptin SC and HyQvia and a $6.8 million increase in Hylenex sales. Collaboration revenue declined 23%, including lower upfront and milestone revenue than in 2012. Roche represented 64% of total revenue in 2013; Baxter represented 10%.
Fourth-quarter 2013 revenue was $12.5 million versus $21.8 million in fourth-quarter 2012; net loss was $22.0 million versus $4.4 million. The prior-year quarter included $9.5 million of Pfizer collaboration revenue.
At year-end, cash, cash equivalents and marketable securities totaled $71.5 million, compared with $99.5 million a year earlier; working capital was $69.7 million. Total assets were $101.8 million, total liabilities $121.8 million, and stockholders’ deficit $20.0 million. Long-term debt, net, was $49.8 million. Deferred revenue was $53.1 million, including $7.4 million current.
Cash used in investing activities was $47.9 million, primarily reflecting purchases of marketable securities. Financing activities provided $25.1 million, including $20.0 million net proceeds from additional borrowing. In February 2014, the company raised approximately $107.8 million net by issuing 8.85 million shares at $13.00 per share. Management projected 2014 net cash burn of approximately $45–55 million, excluding that financing, and said available funds were expected to cover operations for at least 12 months.
Business developments, outlook and risks
- Roche launched Herceptin SC in Europe in September 2013; the first sale triggered a $10 million payment to Halozyme, deferred and recognized over the collaboration term. Baxter launched HyQvia in Europe in 2013, triggering a $4 million payment, also deferred. Baxter resubmitted the HyQvia U.S. application in December 2013 after an FDA complete response letter requested additional preclinical data.
- Halozyme’s Phase 2 PEGPH20 study in metastatic pancreatic cancer was underway; management expected enrollment completion in the second half of 2014. A Phase 1b study reported a 42% overall response rate among 24 patients treated at therapeutic dose levels, but the finding was preliminary and from a small study.
- The CONSISTENT 1 trial of Hylenex as an adjunct to insulin pump therapy completed enrollment in 2013. Following FDA feedback, the primary endpoint assessment moved from month four to month six; top-line results were expected in the first quarter of 2014. The filing does not establish approval or commercial authorization for this use.
- HTI-501 cellulite trial interim results were based on 12 evaluable patients; the company expected further results in the first quarter of 2014 and was evaluating development options. It had not filed a U.S. investigational new drug application for HTI-501.
- Key risks include continued losses and cash consumption; dependence on collaborators, particularly Roche; clinical and regulatory uncertainty; manufacturing and supply concentration; and potential immunogenicity. Non-neutralizing anti-rHuPH20 antibodies were reported in Baxter’s HyQvia program and ViroPharma’s Cinryze study. ViroPharma discontinued its study and terminated its collaboration in February 2014. Halozyme said these antibodies had not been associated with adverse events, but their implications for other programs remained uncertain.
- The amended $50 million secured term loan bears 7.55% interest, includes a final payment of $4.25 million, and matures January 1, 2018. It is secured by substantially all assets subject to exclusions, and contains restrictive covenants and acceleration provisions. The company reported compliance with material covenants at year-end.
- Management expected research and development spending to increase as clinical programs advanced. The company remained unprofitable, with an accumulated deficit of $382.1 million, and noted that additional financing could be needed if cash and anticipated collaboration revenue proved insufficient.
Most important facts for investors to verify
- Clinical and regulatory progress for CONSISTENT 1, PEGPH20 and HyQvia, including whether anticipated milestones were achieved and whether antibody findings affect other rHuPH20 programs.
- Actual royalties and product-supply economics from Herceptin SC and HyQvia launches, including the timing of deferred collaboration payments and the effect of manufacturing costs on margins.
- Cash burn versus the stated 2014 estimate, use of the February 2014 equity proceeds, and the debt repayment schedule and covenant terms.
- Revenue concentration and collaboration status, including the consequences of ViroPharma’s termination and the degree to which Roche drives future revenue.
- Hylenex sales, returns and chargeback estimates: the 2013 change to sell-in revenue recognition increased net product sales by $697,000.