Halozyme Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Halozyme licenses its ENHANZE drug-delivery technology to biopharmaceutical partners and sells Hylenex and rHuPH20 products.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $25.4 million | $56.9 million | Down 55.5% |
| Operating income (loss) | $(3.2) million | $3.0 million | Declined $6.2 million |
| Net income (loss) | $(6.1) million | $1.8 million | Declined $7.9 million |
| Basic and diluted EPS | $(0.04) | $0.01 | — |
| Cash used in operating activities | $4.8 million | $4.4 million | Use increased $0.4 million |
Revenue included royalties of $16.8 million (down 6.3%), product sales of $8.1 million (down 2.9%) and collaborative-agreement revenue of $0.4 million, versus $30.6 million a year earlier. The prior-year period included a $30.0 million argenx license fee. Product sales cost $5.8 million; the filing does not present a consolidated gross-margin measure. Operating and net margins were approximately negative 12.7% and negative 24.1%, respectively.
Research and development expense fell to $10.2 million from $31.3 million, primarily because PEGPH20 development and clinical-trial activities were wound down. SG&A declined to $12.6 million from $18.0 million, largely reflecting reduced PEGPH20-related commercial activity and compensation expense. Interest expense rose to $5.3 million from $3.2 million, mainly due to the convertible notes.
Financial position and capital allocation
- Cash and cash equivalents were $104.8 million; available-for-sale marketable securities were $263.4 million. Together they totaled approximately $368.2 million at March 31, versus $421.3 million at December 31, 2019.
- Current assets were $468.0 million and current liabilities were $42.0 million. Accounts receivable fell to $29.7 million from $59.4 million; inventories rose to $41.5 million from $29.4 million.
- Long-term debt, net, was $386.6 million, with $2.9 million of current debt. The principal amount of the 1.25% convertible senior notes due 2024 is $460.0 million; their net carrying value reflects a $73.4 million debt discount. The remaining royalty-backed loan was estimated to be repaid in Q2 2020.
- Financing activities used $48.6 million, including $51.6 million for repurchases of 3.2 million shares. Since the November 2019 start of its three-year, up-to-$550 million repurchase program, the company had repurchased 14.3 million shares for $251.6 million through March 31.
Management said available cash, cash equivalents and marketable securities should fund operations for at least the next 12 months. The company reported a net loss and cumulative deficit of $609.8 million through March 31.
Material developments, outlook and risks
- Management expects royalty revenue to decline in the near term before the next ENHANZE partner-product launch, citing biosimilar competition in Europe. Royalties decreased mainly because of lower Roche Herceptin SC sales, partly offset by higher Roche RITUXAN HYCELA and Baxalta HYQVIA sales.
- Management expects ENHANZE and rHuPH20 research and development expense to increase in the near term as the platform absorbs more overhead. Bulk rHuPH20 and ENHANZE product sales may fluctuate with partner demand.
- The company had halted PEGPH20 development after the HALO-301 Phase 3 study failed to meet its primary overall-survival endpoint in 2019, closed oncology operations and undertook a restructuring that reduced the workforce by approximately 55%.
- COVID-19 effects were uncertain. Management identified possible delays to partner trials and commercialization, supply-chain disruption, and lower Hylenex sales because elective surgeries were being canceled. At the filing date, the company reported no identified material COVID-related milestone delays and no expected interruption in its ability to sell products; contract manufacturers had reported no significant supply concerns.
- After quarter-end, Janssen received U.S. FDA approval in May 2020 for DARZALEX FASPRO in multiple myeloma regimens. In April, the European regulator issued a positive opinion and Janssen submitted a Japanese application. These are partner developments, not Q1 revenue events.
- Management stated it expected to achieve sustainable profitability beginning in Q2 2020; this is an outlook statement, not a reported result. The filing also notes continued dependence on partner development, regulatory approvals, commercialization and third-party manufacturing. No legal proceeding was reported as likely to have a material adverse effect.
Most important facts for investors to verify
- Whether partner launches and sales—particularly daratumumab SC and Roche products—translate into royalties, and how biosimilar competition affects them.
- Whether COVID-19 causes delays to partner trials, product sales, regulatory timelines or manufacturing and supply.
- Whether the company achieves the stated Q2 2020 profitability expectation and manages operating costs after restructuring.
- Repayment timing of the remaining royalty-backed loan and the cash, dilution and interest implications of the $460 million convertible notes.
- Actual spending and pace under the share-repurchase authorization, alongside liquidity needs and partner-dependent cash generation.