Halozyme Therapeutics, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Halozyme licenses its ENHANZE drug-delivery technology to biopharmaceutical partners, supplies rHuPH20, and sells Hylenex.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $89.0 million | $25.4 million; up 251% |
| Royalties | $36.9 million | $16.8 million |
| Product sales, net | $21.8 million | $8.1 million |
| Collaborative-agreement revenue | $30.3 million | $0.4 million |
| Operating income (loss) | $50.7 million | $(3.2) million |
| Net income (loss) | $27.9 million; diluted EPS $0.19 | $(6.1) million; diluted loss per share $0.04 |
| Operating cash flow | $58.3 million | $(4.8) million |
Revenue growth reflected higher royalties, principally from Janssen’s DARZALEX FASPRO launches, increased rHuPH20 sales to collaborators, and $30.0 million of milestones: $25.0 million from BMS and $5.0 million from Janssen. Operating expenses were $38.3 million, versus $28.6 million; lower R&D and SG&A were more than offset by higher product costs associated with increased bulk rHuPH20 sales. The filing does not provide a consolidated gross-margin figure.
At March 31, cash and cash equivalents were $499.5 million and marketable securities were $264.9 million, totaling $764.3 million. Current assets were $941.7 million and current liabilities $107.4 million. Debt carrying value was $873.8 million, including $89.0 million current debt; total principal outstanding was $895.9 million. Stockholders’ equity was $67.6 million, down from $151.0 million at year-end 2020.
Cash increased by $351.7 million during the quarter. Investing activities used $45.3 million, while financing activities provided $338.7 million, primarily reflecting the new notes issuance, offset partly by repayment of 2024 notes and share repurchases.
Material changes and unusual items
- Revenue rose substantially year over year, led by royalties and product sales. Royalties benefited from newer partner launches; management noted this growth is partly offset by biosimilar competition affecting mature Roche products.
- In March, Halozyme issued $805.0 million of 0.25% convertible notes due 2027, generating approximately $784.9 million net proceeds. It used cash and shares to induce conversion of $369.1 million principal of its 2024 notes, paying approximately $370.2 million and issuing 9.08 million shares. The transaction generated a $21.0 million inducement expense.
- The company repurchased 1.8 million shares for $76.2 million during Q1 at an average $42.89 per share. Since the 2019 program began, it had repurchased $426.2 million of shares under a $550.0 million authorization.
- Halozyme early adopted ASU 2020-06 on January 1, 2021. Adoption changed the accounting for convertible debt and reduced opening additional paid-in capital by approximately $65.6 million, increased debt by $52.6 million, and reduced opening accumulated deficit by $13.0 million. The filing describes these as noncash cumulative adjustments.
Outlook, risks and contingencies
Management said existing cash, cash equivalents and marketable securities should fund operations for at least the next 12 months. No specific numerical revenue or earnings guidance is provided. Management expects royalties to grow with recent partner launches, subject to offsets from biosimilars; bulk rHuPH20 sales may fluctuate with collaborator demand; and Hylenex sales are expected to be relatively flat. Collaborative milestone revenue is expected to vary with partner development and regulatory progress.
Key uncertainties include partner clinical and regulatory outcomes, commercial uptake and reimbursement, reliance on contract manufacturers and supply continuity, rHuPH20 safety and intellectual-property protection, competition and biosimilars, COVID-19-related disruption, and debt service or conversion-related cash and dilution effects. Management said suppliers were operating without COVID-19 interruption and had not identified partner delays expected to materially affect near-term milestone revenue, but the pandemic’s broader effects remained uncertain.
The 2024 notes were convertible at quarter-end and classified as current; the company had elected to settle principal in cash and any conversion premium in shares. The 2027 notes were not convertible as of March 31, 2021. Halozyme reported compliance with debt covenants. It disclosed no legal proceeding expected by management to have a material adverse effect.
Investor verification points
- Check the drivers and sustainability of the $30.0 million milestone revenue and the timing of the related $30.0 million contract asset.
- Track royalty growth from partner products against biosimilar pressure and actual collaborator sales reports.
- Review cash use, the remaining 2024-note balance and conversion terms, and the cash, dilution and interest implications of both convertible-note issues.
- Monitor the $550.0 million share-repurchase authorization, including completion and delivery of shares under the accelerated repurchase agreement.
- Assess partner trial and approval progress, manufacturing capacity and supply risks, and any COVID-19-related delays or changes to management’s outlook.