Halozyme Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results include Antares Pharma from its May 24, 2022 acquisition date. Amounts below are in millions, except per-share data.
Business context
Halozyme licenses its ENHANZE drug-delivery technology, based on rHuPH20, to biopharmaceutical partners and earns royalties, milestones, and product revenue. The Antares acquisition expanded the business into proprietary and partnered drug-device products, including XYOSTED, TLANDO, and auto-injector technologies.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $152.4 | $136.5 | $269.6 | $225.5 |
| Operating income | $34.1 | $93.0 | $109.7 | $143.8 |
| Net income | $22.7 | $91.5 | $82.8 | $119.4 |
| Diluted EPS | $0.16 | $0.62 | $0.58 | $0.81 |
| Operating cash flow | — | $88.0 | $95.2 |
Q2 revenue growth was driven by royalties ($85.3, up from $45.8) and product sales ($46.3, up from $30.4); collaborative-agreement revenue declined to $20.7 from $60.3. For the six-month period, royalties were $154.9, product sales $68.4, and collaborative-agreement revenue $46.3.
Cash, cash equivalents, and marketable securities totaled $209.4 at June 30, 2022. Current assets were $541.9 and current liabilities $199.5. Total debt, net of discounts, was approximately $1,246.2, including convertible notes and $370.0 borrowed under the new credit facilities. Stockholders’ equity was $293.2.
Changes versus comparable periods
- Q2 revenue increased about 12% year over year, while net income fell about 75%; six-month revenue rose about 20%, while net income fell about 31%.
- Royalty growth reflected continued uptake of Janssen’s DARZALEX FASPRO and Roche’s Phesgo, partly offset by lower sales of certain mature Roche products. Antares contributed proprietary and device-partnered sales and royalties.
- Lower collaboration revenue principally reflected the prior-year ViiV upfront payment. Q2 and six-month 2022 included $15.0 of development milestone revenue.
- Operating expenses rose substantially, including Q2 SG&A of $57.5 versus $12.3, due largely to Antares acquisition transaction and compensation costs and the combined workforce. The acquisition also added $11.4 of intangible amortization in the six-month results.
Outlook, commentary, and risks
- Management said existing cash, cash equivalents, and marketable securities were expected to fund operations for at least the next 12 months. It expected royalties to continue growing, while noting mature-product biosimilar pressure; proprietary product growth and partner-dependent product sales were also discussed. No quantified full-year revenue or earnings guidance is provided in the filing text.
- Management described the Antares acquisition as expected to be accretive to 2022 revenue and to support growth and cash-flow generation over time; integration and realization of expected benefits remain uncertain.
- The acquisition’s preliminary purchase accounting recorded $987.5 of intangible assets, $199.5 of goodwill, and a $130.0 contingent liability associated with TLANDO. Valuations and the contingent liability remain subject to estimates and possible revisions; contingent-liability fair value is to be remeasured quarterly.
- The new $350.0 revolving facility and $250.0 term facility mature in November 2026 and carry variable-rate borrowing costs. The company reported compliance with debt covenants; the 2024 convertible notes were classified as current because their conditional conversion feature was triggered. The 2027 notes were not convertible as of June 30.
- Risks include Antares integration and performance, substantial debt and covenant compliance, refinancing or conversion-related cash needs and dilution, reliance on partners and contract manufacturers, regulatory and clinical uncertainty, product safety, reimbursement and pricing pressure, competition, and potential COVID-19-related disruptions. The filing reported no legal proceeding expected by management to have a material adverse effect.
- Disclosure controls were assessed as effective. Antares was excluded from the quarter-end internal-control assessment while integration proceeds.
Important facts for investors to verify
- Whether royalty growth from newer ENHANZE products can offset biosimilar-related pressure on mature products.
- Antares integration progress, commercial performance of its products, and any revisions to the preliminary acquisition valuations or TLANDO contingent liability.
- Debt balances, variable interest costs, covenant headroom, and cash requirements related to the current 2024 notes and future maturities.
- Progress and regulatory outcomes for key partner programs and the ATRS-1902 pivotal study; management expected that study to start in Q3 2022 and an NDA filing by year-end, subject to stated conditions.
- Liquidity and cash generation relative to the acquisition, operating needs, and the remaining share-repurchase authorization.