HALOZYME THERAPEUTICS INC, 10-Q filed on 5/9/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
May 1, 2017
Document Information [Line Items]
 
 
Entity Registrant Name
HALOZYME THERAPEUTICS INC. 
 
Trading Symbol
HALO 
 
Entity Central Index Key
0001159036 
 
Document Type
10-Q 
 
Document Period End Date
Mar. 31, 2017 
 
Amendment Flag
false 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q1 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
129,840,030 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 45,188 
$ 66,764 
Marketable securities, available-for-sale
133,797 
138,217 
Accounts receivable, net
12,452 
15,680 
Inventories
14,290 
14,623 
Prepaid expenses and other assets
16,627 
21,248 
Total current assets
222,354 
256,532 
Property and equipment, net
3,741 
4,264 
Prepaid expenses and other assets
172 
219 
Restricted cash
500 
500 
Total assets
226,767 
261,515 
Current liabilities:
 
 
Accounts payable
3,079 
3,578 
Accrued expenses
24,935 
28,821 
Deferred revenue, current portion
4,093 
4,793 
Current portion of long-term debt, net
29,601 
17,393 
Total current liabilities
61,708 
54,585 
Deferred revenue, net of current portion
38,802 
39,825 
Long-term debt, net
184,430 
199,228 
Other long-term liabilities
326 
358 
Commitments and contingencies (Note 9)
   
   
Stockholders' deficit:
 
 
Preferred stock - $0.001 par value; 20,000 shares authorized; no shares issued and outstanding
Common stock - $0.001 par value; 200,000 shares authorized; 129,822 and 129,502 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively
130 
130 
Additional paid-in capital
559,659 
552,737 
Accumulated other comprehensive loss
(49)
(6)
Accumulated deficit
(618,239)
(585,342)
Total stockholders' deficit
(58,499)
(32,481)
Total liabilities and stockholders' deficit
$ 226,767 
$ 261,515 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Preferred stock, par value
$ 0.001 
$ 0.001 
Preferred stock, shares authorized
20,000 
20,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value
$ 0.001 
$ 0.001 
Common stock, shares authorized
200,000 
200,000 
Common stock, shares issued
129,822 
129,502 
Common stock, shares outstanding
129,822 
129,502 
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
In Thousands, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Revenues:
 
 
Product sales, net
$ 11,434 
$ 12,940 
Royalties
13,982 
11,387 
Revenues under collaborative agreements
4,152 
18,172 
Total revenues
29,568 
42,499 
Operating expenses:
 
 
Cost of product sales
7,544 
7,762 
Research and development
36,935 
40,100 
Selling, general and administrative
12,615 
10,806 
Total operating expenses
57,094 
58,668 
Operating loss
(27,526)
(16,169)
Other income (expense):
 
 
Investment and other income, net
287 
229 
Interest expense
(5,448)
(3,876)
Net loss before income taxes
(32,687)
(19,816)
Income Tax Expense
210 
Net loss
$ (32,897)
$ (19,816)
Basic and diluted net loss per share
$ (0.26)
$ (0.16)
Shares used in computing basic and diluted net loss per share
128,615 
127,615 
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
Net loss
$ (32,897)
$ (19,816)
Other comprehensive (loss) income:
 
 
Unrealized (loss) gain on marketable securities
(40)
187 
Foreign currency translation adjustment
(4)
Unrealized gain on foreign currency
Total comprehensive loss
$ (32,940)
$ (19,629)
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Operating activities:
 
 
Net loss
$ (32,897)
$ (19,816)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Share-based compensation
7,315 
5,817 
Depreciation and amortization
602 
489 
Non-cash interest expense
487 
1,054 
Payment-in-kind Interest expense on long-term debt
1,890 
Amortization of premiums on marketable securities, net
16 
213 
Loss on disposal of equipment
44 
Recognition of Deferred Revenue
(1,723)
(1,524)
Recognition of deferred rent
(114)
(70)
Other
(5)
Changes in operating assets and liabilities:
 
 
Accounts receivable, net
3,228 
6,867 
Inventories
333 
(856)
Prepaid expenses and other assets
4,668 
(2,522)
Accounts payable and accrued expenses
(4,413)
(4,565)
Net cash used in operating activities
(22,459)
(13,023)
Investing activities:
 
 
Purchases of marketable securities
(54,830)
(126,431)
Proceeds from maturities of marketable securities
59,194 
21,908 
Purchases of property and equipment
(99)
(1,099)
Net cash provided by (used in) investing activities
4,265 
(105,622)
Financing activities:
 
 
Proceeds from issuance of long-term debt, net
148,046 
Repayment of long-term debt
(2,989)
(3,885)
Proceeds from issuance of common stock under equity incentive plans, net of taxes paid related to net share settlement
(393)
285 
Net cash (used in) provided by financing activities
(3,382)
144,446 
Net (decrease) increase in cash, cash equivalents and restricted cash
(21,576)
25,801 
Cash, cash equivalents, and restricted cash at beginning of period
67,264 
43,792 
Cash, cash equivalents, and restricted cash at end of period
$ 45,688 
$ 69,593 
Organization and Business
Organization and Business
Organization and Business
Halozyme Therapeutics, Inc. is a biotechnology company focused on developing and commercializing novel oncology therapies. We are seeking to translate our unique knowledge of the tumor microenvironment to create therapies that have the potential to improve cancer patient survival. Our research primarily focuses on human enzymes that alter the extracellular matrix and tumor microenvironment. The extracellular matrix is a complex matrix of proteins and carbohydrates surrounding the cell that provides structural support in tissues and orchestrates many important biological activities, including cell migration, signaling and survival. Over many years, we have developed unique technology and scientific expertise enabling us to pursue this target-rich environment for the development of therapies.
Our proprietary enzymes are used to facilitate the delivery of injected drugs and fluids, potentially enhancing the efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit. We exploit our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2) licensing our technology to biopharmaceutical companies to collaboratively develop products that combine our technology with the collaborators’ proprietary compounds.
The majority of our approved product and product candidates are based on rHuPH20, our patented recombinant human hyaluronidase enzyme. rHuPH20 is the active ingredient in our first commercially approved product, Hylenex® recombinant, and it works by temporarily breaking down hyaluronan (or “HA”), a naturally occurring complex carbohydrate that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage. We believe this temporary degradation creates an opportunistic window for the improved subcutaneous delivery of injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids. We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE Technology. We license the ENHANZE Technology to form collaborations with biopharmaceutical companies that develop or market drugs requiring or benefiting from injection via the subcutaneous route of administration.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (“Roche”), Baxalta US Inc. and Baxalta GmbH (Baxalta Incorporated was acquired by Shire plc in June 2016) (“Baxalta”), Pfizer Inc. (“Pfizer”), Janssen Biotech, Inc. (“Janssen”), AbbVie, Inc. (“AbbVie”), and Eli Lilly and Company (“Lilly”). We receive royalties from two of these collaborations, including royalties from sales of one product approved in both the United States and outside the United States from the Baxalta collaboration and from sales of two products approved for marketing outside the United States from the Roche collaboration. Future potential revenues from the sales and/or royalties of our approved products, product candidates, and ENHANZE collaborations will depend on the ability of Halozyme and our collaborators to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.
Our proprietary development pipeline consists primarily of pre-clinical and clinical stage product candidates in oncology. Our lead oncology program is PEGPH20 (PEGylated recombinant human hyaluronidase), a molecular entity we are developing in combination with currently approved cancer therapies as a candidate for the systemic treatment of tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it can cause higher pressure in the tumor, reducing blood flow into the tumor and with that, reduced access of cancer therapies to the tumor. PEGPH20 has been demonstrated in animal models to work by temporarily degrading HA surrounding cancer cells resulting in reduced pressure and increased blood flow to the tumor thereby enabling increased amounts of anticancer treatments administered concomitantly gaining access to the tumor. Through our efforts and efforts of our partners and collaborators, we are currently in Phase 3 clinical testing for PEGPH20 with ABRAXANE® (nab-paclitaxel) and gemcitabine in stage IV pancreatic ductal adenocarcinoma (“PDA”) (Study 109-301), in Phase 1b clinical testing for PEGPH20 with KEYTRUDA® (pembrolizumab) in non-small cell lung cancer and gastric cancer (Study 107-101) and in Phase 1b/2 clinical testing for PEGPH20 with HALAVEN® (eribulin) in patients treated with up to two lines of prior therapy for HER2-negative metastatic breast cancer.
Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,” “our,” and “us” in these notes to condensed consolidated financial statements refer to Halozyme Therapeutics, Inc. and its wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC and Halozyme Switzerland GmbH.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year.
The accompanying condensed consolidated financial statements include the accounts of Halozyme Therapeutics, Inc. and our wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC and Halozyme Switzerland GmbH. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within ninety days or less from the date of purchase. As of March 31, 2017, our cash equivalents consisted of money market funds and commercial paper.
Marketable securities are investments with original maturities of more than ninety days from the date of purchase that are specifically identified to fund current operations. Marketable securities are considered available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from the sale of these investments to fund our operations, as necessary. Such available-for-sale investments are carried at fair value with unrealized gains and losses recorded in other comprehensive gain (loss) and included as a separate component of stockholders’ deficit. The cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such amortization or accretion is included in investment and other income, net in the condensed consolidated statements of operations. We use the specific identification method for calculating realized gains and losses on marketable securities sold. Realized gains and losses and declines in value judged to be other-than-temporary on marketable securities, if any, are included in investment and other income, net in the condensed consolidated statements of operations.
Restricted Cash
Under the terms of the leases of our facilities, we are required to maintain letters of credit as security deposits during the terms of such leases. At March 31, 2017 and December 31, 2016, restricted cash of $0.5 million was pledged as collateral for the letters of credit.
Fair Value of Financial Instruments
The authoritative guidance for fair value measurements establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and long-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on Level 3 inputs and the borrowing rates currently available for loans with similar terms, we believe the fair value of long-term debt approximates its carrying value.
Available-for-sale marketable securities consist of corporate debt securities, U.S. Treasury securities and commercial paper, and are measured at fair value using Level 1 and Level 2 inputs. Level 2 financial instruments are valued using market prices on less active markets and proprietary pricing valuation models with observable inputs, including interest rates, yield curves, maturity dates, issue dates, settlement dates, reported trades, broker-dealer quotes, issue spreads, benchmark securities or other market related data. We obtain the fair value of Level 2 investments from our investment manager, who obtains these fair values from a third-party pricing source. We validate the fair values of Level 2 financial instruments provided by our investment manager by comparing these fair values to a third-party pricing source.
Inventories
Inventories are stated at lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories are reviewed periodically for potential excess, dated or obsolete status. We evaluate the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared to quantities on hand, the price we expect to obtain for products in their respective markets compared with historical cost and the remaining shelf life of goods on hand.
Prior to receiving marketing approval from the U.S. Food and Drug Administration (“FDA”) or comparable regulatory agencies in foreign countries, costs related to purchases of bulk rHuPH20 and raw materials and the manufacturing of the product candidates are recorded as research and development expense. All direct manufacturing costs incurred after receiving marketing approval are capitalized as inventory. Inventories used in clinical trials are expensed at the time the inventories are packaged for the clinical trials.
As of March 31, 2017 and December 31, 2016, inventories consisted of $1.7 million and $2.3 million, respectively, of Hylenex recombinant inventory, net, and $12.6 million and $12.3 million, respectively, of bulk rHuPH20 for use in the manufacture of Baxalta’s and Roche’s collaboration products.
Revenue Recognition
We generate revenues from product sales and payments received under collaborative agreements. Collaborative agreement payments may include nonrefundable fees at the inception of the agreements, license fees, milestone and event-based payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and supply of bulk rHuPH20, and/or royalties on sales of products resulting from collaborative arrangements.
We recognize revenues in accordance with the authoritative guidance for revenue recognition. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.
Product Sales, Net
Hylenex Recombinant
We sell Hylenex recombinant in the U.S. to wholesale pharmaceutical distributors, who sell the product to hospitals and other end-user customers. Sales to wholesalers provide for selling prices that are fixed on the date of sale, although we offer discounts to certain group purchasing organizations (“GPOs”), hospitals and government programs. The wholesalers take title to the product, bear the risk of loss of ownership and have economic substance to the inventory. Further, we have no significant obligations for future performance to generate pull-through sales.
We have developed sufficient historical experience and data to reasonably estimate future returns and chargebacks of Hylenex recombinant. As a result, we recognize Hylenex recombinant product sales and related cost of product sales at the time title transfers to the wholesalers.
Upon recognition of revenue from product sales of Hylenex recombinant, we record certain sales reserves and allowances as a reduction to gross revenue. These reserves and allowances include amounts for product returns (based primarily on an analysis of historical return patterns), distribution fees, prompt payment discounts, and GPO fees and other discounts and fees.
We recognize product sales reserves and allowances as a reduction of product sales in the same period the related revenue is recognized. Because of the shelf life of Hylenex recombinant and our lengthy return period, there may be a significant period of time between when the product is shipped and when we issue credits on returned product. If actual product return results differ from our estimates, we will be required to make adjustments to these allowances in the future, which could have an effect on product sales revenue and earnings in the period of adjustments.
Bulk rHuPH20
Subsequent to receiving marketing approval from the FDA or comparable regulatory agencies in foreign countries, sales of bulk rHuPH20 for use in collaboration commercial products are recognized as product sales when the materials have met all the specifications required for the customer’s acceptance and title and risk of loss have transferred to the customer. Following the receipt of European marketing approvals of Roche’s Herceptin SC product in August 2013 and MabThera® SC product in March 2014 and Baxalta’s HYQVIA product in May 2013, revenue from the sales of bulk rHuPH20 for these collaboration products has been recognized as product sales.
Revenues under Collaborative Agreements
We have entered into license and collaboration agreements under which our collaborators obtained worldwide rights for the use of our proprietary rHuPH20 enzyme in the development and commercialization of their biologic compounds identified as targets. These agreements may also contain other elements. Pursuant to the terms of these agreements, collaborators could be required to make various payments to us for each target, including nonrefundable upfront license fees, exclusivity fees, payments based on achievement of specified milestones designated in the collaborative agreements, annual maintenance fees, reimbursements of research and development services, payments for supply of bulk rHuPH20 used by the collaborator and/or royalties on sales of products resulting from collaborative agreements.
In order to account for the multiple-element arrangements, we identify the deliverables included within the collaborative agreement and evaluate which deliverables represent units of accounting. We then determine the appropriate method of revenue recognition for each unit based on the nature and timing of the delivery process. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The deliverables under our collaborative agreements include (i) the license to our rHuPH20 technology, (ii) at the collaborator’s request, research and development services which are reimbursed at contractually determined rates, and (iii) at the collaborator’s request, supply of bulk rHuPH20 which is reimbursed at our cost plus a margin. A delivered item is considered a separate unit of accounting when the delivered item has value to the collaborator on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. We base this determination on the collaborators’ ability to use the delivered items on their own without us supplying undelivered items, which we determine taking into consideration factors such as the research capabilities of the collaborator, the availability of research expertise in this field in the general marketplace, and the ability to procure the supply of bulk rHuPH20 from the marketplace.
Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, we use our best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are not contingent upon the delivery of additional items or meeting other specified performance conditions. The consideration received is allocated among the separate units of accounting and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement.
Nonrefundable upfront license fees are recognized upon delivery of the license if facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of bulk rHuPH20, the relative selling price allocation of the license is equal to or exceeds the upfront license fee, persuasive evidence of an arrangement exists, our price to the collaborator is fixed or determinable and collectibility is reasonably assured. Upfront license fees are deferred if facts and circumstances dictate that the license does not have standalone value. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period.
When collaborators have rights to elect additional targets, the rights are assessed as to whether they represent deliverables at the inception of the arrangement. In assessing these contingent deliverables, we consider whether the right is a substantive option. We consider a right to be a substantive option if the election of the additional targets is not essential to the functionality of the other elements in the arrangement and if we are truly at risk of the right being exercised. If the right is determined to be a substantive option, we further consider whether the right is priced at a significant and incremental discount that should be accounted for as an element of the arrangement. If a right is determined to be a substantive option and is not priced at a significant and incremental discount, it is not treated as a deliverable in the arrangement and receives no allocation at the inception of the arrangement of the original arrangement consideration. The right is then accounted for when and if it is exercised.
Certain of our collaborative agreements provide for milestone payments upon achievement of development and regulatory events and/or specified sales volumes of commercialized products by the collaborator. We account for milestone payments in accordance with the provisions of ASU No. 2010-17, Revenue Recognition - Milestone Method (“Milestone Method of Accounting”). We recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following criteria:
1.
The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone;
2.
The consideration relates solely to past performance; and
3.
The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.
A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to the vendor.
Reimbursements of research and development services are recognized as revenue during the period in which the services are performed as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured. Revenue from the manufacture of bulk rHuPH20 is recognized when the materials have met all specifications required for the collaborator’s acceptance and title and risk of loss have transferred to the collaborator. We do not directly control when any collaborator will request research and development services or supply of bulk rHuPH20; therefore, we cannot predict when we will recognize revenues in connection with research and development services and supply of bulk rHuPH20.
Since we receive royalty reports 60 days after quarter end, royalty revenue from sales of collaboration products by our collaborators is recognized in the quarter following the quarter in which the corresponding sales occurred.
The collaborative agreements typically provide the collaborators the right to terminate such agreement in whole or on a product-by-product or target-by-target basis at any time upon 30 to 90 days prior written notice to us. There are no performance, cancellation, termination or refund provisions in any of our collaborative agreements that contain material financial consequences to us.
Refer to Note 4, Collaborative Agreements, for further discussion on our collaborative arrangements.
Cost of Product Sales
Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, freight costs, internal costs and manufacturing overhead associated with the production of Hylenex recombinant and bulk rHuPH20 for use in approved collaboration products. Cost of product sales also consists of the write-down of excess, dated and obsolete inventories and the write-off of inventories that do not meet certain product specifications, if any.
Research and Development Expenses
Research and development expenses include salaries and benefits, facilities and other overhead expenses, external clinical trial expenses, research related manufacturing services, contract services and other outside expenses. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to our research and development efforts and have no alternative future uses. After receiving approval from the FDA or comparable regulatory agencies in foreign countries for a product, costs related to purchases and manufacturing of bulk rHuPH20 for such product are capitalized as inventory. The manufacturing costs of bulk rHuPH20 for the collaboration products, Herceptin SC, MabThera SC and HYQVIA, incurred after the receipt of marketing approvals are capitalized as inventory.
We are obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are deferred. Such amounts are recognized as expense as the related goods are delivered or the related services are performed or such time when we do not expect the goods to be delivered or services to be performed.
Milestone payments that we make in connection with in-licensed technology for a particular research and development project that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic value are expensed as research and development costs at the time the costs are incurred. We currently have no in-licensed technologies that have alternative future uses in research and development projects or otherwise.
Clinical Trial Expenses
We make payments in connection with our clinical trials under contracts with contract research organizations that support conducting and managing clinical trials. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. A portion of our obligation to make payments under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones.
Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
Share-Based Compensation
We record compensation expense associated with stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and RSUs with performance conditions (“PRSUs”) in accordance with the authoritative guidance for stock-based compensation. The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period of the award. Share-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of share-based compensation expense as they occur.
Income Taxes
We provide for income taxes using the liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities at each year end and their respective tax bases and are measured using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulations throughout the world. Deferred tax assets and other tax benefits are recorded when it is more likely than not that the position will be sustained upon audit. While we have begun to utilize certain of our net operating losses, we have not yet established a track record of profitability. Accordingly, valuation allowances have been recorded to reduce our net deferred tax assets to zero until such time we can demonstrate an ability to realize them.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Outstanding stock options, unvested RSAs, unvested RSUs and unvested PRSUs are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive. Because of our net loss, outstanding common stock equivalents totaling approximately 16.4 million and 13.0 million were excluded from the calculation of diluted net loss per common share for the three months ended March 31, 2017 and 2016, respectively, because their effect was anti-dilutive.
Segment Information
We operate our business in one segment, which includes all activities related to the research, development and commercialization of our proprietary enzymes. This segment also includes revenues and expenses related to (i) research and development and bulk rHuPH20 manufacturing activities conducted under our collaborative agreements with third parties and (ii) product sales of Hylenex recombinant. The chief operating decision-maker reviews the operating results on an aggregate basis and manages the operations as a single operating segment. Our long-lived assets located in foreign countries had minimal book value as of March 31, 2017 and December 31, 2016.
Adoption and Pending Adoption of Recent Accounting Pronouncements
The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
 
 
 
 
 
 
 
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory.
 
The new guidance requires that for entities that measure inventory using the first-in, first-out method, inventory should be measured at the lower of cost or net realizable value. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximate normal profit margin. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
 
January 1, 2017.
 
The adoption did not have a material impact on our condensed consolidated financial position or results of operations.
 
 
 
 
 
 
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash.
 
Current U.S. GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in ASU 2016-15. The new guidance is an improvement to U.S. GAAP and is intended to reduce the current and potential future diversity in practice. ASU 2016-18 provides additional classification guidance for restricted cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
 
January 1, 2018. We have elected to early adopt as of January1, 2017.
 
Cash and cash equivalents at the beginning-of-period and end-of-period total amounts in the Condensed Consolidated Statements of Cash Flows have been adjusted to include $0.5 million of restricted cash for each of the periods presented.
 
 
 
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall; Recognition and Measurement of Financial Assets and Financial Liabilities.
 
The new guidance supersedes the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance requires public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement.
 
January 1, 2018.
 
We currently do not hold equity securities, and we are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
 
 
 
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). In March, April, May and December 2016, the FASB issued additional guidance related to Topic 606.
 
The new standard will supersede nearly all existing revenue recognition guidance. Under Topic 606, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received in exchange for those goods or services. Topic 606 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The new standard also defines accounting for certain costs related to origination and fulfillment of contracts with customers, including whether such costs should be capitalized. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach where the new standard is applied in the financial statements starting with the year of adoption. Under both approaches, cumulative impact of the adoption is reflected as an adjustment to retained earnings (accumulated deficit) as of the earliest date presented in accordance with the new standard.


 
January 1, 2018. Early adoption is permitted.
 
We plan to implement the new guidance on January 1, 2018. We currently plan to adopt using the modified retrospective approach; however, a final decision regarding the adoption method has not been finalized at this time. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. However, we anticipate an impact to the timing of recognition of payments related to certain of our license and collaboration agreements (1) and the timing of recognition of our sales-based royalties.(2) We anticipate that this standard will have a material impact on our consolidated financial statements. Additional areas of impact may be identified as we continue our evaluation. We cannot reasonably estimate additional quantitative information related to the impact of the new standard on our consolidated financial statements at this time.

 
 
 
 
 
 
 
In February 2016, the FASB issued ASU 2016-02, Leases.
 
The new guidance requires lessees to recognize assets and liabilities for most leases and provides enhanced disclosures.
 
January 1, 2019. Early adoption is permitted.
 
We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. However, we anticipate recognition of additional assets and corresponding liabilities related to our leases on our consolidated balance sheet.

_______________
(1)
Under the new standard, we are required to assess whether licenses granted under our collaboration and license agreements are distinct from other performance obligations and functional when granted. We expect that license-related amounts, including upfront payments, exclusive designation fees, annual license maintenance fees and sales-based milestones will be recognized, generally, when earned. Currently, these amounts related to certain of our license and collaboration agreements are being amortized over the term of the collaboration agreement. For example, during the year ended December 31, 2016, we recognized revenue from amortization of license payments of $4.1 million, and total deferred revenue related to license payments under collaboration agreements as of December 31, 2016 was $43.9 million. While we have not completed our evaluation at this time, we anticipate a potential reduction or elimination of our associated deferred revenue balances upon adoption of Topic 606.
(2)
Under the new standard, we expect sales-based royalties will be recognized in the quarter they are earned based on estimates, with true-up to actual results following in the subsequent quarter. Sales-based royalty revenue earned under our collaboration and license agreements is presently recognized when the royalty reports are made available. Upon adoption of Topic 606, we will evaluate and reduce our accumulated deficit and increase our accounts receivable, net, by the amount earned but not yet reported in our consolidated balance sheet at the time of adoption. We are establishing a process to estimate sales-based royalty revenues in the quarter in which the sales occur.
Fair Value Measurement (Notes)
Fair Value Disclosures [Text Block]
Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
 
 
March 31, 2017
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Corporate debt securities
 
$
33,158

 
$

 
$
(18
)
 
$
33,140

U.S. Treasury securities
 
70,002

 
1

 
(29
)
 
69,974

Commercial paper
 
30,683

 

 

 
30,683

 
 
$
133,843

 
$
1

 
$
(47
)
 
$
133,797


 
 
December 31, 2016
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Corporate debt securities
 
$
40,221

 
$
1

 
$
(15
)
 
$
40,207

U.S. Treasury securities
 
94,002

 
24

 
(16
)
 
94,010

Commercial paper
 
$
4,000

 
$

 
$

 
$
4,000

 
 
$
138,223

 
$
25

 
$
(31
)
 
$
138,217


As of March 31, 2017, $124.8 million of our available-for-sale marketable securities were scheduled to mature within the next 12 months. As of March 31, 2017, eight available-for-sale marketable securities were in a gross unrealized loss position, all of which had been in such position for less than 12 months. Based on our review of these marketable securities, we believe we had no other-than-temporary impairments on these securities as of March 31, 2017 because we do not intend to sell these securities and it is not more-likely-than-not that we will be required to sell these securities before the recovery of their amortized cost basis.
The following table summarizes, by major security type, our cash equivalents and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
 
Level 1
 
Level 2
 
Total estimated fair value
 
Level 1
 
Level 2
 
Total estimated fair value
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
34,814

 
$

 
$
34,814

 
$
60,916

 
$

 
$
60,916

Commercial paper
 
 
 
4,000

 
4,000

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale marketable
   securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 

 
33,140

 
33,140

 

 
40,207

 
40,207

U.S. Treasury securities
 
69,974

 

 
69,974

 
94,010

 

 
94,010

Commercial paper
 

 
30,683

 
30,683

 

 
4,000

 
4,000

 
 
$
104,788

 
$
67,823

 
$
172,611

 
$
154,926

 
$
44,207

 
$
199,133


There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2017. We have no instruments that were classified within Level 3 as of March 31, 2017 and December 31, 2016.
Collaborative Agreements (Notes)
Collaborative Agreements
Collaborative Agreements
Roche Collaboration
In December 2006, we and Roche entered into a collaboration and license agreement, under which Roche obtained a worldwide license to develop and commercialize product combinations of rHuPH20 and up to thirteen Roche target compounds (the “Roche Collaboration”). Roche initially had the exclusive right to apply rHuPH20 to three pre-defined Roche biologic targets with the option to develop and commercialize rHuPH20 with ten additional targets. Roche had the right to exercise this option to identify additional targets for ten years. As of the ten year anniversary in December 2016, Roche had elected a total of eight targets, two of which are exclusive.
In August 2013, Roche received European marketing approval for its collaboration product, Herceptin SC, for the treatment of patients with HER2-positive breast cancer and launched Herceptin SC in the European Union (“EU”) in September 2013. In March 2014, Roche received European marketing approval for its collaboration product, MabThera SC, for the treatment of patients with common forms of non-Hodgkin lymphoma (“NHL”). In June 2014, Roche launched MabThera SC in the EU. In May 2016, Roche announced that the EMA approved Mabthera SC to treat patients with chronic lymphocytic leukemia (“CLL”). In November 2016, the FDA accepted Genentech’s (a member of the Roche Group) Biologics License Application (“BLA”) for a subcutaneous formulation of rituximab for CLL and NHL. This is a co-formulation with rHuPH20, which is approved and marketed under the MabThera SC brand in countries outside the U.S. In March 2017, an Oncologic Drug Advisory Committee of the FDA voted 11 to 0 that the benefit/risk of rituximab SC was favorable for patients in the proposed indications in CLL and two types of NHL, follicular lymphoma and diffuse large B-cell lymphoma. The FDA action date is June 26, 2017.
Roche assumes all development, manufacturing, clinical, regulatory, sales and marketing costs under the Roche Collaboration, while we are responsible for the supply of bulk rHuPH20. We are entitled to receive reimbursements for providing research and development services and supplying bulk rHuPH20 to Roche at its request.
Under the terms of the Roche Collaboration, Roche pays us a royalty on each product commercialized under the agreement consisting of a mid-single digit percent of the net sales of such product. Unless terminated earlier in accordance with its terms, the Roche Collaboration continues in effect until the expiration of Roche’s obligation to pay royalties. Roche has the obligation to pay royalties to us with respect to each product commercialized in each country, during the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the Roche Collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term.
Payments received from Roche, excluding royalties and reimbursements for providing research and development services and supplying bulk rHuPH20, since inception of the collaboration agreement are as follows (in thousands):
 
As of
March 31, 2017
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
$
20,000

Election of additional exclusive targets and annual license maintenance fees for the right to
   designate the remaining targets as exclusive targets
23,000

Clinical development milestone payments
13,000

Regulatory milestone payments
8,000

Sales-based milestone payments
15,000

Total payments received
$
79,000


Due to our continuing involvement obligations (for example, support activities associated with rHuPH20), revenues from the upfront payment, exclusive designation fees, annual license maintenance fees and sales-based milestone payments were deferred and are being amortized over the remaining term of the Roche Collaboration.
For each of the three months ended March 31, 2017 and 2016, we recognized $0.8 million of Roche deferred revenues, excluding reimbursements for providing research and development services and supplying bulk rHuPH20, as revenues under collaborative agreements. Total Roche deferred revenues, excluding deferred revenues related to reimbursements for providing research and development services and supplying bulk rHuPH20, were $34.9 million and $35.7 million as of March 31, 2017 and December 31, 2016, respectively.
Baxalta Collaboration
In September 2007, we and Baxalta entered into a collaboration and license agreement, under which Baxalta obtained a worldwide, exclusive license to develop and commercialize HYQVIA, a combination of Baxalta’s current product GAMMAGARD LIQUID and our patented rHuPH20 enzyme (the “Baxalta Collaboration”). In 2013, the European Commission granted Baxalta marketing authorization in all EU Member States for the use of HYQVIA (solution for subcutaneous use), a combination of GAMMAGARD LIQUID and rHuPH20 in dual vial units, as replacement therapy for adult patients with primary and secondary immunodeficiencies, and Baxalta launched HYQVIA in the EU. In 2014, Baxalta launched HYQVIA in the U.S following the FDA’s approval of HYQVIA for treatment of adult patients with primary immunodeficiency. In May 2016, Baxalta announced that HYQVIA received a marketing authorization from the European Commission for a pediatric indication, which is being launched in Europe to treat primary and certain secondary immunodeficiencies.
The Baxalta Collaboration is applicable to both kit and formulation combinations. Baxalta assumes all development, manufacturing, clinical, regulatory, sales and marketing costs under the Baxalta Collaboration, while we are responsible for the supply of bulk rHuPH20. We perform research and development activities and supply bulk rHuPH20 at the request of Baxalta, and are reimbursed by Baxalta under the terms of the Baxalta Collaboration. In addition, Baxalta has certain product development and commercialization obligations in major markets identified in the Baxalta Collaboration.
Under the terms of the Baxalta Collaboration, Baxalta pays us a royalty consisting of a mid-single digit percent of the net sales of HYQVIA. Unless terminated earlier in accordance with its terms, the Baxalta Collaboration continues in effect until the expiration of Baxalta’s obligation to pay royalties to us. Baxalta has the obligation to pay royalties to us, with respect to each product commercialized in each country, during the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the Baxalta Collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term.
Payments received from Baxalta, excluding royalties and reimbursements for providing research and development services and supplying bulk rHuPH20, since inception of the collaboration agreement are as follows (in thousands):
 
As of
March 31, 2017
Upfront license fee payment for the application of rHuPH20 to the initial exclusive target
$
10,000

Regulatory milestone payments
3,000

Sales-based milestone payments
4,000

Total payments received
$
17,000


Due to our continuing involvement obligations (for example, support activities associated with rHuPH20 enzyme), the upfront license fee and sales-based milestone payments were deferred and are being recognized over the term of the Baxalta Collaboration.
For each of the three months ended March 31, 2017 and 2016, we recognized $0.2 million of Baxalta deferred revenues, excluding reimbursements for providing research and development services and supplying bulk rHuPH20, as revenues under collaborative agreements. Total Baxalta deferred revenues, excluding reimbursements for providing research and development services and supplying bulk rHuPH20, were $8.0 million and $8.2 million as of March 31, 2017 and December 31, 2016, respectively.
Other Collaborations
In December 2015, we and Lilly entered into a collaboration and license agreement, under which Lilly has the worldwide license to develop and commercialize products combining our patented rHuPH20 enzyme with Lilly proprietary biologics directed at up to five targets (the “Lilly Collaboration”). Targets, once selected, will be on an exclusive, global basis, with the exception of one semi-exclusive target. As of March 31, 2017, Lilly has elected two specified exclusive targets and one specified semi-exclusive target. Lilly has the right to elect up to two additional targets for additional fees. The upfront license payment may be followed by event-based payments subject to Lilly’s achievement of specified development, regulatory and sales-based milestones. In addition, Lilly will pay royalties to us if products under the collaboration are commercialized. Unless terminated earlier in accordance with its terms, the Lilly Collaboration continues in effect until the later of: (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration. The royalty term of a product developed under the Lilly Collaboration, with respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term. Lilly may terminate the agreement prior to expiration for any reason in its entirety upon 60 days prior written notice to us. Upon any such termination, the license granted to Lilly (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
In June 2015, we and AbbVie entered into a collaboration and license agreement, under which AbbVie has the worldwide license to develop and commercialize products combining our patented rHuPH20 enzyme with AbbVie proprietary biologics directed at up to nine targets (the “AbbVie Collaboration”). Targets, once selected, will be on an exclusive, global basis. As of March 31, 2017, AbbVie has elected one specified exclusive target, and subsequently returned the target. AbbVie has the right to elect up to nine additional targets for additional fees. The upfront license payment may be followed by event-based payments subject to AbbVie’s achievement of specified development, regulatory and sales-based milestones. In addition, AbbVie will pay tiered royalties to us if products under the collaboration are commercialized. Unless terminated earlier in accordance with its terms, the AbbVie Collaboration continues in effect until the later of: (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration. The royalty term of a product developed under the AbbVie Collaboration, with respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term. AbbVie may terminate the agreement prior to expiration for any reason in its entirety or on a target-by-target basis upon 90 days prior written notice to us. Upon any such termination, the license granted to AbbVie (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
In December 2014, we and Janssen entered into a collaboration and license agreement, under which Janssen has the worldwide license to develop and commercialize products combining our patented rHuPH20 enzyme with Janssen proprietary biologics directed at up to five targets (the “Janssen Collaboration”). Targets, once selected, will be on an exclusive, global basis. As of March 31, 2017, Janssen has elected one specified exclusive target. Janssen has the right to elect four additional targets in the future upon payment of additional fees. In addition, Janssen will pay royalties to us if products under the collaboration are commercialized. Unless terminated earlier in accordance with its terms, the Janssen Collaboration continues in effect until the later of (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration. The royalty term of a product developed under the Janssen Collaboration, with respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. In the event such valid claims expire, the royalty rate is reduced for the remaining royalty term. Janssen may terminate the agreement prior to expiration for any reason in its entirety or on a product-by-product basis upon 90 days prior written notice to us. Upon any such termination, the license granted to Janssen (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
In December 2012, we and Pfizer entered into a collaboration and license agreement, under which Pfizer has the worldwide license to develop and commercialize products combining our patented rHuPH20 enzyme with Pfizer proprietary biologics directed at up to six targets (the “Pfizer Collaboration”). Targets may be selected on an exclusive or non-exclusive basis. As of March 31, 2017, Pfizer has elected five specified exclusive targets. In December 2016, Pfizer returned one of its elected targets. Pfizer has the right to elect two additional targets in the future upon payment of additional fees. In addition, Pfizer will pay royalties to us if products under the collaboration are commercialized. Unless terminated earlier in accordance with its terms, the Pfizer Collaboration continues in effect until the later of (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration. The royalty term of a product developed under the Pfizer Collaboration, with respect to each country, consists of the period equal to the longer of: (a) the duration of any valid claim of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers the product in such country or (b) ten years following the date of the first commercial sale of such product in such country. Royalties are subject to adjustment as set forth in the agreement. Pfizer may terminate the agreement prior to expiration for any reason in its entirety or on a target-by-target basis upon 30 days prior written notice to us. Upon any such termination, the license granted to Pfizer (in total or with respect to the terminated target, as applicable) will terminate, provided, however, that in the event of expiration of the agreement, the licenses granted will become perpetual, non-exclusive and fully paid.
Payments received from other collaborators for upfront license fees, license fees for the election of additional targets, maintenance fees and event-based payments since inception of the collaboration agreements are as follows (in thousands):
 
As of
March 31, 2017
Lilly
$
33,000

AbbVie
29,000

Janssen
15,250

Pfizer
16,500

Total payments received
$
93,750


At the inception of the Pfizer, Janssen, AbbVie and Lilly arrangements, we identified the deliverables in each arrangement to include the license, research and development services and supply of bulk rHuPH20. We have determined that the license, research and development services and supply of bulk rHuPH20 individually represent separate units of accounting, because each deliverable has standalone value. We determined that the rights to elect additional targets in the future upon the payment of additional license fees are substantive options that are not priced at a significant and incremental discount. Therefore, we determined for each collaboration that the rights to elect additional targets are not deliverables at the inception of the arrangement. The estimated selling prices for the units of accounting we identified were determined based on market conditions, the terms of comparable collaborative arrangements for similar technology in the pharmaceutical and biotech industry and entity-specific factors such as the terms of our previous collaborative agreements, our pricing practices and pricing objectives. The arrangement consideration was allocated to the deliverables based on the relative selling price method and the nature of the research and development services to be performed for the collaborator.
The amount allocable to the delivered unit or units of accounting is limited to the amount that is not contingent upon the delivery of additional items or meeting other specified performance conditions (non-contingent amount). As such, we excluded from the allocable arrangement consideration the event-based payments, milestone payments, annual exclusivity fees and royalties regardless of the probability of receipt. Based on the results of our analysis, we allocated the $12.5 million license fees from Pfizer, the $15.3 million license fee from Janssen, the $23.0 million upfront license fee from AbbVie and the $33.0 million license fees from Lilly to the license fee deliverable under each of the arrangements. We determined that the upfront payments were earned upon the granting of the worldwide, exclusive right to our technology to the collaborators in these arrangements. As a result, we recognized the $12.5 million license fees under the Pfizer Collaboration, the $15.3 million license fee under the Janssen Collaboration, the $23.0 million upfront license fee under the AbbVie Collaboration, and the $33.0 million license fees under the Lilly Collaboration as revenues under collaborative agreements in the period when such license fees were earned. We recognized no revenue for the three months ended March 31, 2017 and $6.0 million for the three months ended March 31, 2016 related to event-based payments or milestone payments under these collaborations.
The collaborators are each solely responsible for the development, manufacturing and marketing of any products resulting from their respective collaborations. We are entitled to receive payments for research and development services and supply of bulk rHuPH20 if requested by any collaborator. We recognize amounts allocated to research and development services as revenues under collaborative agreements as the related services are performed. We recognize amounts allocated to the sales of bulk rHuPH20 as revenues under collaborative agreements or product sales, as appropriate, when such bulk rHuPH20 has met all required specifications by the collaborators and the related title and risk of loss and damages have passed to the collaborators. We cannot predict the timing of delivery of research and development services and bulk rHuPH20 as they are at the collaborators’ requests.
Pursuant to the terms of our collaboration agreements with Roche and Pfizer, certain future payments meet the definition of a milestone in accordance with the Milestone Method of Accounting. We are entitled to receive additional milestone payments under our collaboration agreements with Roche and Pfizer for the successful development of the elected targets in the aggregate of up to $62.5 million upon achievement of specified clinical development milestone events and up to $12.0 million upon achievement of specified regulatory milestone events in connection with specified regulatory filings and receipt of marketing approvals.
Certain Balance Sheet Items (Notes)
Certain Balance Sheet Items
Certain Balance Sheet Items
Accounts receivable, net consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Accounts receivable from product sales to collaborators
 
$
8,023

 
$
7,854

Accounts receivable from other product sales
 
2,090

 
2,234

Accounts receivable from revenues under collaborative agreements
 
2,921

 
6,151

     Subtotal
 
13,034

 
16,239

Allowance for distribution fees and discounts
 
(582
)
 
(559
)
     Total accounts receivable, net
 
$
12,452

 
$
15,680


Inventories consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Raw materials
 
$
868

 
$
761

Work-in-process
 
12,885

 
12,850

Finished goods
 
537

 
1,012

     Total inventories
 
$
14,290

 
$
14,623


Prepaid expenses and other assets consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Prepaid manufacturing expenses
 
$
6,327

 
$
9,663

Prepaid research and development expenses
 
8,345

 
8,613

Other prepaid expenses
 
1,525

 
1,661

Other assets
 
602

 
1,530

     Total prepaid expenses and other assets
 
16,799

 
21,467

Less long-term portion
 
172

 
219

     Total prepaid expenses and other assets, current
 
$
16,627

 
$
21,248


Prepaid manufacturing expenses include slot reservation fees and other amounts paid to contract manufacturing organizations. Such amounts are reclassified to work-in-process inventory once the manufacturing process has commenced.
Property and equipment, net consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Research equipment
 
$
10,483

 
$
10,479

Computer and office equipment
 
3,395

 
3,373

Leasehold improvements
 
2,345

 
2,331

     Subtotal
 
16,223

 
16,183

Accumulated depreciation and amortization
 
(12,482
)
 
(11,919
)
     Property and equipment, net
 
$
3,741

 
$
4,264

Depreciation and amortization expense totaled $0.6 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively.
Accrued expenses consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Accrued outsourced research and development expenses
 
$
11,970

 
$
9,522

Accrued compensation and payroll taxes
 
5,045

 
11,539

Accrued outsourced manufacturing expenses
 
3,670

 
3,225

Other accrued expenses
 
4,276

 
4,552

     Total accrued expenses
 
24,961

 
28,838

Less long-term portion
 
26

 
17

     Total accrued expenses, current
 
$
24,935

 
$
28,821



Deferred revenue consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Collaborative agreements
 
 
 
 
License fees and event-based payments:
 
 
 
 
Roche
 
$
34,877

 
$
35,709

Other
 
8,018

 
8,209

 
 
42,895

 
43,918

Reimbursement for research and development services
 

 
700

Total deferred revenue
 
42,895

 
44,618

Less current portion
 
4,093

 
4,793

Deferred revenue, net of current portion
 
$
38,802

 
$
39,825

Long-Term Debt, Net (Notes)
Long-term Debt
Long-Term Debt, Net
Royalty-backed Loan
In January 2016, through our wholly-owned subsidiary Halozyme Royalty LLC (“Halozyme Royalty”), we received a $150 million loan (the “Royalty-backed Loan”) pursuant to a credit agreement (the “Credit Agreement”) with BioPharma Credit Investments IV Sub, LP and Athyrium Opportunities II Acquisition LP (the “Royalty-backed Lenders”). Under the terms of the Credit Agreement, Halozyme Therapeutics, Inc. transferred to Halozyme Royalty the right to receive royalty payments from the commercial sales of ENHANZE products owed under the Roche Collaboration and Baxalta Collaboration (“Collaboration Agreements”). The royalty payments from the Collaboration Agreements will be used to repay the principal and interest on the loan (the “Royalty Payments”).  The Royalty-backed Loan bears interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate is subject to a floor of 0.7% and a cap of 1.5%. The interest rate as of March 31, 2017 was 9.9%.
The Credit Agreement provides that none of the Royalty Payments were required to be applied to the Royalty-backed Loan prior to January 1, 2017, 50% of the Royalty Payments are required to be applied to the Royalty-backed Loan between January 1, 2017 and January 1, 2018 and thereafter all Royalty Payments must be applied to the Royalty-backed Loan. However, the amounts available to repay the Royalty-backed Loan are subject to caps of $13.75 million per quarter in 2017, $18.75 million per quarter in 2018, $21.25 million per quarter in 2019 and $22.5 million per quarter in 2020 and thereafter. Amounts available to repay the Royalty-backed Loan will be applied first to pay interest and second to repay principal on the Royalty-backed Loan. Any accrued interest that is not paid on any applicable quarterly payment date, as defined, will be capitalized and added to the principal balance of the Royalty-backed Loan on such date. Halozyme Royalty will be entitled to receive and distribute to Halozyme any Royalty Payments that are not required to be applied to the Royalty-backed Loan or which are in excess of the foregoing caps.
Because the repayment of the term loan is contingent upon the level of Royalty Payments received, the repayment term may be shortened or extended depending on the actual level of Royalty Payments. The final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050.  Currently, we estimate that the loan will be repaid in the first quarter of 2020. This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected. Under the terms of the Credit Agreement, at any time after January 1, 2019, Halozyme Royalty may, subject to certain limitations, prepay the outstanding principal of the Royalty-backed Loan in whole or in part, at a price equal to 105% of the outstanding principal on the Royalty-backed Loan, plus accrued but unpaid interest. The Royalty-backed Loan constitutes an obligation of Halozyme Royalty, and is non-recourse to Halozyme. Halozyme Royalty retains its right to the Royalty Payments following repayment of the loan.
As of March 31, 2017, we were in compliance with all covenants under the Royalty-backed Loan and there was no material adverse change in our business, operations or financial condition.
During the three months ended March 31, 2016, accrued interest in the amount of $1.9 million was capitalized and added to the principal balance of the Royalty-backed Loan. We began making principal and interest payments against the Royalty-backed Loan in the first quarter of 2017 and therefore had no capitalized interest in the three months ended March 31, 2017. In addition, we recorded accrued interest, which is included in accrued expenses, of $0.7 million as of March 31, 2017 and December 31, 2016.
In connection with the Royalty-backed Loan, we paid the Royalty-backed Lenders a fee of $1.5 million and incurred additional debt issuance costs totaling $0.4 million, which includes expenses that we paid on behalf of the Royalty-backed Lenders and expenses incurred directly by us. Debt issuance costs and the lender fee have been netted against the debt as of March 31, 2017, and are being amortized over the estimated term of the debt using the effective interest method. For the three months ended March 31, 2017 and 2016, the Company recognized interest expense, including amortization of the debt discount, related to the Royalty-backed Loan of $4.0 million and $2.6 million, respectively. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the short- and long-term classification of these costs, as well as the period over which these costs will be amortized. The outstanding balance of the Royalty-backed Loan as of March 31, 2017 was $158.9 million, inclusive of payment-in-kind interest expense of $10.2 million and net of unamortized debt discount of $1.3 million.
Oxford and SVB Loan and Security Agreement
In December 2013, we entered into an Amended and Restated Loan and Security Agreement (the “Original Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (collectively, the “Lenders”), amending and restating in its entirety our previous loan agreement with the Lenders, dated December 2012. The Original Loan Agreement provided for an additional $20 million principal amount of new term loan, bringing the total term loan balance to $50 million. The amended term loan facility was scheduled to mature on January 1, 2018.
In January 2015, we entered into the second amendment to the Original Loan Agreement with the Lenders, amending and restating the term loan repayment schedules of the Original Loan Agreement. The amended and restated term loan repayment schedule provided for interest only payments through January 2016, followed by consecutive equal monthly payments of principal and interest in arrears starting in February 2016 and continuing through the previously established maturity date of January 1, 2018. Consistent with the original loan, the amended Original Loan Agreement provided for a 7.55% interest rate on the term loan and a final payment equal to 8.5% of the original principal amount, or $4.25 million, which was due when the term loan became due or upon the prepayment of the facility.
In June 2016, we entered into a Loan and Security Agreement (the “Loan Agreement”) with the Lenders, providing a senior secured loan facility of up to an aggregate principal amount of $70.0 million, comprising a $55.0 million draw in June 2016 and an additional $15.0 million tranche, which we have the option to draw during the second quarter of 2017. The initial proceeds carry an interest rate of 8.25% and were partially used to pay the outstanding principal and final payment of $4.25 million owed on the previous loan agreement with the Lenders. The remaining proceeds, including any drawdown of the additional $15.0 million, are to be used for working capital and general business requirements. The remaining $15.0 million tranche is subject to an annual interest rate equal to the prime rate as reported in The Wall Street Journal on the draw-down date plus 4.75%. The repayment schedule provides for interest only payments for the first 18 months, followed by consecutive equal monthly payments of principal and interest in arrears through the maturity date of January 1, 2021. The Loan Agreement provides for a final payment equal to 5.50% of the initial $55.0 million principal amount and, if we exercise our option to draw an additional $15.0 million in 2017, 7.25% of the principal amount of the second draw. The final payment is due when the Loan Agreement becomes due or upon the prepayment of the facility. We have the option to prepay the outstanding balance of the Loan Agreement in full, subject to a prepayment fee of 2% in the first year and 1% in the second year of the Loan Agreement.
In connection with the Loan Agreement, the debt offering costs have been recorded as a debt discount in our condensed consolidated balance sheets which, together with the final payment and fixed interest rate payments, are being amortized and recorded as interest expense throughout the life of the loan using the effective interest rate method.
The Loan Agreement is secured by substantially all of the assets of the Company and our subsidiary, Halozyme, Inc., except that the collateral does not include any equity interests in Halozyme, Inc., any of our intellectual property (including all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt; enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same; and make any voluntary prepayment of or modify certain terms of the Royalty-backed Loan. In addition, subject to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and commodities, and to do the same for our subsidiary, Halozyme, Inc.
The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of our obligations under the Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, a material impairment in the perfection or priority of the Lender’s lien in the collateral or in the value of such collateral or the occurrence of an event of default under the Royalty-backed Loan. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm our financial condition.
 As of March 31, 2017, we were in compliance with all covenants under the Loan Agreement and there was no material adverse change in our business, operations or financial condition.
Interest expense, including amortization of the debt discount, related to the Loan Agreement totaled $1.4 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively. Accrued interest, which is included in accrued expenses, was $0.4 million and $1.1 million as of March 31, 2017 and December 31, 2016, respectively. The outstanding term loan balance was $55.1 million as of March 31, 2017, inclusive of $0.1 million of accretion of the final payment and net of unamortized debt discount of $2.9 million.
Share-based Compensation (Notes)
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Share-based Compensation
Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Research and development
 
$
3,274

 
$
2,584

Selling, general and administrative
 
4,041

 
3,233

Share-based compensation expense
 
$
7,315

 
$
5,817


Share-based compensation expense by type of share-based award (in thousands):
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Stock options
 
$
4,749

 
$
3,708

RSAs, RSUs and PRSUs
 
2,566

 
2,109

 
 
$
7,315

 
$
5,817


We granted stock options to purchase approximately 2.2 million and 2.8 million shares of common stock during the three months ended March 31, 2017 and 2016, respectively. The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model (“Black-Scholes model”). Expected volatility is based on historical volatility of our common stock. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments. The assumptions used in the Black-Scholes model were as follows:
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Expected volatility
 
71.0-71.7%
 
67.5-69.1%
Average expected term (in years)
 
5.6
 
5.4
Risk-free interest rate
 
1.92-1.94%
 
1.27-1.73%
Expected dividend yield
 
 

Total unrecognized estimated compensation cost by type of award and the weighted-average remaining requisite service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):
 
 
March 31, 2017
 
 
Unrecognized
Expense
 
Remaining
Weighted-Average
Recognition Period
(years)
Stock options
 
$
53,470

 
2.9
RSAs
 
$
7,281

 
2.1
RSUs
 
$
22,742

 
3.3
Stockholders' Deficit
Stockholders' Deficit
Stockholders’ Deficit
During the three months ended March 31, 2017 and 2016, we issued an aggregate of 74,522 and 156,185 shares of common stock, respectively, in connection with the exercises of stock options at a weighted average exercise price of $7.78 and $6.22 per share, respectively, for net proceeds of approximately $0.6 million and $1.0 million, respectively. For the three months ended March 31, 2017 and 2016, we issued 252,305 and 106,389 shares of common stock, respectively, upon vesting of certain RSUs for which the RSU holders surrendered 79,499 and 70,288 RSUs, respectively, to pay for minimum withholding taxes totaling approximately $1.7 million and $0.7 million, respectively. In addition, we issued zero and 807,036 shares of common stock in connection with the grants of RSAs during the three months ended March 31, 2017 and 2016, respectively. Stock options and unvested restricted units totaling approximately 15.5 million shares and 12.5 million shares of our common stock were outstanding as of March 31, 2017 and December 31, 2016, respectively.
Commitments and Contingencies
Commitments and Contingencies
Commitments and Contingencies
From time to time, we may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of our business. Any of these claims could subject us to costly legal expenses and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial position.
Summary of Significant Accounting Policies (Policies)
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 28, 2017. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year.
The accompanying condensed consolidated financial statements include the accounts of Halozyme Therapeutics, Inc. and our wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC and Halozyme Switzerland GmbH. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.
Cash Equivalents and Marketable Securities
Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within ninety days or less from the date of purchase. As of March 31, 2017, our cash equivalents consisted of money market funds and commercial paper.
Marketable securities are investments with original maturities of more than ninety days from the date of purchase that are specifically identified to fund current operations. Marketable securities are considered available-for-sale. These investments are classified as current assets, even though the stated maturity date may be one year or more beyond the current balance sheet date which reflects management’s intention to use the proceeds from the sale of these investments to fund our operations, as necessary. Such available-for-sale investments are carried at fair value with unrealized gains and losses recorded in other comprehensive gain (loss) and included as a separate component of stockholders’ deficit. The cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such amortization or accretion is included in investment and other income, net in the condensed consolidated statements of operations. We use the specific identification method for calculating realized gains and losses on marketable securities sold. Realized gains and losses and declines in value judged to be other-than-temporary on marketable securities, if any, are included in investment and other income, net in the condensed consolidated statements of operations.
Restricted Cash
Under the terms of the leases of our facilities, we are required to maintain letters of credit as security deposits during the terms of such leases.
Fair Value of Financial Instruments
The authoritative guidance for fair value measurements establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and long-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on Level 3 inputs and the borrowing rates currently available for loans with similar terms, we believe the fair value of long-term debt approximates its carrying value.
Available-for-sale marketable securities consist of corporate debt securities, U.S. Treasury securities and commercial paper, and are measured at fair value using Level 1 and Level 2 inputs. Level 2 financial instruments are valued using market prices on less active markets and proprietary pricing valuation models with observable inputs, including interest rates, yield curves, maturity dates, issue dates, settlement dates, reported trades, broker-dealer quotes, issue spreads, benchmark securities or other market related data. We obtain the fair value of Level 2 investments from our investment manager, who obtains these fair values from a third-party pricing source. We validate the fair values of Level 2 financial instruments provided by our investment manager by comparing these fair values to a third-party pricing source.
Inventories
Inventories are stated at lower of cost or net realizable value. Cost is determined on a first-in, first-out basis. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories are reviewed periodically for potential excess, dated or obsolete status. We evaluate the carrying value of inventories on a regular basis, taking into account such factors as historical and anticipated future sales compared to quantities on hand, the price we expect to obtain for products in their respective markets compared with historical cost and the remaining shelf life of goods on hand.
Prior to receiving marketing approval from the U.S. Food and Drug Administration (“FDA”) or comparable regulatory agencies in foreign countries, costs related to purchases of bulk rHuPH20 and raw materials and the manufacturing of the product candidates are recorded as research and development expense. All direct manufacturing costs incurred after receiving marketing approval are capitalized as inventory. Inventories used in clinical trials are expensed at the time the inventories are packaged for the clinical trials.
Revenue Recognition
We generate revenues from product sales and payments received under collaborative agreements. Collaborative agreement payments may include nonrefundable fees at the inception of the agreements, license fees, milestone and event-based payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and supply of bulk rHuPH20, and/or royalties on sales of products resulting from collaborative arrangements.
We recognize revenues in accordance with the authoritative guidance for revenue recognition. We recognize revenue when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.
Product Sales, Net
Hylenex Recombinant
We sell Hylenex recombinant in the U.S. to wholesale pharmaceutical distributors, who sell the product to hospitals and other end-user customers. Sales to wholesalers provide for selling prices that are fixed on the date of sale, although we offer discounts to certain group purchasing organizations (“GPOs”), hospitals and government programs. The wholesalers take title to the product, bear the risk of loss of ownership and have economic substance to the inventory. Further, we have no significant obligations for future performance to generate pull-through sales.
We have developed sufficient historical experience and data to reasonably estimate future returns and chargebacks of Hylenex recombinant. As a result, we recognize Hylenex recombinant product sales and related cost of product sales at the time title transfers to the wholesalers.
Upon recognition of revenue from product sales of Hylenex recombinant, we record certain sales reserves and allowances as a reduction to gross revenue. These reserves and allowances include amounts for product returns (based primarily on an analysis of historical return patterns), distribution fees, prompt payment discounts, and GPO fees and other discounts and fees.
We recognize product sales reserves and allowances as a reduction of product sales in the same period the related revenue is recognized. Because of the shelf life of Hylenex recombinant and our lengthy return period, there may be a significant period of time between when the product is shipped and when we issue credits on returned product. If actual product return results differ from our estimates, we will be required to make adjustments to these allowances in the future, which could have an effect on product sales revenue and earnings in the period of adjustments.
Bulk rHuPH20
Subsequent to receiving marketing approval from the FDA or comparable regulatory agencies in foreign countries, sales of bulk rHuPH20 for use in collaboration commercial products are recognized as product sales when the materials have met all the specifications required for the customer’s acceptance and title and risk of loss have transferred to the customer. Following the receipt of European marketing approvals of Roche’s Herceptin SC product in August 2013 and MabThera® SC product in March 2014 and Baxalta’s HYQVIA product in May 2013, revenue from the sales of bulk rHuPH20 for these collaboration products has been recognized as product sales.
Revenues under Collaborative Agreements
We have entered into license and collaboration agreements under which our collaborators obtained worldwide rights for the use of our proprietary rHuPH20 enzyme in the development and commercialization of their biologic compounds identified as targets. These agreements may also contain other elements. Pursuant to the terms of these agreements, collaborators could be required to make various payments to us for each target, including nonrefundable upfront license fees, exclusivity fees, payments based on achievement of specified milestones designated in the collaborative agreements, annual maintenance fees, reimbursements of research and development services, payments for supply of bulk rHuPH20 used by the collaborator and/or royalties on sales of products resulting from collaborative agreements.
In order to account for the multiple-element arrangements, we identify the deliverables included within the collaborative agreement and evaluate which deliverables represent units of accounting. We then determine the appropriate method of revenue recognition for each unit based on the nature and timing of the delivery process. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver services, a right or license to use an asset, or another performance obligation. The deliverables under our collaborative agreements include (i) the license to our rHuPH20 technology, (ii) at the collaborator’s request, research and development services which are reimbursed at contractually determined rates, and (iii) at the collaborator’s request, supply of bulk rHuPH20 which is reimbursed at our cost plus a margin. A delivered item is considered a separate unit of accounting when the delivered item has value to the collaborator on a standalone basis based on the consideration of the relevant facts and circumstances for each arrangement. We base this determination on the collaborators’ ability to use the delivered items on their own without us supplying undelivered items, which we determine taking into consideration factors such as the research capabilities of the collaborator, the availability of research expertise in this field in the general marketplace, and the ability to procure the supply of bulk rHuPH20 from the marketplace.
Arrangement consideration is allocated at the inception of the agreement to all identified units of accounting based on their relative selling price. The relative selling price for each deliverable is determined using vendor specific objective evidence (“VSOE”) of selling price or third-party evidence of selling price if VSOE does not exist. If neither VSOE nor third-party evidence of selling price exists, we use our best estimate of the selling price for the deliverable. The amount of allocable arrangement consideration is limited to amounts that are not contingent upon the delivery of additional items or meeting other specified performance conditions. The consideration received is allocated among the separate units of accounting and the applicable revenue recognition criteria are applied to each of the separate units. Changes in the allocation of the sales price between delivered and undelivered elements can impact revenue recognition but do not change the total revenue recognized under any agreement.
Nonrefundable upfront license fees are recognized upon delivery of the license if facts and circumstances dictate that the license has standalone value from the undelivered items, which generally include research and development services and the manufacture of bulk rHuPH20, the relative selling price allocation of the license is equal to or exceeds the upfront license fee, persuasive evidence of an arrangement exists, our price to the collaborator is fixed or determinable and collectibility is reasonably assured. Upfront license fees are deferred if facts and circumstances dictate that the license does not have standalone value. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period.
When collaborators have rights to elect additional targets, the rights are assessed as to whether they represent deliverables at the inception of the arrangement. In assessing these contingent deliverables, we consider whether the right is a substantive option. We consider a right to be a substantive option if the election of the additional targets is not essential to the functionality of the other elements in the arrangement and if we are truly at risk of the right being exercised. If the right is determined to be a substantive option, we further consider whether the right is priced at a significant and incremental discount that should be accounted for as an element of the arrangement. If a right is determined to be a substantive option and is not priced at a significant and incremental discount, it is not treated as a deliverable in the arrangement and receives no allocation at the inception of the arrangement of the original arrangement consideration. The right is then accounted for when and if it is exercised.
Certain of our collaborative agreements provide for milestone payments upon achievement of development and regulatory events and/or specified sales volumes of commercialized products by the collaborator. We account for milestone payments in accordance with the provisions of ASU No. 2010-17, Revenue Recognition - Milestone Method (“Milestone Method of Accounting”). We recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following criteria:
1.
The consideration is commensurate with either the entity’s performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone;
2.
The consideration relates solely to past performance; and
3.
The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.
A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity’s performance or on the occurrence of a specific outcome resulting from the entity’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved, and (iii) that would result in additional payments being due to the vendor.
Reimbursements of research and development services are recognized as revenue during the period in which the services are performed as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured. Revenue from the manufacture of bulk rHuPH20 is recognized when the materials have met all specifications required for the collaborator’s acceptance and title and risk of loss have transferred to the collaborator. We do not directly control when any collaborator will request research and development services or supply of bulk rHuPH20; therefore, we cannot predict when we will recognize revenues in connection with research and development services and supply of bulk rHuPH20.
Since we receive royalty reports 60 days after quarter end, royalty revenue from sales of collaboration products by our collaborators is recognized in the quarter following the quarter in which the corresponding sales occurred.
The collaborative agreements typically provide the collaborators the right to terminate such agreement in whole or on a product-by-product or target-by-target basis at any time upon 30 to 90 days prior written notice to us. There are no performance, cancellation, termination or refund provisions in any of our collaborative agreements that contain material financial consequences to us.
Cost of Product Sales
Cost of product sales consists primarily of raw materials, third-party manufacturing costs, fill and finish costs, freight costs, internal costs and manufacturing overhead associated with the production of Hylenex recombinant and bulk rHuPH20 for use in approved collaboration products. Cost of product sales also consists of the write-down of excess, dated and obsolete inventories and the write-off of inventories that do not meet certain product specifications, if any.
Research and Development Expenses
Research and development expenses include salaries and benefits, facilities and other overhead expenses, external clinical trial expenses, research related manufacturing services, contract services and other outside expenses. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to our research and development efforts and have no alternative future uses. After receiving approval from the FDA or comparable regulatory agencies in foreign countries for a product, costs related to purchases and manufacturing of bulk rHuPH20 for such product are capitalized as inventory. The manufacturing costs of bulk rHuPH20 for the collaboration products, Herceptin SC, MabThera SC and HYQVIA, incurred after the receipt of marketing approvals are capitalized as inventory.
We are obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are deferred. Such amounts are recognized as expense as the related goods are delivered or the related services are performed or such time when we do not expect the goods to be delivered or services to be performed.
Milestone payments that we make in connection with in-licensed technology for a particular research and development project that have no alternative future uses (in other research and development projects or otherwise) and therefore no separate economic value are expensed as research and development costs at the time the costs are incurred.
Clinical Trial Expenses
We make payments in connection with our clinical trials under contracts with contract research organizations that support conducting and managing clinical trials. The financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. A portion of our obligation to make payments under these contracts depends on factors such as the successful enrollment or treatment of patients or the completion of other clinical trial milestones.
Expenses related to clinical trials are accrued based on our estimates and/or representations from service providers regarding work performed, including actual level of patient enrollment, completion of patient studies and progress of the clinical trials. Other incidental costs related to patient enrollment or treatment are accrued when reasonably certain. If the amounts we are obligated to pay under our clinical trial agreements are modified (for instance, as a result of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to our contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
Share-Based Compensation
We record compensation expense associated with stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and RSUs with performance conditions (“PRSUs”) in accordance with the authoritative guidance for stock-based compensation. The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period of the award. Share-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of share-based compensation expense as they occur.
Income Taxes
We provide for income taxes using the liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities at each year end and their respective tax bases and are measured using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulations throughout the world. Deferred tax assets and other tax benefits are recorded when it is more likely than not that the position will be sustained upon audit. While we have begun to utilize certain of our net operating losses, we have not yet established a track record of profitability. Accordingly, valuation allowances have been recorded to reduce our net deferred tax assets to zero until such time we can demonstrate an ability to realize them.
Net Loss Per Share
Basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. Outstanding stock options, unvested RSAs, unvested RSUs and unvested PRSUs are considered common stock equivalents and are only included in the calculation of diluted earnings per common share when net income is reported and their effect is dilutive.
Segment Information
We operate our business in one segment, which includes all activities related to the research, development and commercialization of our proprietary enzymes. This segment also includes revenues and expenses related to (i) research and development and bulk rHuPH20 manufacturing activities conducted under our collaborative agreements with third parties and (ii) product sales of Hylenex recombinant. The chief operating decision-maker reviews the operating results on an aggregate basis and manages the operations as a single operating segment.
Adoption and Pending Adoption of Recent Accounting Pronouncements
The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
 
 
 
 
 
 
 
In July 2015, the FASB issued ASU 2015-11, Inventory: Simplifying the Measurement of Inventory.
 
The new guidance requires that for entities that measure inventory using the first-in, first-out method, inventory should be measured at the lower of cost or net realizable value. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximate normal profit margin. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
 
January 1, 2017.
 
The adoption did not have a material impact on our condensed consolidated financial position or results of operations.
 
 
 
 
 
 
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash.
 
Current U.S. GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in ASU 2016-15. The new guidance is an improvement to U.S. GAAP and is intended to reduce the current and potential future diversity in practice. ASU 2016-18 provides additional classification guidance for restricted cash, which requires that restricted cash be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
 
January 1, 2018. We have elected to early adopt as of January1, 2017.
 
Cash and cash equivalents at the beginning-of-period and end-of-period total amounts in the Condensed Consolidated Statements of Cash Flows have been adjusted to include $0.5 million of restricted cash for each of the periods presented.
 
 
 
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall; Recognition and Measurement of Financial Assets and Financial Liabilities.
 
The new guidance supersedes the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income. The new guidance requires public business entities that are required to disclose fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion consistent with Topic 820, Fair Value Measurement.
 
January 1, 2018.
 
We currently do not hold equity securities, and we are evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
 
 
 
 
 
 
 
Standard
 
Description
 
Effective Date
 
Effect on the Financial
Statements or Other Significant Matters
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). In March, April, May and December 2016, the FASB issued additional guidance related to Topic 606.
 
The new standard will supersede nearly all existing revenue recognition guidance. Under Topic 606, an entity is required to recognize revenue upon transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received in exchange for those goods or services. Topic 606 defines a five-step process in order to achieve this core principle, which may require the use of judgment and estimates, and also requires expanded qualitative and quantitative disclosures relating to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including significant judgments and estimates used. The new standard also defines accounting for certain costs related to origination and fulfillment of contracts with customers, including whether such costs should be capitalized. The new standard permits adoption either by using (i) a full retrospective approach for all periods presented in the period of adoption or (ii) a modified retrospective approach where the new standard is applied in the financial statements starting with the year of adoption. Under both approaches, cumulative impact of the adoption is reflected as an adjustment to retained earnings (accumulated deficit) as of the earliest date presented in accordance with the new standard.


 
January 1, 2018. Early adoption is permitted.
 
We plan to implement the new guidance on January 1, 2018. We currently plan to adopt using the modified retrospective approach; however, a final decision regarding the adoption method has not been finalized at this time. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. However, we anticipate an impact to the timing of recognition of payments related to certain of our license and collaboration agreements (1) and the timing of recognition of our sales-based royalties.(2) We anticipate that this standard will have a material impact on our consolidated financial statements. Additional areas of impact may be identified as we continue our evaluation. We cannot reasonably estimate additional quantitative information related to the impact of the new standard on our consolidated financial statements at this time.

 
 
 
 
 
 
 
In February 2016, the FASB issued ASU 2016-02, Leases.
 
The new guidance requires lessees to recognize assets and liabilities for most leases and provides enhanced disclosures.
 
January 1, 2019. Early adoption is permitted.
 
We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. However, we anticipate recognition of additional assets and corresponding liabilities related to our leases on our consolidated balance sheet.
Fair Value Measurement (Tables)
Available-for-sale marketable securities consisted of the following (in thousands):
 
 
March 31, 2017
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Corporate debt securities
 
$
33,158

 
$

 
$
(18
)
 
$
33,140

U.S. Treasury securities
 
70,002

 
1

 
(29
)
 
69,974

Commercial paper
 
30,683

 

 

 
30,683

 
 
$
133,843

 
$
1

 
$
(47
)
 
$
133,797


 
 
December 31, 2016
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Corporate debt securities
 
$
40,221

 
$
1

 
$
(15
)
 
$
40,207

U.S. Treasury securities
 
94,002

 
24

 
(16
)
 
94,010

Commercial paper
 
$
4,000

 
$

 
$

 
$
4,000

 
 
$
138,223

 
$
25

 
$
(31
)
 
$
138,217

The following table summarizes, by major security type, our cash equivalents and marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
 
 
March 31, 2017
 
December 31, 2016
 
 
Level 1
 
Level 2
 
Total estimated fair value
 
Level 1
 
Level 2
 
Total estimated fair value
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
34,814

 
$

 
$
34,814

 
$
60,916

 
$

 
$
60,916

Commercial paper
 
 
 
4,000

 
4,000

 

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale marketable
   securities:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 

 
33,140

 
33,140

 

 
40,207

 
40,207

U.S. Treasury securities
 
69,974

 

 
69,974

 
94,010

 

 
94,010

Commercial paper
 

 
30,683

 
30,683

 

 
4,000

 
4,000

 
 
$
104,788

 
$
67,823

 
$
172,611

 
$
154,926

 
$
44,207

 
$
199,133

Collaborative Agreements Collaborative Agreements (Tables)
 
As of
March 31, 2017
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
$
20,000

Election of additional exclusive targets and annual license maintenance fees for the right to
   designate the remaining targets as exclusive targets
23,000

Clinical development milestone payments
13,000

Regulatory milestone payments
8,000

Sales-based milestone payments
15,000

Total payments received
$
79,000

 
As of
March 31, 2017
Upfront license fee payment for the application of rHuPH20 to the initial exclusive target
$
10,000

Regulatory milestone payments
3,000

Sales-based milestone payments
4,000

Total payments received
$
17,000

 
As of
March 31, 2017
Lilly
$
33,000

AbbVie
29,000

Janssen
15,250

Pfizer
16,500

Total payments received
$
93,750

Certain Balance Sheet Items (Tables)
Accounts receivable, net consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Accounts receivable from product sales to collaborators
 
$
8,023

 
$
7,854

Accounts receivable from other product sales
 
2,090

 
2,234

Accounts receivable from revenues under collaborative agreements
 
2,921

 
6,151

     Subtotal
 
13,034

 
16,239

Allowance for distribution fees and discounts
 
(582
)
 
(559
)
     Total accounts receivable, net
 
$
12,452

 
$
15,680

Inventories consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Raw materials
 
$
868

 
$
761

Work-in-process
 
12,885

 
12,850

Finished goods
 
537

 
1,012

     Total inventories
 
$
14,290

 
$
14,623

Prepaid expenses and other assets consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Prepaid manufacturing expenses
 
$
6,327

 
$
9,663

Prepaid research and development expenses
 
8,345

 
8,613

Other prepaid expenses
 
1,525

 
1,661

Other assets
 
602

 
1,530

     Total prepaid expenses and other assets
 
16,799

 
21,467

Less long-term portion
 
172

 
219

     Total prepaid expenses and other assets, current
 
$
16,627

 
$
21,248

Property and equipment, net consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Research equipment
 
$
10,483

 
$
10,479

Computer and office equipment
 
3,395

 
3,373

Leasehold improvements
 
2,345

 
2,331

     Subtotal
 
16,223

 
16,183

Accumulated depreciation and amortization
 
(12,482
)
 
(11,919
)
     Property and equipment, net
 
$
3,741

 
$
4,264

Accrued expenses consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Accrued outsourced research and development expenses
 
$
11,970

 
$
9,522

Accrued compensation and payroll taxes
 
5,045

 
11,539

Accrued outsourced manufacturing expenses
 
3,670

 
3,225

Other accrued expenses
 
4,276

 
4,552

     Total accrued expenses
 
24,961

 
28,838

Less long-term portion
 
26

 
17

     Total accrued expenses, current
 
$
24,935

 
$
28,821

Deferred revenue consisted of the following (in thousands):
 
 
March 31,
2017
 
December 31,
2016
Collaborative agreements
 
 
 
 
License fees and event-based payments:
 
 
 
 
Roche
 
$
34,877

 
$
35,709

Other
 
8,018

 
8,209

 
 
42,895

 
43,918

Reimbursement for research and development services
 

 
700

Total deferred revenue
 
42,895

 
44,618

Less current portion
 
4,093

 
4,793

Deferred revenue, net of current portion
 
$
38,802

 
$
39,825

Share-based Compensation (Tables)
Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Research and development
 
$
3,274

 
$
2,584

Selling, general and administrative
 
4,041

 
3,233

Share-based compensation expense
 
$
7,315

 
$
5,817

Share-based compensation expense by type of share-based award (in thousands):
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Stock options
 
$
4,749

 
$
3,708

RSAs, RSUs and PRSUs
 
2,566

 
2,109

 
 
$
7,315

 
$
5,817

The assumptions used in the Black-Scholes model were as follows:
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Expected volatility
 
71.0-71.7%
 
67.5-69.1%
Average expected term (in years)
 
5.6
 
5.4
Risk-free interest rate
 
1.92-1.94%
 
1.27-1.73%
Expected dividend yield
 
 
Total unrecognized estimated compensation cost by type of award and the weighted-average remaining requisite service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):
 
 
March 31, 2017
 
 
Unrecognized
Expense
 
Remaining
Weighted-Average
Recognition Period
(years)
Stock options
 
$
53,470

 
2.9
RSAs
 
$
7,281

 
2.1
RSUs
 
$
22,742

 
3.3
Summary of Significant Accounting Policies Restricted Cash (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Restricted Cash and Investments, Current [Abstract]
 
 
Restricted cash
$ 500 
$ 500 
Summary of Significant Accounting Policies Inventories (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Inventory [Line Items]
 
 
Inventory, Net
$ 14,290 
$ 14,623 
Hylenex recombinant
 
 
Inventory [Line Items]
 
 
Inventory, Net
1,700 
2,300 
bulk rHuPH20
 
 
Inventory [Line Items]
 
 
Inventory, Net
$ 12,600 
$ 12,300 
Summary of Significant Accounting Policies Revenue recognition (Details)
3 Months Ended
Mar. 31, 2017
Period prior to expiration
 
Collaborative agreements termination notification
 
Notification period for termination
30 days 
Period after expiration
 
Collaborative agreements termination notification
 
Notification period for termination
90 days 
Summary of Significant Accounting Policies Research and development (Details) (USD $)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Research and Development Arrangement, Contract to Perform for Others [Line Items]
 
 
Research and Development Expense
$ 36,935,000 
$ 40,100,000 
In-license technologies [Member]
 
 
Research and Development Arrangement, Contract to Perform for Others [Line Items]
 
 
Research and Development Expense
$ 0 
 
Summary of Significant Accounting Policies Income tax (Details) (USD $)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Income Tax Disclosure [Abstract]
 
 
Deferred Tax Assets, Net
$ 0 
 
Income Tax Expense
$ 210,000 
$ 0 
Summary of Significant Accounting Policies Net Loss Per Share (Details)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Net loss per share (Textuals) [Abstract]
 
 
Shares excluded from calculation of diluted net loss, amount
16.4 
13.0 
Summary of Significant Accounting Policies Segment information (Details)
3 Months Ended
Mar. 31, 2017
Segment
Segment Reporting [Abstract]
 
Number of Operating Segments
Summary of Significant Accounting Policies Adoption of Recent Accounting Pronouncements (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Dec. 31, 2016
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
 
 
 
Reclassification of restricted cash
$ 0.5 
$ 0.5 
 
Revenue, amortization of license payments
 
 
4.1 
Deferred Revenue Relating To Upfront Payment License Fees
 
 
$ 43.9 
Fair Value Measurement (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Schedule of Available-for-sale Securities
 
 
Amortized cost
$ 133,843 
$ 138,223 
Gross Unrealized Gains
25 
Gross Unrealized Losses
(47)
(31)
Estimated fair value
133,797 
138,217 
Corporate Debt Securities [Member]
 
 
Schedule of Available-for-sale Securities
 
 
Amortized cost
33,158 
40,221 
Gross Unrealized Gains
Gross Unrealized Losses
(18)
(15)
Estimated fair value
33,140 
40,207 
US Treasury Securities [Member]
 
 
Schedule of Available-for-sale Securities
 
 
Amortized cost
70,002 
94,002 
Gross Unrealized Gains
24 
Gross Unrealized Losses
(29)
(16)
Estimated fair value
69,974 
94,010 
Commercial Paper [Member]
 
 
Schedule of Available-for-sale Securities
 
 
Amortized cost
30,683 
4,000 
Gross Unrealized Gains
Gross Unrealized Losses
Estimated fair value
$ 30,683 
$ 4,000 
Fair Value Measurement Textuals (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Fair Value Disclosures [Abstract]
 
Available-for-sale securities maturities, next twelve months
$ 124.8 
Number of available-for-sale securities in unrealized loss position, less than one year
Other than Temporary Impairment Losses, Marketable Securities
$ 0 
Fair Value Measurement Fair Value Measures (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount
$ 0 
$ 0 
Available-for-sale Securities
133,797 
138,217 
Assets, Fair Value Disclosure
172,611 
199,133 
Money Market Funds [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Cash and Cash Equivalents, Fair Value Disclosure
34,814 
60,916 
Commercial Paper [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Cash and Cash Equivalents, Fair Value Disclosure
4,000 
 
Available-for-sale Securities
30,683 
4,000 
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Available-for-sale Securities
33,140 
40,207 
US Treasury Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Available-for-sale Securities
69,974 
94,010 
Fair Value, Inputs, Level 3 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Investments, Fair Value Disclosure
Fair Value, Inputs, Level 1 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Assets, Fair Value Disclosure
104,788 
154,926 
Fair Value, Inputs, Level 1 [Member] |
Money Market Funds [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Cash and Cash Equivalents, Fair Value Disclosure
34,814 
60,916 
Fair Value, Inputs, Level 1 [Member] |
US Treasury Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Available-for-sale Securities
69,974 
94,010 
Fair Value, Inputs, Level 2 [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Assets, Fair Value Disclosure
67,823 
44,207 
Fair Value, Inputs, Level 2 [Member] |
Commercial Paper [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Cash and Cash Equivalents, Fair Value Disclosure
4,000 
 
Available-for-sale Securities
30,683 
4,000 
Fair Value, Inputs, Level 2 [Member] |
Corporate Debt Securities [Member]
 
 
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
 
 
Available-for-sale Securities
$ 33,140 
$ 40,207 
Collaborative Agreements Collaborative Agreements Textuals (Details) (USD $)
3 Months Ended 12 Months Ended 3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2017
Roche [Member]
Dec. 31, 2016
Roche [Member]
Mar. 31, 2017
Baxalta [Member]
Dec. 31, 2016
Baxalta [Member]
Mar. 31, 2017
Roche [Member]
Compound
Mar. 31, 2016
Roche [Member]
Mar. 31, 2017
Baxalta [Member]
Mar. 31, 2016
Baxalta [Member]
Mar. 31, 2017
Lilly [Member]
Compound
Mar. 31, 2017
AbbVie [Member]
Compound
Mar. 31, 2017
Janssen [Member]
Compound
Mar. 31, 2017
Pfizer [Member]
Compound
Dec. 31, 2016
Pfizer [Member]
Mar. 31, 2017
Pfizer, Janssen and AbbVie
Mar. 31, 2016
Pfizer, Janssen and AbbVie
Collaborative Agreements Terms
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of product compound combinations licensed to develop
 
 
 
 
 
 
13 
 
 
 
 
 
 
Number of exclusive right targets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of targets elected
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of Returned Targets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of targets elected, additional exclusive targets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Number of additional targets, optional
 
 
 
 
 
 
10 
 
 
 
 
 
 
Collaborative agreement target selection period
 
 
 
 
 
 
10 years 
 
 
 
 
 
 
 
 
 
 
Number of targets elected, additional semi-exclusive targets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Duration of royalty receivable
 
 
 
 
 
 
10 years 
 
10 years 
 
10 years 
10 years 
10 years 
10 years 
 
 
 
Notification period for termination
 
 
 
 
 
 
 
 
 
 
60 days 
90 days 
90 days 
30 days 
 
 
 
Collaborative Agreements (Textual)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred revenue, revenue recognized
 
 
 
 
 
 
$ 800,000 
$ 800,000 
$ 200,000 
$ 200,000 
 
 
 
 
 
 
 
Revenue Recognition, Event-based or Milestone, Revenue Recognized
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6,000,000 
Additional maximum proceeds receivable from collaborators of license and collaborative agreement upon achievement of clinical development milestones for elected targets
62,500,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sales-based payment to be received upon the first commercial sale
12,000,000 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred Revenue (Textual) [Abstract]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred revenue relating to upfront payment license fees and annual maintenance fees
$ 42,895,000 
$ 44,618,000 
$ 34,900,000 
$ 35,709,000 
$ 8,000,000 
$ 8,200,000 
 
 
 
 
 
 
 
 
 
 
 
Collaborative Agreements Collaborative Agreements tables (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Roche [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
$ 20,000 
Additional Exclusive Targets And Annual License Maintenance Fees
23,000 
Clinical development milestone payments
13,000 
Regulatory milestone payments
8,000 
Sales-based milestone payments
15,000 
Total Proceeds from Partner of License and Collaborative Agreement
79,000 
Baxalta [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
10,000 
Regulatory milestone payments
3,000 
Sales-based milestone payments
4,000 
Total Proceeds from Partner of License and Collaborative Agreement
17,000 
Lilly [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
33,000 
Total Proceeds from Partner of License and Collaborative Agreement
33,000 
AbbVie [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
23,000 
Total Proceeds from Partner of License and Collaborative Agreement
29,000 
Janssen [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
15,300 
Total Proceeds from Partner of License and Collaborative Agreement
15,250 
Pfizer [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Upfront license fee payment for the application of rHuPH20 to the initial exclusive targets
12,500 
Total Proceeds from Partner of License and Collaborative Agreement
16,500 
Other collaborators [Member]
 
Revenue Recognition, Multiple-deliverable Arrangements [Line Items]
 
Total Proceeds from Partner of License and Collaborative Agreement
$ 93,750 
Certain Balance Sheet Items - Accounts receivable (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Accounts Receivable, Net, Current [Abstract]
 
 
Accounts receivable from product sales to collaborators
$ 8,023 
$ 7,854 
Accounts receivable from other product sales
2,090 
2,234 
Accounts receivable from revenues under collaborative agreements
2,921 
6,151 
Accounts receivable, gross
13,034 
16,239 
Allowance for distribution fees and discounts
(582)
(559)
Total accounts receivable, net
$ 12,452 
$ 15,680 
Certain Balance Sheet Items - Inventories (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Inventory Disclosure [Abstract]
 
 
Inventory, Raw Materials
$ 868 
$ 761 
Inventory, Work in Process
12,885 
12,850 
Inventory, Finished Goods
537 
1,012 
Summary of Inventories
 
 
Total inventories
$ 14,290 
$ 14,623 
Certain Balance Sheet Items - Prepaid expenses and other assets (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Prepaid Expense and Other Assets, Current [Abstract]
 
 
Prepaid manufacturing expenses
$ 6,327 
$ 9,663 
Prepaid research and development expenses
8,345 
8,613 
Other prepaid expenses
1,525 
1,661 
Other assets
602 
1,530 
Total prepaid expense and other assets
16,799 
21,467 
Less long-term portion
172 
219 
Total prepaid expense and other assets, current
$ 16,627 
$ 21,248 
Certain Balance Sheet Items - Property and Equipment (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Property and equipment, gross
$ 16,223 
$ 16,183 
Accumulated depreciation and amortization
(12,482)
(11,919)
Property and equipment, net
3,741 
4,264 
Research equipment
 
 
Property and equipment, gross
10,483 
10,479 
Computer and office equipment
 
 
Property and equipment, gross
3,395 
3,373 
Leasehold improvements
 
 
Property and equipment, gross
$ 2,345 
$ 2,331 
Certain Balance Sheet Items - Property and Equipment, Net (Textuals) (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Depreciation and amortization
 
 
Depreciation and amortization expense
$ 0.6 
$ 0.5 
Certain Balance Sheet Items - Accrued Expenses (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Summary of Accrued Expenses
 
 
Accrued outsourced research and development
$ 11,970 
$ 9,522 
Accrued compensation and payroll taxes
5,045 
11,539 
Accrued outsourced manufacturing expenses
3,670 
3,225 
Other accrued expenses
4,276 
4,552 
Total accrued expenses
24,961 
28,838 
Less long-term portion
26 
17 
Total accrued expenses, current
$ 24,935 
$ 28,821 
Certain Balance Sheet Items - Deferred Revenue (Details) (USD $)
In Thousands, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Deferred revenue
 
 
Total deferred revenue
$ 42,895 
$ 44,618 
Less current portion
4,093 
4,793 
Deferred revenue, net of current portion
38,802 
39,825 
Roche [Member]
 
 
Deferred revenue
 
 
Total deferred revenue
34,900 
35,709 
Other collaborative agreements
 
 
Deferred revenue
 
 
Total deferred revenue
8,018 
8,209 
License fees and event-based payments
 
 
Deferred revenue
 
 
Total deferred revenue
42,895 
43,918 
Research and Development Services
 
 
Deferred revenue
 
 
Total deferred revenue
$ 0 
$ 700 
Long-Term Debt, Net Long-Term Debt Textuals (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 1 Months Ended 3 Months Ended 1 Months Ended 3 Months Ended
Mar. 31, 2017
Royalty-backed Loan
Mar. 31, 2016
Royalty-backed Loan
Mar. 31, 2017
Royalty-backed Loan
2016 [Member]
Mar. 31, 2017
Royalty-backed Loan
2017 [Member]
Mar. 31, 2017
Royalty-backed Loan
2018 and thereafter [Member]
Mar. 31, 2017
Royalty-backed Loan
2017 Quarterly Maximum Payment [Member]
Mar. 31, 2017
Royalty-backed Loan
2018 Quarterly Maximum Payment [Member]
Mar. 31, 2017
Royalty-backed Loan
2019 Quarterly Maximum Payment [Member]
Mar. 31, 2017
Royalty-backed Loan
2020 Quarterly Maximum Payment [Member]
Mar. 31, 2017
Royalty-backed Loan
Minimum [Member]
Mar. 31, 2017
Royalty-backed Loan
Maximum [Member]
Dec. 31, 2013
Secured Debt
Mar. 31, 2017
Secured Debt
Mar. 31, 2016
Secured Debt
Dec. 31, 2016
Secured Debt
Jun. 30, 2016
Senior Loans [Member]
Mar. 31, 2017
Senior Loans [Member]
Mar. 31, 2017
Senior Loans [Member]
Minimum [Member]
Mar. 31, 2017
Senior Loans [Member]
Maximum [Member]
Debt Instrument [Line Items]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance date
Jan. 26, 2016 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jun. 07, 2016 
 
 
 
Total loan balance
$ 150.0 
 
 
 
 
 
 
 
 
 
 
 
$ 50.0 
 
 
 
$ 70.0 
 
 
Interest rate, stated percentage
 
 
 
 
 
 
 
 
 
 
 
 
7.55% 
 
 
 
8.25% 
 
 
Debt Instrument, Description of Variable Rate Basis
8.75% plus the three-month LIBOR rate 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Basis Spread on Variable Rate
 
 
 
 
 
 
 
 
 
0.70% 
1.50% 
 
 
 
 
 
 
 
 
Debt, Interest Rate
9.90% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Royalty payments to be applied to debt instrument
 
 
0.00% 
50.00% 
100.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Periodic Payment
 
 
 
 
 
13.75 
18.75 
21.25 
22.50 
 
 
 
 
 
 
 
 
 
 
Debt Instrument, Maturity Date, Description
final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prepayment fee, percent
105.00% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.00% 
2.00% 
Debt instrument, covenant in compliance
in compliance 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
in compliance 
 
 
Interest Costs Capitalized
1.9 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued Interest
0.7 
0.7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Lender Fee
1.5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt Issuance Cost
0.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Expense, debt
4.0 
2.6 
 
 
 
 
 
 
 
 
 
 
1.4 
1.3 
 
 
 
 
 
Outstanding loan balance
158.9 
 
 
 
 
 
 
 
 
 
 
 
55.1 
 
 
 
55.0 
 
 
Capitalized interest expense
10.2 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accretion of debt balloon payment
 
 
 
 
 
 
 
 
 
 
 
 
0.1 
 
 
 
 
 
 
Debt Instrument, Unamortized Discount
1.3 
 
 
 
 
 
 
 
 
 
 
 
2.9 
 
 
 
 
 
 
Term loan, increase
 
 
 
 
 
 
 
 
 
 
 
20 
 
 
 
 
 
 
 
Maturity date
Dec. 31, 2050 
 
 
 
 
 
 
 
 
 
 
 
Jan. 01, 2018 
 
 
 
Jan. 01, 2021 
 
 
Debt Instrument, interest only period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
interest only payments for the first 18 months 
 
 
Debt Instrument, Unused Borrowing Capacity, Amount
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15.0 
 
 
Debt Instrument, Unused Borrowing Capacity, Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
prime rate as reported in The Wall Street Journal on the draw-down date plus 4.75% 
 
 
Final payment
 
 
 
 
 
 
 
 
 
 
 
 
4.25 
 
 
 
 
 
 
Final payment as percent of original principal
 
 
 
 
 
 
 
 
 
 
 
 
8.50% 
 
 
 
5.50% 
 
 
Final payment as percent of additional draw
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7.25% 
 
 
Accrued interest, noncurrent
 
 
 
 
 
 
 
 
 
 
 
 
$ 0.4 
 
$ 1.1 
 
 
 
 
Share-based Compensation (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
Allocated Share-based Compensation Expense
$ 7,315 
$ 5,817 
Stock options
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
Allocated Share-based Compensation Expense
4,749 
3,708 
RSU, RSA, and PRSU awards [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
Allocated Share-based Compensation Expense
2,566 
2,109 
Research and Development Expense [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
Allocated Share-based Compensation Expense
3,274 
2,584 
Selling, General and Administrative Expenses [Member]
 
 
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
 
 
Allocated Share-based Compensation Expense
$ 4,041 
$ 3,233 
Share-based Compensation Share-based compensation textuals (Details) (USD $)
Share data in Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Share-based Compensation [Abstract]
 
 
Proceeds and Excess Tax Benefit from Share-based Compensation
$ 0 
 
Options, Grants in Period, Gross
2.2 
2.8 
Share-based Compensation Share-based compensation, valuation (Details)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Schedule of Share-based Compensation Arrangements Valuation Inputs [Line Items]
 
 
Fair Value Assumptions, Weighted Average Expected Term
5 years 7 months 
5 years 5 months 
Fair Value Assumptions, Expected Dividend Rate
0.00% 
0.00% 
Fair Value Assumptions, Risk Free Interest Rate, Minimum
1.92% 
1.27% 
Fair Value Assumptions, Risk Free Interest Rate, Maximum
1.94% 
1.73% 
Minimum [Member]
 
 
Schedule of Share-based Compensation Arrangements Valuation Inputs [Line Items]
 
 
Fair Value Assumptions, Weighted Average Volatility Rate
71.00% 
67.50% 
Maximum [Member]
 
 
Schedule of Share-based Compensation Arrangements Valuation Inputs [Line Items]
 
 
Fair Value Assumptions, Weighted Average Volatility Rate
71.70% 
69.10% 
Share-based Compensation Share-based compensation, unrecognized (Details) (USD $)
In Thousands, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Stock options
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Compensation Cost Not yet Recognized
$ 53,470 
Compensation Cost Not yet Recognized, Period for Recognition
2 years 11 months 
RSAs
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Compensation Cost Not yet Recognized
7,281 
Compensation Cost Not yet Recognized, Period for Recognition
2 years 1 month 
RSUs
 
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
 
Compensation Cost Not yet Recognized
$ 22,742 
Compensation Cost Not yet Recognized, Period for Recognition
3 years 4 months 
Stockholders' Deficit (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Mar. 31, 2017
Stock options
Mar. 31, 2016
Stock options
Mar. 31, 2017
Restricted stock units
Mar. 31, 2016
Restricted stock units
Mar. 31, 2017
Restricted stock awards
Mar. 31, 2016
Restricted stock awards
Stockholders' deficit (textual)
 
 
 
 
 
 
 
 
Number of shares of common stock issued as a result of stock option exercises
 
 
74,522 
156,185 
 
 
 
 
Stock options weighted average exercise price
 
 
$ 7.78 
$ 6.22 
 
 
 
 
Net proceeds from stock options exercised
 
 
$ 0.6 
$ 1.0 
 
 
 
 
Stock issued during period, shares, restricted stock award, net of forfeitures
 
 
 
 
252,305 
106,389 
807,036 
Number of RSUs surrendered to pay for minimum withholding taxes
 
 
 
 
79,499 
70,288 
 
 
Payments for tax withholding for restricted stock units vested, net
 
 
 
 
$ 1.7 
$ 0.7 
 
 
Outstanding stock options and restricted stock units
15,500,000 
12,500,000