HALOZYME THERAPEUTICS, INC., 10-K filed on 2/23/2021
Annual Report
v3.20.4
Cover - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2020
Feb. 17, 2021
Jun. 30, 2020
Cover [Abstract]      
Entity Central Index Key 0001159036    
Amendment Flag false    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Document Transition Report false    
Entity File Number 001-32335    
Entity Registrant Name HALOZYME THERAPEUTICS, INC.    
Entity Incorporation, State or Country Code DE    
Entity Tax Identification Number 88-0488686    
Entity Address, Address Line One 11388 Sorrento Valley Road    
Entity Address, City or Town San Diego    
Entity Address, State or Province CA    
Entity Address, Postal Zip Code 92121    
City Area Code 858    
Local Phone Number 794-8889    
Title of 12(b) Security Common Stock, $0.001 Par Value    
Trading Symbol HALO    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 2.9
Entity Common Stock, Shares Outstanding   135,276,380  
v3.20.4
Organization and Business
12 Months Ended
Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Business Organization and Business
Halozyme Therapeutics, Inc. is a biopharma technology platform company that provides innovative and disruptive solutions with the goal of improving patient experience and outcomes. Our proprietary enzyme, rHuPH20, is used to facilitate the delivery of injected drugs and fluids. We license our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE® drug delivery technology with the collaborators’ proprietary compounds. 
Our approved product and our collaborators’ approved products 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 (“Hylenex”), and it works by breaking down hyaluronan (or “HA”), a naturally occurring carbohydrate that is a major component of the extracellular matrix in tissues throughout the body such as skin and cartilage. This temporarily increases dispersion and absorption allowing for 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® drug delivery technology (“ENHANZE”). 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. In the development of proprietary intravenous (IV) drugs combined with our ENHANZE technology, data have been generated supporting the potential for ENHANZE to reduce treatment burden, as a result of shorter duration of subcutaneous (SC) administration. ENHANZE may enable fixed-dose SC dosing compared to weight-based dosing required for IV administration, and potentially allow for lower rates of infusion related reactions. ENHANZE may enable more flexible treatment options such as home administration by a healthcare professional or potentially the patient. Lastly, certain proprietary drugs co-formulated with ENHANZE have been granted additional exclusivity, extending the patent life of the product beyond the one of the proprietary IV drug.
We currently have ENHANZE collaborations with F. Hoffmann-La Roche, Ltd. and Hoffmann-La Roche, Inc. (“Roche”), Baxalta US Inc. and Baxalta GmbH (now members of the Takeda group of companies, following the acquisition of Shire plc by Takeda Pharmaceutical Company Limited in January 2019) (“Baxalta”), Pfizer Inc. (“Pfizer”), Janssen Biotech, Inc. (“Janssen”), AbbVie, Inc. (“AbbVie”), Eli Lilly and Company (“Lilly”), Bristol-Myers Squibb Company (“BMS”), Alexion Pharma Holding (“Alexion”), ARGENX BVBA (“argenx”) and Horizon Therapeutics plc. (Horizon). We receive royalties from three of these collaborations, including royalties from sales of one product from the Baxalta collaboration and three products from the Roche collaboration and one product from Janssen collaboration. Future potential revenues from royalties and fees from ENHANZE collaborations and the sales and/or royalties of our approved products 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.
Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,” “our,” and “us” in these notes to 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 Switzerland GmbH and Halozyme Switzerland Holdings GmbH.
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 147,703 $ 120,179
Marketable securities, available-for-sale 220,310 301,083
Accounts receivable, net 97,730 59,442
Inventories 60,747 29,359
Prepaid expenses and other assets 28,274 33,373
Total current assets 554,764 543,436
Property and equipment, net 10,593 10,855
Prepaid expenses and other assets 14,067 11,083
Restricted cash 500 500
Total assets 579,924 565,874
Current liabilities:    
Accounts payable 1,928 6,434
Accrued expenses 20,483 55,649
Deferred revenue, current portion 1,746 4,012
Current portion of long-term debt, net 397,228 19,542
Total current liabilities 421,385 85,637
Deferred revenue, net of current portion 4,026 1,247
Long-term debt, net 0 383,045
Other long-term liabilities 3,466 4,180
Commitments and contingencies (Note 9)
Stockholders' equity (deficit):    
Preferred stock - $0.001 par value; 20,000 shares authorized; no shares issued and outstanding 0 0
Common stock - $0.001 par value; 200,000 shares authorized; 142,789 and 129,502 shares issued and outstanding at December 31, 2017 and 2016, respectively 135 137
Additional paid-in capital 625,483 695,066
Accumulated other comprehensive loss 22 240
Accumulated deficit (474,593) (603,678)
Total stockholders' equity (deficit) 151,047 91,765
Total liabilities and stockholders' equity (deficit) $ 579,924 $ 565,874
v3.20.4
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (USD per share) $ 0.001 $ 0.001
Preferred stock authorized (shares) 20,000,000 20,000,000
Preferred stock issued (shares) 0 0
Preferred stock outstanding (shares) 0 0
Common stock, par value (USD per share) $ 0.001 $ 0.001
Common stock authorized (shares) 300,000,000 300,000,000
Common stock issued (shares) 135,029,987 136,712,580
Common stock outstanding (shares) 135,029,987 136,712,580
v3.20.4
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Revenues:      
Total revenues $ 267,594 $ 195,992 $ 151,862
Operating expenses:      
Cost of product sales 43,367 45,546 10,136
Research and development 34,236 140,804 150,252
Selling, general and administrative 45,736 77,252 60,804
Total operating expenses 123,339 263,602 221,192
Operating income (loss) 144,255 (67,610) (69,330)
Other income (expense):      
Investment and other income, net 5,425 6,986 7,578
Interest expense (20,378) (11,627) (18,041)
Net income (loss) before income taxes 129,302 (72,251) (79,793)
Income tax expense (benefit) 217 (11) 537
Net income (loss) $ 129,085 $ (72,240) $ (80,330)
Net income (loss) per share:      
Basic (USD per share) $ 0.95 $ (0.50) $ (0.56)
Diluted (USD per share) $ 0.91 $ (0.50) $ (0.56)
Shares used in computing net income (loss) per share:      
Basic (shares) 136,206 144,329 143,599
Diluted (shares) 141,463 144,329 143,599
Royalties      
Revenues:      
Total revenues $ 88,596 $ 69,899 $ 78,981
Product sales, net      
Revenues:      
Total revenues 55,987 66,048 28,234
Revenues under collaborative agreements      
Revenues:      
Total revenues $ 123,011 $ 60,045 $ 44,647
v3.20.4
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ 129,085 $ (72,240) $ (80,330)
Other comprehensive (loss) income:      
Unrealized (loss) gain on marketable securities (164) 508 182
Foreign currency translation adjustment (32) 9 (8)
Unrealized loss on foreign currency (22) 0 (1)
Total comprehensive income (loss) $ 128,867 $ (71,723) $ (80,157)
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Operating activities:      
Net income (loss) $ 129,085 $ (72,240) $ (80,330)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:      
Share-based compensation 17,204 34,776 35,696
Depreciation and amortization 3,284 4,068 2,388
Amortization of debt discount 14,136 2,484 1,545
Amortization of premiums (accretion of discounts) on marketable securities 839 (2,469) (3,090)
(Gain) loss on disposal of equipment (772) 1,431 5
Deferral of unearned revenue 4,632 0 3,000
Recognition of deferred revenue (4,119) (3,996) (2,832)
Deferral of lease payments (1,033) (459) (7)
Loss on impairment of right-of-use asset 577 1,127 0
Loss on extinguishment of debt 0 401 0
Other (13) (7) (9)
Changes in operating assets and liabilities:      
Accounts receivable, net (38,288) (29,437) 11,613
Inventories (31,388) (6,734) (17,480)
Prepaid expenses and other assets 2,518 (19,006) (5,695)
Accounts payable and accrued expenses (41,208) 4,638 5,696
Net cash provided (used in) by operating activities 55,454 (85,423) (49,500)
Investing activities:      
Purchases of marketable securities (226,185) (389,759) (311,112)
Proceeds from maturities of marketable securities 305,967 388,250 318,268
Purchases of property and equipment (2,504) (4,040) (4,663)
Proceeds from disposal of property and equipment 1,076 0 0
Net cash provided by (used in) investing activities 78,354 (5,549) 2,493
Financing activities:      
Proceeds from issuance of long-term debt, net 0 447,350 0
Repayment of long-term debt (19,560) (108,082) (77,516)
Payment of debt issuance cost 0 (279) 0
Repurchase of common stock (150,117) (199,998) 0
Proceeds from issuance of common stock under equity incentive plans, net of taxes paid related to net share settlement 63,393 14,224 13,719
Net cash (used in) provided by financing activities (106,284) 153,215 (63,797)
Net increase (decrease) in cash, cash equivalents and restricted cash 27,524 62,243 (110,804)
Cash, cash equivalents and restricted cash at beginning of period 120,679 58,436 169,240
Cash, cash equivalents and restricted cash at end of period 148,203 120,679 58,436
Supplemental disclosure of cash flow information:      
Interest paid 6,534 9,029 16,891
Income taxes paid 180 188 220
Supplemental disclosure of non-cash investing and financing activities:      
Amounts accrued for purchases of property and equipment 117 61 542
Debt issuance cost included in accounts payable 0 68 0
Right-of-use assets obtained in exchange for lease obligation 1,746 897 0
Leasehold improvements paid by lessor $ 0 $ 0 $ 1,322
v3.20.4
Consolidated Statements of Stockholders' Equity (Deficit) Statement - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Adjustment
Adjustment
Accumulated Deficit
Shares outstanding at Dec. 31, 2017   142,789          
Total stockholders' equity (deficit) at Dec. 31, 2017 $ 208,366 $ 143 $ 731,044 $ (450) $ (522,371) $ 71,263 $ 71,263
Share-based Compensation 35,696   35,696        
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units and performance restricted stock units, net   1,932          
Value, Stock Options Exercised 13,719 $ 2 13,717        
Shares, Restricted Stock Award   4          
Value, Restricted Stock Award 0 $ 0 0        
Other Comprehensive Income (Loss) 173     173      
Net income (loss) (80,330)            
Shares outstanding at Dec. 31, 2018   144,725          
Total stockholders' equity (deficit) at Dec. 31, 2018 248,887 $ 145 780,457 (277) (531,438)    
Share-based Compensation 34,776   34,776        
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units and performance restricted stock units, net   2,493          
Value, Stock Options Exercised 14,224 $ 2 14,222        
Shares, Restricted Stock Award   74          
Value, Restricted Stock Award 0 $ 0 0        
Stock Repurchased and Retired During Period, Shares   (10,579)          
Stock Repurchased and Retired During Period, Value (199,998) $ (10) (199,988)        
Adjustments to Additional Paid in Capital, Equity Component of Convertible Debt 65,599   65,599        
Other Comprehensive Income (Loss) 517     517      
Net income (loss) (72,240)       (72,240)    
Shares outstanding at Dec. 31, 2019   136,713          
Total stockholders' equity (deficit) at Dec. 31, 2019 91,765 $ 137 695,066 240 (603,678)    
Share-based Compensation 17,204   17,204        
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units and performance restricted stock units, net   5,278          
Value, Stock Options Exercised 63,393 $ 5 63,388        
Shares, Restricted Stock Award   61          
Value, Restricted Stock Award 0 $ 0 0        
Stock Repurchased and Retired During Period, Shares   (7,022)          
Stock Repurchased and Retired During Period, Value (150,117) $ (7) (150,110)        
Adjustments to Additional Paid in Capital, Equity Component of Convertible Debt (65)   (65)        
Other Comprehensive Income (Loss) (218)     (218)      
Net income (loss) 129,085       129,085    
Shares outstanding at Dec. 31, 2020   135,030          
Total stockholders' equity (deficit) at Dec. 31, 2020 $ 151,047 $ 135 $ 625,483 $ 22 $ (474,593)    
v3.20.4
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation
The 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 Switzerland GmbH and Halozyme Switzerland Holdings GmbH. All intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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 December 31, 2020, our cash equivalents consisted of money market funds.
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 income (loss) and included as a separate component of stockholders’ equity. 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 consolidated statements of operations. We use the specific identification method for calculating realized gains and losses on marketable securities sold. None of the realized gains and losses and declines in value judged to be as a result of credit loss on marketable securities, if any, are included in investment and other income, net in the 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 December 31, 2020 and 2019, 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 short-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.
Available-for-sale marketable securities consist of asset-backed securities, 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.
Concentrations of Credit Risk, Sources of Supply and Significant Customers
We are subject to credit risk from our portfolio of cash equivalents and marketable securities. These investments were made in accordance with our investment policy which specifies the categories, allocations, and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. We maintain our cash and cash equivalent balances with one major commercial bank and marketable securities with another financial institution. Deposits held with the financial institutions exceed the amount of insurance provided on such deposits. We are exposed to credit risk in the event of a default by the financial institutions holding our cash, cash equivalents and marketable securities to the extent recorded on the consolidated balance sheets.
We are also subject to credit risk from our accounts receivable related to our product sales and revenues under our license and collaborative agreements. We have license and collaborative agreements with pharmaceutical companies under which we receive payments for royalties, license fees, milestone payments for specific achievements designated in the collaborative agreements, reimbursements of research and development services and supply of bulk formulation of rHuPH20. In addition, we sell Hylenex® recombinant in the United States to a limited number of established wholesale distributors in the pharmaceutical industry. Credit is extended based on an evaluation of the customer’s financial condition, and collateral is not required. Management monitors our exposure to accounts receivable by periodically evaluating the collectability of the accounts receivable based on a variety of factors including the length of time the receivables are past due, the financial health of the customer and historical experience. Based upon the review of these factors, we recorded no allowance for doubtful accounts at December 31, 2020 and 2019. Approximately 74% of the accounts receivable balance at December 31, 2020 represents amounts due from Janssen, Roche and Baxalta. Approximately 93% of the accounts receivable balance at December 31, 2019 represents amounts due from Janssen, Roche and Baxalta.
The following table indicates the percentage of total revenues in excess of 10% with any single customer:
Year Ended December 31,
202020192018
Partner A35%40%72%
Partner B26%18%2%
Partner C11%—%—%
Partner D8%23%—%
We attribute revenues under collaborative agreements, including royalties, to the individual countries where the customer is headquartered. We attribute revenues from product sales to the individual countries to which the product is shipped. Worldwide revenues from external customers are summarized by geographic location in the following table (in thousands):
Year Ended December 31,
202020192018
United States$106,918 $28,178 $26,527 
Switzerland95,949 109,754 109,890 
Ireland30,552 589 5,075 
Belgium20,086 45,060 — 
Japan10,644 9,905 8,873 
All other foreign3,445 2,506 1,497 
Total revenues$267,594 $195,992 $151,862 
We rely on two third-party manufacturers for the supply of bulk rHuPH20 for use in the manufacture of Hylenex recombinant and our other collaboration products and product candidates. Payments due to these suppliers represented 75% and 47% of the accounts payable balance at December 31, 2020 and 2019, respectively. We also rely on a third-party manufacturer for the fill and finish of Hylenex recombinant product under a contract. Payments due to this supplier represented zero and 8% of the accounts payable balance at December 31, 2020 and 2019, respectively.
Accounts Receivable, Net
Accounts receivable is recorded at the invoiced amount and is non-interest bearing. Accounts receivable is recorded net of allowances for doubtful accounts, cash discounts for prompt payment, distribution fees and chargebacks. We recorded no allowance for doubtful accounts at December 31, 2020 and 2019 as the collectability of accounts receivable was reasonably assured.
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.
As of December 31, 2020 and 2019, inventories consisted of $1.3 million and $1.4 million, respectively, of Hylenex inventory, net and $59.4 million and $28.0 million, respectively, of bulk rHuPH20, consistent with our plan to build inventory to meet future customer demand.
Leases

    The Company has entered into operating leases primarily for real estate and automobiles. These leases have terms which range from 3 years to 6 years. We determine if an arrangement contains a lease at inception. Right of use (“ROU”) assets and liabilities resulting from operating leases are included in property and equipment, accrued expenses and other long-term liabilities on our consolidated balance sheets. Operating lease ROU assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the discount rate to calculate the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our leases often include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that we will exercise
that option. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as automobiles, we account for the lease and non-lease components as a single lease component.
Property and Equipment, Net
Property and equipment, including ROU assets are recorded at cost, less accumulated depreciation and amortization. Equipment is depreciated using the straight-line method over its estimated useful life ranging from three years to ten years and leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the lease term, whichever is shorter.
Impairment of Long-Lived Assets
We account for long-lived assets in accordance with authoritative guidance for impairment or disposal of long-lived assets. Long-lived assets are reviewed for events or changes in circumstances, which indicate that their carrying value may not be recoverable.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during the period from transactions and other events and circumstances from non-owner sources.
Revenue Recognition
We generate revenues from payments received under collaborative agreements and product sales. We recognize revenue when we transfer promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers we perform the following five steps: (i) identify the promised goods or services in the contract; (ii) identify the performance obligations in the contract, including whether they are distinct in the context of the contract; (iii) determine the transaction price, including the constraint on variable consideration; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy the performance obligations.
Revenues under Collaborative Agreements
Under these agreements, we grant the collaboration partner a worldwide license to develop and commercialize products using our ENHANZE technology to combine our patented rHuPH20 enzyme with their proprietary biologics directed at up to a specified number of targets. Targets are usually licensed on an exclusive, global basis. Targets selected subsequent to inception of the arrangement require payment of an additional license fee. The collaboration partner is responsible for all development, manufacturing, clinical, regulatory, sales and marketing costs for any products developed under the agreement. We are responsible for supply of bulk rHuPH20 based on the collaboration partner’s purchase orders, and may also be separately engaged to perform research and development services. While these collaboration agreements are similar in that they originate from the same framework, each one is the result of an arms-length negotiation and thus may vary from one to the other.
We collect an upfront license payment from collaboration partners, and are also entitled to receive event-based payments subject to collaboration partners’ achievement of specified development, regulatory and sales-based milestones. In several agreements, collaboration partners pay us annual fees to maintain their exclusive license rights if they are unable to advance product development to specified stages. We earn separate fees for bulk rHuPH20 supplies and research and development services. In addition, collaboration partners will pay us royalties at an on average mid-single digit percent rate of their sales if products under the collaboration are commercialized. All amounts owed to us are noncancelable after the underlying triggering event occurs, and nonrefundable once paid. Unless terminated earlier in accordance with its terms, collaborations generally continue in effect until the last to expire royalty payment term, as determined on a product by product and on a country by country basis, with each royalty term starting on the first commercial sale of that product and ending the later of: (i) a specified period or term set forth in the agreement or (ii) 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. When there are no valid claims during the applicable royalty term in a given country, the royalty rate is reduced for those sales. Collaboration partners may terminate the agreement prior to expiration for any reason in its entirety or on a target-by-target basis generally upon 90 days prior written notice to us. Upon any such termination, the license granted to collaboration partners (in total or with respect to the terminated target, as applicable) will terminate provided, however, that in the event of expiration of the agreement (as opposed to a termination), the on-going licenses granted will become perpetual, non-exclusive and fully paid.
Although these agreements are in form identified as collaborative agreements, we concluded for accounting purposes they represent contracts with customers, and are not subject to accounting literature on collaborative arrangements. This is because we grant to collaboration partners licenses to our intellectual property, and provide supply of bulk rHuPH20 and research and development services which are all outputs of our ongoing activities, in exchange for consideration. Under these collaborative agreements, we do not develop assets jointly with collaboration partners, and do not share in significant risks of their development or commercialization activities. Accordingly, we concluded our collaborative agreements are appropriately accounted for pursuant to ASC Topic 606, Revenue from Contracts with Customers.
Under all of our collaborative agreements, we have identified licenses to use functional intellectual property as the only performance obligation. The intellectual property underlying the license is our proprietary ENHANZE® technology which represents application of rHuPH20 to facilitate delivery of drugs or fluids. Each of the licenses grants the collaboration partners rights to use our intellectual property as it exists and is identified on the effective date of the license, because there is no ongoing development of the ENHANZE technology required. Therefore, we recognize revenue from licenses at the point when the license becomes effective and the collaboration partner has received access to our intellectual property, usually at the inception of the agreement.
When collaboration partners can select additional targets to add to the licenses granted, we consider these rights to be options. We evaluate whether such options contain material rights, i.e. have exercise prices that are discounted compared to what we would charge for a similar license to a new collaboration partner. The exercise price of these options includes a combination of the target selection fees, event-based milestone payments and royalties. When these amounts in aggregate are not offered at a discount that exceeds discounts available to other customers, we conclude the option does not contain a material right, and we consider grants of additional licensing rights upon option exercises to be separate contracts (target selection contracts).
We provide customary indemnification and protection of licensed intellectual property for our customers. These provisions are part of assurance that the licenses meet the agreements’ representations and are not obligations to provide goods or services.
We also fulfill purchase orders for supply of bulk rHuPH20 and perform research and development services pursuant to projects authorization forms for our collaboration partners, which represent separate contracts. Additionally, we price our supply of bulk rHuPH20 and research and development services at our regular selling prices, called standalone selling price or SSP. Therefore, our collaboration partners do not have material rights to order these items at prices not reflective of SSP. Refer to the discussion below regarding recognition of revenue for these separate contracts.
Transaction price for a contract represents the amount to which we are entitled in exchange for providing goods and services to the customer. Transaction price does not include amounts subject to uncertainties unless it is probable that there will be no significant reversal of revenue when the uncertainty is resolved. Apart from the upfront license payment (or target selection fees in the target selection contracts), all other fees we may earn under our collaborative agreements are subject to significant uncertainties of product development. Achievement of many of the event-based development and regulatory milestones may not be probable until such milestones are actually achieved. This generally relates to milestones such as obtaining marketing authorization approvals. With respect to other development milestones, e.g. dosing of a first patient in a clinical trial, achievement could be considered probable prior to its actual occurrence, based on the progress towards commencement of the trial. In order to evaluate progress towards commencement of a trial, we assess the status of activities leading up to our collaboration partner’s initiation of a trial such as feedback received from the FDA (if applicable), completion of IND filings, readiness and availability of drug, readiness of study sites and our collaboration partner’s commitment of resources to the program. We do not include any amounts subject to uncertainties into the transaction price until it is probable that the amount will not result in a significant reversal of revenue in the future. At the end of each reporting period, we re-
evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.
When target exchange rights are held by collaboration partners, and the amounts attributed to these rights are not refundable, they are included in the transaction price. However, they are recorded as deferred revenues because we have a potential performance obligation to provide a new target upon an exchange right being exercised. These amounts are recognized in revenue when the right of exchange expires or is exercised.
Because our agreements have one type of performance obligation (licenses) which are typically all transferred at the same time at agreement inception, allocation of transaction price often is not required. However, allocation is required when licenses for some of the individual targets are subject to rights of exchange, because revenue associated with these targets cannot be recognized. We perform an allocation of the upfront amount based on relative SSP of licenses for individual targets. We determine license SSP using income-based valuation approach utilizing risk-adjusted discounted cash flow projections of the estimated return a licensor would receive. When amounts subject to uncertainties, such as milestones and royalties, are included in the transaction price, we attribute them to the specific individual target licenses which generate such milestone or royalty amounts.
We also estimate SSP of bulk rHuPH20 and research and development services, to determine that our collaboration partners do not have material rights to order them at discounted prices. For supplies of bulk rHuPH20, because we effectively act as a contract manufacturer to our collaboration partners, we estimate and charge SSP based on the typical contract manufacturer margins consistently with all of our collaborative partners. We determine SSP of research and development services based on a fully-burdened labor rate. Our rates are comparable to those we observe in other collaborative agreements. We also have a history of charging similar rates to all of our collaboration partners.
Upfront amounts allocated to licenses to individual targets are recognized as revenue when the license is transferred to the collaboration partner, as discussed above, if the license is not subject to exchange rights, or when the exchange right expires or is exercised. Development milestones and other fees are recognized in revenue when they are included in the transaction price, because by that time we have already transferred the related license to the collaboration partner.
Sales-based milestones and royalties cannot be recognized until the underlying sales occur. We do not receive final royalty reports from our collaboration partners until after we complete our financial statements for a prior quarter. Therefore, we recognize revenue based on estimates of the royalty earned, which are based on internal estimates and available preliminary reports provided by our collaboration partners. We will record a true-up in the following quarter if necessary, when final royalty reports are received. To date, we have not recorded any material true-ups.
In contracts to provide research and development services, such services represent the only performance obligation. The fees are charged based on hours worked by our employees and the fixed contractual rate per hour, plus third-party pass-through costs, on a monthly basis. We recognize revenues as the related services are performed based on the amounts billed, as the collaboration partner consumes the benefit of research and development work simultaneously as we perform these services, and the amounts billed reflect the value of these services to the customer.
Refer to Note 4 Revenue, for further discussion on our collaborative arrangements.
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 are made pursuant to purchase orders subject to the terms of a master agreement, and delivery of individual packages of Hylenex recombinant represent performance obligations under each purchase order. We use a contract manufacturer to produce Hylenex recombinant and a third-party logistics (3PL) vendor to process and fulfill orders. We concluded we are the principal in the sales to wholesalers because we control access to services rendered by both vendors and direct their activities. We have no significant obligations to wholesalers to generate pull-through sales.
Selling prices initially billed to wholesalers are subject to discounts for prompt payment and subsequent chargebacks when wholesalers sell Hylenex recombinant at negotiated discounted prices to members of certain group purchasing organizations (“GPOs”) and government programs. We also pay quarterly distribution fees to certain wholesalers for inventory reporting and chargeback processing, and to GPOs as administrative fees for services and for access to GPO members. We concluded the benefits received in exchange for these fees are not distinct from our sales of Hylenex recombinant, and accordingly we apply these amounts to reduce revenues. Wholesalers also have rights to return unsold product nearing or past the expiration date. 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.
We estimate the transaction price when we receive each purchase order taking into account the expected reductions of the selling price initially billed to the wholesaler arising from all of the above factors. We have compiled historical experience and data to estimate future returns and chargebacks of Hylenex recombinant and the impact of the other discounts and fees we pay. When estimating these adjustments to the transaction price, we reduce it sufficiently to be able to assert that it is probable that there will be no significant reversal of revenue when the ultimate adjustment amounts are known.
Each purchase order contains only one type of product, and is usually shipped to the wholesaler in a single shipment. Therefore, allocation of the transaction price to individual packages is not required.
We recognize revenue from Hylenex recombinant product sales and related cost of sales upon product delivery to the wholesaler location. At that time, the wholesalers take control of the product as they take title, bear the risk of loss of ownership, and have an enforceable obligation to pay us. They also have the ability to direct sales of product to their customers on terms and at prices they negotiate. Although wholesalers have product return rights, we do not believe they have a significant incentive to return the product to us.
Upon recognition of revenue from product sales of Hylenex recombinant, the estimated amounts of credit for product returns, chargebacks, distribution fees, prompt payment discounts, and GPO fees are included in sales reserves, accrued liabilities and net of accounts receivable. We monitor actual product returns, chargebacks, discounts and fees subsequent to the sale. If these amounts differ from our estimates, we make adjustments to these allowances, which are applied to increase or reduce product sales revenue and earnings in the period of adjustment.
In connection with the orders placed by wholesalers, we incur costs such as commissions to our sales representatives. However, as revenue from product sales is recognized upon delivery to the wholesaler, which occurs shortly after we receive a purchase order, we do not capitalize these commissions and other costs, based on application of the practical expedient allowed within the applicable guidance.
Bulk rHuPH20
We sell bulk rHuPH20 to collaboration partners for use in research and development; subsequent to receiving marketing approval, we sell it for use in collaboration commercial products. Sales are made pursuant to purchase orders subject to the terms of the collaborative agreement, and delivery of units of bulk rHuPH20 represent performance obligations under each purchase order. We provide a standard warranty that the product conforms to specifications. We use contract manufacturers to produce bulk rHuPH20 and have concluded we are the principal in the sales to collaboration partners. The transaction price for each purchase order of bulk rHuPH20 is fixed based on the cost of production plus a contractual markup, and is not subject to adjustments. Allocation of the transaction price to individual quantities of the product is usually not required because each order contains only one type of product.
We recognize revenue from the sale of bulk rHuPH20 as product sales and related cost of sales upon transfer of title to our partners. At that time, the partners take control of the product, bear the risk of loss of ownership, and have an enforceable obligation to pay us.
ENHANZE Drug Product
We sell ENHANZE drug product to collaboration partners for use in research and development in early phase clinical studies. Sales are made pursuant to purchase orders subject to the terms of the collaborative agreement, and delivery of units of ENHANZE drug product represent performance obligations under each purchase order. We provide a standard warranty that
the product conforms to specifications. We use contract manufacturers to produce ENHANZE drug product and we concluded we are the principal in the sales to collaboration partners. The transaction price for each purchase order of ENHANZE drug product is fixed based on the cost of production plus a contractual markup, and is not subject to adjustments. Allocation of the transaction price to individual quantities of the product is usually not required because each order contains only one type of product.
We recognize revenue from the sale of ENHANZE drug product as product sales and related cost of sales upon transfer of title to our partners. At that time, the partners take control of the product, bear the risk of loss of ownership, and have an enforceable obligation to pay us.
Revenue Presentation
In our statements of operations, we report as revenues under collaborative agreements the upfront payments, event-based development and regulatory milestones and sales milestones. We also include in this category revenues from separate research and development contracts pursuant to project authorization forms. We report royalties received from collaboration partners as a separate line in our statements of operations.
Revenues from sales of Hylenex recombinant, bulk rHuPH20 that has alternative future use and ENHANZE drug product are included in product sales, net.
In the footnotes to our financial statements, we provide disaggregated revenue information by type of arrangement (product sales, net, collaborative agreements and research and development services), and additionally, by type of payment stream received under collaborative agreements (upfront license fees, event-based development and regulatory milestones and other fees, sales milestones and royalties).
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 and ENHANZE drug product. 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. When bulk rHuPH20 is manufactured for use in research and development by us or our partners and the product cannot be redirected for alternative use due to formulation and manufacturing specifications, the manufacturing costs are recorded as research and development expense. Bulk rHuPH20 that is manufactured for partner use prior to our partner receiving marketing approval from the FDA or comparable regulatory agencies in foreign countries and meet these specifications is recorded as research and development expenses. Bulk rHuPH20 formulations manufactured for general partner and internal use, which can potentially be used by any collaboration partner or by us in Hylenex, is considered to have alternative future use and all manufacturing costs 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 performance stock units (“PSUs”) 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 as we can demonstrate an ability to realize them.
In response to the coronavirus (COVID-19) pandemic, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the U.S. The CARES Act includes many measures to assist companies, including temporary changes to income and non-income-based tax laws. One of the key tax provisions of the bill is allowing taxpayers with AMT credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cuts and Jobs Act (“TCJA”) in 2017. Under the TCJA, we had recorded a receivable for AMT credits that was expected to be received in future years. Under the CARES Act, the remaining receivable for the AMT credit is fully refundable in 2020. Other than the refundability of the AMT credit, at this time, we do not believe that the CARES Act will have a material impact on our financial statements. On December 27, 2020 the Consolidated Appropriations Act, 2021 was signed into law. It provides additional COVID-19 focused relief and extends certain provisions of the CARES Act. At this time, we do not believe that the Consolidated Appropriations Act, 2021 will have a material impact on our financial statements.
Net Income (Loss) Per Share
Basic net income (loss) per common share is computed by dividing net income (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, unvested PSUs and the Convertible Notes 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. For the years ended December 31, 2020, 2019 and 2018, approximately 1.7 million, 33.1 million, and 13.8 million shares, respectively, of outstanding stock options, unvested RSAs, unvested RSUs, unvested PSUs and the Convertible Notes were excluded from the calculation of diluted net income (loss) per common share because their effect was anti-dilutive.
The 19.3 million shares underlying the conversion option of the Convertible Notes does not have an impact on our diluted earnings per share when the average market price of our common stock is less than the conversion price of $23.85 per share, as we will settle the principal amount of the Convertible Notes in cash upon conversion. When the average market price of our common stock exceeds the conversion price, we compute the potentially dilutive impact of the shares of common stock related to the Convertible Notes using the treasury stock method.
A reconciliation of the numerators and the denominators of the basic and diluted net income (loss) per common share computations is as follows (in thousands, except per share amounts):
Year Ended December 31,
 202020192018
Numerator:
Net income (loss) $129,085 $(72,240)$(80,330)
Denominator:
Weighted average common shares outstanding for basic
net income (loss) per share
136,206 144,329 143,599 
Net effect of dilutive common stock equivalents5,257 — — 
Weighted average common shares outstanding for diluted
net income (loss) per share
141,463 144,329 143,599 
Net income (loss) per share:
Basic$0.95 $(0.50)$(0.56)
Diluted$0.91 $(0.50)$(0.56)
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 no book value as of December 31, 2019 and 2018. There are no long-lived assets located in foreign countries as of December 31, 2020.
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:
StandardDescriptionEffective DateEffect on the Financial
Statements or Other Significant Matters
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)
The new guidance eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance requires that the if-converted method is used in computing diluted EPS for all convertible instruments
January 1, 2022
(Early adoption permitted effective January 1, 2021)
We plan to early adopt ASU 2020-06 as of January 1, 2021 on a modified retrospective basis, which is expected to result in an approximate $65.6 million decrease in additional paid in capital from the derecognition of the bifurcated equity component, $52.6 million increase in debt from the derecognition of the discount associated with the bifurcated equity component and $13.0 million decrease to the opening balance of accumulated deficit, representing the cumulative non-cash interest expense recognized related to the amortization of the bifurcated conversion option. We expect to write-off the related deferred tax liabilities of $11.8 million with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment to retained earnings. As we intended and have the ability to settle the principal amount of the convertible notes in cash upon conversion, in January 2021 we notified the note holders that we will settle the principal of the convertible notes in cash, removing our option to settle the principal of the notes in shares. Therefore, shares used for diluted EPS will continue to be limited to the excess conversion value over the principal amount of the convertible note. Diluted earnings per share will be impacted due to the elimination of non-cash interest expense associated with the amortization of the equity component.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and other Internal-Use Software (Subtopic 350-40)
The new guidance aligns the requirement for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirement for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
January 1, 2020
We adopted the new guidance on January 1, 2020. The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

StandardDescriptionEffective DateEffect on the Financial
Statements or Other Significant Matters
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820).The new guidance removes, modifies and adds to certain disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement.

January 1, 2020
We adopted the new guidance on January 1, 2020. The adoption did not have a material impact on our condensed consolidated financial position or results of operations.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial InstrumentsThe standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction in carrying value of the asset. Entities will no longer be permitted to consider the length of time that fair value has been less than amortized cost when evaluating when credit losses should be recognized.January 1, 2020
We adopted the new guidance on January 1, 2020. The adoption did not have a material impact on our condensed consolidated financial position or results of operations.

v3.20.4
Fair Value Measurement (Notes)
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block] Fair Value Measurement
Available-for-sale marketable securities consisted of the following (in thousands):
December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Asset-backed securities$17,013 $49 $— $17,062 
Corporate debt securities69,755 42 (8)69,789 
U.S. Treasury securities45,110 — 45,117 
Commercial paper88,342 — — 88,342 
$220,220 $98 $(8)$220,310 
December 31, 2019
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Asset-backed securities$30,484 $55 $— $30,539 
Corporate debt securities161,308 178 (14)161,472 
U.S. Treasury securities75,192 40 (5)75,227 
Commercial paper33,845 — — 33,845 
$300,829 $273 $(19)$301,083 
As of December 31, 2020, three available-for-sale marketable securities with a fair market value of $21.2 million were in a gross unrealized loss position of $8 thousand. Based on our review of these marketable securities, we believe none of the unrealized loss is as a result of a credit loss as of December 31, 2020, 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.
Contractual maturities of available-for-sale debt securities are as follows (in thousands):
December 31, 2020December 31, 2019
Estimated Fair Value
Due within one year$220,310 $274,805 
After one but within five years— 26,278 
$220,310 $301,083 
The following table summarizes, by major security type, our cash equivalents and available-for-sale marketable securities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy (in thousands):
December 31, 2020December 31, 2019
Level 1Level 2Total estimated fair valueLevel 1Level 2Total estimated fair value
Cash equivalents:
Money market funds$140,571 $— $140,571 $119,949 $— $119,949 
Commercial paper — 7,000 7,000 — — — 
Available-for-sale marketable
securities:
Asset-backed securities— 17,062 17,062 — 30,539 30,539 
Corporate debt securities— 69,789 69,789 — 161,472 161,472 
U.S. Treasury securities45,117 — 45,117 75,227 — 75,227 
Commercial paper— 88,342 88,342 — 33,845 33,845 
$185,688 $182,193 $367,881 $195,176 $225,856 $421,032 
We had no instruments that were classified within Level 3 as of December 31, 2020 and 2019.
v3.20.4
Revenue
12 Months Ended
Dec. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Revenue
Our disaggregated revenues were as follows (in thousands):
Year Ended December 31,
202020192018
Royalties$88,596 $69,899 $78,981 
Product sales, net
  Sales of bulk rHuPH20$38,237 $48,285 $12,729 
  Sales of ENHANZE drug product719 768 460 
  Sales of Hylenex17,031 16,995 15,045 
Total product sales, net55,987 66,048 28,234 
Revenues under collaborative agreements:
  Upfront license and target nomination fees37,264 53,000 26,336 
  Event-based development milestones and regulatory milestone and other fees69,500 5,500 16,000 
  Sales-based milestones15,000 — — 
  Research and development services1,247 1,545 2,311 
Total revenues under collaborative agreements123,011 60,045 44,647 
Total revenue$267,594 $195,992 $151,862 
During the year ended December 31, 2020 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of $173.1 million. This amount represents royalties and sales milestones earned in the current period, as well as $69.5 million of variable consideration in the contracts where uncertainties have been resolved and the development milestones are probable of being achieved or were achieved. We also recognized revenue of $4.1 million during the year ended December 31, 2020 that had been included in deferred revenues at December 31, 2019. We did not recognize any adjustments to reduce sales reserves and allowances liability related to Hylenex recombinant sales in prior periods.
Upon the adoption of ASC 606, we recognized an adjustment to increase our accounts receivable by $19.4 million, decrease deferred revenues by $51.8 million, and decrease accumulated deficit by $71.2 million. The impact of applying the provisions of ASC 606 in the year ended December 31, 2018 was to decrease revenues by $4.7 million. Under the previously existing authoritative accounting literature, at December 31, 2018 our accounts receivable, net would have been $19.3 million lower, and our deferred revenue $47.4 million higher, than the amounts reported in our consolidated balance sheet. ASC 606 did not have an aggregate impact on our net cash used in operating activities, but resulted in offsetting changes in net loss and certain assets and liabilities within net cash used in operating activities in the consolidated statement of cash flows.
Accounts receivable, net, other contract assets and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):
December 31, 2020December 31, 2019
Accounts receivable, net$90,730 $59,442 
Other contract assets7,000 — 
Deferred revenues5,772 5,259 
As of December 31, 2020, the amounts included in the transaction price of our contracts with customers, including collaboration partners, and allocated to goods and services not yet provided were $55.3 million of which $49.5 million relates to
unfulfilled product purchase orders and $5.8 million has been collected and reported as deferred revenues. The unfulfilled product purchase orders are estimated to be delivered in 2021. Of the total deferred revenues of $5.8 million, $1.7 million is expected to be used by our customers within the next 12 months.
We recognized contract assets of $7.0 million at December 31, 2020, which relate to development milestones deemed probable of receipt for intellectual property licenses granted to collaboration partners in prior periods.
The following table presents amounts under our collaborative agreements included in the transaction price (i.e. cumulative amounts triggered or probable) as of December 31, 2020 (in thousands):
Upfront
(1)
Development
(2)
Sales
(3)
Total
Collaboration partner and agreement date:
Roche (December 2006, September 2017 and October 2018)$105,000 $47,000 $22,000 $174,000 
Baxalta (September 2007)10,000 3,000 9,000 22,000 
Pfizer (December 2012)14,500 2,000 — 16,500 
Janssen (December 2014)18,250 42,000 15,000 75,250 
AbbVie (June 2015)23,000 6,000 — 29,000 
Lilly (December 2015)33,000 — — 33,000 
BMS (September 2017)110,000 10,000 — 120,000 
Alexion (December 2017)40,000 6,000 — 46,000 
argenx (February 2019)40,000 25,000 65,000 
Horizon (November 2020)30,000 — $— 30,000 
Royalties411,881 
Total amounts under our collaborative agreements included in the transaction price1,022,631 
(1)Upfront and additional target selection fees
(2)Event-based development and regulatory milestone amounts and other fees
(3)Sales-based milestone amounts
Through December 31, 2020, our collaboration partners have completed development, obtained marketing authorization approvals for certain indications and commenced commercialization of the following products:
Janssen, for DARZALEX FASPRO in US in May 2020 and subsequently in other regions.
Roche, for Herceptin SC in the EU in August 2013 and subsequently in other regions; and MabThera SC in the EU in March 2014 and subsequently in other regions; and Phesgo in the US in June 2020 and subsequently in other regions.
Baxalta, for HYQVIA in the EU and in the US in May 2013.
The remaining targets and products are currently in the process of development by the collaboration partners.
v3.20.4
Certain Balance Sheet Items
12 Months Ended
Dec. 31, 2020
Balance Sheet Related Disclosures [Abstract]  
Certain Balance Sheet Items Certain Balance Sheet Items
Accounts receivable, net consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Accounts receivable from product sales to collaborators$25,198 $35,649 
Accounts receivable from revenues under collaborative agreements30,404 3,850 
Accounts receivable from royalty payments32,098 17,149 
Accounts receivable from other product sales4,033 3,591 
Other contract assets7,000 — 
     Subtotal98,733 60,239 
Allowance for distribution fees and discounts(1,003)(797)
     Total accounts receivable, net$97,730 $59,442 
Inventories consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Raw materials$5,813 $2,769 
Work-in-process33,738 15,710 
Finished goods21,196 10,880 
     Total inventories$60,747 $29,359 
Prepaid expenses and other assets consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Prepaid manufacturing expenses$35,048 $30,156 
Prepaid research and development expenses342 4,964 
Other prepaid expenses2,510 3,655 
Other assets4,441 5,681 
     Total prepaid expenses and other assets42,341 44,456 
Less long-term portion(14,067)(11,083)
     Total prepaid expenses and other assets, current$28,274 $33,373 
Prepaid manufacturing expenses include raw materials, slot reservation fees and other amounts paid to contract manufacturing organizations. Such amounts are reclassified to work-in-process inventory as materials are used or the CMO services are complete.
Property and equipment, net consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Research equipment$7,085 $7,403 
Manufacturing equipment5,336 3,858 
Computer and office equipment4,826 4,859 
Leasehold improvements1,628 1,628 
     Subtotal18,875 17,748 
Accumulated depreciation and amortization(11,582)(10,742)
Subtotal$7,293 $7,006 
Right of use of assets$3,300 $3,849 
     Property and equipment, net$10,593 $10,855 
Depreciation and amortization expense was approximately $3.3 million, $4.1 million, and $2.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The depreciation and amortization expense is inclusive of $1.7 million, $1.8 million ROU asset amortization for the years ended December 31, 2020 and 2019, respectively.
Accrued expenses consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Accrued outsourced research and development expenses$448 $8,423 
Accrued compensation and payroll taxes8,078 27,888 
Accrued outsourced manufacturing expenses4,535 9,173 
Other accrued expenses6,020 7,876 
Lease liability4,868 6,469 
     Total accrued expenses23,949 59,829 
Less long-term portion(3,466)(4,180)
     Total accrued expenses, current$20,483 $55,649 
Expense associated with the accretion of the lease liabilities was approximately $0.5 million and $0.8 million for the twelve months ended December 31, 2020 and 2019, respectively. Total lease expense for the twelve months ended December 31, 2020 and 2019 $2.2 million and $2.6 million respectively.
Cash paid for amounts related to leases for the twelve months ended December 31, 2020 and 2019 was $3.2 million and $3.1 million respectively.
Deferred revenue consisted of the following (in thousands):
December 31,
2020
December 31,
2019
Collaborative agreements
License fees and event-based payments:— 2,764 
Product sales5,772 2,495 
Total deferred revenue5,772 5,259 
Less current portion(1,746)(4,012)
Deferred revenue, net of current portion$4,026 $1,247 
v3.20.4
Debt, Net
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
Debt, Net Debt, Net
Convertible Notes
In November 2019, we completed the sale of $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (“Convertible Notes”) in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (“Securities Act”). The Convertible Notes were issued under an indenture, dated as of November 18, 2019, (“Indenture”) with The Bank of New York Mellon Trust Company, N.A., as trustee. The offer and sale of the Convertible Notes and the shares of common stock issuable upon conversion of the Convertible Notes have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and the Convertible Notes and such shares may not be offered or sold absent registration or an applicable exemption from registration requirements, or in a transaction not subject to, such registration requirements.
We received net proceeds from the offering of approximately $447.4 million. We used $200.0 million of the net proceeds from the offering to repurchase shares of common stock, including approximately $143.1 million to repurchase approximately 8.1 million shares of common stock concurrently with the offering in privately negotiated transactions, $6.9 million in open market purchases and $50.0 million to repurchase a total of approximately 2.6 million shares of common stock through an accelerated share repurchase agreement.
We used approximately $26.1 million of the net proceeds from the offering to repay all outstanding amounts under its loan agreement with Oxford Finance and Silicon Valley Bank and intend to use the remainder of the net proceeds for general corporate purposes, including additional share repurchases subsequent to the offering and working capital.
The Convertible Notes will pay interest semi-annually in arrears on June 1st and December 1st of each year, beginning on June 1, 2020, at an annual rate of 1.25%. As of December 31, 2020, the Convertible Notes were convertible into cash, shares of common stock or a combination of cash and shares of common stock, at our election, based on the applicable conversion rate at such time. The Convertible Notes are general unsecured obligations and will rank senior in right of payment to all indebtedness that is expressly subordinated in right of payment to the Convertible Notes, will rank equally in right of payment with all existing and future liabilities that are not so subordinated, will be effectively junior to any secured indebtedness to the extent of the value of the assets securing such indebtedness and will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of the our current or future subsidiaries. The Convertible Notes have a maturity date of December 1, 2024.
Holders may convert their Convertible Notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2020, if the last reported sale price per share of common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on Company’s common stock, as described in the offering memorandum; (4) if we call such notes for redemption; and (5) at any time from, and including, June 1, 2024 until the close of business on the scheduled trading day immediately before the maturity date.
Upon the occurrence of certain circumstances, holders of the Convertible Notes may require us to purchase all or a portion of their notes for cash, which may require the use of a substantial amount of cash. As of December 31, 2020, the conditional conversion feature was triggered and our notes are classified as a current liability. We believe that it is remote that holders of the notes would choose to convert their notes early because the fair value of the security that a note holder can currently realize in an active market is greater than the conversion value the note holder would realize upon early conversion. For the year ended December 31, 2020, we have positive operating income and positive cash flow from operations and, accordingly, while there can be no assurance, we believe we have the ability to generate sufficient cash flows from operations or to raise additional capital through a variety of financing arrangements to satisfy early conversion of the Convertible Notes.
As a result of our plans to early adopt ASU 2020-06, in January 2021 we notified the note holders that we will settle the principal of the Convertible Notes in cash. Therefore, upon conversion, the principal value of the Convertible Notes will be paid in cash and depending on our stock price, any additional amount over principal amount will be settled in shares of common stock. The initial conversion rate for the Convertible Notes will be 41.9208 shares of common stock per $1,000 in principal amount of Convertible Notes, equivalent to a conversion price of approximately $23.85 per share of our common stock. The conversion rate is subject to adjustment as described in the Indenture.
In accordance with accounting guidance for debt with conversion and other options, we accounted for the debt and equity components of the Convertible Notes separately. The estimated fair value of the debt component at the date of issuance was $381.8 million, which was computed based on our non-convertible borrowing rate for similar debt of 5.19%, derived from independent valuation analysis. The equity component was allocated a value of $65.6 million and represents the difference between the $447.4 million of net proceeds from the issuance of the Convertible Notes and the $381.8 million estimated fair value of the debt component at the date of issuance.
In connection with the Convertible Notes, we paid the initial purchasers of the Convertible Notes a fee of $12.7 million and incurred additional debt issuance costs totaling $0.3 million, which includes expenses that we paid on behalf of the initial purchasers and expenses incurred directly by us. Debt issuance costs, the initial purchasers’ fee and the equity component is presented as a debt discount as of December 31, 2020 in the amount of $62.8 million, and will be amortized over the remaining estimated term of 3.9 using the effective interest method, utilizing an effective interest rate of 5.10%. The net carrying amount of the debt as of December 31, 2020 is $397.2 million. The fair value of the Convertible Notes, which was estimated using trading levels obtained from third-party service provider (Level 2), was $861.7 million at December 31, 2020 and $461.1 million at December 31, 2019.
For the year ended December 31, 2020 and 2019, we recognized interest expense of $19.9 million and $2.3 million including contractual coupon interest of $5.8 million and $0.7 million and amortization of the debt discount of $14.1 million and $1.6 million, respectively.
As of December 31, 2020, we were in compliance with all covenants under the Indenture and there was no material adverse change in our business, operations or financial condition.
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 were used to repay the principal and interest on the loan (the “Royalty Payments”).  The Royalty-backed Loan bore interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate was subject to a floor of 0.7% and a cap of 1.5%. In June 2020, we paid the full remaining balance and final payment of $2.93 million thereby satisfying and discharging all obligations under, and terminating, the Royalty-backed Loan.
Oxford and SVB Loan and Security Agreement
In June 2016, we entered into a Loan and Security Agreement (the “Loan Agreement”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (collectively, 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 had the option to draw during the second quarter of 2017 and did not exercise. The initial proceeds were partially used to pay the outstanding principal and final payment of $4.25 million owed on a previous loan agreement with the Lenders. The remaining proceeds were used for working capital and general business requirements. The senior secured loan facility carried a fixed interest rate of 8.25%. The repayment schedule provided 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 provided for a final payment equal to 5.50% of the initial $55.0 million principal amount, which was due when the Loan Agreement becomes due or upon the prepayment of the facility. We had the option to prepay the outstanding balance of the Loan Agreement in full and exercised this option in November 2019, at which point we paid the full remaining balance and final payment of $26.1 million, thereby satisfying and discharging all obligations under, and terminating, the Loan Agreement.
Future maturities and interest payments of long-term debt as of December 31, 2020, are as follows (in thousands):
2021$465,750 
2022— 
2023— 
2024— 
2025— 
Total minimum payments465,750 
Less amount representing interest(5,750)
Gross balance of long-term debt460,000 
Less unamortized debt discount(62,772)
Present value of long-term debt397,228 
Less current portion of long-term debt(397,228)
Long-term debt, less current portion and unamortized debt discount$— 
v3.20.4
Share-based Compensation (Notes)
12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Share-based Compensation Share-based Compensation
We currently grant stock options, restricted stock awards, performance stock units and restricted stock units under the Amended and Restated 2011 Stock Plan (“2011 Stock Plan”), which was approved by the stockholders on May 6, 2016 and provides for the grant of up to 44.2 million shares of common stock to selected employees, consultants and non-employee members of our Board of Directors as stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance awards. Awards are subject to terms and conditions established by the Compensation Committee of our Board of Directors. During the year ended December 31, 2020, we granted share-based awards under the 2011 Stock Plan. At December 31, 2020, 6,704,330 shares were subject to outstanding awards and 10,806,631 shares were available for future grants of share-based awards.
Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):
Year Ended December 31,
 202020192018
Research and development$5,484 $15,107 $17,220 
Selling, general and administrative11,720 19,669 18,476 
Share-based compensation expense$17,204 $34,776 $35,696 
Share-based compensation expense by type of share-based award (in thousands):
Year Ended December 31,
 202020192018
Stock options$8,955 $17,624 $18,742 
RSAs, RSUs and PSUs8,249 17,152 16,954 
$17,204 $34,776 $35,696 
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):
December 31, 2020
 Unrecognized
Expense
Remaining
Weighted-Average
Recognition Period
(years)
Stock options$18,853 2.60
RSAs$460 0.33
RSUs$13,241 2.32
PSUs$297 1.75
Stock Options. Options granted under the Plans must have an exercise price equal to at least 100% of the fair market value of our common stock on the date of grant. The options generally have a maximum contractual term of ten years and vest at the rate of one-fourth of the shares on the first anniversary of the date of grant and 1/48 of the shares monthly thereafter. Certain option awards provide for accelerated vesting if there is a change in control (as defined in the Plans).
A summary of our stock option award activity as of and for the year ended December 31, 2020 is as follows: 
Shares
Underlying
Stock Options
Weighted
Average Exercise
Price per Share
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
Outstanding at December 31, 201911,548,229 $14.72
Granted1,602,087 $20.74
Exercised(4,705,843)$14.08
Canceled/forfeited(2,810,851)$17.02
Outstanding at December 31, 20205,633,622 $15.836.58$151.4  million
Vested and expected to vest at December 31, 20205,633,622 $15.836.58$151.4  million
Exercisable at December 31, 20203,297,904 $13.365.08$96.8  million
The weighted average grant date fair values of options granted during the years ended December 31, 2020, 2019 and 2018 were $20.74 per share, $16.46 per share and $10.33 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was approximately $49.7 million, $10.6 million and $11.5 million, respectively. Cash received from stock option exercises for the years ended December 31, 2020, 2019 and 2018 was approximately $66.2 million, $16.5 million and $16.3 million, 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:
Year Ended December 31,
 202020192018
Expected volatility47.57-51.82%51.56-56.94%57.18-70.06%
Average expected term (in years)5.15.55.5
Risk-free interest rate0.22-1.67%1.35-2.56%2.25-2.96%
Expected dividend yield— — — 
Restricted Stock AwardsRSAs are grants that entitle the holder to acquire shares of our common stock at zero cost. The shares covered by a RSA cannot be sold, pledged, or otherwise disposed of until the award vests and any unvested shares may be reacquired by us for the original purchase price following the awardee’s termination of service. The RSAs will generally vest at the rate of one-fourth of the shares on each anniversary of the date of grant. Annual grants of RSAs to the Board of Directors typically vest in approximately one year.
The following table summarizes our RSA activity during the year ended December 31, 2020:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Unvested at December 31, 2019211,123 $11.47
Granted61,803 $22.66
Vested(210,676)$11.48
Forfeited(447)$8.11
Unvested at December 31, 202061,803 $22.66
The estimated fair value of the RSAs was based on the closing market value of our common stock on the date of grant. The total grant date fair value of RSAs vested during the years ended December 31, 2020, 2019 and 2018 was approximately $2.4 million, $3.3 million and $4.5 million, respectively. The fair value of RSAs vested during the years ended December 31, 2020, 2019 and 2018, was approximately $4.3 million, $4.2 million and $7.2 million, respectively.
Restricted Stock Units. A RSU is a promise by us to issue a share of our common stock upon vesting of the unit. The RSUs will generally vest at the rate of one-fourth of the shares on each anniversary of the date of grant.
The following table summarizes our RSU activity during the year ended December 31, 2020:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Weighted
Average
Remaining
Contractual
Term (yrs)
Aggregate
Intrinsic
Value
Outstanding at December 31, 20192,092,439 $15.60
Granted574,279 $20.25
Vested(714,868)$14.12
Forfeited(921,938)$16.62
Outstanding at December 31, 20201,029,912 $18.311.23$44.0  million
The estimated fair value of the RSUs was based on the closing market value of our common stock on the date of grant. The total grant date fair value of RSUs vested during the years ended December 31, 2020, 2019 and 2018 was approximately $10.1 million, $19.1 million and $6.7 million, respectively. The fair value of RSUs vested during the years ended December 31, 2020, 2019 and 2018 was approximately $14.0 million, $18.5 million and $11.0 million, respectively.
Performance Stock Units. A PSU is a promise by us to issue a share of our common stock upon achievement of a specific performance condition.
The following table summarizes our PSU activity during the year ended December 31, 2020:
Number of
Shares
Weighted
Average
Grant Date
Fair Value
Outstanding at December 31, 2019— $0.00
Granted40,796 $16.32
Vested— $0.00
Forfeited— $0.00
Outstanding at December 31, 202040,796 $16.32
The estimated fair value of the PSUs was based on the closing market value of our common stock on the date of grant. The fair value of PSUs vested during the years ended December 31, 2020, 2019 and 2018 was zero.
v3.20.4
Stockholders' Equity
12 Months Ended
Dec. 31, 2020
Equity [Abstract]  
Stockholders' Equity Stockholders’ Equity
During the years ended December 31, 2020, 2019 and 2018, we issued an aggregate of 4,705,843, 1,540,690 and 1,489,138 shares of common stock, respectively, in connection with the exercises of stock options, for net proceeds of approximately $66.2 million, $16.5 million and $16.3 million, respectively. For the years ended December 31, 2020, 2019 and 2018, we issued 571,963, 952,182 and 442,599 shares of common stock, respectively, upon vesting of certain RSUs for which the RSU holders surrendered 142,905, 140,466 and 139,850 RSUs, respectively, to pay for minimum withholding taxes totaling approximately $5.5 million, $7.0 million and $4.2 million, respectively. Stock options and unvested restricted units totaling approximately 6.7 million, 13.6 million and 13.4 million shares of our common stock were outstanding as of December 31, 2020, 2019 and 2018, respectively.
Share Repurchases
In November 2019, the Board of Directors authorized a capital return program to repurchase up to $550.0 million of outstanding common stock over a three-year period. We may utilize a variety of methods including open market purchases, privately negotiated transactions, accelerated share repurchase programs or any combination of such methods. The Board will regularly review this capital return program in connection with a balanced capital allocation strategy. During 2019, we repurchased approximately 11.1 million shares of common stock for $200.0 million at an average price of $18.03.
During 2020, we repurchased 6.5 million shares of common stock for $150.0 million at an average price of $23.05. The shares were purchased through open market transactions and through an ASR agreement with Bank of America in December 2020, for which we repurchased $21.7 million of common stock and received 0.5 million shares. We retired the repurchased shares and they resumed the status of authorized and unissued shares.
We had the following activity under the approved share repurchase programs (dollars in thousands, except share and per share data)
2020
Total Number of Shares PurchasedWeighted Average Price paid Per Share
Total Cost(2)
First quarter(1)
3,188,795 $16.15$51,574
Second quarter88,307 $22.58$1,996
Third quarter2,134,716 $27.57$58,902
Fourth quarter(3)
1,095,366 $34.36$37,645
6,507,184 $23.05$150,117
(1) This is in addition to 0.5 million shares delivered in February upon completion of the ASR.
(2) Included in the total cost of shares purchased is a commission fee of $0.02 per share.
(3) This includes the December 2020 ASR.
v3.20.4
Commitments and Contingencies
12 Months Ended
Dec. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Operating Leases
Our administrative offices and research facilities are located in San Diego, California. We lease an aggregate of approximately 50,000 square feet of office and research space in two buildings. The leases commenced in June 2011, November 2013 and June 2018 and continue through January 2023. The leases are subject to approximately 3.0% annual increases throughout the terms of the leases. We also pay a pro rata share of operating costs, insurance costs, utilities and real property taxes.
Additionally, we lease certain office equipment under operating leases. Total rent expense was approximately $2.3 million, $2.7 million and $2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Approximate annual future minimum operating lease payments as of December 31, 2020 are as follows (in thousands): 
Year:Operating
Leases
2021$2,563 
20222,564 
2023150 
2024— 
2025— 
Total minimum lease payments$5,277 
Less imputed interest(409)
Total$4,868 
The weighted-average remaining lease term of our operating leases is approximately 2.06 years.
Other Commitments
We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc. (“Avid”) and Catalent Indiana LLC (formerly Cook Pharmica LLC) (“Catalent”) to produce supplies of bulk rHuPH20. Under the terms of the agreements, we are committed to certain minimum annual purchases of bulk rHuPH20. At December 31, 2020, we had a $75.9 million minimum purchase obligation in connection with these agreements.
In June 2011, we entered into a services agreement with Patheon for the technology transfer and manufacture of Hylenex recombinant. At December 31, 2020, we had a $1.4 million minimum purchase obligation in connection with this agreement. 

Legal 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.
v3.20.4
Income Taxes
12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Total income (loss) before income taxes summarized by region were as follows (in thousands):
Year Ended December 31,
202020192018
United States$130,427 $(70,737)$(45,819)
Foreign(1,125)(1,514)(33,974)
Net income (loss) before income taxes$129,302 $(72,251)$(79,793)
Significant components of our net deferred tax assets/(liabilities) were as follows (in thousands).
December 31,
20202019
Deferred tax assets:
Net operating loss carryforwards$84,278 $39,401 
Deferred revenue253 1,069 
Research and development and orphan drug credits114,357 114,357 
Share-based compensation4,637 9,972 
Alternative minimum tax credit— 1,683 
ASC 842 lease liability1,081 1,454 
Interest expense limitation5,536 2,163 
Other, net3,478 3,037 
213,620 173,136 
Valuation allowance for deferred tax assets(199,827)(155,100)
Deferred tax assets, net of valuation13,793 18,036 
Deferred tax liabilities:
Depreciation(1,002)(865)
Convertible note(11,776)(14,450)
ASC 842 right of use asset(733)(865)
Other, net(282)(173)
Total deferred tax liabilities(13,793)(16,353)
Net deferred tax asset $— $1,683 
A valuation allowance of $199.8 million and $155.1 million has been established to offset the net deferred tax assets as of December 31, 2020 and 2019, respectively, as realization of such assets is uncertain.
We intend to continue maintaining a full valuation allowance on our DTAs until there is sufficient evidence to support the reversal of all or some portion of these allowances. However, given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to reach a conclusion that a significant portion of the valuation allowance will no longer be needed. Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.
Income tax expense was comprised of the following components (in thousands):
Year Ended December 31,
202020192018
Current - federal$(11)$114 $82 
Current - state228 (40)519 
Deferred - federal— (85)(64)
Deferred - state— — — 
$217 $(11)$537 
The provision for income taxes on earnings subject to income taxes differs from the statutory federal income tax rate due to the following (in thousands):
Year Ended December 31,
202020192018
Federal income tax expense (benefit) at 21% $27,153 $(15,173)$(16,754)
State income tax benefit, net of federal income tax impact(1,942)(1,509)(4,297)
(Decrease) increase in valuation allowance44,727 8,147 35,731 
Worthless stock deduction of international subsidiary(67,322)— — 
Foreign income subject to tax at other than federal statutory rate237 318 7,106 
Share-based compensation(4,117)315 (441)
Executive compensation limitation1,434 858 866 
Non-deductible expenses and other47 66 1,599 
Research and development credits, net— (1,091)(5,210)
Orphan drug credits, net of federal add back— (5,718)(18,063)
Convertible note discount in APIC$— $13,776 $— 
$217 $(11)$537 
At December 31, 2020, our unrecognized tax benefit and uncertain tax positions were $19.2 million. Of this, $0.3 million of this amount would affect the effective tax rate and $18.9 million would affect the effective tax rate only in the event the valuation allowance was removed. Of the unrecognized tax benefits, we do not expect any significant changes to occur in the next 12 months. Interest and/or penalties related to uncertain income tax positions are recognized by us as a component of income tax expense. For the years ended December 31, 2020, 2019 and 2018, we recognized an immaterial amount of interest and penalties.
The following table summarizes the activity related to our unrecognized tax benefits (in thousands):
Year Ended December 31,
202020192018
Gross unrecognized tax benefits at beginning of period$21,483 $20,028 $14,428 
Increases in tax positions for prior years41 69 3,083 
Decreases in tax positions for prior years(2,357)(23)— 
Increases in tax positions for current year — 1,409 2,517 
Gross unrecognized tax benefits at end of period$19,167 $21,483 $20,028 
At December 31, 2020, we had federal, California and other state tax net operating loss carryforwards of approximately $310.8 million, $259.8 million and $45.3 million, respectively.
The following table shows key expiration dates of the federal and California net operating loss carryforwards (in thousands):
Expires in:
Net Operating Loss20202021 and beyond2028 and beyond
Federal$310,756 $— $310,756 — 
California$259,840 $— — $259,840 
At December 31, 2020, we had federal and California research and development tax credit carryforwards of approximately $27.9 million and $19.1 million, respectively. The federal research and development tax credits will begin to expire in 2024 unless previously utilized. The California research and development tax credits will carryforward indefinitely until utilized. Additionally, we had Orphan Drug Credit carryforwards of $88.0 million which will begin to expire in 2034.
Pursuant to Internal Revenue Code Section 382, the annual use of the net operating loss carryforwards and research and development tax credits could be limited by any greater than 50% ownership change during any three year testing period. As a result of any such ownership change, portions of our net operating loss carryforwards and research and development tax credits are subject to annual limitations. We completed an updated Section 382 analysis regarding the limitation of the net operating losses and research and development credits as of December 31, 2019. Based upon the analysis, we determined that ownership changes occurred in prior years; however, the annual limitations on net operating loss and research and development tax credit carryforwards will not have a material impact on the future utilization of such carryforwards.
We do not provide for U.S. income taxes on the undistributed earnings of our foreign subsidiary as it is our intention to utilize those earnings in the foreign operations for an indefinite period of time. At December 31, 2020 and 2019, there were no undistributed earnings in foreign subsidiaries.
We are subject to taxation in the U.S. and in various state and foreign jurisdictions. Our tax years for 2004 and forward are subject to examination by the U.S. and California tax authorities due to the carryforward of unutilized net operating losses and research and development credits.
v3.20.4
Employee Savings Plan (Notes)
12 Months Ended
Dec. 31, 2020
Retirement Benefits [Abstract]  
Compensation and Employee Benefit Plans [Text Block] Employee Savings PlanWe have an employee savings plan pursuant to Section 401(k) of the Internal Revenue Code. All employees are eligible to participate, provided they meet the requirements of the plan. We are not required to make matching contributions under the plan. However, we voluntarily contributed to the plan approximately $1.1 million, $2.2 million and $1.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
v3.20.4
Summary of Unaudited Quarterly Financial Information
12 Months Ended
Dec. 31, 2020
Quarterly Financial Information Disclosure [Abstract]  
Summary of Unaudited Quarterly Financial Information Summary of Unaudited Quarterly Financial Information
The following is a summary of our unaudited quarterly results for the years ended December 31, 2020 and 2019 (in thousands):
Quarter Ended
2020 (Unaudited):March 31,June 30,September 30,December 31,
Total revenues (1)(2)(3)
$25,354 $55,221 $65,316 $121,703 
Gross profit on product sales$2,360 $597 $3,480 $6,183 
Total operating expenses$28,577 $25,666 $25,017 $44,079 
Net (loss) Income $(6,103)$25,817 $36,207 $73,164 
Net (loss) Income per share:
Basic$(0.04)$0.19 $0.27 $0.54 
Diluted$(0.04)$0.19 $0.25 $0.50 
Shares used in computing net (loss) income per share:
Basic137,186 135,935 136,578 135,107 
Diluted137,186 138,084 142,081 145,122 
 Quarter Ended
2019 (Unaudited):March 31,June 30,September 30,December 31,
Total revenues (4)
$56,949 $39,148 $46,230