Halozyme(HALO) - 2024 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements Presents Halozyme's unaudited condensed consolidated financial statements for Q1 2024 and 2023, including balance sheets, income, cash flows, and equity Condensed Consolidated Balance Sheets Total assets increased to $1.84 billion by March 31, 2024, from $1.73 billion at year-end 2023, with equity at $177.8 million Condensed Consolidated Balance Sheets Summary | Account | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $873,584 | $746,424 | | Total Assets | $1,841,527 | $1,733,270 | | Total Current Liabilities | $131,639 | $112,494 | | Long-term debt, net | $1,500,879 | $1,499,248 | | Total Liabilities | $1,663,719 | $1,649,462 | | Total Stockholders' Equity | $177,808 | $83,808 | Condensed Consolidated Statements of Income Total revenues increased 21% to $195.9 million in Q1 2024, with net income rising 94% to $76.8 million and diluted EPS at $0.60 Condensed Consolidated Statements of Income Summary | Metric | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $195,879 | $162,143 | | Royalties | $120,593 | $99,640 | | Product sales, net | $58,583 | $60,794 | | Operating Income | $95,542 | $53,802 | | Net Income | $76,823 | $39,615 | | Diluted EPS | $0.60 | $0.29 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $129.4 million in Q1 2024, with $82.7 million used in investing and minimal financing activities Condensed Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $129,427 | $86,964 | | Net cash used in investing activities | ($82,681) | ($60,162) | | Net cash used in financing activities | ($489) | ($164,614) | | Net increase (decrease) in cash | $46,257 | ($137,812) | | Cash at end of period | $164,627 | $96,883 | Notes to Condensed Consolidated Financial Statements Detailed disclosures cover business, accounting policies, balance sheet items, debt, and equity, supporting the financial statements - The company's business is centered on its ENHANZE® drug delivery technology, which uses the proprietary rHuPH20 enzyme to facilitate subcutaneous (SC) delivery of injected drugs. Halozyme licenses this technology to biopharmaceutical partners and also develops and commercializes drug-device combination products using its auto-injector technologies[24] Notes to Condensed Consolidated Financial Statements Summary | Revenue Source | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Royalties | $120,593 | $99,640 | | Product sales, net | $58,583 | $60,794 | | Proprietary product sales | $35,254 | $27,961 | | Bulk rHuPH20 sales | $10,511 | $22,069 | | Device partnered product sales | $12,818 | $10,764 | | Revenues under collaborative agreements | $16,703 | $1,709 | | Total Revenues | $195,879 | $162,143 | - As of March 31, 2024, the company has two series of convertible senior notes outstanding: $805.0 million of 0.25% notes due 2027 and $720.0 million of 1.00% notes due 2028. The total carrying amount of this long-term debt is approximately $1.5 billion[130] - In February 2024, the Board of Directors authorized a new capital return program to repurchase up to $750.0 million of outstanding common stock. This follows a previous $750.0 million program initiated in December 2021[144] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting royalty revenue growth, operating expenses, liquidity, and key partner pipeline advancements Key Events Q1 2024 saw significant partner pipeline progress, including FDA acceptances for Opdivo SC and Ocrevus SC, alongside a new $750 million share repurchase program - BMS: FDA accepted BLA for subcutaneous Opdivo (nivolumab) with ENHANZE, with a PDUFA goal date of February 28, 2025, triggering a $15.0 million milestone payment[161] - Roche: EMA committee recommended approval for Ocrevus SC, and the FDA accepted its submission with potential approval in September 2024[161] - argenx: FDA accepted for priority review an sBLA for VYVGART Hytrulo for chronic inflammatory demyelinating polyneuropathy (CIDP), with a PDUFA action date of June 21, 2024[161] - Janssen: Received multiple approvals and submitted an sBLA for DARZALEX FASPRO for newly diagnosed multiple myeloma patients[161] - In February 2024, the Board of Directors authorized a third capital return program to repurchase up to $750.0 million of the company's outstanding common stock[161] Results of Operations Q1 2024 royalty revenue increased 21% to $120.6 million, while total product sales decreased 4% to $58.6 million, and operating expenses declined 7% Results of Operations Summary | Revenue Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Royalties | $120,593 | $99,640 | 21% | | Product Sales, Net | $58,583 | $60,794 | (4)% | | Revenues Under Collaborative Agreements | $16,703 | $1,709 | 877% | Results of Operations Summary | Operating Expense Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Cost of sales | $28,329 | $35,170 | (19)% | | Research and development | $19,111 | $17,979 | 6% | | Selling, general and administrative | $35,134 | $37,357 | (6)% | Liquidity and Capital Resources Halozyme reports $463.5 million in cash and equivalents, $129.4 million operating cash flow, and a new $750 million share repurchase program - The company's principal sources of liquidity are its existing cash, cash equivalents, and available-for-sale marketable securities, which totaled $463.5 million as of March 31, 2024[207] Liquidity and Capital Resources Summary | Cash Flow Activity (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $129,427 | $86,964 | | Net cash used in investing activities | ($82,681) | ($60,162) | | Net cash used in financing activities | ($489) | ($164,614) | - A new $750.0 million share repurchase program was authorized by the Board of Directors in February 2024[213] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risks, primarily exposed to interest rate fluctuations and foreign currency exchange risk, which it actively hedges - The company's primary market risks are interest rate changes affecting its investment portfolio and foreign currency fluctuations. Management does not believe a 10% change in interest rates would materially impact results[238] - Halozyme hedges a portion of its foreign currency exchange risk associated with forecasted royalty revenue denominated in Swiss francs using cash flow hedges[239] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no significant changes in internal control over financial reporting - Based on an evaluation, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[242] - There were no significant changes in internal control over financial reporting during the quarter ended March 31, 2024[243] PART II — OTHER INFORMATION Legal Proceedings The company is not a party to any legal proceedings expected to materially adversely affect its financial condition or operations - As of the filing date, the company is not a party to any legal proceedings where an adverse outcome would have a material adverse effect on its consolidated financial statements[245] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2023 - No material changes have occurred to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[246] Unregistered Sales of Equity Securities and Use of Proceeds The company initiated a $250.0 million ASR in November 2023 and authorized a new $750.0 million share repurchase program in February 2024 - In November 2023, the company initiated an Accelerated Share Repurchase (ASR) agreement to buy back the remaining $250.0 million of shares under its 2021 program[247] - A new share repurchase program for up to $750.0 million was authorized by the Board of Directors in February 2024[248] Other Information CEO Helen Torley and CFO Nicole LaBrosse adopted new Rule 10b5-1 trading plans for common share sales during Q1 2024 - During Q1 2024, CEO Helen Torley and CFO Nicole LaBrosse adopted new Rule 10b5-1 trading plans for the potential sale of common shares acquired upon the exercise of stock options[252]