UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2019~~2020



¨☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-32335

___________________________

HALOZYME THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

___________________________



Delaware		88-0488686
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

11388 Sorrento Valley Road ~~San Diego, CA~~		92121
San Diego		(Zip Code)
California
(Address of principal executive offices)		~~(Zip Code)~~

~~(858)~~ (858) 794-8889

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	HALO	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



~~Large accelerated filer~~ x	~~Accelerated filer~~ ¨	~~Non-accelerated filer~~ ¨	~~Smaller reporting company~~ ¨	~~Emerging growth company~~ ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was ~~145,509,170~~135,814,940 as of ~~April 30, 2019~~May 6, 2020.

HALOZYME THERAPEUTICS, INC.

INDEX



		Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (Unaudited) - March 31, ~~2019~~2020 and December 31, ~~2018~~2019	3
	Condensed Consolidated Statements of Operations (Unaudited) - Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (Unaudited) - Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	6
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) - Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2628
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5254
Item 4.	Controls and Procedures	52

~~PART II — OTHER INFORMATION~~
~~Item 1.~~	~~Legal Proceedings~~	53
~~Item 1A.~~	~~Risk Factors~~	53
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	53
~~Item 3.~~	~~Defaults Upon Senior Securities~~	53
~~Item 4.~~	~~Mine Safety Disclosures~~	53
~~Item 5.~~	~~Other Information~~	53
~~Item 6.~~	~~Exhibits~~	54

~~SIGNATURES~~PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	56
	SIGNATURES	57

PART I — FINANCIAL INFORMATION


Item 1.	Financial Statements

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)


	March 31, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	60,595		$	57,936		$	104,820		$	120,179
Marketable securities, available-for-sale	268,122			296,590			263,363			301,083
Accounts receivable, net	28,164			30,005			29,749			59,442
Inventories	31,241			22,625			41,452			29,359
Prepaid expenses and other assets	20,914			20,693			28,587			33,373
Total current assets	409,036			427,849			467,971			543,436
Property and equipment, net	14,542			7,465			11,752			10,855
Prepaid expenses and other assets	5,031			4,434			12,130			11,083
Restricted cash	500			500			500			500
Total assets	$	429,109		$	440,248		$	492,353		$	565,874

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,089		$	4,079		$	8,320		$	6,434
Accrued expenses	43,663			49,529			26,811			55,649
Deferred revenue, current portion	4,247			4,247			4,012			4,012
Current portion of long-term debt, net	86,663			91,506			2,859			19,542
Total current liabilities	138,662			149,361			42,002			85,637
Deferred revenue, net of current portion	4,509			5,008			641			1,247
Long-term debt, net	18,742			34,874			386,571			383,045
Other long-term liabilities	7,149			2,118			5,097			4,180
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock - $0.001 par value; 20,000 shares authorized; no shares issued and outstanding	—			—			—			—
Common stock - $0.001 par value; 200,000 shares authorized;145,364 and 144,725 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively	145			145
Common stock - $0.001 par value; 300,000 shares authorized; 135,364 and 136,713 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively							135			137
Additional paid-in capital	789,483			780,457			667,677			695,066
Accumulated other comprehensive income (loss)	61			(277		)
Accumulated other comprehensive income							11			240
Accumulated deficit	(529,642		)	(531,438		)	(609,781		)	(603,678		)
Total stockholders’ equity	260,047			248,887			58,042			91,765
Total liabilities and stockholders’ equity	$	429,109		$	440,248		$	492,353		$	565,874

See accompanying notes to condensed consolidated financial statements.

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Revenues:
Royalties	$	17,953		$	20,944		$	16,822		$	17,953
Product sales, net	8,390			6,801			8,147			8,390
Revenues under collaborative agreements	30,606			3,127			385			30,606
Total revenues	56,949			30,872			25,354			56,949
Operating expenses:
Cost of product sales	4,649			3,052			5,787			4,649
Research and development	31,328			37,976			10,158			31,328
Selling, general and administrative	18,006			13,556			12,632			18,006
Total operating expenses	53,983			54,584			28,577			53,983
Operating income (loss)	2,966			(23,712		)
Operating (loss) income							(3,223		)	2,966
Other income (expense):
Investment and other income, net	2,057			1,668			2,479			2,057
Interest expense	(3,205		)	(5,230		)	(5,348		)	(3,205		)
Net income (loss) before income taxes	1,818			(27,274		)
Net (loss) income before income taxes							(6,092		)	1,818
Income tax expense	22			187			11			22
Net income (loss)	$	1,796		$	(27,461	)
Net (loss) income							$	(6,103	)	$	1,796

Net income (loss) per share:
Net (loss) income per share:
Basic	$	0.01		$	(0.19	)	$	(0.04	)	$	0.01
Diluted	$	0.01		$	(0.19	)	$	(0.04	)	$	0.01

Shares used in computing net income (loss) per share:
Shares used in computing net (loss) income per share:
Basic	144,743			142,656			137,186			144,743
Diluted	147,474			142,656			137,186			147,474

See accompanying notes to condensed consolidated financial statements.

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME ~~(LOSS)~~

(Unaudited)

(In thousands)


	Three Months Ended March 31,					Three Months Ended March 31,
	2019		2018			2020			2019
Net income (loss)	$	1,796	$	(27,461	)
Other comprehensive income (loss):
Net (loss) income						$	(6,103	)	$	1,796
Other comprehensive (loss) income:
Unrealized gain (loss) on marketable securities	335		(418		)	(229		)	335
Foreign currency translation adjustment	1		(2		)	(1		)	1
Unrealized gain on foreign currency	2		—			1			2
Total comprehensive income (loss)	$	2,134	$	(27,881	)
Total comprehensive loss						$	(6,332	)	$	2,134

See accompanying notes to condensed consolidated financial statements.

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,						Three Months Ended March 31,
	Three Months Ended March 31,						Three Months Ended March 31,
	2019			2018			2020			2019
Operating activities:
Net income (loss)	$	1,796		$	(27,461	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) income							$	(6,103	)	$	1,796
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation	9,475			8,339			4,531			9,475
Depreciation and amortization	990			566			857			990
Amortization of debt discount	306			435			3,478			306
Accretion of discounts on marketable securities, net	(936		)	(565		)	9			(936		)
Gain on disposal of equipment							(597		)	—
Recognition of deferred revenue	(499		)	(1,834		)	(606		)	(499		)
Deferral of lease payments	(93		)	132
Lease payments deferred							(221		)	(93		)
Other	11			(2		)	(4		)	11
Changes in operating assets and liabilities:
Accounts receivable, net	1,841			15,044			29,693			1,841
Inventories	(8,616		)	752			(12,093		)	(8,616		)
Prepaid expenses and other assets	(818		)	(5,939		)	3,833			(818		)
Accounts payable and accrued expenses	(7,881		)	(11,644		)	(27,621		)	(7,881		)
Net cash used in operating activities	(4,424		)	(22,177		)	(4,844		)	(4,424		)
Investing activities:
Purchases of marketable securities	(167,670		)	(114,661		)	(63,257		)	(167,670		)
Proceeds from maturities of marketable securities	197,410			79,600			100,742			197,410
Purchases of property and equipment	(927		)	(839		)	(114		)	(927		)
Net cash provided by (used in) investing activities	28,813			(35,900		)
Proceeds from disposal of property and equipment							738			—
Net cash provided by investing activities							38,109			28,813
Financing activities:
Repayment of long-term debt	(21,281		)	(17,628		)	(16,699		)	(21,281		)
Payment of debt issuance cost							(68		)	—
Repurchase of common stock							(51,574		)	—
Proceeds from issuance of common stock under equity incentive plans, net of taxes paid related to net share settlement	(449		)	4,977			19,717			(449		)
Net cash used in financing activities	(21,730		)	(12,651		)	(48,624		)	(21,730		)
Net increase (decrease) in cash, cash equivalents and restricted cash	2,659			(70,728		)	(15,359		)	2,659
Cash, cash equivalents and restricted cash at beginning of period	58,436			169,240			120,679			58,436
Cash, cash equivalents and restricted cash at end of period	$	61,095		$	98,512		$	105,320		$	61,095

Supplemental disclosure of non-cash investing and financing activities:
Amounts accrued for purchases of property and equipment	$	200		$	177		$	347		$	200
Right-of-use assets obtained in exchange for lease obligation	$	165		$	—		$	1,589		$	165
Leasehold improvements paid by lessor	$	—		$	1,322

See accompanying notes to condensed consolidated financial statements.

HALOZYME THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity		Three Months Ended March 31, 2020
	Shares		Amount	Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity		Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
BALANCE AT JANUARY 1, 2019	144,725		145	780,457		(277	)	(531,438	)	248,887						Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
												Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
BALANCE AS OF DECEMBER 31, 2019												136,713		137		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
Share-based compensation expense												—		—		4,531		—		—		4,531
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net												2,355		2		19,715		—		—		19,717
Cancellation of restricted stock awards, net												(1	)	—		—		—		—		—
Repurchase of common stock												(3,703	)	(4	)	(51,570	)					(51,574	)
Equity Component of convertible notes																(65	)					(65	)
Other comprehensive loss												—		—		—		(229	)	—		(229	)
Net loss												—		—		—		—		(6,103	)	(6,103	)
BALANCE AS OF MARCH 31, 2020												135,364		135		667,677		11		(609,781	)	58,042
												Three Months Ended March 31, 2019
												Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
												Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
BALANCE AS OF DECEMBER 31, 2018												144,725		145		780,457		(277	)	(531,438	)	248,887
Share-based compensation expense	—		—	9,475		—		—		9,475		—		—		9,475		—		—		9,475
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net	641		—	(449	)	—		—		(449	)	641		—		(449	)	—		—		(449	)
Cancellation of restricted stock awards, net	(2	)	—	—		—		—		—		(2	)	—		—		—		—		—
Other comprehensive income	—		—	—		338		—		338		—		—		—		338		—		338
Net income	—		—	—		—		1,796		1,796		—		—		—		—		1,796		1,796
BALANCE AT MARCH 31, 2019	145,364		145	789,483		61		(529,642	)	260,047

	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares		Amount	Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
BALANCE AT JANUARY 1, 2018	142,789		143	731,044		(450	)	(522,371	)	208,366
Adjustment to beginning accumulated deficit	—		—	—		—		71,263		71,263
Share-based compensation expense	—		—	8,339		—		—		8,339
Issuance of common stock pursuant to exercise of stock options and vesting of restricted stock units, net	1,116		1	4,976		—		—		4,977
Cancellation of restricted stock awards, net	(19	)	—	—		—		—		—
Other comprehensive loss	—		—	—		(420	)	—		(420	)
Net loss	—		—	—		—		(27,461	)	(27,461	)
BALANCE AT MARCH 31, 2018	143,886		144	744,359		(870	)	(478,569	)	265,064
BALANCE AS OF MARCH 31, 2019												145,364		145		789,483		61		(529,642	)	260,047

See accompanying notes to condensed consolidated financial statements.

HALOZYME THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Halozyme Therapeutics, Inc. is a ~~biotechnology~~biopharma technology platform company focused on developing and commercializing novel oncology therapies. We are seeking to translate our unique knowledge of the tumor microenvironment to create therapies that have the potential to improve cancer patient survival. Our research primarily focuses on human enzymes that alter the extracellular matrix and tumor microenvironment. The extracellular matrix is a complex matrix of proteins and carbohydrates surrounding the cell that provides ~~structural support in tissues~~innovative and ~~orchestrates many important biological activities, including cell migration, signaling~~disruptive solutions with the goal of improving patient experience and ~~survival. Over many years, we have developed unique technology and scientific expertise enabling us to pursue this target-rich environment for the development of therapies.~~

outcomes. Our proprietary ~~enzymes are~~enzyme, rHuPH20, is used to facilitate the delivery of injected drugs and ~~fluids, potentially enhancing the efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit.~~fluids. We exploit our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2) licensinglicense our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE^® drug deliverytechnology with the collaborators’ proprietary compounds.

~~The majority of our~~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~~^®Hylenex® recombinant, (“Hylenex”), and it works by ~~temporarily~~ 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. ~~We believe this temporary degradation creates an opportunistic window~~This temporarily increases dispersion and absorption allowing for ~~the~~ improved subcutaneous delivery of injectable biologics, such as monoclonal antibodies and other large therapeutic molecules, as well as small molecules and fluids. We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE^® ~~Drug Delivery Technology~~ 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. 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”) and ARGENX BVBA (“argenx”)~~.We~~. We receive royalties from two of these collaborations, including royalties from sales of one product from the Baxalta collaboration and two products from the Roche collaboration. Future potential revenues from royalties and fees from ENHANZE collaborations and the sales and/or royalties of our approved products ~~product candidates, and ENHANZE collaborations~~ will depend on the ability of Halozyme and our collaborators to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.

Our proprietary development pipeline consists primarily of pre-clinical and clinical stage product candidates in oncology. Our lead oncology program is Pegvorhyaluronidase alfa (PVHA), also referred to as PEGylated recombinant human hyaluronidase (“PEGPH20”), a molecular entity we are developing in combination with currently approved cancer therapies as a candidate for the systemic treatment of tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it can cause increased pressure in the tumor, reducing blood flow into the tumor and with that, reduced access of cancer therapies to the tumor. PEGPH20 has been demonstrated in animal models to work by temporarily degrading HA surrounding cancer cells resulting in reduced pressure and increased blood flow to the tumor thereby enabling increased amounts of anticancer treatments administered concomitantly gaining access to the tumor. Through our efforts and efforts of our partners and collaborators, we are currently in Phase 3 clinical testing for PEGPH20 with ABRAXANE^®(nab-paclitaxel) and gemcitabine in stage IV pancreatic ductal adenocarcinoma (“PDA”) (HALO 109-301), in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq® (atezolizumab) in patients with previously treated metastatic PDA, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with gastric cancer and in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with cholangiocarcinoma and gall bladder cancer (HALO 110-101/MATRIX).

Except where specifically noted or the context otherwise requires, references to “Halozyme,” “the Company,” “we,” “our,” and “us” in these notes to the condensed consolidated financial statements refer to Halozyme Therapeutics, Inc. and its wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Accordingly, they do not include all of the information and disclosures required by U.S. GAAP for a complete set of financial statements. These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019, filed with the SEC on February ~~21, 2019.~~24, 2020. The unaudited financial information for the interim periods presented herein reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial condition and results of operations for the periods presented, with such adjustments consisting only of normal recurring adjustments. ~~Certain reclassifications have been made to the prior period condensed consolidated statement of cash flows within operating activities to conform to the current period presentation.~~ There was no change to net cash used in operating activities. Operating results for interim periods are not necessarily indicative of the operating results for an entire fiscal year.

The accompanying interim unaudited condensed consolidated financial statements include the accounts of Halozyme Therapeutics, Inc. and our wholly owned subsidiary, Halozyme, Inc., and Halozyme, Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of interim unaudited condensed consolidated financial statements in conformity with U.S. ~~GAAP~~generally accepted accounting principles (“ U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in our interim unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, which are based on historical and anticipated results and trends and on various other assumptions that management believes to be reasonable under the circumstances. By their nature, estimates are subject to an inherent degree of uncertainty and, as such, actual results may differ from management’s estimates.

Cash Equivalents and Marketable Securities

Cash equivalents consist of highly liquid investments, readily convertible to cash, that mature within ninety days or less from the date of purchase. As of March 31, ~~2019,~~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 (deficit). The cost of marketable securities is adjusted for amortization of premiums or accretion of discounts to maturity, and such amortization or accretion is included in investment and other income, net in the interim unaudited condensed consolidated statements of operations. We use the specific identification method for calculating realized gains and losses on marketable securities sold. ~~Realized~~None of the realized gains and losses and declines in value judged to be ~~other-than-temporary~~as a result of credit loss on marketable securities, if any, are included in investment and other income, net in the interim unaudited condensed consolidated statements of operations.

Restricted Cash

Under the terms of the leases of our facilities, we are required to maintain letters of credit as security deposits during the terms of such leases. At March 31, ~~2019~~2020 and December 31, ~~2018,~~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~~three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Our financial instruments include cash equivalents, available-for-sale marketable securities, accounts receivable, prepaid expenses and other assets, accounts payable, accrued expenses and long-term debt. Fair value estimates of these instruments are made at a specific point in time, based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. The carrying amount of cash equivalents, accounts receivable, prepaid expenses and other assets, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments. Based on Level 3 inputs and the borrowing rates currently available for loans with similar terms, we believe the fair value of long-term debt approximates its carrying value.

Available-for-sale marketable securities consist of 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.

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.

We capitalize inventory costs associated with our drug candidates prior to receipt of regulatory approval, based on management’s judgment of probable future commercialization. We would be required to expense these capitalized costs upon a change in such judgment, due to, among other factors, a decision denying approval of the drug candidate by regulatory agencies.

Bulk rHuPH20 formulations manufactured for partner use prior to our partner receiving marketing approval from the U.S. Food and Drug Administration (“FDA”) or comparable regulatory agencies in foreign countries and with no alternative future use are recorded as research and development expense. All direct manufacturing costs incurred after the partner receives marketing approval are capitalized as inventory. Bulk rHuPH20 formulations manufactured for general partner and internal use, which can potentially be used by any collaboration partner or by us in ~~any stage of development or in commercial product,~~Hylenex, and ENHANZE drug product used by our partners in clinical trials, is considered to have alternative future use and all manufacturing costs are capitalized as inventory. ~~Inventories used in our clinical trials are expensed at the time the inventories are packaged for the clinical trials.~~

As of March 31, ~~2019~~2020, and December 31, ~~2018,~~2019, inventories consisted of ~~$2.4~~$1.6 million and ~~$2.2~~$1.4 million, respectively, of Hylenex ~~recombinant~~ inventory, net and ~~$28.8~~$39.8 million and ~~$20.4~~$28.0 million, respectively, of bulk rHuPH20.

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 condensed 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. ~~As of March 31, 2019 it is not reasonably certain that these options will be exercised and they are not included within the lease term.~~ 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.

Revenue Recognition

We generate revenues from payments received under collaborative agreements and product sales. As of January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (ASC 606) which affects how we recognize revenues in these arrangements. We applied the provisions of ASC 606 using the modified retrospective approach, with the cumulative effect of the adoption recognized as of January 1, 2018, to all contracts that had not been completed as of that date. Under ASC 606, 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.

Royalties and 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 the collaboration partner and are also entitled to receive event-based payments subject to the collaboration partner’s 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, the collaboration partner 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, the collaboration generally continues in effect until the later of: (i) expiration of the last to expire of the valid claims of our patents covering rHuPH20 or other specified patents developed under the collaboration which valid claim covers a product developed under the collaboration, and (ii) expiration of the last to expire royalty term for a product developed under the collaboration, which is determined separately for each country. In the event such valid claims expire prior to the last to expire royalty term, the royalty rate is reduced for the remaining royalty term following such expiration. The collaboration partner 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 the collaboration partner (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 structured 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. 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 must be 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 ENHANZEtechnology which represents application of rHuPH20 to facilitate delivery of drugs or fluids. The license grants the collaboration partners right to use our intellectual property as it exists 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 standard indemnification and protection of licensed intellectual property for our customers. These provisions are part of assurance that the licenses meet the ~~agreements~~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 and successful completion of clinical trials.~~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. 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 ~~if the~~upon an exchange right isbeing exercised. These amounts are recognized in revenue when the right of exchange expires or is exercised.

Because our agreements ~~only~~ 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 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

HylenexRecombinant

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 Hylenexrecombinant, 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 a contract ~~manufacturer~~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 a contract ~~manufacturer~~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 and sales of bulk rHuPH20 that has no alternative future use.~~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 condensed consolidated 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 that has alternative future use. 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. Prior to bulk rHuPH20 and ENHANZE drug product having alternative future use, all costs related to the manufacturing of those products were charged to research and development expenses in the periods such costs were incurred. ~~During the three months ended March 31, 2019, sales of bulk rHuPH20 and ENHANZE drug product included $0.2 million of cost of sales that were previously expensed as research and development.~~ Of the bulk rHuPH20 and ENHANZE drug product that has alternative future use on hand as of March 31, ~~2019,~~2020, approximately ~~$1.4~~$0.1 million in manufacturing costs were previously recorded as research and development expenses. We expect to sell this inventory by the end of 2020.

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 ~~any stage of development or in commercial products,~~Hylenex, is considered to have alternative future use and all manufacturing costs are capitalized as inventory. ~~Inventories used in our clinical trials are expensed at the time the inventories are packaged for the clinical trials.~~

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”), and restricted stock units (“RSUs”~~), and RSUs with performance conditions (“PRSUs”~~) in accordance with the authoritative guidance for stock-based compensation. The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense on a straight-line basis over the requisite service period of the award. Share-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. Forfeitures are recognized as a reduction of share-based compensation expense as they occur.

Income Taxes

We provide for income taxes using the liability method. Under this method, deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts of existing assets and liabilities at each year end and their respective tax bases and are measured using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Significant judgment is required by management to determine our provision for income taxes, our deferred tax assets and liabilities, and the valuation allowance to record against our net deferred tax assets, which are based on complex and evolving tax regulations throughout the world. Deferred tax assets and other tax benefits are recorded when it is more likely than not that the position will be sustained upon audit. While we have begun to utilize certain of our net operating losses, we have not yet established a track record of profitability. Accordingly, valuation allowances have been recorded to reduce our net deferred tax assets to ~~zero,~~0, with the exception of the alternative minimum tax ("AMT") credit carryover of ~~$3.0 million. Under the Tax Cuts and Jobs Act (the “Act”) enacted in December 2017, the AMT credit carryover~~$1.7 million which will either be utilized, or if unutilized, fully refunded in ~~2022.~~2020 as further discussed below. For all other deferred tax assets the valuation allowance will reduce the net value to ~~zero~~0 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 ~~Company’s 2015~~CARES Act includes many measures to assist companies, including temporary changes to income and ~~2016 federal returns were selected~~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 ~~audit~~the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the ~~IRS. The audit~~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 ~~currently~~fully refundable in ~~process and no adjustments have been proposed. The Company does not expect any material adjustments as a result~~2020. Other than the refundability of the ~~IRS audit.~~AMT credit, at this time, we do not believe that the CARES Act will have a material impact on our financial statements.

Net (Loss) Income ~~(Loss)~~ Per Share

Basic net (loss) income ~~(loss)~~ per common share is computed by dividing net (loss) 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 and ~~unvested PRSUs~~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 three months ended March 31, 2020 and 2019, ~~and 2018,~~ approximately ~~7.7~~29.2 million and ~~14.6~~7.7 million shares, respectively, of outstanding stock options, unvested RSAs, unvested RSUs and the Convertible Notes were excluded from the calculation of diluted net (loss) income ~~(loss)~~ per common share because their effect was anti-dilutive.

The 19.3 million shares underlying the conversion option of the Convertible Notes will not have an impact on our diluted earnings per share when net income is reported until the average market price of our common stock exceeds the conversion price of $23.85 per share, as we intend and have the ability to settle the principal amount of the Convertible Notes in cash upon conversion. 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 (loss) income ~~(loss)~~ per common share computations is as follows (in thousands, except per share amounts):



	Three Months Ended March 31,
	2020			2019
Numerator:
Net (loss) income	$	(6,103	)	$	1,796
Denominator:
Weighted average common shares outstanding for basic net (loss) income per share	137,186			144,743
Net effect of dilutive common stock equivalents	—			2,731
Weighted average common shares outstanding for diluted net (loss) income per share	137,186			147,474
Net (loss) income per share:
Basic	$	(0.04	)	$	0.01
Diluted	$	(0.04	)	$	0.01

Three Months Ended
March 31,
2019 2018
Numerator:
Net income (loss) $ 1,796
$ (27,461 )
Denominator:
Weighted average common shares outstanding for basic
net income (loss) per share 144,743
142,656
Net effect of dilutive common stock equivalents 2,731
—
Weighted average common shares outstanding for diluted
net income (loss) per share 147,474

142,656
Net income (loss) per share:
Basic $ 0.01
$ (0.19 )
Diluted $ 0.01
$ (0.19 )

Segment Information

We operate our business in ~~one~~1 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 March 31, 2019 and December 31, 2018.~~

Adoption and Pending Adoption of Recent Accounting Pronouncements

The following table provides a brief description of recently issued accounting standards, those adopted in the current period and those not yet adopted:



Standard	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters

~~In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). In July 2018, the FASB issued additional guidance related to Topic 842.~~	~~The new guidance requires lessees to recognize assets and liabilities for most leases and provides enhanced disclosures.~~	~~January 1, 2019~~	We implemented the guidance on January 1, 2019 using a modified retrospective transition basis for leases existing as of the period of adoption. In order to adopt the new standard, we used the available practical expedients and newly implemented processes and internal controls for lease accounting. The practical expedients allowed us to carry forward our historical assessment of whether existing agreements are or contain a lease and the classification of our existing lease arrangements. All of our real-estate and automobile operating lease commitments are recognized as lease liabilities with corresponding right-of-use assets, which resulted in an increase in the assets and liabilities of the consolidated balance sheet of $7.2 million, using an assumed weighted average discount rate of 10.0%. The adoption did not have an impact on our consolidated statements of operations and did not require recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We elected to continue applying the guidance under ASC 840 for comparative periods, as allowed through ASC 2018-11.

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 ~~plan to adopt~~adopted the new guidance on January 1, 2020. ~~We do~~The adoption did not ~~anticipate the adoption will~~ have a material impact on our condensed consolidated financial position or results of operations.

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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments	The 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 ~~plan to adopt~~adopted the new guidance on January 1, 2020. ~~We are currently in the process of evaluating the~~The adoption did not have a material impact ~~of the standard~~ on our ~~accounting policy for losses related to available-for-sale securities and accounts receivable.~~condensed consolidated financial position or results of operations.

3. Fair Value Measurement

Available-for-sale marketable securities consisted of the following (in thousands):



	March 31, 2020
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses		Estimated Fair Value
Asset-backed securities	26,874	19	(138	)	26,755
Corporate debt securities	151,395	55	(480	)	150,970
U.S. Treasury securities	60,269	570	—		60,839
Commercial paper	24,799	—	—		24,799
	263,337	644	(618	)	263,363

March 31, 2019
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Asset-backed securities 35,765
18
(5 ) 35,778
Corporate debt securities 68,877
67
(18 ) 68,926
U.S. Treasury securities 84,448
36
(17 ) 84,467
Commercial paper 78,951
—
—
78,951
268,041
121
(40 ) 268,122



	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Asset-backed securities	$	30,484	$	55	$	—		$	30,539
Corporate debt securities	161,308		178		(14		)	161,472
U.S. Treasury securities	75,192		40		(5		)	75,227
Commercial paper	33,845		—		—			33,845
	$	300,829	$	273	$	(19	)	$	301,083

December 31, 2018
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
Asset-backed securities $ 39,787
$ —
$ (40 ) $ 39,747
Corporate debt securities 57,860
—
(127 ) 57,733
U.S. Treasury securities 84,924
—
(87 ) 84,837
Commercial paper 114,273
—
—
114,273
$ 296,844
$ —
$ (254 ) $ 296,590

As of March 31, ~~2019, nine of our~~2020, 20 available-for-sale ~~debt~~marketable securities with a fair market value of ~~$71.2~~$129.9 million were in a gross unrealized loss position of ~~$40 thousand.~~$0.6 million. Based on our review of these marketable securities, we believe ~~we had no other than-temporary impairments on these securities~~none of the unrealized loss is as a result of a credit loss as of March 31, ~~2019~~,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):



	March 31, 2020		December 31, 2019
	Estimated Fair Value
Due within one year	$	250,686	$	274,805
After one but within five years	12,677		26,278
	$	263,363	$	301,083

March 31, 2019 December 31, 2018
Estimated Fair Value
Due within one year $ 264,140
$ 296,590
After one but within five years 3,982
—
$ 268,122
$ 296,590

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):



	March 31, 2020						December 31, 2019
	Level 1		Level 2		Total estimated fair value		Level 1		Level 2		Total estimated fair value
Cash equivalents:
Money market funds	$	104,953	$	—	$	104,953	$	119,949	$	—	$	119,949

Available-for-sale marketable securities:
Asset-backed securities	—		26,756		26,756		—		30,539		30,539
Corporate debt securities	—		150,970		150,970		—		161,472		161,472
U.S. Treasury securities	60,839		—		60,839		75,228		—		75,228
Commercial paper	—		24,799		24,799		—		33,845		33,845
	$	165,792	$	202,525	$	368,317	$	195,177	$	225,856	$	421,033

March 31, 2019 December 31, 2018
Level 1 Level 2 Total estimated fair value Level 1 Level 2 Total estimated fair value
Cash equivalents:
Money market funds $ 64,026
$ —
$ 64,026
$ 57,987
$ —
$ 57,987

Available-for-sale marketable
securities:

Asset-backed securities —
35,778
35,778
—
39,747
39,747
Corporate debt securities —
68,926
68,926
—
57,733
57,733
U.S. Treasury securities 84,467
—
84,467
84,837
—
84,837
Commercial paper —
78,951
78,951
—
114,273
114,273
$ 148,493
$ 183,655
$ 332,148
$ 142,824
$ 211,753
$ 354,577

~~There were no transfers between Level 1 and Level 2 of the fair value hierarchy during the three months ended March 31, 2019.~~ We had no0 instruments that were classified within Level 3 as of March 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

4. Revenue

Our disaggregated revenues were as follows (in thousands):



	Three Months Ended March 31,
	2020		2019
Royalties	$	16,822	$	17,953

Product sales, net
Sales of bulk rHuPH20	$	3,767	$	5,082
Sales of ENHANZE drug product	46		137
Sales of Hylenex	4,334		3,171
Total product sales, net	8,147		8,390

Revenues under collaborative agreements:
Upfront license and target nomination fees	—		30,000
Event-based development and regulatory milestones and other fees	—		—
Research and development services	385		606
Total revenues under collaborative agreements	385		30,606

Total revenue	$	25,354	$	56,949

Three Months Ended
March 31,
2019 2018
Royalties $ 17,953
$ 20,944

Product sales, net
  Sales of bulk rHuPH20 $ 5,082
$ 3,378
  Sales of ENHANZE drug product 137
—
  Sales of Hylenex
3,171
3,423
Total product sales, net 8,390
6,801

Revenues under collaborative agreements:
  Upfront license fees 30,000
1,336
  Event-based development and regulatory milestones and other fees —
1,000
  Research and development services 606
791
Total revenues under collaborative agreements 30,606
3,127

Total revenue $ 56,949
$ 30,872

During the three months ended March 31, ~~2019~~2020 we recognized revenue related to licenses granted to collaboration partners in prior periods in the amount of ~~$18.0 million. This amount~~$16.8 million, which represents royalties earned in the current period. We recognized revenue of ~~$0.5~~$0.6 million during the three months ended March 31, ~~2019~~2020 that had been included in deferred revenues at December 31, ~~2018. We did not recognize any adjustments to reduce sales reserves and allowances liability related to~~ ~~Hylenex~~ ~~recombinant sales in prior periods.~~2019.

Accounts receivable, net, and deferred revenues (contract liabilities) from contracts with customers, including collaboration partners, consisted of the following (in thousands):



	March 31, 2020		December 31, 2019
Accounts receivable, net	$	29,749	$	59,442
Deferred revenues	4,653		5,259

March 31, 2019 December 31, 2018
Accounts receivable, net $ 28,164
$ 30,005
Deferred revenues 8,756
9,255

As of March 31, ~~2019,~~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 ~~$9.7~~$11.8 million, of which ~~$0.9~~$7.1 million relates to unfulfilled product purchase orders and ~~the remaining amount~~$4.7 million has been collected and is reported as deferred revenues. The unfulfilled product purchase orders are estimated to be delivered during the remainder of ~~2019.~~2020. Of the total deferred revenues ~~$3.0~~of $4.7 million, ~~represents pre-payment of bulk rHuPH20 that we estimate will~~$4.0 million is expected to be ~~delivered during the remainder of 2019. Of the remaining deferred revenues, for which the timing of when these goods and services will be provided is controlled~~used by our customers ~~$3.5 million can be used by~~within the ~~customers at any time through 2022 and the remaining $2.3 million at any time through November 2019.~~

next 12 months.

There were no contract assets related to collaborative agreements at March 31, ~~2019 .~~2020. While we may become entitled to receive additional event-based development and regulatory milestones and other fees under our collaborative agreements, which relate to intellectual property licenses granted to collaboration partners in prior periods, no amounts were probable.

The following table presents amounts under our collaborative agreements included in the transaction price (i.e. cumulative amounts triggered or probable) as of March 31, ~~2019~~2020 (in thousands):



	Upfront (1)		Event-based (2)		Sales (3)		Total
Collaboration partner and agreement date:
Roche (December 2006, September 2017 and October 2018)	$	105,000	$	30,000	$	22,000	$	157,000
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		15,000		—		33,250
AbbVie (June 2015)	23,000		6,000		—		29,000
Lilly (December 2015)	33,000		—		—		33,000
BMS (September 2017)	105,000		5,000		—		110,000
Alexion (December 2017)	40,000		6,000		—		46,000
argenx (February 2019)	40,000		5,000		—		45,000
Royalties							340,107
Total amounts under our collaborative agreements included in the transaction price							831,857

Upfront
(1)

Event-based
(2)

Sales
(3)
Total
Collaboration partner and agreement date:
Roche (December 2006, September 2017 and October 2018) $ 95,000
$ 30,000
$ 22,000
$ 147,000
Baxalta (September 2007) 10,000
3,000
9,000
22,000
Pfizer (December 2012) 14,500
2,000
—
16,500
Janssen (December 2014) 15,250
15,000
—
30,250
AbbVie (June 2015) 23,000
6,000
—
29,000
Lilly (December 2015) 33,000
—
—
33,000
BMS (September 2017) 105,000
5,000
—
110,000
Alexion (December 2017) 40,000
5,000
—
45,000
argenx (February 2019)

30,000
—
—
30,000
Royalties 271,341
Total amounts under our collaborative agreements included in the transaction price 734,091


(1)	Upfront and additional target selection fees


(2)	Event-based development and regulatory milestone amounts and other fees


(3)	Sales-based milestone amounts

Through March 31, ~~2019,~~2020, our collaboration partners have completed development, obtained marketing authorization approvals for certain indications and commenced commercialization of the following products:

Roche, for Herceptin SC (trastuzumab) in the European Union (“EU”) in August ~~2013 and in Canada in September 2018, and its equivalent Herceptin Hylecta in the US in February 2019;~~2013; and MabThera SC (rituximab)

in the EU in March 2014 and its equivalent RITUXAN HYCELA in(rituximab/hyaluronidase human) in the US in June 2017; Herceptin SC in Canada in September 2018; and Herceptin Hylecta (trastuzumab and hyaluronidase-oysk) in the US in February 2019.

Baxalta, for HYQVIA (Immune Globulin Infusion 10% (Human) with Recombinant Human Hyaluronidase) 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.

5. Certain Balance Sheet Items

Accounts receivable, net consisted of the following (in thousands):



	March 31, 2020			December 31, 2019
Accounts receivable from product sales to collaborators	$	9,456		$	35,649
Accounts receivable from revenues under collaborative agreements	619			3,850
Accounts receivable from royalty payments	16,766			17,149
Accounts receivable from other product sales	3,851			3,591
Subtotal	30,692			60,239
Allowance for distribution fees and discounts	(943		)	(797		)
Total accounts receivable, net	$	29,749		$	59,442

March 31,
2019 December 31,
2018
Accounts receivable from product sales to collaborators $ 8,109
$ 3,717
Accounts receivable from revenues under collaborative agreements 527
5,499
Accounts receivable from royalty payments 17,992
19,199
Accounts receivable from other product sales 2,170
2,182
Subtotal 28,798
30,597
Allowance for distribution fees and discounts (634 ) (592 )
Total accounts receivable, net $ 28,164
$ 30,005

Inventories consisted of the following (in thousands):



	March 31, 2020		December 31, 2019
Raw materials	$	7,333	$	2,769
Work-in-process	23,200		15,710
Finished goods	10,919		10,880
Total inventories	$	41,452	$	29,359

March 31,
2019 December 31,
2018
Raw materials $ 1,461
$ 735
Work-in-process 18,983
11,430
Finished goods 10,797
10,460
Total inventories $ 31,241
$ 22,625

Prepaid expenses and other assets consisted of the following (in thousands):



	March 31, 2020		December 31, 2019
Prepaid manufacturing expenses	$	27,438	$	30,156
Prepaid research and development expenses	3,545		4,964
Other prepaid expenses	1,934		3,655
Other assets	7,800		5,681
Total prepaid expenses and other assets	40,717		44,456
Less long-term portion	12,130		11,083
Total prepaid expenses and other assets, current	$	28,587	$	33,373

March 31,
2019 December 31,
2018
Prepaid manufacturing expenses $ 9,346
$ 8,230
Prepaid research and development expenses 7,734
7,922
Other prepaid expenses 2,552
2,513
Other assets 6,313
6,462
Total prepaid expenses and other assets 25,945
25,127
Less long-term portion 5,031
4,434
Total prepaid expenses and other assets, current $ 20,914
$ 20,693

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):



	March 31, 2020			December 31, 2019
Research equipment	$	6,999		$	7,403
Manufacturing equipment	4,157			3,858
Computer and office equipment	4,794			4,859
Leasehold improvements	1,628			1,628
Subtotal	17,578			17,748
Accumulated depreciation and amortization	(10,797		)	(10,742		)
Subtotal	6,781			7,006
Right of use assets	4,971			3,849
Property and equipment, net	$	11,752		$	10,855

March 31,
2019 December 31,
2018
Research equipment $ 9,969
$ 9,945
Manufacturing equipment 4,009
3,979
Computer and office equipment 5,666
5,211
Leasehold improvements 4,780
4,569
     Subtotal 24,424
23,704
Accumulated depreciation and amortization (16,820 ) (16,239 )
     Subtotal 7,604
7,465
Right of use assets 6,938
—
     Property and equipment, net $ 14,542
$ 7,465

Depreciation and amortization expense was approximately ~~$1.0~~$0.9 million and ~~$0.6~~$1.0 million, inclusive of ROU asset amortization of ~~$0.4~~$0.5 million and ~~zero~~$0.4 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019 respectively.

Accrued expenses consisted of the following (in thousands):



	March 31, 2020		December 31, 2019
Accrued outsourced research and development expenses	$	4,060	$	8,423
Accrued compensation and payroll taxes	3,342		27,888
Accrued outsourced manufacturing expenses	10,154		9,173
Other accrued expenses	6,982		7,876
Lease liability	7,370		6,469
Total accrued expenses	31,908		59,829
Less long-term portion	5,097		4,180
Total accrued expenses, current	$	26,811	$	55,649

March 31,
2019 December 31,
2018
Accrued outsourced research and development expenses $ 19,885
$ 21,921
Accrued compensation and payroll taxes 6,929
16,604
Accrued outsourced manufacturing expenses 7,912
3,975
Other accrued expenses 7,289
7,623
Lease liability 8,797
—
Total accrued expenses 50,812
50,123
Less long-term portion 7,149
594
Total accrued expenses, current $ 43,663
$ 49,529

Expense associated with the accretion of the lease liabilities was approximately ~~$0.2~~$0.1 million and ~~zero~~$0.2 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019 respectively. Total lease expense for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 was $0.6 ~~million.~~ million and $0.6 million respectively.

Cash paid for amounts related to leases for the three months ended March 31, 2020 and 2019 ~~and 2018~~ was ~~$0.7~~$0.8 million and ~~$0.4~~$0.7 million, respectively.

Deferred revenue consisted of the following (in thousands):



	March 31, 2020		December 31, 2019
Collaborative agreements
License fees and event-based payments	$	2,764	$	2,764
Product sales	1,889		2,495
Total deferred revenue	4,653		5,259
Less current portion	4,012		4,012
Deferred revenue, net of current portion	$	641	$	1,247

March 31,
2019 December 31,
2018
Collaborative agreements
License fees and event-based payments $ 2,264
$ 2,264
Product sales 6,492
6,991
Total deferred revenue 8,756
9,255
Less current portion 4,247
4,247
Deferred revenue, net of current portion $ 4,509
$ 5,008

6. Long-Term 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 our 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% and will be 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 5 consecutive trading day period (such 5 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 conversion, we will pay or deliver, as applicable, cash, shares of common stock or a combination of cash and shares of common stock, at our election. 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 March 31, 2020 in the amount of $73.4 million, and will be amortized over the remaining estimated term of 5 years using the effective interest method, utilizing an effective interest rate of 5.10%. The net carrying amount of the debt as of March 31, 2020 is $386.6 million. For the quarter ended March 31, 2020, we recognized interest expense of $4.9 million, including contractual coupon interest of $1.4 million and amortization of the debt discount of $3.5 million.

As of March 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 will be used to repay the principal and interest on the loan (the “Royalty Payments”). The Royalty-backed Loan bears interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate is subject to a floor of 0.7% and a cap of 1.5%. The interest rate as of March 31, ~~2019~~2020 was ~~10.25%~~9.64%.

The Credit Agreement provides that ~~none~~NaN of the Royalty Payments were required to be applied to the Royalty-backed Loan prior to January 1, 2017, 50% of the Royalty Payments are required to be applied to the Royalty-backed Loan between January 1, 2017 and January 1, 2018 and thereafter all Royalty Payments must be applied to the Royalty-backed Loan. However, the amounts available to repay the Royalty-backed Loan are subject to caps of $13.75 million per quarter in 2017, $18.75 million per quarter in 2018, $21.25 million per quarter in 2019 and $22.5 million per quarter in 2020 and thereafter. Amounts available to repay the Royalty-backed Loan will be applied first to pay interest and second to repay principal on the Royalty-backed Loan. Any accrued interest that is not paid on any applicable quarterly payment date, as defined, will be capitalized and added to the principal balance of the Royalty-backed Loan on such date. Halozyme Royalty will be entitled to receive and distribute to Halozyme any Royalty Payments that are not required to be applied to the Royalty-backed Loan or which are in excess of the foregoing caps.

Because the repayment of the term loan is contingent upon the level of Royalty Payments received, the repayment term may be shortened or extended depending on the actual level of Royalty Payments. The final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050. Currently, we estimate that the loan will be repaid in the ~~first~~second quarter of 2020. This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected. Under the terms of the Credit Agreement, at any time after January 1, 2019, Halozyme Royalty may, subject to certain limitations, prepay the outstanding principal of the Royalty-backed Loan in whole or in part, at a price equal to 105% of the outstanding principal on the Royalty-backed Loan, plus accrued but unpaid interest. The Royalty-backed Loan constitutes an obligation of Halozyme Royalty and is non-recourse to Halozyme. Halozyme Royalty retains its right to the Royalty Payments following repayment of the loan.

As of March 31, ~~2019,~~2020, we were in compliance with all covenants under the Royalty-backed Loan and there was no material adverse change in our business, operations or financial condition.

We began making principal and interest payments against the Royalty-backed Loan in the first quarter of 2017 and therefore had no0 capitalized interest in the three months ended March 31, ~~2019.~~2020. In addition, we recorded accrued interest, which is included in accrued expenses, of ~~$0.3 million~~$12.3 thousand and ~~$0.4~~$0.1 million as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively

In connection with the Royalty-backed Loan, we paid the Royalty-backed Lenders a fee of $1.5 million and incurred additional debt issuance costs totaling $0.4 million, which includes expenses that we paid on behalf of the Royalty-backed Lenders and expenses incurred directly by us. Debt issuance costs and the lender fee have been netted against the debt as of March 31, ~~2019~~2020 and are being amortized over the estimated term of the debt using the effective interest method. For the three months ended March 31, 2020 and 2019, ~~and 2018, the Company~~we recognized interest expense, including amortization of the debt discount, related to the Royalty-backed Loan of ~~$2.2~~$0.4 million and ~~$3.9~~$2.2 million, respectively. The assumptions used in determining the expected repayment term of the debt and amortization period of the issuance costs requires that we make estimates that could impact the short- and long-term classification of these costs, as well as the period over which these costs will be amortized. The outstanding balance of the Royalty-backed Loan as of March 31, ~~2019~~2020 was ~~$68.2 million, net of unamortized debt discount of $0.2~~$2.9 million.

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 ~~are being~~were used for working capital and general business requirements. The senior secured loan facility ~~carries~~carried a fixed interest rate of 8.25%. The repayment schedule ~~provides~~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 ~~provides~~ provided

for a final payment equal to 5.50% of the initial $55.0 million principal ~~amount. The final payment is~~amount, which was due when the Loan Agreement becomes due or upon the prepayment of the facility. We ~~have~~had the option to prepay the outstanding balance of the Loan Agreement in ~~full.~~

~~In connection with~~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, the debt offering costs have been recorded as a debt discount in our condensed consolidated balance sheets which, together with the final payment and fixed interest rate payments, are being amortized and recorded as interest expense throughout the life of the loan using the effective interest rate method.

The Loan Agreement is secured by substantially all of the assets of the Company and our subsidiary, Halozyme, Inc., except that the collateral does not include any equity interests in Halozyme, Inc., any of our intellectual property (including all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt; enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same; and make any voluntary prepayment of or modify certain terms of the Royalty-backed Loan. In addition, subject to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and commodities, and to do the same for our subsidiary, Halozyme, Inc.

The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of our obligations under the Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in our business, operations, or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, a material impairment in the perfection or priority of the Lender’s lien in the collateral or in the value of such collateral or the occurrence of an event of default under the Royalty-backed Loan. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm our financial condition.

~~As of March 31, 2019, we were in compliance with all covenants under the Loan Agreement and there was no material adverse change in our business, operations or financial condition.~~

Interest expense, including amortization of the debt discount, related to the Loan Agreement totaled $1.0 million and $1.4 million for the three months ended March 31, 2019 and 2018, respectively. Accrued interest, which is included in accrued expenses, was $0.2 million and $0.3 million as of March 31, 2019 and December 31, 2018, respectively. The outstanding term loan balance was $37.2 million as of March 31, 2019, inclusive of $2.4 million of accretion of the final payment and net of unamortized debt discount related to offering costs of $0.1 million.Agreement.

7. Share-based Compensation

Total share-based compensation expense related to share-based awards was comprised of the following (in thousands):



	Three Months Ended March 31,
	2020		2019
Research and development	$	1,550	$	4,290
Selling, general and administrative	2,981		5,185
Share-based compensation expense	$	4,531	$	9,475

Three Months Ended
March 31,
2019 2018
Research and development $ 4,290
$ 3,914
Selling, general and administrative 5,185
4,425
Share-based compensation expense $ 9,475
$ 8,339

Share-based compensation expense by type of share-based award (in thousands):



	Three Months Ended March 31,
	2020		2019
Stock options	$	2,383	$	5,053
RSAs and RSUs	2,148		4,422
	$	4,531	$	9,475

Three Months Ended
March 31,
2019 2018
Stock options $ 5,053
$ 4,559
RSAs, RSUs and PRSUs 4,422
3,780
$ 9,475
$ 8,339

We granted stock options to purchase approximately ~~2.2~~1.3 million and ~~1.6~~2.2 million shares of common stock during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The exercise price of stock options granted is equal to the closing price of the common stock on the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model (“Black-Scholes model”). Expected volatility is based on historical volatility of our common stock. The expected term of options granted is based on analyses of historical employee termination rates and option exercises. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments. The assumptions used in the Black-Scholes model were as follows:



	Three Months Ended March 31,
	2020	2019
Expected volatility	50.92-51.30%	56.60-56.90%
Average expected term (in years)	5.5	5.4
Risk-free interest rate	0.88-1.67%	2.49-2.56%
Expected dividend yield	—	—

Three Months Ended
March 31,
2019 2018
Expected volatility 56.6-56.9% 62.6-70.1%
Average expected term (in years) 5.4 5.5
Risk-free interest rate 2.49-2.56% 2.25-2.65%
Expected dividend yield — —

Total unrecognized estimated compensation cost by type of award and the weighted-average remaining requisite service period over which such expense is expected to be recognized (in thousands, unless otherwise noted):



	March 31, 2020
	Unrecognized Expense		Remaining Weighted-Average Recognition Period (years)
Stock options	$	24,142	2.98
RSAs	$	122	0.09
RSUs	$	18,951	3.04

March 31, 2019

Unrecognized
Expense

Remaining
Weighted-Average
Recognition Period
(years)
Stock options $ 48,253
2.81
RSAs $ 1,120
0.57
RSUs $ 36,062
2.61

8. Stockholders’ Equity

During the three months ended March 31, ~~2019~~2020 and ~~2018~~,2019, we issued an aggregate of ~~163,421~~1,792,043 and ~~705,856~~163,421 shares of common stock, respectively, in connection with the exercises of stock options at a weighted average exercise price of ~~$9.66~~$12.56 and ~~$10.47~~$9.66 per share, respectively, for net proceeds of approximately ~~$1.6~~$22.5 million and ~~$7.4~~$1.6 million, respectively. For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we issued ~~478,037~~563,603 and ~~410,306~~478,037 shares of common stock, respectively, upon vesting of certain RSUs for which ~~123,095~~140,525 and ~~129,465~~123,095 RSUs were withheld from the RSU holders, respectively, to pay for minimum withholding taxes totaling approximately ~~$2.0~~$5.4 million and ~~$2.4~~$2.0 million, respectively. Stock options and unvested restricted units totaling approximately ~~15.5~~9.9 million shares and ~~13.4~~13.6 million shares of our common stock were outstanding as of March 31, ~~2019~~2020 and December 31, ~~2018~~,2019, respectively.

Share Repurchases

The Board of Directors approved a share repurchase program, pursuant to which we may repurchase issued and outstanding shares of common stock from time to time. We may utilize a variety of methods including open market purchases, privately negotiated transactions, accelerated share repurchase programs or any combination of such methods.

In November 2019, we announced that the Board of Directors has authorized the initiation of a capital return program to repurchase up to $550.0 million of outstanding common stock over a three-year period. The Board will regularly review this capital return program in connection with a balanced capital allocation strategy. In November 2019, we repurchased approximately 8.1 million shares of common stock concurrently with the Convertible Notes issuance in privately negotiated transactions for $143.1 million and 0.4 million shares of common stock in open market purchases for $6.9 million. Also in November 2019, we entered into an Accelerated Share Repurchase (ASR) agreement with Bank of America to repurchase $50.0 million of common stock. At inception, pursuant to the agreement, we paid $50.0 million to Bank of America and took an initial delivery of 2.1 million shares. In February 2020 we finalized the transaction and received an additional 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 Purchased₍₁₎	Weighted-Average Price paid Per Share		Total Cost₍₂₎
First quarter	3,188,795	$	16.15	$	51,574
	3,188,795			$	51,574

(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.

9. Commitments and Contingencies

From time to time, we may be involved in disputes, including litigation, relating to claims arising out of operations in the normal course of our business. Any of these claims could subject us to costly legal expenses and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage or our policy limits may be inadequate to fully satisfy any damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our consolidated results of operations and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations or financial position.

Our commitments include payments related to our commenced operating leases. Approximate annual future minimum operating lease payments as of March 31, ~~2019~~2020 are as follows (in thousands; excluding the three months ended March 31, ~~2019)~~2020):



Year:	Operating Leases
2020	$	2,526
2021	2,863
2022	2,683
2023	117
2024	—
Total minimum lease payments	$	8,189
Less imputed interest	$	(819	)
Total	$	7,370

Year: Operating
Leases
2019 $ 2,265
2020 3,066
2021 2,565
2022 2,506
2023 112
Total minimum lease payments $ 10,514
Less imputed interest $ (1,717 )
Total $ 8,797

The weighted-average remaining lease term of our operating leases is approximately 3.6 years. As of March 31, 2019 we have an additional operating lease for real estate that has not yet commenced of $0.9 million. This lease will commence in the third quarter of 2019 and has a lease term of 32.6 years.


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this report, unless the context suggests otherwise, references to “Halozyme,” “the Company,” “we,” “our,” “ours,” and “us” refer to Halozyme Therapeutics, Inc., its wholly owned subsidiary, Halozyme, Inc. and Halozyme Inc.’s wholly owned subsidiaries, Halozyme Holdings Ltd., Halozyme Royalty LLC, Halozyme Switzerland GmbH and Halozyme Switzerland Holdings GmbH. References to “Notes” refer to the Notes to Condensed Consolidated Financial Statements included herein (refer to Item 1 of Part I).

The following information should be read in conjunction with the interim unaudited condensed consolidated financial statements and Notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, as well as the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, ~~2018,~~2019, included in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Past financial or operating performance is not necessarily a reliable indicator of future performance, and our historical performance should not be used to anticipate results or future period trends.

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact are, or may be deemed to be, forward-looking statements. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “think,” “may,” “could,” “will,” “would,” “should,” “continue,” “potential,” “likely,” “opportunity,” “project” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this report. Additionally, statements concerning future matters such as the ~~anticipated timing and scope of planned clinical trials, the~~ development or regulatory approval of new partner products, enhancements of existing products or technologies, timing and success of the launch of new products by ~~us or by~~ our collaborators, third party performance under key collaboration agreements,the ability of our bulk drug manufacturers to provide adequate supply for our collaboration partners, revenue, expense and cash burn levels, anticipated amounts and timing of share repurchases, anticipated profitability and expected trends, expected repayment of the Royalty-backed Loan, the potential impact of the COVID-19 global pandemic on our business and trends and other statements regarding matters that are not historical are forward-looking statements. Such statements reflect management’s current forecast of certain aspects of our future, are based on currently available operating, financial and competitive information and are subject to various risks, uncertainties and assumptions that could cause actual results to differ materially from those anticipated or implied in our forward-looking statements due to a number of factors including, but not limited to, those set forth below under the section entitled “Risks Factors” and elsewhere in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report.

Overview

Halozyme Therapeutics, Inc. is a ~~biotechnology~~biopharma technology platform company ~~focused on developing~~that provides innovative and ~~commercializing novel oncology therapies.~~disruptive solutions with the goal of improving patient experience and outcomes. Our proprietary ~~enzymes are~~enzyme, rHuPH20, is used to facilitate the delivery of injected drugs and ~~fluids, potentially enhancing the efficacy and the convenience of other drugs or can be used to alter tissue structures for potential clinical benefit.~~fluids. We exploit our technology and expertise using a two pillar strategy that we believe enables us to manage risk and cost by: (1) developing our own proprietary products in therapeutic areas with significant unmet medical needs, with a focus on oncology, and (2) licensinglicense our technology to biopharmaceutical companies to collaboratively develop products that combine our ENHANZE^® drug delivery technology with the collaborators’ proprietary compounds.

~~The majority of our~~Our approved product and our collaborators’ approved products and product candidates are based on rHuPH20, our patented recombinant human hyaluronidase enzyme. ~~Our proprietary development pipeline consists primarily of pre-clinical~~rHuPH20 is the active ingredient in our first commercially approved product, Hylenex^® recombinant, and ~~clinical stage product candidates in oncology. Our lead oncology program is Pegvorhyaluronidase alfa (PVHA), also referred to as PEGylated recombinant human hyaluronidase (PEGPH20)~~it works by breaking down hyaluronan (or HA), a ~~molecular entity we are developing~~naturally occurring carbohydrate that is a major component of the extracellular matrix in ~~combination with currently approved cancer therapies~~tissues throughout the body such as ~~a candidate~~skin and cartilage. This temporarily increases dispersion and absorption allowing for ~~the systemic treatment~~improved subcutaneous delivery of ~~tumors that accumulate HA. We have demonstrated that when HA accumulates in a tumor, it can cause higher pressure in the tumor, reducing blood flow into the tumor~~injectable biologics, such as monoclonal antibodies and ~~with that, reduced access of cancer therapies to the tumor. Through our efforts~~other large therapeutic molecules, as well as small molecules and ~~efforts of our partners and collaborators, we are currently in Phase 3 clinical testing for PEGPH20 with ABRAXANE~~^® ~~(nab-paclitaxel) and gemcitabine in stage IV pancreatic ductal adenocarcinoma (PDA) (HALO 109-301), in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq~~^® (atezolizumab) in patients with previously treated metastatic PDA, in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with gastric cancer and in Phase 1b/2 clinical testing for PEGPH20 with Tecentriq in patients with cholangiocarcinoma and gall bladder cancer (HALO 110-101/MATRIX).

fluids. We refer to the application of rHuPH20 to facilitate the delivery of other drugs or fluids as our ENHANZE^{® Drug Delivery Technology} 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. 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) and ARGENX BVBA (argenx)~~.We~~. We receive royalties from two of these collaborations, including royalties from sales of one product from the Baxalta collaboration and two products from the Roche collaboration. Future potential revenues from the sales and/or royalties of our approved products, product candidates, and ENHANZE collaborations will depend on the ability of Halozyme and our collaborators to develop, manufacture, secure and maintain regulatory approvals for approved products and product candidates and commercialize product candidates.

Our first quarter of ~~2019~~2020 and recent key events include:

In February 2019, we announced that Genentech, a member of the Roche Group, received approval from the FDA for Herceptin Hylecta™ (trastuzumab and hyaluronidase-oysk), a co-formulation of trastuzumab and rHuPH20 marketed as Herceptin SC outside of the U.S. Herceptin Hylecta is approved for the treatment of certain people with HER2-positive early breast cancer and is a ready-to-use formulation that can be administered in two to five minutes, compared to 30 to 90 minutes for intravenous trastuzumab. In April 2019, Roche made Herceptin Hylecta available in the U.S.

•

In ~~February 2019, Janssen’s development partner, Genmab,~~May 2020, we announced ~~positive Phase 3 trial results~~that The Janssen Pharmaceutical Companies of Johnson and Johnson received US FDA approval of DARZALEX FASPRO^TM in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients. As a fixed-dose formulation, DARZALEX FASPRO can be administered over three to five minutes, significantly less time than IV DARZALEX which requires multi-hour infusions.

▪

In April 2020, we announced that Janssen-Cilag International NV (Janssen) received a Committee for Medicinal Products for Human Use (CHMP) Positive Opinion from the ~~COLUMBA study evaluating subcutaneous~~European Medicines Agency (EMA) recommending approval of a DARZALEX^® ~~in comparison to DARZALEX IV in~~ (daratumumab) SC formulation for the treatment of adult patients with multiple myeloma in frontline and relapsed/refractory settings. The CHMP’s Positive Opinion for daratumumab SC formulation applies to multiple current daratumumab indications including newly diagnosed and transplant-ineligible patients, as well as relapsed or refractory patients.


▪	In April 2020, we announced the submission of a New Drug Application (NDA) to Japan's Ministry of Health, Labour and ~~refractory~~Welfare (MHLW) by Janssen Pharmaceutical K.K. (Janssen) seeking approval of a new SC formulation of daratumumab, an intravenous (IV) treatment approved for patients with multiple myeloma. ~~DARZALEX SC (utilizing ENHANZE technology) was found~~

•

In March 2020, we repurchased approximately 3.2 million shares of common stock in open market purchases for $51.6 million. Since the inception of our capital return program in November 2019 to ~~be non-inferior~~repurchase up to ~~DARZALEX IV with regard the co-primary endpoints~~$550.0 million of ~~Overall Response Rate and Maximum Trough concentration.~~outstanding common stock over a three-year period, we have repurchased a total of 14.3 million shares for $251.6 million as of 3/31/2020.

In ~~February 2019, we entered into~~March 2020, Hylenex, which was approved in an ~~agreement with argenx for~~NDA, was deemed to be an approved Biologics License Application (BLA) under section 351(a) of the ~~right to develop and commercialize one exclusive target,~~Public Health Service Act (PHS Act). A portion of our competition comes from compounding pharmacies, which are prohibited from compounding biologic products per the human neonatal Fc receptor FcRn, which includes argenx's lead asset efgartigimod (ARGX-113), and an option to select two additional targets using our ENHANZE technology for an upfront payment of $30.0 million. We will receive payments of $10.0 million per target for future target nominations and potential milestone payments of up to $160.0 million per target, subject to the achievement of specific development, regulatory and sales-based milestones. We will receive mid-single digit royalties onDrug Quality & Security Act (DQSA). As hyaluronidase is now considered a biologic, this change may benefit sales of ~~commercialized products.~~Hylenex.

•

In February 2020, we announced that the FDA has accepted a BLA from Genentech, a member of the Roche Group, for the fixed-dose combination of pertuzumab (Perjeta^®) and trastuzumab (Herceptin^®) for subcutaneous administration using ENHANZE technology in combination with IV chemotherapy for the treatment of eligible patients with HER2-positive breast cancer and the PDUFA date of October 18, 2020 was assigned.

Product and Product Candidates

We currently have one marketed proprietary product ~~three~~and four marketed or approved partnered ~~products, one proprietary product candidate targeting several indications in various stages of development, and one preclinical product candidate.~~products. The following table summarizes our proprietary product, ~~and product candidate as well as~~marketed partnered products and product candidates under development with our collaborators:

Proprietary ~~Pipeline~~Product

Hylenex Recombinant (hyaluronidase human injection)

Hylenex recombinant is a formulation of rHuPH20 that ~~has received U.S. Food and Drug Administration (FDA) approval to facilitate~~facilitates subcutaneous fluid administration for achieving hydration, to increase the dispersion and absorption of other injected drugs and, in subcutaneous urography, to improve resorption of radiopaque agents. Hylenex recombinant is currently the number one prescribed branded hyaluronidase.

~~PEGPH20~~

We are developing PEGPH20 in combination with currently approved cancer therapies as a candidate for the systemic treatment of tumors that accumulate HA. ‘PEG’ refers to the attachment of polyethylene glycol to rHuPH20, thereby creating PEGPH20. One of the novel properties of PEGPH20 is that it lasts for an extended duration in the bloodstream and, therefore, can be administered systemically to maintain its therapeutic effect to treat disease.

Cancer malignancies, including pancreatic, lung, breast, gastric, and biliary tract cancers can accumulate high levels of HA and therefore we believe that PEGPH20 has the potential to help patients with these types of cancer when used with certain currently approved cancer therapies. Among solid tumors, PDA has been reported to be associated with one of the highest frequencies of HA accumulation. There are approximately 65,000 annual diagnoses of PDA in the United States and the European Union, and we estimate that 35-40% have high levels of HA based on our companion diagnostic assay cutpoint.

The pathologic accumulation of HA, along with other matrix components, creates a unique microenvironment for the growth of tumor cells compared to normal cells. We believe that degrading the HA component of the tumor microenvironment with PEGPH20 remodels the tumor microenvironment and we have observed tumor growth inhibition in animal models. Removal of HA from the tumor microenvironment results in expansion of previously constricted blood vessels allowing increased blood flow, potentially increasing the access of activated immune cells and factors in the blood into the tumor microenvironment. If PEGPH20 is administered in conjunction with other anti-cancer therapies, the increase in blood flow may allow anti-cancer therapies to have greater access to the tumor, which may enhance the treatment effect of therapeutic modalities like chemotherapies, monoclonal antibodies and other agents.

We are developing PEGPH20 as a targeted therapy, for patients who have tumors with high levels of HA. We have a collaboration with Ventana Medical Systems Inc. (Ventana), a member of the Roche Group, to develop, and for Ventana to ultimately commercialize, a companion diagnostic assay for use with PEGPH20. The companion diagnostic assay is being used to identify high levels of HA in tumor biopsies and may be the first diagnostic to target tumor-associated HA and possibly the first companion diagnostic assay in pancreatic cancer.

~~Pancreatic cancer indications:~~

Based on the results of Phase 1b and Phase 2 studies, HALO 109-201 and HALO 109-202, we embarked on a randomized, double blinded, placebo controlled study in previously untreated pancreas cancer patients to test PEGPH20 plus gemcitabine and nab-paclitaxel (ABRAXANE^®~~) versus gemcitabine and ABRAXANE alone.~~

~~HALO 109-301:~~

In March 2015, we met with the FDA to discuss the interim efficacy and safety data from HALO-202, and the proposed selection of eligible patients based on a 50% cutpoint using the Ventana companion diagnostic for HA. Based on the feedback from that meeting, we proceeded with HALO 109-301 (HALO-301), a Phase 3 multicenter randomized clinical trial evaluating PEGPH20 as a first-line therapy for patients with stage IV PDA, using a design allowing for potential marketing application based on progression-free survival (PFS) (accelerated approval pathway) or overall survival (OS). The study enrolled patients whose tumors accumulate high levels of HA measured using the Ventana companion diagnostic test. Enoxaparin 1mg/kg once a day is used as a prophylactic against thromboembolic events in HALO-301. The FDA provided feedback on the current companion diagnostic approach and confirmed that an approved investigational device exemption (IDE) was required for the Phase 3 study.

In June 2015, we received scientific advice/protocol assistance from the European Medicines Agency (EMA) regarding our Phase 3 study. The EMA agreed to the patient population, and the use of both PFS and OS as co-primary endpoints stating that OS is the preferred endpoint and that ultimate approval would require an overall positive benefit:risk balance.

In March 2016, Ventana received approval for an IDE application from the FDA for our companion diagnostic test to enable patient selection in our Phase 3 Study HALO-301 of PEGPH20 in HA-High patients and we dosed the first patient in HALO-301.

In November 2018, the FDA agreed to our request to change the primary endpoint of the HALO-301 study from two primary endpoints of PFS and OS to a single primary endpoint of OS. As a result, a previously planned interim analysis, that was to be performed when the target number of PFS events was achieved, will not be conducted. PFS will remain as a secondary endpoint, along with objective response rate. In January 2019, the FDA completed their review of the submitted clinical study protocol amendment and statistical analysis plan with no additional questions or comments.

Over 200 sites in 22 countries located in North America, Europe, South America, Asia and Australia were initiated to participate in the HALO-301 study. The study was fully enrolled with approximately 500 patients by the end of 2018. In January 2019, our independent Data Safety Monitoring Committee met to review ongoing safety data from the trial and informed us the study should proceed as planned. We project achieving the target number of OS events in the third quarter of 2019 and plan to initiate the database lock process for final analysis after 330 OS events have been achieved with mature data. As a result, the topline results will be available in the second half of 2019.

~~SWOG Study S1313:~~

In October 2013, SWOG, a cancer research cooperative group of more than 4,000 researchers in over 500 institutions around the world, initiated a 144 patient Phase 1b/2 randomized clinical trial in some of their study centers, examining PEGPH20 in combination with modified FOLFIRINOX chemotherapy compared to modified FOLFIRINOX treatment alone in patients with stage IV PDA, irrespective of HA levels, referred to as an all-comer population. This study was funded by the National Cancer Institute. In March 2017, SWOG stopped enrollment in the Phase 1b/2 trial following a recommendation of SWOG’s independent Data Monitoring committee after a preplanned futility analysis. In January 2018, SWOG presented final data of the all-comers population at the ASCO-GI conference which was subsequently published in the ~~Journal of Clinical Oncology~~ in February 2019. The median OS was 7.7 months for the PEGPH20 arm vs. 14.4 months in the modified FOLFIRINOX alone arm. Also, increased GI-toxicities and substantially shorter median treatment duration for modified FOLFIRINOX were reported for the PEGPH20 arm compared to the modified FOLFIRINOX alone arm. Collection of biopsy samples from participating sites to potentially enable an HA biomarker subgroup analysis has been completed. Due to the limited number of samples available, the data is not interpretable. Our PEGPH20 studies and clinical collaborations in combination with agents other than modified FOLFIRINOX continue unchanged.

~~Clinical collaboration:~~

In October 2016, we announced that PEGPH20 will be included in a pancreatic cancer clinical trial initiative called Precision Promise, an initiative that aims to change the current treatment approach to pancreatic cancer by offering options to patients based on the molecular profile of their tumor. This is being accomplished through the Pancreatic Cancer Action Network leading a collaboration that brings together clinicians, researchers, and drug developers. Pancreatic Cancer Action Network continues to work to finalize the trial design and protocol which may include a potential PEGPH20 trial arm or trial.

~~Other indications outside of pancreatic cancer~~:

~~HALO 107-101:~~

In November 2015, we initiated a Phase 1b study exploring the combination of PEGPH20 and KEYTRUDA®, an immuno-oncology agent in relapsed non-small cell lung cancer (NSCLC) and gastric cancer. Following the results of Merck’s KEYNOTE-189 study evaluating KEYTRUDA in combination with chemotherapy as a first-line treatment, the standard of care in lung cancer is expected to change. Accordingly, we ended enrollment in the NSCLC cohort. Enrollment also ended in the gastric cancer cohort when the overall enrollment goal was reached. Both cohorts have completed patient treatments and study closure activities have been initiated. When the database is considered complete and locked, a Final Study Report will be generated and data presented.

In the NSCLC cohort we enrolled 17 of the target 30 patients in the dose expansion cohort prior to closing enrollment. Of the 13 currently evaluable patients, four patients experienced a greater than 30% reduction in tumor volume as assessed by investigator sites. Two of these patients had a further scan confirming the greater than 30% reduction was maintained. Of the four patients experiencing a greater than 30% reduction, three were PD-L1 negative, while data was unavailable for the fourth. We plan to present the data from the study at an upcoming medical conference.

In the gastric cancer cohort, we reached target enrollment of 34 patients in the dose finding and dose expansion cohort. Of the 26 currently evaluable patients, we have seen one responder in a PD-L1 positive patient. This response rate does not meet our threshold to continue development of PEGPH20 in combination with Keytruda alone in gastric cancer. The data was presented at the European Society for Medical Oncology Asia 2018 Conference.

~~Ongoing clinical collaboration:~~

In November 2016, we entered into an agreement with Genentech, a member of the Roche Group, to collaborate on clinical studies to evaluate their cancer immunotherapy Tecentriq, an anti-PD-L1 monoclonal antibody, in combination with PEGPH20, in up to eight different tumor types. Genentech initiated a Phase 1b/2 clinical trial in patients with previously treated metastatic PDA in July 2017 and a Phase 1b/2 clinical trial in patients with gastric cancer in October 2017, as part of its Morpheus master protocol. In February 2019, Genentech removed gastric cancer from its Morpheus master protocol and therefore closed enrollment in the gastric arm of the study, for which results will be reported when data is available. In March 2019, Genentech completed enrollment in the PDA arm of the study with 65 patients. We are supplying PEGPH20 for the Genentech-funded studies.

As part of our clinical collaboration with Genentech, we initiated a Phase 1b/2 clinical trial to assess Tecentriq with PEGPH20 in patients with cholangiocarcinoma and gall bladder cancer (HALO 110-101/MATRIX). Genentech is supplying Tecentriq for the Halozyme sponsored study. Enrollment is completed with a total of 74 patients enrolled in USA, South-Korea and Thailand. The study is ongoing with patients still receiving study medication. During the course of the study the initial fixed dose of 40mg Enoxaparin once a day was changed to a weight-adjusted dose of 1mg/kg once a day, which is used as a prophylactic against thromboembolic events. A higher incidence of thromboembolic events in the PEGPH20 containing experimental arms versus the control arm (17% vs 10%) triggered this change. The updated dose of Enoxaparin is consistent with the dose being used in HALO-301.

~~Regulatory~~

The FDA has granted Fast Track designation for our program investigating PEGPH20 in combination with gemcitabine and nab-paclitaxel for the treatment of patients with stage IV PDA to demonstrate an improvement in OS. The Fast Track designation process was developed by the FDA to facilitate the development and expedite the review of drugs to treat serious or life-threatening diseases and address unmet medical needs.

The FDA has also granted Orphan Drug designation for PEGPH20 for the treatment of pancreatic cancer. The FDA Office of Orphan Products Development’s mission is to advance the evaluation and development of products (drugs, biologics, devices, or medical foods) that demonstrate promise for the diagnosis and/or treatment of rare diseases or conditions. Similarly, the European Committee for Orphan Medicinal Products of the EMA designated PEGPH20 an orphan medicinal product for the treatment of pancreatic cancer.

~~Other Pipeline Asset~~

~~PEG-ADA2:~~ PEGylated adenosine deaminase 2, or PEG-ADA2, is an immune checkpoint inhibitor that targets adenosine, which may accumulate to high levels in the tumor microenvironment and has been linked to immunosuppression. We are currently in preclinical development with PEG-ADA2 and are exploring potential collaboration or partnership interest in this program prior to making additional investments in the development of PEG-ADA2.

ENHANZE Collaborations

Roche Collaboration

In December 2006, we and Roche entered into a collaboration and license agreement under which Roche obtained a worldwide license to develop and commercialize product combinations of rHuPH20 and up to thirteen Roche target compounds (the Roche Collaboration). Under this agreement, Roche elected a total of eight targets, two of which are exclusive.

In September 2013, Roche launched a subcutaneous (SC) formulation of Herceptin (trastuzumab) (Herceptin SC) in Europe for the treatment of patients with HER2-positive breast cancer followed by launches in additional countries. This formulation utilizes our ENHANZE technology and is administered in two to five minutes, compared to 30 to 90 minutes with the standard intravenous form. ~~Directed at the same target, Roche initiated a Phase 1 study of PERJETA~~^® (pertuzumab) and Herceptin (trastuzumab) using ENHANZE technology in patients with early breast cancer in March 2016. In June 2018, Roche initiated a global Phase 3 study of a fixed-dose combination of PERJETA and Herceptin using ENHANZE technology in patients with HER2-positive early breast cancer. In September 2018, we announced that Roche received approval from Health Canada for Herceptin SC for the treatment of patients with HER2-positive breast cancer. In February 2019, we announced that Roche received approval from the FDA for Herceptin SC under the brand name Herceptin Hylecta™ (trastuzumab and hyaluronidase-oysk). In April 2019, Roche made Herceptin Hylecta available in the U.S.

Directed at the same target, Roche initiated a Phase 1 study of Perjeta^® (pertuzumab) and Herceptin (trastuzumab) using ENHANZE technology in patients with early breast cancer in March 2016. In June 2018, Roche initiated a global Phase 3 study of a fixed-dose combination of Perjeta and Herceptin using ENHANZE technology in patients with HER2-positive early breast cancer. In August 2019, the global phase 3 study met its primary endpoint. The study results demonstrated non-inferior levels of Perjeta in the blood (pharmacokinetics) compared to standard intravenous (IV) infusion of Perjeta plus Herceptin and chemotherapy in patients with HER2-positive early breast cancer. The study also demonstrated that the safety profile of the fixed dose subcutaneous combination of Perjeta and Herceptin was consistent with the safety profile of Perjeta and Herceptin administered intravenously. In December 2019, the full data from the study was presented at the San Antonio Breast Cancer Symposium and subsequently BLA and MAA submissions were completed based on these results. The FDA accepted the BLA and a PDUFA date of October 18, 2020 was assigned.

In June 2014, Roche launched MabThera SC in Europe for the treatment of patients with common forms of non-Hodgkin lymphoma (NHL) followed by launches in additional countries. This formulation utilizes our ENHANZE technology and is administered in approximately five minutes compared to the approximately 1.5 to 4 hour intravenous infusion. In May 2016, Roche announced that the EMA approved Mabthera SC to treat patients with chronic lymphocytic leukemia (CLL). In June 2017, the FDA approved Genentech’s RITUXAN HYCELA™, a combination of rituximab and ~~rHuPH20~~ENHANZE (approved and marketed under the MabThera SC brand in countries outside the U.S.) and Canada), for CLL and two types of NHL, follicular lymphoma and diffuse large B-cell lymphoma. In March 2018, Health Canada approved a combination of rituximab and rHuPH20 (approved and marketed under the brand name RITUXAN^® SC) for patients with CLL.

In September 2017, we and Roche entered into an agreement providing Roche the right to develop and commercialize one additional exclusive target using ENHANZE technology. The upfront license payment may be followed by event-based payments subject to Roche’s achievement of specified development, regulatory and sales-based milestones. In addition, Roche will pay royalties to us if products under the collaboration are commercialized.

In October 2018, we entered into an agreement with Roche for the right to develop and commercialize one additional exclusive target and an option to select two additional targets within four years using ENHANZE technology. The upfront license payment may be followed by event-based payments subject to Roche’s achievement of specified development, regulatory and sales-based milestones. In addition, Roche will pay royalties to us if products under the collaboration are commercialized.

In December 2018, Roche initiated a Phase 1b/2 study in patients with non-small cell lung cancer for Tecentriq (atezolizumab) using ENHANZE technology. In August 2019, Roche initiated a Phase 1 study evaluating OCREVUS (ocrelizumab) with ENHANZE technology in subjects with multiple sclerosis. In October 2019, Roche nominated a new undisclosed target to be studied using ENHANZE technology, triggering a $10 million milestone payment.

Baxalta Collaboration

In September 2007, we and Baxalta entered into a collaboration and license agreement under which Baxalta obtained a worldwide, exclusive license to develop and commercialize product combinations of rHuPH20 with GAMMAGARD LIQUID

(HYQVIA) (the Baxalta Collaboration). HYQVIA is indicated for the treatment of primary immunodeficiency disorders associated with defects in the immune system.

In May 2013, the European Commission granted Baxalta marketing authorization in all EU Member States for the use of HYQVIA (solution for subcutaneous use) as replacement therapy for adult patients with primary and secondary immunodeficiencies. Baxalta launched HYQVIA in the first EU country in July 2013 and has continued to launch in additional countries.

In September 2014, HYQVIA was approved by the FDA for treatment of adult patients with primary immunodeficiency in the U.S. HYQVIA is the first subcutaneous immune globulin (IG) treatment approved for adult primary immunodeficiency patients with a dosing regimen requiring only one infusion up to once per month (every three to four weeks) and one injection site per infusion in most patients, to deliver a full therapeutic dose of IG. The FDA’s approval of HYQVIA was a significant milestone for us as it represented the first U.S. approved BLA which utilizes our rHuPH20 platform.

In May 2016, Baxalta announced that HYQVIA received a marketing authorization from the European Commission for a pediatric indication, which was launched in Europe to treat primary and certain secondary immunodeficiencies.

Pfizer Collaboration

In December 2012, we and Pfizer entered into a collaboration and license agreement, under which Pfizer has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Pfizer proprietary biologics directed to up to six targets in primary care and specialty care indications. Targets may be selected on an exclusive or non-exclusive basis. Pfizer has elected five targets ~~on an exclusive basis~~ and has returned two targets.

Janssen Collaboration

In December 2014, we and Janssen entered into a collaboration and license agreement, under which Janssen has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Janssen proprietary biologics directed to up to five targets. Targets may be selected on an exclusive basis. Janssen has elected CD38 as the first target on an exclusive basis. ~~In October 2017, Janssen initiated its first Phase 3 study of subcutaneous delivery of DARZALEX~~^® ~~(daratumumab), directed at CD38, using ENHANZE technology, in multiple myeloma patients.~~ Janssen has initiated ~~six~~seven Phase 3 studies, ~~one~~two Phase 2 study and one Phase 1 study of ~~daratumumab~~DARZALEX^®(daratumumab), directed at CD38, using ENHANZE technology in patients with amyloidosis, smoldering myeloma and multiple myeloma.

In February 2019, Janssen’s development partner, Genmab, announced positive Phase 3 trial results from the COLUMBA study evaluating subcutaneous DARZALEX in comparison to DARZALEX IV in patients with relapsed ~~and~~or refractory multiple myeloma. DARZALEX SC (utilizing ENHANZE technology) was found to be non-inferior to Darzalex IV with regard the co-primary endpoints of Overall Response Rate and Maximum Trough concentration. In May 2020, we announced that Janssen received US FDA approval of DARZALEX FASPRO in four regimens across five indications in multiple myeloma patients, including newly diagnosed, transplant-ineligible patients as well as relapsed or refractory patients. As a fixed-dose formulation, DARZALEX FASPRO can be administered over three to five minutes, significantly less time than IV DARZALEX which requires multi-hour infusions.

In April 2020, we announced that Janssen received a Committee for Medicinal Products for Human Use (CHMP) Positive Opinion from the EMA recommending approval of a daratumumab SC formulation for the treatment of adult patients with multiple myeloma in frontline and relapsed/refractory settings. The CHMP’s Positive Opinion for daratumumab SC formulation applies to multiple current daratumumab indications including newly diagnosed and transplant-ineligible patients, as well as relapsed or refractory patients.

In April 2020, we announced the submission of a New Drug Application (NDA) to Japan's Ministry of Health, Labour and Welfare (MHLW) by Janssen seeking approval of daratumumab SC.

In December 2019, Janssen elected targets EGFR and cMET on an exclusive basis as part of the bispecific antibody (amivantamab), which is being studied in solid tumors.

AbbVie Collaboration

In June 2015, we and AbbVie entered into a collaboration and license agreement, under which AbbVie has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with AbbVie proprietary biologics directed to up to nine targets. Targets may be selected on an exclusive basis. AbbVie elected one target on an exclusive basis, TNF alpha, for which it has discontinued development and returned the target.

Lilly Collaboration

In December 2015, we and Lilly entered into a collaboration and license agreement, under which Lilly has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Lilly proprietary biologics directed to up to five targets. Targets may be selected on an exclusive basis. Lilly has elected two targets on an exclusive basis and one target on a semi-exclusive basis. In August 2017, Lilly initiated a Phase 1 study of an investigational ~~new~~ therapy in combination with rHuPH20.

BMS Collaboration

In September 2017, we and BMS entered into a collaboration and license agreement, which became effective in November 2017, under which BMS has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with BMS immuno-oncology targets directed at up to eleven targets. Targets may be selected on an exclusive basis, with the exception of one co-exclusive target. BMS has designated multiple immuno-oncology targets including programmed death 1 (PD-1) and has an option to select additional targets within five years from the effective date. In October 2018, BMS dosed the first patient in a Phase 11/2a study evaluating the safety, pharmacokinetics and pharmacodynamics of BMS-986179, an investigational anti-CD-73 antibody alone and in combination with nivolumab, using ENHANZE technology. BMS is ~~currently~~also conducting a Phase 1/2 study of nivolumab using ENHANZE technology in patients with solid tumors. In October 2019, BMS initiated a Phase 1 study ~~of OPDIVO® (nivolumab) using~~for Relatlimab in combination with nivolumab and ENHANZE technology.

Alexion Collaboration

In December 2017, we and Alexion entered into a collaboration and license agreement, under which Alexion has the worldwide license to develop and commercialize products combining our rHuPH20 enzyme with Alexion’s portfolio of products directed at up to four targets. Targets may be selected on an exclusive basis. Alexion elected two targets on an exclusive basis, including a C5 complement inhibitor and has an option to select two additional targets within five years from the effective date. In August 2018, Alexion announced that it initiated a Phase 1 trial to study a next-generation subcutaneous formulation of ALXN1210 using ENHANZE technology. ~~This~~Alexion believes this next-generation subcutaneous formulation, called ALXN1810, has the potential to extend the dosing interval from once a week to ~~once every~~greater than two weeks ~~or once per month.~~between doses.

argenx Collaboration

In February 2019, we and argenx entered into an agreement ~~with argenx~~ for the right to develop and commercialize one exclusive target, the human neonatal Fc receptor, FcRn, which includes argenx's lead asset efgartigimod (ARGX-113), and an option to select two additional targets using ENHANZE technology. In May 2019, argenx nominated a second target to be studied using ENHANZE technology, a human complement factor C2 associated with the product candidate ARGX-117, which is being developed to treat severe autoimmune diseases.

In July 2019, argenx dosed the first subject in a phase 1 clinical trial evaluating the safety, pharmacokinetics and pharmacodynamics of efgartigimod (ARGX-113), using ENHANZE technology. In December 2019, argenx reported that based on data from the phase 1 study and internal company analysis, a one minute injection administered every 2 weeks may be possible. The Phase 2 efgartigimod clinical trial is enrolling chronic inflammatory demyelinating polyneuropathy (CIDP) patients.

NIH CRADA

In June 2019, we announced a Cooperative Research and Development Agreement (CRADA) with the National Institute of Allergy and Infectious Diseases’ Vaccine Research Center (VRC), part of National Institute of Health (NIH), enabling the VRC’s use of ENHANZE technology to develop subcutaneous formulations of broadly neutralizing antibodies (bnAbs) against HIV for HIV treatment.

For a further discussion of the collaboration agreements, refer to Note 4, Revenue.

Impact of COVID-19 to our Business

In March 2020, the World Health Organization declared a disease caused by a strain of novel coronavirus (“COVID-19”) to be a pandemic. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. In an effort to protect the health and safety of our employees and in compliance with state regulations, we instituted working from home, limited the number of people that work on site at any one time, and suspended employee travel. We anticipate that the global health crisis caused by COVID-19 will have an impact across the globe. The duration of the pandemic and the potential impact of the pandemic on the global economy as a whole is unknown. It is not clear what, if any, near and the long term effects the operational and economic impacts may have on our business, including the effects on our suppliers, collaborators, customers, employees, and prospects. We will continue to monitor the COVID-19 situation closely.

Results of Operations

Three Months Ended March 31, ~~2019~~2020 Compared to Three Months Ended March 31, ~~2018~~2019

Royalties– Royalty revenue was $16.8 million for the three months ended March 31, 2020 compared to $18.0 million for the three months ended March 31, ~~2019 compared to $20.9 million for the three months ended March 31, 2018.~~2019. The decrease was mainly driven by lower sales of Herceptin SC by Roche, partially offset by higher sales of RITUXAN ~~HYCELA™~~HYCELA in the U.S. by ~~Roche.~~Roche and higher sales of HyQvia by Baxalta. In general, we expect royalty revenue to ~~be flat or~~ decline in the near term prior to our next ENHANZE partner product launch, primarily attributable to the ongoing impact from biosimilars in Europe.

Product Sales, Net– Product sales, net were as follows (in thousands):


	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2019		2018		Change			2020		2019		Change
Sales of bulk rHuPH20:
Baxalta								2,290		45		2,245
Roche	$	4,461	$	2,131	$	2,330		431		4,461		(4,030		)
Baxalta	45		712		(667		)
Other	576		535		41			1,046		576		470
Sales of ENHANZE drug product	137		—		137			46		137		(91		)
Sales of Hylenex	3,171		3,423		(252		)	4,334		3,171		1,163
Total product sales, net	$	8,390	$	6,801	$	1,589		$	8,147	$	8,390	$	(243	)

Product sales, net ~~increased $1.6~~decreased $0.2 million in the three months ended March 31, ~~2019~~2020 compared to the same period in ~~2018, mainly~~2019, due to ~~an increase~~a decrease in the ~~sales~~sale of bulk rHuPH20 to Roche, partially offset by ~~a decrease~~an increase in the sale of rHuPH20 to Baxalta and other partners and an increase in sales of ~~Hylenex~~ ~~and bulk rHuPH20 to Baxalta.~~Hylenex. We expect that product sales of bulk rHuPH20 and ENHANZE drug product will fluctuate in future periods based on the needs of our collaborators. In March 2020, the Surgeon General advised hospitals to cancel elective surgeries due to COVID-19. Hylenex is used in cataract surgery and other ophthalmologic surgeries, and therefore the advisory may have a negative impact on Hylenex sales, depending on the duration of the canceled surgeries.

We currently do not expect an interruption in our ability to sell our products as a results of COVID-19. Our contract manufacturers continue to operate as an essential business during the pandemic and have communicated that ~~future product sales~~they have not identified any significant risk, delay, or concern that may have a substantial effect on delivery of ~~Hylenex~~any product. We will continue to ~~be flat or declining as we experience competition for market share.~~monitor the operations of our contract manufacturers and their ability to continue to provide us with products.

Revenues Under Collaborative Agreements – Revenues under collaborative agreements were as follows (in thousands):


		Three Months Ended								Three Months Ended
		March 31,								March 31,
		2019		2018		Change				2020		2019		Change
Upfront license fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments:	Upfront license fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments:								Upfront license fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments:	—		—		—
BMS		—		1,336		(1,336		)
Roche		—		1,000		(1,000		)
argenx		30,000		—		30,000				—		30,000		(30,000		)
		30,000		2,336		27,664
Subtotal										—		30,000		(30,000		)
Reimbursements for research and development services		606		791		(185		)		385		606		(221		)
Total revenues under collaborative agreements		$	30,606	$	3,127	$	27,479			$	385	$	30,606	$	(30,221	)

Revenue from license fees ~~increased $27.5 million~~decreased in the three months ended March 31, ~~2019,~~2020, compared to the same period in ~~2018~~2019 mainly due to a $30.0 million ~~upfront license fee for~~recognized in connection with the argenx Collaboration ~~recognized~~ in ~~the three months ended March 31, 2019, and no such revenue recognized in the three months ended March 31, 2018.~~2019. Revenue from upfront licenses fees, license fees for the election of additional targets, license maintenance fees and other license fees and event-based payments vary from period to period based on our ENHANZE collaboration activity. We expect these revenues to continue to fluctuate in future periods based on our collaborators’ ability to meet various clinical and regulatory milestones set forth in such agreements and our ~~abilities~~ability to obtain new collaborative agreements. To date, based on current partner communications we have not identified any COVID-19 related delays that will materially impact our ENHANZE milestone revenue. We will continue to monitor the ENHANZE development activities of our partners and the impact of their plans on our milestone revenue, as there may be potential for COVID-19 related delays.

Revenue from reimbursements for research and development services decreased in the three months ended March 31, ~~2019,~~2020, compared to the same period in ~~2018~~2019 mainly due to a decrease in services provided to ~~Janssen and~~ Baxalta. Research and development services rendered by us on behalf of our collaborators are at the request of the collaborators; therefore, the amount and timing of future revenues related to reimbursable research and development services is uncertain.

Cost of Product Sales– Cost of product sales were $5.8 million for the three months ended March 31, 2020 compared to $4.6 million for the three months ended March 31, ~~2019 compared to $3.1 million for the three months ended March 31, 2018.~~2019. The increase of ~~$1.5~~$1.2 million in cost of product sales was mainly due to an increase in costs supporting our product platform and an increase in sales of bulk rHuPH20 to Baxalta and other collaborators, partially offset by a decrease in sales of bulk rHuPH20 to Roche. ~~There were $0.2 million of costs of bulk rHuPH20 and ENHANZE drug product sales for the three months ended March 31, 2019 that were previously expensed as research and development.~~

Research and Development– Research and development expenses consist of external costs, salaries and benefits and allocation of facilities and other overhead expenses related to research manufacturing, clinical trials, preclinical and regulatory activities. Research and development expenses incurred were as follows (in thousands):


	Three Months Ended							Three Months Ended
	March 31,							March 31,
Programs	2019		2018		Change			2020		2019		Change
PEGPH20	$	25,899	$	32,511	$	(6,612	)	$	4,844	$	25,899	$	(21,055	)
ENHANZE collaborations and rHuPH20 platform	4,911		5,001		(90		)	5,170		4,911		259
Other	518		464		54			144		518		(374		)
Total research and development expenses	$	31,328	$	37,976	$	(6,648	)	$	10,158	$	31,328	$	(21,170	)

Research and development expenses relating to our PEGPH20 programs for the three months ended March 31, ~~2019~~2020 decreased by ~~20%~~81%, compared to the same period in ~~2018,~~2019, primarily due to decreased clinical trial activities. On November 4, 2019, we announced that the HALO-301 clinical study failed to reach the primary endpoint of overall survival. As a result, we halted development activities ~~resulting from~~for PEGPH20, closed our oncology operations and began the completion of enrollment of HALO-301 in December 2018 and decreased clinical trial activities related to the HALO-202 study and the HALO 107-101 study, partially offset by an increase in clinical trial activities in the HALO 110-101/MATRIX study. We expect these expenses to decrease asclose out process for all our clinical ~~trial activities decrease~~trials. We implemented an organizational restructuring to focus our operations solely on ENHANZE, which resulted in ~~the near term.~~a reduction in research and development expenses.

Research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform for the three months ended March 31, ~~2019 decreased~~2020 increased by 2%5%, compared to the same period in ~~2018,~~2019, primarily due to ~~a decrease in support for one-time partner research and development projects, partially offset by~~ increased costs to support new partners and targets related to our ENHANZE collaboration activity. We expect research and development expenses relating to our ENHANZE collaborations and our rHuPH20 platform to increase in the near ~~term.~~term as the rHuPH20 platform is burdened with a higher allocation of overhead costs. The rHuPH20 platform includes research, development and manufacturing expenses related to our proprietary rHuPH20 enzyme. These expenses were not designated to a specific program at the time the expenses were incurred.

Selling, General and Administrative– Selling, general and administrative (SG&A) expenses were ~~$18.0 million~~ ~~for the three months ended~~ ~~March 31, 2019~~ ~~compared to~~ ~~$13.6 million~~ ~~for the three months ended~~ ~~March 31, 2018. The increase of $4.4 million, or~~ ~~32%~~, was primarily due to an increase in market research expenses as we prepare for a potential commercial launch of PEGPH20 and compensation expense including stock compensation. We expect SG&A expenses to increase moderately in future periods as our operations expand.

~~Interest Expense~~– ~~Interest expense was $3.2 million for the three months ended~~ ~~March 31, 2019~~ ~~compared to $5.2 million for the three months ended~~ ~~March 31, 2018. The decrease of $2.0 million was primarily due to a decrease in the Royalty-backed Loan balance.~~

~~Income Tax Expense~~– ~~Income tax expense was $22 thousand for the three months ended March 31, 2019, compared to $0.2~~$12.6 million for the three months ended March 31, ~~2018~~2020 compared to $18.0 million for the three months ended March 31, 2019. The decrease of $5.4 million, or 30%, was primarily due to a decrease in ~~estimated state taxes.~~compensation expense and discontinuation of commercial expenses related to market research and educational activities as we prepared for a potential commercial launch of PEGPH20. The discontinuation of our development activities for PEGPH20 and closure of our oncology operations resulted in a reduction in commercialization activities and compensation expense.

Interest Expense– Interest expense was $5.3 million for the three months ended March 31, 2020 compared to $3.2 million for the three months ended March 31, 2019. The increase of $2.1 million was primarily due to interest expense related to the Convertible Notes, offset by a decrease in the Royalty-backed Loan and the Oxford and SVB Loan principal balances.

Liquidity and Capital Resources

Overview

Our principal sources of liquidity are our existing cash, cash equivalents and available-for-sale marketable securities. As of March 31, ~~2019,~~2020, we had cash, cash equivalents and marketable securities of $328.7 million. We will continue to have significant cash requirements to support product development activities. The amount and timing of cash requirements and cash on hand will depend on the progress and success of our clinical development programs, regulatory and market acceptance, the resources we devote to research and commercialization activities and the achievement of various milestones and royalties under our existing collaborative agreements.

We$368.2 million.We believe that our current cash, cash equivalents and marketable securities will be sufficient to fund our operations for at least the next twelve months. We expect to fund our operations going forward with existing cash resources, anticipated revenues from our existing collaborations and cash that we may raise through future transactions. We may raise cash through any one of the following financing vehicles: (i) ~~the public offering of securities; (ii)~~ new collaborative agreements; ~~(iii)~~(ii) expansions or revisions to existing collaborative relationships; ~~(iv)~~(iii) private financings; ~~(v)~~(iv) other equity or debt financings; (v) monetizing assets; and/or (vi) ~~monetizing assets.~~the public offering of securities;

In February 2017, we filed an automatic shelf registration statement on Form S-3 (Registration No. 333-216315) with the SEC, which allow us, from time to time, to offer and sell equity, debt securities and warrants to purchase any of such securities, either individually or in units. We may, in the future, offer and sell additional equity, debt securities and warrants to purchase any of such securities, either individually or in units to raise capital to ~~fund the continued development of our product candidates, the commercialization of our products~~raise funds for additional working capital, capital expenditures, share repurchases, acquisitions or for other general corporate purposes.

Our existing cash, cash equivalents and marketable securities may not be adequate to fund our operations until we become profitable, if ever. We cannot be certain that additional financing will be available when needed or, if available, financing will be obtained on favorable terms. If we are unable to raise sufficient funds, we may need to delay, scale back or eliminate some or all of our research and development programs, delay the launch of our product candidates, if approved, and/or restructure our operations. If we raise additional funds by issuing equity securities, substantial dilution to existing stockholders could result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations, the issuance of warrants that may ultimately dilute existing stockholders when exercised and covenants that may restrict our ability to operate our business

Cash Flows

Operating Activities

Net cash used in operations was $4.8 million for the three months ended March 31, 2020 compared to $4.4 million for the three months ended March 31, ~~2019 compared to $22.2~~2019. The $0.4 million ~~for the three months ended March 31, 2018. The $17.8 million decrease~~increase in utilization of cash in operations was mainly due to ~~an increase~~a decrease in cash received related to the argenx ~~upfront~~ license ~~fee~~fees of $30.0 million in the prior year period with no license fees received in the current year period, offset by a decrease in working capital spend for the three months ended March 31, ~~2019~~2020 compared to the corresponding period in the prior year.

Investing Activities

Net cash provided by investing activities was $38.1 million for the three months ended March 31, 2020 compared to $28.8 million for the three months ended March 31, ~~2019 compared to $35.9 million net cash used in investing activities for the three months ended March 31, 2018.~~2019. The ~~decrease~~increase in net cash ~~used in~~provided by investing activities was primarily due to an increase in proceeds from maturities of marketable securities for the three months ended March 31, ~~2019.~~2020, a decrease in purchases of property and equipment and an increase in cash proceeds from the disposal pf property and equipment.

Financing Activities

Net cash used in financing activities was $48.6 million for the three months ended March 31, 2020, compared to $21.7 million for the three months ended March 31, 2019, ~~compared to net cash used in financing activities of $12.7 million for the three months ended March 31, 2018,~~ mainly due to ~~$5.4~~a $51.6 million ~~decrease~~in repurchase of common stock, offset by a $20.2 million increase in net proceeds from the issuance of common stock under equity incentive plans and ~~increased~~a decrease in the amount of repayments of long-term debt of ~~$3.7~~$4.6 million in the three months ended March 31, ~~2019.~~2020.

Share Repurchases

In November 2019, the Board of Directors approved a share repurchase program, pursuant to which we may repurchase our issued and outstanding shares of common stock from time to time. The Company retired the repurchased shares. See Note 8. Stockholders’ Equity, within the notes to the consolidated financial statements for additional information regarding our share repurchases.

Long-Term Debt

Convertible Notes

In November 2019, we completed the sale of $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due in 2024 (Convertible Notes) in a private placement to qualified institutional buyers. 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 our 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 approximately 2.6 million shares of common stock through an accelerated share repurchase agreement.

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 our current or future subsidiaries.

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 of December 1, 2024. The Convertible Notes will be convertible, regardless of the foregoing circumstances, at any time from, and including, June 1, 2024 until the close of business on the scheduled trading day immediately preceding the maturity date.

Royalty-backed Loan

In January 2016, through our wholly-owned subsidiary Halozyme Royalty LLC (Halozyme Royalty), we received a $150 million loan (the Royalty-backed Loan) pursuant to a credit agreement (the Credit Agreement) with BioPharma Credit Investments IV Sub, LP and Athyrium Opportunities II Acquisition LP (the Royalty-backed Lenders). Under the terms of the Credit Agreement, Halozyme Therapeutics, Inc. transferred to Halozyme Royalty the right to receive royalty payments from the commercial sales of ENHANZE products owed under the Roche Collaboration and Baxalta Collaboration (Collaboration Agreements). The royalty payments from the Collaboration Agreements will be used to repay the principal and interest on the loan (the Royalty Payments). The Royalty-backed Loan bears interest at a per annum rate of 8.75% plus the three-month LIBOR rate. The three-month LIBOR rate is subject to a floor of 0.7% and a cap of 1.5%. The interest rate as of March 31, ~~2019~~2020 was ~~10.25%~~9.64%. The outstanding balance of the Royalty-backed Loan net of unamortized discount as of March 31, ~~2019~~2020 was ~~$68.2 million net of unamortized debt discount of $0.2~~$2.9 million.

The Credit Agreement provides that none of the Royalty Payments were required to be applied to the Royalty-backed Loan prior to January 1, 2017, 50% of the Royalty Payments were required to be applied to the Royalty-backed Loan between January 1, 2017 and January 1, 2018 and thereafter all Royalty Payments must be applied to the Royalty-backed Loan. However, the amounts available to repay the Royalty-backed Loan are subject to caps of $13.75 million per quarter in 2017, $18.75 million per quarter in 2018, $21.25 million per quarter in 2019 and $22.5 million per quarter in 2020 and thereafter. Amounts available to repay the Royalty-backed Loan will be applied first, to pay interest and second, to repay principal on the Royalty-backed Loan. Any accrued interest that is not paid on any applicable quarterly payment date, as defined, will be capitalized and added to the principal balance of the Royalty-backed Loan on such date. Halozyme Royalty will be entitled to receive and distribute to Halozyme any Royalty Payments that are not required to be applied to the Royalty-backed Loan or which are in excess of the foregoing caps.

The final maturity date of the Royalty-backed Loan will be the earlier of (i) the date when principal and interest is paid in full, (ii) the termination of Halozyme Royalty’s right to receive royalties under the Collaboration Agreements, and (iii) December 31, 2050. Currently, we estimate that the loan will be repaid in the ~~first~~second quarter of 2020. This estimate could be adversely affected and the repayment period could be extended if future royalty amounts are less than currently expected. Under the terms of the Credit Agreement, at any time after January 1, 2019, Halozyme Royalty may, subject to certain limitations, prepay the outstanding principal of the Royalty-backed Loan in whole or in part, at a price equal to 105% of the outstanding principal on the Royalty-backed Loan, plus accrued but unpaid interest. The Royalty-backed Loan constitutes an obligation of Halozyme Royalty, and is non-recourse to Halozyme. Halozyme Royalty retains its right to the Royalty Payments following repayment of the loan.

Oxford and SVB Loan and Security Agreement

principal and final payment owed on a previous loan agreement with the Lenders. The remaining proceeds ~~are being~~were used for working capital and general business requirements. The Loan Agreement repayment schedule ~~provides~~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 ~~provides~~provided for a final payment equal to 5.50% of the initial $55.0 million principal amount. The final payment iswas due when the Loan Agreement becomes due or upon the prepayment of the facility. We ~~have~~had the option to prepay the outstanding balance of the Loan Agreement in ~~full. The outstanding term loan~~full and exercised this option in November 2019, at which point we paid the full remaining balance ~~was $37.2~~and final payment of $26.1 million, ~~as of March 31, 2019 net of unamortized debt discount of $0.8 million.~~

~~The Loan Agreement is secured by substantially~~thereby satisfying and discharging all of the assets of the Company and its subsidiary, Halozyme, Inc., except that the collateral does not include any equity interests in Halozyme, Inc. and any intellectual property (including all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants limit our ability to convey, sell, lease, transfer, assign or otherwise dispose of certain of our assets; engage in any business other than the businesses currently engaged in by us or reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect to certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt; enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same; and make any voluntary prepayment of or modify certain terms of the Royalty-backed Loan. In addition, subject to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and commodities, and to do the same for our domestic subsidiary.

~~The Loan Agreement also contains customary indemnification obligations and customary events of default, including, among other things, our failure to fulfill certain of our~~ obligations under, and terminating, the Loan Agreement and the occurrence of a material adverse change which is defined as a material adverse change in our business, operations or condition (financial or otherwise), a material impairment of the prospect of repayment of any portion of the loan, a material impairment in the perfection or priority of the Lender’s lien in the collateral or in the value of such collateral or the occurrence of an event of default under the Royalty-backed Loan. In the event of default by us under the Loan Agreement, the Lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the debt, upon which we may be required to repay all amounts then outstanding under the Loan Agreement, which could harm our financial condition.Agreement.

Off-Balance Sheet Arrangements

As of March 31, ~~2019,~~2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities.

As described in our ~~2018~~2019 Form 10-K, the most critical accounting policies and estimates upon which our condensed consolidated financial statements were prepared were those relating to revenue recognition, debt classification, stock compensation and research and development expenses - clinical trials. We have reviewed our policies and estimates and determined that these remain the most critical accounting policies and estimates for the three months ended March 31, ~~2019.~~2020. Readers should refer to our ~~2018~~2019 Form 10-K under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates” and Note 1 to the accompanying financial statements for descriptions of these policies and estimates.

Recent Accounting Pronouncements

Refer to Note 2, Summary of Significant Accounting Policies, of our condensed consolidated financial statements for a discussion of recent accounting pronouncements and their effect, if any.

Risk Factors

Risks Related To Our Business

Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our collaboration partners’ product candidates and commercialization of approved products, impede our ability to supply bulk rHuPH20 to our partners or procure and sell Hylenex and otherwise adversely impact our business and results of operations.

Public health crises such as pandemics or similar outbreaks could adversely impact our business and results of operations by, among other things, disrupting the development of our collaboration partners’ product candidates and commercialization of our partners’ approved products, causing disruptions in the operations of our third party contract manufacturing organizations upon whom we rely for the production and supply of our commercial product Hylenex and the bulk rHuPH20 we supply to our partners and causing other disruptions to our operations. For example, the outbreak of a coronavirus, which causes COVID-19, has rapidly evolved into a global pandemic. As of April 2020, the coronavirus had spread to most regions of the world including the city of San Diego, California where our main office is located.

The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures. The extent to which COVID-19 impacts our operations and/or those of our collaboration partners will depend on future developments, which are highly uncertain and unpredictable, including the duration or recurrence of the outbreak, additional or modified government actions, new information that will emerge concerning the severity and impact of COVID-19 and the actions to contain COVID-19 or address its impact in the short and long term, among others.

We have responded to the COVID-19 pandemic by taking a number of actions including closing our offices in San Diego, requesting that most of our personnel work remotely and restricting access to our facilities mostly to personnel who perform critical activities that must be completed on-site in accordance with the California statewide shelter-in-place order. Increased reliance on personnel working from home may have a negative impact on productivity, or disrupt, delay or otherwise adversely impact business, by, among other things, increasing cyber security risk, impeding access to information that would be helpful to pursue our business objectives or disrupting our communications.

The business disruptions associated with a global pandemic could impact the business, product development priorities and operations of our collaboration partners, including potential delays in manufacturing their product candidates or approved products. For example, some of our collaboration partners are, or planning on, conducting clinical trials in geographies affected by the COVID-19 pandemic. The progress or completion of these clinical trials could be adversely impacted by the pandemic. Additionally, interruption or delays in the operations of the FDA, the EMA and other similar foreign regulatory agencies, or changes in regulatory priorities to focus on the COVID-19 pandemic, may affect required regulatory review, inspection, clearance and approval timelines. Disruptions such as these could result in delays in the development programs of our collaboration products or impede the commercial efforts for approved products, resulting in potential reductions or delays in our revenues from collaborator royalty or milestone payments. We do not know the extent to which our collaboration partners’ development programs or product commercialization efforts will be impacted or delayed.

We rely on third party manufacturers to manufacture the bulk rHuPH20 that we supply to our collaboration partners for their commercial products and product candidates, as well as our commercial product Hylenex. If any such third party manufacturer is adversely impacted by the coronavirus pandemic and related consequences, including staffing shortages, production slowdowns and disruptions in delivery systems, our supply chain may be disrupted, limiting our ability to sell Hylenex or supply bulk rHuPH20 to our collaboration partners. Any such disruptions could result in reductions or delays in our revenues.

The effects of COVID-19 could worsen in countries that are already afflicted with the coronavirus which could further adversely impact our ability to conduct our business and could have a material adverse impact on our operations, financial condition and results. We do not yet know the full extent of the impact that COVID-19 may or will have on our business.

In addition, the trading prices for our common shares and other biopharmaceutical companies have been highly volatile as a result of market and investor reactions to the coronavirus pandemic and its potential consequences. As a result, access to sources of financing, should those be needed, may be more difficult and/or expensive. In addition, a recession, depression or other sustained adverse market event resulting from the spread of the coronavirus could materially and adversely affect our business and the value of our common shares.

We recently initiated a significant corporate restructuring including a substantial reduction in our workforce to reduce our operating costs. As a result of this initiative, we may experience a disruption to our business operations. In addition, we may not realize all of the expected cost savings from our corporate restructuring which could have an adverse effect on our business or results of operations.

In November 2019, we announced that our HALO-301 Phase 3 clinical study evaluating investigational new drug PEGPH20 as a first-line therapy for treatment of patients with metastatic pancreatic cancer failed to reach the primary endpoint of overall survival. As a result, we have closed all ongoing oncology clinical studies including all development activities for PEGPH20. In connection with this decision, we have initiated a significant restructuring, including a staff reduction of approximately 55 percent of our total workforce. This restructuring and staff reduction is aimed at reducing operating costs and focusing our resources on our ENHANZE technology and Hylenex. Our restructuring initiative and staff reduction may cause disruption to our business operations. For example, the reduction in force has resulted in the loss of a number of long-term employees including some members of the senior management team, the loss of institutional knowledge and expertise and the reallocation and combination of certain roles and responsibilities across the organization, all of which could adversely affect our operations. In addition, we may not be able to effectively realize all the cost savings anticipated by the restructuring initiative and reduction-in-force and we may incur unanticipated charges or make cash payments as a result of our restructuring initiative that were not previously contemplated which could result in an adverse effect on our business or results of operations.

Our inability to attract, hire and retain key management and scientific personnel could negatively affect our business.

Our success depends on the performance of key management and scientific employees with relevant experience. We depend substantially on our ability to hire, train, motivate and retain high quality personnel, especially our scientists and management team which may be adversely affected by our recent restructuring and reduction in force. Particularly in view of the small number of employees on our staff to manage our alliance programs and key functions, if we are unable to retain existing personnel or identify or hire additional personnel, we may not be able to adequately support current and future alliances with strategic collaborators. Our use of domestic and international third-party contractors, consultants and staffing agencies also subjects us to potential co-employment liability claims.

Furthermore, if we were to lose key management personnel, we would likely lose some portion of our institutional knowledge and technical know-how, potentially causing a substantial disruption or delay in one or more of our partnered development programs until adequate replacement personnel could be hired and trained. In addition, we do not have key person life insurance policies on the lives of any of our employees which would help cover the cost of associated with the loss of key employees.

We have generated only limited revenues ~~from product sales~~ to ~~date;~~date and we have a history of net losses and negative cash flows ~~and we may never achieve or maintain profitability.~~.

Relative to expenses incurred in our operations, we have generated only limited revenues from product sales, royalties, licensing fees, milestone payments, bulk rHuPH20 supply payments and research reimbursements to date and we may never generate sufficient revenues from future product sales, licensing fees and milestone payments to offset expenses. Even if we ultimately do achieve significant revenues from product sales, royalties, licensing fees, research reimbursements, bulk rHuPH20 supply payments and/or milestone payments, we expect to incur significant operating losses over the next few years and we may never become profitable on an extended basis.date. Through March 31, ~~2019,~~2020, we have incurred aggregate net losses of ~~$529.6~~$609.8 million. Although we expect to achieve sustainable profitability beginning the second quarter of 2020, unexpected declines in revenues and increases in expenses could inhibit our ability to achieve and sustain profitability.

If ~~our~~partners’ product candidates do not receive and maintain regulatory approvals, or if approvals are not obtained in a timely manner, such failure or delay would substantially impair our ability to generate revenues.

Approval from the FDA or equivalent health authorities is necessary to manufacture and market pharmaceutical products in the U.S. and the other countries in which we anticipate doing business have similar requirements. The process for obtaining FDA and other regulatory approvals is extensive, time-consuming, risky and costly, and there is no guarantee that the FDA or other regulatory bodies will approve any applications that may be filed with respect to any of our partners’ product candidates, or that the timing of any such approval will be appropriate for the desired product launch schedule for a product candidate. We and our collaborators attempt to provide guidance as to the timing for the filing and acceptance of such regulatory approvals, but such filings and approvals may not occur when we or our collaborators expect, or at all. The FDA or other foreign regulatory agency may refuse or delay approval of our partners’ product candidates for failure to collect sufficient clinical or animal safety data and require ~~us or~~ our collaborators to conduct additional clinical or animal safety studies which may cause lengthy delays and increased costs to our partners’ development programs. For example, the approval of Baxalta’s HYQVIA BLA in the U.S. was delayed until we and Baxalta provided additional preclinical data sufficient to address concerns regarding non-neutralizing antibodies to rHuPH20 that were detected in the registration trial. Although these antibodies have not beenAny such issues associated with ~~any known adverse clinical effects, and the HYQVIA BLA was approved by the FDA in September 2014, we cannot assure you that they will not arise and~~rHuPH20 could have an adverse impact on future development of our partners’ products which include rHuPH20, future sales of Hylenex recombinant, or our ability to maintain our existing collaborations or enter into ~~collaborations, or be raised by the FDA or other health authorities in connection with testing or approval of products including rHuPH20.~~new collaborations.

We and our collaborators may not be successful in obtaining approvals for any additional potential products in a timely manner, or at all. Refer to the risk factor titled “Our ~~proprietary and~~ collaboration product candidates ~~or companion diagnostic assays~~ may not receive regulatory approvals or their development may be delayed for a variety of reasons, including delayed or unsuccessful clinical trials, regulatory requirements or safety concerns” for additional information relating to the approval of product candidates.

Additionally, even with respect to products which have been approved for commercialization, in order to continue to manufacture and market pharmaceutical products, we or our collaborators must maintain our regulatory approvals. If we or any of our collaborators are unsuccessful in maintaining our regulatory approvals, our ability to generate revenues would be adversely affected.

~~We may need to raise additional capital in the future and there can be no assurance that we will be able to obtain such funds.~~

We may need to raise additional capital in the future to continue the development of our product candidates or for other current corporate purposes. Our current cash reserves and expected revenues during the next few years will not be sufficient for us to continue the development of our proprietary product candidates, to fund general operations and conduct our business at the level desired. In addition, if we engage in acquisitions of companies, products or technologies in order to execute our business strategy, we may need to raise additional capital. We may raise additional capital in the future through one or more financing vehicles that may be available to us including (i) the public offering of securities; (ii) new collaborative agreements; (iii) expansions or revisions to existing collaborative relationships; (iv) private financings; (v) other equity or debt financings; and/or (vi) monetizing assets.

In view of our stage of development, business prospects, the nature of our capital structure and general market conditions, if we are required to raise additional capital in the future, the additional financing may not be available on favorable terms, or at all. If additional capital is not available on favorable terms when needed, we will be required to raise capital on adverse terms or significantly reduce operating expenses through the restructuring of our operations or deferral of one or more product development programs. If we raise additional capital, a substantial number of additional shares may be issued, which may negatively affect our stock price and these additional shares will dilute the ownership interest of our current investors.

Use of ~~our~~Hylenex and the products and product candidates ~~or those~~ of our ~~collaborators~~partners’ could be associated with side effects or adverse events.

As with most pharmaceutical products, use of ~~our~~Hylenex and the products and product candidates ~~or those~~ of our collaborators could be associated with side effects or adverse events which can vary in severity (from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of ~~our~~Hylenex and the products or product candidates ~~or those~~ of our collaborators may be observed at any time, including in clinical trials or when a product is commercialized, and any such side effects or adverse events may negatively affect our or our collaborators’ ability to obtain or maintain regulatory approval or market ~~our~~such products and product candidates. Side effects such as toxicity or other safety issues associated with the use of ~~our~~Hylenex and the products and product candidates ~~or those~~ of our collaborators could require us or our collaborators to perform additional studies or halt development or commercialization of these products and product candidates or expose us to product liability lawsuits which will harm our business. For example, we experienced a clinical hold on patient enrollment and dosing in our phase 2 study of PEGPH20 in patients with PDA (a discontinued program), which was not resolved until we implemented steps to address an observed possible difference in TE event rates between the arms of the study. We or our collaborators may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our pharmaceutical products or product candidates which we have not planned or anticipated. Furthermore, there can be no assurance that we or our collaborators will resolve any issues related to any product ~~related~~or product candidate side effects or adverse events to the satisfaction of the FDA or any regulatory agency in a timely manner or ever, which could harm our business, prospects and financial condition. For example, in April 2014, a clinical hold was placed on patient enrollment and dosing of PEGPH20 in Study HALO-202 as a result of a possible difference in the TE event rate that had been observed at that time in the trial between the group of patients treated with PEGPH20 versus the group of patients treated without PEGPH20. The clinical hold was lifted by the FDA in June 2014, and we have completed Study HALO-202.

If our contract manufacturers are unable to manufacture and supply to us bulk rHuPH20 or other raw materials in the quantity and quality required by us or our collaborators for use in Hylenex or our partners’ products and product candidates, our partners’ product development and commercialization efforts could be delayed or stopped and our collaborations could be damaged.

We have existing supply agreements with contract manufacturing organizations Avid Bioservices, Inc. (Avid) and Catalent Indiana LLC ~~(formerly Cook Pharmica LLC)~~ (Catalent) to produce bulk rHuPH20. These manufacturers each produce bulk rHuPH20 under cGMP for ~~clinical uses.~~use in Hylenex recombinant, and for use in collaboration products and product candidates. Catalent currently produces bulk rHuPH20 for use in Hylenex recombinant ~~product candidates and collaboration product candidates. Avid currently produces bulk rHuPH20 for use in collaboration products~~ and collaboration product candidates. In addition to supply obligations, Avid and Catalent will also provide support for the chemistry, manufacturing and controls sections for FDA and other regulatory filings. We rely on their ability to successfully manufacture ~~these batches~~bulk rHuPH20 according to product specifications. If either Avid or Catalent: (i) is unable to retain its status as an FDA approved manufacturing facility; (ii) is unable to otherwise successfully scale up bulk rHuPH20 production to meet corporate or regulatory authority quality standards; or (iii) fails to manufacture and supply bulk rHuPH20 in the quantity and quality required by us or our collaborators for use in ~~our proprietary~~Hylenex and collaboration products and product candidates for any other reason, our business will be adversely affected. In addition, a significant change in such parties’ or other third party manufacturers’ business or financial condition could adversely affect their abilities to fulfill their contractual obligations to us. We have not established, and may not be able to establish, favorable arrangements with additional bulk rHuPH20 manufacturers and suppliers of the ingredients necessary to manufacture bulk rHuPH20 should the existing manufacturers and suppliers become unavailable or in the event that our existing manufacturers and suppliers are unable to adequately perform their responsibilities. We have attempted to mitigate the impact of a potential supply interruption through the establishment of excess bulk rHuPH20 inventory where possible, but there can be no assurances that this safety stock will be maintained or that it will be sufficient to address any delays, interruptions or other problems experienced by Avid and/or Catalent. Any delays, interruptions or other problems regarding the ability of Avid and/or Catalent to supply bulk rHuPH20 or the ability of other third party manufacturers, to supply other raw materials or ingredients necessary to produce our products on a timely basis could: (i) cause the delay of our partners’ clinical trials or otherwise delay or prevent the regulatory approval of ~~proprietary or collaboration~~our partners’ product candidates; (ii) delay or prevent the effective

commercialization of ~~proprietary~~Hylenex or collaboration ~~products;~~products and product candidates; and/or (iii) cause us to breach contractual obligations to deliver bulk rHuPH20 to our collaborators. Such delays would likely damage our relationship with our collaborators, and they would have a material adverse effect on royalties and thus our business and financial condition. Additionally, we rely on third parties to manufacture, prepare, fill, finish, package, store and ship our product and partners’ product candidates on our behalf. If the third parties we identify fail to perform their obligations, the progress of partners’ clinical trials could be delayed or even suspended and the commercialization of approved product candidates could be delayed or prevented.

If we or any party to a key collaboration agreement fail to perform material obligations under such agreement, or if a key collaboration agreement, is terminated for any reason, our business could significantly suffer.

We have entered into multiple collaboration agreements under which we may receive significant future payments in the form of milestone payments, target designation fees, maintenance fees and royalties. We are heavily dependent on our collaborators to develop and commercialize product candidates subject to our collaborations in order for us to realize any financial benefits from these collaborations. Our collaborators may not devote the attention and resources to such efforts that we would ourselves, change their clinical development plans, promotional efforts or simultaneously develop and commercialize products in competition to those products we have licensed to them. Any of these actions could not be visible to us immediately and could negatively impact our ability to forecast and our ability to achieve the benefits and revenue we receive from such collaboration. In addition, in the

event that a party fails to perform under a key collaboration agreement, or if a key collaboration agreement is terminated, the reduction in anticipated revenues could ~~delay or suspend~~negatively impact our ~~product development activities for some of our product candidates, as well as~~operations and our commercialization efforts for ~~some or all of our products. Specifically,~~Hylenex. In addition, the termination of a key collaboration agreement by one or more of our collaborators could ~~materially~~have a material adverse impact our ability to enter into additional collaboration agreements with new collaborators on favorable terms, if at all. In certain circumstances, the termination of a key collaboration agreement would require us to revise our corporate strategy going forward and reevaluate the applications and value of our technology.

~~Most of~~Hylenex and our ~~current proprietary and collaboration~~partners’ products and product candidates rely on the rHuPH20 enzyme, and any adverse development regarding rHuPH20 could substantially impact multiple areas of our business, including current and potential collaborations, as well as any proprietary programs.

rHuPH20 is a key technological component of Hylenex and our ENHANZE technology and ~~our~~ most ~~advanced proprietary and~~of our collaboration products and product candidates, including the current and future products and product candidates under our ENHANZE ~~collaborations, our PEGPH20 program, and~~ ~~Hylenex~~ ~~recombinant.~~collaborations. If there is an adverse development for rHuPH20 (e.g., an adverse regulatory determination relating to rHuPH20, if we are unable to obtain sufficient quantities of rHuPH20, if we are unable to obtain or maintain material proprietary rights to rHuPH20 or if we discover negative characteristics of rHuPH20), multiple areas of our business, including current and potential collaborations, as well as proprietary programs would be substantially impacted. For example, elevated anti-rHuPH20 antibody titers were detected in the registration trial for Baxalta’s HYQVIA product as well as in a former collaborator’s product in a Phase 2 clinical trial with rHuPH20, but have not been associated, in either case, with any adverse events. We monitor for antibodies to rHuPH20 in our collaboration and proprietary programs, and although we do not believe at this time that the incidence of non-neutralizing anti-rHuPH20 antibodies in either the HYQVIA program or the former collaborator’s program will have a significant impact on our ~~other~~ proprietary product and ~~other collaboration~~our partners’ product and product candidates, there can be no assurance that there will not be other such occurrences in the foregoing ~~programs or our other~~ programs or that concerns regarding these antibodies will not also be raised by the FDA or other health authorities in the future, which could result in delays or discontinuations of our Hylenex commercialization activities, the development or commercialization activities of our partners, or deter our entry into additional collaborations with third parties.

We routinely evaluate, and may modify, our business strategy and our strategic focus to only a few fields or applications of our technology which may increase the risk for potential negative impact from adverse developments.

We routinely evaluate our business strategy, and may modify this strategy in the future in light of our assessment of unmet medical needs, growth potential, resource requirements, regulatory issues, competition, risks and other factors. As a result of these strategic evaluations, we may focus our resources and efforts on one or a few programs or fields and may suspend or reduce our efforts on other programs and fields. For example, in the ~~third~~fourth quarter of ~~2014,~~2019, we decided to focus our resources on ~~advancing PEGPH20 and expanding utilization of~~ our ENHANZE ~~technology. While we believe these are applications with the greatest potential value, we have reduced the diversification of~~technology and our ~~programs and increased our dependence on the success of the areas we are pursuing.~~commercial product, Hylenex. By focusing on ~~one or a few~~these areas, we increase the potential impact on us if one of those partner programs ~~or product candidates~~ does not successfully complete clinical trials, achieve commercial acceptance or meet expectations regarding sales and revenue. Our decision to focus on one or a few programs may also reduce the value of programs that are no longer within our principal strategic focus, which could impair our ability to pursue collaborations or other strategic alternatives for those programs we are not pursuing.

Our ~~proprietary and~~ collaboration product candidates ~~or companion diagnostic assays~~ may not receive regulatory approvals or their development may be delayed for a variety of reasons, including delayed or unsuccessful clinical trials, regulatory requirements or safety concerns.

Clinical testing of pharmaceutical products is a long, expensive and uncertain process, and the failure or delay of a clinical trial can occur at any stage, including the patient enrollment stage. Even if initial results of preclinical and nonclinical studies or clinical trial results are promising, ~~we or~~ our collaborators may obtain different results in subsequent trials or studies that fail to show the desired levels of dose safety and efficacy, ~~or we may not,~~ or our collaborators may not, obtain applicable regulatory approval for a variety of other reasons. Preclinical, nonclinical, and clinical trials for ~~any of our proprietary or~~ collaboration product candidates ~~or development of any collaboration companion diagnostic assays~~ could be unsuccessful, which would delay or preclude regulatory approval and commercialization of the product ~~candidates or companion diagnostic assays.~~candidates. In the U.S. and other jurisdictions, regulatory approval can be delayed, limited or not granted for many reasons, including, among others:

during the course of clinical studies, the final data may differ from initial reported data, and clinical results may not meet prescribed endpoints for the studies or otherwise provide sufficient data to support the efficacy of our collaborators’ product candidates;

clinical and nonclinical test results may reveal inferior pharmacokinetics, side effects, adverse events or unexpected safety issues associated with the use of our collaborators’ product candidates; for example, in April 2014, a clinical hold was placed on patient enrollment and dosing of PEGPH20 in Study HALO-202 as a result of a possible difference in the TE event rate that had been observed at that time in the trial between the group of patients treated with PEGPH20 versus the group of patients treated without PEGPH20. The clinical hold was lifted by the FDA in June 2014, and we have completed enrollment and continue to monitor patients who remain either on treatment or in follow-up on Study HALO-202 under a revised clinical protocol;

completion of clinical trials may be delayed for a variety of reasons including the amount of time it may take to identify and enroll patients with high levels of HA in our target population, and the ability to procure drug supply required in clinical trial protocols;

~~clinical trial results may be negatively impacted if our companion diagnostic does not accurately identify patients most likely to respond to the therapy, including the level of HA in patients;~~

third parties, such as contract research organizations, upon whom we rely to help conduct and manage our clinical trials may not perform satisfactorily, fulfill their contractual obligations to us, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements or our stated protocols;

~~regulatory review may not find a product candidate safe or effective enough to merit either continued testing or final approval;~~

regulatory review may not find that the data from preclinical testing and clinical trials justifies approval;

regulatory authorities may require that weour partners change ~~our~~their studies or conduct additional studies which may significantly delay or make continued pursuit of approval commercially unattractive;

a regulatory agency may reject ~~our~~partner trial data or disagree with ~~our~~their interpretations of either clinical trial data or applicable regulations;

a regulatory agency ~~may approve only a narrow use of our product or~~ may require additional safety monitoring and reporting through Risk Evaluation and Mitigation Strategies or conditions to assure safe use programs;

~~the cost of clinical trials required for product approval may be greater than what we originally anticipate, and we~~

a partner may decide to not pursue regulatory approval for such a product;

a regulatory agency may not approve our manufacturing processes or facilities, or the processes or facilities of our collaborators, our contract manufacturers or our raw material suppliers;

a regulatory agency may identify problems or other deficiencies in our existing manufacturing processes or facilities, or the existing processes or facilities of our collaborators, our contract manufacturers or our raw material suppliers;

a regulatory agency may change its formal or informal approval requirements and policies, act contrary to previous guidance, adopt new regulations or raise new issues or concerns late in the approval process; or

a partner product candidate may be approved only for indications that are narrow or under conditions that place the product at a competitive disadvantage, which may limit the sales and marketing activities for such product candidate or otherwise adversely impact the commercial potential of a product.

If a ~~proprietary or~~ collaboration product candidate ~~or companion diagnostic assay~~ is not approved in a timely fashion or obtained on commercially viable terms, or if development of any product candidate ~~or a companion diagnostic assay~~ is terminated due to difficulties or delays encountered in the regulatory approval process, it could have a material adverse impact on our business, and we would become more dependent on the development of other ~~proprietary or~~ collaboration product candidates and/or our ability to successfully acquire other ~~products and~~ technologies. There can be no assurances that any ~~proprietary or~~ collaboration product candidate ~~or companion diagnostic assay~~ will receive regulatory approval in a timely manner, or at all. There can be no assurance that wepartners will be able to gain clarity as to the FDA’s requirements or that the requirements may be satisfied in a commercially feasible way, in which case our ability to enter into collaborations with third parties or explore other strategic alternatives to exploit ~~this~~an opportunity will be limited or may not be possible.

We anticipate that certain ~~proprietary and~~ collaboration products will be marketed, and perhaps manufactured, in foreign countries. The process of obtaining regulatory approvals in foreign countries is subject to delay and failure for the reasons set forth above, as well as for reasons that vary from jurisdiction to jurisdiction. The approval process varies among countries and jurisdictions and can involve additional testing. The time required to obtain approval may differ from that required to obtain FDA approval. Foreign regulatory agencies may not provide approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or jurisdictions or by the FDA.

Our third party collaborators are responsible for providing certain proprietary materials that are essential components of our collaboration products and product candidates, and any failure to supply these materials could delay the development and commercialization efforts for these collaboration products and product candidates and/or damage our collaborations.

Our development and commercialization collaborators are responsible for providing certain proprietary materials that are essential components of our collaboration products and product candidates. For example, Roche is responsible for producing the Herceptin and MabThera required for its subcutaneous products and Baxalta is responsible for producing the GAMMAGARD LIQUID for its product HYQVIA. If a collaborator, or any applicable third party service provider of a collaborator, encounters difficulties in the manufacture, storage, delivery, fill, finish or packaging of the collaboration product or product candidate or component of such product or product candidate, such difficulties could (i) cause the delay of clinical trials or otherwise delay or prevent the regulatory approval of collaboration product candidates; and/or (ii) delay or prevent the effective commercialization of collaboration products. Such delays could have a material adverse effect on our business and financial condition.

We rely on third parties to manufacture, prepare, fill, finish and package our products and product candidates, and if such third parties should fail to perform, our commercialization and development efforts for our products and product candidates could be delayed or stopped.

We rely on third parties to manufacture, prepare, fill, finish, package, store and ship our products and product candidates on our behalf. If we are unable to locate third parties to perform these functions on terms that are acceptable to us, or if the third parties we identify fail to perform their obligations, the progress of clinical trials could be delayed or even suspended and the commercialization of approved product candidates could be delayed or prevented. In addition, we have scaled up our manufacturing of PEGPH20 with third party suppliers to support additional clinical trials, including the Phase 3 trial, and ultimately, if approved, potential commercial supply. If our contract manufacturers are unable to successfully manufacture and supply PEGPH20, the progress of our clinical trials could be delayed or halted for a period of time.

If we are unable to sufficiently develop our sales, marketing and distribution capabilities or enter into successful agreements with third parties to perform these functions, we will not be able to fully commercialize our products.

~~We may not be successful in marketing and promoting our approved product,~~ ~~Hylenex~~ recombinant, or any other products we develop or acquire in the future. Our sales, marketing and distribution capabilities are very limited. In order to commercialize any products successfully, we must internally develop substantial sales, marketing and distribution capabilities or establish collaborations or other arrangements with third parties to perform these services. We do not have extensive experience in these areas, and we may not be able to establish adequate in-house sales, marketing and distribution capabilities or engage and effectively manage relationships with third parties to perform any or all of such services. To the extent that we enter into co-promotion or other licensing arrangements, our product revenues are likely to be lower than if we directly marketed and sold our products, and any revenues we receive will depend upon the efforts of third parties, whose efforts may not meet our expectations or be successful. These third parties would be largely responsible for the speed and scope of sales and marketing efforts, and may not dedicate the resources necessary to maximize product opportunities. Our ability to cause these third parties to increase the speed and scope of their efforts may also be limited. In addition, sales and marketing efforts could be negatively impacted by the delay or failure to obtain additional supportive clinical trial data for our products. In some cases, third party collaborators are responsible for conducting these additional clinical trials, and our ability to increase the efforts and resources allocated to these trials may be limited.

If we or our collaborators fail to comply with regulatory requirements applicable to promotion, sale and manufacturing of approved products, regulatory agencies may take action against us or them, which could significantly harm our business.

Any approved products, along with the manufacturing processes, post-approval clinical data, labeling, advertising and promotional activities for these products, are subject to continual requirements and review by the FDA, state and foreign regulatory bodies. Regulatory authorities subject a marketed product, its manufacturer and the manufacturing facilities to continual review and periodic inspections. We, our collaborators and our respective contractors, suppliers and vendors, will be subject to ongoing regulatory requirements, including complying with regulations and laws regarding advertising, promotion and sales of drug products, required submissions of safety and other post-market information and reports, registration requirements, cGMP regulations (including requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation), and the requirements regarding the distribution of samples to physicians and recordkeeping requirements. Regulatory agencies may change existing requirements or adopt new requirements or policies. We, our collaborators and our respective contractors, suppliers and vendors, may be slow to adapt or may not be able to adapt to these changes or new requirements.

In particular, regulatory requirements applicable to pharmaceutical products make the substitution of suppliers and manufacturers costly and time consuming. We have minimal internal manufacturing capabilities and are, and expect to be in the future, entirely dependent on contract manufacturers and suppliers for the manufacture of our products and for their active and other ingredients. The disqualification of these manufacturers and suppliers through their failure to comply with regulatory requirements could negatively impact our business because the delays and costs in obtaining and qualifying alternate suppliers (if such alternative suppliers are available, which we cannot assure) could delay our partners’ clinical trials or otherwise inhibit our

or partners’ ability to bring approved products to market, which would have a material adverse effect on our business and financial condition. Likewise, if we, our collaborators and our respective contractors, suppliers and vendors involved in sales and promotion of our products do not comply with applicable laws and regulations, for example off-label or false or misleading promotion, this could materially harm our business and financial condition.

Failure to comply with regulatory requirements may result in any of the following:

restrictions on our or our partners’ products or manufacturing processes;

warning letters;

withdrawal of ~~the~~our or our partners’ products from the market;

voluntary or mandatory recall;

fines;

suspension or withdrawal of regulatory approvals;

suspension or termination of any of our partners’ ongoing clinical trials;

refusal to permit the import or export of our or our partners’ products;

refusal to approve pending applications or supplements to approved applications that we submit;

product seizure;

injunctions; or

imposition of civil or criminal penalties.

We may need to raise additional capital in the future and there can be no assurance that we will be able to obtain such funds.

We may need to raise additional capital in the future to fund our operations and for general corporate purposes if revenues do not occur as expected. Our current cash reserves and expected revenues may not be sufficient for us to fund general operations and conduct our business at the level desired. In addition, if we engage in acquisitions of companies, products or technologies in order to execute our business strategy, we may need to raise additional capital. We may raise additional capital in the future through one or more financing vehicles that may be available to us including (i) new collaborative agreements; (ii) expansions or revisions to existing collaborative relationships; (iii) private financings; (iv) other equity or debt financings; (v) monetizing assets; and/or (vi) the public offering of securities.

If we are required to raise additional capital in the future, it may not be available on favorable financing terms within the time required, or at all. If additional capital is not available on favorable terms when needed, we will be required to raise capital on adverse terms or significantly reduce operating expenses through the restructuring of our operations or deferral of strategic business initiatives. If we raise additional capital through a public offering of securities or equity, a substantial number of additional shares may be issued, which may negatively affect our stock price and these additional shares will dilute the ownership interest of our current investors.

We currently have significant debt and failure by us to fulfill our obligations under the applicable loan agreements may cause the repayment obligations to accelerate.

~~In December 2015,~~The aggregate amount of our ~~subsidiaries, Halozyme, Inc. (Halozyme)~~consolidated indebtedness, net of debt discount, as of March 31, 2020 was $389.4 million, which includes $460.0 million in aggregate principal amount of 1.25% Convertible Senior Notes due 2024 (Convertible Notes) and ~~Halozyme Royalty LLC (Halozyme Royalty) entered into a credit agreement (the Credit Agreement) with BioPharma Credit Investments IV Sub, LP and Athyrium Opportunities II Acquisition LP (the~~an outstanding balance on our Royalty-backed ~~Lenders) pursuant to which we borrowed $150~~Loan of $2.9 million, ~~through Halozyme Royalty (the Royalty-backed Loan). The~~net of unamortized debt discount of $73.4 million. We currently estimate that the Royalty-backed Loan will be repaid ~~primarily from a specified percentage of the royalty payments we receive under our collaboration agreements with Roche and Baxalta (the Royalty Payments).~~

The obligations of Halozyme Royalty under the Credit Agreement to repay the Royalty-backed Loan may be accelerated upon the occurrence of certain events of default under the Credit Agreement, including but not limited to:

~~if any payment of principal is not made within three days of when such payment is due and payable or otherwise made in accordance with the terms of the Credit Agreement;~~

~~if any representations or warranties made~~ in the ~~Credit Agreement or any other transaction document proves to be incorrect or misleading in any material respect when made;~~

~~if there occurs a default~~second quarter of 2020. We also may incur additional indebtedness in the ~~performance of affirmative and negative covenants set forth in the Credit Agreement or any other transaction document;~~future.

~~the failure by either Baxalta or Roche to pay material amounts owed under our collaboration agreements because of an actual breach or default by us under the collaboration agreements;~~

Our indebtedness may:

~~the voluntary or involuntary commencement of bankruptcy proceedings by either Halozyme or Halozyme Royalty and other insolvency related defaults;~~

~~any materially adverse effect on the binding nature of any of the transaction documents or the collaboration agreements with Baxalta and Roche; or~~

~~Halozyme ceases to own, of record and beneficially, 100% of the equity interests in Halozyme Royalty.~~

The Credit Agreement also contains covenants applicable to Halozyme and Halozyme Royalty, including certain visitation, information and audits rights granted to the collateral agent and the lenders and restrictions on the conduct of business, including continued compliance with the Baxalta and Roche collaboration agreements and specified affirmative actions regarding the escrow account established to facilitate payment of Royalty Payments to the Royalty-backed Lenders or other specified parties. The Credit Agreement also contains covenants solely applicable to Halozyme Royalty, including restrictions on incurring indebtedness, creating or granting liens, making acquisitions and making specified restricted payments. These covenants could make it ~~more~~ difficult for us to ~~execute~~satisfy our ~~business strategy.~~

In connection with the Royalty-backed Loan, Halozyme Royalty granted a first priority lien and security interest (subject only to permitted liens) in all of its assets and all real, intangible and personal property,financial obligations, including ~~all of its right, title~~making scheduled principal and interest ~~in and to the Royalty Payments.~~

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 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 owedpayments on our previous loan agreement with the Lenders. The remaining proceeds are to be used for working capital and general business requirements. The Loan Agreement is secured by substantially all of the assets of the Company and its subsidiary, Halozyme, Inc., except that the collateral does not include any equity interests in Halozyme, Inc., any intellectual property (including all licensing, collaboration and similar agreements relating thereto), and certain other excluded assets. The Loan Agreement contains customary representations, warranties and covenants by us, which covenants indebtedness;

limit our ability to ~~convey, sell, lease, transfer, assign~~borrow additional funds for working capital, capital expenditures, acquisitions or ~~otherwise dispose of certain~~other general corporate purposes;

limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions, share repurchases or other general business purposes;

require us to use a portion of our ~~assets; engage in any business other than the businesses currently engaged in by us~~cash flow from operations to make debt service payments;

limit our flexibility to plan for, or ~~reasonably related thereto; liquidate or dissolve; make certain management changes; undergo certain change of control events; create, incur, assume, or be liable with respect~~react to, certain indebtedness; grant certain liens; pay dividends and make certain other restricted payments; make certain investments; make payments on any subordinated debt; and enter into transactions with any of our affiliates outside of the ordinary course of business or permit our subsidiaries to do the same. In addition, subject to certain exceptions, we are required to maintain with SVB our primary deposit accounts, securities accounts and commodities, and to do the same for our domestic subsidiary. Complying with these covenants may make it more difficult for us to successfully execute our business strategy.

place us at a ~~material impairment~~competitive disadvantage compared to our less leveraged competitors; and

increase our vulnerability to the impact of ~~the prospect of repayment of any portion of the loan, or a material impairment in the perfection or priority of the Lender’s lien in the collateral or in the value of such collateral.~~adverse economic and industry conditions.

Our ability to make payments on our debt will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. It will also depend on financial, business or other factors affecting our operations, many of which are beyond our control. We will need to use cash to pay principal and interest on our debt, thereby reducing the funds available to fund ~~our research and development programs,~~operations, strategic initiatives and working capital requirements. If we are

unable to generate sufficient cash to service our debt ~~obligation,~~obligations, an event of default may ~~occur. In the event~~occur under any of ~~default by us under the Credit Agreement or the Loan Agreement, the lenders would be entitled to exercise their remedies thereunder, including the right to accelerate the~~our debt instruments which could result in an acceleration of such debt upon which we may be required to repay all the amounts ~~then~~ outstanding under ~~the Credit Agreement~~some or ~~the Loan Agreement which~~all of our debt instruments. Such an acceleration of our debt obligations could harm our financial condition.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Convertible Notes is triggered, holders of the Convertible Notes will be entitled to convert the notes at any time during specified periods at their option. If ~~proprietary~~one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation in cash, which could adversely affect our liquidity. Even if holders of the Convertible Notes do not elect to convert their notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

Conversion of our Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.

The conversion of some or all of our Convertible Notes, to the extent we deliver shares upon conversion, will dilute the ownership interests of existing stockholders. Any sales in the public market of the Convertible Notes or our common stock issuable upon conversion of the Convertible Notes could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock could depress the price of our common stock.

The accounting method for the Convertible Notes could have a material effect on our reported financial results.

Pursuant to Financial Accounting Standards Board Accounting Standards Codification Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of convertible debt instruments whose conversion may be settled entirely or partially in cash (such as our Convertible Notes) in a manner that reflects the issuer’s economic interest cost for non-convertible debt. The liability component of our Convertible Notes was initially valued at the fair value of a similar debt instrument that does not have an associated equity component and was reflected as a liability in our consolidated balance sheet. The equity component of the Convertible Notes was included in the additional paid-in capital section of our stockholders’ equity on our consolidated balance sheet, and the value of the equity component was treated as original issue discount for purposes of accounting for the debt component. This original issue discount will be amortized to non-cash interest expense over the term of the notes, and we will record a greater amount of non-cash interest expense in current periods as a result of this amortization. Accordingly, we will report lower net income in our financial results because ASC 470-20 will require the interest expense associated with the notes to include both the current period’s amortization of the debt discount and the notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock and the trading price of the Convertible Notes.

In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted net income per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected. For example, the FASB recently published an exposure draft proposing to amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the ‘‘if-converted’’ method. Under that method, if it is adopted, diluted net income (loss) per share would generally be calculated assuming that all the notes were converted solely into shares of common stock at the beginning of the reporting period. The application of the ‘‘if-converted’’ method may reduce our reported diluted net income per share.

If collaboration product candidates are approved for marketing but do not gain market acceptance resulting in commercial performance below that which was expected or projected, our business may suffer and we may not be able to fund future operations.

Assuming that ~~our proprietary~~existing or future collaboration product candidates obtain the necessary regulatory approvals for commercial sale, a number of factors may affect the market acceptance of these ~~existing product candidates or any other~~newly-approved products, ~~which are developed or acquired in the future,~~ including, among others:

the degree to which the use of these products is restricted by the approved product label;

the price of these products relative to other therapies for the same or similar treatments;

the extent to which reimbursement for these products and related treatments will be available from third party payors including government insurance programs and private insurers;

the introduction of generic or biosimilar competitors to these products;

the perception by patients, physicians and other members of the health care community of the effectiveness and safety of these products for their prescribed treatments relative to other therapies for the same or similar treatments;

~~our ability to fund our sales and marketing efforts and~~ the ability and willingness of our collaborators to fund sales and marketing efforts; and

~~the degree to which the use of these products is restricted by the approved product label;~~

~~the effectiveness of our sales and marketing efforts and~~ the effectiveness of the sales and marketing efforts of our ~~collaborators;~~

~~the introduction of generic competitors; and~~

the extent to which reimbursement for our products and related treatments will be available from third party payors including government insurance programs (Medicare and Medicaid) and private insurers.collaborators.

If these collaboration products do not gain market acceptance resulting in commercial performance below that which was expected or projected, the royalties we ~~may not~~expect to receive from these products will be ~~able~~diminished which could harm our ability to fund future operations, including ~~the development~~conduct acquisitions, execute our planned share repurchases, or ~~acquisition of new product candidates and/or~~affect our ~~sales~~ability to use funds for other general corporate purposes and ~~marketing efforts for our approved products, which would~~ cause our business to suffer.

In addition, our ~~proprietary and collaboration~~partners’ product candidates will be restricted to the labels approved by FDA and applicable regulatory bodies, and these restrictions may limit the marketing and promotion of the ultimate products. If the approved labels are restrictive, the sales and marketing efforts for these collaboration products may be negatively affected.

Our ability to license our ENHANZE technology to our collaboration partners depends on the validity of our patents and other proprietary rights.

Patents and other proprietary rights are essential to our business. Our success will depend in part on our ability to obtain and maintain patent protection for our inventions, to preserve our trade secrets and to operate without infringing the proprietary rights of third parties. We have multiple patents and patent applications throughout the world pertaining to our recombinant human hyaluronidase and methods of use and manufacture, including an issued U.S. patent which expires in 2027 and an issued European patent which expires in 2024, which we believe cover the products and product candidates under our existing collaborations, and Hylenex. Although we believe our patent filings represent a barrier to entry for potential competitors looking to utilize these hyaluronidases, upon expiration of our patents other pharmaceutical companies may (if they do not infringe our other patents) seek to compete with us by developing, manufacturing and selling biosimilars to the active drug ingredient in our ENHANZE technology used by our collaboration partners in combination with their products. Any such loss of patent protection or proprietary rights could lead to a reduction or loss of revenues, incentivize one or more of our key ENHANZE collaboration partners to terminate their relationship with us and impact our ability to enter into new collaboration and license agreements.

Developing and marketing pharmaceutical products for human use involves significant product liability risks for which we currently have limited insurance coverage.

The testing, marketing and sale of pharmaceutical products involves the risk of product liability claims by consumers and other third parties. Although we maintain product liability insurance coverage, product liability claims can be high in the pharmaceutical industry, and our insurance may not sufficiently cover our actual liabilities. If product liability claims were to be made against us, it is possible that the liabilities may exceed the limits of our insurance policy, or our insurance carriers may deny, or attempt to deny, coverage in certain instances. If a lawsuit against us is successful, then the ~~lack or insufficiency of~~ insurance coverage may not be sufficient and could materially and adversely affect our business and financial condition. Furthermore, various distributors of pharmaceutical products require minimum product liability insurance coverage before purchase or acceptance of products for distribution. Failure to satisfy these insurance requirements could impede our ability to achieve broad distribution of our proposed products, and higher insurance requirements could impose additional costs on us. In addition, since many of our collaboration product candidates include the pharmaceutical products of a third party, we run the risk that problems with the third party pharmaceutical product will give rise to liability claims against us.

~~Our inability to attract, hire and retain key management and scientific personnel could negatively affect our business.~~

Our success depends on the performance of key management and scientific employees with relevant experience. For example, in order to pursue our current business strategy, we will need to recruit and retain personnel experienced in oncology drug development which is a highly competitive market for talent. We depend substantially on our ability to hire, train, motivate and retain high quality personnel, especially our scientists and management team. Particularly in view of the small number of employees on our staff to cover our numerous programs and key functions, if we are unable to retain existing personnel or identify or hire additional personnel, we may not be able to research, develop, commercialize or market our products and product candidates as expected or on a timely basis and we may not be able to adequately support current and future alliances with strategic collaborators. Our use of domestic and international third-party contractors, consultants and staffing agencies also subjects us to potential co-employment liability claims.

Furthermore, if we were to lose key management personnel, we would likely lose some portion of our institutional knowledge and technical know-how, potentially causing a substantial delay in one or more of our development programs until adequate replacement personnel could be hired and trained. We currently have a severance policy applicable to all employees and a change in control policy applicable to senior executives.

~~We do not have key man life insurance policies on the lives of any of our employees.~~

Our operations might be interrupted by the occurrence of a natural disaster or other catastrophic event.

Our operations, including laboratories, offices and other research facilities, are located in ~~four~~multiple buildings in San Diego, ~~California. In addition, we have a satellite office in South San Francisco,~~ California. We depend on our facilities and on our collaborators, contractors and vendors for the continued operation of our business. Natural disasters or other catastrophic events, interruptions in the supply of natural resources, political and governmental changes, wildfires and other fires, floods, explosions, actions of animal rights activists, earthquakes and civil unrest could disrupt our operations or those of our collaborators, contractors and vendors. Even though we believe we carry commercially reasonable business interruption and liability insurance, and our contractors may carry liability insurance that protect us in certain events, we may suffer losses as a result of business interruptions that exceed the coverage available under our and our contractors’ insurance policies or for which we or our contractors do not have coverage. Any natural disaster or catastrophic event could have a significant negative impact on our operations and financial results. Moreover, any such event could delay our partners’ research and development programs.

If ~~we or~~ our collaborators do not achieve projected development, clinical, ~~regulatory~~ or ~~sales~~regulatory goals in the timeframes we publicly ~~announce~~announced or otherwise ~~expect,~~expected, the commercialization of our collaboration products ~~and the development of our product candidates~~ may be delayed and, as a result, our stock price may decline, and we may face lawsuits relating to such declines.

From time to time, ~~we or~~ our collaborators may publicly articulate the estimated timing for the accomplishment of certain scientific, clinical, regulatory and other product development goals. The accomplishment of any goal is typically based on numerous assumptions, and the achievement of a particular goal may be delayed for any number of reasons both within and outside of our and our collaborators’ control. If scientific, regulatory, strategic or other factors cause usa collaboration partner to not meet a goal, regardless of whether that goal has been publicly articulated or not, our stock price may decline rapidly. ~~For example, the announcement in April 2014 of the temporary halting of our Phase 2 clinical trial for PEGPH20 caused a rapid decline in our stock price.~~ Stock price declines may also trigger direct or derivative shareholder lawsuits. As with any litigation proceeding, the eventual outcome of any legal action is difficult to predict. If any such lawsuits occur, we will incur expenses in connection with the defense of these lawsuits, and we may have to pay substantial damages or settlement costs in connection with any resolution thereof. Although we have insurance coverage against which we may claim recovery against some of these expenses and costs, the amount of coverage may not be adequate to cover the full amount or certain expenses and costs may be outside the scope of the policies we maintain. In the event of an adverse outcome or outcomes, our business could be materially harmed from depletion of cash resources, negative impact on our reputation, or restrictions or changes to our governance or other processes that may result from any final disposition of the lawsuit. Moreover, responding to and defending pending litigation significantly diverts management’s attention from our operations.

In addition, the consistent failure to meet publicly announced milestones may erode the credibility of our management team with respect to future milestone estimates.

Future acquisitions could disrupt our business and harm our financial condition.

In order to augment our product pipeline or otherwise strengthen our business, we may decide to acquire additional businesses, products and technologies. As we have limited experience in evaluating and completing acquisitions, our ability as an organization to make such acquisitions is unproven. Acquisitions could require significant capital infusions and could involve many risks, including, but not limited to, the following:

we may have to issue additional convertible debt or equity securities to complete an acquisition, which would dilute our stockholders and could adversely affect the market price of our common stock;

an acquisition may negatively impact our results of operations because it may require us to amortize or write down amounts related to goodwill and other intangible assets, or incur or assume substantial debt or liabilities, or it may cause adverse tax consequences, substantial depreciation or deferred compensation charges;

we may encounter difficulties in assimilating and integrating the business, products, technologies, personnel or operations of companies that we acquire;

certain acquisitions may impact our relationship with existing or potential collaborators who are competitive with the acquired business, products or technologies;

acquisitions may require significant capital infusions and the acquired businesses, products or technologies may not generate sufficient value to justify acquisition costs;

we may take on liabilities from the acquired company such as debt, legal liabilities or business risk which could be significant;

an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our management;

acquisitions may involve the entry into a geographic or business market in which we have little or no prior experience; and

key personnel of an acquired company may decide not to work for us.

If any of these risks occurred, it could adversely affect our business, financial condition and operating results. There is no assurance that we will be able to identify or consummate any future acquisitions on acceptable terms, or at all. If we do pursue any acquisitions, it is possible that we may not realize the anticipated benefits from such acquisitions or that the market will not view such acquisitions positively.

~~Security~~Cyberattacks, security breaches or system breakdowns may disrupt our operations and harm our operating ~~results.~~results and reputation.

We and our partners are subject to increasingly sophisticated attempts to gain unauthorized access to our information technology storage and access systems and are devoting resources to protect against such intrusion. Cyberattacks could render us or our partners unable to utilize key systems or access important data needed to operate our business. The wrongful use, theft, deliberate sabotage or any other type of security breach with respect to any of our or any of our vendors and partners’ information technology storage and access systems could result in the breakdown or other service interruption, or the disruption of our ability to use such systems or disclosure or dissemination of ~~our or our partners’~~ proprietary and confidential information that is electronically stored, including ~~research~~intellectual property, trade secrets, financial information, regulatory information, strategic plans, sales trends and forecasts, litigation materials or ~~clinical data and~~personal information ~~regarding strategic initiatives, resulting~~belonging to us, our staff, our patients, customers and/or other business partners which could result in a material adverse impact on our business, operating results and financial condition. ~~Our~~We continue to invest in monitoring, and other security and data recovery measures to protect our critical and sensitive data and systems. However, these may not be adequate to ~~protect against computer viruses, break-ins, and similar disruptions~~prevent or fully recover systems or data from ~~unauthorized tampering with~~all breakdowns, service interruptions, attacks or breaches of our ~~electronic storage~~ systems. Furthermore, any physical break-in or trespass of our facilities could result in the misappropriation, theft, sabotage or any other type of security breach with respect to our proprietary and confidential information, including research or clinical data or damage to our research and development equipment and assets. Such adverse effects could be material and irrevocable to our business, operating results, financial condition and ~~financial condition.~~reputation.

Risks Related To Ownership of Our Common Stock

Our stock price is subject to significant volatility.

We participate in a highly dynamic industry which often results in significant volatility in the market price of common stock irrespective of company performance. The high and low sales prices of our common stock during the ~~three~~twelve months ended March 31, ~~2019~~2020 were $22.06 and ~~2018 were $20.54 and $13.24,~~$12.71, respectively. We expect our stock price to continue to be subject to significant volatility and, in addition to the other risks and uncertainties described elsewhere in this Quarterly Report on Form 10-Q and all other risks and uncertainties that are either not known to us at this time or which we deem to be immaterial, any of the following factors may lead to a significant drop in our stock price:

the presence of competitive products to those being developed by ~~us;~~our partners;

failure (actual or perceived) of our collaborators to devote attention or resources to the development or commercialization of products or product candidates licensed to such collaborator;

a dispute regarding our failure, or the failure of one of our third party collaborators, to comply with the terms of a collaboration agreement;

the termination, for any reason, of any of our collaboration agreements;

the sale of common stock by any significant stockholder, including, but not limited to, direct or indirect sales by members of management or our Board of Directors;

the resignation, or other departure, of members of management or our Board of Directors;

general negative conditions in the healthcare industry;

pandemic or other global crises;

general negative conditions in the financial markets;

the cost associated with obtaining regulatory approval for any of our ~~proprietary or~~ collaboration product candidates;

the failure, for any reason, to secure or defend our intellectual property position;

~~for those products that are not yet approved for commercial sale,~~ the failure or delay of applicable regulatory bodies to approve ~~such products;~~our partners’ product candidates;

identification of safety or tolerability issues;

failure of our partners’ clinical trials to meet efficacy endpoints;

suspensions or delays in the conduct of our partners’ clinical trials or securing of regulatory approvals;

adverse regulatory action with respect to our and our collaborators’ products and product candidates such as loss of regulatory approval to commercialize such products, clinical holds, imposition of onerous requirements for approval or product recalls;

our failure, or the failure of our third party collaborators, to successfully commercialize products approved by applicable regulatory bodies such as the FDA;

our failure, or the failure of our third party collaborators, to generate product revenues anticipated by investors;

disruptions in our clinical or commercial supply chains, including disruptions caused by problems with a bulk rHuPH20 contract manufacturer or a fill and finish manufacturer for any product or product collaboration candidate;

the sale of additional debt and/or equity securities by us;

our failure to obtain financing on acceptable terms or at all; or

a restructuring of our ~~operations.~~operations;

an inability to execute our share repurchase program in the time and manner we expect due to market, business, legal or other considerations; or

a conversion of the Convertible Notes into shares of our common stock.

Future transactions where we raise capital may negatively affect our stock price.

We are currently a “Well-Known Seasoned Issuer” and may file automatic shelf registration statements at any time ~~with the SEC. In February 2017, we filed an automatic shelf registration statement on Form S-3 (Registration No. 333-216315)~~ with the SEC. Sales of substantial amounts of shares of our common stock or other securities under our current or future shelf registration statements could lower the market price of our common stock and impair our ability to raise capital through the sale of equity securities.

Anti-takeover provisions in our charter documents, the Indenture and Delaware law may make an acquisition of us more difficult.

Anti-takeover provisions in our charter documents, the Indenture and Delaware law may make an acquisition of us more difficult. First, our ~~board~~Board of ~~directors~~Directors is classified into three classes of directors. Under Delaware law, directors of a corporation with a classified board may be removed only for cause unless the corporation’s certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation, as amended, does not provide otherwise. In addition, our bylaws limit who may call special meetings of stockholders, permitting only stockholders holding at least 50% of our outstanding shares to call a special meeting of stockholders. Our amended and restated certificate of incorporation ~~as amended,~~ does not include a provision for cumulative voting for directors. Under cumulative voting, a minority stockholder holding a sufficient percentage of a class of shares may be able to ensure the election of one or more directors. Finally, our bylaws establish procedures, including advance notice procedures, with regard to the nomination of candidates for election as directors and stockholder proposals.

These provisions in our charter documents may discourage potential takeover attempts, discourage bids for our common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors other than the candidates nominated by our board of directors.

Further, in connection with our recent Convertible Notes issuance, we entered into an indenture, dated as of November 18, 2019, (“Indenture”) with The Bank of New York Mellon Trust Company, N.A., as trustee. Certain provisions in the Indenture could make it more difficult or more expensive for a third party to acquire us. For example, if a takeover would constitute a fundamental change, holders of the Convertible Notes will have the right to require us to repurchase their Convertible Notes in cash. In addition, if a takeover constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their Convertible Notes in connection with such takeover. In either case, and in other cases, our obligations under the Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit large stockholders from consummating a merger with, or acquisition of, us.

These provisions may deter an acquisition of us that might otherwise be attractive to stockholders.

Risks Related to Our Industry

Our partners’ products must receive regulatory approval before they can be sold, and compliance with the extensive government regulations is expensive and time consuming and may result in the delay or cancellation of collaboration product sales, introductions or modifications.

Extensive industry regulation has had, and will continue to have, a significant impact on our business. All pharmaceutical companies, including ours, are subject to extensive, complex, costly and evolving regulation by the health regulatory agencies including the FDA (and with respect to controlled drug substances, the U.S. Drug Enforcement Administration (DEA)) and equivalent foreign regulatory agencies and state and local/regional government agencies. The Federal Food, Drug and Cosmetic Act, the Controlled Substances Act and other domestic and foreign statutes and regulations govern or influence the testing, manufacturing, packaging, labeling, storing, recordkeeping, safety, approval, advertising, promotion, sale and distribution of our ~~products.~~product and our partners’ products and product candidates. We are dependent on receiving FDA and other governmental approvals, including regulatory approvals in jurisdictions outside the United States, prior to manufacturing, marketing and shipping our products. Consequently, there is always a risk that the FDA or other applicable governmental authorities, including those outside the United States, will not approve our partners’ products or may impose onerous, costly and time-consuming requirements such as additional clinical or animal testing. Regulatory authorities may require that weour partners’ change our studies or conduct additional studies, which may significantly delay or make continued pursuit of approval commercially ~~unattractive.~~unattractive to our partners. For example, the approval of Baxalta’s HYQVIA BLA was delayed by the FDA until we and Baxalta provided additional preclinical data sufficient to address concerns regarding non-neutralizing antibodies to rHuPH20 that were detected in the registration trial. Although these antibodies have not been associated with any known adverse clinical effects, and the HYQVIA BLA was ultimately approved by the FDA, ~~in September 2014,~~ the FDA or other foreign regulatory agency may, at any time, halt our and our collaborators’ development and commercialization activities due to safety concerns. In addition, even if our product or partners’ products are approved, regulatory agencies may also take post-approval action limiting or revoking our or our partners’ ability to sell ~~our~~these products. Any of these regulatory actions may adversely affect the economic benefit we may derive from our product or our partners’ products and therefore harm our financial condition.

Under certain of these regulations, in addition to our partners, we and our contract suppliers and manufacturers are subject to periodic inspection of our or their respective facilities, procedures and operations and/or the testing of products by the FDA, the DEA and other authorities, which conduct periodic inspections to confirm that we and our contract suppliers and manufacturers are in compliance with all applicable regulations. The FDA also conducts pre-approval and post-approval reviews and plant inspections to determine whether our systems, or our contract suppliers’ and manufacturers’ processes, are in compliance with cGMP and other FDA regulations. If our partners, we, or our contract ~~supplier,~~suppliers, fail these inspections, weour partners may not be able to commercialize ~~our product~~their products in a timely manner without incurring significant additional costs, or at all.

In addition, the FDA imposes a number of complex regulatory requirements on entities that advertise and promote pharmaceuticals including, but not limited to, standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities, and promotional activities involving the ~~internet.~~Internet.

We may be subject, directly or indirectly, to various broad federal and state healthcare laws. If we are unable to comply, or have not fully complied, with such laws, we could face civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

Our business operations and activities may be directly, or indirectly, subject to various broad federal and state healthcare laws, including without limitation, anti-kickback laws, the Foreign Corrupt Practices Act (FCPA), false claims laws, civil monetary penalty laws, data privacy and security laws, tracing and tracking laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers. These laws may restrict or prohibit a wide range of business activities, including, but not limited to, research, manufacturing, distribution, pricing, discounting, marketing and promotion and other business arrangements. These laws may impact, among other things, our current activities with principal investigators and research subjects, as well as sales, marketing and education programs. Many states have similar healthcare fraud and abuse laws, some of which may be broader in scope and may not be limited to items or services for which payment is made by a government health care program.

Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. While we have adopted a healthcare corporate compliance program, it is possible that governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws. If our operations or activities are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to, without limitation, civil, criminal and administrative penalties, damages, monetary fines, disgorgement, possible exclusion from participation in Medicare, Medicaid

and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.

In addition, any sales of products outside the U.S. will also likely subject us to the FCPA and foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

We may be required to initiate or defend against legal proceedings related to intellectual property rights, which may result in substantial expense, delay and/or cessation of the development and commercialization of our products.

We primarily rely on patents to protect our intellectual property rights. The strength of this protection, however, is uncertain. For example, it is not certain that:

we will be able to obtain patent protection for our products and technologies;

the scope of any of our issued patents will be sufficient to provide commercially significant exclusivity for our products and technologies;

others will not independently develop similar or alternative technologies or duplicate our technologies and obtain patent protection before we do; and

any of our issued patents, or patent pending applications that result in issued patents, will be held valid, enforceable and infringed in the event the patents are asserted against others.

We currently own or license several patents and also have pending patent applications applicable to rHuPH20 and other proprietary materials. There can be no assurance that our existing patents, or any patents issued to us as a result of our pending patent applications, will provide a basis for commercially viable products, will provide us with any competitive advantages, or will not face third party challenges or be the subject of further proceedings limiting their scope or enforceability. Any weaknesses or limitations in our patent portfolio could have a material adverse effect on our business and financial condition. In addition, if any of our pending patent applications do not result in issued patents, or result in issued patents with narrow or limited claims, this could result in us having no or limited protection against generic or biosimilar competition against our product candidates which would have a material adverse effect on our business and financial condition.

We may become involved in interference proceedings in the U.S. Patent and Trademark Office, or other proceedings in other jurisdictions, to determine the priority, validity or enforceability of our patents. In addition, costly litigation could be necessary to protect our patent position.

We also rely on trademarks to protect the names of our products (e.g. Hylenexrecombinant). We may not be able to obtain trademark protection for any proposed product names we select. In addition, product names for pharmaceutical products must be approved by health regulatory authorities such as the FDA in addition to meeting the legal standards required for trademark protection and product names we propose may not be timely approved by regulatory agencies which may delay product launch. In addition, our trademarks may be challenged by others. If we enforce our trademarks against third parties, such enforcement proceedings may be expensive.

We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect with confidentiality agreements with employees, consultants and others with whom we discuss our business. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of these agreements, and we might not be able to resolve these disputes in our favor.

In addition to protecting our own intellectual property rights, third parties may assert patent, trademark or copyright infringement or other intellectual property claims against us. If we become involved in any intellectual property litigation, we may be required to pay substantial damages, including but not limited to treble damages, attorneys’ fees and costs, for past infringement if it is ultimately determined that our products infringe a third party’s intellectual property rights. Even if infringement claims against us are without merit, defending a lawsuit takes significant time, may be expensive and may divert management’s attention from other business concerns. Further, we may be stopped from developing, manufacturing or selling our products until we obtain a license from the owner of the relevant technology or other intellectual property rights. If such a license is available at all, it may require us to pay substantial royalties or other fees.

Patent protection for protein-based therapeutic products and other biotechnology inventions is subject to a great deal of uncertainty, and if patent laws or the interpretation of patent laws change, our competitors may be able to develop and commercialize products based on our discoveries.

Patent protection for protein-based therapeutic products is highly uncertain and involves complex legal and factual questions. In recent years, there have been significant changes in patent law, including the legal standards that govern the scope of protein and biotechnology patents. Standards for patentability of full-length and partial genes, and their corresponding proteins, are changing. Recent court decisions have made it more difficult to obtain patents, by making it more difficult to satisfy the patentable subject matter requirement and the requirement of non-obviousness, have decreased the availability of injunctions against infringers, and have increased the likelihood of challenging the validity of a patent through a declaratory judgment action. Taken together,

these decisions could make it more difficult and costly for us to obtain, license and enforce our patents. In addition, the Leahy-Smith America Invents Act (HR 1249) was signed into law in September 2011, which among other changes to the U.S. patent laws, changes patent priority from “first to invent” to “first to file,” implements a post-grant opposition system for patents and provides for a prior user defense to infringement. These judicial and legislative changes have introduced significant uncertainty in the patent law landscape and may potentially negatively impact our ability to procure, maintain and enforce patents to provide exclusivity for our products.

There also have been, and continue to be, policy discussions concerning the scope of patent protection awarded to biotechnology inventions. Social and political opposition to biotechnology patents may lead to narrower patent protection within the biotechnology industry. Social and political opposition to patents on genes and proteins and recent court decisions concerning patentability of isolated genes may lead to narrower patent protection, or narrower claim interpretation, for isolated genes, their corresponding proteins and inventions related to their use, formulation and manufacture. Patent protection relating to biotechnology products is also subject to a great deal of uncertainty outside the U.S., and patent laws are evolving and undergoing revision in many countries. Changes in, or different interpretations of, patent laws worldwide may result in our inability to obtain or enforce patents, and may allow others to use our discoveries to develop and commercialize competitive products, which would impair our business.

If third party reimbursement and customer contracts are not available, Hylenex and our partners’ products may not be accepted in the ~~market.~~market resulting in commercial performance below that which was expected or projected.

Our ability to earn sufficient returns on Hylenex and our partners’ ability to earn sufficient returns on their products will depend in part on the extent to which reimbursement for ~~our~~these products and related treatments will be available from government health administration authorities, private health insurers, managed care organizations and other healthcare providers.

Third-party payors are increasingly attempting to limit both the coverage and the level of reimbursement of new drug products to contain costs. Consequently, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. Third party payors may not establish adequate levels of reimbursement for the products that we and our partners commercialize, which could limit their market acceptance and result in a material adverse effect on our revenues and financial condition.

Customer contracts, such as with group purchasing organizations and hospital formularies, will often not offer contract or formulary status without either the lowest price or substantial proven clinical differentiation. If, for example, Hylenex is compared to animal-derived hyaluronidases by these entities, it is possible that neither of these conditions will be met, which could limit market acceptance and result in a material adverse effect on our revenues and financial condition.

The rising cost of healthcare and related pharmaceutical product pricing has led to cost containment pressures as well as changes in federal coverage and reimbursement policies and practices that could cause us and our partners to sell our products at lower prices, and impact access to our and our partners’ products, resulting in less revenue to us.

Any of ~~the~~our proprietary or collaboration products that have been, or in the future are, approved by the FDA may be purchased or reimbursed by state and federal government authorities, private health insurers and other organizations, such as health maintenance organizations and managed care organizations. Such third party payors increasingly challenge pharmaceutical product pricing. The trend toward managed healthcare in the U.S., the growth of such organizations, and various legislative proposals and enactments to reform healthcare and government insurance programs, including the Medicare Prescription Drug Modernization Act of 2003, could significantly influence the manner in which pharmaceutical products are prescribed and purchased, resulting in lower prices and/or a reduction in demand. Such cost containment measures and healthcare reforms could adversely affect our ability to sell our product and our partners’ ability to sell their products.

In ~~March 2010,~~the U.S., our business may be impacted by changes in federal reimbursement policy resulting from executive actions, federal regulations, or federal demonstration projects. For example, in May 2018, the U.S. ~~adopted~~presidential administration released a drug pricing “blueprint” and requested public comment on an array of policy ideas intended to increase competition, improve the ~~Patient Protection~~negotiating power of the federal government, reduce drug prices and ~~Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the PPACA).~~lower patient out-of-pocket costs. This ~~law substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The PPACA contains~~blueprint includes a number of ~~provisions that are expected~~policy ideas with the potential to significantly impact, whether individually or collectively, our ~~business~~industry. Such proposals include moving coverage and ~~operations, in some cases in ways we cannot currently predict. Changes that may affect our business include those governing enrollment in federal healthcare programs,~~ reimbursement ~~changes, fraud and abuse and enforcement. These changes will impact existing government healthcare programs and will result in the development of new programs, including~~for Medicare ~~payment for performance initiatives and improvements to the physician quality reporting system and feedback program.~~

Additional provisions of the PPACA may negatively affect our revenues in the future. For example, the PPACA imposes a non-deductible excise tax on pharmaceutical manufacturers or importers that sell branded prescriptionPart B drugs ~~to U.S. government programs that we believe will impact our revenues from our products. In addition, as part of the PPACA’s provisions closing a funding gap that currently exists in the~~into Medicare Part D, ~~prescription drug~~and instituting a competitive acquisition program ~~we will also be required~~for Part B drugs in which competing third-party vendors take on the financial risk of acquiring drugs and billing Medicare.

Since that time, the federal administration and/or agencies, such as CMS, have announced a number of demonstration projects, recommendations and proposals to ~~provide a discount on branded prescription drugs dispensed to beneficiaries under this prescription drug program. Recently, Congress and the current administration have proposed and taken~~implement various steps to revise, repeal or delay implementation of, various aspects of the Healthcare Reform Act. We expect that the PPACA, as it may be amended, and other healthcare reform measures that may be adoptedelements described in the ~~future~~drug pricing blueprint. CMS, the federal agency responsible for administering Medicare and overseeing state Medicaid programs and Health Insurance Marketplaces, has substantial power to implement policy changes or demonstration projects that can quickly and significantly affect how drugs, including our products, are covered and reimbursed. For example, in October 2018, President Trump announced that CMS was evaluating a pilot program proposed to initially cover fifty percent of spending on Part B single-source drugs referred to as the “International

Price Index” that would, among other things, set the Medicare payment amount for such single-source drugs to more closely align with international drug prices.

In this dynamic environment, we are unable to predict which or how many federal policy, legislative or regulatory changes may ultimately be enacted, to the extent federal government initiatives decrease or modify the coverage or reimbursement available for our or our partners’ products, limit or impact our decisions regarding the pricing of biopharmaceutical products or otherwise reduce the use of our or our partners’ U.S. products, such actions could have a material adverse effect on our ~~industry generally~~business and ~~on our ability to maintain or increase our product sales or successfully commercialize our product candidates and could limit or eliminate our future spending on development projects.~~results of operations.

Furthermore, individual states are considering proposed legislation and have become increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third party payors or other restrictions could negatively and materially impact our revenues and financial condition. We anticipate that we will encounter similar regulatory and legislative issues in most other countries outside the U.S.

We also face risks relating to the reporting of pricing data that affects the reimbursement of and discounts provided for our products. Government price reporting regulations are complex and may require a manufacturer to update certain previously submitted data. If our submitted pricing data are incorrect, we may become subject to substantial fines and penalties or other government enforcement actions, which could have a material adverse effect on our business and results of operations. In addition, as a result of restating previously reported price data, we also may be required to pay additional rebates and provide additional discounts.

We face intense competition and rapid technological change that could result in the development of products by others that are competitive with or superior to our proprietary and collaboration products, including those under development.

Our proprietary and collaboration products have numerous competitors in the U.S. and abroad including, among others, major pharmaceutical and specialized biotechnology firms, universities and other research institutions that have developed competing products. Many of these competitors have substantially more resources and product development, manufacturing and marketing experience and capabilities than we do. The competitors for Hylenexrecombinant include, but are not limited to, Valeant Pharmaceuticals International, Inc.’s FDA-approved product, Vitrase^®, an ovine (ram) hyaluronidase, and Amphastar Pharmaceuticals, Inc.’s product, Amphadase^®, a bovine (bull) hyaluronidase. For ~~our PEGPH20 product candidate and~~ our ENHANZE technology, such competitors may include major pharmaceutical and specialized biotechnology firms. These competitors may develop technologies and products that are more effective, safer, or less costly than our current or future proprietary and collaboration products and product candidates or that could render our and our partners’ products, technologies and product candidates obsolete or noncompetitive. Many of these competitors have substantially more resources and product development, manufacturing and marketing experience and capabilities than we do. In addition, many of our competitors have significantly greater experience than we do in undertaking preclinical testing and clinical trials of pharmaceutical product candidates and obtaining FDA and other regulatory approvals of products and therapies for use in healthcare.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

~~Item 3.Quantitative and Qualitative Disclosures About Market Risk~~

There have been no material changes in our market risks during the quarter ended March 31, ~~2019~~2020.

As of March 31, ~~2019~~2020, our cash equivalents and marketable securities consisted of investments in money market funds, U.S. Treasury securities, asset-backed securities, corporate debt obligations and commercial paper. 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. Some of the financial instruments that we invest in could be subject to market risk. This means that a change in prevailing interest rates may cause the value of the instruments to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of that security will probably decline. Based on our current investment portfolio as of March 31, ~~2019~~2020, we do not believe that our results of operations would be materially impacted by an immediate change of 10% in interest rates.

We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash, cash equivalents and marketable securities have significant risk of default or illiquidity. We made this determination based on discussions with our investment advisors and a review of our holdings. While we believe our cash, cash equivalents and marketable securities do not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. All of our cash equivalents and marketable securities are recorded at fair market value.


Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decision regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Reporting

There have been no significant changes in our internal control over financial reporting that occurred during the quarter ended March 31, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


Item 1.	Legal Proceedings


Item 1A.	Risk Factors

We have provided updated Risk Factors in the section labeled “Risk Factors” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The “Risk Factors” section provides updated information in certain areas, particularly with respect to the risks and uncertainties regarding the regulatory approval of proprietary and collaboration product candidates. Except for the addition of the Risk Factor entitled “Business interruptions resulting from the coronavirus disease 2019 (COVID-19) outbreak or similar public health crises could cause a disruption of the development of our collaboration partners’ product candidates and commercialization of approved products, impede our ability to supply bulk rHuPH20 to our partners or procure and sell Hylenex and otherwise adversely impact our business and results of operations.” We do not believe the updates have materially changed the type or magnitude of risks we face in comparison to the disclosure provided in our most recent Annual Report on Form 10-K.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

~~None.~~The table below sets forth information regarding repurchases during the three months ended March 31, 2020:



Period	Total Number of Shares Purchased	Weighted-Average Price paid per share		Total Number of Shares Purchased as Part of Publicly Announced Programs	Approximate Dollar Value of Shares That May Yet Be Purchased under the Programs (thousands)₍₂₎
January 1, 2020 through January 31, 2020	—	$	—	—	$	350,002
February 1, 2020 through February 29, 2020₍₁₎	—	$	—	—	$	350,002
March 1, 2020 through March 31, 2020	3,188,795	$	16.15	3,188,795	$	298,428
Total	3,188,795			3,188,795

(1) In November 2019, we entered into an Accelerated Share Repurchase (ASR) agreement with Bank of America to repurchase $50.0 million of common stock. At inception, pursuant to the agreement, we took an initial delivery of 2.1 million shares. In February 2020, we finalized the transaction and received an additional 0.5 million shares.

(2) In November, 2019, we announced that our Board of Directors authorized a capital return program to repurchase up to $550.0 million of outstanding common stock during a three-year period. The above repurchases were pursuant to that program.


Item 3.	Defaults Upon Senior Securities

Not applicable.


Item 4.	Mine Safety Disclosures

Not applicable.


Item 5.	Other Information

None.


Item 6.	Exhibits



3.1		Amended and Restated Certificate of Incorporation (1)

3.2		Bylaws, as amended (2)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended

32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Instance Document - the instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline Taxonomy Extension Schema ~~Document~~Document.

101.CAL		Inline Taxonomy Extension Calculation Linkbase ~~Document~~Document.

101.DEF		Inline Taxonomy Extension Definition Linkbase ~~Document~~Document.

101.LAB		Inline Taxonomy Extension Label Linkbase ~~Document~~Document.

101.PRE		Inline Taxonomy Extension Presentation Linkbase ~~Document~~Document.

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)


(1)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed May 3, ~~2019 (File No. 001-32335).~~2019.


(2)	Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed December 19, ~~2016 (File No. 001-32335).~~2016.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		Halozyme Therapeutics, Inc., a Delaware corporation
		Halozyme Therapeutics, Inc., a Delaware corporation

Dated:	May ~~7, 2019~~11, 2020	/s/ Helen I. Torley, M.B. Ch.B., M.R.C.P.
		Helen I. Torley, M.B. Ch.B., M.R.C.P. President and Chief Executive Officer (Principal Executive Officer)



Dated:	May ~~7, 2019~~11, 2020	/s/ ~~Laurie D. Stelzer~~Elaine Sun
		~~Laurie D. Stelzer~~Elaine Sun Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

5557



	March 31, 2019
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses		Estimated Fair Value
Asset-backed securities	35,765	18	(5	)	35,778
Corporate debt securities	68,877	67	(18	)	68,926
U.S. Treasury securities	84,448	36	(17	)	84,467
Commercial paper	78,951	—	—		78,951
	268,041	121	(40	)	268,122



	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Asset-backed securities	$	39,787	$	—	$	(40	)	$	39,747
Corporate debt securities	57,860		—		(127		)	57,733
U.S. Treasury securities	84,924		—		(87		)	84,837
Commercial paper	114,273		—		—			114,273
	$	296,844	$	—	$	(254	)	$	296,590