e10vk
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2008
|
OR
|
o
|
|
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
(State or other jurisdiction
of
incorporation or organization)
|
|
88-0488686
(I.R.S. Employer
Identification No.)
|
|
|
|
11388 Sorrento Valley Road,
San Diego, California
(Address of principal
executive offices)
|
|
92121
(Zip
Code)
|
(858)
794-8889
(Registrants telephone
number, including area code)
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, Par Value $.001
(Title of Class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer þ
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
equity held by non-affiliates of the registrant as of
June 30, 2008 was approximately $323.2 million based
on the closing price on the NASDAQ Stock Market reported for
such date. Shares of common stock held by each officer and
director and by each person who is known to own 10% or more of
the outstanding common stock have been excluded in that such
persons may be deemed to be affiliates of the registrant. This
determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of February 27, 2009, there were 82,946,449 shares
of the registrants $0.001 par value common stock
issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the issuers Definitive Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to
Regulation 14A in connection with the registrants
2009 Annual Meeting of Stockholders, to be filed subsequent to
the date hereof, are incorporated by reference into
Parts II and III of this Annual Report. Such
Definitive Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after the
conclusion of the issuers fiscal year ended
December 31, 2008.
PART I
This Annual Report on
Form 10-K
contains forward-looking statements regarding our business,
financial condition, results of operations and prospects. Words
such as expects, anticipates,
intends, plans, believes,
seeks, estimates, thinks,
may, could, will,
would, should, continue,
potential, likely,
opportunity 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 Annual Report. Additionally, statements
concerning future matters such as the development or regulatory
approval of new products, enhancements of existing products or
technologies, third party performance under key collaboration
agreements, revenue and expense levels and other statements
regarding matters that are not historical are forward-looking
statements.
Although forward-looking statements in this Annual Report
reflect the good faith judgment of our management, such
statements can only be based on facts and factors currently
known by us. Consequently, forward-looking statements are
inherently subject to risks and uncertainties and actual results
and outcomes may differ materially from the results and outcomes
discussed in or anticipated by the forward-looking statements.
Factors that could cause or contribute to such differences in
results and outcomes include without limitation those discussed
under the heading Risk Factors below, as well as
those discussed elsewhere in this Annual Report. Readers are
urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Annual
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 Annual
Report. Readers are urged to carefully review and consider the
various disclosures made in this Annual Report, which attempt to
advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations
and prospects.
Overview
We are a biopharmaceutical company dedicated to the development
and commercialization of products targeting the extracellular
matrix, or Matrix, for the endocrinology, oncology, dermatology
and drug delivery markets. Our existing products and our
products under development are based primarily on intellectual
property covering the family of human enzymes known as
hyaluronidases.
Our operations to date have been limited to organizing and
staffing our operating subsidiary, Halozyme, Inc., acquiring,
developing and securing our technology and undertaking product
development for our existing products and product candidates.
Over the last year, we increased our focus on our proprietary
product pipeline and expanded investments in our proprietary
product candidates. Our key partnerships are with F.
Hoffmann-La Roche, Ltd and Hoffmann-La Roche, Inc., or
Roche, to apply
Enhanzetm
Technology to Roches biological therapeutic compounds for
up to thirteen targets and with Baxter Healthcare Corporation,
or Baxter, to apply Enhanze Technology to Baxters
biological therapeutic compound, GAMMAGARD
LIQUIDtm.
We have two marketed products: HYLENEX, a registered trademark
of Baxter International, Inc., a product used as an adjuvant to
increase the absorption and dispersion of other injected drugs
and fluids, and
Cumulase®,
a product used for in vitro fertilization, or IVF.
Currently, we have only limited revenue from the sales of
HYLENEX and Cumulase, in addition to revenues from our
partnerships with Baxter and Roche.
We have product candidates in the research, preclinical and
clinical stages, but future revenues from the sales of products
will depend on our ability to develop, manufacture, obtain
regulatory approvals for and successfully commercialize product
candidates. It may be years, if ever, before we are able to
obtain regulatory approvals for these product candidates. We
have incurred net operating losses each year since inception,
with an accumulated deficit of approximately $113.6 million
as of December 31, 2008.
We currently have an effective universal shelf registration
statement which allows us to offer and sell up to
$50.0 million of equity or debt securities and we may
utilize this universal shelf in the future to raise capital to
fund the continued development of our product candidates, the
commercialization of our products or for other general corporate
purposes.
1
We reincorporated from the State of Nevada to the State of
Delaware in November 2007. Our principal offices and research
facilities are located at 11388 Sorrento Valley Road,
San Diego, California 92121. Our telephone number is
(858) 794-8889
and our
e-mail
address is info@halozyme.com. Additional information about the
Company can be found on our website at www.halozyme.com, and in
our periodic and current reports filed with the Securities and
Exchange Commission, or SEC. Copies of our current and periodic
reports filed with the SEC are available at the SEC Public
Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and online at www.sec.gov and our
website at www.halozyme.com.
Technology
Our technology is based on our proprietary recombinant human
PH20 enzyme, or rHuPH20, a human synthetic version of
hyaluronidase. Hyaluronidases are enzymes (proteins) that break
down hyaluronan, or HA, which is a naturally occurring
space-filling, gel-like substance that is a major component of
tissues throughout the body, such as skin and bone. The PH20
enzyme is a naturally occurring enzyme that digests HA to
temporarily break down the gel, thereby facilitating the
penetration and diffusion of other drugs and fluids that are
injected under the skin or in the muscle. Our proprietary
technology is applicable to multiple therapeutic areas and may
be used to both expand existing markets and create new ones. Our
technology may be utilized for the development of our own
proprietary products. For example, we are developing a PEGylated
version of our rHuPH20 enzyme, or PEGPH20, that is being tested
as a single agent oncology therapy. The PH20 enzyme may also be
applied to existing and developmental products of third parties
through key partnerships.
Strategy
We are a biopharmaceutical company dedicated to the development
and commercialization of products targeting the Matrix for the
endocrinology, oncology, dermatology and drug delivery markets.
The Matrix is a key structural component found in both normal
tissues such as skin and bone, and abnormal tissues such as
tumors. By expanding upon our scientific expertise in the
Matrix, we hope to develop therapeutic and aesthetic drugs. Our
lead enzyme, rHuPH20 hyaluronidase, is an example of a
Matrix-modifying enzyme. By degrading HA, a key Matrix component
in the skin, rHuPH20 facilitates the delivery of drugs and
fluids through the Matrix and into circulation. While rHuPH20 is
the underlying drug delivery technology of both HYLENEX for
generic small molecules and fluids, and Enhanze Technology for
proprietary small and large molecules, we are seeking ways to
combine or co-formulate rHuPH20 with previously approved small
molecule drugs to develop new proprietary products, with
potentially new patent protection. Other benefits include
patient convenience.
We are also expanding our scientific work in the Matrix by
developing other enzymes and agents that target unique aspects
of the Matrix, giving rise to potential new molecular entities
targeting indications in endocrinology, oncology and
dermatology. For instance, we are developing a formulation of
rHuPH20 and insulin for the treatment of diabetes mellitus. We
are also developing a PEGPH20 enzyme that lasts longer in the
bloodstream, and may therefore better target solid tumors by
clearing away the surrounding HA and reducing the interstitial
fluid pressure within malignant tumors to allow better
penetration by chemotherapeutic agents. In addition, we are
developing a Matrix-modifying enzyme that targets components of
the skin and subcutaneous tissues that may have both therapeutic
and aesthetic applications within dermatology. Key aspects of
our corporate strategy include the following:
|
|
|
|
|
Develop our own proprietary products based on our PH20 enzyme
and other new molecular entities;
|
|
|
|
Seek partnerships for our Enhanze Technology drug delivery
platform;
|
|
|
|
Support product development and commercialization under our
Roche Enhanze Technology collaboration;
|
|
|
|
Support product development and commercialization under our
Baxter Bioscience Enhanze Technology collaboration; and
|
|
|
|
Support Baxters commercialization of HYLENEX.
|
2
Products
and Product Candidates
There are two marketed products that utilize our technology and
there are multiple product candidates targeting several
indications in various stages of development. The following
table summarizes the proprietary and partnered products and
product candidates that utilize our technology:
Insulin-PH20
One of our proprietary programs focuses on the formulation of
our lead enzyme rHuPH20 and insulin for the treatment of
diabetes mellitus. Diabetes mellitus is an increasingly
prevalent, costly condition associated with substantial
morbidity and mortality. Attaining and maintaining normal blood
sugar levels to minimize the long-term clinical risks is a key
treatment goal for diabetic patients. Combining rHuPH20 with
insulin may facilitate faster insulin spreading from the
subcutaneous space into the vascular compartment leading to
faster insulin response and improved glycemic control
potentially resulting in fewer hypoglycemic episodes. By making
mealtime insulin faster, i.e., shifting insulin exposure and
glucose lowering activity to earlier times and away from late
postprandial times, combination with rHuPH20 may yield a profile
of insulin kinetics and activity more like that of natural,
endogenous prandial insulin release.
In November 2008, we started a Phase II clinical trial of
rHuPH20 formulations with
Humulin®
R (regular insulin) and
Humalog®
(insulin lispro) in Type 1 diabetic patients. This exploratory,
crossover design, single blind, open label, liquid meal
Phase II study is designed to collect data on at least
20 patients who complete the study. The study allows for
insulin dose titration and each patient will receive a minimum
of four and up to three additional study drug injections that
include Humulin R and Humalog with and without rHuPH20.
3
The primary endpoint of this study, a pharmacokinetic measure,
is the area under the curve for plasma insulin concentration
from zero to 60 minutes after injection. Secondary endpoints
include additional pharmacokinetic data, as well as blood
glucose concentration at various time points. Safety data such
as adverse reactions, hypoglycemia, blood chemistry and
injection site tolerability will be collected, measured and
evaluated. Patients may be on study for up to an estimated
14 weeks from screening to completion and the results
should be available for presentation at a medical or scientific
forum in mid-2009.
In June 2008, we announced data from our Phase I clinical trial
showing that combining rHuPH20 with Humulin R or Humalog yielded
pharmacokinetics and glucodynamics that better mimicked
physiologic prandial (mealtime) insulin release and activity
than either Humulin R or Humalog alone. The Phase I crossover,
euglycemic clamp study was conducted in 26 healthy male
volunteers. The study had two stages: the first stage compared
the pharmacokinetics and glucodynamics of Humalog injected
subcutaneously with and without rHuPH20, and the second stage
compared the pharmacokinetics and glucodynamics of Humulin R
injected subcutaneously with and without rHuPH20.
Key pharmacokinetic and glucodynamic improvements observed in
the study included:
|
|
|
|
|
Significantly faster systemic absorption of each insulin,
starting with the first observation time point of three minutes
after injection
|
|
|
|
Significantly faster and greater glucose lowering activity early
after injection
|
|
|
|
Significantly greater peak insulin levels for the same dose
administered
|
|
|
|
Significantly lower variability of key pharmacokinetic and
glucodynamic variables across subjects
|
|
|
|
rHuPH20 in combination with Humulin demonstrated statistically
significant improvement across all parameters when compared to
Humalog alone
|
Bisphosphonate-PH20
Bisphosphonates are a class of molecules that bind to
mineralized bone matrix and inhibit bone resorption. Currently,
there are both oral and intravenous bisphosphonates available
commercially. Oral bisphosphonates often cause gastrointestinal
side effects and require a cumbersome dosing regimen. The
gastrointestinal side effects of oral bisphosphonates may lead
to patient non-compliance to prescribed therapy. Certain
bisphosphonates are indicated for the treatment of osteoporosis
and skeletal metastases, but can only be administered today by
intravenous infusion. As such, patients often have to travel to
an infusion center or see a specialist to receive their
intravenous bisphosphonate infusion. Subcutaneous injections of
bisphosphonates are not considered feasible due to injection
site reactions in the skin
and/or
impractical injection volumes.
The goal of our bisphosphonate program is to provide an
alternative dosage formulation that may offer greater
convenience, compliance and tolerability to patients for the
treatment of osteoporosis. If rHuPH20 hyaluronidase can rapidly
disperse, dilute and facilitate the systemic absorption of
subcutaneous bisphosphonates, it may prevent local irritation
and provide a more convenient route of administration. We
completed studies in animal models to investigate whether
increasing the dispersion and absorption of bisphosphonates in
the skin and subcutaneous tissues with rHuPH20 could modify
injection site reaction profiles from two intravenous
bisphosphonate formulations, zoledronic acid and ibandronate.
The pharmacokinetics of bisphosphonates in blood were also
examined and compared to intravenous infusion. Key findings from
the studies were as follows:
|
|
|
|
|
In rodent intradermal models, injection of bisphosphonates
without rHuPH20 created injection site reactions characterized
by erythema, induration and ulceration in a concentration
dependent manner.
|
|
|
|
In rodent intradermal models, the maximal concentration of
bisphosphonates that could be administered without producing
injection site reactions was increased 3- to 5-fold when
co-administered in combination with rHuPH20.
|
|
|
|
In porcine pharmacokinetic models, absolute bioavailability by
subcutaneous injection with rHuPH20 was comparable to IV
infusion.
|
4
In the fourth quarter of 2008, we initiated a Phase I clinical
trial for a bisphosphonate administered with rHuPH20 as a
subcutaneous injection. This study will explore the safety,
tolerability and pharmacokinetics of subcutaneous administration
of a bisphosphonate plus rHuPH20.
PEGPH20
We are investigating our PEGPH20 enzyme as a candidate for the
systemic treatment of tumors with high levels of HA. PEGylation
refers to the attachment of polyethyleneglycol to our rHuPH20
enzyme, which extends its half life in the blood from less than
30 seconds to more than 24 hours. HA is a component of the
Matrix that frequently accumulates in human cancers. The
quantity of HA produced by the tumor cells correlates with
increased tumor growth and metastasis and has been linked with
tumor progression and poor prognosis in some studies. In animal
studies, the removal of HA from tumors with hyaluronidase has
demonstrated reduction of tumor growth, and in some experiments,
enhanced efficacy of certain anti-cancer drugs. Increased
sensitivity to chemotherapeutic agents may be achieved once the
HA has been removed.
Numerous solid tumors, including prostate, breast, pancreas and
colon, accumulate HA that forms a halo-like coating over the
surface of the tumor cell. In preclinical studies, PEGPH20 has
been shown to remove the HA coating surrounding several
tumor cell lines. Treatment of PC3 (a prostate cancer cell line
that produces HA) tumor bearing mice with PEGPH20 as a single
agent demonstrated a slowing of tumor growth relative to
controls. Repeat dosing with PEGPH20 produced a sustained
depletion of HA in the tumor microenvironment. For tumor models
that did not produce HA, the presence of PEGPH20 had no effect.
We performed certain preclinical studies to determine whether
HA-dependent pericellular matrices produced in vitro
and in vivo by a hormone-refractory prostate cancer
cell line could be enzymatically depleted in prostate carcinoma
xenografts following intravenous administration of the PEGPH20
enzyme. The dose-dependent effects of systemic enzyme treatment
were evaluated by a combination of direct micropressure
measurements, magnetic resonance imaging, or MRI, ultrasound,
immunohistochemistry and determination of tumor water content.
The studies explored the physiologic responses to enzymatic
removal of HA-based matrices surrounding tumor cells in the
tumor microenvironment of prostate tumors following systemic
administration of PEGPH20. Prostate tumors were grown around the
bone as a model of elevated interstitial fluid pressure, or IFP.
Treatment commenced when tumors had reached approximately 500
mm3 in
size and pressure within the tumor had reached
30-40 mm Hg.
A summary of findings is as follows:
|
|
|
|
|
Prostate carcinoma cells assembled large pericellular coats
in vitro that collapsed in the presence of rHuPH20.
Similar pericellular matrices containing HA were also assembled
in vivo following inoculation of tumors around the bone
in mice.
|
|
|
|
PEGPH20 significantly reduced tumor IFP in a dose dependent
fashion, achieving more than 85% reduction in IFP
following IV administration. Peritumoral HA remained
depleted over three days after a single dose of enzyme.
|
|
|
|
Consistent with the histologic collapse of pericellular HA
surrounding the tumor cells, tumor water content significantly
decreased over three days, consistent with changes detected in
the tumor by MRI and IFP monitoring.
|
Furthermore, a 3.5-fold selective increase in tumor vascular
volume was achieved within eight hours
post-dosing
as a result of vascular decompression of blood vessels within
the tumor, which was confirmed by histology and ultrasound.
We recently initiated a first Phase I clinical trial for our
PEGPH20 program. This first trial with the agent is a
dose-escalation, multicenter, pharmacokinetic and
pharmacodynamic, safety study. Patients with advanced solid
tumors will receive intravenous administration of PEGPH20 as a
single agent.
Chemophase
Chemophase is an investigative drug being developed for
potential use in the treatment of patients with superficial
bladder cancer. Our Chemophase program combines our PH20 enzyme
with mitomycin C, a cytotoxic
5
drug, for direct administration into the bladder immediately
after transurethral resection of bladder tumors, a standard
surgical treatment for the disease. Many bladder tumor cells
produce high quantities of HA and thus treatment to remove the
HA coating could increase their exposure to mitomycin C. This
may lead to a lower recurrence of the cancer and a better
prognosis for patients.
In June 2008, we announced the results of a Phase I/IIa clinical
trial in which Chemophase was well tolerated and appears safe.
The study reported no dose-limiting toxicities and no observed
side effects attributable to the enzyme, and established the
dose for subsequent clinical trials, therefore achieving the
pre-defined primary objective of the study. In addition, there
were no neutralizing antibodies to rHuPH20 detected and the
plasma concentration of mitomycin C was either non-measureable
or negligible and well below the threshold that may be
predictive for myelosuppression (such as a decrease in bone
marrow activity, resulting in fewer red blood cells, white blood
cells and platelets). During the first quarter of 2009, we
decided to reallocate certain resources previously budgeted for
Chemophase to other higher priority programs, such as our
Insulin-PH20 and PEGPH20 programs. We are currently exploring
strategic alternatives that will allow the Chemophase program to
continue its clinical development.
Enhanze
Technology
Enhanze Technology, a proprietary drug enhancement approach
using rHuPH20, is a broad technology that we have licensed to
other pharmaceutical companies. When formulated with other
injectable drugs, Enhanze Technology may facilitate the
subcutaneous penetration and dispersion of these drugs by
temporarily opening flow channels under the skin. Molecules as
large as 200 nanometers may pass freely through the
extracellular matrix, which recovers its normal density within
approximately 24 hours, leading to a drug delivery platform
which does not permanently alter the architecture of the skin.
The principal focus of our Enhanze Technology platform is the
use of rHuPH20 to facilitate subcutaneous route of
administration for large molecule biological therapeutics.
Potential benefits of subcutaneous administration of biologics
include life cycle management, patient convenience and benefits
to payors.
We currently have Enhanze Technology partnerships with Roche and
Baxter and we are currently seeking additional partnerships with
pharmaceutical companies that market or develop drugs that could
benefit from injection via the subcutaneous route of
administration.
Roche
Partnership
In December 2006, Halozyme and Roche entered into an Enhanze
Technology partnership, or Roche Partnership. Under the terms of
the Roche Partnership, Roche obtained a worldwide, exclusive
license to develop and commercialize product combinations of
rHuPH20 and up to thirteen Roche target compounds resulting from
the collaboration. Under the terms of the Roche Partnership, we
were obligated to scale up the production of rHuPH20 and to
identify a second source manufacturer that would help meet
anticipated production obligations arising from the partnership.
To that end, during 2008, we entered into a Technology Transfer
Agreement and a Clinical Supply Agreement with a second rHuPH20
manufacturer. This manufacturer has the capacity to produce the
clinical quantities we are required to deliver under the terms
of the Roche Partnership and, we believe, the commercial
quantities as well. The technology transfer was completed in
2008 with
scale-up and
clinical supply manufacturing planned for 2009.
Roche initially had the exclusive right to apply rHuPH20 to only
three pre-defined Roche biologic targets with the option to
exclusively develop and commercialize rHuPH20 with an additional
ten targets. Pending the successful completion of various
clinical, regulatory and sales events, Roche will be obligated
to make milestone payments to us as well as royalty payments on
the sales of products that result from the partnership. In
December 2008, we announced that Roche elected to add a fourth
exclusive target to the three original exclusive targets, and we
previously announced the commencement of Phase I clinical trials
for products directed at two of these four exclusive targets.
Roche retains the option to exclusively develop and
commercialize rHuPH20 with an additional nine targets through
the payment of annual license maintenance fees.
6
Baxter
Gammagard Partnership
GAMMAGARD LIQUID is a current Baxter product that is indicated
for the treatment of primary immunodeficiency disorders
associated with defects in the immune system. In September 2007,
Halozyme and Baxter entered into an Enhanze Technology
partnership, or the Gammagard Partnership. Under the terms of
this partnership, Baxter obtained a worldwide, exclusive license
to develop and commercialize product combinations of rHuPH20
with GAMMAGARD LIQUID. Pending the successful completion of
various regulatory and sales milestones, Baxter will be
obligated to make milestone payments to us as well as royalty
payments on the sales of products that result from the
partnership. Baxter is responsible for all development,
manufacturing, clinical, regulatory, sales and marketing costs
under the Gammagard Partnership, while we will be responsible
for the supply of the rHuPH20 enzyme. In addition, Baxter has
certain product development and commercialization obligations in
major markets identified in the Gammagard License. In January of
2009, we announced the commencement of a Phase III clinical
trial for GAMMAGARD LIQUID with rHuPH20.
HYLENEX
Partnership
HYLENEX is a human recombinant formulation of rHuPH20 that, when
injected under the skin, facilitates the absorption and
dispersion of other injected drugs or fluids. In February 2007,
Halozyme and Baxter amended certain existing agreements relating
to HYLENEX and entered into a new agreement for kits and
formulations with rHuPH20, or the HYLENEX Partnership. Pending
the successful completion of a series of regulatory and sales
events, Baxter will be obligated to make milestone payments to
us as well as royalty payments on the sales of products that
result from the partnership. Baxter is responsible for
development, manufacturing, clinical, regulatory, sales and
marketing costs of the products covered by the HYLENEX
Partnership. We will continue to supply Baxter with the active
pharmaceutical ingredient for HYLENEX, and Baxter will prepare,
fill, finish and package HYLENEX and hold it for subsequent
distribution. In addition, under the HYLENEX Partnership, Baxter
has a worldwide, exclusive license to develop and commercialize
product combinations of rHuPH20 with Baxter hydration fluids and
generic small molecule drugs, with the exception of combinations
with (i) bisphosphonates, as well as (ii) cytostatic
and cytotoxic chemotherapeutic agents, the rights to which have
been retained by Halozyme.
Cumulase
Cumulase is an ex vivo (used outside of the body)
formulation of rHuPH20 to replace the bovine (bull) enzyme
currently used for the preparation of oocytes (eggs) prior to
IVF during the process of intracytoplasmic sperm injection
(ICSI), in which the enzyme is an essential component. Cumulase
strips away the HA that surrounds the oocyte, allowing the
clinician to then perform the ICSI procedure.
Patents
and Proprietary Rights
Patents and other proprietary rights are essential to our
business. Our success will depend in part on our ability to
obtain patent protection for our inventions, to preserve our
trade secrets and to operate without infringing the proprietary
rights of third parties. Our strategy is to actively pursue
patent protection in the United States and certain foreign
jurisdictions for technology that we believe to be proprietary
to us and that offers us a potential competitive advantage. Our
patent portfolio includes six issued patents and a number of
pending patent applications. We are the exclusive licensee of
the University of Connecticut under a patent covering the DNA
sequence that encodes human hyaluronidase. This patent expires
in 2015. We have patent applications pertaining to recombinant
human hyaluronidase and their methods of manufacture which, if
issued, would expire in 2024. We believe our patent filings
represent a barrier to entry for potential competitors looking
to utilize these hyaluronidases.
In addition to patents, we rely on unpatented trade secrets,
proprietary know-how and continuing technological innovation. We
seek protection of these trade secrets, proprietary know-how and
innovation, in part, through confidentiality and proprietary
information agreements. Our policy is to require our employees,
directors, consultants, advisors, partners, outside scientific
collaborators and sponsored researchers, other advisors and
other individuals and entities to execute confidentiality
agreements upon the start of employment, consulting or other
contractual relationships with us. These agreements provide that
all confidential information developed or made known to the
individual or entity during the course of the relationship is to
be kept confidential and not
7
disclosed to third parties except in specific circumstances. In
the case of employees and some other parties, the agreements
provide that all inventions conceived by the individual will be
our exclusive property. Despite the use of these agreements and
our efforts to protect our intellectual property, there will
always be a risk of unauthorized use or disclosure of
information. Furthermore, our trade secrets may otherwise become
known to, or be independently developed by, our competitors.
We also file trademark applications to protect the names of our
products and product candidates. These applications may not
mature to registration and may be challenged by third parties.
We are pursuing trademark protection in a number of different
countries around the world. There can be no assurances that
registered or unregistered trademarks or trade names of our
company will not infringe on third parties rights or will be
acceptable to regulatory agencies.
Research
and Development Activities
Our research and development expenses consist primarily of costs
associated with the development and manufacturing of our product
candidates, compensation and other expenses for research and
development personnel, supplies and materials, costs for
consultants and related contract research, facility costs,
amortization and depreciation. We charge all research and
development expenses to operations as they are incurred. Over
the past two years, our research and development activities were
primarily focused on the development of our proprietary product
candidates. Our industry is subject to rapid technological
advancements, developing industry standards and new product
introductions and enhancements. As a result, our success
depends, in large part, on our ability to develop and
commercialize products.
Our research and development expenditures in fiscal 2008, 2007
and 2006 totaled approximately $44.2 million,
$20.6 million and $9.2 million, respectively. Research
and development expenditures in fiscal 2008 were primarily
related to continued development of our various proprietary
product candidates and the manufacturing and production of our
rHuPH20 enzyme. Research and development expenditures in fiscal
2007 were primarily related to the manufacturing and production
of our rHuPH20 enzyme, and the development of Enhanze
Technology, our HYLENEX product and our Chemophase product
candidate. Research and development expenditures in fiscal 2006
were primarily related to the development of our Cumulase and
HYLENEX products and our Chemophase product candidate. We
anticipate that we will incur significant research and
development expenses in the future in connection with the
development of product candidates.
Manufacturing
We have existing supply agreements with contract manufacturing
organizations Avid Bioservices, Inc., or Avid, and Cook Pharmica
LLC, or Cook, to produce bulk recombinant human hyaluronidase
for clinical trials and commercial use. These manufacturers will
produce the active pharmaceutical ingredient used in our
products and product candidates under commercial good
manufacturing practices for both clinical and commercial scale
production and will provide support for the chemistry,
manufacturing and controls sections for FDA regulatory filings.
These manufacturers, Cook in particular, have limited experience
manufacturing our active pharmaceutical ingredient batches, and
we rely on their ability to successfully manufacture these
batches according to product specifications. In addition, as a
result of our contractual obligations to Roche, we will be
required to significantly scale up our active pharmaceutical
ingredient production at Cook during the next few years. We do
not currently have a significant inventory of the active
pharmaceutical ingredient used in our products and product
candidates, so the ability of these manufacturers to maintain
their status as FDA-approved manufacturing facilities and to
successfully scale up our active pharmaceutical ingredient
production is essential to our corporate strategy.
Sales and
Marketing
HYLENEX
Baxter is responsible for the development and execution of the
HYLENEX sales and marketing strategy. Baxter has indicated that
it intends to build a strong clinical foundation with
post-marketing trials and to educate the market on the concept
of difficult venous access. Post-marketing clinical trials are
ongoing to explore the potential of HYLENEX in a variety of
medical settings, since limited or no data with HYLENEX exist in
conditions for
8
which Baxter will market the product. Examples of the trials
include the completed INFUSE-Pediatric Rehydration study,
completed INFUSE-LR study and completed INFUSE-Morphine study.
In addition, Baxter is currently enrolling patients in a second
INFUSE-Pediatric Rehydration Study, which is designed to
determine the rehydration success rate (efficacy) and safety in
children treated with HYLENEX-augmented subcutaneous fluid
infusion. Baxter currently has a team of medical science
liaisons as well as nurse educators that are engaging in
education prior to commercial launch in the pediatric hydration
market following publication of related clinical data. We expect
the launch of HYLENEX by Baxter in the fourth quarter of 2009.
Cumulase
Our sales and marketing strategy in the IVF market consists of a
multi-channel approach that targets patients, clinicians and
suppliers. We have an existing non-exclusive distribution
agreement with a distributor of IVF reagents and media that
sells directly to IVF clinics in both the United States and
European markets. During 2008, sales of Cumulase in the European
Union and the United States were approximately $325,000 and
$93,000, respectively.
Competition
HYLENEX
Other manufacturers have FDA-approved products for use as
spreading agents, including ISTA Pharmaceuticals, Inc., with an
ovine (ram) hyaluronidase,
Vitrase®,
Amphastar Pharmaceuticals, Inc., with a bovine hyaluronidase,
Amphadasetm,
and Primapharm, Inc. also with a bovine hyaluronidase,
Hydasetm.
In addition, some commercial pharmacies compound hyaluronidase
preparations for institutions and physicians even though
compounded preparations are not FDA-approved products. Some
compounding pharmacies do not test every batch of product for
drug concentration, sterility and lack of pyrogens. In addition,
HYLENEX is priced at a significant premium compared to the
animal-derived hyaluronidases currently in the marketplace. This
price premium may slow market adoption of HYLENEX and make
market penetration difficult.
Cumulase
A key clinical selling point for Cumulase is that it may
eliminate the risk of animal pathogen transmission and toxicity
inherent in slaughterhouse preparations. The competing enzymes
are of animal origin, creating an opportunity for a recombinant
human enzyme alternative. Cumulase is priced at a premium
compared to the animal-derived products sold by these leading
IVF suppliers, which may make market penetration difficult.
Government
Regulations
The FDA and comparable regulatory agencies in foreign countries
regulate extensively the manufacture and sale of the
pharmaceutical products that we have developed or currently are
developing. The FDA has established guidelines and safety
standards that are applicable to the laboratory and preclinical
evaluation and clinical investigation of therapeutic products
and stringent regulations that govern the manufacture and sale
of these products. The process of obtaining regulatory approval
for a new therapeutic product usually requires a significant
amount of time and substantial resources. The steps typically
required before a product can be produced and marketed for human
use include:
|
|
|
|
|
Animal pharmacology studies to obtain preliminary information on
the safety and efficacy of a drug;
|
|
|
|
Laboratory and preclinical evaluation in vitro and
in vivo including extensive toxicology studies.
|
The results of these laboratory and preclinical studies may be
submitted to the FDA as part of an investigational new drug, or
IND, application. The sponsor of an IND application may commence
human testing of the compound 30 days after submission of
the IND, unless notified to the contrary by the FDA.
9
The clinical testing program for a new drug typically involves
three phases:
|
|
|
|
|
Phase I investigations are generally conducted in healthy
subjects. In certain instances, subjects with a
life-threatening
disease, such as cancer, may participate in Phase I studies that
determine the maximum tolerated dose and initial safety of the
product;
|
|
|
|
Phase II studies are conducted in limited numbers of
subjects with the disease or condition to be treated and are
aimed at determining the most effective dose and schedule of
administration, evaluating both safety and whether the product
demonstrates therapeutic effectiveness against the
disease; and
|
|
|
|
Phase III studies involve large, well-controlled
investigations in diseased subjects and are aimed at verifying
the safety and effectiveness of the drug.
|
Data from all clinical studies, as well as all laboratory and
preclinical studies and evidence of product quality, typically
are submitted to the FDA in a new drug application, or NDA.
Although the FDAs requirements for clinical trials are
well established and we believe that we have planned and
conducted our clinical trials in accordance with the FDAs
applicable regulations and guidelines, these requirements,
including requirements relating to testing the safety of drug
candidates, may be subject to change as a result of recent
announcements regarding safety problems with approved drugs.
Additionally, we could be required to conduct additional trials
beyond what we had planned due to the FDAs safety
and/or
efficacy concerns or due to differing interpretations of the
meaning of our clinical data. (See Part I
Item 1A, Risk Factors.)
The FDAs Center for Drug Evaluation and Research, or CDER,
must approve an NDA for a drug before it may be marketed in the
United States. If we begin to market our proposed products for
commercial sale in the U.S., any manufacturing operations that
may be established in or outside the United States will also be
subject to rigorous regulation, including compliance with
current Good Manufacturing Practices, or cGMP. We also may be
subject to regulation under the Occupational Safety and Health
Act, the Environmental Protection Act, the Toxic Substance
Control Act, the Export Control Act and other present and future
laws of general application. In addition, the handling, care and
use of laboratory animals are subject to the Guidelines for the
Humane Use and Care of Laboratory Animals published by the
National Institutes of Health.
Regulatory obligations continue post-approval, and include the
reporting of adverse events when a drug is utilized in the
broader patient population. Promotion and marketing of drugs is
also strictly regulated, with penalties imposed for violations
of FDA regulations, the Lanham Act (trademark statute) and other
federal and state laws, including the federal anti-kickback
statute.
We currently intend to continue to seek, directly or through our
partners, approval to market our products and product candidates
in foreign countries, which may have regulatory processes that
differ materially from those of the FDA. We anticipate that we
will rely upon pharmaceutical or biotechnology companies to
license our proposed products or independent consultants to seek
approvals to market our proposed products in foreign countries.
We cannot assure you that approvals to market any of our
proposed products can be obtained in any country. Approval to
market a product in any one foreign country does not necessarily
indicate that approval can be obtained in other countries.
Product
Liability Insurance
We currently maintain product liability insurance on our
products and clinical trials that provides coverage in the
amount of $5,000,000 per incident and $5,000,000 in the
aggregate.
Executive
Officers of the Registrant
Information concerning our executive officers, including their
names, ages and certain biographical information can be found in
Part III-Item 10.
Directors, Executive Officers and Corporate
Governance. This information is incorporated by reference
into Part I of this report.
10
Employees
As of February 28, 2009, we had 129 full-time
employees, including 91 engaged in research and clinical
development activities. Included in our total headcount are
43 employees who hold Ph.D. or M.D. degrees. We currently
anticipate hiring approximately 10 additional employees by the
end of 2009. None of our employees are unionized and we believe
our relationship with our employees is good.
Risks
Related To Our Business
We
have generated only minimal revenue from product sales to date;
we have a history of net losses and negative cash flow, and we
may never achieve or maintain profitability.
We have generated only minimal revenue from product sales,
licensing fees and milestone payments to date and may never
generate significant revenues from future product sales,
licensing fees and milestone payments. Even if we do achieve
significant revenues from product sales, licensing fees
and/or
milestone payments, we expect to incur significant operating
losses over the next few years. We have never been profitable,
and we may never become profitable. Through December 31,
2008, we have incurred aggregate net losses of approximately
$113.6 million.
If any
party to a key collaboration agreement, including us, fails to
perform material obligations under such agreement, or if a key
collaboration agreement is terminated for any reason, our
business would significantly suffer.
We have entered into key collaboration agreements under which we
may receive significant future payments in the form of
maintenance fees, milestone payments and royalties. 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 our
product development activities for some of our product
candidates as well as our commercialization efforts for some or
all of our products. In addition, the termination of a key
collaboration agreement by one of our partners could materially
impact our ability to enter into additional collaboration
agreements with new partners 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.
If our
contract manufacturers are unable to manufacture significant
amounts of the active pharmaceutical ingredient used in our
products and product candidates, our product development and
commercialization efforts could be delayed or stopped and our
collaborative partnerships could be damaged.
We have existing supply agreements with contract manufacturing
organizations Avid and Cook to produce bulk recombinant human
hyaluronidase for clinical trials and commercial use. These
manufacturers will produce the active pharmaceutical ingredient
used in our products and product candidates under cGMP for both
clinical and commercial scale production and will provide
support for the chemistry, manufacturing and controls sections
for FDA regulatory filings. These manufacturers have limited
experience manufacturing our active pharmaceutical ingredient
batches, and we rely on their ability to successfully
manufacture these batches according to product specifications.
In addition, as a result of our contractual obligations to
Roche, we will be required to significantly scale up our active
pharmaceutical ingredient production at Cook during the next few
years. We do not currently have a significant inventory of the
active pharmaceutical ingredient used in our products and
product candidates, so if these manufacturers do not maintain
their status as FDA-approved manufacturing facilities, are
unable to successfully scale up our active pharmaceutical
ingredient production, or are unable to manufacture the active
pharmaceutical ingredient used in our products and product
candidates according to product specifications for any other
reason, the commercialization of our products and the
development of our product candidates will be delayed and our
business will be adversely affected. We have not yet
established, and may not be able to establish, favorable
arrangements with additional manufacturers for these ingredients
or products should the existing supplies become unavailable or
in the event that our existing contract manufacturers are unable
to adequately perform their responsibilities. Any delays or
interruptions in the supply of materials by Avid
and/or Cook
could cause the delay of
11
clinical trials and could delay or prevent the commercialization
of product candidates that may receive regulatory approval. Such
delays would likely damage our relationship with our partners
under our key collaboration agreements. Lastly, such delays or
interruptions would have a material adverse effect on our
business and financial condition.
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 existing
product candidates or any other products we develop or acquire
in the future. We are currently in the process of developing our
sales, marketing and distribution capabilities. However, our
current capabilities in these areas 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.
We depend upon the efforts of third parties, such as Baxter for
HYLENEX, to promote and sell our current products, but there can
be no assurance that the efforts of these third parties will
meet our expectations or result in any significant product
sales. While these third parties are largely responsible for the
speed and scope of sales and marketing efforts, they may not
dedicate the resources necessary to maximize product
opportunities and our ability to cause these third parties to
increase the speed and scope of their efforts may 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
partners are responsible for conducting these additional
clinical trials and our ability to increase the efforts and
resources allocated to these trials may be limited.
For example, the resources dedicated by Baxter to the sales and
marketing of HYLENEX have not met our expectations to date and
we believe that Baxters resource allocation has resulted
in disappointing sales for HYLENEX. There can be no assurances,
despite representations made to us by Baxter, that the resources
will be increased to a level we believe to be appropriate.
If we
have problems with third parties that prepare, fill, finish and
package our products and product candidates for distribution,
our product commercialization and development efforts for these
products and product candidates could be delayed or
stopped.
We rely on third parties to prepare, fill, finish and package
our products and product candidates prior to their distribution.
If we are unable to locate third parties to perform these
functions on terms that are economically acceptable to us, the
progress of clinical trials could be delayed or even suspended
and the commercialization of approved product candidates could
be delayed or prevented. For example, we previously entered into
an agreement with another third party to prepare, fill, finish
and package Cumulase, but that third party did not meet the
manufacturing, technical and cost targets that were originally
established and, as a result, we terminated our agreement with
that third party. We currently utilize a subsidiary of Baxter to
prepare, fill, finish and package HYLENEX under a development
and supply agreement. Baxter has only limited experience
manufacturing HYLENEX batches, and we rely on its ability to
successfully manufacture HYLENEX batches according to product
specifications. Any delays or interruptions in Baxters
ability to manufacture HYLENEX batches in amounts necessary to
meet product demand could have a material adverse impact on our
business and financial condition.
12
If our
proprietary and partnered product candidates do not receive and
maintain regulatory approvals, they will not be commercialized,
and this failure would substantially impair our ability to
generate revenues.
Approval from the FDA is necessary to manufacture and market
pharmaceutical products in the United States. Most other
countries in which we may do business have similar requirements.
To date, two of our product candidates have received regulatory
approval from the FDA.
The process for obtaining FDA approval is extensive,
time-consuming and costly, and there is no guarantee that the
FDA will approve any NDAs that may be filed with respect to any
of our proprietary or partnered product candidates, or that the
timing of any such approval will be appropriate for our desired
product launch schedule and other business priorities, which are
subject to change. There are no proprietary or partnered product
candidates currently in the NDA approval process, and we and our
partners may not be successful in obtaining such approvals for
any potential products.
Our
proprietary and partnered product candidates may not receive
regulatory approvals for a variety of reasons, including
unsuccessful clinical trials.
Clinical testing of pharmaceutical products is a long, expensive
and uncertain process and the failure of a clinical trial can
occur at any stage. Even if initial results of preclinical
studies or clinical trial results are promising, we or our
partners may obtain different results that fail to show the
desired levels of safety and efficacy, or we may not, or our
partners may not, obtain FDA approval for a variety of other
reasons. Clinical trials for any of our proprietary or partnered
product candidates could be unsuccessful, which would delay or
prohibit regulatory approval and commercialization of the
product candidates. FDA approval can be delayed, limited or not
granted for many reasons, including, among others:
|
|
|
|
|
FDA review may not find a product candidate safe or effective
enough to merit either continued testing or final approval;
|
|
|
|
FDA review may not find that the data from preclinical testing
and clinical trials justifies approval, or they may require
additional studies that would make it commercially unattractive
to continue pursuit of approval;
|
|
|
|
the FDA may reject our trial data or disagree with our
interpretations of either clinical trial data or applicable
regulations;
|
|
|
|
the cost of a clinical trial may be greater than what we
originally anticipate, and we may decide to not pursue FDA
approval for such a trial;
|
|
|
|
the FDA may not approve our manufacturing processes or
facilities, or the processes or facilities of our contract
manufacturers or raw material suppliers;
|
|
|
|
the FDA may change its formal or informal approval requirements
and policies, act contrary to previous guidance, or adopt new
regulations; or
|
|
|
|
the FDA may approve a product candidate for indications that are
narrow or under conditions that place the product at a
competitive disadvantage, which may limit our sales and
marketing activities or otherwise adversely impact the
commercial potential of a product.
|
If the FDA does not approve a proprietary or partnered product
candidate in timely fashion on commercially viable terms, or if
development of any product candidate 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 will become more dependent on the development of other
proprietary or partnered product candidates
and/or our
ability to successfully acquire other products and technologies.
There can be no assurances that any proprietary or partnered
product candidate will receive regulatory approval in a timely
manner, or at all.
We anticipate that certain proprietary and partnered 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 many of
the same 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
13
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.
If we
or our partners fail to comply with regulatory requirements,
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 and other
regulatory bodies. Regulatory authorities subject a marketed
product, its manufacturer and the manufacturing facilities to
continual review and periodic inspections. We will be subject to
ongoing FDA requirements, including required submissions of
safety and other post-market information and reports,
registration requirements, cGMP regulations, requirements
regarding the distribution of samples to physicians and
recordkeeping requirements. The cGMP regulations include
requirements relating to quality control and quality assurance,
as well as the corresponding maintenance of records and
documentation. We rely on the compliance by our contract
manufacturers with cGMP regulations and other regulatory
requirements relating to the manufacture of our products. We and
our partners are also subject to state laws and registration
requirements covering the distribution of our products.
Regulatory agencies may change existing requirements or adopt
new requirements or policies. We or our partners may be slow to
adapt or may not be able to adapt to these changes or new
requirements.
Regulatory requirements applicable to pharmaceutical products
make the substitution of suppliers and manufacturers costly and
time consuming. We have no 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 clinical trials or otherwise inhibit our ability to
bring approved products to market, which would have a material
adverse effect on our business and financial condition.
Later discovery of previously unknown problems with our
proprietary or partnered products, manufacturing processes or
failure to comply with regulatory requirements, may result in
any of the following:
|
|
|
|
|
restrictions on our products or manufacturing processes;
|
|
|
|
warning letters;
|
|
|
|
withdrawal of the products from the market;
|
|
|
|
voluntary or mandatory recall;
|
|
|
|
fines;
|
|
|
|
suspension or withdrawal of regulatory approvals;
|
|
|
|
suspension or termination of any of our ongoing clinical trials;
|
|
|
|
refusal to permit the import or export of our products;
|
|
|
|
refusal to approve pending applications or supplements to
approved applications that we submit;
|
|
|
|
product seizure; or
|
|
|
|
injunctions or the imposition of civil or criminal penalties.
|
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
14
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 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 partners 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;
|
|
|
|
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. We cannot
assure you 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.
We may
wish to raise funds in the next twelve months, and there can be
no assurance that such funds will be available.
During the next twelve months, we may wish to raise additional
capital to continue the development of our product candidates or
for other corporate purposes. Our current cash position and
expected revenues during the next few years will not constitute
the amount of capital necessary for us to continue the
development of our proprietary product candidates and to fund
general operations. In addition, if we engage in acquisitions of
companies, products or technology in order to execute our
business strategy, we may need to raise additional capital. We
expect to raise additional capital in the future through one or
more financing vehicles that may be available to us. These
financing vehicles currently include: (i) the public
offering of securities; (ii) new collaborative agreements;
(iii) expansions or revisions to existing collaborative
relationships; (iv) private financings
and/or
(v) other equity or debt financings.
Currently, warrants to purchase approximately 1.9 million
shares of our common stock are outstanding and this amount of
outstanding warrants may make us a less desirable candidate for
investment for some potential investors. Considering our stage
of development, 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 we are successful in
raising additional capital, a substantial number of additional
shares may be issued and these shares will dilute the ownership
interest of our current investors.
If
proprietary or partnered product candidates are approved by the
FDA but do not gain market acceptance, our business may suffer
and we may not be able to fund future operations.
Assuming that our proprietary or partnered product candidates
obtain the necessary regulatory approvals, a number of factors
may affect the market acceptance of these existing product
candidates or any other products which are developed or acquired
in the future, including, among others:
|
|
|
|
|
the price of products relative to other therapies for the same
or similar treatments;
|
15
|
|
|
|
|
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;
|
|
|
|
our ability to fund our sales and marketing efforts and the
ability and willingness of our partners to fund sales and
marketing efforts;
|
|
|
|
the degree to which the use of these products is restricted by
the product label approved by the FDA;
|
|
|
|
the effectiveness of our sales and marketing efforts and the
effectiveness of the sales and marketing efforts of our
partners; and
|
|
|
|
the introduction of generic competitors.
|
If these products do not gain market acceptance, we may not be
able to fund future operations, including the development or
acquisition of new product candidates
and/or our
sales and marketing efforts for our approved products, which
would cause our business to suffer.
In addition, our proprietary and partnered product candidates
will be restricted to the labels approved by the FDA 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 products may be negatively
affected.
Developing
and marketing pharmaceutical products for human use involves
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 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 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 the
imposition of higher insurance requirements could impose
additional costs on us. In addition, since many of our partnered
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 biotechnology experience. Given our
relatively small staff size relative to the number of programs
currently under development, we depend substantially on our
ability to hire, train, retain and motivate high quality
personnel, especially our scientists and management team. 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 product candidates as expected or on
a timely basis and we may not be able to adequately support
current and future alliances with strategic partners.
Furthermore, if we were to lose key management personnel,
particularly Jonathan Lim, M.D., our President and Chief
Executive Officer, or Gregory Frost, Ph.D., our Chief
Scientific Officer, then 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. For example, Dr. Frost has been with us from soon
after our inception, and he possesses a substantial amount of
knowledge about our development efforts. If we were to lose his
services, we would experience delays in meeting our product
development schedules. In 2008, we adopted a severance policy
applicable to all employees and a change in control policy
applicable to senior executives. We have not adopted any other
policies or entered into any other agreements specifically
designed to motivate officers or other employees to remain with
us.
We do not have key man life insurance policies on the lives of
any of our employees, including Dr. Lim and Dr. Frost.
16
If we
or our partners do not achieve projected development goals in
the timeframes we publicly announce or otherwise expect, the
commercialization of our products and the development of our
product candidates may be delayed and, as a result, our stock
price may decline.
We 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 control. If scientific,
regulatory, strategic or other factors cause us to not meet a
goal, regardless of whether that goal has been publicly
articulated or not, the commercialization of our products and
the development of our proprietary and partnered product
candidates may be delayed. In addition, the consistent failure
to meet publicly announced milestones may erode the credibility
of our management team with respect to future milestone
estimates.
Risks
Related To Ownership of Our Common Stock
Future
sales of shares of our common stock upon the exercise of
currently outstanding securities or pursuant to our universal
shelf registration statement may negatively affect our stock
price.
As a result of our October 2004 financing transaction, we issued
warrants for the purchase of approximately 2.7 million
shares of common stock at a purchase price of $2.25 per share.
Currently, approximately 1.9 million shares of common stock
remain issuable upon the exercise of these warrants. The
exercise of these warrants could result in dilution to
stockholders at the time of exercise which could negatively
affect our stock price.
We currently have the ability to offer and sell up to
$50.0 million of additional equity or debt securities under
a currently effective universal shelf registration statement.
Sales of substantial amounts of shares of our common stock or
other securities under our universal shelf registration
statement could lower the market price of our common stock and
impair our ability to raise capital through the sale of equity
securities. In the future, we may issue additional options,
warrants or other derivative securities convertible into 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. As a result, our high and
low sales prices of our common stock during the twelve months
ended December 31, 2008 were $8.26 and $2.60, 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 Annual Report on
Form 10-K
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:
|
|
|
|
|
our failure, or the failure of one of our third party partners,
to comply with the terms of our collaboration agreements;
|
|
|
|
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;
|
|
|
|
general negative conditions in the healthcare industry;
|
|
|
|
general negative conditions in the financial markets;
|
|
|
|
the failure, for any reason, to obtain FDA approval for any of
our proprietary or partnered product candidates;
|
|
|
|
the failure, for any reason, to secure or defend our
intellectual property position;
|
|
|
|
for those products that are approved by the FDA, the failure of
the FDA to approve such products in a timely manner consistent
with the FDAs historical approval process;
|
|
|
|
the suspension of any clinical trial due to safety or patient
tolerability issues;
|
|
|
|
the suspension of any clinical trial due to market
and/or
competitive conditions;
|
17
|
|
|
|
|
our failure, or the failure of our third party partners, to
successfully commercialize products approved by the FDA;
|
|
|
|
our failure, or the failure of our third party partners, to
generate product revenues anticipated by investors;
|
|
|
|
problems with an API contract manufacturer or a fill and finish
manufacturer for any product or product candidate;
|
|
|
|
the sale of additional debt
and/or
equity securities by us; and
|
|
|
|
the departure of key personnel.
|
Trading
in our stock has historically been limited, so investors may not
be able to sell as much stock as they want to at prevailing
market prices.
Our stock has historically traded at a low daily trading volume.
If low trading volume continues, it may be difficult for
stockholders to sell their shares in the public market at any
given time at prevailing prices.
The
exercise of outstanding warrants may drive down the market price
of our stock.
Outstanding warrants that may be exercised for approximately
1.9 million shares of common stock will expire per their
terms in October 2009. Some warrant holders may choose to sell
outstanding shares of common stock in order to finance the
exercise of their warrants and this pattern of selling may
result in a reduction of our common stocks market price.
Risks
Related To Our Industry
Compliance
with the extensive government regulations to which we are
subject is expensive and time consuming and may result in the
delay or cancellation of 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 federal government,
principally the FDA and, to a lesser extent, the U.S. Drug
Enforcement Administration, or DEA, and foreign and state
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. Under certain of these regulations, 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 we, or our contract supplier, fail
these inspections, we may not be able to commercialize our
product 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.
We are dependent on receiving FDA and other governmental
approvals prior to manufacturing, marketing and shipping our
products. Consequently, there is always a risk that the FDA or
other applicable governmental authorities will not approve our
products, or will take post-approval action limiting or revoking
our ability to sell our products, or that the rate, timing and
cost of such approvals will adversely affect our product
introduction plans or results of operations.
18
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 rely on patents to protect our intellectual property rights.
The strength of this protection, however, is uncertain. For
example, it is not certain that:
|
|
|
|
|
our patents and pending patent applications cover products
and/or
technology that we invented first;
|
|
|
|
we were the first to file patent applications for these
inventions;
|
|
|
|
others will not independently develop similar or alternative
technologies or duplicate our technologies;
|
|
|
|
any of our pending patent applications will result in issued
patents; and
|
|
|
|
any of our issued patents, or patent pending applications that
result in issued patents, will be held valid and infringed in
the event the patents are asserted against others.
|
We currently own or license several U.S. patents and also
have pending patent applications. 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. Such 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, this could 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 to determine the priority
of our inventions. In addition, costly litigation could be
necessary to protect our patent position. We also rely on
trademarks to protect the names of our products. These
trademarks may not be acceptable to regulatory agencies. In
addition, these 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
based on what they believe are their own intellectual property
rights. If we become involved in any intellectual property
litigation, we may be required to pay substantial damages,
including but not limited to treble damages, for past
infringement if it is ultimately determined that our products
infringe a third partys intellectual property rights. Even
if infringement claims against us are without merit, defending a
lawsuit takes significant time, may be expensive and may divert
managements 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 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, in
recent years, several members of the United States Congress have
19
made numerous proposals to change the patent statute. These
proposals include measures that, among other things, would
expand the ability of third parties to oppose United States
patents, introduce the first to file standard to the
United States patent system, and limit damages an infringer is
required to pay. If the patent statute is changed, the scope,
validity and enforceability of our patents may be significantly
decreased.
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 may lead to narrower
patent protection, or narrower claim interpretation, for 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 United States, 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, our products may not be accepted in the
market.
Our ability to earn sufficient returns on our products will
depend in part on the extent to which reimbursement for our
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 commercialize, which
could limit their market acceptance and result in a material
adverse effect on our 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 our products are 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
financial condition.
The
rising cost of healthcare and related pharmaceutical product
pricing has led to cost containment pressures that could cause
us to sell our products at lower prices, resulting in less
revenue to us.
Any of the proprietary or partnered 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 United
States, 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 products. Furthermore, individual states 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 United States.
20
We
face intense competition and rapid technological change that
could result in the development of products by others that are
superior to our proprietary and partnered products under
development.
Our proprietary and partnered products have numerous competitors
in the United States and abroad including, among others, major
pharmaceutical and specialized biotechnology firms, universities
and other research institutions that have developed competing
products. For example, for HYLENEX, such competitors include,
but are not limited to, Sigma-Aldrich Corporation, ISTA
Pharmaceuticals, Inc., Amphastar Pharmaceuticals, Inc. and
Primapharm, Inc. among others. For our Insulin-PH20 product
candidate, such competitors include Biodel Inc. and Mannkind
Corporation. These competitors may develop technologies and
products that are more effective, safer, or less costly than our
current or future proprietary and partnered product candidates
or that could render our 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 1B.
|
Unresolved
Staff Comments
|
None.
Our administrative offices and research facilities are currently
located in San Diego, California. We lease an aggregate of
approximately 51,500 square feet of office and research
space for a monthly rent expense of approximately $114,000, net
of costs and property taxes associated with the operation and
maintenance of the subleased facilities. We believe the current
space is adequate for our immediate needs.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we may be involved in litigation relating to
claims arising out of operations in the normal course of our
business. Any of these claims could subject us to costly
litigation 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 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 managements opinion, individually or
in the aggregate, would have a material adverse effect on our
results of operations or financial position.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
21
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information
Since May 10, 2007, our common stock has traded on the
NASDAQ Stock Market under the symbol HALO. During
the period from January 1, 2007 to May 9, 2007, our
common stock traded under the symbol HTI on The
American Stock Exchange (the AMEX). The following
table sets forth the high and low sales prices per share of our
common stock during each quarter of the two most recent fiscal
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
7.25
|
|
|
$
|
4.19
|
|
|
$
|
9.70
|
|
|
$
|
6.75
|
|
Second Quarter
|
|
$
|
6.62
|
|
|
$
|
4.75
|
|
|
$
|
11.00
|
|
|
$
|
8.00
|
|
Third Quarter
|
|
$
|
8.26
|
|
|
$
|
5.35
|
|
|
$
|
10.50
|
|
|
$
|
7.49
|
|
Fourth Quarter
|
|
$
|
7.29
|
|
|
$
|
2.60
|
|
|
$
|
9.46
|
|
|
$
|
6.00
|
|
On February 27, 2009, the closing sales price of our common
stock on the NASDAQ Stock Market was $4.43 per share. As of
February 27, 2009, we had approximately 3,500 stockholders
of record. We have not paid any dividends on our common stock
since our inception and do not expect to pay dividends on our
common stock in the foreseeable future.
22
Stock
Performance Graph and Cumulative Total Return
Notwithstanding any statement to the contrary in any of our
previous or future filings with the SEC, the following
information relating to the price performance of our common
stock shall not be deemed to be filed with the SEC
or to be soliciting material under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, and it
shall not be deemed to be incorporated by reference into any of
our filings under the Securities Act or the Exchange Act, except
to the extent we specifically incorporate it by reference into
such filing.
The graph below compares Halozyme Therapeutics, Inc.s
cumulative
57-month
total shareholder return on common stock with the cumulative
total returns of the NASDAQ Composite index and the NASDAQ
Biotechnology index. The graph tracks the performance of a $100
investment in our common stock and in each of the indexes (with
the reinvestment of all dividends) from March 12, 2004 to
December 31, 2008. The historical stock price performance
included in this graph is not necessarily indicative of future
stock price performance.
COMPARISON
OF 57 MONTH CUMULATIVE TOTAL RETURN*
Among Halozyme Therapeutics, Inc., The NASDAQ Composite Index
And The NASDAQ Biotechnology Index
|
|
* |
$100 invested on March 12, 2004 in stock or on
February 29, 2004 in index-including reinvestment of
dividends.
Fiscal year ending December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/04
|
|
|
12/04
|
|
|
12/05
|
|
|
12/06
|
|
|
12/07
|
|
|
12/08
|
Halozyme Therapeutics, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
53.01
|
|
|
|
$
|
43.86
|
|
|
|
$
|
193.98
|
|
|
|
$
|
171.33
|
|
|
|
$
|
134.94
|
|
NASDAQ Composite
|
|
|
$
|
100.00
|
|
|
|
$
|
107.97
|
|
|
|
$
|
110.72
|
|
|
|
$
|
124.09
|
|
|
|
$
|
135.48
|
|
|
|
$
|
78.93
|
|
NASDAQ Biotechnology
|
|
|
$
|
100.00
|
|
|
|
$
|
103.56
|
|
|
|
$
|
120.50
|
|
|
|
$
|
120.06
|
|
|
|
$
|
122.08
|
|
|
|
$
|
112.72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent
Sales of Unregistered Securities
During the quarter ended December 31, 2008, holders of
various outstanding warrants exercised their rights to purchase
391,308 common shares for gross proceeds of approximately
$429,000. The shares and underlying warrants were purchased for
investment in a private placement exempt from the registration
requirements of the Securities Act pursuant to Section 4(2)
thereof.
23
|
|
Item 6.
|
Selected
Financial Data
|
The selected consolidated financial data set forth below as of
December 31, 2008 and 2007, and for the fiscal years ended
December 31, 2008, 2007 and 2006, are derived from our
audited consolidated financial statements included elsewhere in
this report. This information should be read in conjunction with
those consolidated financial statements, the notes thereto, and
with Managements Discussion and Analysis of
Financial Condition and Results of Operations. The
selected consolidated financial data set forth below as of
December 31, 2006, 2005 and 2004, and for the fiscal years
ended December 31, 2005 and 2004, are derived from our
audited consolidated financial statements that are contained in
reports previously filed with the SEC, not included herein.
Summary
Financial Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Statement of Operations Data:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Total revenues
|
|
$
|
8,764,139
|
|
|
$
|
3,799,521
|
|
|
$
|
981,746
|
|
|
$
|
127,209
|
|
|
$
|
|
|
Net loss
|
|
|
(48,654,199
|
)
|
|
|
(23,896,183
|
)
|
|
|
(14,751,986
|
)
|
|
|
(13,275,373
|
)
|
|
|
(9,091,376
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.61
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.26
|
)
|
Shares used in computing net loss per share, basic and diluted
|
|
|
79,843,707
|
|
|
|
74,317,930
|
|
|
|
62,610,265
|
|
|
|
50,317,021
|
|
|
|
35,411,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
Balance Sheet Data:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Cash and cash equivalents
|
|
$
|
63,715,906
|
|
|
$
|
97,679,085
|
|
|
$
|
44,189,403
|
|
|
$
|
19,132,194
|
|
|
$
|
16,007,714
|
|
Working capital
|
|
|
59,794,370
|
|
|
|
92,312,937
|
|
|
|
41,343,010
|
|
|
|
17,802,804
|
|
|
|
14,566,209
|
|
Total assets
|
|
|
76,562,713
|
|
|
|
103,460,374
|
|
|
|
46,091,320
|
|
|
|
20,510,255
|
|
|
|
16,403,671
|
|
Deferred revenues
|
|
|
49,448,456
|
|
|
|
39,269,491
|
|
|
|
19,981,537
|
|
|
|
254,138
|
|
|
|
|
|
Total liabilities
|
|
|
61,182,717
|
|
|
|
45,692,450
|
|
|
|
23,010,085
|
|
|
|
2,303,368
|
|
|
|
1,579,413
|
|
Stockholders equity
|
|
|
15,379,996
|
|
|
|
57,767,924
|
|
|
|
23,081,235
|
|
|
|
18,206,887
|
|
|
|
14,824,258
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operation
|
In addition to historical information, the following
discussion contains forward-looking statements that are subject
to risks and uncertainties. Actual results may differ
substantially from those referred to herein due to a number of
factors, including but not limited to risks described in the
Part I, Item 1A Risks Factors and
elsewhere in this Annual Report.
Overview
We are a biopharmaceutical company dedicated to the development
and commercialization of products targeting the extracellular
matrix for the endocrinology, oncology, dermatology and drug
delivery markets. Our existing products and our products under
development are based on intellectual property covering the
family of human enzymes known as hyaluronidases. Hyaluronidases
are enzymes (proteins) that break down hyaluronan, or HA, which
is a naturally occurring space-filling, gel-like substance that
is a major component of tissues throughout the body, such as
skin and bone. Our technology is based on our proprietary
recombinant human PH20 enzyme, or rHuPH20, a human synthetic
version of hyaluronidase. The PH20 enzyme is a naturally
occurring enzyme that digests HA to temporarily break down the
gel, thereby facilitating the penetration and diffusion of other
drugs and fluids that are injected under the skin or in the
muscle. Our proprietary technology is applicable to multiple
therapeutic areas and may be used to both expand existing
markets and create new ones. Our technology may be utilized for
the development of our own proprietary products and it may also
be applied to existing and developmental products of third
parties through key partnerships.
24
Our operations to date have been limited to organizing and
staffing our operating subsidiary, Halozyme, Inc., acquiring,
developing and securing our technology and undertaking product
development for our existing products and a limited number of
product candidates. Over the last year, we increased our focus
on our proprietary product pipeline and have expanded
investments in our proprietary product candidates. We currently
have five programs in various stages of research and
development, including three programs in clinical development.
We also have three partnered programs. Our key partnerships are
with F. Hoffmann-La Roche, Ltd and Hoffmann-La Roche,
Inc., or Roche, to apply
Enhanzetm
Technology to Roches biological therapeutic compounds for
up to 13 targets and with Baxter Healthcare Corporation, or
Baxter, to apply Enhanze Technology to Baxters biological
therapeutic compound, GAMMAGARD
LIQUIDtm.
We have two marketed products: HYLENEX, a registered trademark
of Baxter International, Inc., a product used as an adjuvant to
increase the absorption and dispersion of other injected drugs
and fluids, and
Cumulase®,
a product used for in vitro fertilization, or IVF.
Currently, we have only limited revenue from the sales of
HYLENEX and Cumulase, in addition to revenues from our
partnerships with Baxter and Roche.
We have product candidates in the research, preclinical and
clinical stages, but future revenues from the sales of these
product candidates will depend on our ability to develop,
manufacture, obtain regulatory approvals for and successfully
commercialize product candidates. It may be years, if ever,
before we are able to obtain regulatory approvals for these
product candidates. We have incurred net operating losses each
year since inception, with an accumulated deficit of
approximately $113.6 million as of December 31, 2008.
We currently have an effective universal shelf registration
statement which allows us to offer and sell up to
$50.0 million of equity or debt securities and we may
utilize this universal shelf in the future to raise capital to
fund the continued development of our product candidates, the
commercialization of our products or for other general corporate
purposes.
Collaborative
Partnerships
Roche
Partnership
In December 2006, Halozyme and Roche entered into an Enhanze
Technology partnership, or Roche Partnership. Under the terms of
the Roche Partnership, Roche obtained a worldwide, exclusive
license to develop and commercialize product combinations of
rHuPH20 and up to thirteen Roche target compounds resulting from
the collaboration. Under the terms of the Roche Partnership, we
were obligated to scale up the production of rHuPH20 and to
identify a second source manufacturer that would help meet
anticipated production obligations arising from the partnership.
To that end, during 2008, we entered into a Technology Transfer
Agreement and a Clinical Supply Agreement with a second rHuPH20
manufacturer. This manufacturer has the capacity to produce the
quantities we are required to deliver under the terms of the
Roche Partnership. The technology transfer was completed in 2008
with
scale-up and
clinical supply manufacturing planned for 2009.
Roche initially had the exclusive right to apply rHuPH20 to only
three pre-defined Roche biologic targets with the option to
exclusively develop and commercialize rHuPH20 with an additional
ten targets. Pending the successful completion of various
clinical, regulatory and sales events, Roche will be obligated
to make milestone payments to us as well as royalty payments on
the sales of products that result from the partnership. In
December 2008, we announced that Roche elected to add a fourth
exclusive target to the three original exclusive targets, and we
previously announced the commencement of Phase I clinical trials
for products directed at two of these four exclusive targets.
Roche retains the option to exclusively develop and
commercialize rHuPH20 with an additional nine targets through
the payment of annual license maintenance fees.
Baxter
Gammagard Partnership
GAMMAGARD LIQUID is a current Baxter product that is indicated
for the treatment of primary immunodeficiency disorders
associated with defects in the immune system. In September 2007,
Halozyme and Baxter entered into an Enhanze Technology
partnership, or the Gammagard Partnership. Under the terms of
this partnership, Baxter obtained a worldwide, exclusive license
to develop and commercialize product combinations of rHuPH20
with GAMMAGARD LIQUID. Pending the successful completion of
various regulatory and sales milestones, Baxter will be
obligated to make milestone payments to us as well as royalty
payments on the sales of
25
products that result from the partnership. Baxter is responsible
for all development, manufacturing, clinical, regulatory, sales
and marketing costs under the Gammagard Partnership, while we
will be responsible for the supply of the rHuPH20 enzyme. In
addition, Baxter has certain product development and
commercialization obligations in major markets identified in the
Gammagard License. In January of 2009 we announced the
commencement of a Phase III clinical trial for GAMMAGARD
LIQUID with rHuPH20.
HYLENEX
Partnership
HYLENEX is a human recombinant formulation of rHuPH20 that, when
injected under the skin, facilitates the absorption and
dispersion of other injected drugs or fluids. In February 2007,
Halozyme and Baxter amended certain existing agreements relating
to HYLENEX and entered into a new agreement for kits and
formulations with rHuPH20, or the HYLENEX Partnership. Pending
the successful completion of a series of regulatory and sales
events, Baxter will be obligated to make milestone payments to
us as well as royalty payments on the sales of products that
result from the partnership. Baxter is responsible for
development, manufacturing, clinical, regulatory, sales and
marketing costs of the products covered by the HYLENEX
Partnership. We will continue to supply Baxter with the active
pharmaceutical ingredient for HYLENEX, and Baxter will prepare,
fill, finish and package HYLENEX and hold it for subsequent
distribution. In addition, under the HYLENEX Partnership, Baxter
has a worldwide, exclusive license to develop and commercialize
product combinations of rHuPH20 with Baxter hydration fluids and
generic small molecule drugs, with the exception of combinations
with (i) bisphosphonates, as well as (ii) cytostatic
and cytotoxic chemotherapeutic agents, the rights to which have
been retained by Halozyme.
Revenues
Revenues from product sales depend on our ability to develop,
manufacture, obtain regulatory approvals for and successfully
commercialize our products and product candidates.
Revenues from license and collaboration agreements are
recognized based on the performance requirements of the
underlying agreements. Revenue is deferred for fees received
before they are earned. Nonrefundable upfront payment and
license fees, where we have an ongoing involvement or
performance obligation, are recorded as deferred revenue and
recognized as revenue over the contract or development period.
Milestone payments are generally recognized as revenue upon the
achievement of the milestones as specified in the underlying
agreement, assuming we meet certain criteria. Royalty revenues
from the sale of licensed products are recognized upon the sale
of such products.
During 2006 and 2007, we entered into the Roche Partnership, the
HYLENEX Partnership and the Gammagard Partnership. Elements of
these partnerships include nonrefundable license fees,
reimbursements of research and development services, various
clinical, regulatory or sales milestones and future
product-based or royalty payments, as applicable. Due to our
ongoing involvement obligations under these partnerships, we
recorded the nonrefundable license fees as deferred revenues.
Such revenues are being recognized over the terms of the
underlying agreements that define the terms of the partnerships.
Costs
and Expenses
Cost of Sales. Cost of sales consists
primarily of raw materials, third-party manufacturing costs,
fill and finish costs, and freight costs associated with the
sales of Cumulase, and the API for HYLENEX.
Research and Development. Our research and
development expenses consist primarily of costs associated with
the development and manufacturing of our product candidates,
compensation and other expenses for research and development
personnel, supplies and materials, costs for consultants and
related contract research, clinical trials, facility costs and
depreciation. We charge all research and development expenses to
operations as they are incurred. Our research and development
activities are primarily focused on the development of our
various product candidates.
Since our inception in 1998 through 2008, we have incurred
research and development expenses of $93.1 million. From
2006 through 2008, approximately 11% of our research and
development expenses were associated with the research and
development of our recombinant human PH20 enzyme used in our
HYLENEX
26
product, and approximately 11% and 8% of our research and
development expenses were associated with the development of our
PEGPH20 and Insulin-PH20 product candidates, respectively. Due
to the uncertainty in obtaining FDA approval, our reliance on
third parties and competitive pressures, we are unable to
estimate with any certainty the additional costs we will incur
in the continued development of our proprietary product
candidates for commercialization. However, we expect our
research and development expenses to increase substantially if
we are able to advance our product candidates into later stages
of clinical development.
Clinical development timelines, likelihood of success and total
costs vary widely. We anticipate that we will make ongoing
determinations as to which research and development projects to
pursue and how much funding to direct to each project on an
ongoing basis in response to the scientific and clinical
progress of each product candidate and other market and
regulatory developments. We plan on focusing our resources on
those proprietary and partnered product candidates that
represent the most valuable economic and strategic opportunities.
Product candidate completion dates and costs vary significantly
for each product candidate and are difficult to estimate. The
lengthy process of seeking regulatory approvals and the
subsequent compliance with applicable regulations require the
expenditure of substantial resources. Any failure by us to
obtain, or any delay in obtaining, regulatory approvals could
cause our research and development expenditures to increase and,
in turn, have a material adverse effect on our results of
operations. We cannot be certain when, or if, our product
candidates will receive regulatory approval or whether any net
cash inflow from our other product candidates, or development
projects, will commence.
Selling, General and Administrative. Selling,
general and administrative, or SG&A, expenses consist
primarily of compensation and other expenses related to our
corporate operations and administrative employees, accounting
and legal fees, other professional services expenses, marketing
expenses, as well as other expenses associated with operating as
a publicly traded company. We anticipate continued increases in
SG&A expenses as our operations continue to expand.
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial position and
results of operations are based on our consolidated financial
statements, which have been prepared in accordance with
U.S. generally accepted accounting principles, or
U.S. GAAP. The preparation of our 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. We review our estimates on an ongoing basis. We
base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different
assumptions or conditions. We believe the following accounting
policies to be critical to the judgments and estimates used in
the preparation of our consolidated financial statements.
Revenue
Recognition
We generate revenues from product sales and collaborative
agreements. Payments received under collaborative agreements may
include nonrefundable fees at the inception of the agreements,
license fees, milestone payments for specific achievements
designated in the collaborative agreements, reimbursements of
research and development services
and/or
royalties on sales of products resulting from collaborative
arrangements.
We recognize revenue in accordance with SEC Staff Accounting
Bulletin, or SAB, No. 104, Revenue Recognition, and
Emerging Issues Task Force, or EITF, Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. Revenue
is recognized when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the sellers price to the buyer is fixed and
determinable; and (4) collectibility is reasonably assured.
Product
Sales
Revenues from the sale of Cumulase are recognized when the
transfer of ownership occurs, which is upon shipment to the
distributors. We are obligated to accept returns for product
that does not meet product
27
specifications. Historically, we have not had any product
returns; therefore, no allowance for product returns has been
established.
Under the terms of the HYLENEX Partnership, we supply Baxter the
API for HYLENEX at our fully burdened cost plus a margin. Baxter
fills and finishes HYLENEX and holds it for subsequent
distribution, at which time we ensure it meets product
specifications and release it as available for sale. Because of
our continued involvement in the development and production
process of HYLENEX, the earnings process is not considered to be
complete. Accordingly, we defer the revenue and related product
costs on the API for HYLENEX until the product is filled,
finished, packaged and released. Baxter may only return the API
for HYLENEX to us if it does not conform to certain specified
criteria set forth in the HYLENEX Partnership or upon
termination of such agreement. We have historically demonstrated
that the API shipped to Baxter has consistently met the
specified criteria. Therefore, no allowance for product returns
has been established. In addition, we receive product-based
payments upon the sale of HYLENEX by Baxter, in accordance with
the terms of the HYLENEX Partnership. Product sales revenues are
recognized as we earn such revenues based on Baxters
shipments of HYLENEX to its distributors when such amounts can
be reasonably estimated. Through February 2009, Baxter has
prepaid $10.0 million of product-based payments which has
been deferred and is being recognized as earned.
Revenues
under Collaborative Agreements
Revenues from collaborative and licensing agreements are
recognized based on the performance requirements of the
underlying agreements. Revenue is deferred for fees received
before they are earned. Nonrefundable upfront payments and
license fees, in which we have an ongoing involvement or
performance obligation, are recorded as deferred revenue and
recognized as revenue over the contract or development period.
We recognize milestone payments upon the achievement of
specified milestones if (1) the milestone is substantive in
nature and the achievement of the milestone was not reasonably
assured at the inception of the agreement, (2) the fees are
nonrefundable and (3) our performance obligations after the
milestone achievement will continue to be funded by our
collaborator at a level comparable to the level before the
milestone achievement. Any milestone payments received prior to
satisfying these revenue recognition criteria are recorded as
deferred revenue. Reimbursements of research and development
services are recognized as revenue during the period in which
the services are performed. Royalties to be received based on
sales of licensed products by our collaborators incorporating
our products are recognized as earned in accordance with the
terms of the underlying agreements.
Share-Based
Payments
We account for share-based awards exchanged for employee
services in accordance with Statement of Financial Accounting
Standards, or SFAS, No. 123(R), Share-Based Payment,
which we adopted effective January 1, 2006, including the
provisions of the SAB No. 107 and 110. We use the fair
value method to account for share-based payments with a modified
prospective application which provides for certain changes to
the method for valuing share-based compensation. The valuation
provisions of SFAS No. 123R apply to new awards and
awards that are outstanding on the effective date and
subsequently modified or cancelled. Under the modified
prospective application, prior periods were not revised for
comparative purposes.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes-Merton option pricing model, or
Black-Scholes model, that uses assumptions regarding a number of
complex and subjective variables. These variables include, but
are not limited to, our expected stock price volatility, actual
and projected employee stock option exercise behaviors,
risk-free interest rate and expected dividends. Expected
volatilities are based on the historical volatility of our
common stock and our peer group. The expected term of options
granted is based on analyses of historical employee termination
rates and option exercises. The risk-free interest rates are
based on the U.S. Treasury yield in effect at the time of
the grant. Since we do not expect to pay dividends on our common
stock in the foreseeable future, we estimated the dividend yield
to be 0%. SFAS No. 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. We estimate pre-vesting forfeitures based on our
historical experience and those of our peer group.
28
If factors change and we employ different assumptions in the
application of SFAS No. 123R in future periods, the
share-based compensation expense that we record under
SFAS No. 123R may differ significantly from what we
have recorded in the current period. There is a high degree of
subjectivity involved when using option pricing models to
estimate share-based compensation under SFAS No. 123R.
Certain share-based payments, such as employee stock options,
may expire worthless or otherwise result in zero intrinsic value
as compared to the fair values originally estimated on the grant
date and reported in our consolidated financial statements.
Alternatively, values may be realized from these instruments
that are significantly in excess of the fair values originally
estimated on the grant date and reported in our consolidated
financial statements. There is currently no market-based
mechanism or other practical application to verify the
reliability and accuracy of the estimates stemming from these
valuation models, nor is there a means to compare and adjust the
estimates to actual values. Although the fair value of employee
share-based awards is determined in accordance with
SFAS No. 123R and SAB No. 107 and 110 using
an option-pricing model, that value may not be indicative of the
fair value observed in a willing buyer/willing seller market
transaction.
Research
and Development Expenses
Research and development expenses include salaries and benefits,
facilities and other overhead expenses, clinical trials,
research-related manufacturing services, contract services and
other outside expenses. Research and development expenses are
charged to operations as they are incurred. Advance payments,
including nonrefundable amounts, for goods or services that will
be used or rendered for future research and development
activities are deferred and capitalized. Such amounts will be
recognized as an expense as the related goods are delivered or
the related services are performed. If the goods will not be
delivered, or services will not be rendered, then the
capitalized advance payment is charged to expense.
Milestone payments that we make in connection with in-licensed
technology or product candidates are expensed as incurred when
there is uncertainty in receiving future economic benefits from
the licensed technology or product candidates. We consider the
future economic benefits from the licensed technology or product
candidates to be uncertain until such licensed technology or
product candidates are approved for marketing by the
U.S. Food and Drug Administration or when other significant
risk factors are abated. For expense accounting purposes,
management has viewed future economic benefits for all of our
licensed technology or product candidates to be uncertain.
Payments in connection with our clinical trials are often made
under contracts with multiple contract research organizations
that conduct and manage clinical trials on our behalf. 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-material
basis. Payments under these contracts depend 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 clinical trials progress. Other incidental
costs related to patient enrollment or treatment are accrued
when reasonably certain. If the contracted amounts are modified
(for instance, as a result of changes in the clinical trial
protocol or scope of work to be performed), we modify our
accruals accordingly on a prospective basis. Revisions in scope
of contract are charged to expense in the period in which the
facts that give rise to the revision become reasonably certain.
Because of the uncertainty of possible future changes to the
scope of work in clinical trials contracts, we are unable to
quantify an estimate of the reasonably likely effect of any such
changes on our consolidated results of operations or financial
position. Historically, we have had no material changes in our
clinical trial expense accruals that would have had a material
impact on our consolidated results of operations or financial
position.
Inventory
Inventory consists of our Cumulase product and our API for
HYLENEX. Inventory primarily represents raw materials used in
production, work in process and finished goods inventory on
hand, valued at actual cost. Inventory is reviewed periodically
for slow-moving or obsolete items. If a launch of a new product
is delayed, inventory may
29
not be fully utilized and could be subject to impairment, at
which point we would record a reserve to adjust inventory to its
net realizable value.
Fair
Value Measurements
Effective January 1, 2008, we adopted
SFAS No. 157, Fair Value Measurements, and FASB
Staff Position, or FSP,
No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value under U.S. GAAP and enhances disclosures about fair
value measurements. FSP
No. FAS 157-3
clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial
asset when the market for that financial asset is not active.
The adoption of SFAS No. 157 and FSP
No. FAS 157-3
did not have a material impact on our consolidated financial
position or results of operations.
SFAS 157 prioritizes the inputs used in measuring fair
value into the following hierarchy:
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
|
Level 2
|
|
Inputs other than quoted prices included within Level 1
that are either directly or indirectly observable; and
|
Level 3
|
|
Unobservable inputs in which little or no market activity
exists, therefore requiring an entity to develop its own
assumptions about the assumptions that market participants would
use in pricing.
|
Cash and cash equivalents of approximately $63.7 million at
December 31, 2008 are carried at fair value based on quoted
market prices for identical securities (Level 1 inputs).
Effective January 1, 2008, we adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159
allows an entity the irrevocable option to elect to measure
specified financial assets and liabilities in their entirety at
fair value on a
contract-by-contract
basis. If an entity elects the fair value option for an eligible
item, changes in the items fair value must be reported as
unrealized gains and losses in earnings at each subsequent
reporting date. In adopting SFAS No. 159, we did not
elect the fair value option for any of our financial assets or
financial liabilities.
The above listing is not intended to be a comprehensive list of
all of our accounting policies. In many cases, the accounting
treatment of a particular transaction is specifically dictated
by U.S. GAAP. There are also areas in which our
managements judgment in selecting any available
alternative would not produce a materially different result.
Please see our audited consolidated financial statements and
notes thereto included in Part II Item 8
of this report, which contain accounting policies and other
disclosures required by U.S. GAAP.
Results
of Operations
Comparison
of Years Ended December 31, 2008 and 2007
Revenues Under Collaborative
Agreements Revenues under collaborative
agreements were approximately $8.1 million for the year
ended December 31, 2008 compared to $3.2 million for
the year ended December 31, 2007. Revenues under
collaborative agreements primarily consisted of the amortization
of license fees and milestone payments received from Baxter and
Roche of approximately $3.4 million and $1.9 million
in 2008 and 2007, respectively. Revenues under collaborative
agreements also included reimbursements for research and
development services from Baxter of $3.0 million and
$543,000 and Roche of $1.7 million and $749,000 in 2008 and
2007, respectively. Such reimbursements are for research and
development services rendered by us at the request of Baxter and
Roche and the amount of future revenues related to reimbursable
research and development services is uncertain. We expect the
non-reimbursement revenues under our collaborative agreements to
continue to increase in future periods provided that we meet
various clinical and regulatory milestones set forth in such
agreements.
Product Sales Product sales were
$712,000 for the year ended December 31, 2008 compared to
$640,000 for the year ended December 31, 2007. The increase
of $72,000, or 11%, was primarily due to the increase in sales
30
of HYLENEX and the API for HYLENEX. Based upon representations
made to us by Baxter regarding the 2009 launch of HYLENEX, we
expect product sales to increase in future periods due to
increased HYLENEX sales.
Cost of Sales Cost of sales were
$332,000 for the year ended December 31, 2008 compared to
$240,000 for the year ended December 31, 2007. The increase
of $92,000, or 38%, was due to the increase in sales of the API
for HYLENEX and an increase in the cost of Cumulase sales in
2008.
Research and Development Research and
development expenses were $44.2 million for the year ended
December 31, 2008 compared to $20.6 million for the
year ended December 31, 2007. The increase of
$23.6 million, or 115%, was primarily due to the increase
in outsourced research and development costs of
$10.6 million, related to our various preclinical programs
and the manufacturing
scale-up of
our rHuPH20 enzyme, and increased compensation costs of
$6.6 million, of which $878,000 related to increased
share-based compensation, primarily due to the increase in our
research and development headcount. At December 31, 2008,
our headcount for research and development functions totaled
96 employees, compared with 56 employees at
December 31, 2007. Additionally, our clinical trial
expenses increased by $3.0 million, research supplies
expenses increased by $1.3 million and facilities expenses
increased by $1.2 million resulting from leasing larger
facilities effective July 2007 to accommodate the increase in
headcount in 2008 as compared to 2007. We expect certain
research and development costs to increase in future periods as
we increase our research efforts and headcount, expand our
clinical trials and continue to develop and manufacture our
product candidates.
Selling, General and Administrative
SG&A expenses were $14.6 million for the year ended
December 31, 2008 compared to $11.2 million for the
year ended December 31, 2007. The increase of approximately
$3.4 million, or 30%, was primarily due to the increase in
compensation costs of $2.0 million, of which $237,000
related to share-based compensation. At December 31, 2008,
our headcount for SG&A functions totaled 34 employees,
compared with 27 employees at December 31, 2007. Legal
expenses also increased during this period by $955,000, of which
$576,000 related to patent applications and $635,000 related to
the settlement of an arbitration matter. Facilities expenses
also increased by $246,000 and insurance expenses increased by
$273,000 in 2008 as compared to 2007. We expect SG&A
expenses to increase in future periods as we continue to expand
our operations.
Share-Based Compensation Total
compensation cost for our share-based payments was
$3.7 million for the year ended December 31, 2008
compared to $2.6 million for the year ended
December 31, 2007. Research and development expense
included share-based compensation of approximately
$1.5 million and $663,000 in 2008 and 2007, respectively.
SG&A expenses included share-based compensation of
approximately $2.2 million and $1.9 million in 2008
and 2007, respectively. As of December 31, 2008,
$6.5 million of total unrecognized compensation costs
related to non-vested stock options and restricted stock awards
is expected to be recognized over a weighted average period of
2.8 years.
Interest Income Interest income was
$1.7 million for the year ended December 31, 2008
compared to $4.3 million for the year ended
December 31, 2007. The decrease in interest income was
primarily due to lower interest rates and lower average cash and
cash equivalent balances in 2008 as compared to the same period
in 2007.
Net Loss Net loss for the year ended
December 31, 2008 was $48.7 million, or $0.61 per
common share, compared to $23.9 million, or $0.32 per
common share for the year ended December 31, 2007. The
increase in net loss was primarily due to an increase in
operating expenses, partially offset by increases in revenues.
Comparison
of Years Ended December 31, 2007 and 2006
Revenues Under Collaborative
Agreements Revenues under collaborative
agreements were approximately $3.2 million for the year
ended December 31, 2007 compared to $311,000 for the year
ended December 31, 2006. Revenues under collaborative
agreements primarily consisted of the amortization of upfront
fees received from Baxter and Roche of approximately
$1.9 million and $81,000 in 2007 and 2006, respectively.
Revenues under collaborative agreements also included
reimbursements for research and development services from Baxter
and Roche of $1.3 million and $230,000 in 2007 and 2006,
respectively.
Product Sales Product sales were
$640,000 for the year ended December 31, 2007 compared to
$671,000 for the year ended December 31, 2006, a decrease
of $31,000, or 5%. Cumulase product sales were $516,000 and
31
$342,000 in 2007 and 2006, respectively. Sales of the API for
HYLENEX decreased by $205,000 resulting from the disposition by
Baxter of short-dated HYLENEX vials in 2006.
Cost of Sales Cost of sales were
$240,000 for the year ended December 31, 2007 compared to
$437,000 for the year ended December 31, 2006, a decrease
of $197,000, or 45%. The decrease was primarily due to the
decrease in sales of the API for HYLENEX resulting from the
disposition by Baxter of short-dated HYLENEX vials in 2006.
Research and Development Research and
development expenses were $20.6 million for the year ended
December 31, 2007 compared to $9.2 million for the
year ended December 31, 2006. The increase of approximately
$11.4 million was primarily due to the increase in
outsourced research and development expenses of
$6.2 million due to our various preclinical programs and
the manufacturing
scale-up of
our rHuPH20 enzyme. In addition, compensation costs increased by
$2.8 million, of which $238,000 related to share-based
compensation. At December 31, 2007, our headcount for
research and development functions totaled 56 employees,
compared with 25 employees at December 31, 2006.
Additionally, our facilities expenses increased by
$1.3 million, research supplies and services expenses
increased by $740,000 and depreciation expense increased by
$281,000.
Selling, General and Administrative
SG&A expenses were $11.2 million for the year ended
December 31, 2007 compared to $6.9 million for the
year ended December 31, 2006. The increase of approximately
$4.3 million was primarily due to the increase in
compensation costs of $2.5 million, of which
$1.1 million related to share-based compensation. At
December 31, 2007, our headcount for SG&A functions
totaled 27 employees, compared with 11 employees at
December 31, 2006. In addition, other increases included an
increase in legal expenses, primarily related to intellectual
property matters and collaborative agreements, of $554,000 and
an increase in facilities expenses of $367,000.
Share-Based Compensation Total
compensation cost for our share-based payments was
$2.6 million for the year ended December 31, 2007
compared to $1.3 million for the year ended
December 31, 2006. Research and development expense
included share-based compensation of approximately $663,000 and
$424,000, respectively, for the years ended December 31,
2007 and 2006. SG&A expenses included share-based
compensation of approximately $1.9 million and $850,000,
respectively, for the years ended December 31, 2007 and
2006.
Interest Income Interest income was
$4.3 million for the year ended December 31, 2007
compared to $831,000 for the year ended December 31, 2006.
The increase in interest income was due to higher average cash
and cash equivalents balances during 2007.
Net Loss Net loss for the year ended
December 31, 2007 was $23.9 million, or $0.32 per
common share, compared to $14.8 million, or $0.24 per
common share for the year ended December 31, 2006. The
increase in net loss was primarily due to an increase in
operating expenses, partially offset by increases in revenues
and interest income.
Liquidity
and Capital Resources
Our principal sources of liquidity are our existing cash and
cash equivalents. As of December 31, 2008, we had cash and
cash equivalents of approximately $63.7 million. We expect
our cash requirements to increase as we continue to increase our
research and development for, seek regulatory approvals of, and
develop and manufacture our current product candidates. As we
expand our research and development efforts and pursue
additional product opportunities, we anticipate additional cash
requirements for hiring of personnel, capital expenditures and
investment in additional internal systems and infrastructure.
The amount and timing of cash requirements will depend on the
research, development, manufacture, regulatory and market
acceptance of our product candidates, if any, and the resources
we devote to researching, developing, manufacturing,
commercializing and supporting our product candidates.
We believe that our current cash and cash equivalents will be
sufficient to fund our operations for at least the next twelve
months. Currently, we anticipate net cash burn of approximately
$30.0 to $35.0 million for the year ending
December 31, 2009, depending on the progress of various
preclinical and clinical programs, the timing of our
manufacturing scale up and the achievement of various milestones
under our existing collaborative agreements. We do not expect
our revenues to be sufficient to fund operations for at least
several years. We expect to fund our operations going forward
with existing cash resources, anticipated revenues from our
existing collaborations and
32
cash that we will raise through future transactions. We may
finance future cash needs through any one of the following
financing vehicles: (i) the public offering of securities;
(ii) new collaborative agreements; (iii) expansions or
revisions to existing collaborative relationships;
(iv) private financings
and/or
(v) other equity or debt financings.
In November 2008, we filed a shelf registration statement on
Form S-3
(Registration
No. 333-155787)
which initially allowed us, from time to time, to offer and sell
up to $50.0 million of equity or debt securities. We cannot
be certain that our existing cash and cash equivalents will be
adequate for our anticipated needs or that additional financing
will be available when needed or that, if available, financing
will be obtained on terms favorable to us or our stockholders.
Having insufficient funds will require us to delay, scale back
or eliminate some or all of our research and development
programs or delay the launch of our product candidates. 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 as well as
covenants and specific financial ratios that may restrict our
ability to operate our business.
Operating
Activities
Net cash used in operations was $35.4 million during the
year ended December 31, 2008 compared to $148,000 of net
cash used in operations during the year ended December 31,
2007. This change was primarily due to increased operating
expenses of approximately $27.2 million as well as reduced
receipts from partnership payments of approximately
$10.2 million during 2008 as compared to 2007.
Net cash used in operations was $148,000 during the year ended
December 31, 2007 compared to $7.1 million of cash
provided by operations during the year ended December 31,
2006. This change was primarily due to the $9.1 million
increase in the total net loss for 2007 as compared to 2006.
Investing
Activities
Net cash used in investing activities was $1.2 million
during the year ended December 31, 2008 compared to
$2.4 million during the year ended December 31, 2007.
This was primarily due to a decrease in purchases of property
and equipment during 2008.
Net cash used in investing activities was $2.4 million
during the year ended December 31, 2007 compared to
$365,000 during the year ended December 31, 2006. This was
due to an increase in purchases of property and equipment during
2007.
Financing
Activities
Net cash provided by financing activities was $2.6 million
during the year ended December 31, 2008 compared to
$56.0 million during the year ended December 31, 2007.
Net cash provided by financing activities during 2008 primarily
consisted of proceeds from warrant and stock option exercises.
Net cash provided by financing activities during 2007 primarily
consisted of approximately $52.0 million in proceeds, net
of issuance costs, from sales of our common stock and
approximately $4.0 million in proceeds from warrant and
stock option exercises.
Net cash provided by financing activities was $56.0 million
during the year ended December 31, 2007 versus
$18.3 million during the year ended December 31, 2006.
Net cash provided by financing activities during 2006 primarily
consisted of approximately $11.0 million in proceeds, net
of issuance costs, from sales of our common stock and
approximately $7.3 million in proceeds from warrant and
stock option exercises.
Off-Balance Sheet Arrangements As of
December 31, 2008, 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 these relationships.
33
Contractual Obligations As of
December 31, 2008, future minimum payments due under our
contractual obligations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations:
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Operating leases
|
|
$
|
9,945,275
|
|
|
$
|
2,350,130
|
|
|
$
|
4,936,207
|
|
|
$
|
2,658,938
|
|
|
$
|
|
|
License payments
|
|
|
2,435,000
|
|
|
|
480,000
|
|
|
|
610,000
|
|
|
|
610,000
|
|
|
|
735,000
|
|
Purchase obligations(1)
|
|
|
15,352,737
|
|
|
|
15,352,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
27,733,012
|
|
|
$
|
18,182,867
|
|
|
$
|
5,546,207
|
|
|
$
|
3,268,938
|
|
|
$
|
735,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Purchase obligations include outstanding purchase orders for
outsourced research and development services for our various
preclinical and clinical programs, for the manufacturing of our
products for clinical and commercial use and other recurring
purchases and services made in the normal course of business. |
As of December 31, 2008, we had no long-term debt or
capital lease obligations.
Our future capital uses and requirements depend on numerous
forward-looking factors. These factors may include, but are not
limited to, the following:
|
|
|
|
|
the rate of progress and cost of research and development
activities;
|
|
|
|
the number and scope of our research activities;
|
|
|
|
the costs of filing, prosecuting, defending and enforcing any
patent claims and other intellectual property rights;
|
|
|
|
our ability to establish and maintain product discovery and
development collaborations;
|
|
|
|
the effect of competing technological and market developments;
|
|
|
|
the terms and timing of any collaborative, licensing and other
arrangements that we may establish; and
|
|
|
|
the extent to which we acquire or in-license new products,
technologies or businesses.
|
Recent
Accounting Pronouncements
See Note 2, Summary of Significant Accounting
Policies Pending Adoption of Recent Accounting
Pronouncements, in the Notes to Consolidated Financial
Statements for a discussion of recent accounting pronouncements
and their effect, if any, on the Company.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Our primary exposure to market risk is interest income
sensitivity, which is affected by changes in the general level
of U.S. interest rates, particularly because the majority
of our investments are in short-term marketable securities. The
primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we
receive from our investments without significantly increasing
risk. Some of the securities that we invest in may be subject to
market risk. This means that a change in prevailing interest
rates may cause the value of the investment 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 our investment will probably decline. To minimize this
risk, we intend to continue to maintain our portfolio of cash
equivalents and short-term investments in a variety of
securities including commercial paper, money market funds and
government and non-government debt securities. In general, money
market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate.
As of December 31, 2008, we did not have any holdings of
derivative financial or commodity instruments, or any foreign
currency denominated transactions, and all of our cash and cash
equivalents were in money market mutual funds and other
investments that we believe to be highly liquid.
34
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Our financial statements are annexed to this report beginning on
page F-1.
|
|
Item 9.
|
Changes
In and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
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 Commissions 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 Annual Report on
Form 10-K.
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
December 31, 2008, that have materially affected, or are
reasonably likely to materially affect our internal control over
financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is defined in
Rule 13a-15(f)
and
Rule 15d-15(f)
promulgated under the Securities Exchange Act of 1934 as a
process designed by, or under the supervision of, our principal
executive and principal financial officers and effected by our
board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
|
|
Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions
of our assets;
|
|
|
|
Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures are being made only in accordance
with authorizations of our management and directors; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on our financial
statements.
|
35
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal
control over financial reporting as of December 31, 2008.
In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based on our assessment, management concluded that, as of
December 31, 2008, our internal control over financial
reporting is effective based on those criteria.
The independent registered public accounting firm that audited
the consolidated financial statements that are included in this
Annual Report on
Form 10-K
has issued an audit report on the effectiveness of our internal
control over financial reporting as of December 31, 2008.
The report appears below.
36
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Halozyme Therapeutics, Inc.
We have audited Halozyme Therapeutics, Inc.s internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria).
Halozyme Therapeutics, Inc.s management is responsible for
maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Halozyme Therapeutics, Inc. maintained, in all
material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Halozyme Therapeutics, Inc. as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, cash flows and stockholders
equity for each of the three years in the period ended
December 31, 2008 and our report dated March 11, 2009
expressed an unqualified opinion thereon.
San Diego, California
March 11, 2009
37
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item regarding directors is
incorporated by reference to our Definitive Proxy Statement (the
Proxy Statement) to be filed with the Securities and
Exchange Commission in connection with our 2009 Annual Meeting
of Stockholders under the heading Election of
Directors. The information required by this item regarding
compliance with Section 16(a) of the Securities Exchange
Act of 1934, as amended, is incorporated by reference to the
information under the caption Compliance with
Section 16(a) of the Exchange Act to be contained in
the Proxy Statement. The information required by this item
regarding our code of ethics is incorporated by reference to the
information under the caption Code of Conduct and
Ethics to be contained in our Proxy Statement. The
information required by this item regarding our audit committee
is incorporated by reference to the information under the
caption Board Meetings and Committees - Audit
Committee to be contained in our Proxy Statement.
Executive
Officers
Jonathan E. Lim, M.D. (37), President, Chief
Executive Officer and Director. Dr. Lim became employee
number five when he joined Halozyme in May 2003 as President and
CEO. He was elected to the Board of Directors in October 2003
and served as Chairman from April 2004 to December 2005. Under
Dr. Lims leadership, Halozyme has raised over
$180 million from financings and corporate partnerships,
signed major alliances with Roche and Baxter, received two FDA
approvals, for HYLENEX and Cumulase, and transitioned into a
NASDAQ listed company with approximately 130 employees.
From 2001 to 2003, Dr. Lim was a management consultant at
McKinsey & Company, where he specialized in the health
care industry, serving a wide range of companies from
start-ups to
Fortune 500 multinationals in the biopharmaceutical, medical
products and payor/provider segments. From 1999 to 2001,
Dr. Lim was a National Institutes of Health Postdoctoral
Fellow conducting clinical outcomes research at Harvard Medical
School. Dr. Lims professional experience also
includes clinical training in general surgery at the New York
Hospital-Cornell Medical Center and Memorial Sloan-Kettering
Cancer Center; Founder and President of a health care technology
start-up;
Founding
Editor-in-Chief
of the McGill Journal of Medicine; basic science and clinical
research at the Salk Institute for Biological Studies and the
Massachusetts Eye and Ear Infirmary; and membership on the
strategic planning committee of the American Medical Association
from 2002 to 2005. Dr. Lim earned his B.S., with honors,
and M.S. in molecular biology from Stanford University, his M.D.
from McGill University and his M.P.H. in health care management
from Harvard University.
Gregory I. Frost, Ph.D. (37), Vice President, Chief
Scientific Officer and Director. Dr. Frost co-founded
Halozyme in 1999 and has spent more than fourteen years
conducting research on the hyaluronidase family of enzymes. From
1998 to 1999, he was a Senior Research Scientist at the Sidney
Kimmel Cancer Center (SKCC), where he focused much of his work
on developing the hyaluronidase technology. Prior to SKCC, his
research in the Department of Pathology at the University of
California, San Francisco, led directly to the
purification, cloning and characterization of the human
hyaluronidase gene family and the discovery of several metabolic
disorders. He has authored multiple scientific peer-reviewed and
invited articles in the hyaluronidase field and is an inventor
on several key patents. Dr. Frosts prior experience
includes serving as a scientific consultant to a number of
biopharmaceutical companies, including Q-Med AB, BioPhausia AB
and Active Biotech AB. Dr. Frost is registered to practice
before the U.S. Patent and Trademark Office and earned his
B.A. in biochemistry and molecular biology from the University
of California, Santa Cruz, and his Ph.D. in the Department of
Pathology at the University of California, San Francisco,
where he was an Achievement Rewards for College Scientists
Scholar.
David A. Ramsay, MBA (44), Vice President, Chief
Financial Officer. Mr. Ramsay joined Halozyme in 2003. He
has over 20 years of corporate financial experience
spanning several industries. From 2000 to 2003, he was Vice
President, Chief Financial Officer of Lathian Systems, a
provider of technology-based sales solutions for the life
sciences industry. Prior to Lathian, Mr. Ramsay was Vice
President, Treasurer of ICN Pharmaceuticals, now called
38
Valeant Pharmaceuticals International, a multinational,
specialty pharmaceutical company. Mr. Ramsay joined ICN in
1998 from ARCO, where he spent four years in various financial
roles, most recently serving as Manager of Financial
Planning & Analysis for the companys
1,700-station West Coast Retail Marketing Network. Prior to
ARCO, he served as Vice President, Controller for Security
Pacific Asian Bank, a subsidiary of Security Pacific
Corporation. He began his career as an auditor at
Deloitte & Touche, where he obtained his CPA license.
Mr. Ramsay served as Chairman of the Audit Committee and on
the Board of Directors for Axxora Life Sciences, Inc., a
privately held, worldwide research reagent company which was
acquired by Enzo Biochem in 2007. Mr. Ramsay graduated from
the University of California, Berkeley, with a B.S. in business
administration and earned his M.B.A. with a dual major in
finance and strategic management from The Wharton School at the
University of Pennsylvania.
Robert L. Little (59), Vice President, Chief Commercial
Officer. Mr. Little joined Halozyme in 2006 with extensive
experience in the pharmaceutical industry in general management,
commercial operations, sales and marketing and business
development. From 2003 to 2006, Mr. Little was Senior Vice
President of Commercial Operations at Neurocrine Biosciences,
where he was responsible for building and managing the sales and
marketing functions. During his tenure, Mr. Little put in
place a fully integrated commercial organization, including a
marketing team, a
200-person
CNS sales force and full logistical and infrastructure support
in order to co-detail
Zoloft®
with Pfizer and in preparation for the introduction of
Indiplon®.
From 1985 to 2003, Mr. Little was at Pharmacia, Inc. where
his most recent position was Group Vice President, Diversified
Products. His responsibilities included managing
Pharmacias Diversified Products business, as well as
forming a new global business unit merging pricing,
reimbursement and health outcomes groups to focus on current
industry issues, pricing and drug values. From 1999 to 2001,
Mr. Little was Group Vice President, Specialty Products and
worldwide head of a $2.5 billion, global specialty products
business (ophthalmology, endocrinology, neurology and others).
Mr. Little previously held a number of positions within
Pharmacia, including President and Managing Director of
Pharmacia in Milan, Italy, President of Pharmacia &
UpJohn in Canada and President of Pharmacia, Inc. in Canada.
Prior to joining Pharmacia, he held positions at Adria
Laboratories and Miles Laboratories/Bayer AG in the U.K., Italy,
and the U.S. Mr. Little earned his degree in economics
and finance from the West London Business School, Ealing
Technical College.
William J. Fallon (52), Vice President,
Manufacturing & Operations. Mr. Fallon joined
Halozyme in 2006 as Vice President, Manufacturing &
Operations. His responsibilities include oversight of all
aspects of internal and external manufacturing and facilities
operations, as well as bioprocess development. Prior to
Halozyme, he served as President and Chief Executive Officer of
Cytovance Biologics, a contract manufacturing organization that
provides manufacturing and development services to the
biotechnology industry. From 2001 to 2003, he was Vice President
of Technical Operations at Genzyme Corporation, having held the
same position at Novazyme Pharmaceuticals, Inc. prior to its
acquisition by Genzyme in 2001. Mr. Fallon joined Novazyme
from Transkaryotic Therapies, where he was Vice President of
Manufacturing from 1998 to 2001. From 1993 to 1998, he was
employed in several management positions for the Ares-Serono
Group, including Vice President, U.S. Manufacturing
Operations. In this role, he served as general manager,
overseeing the production and distribution of all of
Seronos approved biotechnology products in the
U.S. From 1990 to 1992, he was Director of Manufacturing
for Centocor, Inc. His prior experience also includes various
management and operational roles at Invitron Corporation and
Travenol-Genentech Diagnostics. Mr. Fallon earned a B.S. in
marine science and a B.A. in biology from Long Island
University, and an M.S. in biology from Northeastern University.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is incorporated by
reference to the information under the caption Executive
Compensation to be contained in the Proxy Statement.
39
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this item is incorporated by
reference to the information under the caption Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters to be contained in the Proxy
Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is incorporated by
reference to the information under the caption Certain
Relationships and Related Transactions, and Director
Independence to be contained in the Proxy Statement.
|
|
Item 14.
|
Principal
Accounting Fees and Services
|
The information required by this item is incorporated by
reference to the information under the caption Principal
Accounting Fees and Services contained in the Proxy
Statement.
40
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) Documents
filed as part of this report.
1. Financial Statements:
|
|
|
|
|
|
|
Page
|
|
|
|
|
F-1
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
2. List of all Financial Statement schedules. All schedules
are omitted because they are not applicable or the required
information is shown in the Financial Statements or notes
thereto.
3. List of Exhibits required by Item 601 of
Regulation S-K.
See part (b) below.
(b) Exhibits:
|
|
|
|
|
|
2
|
.1
|
|
Agreement and Plan of Merger, dated November 14, 2007, by
and between the Registrant and the Registrants predecessor
Nevada corporation(1)
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on October 7, 2007(2)
|
|
3
|
.2
|
|
Certificate of Designation, Preferences and Rights of the terms
of the Series A Preferred Stock(1)
|
|
3
|
.3
|
|
Bylaws(2)
|
|
4
|
.1
|
|
Amended Rights Agreement between Corporate Stock Transfer, as
rights agent, and Registrant, dated November 12, 2007(20)
|
|
10
|
.1
|
|
License Agreement between University of Connecticut and
Registrant, dated November 15, 2002(3)
|
|
10
|
.2
|
|
First Amendment to the License Agreement between University of
Connecticut and Registrant, dated January 9, 2006(9)
|
|
10
|
.3*
|
|
Commercial Supply Agreement with Avid Bioservices, Inc. and
Registrant, dated February 16, 2005(7)
|
|
10
|
.4*
|
|
First Amendment to the Commercial Supply Agreement between Avid
Bioservices, Inc. and Registrant, dated December 15,
2006(14)
|
|
10
|
.5*
|
|
Clinical Supply Agreement between Cook Pharmica, LLC and
Registrant, dated August 15, 2008(24)
|
|
10
|
.6
|
|
Form of Common Stock Purchase Warrant(5)
|
|
10
|
.7#
|
|
DeliaTroph Pharmaceuticals, Inc. 2001 Amended and Restated Stock
Plan and form of Stock Option Agreements for options assumed
thereunder(6)
|
|
10
|
.8
|
|
Nonstatutory Stock Option Agreement With Andrew Kim(6)
|
|
10
|
.9#
|
|
2004 Stock Plan and Form of Option Agreement thereunder(4)
|
|
10
|
.10#
|
|
Halozyme Therapeutics, Inc. 2005 Outside Directors Stock
Plan(8)
|
|
10
|
.11#
|
|
Form of Stock Option Agreement (2005 Outside Directors
Stock Plan)(12)
|
|
10
|
.12#
|
|
Form of Restricted Stock Agreement (2005 Outside Directors
Stock Plan)(12)
|
|
10
|
.13#
|
|
Halozyme Therapeutics, Inc. 2006 Stock Plan(11)
|
|
10
|
.14#
|
|
Form of Stock Option Agreement (2006 Stock Plan)(12)
|
|
10
|
.15#
|
|
Form of Restricted Stock Agreement (2006 Stock Plan)(12)
|
|
10
|
.16#
|
|
Halozyme Therapeutics, Inc. 2008 Stock Plan(21)
|
41
|
|
|
|
|
|
10
|
.17#
|
|
Halozyme Therapeutics, Inc. 2008 Outside Directors Stock
Plan(21)
|
|
10
|
.18#
|
|
Form of Indemnity Agreement for Directors and Executive
Officers(19)
|
|
10
|
.19#
|
|
Outside Director Compensation Plan(23)
|
|
10
|
.20#
|
|
2007 Senior Executive Incentive Plan(23)
|
|
10
|
.21#
|
|
2008 Senior Executive Incentive Structure(22)
|
|
10
|
.22#
|
|
2009 Senior Executive Incentive Plan(25)
|
|
10
|
.23#
|
|
Change in Control Policy(22)
|
|
10
|
.24#
|
|
Severance Policy(23)
|
|
10
|
.25*
|
|
Amended and Restated Exclusive Distribution Agreement between
Baxter Healthcare Corporation, Baxter Healthcare S.A. and
Registrant, dated February 14, 2007(15)
|
|
10
|
.26*
|
|
Amended and Restated Development and Supply Agreement between
Baxter Healthcare Corporation, Baxter Healthcare S.A. and
Registrant, dated February 14, 2007(15)
|
|
10
|
.27*
|
|
License and Collaboration Agreement between Baxter Healthcare
Corporation, Baxter Healthcare S.A. and Registrant, dated
February 14, 2007(15)
|
|
10
|
.28*
|
|
Enhanze Technology License and Collaboration Agreement between
Baxter Healthcare Corporation, Baxter Healthcare S.A. and
Registrant, dated September 7, 2007(18)
|
|
10
|
.29*
|
|
License and Collaboration Agreement between F.
Hoffmann-La Roche Ltd, Hoffmann-La Roche Inc. and
Registrant dated December 5, 2006(13)
|
|
10
|
.30
|
|
Stock Purchase Agreement between New River Management V, LP
and Registrant, dated April 23, 2007(16)
|
|
10
|
.31
|
|
Sublease Agreement (11404 Sorrento Valley Road), effective as of
July 2, 2007(17)
|
|
10
|
.32
|
|
Sublease Agreement (11388 Sorrento Valley Road), effective as of
July 2, 2007(17)
|
|
10
|
.33
|
|
Standard Industrial Net Lease (11388 Sorrento Valley Road),
effective as of July 26, 2007(17)
|
|
21
|
.1
|
|
Subsidiaries of Registrant(10)
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
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
|
|
|
|
(1) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed November 20, 2007. |
|
(2) |
|
Incorporated by reference to the Registrants definitive
proxy statement filed with the SEC on Form DEF14A on
October 11, 2007. |
|
(3) |
|
Incorporated by reference to the Registrants Registration
Statement on
Form SB-2
filed with the Commission on April 23, 2004. |
|
(4) |
|
Incorporated by reference to the Registrants amendment
number two to the Registration Statement on
Form SB-2
filed with the Commission on July 23, 2004. |
|
(5) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed October 15, 2004. |
|
(6) |
|
Incorporated by reference to the Registrants Registration
Statement on
Form S-8
filed with the Commission on October 26, 2004. |
|
(7) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed February 22, 2005. |
|
(8) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed July 6, 2005. |
|
(9) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed January 12, 2006. |
|
(10) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-KSB/A,
filed March 29, 2005. |
|
(11) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed March 24, 2006. |
42
|
|
|
(12) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q,
filed August 8, 2006. |
|
(13) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K/A,
filed December 15, 2006. |
|
(14) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed December 21, 2006. |
|
(15) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K/A,
filed February 20, 2007. |
|
(16) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed April 24, 2007. |
|
(17) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed July 31, 2007. |
|
(18) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed September 12, 2007. |
|
(19) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed December 20, 2007. |
|
(20) |
|
Incorporated by reference to the Registrants Annual Report
on
Form 10-K,
filed March 14, 2008. |
|
(21) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed March 19, 2008. |
|
(22) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed April 21, 2008. |
|
(23) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q,
filed May 9, 2008. |
|
(24) |
|
Incorporated by reference to the Registrants Quarterly
Report on
Form 10-Q,
filed November 7, 2008. |
|
(25) |
|
Incorporated by reference to the Registrants Current
Report on
Form 8-K,
filed February 9, 2009. |
|
* |
|
Confidential treatment has been requested for certain portions
of this exhibit. These portions have been omitted from this
agreement and have been filed separately with the Securities and
Exchange Commission. |
|
# |
|
Indicates management contract or compensatory plan or
arrangement. |
(c) Financial Statement Schedules. See
Item 15(a)2 above.
43
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 in the City of San Diego, on
March 13, 2009.
Halozyme Therapeutics, Inc.,
a Delaware corporation
|
|
|
|
By:
|
/s/ Jonathan
E. Lim, M.D.
|
Jonathan E. Lim, M.D.
President and Chief Executive Officer
Date: March 13, 2009
POWER OF
ATTORNEY
Know all persons by these presents, that each person whose
signature appears below constitutes and appoints Jonathan E. Lim
and David A. Ramsay, and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place, and stead,
in any and all capacities, to sign any and all amendments to
this Annual Report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as
fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that all said
attorneys-in-fact and agents, or any of them or their or his
substitute or substituted, may lawfully do or cause to be done
by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Annual Report has been signed by the following
persons in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Jonathan
E. Lim, M.D.
Jonathan
E. Lim, M.D.
|
|
President and Chief Executive Officer (Principal Executive
Officer), Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ David
A. Ramsay
David
A. Ramsay
|
|
Secretary and Chief Financial Officer (Principal Financial and
Accounting Officer)
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Gregory
I. Frost, Ph.D.
Gregory
I. Frost, Ph.D.
|
|
Vice President and Chief Scientific Officer, Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Kenneth
J. Kelley
Kenneth
J. Kelley
|
|
Chairman of the Board of Directors
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Kathryn
E. Falberg
Kathryn
E. Falberg
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Randal
J. Kirk
Randal
J. Kirk
|
|
Director
|
|
March 13, 2009
|
44
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Connie
L. Matsui
Connie
L. Matsui
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ John
S. Patton, Ph.D.
John
S. Patton, Ph.D.
|
|
Director
|
|
March 13, 2009
|
|
|
|
|
|
/s/ Steven
T. Thornton
Steven
T. Thornton
|
|
Director
|
|
March 13, 2009
|
45
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Halozyme Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of
Halozyme Therapeutics, Inc. as of December 31, 2008 and
2007, and the related consolidated statements of operations,
cash flows and stockholders equity for each of the three
years in the period ended December 31, 2008. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Halozyme Therapeutics, Inc. at
December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Halozyme Therapeutics, Inc.s internal control over
financial reporting as of December 31, 2008, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 11, 2009
expressed an unqualified opinion thereon.
San Diego, California
March 11, 2009
F-1
HALOZYME
THERAPEUTICS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
63,715,906
|
|
|
$
|
97,679,085
|
|
Accounts receivable
|
|
|
7,264,410
|
|
|
|
779,825
|
|
Inventory
|
|
|
441,323
|
|
|
|
703,468
|
|
Prepaid expenses and other assets
|
|
|
2,591,149
|
|
|
|
2,014,680
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
74,012,788
|
|
|
|
101,177,058
|
|
Property and equipment, net
|
|
|
2,549,925
|
|
|
|
2,283,316
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
76,562,713
|
|
|
$
|
103,460,374
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,668,791
|
|
|
$
|
3,055,637
|
|
Accrued expenses
|
|
|
3,995,897
|
|
|
|
2,502,259
|
|
Deferred revenue
|
|
|
3,553,730
|
|
|
|
3,306,225
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,218,418
|
|
|
|
8,864,121
|
|
Deferred revenue, net of current portion
|
|
|
45,894,726
|
|
|
|
35,963,266
|
|
Deferred rent, net of current portion
|
|
|
1,069,573
|
|
|
|
865,063
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.001 par value;
20,000,000 shares authorized; no shares issued and
outstanding
|
|
|
|
|
|
|
|
|
Common stock $0.001 par value;
150,000,000 shares authorized; 81,553,654 and
77,903,944 shares issued and outstanding at
December 31, 2008 and 2007, respectively
|
|
|
81,554
|
|
|
|
77,904
|
|
Additional paid-in capital
|
|
|
128,948,064
|
|
|
|
122,685,443
|
|
Accumulated deficit
|
|
|
(113,649,622
|
)
|
|
|
(64,995,423
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
15,379,996
|
|
|
|
57,767,924
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
76,562,713
|
|
|
$
|
103,460,374
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
HALOZYME
THERAPEUTICS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues under collaboration agreements
|
|
$
|
8,052,202
|
|
|
$
|
3,159,931
|
|
|
$
|
311,121
|
|
Product sales
|
|
|
711,937
|
|
|
|
639,590
|
|
|
|
670,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
8,764,139
|
|
|
|
3,799,521
|
|
|
|
981,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
332,324
|
|
|
|
240,429
|
|
|
|
436,990
|
|
Research and development
|
|
|
44,232,936
|
|
|
|
20,554,105
|
|
|
|
9,214,759
|
|
Selling, general and administrative
|
|
|
14,633,581
|
|
|
|
11,155,194
|
|
|
|
6,912,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
59,198,841
|
|
|
|
31,949,728
|
|
|
|
16,564,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS
|
|
|
(50,434,702
|
)
|
|
|
(28,150,207
|
)
|
|
|
(15,582,856
|
)
|
Interest income
|
|
|
1,717,503
|
|
|
|
4,254,024
|
|
|
|
830,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS BEFORE INCOME TAXES
|
|
|
(48,717,199
|
)
|
|
|
(23,896,183
|
)
|
|
|
(14,751,986
|
)
|
Income tax benefit
|
|
|
(63,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(48,654,199
|
)
|
|
$
|
(23,896,183
|
)
|
|
$
|
(14,751,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.61
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing basic and diluted net loss per share
|
|
|
79,843,707
|
|
|
|
74,317,930
|
|
|
|
62,610,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
HALOZYME
THERAPEUTICS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(48,654,199
|
)
|
|
$
|
(23,896,183
|
)
|
|
$
|
(14,751,986
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
|
|
|
3,695,842
|
|
|
|
2,580,204
|
|
|
|
1,274,567
|
|
Depreciation and amortization
|
|
|
1,047,878
|
|
|
|
576,491
|
|
|
|
243,999
|
|
Loss on disposal of equipment
|
|
|
4,729
|
|
|
|
3,289
|
|
|
|
4,278
|
|
Issuance of stock options for services
|
|
|
|
|
|
|
|
|
|
|
9,322
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,484,585
|
)
|
|
|
(416,260
|
)
|
|
|
13,802
|
|
Inventory
|
|
|
262,145
|
|
|
|
(260,976
|
)
|
|
|
(163,534
|
)
|
Prepaid expenses and other assets
|
|
|
(576,469
|
)
|
|
|
(1,416,590
|
)
|
|
|
(257,602
|
)
|
Accounts payable and accrued expenses
|
|
|
4,788,346
|
|
|
|
2,529,348
|
|
|
|
979,318
|
|
Deferred rent
|
|
|
363,484
|
|
|
|
865,063
|
|
|
|
|
|
Deferred revenue
|
|
|
10,178,965
|
|
|
|
19,287,954
|
|
|
|
19,727,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(35,373,864
|
)
|
|
|
(147,660
|
)
|
|
|
7,079,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(1,159,744
|
)
|
|
|
(2,365,326
|
)
|
|
|
(364,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,159,744
|
)
|
|
|
(2,365,326
|
)
|
|
|
(364,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants, net
|
|
|
1,726,713
|
|
|
|
2,305,843
|
|
|
|
7,142,469
|
|
Proceeds from exercise of stock options, net
|
|
|
843,716
|
|
|
|
1,707,337
|
|
|
|
156,114
|
|
Proceeds from issuance of common stock, net
|
|
|
|
|
|
|
51,989,488
|
|
|
|
11,043,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,570,429
|
|
|
|
56,002,668
|
|
|
|
18,342,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(33,963,179
|
)
|
|
|
53,489,682
|
|
|
|
25,057,209
|
|
CASH AND CASH EQUIVALENTS at beginning of period
|
|
|
97,679,085
|
|
|
|
44,189,403
|
|
|
|
19,132,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS at end of period
|
|
$
|
63,715,906
|
|
|
$
|
97,679,085
|
|
|
$
|
44,189,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable for purchases of property and equipment
|
|
$
|
159,472
|
|
|
$
|
|
|
|
$
|
|
|
See accompanying notes to consolidated financial statements.
F-4
HALOZYME
THERAPEUTICS, INC.
Years
Ended December 31, 2008, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
BALANCE AT JANUARY 1, 2006
|
|
|
60,246,997
|
|
|
$
|
60,247
|
|
|
$
|
44,493,894
|
|
|
$
|
(26,347,254
|
)
|
|
$
|
18,206,887
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
1,274,567
|
|
|
|
|
|
|
|
1,274,567
|
|
Issuance of common stock for cash, net
|
|
|
3,385,000
|
|
|
|
3,385
|
|
|
|
11,040,477
|
|
|
|
|
|
|
|
11,043,862
|
|
Issuance of common stock pursuant to exercise of warrants, net
|
|
|
4,818,846
|
|
|
|
4,819
|
|
|
|
7,137,650
|
|
|
|
|
|
|
|
7,142,469
|
|
Issuance of common stock pursuant to exercise of stock options
|
|
|
196,150
|
|
|
|
196
|
|
|
|
155,918
|
|
|
|
|
|
|
|
156,114
|
|
Issuance of restricted stock awards
|
|
|
90,000
|
|
|
|
90
|
|
|
|
(90
|
)
|
|
|
|
|
|
|
|
|
Issuance of stock options to consultants for services
|
|
|
|
|
|
|
|
|
|
|
9,322
|
|
|
|
|
|
|
|
9,322
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,751,986
|
)
|
|
|
(14,751,986
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2006
|
|
|
68,736,993
|
|
|
|
68,737
|
|
|
|
64,111,738
|
|
|
|
(41,099,240
|
)
|
|
|
23,081,235
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
2,580,204
|
|
|
|
|
|
|
|
2,580,204
|
|
Issuance of common stock for cash, net
|
|
|
5,570,394
|
|
|
|
5,570
|
|
|
|
51,983,918
|
|
|
|
|
|
|
|
51,989,488
|
|
Issuance of common stock pursuant to exercise of warrants, net
|
|
|
1,783,852
|
|
|
|
1,784
|
|
|
|
2,304,059
|
|
|
|
|
|
|
|
2,305,843
|
|
Issuance of common stock pursuant to exercise of stock options
|
|
|
1,707,705
|
|
|
|
1,708
|
|
|
|
1,705,629
|
|
|
|
|
|
|
|
1,707,337
|
|
Issuance of restricted stock awards
|
|
|
105,000
|
|
|
|
105
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,896,183
|
)
|
|
|
(23,896,183
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2007
|
|
|
77,903,944
|
|
|
|
77,904
|
|
|
|
122,685,443
|
|
|
|
(64,995,423
|
)
|
|
|
57,767,924
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,695,842
|
|
|
|
|
|
|
|
3,695,842
|
|
Issuance of common stock pursuant to exercise of warrants, net
|
|
|
1,628,374
|
|
|
|
1,628
|
|
|
|
1,725,085
|
|
|
|
|
|
|
|
1,726,713
|
|
Issuance of common stock pursuant to exercise of stock options
|
|
|
1,828,836
|
|
|
|
1,829
|
|
|
|
841,887
|
|
|
|
|
|
|
|
843,716
|
|
Issuance of restricted stock awards
|
|
|
192,500
|
|
|
|
193
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,654,199
|
)
|
|
|
(48,654,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2008
|
|
|
81,553,654
|
|
|
$
|
81,554
|
|
|
$
|
128,948,064
|
|
|
$
|
(113,649,622
|
)
|
|
$
|
15,379,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
Halozyme
Therapeutics, Inc.
|
|
1.
|
Organization
and Business
|
Halozyme Therapeutics, Inc. (Halozyme or the
Company) is a biopharmaceutical company dedicated to
the development and commercialization of products targeting the
extracellular matrix for the endocrinology, oncology,
dermatology and drug delivery markets. The Companys
existing products and products under development are based on
intellectual property covering the family of human enzymes known
as hyaluronidases.
The Companys operations to date have been limited to
organizing and staffing the Company, acquiring, developing and
securing its technology and undertaking product development for
its existing products and a limited number of product
candidates. The Companys key partnerships are with F.
Hoffmann-La Roche, Ltd and Hoffmann-La Roche, Inc.
(Roche), to apply
Enhanzetm
Technology to Roches biological therapeutic compounds for
up to 13 targets and with Baxter Healthcare Corporation
(Baxter), to apply Enhanze Technology to
Baxters biological therapeutic compound, GAMMAGARD
LIQUIDtm.
The Company has two marketed products: HYLENEX, a registered
trademark of Baxter International, Inc., a product used as an
adjuvant to increase the absorption and dispersion of other
injected drugs and fluids, and
Cumulase®,
a product used for in vitro fertilization, or IVF.
Currently, the Company has only limited revenue from the sales
of HYLENEX and Cumulase, in addition to revenues from its
partnerships with Baxter and Roche.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
The consolidated financial statements include the accounts of
Halozyme Therapeutics, Inc. and its wholly owned subsidiary,
Halozyme, Inc. All intercompany accounts and transactions have
been eliminated.
Use of
Estimates
The preparation of consolidated financial statements in
conformity with U.S. generally accepted accounting
principles (U.S. GAAP) requires management to
make estimates and assumptions that affect the amounts reported
in the Companys consolidated financial statements and
accompanying notes. On an ongoing basis, the Company evaluates
its 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 managements estimates.
Cash
and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments
with original maturities of three months or less from the
original purchase date.
The Company has restricted certificates of deposits totaling
$675,000 and $400,000 as of December 31, 2008 and 2007,
respectively. These restricted deposits represent amounts
pledged to the Companys bank as collateral for letters of
credit issued in connection with certain of the Companys
real estate lease agreements and are included in cash and cash
equivalents. The lease agreements expire in January 2013.
Concentrations
Financial instruments that potentially subject us to a
significant concentration of credit risk consist of cash and
cash equivalents and accounts receivable. The Company maintains
its cash balances with one major commercial bank. Deposits held
with the bank exceed the amount of insurance provided on such
deposits.
The Company sells its products to established distributors in
the pharmaceutical industry. Credit is extended based on an
evaluation of the customers financial condition.
Approximately 99% and 91% of the accounts receivable balance as
of December 31, 2008 and 2007, respectively, represents
amounts due from two customers.
F-6
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Management evaluates the collectibility of the accounts
receivable based on a variety of factors including the length of
time the receivables are past due, the financial health of the
customer and historical experience. Based upon the review of
these factors, the Company did not record an allowance for
doubtful accounts at December 31, 2008 and 2007. For the
years ended December 31, 2008, 2007 and 2006, 51%, 36% and
55% of total revenues were from Baxter and 44%, 50% and 10% were
from Roche, respectively.
The Company relies on two third-party manufacturers for the
supply of the active pharmaceutical ingredient in each of its
current products. Payments due to these suppliers represent 39%
and 20% of the accounts payable balance at December 31,
2008 and 2007, respectively.
Accounts
Receivable
Accounts receivable is recorded at the invoiced amount and is
non-interest bearing. Accounts receivable is recorded net of an
allowance for doubtful accounts. Currently, the allowance for
doubtful accounts is zero as the collectibility of accounts
receivable is reasonably assured. The Company is obligated to
accept returns for product that does not meet product
specifications. Historically, the Company has not had any
product returns; therefore, no allowance for product returns has
been established.
Inventory
Inventory is stated at lower of cost or market. Cost, which
includes amounts related to materials and costs incurred by the
Companys contract manufacturer, is determined on a
first-in,
first-out basis. Inventories are reviewed periodically for
slow-moving or obsolete status. Management evaluates 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 it expects to obtain
for products in their respective markets compared with
historical cost and the remaining shelf life of goods on hand.
Property
and Equipment
Property and equipment are recorded at cost. Equipment are
depreciated using the straight-line method over their estimated
useful lives of three years and leasehold improvements are
amortized using the straight-line method over the estimated
useful life of the asset or the lease term, whichever is shorter.
Impairment
of Long-Lived Assets
The Company accounts for the impairment and disposition of
long-lived assets in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. In accordance with SFAS No. 144,
long-lived assets are reviewed for events of changes in
circumstances, which indicate that their carrying value may not
be recoverable. At December 31, 2008, there has been no
impairment of the value of such assets.
Fair
Value of Financial Instruments
The carrying value of cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value.
See Fair Value Measurements below for further discussion
of fair value.
Fair
Value Measurements
Effective January 1, 2008, the Company adopted
SFAS No. 157, Fair Value Measurements, and FSP
No. FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active. SFAS No. 157
defines fair value, establishes a framework for measuring fair
value under U.S. GAAP and enhances disclosures about fair
value measurements. FSP
No. FAS 157-3
clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key
considerations in determining the fair value of a
F-7
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
financial asset when the market for that financial asset is not
active. The adoption of SFAS No. 157 and FSP
No. FAS 157-3
did not have a material impact on the Companys
consolidated financial position or results of operations.
SFAS No. 157 prioritizes the inputs used in measuring
fair value into the following hierarchy:
|
|
|
Level 1
|
|
Quoted prices (unadjusted) in active markets for identical
assets or liabilities;
|
Level 2
|
|
Inputs other than quoted prices included within Level 1
that are either directly or indirectly observable; and
|
Level 3
|
|
Unobservable inputs in which little or no market activity
exists, therefore requiring an entity to develop its own
assumptions about the assumptions that market participants would
use in pricing.
|
Cash and cash equivalents of approximately $63.7 million at
December 31, 2008 are carried at fair value based on quoted
market prices for identical securities (Level 1 inputs).
Effective January 1, 2008, the Company adopted
SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. SFAS No. 159
allows an entity the irrevocable option to elect to measure
specified financial assets and liabilities in their entirety at
fair value on a
contract-by-contract
basis. If an entity elects the fair value option for an eligible
item, changes in the items fair value must be reported as
unrealized gains and losses in earnings at each subsequent
reporting date. In adopting SFAS No. 159, the Company
did not elect the fair value option for any of its financial
assets or financial liabilities.
Revenue
Recognition
The Company generates revenues from product sales and
collaborative agreements. Payments received under collaborative
agreements may include nonrefundable fees at the inception of
the agreements, license fees, milestone payments for specific
achievements designated in the collaborative agreements,
reimbursements of research and development services
and/or
royalties on sales of products resulting from collaborative
agreements.
The Company recognizes revenues in accordance with SEC Staff
Accounting Bulletin No. 104, Revenue Recognition,
and EITF Issue
No. 00-21,
Revenue Arrangements with Multiple Deliverables. The
Company recognizes revenue when all of the following criteria
are met: (1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the sellers price to the buyer is fixed and
determinable; and (4) collectibility is reasonably assured.
Product Sales Revenues from the sales of
Cumulase are recognized when the transfer of ownership occurs,
which is upon shipment to the distributors. The Company is
obligated to accept returns for product that does not meet
product specifications. Historically, the Company has not had
any product returns as a result of not meeting product
specifications.
In accordance with the Amended and Restated Development and
Supply Agreement (the HYLENEX Partnership) with
Baxter, the Company supplies Baxter with the active
pharmaceutical ingredient (API) for HYLENEX at its
fully burdened cost plus a margin. Baxter fills and finishes
HYLENEX and holds it for subsequent distribution, at which time
the Company ensures it meets product specifications and releases
it as available for sale. Because of the Companys
continued involvement in the development and production process
of HYLENEX, the earnings process is not considered to be
complete. Accordingly, the Company defers the revenue and
related product costs on the API for HYLENEX until the product
is filled, finished, packaged and released. Baxter may only
return the API for HYLENEX to the Company if it does not conform
to the specified criteria set forth in the HYLENEX Partnership
or upon termination of such agreement. The Company has
historically demonstrated that the API shipped to Baxter has
consistently met the specified criteria. Therefore, no allowance
for product returns has been established. In addition, the
Company receives product-based payments upon the sale of HYLENEX
by Baxter, in accordance with the terms of the HYLENEX
Partnership. Product sales revenues are recognized as the
F-8
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Company earns such revenues based on Baxters shipments of
HYLENEX to its distributors when such amounts can be reasonably
estimated.
Collaborative Agreements The Company analyzes
each element of its collaborative agreements to determine the
appropriate revenue recognition. The Company recognizes revenue
on nonrefundable upfront payments and license fees in which it
has an ongoing involvement or performance obligation over the
period of significant involvement under the related agreements.
The Company recognizes milestone payments upon the achievement
of specified milestones if (1) the milestone is substantive
in nature and the achievement of the milestone was not
reasonably assured at the inception of the agreement,
(2) the fees are nonrefundable and (3) our performance
obligations after the milestone achievement will continue to be
funded by our collaborator at a level comparable to the level
before the milestone achievement. Any milestone payments
received prior to satisfying these revenue recognition criteria
are recorded as deferred revenue. Reimbursements of research and
development services are recognized as revenue during the period
in which the services are performed. Royalties to be received
based on sales of licensed products by the Companys
collaborators incorporating the Companys products will be
recognized as earned.
Cost
of Sales
Cost of product sales consists primarily of raw materials,
third-party manufacturing costs, fill and finish costs and
freight costs associated with the sales of Cumulase, and the API
for HYLENEX.
Research
and Development Expenses
Effective January 1, 2008, the Company adopted Emerging
Issues Task Force (EITF) Issue
No. 07-3,
Accounting for Nonrefundable Advance Payments for Goods or
Services Received for Use in Future Research and Development
Activities. EITF Issue
No. 07-3
requires that nonrefundable advance payments for goods or
services that will be used or rendered for future research and
development activities be deferred and capitalized. Such amounts
should be recognized as an expense as the related goods are
delivered or the related services are performed or such time
when the entity does not expect the goods to be delivered or
services to be performed. The adoption of EITF Issue
No. 07-3
did not have a material impact on the Companys
consolidated financial position or results of operations.
Research and development expenses include salaries and benefits,
facilities and other overhead expenses, external clinical
trials, research-related manufacturing services, contract
services and other outside expenses. Research and development
expenses are charged to operations as incurred when these
expenditures relate to the Companys research and
development efforts and have no alternative future uses.
Advance payments, including nonrefundable amounts, for goods or
services that will be used or rendered for future research and
development activities are deferred and capitalized. Such
amounts will be recognized as an expense as the related goods
are delivered or the related services are performed. If the
goods will not be delivered, or services will not be rendered,
then the capitalized advance payment is charged to expense.
Milestone payments that the Company makes in connection with
in-licensed technology or product candidates are expensed as
incurred when there is uncertainty in receiving future economic
benefits from the licensed technology or product candidates. The
Company considers the future economic benefits from the licensed
technology or product candidates to be uncertain until such
licensed technology or product candidates are approved for
marketing by the FDA or when other significant risk factors are
abated. For expense accounting purposes, management has viewed
future economic benefits for all of our licensed technology or
product candidates to be uncertain.
F-9
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Clinical
Trial Expenses
Expenses related to clinical trials are accrued based on the
Companys estimates
and/or
representations from service providers regarding work performed,
including actual level of patient enrollment, completion of
patient studies and clinical trials progress. Other incidental
costs related to patient enrollment or treatment are accrued
when reasonably certain. If the contracted amounts are modified
(for instance, as a result of changes in the clinical trial
protocol or scope of work to be performed), the Company modifies
its accruals accordingly on a prospective basis. Revisions in
the scope of a contract are charged to expense in the period in
which the facts that give rise to the revision become reasonably
certain. Historically, the Company has had no material changes
in its clinical trial expense accruals that would have had a
material impact on its consolidated results of operations or
financial position.
Share-Based
Payments
The Company accounts for share-based awards exchanged for
employee services in accordance with SFAS No. 123(R),
Share-Based Payment. Under SFAS No. 123R,
share-based compensation expense is measured at the grant date,
based on the estimated fair value of the award, and is
recognized as expense, net of estimated forfeitures, over the
employees requisite service period
and/or
performance period.
Share-based compensation expense recognized during the period is
based on the value of the portion of
share-based
payment awards that is ultimately expected to vest during the
period. Share awards are amortized under the straight-line
method. 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 recognized compensation expense is reversed. As
share-based compensation expense recognized is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS No. 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates. Pre-vesting forfeitures were estimated to be
approximately 10% for employees in the years ended
December 31, 2008, 2007 and 2006 based on the
Companys historical experience and those of its peer group.
Total share-based compensation expense related to share-based
awards, recognized under SFAS No. 123R, for the years
ended December 31, 2008, 2007 and 2006 was comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Research and development
|
|
$
|
1,541,003
|
|
|
$
|
662,690
|
|
|
$
|
424,305
|
|
Selling, general and administrative
|
|
|
2,154,839
|
|
|
|
1,917,514
|
|
|
|
850,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense before taxes
|
|
|
3,695,842
|
|
|
|
2,580,204
|
|
|
|
1,274,567
|
|
Related income tax benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
$
|
3,695,842
|
|
|
$
|
2,580,204
|
|
|
$
|
1,274,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net share-based compensation expense, per basic and diluted share
|
|
$
|
0.05
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,691,571
|
|
|
$
|
1,857,249
|
|
|
$
|
1,136,530
|
|
Restricted stock awards
|
|
|
1,004,271
|
|
|
|
722,955
|
|
|
|
138,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,695,842
|
|
|
$
|
2,580,204
|
|
|
$
|
1,274,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-10
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
SFAS No. 123R requires that cash flows resulting from
tax deductions in excess of the cumulative compensation cost
recognized for options exercised (excess tax benefits) be
classified as cash inflows provided by financing activities and
cash outflows used in operating activities. Due to the
Companys net loss position, no tax benefits have been
recognized in the consolidated statements of cash flows.
The Company accounts for stock options granted to non-employees
in accordance with EITF Issue
No. 96-18,
Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services. Under EITF Issue
No. 96-18,
the Company determines the fair value of the stock options
granted as either the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is
more reliably measurable. The Company recognized approximately
$0, $0 and $9,000 in stock-based compensation expense related to
stock options granted to non-employees for the years ended
December 31, 2008, 2007 and 2006, respectively.
Income
Taxes
Income taxes are recorded in accordance with
SFAS No. 109, Accounting for Income Taxes, which
requires the recognition of deferred tax assets and liabilities
to reflect the future tax consequences of events that have been
recognized in the Companys consolidated financial
statements or tax returns. Measurement of the deferred items is
based on enacted tax laws. In the event the future consequences
of differences between financial reporting bases and tax bases
of the Companys assets and liabilities result in a
deferred tax asset, SFAS No. 109 requires an
evaluation of the probability of being able to realize the
future benefits indicated by such assets. The Company records a
valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. Management
has considered future taxable income and ongoing tax planning
strategies in assessing the need for the valuation allowance. In
the event the Company were to determine that it would be able to
realize the deferred tax assets in the future in excess of their
net recorded amounts, an adjustment to the deferred tax assets
would increase the income in the period such determination was
made. Likewise, should the Company determine that it would not
be able to realize all or part of the net deferred tax assets in
the future, an adjustment to the deferred tax assets would be
charged to income in the period such determination was made.
Effective January 1, 2007, the Company adopted the
provisions of FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109. Under
FIN No. 48, the impact of an uncertain income tax
position on the income tax return must be recognized at the
largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. An uncertain income tax
position will not be recognized if it has less than a 50%
likelihood of being sustained. Additionally,
FIN No. 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. The adoption of
FIN No. 48 had no impact on the Companys
consolidated financial position or results of operations. At the
date of adoption and at December 31, 2008 and 2007, the
Companys unrecognized income tax benefits and uncertain
tax provisions were not material.
Net
Loss Per Share
The Company calculates basic and diluted net loss per common
share in accordance with SFAS No. 128, Earnings Per
Share, and SEC Staff Accounting Bulletin (SAB)
No. 98. Basic net loss per common share is computed by
dividing net loss for the period by the weighted average number
of common shares outstanding during the period, without
consideration for common stock equivalents. Stock options,
unvested stock awards and warrants are considered to be common
equivalents and are only included in the calculation of diluted
earnings per common share when their effect is dilutive. Because
of the Companys net loss, all outstanding stock options,
unvested stock awards and warrants were excluded from the
calculation. The Company has excluded the following stock
options,
F-11
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
unvested stock awards and warrants from the calculation of
diluted net loss per common share as of December 31, 2008,
2007 and 2006 because their effect is anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Stock options and awards
|
|
|
7,447,285
|
|
|
|
7,914,979
|
|
|
|
8,727,322
|
|
Warrants
|
|
|
3,230,656
|
|
|
|
4,859,030
|
|
|
|
6,714,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,677,941
|
|
|
|
12,774,009
|
|
|
|
15,441,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Information
The Company operates in one segment, which is the research,
development and commercialization of products based on the
extracellular matrix for the endocrinology, oncology,
dermatology and drug delivery markets. The chief operating
decision-makers review the operating results on an aggregate
basis and manage the operations as a single operating segment.
Pending
Adoption of Recent Accounting Pronouncements
In December 2007, the FASB ratified EITF Issue
No. 07-01,
Accounting for Collaboration Arrangements, which is
focused on how the parties to a collaborative agreement should
account for costs incurred and revenue generated on sales to
third parties, how sharing payments pursuant to a collaboration
agreement should be presented in the statement of operations and
certain related disclosure questions. EITF
No. 07-01
is effective for the Company in the first quarter of 2009. The
Company does not expect the adoption of EITF
No. 07-01
to have a material impact on its consolidated financial position
or results of operations.
In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations
(SFAS 141(R)). SFAS 141(R) establishes
principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, any noncontrolling interest
in the acquiree and the goodwill acquired in connection with
business combinations. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for fiscal years beginning on or
after December 15, 2008. The Company does not expect the
adoption of SFAS 141(R) to have a material effect on its
consolidated financial condition and results of operations.
In May 2008, the FASB issued SFAS No. 162,
Hierarchy of Generally Accepted Accounting Principles.
This statement is intended to improve financial reporting by
identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial
statements of nongovernmental entities that are presented in
conformity with GAAP. This statement will be effective
60 days following the SECs approval of the Public
Company Accounting Oversight Board amendment to AU
Section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles. The Company
does not expect the adoption of SFAS No. 162 to have a
material impact on its consolidated financial position or
results of operations.
In June 2008, the FASB issued FSP
No. EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities. FSP
No. EITF 03-6-1
clarified that all outstanding unvested share-based payment
awards that contain rights to nonforfeitable dividends
participate in undistributed earnings with common shareholders.
Awards of this nature are considered participating securities
and the two-class method of computing basic and diluted earnings
per share must be applied. FSP
No. EITF 03-6-1
is effective for the Company in the first quarter of 2009. The
Company does not expect the adoption of FSP
EITF 03-6-1
to have a material impact on its consolidated financial position
or results of operations.
In June 2008, the FASB ratified EITF Issue
No. 07-5,
Determining Whether an Instrument (or an Embedded Feature) Is
Indexed to an Entitys Own Stock. EITF Issue
No. 07-5
provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and
settlement provisions. It also clarifies the
F-12
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
impact of foreign currency denominated strike prices and
market-based employee stock option valuation instruments on the
evaluation. EITF Issue
No. 07-5
is effective for the Company in the first quarter of 2009. The
Company does not expect the adoption of EITF Issue
No. 07-5
to have a material impact on its consolidated financial position
or results of operations.
Inventory consists of the following as of December 31, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Raw materials
|
|
$
|
435,386
|
|
|
$
|
578,397
|
|
Finished goods
|
|
|
5,937
|
|
|
|
78,677
|
|
Work in process
|
|
|
|
|
|
|
46,394
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441,323
|
|
|
$
|
703,468
|
|
|
|
|
|
|
|
|
|
|
Inventory is used in the manufacture of the Companys
HYLENEX and Cumulase products and is stated at the lower of cost
or market.
|
|
4.
|
Property
and Equipment
|
Property and equipment consists of the following as of
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Research equipment
|
|
$
|
2,699,706
|
|
|
$
|
1,892,658
|
|
Computer and office equipment
|
|
|
1,079,034
|
|
|
|
789,851
|
|
Leasehold improvements
|
|
|
814,067
|
|
|
|
633,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,592,807
|
|
|
|
3,316,505
|
|
Accumulated depreciation and amortization
|
|
|
(2,042,882
|
)
|
|
|
(1,033,189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,549,925
|
|
|
$
|
2,283,316
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense was approximately
$1.0 million, $576,000 and $244,000, for the years ended
December 31, 2008, 2007 and 2006, respectively.
Accrued expenses consist of the following as of
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued compensation and payroll taxes
|
|
$
|
2,060,866
|
|
|
$
|
1,418,313
|
|
Accrued outsourced research and clinical trial expenses
|
|
|
1,329,954
|
|
|
|
424,385
|
|
Accrued expenses
|
|
|
605,077
|
|
|
|
659,561
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,995,897
|
|
|
$
|
2,502,259
|
|
|
|
|
|
|
|
|
|
|
F-13
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Deferred revenue consists of the following as of
December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Collaborative agreements
|
|
$
|
49,273,306
|
|
|
$
|
39,079,524
|
|
Product sales
|
|
|
175,150
|
|
|
|
189,967
|
|
|
|
|
|
|
|
|
|
|
Total deferred revenue
|
|
|
49,448,456
|
|
|
|
39,269,491
|
|
Less current portion
|
|
|
3,553,730
|
|
|
|
3,306,225
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue, net of current portion
|
|
$
|
45,894,726
|
|
|
$
|
35,963,266
|
|
|
|
|
|
|
|
|
|
|
Roche Partnership In December 2006, the
Company and Roche entered into a license and collaborative
agreement for Enhanze Technology (the Roche
Partnership). Under the terms of the Roche Partnership,
Roche obtained a worldwide, exclusive license to develop and
commercialize product combinations of rHuPH20, the
Companys proprietary recombinant human hyaluronidase, and
up to thirteen Roche target compounds resulting from the
collaboration. Roche paid $20.0 million to the Company in
December 2006 as an initial upfront payment for the application
of rHuPH20 to three pre-defined Roche biologic targets. In
December 2008, the Company was entitled to receive an aggregate
of approximately $9.3 million from Roche in connection with
Roches election of a fourth exclusive target and annual
designation maintenance fees for the remaining nine Roche
targets.
Due to the Companys continuing involvement obligations,
revenues from the upfront payment, exclusive designation fees
and annual designation maintenance fees were deferred and are
being recognized over the term of the Roche Partnership. The
Company recognized revenue from the upfront payment, exclusive
designation fees and annual maintenance designation fees under
the Roche Partnership in the amounts of approximately
$1.2 million, $1.2 million and $81,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
Baxter Partnerships In September 2007, the
Company and Baxter entered into an Enhanze Technology License
and Collaboration Agreement (the Gammagard
Partnership). Under the terms of the Gammagard
Partnership, Baxter paid the Company a nonrefundable upfront
payment of $10.0 million. Due to the Companys
continuing involvement obligations, the $10.0 million
upfront payment was deferred and is being recognized over the
term of the Gammagard Partnership. The Company recognized
revenue from the upfront payment under the Gammagard Partnership
in the amounts of approximately $606,000 and $192,000 for the
years ended December 31, 2008 and 2007, respectively.
In February 2007, the Company and Baxter amended certain
existing agreements for HYLENEX and entered into a new agreement
for kits and formulations with rHuPH20 (the HYLENEX
Partnership). Under the terms of the HYLENEX Partnership,
Baxter paid the Company a nonrefundable upfront payment of
$10.0 million. Due to the Companys continuing
involvement obligations, the $10.0 million upfront payment
was deferred and is being recognized over the term of the
HYLENEX Partnership. The Company recognized revenue from the
upfront payment under the HYLENEX Partnership in the amounts of
approximately $586,000 and $516,000 for the years ended
December 31, 2008 and 2007, respectively.
In addition, Baxter will make payments to the Company based on
sales of the products covered under the HYLENEX Partnership.
Through December 31, 2008, Baxter prepaid a total of
$4.5 million of such product-based payments in connection
with the execution of the HYLENEX Partnership. In January 2009,
Baxter prepaid another $5.5 million of such product-based
payments. The prepaid product-based payments are deferred and
are being recognized as product sales revenues as the Company
earns such revenues from the sales of HYLENEX by Baxter.
Issuance of Common Stock During 2008, the
Company issued an aggregate of 3,649,710 shares of common
stock in connection with the exercises of stock purchase
warrants (1,628,374 shares at a weighted average price of
F-14
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
$1.06 per share), stock options (1,828,836 shares at a
weighted average price of $0.55 per share) and restricted stock
awards (192,500 shares at a price of $0.001 per share) for
cash in the aggregate amount of approximately $2.6 million.
In April 2007, the Company entered into a definitive stock
purchase agreement (the Purchase Agreement) with New
River Management V, LP (New River). Under the
terms of the Purchase Agreement, New River purchased 3,500,000
newly-issued shares of the Companys common stock for an
aggregate price of approximately $32.1 million. The sale of
the shares was completed in May 2007. The Company has agreed to
file a registration statement upon demand with the SEC covering
the resale of these shares.
In February 2007, an affiliate of Baxter purchased
2,070,394 shares of the Companys common stock for an
aggregate price of approximately $20.0 million.
In December 2006, the Company issued and sold to an accredited
investor, an affiliate of Roche (the Purchaser),
3,385,000 shares (the Shares) of the
Companys common stock at a price of $3.27 per share, for
gross proceeds of approximately $11.1 million. The Shares
were sold pursuant to exemptions from registration under
Regulation D of the Securities Act. In December 2006, the
Company also entered into a registration rights agreement (the
Rights Agreement) with the Purchaser, under which
the Company may be required to register the Shares upon the
occurrence of certain events set forth in the Rights Agreement.
Such triggering events include, but are not limited to, the
registration of shares pursuant to a registration statement not
currently in effect. The Rights Agreement will terminate at such
time as the Purchaser may sell the Shares in any three-month
period pursuant to the provisions of Rule 144 under the
Securities Act of 1933, as amended. As of December 31,
2008, the Company had not filed a registration statement with
the SEC covering the resale of the Shares.
During 2007, the Company issued an aggregate of
3,596,557 shares of common stock in connection with the
exercises of stock purchase warrants (1,783,852 shares at a
weighted average price of $1.29 per share), stock options
(1,707,705 shares at a weighted average price of $1.00 per
share) and restricted stock awards (105,000 shares at a
price of $0) for cash in the aggregate amount of approximately
$4.0 million.
During 2006, the Company issued an aggregate of
5,104,996 shares of common stock in connection with the
exercises of stock purchase warrants (4,818,846 shares at a
weighted average price of $1.48 per share), stock options
(196,150 shares at a weighted average price of $0.80 per
share) and restricted stock awards (90,000 shares at a
price of $0) for cash in the aggregate amount of approximately
$7.3 million.
Issuance of Common Stock Options for Services
In 2006, an option to purchase 13,332 shares of the
Companys common stock was issued to a consultant for
services received and the stock option was valued at
approximately $9,000. These options were fully exercisable and
fully vested on the date of grant and shall expire in ten years
based on the terms of the options. The fair value of these
options was recorded as a noncash stock expense.
Warrants In connection with the October 2004
private placement, the Company issued warrants to purchase
2,709,542 shares of common stock at an exercise price of
$2.25 per share. These warrants are exercisable until
October 12, 2009. As of December 31, 2008 and 2007,
1,927,715 and 2,030,572, respectively, of these warrants were
outstanding.
In connection with the January 2004 private placement, the
Company issued warrants (the Callable Warrants) to
purchase 8,094,829 shares of common stock at an exercise
price of $1.75 per share, as amended. These warrants are
exercisable until January 28, 2009 and are callable by the
Company under certain conditions. In December 2004, the Company
called the first tranche of the Callable Warrants and holders of
the Callable Warrants exercised warrants to purchase
1,571,682 shares of common stock at $1.75 per share, or
approximately $2.7 million in net proceeds. In August 2006,
the Company called the second tranche of the Callable Warrants
and holders of the Callable Warrants exercised warrants to
purchase 2,204,188 shares of common stock at $1.75 per
share, or approximately $3.9 million in net proceeds. As of
December 31, 2008 and 2007, 1,302,941 and 1,634,143,
respectively, of the Callable Warrants were outstanding. In
January 2009, holders of the Callable Warrants exercised
F-15
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
warrants to purchase 1,264,866 shares of the common stock
for an aggregate of $2.2 million in proceeds. The remaining
Callable Warrants to purchase 38,075 shares of common stock
expired on January 28, 2009.
In October 2003, in conjunction with the issuance of the
Companys Series C Convertible Preferred Stock (the
Series C), the Company granted warrants to
purchase 2,367,114 shares of common stock to purchasers of
the Series C at an exercise price of $0.7667 per share.
These warrants expired on October 15, 2008. As of
December 31, 2008 and 2007, 0 and 1,194,315, respectively,
of these warrants were outstanding.
|
|
8.
|
Equity
Incentive Plans
|
The Company currently has six equity incentive plans (the
Plans): the 2008 Stock Plan, the 2008 Outside
Directors Stock Plan, the 2006 Stock Plan, the 2005
Outside Directors Stock Plan, the 2004 Stock Plan and the
2001 Stock Plan. All of the Plans were approved by the
stockholders. In May 2008, the Companys stockholders
approved the Companys 2008 Stock Plan, which provides for
the grant of up to a total of 5,000,000 shares of common
stock (subject to certain limitations as described in the 2008
Stock Plan) to selected employees, consultants and non-employee
members of the Companys Board of Directors (Outside
Directors) as stock options, stock appreciation rights,
restricted stock awards, restricted stock unit awards and
performance awards. Also in May 2008, the Companys
stockholders approved the Companys 2008 Outside
Directors Stock Plan, which provides for grants of
restricted stock awards up to a total of 600,000 shares of
common stock to the Companys Outside Directors.
During the year ended December 31, 2008, the Company
granted share-based awards under the 2008 Stock Plan, the 2006
Stock Plan and the 2005 Outside Directors Stock Plan. The
Company had an aggregate of 18,225,000 shares of common
stock reserved for issuance as of December 31, 2008. Of
those shares, 7,254,785 shares were subject to outstanding
options and 5,413,554 shares were available for future
grants of share-based awards. At the present time, management
intends to issue new common shares upon the exercise of stock
options and restricted stock awards.
Stock Options. Options are subject to terms
and conditions established by the Compensation Committee of the
Companys Board of Directors. Options have a term of ten
years and generally vest at the rate of 25% one year from the
grant date and monthly thereafter until the options are fully
vested over four years. Certain option awards provide for
accelerated vesting if there is a change in control (as defined
in the Plans).
F-16
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
A summary of the Companys stock option award activity as
of and for the years ended December 31, 2008, 2007 and 2006
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Underlying
|
|
|
Average Exercise
|
|
|
Average Remaining
|
|
|
Intrinsic
|
|
|
|
Stock Options
|
|
|
Price per Share
|
|
|
Contractual Term (yrs)
|
|
|
Value
|
|
|
Outstanding at January 1, 2006
|
|
|
8,535,751
|
|
|
$
|
1.01
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
577,682
|
|
|
$
|
2.64
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(196,150
|
)
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(279,961
|
)
|
|
$
|
1.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
8,637,322
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,029,881
|
|
|
$
|
8.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,732,567
|
)
|
|
$
|
1.11
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(124,657
|
)
|
|
$
|
1.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
7,809,979
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,513,650
|
|
|
$
|
5.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,857,478
|
)
|
|
$
|
0.55
|
|
|
|
|
|
|
|
|
|
Cancelled/forfeited
|
|
|
(211,366
|
)
|
|
$
|
7.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
7,254,785
|
|
|
$
|
3.02
|
|
|
|
6.5
|
|
|
$
|
21.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2008
|
|
|
6,969,104
|
|
|
$
|
2.90
|
|
|
|
6.4
|
|
|
$
|
21.4 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008
|
|
|
5,043,244
|
|
|
$
|
1.80
|
|
|
|
5.5
|
|
|
$
|
20.2 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair values of options granted
during the years ended December 31, 2008, 2007 and 2006
were $3.39 per share, $4.94 per share and $1.57 per share,
respectively. As of December 31, 2008, approximately
$6.1 million of total unrecognized compensation costs
related to non-vested stock option awards is expected to be
recognized over a weighted average period of approximately
2.8 years. The intrinsic value of options exercised during
the years ended December 31, 2008, 2007 and 2006 was
approximately $9.9 million, $13.5 million and
$342,000, respectively. Cash received from stock option
exercises for the years ended December 31, 2008, 2007 and
2006 was approximately $844,000, $1.7 million and $156,000,
respectively.
The fair value of each option award is estimated on the date of
grant using a Black-Scholes-Merton option pricing model
(Black-Scholes model) that uses the assumptions
noted in the following table. Expected volatility is based on
historical volatility of the Companys common stock and its
peer group. 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 by the Company. Assumptions used in the
Black-Scholes model were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Expected volatility
|
|
|
65.0
|
%
|
|
|
70.0
|
%
|
|
|
75.0
|
%
|
Average expected term (in years)
|
|
|
5.5
|
|
|
|
5.0
|
|
|
|
4.0
|
|
Risk-free interest rate
|
|
|
1.26-3.14
|
%
|
|
|
3.5-4.7
|
%
|
|
|
4.6-5.1
|
%
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
F-17
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes information for outstanding and
exercisable options as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Number
|
|
|
Average
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Vested and
|
|
|
Exercise
|
|
Exercise Price
|
|
Outstanding
|
|
|
Life in Years
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.06 - $ 0.39
|
|
|
2,499,027
|
|
|
|
4.8
|
|
|
$
|
0.39
|
|
|
|
2,499,027
|
|
|
$
|
0.39
|
|
$0.40 - $ 2.05
|
|
|
1,608,080
|
|
|
|
5.4
|
|
|
$
|
1.95
|
|
|
|
1,540,695
|
|
|
$
|
1.94
|
|
$2.06 - $ 5.60
|
|
|
1,872,082
|
|
|
|
8.0
|
|
|
$
|
4.22
|
|
|
|
630,582
|
|
|
$
|
3.16
|
|
$5.61 - $10.37
|
|
|
1,275,596
|
|
|
|
8.8
|
|
|
$
|
7.78
|
|
|
|
372,940
|
|
|
$
|
8.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,254,785
|
|
|
|
6.5
|
|
|
$
|
3.02
|
|
|
|
5,043,244
|
|
|
$
|
1.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards. Restricted stock
awards are grants that entitle the holder to acquire shares of
restricted common stock at a fixed price, which is typically
nominal. The shares of restricted stock cannot be sold, pledged,
or otherwise disposed of until the award vests and any unvested
shares may be reacquired by the Company for the original
purchase price following the awardees termination of
service. Annual grants of restricted stock under the Outside
Directors Stock Plans typically vest in full the first day
the awardee may trade the Companys stock in compliance
with the Companys insider trading policy following the
date immediately preceding the first annual meeting of
stockholders following the grant date.
In May 2008, the Company granted certain employees 87,500
performance-based restricted stock awards (Performance
Awards), for a purchase price of $0.001 per share, under
the 2008 Stock Plan. The Performance Awards will become fully
vested only if certain development performance milestone
criteria are successfully achieved before October 1, 2009
(Performance Goal). If the Performance Goal is not
met, the Performance Awards will be terminated and the Company
will automatically reacquire the unvested shares for the
original purchase price. The Company recognized $201,000 of
share-based compensation expense related to the Performance
Awards during the year ended December 31, 2008 as
management believes achievement of the Performance Goal is
probable at December 31, 2008.
During the years ended December 31, 2008, 2007 and 2006,
the Company issued 192,500, 105,000 and 90,000 restricted stock
awards, respectively, under the 2008 Stock Plan and 2005 Outside
Directors Stock Plan. The following table summarizes the
Companys unvested restricted stock activity during the
years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at January 1, 2006
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
90,000
|
|
|
$
|
2.72
|
|
Vested
|
|
|
|
|
|
$
|
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2006
|
|
|
90,000
|
|
|
$
|
2.72
|
|
Granted
|
|
|
105,000
|
|
|
$
|
10.37
|
|
Vested
|
|
|
(90,000
|
)
|
|
$
|
2.72
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2007
|
|
|
105,000
|
|
|
$
|
10.37
|
|
Granted
|
|
|
192,500
|
|
|
$
|
4.94
|
|
Vested
|
|
|
(105,000
|
)
|
|
$
|
10.37
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
192,500
|
|
|
$
|
4.94
|
|
|
|
|
|
|
|
|
|
|
F-18
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The total grant-date fair value of restricted stock awards
vested during the years ended December 31, 2008 and 2007
was $1.1 million and $245,000, respectively. As of
December 31, 2008, total unrecognized compensation cost
related to unvested shares was $420,000, which is expected to be
recognized over a weighted-average period of 6.5 months.
|
|
9.
|
Commitments
and Contingencies
|
Operating Leases The Companys
administrative offices and research facilities are located in
San Diego, California. The Company leases an aggregate of
approximately 51,500 square feet of office and research
space.
In July 2007, the Company entered into a sublease agreement with
Avanir Pharmaceuticals, Inc. (Avanir) for
Avanirs excess leased facilities located at 11388 Sorrento
Valley Road, San Diego, California (the 11388
Sublease) for 27,575 square feet of office and
research space. The 11388 Sublease expired in August 2008. As a
result, in July 2007, the Company entered into a lease agreement
(the Lease) with BC Sorrento, LLC (BC
Sorrento) for these facilities through January 2013.
Payment obligations under the Lease commenced in September 2008
after the obligations in the short-term 11388 Sublease had
concluded. Under the terms of the Lease, the initial monthly
rent payment was approximately $37,000 net of costs and
property taxes associated with the operation and maintenance of
the leased facilities, commencing in September 2008 and will
increase to approximately $73,000 starting in March 2009.
Thereafter, the annual base rent is subject to approximately 4%
annual increases each year throughout the term of the Lease.
Under terms of the Lease and 11388 Sublease, the Company
received an allowance for the cost of tenant improvements
totaling approximately $276,000 and received free rent totaling
approximately $794,000, of which approximately $870,000 and
$625,000 was included in deferred rent as of December 31,
2008 and 2007, respectively. The difference between the actual
amount paid and the amount recorded as rent expense in each
fiscal year has been recorded as an adjustment to deferred rent.
In July 2007, the Company also entered into a sublease agreement
with Avanir for Avanirs excess leased facilities located
at 11404 Sorrento Valley Road, San Diego, California (the
11404 Sublease) for 21,184 square feet of
office and research space for a monthly rent payment of
approximately $54,000, net of costs and property taxes
associated with the operation and maintenance of the subleased
facilities. The 11404 Sublease expires in January 2013. The
annual base rent is subject to approximately 4% annual increases
each year throughout the terms of the 11404 Sublease. In
addition, the Company received free rent totaling approximately
$492,000, of which approximately $418,000 and $299,000 was
included in deferred rent as of December 31, 2008 and 2007,
respectively. The difference between the actual amount paid and
the amount recorded as rent expense in each fiscal year has been
recorded as an adjustment to deferred rent. The Company pays a
pro rata share of operating costs, insurance costs, costs of
utilities and real property taxes incurred by Avanir for the
subleased facilities.
Subsequent to December 31, 2008, the Company entered into a
sub-sublease
agreement with Sirion Therapeutics, Inc. (Sirion), a
subtenant of Avanir, for Sirions excess subleased
facilities located at 11408 Sorrento Valley Road,
San Diego, California (the
Sub-Sublease)
for 2,700 square feet of office and research space for a
monthly rent payment of approximately $6,000. Payment
obligations under the
Sub-Sublease
will commence after certain tenant improvements to these
facilities are completed, which is expected to occur in April
2009.
Additionally, the Company leases certain office equipment under
operating leases. Total rent expense was approximately
$1.4 million, $1.1 million and $297,000 for the years
ended December 31, 2008, 2007 and 2006, respectively.
F-19
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
Approximate annual future minimum operating lease payments as of
December 31, 2008 are as follows:
|
|
|
|
|
|
|
Operating
|
|
Year:
|
|
Leases
|
|
|
2009
|
|
$
|
1,490,000
|
|
2010
|
|
|
1,615,000
|
|
2011
|
|
|
1,665,000
|
|
2012
|
|
|
1,729,000
|
|
2013
|
|
|
67,000
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
6,566,000
|
|
|
|
|
|
|
Material Agreements In September 2007, the
Company entered into the Gammagard Partnership with Baxter.
Under the terms of the Gammagard Partnership, Baxter obtained a
worldwide, exclusive license to develop and commercialize
product combinations of rHuPH20, with a current Baxter product,
GAMMAGARD LIQUID. Under the terms of the Gammagard Partnership,
Baxter paid the Company a nonrefundable upfront payment of
$10.0 million. Due to the Companys continuing
involvement obligations, the $10 million upfront payment
was deferred and is being recognized over the term of the
Gammagard Partnership.
Pending successful completion of a series of regulatory and
sales milestones, Baxter may make further milestone payments
totaling $37.0 million to us. In addition, Baxter will pay
royalties on the sales, if any, of the products that result from
the collaboration. The Gammagard Partnership is applicable to
both kit and formulation combinations. Baxter will assume all
development, manufacturing, clinical, regulatory, sales and
marketing costs under the Gammagard Partnership, while the
Company will be responsible for the supply of the rHuPH20
enzyme. In addition, Baxter has certain product development and
commercialization obligations in major markets identified in the
Gammagard Partnership.
In February 2007, the Company and Baxter amended certain
existing agreements relating to HYLENEX and entered into the
HYLENEX Partnership, a new agreement for kits and formulations
with rHuPH20. Under the terms of the HYLENEX Partnership, Baxter
paid a nonrefundable upfront payment of $10.0 million and,
pending the successful completion of a series of regulatory and
sales events, Baxter will make milestone payments to us which
could potentially reach a value of up to $25.0 million. In
addition, Baxter will make payments to the Company based on the
sales of products covered under the HYLENEX Partnership. Through
December 31, 2008, Baxter prepaid a total of
$4.5 million of such product-based payments. In January
2009, Baxter prepaid another $5.5 million of such
product-based payments. Baxter will also now assume all
development, manufacturing, clinical, regulatory, sales and
marketing costs of the products covered by the HYLENEX
Partnership. The Company will continue to supply Baxter with the
API for HYLENEX, and Baxter will fill and finish HYLENEX and
hold it for subsequent distribution. In addition, Baxter will
obtain a worldwide, exclusive license to develop and
commercialize product combinations of rHuPH20 with Baxter
hydration fluids and generic small molecule drugs, with the
exception of combinations with (i) bisphosphonates,
(ii) cytostatic and (iii) cytotoxic chemotherapeutic
agents, the rights to which have been retained by the Company.
Additionally, Baxter will make product-based payments on the
sales, if any, of the products that result from the
collaboration. Due to the Companys continuing involvement
obligations, the $10.0 million upfront payment was deferred
and is being recognized over the term of the HYLENEX Partnership.
In December 2006, the Company and Roche entered into the Roche
Partnership for Enhanze Technology. Under the terms of the Roche
Partnership, Roche obtained a worldwide, exclusive license to
develop and commercialize product combinations of rHuPH20 and up
to thirteen Roche target compounds resulting from the
partnership. Roche paid $20.0 million as an initial upfront
license fee for the application of rHuPH20 to three pre-defined
Roche biologic targets. Pending the successful completion of a
series of clinical, regulatory and sales
F-20
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
events, Roche will pay the Company further milestones which
could potentially reach a value of up to $111.0 million. In
addition, Roche will pay the Company royalties on product sales
for these first three targets. Through December 2016, Roche will
also have the option to exclusively develop and commercialize
rHuPH20 with an additional ten targets to be identified by
Roche, provided that Roche will be obligated to pay continuing
exclusivity maintenance fees to the Company in order to maintain
its exclusive development rights for these targets. For each of
the additional ten targets, Roche may pay the Company further
upfront and milestone payments of up to $47.0 million per
target, as well as royalties on product sales for each of these
additional ten targets. Additionally, Roche will obtain access
to the Companys expertise in developing and applying
rHuPH20 to Roche targets. Under the terms of the Roche
Partnership, the Company was obligated to scale up the
production of rHuPH20 and to identify a second source
manufacturer that would help meet anticipated production
obligations arising from the partnership. To that end, during
2008, the Company entered into a Technology Transfer Agreement
and a Clinical Supply Agreement with a second rHuPH20
manufacturer. This manufacturer has the capacity to produce the
quantities the Company was required to deliver under the terms
of the Roche Partnership. The technology transfer was completed
in 2008 with
scale-up and
clinical supply manufacturing planned for 2009.
In August 2008, the Company entered into a Clinical Supply
Agreement (the Cook Agreement) with Cook Pharmica
LLC (Cook). Under the terms of the Cook Agreement,
Cook will manufacture certain batches of the API that will be
used in clinical trials of certain product candidates.
In December 2006, the Company amended its Commercial Supply
Agreement (the Amendment) with Avid Bioservices,
Inc. (Avid) which was originally entered into in
February 2005. Under the terms of the Amendment, the Company is
committed to certain minimum annual purchases of API equal to
two quarters of forecasted supply. In addition, Avid has the
right to manufacture and supply a certain percentage of the API
that will be used in the Companys HYLENEX and Cumulase
products. At December 31, 2008, the Company has a minimum
purchase obligation of approximately $1.0 million.
Legal Contingencies From time to time
the Company is involved in legal actions arising in the normal
course of its business. The Company is not presently subject to
any material litigation nor, to managements knowledge, is
any litigation threatened against the Company that collectively
is expected to have a material adverse effect on the
Companys consolidated cash flows, financial condition or
results of operations.
Significant components of the Companys net deferred tax
assets at December 31, 2008 and 2007 are shown below. A
valuation allowance of $49.6 million and $28.6 million
has been established to offset the net deferred tax assets as of
December 31, 2008 and 2007, respectively, as realization of
such assets is uncertain.
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
25,466,000
|
|
|
$
|
15,303,000
|
|
Deferred revenue
|
|
|
14,566,000
|
|
|
|
7,639,000
|
|
Research and development credits
|
|
|
7,775,000
|
|
|
|
4,321,000
|
|
Share-based compensation
|
|
|
929,000
|
|
|
|
696,000
|
|
Depreciation
|
|
|
80,000
|
|
|
|
95,000
|
|
Other, net
|
|
|
743,000
|
|
|
|
505,000
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
49,559,000
|
|
|
|
28,559,000
|
|
Valuation allowance for deferred tax assets
|
|
|
(49,559,000
|
)
|
|
|
(28,559,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
The provision for income taxes on earnings subject to income
taxes differs from the statutory federal income tax rate at
December 31, 2008, 2007 and 2006, due to the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Federal income tax rate of 34%
|
|
$
|
(16,544,000
|
)
|
|
$
|
(8,125,000
|
)
|
|
$
|
(5,016,000
|
)
|
State income tax, net of federal benefit
|
|
|
(2,839,000
|
)
|
|
|
(1,394,000
|
)
|
|
|
(861,000
|
)
|
Research and development credits
|
|
|
(3,099,000
|
)
|
|
|
(2,133,000
|
)
|
|
|
(615,000
|
)
|
Tax effect on non-deductible expenses and other
|
|
|
2,445,000
|
|
|
|
857,000
|
|
|
|
286,000
|
|
Increase in valuation allowance
|
|
|
20,037,000
|
|
|
|
10,795,000
|
|
|
|
6,206,000
|
|
Benefit due to refundable R&D credit
|
|
|
(63,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(63,000
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, the Company had federal and
California tax net operating loss carryforwards of approximately
$77.5 million and $79.8 million, respectively.
Included in these amounts are federal and California net
operating losses of approximately $13.9 million
attributable to stock option deductions of which the tax benefit
will be credited to equity when realized. The federal and
California tax loss carryforwards will begin to expire in 2018
and 2012, respectively, unless previously utilized.
At December 31, 2008, the Company also had federal and
California research and development tax credit carryforwards of
approximately $5.6 million and $3.3 million,
respectively. The federal research and development tax credits
will begin to expire in 2024 unless previously utilized. The
California research and development tax credits will
carryforward indefinitely until utilized.
Pursuant to Internal Revenue Code Section 382, the annual
use of the net operating loss carryforwards and research and
development tax credits could be limited by any greater than 50%
ownership change during any three-year testing period. As a
result of any such ownership change, portions of the
Companys net operating loss carryforwards and research and
development tax credits are subject to annual limitations. The
Company completed a Section 382 analysis regarding the
limitation of the net operating losses and research and
development credits. Based upon the analysis, the Company
determined that ownership changes occurred in prior years.
However, the annual limitations on net operating loss and
research and development tax credit carryforwards will not have
a material impact on the future utilization of such
carryforwards.
The Company adopted the provisions of FIN 48 on
January 1, 2007. The adoption of FIN 48 did not impact
the Companys consolidated financial position or results of
operations. At the date of adoption and at December 31,
2008, the Companys unrecognized income tax benefits and
uncertain tax provisions were not material and would not, if
recognized, affect the effective tax rate.
Interest
and/or
penalties related to uncertain income tax positions are
recognized by the Company as a component of income tax expense.
For the years ended December 31, 2008 and 2007, the Company
did not recognize any interest or penalties.
The Company is subject to taxation in the U.S. and in
various state jurisdictions. The Companys tax years for
1998 and forward are subject to examination by the U.S. and
California tax authorities due to the carryforward of unutilized
net operating losses and research and development credits.
|
|
11.
|
Related
Party Transactions
|
In July 2007, the Company entered into the 11388 Sublease with
Avanir for Avanirs excess leased facilities in
San Diego, California. The 11388 Sublease expired in August
2008. As a result, in July 2007, the Company entered into the
Lease with BC Sorrento for these facilities through January
2013. Connie L. Matsui, a director of the Company, and her
husband have a controlling ownership interest in an entity that
holds a minority ownership position in BC Sorrento. In addition,
this entity currently serves as the managing member of BC
Sorrento. The
F-22
Halozyme
Therapeutics, Inc.
Notes to
Consolidated Financial
Statements (Continued)
transaction with BC Sorrento was reviewed and approved by the
Companys Board of Directors in accordance with the
Companys related party transaction policy. The Lease
commenced in September 2008. The Company paid BC Sorrento
approximately $281,000 and $0 for the years ended
December 31, 2008 and 2007, respectively.
In December 2006, Halozyme entered into a license agreement with
a related party, Nektar Therapeutics AL, Corporation
(Nektar) under which the Company obtained a license
to certain intellectual property rights and proprietary
technology of Nektar. Nektars co-founder, Chief Scientific
Officer and Director, Dr. John Patton, is currently a
member of the Companys Board of Directors. Dr. Patton
recused himself from the segments of the various Board of
Directors meetings at which this transaction was discussed,
evaluated or approved. The Company paid Nektar approximately
$73,000 and $75,000 for the years ended December 31, 2008
and 2007. Under the terms of this agreement, the Company is
obligated to make certain payments in the future upon achieving
certain specified milestones and royalties on product sales.
|
|
12.
|
Summary
of Unaudited Quarterly Financial Information
|
The following is a summary of the Companys unaudited
quarterly statement of operations data derived from unaudited
consolidated financial statements included in the Quarterly
Reports on
Form 10-Q:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
2008 (Unaudited):
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Total revenues
|
|
$
|
1,805,518
|
|
|
$
|
1,434,219
|
|
|
$
|
2,462,226
|
|
|
$
|
3,062,176
|
|
Total operating expenses
|
|
$
|
12,638,984
|
|
|
$
|
12,808,789
|
|
|
$
|
13,661,945
|
|
|
$
|
20,089,123
|
|
Net loss
|
|
$
|
(9,953,997
|
)
|
|
$
|
(11,002,390
|
)
|
|
$
|
(10,872,158
|
)
|
|
$
|
(16,825,654
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.21
|
)
|
Shares used in computing net loss per share, basic and diluted
|
|
|
78,300,319
|
|
|
|
79,454,496
|
|
|
|
80,293,800
|
|
|
|
81,213,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended
|
|
2007 (Unaudited):
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Total revenues
|
|
$
|
810,215
|
|
|
$
|
708,516
|
|
|
$
|
942,881
|
|
|
$
|
1,337,909
|
|
Total operating expenses
|
|
$
|
4,890,626
|
|
|
$
|
6,542,830
|
|
|
$
|
9,252,533
|
|
|
$
|
11,263,739
|
|
Net loss
|
|
$
|
(3,357,304
|
)
|
|
$
|
(4,801,707
|
)
|
|
$
|
(7,028,781
|
)
|
|
$
|
(8,708,391
|
)
|
Net loss per share, basic and diluted
|
|
$
|
(0.05
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.11
|
)
|
Shares used in computing net loss per share, basic and diluted
|
|
|
69,984,931
|
|
|
|
73,217,967
|
|
|
|
76,502,867
|
|
|
|
77,459,803
|
|
F-23