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Halozyme Therapeutics Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 6, 2011 12:12PM
Halozyme Therapeutics Inc. (HALO) filed Quarterly Report for the period ended 2011-03-31. Halozyme Therapeutics Inc. has a market cap of $629.7 million; its shares were traded at around $6.21 with and P/S ratio of 46.2. Halozyme Therapeutics Inc. had an annual average earning growth of 24.8% over the past 5 years.
Highlight of Business Operations:
Effective January 7, 2011, we and Baxter mutually agreed to terminate the HYLENEX Partnership and the associated agreements. In addition, the parties are currently negotiating two definitive agreements setting forth the services to be provided by the respective parties during a transition period including Baxters manufacture of an interim supply of Standalone Product (as defined in the HYLENEX Development and Supply Agreement), all on mutually acceptable terms and conditions. As a result, in the quarter ended December 31, 2010 we have established a reserve for inventory obsolescence of approximately $875,000 for HYLENEX API and a reserve for product returns for HYLENEX API previously delivered to Baxter that could be returned to us of approximately $991,000. As of March 31, 2011 and December 31, 2010, the reserve for inventory obsolescence for HYLENEX API was approximately $875,000 and the reserve for product returns for HYLENEX API was approximately $991,000.
In addition, we received product-based payments upon the sale of HYLENEX by Baxter, in accordance with the terms of the HYLENEX Partnership. Product sales revenues were recognized as we earned such revenues based on Baxters shipments of HYLENEX to its distributors when such amounts could be reasonably estimated. Baxter had prepaid $10.0 million of non-refundable product-based payments. The prepaid product-based payments were initially deferred and were being recognized as product sales revenue as we earned such revenue from the sales of HYLENEX by Baxter. As a result of the HYLENEX Partnership termination, we will reassess the period over which the unamortized deferred revenue relating to the prepaid product-based payments totaling approximately $9.3 million at March 31, 2011 will be recognized. The period over which this amount will be amortized will be based on the final outcome of the definitive agreements.
We may receive further upfront and milestone payments of up to $47.0 million per target, as well as royalties on product sales for each of the additional five targets. We have determined that the clinical and regulatory milestones are substantive; therefore, we expect to recognize such clinical and regulatory milestone payments as revenue upon achievement. Given the challenges inherent in developing and obtaining approval for pharmaceutical and biologic products, there was substantive uncertainty whether any of the clinical and regulatory milestones would be achieved at the time the Roche Partnership was entered into. In addition, we evaluated whether the clinical and regulatory milestones met the remaining criteria to be considered substantive. We have determined that the sales-based milestone payments are similar to royalty payments and, therefore, we will recognize such sales-based milestone payments as revenue upon achievement of the milestone. In the quarter ended March 31, 2011, we recognized a $5.0 million payment as revenue in accordance with the Milestone Method of revenue recognition related to the achievement of certain clinical milestones pursuant to the terms of the Roche Partnership.
Under the terms of the HYLENEX Partnership, Baxter paid us a nonrefundable upfront payment of $10.0 million in 2007. Due to our continuing involvement obligations (for example, support activities associated with rHuPh20 enzyme), the $10.0 million upfront payment was deferred and was being recognized over the term of the HYLENEX Partnership. As a result of the termination of the HYLENEX Partnership in January 2011, we will reassess the period over which the unamortized deferred revenue relating to the upfront payment totaling approximately $7.7 million at March 31, 2011 will be recognized. The period over which this amount will be amortized will be based on the final outcome of the definitive agreements.
Stocks Discussed: HALO,