BioMarin Pharmaceutical Inc. — Q2 2023 Form 10-Q
Business context and period: BioMarin develops and commercializes therapies for rare genetic diseases. This unaudited report covers the quarter and six months ended June 30, 2023, compared with the same periods in 2022. ROCTAVIAN received U.S. FDA approval on June 29, 2023; it had received conditional EU approval in August 2022.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $595.3 million | $533.8 million | $1,191.7 million | $1,053.2 million |
| Operating income | $58.9 million | $39.2 million | $118.2 million | $176.5 million |
| Net income | $56.0 million | $27.7 million | $106.9 million | $148.5 million |
| Diluted EPS | $0.29 | $0.15 | $0.56 | $0.79 |
| Gross margin | 78.5% | 76.9% | 78.6% | 77.2% |
- Q2 revenue rose about 11.5%; six-month revenue increased about 13.2%. Net product revenue was $584.7 million in Q2 and $1,171.1 million for the half year.
- Q2 operating expenses included $177.4 million of R&D and $215.3 million of SG&A. For the half year, R&D was $349.2 million and SG&A was $438.3 million.
- Six-month operating cash flow was negative $3.9 million, versus positive $10.8 million a year earlier. Investing cash flow was negative $0.5 million; financing cash flow was negative $28.8 million. Cash and cash equivalents declined $30.2 million to $694.4 million.
- Cash, cash equivalents and investments totaled $1.557 billion at June 30, down $68.7 million from year-end 2022. Current assets were $2.950 billion and current liabilities $597.2 million.
- Convertible notes had $1.095 billion net carrying value, or $1.1 billion principal: $495 million due August 2024 at 0.599% and $600 million due May 2027 at 1.25%. No amounts were drawn on the $200 million revolving credit facility; the company gave notice to terminate it in late July, with termination expected in early August.
Material changes and operating developments
- VOXZOGO revenue reached $113.3 million in Q2, up $78.9 million year over year; first-half revenue was $201.2 million, up $147.2 million. Management attributed growth to global market expansion and new patients.
- NAGLAZYME Q2 revenue fell $25.7 million year over year, mainly due to timing of large government orders, particularly in Latin America. KUVAN revenue declined amid generic competition; PALYNZIQ revenue increased on higher sales volume.
- Six-month net income declined despite revenue growth, primarily because 2022 included a $108 million gain from selling a Priority Review Voucher. First-half 2023 also included a $12.6 million impairment loss on a non-marketable equity investment.
- Interest income rose to $24.6 million for the first half from $4.3 million, primarily due to higher investment yields. Foreign exchange reduced product sales by $50.1 million in the first half, versus $22.5 million in 2022.
Outlook, risks and contingencies
- Management expects gross margin of approximately 77.5%–79.0% for the remainder of 2023. It expects R&D and SG&A expenses to increase in future periods. The filing does not provide a clear full-year revenue or earnings guidance figure.
- VOXZOGO demand in some markets has exceeded projections. Management expects supply constraints to challenge its ability to meet demand through the rest of 2023 and into 2024, potentially slowing revenue growth, market entry or clinical development. It is working to expand fill-finish capacity and stated it does not expect a material revenue impact if manufacturing plans succeed.
- Management believes cash generated from product sales and existing cash and investments will meet liquidity requirements for at least 12 months. It notes that additional financing may be needed if cash resources are insufficient, including for debt repayment, milestones and operations.
- Purchase commitments were approximately $253.0 million, of which $194.6 million was expected to be paid in 2023 as goods and services are received. Additional contingent milestone payments considered reasonably possible totaled $765.5 million.
- A ROCTAVIAN-related shareholder class action settlement was preliminarily approved. The company accrued a $39.0 million loss and recorded an equal expected insurance recovery, so it had no reported income-statement impact at June 30. Final approval was scheduled for November 8, 2023. Separate ROCTAVIAN-related and BMN 307-related shareholder litigation remained outstanding; the BMN 307 class-action dismissal was appealed.
- Key risks include reimbursement and pricing pressure, competition (including KUVAN generics and competition for ROCTAVIAN), uncertain clinical and regulatory outcomes, manufacturing and supply constraints, foreign-exchange exposure, international receivable collection, and dependence on third-party payers. Gene therapy brings additional durability, safety, manufacturing, acceptance and outcomes-based reimbursement risks.
Important facts for investors to verify
- Whether VOXZOGO manufacturing capacity expands sufficiently to meet demand and avoid delayed launches or lost sales.
- ROCTAVIAN uptake, payer coverage and reimbursement, EU market access progress, and any financial effects of outcomes-based agreements.
- Cash generation and working-capital trends, particularly receivables and inventory, alongside the August 2024 convertible-note maturity and planned credit-facility termination.
- Progress and final resolution of the ROCTAVIAN-related settlement and other disclosed shareholder litigation.
- Whether product growth offsets KUVAN generic erosion, foreign-exchange headwinds, and variability in large government orders.