BioMarin Pharmaceutical Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. BioMarin develops and sells therapies for rare diseases. Amounts below are in U.S. dollars; financial statement amounts are converted to millions unless noted.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | First nine months 2020 | First nine months 2019 |
|---|---|---|---|---|
| Total revenue | $476.8 million | $461.1 million | $1,408.3 million | $1,249.6 million |
| Operating income (loss) | $(55.9) million | $4.0 million | $8.1 million | $(91.3) million |
| Net income (loss) | $784.8 million | $55.0 million | $837.0 million | $(38.9) million |
| Diluted earnings (loss) per share | $4.01 | $0.30 | $4.39 | $(0.22) |
| Product gross margin | 59.0% | 78.5% | 70.9% | 78.5% |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $98.7 million | $(9.1) million |
- Nine-month net product revenue was $1,368.8 million, up $144.3 million year over year; royalty and other revenue was $39.5 million, up $14.4 million.
- Cash, cash equivalents and investments totaled $1.77 billion at September 30, 2020, versus $1.17 billion at December 31, 2019. Cash and cash equivalents were $1.02 billion.
- Convertible debt was $1.45 billion net carrying value at quarter-end, with $1.47 billion aggregate principal. The $200 million revolving credit facility was unused, and the company reported compliance with its covenants.
Material changes and unusual items
- Net income was dominated by an $835.1 million deferred tax benefit recorded after transferring certain intellectual property rights to an Irish subsidiary. The company said the transfer generated no taxable gain and recorded no valuation allowance on the resulting deferred tax asset. Q3 operations nevertheless produced a $55.9 million loss.
- Cost of sales included an $81.2 million charge to write down pre-launch valoctocogene roxaparvovec inventory to zero after FDA and EMA responses required additional safety and efficacy data. This contributed to the decline in product gross margin.
- Revenue growth reflected higher Palynziq, Aldurazyme and Brineura sales, partly offset by lower Vimizim and Naglazyme revenue. Latin American order timing and missed infusions affected the latter products. Firdapse revenue declined following its January 2020 sale; BioMarin received $67.2 million and recorded a $59.5 million gain in the first quarter.
- R&D expense fell to $471.4 million for the first nine months from $542.2 million, principally reflecting lower clinical manufacturing and study costs. SG&A rose to $542.2 million from $493.0 million, including increased valoctocogene roxaparvovec pre-commercialization spending.
- In May, BioMarin issued $600 million of 1.25% convertible notes due 2027, receiving $585.8 million net proceeds. After quarter-end, the $375 million 2020 notes matured and were repaid in cash on October 15, with no shares issued.
Outlook, risks and contingencies
- No quantified full-year revenue or earnings guidance is provided in the filing. Management expected COVID-19-related effects to continue through the remainder of 2020 and into 2021; impacts included missed infusions and delayed treatment starts, with lost doses not expected to be recovered.
- Management expected R&D expense to be generally flat in future periods and SG&A to increase, including from Palynziq expansion and vosoritide pre-commercialization. Interest income was expected to be lower over the next 12 months; interest expense was expected to decrease after repayment of the 2020 notes, partly offset by the 2027 notes.
- For valoctocogene roxaparvovec, the FDA’s August 2020 Complete Response Letter sought additional Phase 3 follow-up data; BioMarin planned to report one-year top-line data in Q1 2021. The company withdrew its EU application and planned to resubmit with 52-week data in Q2 2021. Regulatory approval timing remains uncertain.
- Vosoritide applications were accepted for review; the U.S. target action date was August 20, 2021, and a European opinion was expected in the second half of 2021. BioMarin reported FDA approval in October 2020 of a Palynziq dose increase to 60 mg daily.
- Generic versions of Kuvan became available in the U.S. in October 2020 following loss of market exclusivity, which management expected to reduce revenue. Other key risks include regulatory and clinical setbacks, manufacturing and supply constraints, foreign-exchange exposure, reimbursement and pricing pressure, and COVID-19 disruptions.
- Potential milestone and other contingent payments totaled approximately $622.4 million, of which $54.1 million was recorded as contingent consideration. Clinical and other purchase commitments were estimated at $150.3 million. A shareholder class action filed in September 2020 alleges misleading statements concerning valoctocogene roxaparvovec; BioMarin said it believes the claims lack merit and intends to defend the case.
Important facts for investors to verify
- Whether the Irish intellectual-property transfer’s $835.1 million deferred tax asset is realizable as management expects, and how it affects future tax expense and cash taxes.
- Updated FDA and EMA requirements, Phase 3 data and approval timelines for valoctocogene roxaparvovec, including any further inventory or commercialization cost effects.
- The pace and financial impact of Kuvan generic competition, alongside continued COVID-19 effects on patient starts, infusions and product demand.
- Revenue concentration and collections: four customers represented 44% of nine-month product revenue, and two customers represented 48% of accounts receivable at September 30, 2020.
- Cash generation and funding needs after the $375 million debt repayment, plus future debt maturities, contingent milestone payments and litigation developments.