Business context and reporting period
BioMarin Pharmaceutical Inc. filed this Form 10-K for the fiscal year ended December 31, 2018. It develops and commercializes therapies for rare diseases. The filing also provides unaudited fourth-quarter results; this is an annual report, not a standalone quarterly filing. Financial amounts below are in U.S. dollars.
Commercial products include Aldurazyme, Brineura, Firdapse, Kuvan, Naglazyme, Palynziq and Vimizim. The principal late-stage development programs were valoctocogene roxaparvovec for hemophilia A and vosoritide for achondroplasia.
Financial performance and condition
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Total revenue | $1,491.2 million | $1,313.6 million |
| Net product revenue | $1,470.4 million | $1,270.4 million |
| Operating loss | $123.5 million | $14.7 million |
| Net loss | $77.2 million | $117.0 million |
| Net loss per diluted share | $0.44 | $0.67 |
| Operating cash flow | $20.2 million provided | $8.8 million used |
| Cash, cash equivalents and investments at year-end | $1,320.2 million | $1,781.7 million |
| Product gross margin | 79% | 81% |
Revenue increased 13.5%, led by growth across the portfolio. Vimizim generated $482.0 million, Kuvan $433.6 million, Naglazyme $345.9 million and Aldurazyme $135.1 million. Brineura revenue rose to $39.9 million as the product’s launch advanced; Palynziq contributed $12.2 million after its U.S. launch in July 2018.
Despite higher revenue, operating loss widened as cost of sales, research and development (R&D) and selling, general and administrative (SG&A) expenses rose. Net loss narrowed, reflecting a $65.5 million income tax benefit and other items. The reported $50.0 million gain on sale of intangible assets contributed to results. R&D expense was $696.3 million and SG&A expense was $604.4 million.
Fourth-quarter 2018 revenue was $353.2 million, versus $358.3 million in fourth-quarter 2017. Fourth-quarter net loss was $3.7 million, compared with $51.4 million. The filing attributes the 2017 fourth-quarter result in part to tax effects of the 2017 Tax Act and discusses gains on intangible-asset sales affecting quarterly comparisons.
At year-end, current assets were $2,056.2 million and current liabilities were $523.2 million. Cash and investments totaled $1,320.2 million, down $461.5 million year over year. The company reported $870.0 million of undiscounted convertible-note principal: $375.0 million due in 2020 and $495.0 million due in 2024; net carrying value was $830.4 million. Its $200.0 million revolving credit facility was undrawn at year-end. Operating cash flow was positive, but capital expenditures were $144.6 million.
Material changes versus the prior comparable period
- Total revenue rose $177.6 million, while net product revenue increased $200.0 million. Royalty and other revenue declined to $20.9 million from $43.2 million, including because 2017 included $31.5 million of upfront license revenue from Sarepta.
- R&D expense increased $85.5 million, notably for valoctocogene roxaparvovec, vosoritide and tralesinidase alfa. SG&A increased $50.1 million, reflecting Palynziq launch and pre-launch activity, Brineura marketing and growth-related staffing.
- Product gross margin fell two percentage points to 79%, attributed primarily to the adoption of ASC 606 and higher Vimizim and Naglazyme manufacturing costs.
- Cash and investments declined from $1,781.7 million to $1,320.2 million. Financing cash outflow included the $375.0 million cash settlement of the 2018 Notes, which matured in October 2018.
- BioMarin adopted ASC 606 on January 1, 2018 using the modified retrospective method. The change increased 2018 Aldurazyme revenue by $20.2 million and net income by $15.6 million relative to the company’s presentation before adoption; prior-year figures were not restated.
Outlook, management commentary and risks
Management’s 2019 priorities were continued pipeline progress and commercial-product uptake. It expected R&D spending to increase over 2018, primarily as valoctocogene roxaparvovec, vosoritide and other programs advanced, and expected SG&A to increase with launches and commercialization efforts. Management expected product gross margin to remain near 80% over the next 12 months. The filing does not provide a clear numerical revenue or earnings forecast.
- Management expected a decision in the second half of 2019 on whether to pursue an accelerated-approval BLA for valoctocogene roxaparvovec, based on Phase 3 data; the full Phase 3 study targeted 130 patients. The program carries clinical, durability, manufacturing, regulatory, pricing and reimbursement risks.
- For vosoritide, Phase 3 enrollment was complete and top-line results were expected by the end of 2019. The company also described an infant and young-child study as underway.
- BioMarin anticipated an EMA opinion on Palynziq in early 2019, potentially followed by EU authorization. U.S. distribution requires a REMS program to manage anaphylaxis risk.
- Generic Kuvan competition was expected to begin in the U.S. in the fourth quarter of 2020 under settlement agreements with generic applicants, potentially pressuring sales.
- Key business risks include dependence on rare-disease pricing and payer reimbursement, periodic and delayed government orders (particularly in Latin America), customer concentration, foreign-exchange exposure, product and clinical-trial risks, single-source supply dependencies, regulatory compliance and competition. Three customers accounted for 40% of 2018 net product revenue; two customers represented 46% of year-end receivables.
- Potential contingent payments totaled approximately $477.3 million, subject to future milestones and timing conditions; $132.8 million was recorded as contingent consideration. No material off-balance-sheet arrangements or legal proceedings were reported.
Most important facts for investors to verify
- Underlying product-level growth, including whether government ordering patterns and new-patient starts are sustainable, and the impact of the ASC 606 change on Aldurazyme comparisons.
- Progress, trial results and regulatory timing for valoctocogene roxaparvovec, vosoritide and EU Palynziq, including any changes to management’s stated milestones.
- Cash generation, capital spending and liquidity needs against the 2020 Notes maturity, potential milestone payments and planned development investment.
- Customer concentration, receivable collection and exposure to government purchasing and reimbursement conditions in international markets.
- Timing and commercial impact of Kuvan generics, as well as changes in product margins, manufacturing costs and foreign-exchange effects.