BioMarin Pharmaceutical Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed February 26, 2018. This annual filing also reports fourth-quarter results. BioMarin develops and sells therapies for rare diseases; its portfolio included six commercial products and a clinical and preclinical pipeline.
Financial results
| Metric | 2017 | 2016 |
|---|---|---|
| Total revenue | $1,313.6 million | $1,116.9 million |
| Net product revenue | $1,270.4 million | $1,110.4 million |
| Operating loss | $14.7 million | $803.4 million |
| Net loss | $117.0 million | $630.2 million |
| Diluted loss per share | $0.67 | $3.81 |
| Operating cash flow | $(8.8) million | $(227.8) million |
| Cash, cash equivalents and investments | $1,781.7 million | $1,362.4 million |
| Convertible debt, net | $1,174.5 million | $683.2 million |
Product gross margin was 81%, unchanged from 2016 and down from 83% in 2015. Total current assets were $2,207.1 million and current liabilities were $816.5 million. The company reported $1.2 billion of convertible debt principal, including $375 million of notes due in October 2018; it had no borrowings under its $100 million revolving credit facility at year-end.
Fourth-quarter revenue was $358.3 million, compared with $300.1 million in fourth-quarter 2016. Fourth-quarter net loss was $51.4 million, versus $90.7 million a year earlier; 2017 fourth-quarter results included a $42.3 million provisional tax expense related to U.S. tax reform.
Material changes and notable items
- Revenue rose by $196.7 million year over year. Kuvan revenue grew to $407.5 million, Vimizim to $413.3 million and Naglazyme to $332.2 million. Brineura generated $8.6 million following its 2017 U.S. and EU approvals. Aldurazyme revenue declined to $90.0 million.
- Reported net loss improved substantially from 2016, principally because 2016 included a $599.1 million impairment charge for terminated development programs. 2017 included a $125 million gain from selling the Brineura-related rare pediatric disease priority review voucher and increased revenue, including Sarepta-related license and royalty revenue.
- Research and development expense decreased to $610.8 million from $661.9 million, while selling, general and administrative expense increased to $554.3 million from $476.6 million. Management attributed the R&D decrease partly to discontinued programs and Brineura’s transition toward commercialization; commercial expansion and launch activity contributed to higher SG&A.
- Cash and investments increased by $419.3 million. Financing included $481.7 million in net proceeds from the 2024 convertible notes offering. Operating activities used $8.8 million of cash, despite a reported net loss; working-capital changes, including higher inventory, used cash.
Outlook, risks and contingencies
- Management expected 2018 R&D spending to increase as pegvaliase, valoctocogene roxaparvovec, vosoritide, BMN 250 and BMN 290 advanced. It expected product gross margin to remain near 80% over the next 12 months and planned continued commercial expansion.
- Pegvaliase’s FDA review was extended by three months, with a target action date of May 25, 2018; approval was not assured. Management planned an EU application in the first quarter of 2018. The pivotal study met its primary blood-phenylalanine endpoint but did not show statistically significant improvement on key inattention or mood measures.
- Valoctocogene roxaparvovec entered Phase 3 testing. Vosoritide Phase 3 enrollment was expected to finish in mid-2018, with top-line results expected in the second half of 2019. These are forward-looking plans, not guaranteed outcomes.
- Management expected operating losses and net cash outflows for at least the next 12 months. The 2018 notes’ approaching maturity, possible cash settlement of convertible notes, substantial R&D needs and contingent milestone obligations could affect liquidity. The company disclosed approximately $604.6 million of potential contingent milestone payments, subject to achievement and timing conditions; $189.0 million was recorded as contingent consideration, including $53.6 million expected within 12 months.
- Material risks include clinical and regulatory uncertainty, pricing and reimbursement pressure, generic Kuvan competition permitted under settlements beginning as early as October 2020 in some circumstances, customer and geographic concentration, foreign-exchange exposure, and reliance on limited or single-source suppliers and manufacturing facilities. Three customers generated 45% of 2017 revenue from BioMarin-marketed products; the filing’s broader customer concentration disclosure reports five customers at 56% of consolidated net product revenue.
- The 2017 Tax Act contributed a provisional $42.3 million tax expense, including deferred-tax remeasurement and compensation-related effects; the filing notes estimates could change as guidance develops. KPMG issued unqualified opinions on the financial statements and internal control over financial reporting.
Key facts for investors to verify
- Progress and ultimate FDA and EMA decisions for pegvaliase, including any conditions, safety requirements or further review delays.
- Enrollment, efficacy, safety and manufacturing progress for the Phase 3 gene-therapy and vosoritide programs.
- Commercial uptake, payer access and patient growth for Brineura and the established products, including the timing of large government orders.
- Cash generation, planned R&D and capital spending, and the company’s capacity to address the October 2018 notes and later debt maturities.
- The timing and market impact of Kuvan generic entries, and whether milestone obligations or tax estimates change materially.