BioMarin Pharmaceutical Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016; filed November 3, 2016. The company develops and commercializes biopharmaceuticals for serious diseases and reported five approved products: Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse. Unless noted, figures below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $279.9M | $208.9M | $816.8M | $662.0M |
| Net product revenue | $278.3M | $207.8M | $812.2M | $658.1M |
| Operating loss | $60.1M | $81.9M | $713.8M | $212.0M |
| Net loss | $42.8M | $90.9M | $551.5M | $240.4M |
| Net loss per diluted share | $0.26 | $0.60 | $3.37 | $1.51 |
Product gross margin, calculated as net product revenue less cost of sales, was approximately 81.8% for Q3 2016 versus 83.2% a year earlier, and 82.1% for the first nine months versus 84.2%. The filing reports no positive operating cash flow: net cash used in operating activities was $228.2M for the first nine months of 2016, compared with $153.7M in 2015. Capital expenditures for property, plant and equipment were $96.8M.
At September 30, cash and cash equivalents were $707.3M, short-term investments $327.5M and long-term investments $363.0M, totaling $1.398B. Working capital was $1.289B, up from $644.1M at year-end 2015. Convertible debt was $675.6M net carrying value; its disclosed undiscounted principal was $772.5M, including $22.5M due in 2017, $375.0M due in 2018 and $375.0M due in 2020. The company raised $712.9M net in an August 2016 common-stock offering.
Changes versus comparable periods
- Q3 revenue grew $71.0M (about 34%) year over year. Product revenue rose across Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse; Kuvan also benefited from the January 2016 acquisition of global rights outside Japan. Naglazyme’s nine-month product revenue declined $21.8M, which management attributed primarily to timing of Latin American government orders.
- Q3 net loss narrowed by $48.1M, while nine-month net loss increased by $311.1M. The nine-month comparison includes $599.1M of 2016 intangible-asset impairment charges, with no comparable charge in 2015, partly offset by a $187.4M income-tax benefit.
- For the first nine months, R&D expense increased $28.0M to $486.7M and SG&A increased $45.2M to $333.6M. Cost of sales rose $41.5M to $145.5M, reflecting higher sales and the acquired Kuvan inventory fair-value adjustment.
- Operating cash use increased $74.5M year over year. Financing cash inflow was $707.8M, principally reflecting the August stock offering; the comparable 2015 period included $888.3M net proceeds from an offering. Investing cash use was $174.4M versus $1.259B, which included substantial 2015 acquisition spending.
Outlook, developments and risks
- The filing does not provide a clear numerical full-year revenue or earnings guidance range. Management expected R&D spending to rise during the remainder of 2016 and in future periods as Brineura, pegvaliase and vosoritide advanced, with further spending on early-stage programs. SG&A was also expected to increase with commercialization preparation, international expansion and operating support.
- Brineura’s U.S. BLA received Priority Review, but the FDA’s request for updated efficacy data resulted in a major amendment and an extended action date of April 27, 2017. The EMA validated its application; a decision was expected in Q3 2017. The company had capitalized $31.3M of pre-launch Brineura inventory, which depends on regulatory approval and future sales.
- Pegvaliase’s Phase 3 PRISM-2 study met its primary endpoint; BioMarin planned to submit a U.S. BLA in Q1 2017. October 2016 vosoritide study results reported in the filing are subsequent-period developments, not Q3 results.
- BioMarin discontinued Kyndrisa and three other first-generation Duchenne muscular dystrophy exon programs and terminated reveglucosidase alfa development. The resulting Q2 impairment was $599.1M: $574.1M for Kyndrisa and other exons and $25.0M for reveglucosidase alfa. A $57.0M reduction in the fair value of contingent consideration also benefited nine-month results.
- Potential contingent payments totaled approximately $754.4M, payable only if specified milestones occur; $171.4M was recorded as a liability, including $48.7M expected within twelve months. The company also disclosed $50.9M in purchase commitments over the next five years.
- Key risks include ongoing operating cash outflows and reliance on product sales and financing; regulatory, clinical and manufacturing uncertainty; reimbursement and government pricing pressure; foreign exchange and collection exposure; and dependence on a limited customer base. Approximately 12% of receivables related to Italy, Spain, Portugal, Greece and Russia. Two largest customers represented 22% and 19% of receivables, respectively.
- Par’s generic Kuvan tablet and powder patent cases remained pending; trial was scheduled for June 2017. In August 2016 the company received an SEC subpoena concerning its former drisapersen program, described as a non-public fact-finding inquiry; the company said it would cooperate and could not predict the outcome. Management stated disclosure controls were effective and there were no material changes to internal control over financial reporting.
Important facts for investors to verify
- Whether product growth—particularly Kuvan and Vimizim—continues, and how much Naglazyme revenue remains sensitive to timing of government orders.
- Brineura regulatory timelines and approval prospects, pegvaliase filing progress, and the clinical and commercial outlook for other pipeline programs.
- Cash burn, capital spending, future financing needs, and the impact of the 2017, 2018 and 2020 convertible-note maturities or conversions.
- Potential Kuvan generic competition and outcomes of the Par litigation, as well as the status and possible consequences of the SEC inquiry.
- Realization of pre-launch inventory and contingent consideration assumptions, including milestone probabilities and payments.