BioMarin Pharmaceutical Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparisons are with Q1 2013 unless otherwise noted. Financial statement amounts are in U.S. dollars. BioMarin develops and commercializes therapies for serious diseases and reported five approved products: VIMIZIM, Naglazyme, Kuvan, Aldurazyme and Firdapse.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Total revenue | $151.6 million | $127.9 million; up 18.5% |
| Net product revenue | $149.0 million | $127.3 million; up 17.0% |
| Gross profit on product sales | $126.2 million; approximately 84.7% of product revenue | $106.8 million; approximately 83.9% |
| Operating loss | $26.5 million | $32.9 million |
| Net loss | $38.1 million; diluted loss per share $0.27 | $39.8 million; diluted loss per share $0.31 |
| Cash used in operating activities | $26.9 million | $32.0 million |
| Cash, cash equivalents and investments | $1,138.9 million at March 31, 2014 | $1,052.4 million at December 31, 2013 |
| Working capital | $1,090.4 million | $954.1 million at December 31, 2013 |
| Convertible debt | $661.4 million carrying value; $812.0 million undiscounted principal | $655.6 million carrying value at December 31, 2013 |
Cash and cash equivalents were $639.8 million at quarter end. Investing activities used $39.1 million, including $24.2 million in property, plant and equipment purchases; financing activities provided $137.0 million, principally reflecting $117.5 million of net proceeds from a March stock offering and $19.7 million from employee stock-option exercises. The current-liability balance was $156.0 million. Interest expense rose to $9.1 million from $1.7 million, mainly from discount accretion and issuance costs on the 2018 and 2020 notes.
Material changes and drivers
- Product revenue growth was led by Naglazyme, up $10.7 million to $80.1 million, and Kuvan, up $7.6 million to $45.2 million. Aldurazyme rose to $18.1 million and Firdapse to $4.7 million. VIMIZIM generated $0.9 million following U.S. approval in February and its initial commercial sale.
- Management attributed higher Naglazyme and Kuvan sales mainly to additional patients initiating therapy. Gross margins were 86% for Naglazyme, 84% for Kuvan, 82% for Aldurazyme, 75% for Firdapse and 91% for VIMIZIM.
- R&D expense increased to $86.2 million from $83.7 million, with greater PEG PAL and early-stage program spending partly offset by lower VIMIZIM development costs and a $6.1 million lease-termination gain recorded in R&D.
- SG&A increased to $60.1 million from $51.1 million, reflecting VIMIZIM launch costs and higher stock compensation, partly offset by a $2.7 million lease-termination gain and lower corporate support costs.
- The $8.8 million gain associated with ending the company’s leased headquarters space was recognized after its March acquisition of the San Rafael Corporate Center (SRCC). BioMarin paid $116.5 million cash for the property, using funds previously held in escrow. This gain is an unusual item, not recurring operating revenue.
- Net loss improved by $1.7 million. Higher gross profit and the absence of the prior-year $10.4 million debt-conversion expense were partly offset by higher SG&A, interest expense and intangible-asset/contingent-consideration expense, and a shift from a $4.7 million tax benefit to $3.5 million tax expense.
Outlook, risks and contingencies
- Management expected 2014 R&D spending to exceed 2013 levels as PEG PAL, BMN 673, BMN 701, BMN 111 and BMN 190 advance, and as early-stage programs progress. A Phase 3 trial for BMN 701 was expected to begin in Q2 2014. Management also expected significant ongoing R&D and higher future SG&A. The filing states BioMarin expected to operate at a net loss for at least the next 12 months.
- Management expected significant capital investment during the remainder of 2014 in the Shanbally, Ireland manufacturing facility. The facility had not yet received FDA or EMA approval; failure to obtain approval could limit manufacturing capacity.
- The company reported approximately $581.5 million of potential milestone payments contingent on future regulatory or licensing achievements; $56.4 million related to programs no longer being developed. Separate non-cancelable obligations totaled $935.1 million, including debt and interest, leases, and R&D and purchase commitments.
- Revenue and collection risks include customer and geographic concentration: four customers accounted for 50% of Q1 product revenue, and approximately 20% of quarter-end receivables were related to Italy, Spain, Portugal, Greece and Russia. The filing identifies government reimbursement delays, sovereign credit risks, pricing pressure and foreign-exchange movements as potential risks.
- Other key risks include regulatory and clinical uncertainty, manufacturing and supply constraints, reimbursement and competition, intellectual-property protection, and dependence on Genzyme for Aldurazyme commercialization. The filing reports no material off-balance-sheet arrangements and no legal proceedings. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
VIMIZIM received EU marketing approval on April 28, 2014, after the reporting date; U.S. approval was received in February 2014.
Investor verification checklist
- Verify the pace and durability of VIMIZIM commercialization, including access, reimbursement, sales and manufacturing capacity following U.S. and EU approvals.
- Track product-level growth, gross margins and patient uptake, particularly whether Naglazyme and Kuvan growth continues and how Aldurazyme revenue and Genzyme collaboration economics develop.
- Assess R&D spending, clinical milestones and trial outcomes against management’s stated expectations, including the planned BMN 701 Phase 3 start.
- Review operating cash burn, planned capital spending, equity dilution and cash obligations under convertible debt and contingent milestone arrangements.
- Monitor aged receivables and collections from government-funded customers, as well as the concentration of revenue among a small number of customers and regions.
- Separate the one-time SRCC lease-termination gain from underlying operating performance; verify future facility, manufacturing and contingent-consideration costs.