BioMarin Pharmaceutical Inc. — Q3 2011 Form 10-Q
Business context and reporting period. BioMarin develops and commercializes biopharmaceuticals for serious diseases. This unaudited filing covers the three and nine months ended September 30, 2011; balance-sheet comparisons are with December 31, 2010. Its four approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme.
Financial performance and position
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $113.4 million | $97.8 million | $333.5 million | $274.7 million |
| Net product revenue | $112.9 million | $96.6 million | $331.6 million | $271.2 million |
| Operating income (loss) | $(15.5) million | $(1.9) million | $(12.5) million | $3.9 million |
| Net income (loss) | $(17.7) million | $217.3 million | $(27.1) million | $218.0 million |
| Basic and diluted EPS | $(0.16) | $2.13 basic; $1.68 diluted | $(0.24) | $2.14 basic; $1.74 diluted |
- Revenue drivers: Q3 product revenue increased 17% year over year. Naglazyme revenue was $55.9 million, Kuvan $30.5 million, Firdapse $3.5 million and Aldurazyme $23.0 million. For the nine months, each product’s revenue also increased year over year.
- Costs and margins: Cost of sales was $22.4 million in Q3 and $62.5 million year to date. R&D was $58.6 million and $156.5 million, respectively; SG&A was $44.9 million and $127.0 million. Product gross margins included Naglazyme 83% in both periods, Kuvan approximately 83% for Q3 and 84% year to date, Firdapse 83% in both periods, and Aldurazyme 68% for Q3 and 71% year to date. Aldurazyme margins varied with royalty versus product-transfer revenue mix.
- Cash flow: Nine-month operating cash flow was $18.9 million, investing cash outflow $54.6 million and financing cash inflow $18.9 million. Cash and cash equivalents declined $16.8 million to $71.3 million; cash, cash equivalents and investments totaled $370.0 million.
- Liquidity and debt: Working capital was $403.7 million, down from $420.5 million at year-end 2010. Convertible debt was $348.3 million, down $29.2 million following conversion of 2013 Notes. Current liabilities were $83.3 million. Management said available cash and investments should fund obligations for the foreseeable future under current plans and assuming long-term goals are achieved.
Material changes versus the prior comparable periods
- Net losses replaced prior-year net income, principally because Q3 and nine-month 2010 results included a $223.1 million deferred-tax valuation-allowance benefit. The 2011 nine-month tax provision was $6.6 million; Q3 included a $2.1 million tax benefit.
- Higher product sales lifted gross profit, while R&D rose substantially, primarily with increased activity in GALNS, BMN-701 and PEG-PAL programs. SG&A also increased, including higher corporate and employee costs and foreign-exchange losses.
- In August 2011, BioMarin acquired an Ireland manufacturing facility for $50.4 million. Capital expenditures were $64.5 million in the first nine months, versus $38.7 million a year earlier.
- In September, holders converted $29.2 million of 2013 Notes into approximately 1.8 million shares. Cash premiums and interest payments associated with the conversions contributed to a $1.9 million debt-conversion expense.
Outlook, risks and unusual items
- Management expected FDA approval of the expanded Naglazyme manufacturing facility and new process in Q4 2011 or early 2012. At September 30, 2011, the facility/process was not approved; $12.6 million of Naglazyme inventory related to the expanded facility was subject to regulatory approval before commercial sale.
- Management expected significant R&D spending to continue and SG&A to increase with commercialization and international expansion. It expected interest expense of about $1.7 million per quarter from Q4 2011 through Q1 2013, based on debt outstanding at quarter-end. No quantified full-year revenue or earnings guidance is provided.
- Key risks include clinical and regulatory uncertainty, manufacturing capacity and approvals, product commercialization and competition, reliance on collaborators, reimbursement and patent risks, and potential need for financing if spending or acquisitions exceed plans. Management noted dependence on product revenue to supplement liquidity.
- Potential contingent payments under license, collaboration and acquisition agreements totaled approximately $359.2 million, payable only if specified milestones occur. Material operating lease commitments were $23.5 million. No legal proceedings were reported, and the company reported no material change in previously disclosed risk factors.
- Revenue concentration merits attention: the three largest customers represented 50% of Q3 product revenue and 47% year to date; the three largest customers accounted for 68% of accounts receivable at September 30.
Important facts for investors to verify
- Progress and timing of FDA approval for the expanded Naglazyme facility, and whether pre-qualification inventory can be sold as anticipated.
- Product-level sales, gross margins and customer concentration, particularly Aldurazyme revenue mix and receivables.
- R&D and commercial spending trends relative to operating cash flow and the $370.0 million liquidity balance.
- Conversion, maturity and repayment terms of remaining convertible notes, as well as milestone-linked contingent obligations.
- Clinical and regulatory developments for GALNS, PEG-PAL, Firdapse, BMN-701 and BMN-673.