BioMarin Pharmaceutical Inc. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012. Figures are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise. BioMarin develops and commercializes biopharmaceuticals. Its approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme, alongside investigational programs including GALNS, PEG-PAL, BMN-701, BMN-673, BMN-111 and BMN-190.
Financial results and liquidity
- Revenue: Q2 total revenue was $124.0 million, up from $110.6 million in Q2 2011; six-month revenue was $240.7 million versus $220.1 million. Net product revenue grew to $123.0 million for Q2 (from $109.6 million) and $239.2 million for six months (from $218.7 million).
- Product performance: Q2 product revenue was Naglazyme $62.9 million, Kuvan $34.7 million, Firdapse $3.6 million and Aldurazyme $21.8 million. For the first half, Naglazyme and Kuvan increased year over year, while Aldurazyme declined to $33.8 million from $36.0 million. Reported product gross profit was $99.5 million in Q2 and $198.5 million for six months.
- Profit and expenses: Net loss widened to $32.0 million in Q2 from $5.1 million and to $56.0 million for six months from $9.4 million. Operating loss was $31.0 million for Q2 and $52.8 million for six months. R&D increased to $77.8 million in Q2 and $151.6 million for six months; SG&A increased to $51.5 million and $96.8 million, respectively. Basic and diluted loss per share was $0.27 for Q2 and $0.48 for six months.
- Cash flow: Six-month operating cash use was $8.6 million, compared with $10.1 million provided in the prior-year period. Investing used $122.3 million, primarily reflecting net purchases of investments; financing provided $262.4 million, including $235.4 million net proceeds from a public stock offering. Cash and equivalents increased to $177.8 million.
- Liquidity: Cash, cash equivalents and short- and long-term investments totaled $524.6 million at June 30, up from $289.5 million at year-end 2011. Working capital was $561.5 million, versus $375.7 million.
- Debt: Convertible debt totaled $348.3 million: $23.4 million classified as current and due March 2013, and $324.9 million long-term debt due April 2017. Notes bear interest at 2.5% and 1.875%, respectively.
- Margins: Product-level gross margins varied: Q2 Naglazyme 85%, Kuvan 86%, Firdapse 80% and Aldurazyme 61%. Aldurazyme margins fluctuate with the mix of royalty and product-transfer revenue.
Changes versus prior comparable periods
- Revenue gains were led by Naglazyme and Kuvan; Q2 net product revenue rose $13.4 million year over year and six-month revenue rose $20.5 million.
- Higher R&D was the largest driver of the increased net loss, with spending increases across development programs, especially GALNS. SG&A also rose, reflecting employee and facility costs, commercial expansion and pre-commercial activity.
- The first half included a $6.7 million impairment of Firdapse U.S. in-process R&D assets after BioMarin suspended U.S. business-development efforts. Q2 expense for intangible amortization and contingent consideration was $2.0 million, compared with a $3.3 million benefit a year earlier, partly due to a change in contingent consideration fair value.
- The June public offering generated $235.4 million net proceeds and increased shares outstanding. The company sold 6.5 million shares at $36.28 per share.
- Operating cash flow shifted from positive $10.1 million to negative $8.6 million for the six-month period.
Outlook, commentary and risks
- Management said current cash and investments should meet operating and capital requirements for the foreseeable future, based on current long-term plans and achievement of long-term goals. Higher development spending or acquisitions and licensing could require additional capital.
- BioMarin expected R&D spending to remain significant and increase as several programs advance, while noting GALNS manufacturing activity was expected to be substantially completed by July 2012 and related spending to decline in the second half, partly offset by clinical-trial costs. SG&A was also expected to rise with commercial and organizational expansion. The filing provides no specific revenue or earnings guidance.
- Management expected to operate at a net loss in 2012 and potentially beyond. The company had accumulated losses of approximately $481.1 million by June 30, 2012.
- Potential contingent payments totaled approximately $356.8 million, payable only if specified regulatory, licensing, development or commercial milestones are achieved. Contingent acquisition consideration carried on the balance sheet was $34.7 million.
- Key risks include clinical and regulatory uncertainty, manufacturing and supply disruptions, pricing and reimbursement pressure, competition and patent protection, dependence on Genzyme for Aldurazyme commercialization, and customer and sovereign-credit exposure. Three largest customers accounted for 42% of six-month net product revenue; approximately 9% of accounts receivable related to Italy, Spain, Portugal and Greece. The filing reported $2.2 million past due from these countries, including $0.5 million more than 360 days past due, with a $0.5 million allowance.
- The company reported no material off-balance-sheet arrangements, no legal proceedings, and effective disclosure controls and procedures.
Important facts for investors to verify
- Whether product growth, particularly in Naglazyme and Kuvan, can offset operating losses and rising development costs.
- Development, clinical and regulatory progress—and associated spending—for GALNS, PEG-PAL and other pipeline programs.
- Collection timing and credit exposure for government-funded customers and the concentration of revenue with major customers, including Genzyme’s role in Aldurazyme.
- Timing and potential dilution or repayment implications of the $23.4 million notes due March 2013 and the remaining convertible debt.
- Milestone assumptions underlying up to $356.8 million of potential payments, and the consequences of the Firdapse U.S. program change.