BioMarin Pharmaceutical Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; balance-sheet comparisons are to December 31, 2010. Amounts below are in U.S. dollars unless stated otherwise. BioMarin develops and commercializes biopharmaceuticals for serious diseases. Its approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Total revenue | $109.5 million | $85.0 million; up 28.8% |
| Net product revenue | $109.1 million | $84.1 million; up 29.7% |
| Operating income | $2.3 million | $2.8 million |
| Net income (loss) | $(4.4) million; $(0.04) per share | $1.2 million; $0.01 per share |
| Operating cash flow | $(3.5) million | $3.3 million provided |
| Cash and investments | $393.9 million at March 31 | $402.3 million at December 31, 2010 |
| Working capital | $427.8 million | $420.5 million at December 31, 2010 |
| Convertible debt | $377.5 million | Unchanged from December 31, 2010 |
Cost of sales was $20.8 million, leaving product gross profit of approximately $88.3 million (about 81% of product revenue). Research and development expense was $45.0 million, up $14.9 million, and selling, general and administrative expense was $41.0 million, up $7.0 million. The $4.8 million income-tax provision, compared with $0.6 million a year earlier, contributed to the net loss. The filing attributes the 2011 tax provision partly to utilization of federal net operating loss carryforwards following a 2010 valuation-allowance release.
Cash, cash equivalents and investments comprised $90.8 million cash, $161.8 million short-term investments and $141.4 million long-term investments. Current assets were $503.8 million and current liabilities $76.0 million. Investing activities provided $3.0 million, primarily reflecting investment maturities and sales; financing activities provided $3.2 million, mainly from employee stock-plan proceeds.
Products and changes versus prior period
- Naglazyme revenue was $60.6 million, up $12.0 million; gross margin was 83%, versus 81%.
- Kuvan revenue was $26.7 million, up $5.5 million; gross margin was approximately 82%, versus 84%.
- Firdapse revenue was $3.1 million, compared with $0.1 million, following its European launch beginning in April 2010.
- Aldurazyme revenue was $18.7 million, up $4.5 million; gross margin was 72%, versus 67%. The product was developed with Genzyme.
- Higher product gross profit was more than offset by increased R&D and SG&A, higher income-tax expense and other changes, shifting the company from a small profit to a net loss.
Outlook, risks and unusual items
- No specific full-year revenue or earnings guidance is provided. Management said current cash and investments should fund obligations for the foreseeable future, assuming achievement of its long-term plans. It also expects significant R&D spending to continue and SG&A to rise with commercialization and international expansion.
- BioMarin expected to initiate a U.S. Phase 3 Firdapse trial in Q2 2011. Its expanded Naglazyme manufacturing facility and process were not yet regulator-approved; management expected FDA approval in 2011 and planned to realize the related inventory costs through future sales.
- Management said interest income was expected to decline during the remainder of 2011 and interest expense to remain about $2.1 million per quarter based on debt outstanding at quarter-end.
- Potential milestone payments totaled approximately $356.5 million, contingent on specified regulatory, commercial or licensing milestones. Operating lease commitments totaled $20.0 million.
- On April 8, 2011, Sanofi completed its acquisition of Genzyme. BioMarin said the effect on Aldurazyme sales and its relationship with Genzyme was uncertain; reduced marketing or organizational turnover could lower revenue and profit.
- Product revenue and receivables involve customer concentration: three customers generated 47% of product revenue, and two customers accounted for 60% of accounts receivable at March 31. The company also cited regulatory, clinical-development, manufacturing, competition, reimbursement, patent and financing risks.
Important facts for investors to verify
- Whether product growth, particularly Naglazyme and Aldurazyme, continues to offset rising development and commercialization costs.
- Progress and regulatory approval of the expanded Naglazyme facility, including the saleability of related inventory.
- Firdapse U.S. trial timing and European commercialization progress.
- Cash generation and working-capital trends, especially receivables, alongside the $377.5 million convertible-debt balance and its maturities.
- The impact of Sanofi’s ownership of Genzyme on Aldurazyme marketing, sales and BioMarin’s collaboration.
- Achievement and timing of milestones that could trigger contingent payments of up to approximately $356.5 million.