BioMarin Pharmaceutical Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. BioMarin develops and commercializes therapies for rare diseases. Palynziq received U.S. FDA approval in May 2018 and became available in the U.S. in July.
Financial performance
- Q3 revenue: $391.7 million, up 17% from $334.1 million. Product revenue was $386.3 million, up 29%; royalty and other revenue was $5.4 million versus $35.4 million. The prior-year quarter included a $31.5 million Sarepta upfront license revenue.
- Nine-month revenue: $1,138.0 million, up 19% from $955.3 million. Product revenue rose to $1,123.2 million from $916.9 million; royalty and other revenue declined to $14.8 million from $38.5 million.
- Product performance: Q3 growth was led by Vimizim (+$33.0 million), Naglazyme (+$31.0 million), and Kuvan (+$7.5 million). Palynziq contributed $4.1 million in its first reported sales. Nine-month Aldurazyme revenue increased by $56.0 million, including $28.2 million attributable to ASC 606 adoption.
- Profit and margins: Q3 operating loss was $15.7 million versus $13.7 million; net loss was $12.6 million versus $12.5 million, or $0.07 per diluted share in both periods. Nine-month operating loss was $85.4 million versus $72.7 million; net loss was $73.6 million versus $65.7 million, or $0.42 versus $0.38 per diluted share. Product gross margin was 80% in Q3, unchanged year over year, and 79% for nine months versus 82%.
- Expenses: Nine-month R&D rose 18% to $520.9 million, reflecting clinical-program expansion and tralesinidase alfa manufacturing. SG&A rose 12% to $440.2 million, mainly due to Palynziq launch and pre-launch activity. Nine-month results included a $20 million gain on sale of an intangible asset; higher contingent-consideration expense also affected operating results.
- Cash flow and liquidity: Nine-month operating cash use was $29.2 million versus $23.4 million. Investing activities provided $335.3 million, mainly reflecting investment maturities; capital expenditures were $102.5 million. At quarter-end, cash, cash equivalents, and investments totaled $1.648 billion, down from $1.782 billion at year-end 2017. Current assets were $2.408 billion and current liabilities $838.7 million.
- Debt: Convertible debt, net, was $1.200 billion at September 30. The $375 million 2018 Notes matured October 15; substantially all holders converted, settled with approximately $375 million cash and 190,220 shares. In October the company also entered a new unsecured $200 million revolving credit facility, replacing its undrawn $100 million facility.
Changes, outlook, and notable items
- Comparisons are affected by adoption of ASC 606 on January 1, 2018; 2017 figures were not restated. For the first nine months, the company reported $28.2 million more product revenue under ASC 606 than it would have under prior guidance. The filing says adoption did not change operating cash flow.
- Management expects product gross margin to remain near 80% over the next 12 months, R&D spending to increase from 2017 levels as programs advance, and SG&A to rise with commercialization and international expansion. Management expects interest income and interest expense to decrease moderately following maturity of the 2018 Notes. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
- Pipeline priorities include Phase 3 studies of valoctocogene roxaparvovec for hemophilia A and vosoritide for achondroplasia. The company expects to learn the status of Palynziq’s European marketing application in the first half of 2019 and expects potentially to file an IND for a PKU gene-therapy candidate in 2019.
- Potential contingent payments totaled approximately $494.4 million, of which $144.4 million was recorded as contingent acquisition consideration. The company also reported $84.0 million in R&D and purchase commitments. It expects operating losses and net cash outflows for at least the next 12 months and may need additional financing depending on spending and debt-settlement choices.
Key risks and contingencies
- Clinical, regulatory, and manufacturing uncertainty—particularly for gene therapy—could delay or prevent approvals, constrain supply, or raise costs. Palynziq sales depend on compliance with its U.S. REMS requirements.
- Product sales depend on payer coverage and reimbursement; government ordering patterns can cause quarterly volatility, especially in Latin America. Foreign exchange movements and government-customer payment delays pose additional risks.
- Kuvan faces potential generic competition under settlements permitting entry beginning in 2020 or 2021, subject to stated conditions. The filing also highlights biosimilar, pricing, and market-access risks.
- Convertible debt, future milestone obligations, customer concentration, and possible need for additional capital could affect liquidity. The new credit facility has financial covenants and may have an earlier repayment trigger tied to the 2020 Notes.
- The filing reports no legal proceedings. Management concluded disclosure controls were effective at September 30, 2018.
Important facts for investors to verify
- Product-level sales trends and the effect of irregular government orders, foreign exchange, and ASC 606 on reported growth.
- Palynziq launch uptake, REMS requirements, and the timing and outcome of European regulatory review.
- Clinical and regulatory progress, manufacturing capacity, and spending for the Phase 3 gene-therapy and vosoritide programs.
- Cash and investment levels after the $375 million 2018 Notes settlement, remaining debt maturities, and the new credit facility’s covenants and repayment conditions.
- Timing and amount of contingent milestone payments, and exposure to Kuvan generic competition and reimbursement or pricing changes.