BioMarin Pharmaceutical Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports fourth-quarter results; it is an annual report, not a standalone Q4 filing. Unless noted, figures are U.S. dollars.
Business context
BioMarin develops and commercializes treatments for serious diseases. Its four approved products were Naglazyme, Kuvan, Aldurazyme and Firdapse. The pipeline included clinical programs for GALNS, PEG-PAL, BMN-701, BMN-673 and BMN-111. The company reports one operating segment.
Financial performance and liquidity
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Total revenue | $441.4 million | $376.3 million |
| Net product revenue | $437.6 million | $369.7 million |
| Operating income (loss) | $(33.9) million | $0.5 million |
| Net income (loss) | $(53.8) million | $205.8 million |
| Operating cash flow | $18.8 million | $18.7 million |
| Cash, cash equivalents and investments | $289.5 million | $402.3 million |
| Working capital | $375.7 million | $420.5 million |
| Convertible debt | $348.3 million | $377.5 million |
- Net product revenue increased 18% year over year. Naglazyme generated $224.9 million, Kuvan $116.8 million, Aldurazyme $82.8 million and Firdapse $13.1 million.
- Product sales growth reflected additional Naglazyme and Kuvan patients and higher Firdapse sales in Europe. Aldurazyme revenue rose partly because incremental product transfers to Genzyme increased.
- R&D expense rose to $214.4 million from $147.3 million, primarily as clinical activity expanded across GALNS, BMN-701, PEG-PAL and BMN-111. SG&A rose to $175.4 million from $151.7 million.
- Product-specific gross margins in 2011 were reported as 83% for Naglazyme, 84% for Kuvan, 82% for Firdapse and 70% for Aldurazyme. Aldurazyme margin varies with the mix of royalty and product-transfer revenue.
- Cash and investments declined $112.8 million, largely due to the $81.0 million purchase of Naglazyme intellectual property and the $49.7 million Shanbally facility purchase, partly offset by employee stock-plan and option proceeds.
- Cash provided by operations was nearly flat year over year. The 2011 figure included working-capital investment in receivables and inventory amid commercial growth.
- Working capital remained positive at $375.7 million. Current assets were $469.8 million and current liabilities $94.1 million at year-end.
- Convertible debt included $23.7 million of 2.5% notes due in 2013 and 1.875% notes due in 2017. The filing states that $348.3 million of debt remained at year-end; scheduled payments and interest totaled $382.7 million across the disclosed commitment periods.
Material changes and unusual items
- The swing from 2010 net income of $205.8 million to a 2011 net loss of $53.8 million was driven chiefly by the absence of the prior-year $230.6 million deferred-tax valuation-allowance benefit, alongside higher R&D and SG&A. The 2010 result was therefore substantially affected by a non-recurring tax benefit.
- 2011 included an $81.0 million acquisition of Naglazyme-related intellectual property from SA Pathology, ending the associated 5% sales royalty, and the purchase of the Shanbally biologics plant for approximately $50 million. The facility was not yet manufacturing products and required further system requalification and validation.
- BioMarin converted $29.2 million principal of its 2013 notes in 2011, issuing approximately 1.8 million shares and recording $1.9 million of debt-conversion expense.
- Fourth-quarter 2011 revenue was $107.8 million and net loss was $26.7 million, versus $101.6 million revenue and $12.2 million net loss in Q4 2010.
- The 2011 tax expense was $10.2 million, despite a pretax loss; the filing attributes it to current and deferred state and foreign taxes and use of federal net operating losses.
Outlook, commentary and risks
- Management expected a net loss in 2012 and potentially beyond, while stating that year-end cash and investments should fund operations and capital requirements for the foreseeable future under its current plans. This outlook depended on assumptions and achieving long-term goals; additional financing could be needed if spending or development plans changed.
- Management expected continued significant R&D spending and higher SG&A in future periods. It anticipated top-line GALNS Phase 3 results in the second half of 2012, BMN-701 results in the second half of 2012, a PEG-PAL Phase 3 trial in 2013, and a pediatric BMN-111 Phase 2 study in late 2012 or early 2013.
- Key risks include clinical and regulatory failure or delay, manufacturing and single-source supply constraints, reimbursement and pricing pressure, patent challenges, and reliance on Genzyme for Aldurazyme commercialization. Firdapse had EU approval only; its U.S. Phase 3 trial was underway.
- Revenue and collections were concentrated: three customers generated 46% of 2011 net product revenue, and two customers represented 63% of year-end receivables. Southern European countries accounted for 4.5% of annual product revenue but 15.4% of receivables; sovereign-credit deterioration could delay or impair collection.
- Potential milestone payments related to development and commercial outcomes totaled approximately $357.9 million, payable only if specified milestones occur. The company also disclosed $427.4 million of scheduled debt, lease, R&D and purchase commitments. A January 2012 headquarters lease added a stated $40.8 million commitment over ten years.
- The filing reports no material pending legal proceedings, effective disclosure controls and internal control over financial reporting, and unqualified audit opinions on the financial statements and internal controls.
Most important facts for investors to verify
- Whether product growth and patient additions can support rising R&D and operating costs, and the timing of a return to profitability.
- Clinical and regulatory progress for GALNS, PEG-PAL, BMN-701, BMN-673 and BMN-111, including the disclosed 2012–2013 milestones.
- Cash burn, capital spending and liquidity against convertible-debt maturities, contingent milestone obligations and the new headquarters lease.
- Receivable quality and collection timing in Southern Europe, as well as dependence on a small number of customers and on Genzyme for Aldurazyme.
- Whether the 2010 deferred-tax-asset valuation assumptions remain supportable; the 2010 tax benefit materially distorts year-over-year earnings comparisons.