BioMarin Pharmaceutical Inc. — Q1 2018 Form 10-Q
Business context and reporting period
Global biotechnology company focused on therapies for rare diseases, with six commercial products and clinical and preclinical candidates. This unaudited quarterly report covers the three months ended March 31, 2018; balance-sheet comparisons are against December 31, 2017.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 or comparator |
|---|---|---|
| Total revenue | $373.4 million | $303.7 million |
| Net product revenue | $369.1 million | $302.2 million |
| Operating loss | $44.4 million | $20.2 million |
| Net loss | $44.1 million; $0.25 basic loss per share | $16.3 million; $0.09 basic loss per share |
| Product gross margin | 78% | 83% |
| Operating cash flow | $(42.5) million | $(80.4) million |
| Cash, cash equivalents and investments | $1.696 billion | $1.782 billion at Dec. 31, 2017 |
| Convertible debt | $1.183 billion net carrying value; $1.245 billion principal | $1.174 billion net carrying value at Dec. 31, 2017 |
Investing activities used $71.7 million, principally reflecting purchases of securities, partly offset by maturities and sales; financing activities used $9.8 million. Cash and cash equivalents declined $124.0 million to $474.0 million. Current assets were $2.241 billion and current liabilities $773.5 million. The $375.0 million principal amount of 0.75% convertible notes matures in October 2018; the company reported no borrowings under its $100 million revolving facility, which matures in November 2018.
Material changes versus the prior comparable period
- Revenue increased $69.7 million, about 23%. Product revenue growth included Vimizim (+$11.3 million), Kuvan (+$6.8 million) and Brineura ($6.9 million, launched in 2017); Naglazyme fell $5.6 million, mainly from timing of Latin American government orders.
- Aldurazyme revenue rose $46.7 million. The company attributed $27.2 million to adopting ASC 606 and $19.5 million to increased sales to Genzyme. ASC 606 adoption makes reported 2018 and 2017 revenue not fully comparable; prior periods were not restated.
- Net loss widened $27.9 million as R&D rose $38.9 million to $183.9 million and SG&A rose $18.3 million to $138.3 million. Cost of sales increased $32.3 million; product gross margin declined five percentage points, mainly due to Aldurazyme sales mix and higher Vimizim manufacturing costs.
- Operating cash use improved by $37.9 million, which management attributed primarily to lower commercial inventory levels and timing of vendor payments.
Outlook, management commentary, and risks
- Management expects product gross margin to remain near 80% over the next 12 months. It expects 2018 R&D spending to increase over 2017 as BMN 250, BMN 290, valoctocogene roxaparvovec and vosoritide advance, and expects SG&A and interest expense to increase in future periods.
- The FDA accepted pegvaliase for priority review, with a May 25, 2018 action goal date; the EMA accepted its marketing application. The filing cautions that the Phase 3 program did not show statistically significant improvement on a key neurocognitive secondary endpoint, and approval is not assured.
- Management reported positive preliminary Phase 1/2 BMN 250 results and plans to submit an IND for a PKU gene therapy candidate in 2019. Valoctocogene roxaparvovec and vosoritide were in Phase 3; BMN 250 was in Phase 1/2.
- The company recorded $199.2 million of contingent acquisition consideration payable and disclosed approximately $613.8 million of potential milestone payments. It paid $61.6 million in April 2018 following the pegvaliase European filing.
- Key risks include regulatory and clinical uncertainty, manufacturing and supply constraints, reimbursement and pricing pressure, foreign-exchange and international collection risks, customer concentration, and competition. Four customers accounted for 55% of Q1 product revenue. Management also expects ongoing losses and net cash outflows for at least the next 12 months.
- The company adopted ASC 606 and early-adopted ASU 2018-02 in Q1. It expects the new lease standard, effective in 2019, may materially increase balance-sheet assets and liabilities. Management stated disclosure controls were effective at quarter-end; no material legal proceedings were reported.
Most important facts for investors to verify
- Separate underlying Aldurazyme sales growth from the $27.2 million ASC 606 adoption effect when assessing revenue trends.
- Track pegvaliase FDA action and any further regulatory feedback, particularly given the disclosed neurocognitive endpoint result.
- Assess cash needs and funding plans around the $375 million October 2018 note maturity, plus the disclosed contingent payments.
- Monitor whether rising development and commercialization spending is supported by product growth, and whether margins recover toward management’s near-80% expectation.
- Review customer and geographic concentration, Latin American order timing, and the collection and foreign-exchange exposures described in the filing.