BioMarin Pharmaceutical Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial figures are in millions unless otherwise noted.
Business context
BioMarin develops and commercializes therapies for rare diseases. Its commercial portfolio includes Aldurazyme, Brineura, Kuvan, Naglazyme, Palynziq and Vimizim. Key development programs include valoctocogene roxaparvovec for severe hemophilia A, vosoritide for achondroplasia and BMN 307 for PKU.
Financial results
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $429.5 | $387.8 | $931.6 | $788.5 |
| Net product revenue | $419.0 | $379.1 | $908.1 | $773.6 |
| Operating income (loss) | $(40.9) | $(41.4) | $64.0 | $(95.3) |
| Net income (loss) | $(29.2) | $(37.4) | $52.2 | $(93.9) |
| Diluted EPS | $(0.16) | $(0.21) | $0.28 | $(0.53) |
| Product gross margin | 76.6% | 79.6% | 77.0% | 78.5% |
Q2 revenue growth reflected higher Aldurazyme, Palynziq, Brineura and Kuvan sales, partly offset by lower Naglazyme and Vimizim sales. The Q2 operating loss narrowed slightly; higher gross profit and a larger tax benefit were partly offset by higher SG&A and the prior-year $15.0 million milestone gain. First-half net income included a $59.5 million gain from the Firdapse divestiture; the prior-year period included a $15.0 million asset-sale milestone gain.
- Q2 product gross margin declined 3.0 percentage points, primarily because sales mix included a higher proportion of lower-margin Aldurazyme and a lower proportion of higher-margin Naglazyme and Vimizim.
- First-half R&D was $324.4 million, down from $369.2 million. The company cited lower costs for several programs and capitalization of valoctocogene roxaparvovec manufacturing costs; reported R&D also included a $26.3 million upfront license fee for preclinical programs.
- First-half SG&A increased to $362.7 million from $322.9 million, mainly due to pre-commercialization spending for valoctocogene roxaparvovec and higher employee-related costs.
Cash flow, liquidity and debt
- At June 30, cash and cash equivalents were $818.9 million; short- and long-term investments totaled $884.5 million. Combined cash, cash equivalents and investments were $1.703 billion, versus $1.166 billion at year-end 2019.
- First-half operating cash flow was $12.5 million, compared with cash used of $79.2 million a year earlier. Investing activities used $171.3 million; financing activities provided $544.0 million, including net proceeds of $585.8 million from the 2027 convertible-note offering.
- Convertible debt was $1.5 billion in principal, or $1.443 billion net carrying value. The $375.0 million principal 2020 Notes mature in October 2020; $495.0 million of 2024 Notes and $600.0 million of 2027 Notes were also outstanding. The company said it planned to use proceeds from the 2027 Notes to repay the 2020 Notes. The $200 million revolving facility was undrawn and the company reported covenant compliance.
- Of cash, cash equivalents and investments, $195.3 million was held in foreign subsidiaries, with a significant portion needed for their local liquidity needs.
Material changes and unusual items
- In January 2020 BioMarin sold worldwide Firdapse rights and related inventory for $67.2 million plus residual royalties, recording a $59.5 million pretax gain. Firdapse revenue was no longer included as a marketed product following the sale.
- In May 2020 the company issued $600 million of 1.25% senior subordinated convertible notes due 2027, with net proceeds of $585.8 million. It also repurchased 518,296 shares for $50.0 million in privately negotiated transactions connected with the offering; this was not a publicly announced repurchase program.
- Inventory included $72.4 million of valoctocogene roxaparvovec manufacturing costs capitalized based on management’s assessment that recovery was highly likely. If regulatory approval is not obtained, these costs would be expensed as R&D.
- Potential contingent payments totaled approximately $616.6 million, dependent on future development, regulatory and sales milestones; $50.2 million was recorded as a liability. The total included obligations related to programs no longer in development.
Outlook, commentary and risks
- Management expected 2020 R&D spending on the current portfolio to be generally flat versus 2019, with lower costs in certain programs offset by increased early-stage preclinical spending. It expected SG&A to increase with Palynziq expansion and pre-commercialization activity for valoctocogene roxaparvovec and vosoritide. Interest income was expected to be lower over the following 12 months; interest expense was expected to decline with settlement of the 2020 Notes, partly offset by the 2027 Notes. The filing provides no clear full-year revenue or earnings guidance.
- COVID-19 had a reported modest impact on revenue in the first half, but management expected continued near-term effects. Missed infusions, difficulty finding and treating patients, clinical-trial delays, regulatory review delays, and supply or operational disruption could affect results; missed doses may not be recovered.
- Valoctocogene roxaparvovec had an FDA priority-review target date of August 21, 2020. The European review was delayed by at least three months, with an opinion expected in late 2020 or early 2021 and a possibility of standard rather than accelerated review. BioMarin said it remained on track to submit a U.S. vosoritide NDA in Q3 2020; it submitted the EU application in July.
- The company expected generic versions of Kuvan to become available in the U.S. in Q4 2020, creating potential competitive pressure. It also cited exposure to reimbursement and pricing pressure, foreign-exchange and customer credit risk, manufacturing and supply constraints, regulatory and clinical uncertainty, and substantial debt and funding needs.
- Management reported effective disclosure controls at June 30, 2020 and no material change in internal control over financial reporting during the quarter. Legal proceedings were reported as not applicable.
Important facts for investors to verify
- Progress and outcome of the August 2020 FDA review of valoctocogene roxaparvovec, the delayed EMA review, and the timing and results of the vosoritide filing and review.
- Actual cash settlement or conversion of the 2020 Notes at maturity, and the effect on liquidity and share dilution.
- Whether COVID-19 continues to affect infusion volumes, clinical trials, product supply and collections from international customers.
- Whether capitalized valoctocogene roxaparvovec inventory remains recoverable and whether contingent milestone obligations become payable.
- The commercial impact of Kuvan generic entry expected in Q4 2020, and any related revenue, pricing or margin changes.