BioMarin Pharmaceutical Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Dollar amounts below are in millions unless noted. BioMarin develops and commercializes therapies for rare diseases; it reported seven commercial products and a pipeline of clinical and preclinical candidates.
Financial performance
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Total revenue | $372.8 | $317.4 | $746.3 | $621.2 |
| Net product revenue | $367.8 | $315.9 | $736.9 | $618.1 |
| Operating loss | $(25.3) | $(38.8) | $(69.6) | $(59.0) |
| Net loss | $(16.8) | $(36.8) | $(60.9) | $(53.1) |
| Net loss per diluted share | $(0.09) | $(0.21) | $(0.35) | $(0.31) |
- Q2 revenue increased about 17% year over year; first-half revenue increased about 20%. Q2 net loss narrowed, while the first-half net loss widened.
- First-half product gross margin was 78%, versus 83% in 2017; Q2 margin was 79%, versus 82%. Management attributed the decline mainly to higher Naglazyme and Vimizim manufacturing costs and higher sales volumes for Aldurazyme and Vimizim.
- First-half R&D expense rose to $359.5 from $288.0, particularly for tralesinidase alfa, valoctocogene roxaparvovec and vosoritide. SG&A rose to $291.6 from $263.5, including Palynziq pre-launch activity.
- Operating cash use was $76.4, compared with $61.7 in the prior-year period. Investing cash use was $67.0; financing cash use was $26.8. Cash and cash equivalents fell $170.6 from year-end, to $427.4.
- Cash, cash equivalents and investments totaled $1.643 billion, down from $1.782 billion at December 31, 2017. Current assets were $2.280 billion and current liabilities $805.0 million.
- Convertible debt was $1.192 billion net carrying value, with $1.245 billion principal outstanding. The $375 million principal 2018 Notes mature October 15, 2018; $369.8 million net carrying value was classified as current. The $100 million revolving facility was undrawn and scheduled to mature in November 2018.
Business developments and material changes
- FDA approved Palynziq for adults with PKU in May 2018; U.S. commercial availability began in July. The European application was accepted for review in March.
- Product revenue growth reflected Vimizim, Kuvan and Brineura, among others. Brineura revenue increased as additional patients began therapy. Naglazyme first-half revenue was nearly flat, with Latin American government order timing affecting results.
- A $20.0 million milestone payment from a third party related to a previously sold intangible asset was recorded as a gain, reducing reported operating expenses.
- BioMarin adopted ASC 606 on January 1, 2018 using the modified retrospective method; 2017 periods were not restated. Adoption increased opening equity by $20.0 million and had a material first-half revenue effect, principally from earlier recognition of estimated Aldurazyme consideration. The filing’s reconciliation shows first-half net loss would have been $81.9 million without ASC 606, versus $60.9 million reported.
- Research priorities included Phase 3 studies of valoctocogene roxaparvovec and vosoritide, Phase 1/2 development of tralesinidase alfa, and early-stage work including BMN 290.
Outlook, risks and contingencies
- Management expected product gross margin to remain near 80% over the next 12 months, R&D spending to increase over 2017 levels for the rest of 2018, and SG&A to rise with launches and commercialization. The company expected net losses and net cash outflows for at least the next 12 months.
- Management said operations would be funded primarily by product revenue and existing cash and investments, with debt, equity or collaborations possible if needed. It noted potential additional capital needs for development, commercialization, milestones, and acquisitions.
- Key risks include clinical and regulatory uncertainty; manufacturing capacity and single-source supply exposure; reimbursement, pricing and government purchasing patterns; foreign exchange and customer credit risk; and generic competition to Kuvan. Palynziq is subject to a U.S. REMS program, including requirements related to anaphylaxis risk.
- Potential contingent payments totaled approximately $540.4 million, payable if specified development, regulatory, commercial or licensing milestones occur; $134.1 million was recorded as contingent acquisition consideration. BioMarin paid $61.6 million in April related to Palynziq’s European filing.
- Management reported no material off-balance-sheet arrangements, no legal proceedings listed in the filing, and effective disclosure controls as of June 30, 2018.
Investor verification priorities
- Review the October 2018 repayment or conversion plan for the $375 million 2018 Notes and the effect on liquidity.
- Assess underlying revenue growth and cash collection, including ASC 606’s Aldurazyme timing effect, customer concentration and government order variability.
- Track Palynziq launch uptake and REMS-related access requirements, plus the European regulatory review.
- Monitor rising R&D and SG&A spending, manufacturing costs, and progress and funding needs across major clinical programs.
- Evaluate the timing and probability of contingent milestone payments and the company’s stated expectation of continued losses and cash outflows.