BioMarin Pharmaceutical Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; financial statements are unaudited. Unless otherwise stated, amounts below are in U.S. dollars and millions. The company develops and commercializes therapies for rare diseases; it had five marketed products at quarter-end. Brineura received U.S. marketing approval on April 27, 2017, after the reporting period.
Financial performance and position
| Metric | Q1 2017 | Q1 2016 / prior date |
|---|---|---|
| Total revenue | $303.7 | $236.7 |
| Net product revenue | $302.2 | $235.4 |
| Operating loss | $(20.2) | $(80.9) |
| Net loss | $(16.3); $(0.09) per share | $(83.1); $(0.51) per share |
| Operating cash flow | $(80.4) | $(171.5) |
| Cash, cash equivalents and investments | $1,211.7 at March 31 | $1,362.4 at December 31, 2016 |
| Convertible debt, net | $690.9 at March 31 | $683.2 at December 31, 2016 |
Revenue increased 28% year over year. Product gross margin was 83%, compared with 82%. The net loss narrowed by $66.8 million, primarily reflecting revenue growth and lower R&D expense, partly offset by higher cost of sales and SG&A. The filing reports no positive net income.
- Product revenue growth was led by Vimizim ($105.8, up $33.2 million), Kuvan ($92.3, up $15.6 million) and Naglazyme ($80.6, up $15.2 million). Aldurazyme was $19.4 million; Firdapse was $4.1 million.
- R&D expense was $145.0 million, down $13.8 million, largely due to reduced spending on discontinued programs; spending increased on BMN 270 and pegvaliase.
- SG&A was $120.0 million, up $14.7 million, including increased commercial and administrative spending. Cost of sales rose to $50.0 million from $43.1 million.
- Cash and investments decreased $150.7 million from year-end. Operating cash use improved versus the prior-year quarter, but working-capital changes used cash, including inventory investment and payments of accrued liabilities. Capital expenditures were $69.1 million.
- At March 31, current assets were $1,352.8 million and current liabilities $340.2 million. The company had $772.5 million of undiscounted convertible-note principal; $690.9 million is the balance-sheet carrying amount, net of discounts and costs. The $100 million revolving facility was undrawn.
Material changes and business developments
- Brineura received FDA approval in April 2017; U.S. availability was expected by early June. The European Medicines Agency’s committee issued a positive opinion, with a European Commission decision expected in Q2 2017.
- Management reported positive early-stage developments for investigational BMN 270 gene therapy and BMN 250, and continued Phase 3 development of vosoritide and pegvaliase.
- In April 2017, the remaining $22.5 million of 2017 Notes converted into 1,103,704 common shares, with a final cash settlement of $26,000. This occurred after quarter-end.
- In April 2017, BioMarin settled Kuvan patent litigation with Par, permitting specified generic entry no earlier than October 1, 2020 or April 1, 2021, depending on first-filer status, subject to earlier-entry circumstances. Separate DRL litigation concerning Kuvan powder remained pending.
Outlook, risks and contingencies
- Management expected R&D spending for the remainder of 2017 to rise above 2016 levels as BMN 270, pegvaliase and vosoritide advance, alongside greater early-stage program spending. SG&A was also expected to increase with commercialization and international expansion. No numeric revenue or earnings guidance is provided in the supplied filing text.
- Management expected product gross margins not to fluctuate significantly in the near future. The company stated it expected net losses and net cash outflows for at least the next 12 months.
- Liquidity depends on product sales, existing cash and investments, and potentially future debt, equity or collaboration financing. Management noted possible additional funding needs for development, commercialization, debt repayment and milestone payments.
- Contingent payments totaled approximately $581.8 million if specified milestones occur; $161.7 million was recorded as contingent consideration, including $45.3 million expected within 12 months. Purchase commitments for the next five years were approximately $94.4 million.
- Key risks include clinical and regulatory uncertainty, manufacturing and supply constraints, reimbursement and pricing pressure, foreign exchange and customer-credit exposure, and generic competition. The company identified Kuvan generic-entry risk and stated that government orders can create quarter-to-quarter revenue variability.
- The SEC had issued a subpoena concerning the former drisapersen program. The company said the inquiry was non-public, intended to cooperate, and could not predict whether a proceeding would follow or its outcome.
- The company had $44.6 million of Vimizim qualification-campaign inventory capitalized; if the manufacturing process is not approved, that inventory could be expensed. Adoption of the new revenue standard was expected not to materially affect most products, but Aldurazyme revenue timing remained under assessment.
Most important facts for investors to verify
- Whether revenue growth, especially Vimizim and government-order-driven sales, is sustained and how much reflects patient growth versus timing or geographic mix.
- Brineura’s launch, European regulatory decision, and resulting commercialization costs and revenues.
- Progress, regulatory prospects and spending for pegvaliase, BMN 270, BMN 250 and vosoritide.
- The timing and impact of Kuvan generic competition, including the pending DRL powder case and settlement terms.
- Cash burn, capital spending, milestone obligations and the company’s ability to meet 2018 and 2020 note obligations without materially weakening liquidity.
- Developments in the SEC inquiry and any changes in manufacturing qualification, supply, reimbursement or customer-payment risks.