BioMarin Pharmaceutical Inc. — 2016 Form 10-K Summary
Business context and reporting period
BioMarin is a biotechnology company focused on therapies for rare diseases. This annual report covers the fiscal year ended December 31, 2016; it is not a standalone fourth-quarter filing. Its five marketed products were Aldurazyme, Firdapse, Kuvan, Naglazyme and Vimizim. The pipeline included Brineura, pegvaliase, vosoritide, BMN 270 and BMN 250.
Financial and operating results
| Metric | 2016 | 2015 |
|---|---|---|
| Total revenue | $1.117 billion | $889.9 million |
| Net product revenue | $1.110 billion | $884.5 million |
| Operating loss | $803.4 million | $110.7 million |
| Net loss | $630.2 million | $171.8 million |
| Net loss per diluted share | $3.81 | $1.07 |
| Research and development expense | $661.9 million | $634.8 million |
| Selling, general and administrative expense | $476.6 million | $402.3 million |
| Product gross margin | 81% | 83% |
| Cash used in operating activities | $227.8 million | $219.5 million |
2016 fourth-quarter revenue was $300.1 million and net loss was $90.7 million, compared with $227.9 million revenue and $68.6 million net income in the fourth quarter of 2015.
At year-end, cash, cash equivalents and investments totaled $1.362 billion, versus $1.018 billion a year earlier. Current assets were $1.422 billion and current liabilities $439.3 million. Convertible debt was $683.2 million net on the balance sheet; stated principal debt was approximately $772.5 million, including $22.5 million due in 2017, $375 million due in 2018 and $375 million due in 2020. The company also had an undrawn $100 million revolving credit facility.
Material changes versus the prior comparable period
- Revenue increased 25.5%, led by Vimizim and Kuvan. Vimizim revenue rose to $354.1 million from $228.1 million; Kuvan rose to $348.0 million from $239.3 million, partly reflecting the January 2016 acquisition of global rights outside Japan.
- Naglazyme revenue declined to $296.5 million from $303.1 million, and Aldurazyme to $93.8 million from $98.0 million. Firdapse increased to $18.0 million from $16.0 million.
- Net loss widened substantially, primarily reflecting $599.1 million of intangible-asset impairments, including $574.1 million for Kyndrisa and related exon programs and $25.0 million for reveglucosidase alfa. Both development programs were discontinued. A $200.8 million income-tax benefit partly offset the reported loss; this included a $143.5 million deferred tax benefit associated with the Kyndrisa impairment.
- Gross margin decreased from 83% to 81%, mainly due to product mix and the fair-value adjustment on acquired Kuvan inventory. The acquired inventory had been sold through by year-end.
- Cash used in operations increased modestly. Financing activities provided $727.1 million, including approximately $712.9 million net proceeds from an August 2016 common-stock offering.
Outlook, commentary and risks
Management provided no numerical revenue or earnings guidance in the supplied filing text. For 2017, it expected continued commercial-product uptake and pipeline advancement, with higher R&D spending than in 2016 as pegvaliase, vosoritide and Brineura progressed and early-stage programs expanded. Management also expected SG&A to rise with pre-commercialization activity and international commercial expansion. The company stated it expected to operate at a net loss and experience net cash outflows for at least the next 12 months.
- Pipeline milestones: BioMarin planned to submit a pegvaliase BLA in the second quarter of 2017, while noting the Phase 3 study met its primary blood-phenylalanine endpoint but did not show statistically significant improvement on a key neurocognitive secondary endpoint. The FDA action date for Brineura was April 27, 2017; an EU decision was expected in the third quarter of 2017. A pivotal Phase 3 vosoritide study began in December 2016. BMN 270 was in Phase 1/2, with a Phase 2b study planned for the third quarter of 2017.
- Clinical and regulatory uncertainty: Brineura’s applications relied on a small, uncontrolled Phase 1/2 study and use of a delivery device that may require separate regulatory clearance. BMN 270 is an early-stage gene therapy, with unresolved long-term safety, manufacturing, reimbursement and adoption risks.
- Market and operating risks: Rare-disease sales depend on high per-patient pricing, reimbursement, continued treatment and small patient populations. Government purchasing timing, currency movements, pricing pressure, generic competition and reliance on limited suppliers or manufacturers may affect revenue and margins. Three customers represented 42% of 2016 net revenues for Firdapse, Kuvan, Naglazyme and Vimizim; the five largest customers represented 56% of total product revenue.
- Contingencies: Kuvan generic-drug patent litigation with Par and DRL remained pending. A confidential settlement allows DRL to market generic Kuvan tablets after a future date more than five years from the September 2015 settlement, subject to specified exceptions. In August 2016, the SEC issued a subpoena for documents concerning the former drisapersen program; BioMarin said the inquiry was non-public and fact-finding, and that it would cooperate.
- Other unusual items: Early adoption of share-based compensation guidance produced a $131.3 million cumulative adjustment to accumulated deficit and affected 2016 tax accounting. The company reported effective disclosure controls and effective internal control over financial reporting; the independent auditor gave unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether Brineura received FDA and EU approval on the expected timelines, and whether the delivery device met regulatory requirements.
- Whether pegvaliase’s clinical evidence supported the planned filing and regulatory approval despite the secondary-endpoint result.
- Whether the Kuvan patent cases and settlement terms lead to generic entry, and the resulting revenue impact.
- How much of the 2016 loss reflects noncash impairments and tax effects, and the company’s ongoing cash burn and funding needs.
- Liquidity and refinancing plans for the 2017, 2018 and 2020 convertible notes, alongside contingent milestone obligations of approximately $576.5 million.
- Exposure to customer concentration, delayed government receivables, foreign exchange, pricing changes and supply or manufacturing disruptions.