BioMarin Pharmaceutical Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. Financial amounts below are in U.S. dollars, generally millions unless stated otherwise.
Business context
BioMarin develops and commercializes therapies for serious diseases and reported five marketed products: Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse. The quarter included the integration of Prosensa, acquired in January 2015, and continued investment in the clinical pipeline.
Financial results and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Total revenue | $250.5 | $191.8 | $453.8 | $343.3 |
| Net product revenue | $249.0 | $188.2 | $450.3 | $337.2 |
| Operating loss | $(64.2) | $(18.9) | $(130.1) | $(45.3) |
| Net loss | $(82.0) | $(33.5) | $(149.5) | $(71.6) |
| Basic and diluted loss per share | $(0.51) | $(0.23) | $(0.94) | $(0.49) basic; $(0.50) diluted |
- Revenue increased approximately 31% in Q2 and 32% in the first half year over year. Vimizim was the largest growth driver: revenue was $53.9 million in Q2 and $104.5 million for the half year, versus $14.3 million and $15.2 million, respectively, in 2014.
- R&D expense rose to $157.9 million in Q2 and $300.0 million for the half year, reflecting expanded clinical activity, Prosensa programs, early-stage programs and manufacturing-facility costs. SG&A increased to $101.5 million and $194.3 million, respectively, including commercial expansion, staffing, stock compensation and acquisition-related costs.
- Approximate consolidated gross margin was 84% in Q2 and 84% for the first half, versus approximately 84% in both comparable 2014 periods. Product-level margins varied; management said Firdapse margins were expected to improve over the next 12 months as yields increased.
- Net cash used in operating activities was $150.8 million for the first half, compared with $38.0 million in 2014. Cash used in investing was $1.196 billion, including the Prosensa acquisition and investment purchases; financing provided $912.4 million, principally from the January equity offering.
- Cash, cash equivalents and investments totaled $1.191 billion at June 30, 2015, up from $1.043 billion at year-end; cash and cash equivalents alone were $440.7 million. Working capital was $866.2 million, down from $1.197 billion.
- Convertible debt had a $661.5 million carrying value; the filing also cites $781.9 million of undiscounted total convertible debt. Debt maturities, interest payments and possible cash settlement on conversion could affect liquidity.
- Total assets were $3.649 billion and total liabilities $1.292 billion. The balance sheet included $923.9 million of net intangible assets, primarily reflecting acquired in-process R&D, and $128.7 million of recorded contingent acquisition consideration.
Material changes and unusual items
- BioMarin acquired Prosensa for a purchase price of approximately $751.5 million. The acquisition added $772.8 million of acquired in-process R&D and $148.1 million of goodwill; cash paid net of acquired cash was $538.4 million.
- The January 2015 public offering generated net proceeds of approximately $888.3 million and increased issued shares. Shares outstanding were 161.0 million at June 30, compared with 149.1 million at December 31, 2014.
- Q2 included $12.8 million of write-offs of investments and advances related to a supplier whose financial condition deteriorated. The first-half cash-flow reconciliation also included non-cash contingent consideration changes of $14.6 million; the Q2 income statement recorded $14.3 million of such fair-value expense.
- Revenue growth was led by Vimizim, Naglazyme and Kuvan. Aldurazyme revenue declined to $20.2 million in Q2 and $38.4 million for the half year, partly reflecting lower Genzyme-reported sales. Firdapse revenue also declined, with foreign exchange cited as a factor.
Outlook, risks and contingencies
- The filing does not provide a clear numerical full-year revenue or earnings guidance range. Management expected R&D spending to increase over 2014 levels for the remainder of 2015 and expected SG&A to increase with commercialization and organizational expansion.
- Management expected to make significant further capital investments in the Shanbally, Ireland manufacturing facility and the San Rafael headquarters. Shanbally had not yet received FDA or EMA approval to manufacture products.
- Pipeline updates included positive Phase 2 proof-of-concept and dose-finding results for vosoritide; talazoparib’s Phase 2 ABRAZO study met its protocol-specified threshold to expand enrollment; and preliminary cerliponase alfa data suggested stabilization of CLN2 disease. Top-line cerliponase alfa results were expected in Q4 2015, and a Phase 1/2 BMN 270 trial was expected to begin in the second half of 2015.
- Drisapersen’s prior Phase 3 trial did not meet its primary endpoint. BioMarin relied in part on retrospective and subgroup analyses, which regulators may view as less persuasive; additional trials or failure to obtain approval remained possible. The filing described the U.S. NDA submission as completed and expected an EU application in summer 2015.
- Dr. Reddy’s and Par filed ANDAs for generic Kuvan. BioMarin and Merck sued, triggering 30-month stays; the defendants alleged non-infringement and/or invalidity, and trial dates had not been set.
- Approximately $727.9 million of contingent payments could become due upon future regulatory or licensing milestones; $128.7 million was recorded, including $91.4 million expected within 12 months. Non-cancelable R&D and purchase commitments were approximately $72.6 million.
- Key risks include clinical and regulatory uncertainty, product reimbursement and pricing pressure, foreign exchange, government-customer collection delays, manufacturing and supply dependence, and dependence on Genzyme for Aldurazyme commercialization. Management stated that it expected operating losses for at least the next 12 months.
Important facts for investors to verify
- Subsequent regulatory developments and evidence supporting drisapersen, given the prior failed Phase 3 primary endpoint and reliance on retrospective analyses.
- Progress and outcome of the Kuvan patent litigation, including potential generic entry and the impact on sales.
- Whether commercial revenue growth and product margins can support the rising R&D, SG&A and capital-spending levels.
- Prosensa integration, drisapersen development milestones and potential contingent payments, including the assumptions underlying their fair values.
- Liquidity and debt-service capacity, including convertible-note settlement choices, future operating cash use and the substantial planned facility investments.
- Customer concentration and collection exposure: four customers represented 51% of Q2 product revenue, and about 7% of receivables related to specified European countries and Russia.