BioMarin Pharmaceutical Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. BioMarin develops and commercializes biopharmaceuticals for serious diseases. Its five approved products were VIMIZIM, Naglazyme, Kuvan, Aldurazyme and Firdapse.
Financial performance
Amounts are in millions of U.S. dollars, except per-share data. Gross margins below are calculated from reported product revenue and gross profit.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $176.8 | $136.9 | $520.2 | $401.6 |
| Net product revenue | $173.4 | $134.3 | $510.7 | $394.1 |
| Product gross profit / margin | $143.5 / 82.7% | $106.2 / 79.1% | $426.8 / 83.6% | $323.0 / 82.0% |
| Research and development expense | $125.7 | $88.1 | $319.6 | $257.5 |
| Selling, general and administrative expense | $74.6 | $61.8 | $202.5 | $163.5 |
| Income (loss) from operations | $11.2 | $(50.7) | $(34.1) | $(103.7) |
| Net income (loss) | $7.4 | $(53.0) | $(64.2) | $(114.4) |
| Basic and diluted EPS | $0.05 | $(0.38) | $(0.44) | $(0.84) |
| Net cash used in operating activities | Not separately provided for the quarter | $(46.8) | $(48.3) |
- Liquidity at September 30: Cash and cash equivalents were $398.0; short-term and long-term investments were $716.7; combined cash and investments totaled $1,114.7. Working capital was $871.2, down from $954.1 at December 31, 2013.
- Debt: Convertible debt was $656.9 net of discounts on the balance sheet; the filing reports $795.6 of total debt on an undiscounted basis. Total liabilities were $932.0.
- Cash flows, nine months: Investing activities used $266.7, including $89.6 of property and equipment purchases and net investment purchases. Financing activities provided $142.7, including $117.5 net proceeds from a March stock offering. Cash declined $170.8, while cash and investments combined increased $62.3.
Material changes and notable items
- Total revenue rose 29% in Q3 and 30% for the nine-month period. Product revenue growth reflected VIMIZIM’s commercial launch and higher Naglazyme and Kuvan sales. Q3 VIMIZIM revenue was $25.2; nine-month revenue was $40.4.
- Q3 net income included a $67.5 gain from selling the VIMIZIM-related Rare Pediatric Disease Priority Review Voucher to Regeneron in July. The sale proceeds were also reported as investing cash inflow. The nine-month net loss narrowed year over year but remained a loss.
- R&D expense increased, notably for BMN 673, BMN 190 and early-stage programs; BMN 673 expense included $11.5 of licensing fees. SG&A also rose, including costs associated with VIMIZIM’s launch.
- Interest expense increased to $27.4 for the first nine months, mainly due to the October 2013 convertible-note offering and discount accretion.
- BioMarin acquired the San Rafael Corporate Center for $116.5 in March and recognized an $8.8 gain related to early lease termination. It also purchased two Novato buildings for approximately $20.0.
- Inventory increased to $204.4 from $162.6 at year-end, primarily reflecting inventory buildup across commercial products. Property, plant and equipment rose to $486.7 from $319.3.
Outlook, risks and contingencies
- Management expected R&D spending to increase over 2013 levels during the remainder of 2014 as clinical programs advanced, and expected SG&A to increase with commercialization and international expansion. Significant additional capital investment was anticipated at the Shanbally, Ireland manufacturing facility and corporate headquarters. The filing gives no specific full-year revenue or earnings guidance.
- Management expected VIMIZIM gross margins to decline toward Naglazyme levels as previously expensed product was depleted. It described Naglazyme and Kuvan margins as not expected to fluctuate significantly, while Aldurazyme margins may vary with royalty versus product-transfer mix.
- On October 3, 2014, after quarter-end, BioMarin received a paragraph IV notice from Dr. Reddy’s concerning an ANDA for generic Kuvan. BioMarin was evaluating its response; a timely patent suit could trigger a statutory 30-month stay. The filing describes Kuvan exclusivity timing differently in separate sections; investors should verify the applicable dates and potential generic-entry scenarios.
- Risks include clinical and regulatory uncertainty, manufacturing and supply constraints, reimbursement and government pricing pressure, foreign-exchange and sovereign-credit exposure, patent challenges, and dependence on partners. The filing says approximately 9% of accounts receivable related to certain European countries and Russia; $10.6 of receivables in those countries was outstanding, with limited amounts more than 90 days past due.
- Potential milestone payments totaled approximately $561.9, including $57.9 associated with programs no longer being developed. Contractual obligations shown in the filing totaled $912.2, including convertible-note principal and interest, leases, and purchase commitments; contingent milestones are additional.
- The company reported accumulated losses of approximately $780.0, expected losses for at least the next 12 months, and stated it may need additional financing depending on spending and business-development decisions. No material off-balance-sheet arrangements or legal proceedings were reported.
Important facts for investors to verify
- How much of reported earnings improvement is attributable to the one-time $67.5 voucher gain, versus recurring product performance and margins.
- VIMIZIM uptake, reimbursement, supply capacity, and expected margin normalization; progress and spending on major pipeline programs.
- The status and likely timing, cost, and commercial impact of the Kuvan generic patent dispute, including the filing’s differing exclusivity dates.
- Cash deployment, planned manufacturing and facility capital spending, and the company’s ability to fund operations while carrying convertible debt.
- Exposure to concentrated customers, government-funded receivables, contingent milestone obligations, and manufacturing-facility approval and execution risks.