BioMarin Pharmaceutical Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; balance-sheet comparisons are to December 31, 2012. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Business context and reporting period
BioMarin develops and commercializes treatments for serious diseases. Its four approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme. The pipeline included Vimizim, PEG-PAL, BMN-701, BMN-673, BMN-111 and BMN-190. Vimizim was not yet approved; the company had submitted its U.S. BLA in Q1 and its European MAA in April 2013.
Key financial metrics
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $136.8 | $124.0 | $264.7 | $240.7 |
| Net product revenue | $132.4 | $123.0 | $259.7 | $239.2 |
| Gross profit on product sales | $109.9 | $99.5 | $216.7 | $198.5 |
| Gross margin on product sales | About 83.0% | About 80.9% | About 83.4% | About 83.0% |
| Research and development | $85.7 | $77.8 | $169.4 | $151.6 |
| Selling, general and administrative | $50.7 | $51.5 | $101.7 | $96.8 |
| Loss from operations | $(20.1) | $(31.0) | $(53.0) | $(52.8) |
| Net loss | $(21.5) | $(32.0) | $(61.3) | $(56.0) |
| Basic loss per share | $(0.15) | $(0.27) | $(0.46) | $(0.48) |
- Six-month operating cash used was $38.8, versus $8.6 in 2012. Investing activities provided $4.3, compared with $122.3 used; financing activities provided $29.4, compared with $262.4 provided.
- Cash and cash equivalents were $175.4; short- and long-term investments totaled $349.0. Combined cash and investments were $524.4, down $42.3 from year-end. Working capital was $578.7.
- Total liabilities were $343.3, including $109.8 of long-term convertible debt. Convertible debt declined $238.4 from year-end, chiefly after conversion and maturity events described below. Total assets were $1,601.5.
- Inventory increased to $142.3 from $128.7, including $18.0 of Vimizim pre-launch inventory capitalized in 2013.
Material changes versus the prior comparable period
- Q2 revenue rose about 10% and six-month revenue about 10%. Growth reflected higher Naglazyme and Kuvan sales, primarily from new patients starting therapy. Q2 net product revenue increased $9.4; six-month net product revenue increased $20.5.
- Q2 net loss narrowed by $10.5, aided by higher product gross profit and lower intangible/contingent consideration expense. Six-month net loss widened by $5.4, principally reflecting higher R&D spending and a $10.4 debt-conversion expense, partly offset by higher gross profit and lower interest expense.
- R&D increased by $7.8 in Q2 and $17.8 for the six-month period, particularly for BMN-701, BMN-673 and PEG-PAL. SG&A was slightly lower in Q2 but higher for the six-month period.
- In March, holders converted $215.0 principal of the 2017 notes into 10.56 million common shares; BioMarin paid $12.0 in cash, of which $10.4 was recorded as debt-conversion expense. The remaining 2017 notes had $109.8 principal outstanding. The 2013 notes matured in March; most remaining principal was settled with shares.
- Product revenue was mixed: Q2 Naglazyme was $69.9, Kuvan $40.9 and Firdapse $4.1, all higher year over year; Aldurazyme was $17.5, lower than $21.8. Six-month Aldurazyme revenue was $34.2 versus $33.8.
Outlook, management commentary, risks and unusual items
- Management believed available cash, cash equivalents and investments would fund obligations for at least 12 months under current plans. It cautioned that higher-than-planned development spending or acquisitions could require additional capital. The company expected to rely heavily on product revenue to support operations.
- Management expected R&D spending for the remainder of 2013 to exceed 2012 levels as PEG-PAL, BMN-673, BMN-701, BMN-111 and BMN-190 progressed, with additional early-stage and post-approval work. SG&A was also expected to increase with commercial expansion and Vimizim pre-commercial activity. The company expected to operate at a net loss for at least the next 12 months.
- Potential milestone payments totaled approximately $437.6, contingent on regulatory and licensing milestones. Separately, recorded contingent acquisition consideration payable was $44.2 at June 30. Zacharon’s agreement included up to $134.0 of undiscounted future milestone payments.
- Risks highlighted included regulatory approval and timing (especially Vimizim), clinical-development uncertainty, manufacturing and supply continuity, reimbursement and pricing pressure, potential generic competition for Kuvan after orphan exclusivity, reliance on Genzyme for Aldurazyme, foreign-exchange exposure, and collection risk in Southern Europe. About 12% of accounts receivable related to Italy, Spain, Portugal and Greece; $4.1 was past due there, with a $0.3 allowance.
- Unusual items included a $0.9 Q2 impairment charge on acquired preclinical IPR&D assets and a Q2 $3.7 benefit from changes in fair value of contingent acquisition consideration, contributing to a net credit in the related expense line.
- The filing reported no legal proceedings, no material off-balance-sheet arrangements, and no material change in market-risk disclosures. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Progress, review timing and potential approval of the Vimizim applications, and the recoverability of capitalized pre-launch inventory.
- Whether commercial growth in Naglazyme and Kuvan continues, and how Aldurazyme sales and Genzyme collaboration economics evolve.
- R&D spending trajectory, cash burn and management’s stated 12-month liquidity outlook.
- Potential dilution and repayment exposure from the remaining $109.8 of convertible notes, and the scale and timing of contingent milestone obligations.
- Exposure to Southern European receivables, reimbursement and pricing changes, manufacturing capacity, and possible Kuvan generic entry after applicable exclusivity.