BioMarin Pharmaceutical Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. BioMarin develops and sells therapies for rare diseases. Figures below are in U.S. dollars; financial amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $387.8 | $372.8 | $788.5 | $746.3 |
| Operating loss | $41.4 | $25.3 | $95.3 | $69.6 |
| Net loss | $37.4 | $16.8 | $93.9 | $60.9 |
| Net loss per share | $0.21 | $0.09 | $0.53 | $0.35 |
| Product gross margin | 80% | 79% | 78% | 78% |
- Q2 revenue increased 4.0% year over year; first-half revenue increased 5.7%. Product revenue was $379.1 million in Q2 and $773.6 million for the half.
- Operating expenses rose faster than revenue. Q2 R&D was $185.6 million and SG&A was $160.8 million; first-half R&D was $369.2 million and SG&A was $322.9 million.
- Cash used in operations was $79.2 million in the first half, compared with $76.4 million a year earlier. Cash and investments totaled $1.106 billion at June 30, down $214.1 million from year-end 2018.
- Cash and cash equivalents were $307.6 million; short- and long-term investments were $423.5 million and $375.0 million. Current liabilities were $439.4 million.
- Convertible debt had $870.0 million principal outstanding ($839.2 million net carrying value): $375.0 million due in 2020 and $495.0 million due in 2024. The $200 million revolving facility was unused, and the company reported compliance with its covenants.
Changes and notable items
- Product revenue growth was led by Palynziq, Naglazyme, Kuvan and Brineura; lower Aldurazyme revenue reflected timing of customer acceptance, and Q2 Vimizim revenue declined year over year. Government ordering patterns can cause quarterly variation.
- Palynziq received European Commission marketing authorization in May 2019; EU sales were expected to begin in Q3 2019. The company reclassified $326.4 million of Palynziq in-process R&D intangible assets to finite-lived assets and began amortizing them over an estimated nine-year life.
- Q2 included a $15.0 million gain from a milestone on a previously sold intangible asset. A $27.1 million release of a Dutch deferred-tax valuation allowance was recognized in Q2; the total reported income-tax benefit was $4.5 million for the quarter and $0.9 million for the half.
- Cash used in financing increased to $76.7 million from $26.8 million, mainly reflecting contingent-consideration payments, taxes on net share settlements and lower proceeds from equity award exercises.
- Adoption of the lease standard added $55.9 million of right-of-use assets and $59.0 million of lease liabilities on January 1, 2019; the filing says it materially affected the balance sheet but did not significantly affect net loss. June 30 lease liabilities were $64.0 million.
Outlook, risks and contingencies
- Management expected R&D spending to increase for the rest of 2019, particularly for valoctocogene roxaparvovec, vosoritide and PKU gene therapy; SG&A was also expected to rise with Palynziq launches, international expansion and valoctocogene pre-commercialization. The filing does not provide a clear numerical full-year revenue or earnings forecast.
- In July 2019, BioMarin said it planned to submit U.S. and European marketing applications for valoctocogene roxaparvovec in Q4 2019 following regulator meetings, and discontinued the 4e13 vg/kg study dose. Top-line results from the Phase 3 vosoritide study were expected by year-end. A PKU gene-therapy IND and/or CTA was planned for the second half of 2019.
- Key risks include clinical and regulatory uncertainty, gene-therapy durability and manufacturing challenges, product supply constraints, reimbursement and pricing pressure, foreign-exchange exposure, and collection risk in economically volatile markets. The company also cited the 2020 Notes’ repayment or conversion as a liquidity consideration.
- Potential milestone payments totaled approximately $391.1 million, contingent on future development, regulatory, sales or licensing milestones; $70.3 million was recorded as a liability. Other R&D and purchase commitments were estimated at $118.3 million. The filing reported no legal proceedings.
- Revenue concentration is notable: four customers represented 43% of Q2 net product revenue. Two customers represented 25% and 12% of accounts receivable at June 30.
Important facts for investors to verify
- Whether Palynziq’s EU launch and sales growth meet expectations, and whether the reported revenue trends persist beyond government-order timing effects.
- Regulatory progress and clinical results for valoctocogene roxaparvovec and vosoritide, including whether the planned Q4 2019 filings and year-end data targets were achieved.
- How operating cash use, investment balances and spending plans affect liquidity, especially around the $375 million 2020 Notes maturity and any conversion or cash-settlement decisions.
- The assumptions behind the $27.1 million Dutch valuation-allowance release and the timing and likelihood of contingent milestone payments.
- Customer concentration, foreign-exchange effects, and exposure to reimbursement, pricing, manufacturing and supply risks.