BioMarin Pharmaceutical Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015; filed November 2, 2015. Unless stated otherwise, dollar amounts are in millions. BioMarin develops and commercializes medicines for serious diseases and reported five approved products: Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse.
Financial performance and position
- Revenue: Q3 revenue was $208.9, up 18% from $176.5 a year earlier. Nine-month revenue was $662.0, up 27% from $519.2. Net product revenue was $207.8 for Q3 and $658.1 year to date.
- Product trends: Q3 Vimizim revenue rose to $65.1 from $25.2; Kuvan rose to $64.2 from $53.4. Naglazyme declined to $54.1 from $67.5, Aldurazyme to $20.6 from $22.6, and Firdapse to $3.8 from $4.7. Year-to-date Vimizim revenue was $169.6 versus $40.4; Kuvan was $174.5 versus $145.6.
- Profit and margins: Q3 net loss was $90.9, versus net income of $7.4 in Q3 2014; nine-month net loss was $240.4 versus $64.2. Q3 operating loss was $81.9; nine-month operating loss was $212.0. Cost of sales was $36.7 for Q3 and $109.4 year to date. Implied gross margin on product revenue was approximately 82% for Q3 and 83% year to date. Product-level margins varied: Vimizim 84% Q3, Naglazyme 83%, Kuvan 83%, and Aldurazyme 75%.
- Expenses: Nine-month R&D increased to $458.7 from $319.5 and SG&A to $288.4 from $202.4. Q3 R&D was $158.7 and SG&A $94.0. Management attributed increases to development programs, staffing, commercialization and facility costs.
- Cash flow: Nine-month operating cash use was $153.7, compared with $46.5 in 2014. Investing cash use was $1,259.1, including the Prosensa acquisition, capital spending and net purchases of investments. Financing provided $916.2, principally from the January equity offering. Cash and equivalents ended at $376.3.
- Liquidity: Cash, cash equivalents and investments totaled $1,132.7, compared with $1,043.1 at December 31, 2014. Working capital was $785.1, down from $1,196.5. Approximately $197.5 of cash and marketable securities was held in foreign subsidiaries.
- Debt and capital: Convertible debt carrying value, net of discount, was $667.8; undiscounted debt obligations were approximately $781.6. The notes mature in 2017, 2018 and 2020. In January 2015, BioMarin raised $888.3 net through a public stock offering. Shares outstanding were 161.3 million at September 30.
Material changes versus comparable periods
- Product revenue growth was led by Vimizim’s commercial ramp and higher Kuvan sales; Naglazyme, Aldurazyme and Firdapse revenue declined in Q3.
- Losses widened as R&D and SG&A spending rose. Comparability is also affected by a $67.5 gain on sale of an intangible asset recognized in Q3 2014; no equivalent gain was recorded in 2015.
- BioMarin acquired Prosensa in January 2015 for purchase consideration of approximately $751.5, including contingent value rights. The acquisition contributed $148.1 of goodwill and substantial acquired in-process R&D assets.
- Inventory increased to $262.1 from $199.5, which management said reflected preparation for anticipated product demand. Property, plant and equipment rose to $604.5 from $523.5, including ongoing facility investment.
Outlook, management commentary and risks
- Management said it expects operating losses for at least the next 12 months. It anticipated higher R&D spending for Kyndrisa, pegvaliase, reveglucosidase alfa, vosoritide, cerliponase alfa and early-stage programs, plus significant capital investment in the Shanbally manufacturing facility and San Rafael headquarters. Management did not provide quantified earnings or revenue guidance in the supplied filing text.
- On October 1, 2015, BioMarin agreed to acquire worldwide rights to Kuvan and pegvaliase, except Kuvan in Japan, for €340.0 upfront and up to €185.0 in milestones; closing was expected in January 2016, subject to conditions and regulatory approvals.
- On October 6, 2015, BioMarin completed the sale of talazoparib to Medivation for $410.0 upfront, with up to $160.0 in milestones and mid-single-digit royalties. Proceeds were received after quarter-end.
- Prosensa’s lead candidate Kyndrisa was under U.S. and European review, but its prior Phase 3 trial did not meet its primary endpoint. The filing notes regulatory uncertainty and the possibility of additional trials or abandonment.
- BioMarin settled Kuvan patent litigation with Dr. Reddy’s, allowing a generic launch at a confidential future date more than five years after the September 2015 settlement, or earlier in certain circumstances. Separate litigation with Par remained pending.
- Contingent payments totaled approximately $763.0, of which $129.2 was recorded as a liability; $94.3 was expected to be paid within twelve months. Non-cancelable R&D and purchase commitments were $58.9. The company also cited reimbursement and pricing pressure, foreign-exchange exposure, customer credit risk, manufacturing and supply constraints, clinical and regulatory uncertainty, and dependence on product sales and external financing.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Commercial trajectory and persistence of growth in Vimizim and Kuvan, and the causes of weaker Naglazyme, Aldurazyme and Firdapse sales.
- Cash burn, planned R&D and capital expenditures, and the funding impact of the Merck Serono transaction and convertible debt obligations.
- Regulatory outcomes and potential additional trial requirements for Kyndrisa, including the weight regulators place on retrospective analyses.
- Timing and terms of generic Kuvan entry under the Dr. Reddy’s settlement, and the outcome of the Par litigation.
- Actual proceeds and any subsequent milestone or royalty economics from the talazoparib sale, and realization of the contingent payments associated with acquisitions.