BioMarin Pharmaceutical Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. BioMarin develops and commercializes treatments for serious diseases. Its four approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme.
Financial performance
Amounts below are in millions of U.S. dollars, except per-share data.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total revenue | $136.9 | $128.1 | $401.6 | $368.8 |
| Net product revenue | $134.3 | $126.3 | $394.1 | $365.5 |
| Operating loss | $(50.7) | $(10.5) | $(103.7) | $(63.3) |
| Net loss | $(53.0) | $(5.4) | $(114.4) | $(61.3) |
| Net loss per share, diluted | $(0.38) | $(0.04) | $(0.84) | $(0.52) |
| Operating cash flow | Not presented for the quarter | $(48.3) | $5.6 |
- Nine-month product revenue increased 7.8%; Kuvan rose to $122.1 million from $103.1 million and Naglazyme to $202.5 million from $193.9 million. Firdapse revenue was $11.8 million; Aldurazyme revenue was unchanged at $57.7 million.
- Nine-month R&D expense increased to $257.5 million from $217.9 million; SG&A increased to $163.5 million from $143.1 million. Management attributed much of the R&D increase to BMN-701, PEG-PAL and BMN-673 development, and SG&A growth to commercial and Vimizim pre-commercial spending.
- Q3 net loss widened substantially. Higher R&D and SG&A, a $1.7 million debt-conversion expense and higher contingent-consideration expense weighed on results. Nine-month debt-conversion expense was $12.2 million.
Cash, liquidity and debt
- At September 30, cash, cash equivalents and investments totaled $527.5 million, versus $566.7 million at December 31, 2012. Working capital was $545.9 million; current assets were $713.5 million and current liabilities $167.6 million.
- Cash and investments declined $39.2 million from year-end. Nine-month operating cash use was $48.3 million, while capital expenditures were $35.4 million.
- Convertible debt on the September 30 balance sheet was $78.3 million, down from $348.2 million at year-end, following conversion of $246.5 million principal into shares and maturity of the 2013 notes.
- Subsequent event: On October 15, 2013, BioMarin issued $750 million of convertible notes due 2018 and 2020, receiving approximately $726.4 million in net proceeds. It used approximately $29.8 million for capped-call transactions intended to reduce potential dilution on part of the notes.
Outlook, risks and notable items
- Management said existing liquidity, together with the October financing, was expected to fund obligations for at least 12 months under current plans. It also expected R&D spending to rise over 2012 levels and SG&A to increase with commercial expansion and Vimizim preparation; no numerical full-year earnings or revenue guidance is provided in the filing text.
- Vimizim had not yet been approved. The FDA Advisory Committee was scheduled to review the application on November 19, 2013; approval and timing remained uncertain. BioMarin had capitalized $32.7 million of Vimizim pre-launch inventory costs in the first nine months, and inventory included $32.7 million of Vimizim raw materials and work in process.
- Key risks include clinical and regulatory uncertainty, manufacturing capacity and quality, reimbursement and pricing pressure, potential generic competition for Kuvan after orphan exclusivity, and reliance on a concentrated customer base. Four largest customers represented 49% of nine-month product revenue; approximately 12% of receivables related to Italy, Spain, Portugal and Greece.
- Potential milestone payments totaled approximately $438.4 million, contingent on achievement of regulatory or licensing milestones; $57.6 million related to programs no longer in development. The company reported no legal proceedings and no material changes in internal control over financial reporting.
Important facts for investors to verify
- FDA and EMA review outcomes and timing for Vimizim, including the implications for launch inventory and commercialization spending.
- Whether product growth—particularly for Naglazyme and Kuvan—can offset rising R&D and SG&A and the continuing operating cash outflow.
- Post-offering liquidity and the terms, conversion exposure and potential dilution associated with the new notes and capped calls.
- Receivable collection trends in Southern Europe, Kuvan exclusivity and generic-entry developments, and the timing and amount of contingent milestone obligations.