BIOMARIN PHARMACEUTICAL INC quarterly report, Q1 FY2012

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BioMarin Pharmaceutical Inc. — Q1 2012 Form 10-Q

Business context and period: The filing covers the three months ended March 31, 2012. BioMarin develops and commercializes biopharmaceuticals; its approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme. Financial amounts below are in U.S. dollars.

Financial performance and position

  • Revenue: Total revenue was $116.6 million, up 6.6% from $109.5 million. Net product revenue was $116.2 million, up $7.2 million. Naglazyme rose to $68.6 million from $60.6 million; Kuvan to $32.0 million from $26.7 million; Firdapse to $3.6 million from $3.1 million. Aldurazyme fell to $12.0 million from $18.7 million, partly reflecting product-transfer revenue timing.
  • Profit and margins: Operating loss was $21.9 million versus operating income of $2.3 million; net loss was $24.0 million, or $0.21 per share, versus a $4.4 million net loss, or $0.04 per share. Cost of sales declined to $17.1 million from $20.8 million. Naglazyme gross margin was 86% (83%); Kuvan 82% (82%); Firdapse 82% (82%); Aldurazyme 93% (72%).
  • Expenses and unusual items: R&D expense increased to $73.8 million from $45.0 million, primarily reflecting development programs including GALNS, BMN-701 and PEG-PAL. SG&A rose to $45.2 million from $41.0 million. The company recorded a $6.7 million impairment of Firdapse U.S. in-process R&D assets and a $5.2 million noncash reduction in estimated contingent acquisition consideration.
  • Cash flow: Operating activities used $7.2 million, compared with $3.5 million used in Q1 2011. Investing activities provided $30.0 million, mainly due to investment maturities and sales; financing activities provided $13.4 million, chiefly from stock-option exercises and employee stock purchases. Cash and equivalents increased $36.3 million during the quarter to $82.6 million.
  • Liquidity and debt: Cash, cash equivalents and investments totaled $287.7 million, compared with $289.5 million at December 31, 2011 and $393.9 million at March 31, 2011. Working capital was $393.6 million. Convertible debt totaled $348.3 million, including $23.5 million classified as current and due in March 2013; the remaining notes mature in 2017. Management said available cash and investments should fund obligations for the foreseeable future under current plans and assumptions.
  • Balance sheet: Total assets were $1.297 billion and total liabilities $525.1 million at March 31, 2012. Accumulated deficit was $449.1 million.

Changes, outlook and risks

  • The larger quarterly loss was driven mainly by the $28.8 million increase in R&D expense and the $6.7 million impairment, partly offset by higher product gross profit and lower income-tax expense.
  • In March 2012, BioMarin suspended business-development efforts for the Firdapse U.S. program after evaluating strategic options, including a potential outlicense; it impaired related U.S. rights. Firdapse remained in Phase 3 U.S. trials at the time of the filing.
  • Management expected significant R&D spending to continue and SG&A to increase with commercial expansion. It expected GALNS manufacturing activities to be substantially completed by July 2012, with lower GALNS development spending in the second half of the year. No specific full-year revenue or earnings guidance was provided.
  • BioMarin was highly dependent on product revenue to supplement liquidity. Management noted that increased development spending or licensing and acquisition activity could require additional capital. The company disclosed approximately $357 million of potential milestone payments contingent on future regulatory, licensing, development or commercial achievements.
  • Risks include clinical and regulatory uncertainty, commercialization and manufacturing execution, competition, reliance on collaborators, and reimbursement or healthcare changes. Three customers represented 41% of net product revenue. About 12% of receivables related to certain Southern European countries; Greece had $0.6 million past due over 360 days, with a $0.5 million doubtful-account allowance. Management cited sovereign-credit and collection risks but considered the allowance adequate.
  • The filing reported no legal proceedings and no material changes to the risk factors previously disclosed in the 2011 Form 10-K. Disclosure controls were assessed as effective.

Important facts for investors to verify

  1. Whether product-revenue growth, particularly in Naglazyme and Kuvan, can offset higher R&D and corporate spending.
  2. Clinical, regulatory and commercial milestones for GALNS, PEG-PAL, BMN-701, BMN-673, BMN-111 and BMN-190, and the direction of the Firdapse U.S. program.
  3. Cash use, investment balances and funding needs if spending rises or product revenue weakens.
  4. Repayment or conversion of the $23.5 million notes due March 2013 and the terms and implications of the remaining convertible debt.
  5. Collection of Southern European receivables, customer concentration, and the assumptions behind contingent milestone liabilities and the Firdapse impairment.