BioMarin Pharmaceutical Inc. — 2012 Form 10-K
Business context and reporting period
BioMarin develops and commercializes medicines for serious diseases, with four approved products: Naglazyme, Kuvan, Aldurazyme and Firdapse. This filing reports the fiscal year ended December 31, 2012; it is an annual report, not a standalone Q4 filing. Unaudited Q4 results are also provided.
Financial performance and position
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $500.7 million | $441.4 million |
| Net product revenue | $496.5 million | $437.6 million |
| Gross profit on products | $404.6 million | $353.6 million |
| Research and development expense | $302.2 million | $214.4 million |
| Selling, general and administrative expense | $198.2 million | $175.4 million |
| Operating loss | $110.2 million | $33.9 million |
| Net loss | $114.3 million | $53.8 million |
| Operating cash flow | $17.6 million | $18.8 million |
| Cash, cash equivalents and investments | $566.7 million | $289.5 million |
| Working capital | $573.1 million | $375.7 million |
| Convertible debt | $348.2 million | $348.3 million |
Product gross margins were 85% for Naglazyme, 83% for Kuvan, 80% for Firdapse and 68% for Aldurazyme. The filing reports no separate consolidated operating-margin percentage. Q4 2012 revenue was $131.9 million and net loss was $53.0 million, versus revenue of $107.8 million and net loss of $26.7 million in Q4 2011.
Material changes versus the prior comparable period
- Total revenue rose 13% year over year. Naglazyme revenue increased to $257.0 million from $224.9 million; Kuvan rose to $143.1 million from $116.8 million. Aldurazyme revenue edged down to $82.2 million from $82.8 million, while Firdapse increased to $14.2 million from $13.1 million.
- Net loss more than doubled. Higher product gross profit of $51.0 million was outweighed chiefly by an $87.8 million increase in R&D expense, a $22.7 million increase in SG&A, and higher intangible amortization and contingent consideration expense. The year included a $6.7 million impairment of U.S. Firdapse in-process R&D.
- R&D investment increased substantially, led by Vimizim, BMN-701, BMN-190 and BMN-673. Vimizim R&D expense reached $97.0 million.
- Cash and investments increased by $277.2 million, mainly reflecting $235.5 million net proceeds from a June 2012 share offering and proceeds from employee stock purchases and option exercises. Operating cash flow remained positive but was slightly lower.
Outlook, risks and unusual items
- Management expected available cash and investments to fund operating and capital requirements for at least 12 months, based on current plans. It expected a net loss for at least the next 12 months and higher R&D spending in 2013; no numerical revenue or earnings guidance is provided.
- Vimizim’s Phase 3 trial met its primary endpoint in November 2012, but the product had not received regulatory approval. The company planned to initiate a Phase 3 PEG-PAL trial in Q2 2013, expected BMN-701 top-line results in Q1 2013, and expected to start a pediatric Phase 2 BMN-111 study in mid-2013.
- $23.4 million of 2.5% convertible notes were due in March 2013; $324.9 million of 1.875% convertible notes were due in April 2017. Total contractual debt and interest payments were $375.9 million, including $29.7 million due in 2013.
- Potential acquisition milestone payments totaled approximately $285.5 million, contingent on development or commercial milestones; $41.4 million was recorded as contingent consideration at year-end. A January 2013 Zacharon acquisition involved $10.0 million upfront and up to $134.0 million in additional milestone payments.
- Key risks include dependence on regulatory approvals and clinical outcomes, manufacturing and single-source supply exposure, reimbursement and pricing pressure, patent and generic competition, customer concentration, and delayed collection from some government customers. Three customers generated 43% of 2012 net product revenue. Approximately 8% of year-end receivables related to Italy, Spain, Portugal and Greece; the filing included a $0.3 million allowance for doubtful accounts, principally for Greece.
- Management reported effective disclosure controls and internal control over financial reporting; KPMG issued unqualified audit opinions. No material legal proceedings were reported.
Important facts for investors to verify
- Regulatory filing, review and approval progress for Vimizim, and whether trial results translate into commercial launch and revenue.
- Execution and costs of the 2013 development plans, particularly the expected rise in R&D spending and the timing of PEG-PAL and BMN-701 milestones.
- Repayment or conversion of the March 2013 notes and the terms, dilution and obligations associated with outstanding convertible debt.
- Cash burn, operating cash flow, and the extent to which the 2012 liquidity increase depended on equity issuance rather than operations.
- Customer and receivables concentration, government reimbursement and payment delays, and the effect of any changes in pricing or access programs.
- Assumptions underlying contingent acquisition consideration, the Firdapse impairment, and future milestone liabilities.