BioMarin Pharmaceutical Inc. — Q3 2010 Form 10-Q
Reporting period: Three and nine months ended September 30, 2010. Financial amounts are in U.S. dollars; figures are rounded to millions unless noted.
Business context and financial performance
BioMarin develops and commercializes treatments for serious diseases. Its four approved products were Naglazyme, Kuvan, Aldurazyme and Firdapse. The company also had multiple investigational programs.
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Total revenue | $97.8m | $80.8m | $274.7m | $237.6m |
| Net product revenue | $96.6m | $78.4m | $271.2m | $231.8m |
| Operating income (loss) | ($1.9m) | $10.1m | $3.9m | $10.0m |
| Net income (loss) | $217.3m | $6.6m | $218.0m | ($5.2m) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $34.5m | $68.3m |
Q3 total revenue grew about 21% year over year; nine-month revenue grew about 16%. Product revenue growth was led by Naglazyme and Kuvan, with Firdapse contributing following its European launch. Aldurazyme revenue was up in Q3 but down for the nine-month period. The company did not report a single consolidated gross-margin figure in the supplied filing text. Product gross margins included Naglazyme at 83% for Q3 and 82% year to date, Kuvan at 82% and 83%, and Aldurazyme at 75% and 79%, respectively.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $127.5m at September 30, 2010; short- and long-term investments totaled $313.4m. Combined cash and investments were $440.9m, down $29.6m from year-end 2009.
- Current assets were $554.2m and current liabilities $92.1m. Total assets were $1.245bn; total liabilities were $658.9m.
- Convertible debt was $497.1m, with notes due in 2013 and 2017. The notes have stated interest rates of 2.5% and 1.875%, respectively. Contractual debt payments including interest totaled $550.5m in the filing’s obligations schedule.
- Cash from operations of $34.5m was more than offset by $87.7m of investing outflows, including capital spending and acquisitions; financing provided $13.6m. Cash and cash equivalents fell $39.6m over the nine-month period.
Material changes and unusual items
- The $217.3m Q3 net income included a $222.0m income-tax benefit, primarily from releasing a substantial portion of the deferred-tax valuation allowance. The nine-month tax benefit was $220.3m. This non-cash accounting benefit drove reported profitability; pretax results were a $4.6m Q3 loss and a $2.3m nine-month loss.
- Research and development expense increased to $39.4m in Q3 and $105.1m for nine months, from $27.0m and $87.7m. Selling, general and administrative expense rose to $38.3m and $109.6m, from $28.7m and $87.8m. The filing attributes increases to clinical programs, commercial expansion, facilities and personnel.
- BioMarin acquired LEAD Therapeutics in February and ZyStor Therapeutics in August 2010. ZyStor’s lead candidate targets Pompe disease; LEAD’s BMN-673 is a PARP inhibitor candidate. The acquisitions added $55.3m of fair-value contingent consideration payable at September 30. Up to $263.5m of contingent milestone payments related to development activities were also disclosed.
- Operating cash flow declined year over year, reflecting higher operating spending and working-capital investment. The company also reported $38.7m of property and equipment purchases for the first nine months.
Outlook, commentary and risks
Management said existing cash, cash equivalents and investments should fund obligations for the foreseeable future, based on current long-term plans and achievement of goals. It cautioned that significantly higher development spending or further licenses and acquisitions could require additional capital. No formal financial guidance was provided in the supplied filing text.
- Planned development milestones included expected Phase 3 starts for GALNS in Q1 2011 and U.S. Firdapse in early 2011; a BMN-701 Phase 1/2 trial was expected in Q4 2010; and a BMN-673 IND filing and Phase 1 start were expected in Q4 2010 and December 2010 or January 2011. These are forward-looking plans, not assured outcomes.
- Management expected R&D expense to remain significant and SG&A expense to increase with product and geographic commercialization. Interest income was expected to decline during the remainder of 2010.
- Key risks include clinical and regulatory uncertainty, commercialization and manufacturing execution, competition, reimbursement constraints, reliance on collaborators (including Genzyme for Aldurazyme), concentrated customers and product revenues, and potential need for additional financing. The top four customers represented 56% of nine-month 2010 net product revenue.
- The company reported no material legal proceedings and no material change in previously disclosed risk factors. Management concluded disclosure controls were effective and reported no material change in internal financial controls during the quarter.
Important facts for investors to verify
- How much of reported earnings and deferred-tax assets depend on forecasts supporting the valuation-allowance release, and whether those assets are ultimately realizable.
- Whether core product revenue and operating cash generation can sustain increased R&D and commercialization spending.
- The timing, probability and potential cash cost of acquisition milestones, including the disclosed $263.5m of contingent development-related payments.
- Convertible-note maturity and conversion terms, and the company’s capacity to meet debt and other contractual obligations.
- Progress against announced clinical and regulatory milestones and the commercial trajectory of Firdapse and other products.