BioMarin Pharmaceutical Inc. — Q2 2010 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2010. Unaudited consolidated financial statements. BioMarin develops and commercializes treatments for serious diseases; its approved products were Naglazyme, Kuvan, Aldurazyme and Firdapse.
Key financial metrics
| Metric | Q2 2010 | Six months 2010 |
|---|---|---|
| Total revenue | $92.0 million | $176.9 million |
| Net product revenue | $90.6 million | $174.7 million |
| Operating income | $3.0 million | $5.8 million |
| Net income (loss) | $(0.5) million | $0.7 million |
| Operating cash flow | Not separately presented for the quarter | $25.5 million |
| Capital expenditures | Not separately presented for the quarter | $29.3 million |
Q2 net loss per diluted share was approximately $(0.01); six-month diluted earnings per share were $0.01. Six-month operating cash flow less capital expenditures was approximately negative $3.9 million. Company-wide gross margin is not stated as a headline metric; reported product gross margins included Naglazyme at 82% for Q2 and Kuvan at 83% for Q2.
At June 30, cash and cash equivalents were $115.8 million, short-term investments $221.9 million and long-term investments $117.7 million; together these totaled $455.4 million. Combined cash and investments fell $15.1 million from year-end 2009. Current assets were $521.9 million and current liabilities $83.9 million. Convertible debt was $497.1 million; total liabilities were $622.6 million.
Material changes versus the prior comparable periods
- Q2 revenue rose 11% year over year to $92.0 million; six-month revenue rose 13% to $176.9 million.
- Net product revenue growth reflected Naglazyme and Kuvan: Q2 revenue increased to $47.3 million and $24.7 million, respectively. Firdapse generated $1.1 million in Q2 after its European launch in April.
- Aldurazyme revenue declined to $17.5 million in Q2 and $31.7 million for six months, primarily reflecting lower product transfers to Genzyme relative to its third-party sales. Q2 gross profit benefited from transfer revenue on a lot written off in Q1.
- Q2 net results shifted from $1.3 million income in 2009 to a $0.5 million loss in 2010. Six-month results improved from an $11.8 million loss to $0.7 million income, helped by higher Naglazyme and Kuvan gross profit, lower interest expense and the absence of the prior-year equity-investment impairment charge.
- Q2 R&D increased to $35.6 million from $26.3 million; SG&A increased to $37.3 million from $30.5 million. Higher pipeline, commercialization, staffing and facility costs contributed. Q2 cost of sales declined to $14.4 million from $19.8 million, including the benefit of improved Naglazyme manufacturing yields.
- Six-month investing cash flow was negative $83.7 million, including $29.3 million of property and equipment purchases and $14.1 million for the LEAD acquisition, net of cash acquired. Financing cash flow was positive $6.9 million. Cash and cash equivalents declined $51.4 million during the half.
Outlook, management commentary and risks
- Management said existing cash, cash equivalents and investments should fund obligations for the foreseeable future, assuming current long-term plans and achievement of goals. Higher-than-planned development spending or acquisitions could require additional capital.
- Management expected significant R&D spending to continue, including GALNS, PEG-PAL, Firdapse and PARP programs, and expected SG&A to increase with commercial expansion. The filing did not provide quantified revenue or earnings guidance.
- BioMarin expected to initiate a Phase 3 GALNS trial in January 2011 after incorporating regulatory feedback. Preliminary PEG-PAL Phase 2 results disclosed after quarter-end showed six of seven patients at the stated dose and duration achieved phenylalanine levels below 600 micromoles per liter; injection-site reactions were the most commonly reported toxicity. The company discontinued its Duchenne muscular dystrophy small-molecule program because of pharmaceutical and pharmacokinetic challenges.
- BioMarin acquired LEAD Therapeutics for stated consideration of $39.1 million, including $18.6 million cash and $20.5 million estimated contingent consideration. LEAD and Huxley acquisitions carry milestone payments; the filing also describes approximately $250.1 million of contingent development-related payments payable if specified milestones occur. Contingent consideration fair values depend on significant unobservable assumptions.
- Convertible notes mature in 2013 and 2017, bear cash interest of 2.5% and 1.875%, respectively, and are not callable by the company. Scheduled debt and interest payments total $552.6 million under the filing’s contractual-obligations table; qualifying change-of-control or trading-termination events can require repayment.
- Key risks include dependence on commercial product performance and collaborators, clinical and regulatory uncertainty, manufacturing and reimbursement constraints, competition, patent protection, customer concentration and possible need for financing. The four largest customers represented 46% of six-month product revenue; two customers accounted for 45% and 18% of receivables at June 30. No material change to previously disclosed risk factors was reported. No legal proceedings were reported; disclosure controls were deemed effective.
Important facts for investors to verify
- Whether Naglazyme and Kuvan growth and the early Firdapse launch can offset weaker Aldurazyme revenue and currency effects.
- Cash generation relative to R&D, commercialization costs, capital spending and the company’s $497.1 million convertible-debt balance and maturities.
- Clinical, regulatory and commercial milestones for GALNS, PEG-PAL, Firdapse and BMN-673, including associated spending and milestone obligations.
- Assumptions behind contingent acquisition consideration and acquired in-process R&D valuations, as well as the concentration of revenue and receivables among customers.
- Manufacturing execution and Genzyme’s Aldurazyme sales and inventory, which affect BioMarin’s royalties and product-transfer revenue.