BioMarin Pharmaceutical Inc. — Q2 2017 Form 10-Q
Business context and reporting period. This quarterly report covers the three and six months ended June 30, 2017. BioMarin develops and commercializes therapies for rare diseases and reported six approved products: Aldurazyme, Brineura, Firdapse, Kuvan, Naglazyme and Vimizim.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $317.4 million | $300.1 million | $621.2 million | $536.9 million |
| Net product revenue | $315.9 million | $298.6 million | $618.1 million | $533.9 million |
| Net loss | $36.8 million | $419.0 million | $53.1 million | $502.1 million |
| Operating cash flow | Not separately stated | Not separately stated | $(61.7) million | $(217.3) million |
- Revenue increased 5.8% year over year in Q2 and 15.7% in the first half. Q2 product gross margin was 82%, versus 83%; first-half margin was 83%, versus 82%.
- Q2 R&D expense was $143.0 million, down $24.0 million year over year; SG&A was $143.5 million, up $33.9 million. First-half R&D was $288.0 million, down $37.8 million, while SG&A was $263.5 million, up $48.6 million.
- At June 30, cash and cash equivalents were $354.9 million; short- and long-term investments totaled $854.9 million. Combined cash and investments were $1.210 billion, down from $1.362 billion at year-end 2016.
- Net convertible debt carrying value was $676.2 million; principal outstanding was $750 million, comprising $375 million due in 2018 and $375 million due in 2020. The $100 million revolving credit facility was undrawn.
Material changes and notable items
- First-half product growth was led by Vimizim (+$29.6 million), Kuvan (+$27.4 million) and Naglazyme (+$22.5 million). Q2 Vimizim revenue declined $3.6 million year over year; management attributed product fluctuations to patient starts and timing of orders, including periodic government orders in Latin America and the Middle East.
- The much smaller year-over-year net loss chiefly reflects the absence of the $599.1 million intangible-asset impairment recorded in Q2 2016 after termination of Kyndrisa, other exon programs and reveglucosidase alfa. The 2016 comparison also included a substantially larger income-tax benefit and a reversal of contingent consideration; reported losses are therefore not directly comparable.
- Brineura was approved by the FDA in April 2017 and by the European Commission in June; U.S. shipments began in mid-June and EU shipments in July.
- In April 2017, the remaining 2017 convertible notes matured and were converted into approximately 1.104 million common shares.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. Management expected R&D spending to increase for the remainder of 2017 as BMN 250, BMN 270, pegvaliase and vosoritide advance, and expected SG&A to rise with the Brineura launch and commercial expansion.
- Management said it expected net losses and net cash outflows for at least the next 12 months. It may need additional financing for operations, debt repayment and milestone obligations; future funding availability and terms are uncertain.
- In June, BioMarin submitted a U.S. BLA for pegvaliase and intended to submit an EU application by year-end. The company cautioned that the FDA may not consider blood phenylalanine reduction alone sufficient for approval; the pivotal trial did not show statistically significant improvement on a key secondary neurocognitive endpoint.
- After quarter-end, BioMarin announced a Sarepta license and settlement for its DMD exon-skipping patent estate: a $35 million upfront payment, potential milestones, and royalties of 5% of U.S. net sales through 2023 and 8% of EU and certain other-country net sales through September 2024. BioMarin retained an option to convert the license to co-exclusive rights if it pursues a DMD exon-skipping therapy.
- Contingent milestone payments totaled approximately $585.5 million, including $178.0 million recorded as liabilities; $55.1 million of the recorded amount was expected to be paid within 12 months. Purchase commitments for the next five years were approximately $73.8 million.
- Key risks include clinical and regulatory uncertainty, manufacturing and supply constraints, reimbursement and pricing pressure, foreign-currency and government-customer exposure, and generic competition for Kuvan. Par settlements allow generic entry from October 2020 or April 2021, depending on circumstances; DRL powder litigation remained pending. The company also disclosed an SEC subpoena concerning its former drisapersen program and said it could not predict whether proceedings would follow or their outcome.
Important facts for investors to verify
- Whether Brineura launch uptake and access in the U.S. and EU support continued product growth.
- Regulatory progress and evidence requirements for pegvaliase, and clinical, manufacturing and trial milestones for BMN 270 and other pipeline programs.
- Cash burn, planned facility investment, potential financing needs, and ability to repay or refinance the 2018 and 2020 notes.
- Timing and financial effects of Kuvan generic competition, the pending DRL powder case, and the SEC inquiry.
- How much reported growth reflects sustained patient demand versus order timing, currency effects and market expansion.