BioMarin Pharmaceutical Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; comparative period is Q1 2012. Unless otherwise noted, dollar amounts below are U.S. dollars in millions. BioMarin develops and commercializes medicines for serious diseases. Its four approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme; Vimizim remained investigational and required regulatory approval.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Total revenue | $127.9 | $116.6 |
| Net product revenue | $127.3 | $116.2 |
| Gross profit on product sales | $106.8 | $99.1 |
| Operating loss | $(32.9) | $(21.9) |
| Net loss | $(39.8); $(0.31) per share | $(24.0); $(0.21) per share |
| Operating cash flow | $(32.0) | $(7.2) |
| Cash, cash equivalents and investments | $525.7 at March 31 | $566.7 at December 31, 2012 |
| Working capital | $579.0 at March 31 | $573.1 at December 31, 2012 |
| Convertible debt | $109.8 at March 31 | $348.2 at December 31, 2012 |
Product gross margin was approximately 83.9% in Q1 2013 versus 85.3% in Q1 2012, based on reported product gross profit and net product revenue. Research and development expense rose to $83.7 million from $73.8 million; selling, general and administrative expense increased to $51.1 million from $45.2 million. Cash used in investing activities was $7.9 million; financing activities provided $13.8 million. Total assets were $1,598.3 million and total liabilities were $348.1 million at quarter-end.
Material changes versus Q1 2012
- Net product revenue increased $11.1 million, led by Kuvan (+$5.6 million) and Aldurazyme (+$4.7 million); Naglazyme rose $0.8 million and Firdapse was flat.
- Operating loss widened by $11.1 million as higher R&D, SG&A and contingent consideration expense more than offset higher gross profit. The prior-year period included a $6.7 million intangible-asset impairment; Q1 2013 did not.
- Net loss increased $15.8 million. Q1 2013 included $10.4 million of debt-conversion expense and a $4.7 million income-tax benefit, including a discrete benefit related to reinstatement of the federal R&D tax credit.
- Operating cash use increased $24.9 million, reflecting the larger loss and cash outflows from operating assets and liabilities.
- Cash and investments declined $41.0 million from year-end, while working capital increased $5.9 million. The 2017 convertible-note balance fell following conversion of $215.0 million principal into 10.56 million shares; BioMarin also paid holders $12.0 million in cash, of which $10.4 million was recorded as expense. The 2013 notes matured, with approximately 1.4 million shares issued for the remaining principal.
Outlook, commentary and risks
- Management expected existing product revenue and cash, cash equivalents and investments to fund operations and capital requirements for at least 12 months under current plans. The filing gives no numerical full-year revenue or earnings guidance.
- Management expected 2013 R&D spending to exceed 2012 levels as programs advance, including Vimizim, PEG-PAL, BMN-673, BMN-701, BMN-111 and BMN-190. SG&A was also expected to rise with commercial expansion and Vimizim pre-commercial activity. The company expected to operate at a net loss for at least the next 12 months.
- Vimizim had met its Phase 3 primary endpoint, but had not received marketing approval. Q1 inventory included $5.1 million of pre-launch Vimizim inventory and $7.4 million made using process or specification changes awaiting regulatory approval; commercial sale depends on required approvals.
- BioMarin acquired Zacharon for $11.5 million of recorded consideration, including $9.7 million upfront cash and $1.9 million fair value of contingent consideration. Additional Zacharon milestone payments could reach $134.0 million undiscounted. Total contingent development and commercial milestone payments across arrangements were approximately $450.3 million.
- Revenue and collection risks include customer concentration (four largest customers represented 51% of product revenue) and exposure to government-funded customers in Southern Europe. Approximately 11% of receivables related to those countries; $3.5 million was past due, with a $0.34 million allowance reported.
- Other notable risks include clinical and regulatory uncertainty, manufacturing and supply constraints, pricing and reimbursement pressure, currency exposure, dependence on Genzyme for Aldurazyme commercialization, and potential generic competition for Kuvan after orphan exclusivity expires (December 2014, potentially June 2015 with pediatric exclusivity).
Most important facts for investors to verify
- Progress, regulatory review timing and approval prospects for Vimizim, and whether inventory awaiting approval can be sold.
- Product-level revenue, gross margins and customer concentration, especially the Aldurazyme relationship with Genzyme and Kuvan’s exclusivity and generic-competition timeline.
- Cash burn relative to the $525.7 million cash-and-investment balance, planned development spending and management’s 12-month liquidity assessment.
- Remaining convertible-debt terms and dilution, plus the timing and likelihood of contingent milestone payments, including the stated $450.3 million aggregate exposure.
- Collection of government-related receivables and any deterioration in Southern European customer payment conditions.