BioMarin Pharmaceutical Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012. Financial amounts below are in U.S. dollars; millions unless noted. BioMarin develops and commercializes treatments for serious diseases. Its four approved products were Naglazyme, Kuvan, Firdapse and Aldurazyme.
Financial performance and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Total revenue | $128.1 | $113.4 | $368.8 | $333.5 |
| Net product revenue | $126.3 | $112.9 | $365.5 | $331.6 |
| Gross profit on product sales | $101.7 | $90.5 | $300.2 | $269.1 |
| Research and development expense | $66.2 | $58.6 | $217.9 | $156.5 |
| Selling, general and administrative expense | $46.3 | $44.9 | $143.1 | $127.0 |
| Operating loss | $(10.5) | $(15.5) | $(63.3) | $(12.5) |
| Net loss | $(5.4) | $(17.7) | $(61.3) | $(27.1) |
| Net loss per share, basic and diluted | $(0.04) | $(0.16) | $(0.52) | $(0.24) |
- Product gross margin was approximately 80.5% in Q3 2012 and 82.1% for the first nine months, calculated from reported product gross profit and net product revenue.
- Q3 product revenue growth was led by Naglazyme ($62.5 million, up $6.6 million) and Kuvan ($36.4 million, up $5.9 million). For nine months, Naglazyme and Kuvan each increased $17.1 million. Aldurazyme nine-month revenue declined $1.3 million; Firdapse increased $1.0 million.
- Cash from operating activities was $5.6 million for the first nine months, versus $18.9 million a year earlier. Investing activities used $143.3 million, substantially reflecting net investment purchases; financing provided $272.7 million, including $235.5 million net proceeds from a June stock offering.
- At September 30, cash and cash equivalents were $181.3 million; short- and long-term investments totaled $351.9 million. Combined cash and investments were $533.2 million, versus $289.5 million at December 31, 2011. Working capital was $584.5 million.
- Total convertible debt was $348.3 million: $23.4 million due March 2013, classified as current, and $324.9 million due April 2017. The notes bear annual interest of 2.5% and 1.875%, respectively.
Material changes and unusual items
- Q3 net loss narrowed year over year, mainly as higher product gross profit and a larger income-tax benefit more than offset increased R&D and SG&A. Nine-month net loss widened, principally because R&D expense rose $61.4 million; higher gross profit partly offset the increase.
- R&D growth reflected increased activity in GALNS, BMN-190, BMN-701 and BMN-673. The company said GALNS manufacturing activity was substantially completed in July and expected GALNS R&D expense to decrease for the remainder of 2012, partly offset by ongoing clinical-trial costs. It expected spending to rise as clinical and preclinical programs advance.
- A $6.7 million impairment charge was recorded in Q1 against U.S. Firdapse in-process R&D assets after business-development efforts and revised cash-flow projections no longer supported their carrying value.
- In June, BioMarin issued 6.5 million shares at $36.28 per share, raising $235.5 million net. Shares issued and outstanding increased to 123.8 million at September 30 from 114.8 million at year-end 2011.
- In October 2012, after quarter-end, BioMarin licensed North American Firdapse marketing rights to a third party and invested $5.0 million in that party in exchange for an unsecured, non-interest-bearing convertible promissory note. BioMarin also reported an October $6.0 million payment for a LEAD acquisition clinical milestone.
Outlook, risks and contingencies
- Management said available cash, cash equivalents and investments should fund obligations for the foreseeable future, based on current long-term plans and achievement of long-term goals. Higher development spending or acquisitions and licensing activity could require additional capital.
- Management expected SG&A to increase with international expansion, commercialization activity and operational support needs. It also expected approximately $1.7 million of interest expense per quarter through Q1 2013 based on debt outstanding at quarter-end.
- The company reported approximately $357.6 million of contingent milestone payments, payable only if specified regulatory, development or commercial milestones occur within stated timeframes. It reported no material off-balance-sheet arrangements and no legal proceedings in the filing.
- Key disclosed risks include clinical-trial and regulatory uncertainty; manufacturing capacity, quality and supply interruptions; dependence on reimbursement and pricing; customer concentration and delayed government payments; competition and intellectual-property uncertainty; foreign-exchange exposure; and reliance on Genzyme for Aldurazyme commercialization. Three customers represented 42% of nine-month product revenue; Genzyme is the sole Aldurazyme customer. Approximately 9% of receivables related to Italy, Spain, Portugal and Greece, including a fully reserved $341,000 Greek balance reported as over 360 days past due.
- The company had accumulated losses of approximately $486.4 million and stated it expected a net loss for 2012, with possible annual losses beyond 2012. Future profitability and cash needs depend on product sales, development progress, approvals, manufacturing and spending decisions.
Most important facts for investors to verify
- Whether product revenue growth, especially in Naglazyme and Kuvan, continues and offsets rising R&D and operating costs.
- Clinical, regulatory and manufacturing progress for GALNS, PEG-PAL, BMN-701, BMN-673, BMN-111 and BMN-190, including milestone timing and cash requirements.
- Cash consumption, investment availability and funding needs relative to the company’s conditional “foreseeable future” liquidity assessment.
- Repayment or conversion of the $23.4 million 2013 Notes at maturity, and the terms and potential dilution associated with convertible debt and equity awards.
- Collection of Southern European receivables, customer concentration, and the effect of reimbursement or pricing changes on product sales and margins.
- The commercial and financial terms and subsequent performance of the October 2012 North American Firdapse license and convertible-note investment.