BioMarin Pharmaceutical Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparisons are with Q1 2014 unless stated otherwise. BioMarin develops and commercializes medicines for serious diseases and reported five approved products: Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse.
Financial performance
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $203.3 million | $151.6 million |
| Net product revenue | $201.3 million | $149.0 million |
| Operating loss | $65.9 million | $26.5 million |
| Net loss | $67.5 million | $38.1 million |
| Diluted loss per share | $0.43 | $0.27 |
| Cash used in operating activities | $137.8 million | $26.5 million |
Revenue increased 34%. Vimizim contributed $50.6 million, versus $0.9 million in the prior-year quarter; Kuvan revenue rose to $50.2 million from $45.2 million. Naglazyme declined to $78.2 million from $80.1 million, and Firdapse to $4.1 million from $4.7 million. Cost of sales was $32.8 million, implying an overall gross margin of approximately 83.9%, compared with 85.0% a year earlier. Operating expenses rose to $269.1 million from $178.0 million, including R&D of $142.1 million (up from $86.2 million) and SG&A of $92.8 million (up from $60.1 million). Management attributed the higher loss primarily to increased R&D and SG&A, partly offset by stronger product gross profit and a tax benefit.
Liquidity, debt and cash flow
At March 31, 2015, cash, cash equivalents and investments totaled $1.233 billion, versus $1.043 billion at year-end 2014. Working capital was $1.217 billion. Cash and cash equivalents were $900.6 million. Convertible debt had a $655.5 million net carrying value; the filing reports total convertible debt of approximately $781.9 million undiscounted. Operating cash use was $137.8 million; investing cash use was $750.9 million, including $538.4 million for Prosensa, net of cash acquired; financing provided $914.8 million, principally from the January stock offering. BioMarin sold 9.775 million shares at $93.25 per share, receiving net proceeds of $888.3 million.
Material changes and notable events
- BioMarin completed its acquisition of Prosensa in January 2015 for a purchase price of $751.5 million, including contingent value rights with potential payments of up to approximately $160 million. The acquisition added RNA-based candidates, especially drisapersen, and increased reported intangible assets and goodwill.
- Prosensa’s lead candidate drisapersen had previously missed the primary endpoint in a Phase 3 trial. BioMarin reported completing the U.S. NDA rolling submission on April 27, after quarter-end, and expected to submit an EU marketing application in summer 2015.
- Q1 R&D spending increased across several programs, including talazoparib, reveglucosidase alfa, BMN 111, cerliponase alfa and drisapersen. SG&A growth reflected Vimizim commercialization, acquisition costs and increased corporate support.
- Increased Vimizim sales drove product growth; management noted its gross margin was 85% and expected it to decline toward Naglazyme levels as previously expensed product was depleted.
Outlook, risks and contingencies
Management expected R&D spending for the remainder of 2015 to exceed 2014 levels, with SG&A also expected to rise as commercialization and operations expand. Planned development milestones included BMN 270 Phase 1/2 trial initiation in the second half of 2015, cerliponase alfa top-line results in Q4 2015, and BMN 111 top-line results in Q2 2015. The filing does not provide a clear numerical full-year revenue or earnings guidance range. Management expected significant capital spending on the Shanbally, Ireland manufacturing facility and San Rafael headquarters.
Key risks include clinical and regulatory uncertainty, manufacturing capacity and approval, reimbursement and pricing pressure, foreign-exchange exposure, and dependence on continued product sales and external financing. Dr. Reddy’s and Par filed ANDAs for generic Kuvan; BioMarin and Merck sued, triggering 30-month stays, while the filing notes regulatory exclusivity dates and possible earlier approval depending on labeling. As of March 31, contingent payments totaled approximately $733.4 million if specified milestones are achieved; $114.3 million was recorded as a liability, including $75.3 million expected within 12 months. The company also disclosed approximately $74.0 million of R&D and purchase commitments over five years and $923.6 million of listed contractual obligations. Management stated it expected operating losses for at least the next 12 months. The filing reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Vimizim growth and other product sales can offset rising R&D, commercialization costs and operating cash burn.
- Drisapersen’s regulatory path and evidence supporting efficacy, given the prior Phase 3 primary-endpoint miss and reliance on retrospective analyses.
- Outcome and timing of the Kuvan patent litigation, generic-entry risk and the effect of exclusivity provisions.
- Prosensa integration, milestone-payment exposure, and the scale and timing of planned manufacturing and headquarters investments.
- Convertible-debt settlement terms, future financing needs, and collection exposure in government-funded markets.