BioMarin Pharmaceutical Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are to December 31, 2018. BioMarin is a biotechnology company developing and commercializing therapies for rare diseases. Financial amounts below are in U.S. dollars; millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Total revenue | $400.7 | $373.4; up 7.3% |
| Net product revenue | $394.5 | $369.1; up 6.9% |
| Operating loss | $(54.0) | $(44.4) |
| Net loss | $(56.5) | $(44.1) |
| Basic and diluted loss per share | $(0.32) | Basic $(0.25); diluted $(0.26) |
| Product gross margin | 77% | 78% |
| Cash used in operating activities | $(54.9) | $(42.5) |
| Cash, cash equivalents and investments | $1,214.9 | $1,320.2 at December 31, 2018 |
| Convertible debt, net carrying amount | $834.8 | $830.4 at December 31, 2018 |
Capital expenditures were $28.8 million, making operating cash flow less property and equipment purchases approximately $(83.6) million. Cash and cash equivalents were $364.4 million; short- and long-term investments totaled $850.5 million. Current assets were $1,916.9 million and current liabilities $501.0 million. Convertible-note principal was $870 million: $375 million due 2020 and $495 million due 2024. The $200 million revolving credit facility was undrawn, and the company reported compliance with its covenants.
Changes versus the prior-year quarter
- Revenue increased by $27.3 million. Growth in Vimizim, Naglazyme, Kuvan and Brineura, plus $12.3 million in Palynziq revenue, was partly offset by a $20.8 million decline in Aldurazyme, attributed to timing of sales to Genzyme.
- Net loss widened by $12.3 million. SG&A rose $23.9 million, principally from Palynziq launch and European pre-launch spending, increased headcount and administrative costs. Contingent-consideration expense increased $6.7 million. Higher product gross profit partly offset these items.
- R&D expense was nearly unchanged at $183.6 million. Higher spending on valoctocogene roxaparvovec and vosoritide was offset mainly by lower tralesinidase alfa and Palynziq manufacturing costs.
- Gross margin declined one percentage point, to 77%, which management attributed primarily to pricing decreases. Foreign-exchange movements reduced Q1 2019 product sales by $5.4 million, versus a $8.5 million positive impact in Q1 2018.
- Operating cash use increased by $12.4 million, mainly reflecting timing of customer receipts and vendor payments and higher inventory; Genzyme unbilled receivables also increased.
Outlook, commentary and notable items
- Management expected R&D spending for the remainder of 2019 to increase over 2018 levels, particularly for valoctocogene roxaparvovec, vosoritide and early-stage programs. Reduced clinical spending for pegvaliase was expected to partly offset increases.
- Management expected SG&A to increase in future periods due to Palynziq commercialization, pre-commercialization work and international expansion. The filing provides no numerical full-year revenue or earnings guidance.
- In March, the EMA’s CHMP adopted a positive opinion on Palynziq; BioMarin expected the European marketing authorization status in Q2 2019. The company also reported continued reduced disease decline among 23 Brineura extension-study patients after three years, relative to a natural-history cohort.
- Valoctocogene roxaparvovec and vosoritide were in Phase 3 development. The filing highlights clinical, regulatory, manufacturing, reimbursement and long-term safety uncertainties, particularly for gene therapy.
- BioMarin expected U.S. generic Kuvan versions to become available as early as Q4 2020 under settlements with generic manufacturers, subject to specified terms and circumstances.
- Contingent payments of approximately $473.3 million remained possible upon future milestones; $136.6 million was recognized as contingent-consideration liabilities. Other estimated R&D and purchase commitments were $111.5 million.
- Adoption of lease accounting guidance on January 1, 2019 added $55.9 million of right-of-use assets and $59.0 million of lease liabilities at adoption; management said it materially affected the balance sheet but not net loss significantly.
- Revenue concentration is notable: four customers represented 52% of product revenue. Two customers represented 30% and 23% of accounts receivable, respectively. Government ordering patterns, currency changes, reimbursement and collection risk may affect results. No legal proceedings were reported.
Key facts for investors to verify
- Progress and timing of Palynziq’s European authorization and its U.S. commercial uptake.
- Clinical, regulatory and manufacturing milestones for valoctocogene roxaparvovec and vosoritide, and their implications for expected R&D spending.
- Kuvan generic-entry timing and the potential revenue effect, alongside the approaching 2020 convertible-note maturity.
- Cash consumption, collections—especially Genzyme unbilled receivables—and whether commercial growth can fund operations and debt obligations.
- Product and customer concentration, pricing and gross-margin trends, foreign-exchange exposure, and contingent payments and purchase commitments.