BioMarin Pharmaceutical Inc. — Q3 2019 Form 10-Q
Business context and period: BioMarin develops and commercializes therapies for rare diseases. This unaudited report covers the quarter and nine months ended September 30, 2019; comparisons are with the corresponding 2018 periods unless otherwise noted. Figures below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $461.1 million | $391.7 million | $1,249.6 million | $1,138.0 million |
| Operating income (loss) | $4.0 million | $(15.7) million | $(91.3) million | $(85.4) million |
| Net income (loss) | $55.0 million | $(12.6) million | $(38.9) million | $(73.6) million |
| Net income (loss) per diluted share | $0.30 | $(0.07) | $(0.22) | $(0.42) |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $(9.1) million | $(29.2) million |
- Q3 revenue rose about 18%; nine-month revenue rose about 10%. Product revenue was $450.9 million for Q3 and $1,224.5 million for the nine-month period.
- Reported product gross margin was 79% in Q3, versus 80% a year earlier, and 79% for both nine-month periods. Higher sales volumes increased cost of sales; management attributed lower Q3 product gross profit primarily to lower unit prices.
- Q3 net income included a $45.2 million income-tax benefit; pretax income was $9.8 million. The nine-month tax benefit was $46.2 million, including a $27.1 million second-quarter benefit from releasing a valuation allowance on foreign deferred tax assets.
- As of September 30, cash, cash equivalents and investments totaled $1,152.6 million, down from $1,320.2 million at year-end 2018. Cash and cash equivalents were $423.2 million. Total current assets were $1,859.4 million and current liabilities $493.7 million.
- Nine-month investing cash flow was positive $17.9 million, while financing cash flow was negative $78.7 million. Capital expenditures were $94.2 million; operating cash flow less capital expenditures was approximately negative $103.3 million.
- Convertible debt was $870.0 million principal, or $843.6 million net carrying value: $375.0 million due 2020 and $495.0 million due 2024. The $200 million revolving facility was undrawn, and the company reported compliance with its covenants.
Material changes and operating developments
- Q3 product revenue growth was led by Vimizim (+$40.2 million year over year), Palynziq (+$20.0 million), and Brineura (+$9.9 million). Aldurazyme and Naglazyme declined by $4.8 million and $8.7 million, respectively.
- For the nine months, Vimizim increased $44.0 million and Palynziq $51.1 million; Aldurazyme declined $43.8 million. Government ordering patterns contributed to variation in Vimizim and Naglazyme sales.
- R&D expense increased to $542.2 million for nine months, from $520.9 million. SG&A increased to $493.0 million from $440.2 million, reflecting pipeline and launch spending, including Palynziq and valoctocogene roxaparvovec.
- Palynziq received European Commission authorization in May 2019, and EU sales began in Q3. BioMarin anticipated meaningful EU revenue contribution in 2020. Palynziq-related intangible assets were placed into service, increasing amortization.
- BioMarin discontinued the 4e13 vg/kg valoctocogene roxaparvovec study dose; enrollment continued at 6e13 vg/kg. It also announced plans to cease BMN 290 development and submitted a UK clinical trial application for BMN 307.
Outlook, risks and unusual items
- Management expected remaining-2019 R&D spending to be flat versus 2018 levels, with lower valoctocogene roxaparvovec and tralesinidase alfa costs offset by BMN 307 and other program spending. It expected SG&A to rise with Palynziq launches, valoctocogene pre-commercialization and international Vimizim expansion.
- At filing, BioMarin planned U.S. and European marketing applications for valoctocogene roxaparvovec in Q4 2019. It expected GENEr8-1 52-week results at the end of 2020 and a second interim analysis in Q2 2020. Vosoritide Phase 3 top-line results were expected by year-end 2019. These were forward-looking expectations, not reported outcomes.
- Management cited $376.9 million of possible contingent milestone payments, dependent on future development, regulatory or commercial events; $69.1 million was recorded as contingent liabilities. Contractual R&D and purchase commitments were estimated at $131.6 million.
- Key risks include clinical and regulatory uncertainty, gene-therapy durability and manufacturing challenges, product reimbursement and pricing pressure, foreign-exchange exposure, customer payment delays, and dependence on a limited number of suppliers and manufacturing facilities. The 2020 Notes may require cash repayment or settlement; the credit facility could also face an earlier repayment condition tied to those notes.
- BioMarin recorded $7.1 million of valoctocogene roxaparvovec manufacturing costs in inventory before approval; those costs would be expensed if approval is not obtained. Nine-month results also included a $15.0 million gain on a milestone related to a previously sold intangible asset.
- The company expected generic Kuvan competition in the U.S. to begin as early as Q4 2020 under settlement agreements. Management also identified the approaching 2020 maturity of the $375 million convertible notes as a liquidity consideration.
Important facts for investors to verify
- Whether revenue growth, particularly for Palynziq and Vimizim, continues and how much reflects recurring demand versus order timing.
- Regulatory filing and review progress for valoctocogene roxaparvovec, plus later clinical results and manufacturing readiness.
- Whether the substantial Q3 tax benefit and foreign deferred-tax-asset valuation allowance release are sustainable; they materially affected reported earnings.
- BioMarin’s plan and available liquidity for the 2020 Notes’ maturity or conversion, and any effects on working capital or share dilution.
- The timing and impact of Kuvan generic entry, and the realization of Palynziq’s expected EU contribution.
- Potential milestone obligations, reimbursement or pricing changes, and risks to collections from international and government customers.