Business context and reporting period
BioMarin Pharmaceutical Inc. develops and commercializes therapies for serious diseases. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2016, compared with the corresponding 2015 periods. Its five approved products were Vimizim, Naglazyme, Kuvan, Aldurazyme and Firdapse.
Financial performance and position
Amounts below are in millions of U.S. dollars, except per-share data.
| Metric | Q2 2016 | Q2 2015 | H1 2016 | H1 2015 |
|---|---|---|---|---|
| Total revenue | $300.1 | $250.1 | $536.9 | $453.1 |
| Operating loss | $(572.8) | $(64.3) | $(653.7) | $(130.1) |
| Net loss | $(423.6) | $(82.0) | $(508.7) | $(149.5) |
| Net loss per diluted share | $(2.61) | $(0.51) | $(3.14) | $(0.94) |
Revenue increased 20% in Q2 and 18% in the first half. Net product revenue was $298.6 million in Q2 and $533.9 million in H1. Vimizim revenue rose to $106.8 million in Q2 (from $53.9 million), and Kuvan to $90.2 million (from $60.1 million); Naglazyme declined to $78.4 million (from $111.1 million), primarily due to delayed Latin American purchases. Product gross margin, calculated from reported product revenue and cost of sales, was approximately 82.7% in Q2 and 82.3% in H1, versus 84.7% in each comparable 2015 period.
The losses include a $599.1 million Q2 impairment charge for discontinued development programs. A $159.4 million Q2 income tax benefit, primarily from reversing deferred tax liabilities related to the write-offs, partly offset the charge’s effect on net loss. The company also recorded a $62.0 million Q2 reduction in contingent consideration expense (a credit).
At June 30, 2016, cash and cash equivalents were $306.0 million, short-term investments $197.3 million, and long-term investments $201.6 million: $704.9 million in total, down $313.4 million from year-end 2015. Working capital was $741.3 million, up from $644.1 million; current assets were $1,105.9 million and current liabilities $364.6 million. Convertible debt had a $670.1 million net carrying value; its undiscounted principal was $774.5 million, including $24.5 million due in 2017 and $375.0 million each due in 2018 and 2020.
For H1, operating cash use was $217.6 million, compared with $150.8 million in H1 2015. Investing activities provided $152.5 million, largely reflecting investment maturities, while financing activities used $29.5 million. Capital spending on property, plant and equipment was $70.7 million. Cash and cash equivalents declined by $91.1 million during H1.
Material changes and developments
- On January 1, BioMarin acquired global rights to Kuvan and pegvaliase from Merck Serono, except Kuvan rights in Japan. It paid $374.5 million in H1 and may owe up to €60 million in Kuvan sales milestones and €125 million in pegvaliase development milestones. Kuvan revenue benefited from the acquisition and newly consolidated international sales.
- In Q2, BioMarin discontinued Kyndrisa and three other first-generation exon programs after withdrawing Kyndrisa’s European marketing application, and terminated the reveglucosidase alfa program. The decisions drove the $599.1 million impairment and reductions in related contingent consideration.
- In March, the pivotal Phase 3 PRISM-2 pegvaliase study met its primary endpoint. In April, the first patient entered the NAGLU Phase 1/2 trial. In July, after quarter-end, BioMarin reported positive interim BMN 270 Phase 1/2 results and said the FDA accepted Brineura’s application for review, with a January 27, 2017 decision goal date.
- H1 R&D expense rose to $325.8 million from $300.0 million. Sales and marketing costs and SG&A also increased. BioMarin reported no material change in internal control over financial reporting and said disclosure controls were effective.
Outlook, risks and contingencies
BioMarin expects R&D spending for the remainder of 2016 to exceed 2015 levels, citing progress in pegvaliase, vosoritide and Brineura and increased early-stage work, including BMN 270 and NAGLU. It also expects continued significant R&D spending and further investment in manufacturing facilities and headquarters. Management expects operating losses and net cash outflows for at least the next 12 months and says future operations depend on product revenue, existing liquidity and potentially additional financing. No specific full-year revenue or earnings guidance is provided in this filing.
Key risks include clinical and regulatory uncertainty, manufacturing capacity and supply reliability, reimbursement and drug-pricing pressure, foreign-exchange exposure, customer and government-receivable concentration, and dependence on continued product sales and external financing. Three customers generated 38% of H1 net product revenue; approximately 11% of accounts receivable was tied to certain European countries and Russia facing sovereign or economic risks. Kuvan generic litigation remains pending against Par: the tablet and powder cases were consolidated, with trial scheduled for June 2017; a separate settlement permits DRL to launch a generic at a confidential future date, more than five years after the September 2015 settlement or earlier under certain circumstances.
Potential contingent payments totaled approximately $729.1 million as of June 30, 2016, subject to future milestones; $168.0 million was recorded as a liability, of which $47.8 million was expected to be payable within twelve months. The filing also reports approximately $48.1 million in purchase commitments for the next five years.
Important facts for investors to verify
- Whether underlying product growth, particularly Vimizim and Kuvan, can offset Naglazyme’s order-timing volatility and sustain revenue growth.
- The clinical and regulatory progress of Brineura, pegvaliase, BMN 270, vosoritide and NAGLU, including Brineura’s FDA decision timeline.
- Cash consumption, capital spending and financing needs relative to $704.9 million of cash and investments and $774.5 million of undiscounted convertible debt.
- The outcome and timing of the Par Kuvan patent litigation, and the eventual timing and impact of generic competition under the DRL settlement.
- Collection of government-related receivables, manufacturing qualification risks—including $28.3 million of Vimizim qualification inventory—and achievement of contingent-payment milestones.