BioMarin Pharmaceutical Inc. — 2014 Form 10-K
Business context and reporting period. BioMarin develops and commercializes treatments for serious diseases, with five approved products and a clinical-stage pipeline. This annual report covers the fiscal year ended December 31, 2014; it was filed March 2, 2015. The company operates as one reporting segment. The Prosensa acquisition and January 2015 stock offering occurred after year-end.
Key financial metrics
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Total revenue | $751.0 million | $548.5 million |
| Net product revenue | $738.4 million | $538.4 million |
| Cost of sales | $129.8 million | $95.7 million |
| Research and development | $461.5 million | $354.8 million |
| Selling, general and administrative | $302.2 million | $235.4 million |
| Operating loss | $92.9 million | $156.0 million |
| Net loss | $134.0 million | $176.4 million |
| Net loss per share, basic and diluted | $0.92 | $1.28 |
| Cash used in operating activities | $73.5 million | $59.6 million |
| Cash, cash equivalents and investments at year-end | $1,043.0 million | $1,052.4 million |
| Working capital at year-end | $1,189.9 million | $954.1 million |
| Convertible debt carrying value at year-end | $658.0 million | $655.6 million |
Undiscounted convertible debt obligations were $790.6 million at December 31, 2014. Interest expense was $36.6 million, including $23.9 million of discount accretion. The company reported total assets of $2,490.5 million and stockholders’ equity of $1,527.9 million.
Material changes versus the prior comparable period
- Total revenue increased 37% year over year, led by Vimizim’s first full commercial year and growth in Naglazyme, Kuvan and Aldurazyme.
- Product revenue by product: Naglazyme $334.4 million (up $63.2 million); Kuvan $203.0 million (up $35.6 million); Aldurazyme $105.6 million (up $22.0 million); Vimizim $77.3 million; and Firdapse $18.1 million (up $2.0 million).
- Net loss narrowed by $42.4 million. The improvement included a $67.5 million gain from selling the Vimizim rare pediatric disease priority review voucher and higher product gross profit; these benefits were partly offset by increased R&D, SG&A and interest expense.
- R&D expense rose 30% and SG&A expense rose 28%, reflecting expanded clinical programs and commercialization, including the Vimizim launch.
- Operating cash use increased to $73.5 million from $59.6 million, with higher net loss and lower receivable collections cited as key factors. Cash and investments were nearly flat year over year.
Quarterly results and unusual items
Fourth-quarter 2014 revenue was $230.9 million, versus $146.9 million in fourth-quarter 2013. Fourth-quarter net loss was $69.8 million, versus $62.0 million a year earlier. The filing notes that quarterly results can vary with R&D timing and the timing of large government customer orders.
- In July 2014, BioMarin sold the priority review voucher received with Vimizim approval for $67.5 million, recorded as a gain.
- The company recorded a gain related to early termination of its former San Rafael Corporate Center lease upon acquiring the property; the financial statements show a $10.1 million gain on lease termination, allocated between R&D and SG&A.
- BioMarin completed the Prosensa acquisition in February 2015, after year-end. It paid approximately $680 million upfront in total and issued contingent value rights for up to approximately $160 million tied to product approval milestones. The acquisition was funded from cash balances.
- BioMarin raised approximately $888.2 million net in a January 2015 public offering of 9.775 million shares. This was subsequent to the reported year-end cash and investment balance.
Outlook, management commentary and key risks
Management’s 2015 priorities were to advance the pipeline and increase uptake of commercial products. No quantified 2015 revenue or earnings guidance is provided. The company expected R&D spending to rise from 2014 levels as programs advanced, and anticipated higher SG&A and capital investment, including investment in its Ireland manufacturing facility. Management stated that it expected to operate at a net loss for at least the next 12 months.
- Pipeline milestones cited included expected 2015 filings or study starts for selected programs; management expected pegvaliase trial results in the first quarter of 2016 and talazoparib Phase 3 enrollment completion in the second half of 2015.
- Drisapersen is a significant development risk following a Phase 3 trial that missed its primary endpoint. Management’s planned regulatory submissions relied in part on existing trial data and post-hoc analyses; regulators could require further trials or decline approval.
- Two companies, Dr. Reddy’s and Par Pharmaceutical, filed purported ANDAs for generic Kuvan. BioMarin and Merck sued Dr. Reddy’s, and BioMarin separately sought a declaration regarding provision of product samples. The company cited potential generic competition after applicable exclusivity and patent issues are resolved.
- Commercial performance depends on pricing, reimbursement and access programs, especially government-funded markets. Four customers generated 54% of 2014 revenue for Vimizim, Naglazyme, Kuvan and Firdapse; total revenue from the four largest customers was 52%.
- Approximately 8% of year-end accounts receivable related to Italy, Spain, Portugal, Greece and Russia. BioMarin cited sovereign-credit, collection-delay and foreign-exchange risks.
- Manufacturing and supply risks include reliance on selected third-party or single-source suppliers and the need to requalify and validate the Ireland facility before manufacturing there. The company also cited regulatory, clinical-trial, patent, competition, integration and financing risks.
- Auditors issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether Vimizim’s launch growth and reported margins are sustainable as production costs move into cost of sales.
- Regulatory decisions, clinical evidence and any additional trial requirements for drisapersen and other late-stage pipeline programs.
- The status and potential financial impact of the Kuvan ANDA litigation, patent protection and remaining regulatory exclusivity.
- Post-acquisition liquidity and share dilution after the Prosensa payments, contingent milestone exposure and January 2015 equity offering.
- Cash burn, planned R&D and capital spending, and the company’s ability to fund operations while it expects continued losses.
- Customer concentration, international government receivables and the effect of reimbursement, pricing, currency and named-patient access changes.