BioMarin Pharmaceutical Inc. — 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. This annual filing also reports unaudited fourth-quarter results; it is not a standalone quarterly filing. Amounts are U.S. dollars.
Business context
BioMarin develops and commercializes therapies for serious diseases, with a focus on rare and unmet medical needs. Its four marketed products were Naglazyme, Kuvan, Aldurazyme and, following its European launch in April 2010, Firdapse. Development programs included GALNS, PEG-PAL, BMN-701 and BMN-673.
Financial performance and position
| Metric | 2010 | 2009 |
|---|---|---|
| Total revenue | $376.3 million | $324.7 million |
| Net product revenue | $369.7 million | $315.7 million |
| Operating income | $0.5 million | $16.4 million |
| Income (loss) before taxes | $(21.5) million | $0.6 million |
| Net income (loss) | $205.8 million | $(0.5) million |
| Cash from operating activities | $18.7 million | $87.7 million |
| Cash, cash equivalents and investments | $402.3 million | $470.5 million |
| Convertible debt | $377.5 million | $497.1 million |
- Net product revenue rose 17.1%. Naglazyme revenue was $192.7 million, Kuvan $99.4 million, Aldurazyme $71.2 million and Firdapse $6.4 million.
- Approximate product gross margins disclosed by the company were 82% for Naglazyme, 83% for Kuvan, 75% for Aldurazyme and 79% for Firdapse. Research and development expense was $147.3 million; selling, general and administrative expense was $151.7 million.
- Reported net income included a $230.6 million income tax benefit from a partial release of the deferred-tax valuation allowance. Excluding that benefit, the company reported a pretax loss of $21.5 million; the net income figure is therefore not a straightforward measure of recurring operating profitability.
- Working capital was $420.5 million, with current assets of $504.3 million and current liabilities of $83.8 million. Cash and investments decreased $68.2 million from year-end 2009.
- In November 2010, holders converted $119.6 million of 2013 notes into shares; BioMarin also paid approximately $13.7 million in future interest and cash premiums, recorded as debt-conversion expense.
- Fourth-quarter revenue was $101.6 million and net loss was $12.2 million, compared with revenue of $87.1 million and net income of $4.7 million in fourth-quarter 2009.
Material changes versus prior year
- Revenue increased, led by higher Naglazyme and Kuvan sales and the first year of Firdapse commercialization. Aldurazyme revenue was broadly stable.
- Operating expenses rose: R&D increased $32.2 million and SG&A increased $27.4 million. The company attributed R&D growth mainly to GALNS, BMN-673, PEG-PAL, BMN-701 and development work on marketed products.
- Operating cash flow fell to $18.7 million from $87.7 million, reflecting, among other items, higher inventory, lower other-current-asset contribution and the non-cash tax benefit’s effect on reported earnings.
- BioMarin acquired LEAD Therapeutics and ZyStor in 2010, adding BMN-673 and BMN-701 to its pipeline. The acquisitions increased intangible assets, goodwill and contingent milestone obligations.
Outlook, risks and unusual items
- Management expected a net loss in 2011 and potentially beyond, given planned R&D investment. It expected available cash, cash equivalents and investments to fund operations for the foreseeable future, subject to its plans and assumptions; it also noted possible future debt or equity financing.
- Management expected continued significant R&D spending and increases in SG&A from international Naglazyme expansion and commercialization of Firdapse and Kuvan. It expected lower interest income in 2011.
- Clinical milestones described included a GALNS Phase 3 trial initiated in February 2011; PEG-PAL Phase 2 results expected in the second or third quarter of 2011 and a Phase 3 trial expected in first-quarter 2012; and a planned U.S. Firdapse Phase 3 trial in second-quarter 2011. These are forward-looking expectations, not guaranteed outcomes.
- BioMarin disclosed uncertainty about its Aldurazyme relationship with Genzyme in light of Genzyme’s pending acquisition by Sanofi. A disagreement over termination or buyout rights could lead to prolonged dispute, operating disruption, legal expense or reduced Aldurazyme revenue.
- Other key risks include regulatory and clinical-trial uncertainty, manufacturing and single-source supply risks, reimbursement and pricing pressures, customer and government-payment concentration, intellectual-property disputes, and dependence on collaborators. A substantial share of product revenue was international; three customers generated 46% of 2010 Naglazyme, Kuvan and Firdapse revenue.
- The company reported no material pending legal proceedings generally, but disclosed Brazilian lawsuits alleging obligations to provide Aldurazyme at no cost to certain patients; outcomes and potential losses were not estimable. It also had approximately $341.2 million of contingent milestone payments, payable if specified milestones are achieved.
Important facts for investors to verify
- How much of 2010 net income and the reported deferred-tax asset depends on assumptions about future taxable income, and whether any valuation allowance may need to be reinstated.
- Cash conversion and funding needs: operating cash flow declined materially, while inventory and R&D spending increased.
- Remaining debt maturities and dilution exposure, including the $377.5 million convertible-debt balance and potential conversion into common shares.
- Progress and results of the GALNS, PEG-PAL, BMN-673, BMN-701 and U.S. Firdapse programs, including timing, safety and regulatory outcomes.
- Resolution of the Genzyme/Sanofi transaction and any resulting change to BioMarin’s Aldurazyme rights, economics or manufacturing role.
- Exposure to concentrated customers, government reimbursement and payment delays, supply constraints, and the Brazilian Aldurazyme litigation.