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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
Form 10-Q
______________________________________
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
Or | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-26727
______________________________________
BioMarin Pharmaceutical Inc.
(Exact name of registrant as specified in its charter)
______________________________________ | | | | | | | | | | | |
Delaware | 68-0397820 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | | |
770 Lindaro Street | San Rafael | California | 94901 |
(Address of principal executive offices) | (Zip Code) |
(415) 506-6700
(Registrant’s telephone number including area code)
______________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 | | BMRN | | The Nasdaq Global Select Market |
______________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | |
Large Accelerated Filer | | ☒ | | Accelerated Filer | | ☐ |
| | | |
Non-accelerated Filer | | ☐ | | Smaller Reporting Company | | ☐ |
Emerging Growth Company | | ☐ | | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 185,848,915 shares of common stock, par value $0.001, outstanding as of October 25, 2022.
Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “BioMarin,” the “Company,” “we,” “us,” and “our” refer to BioMarin Pharmaceutical Inc. and, where appropriate, its wholly owned subsidiaries.
BioMarin®, BRINEURA®, KUVAN®, NAGLAZYME®, PALYNZIQ®, VIMIZIM® and VOXZOGO® are our registered trademarks. ALDURAZYME® is a registered trademark of BioMarin/Genzyme LLC. ROCTAVIAN™ is a trademark of BioMarin Pharmaceutical Inc. All other brand names and service marks, trademarks and other trade names appearing in this report are the property of their respective owners.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under securities laws. Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “may,” “will,” “could,” would,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as information provided elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the SEC) on February 25, 2022. You should carefully consider that information before you make an investment decision.
You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or the occurrence of unanticipated events.
The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q.
Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, financial condition, operating results, cash flows or stock price. Discussion of the risks listed below, and other risks that we face, are discussed in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.
Business and Operational Risks
•The COVID-19 pandemic could continue to materially adversely affect our business, results of operations, and financial condition.
•Because the target patient populations for our products are relatively small, we must achieve significant market share and maintain high per-patient prices for our products to achieve and maintain profitability.
•If we fail to obtain and maintain an adequate level of coverage and reimbursement for our products by third-party payers, the sales of our products would be adversely affected or there may be no commercially viable markets for our products.
•If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenues could be adversely affected.
•Changes in methods of treatment of disease could reduce demand for our products and adversely affect revenues.
•If we fail to develop new products and product candidates or compete successfully with respect to acquisitions, joint ventures, licenses or other collaboration opportunities, our ability to continue to expand our product pipeline and our growth and development would be impaired.
•The sale of generic versions of KUVAN by generic manufacturers has adversely affected and will continue to adversely affect our revenues and may cause a decline in KUVAN revenues faster than expected.
•If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.
Regulatory Risks
•If we fail to obtain regulatory approval to commercially market and sell our product candidates, or if approval of our product candidates is delayed, we will be unable to generate revenues from the sale of these product candidates, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will increase.
•Any product for which we have obtained regulatory approval, or for which we obtain approval in the future, is subject to, or will be subject to, extensive ongoing regulatory requirements by the Food and Drug Administration, the European Medicines Agency and other comparable international regulatory authorities, and if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, we may be subject to penalties, we will be unable to generate revenues from the sale of such products, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will be increased.
•To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required and the results of the studies and trials are highly uncertain. Likewise, preliminary, initial or interim data from clinical trials should be considered carefully and with caution because the final data may be materially different from the preliminary, initial or interim data, particularly as more patient data become available.
•Government price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our current and future products, which would adversely affect our revenues and results of operations.
•Government healthcare reform could increase our costs and adversely affect our revenues and results of operations.
Risks Related to ROCTAVIAN
•Our ROCTAVIAN program is based on a gene therapy approach, which, as a novel technology, presents additional development and treatment risks in relation to our other, more traditional drug development programs.
•As compared to our other, more traditional products, ROCTAVIAN may present additional problems with respect to the pricing, coverage, and reimbursement and acceptance of the product.
Financial and Financing Risks
•If we continue to incur operating losses or are unable to sustain positive cash flows for a period longer than anticipated, we may be unable to continue our operations at planned levels and be forced to reduce our operations.
Manufacturing Risks
•If we fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.
•If we are unable to successfully develop and maintain manufacturing processes for our product candidates to produce sufficient quantities at acceptable costs, we may be unable to support a clinical trial or be forced to
terminate a program, or if we are unable to produce sufficient quantities of our products at acceptable costs, we may be unable to meet commercial demand, lose potential revenue, have reduced margins or be forced to terminate a program.
•Supply interruptions may disrupt our inventory levels and the availability of our products and product candidates and cause delays in obtaining regulatory approval for our product candidates, or harm our business by reducing our revenues.
Risks Related to International Operations
•We conduct a significant amount of our sales and operations outside of the United States (U.S.), which subjects us to additional business risks that could adversely affect our revenues and results of operations.
•A significant portion of our international sales are made based on special access programs, and changes to these programs could adversely affect our product sales and revenues in these countries.
Intellectual Property Risks
•If we are unable to protect our intellectual property, we may not be able to compete effectively or preserve our market shares.
•Competitors and other third parties may have developed intellectual property that could limit our ability to market and commercialize our products and product candidates, if approved.
BIOMARIN PHARMACEUTICAL INC.
TABLE OF CONTENTS | | | | | | | | | | | |
| | | Page |
| | FINANCIAL INFORMATION | |
| | Financial Statements | |
| | Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 | |
| | Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, 2022 and 2021 | |
| | Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2022 and 2021 | |
| | Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021 | |
| | Notes to Condensed Consolidated Financial Statements (Unaudited) | |
| | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| | Quantitative and Qualitative Disclosures about Market Risk | |
| | Controls and Procedures | |
| | | |
| | OTHER INFORMATION | |
| | Legal Proceedings | |
| | Risk Factors | |
| | Unregistered Sales of Equity Securities and Use of Proceeds | |
| | Defaults Upon Senior Securities | |
| | Mine Safety Disclosures | |
| | Other Information | |
| | Exhibits | |
| | | |
SIGNATURES | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2022 and December 31, 2021
(In thousands, except share amounts)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 ⁽¹⁾ |
ASSETS | (unaudited) | | |
Current assets: | | | |
Cash and cash equivalents | $ | 761,515 | | | $ | 587,276 | |
Short-term investments | 512,253 | | | 426,599 | |
Accounts receivable, net | 419,622 | | | 373,399 | |
Inventory | 839,460 | | | 776,669 | |
Other current assets | 149,851 | | | 110,442 | |
Total current assets | 2,682,701 | | | 2,274,385 | |
Noncurrent assets: | | | |
Long-term investments | 372,302 | | | 507,793 | |
Property, plant and equipment, net | 1,051,821 | | | 1,035,461 | |
Intangible assets, net | 354,024 | | | 388,652 | |
Goodwill | 196,199 | | | 196,199 | |
Deferred tax assets | 1,455,205 | | | 1,450,161 | |
Other assets | 151,788 | | | 152,121 | |
Total assets | $ | 6,264,040 | | | $ | 6,004,772 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities: | | | |
Accounts payable and accrued liabilities | $ | 492,717 | | | $ | 498,265 | |
Short-term contingent consideration | 28,303 | | | 48,232 | |
Total current liabilities | 521,020 | | | 546,497 | |
Noncurrent liabilities: | | | |
Long-term convertible debt, net | 1,082,033 | | | 1,079,077 | |
Long-term contingent consideration | — | | | 15,167 | |
Other long-term liabilities | 92,473 | | | 98,361 | |
Total liabilities | 1,695,526 | | | 1,739,102 | |
Stockholders’ equity: | | | |
Common stock, $0.001 par value: 500,000,000 shares authorized; 185,824,253 and 183,912,514 shares issued and outstanding, respectively | 186 | | | 184 | |
Additional paid-in capital | 5,335,853 | | | 5,191,502 | |
Company common stock held by the Nonqualified Deferred Compensation Plan | (9,325) | | | (9,689) | |
Accumulated other comprehensive income | 30,749 | | | 14,432 | |
Accumulated deficit | (788,949) | | | (930,759) | |
Total stockholders’ equity | 4,568,514 | | | 4,265,670 | |
Total liabilities and stockholders’ equity | $ | 6,264,040 | | | $ | 6,004,772 | |
(1)Certain December 31, 2021 balances have been corrected for an immaterial error identified in the third quarter of 2022. See Note 1 to these Condensed Consolidated Financial Statements for details.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three and Nine Months Ended September 30, 2022 and 2021
(In thousands, except per share amounts)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
REVENUES: | | | | | | | |
Net product revenues | $ | 493,348 | | | $ | 393,840 | | | $ | 1,516,533 | | | $ | 1,348,279 | |
Royalty and other revenues | 11,996 | | | 14,902 | | | 41,968 | | | 48,186 | |
Total revenues | 505,344 | | | 408,742 | | | 1,558,501 | | | 1,396,465 | |
OPERATING EXPENSES: | | | | | | | |
Cost of sales | 116,288 | | | 103,537 | | | 356,379 | | | 350,765 | |
Research and development | 157,829 | | | 157,869 | | | 476,855 | | | 467,701 | |
Selling, general and administrative | 216,816 | | | 183,333 | | | 608,270 | | | 541,812 | |
Intangible asset amortization and contingent consideration | 16,828 | | | 17,222 | | | 50,935 | | | 52,648 | |
Gain on sale of nonfinancial assets, net | — | | | — | | | (108,000) | | | — | |
Total operating expenses | 507,761 | | | 461,961 | | | 1,384,439 | | | 1,412,926 | |
INCOME (LOSS) FROM OPERATIONS | (2,417) | | | (53,219) | | | 174,062 | | | (16,461) | |
| | | | | | | |
Interest income | 4,999 | | | 1,827 | | | 9,324 | | | 8,737 | |
Interest expense | (4,679) | | | (3,870) | | | (12,344) | | | (11,491) | |
Other income (expense), net | 193 | | | 9,102 | | | (3,908) | | | 10,439 | |
INCOME (LOSS) BEFORE INCOME TAXES | (1,904) | | | (46,160) | | | 167,134 | | | (8,776) | |
Provision for (benefit from) income taxes | 4,748 | | | (9,666) | | | 25,324 | | | (2,594) | |
NET INCOME (LOSS) | $ | (6,652) | | | $ | (36,494) | | | $ | 141,810 | | | $ | (6,182) | |
NET INCOME (LOSS) PER SHARE, BASIC | $ | (0.04) | | | $ | (0.20) | | | $ | 0.77 | | | $ | (0.03) | |
NET INCOME (LOSS) PER SHARE, DILUTED | $ | (0.04) | | | $ | (0.20) | | | $ | 0.75 | | | $ | (0.03) | |
Weighted average common shares outstanding, basic | 185,597 | | | 183,214 | | | 185,009 | | | 182,616 | |
Weighted average common shares outstanding, diluted | 185,597 | | | 183,214 | | | 192,252 | | | 182,616 | |
| | | | | | | |
COMPREHENSIVE INCOME (LOSS) | $ | 5,625 | | | $ | (25,316) | | | $ | 158,127 | | | $ | 20,196 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three and Nine Months Ended September 30, 2022 and 2021
(In thousands)
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Shares of common stock, beginning balances (1) | 185,453 | | | 183,322 | | | 183,913 | | | 181,741 | |
Issuances under equity incentive plans | 372 | | | 246 | | | 1,912 | | | 1,827 | |
Shares of common stock, ending balances | 185,825 | | | 183,568 | | | 185,825 | | | 183,568 | |
| | | | | | | |
Total stockholders' equity, beginning balances (1) | $ | 4,504,808 | | | $ | 4,241,571 | | | $ | 4,270,741 | | | $ | 4,106,002 | |
Adjustment related to correction of immaterial error (Note 1) | (5,071) | | | (5,071) | | | (5,071) | | | (5,071) | |
Adjusted beginning balance (1) | 4,499,737 | | | 4,236,500 | | | 4,265,670 | | | 4,100,931 | |
Common stock: | | | | | | | |
Beginning balances (1) | 186 | | | 183 | | | 184 | | | 182 | |
Issuances under equity incentive plans, net of tax | — | | | 1 | | | 2 | | | 2 | |
Ending balance | 186 | | | 184 | | | 186 | | | 184 | |
Additional paid-in capital: | | | | | | | |
Beginning balance (1) | 5,272,666 | | | 5,083,831 | | | 5,191,502 | | | 4,993,407 | |
Issuances under equity incentive plans, net of tax | 6,847 | | | (460) | | | (8,306) | | | (11,551) | |
Stock-based compensation | 56,305 | | | 50,353 | | | 153,021 | | | 151,500 | |
Common stock held by the Nonqualified Deferred Compensation Plan (the NQDC) | 35 | | | 18 | | | (364) | | | 386 | |
Ending balance | 5,335,853 | | | 5,133,742 | | | 5,335,853 | | | 5,133,742 | |
Company common stock held by the NQDC: | | | | | | | |
Beginning balance (1) | (9,290) | | | (10,207) | | | (9,689) | | | (9,839) | |
Common stock held by the NQDC | (35) | | | (18) | | | 364 | | | (386) | |
Ending balance | (9,325) | | | (10,225) | | | (9,325) | | | (10,225) | |
Accumulated other comprehensive income (loss): | | | | | | | |
Beginning balance (1) | 18,472 | | | (939) | | | 14,432 | | | (16,139) | |
Other comprehensive income (loss) | 12,277 | | | 11,178 | | | 16,317 | | | 26,378 | |
Ending balance | 30,749 | | | 10,239 | | | 30,749 | | | 10,239 | |
Accumulated Deficit: | | | | | | | |
Beginning balance (1) | (777,226) | | | (831,297) | | | (925,688) | | | (861,609) | |
Adjustment related to correction of immaterial error (Note 1) | (5,071) | | | (5,071) | | | (5,071) | | | (5,071) | |
Adjusted beginning balance (1) | (782,297) | | | (836,368) | | | (930,759) | | | (866,680) | |
Net income (loss) | (6,652) | | | (36,494) | | | 141,810 | | | (6,182) | |
Ending balance | (788,949) | | | (872,862) | | | (788,949) | | | (872,862) | |
Total stockholders' equity, ending balances | $ | 4,568,514 | | | $ | 4,261,078 | | | $ | 4,568,514 | | | $ | 4,261,078 | |
(1)The beginning balances for the nine-month periods were derived from the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022, except for the beginning balances of Accumulated Deficit and Total Stockholders’ Equity for the three and nine-month periods which have been corrected for an immaterial error identified in the third quarter of 2022. See Note 1 to these Condensed Consolidated Financial Statements for details.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2022 and 2021
(In thousands)
(unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2022 | | 2021 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income (loss) | $ | 141,810 | | | $ | (6,182) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 77,416 | | | 82,053 | |
Non-cash interest expense | 3,089 | | | 3,114 | |
Amortization of premium on investments | 3,741 | | | 3,279 | |
Stock-based compensation | 149,574 | | | 153,372 | |
Gain on sale of nonfinancial assets, net | (108,000) | | | — | |
| | | |
Deferred income taxes | (743) | | | (12,020) | |
Unrealized foreign exchange gain | (16,075) | | | (1,347) | |
Non-cash changes in the fair value of contingent consideration | 2,243 | | | 6,254 | |
Other | (700) | | | (1,317) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable, net | (53,752) | | | 65,513 | |
Inventory | (27,419) | | | (19,125) | |
Other current assets | (8,558) | | | 27,029 | |
Other assets | 12,140 | | | (407) | |
Accounts payable and other short-term liabilities | (2,398) | | | (7,129) | |
Other long-term liabilities | (3,252) | | | 269 | |
Net cash provided by operating activities | 169,116 | | | 293,356 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property, plant and equipment | (85,271) | | | (66,840) | |
Maturities and sales of investments | 477,244 | | | 502,112 | |
Purchases of investments | (457,382) | | | (737,144) | |
Proceeds from sale of nonfinancial assets | 110,000 | | | — | |
Purchase of intangible assets | (9,910) | | | (8,026) | |
Other | — | | | (994) | |
Net cash provided by (used in) investing activities | 34,681 | | | (310,892) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from exercises of awards under equity incentive plans | 43,866 | | | 32,877 | |
Taxes paid related to net share settlement of equity awards | (50,696) | | | (44,428) | |
| | | |
| | | |
Payment of contingent consideration | (21,054) | | | — | |
| | | |
Principal repayments of financing leases | (1,635) | | | (2,492) | |
Other | — | | | (401) | |
Net cash used in financing activities | (29,519) | | | (14,444) | |
Effect of exchange rate changes on cash | (39) | | | (35) | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 174,239 | | | (32,015) | |
Cash and cash equivalents: | | | |
Beginning of period | $ | 587,276 | | | $ | 649,158 | |
End of period | $ | 761,515 | | | $ | 617,143 | |
SUPPLEMENTAL CASH FLOW DISCLOSURES: | | | |
Cash paid for income taxes | $ | 13,425 | | | $ | 15,531 | |
Cash paid for interest | $ | 6,575 | | | $ | 6,673 | |
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: |
Decrease in accounts payable and accrued liabilities related to fixed assets | $ | (5,240) | | | $ | (7,690) | |
Increase (decrease) in accounts payable and accrued liabilities related to intangible assets | $ | (224) | | | $ | 9,386 | |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
(1) BUSINESS OVERVIEW AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
BioMarin Pharmaceutical Inc. (the Company) is a global biotechnology company that develops and commercializes innovative therapies for people with serious and life-threatening rare diseases and medical conditions. The Company selects product candidates for diseases and conditions that represent a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market or offer a significant benefit over existing products. The Company’s portfolio consists of eight commercial products and multiple clinical and preclinical product candidates for the treatment of various diseases. ROCTAVIAN (formerly known as valoctocogene roxaparvovec) was granted conditional marketing approval in the European Union (EU) on August 24, 2022.
Basis of Presentation
The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to United States generally accepted accounting principles (U.S. GAAP) and the rules and regulations of the Securities and Exchange Commission (the SEC) for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements, although the Company believes that the disclosures herein are adequate to ensure that the information presented is not misleading. The Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K. The Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 or any other period.
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The full extent to which the COVID-19 pandemic could continue to directly or indirectly impact the Company’s business, results of operations and financial condition, including revenues, expenses, reserves and allowances, manufacturing, clinical trials and research and development costs, will depend on future developments that remain uncertain at this time, particularly as virus variants continue to spread. As events continue to evolve and additional information becomes available, the Company’s estimates may change materially in future periods.
Management performed an evaluation of the Company’s activities through the date of filing of this Quarterly Report on Form 10-Q, and has concluded that there were no subsequent events or transactions that occurred subsequent to the balance sheet date prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the Condensed Consolidated Financial Statements except for the transaction disclosed in Note 12 to these Condensed Consolidated Financial Statements.
Correction of Immaterial Error
During the three months ended September 30, 2022, the Company became aware of an unrecorded amount due to a third party following the January 2020 sale of the worldwide rights of Firdapse, the Company's commercial product for the treatment of Lambert-Eaton myasthenic syndrome. The Company evaluated the materiality of the previously described error from a qualitative and quantitative perspective. Based on such evaluation, the Company concluded that the error was not material to any individual current or prior period, nor did it have an effect on the Company’s trend of financial results, taking into account the requirements of the SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Although the effect of the error was not material to the current or previously issued financial statements, the Company has corrected the accompanying Condensed Consolidated Balance Sheet and Statements of Stockholders Equity. The correction increased the fiscal year 2021 beginning balance of Accumulated Deficit and decreased Total Stockholders’ Equity by $5.1 million, and had the following impact on certain December 31, 2021 balances: an increase to Accounts Payable and Accrued Liabilities of $6.7 million, an increase to Deferred Tax Assets of $1.1 million, an increase to Other Assets of $0.4 million and a decrease to Other Long-term Liabilities of $0.1 million.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2022, as compared to the significant accounting policies disclosed in Note 1 – Business Overview and Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Accounting Pronouncements
There have been no new accounting pronouncements adopted by the Company or new accounting pronouncements issued by the Financial Accounting Standards Board during the nine months ended September 30, 2022, as compared to the recent accounting pronouncements described in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, that the Company believes are of significance or potential significance to the Company.
(2) FINANCIAL INSTRUMENTS
All marketable securities were classified as available-for-sale at September 30, 2022 and December 31, 2021.
The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category for each period presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2022 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value | | Cash and Cash Equivalents | | Short-term Marketable Securities (1) | | Long-term Marketable Securities (2) |
Level 1: | | | | | | | | | | | | | |
Cash | $ | 358,325 | | | $ | — | | | $ | — | | | $ | 358,325 | | | $ | 358,325 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | |
Money market instruments | 347,274 | | | — | | | — | | | 347,274 | | | 347,274 | | | — | | | — | |
Corporate debt securities | 522,723 | | | 10 | | | (14,622) | | | 508,111 | | | 978 | | | 273,333 | | | 233,800 | |
U.S. government agency securities | 354,810 | | | 4 | | | (4,377) | | | 350,437 | | | 54,938 | | | 209,469 | | | 86,030 | |
Commercial paper | 29,461 | | | 1 | | | (22) | | | 29,440 | | | — | | | 29,440 | | | — | |
Asset-backed securities | 53,182 | | | — | | | (699) | | | 52,483 | | | — | | | 11 | | | 52,472 | |
| | | | | | | | | | | | | |
Subtotal | 1,307,450 | | | 15 | | | (19,720) | | | 1,287,745 | | | 403,190 | | | 512,253 | | | 372,302 | |
Total | $ | 1,665,775 | | | $ | 15 | | | $ | (19,720) | | | $ | 1,646,070 | | | $ | 761,515 | | | $ | 512,253 | | | $ | 372,302 | |
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Aggregate Fair Value | | Cash and Cash Equivalents | | Short-term Marketable Securities (1) | | Long-term Marketable Securities (2) |
Level 1: | | | | | | | | | | | | | |
Cash | $ | 301,177 | | | $ | — | | | $ | — | | | $ | 301,177 | | | $ | 301,177 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | |
Money market instruments | 285,099 | | | — | | | — | | | 285,099 | | | 285,099 | | | — | | | — | |
Corporate debt securities | 584,000 | | | 386 | | | (2,086) | | | 582,300 | | | — | | | 200,304 | | | 381,996 | |
U.S. government agency securities | 224,774 | | | 182 | | | (325) | | | 224,631 | | | — | | | 146,421 | | | 78,210 | |
Commercial paper | 68,384 | | | — | | | — | | | 68,384 | | | 1,000 | | | 67,384 | | | — | |
Asset-backed securities | 56,936 | | | 10 | | | (95) | | | 56,851 | | | — | | | 9,451 | | | 47,400 | |
Foreign and other | 3,097 | | | 141 | | | (12) | | | 3,226 | | | — | | | 3,039 | | | 187 | |
Subtotal | 1,222,290 | | | 719 | | | (2,518) | | | 1,220,491 | | | 286,099 | | | 426,599 | | | 507,793 | |
Total | $ | 1,523,467 | | | $ | 719 | | | $ | (2,518) | | | $ | 1,521,668 | | | $ | 587,276 | | | $ | 426,599 | | | $ | 507,793 | |
(1) The Company’s short-term marketable securities mature in one year or less.
(2) The Company’s long-term marketable securities mature between one and five years.
As of September 30, 2022, the Company had the ability and intent to hold all investments that were in an unrealized loss position until maturity. The Company considered its intent and ability to hold the securities until recovery of amortized cost basis, the extent to which fair value is less than amortized cost basis, conditions specifically related to the security’s industry and geography, payment structure and history and changes to the ratings (if any) in determining that the decline in fair value compared to carrying value is not related to a credit loss.
The Company has certain investments in non-marketable equity securities, measured using unobservable valuation inputs and remeasured on a nonrecurring basis, which are collectively considered strategic investments. As of September 30, 2022 and December 31, 2021, the fair value of the Company’s strategic investments was $23.7 million and $16.5 million, respectively. These investments were recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheets.
(3) SUPPLEMENTAL FINANCIAL STATEMENTS INFORMATION
Supplemental Balance Sheet Information
Inventory consisted of the following:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Raw materials | $ | 109,480 | | | $ | 80,269 | |
Work-in-process | 425,505 | | | 415,261 | |
Finished goods | 304,475 | | | 281,139 | |
Total inventory | $ | 839,460 | | | $ | 776,669 | |
Property, Plant and Equipment, Net consisted of the following:
BIOMARIN PHARMACEUTICAL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Property, plant and equipment, gross | $ | 1,834,220 | | | $ | 1,756,035 | |
Accumulated depreciation | (782,399) | | | (720,574) | |
Total property, plant and equipment, net | $ | 1,051,821 | | | $ | 1,035,461 | |
Depreciation expense, net of amounts capitalized into inventory, for the three and nine months ended September 30, 2022 was $8.7 million and $29.9 million, respectively. Depreciation expense, net of amounts capitalized into inventory, for the three and nine months ended September 30, 2021 was $11.4 million and $35.7 million, respectively.
Intangible Assets, Net consisted of the following:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Finite-lived intangible assets | $ | 690,334 | | | $ | 677,350 | |
Accumulated amortization | (336,310) | | | (288,698) | |
Net carrying value | $ | 354,024 | | | $ | 388,652 | |
Accounts Payable and Accrued Liabilities consisted of the following:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Accounts payable and accrued operating expenses | $ | 207,165 | | | $ | 199,678 | |
Accrued compensation expense | 161,112 | | | 204,446 | |
Accrued rebates payable | 71,653 | | | 47,987 | |
Accrued royalties payable | 14,487 | | | 15,215 | |
Foreign currency exchange forward contracts | 13,075 | | | 6,263 | |
Lease liabilities | 9,226 | | | 10,464 | |
| | | |
Accrued income taxes | 7,573 | | | 1,213 | |
Deferred revenue | 415 | | | 6,956 | |
Other | 8,011 | | | 6,043 | |
Total accounts payable and accrued liabilities | $ | 492,717 | | | $ | 498,265 | |
Supplemental Statement of Comprehensive Income (Loss) Information
Gain on Sale of Nonfinancial Assets, Net for the nine months ended September 30, 2022 consisted of the completed sale of a Rare Pediatric Disease Priority Review Voucher (PRV) the Company received from the Food and Drug Administration (FDA) in connection with the U.S. approval of VOXZOGO. As a result of the PRV sale, the Company recognized a $108.0 million net gain on sale of nonfinancial assets in the first quarter of 2022 in the Company's Consolidated Statement of Comprehensive Income.
(4) FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and liabilities at fair value in accordance with the policy described in Note 1 – Business Overview and Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The following tables present the classification within the fair value hierarchy of financial assets and liabilities not disclosed elsewhere in these Condensed Consolidated Financial Statements that are remeasured on a recurring basis as of September 30, 2022 and December 31, 2021. Other than the Company’s fixed-rate convertible debt disclosed in Note 6 – Debt, there were no
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
financial assets or liabilities that were remeasured using a quoted price in active markets for identical assets (Level 1) as of September 30, 2022 or December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of September 30, 2022 |
| | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | |
Other current assets: | | | | | | |
NQDC Plan assets | | $ | 2,306 | | | $ | — | | | $ | 2,306 | |
Other assets: | | | | | | |
NQDC Plan assets | | 18,889 | | | — | | | 18,889 | |
Restricted investments (1) | | 2,439 | | | — | | | 2,439 | |
Total other assets | | 21,328 | | | — | | | 21,328 | |
Total assets | | $ | 23,634 | | | $ | — | | | $ | 23,634 | |
Liabilities: | | | | | | |
Current liabilities: | | | | | | |
NQDC Plan liability | | $ | 2,306 | | | $ | — | | | $ | 2,306 | |
Contingent consideration | | — | | | 28,303 | | | 28,303 | |
Total current liabilities | | 2,306 | | | 28,303 | | | 30,609 | |
Other long-term liabilities: | | | | | | |
NQDC Plan liability | | 18,889 | | | — | | | 18,889 | |
| | | | | | |
| | | | | | |
Total liabilities | | $ | 21,195 | | | $ | 28,303 | | | $ | 49,498 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements as of December 31, 2021 |
| | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Total |
Assets: | | | | | | | |
Other current assets: | | | | | | | |
NQDC Plan assets | | | $ | 2,043 | | | $ | — | | | $ | 2,043 | |
Other assets: | | | | | | | |
NQDC Plan assets | | | 23,929 | | | — | | | 23,929 | |
Restricted investments (1) | | | 2,940 | | | — | | | 2,940 | |
| | | | | | | |
Total other assets | | | 26,869 | | | — | | | 26,869 | |
Total assets | | | $ | 28,912 | | | $ | — | | | $ | 28,912 | |
Liabilities: | | | | | | | |
Current liabilities: | | | | | | | |
NQDC Plan liability | | | $ | 2,043 | | | $ | — | | | $ | 2,043 | |
Contingent consideration | | | — | | | 48,232 | | | 48,232 | |
Total current liabilities | | | 2,043 | | | 48,232 | | | 50,275 | |
Other long-term liabilities: | | | | | | | |
NQDC Plan liability | | | 23,929 | | | — | | | 23,929 | |
Contingent consideration | | | — | | | 15,167 | | | 15,167 | |
Total other long-term liabilities | | | 23,929 | | | 15,167 | | | 39,096 | |
Total liabilities | | | $ | 25,972 | | | $ | 63,399 | | | $ | 89,371 | |
(1) The restricted investments at September 30, 2022 and December 31, 2021 secure the Company's irrevocable standby letters of credit obtained in connection with certain commercial agreements.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
There were no transfers between levels during the three and nine months ended September 30, 2022.
Liabilities measured at fair value using Level 3 inputs consisted of contingent consideration. The following table represents a roll-forward of contingent consideration.
| | | | | |
Contingent consideration as of December 31, 2021 | $ | 63,399 | |
Milestone payments to Ares Trading S.A. (Merck Serono) | (33,293) | |
Realized foreign exchange gain on settlement of contingent consideration | (133) | |
Changes in fair value of contingent consideration | 3,764 | |
Foreign exchange remeasurement of Euro denominated contingent consideration | (5,434) | |
Contingent consideration as of September 30, 2022 | $ | 28,303 | |
(5) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
The Company uses foreign currency exchange forward contracts (forward contracts) to protect against the impact of changes in the value of forecasted foreign currency cash flows resulting from revenues and operating expenses denominated in currencies other than the U.S. Dollar (USD), primarily the Euro. Certain of these forward contracts are designated as cash flow hedges and have maturities of up to two years. The Company also enters into forward contracts to manage foreign exchange risk related to asset or liability positions denominated in currencies other than USD. Such forward contracts are considered to be economic hedges, are not designated as hedging instruments and have maturities of up to three months. The Company does not use derivative instruments for speculative trading purposes. The Company is exposed to counterparty credit risk on its derivatives. The Company has established and maintains strict counterparty credit guidelines and enters into hedging agreements with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company is not required to pledge collateral under these agreements.
The following table summarizes the aggregate notional amounts for the Company’s derivatives outstanding as of the periods presented.
| | | | | | | | | | | |
Forward Contracts | September 30, 2022 | | December 31, 2021 |
Derivatives designated as hedging instruments: | | | |
Sell | $ | 483,387 | | | $ | 740,667 | |
Purchase | $ | 99,212 | | | $ | 183,256 | |
| | | |
Derivatives not designated as hedging instruments: | | | |
Sell | $ | 118,026 | | | $ | 113,257 | |
Purchase | $ | 5,812 | | | $ | 31,068 | |
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
The fair value carrying amounts of the Company’s derivatives, as classified within the fair value hierarchy, were as follows:
| | | | | | | | | | | |
Balance Sheet Location | September 30, 2022 | | December 31, 2021 |
Derivatives designated as hedging instruments: | | | |
Asset Derivatives - Level 2 (1) | | | |
Other current assets | $ | 51,050 | | | $ | 17,357 | |
Other assets | 10,012 | | | 4,991 | |
Subtotal | $ | 61,062 | | | $ | 22,348 | |
| | | |
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