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, 2017
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)
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Delaware |
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68-0397820 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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770 Lindaro Street, San Rafael, California |
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94901 |
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(Address of principal executive offices) |
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(Zip Code) |
(415) 506-6700
(Registrant’s telephone number including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.
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Large accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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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: 175,621,277 shares of common stock, par value $0.001, outstanding as of October 25, 2017.
TABLE OF CONTENTS
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Page |
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PART I. |
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3 |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of September 30, 2017 (Unaudited) and December 31, 2016 |
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3 |
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4 |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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29 |
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Item 3. |
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42 |
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Item 4. |
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42 |
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PART II. |
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43 |
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Item 1. |
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43 |
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Item 1A. |
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44 |
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Item 2. |
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66 |
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Item 3. |
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66 |
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Item 4. |
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66 |
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Item 5. |
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66 |
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Item 6. |
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67 |
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69 |
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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®, Vimizim®, Naglazyme®, Kuvan® and Firdapse® are our registered trademarks. KyndrisaTM is our trademark. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. 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,” “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, 2016, which was filed with the Securities and Exchange Commission (the SEC) on February 27, 2017. 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.
2
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2017 and December 31, 2016
(In thousands of U.S. dollars, except share amounts)
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September 30, |
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December 31, |
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||
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2017 |
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2016(1) |
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ASSETS |
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(unaudited) |
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Current assets: |
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Cash and cash equivalents |
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$ |
431,399 |
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$ |
408,330 |
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Short-term investments |
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825,700 |
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381,347 |
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Accounts receivable, net |
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251,891 |
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215,280 |
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Inventory |
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457,393 |
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355,126 |
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Other current assets |
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83,646 |
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61,708 |
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Total current assets |
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2,050,029 |
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1,421,791 |
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Noncurrent assets: |
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|
|
|
|
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Long-term investments |
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416,304 |
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572,711 |
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Property, plant and equipment, net |
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878,624 |
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|
798,768 |
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Intangible assets, net |
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530,957 |
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|
553,780 |
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Goodwill |
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197,039 |
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|
197,039 |
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Deferred tax assets |
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484,759 |
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446,786 |
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Other assets |
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22,985 |
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32,815 |
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Total assets |
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$ |
4,580,697 |
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$ |
4,023,690 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
364,920 |
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$ |
370,505 |
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Short-term convertible debt, net |
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— |
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22,478 |
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Short-term contingent acquisition consideration payable |
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52,609 |
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46,327 |
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Total current liabilities |
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417,529 |
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439,310 |
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Noncurrent liabilities: |
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Long-term convertible debt, net |
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1,166,036 |
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660,761 |
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Long-term contingent acquisition consideration payable |
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126,790 |
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115,310 |
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Other long-term liabilities |
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56,780 |
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42,034 |
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Total liabilities |
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1,767,135 |
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1,257,415 |
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Stockholders’ equity: |
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Common stock, $0.001 par value: 500,000,000 shares authorized; 175,495,350 and 172,647,588 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. |
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176 |
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173 |
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Additional paid-in capital |
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4,435,449 |
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4,288,113 |
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Company common stock held by Nonqualified Deferred Compensation Plan (NQDC) |
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(14,473 |
) |
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|
(14,321 |
) |
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Accumulated other comprehensive income (loss) |
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(21,434 |
) |
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12,816 |
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Accumulated deficit |
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(1,586,156 |
) |
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(1,520,506 |
) |
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Total stockholders’ equity |
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2,813,562 |
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2,766,275 |
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Total liabilities and stockholders’ equity |
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$ |
4,580,697 |
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$ |
4,023,690 |
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(1) |
December 31, 2016 balances 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, 2016, filed with the SEC on February 27, 2017. |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three and Nine Months Ended September 30, 2017 and 2016
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2017 |
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2016 |
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2017 |
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2016 |
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REVENUES: |
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Net product revenues |
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$ |
298,752 |
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$ |
278,262 |
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$ |
916,868 |
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$ |
812,195 |
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Royalty and other revenues |
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35,396 |
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1,634 |
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38,473 |
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4,568 |
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Total revenues |
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334,148 |
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279,896 |
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955,341 |
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816,763 |
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OPERATING EXPENSES: |
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Cost of sales |
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59,480 |
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50,738 |
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165,791 |
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|
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145,473 |
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Research and development |
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154,103 |
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160,831 |
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442,145 |
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486,663 |
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Selling, general and administrative |
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130,532 |
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118,758 |
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|
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394,056 |
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333,635 |
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Intangible asset amortization and contingent consideration |
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|
3,760 |
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|
9,654 |
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|
26,096 |
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(34,318 |
) |
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Impairment of intangible assets |
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— |
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— |
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— |
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599,118 |
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Total operating expenses |
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347,875 |
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|
339,981 |
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1,028,088 |
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1,530,571 |
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LOSS FROM OPERATIONS |
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(13,727 |
) |
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(60,085 |
) |
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(72,747 |
) |
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(713,808 |
) |
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Equity in the loss of BioMarin/Genzyme LLC |
|
|
(253 |
) |
|
|
(104 |
) |
|
|
(996 |
) |
|
|
(374 |
) |
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Interest income |
|
|
3,976 |
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|
|
1,633 |
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|
|
10,031 |
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|
|
4,561 |
|
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Interest expense |
|
|
(10,884 |
) |
|
|
(9,980 |
) |
|
|
(31,043 |
) |
|
|
(29,767 |
) |
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Other income, net |
|
|
267 |
|
|
|
1,723 |
|
|
|
4,282 |
|
|
|
504 |
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LOSS BEFORE INCOME TAXES |
|
|
(20,621 |
) |
|
|
(66,813 |
) |
|
|
(90,473 |
) |
|
|
(738,884 |
) |
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Benefit from income taxes |
|
|
(8,094 |
) |
|
|
(29,388 |
) |
|
|
(24,823 |
) |
|
|
(199,394 |
) |
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NET LOSS |
|
$ |
(12,527 |
) |
|
$ |
(37,425 |
) |
|
$ |
(65,650 |
) |
|
$ |
(539,490 |
) |
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NET LOSS PER SHARE, BASIC |
|
$ |
(0.07 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.38 |
) |
|
$ |
(3.29 |
) |
|
NET LOSS PER SHARE, DILUTED |
|
$ |
(0.07 |
) |
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$ |
(0.22 |
) |
|
$ |
(0.38 |
) |
|
$ |
(3.30 |
) |
|
Weighted average common shares outstanding, basic |
|
|
175,103 |
|
|
|
167,714 |
|
|
|
174,071 |
|
|
|
163,963 |
|
|
Weighted average common shares outstanding, diluted |
|
|
175,103 |
|
|
|
167,714 |
|
|
|
174,071 |
|
|
|
164,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
COMPREHENSIVE LOSS |
|
$ |
(19,303 |
) |
|
$ |
(39,795 |
) |
|
$ |
(99,900 |
) |
|
$ |
(558,365 |
) |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
4
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2017
(In thousands of U.S. dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
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Company |
|
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Accumulated |
|
|
|
|
|
|
|
|
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||
|
|
|
|
|
|
|
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Additional |
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Common |
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Other |
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Total |
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||||
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|
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Common stock |
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Paid-in |
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Stock Held |
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Comprehensive |
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Accumulated |
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Stockholders' |
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||||||||||
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Shares |
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|
Amount |
|
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Capital |
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by NQDC |
|
|
Income (Loss) |
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Deficit |
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Equity |
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|||||||
|
Balance at December 31, 2016 |
|
|
172,648 |
|
|
$ |
173 |
|
|
$ |
4,288,113 |
|
|
$ |
(14,321 |
) |
|
$ |
12,816 |
|
|
$ |
(1,520,506 |
) |
|
$ |
2,766,275 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(65,650 |
) |
|
|
(65,650 |
) |
|
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(34,250 |
) |
|
|
— |
|
|
|
(34,250 |
) |
|
Issuances under equity incentive plans, net of tax |
|
|
1,648 |
|
|
|
2 |
|
|
|
7,550 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,552 |
|
|
Issuances of common stock under the Employee Stock Purchase Plan (the ESPP) |
|
|
95 |
|
|
|
— |
|
|
|
6,704 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,704 |
|
|
Conversion of convertible notes, net |
|
|
1,104 |
|
|
|
1 |
|
|
|
22,476 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
22,477 |
|
|
Common stock held by NQDC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(152 |
) |
|
|
— |
|
|
|
— |
|
|
|
(152 |
) |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
110,606 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
110,606 |
|
|
Balance at September 30, 2017 |
|
|
175,495 |
|
|
$ |
176 |
|
|
$ |
4,435,449 |
|
|
$ |
(14,473 |
) |
|
$ |
(21,434 |
) |
|
$ |
(1,586,156 |
) |
|
$ |
2,813,562 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2017 and 2016
(In thousands of U.S. dollars)
(Unaudited)
|
|
|
2017 |
|
|
2016 |
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(65,650 |
) |
|
$ |
(539,490 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
59,197 |
|
|
|
76,805 |
|
|
Non-cash interest expense |
|
|
23,792 |
|
|
|
22,276 |
|
|
Accretion of discount on investments |
|
|
2,162 |
|
|
|
681 |
|
|
Stock-based compensation |
|
|
106,678 |
|
|
|
97,220 |
|
|
(Gain) loss on the sale of equity investments |
|
|
(3,252 |
) |
|
|
2,020 |
|
|
Impairment of intangible assets |
|
|
— |
|
|
|
599,118 |
|
|
Deferred income taxes |
|
|
(36,150 |
) |
|
|
(218,700 |
) |
|
Unrealized foreign exchange (gain) loss |
|
|
4,348 |
|
|
|
(10,961 |
) |
|
Non-cash changes in the fair value of contingent acquisition consideration payable |
|
|
3,382 |
|
|
|
(56,954 |
) |
|
Other |
|
|
4,657 |
|
|
|
1,044 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(21,598 |
) |
|
|
(52,023 |
) |
|
Inventory |
|
|
(80,885 |
) |
|
|
(59,802 |
) |
|
Other current assets |
|
|
(20,787 |
) |
|
|
(1,556 |
) |
|
Other assets |
|
|
(1,030 |
) |
|
|
(5,002 |
) |
|
Accounts payable and accrued liabilities |
|
|
(1,732 |
) |
|
|
(77,852 |
) |
|
Other long-term liabilities |
|
|
3,497 |
|
|
|
(4,451 |
) |
|
Net cash used in operating activities |
|
|
(23,371 |
) |
|
|
(227,627 |
) |
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(159,329 |
) |
|
|
(96,806 |
) |
|
Funds held in escrow for the purchase of real property |
|
|
— |
|
|
|
(8,383 |
) |
|
Maturities and sales of investments |
|
|
325,678 |
|
|
|
302,801 |
|
|
Purchase of available-for-sale securities |
|
|
(609,794 |
) |
|
|
(370,393 |
) |
|
Business acquisitions, net of cash acquired |
|
|
— |
|
|
|
(1,467 |
) |
|
Other |
|
|
(1,560 |
) |
|
|
(150 |
) |
|
Net cash used in investing activities |
|
|
(445,005 |
) |
|
|
(174,398 |
) |
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from exercises of stock options and the ESPP |
|
|
46,119 |
|
|
|
49,498 |
|
|
Taxes paid related to net share settlement of equity awards |
|
|
(31,863 |
) |
|
|
(55,241 |
) |
|
Proceeds from public offering of common stock, net |
|
|
— |
|
|
|
712,938 |
|
|
Proceeds from convertible senior subordinated note offering, net |
|
|
481,713 |
|
|
|
— |
|
|
Payment of contingent acquisition consideration payable |
|
|
(1,894 |
) |
|
|
— |
|
|
Other |
|
|
(26 |
) |
|
|
— |
|
|
Net cash provided by financing activities |
|
|
494,049 |
|
|
|
707,195 |
|
|
Effect of exchange rate changes on cash |
|
|
(2,604 |
) |
|
|
5,139 |
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
23,069 |
|
|
|
310,309 |
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
408,330 |
|
|
$ |
397,040 |
|
|
End of period |
|
$ |
431,399 |
|
|
$ |
707,349 |
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES: |
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of interest capitalized into fixed assets |
|
|
4,287 |
|
|
|
4,564 |
|
|
Cash paid for income taxes |
|
|
21,744 |
|
|
|
95,163 |
|
|
Stock-based compensation capitalized into inventory |
|
|
12,077 |
|
|
|
8,960 |
|
|
Depreciation capitalized into inventory |
|
|
17,899 |
|
|
|
13,402 |
|
|
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Decrease in accounts payable and accrued liabilities related to fixed assets |
|
|
(25,047 |
) |
|
|
(13,988 |
) |
|
Conversion of convertible debt |
|
|
22,477 |
|
|
|
8,924 |
|
|
Accrual for inventory purchases related to the acquisition of the Merck PKU Business |
|
|
— |
|
|
|
1,322 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
BIOMARIN PHARMACEUTICAL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(1) NATURE OF OPERATIONS AND BUSINESS RISKS
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 therapy portfolio consists of six approved products and multiple clinical and pre-clinical product candidates.
The Company expects to continue to finance future cash needs that exceed its operating activities primarily through its current cash, cash equivalents, short-term and long-term investments and through proceeds from debt or equity offerings, commercial borrowing, or through collaborative agreements with corporate partners. If the Company elects to increase its spending on development programs significantly above current long-term plans or enters into potential licenses and other acquisitions of complementary technologies, products or companies, the Company may need additional capital.
The Company is subject to a number of risks, including: the financial performance of its commercial products; the potential need for additional financings; the Company’s ability to successfully commercialize its approved products; the uncertainty of the Company’s research and development (R&D) efforts resulting in future successful commercial products; the Company’s ability to successfully obtain regulatory approval for new products; significant competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; dependence on corporate partners and collaborators; and possible restrictions on reimbursement from governmental agencies and healthcare organizations, as well as other changes in the health care industry. Please see “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q for a more detailed discussion of these risks.
(2) 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 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, 2016 included in the Company’s Annual Report on Form 10-K.
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 results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017 or any other period.
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.
(3) SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2017, as compared to the significant accounting policies disclosed in Note 3 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
7
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(4) RECENT ACCOUNTING PRONOUNCEMENTS
Except as described below, there have been no new accounting pronouncements or changes to accounting pronouncements during the nine months ended September 30, 2017, as compared to the recent accounting pronouncements described in Note 4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, that the Company believes are of significance or potential significance to the Company.
Effective January, 1, 2018, the Company will adopt Accounting Standards Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from Contracts with Customers, as amended (commonly referred to as ASC Topic 606), which provides principles for recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
As of September 30, 2017, the Company has not elected to early adopt ASC Topic 606 and plans to adopt the new standard using the modified retrospective method. The Company has formed a task force that is in the process of analyzing the Company’s customer contracts and the potential impacts the standard may have on previously reported revenues and future revenues. As the Company completes its analysis of the accounting for the Company’s customer contracts under the new revenue standard, management is assessing the required changes to the Company’s accounting policies, systems and internal control over financial reporting. Based on management’s preliminary analysis of the Company’s material contracts with customers, management does not anticipate that ASC Topic 606 will have a material impact on the timing of revenue recognition for the products that are marketed by the Company. Management is still assessing the application of ASC Topic 606 to Aldurazyme revenues earned from Genzyme Corporation (Genzyme).
In January 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-01 (ASU 2016-01), Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the update clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The guidance will become effective for the Company’s fiscal year beginning January 1, 2018 and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted for certain provisions. The Company is currently evaluating the impact that the standard will have on its Consolidated Financial Statements. Management’s assessment indicates that the amendment will not have a significant impact as the Company currently has no significant equity investments, however, the update may have a significant impact in the future. As of September 30, 2017, the Company has not elected to early adopt the amendments of ASU 2016-01.
In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02). The amended guidance requires balance sheet recognition of lease right-of-use (ROU) assets and liabilities by lessees for leases classified as operating leases, with an option to not recognize lease ROU assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. Lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, but, as of September 30, 2017, the Company has not made the election to do so. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019. The amendments require a modified retrospective approach with optional practical expedients.
As of September 30, 2017, the Company has formed a task force that is in the process of analyzing the Company’s lease contracts and the potential impacts the standard may have on its Consolidated Financial Statements and related disclosures. After completing the analysis of the accounting for the Company’s lease contracts under the amendments, management will assess the required changes to the Company’s accounting policies, systems and internal control over financial reporting. Based on management’s preliminary analysis, the Company anticipates the amendments may have a material impact on the Company’s Consolidated Balance Sheets due to the requirement to recognize lease ROU assets and corresponding liabilities related to leases on the Company’s Consolidated Balance Sheets, but they are not anticipated to have a material impact on the Company’s other Consolidated Financial Statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). The amendment provides clarification about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company has
8
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
elected to early adopt ASU 2017-09, which did not have a material impact on the Company’s Consolidated Financial Statements because the Company’s policies had already been in compliance.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The amendment changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. Although the Company is currently evaluating the impact that the standard will have on its Consolidated Financial Statements, adoption of the amendment is not expected to have a material impact due to the nature of the Company’s hedging activity. As of September 30, 2017, the Company has not elected to early adopt the amendments of ASU 2017-12.
(5) ACQUISITIONS
On October 1, 2015, the Company entered into a Termination and Transition Agreement with Ares Trading S.A. (Merck Serono), as amended and restated on December 23, 2015 (the A&R Kuvan Agreement), to terminate the Development, License and Commercialization Agreement, dated May 13, 2005, as amended (the License Agreement), between the Company and Merck Serono, including the license to Kuvan the Company had granted to Merck Serono under the License Agreement. Also on October 1, 2015, the Company and Merck Serono entered into a Termination Agreement (the Pegvaliase Agreement) to terminate the license to pegvaliase the Company had granted to Merck Serono under the License Agreement. On January 1, 2016, pursuant to the A&R Kuvan Agreement and the Pegvaliase Agreement, the Company completed the acquisition from Merck Serono and its affiliates of certain rights and other assets with respect to Kuvan and pegvaliase (the Merck PKU Business). As a result, the Company acquired all global rights to Kuvan and pegvaliase from Merck Serono, with the exception of Kuvan in Japan. Previously, the Company had exclusive rights to Kuvan in the U.S. and Canada and pegvaliase in the U.S. and Japan. In connection with the acquisition of the Merck PKU Business, the Company recognized transaction costs of $0.6 million, of which $0.3 million was recognized in each of the years ended December 31, 2016 and 2015.
Pursuant to the A&R Kuvan Agreement, the Company paid Merck Serono $374.5 million, in cash, the majority of which was paid in January 2016, and is obligated to pay Merck Serono up to a maximum of €60.0 million, in cash, if future sales milestones are met. Pursuant to the Pegvaliase Agreement, the Company is obligated to pay Merck Serono up to a maximum of €125.0 million, in cash, if future development milestones are met. Merck Serono transferred certain inventory, regulatory materials and approvals, and intellectual property rights to the Company and will perform certain transition services for the Company. As of December 31, 2016, the inventory acquired from Merck Serono had been sold through to customers. The Company and Merck Serono have no further rights or obligations under the License Agreement with respect to Kuvan or pegvaliase.
Prior to the consummation of the transactions described above, the Company sold Kuvan to Merck Serono at a price near its manufacturing costs, and Merck Serono resold the product to end-users outside the U.S., Canada and Japan. The royalty earned by the Company from Kuvan product sold by Merck Serono was included as a component of Net Product Revenues in the period earned.
Kuvan is a commercialized product for the treatment of patients with phenylketonuria (PKU) and/or for primary BH4 deficiency in certain countries. At the time of the acquisition, pegvaliase was in pivotal studies as a potential therapeutic option for adult patients with PKU. In March 2016, the Company announced that its pivotal Phase 3 PRISM-2 study of pegvaliase met the primary endpoint of change in blood Phe compared with placebo (p<0.0001); and the Company submitted a marketing application in the U.S. in June 2017 and announced its plans to submit an application for registration in the European Union (EU). Kuvan has Orphan Drug exclusivity in the EU until 2020, and pegvaliase has Orphan Drug designation in the U.S. and the EU.
The acquisition date fair value of the contingent acquisition consideration payments, Kuvan global marketing rights, with the exception of Japan, and pegvaliase in process research and development (IPR&D) acquired was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as level 3 inputs. Key assumptions include a discount rate and various probability factors. The range of outcomes and assumptions used to develop these estimates has been updated to estimate the fair value of the contingent acquisition consideration payable as of September 30, 2017. See Note 13 to these Condensed Consolidated Financial Statements for additional
9
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
discussion regarding fair value measurements of the contingent acquisition consideration payable included on the Company’s Condensed Consolidated Balance Sheet.
The following table presents the final allocation of the purchase consideration for the Merck PKU Business acquisition, including the contingent acquisition consideration payable based on the acquisition date fair value. The allocation of the purchase price below reflects an inventory adjustment in the second quarter of 2016.
|
Cash payments |
|
$ |
374,545 |
|
|
Estimated fair value of contingent acquisition consideration payable |
|
|
138,974 |
|
|
Total consideration |
|
$ |
513,519 |
|
|
Kuvan intangible assets |
|
$ |
172,961 |
|
|
Pegvaliase IPR&D |
|
|
326,359 |
|
|
Inventory |
|
|
14,199 |
|
|
Total identifiable assets acquired |
|
$ |
513,519 |
|
The amount allocated to the Kuvan intangible assets is considered to be finite-lived and will be amortized on a straight-line basis over its estimated useful life through 2024.
The amount allocated to acquired pegvaliase IPR&D is considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate the reduction in the fair value of the IPR&D assets below their respective carrying amounts. When development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point. See Note 8 to these Condensed Consolidated Financial Statements for further discussion of the indefinite-lived intangible assets.
(6) NET LOSS PER COMMON SHARE
Potentially issuable shares of common stock include shares issuable upon the exercise of outstanding employee stock option awards, common stock issuable under the Company’s ESPP, unvested restricted stock units (RSUs), common stock held by the NQDC and contingent issuances of common stock related to convertible debt.
The following table sets forth the computation of basic and diluted earnings per common share (in thousands of common shares):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic |
|
$ |
(12,527 |
) |
|
$ |
(37,425 |
) |
|
$ |
(65,650 |
) |
|
$ |
(539,490 |
) |
|
Less: gain on common stock held by the NQDC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,753 |
|
|
Net loss, diluted |
|
$ |
(12,527 |
) |
|
$ |
(37,425 |
) |
|
$ |
(65,650 |
) |
|
$ |
(541,243 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding, basic |
|
|
175,103 |
|
|
|
167,714 |
|
|
|
174,071 |
|
|
|
163,963 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares held by the NQDC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
253 |
|
|
Weighted-average common shares outstanding, diluted |
|
|
175,103 |
|
|
|
167,714 |
|
|
|
174,071 |
|
|
|
164,216 |
|
|
Net loss per common share, basic |
|
$ |
(0.07 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.38 |
) |
|
$ |
(3.29 |
) |
|
Net loss per common share, diluted |
|
$ |
(0.07 |
) |
|
$ |
(0.22 |
) |
|
$ |
(0.38 |
) |
|
$ |
(3.30 |
) |
10
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 table below presents potential shares of common stock that were excluded from the computation of basic and diluted earnings per common share as they were anti-dilutive using the if-converted or treasury stock method (in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
|
Options to purchase common stock |
|
|
8,328 |
|
|
|
9,610 |
|
|
|
8,328 |
|
|
|
9,610 |
|
|
Common stock issuable under the 2017 Notes |
|
|
— |
|
|
|
1,105 |
|
|
|
— |
|
|
|
1,105 |
|
|
Common stock issuable under the 2018 and 2020 Notes |
|
|
7,966 |
|
|
|
7,966 |
|
|
|
7,966 |
|
|
|
7,966 |
|
|
Common stock issuable under the 2024 Notes |
|
|
3,970 |
|
|
|
— |
|
|
|
3,970 |
|
|
|
— |
|
|
Unvested restricted stock units |
|
|
2,923 |
|
|
|
2,728 |
|
|
|
2,923 |
|
|
|
2,728 |
|
|
Common stock potentially issuable for ESPP purchases |
|
|
365 |
|
|
|
330 |
|
|
|
365 |
|
|
|
330 |
|
|
Common stock held by the NQDC |
|
|
224 |
|
|
|
253 |
|
|
|
224 |
|
|
|
— |
|
|
Total number of potentially issuable shares |
|
|
23,776 |
|
|
|
21,992 |
|
|
|
23,776 |
|
|
|
21,739 |
|
The potential effect of the capped call transactions with respect to the Company’s 0.75% senior subordinated convertible notes due in 2018 (the 2018 Notes) and the Company’s 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes) was excluded from the diluted net income/loss per share as the Company’s closing stock price on September 30, 2017 and 2016 did not exceed the conversion price of $94.15 per share for the 2018 Notes and the 2020 Notes. There is no similar capped call transaction associated with the Company’s 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes). See Note 11 to these Condense Consolidated Financial Statements for information on the Company’s debt.
(7) AVAILABLE-FOR-SALE SECURITIES
All investments were classified as available-for-sale at September 30, 2017 and December 31, 2016. The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s available-for-sale securities by major security type at September 30, 2017 and December 31, 2016 are summarized in the tables below:
|
|
|
Amortized Cost |
|
|
Gross Unrealized Holding Gains |
|
|
Gross Unrealized Holding Losses |
|
|
Aggregate Fair Value at September 30, 2017 |
|
||||
|
Corporate debt securities |
|
$ |
762,462 |
|
|
$ |
413 |
|
|
$ |
(1,091 |
) |
|
$ |
761,784 |
|
|
Commercial paper |
|
|
28,039 |
|
|
|
— |
|
|
|
— |
|
|
|
28,039 |
|
|
U.S. government agency securities |
|
|
434,533 |
|
|
|
2 |
|
|
|
(980 |
) |
|
|
433,555 |
|
|
Foreign and other |
|
|
18,525 |
|
|
|
123 |
|
|
|
(22 |
) |
|
|
18,626 |
|
|
Total |
|
$ |
1,243,559 |
|
|
$ |
538 |
|
|
$ |
(2,093 |
) |
|
$ |
1,242,004 |
|
|
|
|
Amortized Cost |
|
|
Gross Unrealized Holding Gains |
|
|
Gross Unrealized Holding Losses |
|
|
Aggregate Fair Value at December 31, 2016 |
|
||||
|
Certificates of deposit |
|
$ |
2,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,800 |
|
|
Corporate debt securities |
|
|
641,670 |
|
|
|
329 |
|
|
|
(2,282 |
) |
|
|
639,717 |
|
|
Commercial paper |
|
|
16,075 |
|
|
|
— |
|
|
|
— |
|
|
|
16,075 |
|
|
U.S. government agency securities |
|
|
310,635 |
|
|
|
37 |
|
|
|
(747 |
) |
|
|
309,925 |
|
|
Foreign and other |
|
|
48 |
|
|
|
86 |
|
|
|
— |
|
|
|
134 |
|
|
Total |
|
$ |
971,228 |
|
|
$ |
452 |
|
|
$ |
(3,029 |
) |
|
$ |
968,651 |
|
As of December 31, 2016, the Company had one investment in marketable equity securities, measured using quoted prices in its active market, which was considered a strategic investment. In the first quarter of 2017, the strategic investment was sold for a realized gain of $3.3 million. As of December 31, 2016, the fair value of the Company’s marketable equity securities was $4.1 million, which included an unrealized gain of $2.3 million, and was recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheet.
11
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 values of available-for-sale securities by contractual maturity were as follows:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
Maturing in one year or less |
|
$ |
825,700 |
|
|
$ |
395,940 |
|
|
Maturing after one year through five years |
|
|
416,304 |
|
|
|
572,711 |
|
|
Total |
|
$ |
1,242,004 |
|
|
$ |
968,651 |
|
Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary and, if it is other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date. As of September 30, 2017, some of the Company’s investments were in an unrealized loss position, which the Company considers temporary in nature. The Company has the ability and intent to hold all investments that have been in a continuous loss position until maturity or recovery, thus no other-than-temporary impairment is deemed to have occurred.
See Note 13 to these Condensed Consolidated Financial Statements for additional discussion regarding the fair value of the Company’s available-for-sale securities.
(8) INTANGIBLE ASSETS
Intangible assets consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
2017 |
|
|
2016 |
|
||
|
Intangible assets: |
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets |
|
$ |
303,297 |
|
|
$ |
305,122 |
|
|
Indefinite-lived intangible assets |
|
|
332,199 |
|
|
|
332,199 |
|
|
Gross intangible assets: |
|
|
635,496 |
|
|
|
637,321 |
|
|
Accumulated amortization |
|
|
(104,539 |
) |
|
|
(83,541 |
) |