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, 2018
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)
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: 178,062,106 shares of common stock, par value $0.001, outstanding as of October 19, 2018.
TABLE OF CONTENTS
|
|
|
|
Page |
PART I. |
|
|
3 |
|
Item 1. |
|
|
3 |
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2018 (Unaudited) and December 31, 2017 |
|
3 |
|
|
|
4 |
|
|
|
|
5 |
|
|
|
|
6 |
|
|
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
|
7 |
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
27 |
Item 3. |
|
|
39 |
|
Item 4. |
|
|
39 |
|
|
|
|
|
|
PART II. |
|
|
39 |
|
Item 1. |
|
|
39 |
|
Item 1A. |
|
|
40 |
|
Item 2. |
|
|
62 |
|
Item 3. |
|
|
62 |
|
Item 4. |
|
|
62 |
|
Item 5. |
|
|
62 |
|
Item 6. |
|
|
63 |
|
|
|
|
|
|
|
65 |
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®, Firdapse®, Kuvan®, Naglazyme®, Palynziq® and Vimizim® are our registered trademarks. 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,” “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, 2017, which was filed with the Securities and Exchange Commission (the SEC) on February 26, 2018. 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, 2018 and December 31, 2017
(In thousands, except share and per share amounts)
|
|
September 30, |
|
|
December 31, |
|
||
|
2018 |
|
|
2017(1) |
|
|||
ASSETS |
|
(unaudited) |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
882,184 |
|
|
$ |
598,028 |
|
Short-term investments |
|
|
561,192 |
|
|
|
797,940 |
|
Accounts receivable, net |
|
|
384,343 |
|
|
|
261,365 |
|
Inventory |
|
|
508,482 |
|
|
|
475,775 |
|
Other current assets |
|
|
71,652 |
|
|
|
74,036 |
|
Total current assets |
|
|
2,407,853 |
|
|
|
2,207,144 |
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
Long-term investments |
|
|
204,883 |
|
|
|
385,785 |
|
Property, plant and equipment, net |
|
|
924,033 |
|
|
|
896,700 |
|
Intangible assets, net |
|
|
494,687 |
|
|
|
517,510 |
|
Goodwill |
|
|
197,039 |
|
|
|
197,039 |
|
Deferred tax assets |
|
|
429,194 |
|
|
|
399,095 |
|
Other assets |
|
|
37,565 |
|
|
|
29,852 |
|
Total assets |
|
$ |
4,695,254 |
|
|
$ |
4,633,125 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
378,226 |
|
|
$ |
401,921 |
|
Short-term convertible debt, net |
|
|
374,230 |
|
|
|
360,949 |
|
Short-term contingent acquisition consideration |
|
|
86,204 |
|
|
|
53,648 |
|
Total current liabilities |
|
|
838,660 |
|
|
|
816,518 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
Long-term convertible debt, net |
|
|
826,119 |
|
|
|
813,521 |
|
Long-term contingent acquisition consideration |
|
|
58,160 |
|
|
|
135,318 |
|
Other long-term liabilities |
|
|
57,370 |
|
|
|
59,105 |
|
Total liabilities |
|
|
1,780,309 |
|
|
|
1,824,462 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock, $0.001 par value: 500,000,000 shares authorized; 177,902,788 and 175,843,749 shares issued and outstanding, respectively. |
|
|
178 |
|
|
|
176 |
|
Additional paid-in capital |
|
|
4,620,817 |
|
|
|
4,483,220 |
|
Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC) |
|
|
(13,415 |
) |
|
|
(14,224 |
) |
Accumulated other comprehensive loss |
|
|
(2,160 |
) |
|
|
(22,961 |
) |
Accumulated deficit |
|
|
(1,690,475 |
) |
|
|
(1,637,548 |
) |
Total stockholders’ equity |
|
|
2,914,945 |
|
|
|
2,808,663 |
|
Total liabilities and stockholders’ equity |
|
$ |
4,695,254 |
|
|
$ |
4,633,125 |
|
|
(1) |
December 31, 2017 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, 2017, filed with the SEC on February 26, 2018. |
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, 2018 and 2017
(In thousands, except per share amounts)
(Unaudited)
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
|||||||||||
|
|
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
||||
REVENUES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net product revenues |
|
$ |
386,320 |
|
|
$ |
298,752 |
|
|
$ |
1,123,205 |
|
|
$ |
916,868 |
|
Royalty and other revenues |
|
|
5,386 |
|
|
|
35,396 |
|
|
|
14,793 |
|
|
|
38,473 |
|
Total revenues |
|
|
391,706 |
|
|
|
334,148 |
|
|
|
1,137,998 |
|
|
|
955,341 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
78,893 |
|
|
|
59,480 |
|
|
|
240,245 |
|
|
|
165,791 |
|
Research and development |
|
|
161,408 |
|
|
|
154,103 |
|
|
|
520,938 |
|
|
|
442,145 |
|
Selling, general and administrative |
|
|
148,566 |
|
|
|
130,532 |
|
|
|
440,182 |
|
|
|
394,056 |
|
Intangible asset amortization and contingent consideration |
|
|
18,580 |
|
|
|
3,760 |
|
|
|
42,009 |
|
|
|
26,096 |
|
Gain on sale of intangible assets |
|
|
— |
|
|
|
— |
|
|
|
(20,000 |
) |
|
|
— |
|
Total operating expenses |
|
|
407,447 |
|
|
|
347,875 |
|
|
|
1,223,374 |
|
|
|
1,028,088 |
|
LOSS FROM OPERATIONS |
|
|
(15,741 |
) |
|
|
(13,727 |
) |
|
|
(85,376 |
) |
|
|
(72,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in the loss of BioMarin/Genzyme LLC |
|
|
(468 |
) |
|
|
(253 |
) |
|
|
(507 |
) |
|
|
(996 |
) |
Interest income |
|
|
6,338 |
|
|
|
3,976 |
|
|
|
17,141 |
|
|
|
10,031 |
|
Interest expense |
|
|
(12,131 |
) |
|
|
(10,884 |
) |
|
|
(35,918 |
) |
|
|
(31,043 |
) |
Other income, net |
|
|
2,589 |
|
|
|
267 |
|
|
|
5,266 |
|
|
|
4,282 |
|
LOSS BEFORE INCOME TAXES |
|
|
(19,413 |
) |
|
|
(20,621 |
) |
|
|
(99,394 |
) |
|
|
(90,473 |
) |
Benefit from income taxes |
|
|
(6,793 |
) |
|
|
(8,094 |
) |
|
|
(25,833 |
) |
|
|
(24,823 |
) |
NET LOSS |
|
$ |
(12,620 |
) |
|
$ |
(12,527 |
) |
|
$ |
(73,561 |
) |
|
$ |
(65,650 |
) |
NET LOSS PER SHARE, BASIC AND DILUTED |
|
$ |
(0.07 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.42 |
) |
|
$ |
(0.38 |
) |
Weighted average common shares outstanding, basic and diluted |
|
|
177,481 |
|
|
|
175,103 |
|
|
|
176,767 |
|
|
|
174,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS |
|
$ |
(13,651 |
) |
|
$ |
(19,303 |
) |
|
$ |
(52,174 |
) |
|
$ |
(99,900 |
) |
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, 2018
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Common |
|
|
Other |
|
|
|
|
|
|
Total |
|
|||||||||||||||||
|
|
Common Stock |
|
|
Paid-in |
|
|
Stock Held |
|
|
Comprehensive |
|
|
Accumulated |
|
|
Stockholders' |
|
|||||||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
by the NQDC |
|
|
Income (Loss) |
|
|
Deficit |
|
|
Equity |
|
||||||||||||||||||||
Balance at December 31, 2017 |
|
|
175,844 |
|
|
$ |
176 |
|
|
$ |
4,483,220 |
|
|
$ |
(14,224 |
) |
|
$ |
(22,961 |
) |
|
$ |
(1,637,548 |
) |
|
$ |
2,808,663 |
|
|||||||||||||
Impact of change in accounting principle - ASC 606 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
20,048 |
|
|
|
20,048 |
|
|||||||||||||
Impact of change in accounting principle - ASU 2018-02 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(586 |
) |
|
|
586 |
|
|
|
— |
|
|||||||||||||
Adjusted balance at January 1, 2018 |
|
|
175,844 |
|
|
$ |
176 |
|
|
$ |
4,483,220 |
|
|
$ |
(14,224 |
) |
|
$ |
(23,547 |
) |
|
$ |
(1,616,914 |
) |
|
$ |
2,828,711 |
|
|||||||||||||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(73,561 |
) |
|
|
(73,561 |
) |
|||||||||||||
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,387 |
|
|
|
— |
|
|
|
21,387 |
|
|||||||||||||
Issuances under equity incentive plans, net of tax |
|
|
2,059 |
|
|
|
2 |
|
|
|
21,461 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21,463 |
|
|||||||||||||
Common stock held by the NQDC |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
809 |
|
|
|
— |
|
|
|
— |
|
|
|
809 |
|
|||||||||||||
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
116,136 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
116,136 |
|
|||||||||||||
Balance at September 30, 2018 |
|
|
177,903 |
|
|
$ |
178 |
|
|
$ |
4,620,817 |
|
|
$ |
(13,415 |
) |
|
$ |
(2,160 |
) |
|
$ |
(1,690,475 |
) |
|
$ |
2,914,945 |
|
|
|
|
.
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, 2018 and 2017
(In thousands)
(Unaudited)
|
|
2018 |
|
|
2017 |
|
||
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(73,561 |
) |
|
$ |
(65,650 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
70,955 |
|
|
|
59,197 |
|
Non-cash interest expense |
|
|
26,099 |
|
|
|
23,792 |
|
Accretion of discount on investments |
|
|
769 |
|
|
|
2,162 |
|
Stock-based compensation |
|
|
112,261 |
|
|
|
106,678 |
|
Gain on sale of intangible assets |
|
|
(20,000 |
) |
|
|
— |
|
Gain on the sale of equity investments |
|
|
— |
|
|
|
(3,252 |
) |
Deferred income taxes |
|
|
(32,735 |
) |
|
|
(36,150 |
) |
Unrealized foreign exchange gain |
|
|
(11,997 |
) |
|
|
4,348 |
|
Non-cash changes in the fair value of contingent acquisition consideration |
|
|
12,836 |
|
|
|
3,382 |
|
Other |
|
|
(459 |
) |
|
|
4,657 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
(95,884 |
) |
|
|
(21,598 |
) |
Inventory |
|
|
(10,232 |
) |
|
|
(80,885 |
) |
Other current assets |
|
|
4,276 |
|
|
|
(20,787 |
) |
Other assets |
|
|
(3,148 |
) |
|
|
(1,030 |
) |
Accounts payable and accrued liabilities |
|
|
(12,090 |
) |
|
|
(1,732 |
) |
Other long-term liabilities |
|
|
3,744 |
|
|
|
3,497 |
|
Net cash used in operating activities |
|
|
(29,166 |
) |
|
|
(23,371 |
) |
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment |
|
|
(102,541 |
) |
|
|
(159,329 |
) |
Maturities and sales of investments |
|
|
857,063 |
|
|
|
325,678 |
|
Purchases of available-for-sale securities |
|
|
(439,198 |
) |
|
|
(609,794 |
) |
Proceeds from sale of intangible asset |
|
|
20,000 |
|
|
|
— |
|
Other |
|
|
(10 |
) |
|
|
(1,560 |
) |
Net cash provided by (used in) investing activities |
|
|
335,314 |
|
|
|
(445,005 |
) |
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from exercises of awards under equity incentive plans |
|
|
55,643 |
|
|
|
46,119 |
|
Taxes paid related to net share settlement of equity awards |
|
|
(34,180 |
) |
|
|
(31,863 |
) |
Proceeds from convertible senior subordinated note offering, net |
|
|
— |
|
|
|
481,713 |
|
Payment of contingent acquisition consideration |
|
|
(43,108 |
) |
|
|
(1,894 |
) |
Other |
|
|
— |
|
|
|
(26 |
) |
Net cash (used in) provided by financing activities |
|
|
(21,645 |
) |
|
|
494,049 |
|
Effect of exchange rate changes on cash |
|
|
(347 |
) |
|
|
(2,604 |
) |
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
284,156 |
|
|
|
23,069 |
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
Beginning of period |
|
$ |
598,028 |
|
|
$ |
408,330 |
|
End of period |
|
$ |
882,184 |
|
|
$ |
431,399 |
|
SUPPLEMENTAL CASH FLOW DISCLOSURES: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
|
$ |
15,791 |
|
|
$ |
21,744 |
|
Cash paid for interest, net of interest capitalized into fixed assets |
|
|
7,521 |
|
|
|
4,287 |
|
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Decrease in accounts payable and accrued liabilities related to fixed assets |
|
$ |
(7,678 |
) |
|
$ |
(25,047 |
) |
Conversion of convertible debt |
|
|
— |
|
|
|
22,477 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
6
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
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 several commercial therapies and multiple clinical and pre-clinical product candidates. Palynziq (formerly known as pegvaliase) was granted marketing approval in the United States (U.S.) on May 24, 2018.
The Company expects to continue to finance future cash needs that exceed its operating activities primarily through its current cash, cash equivalents and 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.
(2) BASIS OF PRESENTATION
The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to U.S. 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, 2017 included in the Company’s Annual Report on Form 10-K.
Effective January 1, 2018, the Company adopted the requirements of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), using the modified retrospective method as discussed in Note 3 - Significant Accounting Policies. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of Accumulated Deficit. The comparative information for the periods prior to 2018 has not been restated and continue to be reported under the accounting standards in effect for those periods.
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, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018 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, except for the maturity and settlement of our convertible debt and execution of a new credit facility, as discussed in Note 10 – Debt, 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
Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2018, 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, 2017.
Effective January 1, 2018, the Company adopted the provisions of ASC 606 using the modified retrospective method for all contracts not completed as of the date of adoption. For contracts that were modified before the effective date, the Company reflected the aggregate effect of all modifications when identifying performance obligations and allocating transaction price in accordance with available practical expedients. The reported results for 2018 reflect the application of ASC 606 guidance, while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605), which is also referred to herein as "previous guidance."
Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, the Company performs the following five steps:
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)
|
(ii) |
determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; |
|
(iii) |
measurement of the transaction price, including the constraint on variable consideration; |
|
(iv) |
allocation of the transaction price to the performance obligations based on estimated selling prices; and |
|
(v) |
recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. |
Net Product Revenues
In the U.S., the Company’s commercial products are generally sold to specialty pharmacies or end-users, such as hospitals, which act as retailers. Palynziq is distributed in the U.S. through certain qualified pharmacies under the Palynziq Risk Evaluation and Mitigation Strategy (REMS). Outside the U.S., the Company’s commercial products are sold to its authorized distributors or directly to government purchasers or hospitals, which act as the end-users. Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. Amounts collected from customers and remitted to governmental authorities, which primarily consist of value-added taxes related to product sales in foreign jurisdictions, are presented on a net basis in the Company’s Condensed Consolidated Statements of Comprehensive Loss, in that taxes billed to customers are not included as a component of Net Product Revenues.
For Aldurazyme revenues, the Company receives a payment ranging from 39.5% to 50% on worldwide net Aldurazyme sales by Genzyme Corporation (Genzyme) depending on sales volume, which is included in Net Product Revenues in the Company’s Condensed Consolidated Statements of Comprehensive Loss. Under the previous guidance the Company only recognized a portion of this amount as product transfer revenue when the product was released to Genzyme because all of the Company’s performance obligations were fulfilled at that point, the prices were substantially fixed or determinable and title to, and risk of loss for, the product had transferred to Genzyme. The product transfer revenue only represented the fixed amount per unit of Aldurazyme that Genzyme was required to pay the Company if the product was unsold by Genzyme. The amount of product transfer revenue was eventually deducted from the calculated royalty recognized when the product was subsequently sold by Genzyme. The Company recorded the Aldurazyme revenues based on net sales information provided by Genzyme and recorded product transfer revenues based on the fulfillment of Genzyme purchase orders in accordance with the terms of the related agreements with Genzyme.
Under ASC 606, the Company recognizes its best estimate of the entire revenue that it expects to receive when the product is released and control is transferred to Genzyme. The Company records Aldurazyme net product revenues based on the estimated variable consideration payable when the product is sold through by Genzyme. Actual amounts of consideration ultimately received may differ from the Company’s estimates, however the Company does not expect any such difference to be material. If actual results in the future vary from the Company’s estimates, the Company will make adjustments, which would affect Net Product Revenues and earnings in the period such variances become known. The adoption of ASC 606 did not have an impact on the timing or amount of revenues from other sources.
Revenue Reserves
Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from government rebates, sales returns, and other incentives that are offered within contracts between the Company and its customers, such as specialty pharmacies, hospitals, authorized distributors and government purchasers. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates, however the Company does not expect any such difference to be material. If actual results in the future vary from the Company’s estimates, the Company will adjust its estimates, which would affect net product revenue and earnings in the period such variances become known.
Government Rebates: The Company records reserves for rebates payable under Medicaid and other government programs as a reduction of revenue at the time product revenues are recorded. The Company’s reserve calculations require estimates, including estimates of customer mix, to determine which sales will be subject to rebates and the amount of such rebates. The Company updates its estimates and assumptions on a quarterly basis and records any necessary adjustments to its reserves.
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)
Sales Returns: The Company records allowances for product returns, if appropriate, as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including market exclusivity of the products based on their orphan drug status, the patient population, the customers’ limited return rights and the Company’s historical experience with returns. Because of the pricing of the Company’s commercial products, the limited number of patients and the customers’ limited return rights, most customers and retailers carry a limited inventory. The Company relies on historical return rates to estimate returns. Based on these factors and the fact that the Company has not experienced significant product returns to date, management has concluded that product returns will be minimal. In the future, if any of these factors and/or the history of product returns change, an allowance for product returns may be required.
Other Incentives: Other incentives include fees paid to the Company’s distributors, discounts for prompt payment and the estimated costs of the Company’s patient co-payment assistance programs. Beginning in 2018, the Company also offers a branded co-pay assistance program for eligible patients with commercial insurance in the U.S. who are on Brineura, Kuvan or Palynziq therapy. The branded co-pay assistance programs assist commercially insured patients who have coverage for Brineura, Kuvan or Palynziq and are intended to reduce each participating patient’s portion of the financial responsibility for Brineura’s, Kuvan’s or Palynziq’s purchase price up to a specified dollar amount of assistance. The Company records fees paid to distributors, cash discounts and amounts paid under the branded specific co-pay assistance program for each patient as a reduction of revenue.
Royalty and Other Revenues
Royalties: For arrangements that include the receipt of sales-based royalties, including milestone payments based on the level of sales when the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
Licenses of intellectual property: If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company uses judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Milestone payments: At the inception of each arrangement that includes developmental, regulatory or commercial milestone payments, the Company evaluates whether achieving the milestones is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission by the Company) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer.
(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, 2018, 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, 2017, that the Company believes are of significance or potential significance to the Company.
Accounting Pronouncements Not Yet Adopted
Effective January 1, 2019, the Company will adopt the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases (ASC Topic 842). 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. ASC Topic 842 is effective for the Company’s fiscal year beginning January 1, 2019. Early adoption is permitted, but the Company has not made the election to do so. The Company plans to adopt ASC Topic 842 using the modified retrospective approach with the cumulative effect of adoption recognized to retained earnings on January 1, 2019.
As of September 30, 2018, the Company’s task force formed in connection with the adoption of ASU 2016-02 was in the process of analyzing the Company’s lease contracts and the potential impact the standard may have on its Condensed Consolidated Financial Statements and related disclosures. Concurrently, management continues to 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
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)
anticipates the standard may have a material impact on the Company’s Condensed Consolidated Balance Sheets due to the requirement to recognize lease ROU assets and corresponding liabilities related to leases on the Company’s Condensed Consolidated Balance Sheets, however it is not anticipated to have a material impact on the Company’s other Condensed Consolidated Financial Statements.
Accounting Pronouncements Adopted
Effective January 1, 2018, the Company adopted ASC 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. The Company adopted ASC 606 on a modified retrospective basis through a cumulative adjustment to Accumulated Deficit. See Note 3 – Significant Accounting Policies and Note 15 – Revenue, Credit Concentrations and Geographic Information for additional disclosures related to the adoption of ASC 606.
The cumulative effect of applying the new guidance of ASC 606 to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to Accumulated Deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of January 1, 2018:
|
As Reported |
|
|
|
|
|
|
|
|
|
|
Adjusted |
|
|||
|
|
December 31, 2017 |
|
|
Aldurazyme (1) |
|
|
Tax Provision (2) |
|
|
January 1, 2018 |
|
||||
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
261,365 |
|
|
$ |
26,012 |
|
|
$ |
— |
|
|
$ |
287,377 |
|
Deferred tax assets |
|
$ |
399,095 |
|
|
$ |
— |
|
|
$ |
(5,964 |
) |
|
$ |
393,131 |
|
Total assets |
|
$ |
4,633,125 |
|
|
$ |
26,012 |
|
|
$ |
(5,964 |
) |
|
$ |
4,653,173 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit |
|
$ |
(1,637,548 |
) |
|
$ |
26,012 |
|
|
$ |
(5,964 |
) |
|
$ |
(1,617,500 |
) |
Total liabilities and stockholders' equity |
|
$ |
4,633,125 |
|
|
$ |
26,012 |
|
|
$ |
(5,964 |
) |
|
$ |
4,653,173 |
|
|
(1) |
This adjustment represents management’s estimate of the variable consideration to be earned on worldwide sales of Aldurazyme by Genzyme in excess of the product transfer revenue previously recognized for Genzyme’s ending inventory at December 31, 2017. The product transfer revenue previously recognized as revenue represents the fixed amount per unit of Aldurazyme that Genzyme was required to pay the Company if the product was unsold by Genzyme. |
|
|
(2) |
The adoption of ASC 606 primarily resulted in an acceleration of the variable consideration components of revenue as of December 31, 2017, which in turn generated additional deferred tax liabilities that ultimately reduced the Company's net deferred tax asset position. The tax provision amount has been calculated using the Company’s estimated statutory rate. |
|
The impact of adoption on the Company’s Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2018 was as follows:
|
Three Months Ended September 30, 2018 |
|
||||||||||
|
|
|
|
|
|
|
|
|
Balance without |
|
||
|
|
|
|
|
|
|
|
|
|
Adoption of |
|
|
|
|
As Reported |
|
|
Adjustments (1) |
|
|
ASC 606 |
|
|||
Net product revenues |
|
$ |
386,320 |
|
|
$ |
(1,515 |
) |
|
$ |
384,805 |
|
Benefit from income taxes |
|
$ |
(6,793 |
) |
|
$ |
(347 |
) |
|
$ |
(7,140 |
) |
Net loss |
|
$ |
(12,620 |
) |
|
$ |
(1,168 |
) |
|
$ |
(13,788 |
) |
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)
|
Nine Months Ended September 30, 2018 |
|
||||||||||
|
|
|
|
|
|
|
|
|
Balance without |
|
||
|
|
|
|
|
|
|
|
|
|
Adoption of |
|
|
|
|
As Reported |
|
|
Adjustments (1) |
|
|
ASC 606 |
|
|||
Net product revenues |
|
$ |
1,123,205 |
|
|
$ |
(28,229 |
) |
|
$ |
1,094,976 |
|
Benefit from income taxes |
|
$ |
(25,833 |
) |
|
$ |
(6,473 |
) |
|
$ |
(32,306 |
) |
Net loss |
|
$ |
(73,561 |
) |
|
$ |
(21,756 |
) |
|
$ |
(95,317 |
) |
|
(1) |
The adoption of ASC 606 resulted in additional revenues recognized in the first nine months of 2018, which in turn generated additional deferred tax liabilities that reduced the Company’s benefit from income taxes. The benefit from income taxes amount has been calculated using the Company’s estimated statutory rate. |
|
The impact of adoption on the Company’s Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 was as follows:
|
|
|
|
|
|
|
|
|
Balance without |
|
||
|
|
|
|
|
|
|
|
|
|
Adoption of |
|
|
|
|
As Reported |
|
|
Adjustments (1) |
|
|
ASC 606 |
|
|||
Net loss |
|
$ |
(73,561 |
) |
|
$ |
(21,756 |
) |
|
$ |
(95,317 |
) |
Deferred income taxes |
|
$ |
(32,735 |
) |
|
$ |
(6,473 |
) |
|
$ |
(39,208 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
(95,884 |
) |
|
$ |
28,229 |
|
|
$ |
(67,655 |
) |
Net cash used in operating activities |
|
$ |
(29,166 |
) |
|
$ |
— |
|
|
$ |
(29,166 |
) |
|
(1) |
The adoption of ASC 606 resulted in decreased Net Loss and increased Accounts Receivable, Net due to additional revenues recognized in the first nine months of 2018, which in turn generated additional deferred tax liabilities that reduced net Deferred Tax Assets. The amount of deferred income taxes has been calculated using the Company’s estimated statutory rate. |
|
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU 2018-02). The amendments allow a reclassification from Accumulated Other Comprehensive Loss (AOCI) to Accumulated Deficit for stranded tax effects resulting from the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act). ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-02 using the modified retrospective approach on an aggregate portfolio basis on January 1, 2018. As a result of adoption ASU 2018-02, the Company reclassified $0.6 million from AOCI to Accumulated Deficit in the first quarter of 2018.
(5) 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 Employee Stock Purchase Plan (ESPP), unvested restricted stock units (RSUs), common stock held by the NQDC and contingent issuances of common stock related to convertible debt.
The table below presents potential shares of common stock that were excluded from the computation of diluted earnings per common share as they were anti-dilutive using the if-converted or treasury stock method (in thousands of common shares):
|
Three and Nine Months Ended September 30, |
|
||||||
|
|
2018 |
|
|
2017 |
|
||
Options to purchase common stock |
|
|
7,517 |
|
|
|
8,328 |
|
Common stock issuable under the 2018 Notes |
|
|
3,983 |
|
|
|
3,983 |
|
Common stock issuable under the 2020 Notes |
|
|
3,983 |
|
|
|
3,983 |
|
Common stock issuable under the 2024 Notes |
|
|
3,970 |
|
|
|
3,970 |
|
Unvested restricted stock units |
|
|
3,411 |
|
|
|
2,923 |
|
Common stock potentially issuable for ESPP purchases |
|
|
407 |
|
|
|
365 |
|
Common stock held by the NQDC |
|
|
208 |
|
|
|
224 |
|
Total number of potentially issuable shares |
|
|
23,479 |
|
|
|
23,776 |
|
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)
In connection with the issuance of 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), the Company entered into capped call transactions with respect to 50% of the principal amount of the 2018 Notes and 50% of the principal amount of the 2020 Notes with certain hedge counterparties with conversion price of $94.15 per share. Although the Company’s stock price on September 30, 2018 exceeded the conversion price, the potential effect of the capped call transactions and potential shares issuable under the 2018 Notes and the 2020 Notes were excluded from the calculation of diluted loss per share in the three and nine months ended September 30, 2018 as they were anti-dilutive using the if-converted method. The potential effect of the capped call transactions with respect to the 2018 Notes and the 2020 Notes was excluded from the diluted net loss per share in the three and nine months ended September 30, 2017 as the Company’s closing stock price on September 30, 2017 did not exceed the conversion price.
(6) FINANCIAL INSTRUMENTS
All marketable securities were classified as available-for-sale at September 30, 2018 and December 31, 2017.
The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of September 30, 2018 and December 31, 2017, respectively:
|
Amortized Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
Cash and Cash Equivalents |
|
|
Short-term Marketable Securities (1) |
|
|
Long-term Marketable Securities (2) |
|
||||||||
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
208,562 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
208,562 |
|
|
$ |
208,562 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market instruments |
|
|
657,334 |
|
|
|
— |
|
|
|
— |
|
|
|
657,334 |
|
|
|
657,334 |
|
|
|
— |
|
|
|
— |
|
Corporate debt securities |
|
|
506,054 |
|
|
|
133 |
|
|
|
(2,498 |
) |
|
|
503,689 |
|
|
|
— |
|
|
|
350,109 |
|
|
|
153,580 |
|
Commercial paper |
|
|
70,784 |
|
|
|
— |
|
|
|
— |
|
|
|
70,784 |
|
|
|
16,288 |
|
|
|
54,496 |
|
|
|
— |
|
U.S. government agency securities |
|
|
201,706 |
|
|
|
— |
|
|
|
(1,087 |
) |
|
|
200,619 |
|
|
|
— |
|
|
|
149,512 |
|
|
|
51,107 |
|
Foreign and other |
|
|
7,126 |
|
|
|
146 |
|
|
|
(1 |
) |
|
|
7,271 |
|
|
|
— |
|
|
|
7,075 |
|
|
|
196 |
|
Subtotal |
|