BIOMARIN PHARMACEUTICAL INC. The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the risk factor related to the impact of the coronavirus pandemic, "The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations and financial condition." described in "Risk Factors" in Part II, Item 1A in this Quarterly Report on Form 10-Q, amongst the other risk factors. These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Forward-Looking Statements" that appears at the beginning of this Quarterly Report on Form 10-Q. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments. Our Condensed Consolidated Financial Statements have been prepared in accordance withUnited States (U.S. ) generally accepted accounting principles (U.S GAAP) and are presented inU.S. Dollars (USD). 25
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)Overview
We are a global biotechnology company that develops and commercializes innovative therapies for people with serious and life-threatening rare diseases and medical conditions. We select 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. Our portfolio consists of several commercial therapies and multiple clinical and preclinical product candidates. A summary of our major commercial products, as ofMarch 31, 2021 , is provided below: United States Orphan United States Biologic European Union Orphan Drug Exclusivity Exclusivity Drug Exclusivity Commercial Products Indication Expiration (1) Expiration (2) Expiration (1) Aldurazyme (laronidase) MPS I (3) Expired Expired Expired Brineura (cerliponase alfa) CLN2 (4) 2024 2029 2027 Kuvan (sapropterin dihydrochloride) PKU (5) Expired Not Applicable Expired Naglazyme (galsulfase) MPS VI (6) Expired Expired Expired Palynziq (pegvaliase-pqpz) (7) PKU 2025 2030 2029 Vimizim (elosulfase alpha) MPS IVA (8) 2021 2026 2024 (1)See "Government Regulation-Orphan Drug Designation" in Part I, Item 1 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 26, 2021 (Annual Report) for further discussion (2)See "Government Regulation- Healthcare Reform" in Part I, Item 1 of our Annual Report for further discussion (3)For the treatment of Mucopolysaccharidosis I (MPS I) (4)For the treatment of late infantile neuronal ceroid lipofuscinosis type 2 (CLN2) (5)For the treatment of phenylketonuria (PKU) (6)For the treatment of Mucopolysaccharidosis VI (MPS VI) (7)For adult patients with PKU (8)For the treatment of Mucopolysaccharidosis IV Type A (MPS IVA) A summary of our on-going major development programs, as ofMarch 31, 2021 , is provided below: Major Product Candidates Target U.S. Orphan EU Orphan in Development Indication Designation Designation Stage Valoctocogene roxaparvovec Severe Hemophilia A Yes Yes Clinical Phase 3 Vosoritide Achondroplasia Yes Yes Clinical Phase 3 BMN 307 PKU Yes Yes Clinical Phase 1/2 Uncertainty Relating to the COVID-19 Pandemic The coronavirus disease (COVID-19) pandemic continues to affect economies and business around the world. Our global revenue sources, mostly in the form of demand interruptions such as missed patient infusions and delayed treatment starts for new patients, and our overall business operations were impacted by the COVID-19 pandemic during the three months endedMarch 31, 2021 and we anticipate a continued impact due to the COVID-19 pandemic on our financial results for the remainder of 2021. The extent and duration of such effects remain highly uncertain and difficult to predict. We are actively monitoring and managing our response and assessing actual and potential impacts to our operating results and financial condition, as well as developments in our business, which could further impact the developments, trends and expectations described below. See the risk factor related to the impact of the coronavirus pandemic, "The COVID-19 pandemic could materially adversely affect our business, results of 26
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)
operations and financial condition." described in "Risk Factors" in Part II,
Item 1A of this Quarterly Report, for additional details on the impact of the
COVID-19 pandemic.
Business Developments
We continued to advance our product candidate pipeline during the first quarter
of 2021. We believe that the combination of our internal research programs,
acquisitions and partnerships will allow us to continue to develop and
commercialize innovative therapies for people with serious and life-threatening
rare diseases and medical conditions. Below is a summary of key business
developments:
Continued Emphasis on Research and Development
•Vosoritide - In March, 2021, we announced that we have completed enrollment in
our Phase 2 randomized, placebo-controlled study of vosoritide for treatment of
infants and young children with achondroplasia, aged zero to less than five
years (60 months) old. Vosoritide is an investigational, once daily injection
analog of C-type Natriuretic Peptide (CNP) for children with achondroplasia, the
most common form of disproportionate short stature in humans. The objectives of
the study are to evaluate safety, tolerability, and the effect of vosoritide on
growth. The company also plans to augment the height data with assessments
including proportionality, functionality, quality of life, sleep apnea, and
foramen magnum dimension, as well as the advent of major illnesses and
surgeries.
In the first quarter of 2021, we provided the U.S. Food and Drug Administration
(FDA) with the two-year results from our pivotal global Phase 3 randomized,
double-blind, placebo-controlled extension study of vosoritide in approximately
121 children with achondroplasia ages 5-14 for two years to supplement the New
Drug Application (NDA) already under review. The data demonstrated that children
in the open-label long-term extension of the Phase 3 study maintained an
increase in Annual Growth Velocity through the second year of continuous
treatment. An analysis comparing 52 children who were randomized and treated
with vosoritide for two years to 38 children from the run-in study who were
randomized to receive placebo with an untreated observation period of two years
showed improvement in one-year height change in the treated group relative to
the untreated group. The one-year height change improvement in the second year
of treatment, 1.79 cm, was similar to the one-year height change improvement in
the first year of treatment, 1.73 cm. The cumulative height gain over the 2-year
period for treated children was 3.52 cm more than untreated children.
As anticipated, the FDA designated this submission as a major amendment to our
NDA, thus extending the Prescription Drug User Fee Act (PDUFA) target action
date by three months to November 20, 2021 to provide time for a full review of
the submission. Also in the first quarter of 2021, the FDA pre-approval
inspection of BioMarin's Novato facility for the manufacture of vosoritide drug
substance was completed.
In February 2021 , we announced that the FDA granted priority review designation
for our New Drug Application (NDA) for vosoritide. Under this designation, the
vosoritide NDA, if approved, may qualify for a Priority Review Voucher (PRV).
In Europe , we are in the final stages of the review procedure ahead of the
anticipated June 2021 Committee for Medicinal Products for Human Use (CHMP)
opinion on vosoritide. Assuming a positive CHMP opinion, the European Commission
could potentially grant marketing authorization for vosoritide in the third
quarter of 2021.
•Valoctocogene roxaparvovec - In January 2021 , we announced positive topline,
one-year data results from our ongoing global Phase 3 GENEr8 -1 study of
valoctocogene roxaparvovec, an investigational gene therapy for the treatment of
adults with severe hemophilia A. Data from the study in the pre-specified
primary analysis for Annualized Bleeding Rate (ABR) showed that a single dose of
valoctocogene roxaparvovec significantly reduced ABR by 84% compared with prior
treatment with prophylactic Factor VIII infusions. These results were from a
pre-specified group of participants in a non-interventional prospective baseline
observational study (rollover population; N=112) with a median follow-up of 60.1
weeks after dosing with valoctocogene roxaparvovec. 80% of the rollover
participants were bleed-free starting at week five after treatment.
In Europe , based on positive pre-submission feedback from the EMA in the first
quarter of 2021, we reaffirmed our plan to submit the Marketing Authorization
Application (MAA) with one-year results from the Phase 3 GENEr8 -1 study to the
EMA in June 2021 .
During the first quarter of 2021, the FDA reiterated their recommendation that
we submit two-year follow-up safety and efficacy data on all study participants
from the GENEr8 -1 study to support their benefit/risk assessment and assuming
favorable results, we are targeting submitting a Biologics License Application
(BLA) with these results in the second quarter of 2022, followed by an expected
six-month review procedures by the FDA.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)
Additionally, in March 2021 , we announced that the FDA granted Regenerative
Medicine Advanced Therapy (RMAT) designation to valoctocogene roxaparvovec. RMAT
is an expedited program intended to facilitate development and review of
regenerative medicine therapies, such as valoctocogene roxaparvovec, that are
intended to address an unmet medical need in patients with serious conditions.
The RMAT designation is complementary to Breakthrough Therapy Designation, which
we received in 2017, allowing early, close, and frequent interactions with the
FDA.
•BMN 307 - In February 2021 , we announced that we had begun to dose escalate
participants in PHEarless, the Phase 1/2 study of BMN 307 our gene therapy
candidate for PKU based on encouraging Phe lowering and safety signals observed
in study participants who were treated with the lowest dose. Both the FDA and
EMA have granted BMN 307 Orphan Drug Status. Additionally, the FDA has granted
fast track designation to BMN 307. All subjects participating in the PHEarless
study are receiving product made at commercial scale from our gene therapy
manufacturing facility.
•BMN 255 - In January 2021 , we announced that we filed an Investigational New
Drug application (IND) for BMN 255, a small molecule for the treatment of a
subset of chronic renal disease. BMN 255 was driven by genetic discoveries for
both mechanism and for identifying individuals for treatment.
•BMN 331 - IND-enabling studies are underway for BMN 331 for the treatment of
hereditary angioedema, our third gene therapy product candidate. We are on track
to file an IND for BMN 331 in the middle of 2021.
•BMN 351 - IND-enabling studies are underway for BMN 351 for the treatment of
Duchenne Muscular Dystrophy (DMD). BMN 351 is an antisense oligonucleotide
therapy that has demonstrated dystrophin expression levels of 30-50% of
wild-type levels in the quadriceps in a DMD mouse model treated at
18.7mg/kg/week for 13 weeks (measured 2 weeks following latest administration).
If results from the ongoing pre-clinical studies are supportive, we anticipate
filing an IND in the first half of 2022.
Financial Highlights
Key components of our results of operations include the following:
Three Months
Ended
March 31,
2021 2020
Total revenues $ 486.0 $ 502.1
Cost of sales $ 120.2 $ 111.4
Research and development (R&D) expense $ 148.7 $ 142.3
Selling, general and administrative (SG&A) expense $ 174.3 $ 187.3
Intangible asset amortization and contingent consideration $ 17.7 $ 15.7
Gain on sale of nonfinancial assets $ - $ (59.5)
Other income (expense), net $ (1.8) $ (3.5)
Provision for income taxes $ 5.9 $ 20.0
Net Income $ 17.4 $ 81.4
The decrease in Net Income for the three months ended March 31, 2021 as compared
to the three months ended March 31, 2020 was primarily attributed to:
•the absence of a gain on sale of nonfinancial assets due to the divestiture and
sale of Firdapse in the first quarter of 2020;
•a decrease in gross profits primarily due to lower product sales for Kuvan due
to generic competition driven by the loss of U.S. market exclusivity; and
•increased R&D expense primarily driven by spend on our pre-clinical programs
and manufacturing-related costs for vosoritide; partially offset by
•decreased SG&A expense primarily due a decrease in foreign currency exchange
losses.
See "Results of Operations" below for additional information related to the Net
Income fluctuations presented above.
Our cash, cash equivalents and investments totaled $1.41 billion as of March 31,
2021 compared to $1.35 billion as of December 31, 2020 . We have historically
financed our operations primarily through our cash flows from operating
activities and the issuance of common stock and convertible debt. We will be
highly dependent on our net product revenues to supplement our
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)
current liquidity and fund our operations for the foreseeable future. We may in
the future elect to supplement this with further debt or equity offerings or
commercial borrowing. Further, depending on market conditions, our financial
position and performance and other factors, we may in the future choose to use a
portion of our cash, cash equivalents or investments to repurchase our
convertible debt or other securities. See "Financial Position, Liquidity and
Capital Resources" below for a further discussion of our liquidity and capital
resources.
Critical Accounting Policies, Estimates and Judgments
In preparing our Condensed Consolidated Financial Statements in accordance with
U.S. GAAP and pursuant to the rules and regulations promulgated by the
Securities and Exchange Commission (the SEC ), we make assumptions, judgments and
estimates that can have a significant impact on our net income/loss and affect
the reported amounts of certain assets, liabilities, revenue and expenses, and
related disclosures. On an ongoing basis, we evaluate our estimates and discuss
our critical accounting policies and estimates with the Audit Committee of our
Board of Directors. We base our estimates on historical experience and various
other assumptions that we believe to be reasonable under the circumstances.
Actual results could differ materially from these estimates under different
assumptions or conditions.
The full extent to which the ongoing COVID-19 pandemic will directly or
indirectly impact our business, results of operations and financial condition,
including revenues, expenses, reserves and allowances, manufacturing, clinical
trials and research and development costs will depend on future developments
that continue to remain highly uncertain at this time. As events continue to
evolve and additional information becomes available, our estimates may change
materially in future periods.
There have been no significant changes to our critical accounting policies,
estimates and judgments during the three months ended March 31, 2021 , compared
to the critical accounting policies, estimates and judgments disclosed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our Annual Report on Form 10-K for the year ended
December 31, 2020 .
Recent Accounting Pronouncements
See Note 4 to our accompanying Condensed Consolidated Financial Statements for a
description of recent accounting pronouncements and our expectation of their
impact on our results of operations and financial condition.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
Results of Operations
Net Product Revenues
Net Product Revenues consisted of the following:
Three Months Ended
March 31,
2021 2020 Change
Net product revenues by product:
Vimizim $ 158.4 $ 137.2 $ 21.2
Naglazyme 107.3 114.3 (7.0)
Kuvan 70.8 122.0 (51.2)
Palynziq 54.0 34.6 19.4
Brineura 27.3 24.0 3.3
Firdapse - 1.2 (1.2)
Total net product revenues marketed by the Company $ 417.8 $ 433.3 $ (15.5)
Aldurazyme net product revenues marketed by Sanofi
Genzyme 50.0 55.7 (5.7)
Total net product revenues $ 467.8 $ 489.0 $ (21.2)
Net Product Revenues include revenues generated from our approved products. In
the U.S. , our commercial products, except for Palynziq and Aldurazyme, 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 certified
specialty pharmacies under the Palynziq Risk Evaluation and Mitigation Strategy
(REMS) program, and Aldurazyme is marketed worldwide by Sanofi Genzyme
(Genzyme ). Outside the U.S. , our commercial products are sold to authorized
distributors or directly to government purchasers or hospitals, which act as the
end-users. In certain countries, such as in Latin America , governments place
large periodic orders for Naglazyme and Vimizim. The timing of these large
government orders can be inconsistent and can create significant quarter to
quarter variation in our revenues.
The decrease in Net Product Revenues for the three months ended March 31, 2021
as compared to the three months ended March 31, 2020 was primarily attributed to
the following:
•Kuvan: the lower revenues were driven by generic competition as a result of the
loss of U.S market exclusivity in October 2020 ;
•Naglazyme: the decrease was primarily attributed to the timing of sales in
Europe and Latin America ; and
•Aldurazyme: the lower revenues were attributed to timing of product fulfillment
to Genzyme ; partially offset by
•Vimizim: the higher product revenues were primarily due to timing of orders
from Europe , Middle East and North Africa ; and
•Palynziq: the increase was primarily attributed to a combination of revenue
from more U.S. patients achieving maintenance dosing and new patients initiating
therapy.
We anticipate the COVID-19 pandemic will have a continued impact on future Net
Product Revenues during the remainder of 2021 as many of our products are
administered via infusions in a clinic or hospital setting and/or by a
healthcare professional. Although we are working with our patient community and
health care providers to find alternative arrangements where necessary, such as
providing infusions at home, the revenue from the doses of our products that are
missed by patients and the lost revenue from delayed treatment starts for new
patients will never be recouped. See the risk factor "The COVID-19 pandemic
could materially adversely affect our business, results of operations and
financial condition" in "Risk Factors" included in Part II, Item 1A of this
Quarterly Report for additional information.
In October 2020 , we lost U.S market exclusivity for Kuvan. We have been
preparing for this loss of exclusivity which will result in a reduction in
market share and adversely affect our revenue and results of operations in the
future. See the risk factor "The sale of generic versions of Kuvan by generic
manufacturers has adversely affected and will continue to adversely affect our
revenues and results of operations" in "Risk Factors" included in Part II, Item
1A of this Quarterly Report for additional information. Additionally, the
responses received from the FDA and EMA requesting additional safety and
efficacy data from our valoctocogene roxaparvovec Phase 3 studies and our
submission of the two-year results from the Phase 3 extension study of
vosoritide have extended our anticipated FDA regulatory approval decision
timelines which will have a negative impact on net product revenue growth for
remainder of 2021.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
We face exposure to movements in foreign currency exchange rates, primarily the
Euro. We use foreign currency exchange contracts to hedge a percentage of our
foreign currency exposure. The following table shows our Net Product Revenues
denominated in USD and foreign currencies:
Three Months Ended
March 31,
2021 2020 Change
Sales denominated in USD $ 255.4 $ 274.5 $ (19.1)
Sales denominated in foreign currencies 212.4 214.5 (2.1)
Total net product revenues $
467.8
The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during the three months endingMarch 31, 2021 was unfavorable by$3.4 million primarily driven by weakening of the Brazilian Real and Russian Ruble, partially offset by favorable rate movements in the Euro relative to the USD. This compares to an unfavorable impact of$4.6 million for the three months endingMarch 31, 2020 primarily driven by weakening of currencies in emerging markets relative to the USD, such as the Brazilian Real, Colombian Peso and Argentinian Peso, partially offset by the Euro. Royalty and Other Revenues Royalty revenues include royalties earned on net sales of products sold and milestones achieved by licensees or sublicensees. Other revenues include revenues earned from the sale of licenses of our intellectual property and rental income associated with the tenants in our facilities. Three Months Ended March 31, 2021 2020 Change Royalty revenues$ 17.8 $ 8.7 $ 9.1 Other revenues 0.5 4.3 (3.8) Total Royalty and Other revenues$ 18.3
The increase in royalty revenues for the three months endedMarch 31, 2021 compared to the same period in 2020 was primarily due to a license payment received from a third party due to their achievement of a regulatory milestone. The decrease in other revenues is due primarily to license revenues earned, in the first quarter of 2020, from the third-party that licensed tralesinidase alfa from us. We expect to continue to earn royalties from third parties in the future. Cost of Sales and Product Gross Margin Cost of Sales includes raw materials, personnel and facility and other costs associated with manufacturing our commercial products. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes royalties payable to third parties based on sales of our products and charges for inventory valuation reserves. The following table summarizes our Cost of Sales and product gross margin: Three Months Ended March 31, 2021 2020 Change Total net product revenues$ 467.8 $ 489.0 $ (21.2) Cost of sales$ 120.2 $ 111.4 $ 8.8 Product gross margin 74.3 % 77.2 % (2.9) % Cost of Sales increased for the three months endedMarch 31, 2021 compared to the same period in 2020 primarily due to increased sales volumes of Vimizim and Palynziq. Product gross margin for the three months endedMarch 31, 2021 compared to 31
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
the same period in 2020 decreased primarily due to the higher per-unit
manufacturing costs for Palynziq and Naglazyme, and product mix as there were
higher sales of lower margin products.
Research and Development
R&D expense includes costs associated with the research and development of
product candidates and post-marketing research commitments related to our
approved products. R&D expense primarily includes preclinical and clinical
studies, personnel and raw materials costs associated with manufacturing
clinical product, quality control and assurance, other R&D activities,
facilities and regulatory costs.
We manage our R&D expense by identifying the R&D activities we anticipate will
be performed during a given period and then prioritizing efforts based on
scientific data, probability of successful development, market potential,
available human and capital resources and other similar considerations. We
continually review our product pipeline and the development status of product
candidates and, as necessary, reallocate resources among the research and
development portfolio that we believe will best support the future growth of our
business.
We continuously evaluate the recoverability of costs associated with pre-launch
or pre-qualification manufacturing activities, and capitalize the costs incurred
related to those activities if it is determined that recoverability is highly
likely and therefore future revenues are expected. When regulatory approval and
the likelihood of future revenues for a product candidate are less certain, the
related manufacturing costs are expensed as R&D expenses. We have $5.9 million
of manufacturing-related costs for vosoritide capitalized as pre-launch
inventory as of March 31, 2021 . See Note 8 to our accompanying Consolidated
Financial Statements for additional information regarding our inventory.
R&D expense consisted of the following:
Three Months Ended
March 31,
2021 2020 Change
Research and early development $ 41.2 $ 28.5 $ 12.7
Vosoritide 36.3 31.1 5.2
Approved products 26.0 33.3 (7.3)
Valoctocogene roxaparvovec 25.8 30.8 (5.0)
BMN 307 15.4 17.5 (2.1)
Other 4.0 1.1 2.9
Total R&D expense $ 148.7 $ 142.3 $ 6.4
The increase in R&D expense for the three months ended March 31, 2021 as
compared to the same period in 2020 primarily comprised the following:
•an increase in research and early development program costs related primarily
to our pre-clinical programs, primarily BMN 331 for the treatment of hereditary
angioedema;
•an increase in manufacturing activities related to our vosoritide program for
certain markets; partially offset by
•a decrease in spending related to approved products as the long-term post
marketing studies are completed;
•a decrease in clinical trial spend related to valoctocogene roxaparvovec as
patients transition to the monitoring phase of the study.
We expect R&D expense to increase in future periods, primarily due to increased
spending on preclinical activities for our research and early development
programs while we continue to develop our later stage programs.
Selling, General and Administrative
Sales and marketing (S&M) expense primarily consisted of employee-related
expenses for our sales group, brand marketing, patient support groups and
pre-commercialization expenses related to our product candidates. General and
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
administrative (G&A) expense primarily consisted of corporate support and other
administrative expenses, including administrative employee-related expenses.
SG&A expenses consisted of the following:
Three Months Ended
March 31,
2021 2020 Change
S&M expense $ 94.2 $ 94.9 $ (0.7)
G&A expense 80.1 92.4 (12.3)
Total SG&A expense $ 174.3 $ 187.3 $ (13.0) S&M expenses by product were as follows:
Three Months Ended
March 31,
2021 2020 Change
PKU Products (Kuvan and Palynziq) $ 30.8 $ 30.8 $ -
MPS Products (Aldurazyme, Naglazyme and Vimizim) 24.4 28.5 (4.1)
Vosoritide 16.5 5.6 10.9
Valoctocogene roxaparvovec 12.2 18.1 (5.9)
Brineura 8.1 10.2 (2.1)
Other 2.2 1.7 0.5
Total S&M expense $ 94.2 $ 94.9 $ (0.7)
S&M expense for the three months ended March 31, 2021 as compared to the same
periods in 2020 was largely flat as resources were redirected from other
programs to support pre-commercialization activities related to vosoritide based
on anticipated approval timelines.
The decrease in G&A expense for the three months ended March 31, 2021 as
compared to the same period in 2020 was primarily due to a decrease in foreign
currency exchange losses.
We expect SG&A expense to increase in future periods as a result of preparing to
launch new products and support of our global business as it grows.
Intangible Asset Amortization and Contingent Consideration and Gain on Sale of
Nonfinancial Assets
Changes during the periods presented for Intangible Asset Amortization and
Contingent Consideration and Gain on Sale of Nonfinancial Assets were as
follows:
Three Months Ended
March 31,
2021 2020 ChangeChanges in the fair value of contingent consideration (gain) / loss
$ 2.3 $ -$ 2.3 Amortization of intangible assets 15.4 15.7 (0.3)
Total intangible asset amortization and contingent consideration
$
17.7
Gain on sale of nonfinancial assets $
-
Fair value of contingent consideration - the increase in the fair value of
contingent consideration for the three months ended
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
Gain on Sale of Nonfinancial Assets - the decrease is due to the recognition of
a gain of $59.5 million in the three months ended March 31, 2020 due to the
divestiture and sale of Firdapse. See Note 6 to our accompanying Condensed
Consolidated Financial Statements for additional discussion on this transaction.
Interest Income
We invest our cash equivalents and investments in U.S. government securities and
other high credit quality debt securities in order to limit default and market
risk. Interest Income comprised the following:
Three Months Ended March 31,
2021 2020 Change
Interest income $ 2.4 $ 5.2 $ (2.8)
The decrease in Interest Income for the three months ended March 31, 2021
compared to 2020 was primarily due to lower interest rates.
We expect Interest Income to be lower over the next 12 months due to lower
interest rates and yields on our cash equivalents and investments.
Interest Expense
We incur interest expense primarily on our convertible debt. Interest expense
for the periods presented consisted of the following:
Three Months Ended March 31,
2021 2020 Change
Interest expense $ 3.8 $ 6.9 $ (3.1)
The interest expense on convertible debt for the three months ended March 31,
2021 compared to 2020 was lower due primarily to the settlement of the 2020
Notes in the fourth quarter of 2020.
We expect interest expense to be lower over the next 12 months due to the
settlement of the 2020 Notes, partially offset by increased interest expense for
the 2027 Notes.
Provision for Income Taxes
The following table summarizes our income tax provision:
Three Months Ended March 31,
2021 2020 Change
Provision for income taxes $
5.9
Tax expense was computed using a forecasted annual effective tax rate for the three months endedMarch 31, 2021 and 2020. The provision for income taxes for the three months endedMarch 31, 2021 and 2020 consisted of state, federal and foreign current tax expense which was offset by deferred tax benefits from federal orphan drug credits and R&D credits. Financial Position, Liquidity and Capital Resources As ofMarch 31, 2021 , we had$1.4 billion in cash, cash equivalents and investments. We expect to fund our operations with our net product revenues from our commercial products, cash, cash equivalents and investments, supplemented as may become necessary by proceeds from equity or debt financings and loans, or collaborative agreements with corporate partners. We believe that our existing cash, cash equivalents and investments and cash we expect to generate from operations will be sufficient to satisfy our liquidity requirements for the next 12 months. We may require additional financing to fund the repayment of our convertible debt, future milestone payments and our future operations, including the commercialization of our products and product candidates currently under development, preclinical studies and clinical trials, and potential licenses and acquisitions. We will need to raise additional funds from equity or debt securities, loans or collaborative agreements if we are unable to satisfy our liquidity requirements. The timing and mix of our funding options could change depending on many factors, including how much we elect to 34
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
spend on our development programs, potential licenses and acquisitions of
complementary technologies, products and companies or if we elect to settle all
or a portion of our convertible debt in cash. Our ability to raise additional
capital may also be adversely impacted by potential worsening global economic
conditions and the recent disruptions to, and volatility in, financial markets
in the U.S. and worldwide resulting from the ongoing COVID-19 pandemic.
In managing our liquidity needs in the U.S. , we do not rely on unrepatriated
earnings as a source of funds. As of March 31, 2021 , $189.3 million of our $1.4
billion balance of cash, cash equivalents, and investments was held in non-U.S.
subsidiaries, a significant portion of which is required to fund the liquidity
needs of these non-U.S. subsidiaries. For additional discussion regarding income
taxes, see Note 18 to our Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2020 .
We are mindful that conditions in the current macroeconomic environment could
affect our ability to achieve our goals. We sell our products in countries that
face economic volatility and weakness. Although we have historically collected
receivables from customers in such countries, sustained weakness or further
deterioration of the local economies and currencies and adverse effects of the
impact of the ongoing COVID-19 pandemic may cause customers in those countries
to be unable to pay for our products. We will continue to monitor these
conditions and will attempt to adjust our business processes, as appropriate, to
mitigate macroeconomic risks to our business.
Our liquidity and capital resources as of March 31, 2021 and December 31, 2020
were as follows:
March 31, 2021 December 31, 2020 Change
Cash and cash equivalents $ 667.3 $ 649.2 $ 18.1
Short-term investments 420.2 416.2 4.0
Long-term investments 321.1 285.5 35.6
Cash, cash equivalents and investments $ 1,408.6 $ 1,350.9 $ 57.7
Total convertible debt, net $ 1,076.1 $ 1,075.1 $ 1.0 Our cash flows for the three months ended
March 31, 2021 March 31, 2020 Change
Cash and cash equivalents at the beginning of the
period $ 649.2 $ 437.4 $ 211.8
Net cash provided by (used in) operating activities 113.5 (15.2) 128.7
Net cash provided by (used in) investing activities (70.8) 77.4 (148.2)
Net cash used in financing activities (24.4) (19.7) (4.7)
Foreign exchange impact (0.2) (3.4) 3.2
Cash and cash equivalents at the end of the period $ 667.3
$ 476.6 $ 190.7
Short-term and long-term investments 741.3 672.6 68.7
Cash, cash equivalents and investments $ 1,408.6 Cash Provided by (Used in) Operating Activities Net cash provided by operating activities increased by$128.7 million to$113.5 million in the three months endedMarch 31, 2021 , compared to cash used in operating activities of$15.2 million in the three months endedMarch 31, 2020 . The increase is primarily attributed to the timing of cash receipts from our customers, tax authorities and lower bonus compensation payments made to our employees partially offset by payments to vendors. Cash Provided by (Used in) Investing Activities Net cash used in investing activities increased by$148.2 million to$70.8 million in the three months endedMarch 31, 2021 , compared to cash provided by investing activities of$77.4 million in the three months endedMarch 31, 2020 . The increase in cash used is primarily attributable to higher net purchases of available-for-sale debt securities and a$67.2 million decrease in 35
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of U.S. dollars, except as otherwise disclosed)
proceeds received from the sale of nonfinancial assets resulting from
divestiture and sale of Firdapse to a third party in the first quarter of 2020.
Cash Used in Financing Activities
Net cash used in financing activities increased by $4.7 million to $24.4 million
in the three months ended March 31, 2021 , compared to cash used in financing
activities of $19.7 million in the three months ended March 31, 2020 due
primarily to the lower proceeds from the exercise of awards under our equity
incentive plans.
Other Information
Our $1.1 billion (undiscounted) of total convertible debt as of March 31, 2021
will impact our liquidity due to the semi-annual cash interest payments. As of
March 31, 2021 , our indebtedness consisted of our 1.25% senior subordinated
convertible notes due in 2027 (the 2027 Notes) and our 0.599% senior
subordinated convertible notes due in 2024 (the 2024 Notes and together with the
2027 Notes, the Notes), which, if not converted, will be required to be repaid
in cash at maturity in August 2024 and May 2027 , respectively. We will need cash
not only to pay the ongoing interest due on the Notes during their term, but
also to repay the principle amount of the Notes if not converted.
In October 2018 , we entered into an unsecured revolving credit facility of up to
$200.0 million (the 2018 Credit Facility). The 2018 Credit Facility includes a
letter of credit subfacility and a swingline loan subfacility and is intended to
finance ongoing working capital needs and for other general corporate purposes.
The 2018 Credit Facility matures on October 19, 2021 at which time all
outstanding amounts become due and payable. The 2018 Credit Facility contains
financial covenants requiring us to maintain a minimum interest coverage ratio
and a minimum liquidity requirement. As of March 31, 2021 , there were no
outstanding amounts due on nor any usage of the 2018 Credit Facility.
For additional information related to our convertible debt see Note 11 to our
accompanying Condensed Consolidated Financial Statements and Note 13 - Debt
included in our Annual Report on Form 10-K for the year ended December 31, 2020 .
Funding Commitments
We cannot estimate with certainty the cost to complete any of our product
development programs. Additionally, we cannot precisely estimate the time to
complete any of our product development programs or when we expect to receive
net cash inflows from any of our product development programs. Please see "Risk
Factors" included in Part II, Item 1A of this Quarterly Report on Form 10-Q, for
a discussion of the reasons we are unable to estimate such information.
Our investment in our product development programs and continued development of
our existing commercial products has a major impact on our operating
performance. Our R&D expenses for the period since inception as of March 31,
2021 were as follows:
Since Program Inception
Palynziq $ 750.3
Valoctocogene roxaparvovec $ 735.8
Vosoritide $ 607.0
BMN 307 $ 195.3
Other approved products $ 1,540.4
We may need or elect to increase our spending above our current long-term plans
to be able to achieve our long-term goals. This may increase our capital
requirements, including: costs associated with the commercialization of our
products? additional clinical trials; investments in the manufacturing of our
commercial products? preclinical studies and clinical trials for our product
candidates; potential licenses and other acquisitions of complementary
technologies, products and companies; and general corporate purposes.
Our future capital requirements will depend on many factors, including, but not
limited to:
•our ability to successfully market and sell our products;
•the time and cost necessary to develop commercial manufacturing processes,
including quality systems, and to build or acquire manufacturing capabilities;
•the progress and success of our preclinical studies and clinical trials
(including the manufacture of materials for use in such studies and trials);
•the timing, number, size and scope of our preclinical studies and clinical
trials;
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our consolidated financial position or results of operations. Contractual and Commercial Obligations We have contractual and commercial obligations under our convertible debt, leases and other obligations related to R&D activities, purchase commitments, licenses and sales royalties with annual minimums. As ofMarch 31, 2021 , such commitments and other minimum contractual obligations for clinical and post-marketing services were estimated at approximately$122.9 million . As ofMarch 31, 2021 , we were also subject to contingent payments totaling approximately$654.5 million upon achievement of certain development and regulatory activities and commercial sales milestones if they occur before certain dates in the future. Of this amount,$70.4 million were considered probable and comprised of commercial milestones related to the acquisition of certain rights and other assets with respect to Kuvan and Palynziq from a third party,$235.0 million were considered reasonably possible and related to milestones for early stage development programs licensed from a third party in the second quarter of 2020 and$234.7 million were considered remote as we are no longer developing the related programs. As ofMarch 31, 2021 ,$60.0 million of contingent liabilities were recorded on our Condensed Consolidated Balance Sheets,$30.8 million of which were short term. Other than as set forth above, there have been no material changes to our contractual and commercial obligations during the three months endedMarch 31, 2021 , as compared to the obligations disclosed in Management's Discussion and Analysis in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 37
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