10-Q 1 bmrn-10q_20160630.htm FORM 10-Q Q2 2016 bmrn-10q_20160630.htm

o

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016

Or

o

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  x    No  o

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  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

o

 

 

 

 

Non-accelerated filer

 

o   (Do not check if a smaller reporting company)

  

Smaller reporting company

 

o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  o    No  x

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: 163,465,821 shares of common stock, par value $0.001, outstanding as of July 29, 2016.

 

 

 

 

 

 


BIOMARIN PHARMACEUTICAL INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

Item 1.

 

Financial Statements

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2016 (Unaudited) and December 31, 2015

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2016 and 2015

 

4

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the six months ended June 30, 2016

 

5

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2016 and 2015

 

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

28

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

41

Item 4.

 

Controls and Procedures

 

41

PART II.

 

OTHER INFORMATION

 

41

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

62

Item 3.

 

Defaults Upon Senior Securities

 

62

Item 4.

 

Mine Safety Disclosures

 

62

Item 5.

 

Other Information

 

62

Item 6.

 

Exhibits

 

63

SIGNATURES

 

64

BioMarin®, Vimizim®, Naglazyme®, Kuvan® and Firdapse® are our registered trademarks. Brineura™ and KyndrisaTM are our 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.

 

 

 

2


BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2016 and December 31, 2015

(In thousands of U.S. dollars, except share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015(1)

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

305,969

 

 

$

397,040

 

Short-term investments

 

 

197,318

 

 

 

195,579

 

Accounts receivable, net (allowance for doubtful accounts: $132 and $93,

   at June 30, 2016 and December 31, 2015, respectively)

 

 

214,158

 

 

 

164,959

 

Inventory

 

 

326,556

 

 

 

271,683

 

Other current assets

 

 

61,945

 

 

 

60,378

 

Total current assets

 

 

1,105,946

 

 

 

1,089,639

 

Noncurrent assets:

 

 

 

 

 

 

 

 

Long-term investments

 

 

201,620

 

 

 

425,652

 

Property, plant and equipment, net

 

 

724,494

 

 

 

704,207

 

Intangible assets, net

 

 

568,966

 

 

 

683,996

 

Goodwill

 

 

197,039

 

 

 

197,039

 

Deferred tax assets

 

 

266,182

 

 

 

220,191

 

Other assets

 

 

23,057

 

 

 

408,644

 

Total assets

 

$

3,087,304

 

 

$

3,729,368

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

292,342

 

 

$

392,511

 

Short-term convertible debt, net

 

 

24,420

 

 

 

 

Short-term contingent acquisition consideration payable

 

 

47,818

 

 

 

52,946

 

Total current liabilities

 

 

364,580

 

 

 

445,457

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

Long-term convertible debt, net

 

 

645,685

 

 

 

662,286

 

Long-term contingent acquisition consideration payable

 

 

120,151

 

 

 

32,663

 

Deferred tax liabilities

 

 

 

 

 

143,527

 

Other long-term liabilities

 

 

39,312

 

 

 

44,588

 

Total liabilities

 

 

1,169,728

 

 

 

1,328,521

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value: 250,000,000 shares authorized at

  June 30, 2016 and December 31, 2015: 163,282,081 and 161,526,044 shares

  issued and outstanding at June 30, 2016 and  December 31, 2015, respectively

 

 

164

 

 

 

162

 

Additional paid-in capital

 

 

3,458,124

 

 

 

3,414,837

 

Company common stock held by Nonqualified Deferred Compensation Plan

 

 

(14,969

)

 

 

(13,616

)

Accumulated other comprehensive income

 

 

4,528

 

 

 

21,033

 

Accumulated deficit

 

 

(1,530,271

)

 

 

(1,021,569

)

Total stockholders’ equity

 

 

1,917,576

 

 

 

2,400,847

 

Total liabilities and stockholders’ equity

 

$

3,087,304

 

 

$

3,729,368

 

(1)

December 31, 2015 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, 2015, filed with the Securities and Exchange Commission (the SEC) on February 29, 2016.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 

3


BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three and Six Months Ended June 30, 2016 and 2015

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product revenues

 

$

298,576

 

 

$

249,023

 

 

$

533,933

 

 

$

450,335

 

Collaborative agreement revenues

 

 

 

 

 

342

 

 

 

233

 

 

 

718

 

Royalty, license and other revenues

 

 

1,555

 

 

 

770

 

 

 

2,701

 

 

 

2,002

 

Total revenues

 

 

300,131

 

 

 

250,135

 

 

 

536,867

 

 

 

453,055

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

51,617

 

 

 

38,063

 

 

 

94,735

 

 

 

69,061

 

Research and development

 

 

167,039

 

 

 

157,901

 

 

 

325,832

 

 

 

299,975

 

Selling, general and administrative

 

 

109,577

 

 

 

101,514

 

 

 

214,877

 

 

 

194,320

 

Intangible asset amortization and contingent consideration

 

 

(54,414

)

 

 

16,945

 

 

 

(43,972

)

 

 

19,847

 

Impairment of intangible assets

 

 

599,118

 

 

 

 

 

 

599,118

 

 

 

 

Total operating expenses

 

 

872,937

 

 

 

314,423

 

 

 

1,190,590

 

 

 

583,203

 

LOSS FROM OPERATIONS

 

 

(572,806

)

 

 

(64,288

)

 

 

(653,723

)

 

 

(130,148

)

Equity in the loss of BioMarin/Genzyme LLC

 

 

(135

)

 

 

(203

)

 

 

(270

)

 

 

(353

)

Interest income

 

 

1,357

 

 

 

1,023

 

 

 

2,928

 

 

 

1,706

 

Interest expense

 

 

(9,944

)

 

 

(10,002

)

 

 

(19,787

)

 

 

(19,464

)

Debt conversion expense

 

 

 

 

 

 

 

 

 

 

 

(163

)

Other expense

 

 

(1,417

)

 

 

(9,073

)

 

 

(1,219

)

 

 

(8,824

)

LOSS BEFORE INCOME TAXES

 

 

(582,945

)

 

 

(82,543

)

 

 

(672,071

)

 

 

(157,246

)

Benefit from income taxes

 

 

(159,385

)

 

 

(554

)

 

 

(163,369

)

 

 

(7,756

)

NET LOSS

 

$

(423,560

)

 

$

(81,989

)

 

$

(508,702

)

 

$

(149,490

)

NET LOSS PER SHARE, BASIC AND DILUTED

 

$

(2.61

)

 

$

(0.51

)

 

$

(3.14

)

 

$

(0.94

)

Weighted average common shares outstanding, basic and diluted

 

 

162,587

 

 

 

160,406

 

 

 

162,067

 

 

 

159,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(419,079

)

 

$

(93,347

)

 

$

(525,207

)

 

$

(144,495

)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 


4


BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2016

(In thousands of U.S. dollars)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held by

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonqualified

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Deferred

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common stock

 

 

Paid-in

 

 

Compensation

 

 

Comprehensive

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Plan

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2015

 

 

161,526

 

 

$

162

 

 

$

3,414,837

 

 

$

(13,616

)

 

$

21,033

 

 

$

(1,021,569

)

 

$

2,400,847

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(508,702

)

 

 

(508,702

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,505

)

 

 

 

 

 

 

(16,505

)

Issuance of common stock under the 2006

   Employee Stock Purchase Plan (the ESPP)

 

 

110

 

 

 

 

 

 

 

6,048

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,048

 

Exercise of common stock options

 

 

565

 

 

 

1

 

 

 

16,965

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,966

 

Excess tax benefit from stock option exercises

 

 

 

 

 

 

 

 

 

 

314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

314

 

Restricted stock units vested during the period, net

 

 

740

 

 

 

1

 

 

 

(52,825

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,824

)

Conversion of convertible notes, net

 

 

341

 

 

 

 

 

 

 

6,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,941

 

Common stock held by Nonqualified

   Deferred Compensation Plan (the NQDC)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,353

)

 

 

 

 

 

 

 

 

 

 

(1,353

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

65,844

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,844

 

Balance at June 30, 2016

 

 

163,282

 

 

$

164

 

 

$

3,458,124

 

 

$

(14,969

)

 

$

4,528

 

 

$

(1,530,271

)

 

$

1,917,576

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

 


5


BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2016 and 2015

(In thousands of U.S. dollars)

(Unaudited)

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(508,702

)

 

$

(149,490

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

48,496

 

 

 

22,263

 

Non-cash interest expense

 

 

14,762

 

 

 

14,080

 

Accretion of discount on investments

 

 

536

 

 

 

941

 

Stock-based compensation

 

 

64,075

 

 

 

52,201

 

(Gain) loss on sale of equity investment

 

 

2,027

 

 

 

(3,022

)

Impairment of assets

 

 

599,118

 

 

 

12,802

 

Deferred income taxes

 

 

(184,494

)

 

 

(14,951

)

Excess tax benefit from stock option exercises

 

 

(314

)

 

 

(385

)

Unrealized foreign exchange gain on forward contracts

 

 

(7,882

)

 

 

(10,203

)

Non-cash changes in the fair value of contingent acquisition consideration payable

 

 

(59,066

)

 

 

14,606

 

Other

 

 

705

 

 

 

721

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(50,250

)

 

 

(37,587

)

Inventory

 

 

(42,713

)

 

 

(28,923

)

Other current assets

 

 

3,186

 

 

 

2,211

 

Other assets

 

 

(1,439

)

 

 

497

 

Accounts payable and accrued liabilities

 

 

(87,560

)

 

 

(33,633

)

Other long-term liabilities

 

 

(8,058

)

 

 

7,070

 

Net cash used in operating activities

 

 

(217,573

)

 

 

(150,802

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property, plant and equipment

 

 

(70,710

)

 

 

(79,288

)

Maturities and sales of investments

 

 

283,780

 

 

 

154,200

 

Purchase of available-for-sale investments

 

 

(58,914

)

 

 

(729,263

)

Purchase of promissory note

 

 

 

 

 

(3,326

)

Business acquisitions, net of cash acquired

 

 

(1,467

)

 

 

(538,392

)

Other

 

 

(150

)

 

 

 

Net cash provided by (used in) investing activities

 

 

152,539

 

 

 

(1,196,069

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from exercises of stock options and the ESPP

 

 

23,014

 

 

 

45,427

 

Taxes paid related to net share settlement of equity awards

 

 

(52,824

)

 

 

(19,566

)

Proceeds from public offering of common stock, net

 

 

 

 

 

888,257

 

Excess tax benefit from stock option exercises

 

 

314

 

 

 

385

 

Other

 

 

 

 

 

(2,063

)

Net cash provided by (used in) financing activities

 

 

(29,496

)

 

 

912,440

 

Effect of exchange rate changes on cash

 

 

3,459

 

 

 

(391

)

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

 

(91,071

)

 

 

(434,822

)

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

$

397,040

 

 

$

875,486

 

End of period

 

$

305,969

 

 

$

440,664

 

SUPPLEMENTAL CASH FLOW DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest, net of interest capitalized into fixed assets

 

 

4,521

 

 

 

5,133

 

Cash paid for income taxes

 

 

93,969

 

 

 

13,814

 

Stock-based compensation capitalized into inventory

 

 

5,751

 

 

 

5,492

 

Depreciation capitalized into inventory

 

 

7,880

 

 

 

7,316

 

SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING

   ACTIVITIES:

 

 

 

 

 

 

 

 

Decrease in accounts payable and accrued liabilities related to fixed assets

 

 

(17,130

)

 

 

(6,911

)

Conversion of convertible debt

 

 

6,941

 

 

 

8,133

 

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 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 or BioMarin), a Delaware corporation, develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. BioMarin 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 product portfolio consists of five approved products and multiple clinical and investigational product candidates. The Company’s approved products are Vimizim (elosulfase alfa), Naglazyme (galsulfase), Kuvan (sapropterin dihydrochloride), Aldurazyme (laronidase) and Firdapse (amifampridine phosphate).

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 equity or debt financings, loans and collaborative agreements with corporate partners. Until the Company consistently generates positive cash flows from its operations, the Company expects to raise the capital necessary to fund its current operations and long-term plans. Additional capital may also be necessary if the Company enters into potential licenses and other acquisitions of complementary technologies, products or companies.

The Company is subject to a number of risks and uncertainties, including: the financial performance of its approved products; the expected 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; the Company’s ability to compete effectively; 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.

 

 

(2) BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to 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 the United States generally accepted accounting principles (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, 2015 included in the Company’s Annual Report on Form 10-K.

The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which 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 six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

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 six months ended June 30, 2016, 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, 2015.

    

 

 

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 six months ended June 30, 2016, 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, 2015, that are of significance or potential significance to the Company.

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. ASU 2016-09 will be effective for the Company’s fiscal year beginning January 1, 2017 unless it elects early adoption. The Company is currently evaluating the potential impact the adoption of ASU 2016-09 will have on its consolidated financial statements and has not elected to early adopt the amendments.

In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02). The amended guidance requires balance sheet recognition of lease assets and liabilities by lessees for leases classified as operating leases, with an option to not recognize lease 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 application is permitted. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019 unless it elects early adoption. The amendments require a modified retrospective approach with optional practical expedients. The Company is currently evaluating the potential impact the adoption of ASU 2016-02 will have on its consolidated financial statements and has not elected to early adopt ASU 2016-02.  

 

In May 2014, the FASB issued ASU No. 2014-09 (ASU 2014-09) regarding Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. ASU 2014-09 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. In August 2015, the FASB issued ASU No. 2015-14 to defer the effective date by one year with early adoption permitted as of the original effective date. ASU 2014-09 will be effective for the Company’s fiscal year beginning January 1, 2018 unless it elects the earlier date of January 1, 2017. In March 2016, the FASB issued ASU No. 2016-08 to help provide interpretive clarifications on the new guidance for ASC Topic 606. In April 2016, the FASB issued ASU No. 2016-10 to clarify the guidance for identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU No. 2016-12 to improve the guidance on collectibility, noncash consideration, and completed contracts at transition. The Company is currently evaluating the accounting, transition, and disclosure requirements of the standard.

 

 

(5) ACQUISITIONS

The Merck PKU Business

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 United States (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 year ended December 31, 2015 and the six month period ended June 30, 2016.

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)

 

Pursuant to the A&R Kuvan Agreement, the Company paid Merck Serono $374.5 million, in cash, in the six months ended June 30, 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.

The Company and Merck Serono have no further rights or obligations under the License Agreement with respect to pegvaliase. The License Agreement will continue in effect, but in no event later than December 31, 2016, in order to complete the transfer of certain assets related to Kuvan, the majority of which occurred in January 2016. Accordingly, as of June 30, 2016, the Company continues to rely on Merck Serono to provide critical transition services for the sales and distribution of Kuvan in approximately 8 remaining countries until marketing authorizations can be transferred in such countries.

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. Pegvaliase is currently in registration-enabling pivotal studies as a potential therapeutic option for adult patients with PKU. Kuvan has Orphan Drug exclusivity in Europe until 2020 and pegvaliase has Orphan Drug designation in the U.S. and European Union (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 at June 30, 2016. See Note 13 to these Condensed Consolidated Financial Statements for additional 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 preliminary 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 adjustment related to additional inventory purchases 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.

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)

 

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.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined results of operations of the Company and the Merck PKU Business as if the acquisition occurred on January 1, 2015. This unaudited pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of future operations that would have been achieved had the acquisitions taken place at the beginning of 2015.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2015

 

 

2015

 

Total revenues

 

$

269,435

 

 

$

488,233

 

Net loss

 

$

(74,790

)

 

$

(136,071

)

Net loss per share, basic and dilutive

 

$

(0.47

)

 

$

(0.86

)

Weighted average common shares outstanding, basic and diluted

 

 

160,406

 

 

 

159,017

 

 

 

(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 table below presents the shares of common stock that were excluded from the computation as they were anti-dilutive using the treasury stock method (in thousands of shares):

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Options to purchase common stock

 

 

10,445

 

 

 

10,703

 

 

 

10,445

 

 

 

10,703

 

Common stock issuable under the 2017 Notes

 

 

1,203

 

 

 

1,554

 

 

 

1,203

 

 

 

1,554

 

Common stock issuable under the 2018 and 2020 Notes

 

 

7,966

 

 

 

7,966

 

 

 

7,966

 

 

 

7,966

 

Unvested restricted stock units

 

 

2,829

 

 

 

1,553

 

 

 

2,829

 

 

 

1,441

 

Potentially issuable common stock for ESPP purchases

 

 

84

 

 

 

213

 

 

78

 

 

204

 

Common stock held by the NQDC

 

 

253

 

 

 

248

 

 

 

253

 

 

 

248

 

Total number of potentially issuable shares

 

 

22,780

 

 

 

22,237

 

 

 

22,774

 

 

 

22,116

 

 

The effect of the Company’s 0.7% 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, and together with the 2018 Notes, the Notes) were excluded from the diluted net loss per common share because they may be settled in cash or shares at the Company’s option and the Company’s current intention is to settle up to the principal amount of the converted notes in cash and any excess conversion value (conversion spread) in shares of the Company’s common stock. As a result, during the three and six months ended June 30, 2016 and 2015, the Notes had no effect on diluted net loss per share as the Company’s closing stock price on June 30, 2016 and 2015 did not exceed the conversion price of $94.15 per share for the Notes.

 

 

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)

 

(7) INVESTMENTS

All investments were classified as available-for-sale at June 30, 2016 and December 31, 2015. 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 June 30, 2016 and December 31, 2015 are summarized in the tables below:

 

 

 

Amortized Cost

 

 

Gross

Unrealized

Holding Gains

 

 

Gross

Unrealized

Holding Losses

 

 

Aggregate Fair

Value at                                 June 30, 2016

 

Corporate debt securities

 

$

278,166

 

 

$

1,477

 

 

$

(52

)

 

$

279,591

 

U.S. government agency securities

 

 

118,945

 

 

 

267

 

 

 

 

 

 

119,212

 

Greek government-issued bonds

 

 

52

 

 

 

83

 

 

 

 

 

 

135

 

Total

 

$

397,163

 

 

$

1,827

 

 

$

(52

)

 

$

398,938

 

 

 

 

Amortized Cost

 

 

Gross

Unrealized

Holding Gains

 

 

Gross

Unrealized

Holding Losses

 

 

Aggregate Fair

Value at                                   December 31, 2015

 

Certificates of deposit

 

$

63,919

 

 

$

1

 

 

$

 

 

$

63,920

 

Corporate debt securities

 

 

358,625

 

 

 

20

 

 

 

(732

)

 

 

357,913

 

Commercial paper

 

 

12,733

 

 

 

 

 

 

 

 

 

12,733

 

U.S. government agency securities

 

 

186,882

 

 

 

 

 

 

(344

)

 

 

186,538

 

Greek government-issued bonds

 

 

48

 

 

 

79

 

 

 

 

 

 

127

 

Total

 

$

622,207

 

 

$

100

 

 

$

(1,076

)

 

$

621,231

 

 

As of December 31, 2015, the Company had two investments in marketable equity securities measured using quoted prices in their respective active markets that are collectively considered strategic investments. In June 2016, the remaining shares of one strategic investment were sold for a realized loss of $2.0 million. As of June 30, 2016, the fair value of the Company’s marketable equity securities was $4.7 million, which included an unrealized gain of $1.7 million.  As of December 31, 2015, the fair value of the Company’s marketable equity securities was $18.1 million, which included an unrealized gain of $12.7 million. The Company’s investments are recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheets.

The fair values of available-for-sale securities by contractual maturity were as follows:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Maturing in one year or less

 

$

197,318

 

 

$

195,579

 

Maturing after one year through five years

 

 

201,620

 

 

 

425,652

 

Total

 

$

398,938

 

 

$

621,231

 

 

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 June 30, 2016, some of the Company’s investments were in an unrealized loss position. However, 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.

 

 

 

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)

 

(8) INTANGIBLE ASSETS

Intangible assets consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Intangible assets:

 

 

 

 

 

 

 

 

Finite-lived intangible assets

 

$

305,123

 

 

$

129,572

 

Indefinite-lived intangible assets

 

 

332,199

 

 

 

607,548

 

Gross intangible assets:

 

 

637,322

 

 

 

737,120

 

Less: Accumulated amortization

 

 

(68,356

)

 

 

(53,124

)

Net carrying value

 

$

568,966

 

 

$

683,996

 

Indefinite-Lived Intangible Assets

Intangible assets related to IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated R&D 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 a reduction in the fair value of the IPR&D assets below their respective carrying amounts. If and 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 in time.

During the second quarter of 2016, the Company withdrew its Marketing Authorization Application (MAA) for Kyndrisa from the European Medicines Agency (EMA) and announced it would discontinue clinical and regulatory development of Kyndrisa as well as the three other first-generation follow-on products, BMN 044, BMN 045 and BMN 053 (other exons), for the treatment of distinct forms of Duchenne muscular dystrophy. Based on the current status of the European development efforts, the Company recognized an impairment charge of $574.1 million in the second quarter of 2016 related to the Kyndrisa and other exon IPR&D assets reducing the remaining book value to zero. The Company also recognized an impairment charge of $25.0 million in the second quarter of 2016 related to the reveglucosidase alfa IPR&D assets due to the decision to terminate that development program. No intangible asset impairment charges were recognized during the three and six months ended June 30, 2015.

See Note 8 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for additional information related to the Company’s intangible assets.

 

 

(9) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following:

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Building and improvements

 

$

512,842

 

 

$

442,100