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 COVID-19 pandemic could continue to 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). 21
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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 commercial products, as ofJune 30, 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 for further discussion (2)See "Government Regulation- Healthcare Reform" 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 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 ofJune 30, 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 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 six months endedJune 30, 2021 and 2020, 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 uncertain and difficult to predict, particularly as virus variants continue to spread. 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 continue to materially 22
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)
adversely affect our business, results of 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 half 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 June 2021 , we announced that the Committee for Medicinal
Products for Human Use (CHMP) adopted a positive opinion recommending marketing
authorization for vosoritide, 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, in children from the
age of 2 until growth plates are closed, which occurs after puberty when
children reach final adult height. A final approval decision, typically
consistent with the CHMP recommendation, is expected from the European
Commission in the third quarter of 2021.
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. The objectives of the study are to evaluate safety, tolerability,
and the effect of vosoritide on growth. We also plan 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 our 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).
•Valoctocogene roxaparvovec - In July 2021 , we announced new data from our
open-label Phase 1/2 study of valoctocogene roxaparvovec, an investigational
gene therapy for the treatment of adults with severe hemophilia A, during an
oral presentation at the International Society on Thrombosis and Haemostasis
(ISTH) 2021 Virtual Congress . Five-year and four-year post-treatment follow-up
of the 6e13 vg/kg and 4e13 vg/kg cohorts, respectively, showed a sustained
treatment benefit from valoctocogene roxaparvovec. All participants in both
cohorts remain off prophylactic Factor VIII treatment. The mean annualized bleed
rate (ABR) in year five for the 6e13 vg/kg cohort was 0.7 with an ABR reduction
of 95% and Factor VIII use reduction of 96% through five years, compared to
pre-infusion. The mean ABR in year four for the 4e13 vg/kg cohort was 1.7 with a
mean cumulative ABR reduction of 92% and Factor VIII use reduction of 95%
through four years, compared to pre-infusion. Mean Factor VIII activity levels
of 11.6 IU/dL in year five for the 6e13 vg/kg cohort and 5.6 IU/dL in year four
for the 4e13 vg/kg cohort as measured by the Chromogenic Substrate Assay,
support the observed reductions in bleed rates and annualized Factor VIII usage.
Additionally, in July 2021 , we announced new data from our positive pivotal
study with valoctocogene roxaparvovec, GENEr8 -1, during an oral presentation at
the ISTH 2021 Virtual Congress . The pivotal study demonstrated superiority to
Factor VIII prophylaxis in key clinical efficacy endpoints. Over 90 percent of
the 134 participants in the GENEr8 -1 study had an ABR of zero or a lower bleed
rate than baseline after week 4 of treatment with valoctocogene roxaparvovec.
Mean annualized Factor VIII utilization rate, among a pre-specified group of
prior participants in a non-interventional baseline observational study
(rollover population; N=112)
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)decreased from baseline on Factor VIII prophylaxis by 99% from 3961.2 (median 3754.4) to 56.9 (median 0) IU/kg/year after week 4 after treatment with valoctocogene roxaparvovec (p-value <0.001).
In July, 2021, we announced that theEuropean Medicines Agency (EMA) validated our Marketing Authorization Application (MAA). InMay 2021 , the EMA granted our request for accelerated assessment. Accelerated assessment potentially reduces the time frame for the CHMP and Committee for Advanced Therapies (CAT) to review a MAA for an Advanced Therapy Medicinal Product (ATMP) and we anticipate a CHMP opinion in the first half of 2022. 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 theGENEr8 -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. Additionally, inMarch 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 - InFebruary 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 - BMN 255 is a small molecule for the treatment of a subset of chronic renal disease. The Investigational New Drug application (IND) for BMN 255 is active and we are dosing subjects. •BMN 331 - BMN 331 for the treatment of hereditary angioedema is our third gene therapy product candidate. The IND for BMN 331 was cleared by the FDA inJuly 2021 and is active. •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 Six Months Ended June 30, June 30, 2021 2020 2021 2020 Total revenues$ 501.7 $ 429.5 $ 987.7 $ 931.6 Cost of sales$ 127.1 $ 98.0 $ 247.2 $ 209.3 Research and development (R&D) expense$ 161.1 $ 182.1 $ 309.8 $ 324.4 Selling, general and administrative (SG&A) expense$ 184.2 $ 175.4 $ 358.5 $ 362.7 Intangible asset amortization and contingent consideration$ 17.7 $ 14.9 $ 35.4 $ 30.6 Gain on sale of nonfinancial assets $ - $ - $ -$ (59.5) Other income (expense), net$ 2.5 $ (1.3) $ 0.6 $ (4.9) Provision for (benefit from) income taxes$ 1.2 $ (13.1) $ 7.1 $ 6.9 Net income (loss)$ 12.9 $ (29.2) $ 30.3 $ 52.2
The increase in Net Income for the three months ended
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions, except as otherwise disclosed)
•an increase in gross profit primarily due to higher product sales for Vimizim,
Naglazyme and Palynziq partially offset by lower product sales for Kuvan due to
generic competition driven by the loss of U.S. market exclusivity in October
2020 ; and
•decreased R&D expense primarily driven by the absence of the $26.3 million
upfront license fee paid to license preclinical programs from a third party in
the second quarter of 2020; partially offset by
•higher SG&A expense primarily due a ramp up of commercialization efforts ahead
of the anticipated regulatory approval of vosoritide.
The decrease in Net Income for the six months ended June 30, 2021 as compared to
the six months ended June 30, 2020 was primarily attributed to:
•the absence of a $59.5 million gain on sale of nonfinancial assets due to the
divestiture and sale of the Firdapse business in the first quarter of 2020;
partially offset by
•an increase in gross profit primarily due to higher product sales for Vimizim,
Naglazyme and Palynziq partially offset by lower product sales for Kuvan due to
generic competition driven by the loss of U.S. market exclusivity in October
2020 ; and
•decreased R&D expense primarily driven by the absence of the $26.3 million
upfront license fee paid to license preclinical programs from a third party in
the second quarter of 2020.
See "Results of Operations" below for additional information related to the Net
Income fluctuations presented above. Our cash, cash equivalents and investments
totaled $1.47 billion as of June 30, 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 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, revenues 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 could continue to
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 uncertain at this time, particularly as
virus variants continue to spread. 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 six months ended June 30, 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 Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Net product revenues by product:
Vimizim $ 171.7 $ 116.7 $ 55.0 $ 329.9 $ 253.9 $ 76.0
Naglazyme 118.8 81.0 37.8 226.1 195.3 30.8
Kuvan 78.8 122.6 (43.8) 149.6 244.6 (95.0)
Palynziq 59.0 40.7 18.3 113.0 75.3 37.7
Brineura 30.3 25.8 4.5 57.7 49.8 7.9
Firdapse - - - - 1.2 (1.2)
Total net product revenues
marketed by the Company $ 458.6 $ 386.8 $ 71.8 $ 876.3 $ 820.1 $ 56.2
Aldurazyme net product revenues
marketed by Sanofi Genzyme 28.1 32.3 (4.2) 78.1 88.0 (9.9)
Total net product revenues
Net Product Revenues include revenues generated from our approved products. In theU.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 theU.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 theU.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, governments place large periodic orders for our products. The timing of these large government orders can be inconsistent and can create significant quarter to quarter variation in our revenues. The increase in Net Product Revenues for the three and six months endedJune 30, 2021 as compared to the three and six months endedJune 30, 2020 was primarily attributed to the following: •Vimizim and Naglazyme: the higher revenues were primarily driven by timing of orders fromEurope andMiddle East ; and •Palynziq: the increase was primarily attributed to a combination of revenue from moreU.S. patients achieving maintenance dosing and new patients initiating therapy; partially offset by •Kuvan: the lower revenues were driven by generic competition as a result of the loss of U.S market exclusivity inOctober 2020 . We anticipate the COVID-19 pandemic could 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 revenues from delayed treatment starts for new patients will never be recouped. See the risk factor "The COVID-19 pandemic could continue to 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. InOctober 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 revenues 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 the remainder of 2021. 26
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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 Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Sales denominated in USD $ 256.7 $ 269.3 $ (12.6) $ 512.0 $ 543.8 $ (31.8)
Sales denominated in foreign
currencies 230.0 149.8 80.2 442.4 364.3 78.1
Total net product revenues $ 486.7 $ 419.1 $ 67.6 $ 954.4 $ 908.1 $ 46.3
The net impact of foreign currency exchange rates on product sales denominated
in currencies other than USD during the three and six months ending June 30,
2021 was favorable by $5.5 million and $2.1 million , respectively. The net
benefit to the three months ended June 30, 2021 was primarily driven by
favorable rate movements in the Euro and Great British Pound (GBP). The net
benefit in the six months ended June 30, 2021 was due to favorable movements in
Euro and GBP partially offset by weakening of the Brazilian Real and Russian
Ruble. This compares to an unfavorable impact of $6.2 million and $10.8 million
for the three and six months ending June 30, 2020 , respectively, primarily
driven by weakening of currencies in Latin American markets relative to the USD,
such as the Brazilian Real, Colombian Peso, Mexican Peso and Argentine Peso.
Royalty and Other Revenues
Royalty and Other Revenues include royalties earned on net sales of products
sold and milestones achieved by licensees or sublicensees and rental income
associated with the tenants in our facilities.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change
2021 2020 Change
Total Royalty and other revenues
The increase in royalty and other revenues for the three months endedJune 30, 2021 compared to the same period in 2020 was primarily due to higher licensing revenues earned from third parties. The increase in royalty and other revenues for the six months endedJune 30, 2021 compared to the same period in 2020 was primarily due to a license payment received from a third party due to their achievement of a regulatory milestone. We expect to continue to earn royalties from third parties in the future. Cost of Sales and Gross Margin Cost of Sales includes raw materials, personnel and facility and other costs associated with manufacturing our commercial products. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes royalties payable to third parties based on sales of our products and charges for inventory valuation reserves. Gross margin is calculated on Total Revenues, which includes Royalty and Other Revenues that usually do not have associated costs. The following table summarizes our Cost of Sales and gross margin: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change Total revenues$ 501.7 $ 429.5 $ 72.2 $ 987.7 $ 931.6 $ 56.1 Cost of sales$ 127.1 $ 98.0 $ 29.1 $ 247.2 $ 209.3 $ 37.9 Gross margin 74.7 % 77.2 % (2.5) % 75.0 % 77.5 % (2.5) %
Cost of Sales increased for the three and six 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)
Gross margin for the three and six months ended June 30, 2021 compared to the
same periods in 2020 decreased primarily due to the higher manufacturing costs
and lower Kuvan sales price as a result of generic competition.
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. Continued material investment in R&D activities that we have
strategically prioritized remains a core component of our business model and
future growth plans.
We evaluate the recoverability of costs associated with pre-launch manufacturing
activities and capitalize the costs incurred if recoverability is highly likely.
We have $9.6 million of manufacturing-related costs for vosoritide capitalized
as pre-launch inventory as of June 30, 2021 . See Note 6 to our accompanying
Consolidated Financial Statements for additional information regarding our
inventory.
R&D expense consisted of the following:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Research and early development $ 48.4 $ 59.9 $ (11.5) $ 89.6 $ 88.4 $ 1.2
Vosoritide 36.6 36.0 0.6 72.9 67.1 5.8
Valoctocogene roxaparvovec 29.1 33.4 (4.3) 54.9 64.2 (9.3)
Approved products 28.7 33.0 (4.3) 54.7 66.3 (11.6)
BMN 307 14.7 17.6 (2.9) 30.1 35.1 (5.0)
Other 3.6 2.2 1.4 7.6 3.3 4.3
Total R&D expense $ 161.1 $ 182.1 $ (21.0) $ 309.8 $ 324.4 $ (14.6)
The decrease in R&D expense for the three months ended June 30, 2021 as compared
to the same period in 2020 primarily comprised the following:
•a decrease in research and early development programs due to the absence of an
upfront license fee of $26.3 million related to preclinical programs licensed
from a third party in the second quarter of 2020 partially offset by an
increased spend on our early development programs;
•a reduction in activities related to approved products as the long-term post
marketing studies were completed; and
•a decrease in clinical trial activities related to valoctocogene roxaparvovec
as patients transitioned to the monitoring phase of the study.
The decrease in R&D expense for the six months ended June 30, 2021 as compared
to the same period in 2020 primarily comprised the following:
•a reduction in activities related to approved products as the long-term post
marketing studies were completed;
•a decrease in clinical trial activities related to valoctocogene roxaparvovec
as patients transitioned to the monitoring phase of the study; and
•lower expenses related to BMN 307 due to clinical manufacturing activities that
occurred during 2020; partially offset by
•an increase in clinical manufacturing activities related to our vosoritide
program.
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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 expect R&D expense to increase in future periods, primarily due to increased
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
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 Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
S&M expense $ 100.9 $ 97.0 $ 3.9 $ 195.1 $ 191.9 $ 3.2
G&A expense 83.3 78.4 4.9 163.4 170.8 (7.4)
Total SG&A expense $ 184.2 $ 175.4 $ 8.8 $ 358.5 $ 362.7 $ (4.2) S&M expenses by product were as follows:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
PKU Products (Kuvan and Palynziq) $ 31.3 $ 31.0 $ 0.3 $ 62.1 $ 61.8 $ 0.3
MPS Products (Aldurazyme, Naglazyme
and Vimizim) 27.7 24.1 3.6 52.1 52.6 (0.5)
Vosoritide 17.9 $ 6.1 11.8 34.4 11.7 22.7
Valoctocogene roxaparvovec 12.3 25.6 (13.3) 24.5 43.7 (19.2)
Brineura 9.1 8.6 0.5 17.2 18.8 (1.6)
Other 2.6 1.6 1.0 4.8 3.3 1.5
Total S&M expense $ 100.9 $ 97.0 $ 3.9 $ 195.1 $ 191.9 $ 3.2
The increase in S&M expense for the three and six months ended June 30, 2021 as
compared to the same periods in 2020 was primarily the result of an increase in
pre-commercialization activities related to vosoritide partially offset by a
reduction in valoctocogene roxaparvovec activities based on anticipated
timelines for potential approval.
The increase in G&A expense for the three months ended June 30, 2021 as compared
to the same period in 2020 was primarily due to the idle plant time related to
maintaining our valoctocogene roxaparvovec manufacturing capabilities.
The decrease in G&A expense for the six months ended June 30, 2021 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.
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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)
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 Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Changes in the fair value of
contingent consideration (gain) /
loss $ 2.2 $ (0.6) $
2.8
15.5 - 30.9 31.2 (0.3)
Total intangible asset amortization
and contingent consideration
Gain on sale of nonfinancial assets $ - $ - $
- $ -
Fair value of contingent consideration - the increase in the fair value of contingent consideration for the three and six months endedJune 30, 2021 as compared to the same period in 2020 was attributable to changes in the estimated probability of achieving sales milestones related to our PKU products. Amortization of intangible assets - the expense for the three and six months endedJune 30, 2021 as compared to the same periods in 2020 was flat. Gain on Sale of Nonfinancial Assets - the decrease in the six months endedJune 30, 2021 is due to the recognition of a gain of$59.5 million in the six months endedJune 30, 2020 due to the divestiture and sale of the Firdapse business. Interest Income We invest our cash equivalents and investments inU.S. government securities and other high credit quality debt securities in order to limit default and market risk. Interest Income comprised the following: Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change Interest income$ 4.5 $ 4.3 $ 0.2 $ 6.9 $ 9.5 $ (2.6) Interest income for the three months endedJune 30, 2021 compared to same period in 2020 was flat. The decrease in Interest Income for the six months endedJune 30, 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 Six Months Ended June 30, June 30, 2021 2020 Change 2021 2020 Change Interest expense$ 3.8 $ 8.0 $ (4.2) $ 7.6 $ 15.0 $ (7.4) The interest expense on convertible debt for the three and six months endedJune 30, 2021 compared to 2020 was lower due primarily to the settlement of the 2020 Notes in the fourth quarter of 2020. We do not expect interest expense to fluctuate significantly over the next 12 months. 30
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Provision for (benefit from) income taxes $ 1.2 $ (13.1) $ 14.3 Tax expense (benefit) was computed using a forecasted annual effective tax rate for the three and six months endedJune 30, 2021 and 2020. The provision for income taxes for the three and six months endedJune 30, 2021 and 2020 consisted of state, federal and foreign current tax expense which was offset by tax benefits related to stock option exercises and deferred tax benefits from federal orphan drug credits and R&D credits. Financial Position, Liquidity and Capital Resources As ofJune 30, 2021 , we had$1.47 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 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 theU.S. and worldwide resulting from the ongoing COVID-19 pandemic. In managing our liquidity needs in theU.S. , we do not rely on unrepatriated earnings as a source of funds. As ofJune 30, 2021 ,$237.4 million of our$1.47 billion balance of cash, cash equivalents and investments was held in non-U.S. subsidiaries, a significant portion of which is required to fund the liquidity needs of these non-U.S. subsidiaries. For additional discussion regarding income taxes, see Note 18 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . We are mindful that conditions in the current macroeconomic environment could affect our ability to achieve our goals. We sell our products in countries that face economic volatility and weakness. Although we have historically collected receivables from customers in such countries, sustained weakness or further deterioration of the local economies and currencies and adverse effects of the impact of the ongoing COVID-19 pandemic may cause customers in those countries to be unable to pay for our products. We will continue to monitor these conditions and will attempt to adjust our business processes, as appropriate, to mitigate macroeconomic risks to our business. Our liquidity and capital resources as ofJune 30, 2021 andDecember 31, 2020 were as follows: June 30, 2021 December 31, 2020 Change Cash and cash equivalents$ 641.5 $ 649.2$ (7.7) Short-term investments 481.9 416.2 65.7 Long-term investments 350.2 285.5 64.7 Cash, cash equivalents and investments$ 1,473.6 $ 1,350.9$ 122.7 Total convertible debt, net$ 1,077.1 $ 1,075.1$ 2.0 31
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Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
(In millions of
June 30, 2021 June 30, 2020 Change
Cash and cash equivalents at the beginning of the
period $ 649.2 $ 437.4 $ 211.8
Net cash provided by operating activities 196.3 12.5 183.8
Net cash used in investing activities (191.0) (171.3) (19.7)
Net cash provided by (used in) financing activities (13.4) 544.0 (557.4)
Foreign exchange impact 0.4 (3.7) 4.1
Cash and cash equivalents at the end of the period
$ 818.9 $ (177.4) Short-term and long-term investments 832.1 884.5 (52.4) Cash, cash equivalents and investments$ 1,473.6
Cash Provided by Operating Activities Net cash provided by operating activities increased by$183.8 million to$196.3 million in the six months endedJune 30, 2021 , compared to cash provided by operating activities of$12.5 million in the six months endedJune 30, 2020 . The increase was primarily attributed to the receipt of a tax refund, the timing of cash receipts from our customers and lower employee compensation related payments. Cash Used in Investing Activities Net cash used in investing activities increased by$19.7 million to$191.0 million in the six months endedJune 30, 2021 , compared to cash used in investing activities of$171.3 million in the six months endedJune 30, 2020 . The increase in cash used in investing activities was primarily attributable to the absence of the proceeds received from divestiture and sale of Firdapse to a third party in the first quarter of 2020 partially offset by lower purchases of property, plant and equipment and higher net maturities of available-for-sale debt securities. Cash Provided by (Used in) Financing Activities Net cash used in financing activities increased by$557.4 million to$13.4 million in the six months endedJune 30, 2021 , compared to cash provided by financing activities of$544.0 million in the six months endedJune 30, 2020 due primarily to the proceeds from the issuance of the 2027 Notes in the second quarter of 2020. Other Information Our$1.1 billion (undiscounted) of total convertible debt as ofJune 30, 2021 will impact our liquidity due to the semi-annual cash interest payments. As ofJune 30, 2021 , our indebtedness consisted of our 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes) and our 1.25% senior subordinated convertible notes due in 2027 (the 2027 Notes and together with the 2024 Notes, the Notes), which, if not converted, will be required to be repaid in cash at maturity inAugust 2024 andMay 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. InOctober 2018 , we entered into an unsecured revolving credit facility of up to$200.0 million which includes a letter of credit subfacility and a swingline loan subfacility. The credit facility is intended to finance ongoing working capital needs and for other general corporate purposes. InMay 2021 , we entered into an amendment agreement in respect of the credit facility, extending the maturity date fromOctober 19, 2021 toMay 28, 2024 , among other changes. The amended credit facility contains financial covenants including a maximum leverage ratio and a minimum interest coverage ratio. As ofJune 30, 2021 , there were no amounts outstanding under the credit facility and we and certain of our subsidiaries that serve as guarantors were in compliance with all covenants. For additional information related to our convertible debt see Note 9 to our accompanying Condensed Consolidated Financial Statements and Note 13 - Debt included in our Annual Report on Form 10-K for the year endedDecember 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. 32
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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)
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 June 30, 2021
were as follows:
Since Program Inception
Valoctocogene roxaparvovec $ 764.9
Vosoritide $ 643.6
BMN 307 $ 210.0
Approved products $ 2,319.4
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;
•the time and cost necessary to obtain regulatory approvals and the costs of
post-marketing studies which may be required by regulatory authorities; and
•the progress of research programs carried out by us.
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 of June 30, 2021 , such
commitments and other minimum contractual obligations for clinical and
post-marketing services were estimated at approximately $126.7 million .
As of June 30, 2021 , we were also subject to contingent payments totaling
approximately $727.3 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, $71.5 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 $235.3 million were considered remote as we are
no longer developing the related programs.
As of June 30, 2021 , the fair value of the contingent liabilities recorded on
our Condensed Consolidated Balance Sheet was $63.0 million , of which $32.2
million was short term.
Other than as set forth above, there have been no material changes to our
contractual and commercial obligations during the six months ended June 30,
2021 , as compared to the obligations disclosed in Management's Discussion and
Analysis in our Annual Report on Form 10-K for the year ended December 31, 2020 .
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