~~Total revenues generated outside the U.S. was $725.4 million, $609.3 million and $445.8 million, in the years ended December 31, 2017, 2016 and 2015, respectively.~~

~~The following table outlines non-monetary long-lived assets by geographic area (in millions):~~

The increase in non-monetary long-lived assets in 2017 compared to 2016 was primarily attributable to increased costs related to our in-process projects at our manufacturing facilities in the U.S. and Europe, partially offset by a net decrease in intangible assets due to normal amortization of the definite lived intangible assets. The increase in non-monetary long-lived assets in 2016 compared to 2015 was primarily attributable to increased costs related to our in-process projects at our manufacturing facilities, partially offset by a net decrease in intangible assets resulting from the impairment of in-process research and development intangible assets due to program terminations in 2016.

~~See “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K for additional information regarding the risks we face related to our foreign operations.~~

•imposition of civil or criminal penalties.

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If such regulatory actions are taken, ~~the~~our value ~~of our company~~ and our operating results will be adversely affected. Additionally, if the FDA, the EMA or any other comparable international regulatory agency withdraws its approval of a product, we will be unable to generate revenue from the sale of that product in the relevant jurisdiction, our potential for generating positive cash flow will be diminished and the capital necessary to fund our operations will be increased. Accordingly, we continue to expend significant time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, post-marketing studies and quality control.

If we fail to obtain or maintain orphan drug exclusivity for some of our products, our competitors may obtain approval to sell the same drugs to treat the same conditions and our revenues will be reduced.

As part of our business strategy, we have developed and may in the future develop some drugs that may be eligible for FDA and EU orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the U.S. In the EU, orphan drug designation is ~~granted to drugs~~available if a sponsor can establish: that the medicine is intended ~~to treat~~for the diagnosis, prevention or treatment of (1) a ~~rare disease~~life-threatening or chronically debilitating condition ~~defined as having a prevalence of~~affecting no more than five in 10,000 people in the EU, which is equivalent to around 250,000 people or ~~fewer.~~fewer or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the medicinal product in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of seven years. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. ~~Similar regulations are available in~~In addition, the FDA may approve another drug during a period of orphan drug exclusivity if the second drug is found to be clinically superior to the first drug. In the EU, ~~with~~ a ten-year period of market exclusivity (extendable to twelve years for medicines that have complied with an agreed pediatric investigation plan pursuant to Regulation 1901/2006) is available. Orphan drug marketing exclusivity may be lost in the EU if a manufacturer is unable to supply sufficient quantities and marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this medicinal product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if, at the end of the fifth year, it can be demonstrated on the basis of available evidence that the criteria for its designation as an orphan medicine are no longer satisfied, for example if the original orphan medicinal product has become sufficiently profitable not to justify maintenance of market exclusivity.

Because the extent and scope of patent protection for some of our products is limited, orphan drug designation is especially important for our products that are eligible for orphan drug designation. For eligible products, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced.

Even though we have obtained orphan drug designation for certain of our product candidates and even if we obtain orphan drug designation for our future product candidates, due to the uncertainties associated with developing biopharmaceutical products, we may not be the first to obtain marketing approval for any particular orphan indication, which means that we may not obtain orphan drug exclusivity and could also potentially be blocked from approval of certain product candidates until the competitor product’s orphan drug exclusivity period expires. Moreover, with respect to certain biologics and gene therapies, it is uncertain how similarity between product candidates designed to treat the same rare disease or condition may affect such product candidates’ orphan drug exclusivities. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition and the same drug can be approved for different conditions and potentially used off-label in the orphan indication. Even after an orphan drug is approved and granted orphan drug exclusivity, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer or more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug, nor gives the drug any advantage in the regulatory review or approval process.

We may face competition from biosimilars approved through an abbreviated regulatory pathway.

Our Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim products are regulated by the FDA as biologics under the Federal Food, Drug, and Cosmetic Act (the FDC Act) and the Public Health Service Act (the PHS Act). Biologics require the submission of a ~~BLA~~Biologics License Application (BLA) and approval by the FDA prior to being marketed in the U.S. ~~Historically, a biologic product approved under a BLA was not subject to the generic drug review and approval provisions of the FDC Act. However, the~~The Biologics Price Competition and Innovation Act of 2009 (BPCIA) created a regulatory pathway under the PHS Act for the abbreviated approval of biological products that are demonstrated to be “biosimilar” or “interchangeable” with an FDA-approved biological product. A similar abridged marketing authorization process is available to biosimilar products in the EU. In order to meet the standard of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical result as the reference product, and for a product that is administered more than once, that the risk of switching between the reference product and biosimilar product is not greater than the risk of maintaining the patient on the reference product. ~~Such biosimilars would reference biological products approved in the U.S.~~ The BPCIA establishes a period of 12 years of exclusivity for reference products. ~~Aldurazyme’s~~In Europe, a medicinal product containing a new active substance benefits from eight years of data exclusivity, ~~under~~during which biosimilar applications referring to the ~~BPCIA expired in 2015, Brineura’s~~data of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, ~~under~~during which such biosimilar products may not be placed on the ~~BPCIA expires in 2029, Naglazyme’s exclusivity under~~market. The two-year period may be extended to three years if during the ~~BPCIA expired in June 2017, and Vimizim’s exclusivity under the BPCIA expires in 2026.~~first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved. Our products approved under

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BLAs in the U.S. or Marketing Authorisation Applications (MAAs) in Europe, as well as products in development that may be approved under ~~BLAs~~those regimes in the future, could be reference products for biosimilar marketing applications.

To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required and the results of the studies and trials are highly uncertain.

Likewise, preliminary, initial or interim data from clinical trials should be considered carefully and with caution since the final data may be materially different from the preliminary, initial or interim data, particularly as more patient data become available.

As part of the drug development process we must conduct, at our own expense, preclinical studies in the laboratory, including studies in animals, and clinical trials on humans for each product candidate. ~~We expect the~~The number of preclinical studies and clinical trials that ~~the~~ regulatory authorities ~~will~~ require ~~will vary~~varies depending on the product candidate, the disease or condition the drug is being developed to address and regulations applicable to the particular drug. Generally, new drugs for diseases or conditions that affect larger patient populations, are less severe, or are treatable by alternative strategies must be validated through additional preclinical and clinical trials and/or clinical trials with higher enrollments. With respect to our early stage product candidates, we may need to perform multiple preclinical studies using various doses and formulations before we can begin clinical trials, which could result in delays to our development timeline. Furthermore, even if we obtain favorable results in preclinical studies, the results in humans may be significantly different. After we have conducted preclinical studies, we must demonstrate that our product candidates are safe and efficacious for use in the targeted human patients in order to receive regulatory approval for commercial sale. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, and favorable data from interim analyses do not ensure the final results of a trial will be favorable. From time to time, we have and may in the future publish or report preliminary, initial or interim data from our clinical trials, such as the data we have announced from the GENEr-8-1 study for valoctocogene roxaparvovec. Preliminary, initial or interim data from our clinical trials may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and/or more patient data become available. In this regard, such data may show initial evidence of clinical benefit, but as patients continue to be followed and more patient data become available, there is a risk that any therapeutic effects will not be durable in patients and/or will decrease over time or cease entirely. Preliminary, initial or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from such preliminary, initial or interim data. As a result, preliminary, initial or interim data should be considered carefully and with caution until the final data are available.

Product candidates may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, or despite having favorable data in connection with an interim analysis. A number of companies in the biopharmaceutical industry ~~including us with respect to Kyndrisa,~~ have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Also, as noted above, we do not always follow the advice of regulatory authorities or comply with all of their requests regarding the design of our clinical programs. In those cases, we may choose a development program that is inconsistent with the advice of regulatory authorities, which may limit the jurisdictions where we conduct clinical trials and/or adversely affect our ability to obtain approval in those jurisdictions where we do not follow the regulatory advice.

Adverse or inconclusive clinical results could stop us from obtaining regulatory approval of our product candidates. Additional factors that can cause delay or termination of our clinical trials include:

•slow or insufficient patient enrollment;

•slow recruitment of, and completion of necessary institutional approvals at, clinical sites;

•budgetary constraints or prohibitively high clinical trial costs;

•longer treatment time required to demonstrate efficacy;

•lack of sufficient supplies of the product candidate;

•adverse medical events or side effects in treated patients, including immune reactions;

•lack of effectiveness of the product candidate being tested;

•availability of competitive therapies to treat the same indication as our product candidates;

•regulatory requests for additional clinical trials or ~~pre-clinical~~preclinical studies;

•deviations in standards for Good Clinical Practice (GCP); and

•disputes with or disruptions in our relationships with clinical trial partners, including CROs, clinical laboratories, clinical sites, and principal ~~investigators~~

investigators.

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Moreover, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive compensation in connection with such services reportable to the FDA or other regulatory authority. If the FDA or other regulatory authority concludes that a financial relationship between us and a principal investigator has created a conflict of interest, the FDA or other regulatory authority may question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized.

Our valoctocogene roxaparvovec ~~(formerly referred to as BMN 270)~~ program is based on a gene therapy approach, which, as a novel technology, presents additional ~~treatment, regulatory, manufacturing,~~development and ~~commercial~~treatment risks in relation to our other, more traditional drug development programs.

In addition to the risks set forth in this Risk Factors section associated with developing ~~and commercializing~~ more traditional pharmaceutical drugs, there are additional, unique development and treatment risks associated with gene therapy products like our product candidate valoctocogene roxaparvovec. The goal of gene therapy is to be able to correct an inborn genetic defect through one-time administration of therapeutic genetic material containing non-defective gene copies. The gene copies are designed to reside permanently in a patient, allowing the patient to produce an essential protein or ribonucleic acid (RNA) molecule that a healthy person would normally produce. There is a risk, however, that the new gene copies will produce too ~~much~~little or too ~~little~~much of the desired protein or RNA. ~~There~~Although a one-time administration of a gene therapy product like our product candidate valoctocogene roxaparvovec is ~~also~~intended to correct an inborn genetic defect for the entire lifetime of a patient, there is a risk that the therapeutic effect will not be durable and production of the desired protein or RNA will ~~increase or~~ decrease over ~~time.~~time or cease entirely. Because the treatment is irreversible, there may be challenges in managing side effects, particularly those caused by ~~overproduction.~~potential overproduction of the desired protein. Adverse effects would not be able to be reversed or relieved by stopping dosing, and we may have to develop additional clinical safety procedures. Furthermore, because the new gene copies are designed to reside permanently in a patient, there is a risk that they will disrupt other normal biological molecules and processes, including other healthy genes, and we may not learn the nature and magnitude of these side effects until long after clinical trials have been completed.

~~We may experience development problems related~~

As compared to our other, more traditional products, our gene therapy ~~program that cause significant delays or unanticipated costs, or that cannot be solved. Although numerous companies are currently advancing gene therapy~~ product ~~candidates through clinical trials~~candidate valoctocogene roxaparvovec, if approved, may present additional problems with respect to the pricing, coverage, and reimbursement and acceptance of the ~~FDA has approved several cell-based gene therapy treatments~~product candidate.

In addition to ~~date,~~ the ~~FDA has only approved one vector-based gene therapy product thus far. Moreover,~~risks set forth in this Risk Factors section associated with commercializing more traditional pharmaceutical drugs, there are ~~very few approved~~additional, unique commercial risks associated with gene therapy products ~~outside the U.S. As a result, it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for~~like our product candidate in any jurisdiction. Regulatory requirements governing gene and cell therapy products are still evolving and may continue to change in the future. Regulatory review agencies and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our treatment candidate or lead to significant post-approval studies, limitations or restrictions. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to

~~bring~~ valoctocogene roxaparvovec to market could have a negative effect on our business and financial condition. Even if we do obtain regulatory approval, ethical, social and legal concerns about gene therapy arising in the future could result in additional regulations restricting or prohibiting sale of our product.

~~Even if we obtain regulatory approval for~~ ~~valoctocogene roxaparvovec~~, we may experience delays, and increased costs, in developing a sustainable, reproducible and large-scale manufacturing process. Gene therapy products are novel, complex and difficult to manufacture, and have only in limited cases been manufactured at scales sufficient for pivotal trials and commercialization. Few pharmaceutical contract manufacturers specialize in gene therapy products and those that do are still developing appropriate processes and facilities for large-scale production. Whether we produce ~~valoctocogene roxaparvovec~~ at a contract manufacturer or at our own gene therapy manufacturing facility, we will likely face technical and scientific challenges, considerable capital costs, and potential difficulty in recruiting and hiring experienced, qualified personnel. As a result, we could experience manufacturing delays that prevent us from completing our clinical studies or commercializing ~~valoctocogene roxaparvovec~~ ~~in a timely, or on a profitable, basis, if at all.~~

roxaparvovec. Due to the relative novelty of gene therapy and the potential to provide extended duration therapeutic treatment with a one-time administration, we ~~also~~ face uncertainty with respect to the pricing, coverage and reimbursement of valoctocogene roxaparvovec,, if approved. In order to recover our research and development costs and commercialize this one-time treatment on a profitable basis, we expect the cost of a single administration of valoctocogene roxaparvovec to be substantial. Therefore, we expect that coverage and reimbursement by governments and other third-party payers will be essential for the vast majority of patients to be able to afford valoctocogene ~~roxaparvovec~~.roxaparvovec. Accordingly, sales of valoctocogene roxaparvovec,, if approved, will depend substantially, both domestically and internationally, on the extent to which its cost will be paid by third-party payers. Even if coverage is provided, the reimbursement amounts approved by third-party payers may not be high enough to allow us to realize a sufficient ~~return on~~revenues from our ~~investment.~~

investment in the development of valoctocogene roxaparvovec.

We also face uncertainty as to whether gene therapy will gain the acceptance of the public or the medical community. Even if we obtain regulatory approval for valoctocogene roxaparvovec,, the commercial success of valoctocogene roxaparvovec will depend, in part, on the acceptance of physicians, patients and ~~healthcare~~third-party payers of gene therapy products in general, and our product candidate in particular, as medically necessary, cost-effective and safe. In particular, our success will depend upon physicians prescribing our product candidate in lieu of existing treatments they are already familiar with and for which greater clinical data may be available. ~~Even if~~ ~~valoctocogene roxaparvovec~~ ~~displays a favorable efficacy~~Moreover, physicians and ~~safety profile in clinical trials and is ultimately approved, market~~patients may delay acceptance of valoctocogene roxaparvovec ~~will not be fully known~~ until ~~after it is launched.~~the product candidate has been on the market for a certain amount of time. Negative public opinion or more restrictive government regulations or could have a negative effect on our business and financial condition and may delay or impair the ~~development and~~successful commercialization of, and demand for, valoctocogene roxaparvovec.

We have implemented a data access plan for valoctocogene roxaparvovec,.

which restricts our management’s review of emerging data from these trials. Without access to ongoing data, management does not have the ability to adjust the trials based on such emerging data, which could adversely impact the ultimate outcome of these trials.

In order to preserve the scientific integrity of the valoctocogene roxaparvovec trials and to allow us to only report on data at intervals that we believe will be meaningful to investors, we have implemented a data access plan related to the ongoing open label trials, which is designed to significantly mirror blinded trials. Pursuant to this plan, the ongoing emerging data are generally not collected by us, with the exception that certain specific data points are collected and reviewed by a small group of medical personnel monitoring and managing the trial, and then, only to the extent necessary to allow them to perform their monitoring responsibilities. As we disclose and publicly discuss prior data from these trials, such discussions do not incorporate any of the currently emerging data that are being collected and reviewed by personnel monitoring the trial and, accordingly, this prior data may differ significantly from more recent data that are only available to such personnel. Further, since our management does not have access to any of the ongoing data and does not have the ability to adjust the trials based on such emerging data, the data access plan could adversely impact the ultimate outcome of the trials.

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If we continue to incur operating losses ~~and experience net~~or are unable to sustain positive cash ~~outflows~~flows for a period longer than anticipated, we may be unable to continue our operations at planned levels and be forced to reduce our operations.

Since we began operations in March 1997, we have been engaged in substantial research and development and capital investments, and we have operated at a net loss for each year since our inception, with the exception of 2008 and 2010. Based upon our current plan for investments in research and development for existing and new programs, as well as capital investments in our facilities and working capital needs, such as for inventory, we expect to operate at a net loss and experience net cash outflows for at least the next 12 months. Our future profitability and cash flows depend on our marketing and selling of our products, the receipt of regulatory approval of our product candidates, our ability to successfully manufacture and market any products, either by ourselves or jointly with others, our spending on our development programs, the impact of any possible future business development transactions and other risks set forth in this Risk Factors section. The extent of our future losses and the timing of profitability and positive cash flows are highly uncertain. If we fail to become profitable ~~and cash flow positive~~ or are unable to sustain profitability and positive cash flows on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.

If we fail to obtain the capital necessary to fund our operations, our financial results and financial condition will be adversely affected and we will have to delay or terminate some or all of our product development programs.

As of December 31, ~~2017,~~2019, we had cash, cash equivalents and investments totaling ~~$1.8~~$1.2 billion and ~~long-term~~convertible debt obligations of ~~$1.2 billion~~$870.0 million (undiscounted). , which consisted of our 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes) and our 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes and, together with the 2020 Notes, the Notes), which, if not converted, will be required to be repaid in cash at maturity in October 2020 and August 2024, respectively. We will need cash not only to pay the ongoing interest due on the Notes during their term, but also to repay the principal amount of the Notes if not converted.

In January 2016, we terminated our License and Commercialization Agreement with Ares Trading, S.A. (~~Merck Serono~~)(Merck Serono). Pursuant to the Termination and Transition Agreement related to Kuvan and the Termination Agreement related to ~~pegvaliase,~~Palynziq, we ~~made cash~~are obligated to make certain payments ~~on this transaction totaling $374.5 million,~~to Merck Serono if sales and development milestones are achieved. The remaining milestone payments that may ~~pay~~ ~~Merck Serono~~become payable include up to a maximum of €60 million, in cash, if future sales milestones are met with respect to Kuvan and up to a maximum of €125 million, in cash, if future development milestones are met with respect to pegvaliase. In October 2013, we completed an offering of senior subordinated convertible notes and received net proceeds of approximately $696.4 million, after deducting commissions, estimated offering expenses payable by us and the purchase of the related capped calls. In August 2017, we completed an offering of senior subordinated convertible notes and received net proceeds of approximately $481.7 million, after deducting commissions and estimated offering expenses payable by us, a majority of which we intend to use to repay, repurchase or settle in cash some or all of our 0.75% senior subordinated convertible notes due in 2018 (the 2018 Notes). We will need cash to not only repay the principal amount of the 2018 Notes, our 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes), and our 0.599% senior subordinated convertible notes due in 2024, (the 2024 Notes, and together with the 2018 Notes and the 2020 Notes, the Notes) but also the ongoing interest due on the Notes during their term.

Palynziq.

We may require additional financing to fund the repayment of ~~our~~the Notes, 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 may be unable to raise additional financing due to a variety of factors, including our financial condition, the status of our product programs, and the general condition of the financial markets. If we fail to raise any necessary additional financing we may have to delay or terminate some or all of our product development programs and our financial condition and operating results will be adversely affected.

We expect to continue to spend substantial amounts of capital for our operations for the foreseeable future. The amount of capital we will need depends on many factors, including:

•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;~~

capabilities the progress and success of our preclinical studies and clinical trials (including studies and the manufacture of materials);

•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;

•the progress of research programs carried out by us;

•our possible achievement of development and commercial milestones under agreements with third parties, such as the Kuvan and Palynziq milestones under the termination agreements with Merck ~~Serono related to Kuvan and pegvaliase milestones;~~

Serono;

•any changes made to, or new developments in, our existing collaborative, licensing and other commercial relationships or any new collaborative, licensing and other commercial relationships that we may establish;

•Sanofi Genzyme’s (Genzyme) ability to continue to successfully commercialize Aldurazyme; and

•whether our convertible debt is converted to common stock in the future.

Moreover, our fixed expenses such as rent, license payments, interest expense and other contractual commitments are substantial and may increase in the future. These fixed expenses may increase because we may enter into:

•additional licenses and collaborative agreements;

•additional contracts for product manufacturing; and

•additional financing facilities or arrangements.

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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 sale of additional securities will result in additional dilution to our stockholders. Furthermore, additional financing may not be available in amounts or on terms satisfactory to us or at all. This could result in the delay, reduction or termination of our research, which could harm our business.

We have incurred substantial indebtedness that may decrease our business flexibility, access to capital, and/or increase our borrowing costs, which may adversely affect our operations and financial results.

As of December 31, ~~2017,~~2019, we had ~~$1.2 billion~~$870.0 million (undiscounted) principal amount of indebtedness, including ~~$375.0 million (undiscounted) principal amount of indebtedness under the 2018 Notes,~~ $375.0 million (undiscounted) principal amount of indebtedness under the 2020 Notes and $495.0 million (undiscounted) principal amount of indebtedness under the 2024 Notes. In ~~November 2016,~~October 2018, we also entered into aan unsecured credit agreement (the 2018 Credit ~~Agreement)~~Facility) with Bank of America, N.A., as the administrative agent, ~~swing line~~swingline lender and a lender, Citibank N.A. as letter of credit issuer and each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank, N.A. and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners, providing ~~for~~ up to ~~$100.0~~$200.0 million in revolving ~~loans.~~loan commitments. Our indebtedness may:

•limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;

•limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;

•require us to use a substantial portion of our cash flow from operations to make debt service payments;

•limit our flexibility to plan for, or react to, changes in our business and industry;

•place us at a competitive disadvantage compared to our less leveraged competitors; and

•increase our vulnerability to the impact of adverse economic and industry conditions.

In addition, the 2018 Credit ~~Agreement does,~~Facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. If we default under the 2018 Credit ~~Agreement,~~Facility, the outstanding borrowings thereunder could become immediately due and payable, the 2018 Credit ~~Agreement~~Facility lenders could refuse to permit additional borrowings under the facility, or it could lead to defaults under agreements governing our current or future indebtedness, including the indentures governing ~~our~~the Notes. If we default under any of the Notes, such Notes could become immediately due and payable and it could lead to defaults under the other Notes and/or the 2018 Credit ~~Agreement.~~

Facility.

In addition, our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time.

Our outstanding indebtedness consists primarily of the ~~2018 Notes,~~ 2020 Notes and 2024 Notes, which, if not converted, will be required to be repaid in cash at maturity in ~~2018,~~October 2020 and August 2024, respectively. In addition, in the event the conditional conversion feature of the ~~2018 Notes or~~ 2020 Notes is triggered, holders of ~~such~~the 2020 Notes will be entitled to convert the ~~2018 Notes or~~ 2020 Notes at any time during specified periods at their ~~option. In addition, the 2018 Notes will be freely convertible on or after July 15, 2018~~option, and the 2020 Notes will be freely convertible on or after July 15, 2020. We ~~intend to use a majority of the net proceeds we received from the issuance of the 2024 Notes to repay, repurchase or settle in cash some or all of the 2018 Notes. We~~ may ~~also~~ elect to settle conversions of the 2020 Notes in cash, in whole or in part, which could further affect our liquidity. While we could seek

to obtain additional third-party financing to pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all.

~~The 2018 Notes mature in October 2018, and therefore we have reclassified the outstanding principal of such Notes as a current liability.~~

We ~~could also be~~were required under applicable accounting rules to reclassify ~~all or a portion of~~ the outstanding principal of ~~such~~ the 2020 Notes as a current rather than long-term liability ~~(for example, if~~(because there are 12 months or less remaining until maturity), which ~~would result~~resulted in a material reduction of our net working capital. While we could seek to obtain third-party financing to pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all. Furthermore, if we are required to share settle any conversions of Notes, due to lack of requisite liquidity or otherwise, we may cease to be eligible to account for the Notes using the treasury stock method, which may adversely impact our diluted earnings per share.

In addition, ~~although we had no outstanding balance under the Credit Agreement as of December 31, 2017,~~ we also may borrow up to ~~$100.0~~$200.0 million in revolving loans under the 2018 Credit ~~Agreement,~~Facility, which would be required to be repaid in cash at maturity ~~in November 2018.~~

on October 19, 2021, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remains outstanding on August 1, 2020 and certain other conditions have not been met, we may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020.

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If we fail to comply with manufacturing regulations, our financial results and financial condition will be adversely affected.

Before we can begin commercial manufacture of our products, regulatory authorities must approve marketing applications that identify manufacturing facilities operated by us or our contract manufacturers that have passed regulatory inspection and manufacturing processes that are acceptable to the regulatory authorities. In addition, our pharmaceutical manufacturing facilities are continuously subject to scheduled and unannounced inspection by the FDA and international regulatory authorities, before and after product approval, to monitor and ensure compliance with cGMP and other regulations. Our manufacturing facility in the U.S. has been approved by the FDA for the ~~EC,~~manufacture of Palynziq, and it has been approved by the FDA, the European Commission (EC), and health agencies in other countries for the manufacture of Aldurazyme, Brineura, Naglazyme and Vimizim. Our manufacturing facility in Shanbally, Cork, Ireland has been approved by the FDA, the EC, and health agencies in other countries for the manufacture of Vimizim, and it has been approved by the FDA and the EMA as a formulated bulk drug substance manufacturing and quality control facility for Brineura. In addition, our third-party manufacturers’ facilities involved with the manufacture of our products have also been inspected and approved by various regulatory authorities. Although we are not involved in the day-to-day operations of our contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP regulations.

Due to the complexity of the processes used to manufacture our products and product candidates, we may be unable to continue to pass or initially pass federal or international regulatory inspections in a cost-effective manner. For the same reason, any potential third-party manufacturer of our products or our product candidates may be unable to comply with cGMP regulations in a cost-effective manner and may be unable to initially or continue to pass a federal or international regulatory inspection.

If we, or third-party manufacturers with whom we contract, are unable to comply with manufacturing regulations, we may be subject to delay of approval of our product candidates, warning or untitled letters, fines, unanticipated compliance expenses, recall or seizure of our products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our financial results and financial condition.

If we are unable to successfully develop and maintain manufacturing processes for our ~~products~~product candidates to produce sufficient quantities at acceptable costs, we may be unable to ~~meet demand for~~support a clinical trial or be forced to terminate a program, or if we are unable to produce sufficient quantities of our products ~~and~~at acceptable costs, we may be unable to meet commercial demand, lose potential revenue, have reduced margins or be forced to terminate a program.

Due to the complexity of manufacturing our product candidates and products, we may not be able to manufacture sufficient quantities. Our inability to produce enough of our product candidate at acceptable costs may result in the delay or termination of development programs. With respect to our commercial portfolio, we may not be able to manufacture our products successfully with a commercially viable process or at a scale large enough to support their respective commercial markets or at acceptable margins.

The development of commercially viable manufacturing processes typically is very difficult to achieve and is often very expensive and may require extended periods of time. Changes in manufacturing processes (including manufacturing cell lines), equipment or facilities (including moving manufacturing from one of our facilities to another one of our facilities or a third-party facility, or from a third-party facility to one of our facilities) may require us to complete clinical trials to receive regulatory approval of any manufacturing modifications.

With respect to valoctocogene roxaparvovec, gene therapy products are relatively novel and complex and have only in limited cases been manufactured at scales sufficient for pivotal trials and commercialization. Few pharmaceutical contract manufacturers specialize in gene therapy products and those that do are still developing appropriate processes and facilities for large-scale production. We invested a considerable amount of capital building our own commercial gene therapy manufacturing facility, which may be subject to significant impairment if our gene therapy programs are unsuccessful. As we develop, seek to optimize and operate the valoctocogene roxaparvovec manufacturing process, we will likely face technical and scientific challenges, considerable capital costs, and potential difficulty in recruiting and hiring experienced, qualified personnel. There may also be unexpected technical or operational issues during clinical or commercial manufacturing campaigns. As a result, we could experience manufacturing delays that prevent us from completing our clinical studies in a timely manner, if at all, or commercializing valoctocogene roxaparvovec on a profitable basis, if at all.

Also, we may be required to demonstrate product comparability between a biological product made after a manufacturing change and the product made before implementation of the change through additional types of

analytical and functional testing or may have to complete additional clinical studies. If we contract for manufacturing services with an unproven process, our contractor is subject to the same uncertainties, high standards and regulatory controls, and may therefore experience difficulty if further process development is necessary.

Even a developed manufacturing process can encounter difficulties. Problems may arise during manufacturing for a variety of reasons, including human error, mechanical breakdowns, problems with raw materials and cell banks, malfunctions of internal information technology systems, and other events that cannot always be prevented or anticipated. Many of the processes

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include biological systems, which add significant complexity, as compared to chemical synthesis. We expect that, from time to time, consistent with biotechnology industry expectations, certain production lots will fail to produce product that meets our quality control release acceptance criteria. To date, our historical failure rates for all of our product programs, including Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim, have been within our expectations, which are based on industry norms. If the failure rate increased substantially, we could experience increased costs, lost revenue, damage to customer relations, time and expense investigating the cause and, depending upon the cause, similar losses with respect to other lots or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred.

In order to produce product within our time and cost parameters, we must continue to produce product within our expected success rate and yield expectations. Because of the complexity of our manufacturing processes, it may be difficult or impossible for us to determine the cause of any particular lot failure and we must effectively take corrective action in response to any failure in a timely manner.

~~Although we~~

We have entered into contractual relationships with third-party manufacturers to produce ~~the~~ active ~~ingredient~~ingredients in ~~Firdapse~~Kuvan and ~~Kuvan, if~~Palynziq. If those manufacturers are unwilling or unable to fulfill their contractual obligations, we may be unable to meet demand for ~~Firdapse~~Kuvan and ~~Kuvan~~Palynziq, or sell these products at all, we may lose potential revenue, and we may be forced to terminate a program. We have contracts for the production of final product for ~~Firdapse~~Kuvan and ~~Kuvan.~~Palynziq. We also currently rely on third parties for portions of the manufacture of Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim. If those manufacturers are unwilling or unable to fulfill their contractual obligations or satisfy demand outside of or in excess of the contractual obligations, we may be unable to meet demand for these products or sell these products at all and we may lose potential revenue. Further, the availability of suitable contract manufacturing capacity at scheduled or optimum times is not certain.

In addition, our manufacturing processes subject us to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of hazardous materials and wastes resulting from their use. We incur significant costs in complying with these laws and regulations.

Supply interruptions may disrupt our inventory levels and the availability of our products and product candidates and cause delays in obtaining regulatory approval for our product candidates, or harm our business by reducing our revenues.

We depend on single-source suppliers for critical raw materials and a limited number of manufacturing facilities to manufacture our finished products and product candidates. Numerous factors could cause interruptions in the supply or manufacture of our products and product candidates, including:

•timing, scheduling and prioritization of production by our contract manufacturers or a breach of our agreements by our contract manufacturers;

•labor interruptions;

•changes in our sources for manufacturing;

•the timing and delivery of shipments;

•our failure to locate and obtain replacement suppliers and manufacturers as needed on a timely basis; and

•conditions affecting the cost and availability of raw materials.

If one of our suppliers or manufacturers fails or refuses to supply us with necessary raw materials or finished products or product candidates on a timely basis or at all, it would take a significant amount of time and expense to qualify a new supplier or manufacturer. We may not be able to obtain active ingredients or finished products from new suppliers or manufacturers on acceptable terms and at reasonable prices, or at all.

Any interruption in the supply of finished products could hinder our ability to distribute finished products to meet commercial ~~demand.~~

demand and adversely affect our financial results and financial condition.

With respect to our product candidates, production of product is necessary to perform clinical trials and successful registration batches are necessary to file for approval to commercially market and sell product candidates. Delays in obtaining clinical material or registration batches could adversely impact our clinical trials and delay regulatory approval for our product candidates.

Because the target patient populations for our products are small, we must achieve significant market share and maintain high per-patient prices for our products to achieve profitability.

All of our products target diseases with small patient populations. As a result, our per-patient prices must be relatively high

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in order to recover our development and manufacturing costs and achieve profitability. For Brineura, Naglazyme and Vimizim in particular, we must market worldwide to achieve significant market penetration of the product. In addition, because the number of potential patients in each disease population is small, it is not only important to find patients who begin therapy to achieve significant market penetration of the product, but we also need to be able to maintain these patients on therapy for an extended period of time. Due to the expected costs of treatment for our products, we may be unable to maintain or obtain sufficient market share at a price high enough to justify our product development efforts and manufacturing expenses.

If we fail to obtain an adequate level of coverage and reimbursement for our products by third-party payers, the sales of our products would be adversely affected or there may be no commercially viable markets for our products.

The course of treatment for patients using our products is expensive. We expect patients to need treatment for extended periods, and for some products throughout the lifetimes of the patients. We expect that most families of patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for our products without coverage and reimbursement from third-party payers. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.

Third-party payers, such as government or private healthcare insurers, carefully review and increasingly challenge the prices charged for drugs. Reimbursement rates from private companies vary depending on the third-party payer, the insurance plan and other factors. Obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.

Government authorities and other third-party payers are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payers are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged for medical products. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payers in the U.S. Therefore, coverage and reimbursement for drug products can differ significantly from payer to payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payer separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

We cannot be sure that coverage and reimbursement will be available for any product that we commercialize or will continue to be available for any product that we have commercialized and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize any product candidate for which we obtain marketing approval or continue to market any product that has already been commercialized.

Reimbursement in the EU and many other territories must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain, and in some countries we expect that it will

exceed 12 months. Even after a price is negotiated, countries frequently request or require reductions to the price and other concessions over time.

For our future products, we will not know what the reimbursement rates will be until we are ready to market the product and we actually negotiate the rates. If we are unable to obtain sufficiently high reimbursement rates for our products, they may not be commercially viable or our future revenues and gross margins may be adversely affected.

A significant portion of our international sales are made based on special access programs, and changes to these programs could adversely affect our product sales and revenue in these countries.

We make a significant portion of our international sales of Naglazyme and Vimizim through special access or “named patient” programs, which do not require full product approval, and we expect a significant portion of our international sales of Brineura will also be through such programs. The specifics of the programs vary from country to country. Generally, special approval must be obtained for each patient. The approval normally requires an application or a lawsuit accompanied by evidence of medical need. Generally, the approvals for each patient must be renewed from time to time.

These programs are not well defined in some countries and are subject to changes in requirements and funding levels. Any change to these programs could adversely affect our ability to sell our products in those countries and delay sales. If the programs are not funded by the respective government, there could be insufficient funds to pay for all patients. Further, governments have ~~in the past undertaken~~ and may ~~in the future~~continue to undertake unofficial measures to limit purchases of our products, including initially denying coverage for purchasers, delaying orders and denying or taking excessively long to approve customs clearance. Any such actions could materially delay or reduce our revenues from such countries.

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Without the special access programs, we would need to seek full product approval to commercially market and sell our products in certain jurisdictions. This can be an expensive and time-consuming process and may subject our products to additional price controls. Because the number of patients is so small in some countries, it may not be economically feasible to seek and maintain a full product approval, and therefore the sales in such country would be permanently reduced or eliminated. For all of these reasons, if the special access programs that we are currently using are eliminated or restricted, our revenues could be adversely affected.

If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected.

Our competitors may develop, manufacture and market products that are more effective or less expensive than ours. They may also obtain regulatory approvals for their products faster than we can obtain them (including those products with orphan drug designation, which may prevent us from marketing our product entirely) or commercialize their products before we do. With respect to valoctocogene roxaparvovec, if the product candidate is approved, we will face a highly developed and competitive market for hemophilia A treatments. As we commercialize valoctocogene roxaparvovec, if approved, we may face intense competition from large pharmaceutical companies with extensive resources and established relationships in the hemophilia A community. If we do not compete successfully, our revenue would be adversely affected, and we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product.

Government price controls or other changes in pricing regulation could restrict the amount that we are able to charge for our current and future products, which would adversely affect our revenue and results of operations.

We expect that coverage and reimbursement may be increasingly restricted ~~both~~ in all the ~~U.S. and internationally.~~markets in which we sell our products. The escalating cost of healthcare has led to increased pressure on the healthcare industry to reduce costs. In particular, drug pricing by pharmaceutical companies has recently come under increased scrutiny and continues to be subject to intense political and public debate in the U.S. and abroad. Governmental and private third-party payers have proposed healthcare reforms and cost reductions. A number of federal and state proposals to control the cost of healthcare, including the cost of drug treatments, have been made in the U.S. Specifically, there have been several recent U.S. ~~Congressional~~congressional inquiries and proposed bills and enacted legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Further, Congress and the executive branch have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. In some international markets, the government controls the pricing, which can affect the profitability of drugs. Current government regulations and possible future legislation regarding healthcare may affect coverage and reimbursement for medical treatment by third-party payers, which may render our products not commercially viable or may adversely affect our future revenues and gross margins.

International operations are also generally subject to extensive price and market regulations, and there are many proposals for additional cost-containment measures, including proposals that would directly or indirectly impose additional price controls or mandatory price cuts or reduce the value of our intellectual property portfolio. As part of these cost containment measures, some countries have imposed ~~or threatened~~and continue to ~~impose~~propose revenue caps limiting the annual volume of sales of our products. ~~To the extent that~~Some of these caps are significantly below the actual demand in certain countries, and if the trend regarding revenue caps continues, our future revenues and gross margins may be adversely affected.

We cannot predict the extent to which our business may be affected by these or other potential future legislative or regulatory developments. However, future price controls or other changes in pricing regulation or negative publicity related to our product pricing or the pricing of pharmaceutical drugs generally could restrict the amount that we are able to charge for our current and future products or our sales volume, which would adversely affect our revenue and results of operations.

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Government healthcare reform could increase our costs and adversely affect our revenue and results of operations.

Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. ~~The~~In the U.S., the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (the PPACA) is a sweeping measure intended to, among other things, expand healthcare coverage within the U.S., primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. Several provisions of the law have affected us and increased certain of our costs.

Since its enactment, there have been judicial and ~~Congressional~~congressional challenges to certain aspects of the PPACA, as well as recent efforts by the U.S. Presidential administration to repeal or replace certain aspects of the PPACA, and we expect there will be additional challenges and amendments to the PPACA in the future. Since January 2017, the U.S. President has signed two Executive Orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the PPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed legislation repealing the PPACA in its entirety, ~~the Tax Cuts and Jobs Act~~it has enacted laws that modify certain provisions of ~~2017 includes a provision repealing the “individual mandate,” the tax-based shared responsibility payment imposed by~~ the PPACA ~~on certain individuals who fail~~such as removing penalties for not complying with the PPACA’s individual mandate to ~~maintain qualifying~~carry health ~~coverage for all or part of a year, effective January 1, 2019. Additionally, on January 23, 2018, the U.S. President signed a continuing resolution on appropriations for fiscal year 2018 that delayed~~insurance, delaying the implementation of certain ~~PPACA-mandated~~ACA-mandated fees, ~~including~~and increasing the ~~so-called “Cadillac” tax~~point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. Additionally, on ~~certain high cost employer-sponsored insurance plans,~~December 14, 2018, a Texas U.S. District Court Judge ruled that the ~~annual fee imposed on certain health insurance providers based on market share,~~PPACA is unconstitutional in its entirety because the individual mandate was repealed by Congress as part of the Tax Cuts & Jobs Act. While the Texas U.S. District Court Judge, as well as the current U.S. Presidential administration and the ~~medical device excise tax on non-exempt medical devices. Congress may consider~~Centers for Medicare and Medicaid Services (CMS), have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals, and other ~~legislation~~efforts to repeal orand replace ~~elements of~~ the ~~PPACA. It is uncertain~~PPACA will impact the ~~extent to which any such changes may impact~~PPACA and our ~~business or financial condition.~~business. In addition, other legislative changes have been adopted since the PPACA was enacted. Some of these changes have resulted in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and, accordingly, our financial operations.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future in the U.S. or abroad, may result in more rigorous coverage criteria and an additional downward pressure on the reimbursement our customers may receive for our products. Recently there has been heightened governmental scrutiny in countries worldwide over the manner in which manufacturers set prices for their marketed products. ~~For example,~~

In the U.S., there have been several recent ~~U.S. Congressional~~congressional inquiries and proposed ~~bills~~and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the U.S. Presidential administration’s budget proposal for the fiscal year 2021 includes a $135.0 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Moreover, the U.S. Presidential administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. Although a number of these and other measures may require additional authorization to become effective, Congress and the U.S. Presidential administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payers. In addition, individual states in the United States have also ~~become~~ increasingly ~~active in passing~~passed legislation and ~~implementing~~implemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. ~~Legally mandated price controls on payment amounts by third-party payers or other restrictions could harm our business, results of operations, financial condition and prospects. In addition,~~Moreover, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.

Likewise, in many EU countries, legislators and other policymakers continue to propose and implement healthcare cost-containing measures in response to the increased attention being paid to healthcare costs in the EU. Certain of these changes could impose limitations on the prices we will be able to charge for our products and any approved product candidates or the amounts of reimbursement available for these products from governmental and private third-party payers, may increase the tax obligations on pharmaceutical companies or may facilitate the introduction of generic competition with respect to our products. Further, an increasing number of EU countries and other foreign countries use prices for medicinal products established in other countries as “reference prices” to help determine the price of the product in their own territory. Consequently, a downward trend in prices of medicinal products in some countries could contribute to similar downward trends elsewhere. Moreover, in order to obtain reimbursement for our products in some countries, we may be required to conduct clinical trials that compare the cost-effectiveness of our products to other available therapies.

Legally mandated price controls on payment amounts by governmental and private third-party payers or other restrictions could harm our business, results of operations, financial condition and prospects. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.

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For more information regarding government healthcare reform, see “~~Government~~“Government Regulation - Health ~~Reform~~”Reform” in Part I, Item 1 of this Annual Report on Form ~~10-K.~~

10-K for the year ended December 31, 2019.

We face credit risks from government-owned or sponsored customers outside of the U.S. that may adversely affect our results of operations.

Our product sales to government-owned or supported customers in various countries outside of the U.S. are subject to significant payment delays due to government funding and reimbursement practices. This has resulted and may continue to result in an increase in days sales outstanding due to the average length of time that we have accounts receivable outstanding. If significant changes were to occur in the reimbursement practices of these governments or if government funding becomes unavailable, we may not be able to collect on amounts due to us from these customers and our results of operations would be adversely affected.

If we are found in violation of ~~federal~~healthcare laws or ~~state healthcare~~privacy and data protection laws, we may be required to pay ~~a penalty~~penalties, be subjected to scrutiny by regulators or governmental entities, or be suspended from participation in ~~federal or state~~government healthcare programs, which may adversely affect our business, financial condition and results of operations.

We are subject to various ~~federal and state~~ healthcare laws and regulations in the U.S. and internationally, including anti-kickback laws, false claims laws, data privacy and security laws, and laws related to ensuring compliance. ~~The~~In the U.S., the federal Anti-Kickback Statute makes it illegal for any person or entity, including a pharmaceutical company, to knowingly and willfully offer, solicit, pay or receive any remuneration, directly or indirectly, in exchange for or to induce the referral of business, including the purchase, order or prescription of a particular drug, for which payment may be made under federal healthcare programs, such as Medicare and Medicaid. Under the federal ~~government~~Anti-Kickback Statute and related regulations, certain arrangements ~~or safe harbors,~~ are deemed not to violate the federal Anti-Kickback ~~Statute.~~Statute if they fit within a statutory exception or regulatory safe harbor. However, the ~~exemptions~~exceptions and safe harbors are drawn narrowly, and practices that involve remuneration not intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an ~~exemption~~exception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from Anti-Kickback liability, although we seek to comply with these safe harbors. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to referral of patients for healthcare services reimbursed by any source, not just governmental payers.

Federal and state false claims laws, including the civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid, or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), we also are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Substantial new provisions affecting compliance have also been adopted, which may require us to modify our business practices with healthcare practitioners. The PPACA, through the Physician Payments Sunshine Act, requires drug manufacturers to collect and report to CMS information on payments or transfers of value to physicians and teaching hospitals, as well as investment and ownership interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties.

In addition, there has been a recent trend of increased state regulation of payments made to physicians. Certain states mandate implementation of compliance programs, compliance with the Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America (PhRMA) Code on Interactions with Healthcare Professionals, and/or the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting compliance environment and the need to implement systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a pharmaceutical manufacturer may violate one or more of the requirements.

Due to the breadth of these laws, the narrowness of available statutory and regulatory exceptions and the increased focus by law enforcement agencies in enforcing such laws, our business activities could be subject to challenge under one or more of such laws.

In addition, recent healthcare reform legislation has strengthened these ~~laws.~~laws in the U.S. For example, the PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to commit a violation. Moreover, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on certain types of individuals and entities, with respect to safeguarding the privacy, integrity, availability, security and transmission of individually identifiable health information. Many state and foreign laws also govern the privacy and security of health information. They often differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. In the United States, California recently enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA has increased our compliance costs and may increase our potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

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The European Regulation 2016/679, known as the General Data Protection Regulation (GDPR), as well as EU Member State implementing legislations, apply to the collection and processing of personal data, including health-related information, by companies located in the EU, or in certain circumstances, by companies located outside of the EU and processing personal information of individuals located in the EU. These laws impose strict obligations on the ability to process personal data, including health-related information, in particular in relation to their collection, use, disclosure and transfer. These include several requirements relating to (i) obtaining, in some situations, the consent of the individuals to whom the personal data relates, (ii) the information provided to the individuals about how their personal information is used, (iii) ensuring the security and confidentiality of the personal data, (iv) the obligation to notify regulatory authorities and affected individuals of personal data breaches, (v) extensive internal privacy governance obligations, and (vi) obligations to honor rights of individuals in relation to their personal data (for example, the right to access, correct and delete their data). The GDPR prohibits the transfer of personal data to countries outside of the European Economic Area (EEA), such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions. Although there are legal mechanisms to allow for the transfer of personal data from the EEA and Switzerland to the United States, they are subject to legal challenges and uncertainty about compliance with EU data protection laws remains.

Potential pecuniary fines for noncompliant companies may be up to the greater of €20 million or 4% of annual global revenue. The GDPR has increased our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional potential mechanisms to ensure compliance with the new EU data protection rules.

Substantial new laws and regulations affecting compliance have also been adopted in the U.S. and certain foreign countries, which may require us to modify our business practices with healthcare practitioners. For example, in the U.S., the PPACA, through the Physician Payments Sunshine Act, requires certain drug, biologicals and medical supply manufacturers to collect and report to CMS information on payments or transfers of value to physicians and teaching hospitals, as well as investment and ownership interests held by physicians and their immediate family members during the preceding calendar year. Effective January 1, 2022, manufacturers will also be required to report on payments or transfers of value to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives. In addition, there has been a recent trend of increased state regulation of payments made to physicians. Certain states and/or local jurisdictions mandate implementation of compliance programs, compliance with the Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America (PhRMA) Code on Interactions with Healthcare Professionals, the registration of pharmaceutical sales representatives and/or the tracking and reporting of gifts, compensation and other remuneration to physicians, marketing expenditures, and drug pricing. Likewise, in many foreign countries there is an increasing focus on the relationship between drug companies and healthcare practitioners. Recently enacted foreign legislation creates reporting obligations on payments, gifts and benefits made to these professionals; however, implementing regulations enacting such laws are still pending and subject to varying interpretations by courts and government agencies. The shifting regulatory environment and the need to implement systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the costs of maintaining compliance and the possibility that we may violate one or more of the requirements and be subject to fines or sanctions.

Due to the breadth of the healthcare and privacy and data protection laws described above, the narrowness of available statutory and regulatory exceptions and safe harbors and the increased focus by law enforcement agencies in enforcing such laws, our business activities could be subject to challenge under one or more of such laws. If we are found in violation of one of these laws, we may be subject to significant criminal, civil or administrative sanctions, including damages, fines, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, curtailment of our operations, and debarment, suspension or exclusion from participation in ~~federal or state~~government healthcare programs, any of which could adversely affect our business, financial condition and results of operations.

We conduct a significant amount of our sales and operations outside of the U.S., which subjects us to additional business risks that could adversely affect our revenue and results of operations.

A significant portion of the sales of Aldurazyme, Brineura, Kuvan, Naglazyme and Vimizim ~~and all of the sales of Firdapse~~ are generated from countries other than the U.S. Similarly, we expect a significant portion of the sales of ~~Brineura~~Palynziq to be generated from countries other than the U.S. We have operations in Canada and in several European, Middle Eastern, Asian, and Latin American countries. We expect that we will continue to expand our international operations in the future. International operations inherently subject us to a number of risks and uncertainties, including:

•the increased complexity and costs inherent in managing international operations;

•diverse regulatory and compliance requirements, and changes in those requirements that could restrict our ability to manufacture, market and sell our products;

•political and economic instability;

•diminished protection of intellectual property in some countries outside of the U.S.;

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•trade protection measures and import or export licensing requirements;

•difficulty in staffing and managing international operations;

•differing labor regulations and business practices;

•potentially negative consequences from changes in or interpretations of tax laws;

•changes in international medical reimbursement policies and programs;

•financial risks such as longer payment cycles, difficulty collecting accounts receivable, exposure to fluctuations in foreign currency exchange rates and potential currency controls imposed by foreign governments;

•regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ and service providers’ activities that may fall within the purview of the Foreign Corrupt Practices Act (the FCPA); and

•rapidly evolving global laws and regulations relating to data ~~security~~protection and the ~~unauthorized use~~privacy and security of ~~or access to,~~ commercial and personal information.

Any of these factors may, individually or as a group, have a material adverse effect on our business and results of operations.

As we continue to expand our existing international operations, we may encounter new risks. For example, as we focus on building our international sales and distribution networks in new geographic regions, we must continue to develop relationships with qualified local distributors and trading companies. If we are not successful in developing and maintaining these relationships, we may not be able to grow sales in these geographic regions. These or other similar risks could adversely affect our revenue and profitability.

The U.K.’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and our business, which could adversely affect our revenue and results of operations.

In June 2016, a majority of the eligible members of the electorate in the United Kingdom (U.K.) voted to withdraw from the EU in a national referendum (Brexit). On March 29, 2017, the U.K.’s Prime Minister formally delivered the notice of withdrawal. After significant negotiation between the U.K. and the EU, the withdrawal of the U.K. from the EU took effect on January 31, 2020. There is now a transition period while the U.K. and EU negotiate additional arrangements, including their future trading terms. The U.K. has stated that it wants the transition period to expire, and the future trading terms to be agreed, by December 31, 2020.

The uncertainties regarding the U.K.’s future relationship with the EU, have had and may continue to have an adverse effect on global economic conditions and the stability of global financial markets. In particular, depending on what terms are agreed between the U.K. and the EU, if any, it could lead to a period of considerable uncertainty in relation to global financial and banking markets, as well as on regulatory processes in Europe and the EEA. Lack of clarity about future U.K. laws and regulations as the U.K. determines which EU rules and regulations to replace or replicate, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in all markets, increase costs, depress economic activity and restrict access to capital.

If the U.K. and the EU are unable to negotiate acceptable future trading terms or if other EU countries pursue withdrawal, barrier-free access between the U.K. and other EU or EEA countries could be diminished or eliminated, which could make our doing business in the EU more difficult. As a result of Brexit, we ~~fail~~may face disruptions in our supply chain, inventory management, manufacturing process and product distribution network, which could adversely affect our business and results of operations. Moreover, Brexit may also lead to ~~comply with~~ new regulatory costs and challenges that could have a material adverse effect on our operations. The EMA has issued guidance to marketing authorization holders of centrally authorized medicinal products regarding certain requirements that need to be considered as part of Brexit, such as the requirement for the marketing authorization holder of a product centrally approved by the EC to be established in the EU, and the requirement for some activities relating to centrally approved products, such as batch release and pharmacovigilance, be performed in the EU. Furthermore, there are few indications of the effect Brexit will have on the pathway to obtaining marketing approval for any of our product candidates in the U.K.

U.S. export control and economic sanctions may adversely affect our business, financial condition and operating ~~results~~results. Moreover, compliance with such regulatory requirements may ~~be adversely affected.~~

~~We rely on a general license~~increase our costs and negatively impact our ability to sell our products and collect cash from customers.

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Our products are subject to U.S. export control laws and regulations, including the U.S. Export Administration Regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). Exports of our products and solutions must be made in compliance with these laws and regulations. Changes to these laws and regulations, or to the countries, governments, persons or activities targeted by such laws, could result in decreased use of our products, or hinder our ability to export or sell our products to existing or potential customers, which would likely adversely affect our results of operations, financial condition or strategic objectives. If we fail to comply with these laws and regulations, we could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges and fines.

We rely on a general license from OFAC to sell our medicines for eventual use by hospital and clinic end-users in Iran. The use of this OFAC general license requires us to observe strict conditions with respect to products sold, end-user limitations and payment requirements. Although we believe we have maintained compliance with the general license requirements, there can be no assurance that the general license will not be revoked, be renewed in the future or that we will remain in compliance. ~~Moreover, a~~A violation of the OFAC general license could result in substantial fines, sanctions, civil or criminal penalties, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.

Moreover, U.S. export control and economic sanctions may make operating in certain countries more difficult and expensive. For example, we may be unable to find distributors or financial institutions willing to facilitate the sale of our products and collection of cash from such sales in a cost-effective manner, if at all.

Failure to comply with applicable anti-corruption legislation could result in fines, criminal penalties and materially adversely affect our business, financial condition and results of operations.

We are required to comply with anti-corruption and anti-bribery laws in the jurisdictions in which we operate, including the FCPA in the United States, the UKU.K. Bribery Act and other similar laws in other countries in which we do business. We operate in a number of countries that are recognized to have a reputation for corruption and pose an increased risk of corrupt practices. We also regularly interact with government regulators in many countries, including those that are considered higher risk for corruption, in order to secure regulatory approval to manufacture and distribute our products. The anti-corruption and anti-bribery laws to which we are subject generally prohibit companies and their intermediaries from making improper payments to foreign officials or other persons for the purposes of influencing official decisions or obtaining or retaining business and/or other benefits. These laws also require us to make and keep books and records that accurately and fairly reflect our transactions and to devise and maintain an adequate system of internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of applicable anti-corruption laws.

Although we have adopted policies and procedures designed to ensure that we, our employees and third-party agents will comply with such laws, there can be no assurance that such policies or procedures will work effectively at all times or protect us against liability under these or other laws for actions taken by our employees, partners and other third parties with respect to our business. If we are not in compliance with anti-corruption laws and other laws governing the conduct of business with government entities and/or officials (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could harm our business, financial condition, results of operations, cash flows and prospects. Investigations of any actual or alleged violations of such laws or policies related to us could harm our business, financial condition, results of operations, cash flows and prospects.

Moreover, there has been enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments on reimbursement support offerings, clinical education programs and promotional speaker programs. If we, our third-party agents or donation recipients are deemed to have failed to comply with laws, regulations or government guidance in any of these areas, we could be subject to criminal or civil sanctions. Any similar violations by our competitors could also negatively impact our industry reputation and increase scrutiny over our business and our products

Changes in funding for the FDA, the EMA and other government agencies or government shutdowns could hinder the ability of such agencies to hire and retain key leadership and other personnel or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.

Changes in funding levels of government agencies can affect their ability to hire and retain key personnel and carry out their normal functions that support our business. For example, the ability of the FDA to timely review and approve INDs or marketing authorizations for our product candidates may be hindered by a lack of resources and qualified personnel. In addition, funding of other government agencies on which our operations rely, including those that fund research and development activities, is subject to the political budget process, which is inherently fluid and unpredictable.

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Government shutdowns could also impact the ability of government agencies to function normally and support our operations. For example, the U.S. federal government has shut down repeatedly since 1980, including for a period of 35 days beginning on December 22, 2018. During a shutdown, certain regulatory agencies, such as the FDA, have had to furlough key personnel and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Our international operations pose currency risks, which may adversely affect our operating results and net income.

A significant and growing portion of our revenues and earnings, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. As we operate in multiple foreign currencies, including the ~~euro,~~Euro, the Brazilian ~~real,~~Real, the ~~U.K. pound,~~Great British Pound, the Canadian ~~dollar, the Swiss franc, the Japanese yen~~Dollar and several other currencies, changes in those currencies relative to the U.S. ~~dollar~~Dollar (USD) will impact our revenues and expenses. If the ~~U.S. dollar~~USD were to weaken against another currency, assuming all other variables remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the ~~U.S. dollar~~USD were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. In addition, because our financial statements are reported in ~~U.S. dollars,~~USD, changes in currency exchange rates between the ~~U.S. dollar~~USD and other currencies have had, and will continue to have, an impact on our results of operations. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance.

We implement currency hedges intended to reduce our exposure to changes in certain foreign currency exchange rates. However, our hedging strategies may not be successful, and any of our unhedged foreign exchange exposures will continue to be subject to market fluctuations. These risks could cause a material adverse effect on our business, financial position and results of operations and could cause the market value of our common stock to decline.

If we are unable to protect our intellectual property, we may not be able to compete effectively.

Where appropriate, we seek patent protection for certain aspects of our technology. Patent protection may not be available for some of the products we are developing. If we must spend significant time and money protecting or enforcing our patents, designing around patents held by others or licensing, potentially for large fees, patents or other proprietary rights held by others, our business and financial prospects may be harmed.

The patent positions of biopharmaceutical products are complex and uncertain. The scope and extent of patent protection for some of our products and product candidates are particularly uncertain because key information on some of our product candidates has existed in the public domain for many years. The composition and genetic sequences of animal and/or human versions of Aldurazyme, Naglazyme and many of our product candidates have been published and are believed to be in the public domain. The chemical structure of 6R-BH4 (the active ingredient in Kuvan) ~~and 3,4-DAP (the active ingredient in Firdapse) have~~has also been published. Publication of this information may prevent us from obtaining or enforcing patents relating to our products and product candidates, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.

We own or have licensed patents and patent applications related to our products. However, these patents and patent applications do not ensure the protection of our intellectual property for a number of reasons, including without limitation the following:

•With respect to pending patent applications, unless and until actually issued, the protective value of these applications is impossible to determine. We do not know whether our patent applications will result in issued patents.

•Patents have limited duration and expire. For example, certain of our patents related to Aldurazyme expired in November 2019 and the other patents related to Aldurazyme expire in 2020.

•Competitors may interfere with our patent process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us or that they filed their application for a patent on a claimed invention before we did. Competitors may also claim that we are infringing on their patents and therefore we cannot practice our technology. Competitors may also contest our patents by showing the patent examiner or a court that the invention was not original, was not novel or was obvious, for example. In litigation, a competitor could claim that our issued patents are not valid or are unenforceable for a number of reasons. If a court agrees, we would not be able to enforce that patent. ~~We have limited experience with competitors interfering with or challenging the validity or enforceability of our patents or patent applications.~~

•Generic manufacturers may use litigation and regulatory means to obtain approval for generic versions of our products notwithstanding our filed patents or patent applications.

•Enforcing patents is expensive and may absorb significant time of our management. Management would spend less time and resources on developing products, which could increase our operating expenses and delay product programs.

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•Receipt of a patent may not provide much, if any, practical protection. For example, if we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent.

•The Leahy-Smith America Invents Act of 2011, which reformed certain patent laws in the U.S., may create additional uncertainty. Among the significant changes are switching from a “~~first-to-invent~~”“first-to-invent” system to a “~~first-to-file~~”“first-to-file” system, and the implementation of new procedures that permit competitors to challenge our patents in the U.S. Patent and Trademark Office after grant.

It is also unclear whether our trade secrets are adequately protected. Our current and former employees, consultants or contractors may unintentionally or willfully disclose trade secrets to competitors. Enforcing a claim that someone else illegally obtained and is using our trade secrets, as with patent litigation, is expensive and time consuming, requires significant resources and has an unpredictable outcome. In addition, courts outside of the U.S. are sometimes less willing to protect trade secrets. Furthermore, our competitors may independently develop equivalent knowledge, methods and know-how, in which case we would not be able to enforce our trade secret rights against such competitors.

Under policies recently adopted in the EU, clinical trial data submitted to the EMA in MAAs that were traditionally regarded as confidential commercial information are now subject to public disclosure. Subject to ~~BioMarin’s~~our ability to review and redact a narrow sub-set of confidential commercial information, the new EU policies will result in the EMA’s public disclosure of certain of our clinical study reports, clinical trial data summaries and clinical overviews for recently completed and future MAA submissions. The move toward public disclosure of development data could adversely affect our business in many ways, including, for example, resulting in the disclosure of our confidential methodologies for development of our products, preventing us from obtaining intellectual property right protection for innovations, requiring us to allocate significant resources to prevent other companies from violating our intellectual property rights, adding even more complexity to processing health data from clinical trials consistent with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own products.

If we are unable to protect our intellectual property, third parties could develop competing products, which could adversely affect our revenue and financial results generally.

Competitors and other third parties may have developed intellectual property that could limit our ability to market and commercialize our products and product candidates, if approved.

Similar to us, competitors continually seek intellectual property protection for their technology. Several of our development programs, such as valoctocogene roxaparvovec,, focus on therapeutic areas that have been the subject of extensive research and development by third parties for many years. Due to the amount of intellectual property in our field of technology, we cannot be certain that we do not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the future. For example, if a patent holder believes our product infringes its patent, the patent holder may sue us even if we have received patent protection for our technology. If someone else claims we infringe its intellectual property, we would face a number of issues, including the following:

•Defending a lawsuit takes significant executive resources and can be very expensive.

•If a court decides that our product infringes a ~~competitor~~’scompetitor’s intellectual property, we may have to pay substantial damages.

•With respect to patents, in addition to requiring us to pay substantial damages, a court may prohibit us from making, selling, offering to sell, importing or using our product unless the patent holder licenses the patent to us. The patent holder is not required to grant us a license. If a license is available, it may not be available on commercially reasonable terms. For example, we may have to pay substantial royalties or grant cross licenses to our patents and patent applications.

•We may need to redesign our product so it does not infringe the intellectual property rights of others.

•Redesigning our product so it does not infringe the intellectual property rights of competitors may not be possible or could require substantial funds and time.

We may also support and collaborate in research conducted by government organizations, hospitals, universities or other educational institutions. These research partners may be unwilling to grant us any exclusive rights to technology or products derived from these collaborations.

If we do not obtain required licenses or rights, we could encounter delays in our product development efforts while we attempt to design around other patents or may be prohibited from making, using, importing, offering to sell or selling products requiring these licenses or rights. There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties. If we are not able to resolve such disputes and obtain the licenses or rights we need, we may not be able to develop or market our products.

If our Manufacturing, Marketing and Sales Agreement with Genzyme were terminated, we could be prevented

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from continuing to commercialize Aldurazyme or our ability to successfully commercialize Aldurazyme would be delayed or diminished.

Either party may terminate the Manufacturing, Marketing and Sales Agreement (the MMS Agreement) between Genzyme and us related to Aldurazyme for specified reasons, including if the other party is in material breach of the MMS Agreement, has experienced a change of control, as such term is defined in the MMS Agreement, or has declared bankruptcy and also is in breach of the MMS Agreement. Although we are not currently in breach of the MMS Agreement, there is a risk that either party could breach the MMS Agreement in

the future. Either party may also terminate the MMS Agreement upon ~~one year~~one-year prior written notice for any reason.

If the MMS Agreement is terminated for breach, the breaching party will transfer its interest in the BioMarin/Genzyme LLC to the non-breaching party, and the non-breaching party will pay a specified buyout amount for the breaching party’s interest in Aldurazyme and in the BioMarin/Genzyme LLC. If we are the breaching party, we would lose our rights to Aldurazyme and the related intellectual property and regulatory approvals. If the MMS Agreement is terminated without cause, the non-terminating party would have the option, exercisable for one year, to buy out the terminating party’s interest in Aldurazyme and in the BioMarin/Genzyme LLC at a specified buyout amount. If such option is not exercised, all rights to Aldurazyme will be sold and the BioMarin/Genzyme LLC will be dissolved. In the event of termination of the buyout option without exercise by the non-terminating party as described above, all right and title to Aldurazyme is to be sold to the highest bidder, with the proceeds to be split between Genzyme and us in accordance with our percentage interest in the BioMarin/Genzyme LLC.

If the MMS Agreement is terminated by either party because the other party declared bankruptcy, the terminating party would be obligated to buy out the other party and would obtain all rights to Aldurazyme exclusively. If the MMS Agreement is terminated by a party because the other party experienced a change of control, the terminating party shall notify the other party, the offeree, of its intent to buy out the offeree’s interest in Aldurazyme and the BioMarin/Genzyme LLC for a stated amount set by the terminating party at its discretion. The offeree must then either accept this offer or agree to buy the terminating party’s interest in Aldurazyme and the BioMarin/Genzyme LLC on those same terms. The party who buys out the other party would then have exclusive worldwide rights to Aldurazyme. The Amended and Restated Collaboration Agreement between us and Genzyme will automatically terminate upon the effective date of the termination of the MMS Agreement and may not be terminated independently from the MMS Agreement.

If we were obligated or given the option to buy out Genzyme’s interest in Aldurazyme and the BioMarin/Genzyme LLC, and thereby gain exclusive rights to Aldurazyme, we may not have sufficient funds to do so and we may not be able to obtain the financing to do so. If we fail to buy out Genzyme’s interest, we may be held in breach of the agreement and may lose any claim to the rights to Aldurazyme and the related intellectual property and regulatory approvals. We would then effectively be prohibited from developing and commercializing Aldurazyme. If this happened, not only would our product revenues decrease, but our share price would also decline.

If we fail to develop new products and product candidates or compete successfully with respect to acquisitions, joint ventures, licenses or other collaboration opportunities, our ability to continue to expand our product pipeline and our growth and development would be impaired.

Our future growth and development ~~depends~~depend in part on our ability to successfully develop new products from our research and development activities. The development of biopharmaceutical products is very expensive and time intensive and involves a great degree of risk. The outcomes of research and development programs, especially for innovative biopharmaceuticals, are inherently uncertain and may not result in the commercialization of any products.

Our competitors compete with us to attract organizations for acquisitions, joint ventures, licensing arrangements or other collaborations. To date, several of our former and current product programs have been acquired through acquisitions and several of our former and current product programs have been developed through licensing or collaborative arrangements, such as Aldurazyme, ~~Firdapse,~~ Kuvan and Naglazyme. These collaborations include licensing proprietary technology from, and other relationships with, academic research institutions. Our future success will depend, in part, on our ability to identify additional opportunities and to successfully enter into partnering or acquisition agreements for those opportunities. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Because each of these opportunities is unique, we may not be able to find a substitute. Several pharmaceutical and biotechnology companies have already established themselves in the field of genetic diseases. These companies have already begun many drug development programs, some of which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.

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Universities and public and private research institutions also compete with us. While these organizations primarily have educational or basic research objectives, they may develop proprietary technology and acquire patents that we may need for the development of our product candidates. We will attempt to license this proprietary technology, if available. These licenses may not be available to us on acceptable terms, if at all. If we are unable to compete successfully with respect to acquisitions, joint venture and other collaboration opportunities, we may be limited in our ability to develop new products and to continue to expand our product pipeline.

~~If generic manufacturers are successful in their use~~

The sale of ~~litigation or regulatory means to obtain approval for~~ generic versions of Kuvan by generic manufacturers may adversely affect our revenue and results of ~~operations would be adversely affected.~~

operations.

The Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, permits the FDA to approve ~~ANDAs~~abbreviated new drug applications (ANDAs) for generic versions of branded drugs. We refer to this process as the ANDA process. The ANDA process permits competitor companies to obtain marketing approval for a drug with the same active ingredient as a branded drug, but does not generally require the conduct and submission of clinical efficacy studies for the generic product. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product is bioequivalent to the branded product.

Pursuant to the Hatch-Waxman Act, companies were permitted to file ANDA applications for proposed generic versions of Kuvan at any time after December 2011. We own several patents that cover Kuvan, and we have listed those patents in conjunction with that product in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). The Hatch-Waxman Act requires an ANDA applicant seeking FDA approval of its proposed generic product prior to the expiration of our Orange Book-listed patents to certify that the applicant believes that our patents are invalid or will not be infringed by the manufacture, use or sale of the drug for which the application has been submitted (a paragraph IV certification) and notify us of such certification (a paragraph IV notice). Upon receipt of a paragraph IV notice, the Hatch-Waxman Act allows us, with proper basis, to bring an action for patent infringement against the ANDA filer, asking that the proposed generic product not be approved until after our patents expire. If we commence a lawsuit within 45 days from receipt of the paragraph IV notice, the Hatch-Waxman Act provides a 30-month stay, during which time the FDA cannot finally approve the generic’s application. If the litigation is resolved in favor of the ANDA applicant during the 30-month stay period, the stay is lifted and the FDA may approve the ANDA if it is otherwise ready for approval. The discovery, trial and appeals process in such a lawsuit is costly, time consuming, and may result in generic competition if the ANDA applicant prevails.

Between 2014 and 2016 we received a paragraph IV notice ~~letter, dated December 23, 2016,~~letters from ~~Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL),~~two pharmaceutical companies notifying us that ~~DRL~~each had filed ~~an abbreviated new drug application (ANDA)~~ANDAs seeking approval of a proposed generic ~~version~~versions of ~~Kuvan (sapropterin dihydrochloride) 100 mg oral powder prior to the expiration of our patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book).~~Kuvan. We filed ~~a lawsuit~~lawsuits alleging patent infringement against ~~DRL. In August~~each company, and between 2015 and 2017 we entered into a settlement ~~agreement~~agreements with ~~DRL (the DRL Powder Settlement Agreement)~~the companies that resolved the patent litigation ~~with DRL~~ in the U.S. ~~related to Kuvan 100 mg oral powder. Under~~The settlement agreements granted the ~~terms of the DRL Powder Settlement Agreement, we granted DRL a~~companies non-exclusive ~~license~~licenses to our Kuvan-related patents to allow ~~DRL~~them to market a generic ~~version~~versions of sapropterin dihydrochloride ~~in oral powder form in 100 mg and 500 mg packet formulations~~ in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.

We ~~also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par notifying us that Par had filed an ANDA seeking approval of proposed~~expect generic versions of Kuvan ~~100 mg oral powder and Kuvan 100 mg oral tablets, respectively, prior~~ to the expiration of our patents listed in the FDA’s Orange Book. We filed two lawsuits alleging patent infringement against Par (the lawsuit against Par pertaining to the proposed generic version of Kuvan 100 mg oral tablets was filed together with Merck & Cie), and the two Par cases were consolidated. In April 2017, we and Merck & Cie entered into a settlement agreement with Par (the Par Settlement Agreement) that resolved both cases against Par. Under the Par Settlement Agreement, we granted Par a non-exclusive license to our Kuvan-related patents to allow Par to market a generic version of sapropterin dihydrochloride in 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulationsfirst become available in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.

We also received a paragraph IV notice letter, dated October 3, 2014, from DRL notifying us that DRL had filed an ANDA seeking approval of a proposed generic version of Kuvan 100 mg oral tablets prior to the expiration of our patents listed in the FDA’s Orange Book. We, together with Merck & Cie, filed a lawsuit alleging patent infringement against DRL. In September 2015, we and Merck & Cie entered into a settlement agreement with DRL (the DRL Tablet Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral tablets. Under the termsfourth quarter of the DRL Tablet Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride 100 mg oral tablets in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.

~~For more information regarding these matters, see “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K.~~

~~The DRL Powder Settlement Agreement, the Par Settlement Agreement, and the DRL Tablet Settlement Agreement, as well as any~~2020.

Any future ANDA or related legal proceeding could have an adverse impact on our stock price, and litigation to enforce our patents has, and is likely to continue to, cost a substantial amount and require significant management attention. If the patents covering Kuvan and its use are not upheld in litigation, or if ~~DRL~~any ANDA filer we bring suit against is found to not infringe our asserted patents, the resulting generic competition following the expiration of regulatory exclusivity would have a material adverse effect on our revenue and results of operations. Moreover, generic competition ~~from DRL and Par~~ following the settlements described above could have a material adverse effect on our revenue and results of operations.

We also face potential generic competition for Kuvan in certain foreign countries, and ~~our~~there is a process equivalent to the ANDA process under Article 10 of Directive 2001/83/EC in the EU. Our ability to successfully market and sell Kuvan in many countries in which we operate is based upon patent rights or certain regulatory forms of exclusivity, or both. The scope of our patent rights and regulatory exclusivity for Kuvan vary from country to country and are dependent on the availability of meaningful legal remedies in each country. If our patent rights and regulatory exclusivity for Kuvan are successfully challenged, expire, or otherwise terminate in a particular country, the resulting generic competition could have a material adverse effect on our revenue and results of operations.

If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.

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For planning purposes, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings. From time to time, we publicly announce the expected timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in many cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.

We depend upon our key personnel and our ability to attract and retain employees.

Our future growth and success will depend in large part on our continued ability to attract, retain, manage and motivate our employees. The loss of the services of any member of our senior management or the inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results.

Because of the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. In particular, the loss of one or more of our senior executive officers could be detrimental to us if we do not have an adequate succession plan or if we cannot recruit suitable replacements in a timely manner. While our senior executive officers are parties to employment agreements with us, these agreements do not guarantee that they will remain employed with us in the future. In addition, in many cases, these agreements do not restrict our senior executive officers’ ability to compete with us after their employment is terminated. The competition for qualified personnel in the pharmaceutical field is intense, and there is a limited pool of qualified potential employees to recruit. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel. If we are unsuccessful in our recruitment and retention efforts, our business may be harmed.

Our success depends on our ability to manage our growth.

Product candidates that we are currently developing or may license or acquire in the future may be intended for patient populations that are significantly larger than any of the patient populations we currently target. In order to continue development and marketing of these products, if approved, we will need to significantly expand our operations. To manage expansion effectively, we need to continue to develop and improve our research and development capabilities, manufacturing and quality capacities, sales and marketing capabilities, financial and administrative systems and standard processes for global operations. Our staff, financial resources, systems, procedures or controls may be inadequate to support our operations and may increase our exposure to regulatory and corruption risks and our management may be unable to manage successfully future market opportunities or our relationships with customers and other third parties.

Changes in methods of treatment of disease could reduce demand for our products and adversely affect revenues.

Even if our product candidates are approved, if doctors elect a course of treatment which does not include our products, this decision would reduce demand for our products and adversely affect revenues. For example, if gene therapy becomes widely used as a treatment of genetic diseases, the use of enzyme replacement therapy, such as Aldurazyme, Naglazyme, and Vimizim in MPS diseases, could be greatly reduced. Moreover, if we obtain regulatory approval for valoctocogene roxaparvovec,, the commercial success of valoctocogene roxaparvovec will still depend, in part, on the acceptance of physicians, patients and healthcare payers of gene therapy products in general, and our product candidate in particular, as medically necessary, ~~cost-effective~~cost effective and safe. Changes in treatment method can be caused by the introduction of other companies’ products or the development of new technologies or surgical procedures which may not directly compete with ours, but which have the effect of changing how doctors decide to treat a disease.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities.

We are exposed to the potential product liability risks inherent in the testing, manufacturing and marketing of human pharmaceuticals. We currently maintain insurance against product liability lawsuits for the commercial sale of our products and for the clinical trials of our product candidates. Pharmaceutical companies must balance the cost of insurance with the level of coverage based on estimates of potential liability. Historically, the potential liability associated with product liability lawsuits for pharmaceutical products has been unpredictable. Although we believe that our current insurance is a reasonable estimate of our potential liability and represents a commercially reasonable balancing of the level of coverage as compared to the cost of the insurance, we may be subject to claims in connection with our clinical trials and commercial use of our products and product candidates for which our insurance coverage may not be adequate and we may be unable to avoid significant liability if any product liability lawsuit is brought against us. If we are the subject of a successful product liability claim that exceeds the limits of any insurance coverage we obtain, we may incur substantial charges that would adversely affect our earnings and require the commitment of capital resources that might otherwise be available for the development and commercialization of our product programs.

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We rely significantly on information technology systems and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business ~~effectively.~~

effectively and have a material adverse effect on our business, reputation, financial condition, and results of operations.

We rely significantly on our information technology ~~and manufacturing infrastructure~~systems to effectively manage and maintain our operations, inventory and internal reports, to manufacture and ship products to customers and to timely invoice them. Any failure, inadequacy or interruption of that infrastructure or security lapse of that technology, including cybersecurity incidents or attacks, could harm our ability to operate our business effectively. Our ability to manage and maintain our operations, inventory and internal reports, to manufacture and ship our products to customers and timely invoice them depends significantly on our enterprise resource planning, production management and other information systems. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of our confidential or otherwise protected information and corruption of data. Cybersecurity incidents resulting in the failure of our enterprise resource planning system, production management or other systems to operate effectively or to integrate with other systems, or a breach in security or other unauthorized access of these systems, may affect our ability to manage and maintain our operations, inventory and internal reports, and result in delays in product fulfillment and reduced efficiency of our operations. ~~A breach~~

As part of our business, we collect, store and transmit large amounts of confidential information, proprietary data, intellectual property and personal data. The information and data processed and stored in ~~security,~~our technology systems, and those of our research collaborators, CROs, contract manufacturers, suppliers, distributors, or other third parties for which we depend to operate our business, may be vulnerable to loss, damage, denial-of-service, unauthorized access ~~resulting in misappropriation, theft,~~ or ~~sabotage with respect~~misappropriation. Such cybersecurity breaches may be the result of unauthorized activity by our employees or contractors or malware, hacking, business email compromise, phishing or other cyberattacks directed by third parties. While we have implemented measures to protect our information and data, our efforts may not be successful.

We have experienced and may continue to experience cybersecurity incidents. Although to our knowledge we have not experienced any material incident or interruption to date, if such an event were to occur it could result in a material disruption of our development programs and commercial operations, including due to a loss, corruption or unauthorized disclosure of our trade secrets, personal data or other proprietary or sensitive information. Moreover, the costs to us to investigate and ~~confidential information, including research or~~mitigate cybersecurity incidents could be significant. For example, the loss of clinical trial data could result in delays in our product development or regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Any security breach that results in the unauthorized access, use or disclosure of personal data may require ~~significant capital investments~~us to ~~remediate~~notify individuals, governmental authorities, credit reporting agencies, or other parties pursuant to privacy and security laws and regulations or other obligations. Such a security compromise could harm our reputation, erode confidence in our information security measures, and lead to regulatory scrutiny. To the extent that any disruption or security breach resulted in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential, proprietary or personal information, we could be exposed to a risk of loss, enforcement measures, penalties, fines, indemnification claims, litigation and potential civil or criminal liability, which could materially adversely affect our business, financial condition and results of operations.

If a natural disaster, or terrorist or criminal activity or other unforeseen event caused significant damage to our facilities or ~~the facilities~~those of our third-party manufacturers and suppliers or significantly disrupted our operations or those of our third-party manufacturers and suppliers, we may be unable to meet demand for our products and lose potential revenue, have reduced margins, or be forced to terminate a program.

~~We manufacture Aldurazyme, Brineura, Naglazyme and a portion of Vimizim in a manufacturing facility located near known earthquake fault zones, and the~~

The occurrence of an earthquake or other catastrophic disaster could cause damage to our facility and equipment, or that of our third-party manufacturers or single-source suppliers, which could materially impair ~~our~~the ability ~~to manufacture Aldurazyme, Brineura, Naglazyme and Vimizim~~for us or our third-party ~~manufacturers’ ability~~manufacturers to manufacture ~~Firdapse or Kuvan.~~

our products and product candidates. Our Galli Drive facility, located in Novato, California, is currently our only manufacturing facility for Aldurazyme, Naglazyme and ~~Naglazyme~~Palynziq and is one of two manufacturing facilities for Brineura and Vimizim. ItOur gene therapy manufacturing facility is also located in Novato, California, and it is currently our only manufacturing facility to support valoctocogene roxaparvovec clinical development activities and the anticipated commercial demand for valoctocogene roxaparvovec, if approved. These facilities are located in the San Francisco Bay Area near known earthquake fault zones and isare vulnerable to significant damage from earthquakes. We, the third-party manufacturers with whom we contract and our single-source suppliers of raw materials, which include many of our critical raw materials, are also vulnerable to damage from other types of disasters, including fires, explosions, floods, ~~power loss~~ and similar events. If any disaster were to occur, or any terrorist or criminal activity caused significant damage to our facilities or the facilities of our third-party manufacturers and suppliers, our ability to manufacture ~~Aldurazyme, Brineura, Naglazyme and Vimizim,~~our products, or to have ~~Firdapse or Kuvan~~our products manufactured, could be seriously, or potentially completely, impaired, and our commercialization efforts and revenue could be seriously impaired.

Moreover, other unforeseen events, such as power outages, could significantly disrupt our operations or those of our third-party manufacturers and suppliers, which could result in significant delays in the manufacture of our products and adversely impact our commercial operations and revenues. Pacific Gas and Electric Company, the electric utility in the San Francisco Bay Area where many of our facilities are located, commenced widespread blackouts during the fall of 2019 to avoid and contain wildfires sparked during strong wind events by downed power lines or equipment failures. While we have not experienced damage to our facilities or material disruption to our operations as a result of these power outages, ongoing blackouts, particularly if prolonged or frequent, could impact our business going forward. The insurance that we carry, the inventory that we maintain and our risk mitigation plans may not be adequate to cover our losses resulting from disasters or other business interruptions.

~~The impact~~

Table of ~~the recently passed U.S. comprehensive~~Contents

Changes in tax ~~reform bill on~~laws or regulations that are applied adversely to us ~~is uncertain and could~~or our customers may have a material adverse effect on our business and financial condition.

Legislation enacted on December 22, 2017, ~~the U.S. President signed into law~~known as the Tax Cuts & Jobs Act ~~new legislation that~~or TCJA, significantly revises the Internal Revenue Code of 1986, as amended. The ~~newly enacted federal income tax law,~~TCJA, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, creation of a base erosion and anti-abuse tax and modification or repeal of many business deductions and credits (including reduction of tax credits under the Orphan Drug Act). Many aspects of the ~~new federal tax law~~TCJA are unclear and may not be clarified for some time. ~~We have estimated~~Future guidance from the ~~impact~~Internal Revenue Service and other tax authorities with respect to the TCJA may affect us, and certain aspects of the Tax Cuts & Jobs Act by incorporating assumptions made based upon our current interpretation and analysis to date of the law. The actual impact of the Tax Cuts & Jobs Act may differ from our estimates due to, among other things, further refinement of our calculations, changesTCJA could be repealed or modified in ~~interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the new~~future legislation. Notwithstanding the reduction in the corporate income tax rate, it is possible that the ~~Tax Cuts & Jobs Act,~~TCJA, or regulations or interpretations under it, or any other future changes in tax laws, could adversely affect our business and financial condition, and such effect could be material.

Moreover, changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (BEPS) project that was undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles related to transfer pricing. These changes, as adopted by countries, may increase tax uncertainty and may adversely affect our provision for income taxes, results of operations and cash flows. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm's length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. If tax authorities successfully challenge our transfer prices as not reflecting arm's length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, resulting in a higher tax liability. In addition, if a country from which income is reallocated does not agree with the reallocation, both that country and the other country to which the income was allocated could tax the same income, potentially resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it ~~is uncertain if~~would increase our consolidated tax liability, which could adversely affect our business, financial condition, results of operations and ~~to what extent various U.S. states will conform to the newly enacted federal tax law.~~

cash flows.

Our business is affected by macroeconomic conditions.

Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass price increases on to our customers due to the process by which healthcare providers are reimbursed for our products by the government. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations. We purchase or enter into a variety of financial instruments and transactions, including investments in commercial paper, the extension of credit to corporations, institutions and governments and hedging contracts. If any of the issuers or counter parties to these instruments were to default on their obligations, it could materially reduce the value of the transaction and adversely affect our cash flows.

We sell our products in countries that face economic volatility and weakness. Although we have historically collected receivables from customers in those countries, sustained weakness or further deterioration of the local economies and currencies may cause customers in those countries to be unable to pay for our products. Additionally, if one or more of these countries were unable to purchase our products, our revenue would be adversely affected.

Interest rates and the ability to access credit markets could also adversely affect the ability of our customers/distributors to purchase, pay for and effectively distribute our products. Similarly, these macroeconomic factors could affect the ability of our contract manufacturers, sole-source or single-source suppliers to remain in business or otherwise manufacture or supply product. Failure by any of them to remain a going concern could affect our ability to manufacture ~~products~~.

products.

Risks Related to Ownership of Our Securities

Our stock price may be volatile, and an investment in our stock could suffer a decline in value.

Our valuation and stock price have no meaningful relationship to current or historical earnings, asset values, book value or many other criteria based on conventional measures of stock value. The market price of our common stock will fluctuate due to factors including:

•product sales and profitability of our products;

•manufacturing, supply or distribution of our product candidates and commercial products;

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•progress of our product candidates through the regulatory process and our ability to successfully commercialize any such products that receive regulatory approval;

•results of clinical trials, announcements of technological innovations or new products by us or our competitors;

•generic competition to Kuvan tablets and powder relating to our settlements with ~~DRL and Par~~the two pharmaceutical companies described above in this Risk Factors section or potential generic competition from future competitors;

•government regulatory action affecting our product candidates, our products or our ~~competitors'~~competitors’ product candidates and products in both the U.S. and non-U.S. countries;

•developments or disputes concerning patent or proprietary rights;

•general market conditions and fluctuations for the emerging growth and pharmaceutical market sectors;

•economic conditions in the U.S. or abroad;

•negative publicity about us or the pharmaceutical industry;

•changes in the structure of healthcare payment systems;

•cybersecurity incidents experienced by us or others in our industry;

•broad market fluctuations in the U.S., the EU or in other parts of the world;

•actual or anticipated fluctuations in our operating results, including due to timing of large ~~order~~orders for our products, in particular in Latin America, where governments place large periodic orders for Naglazyme and Vimizim;

•changes in company assessments ~~of us~~ or financial estimates by securities analysts;

•acquisitions of products, businesses, or other assets; and

•sales of our shares of stock by us, our significant stockholders, or members of our management or Board of Directors.

In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities. In addition, our stock price can be materially adversely affected by factors beyond our control, such as disruptions in global financial markets or negative trends in the biotechnology sector of the economy, even if our business is operating well.

Conversion of the Notes will dilute the ownership interest of existing stockholders, including holders who had previously converted their Notes, or may otherwise depress the price of our common stock.

The conversion of some or all of the Notes will dilute the ownership interests of existing stockholders to the extent we deliver shares upon conversion of any of the Notes. The Notes may ~~become~~ in the future become convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock.

The capped call transactions may affect the value of the Notes and our common stock.

In connection with the issuance of the ~~2018 Notes and~~ 2020 Notes, we entered into capped call transactions with respect to ~~50% of the principal amount of the 2018 Notes and~~ 50% of the principal amount of the 2020 Notes with certain hedge counterparties. The capped call transactions will cover, subject to customary anti-dilution adjustments, the aggregate number of shares of common stock underlying 50% of the principal amount of the ~~relevant~~2020 Notes and are expected generally to reduce potential dilution to the common stock upon conversion of the ~~relevant~~2020 Notes in excess of the principal amount of such converted 2020 Notes. In connection with establishing their initial hedges of the capped call transactions, the hedge counterparties (or their affiliates) entered into various derivative transactions with respect to the common stock concurrently with, and/or purchased the common stock shortly after, the pricing of the ~~relevant notes.~~2020 Notes. The hedge counterparties (or their affiliates) are likely to modify their hedge positions by entering into or unwinding various derivative transactions with respect to the common stock and/or by purchasing or selling the common stock or other securities of ours in secondary market transactions prior to the maturity of the ~~relevant~~2020 Notes (and are likely to do so during the settlement averaging period under the ~~relevant~~ capped call transactions, which precedes the maturity date of the ~~relevant~~2020 Notes, and on or around any earlier conversion date related to a conversion of the ~~relevant~~2020 Notes).

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The effect, if any, of any of these transactions and activities on the market price of our common stock or the 2020 Notes will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of our common stock, which could affect the value of the 2020 Notes and the value of our common stock, if any, that 2020 Note holders receive upon any conversion of the 2020 Notes.

Anti-takeover provisions in our charter documents and under Delaware law may make an acquisition of us, which may be beneficial to our stockholders, more difficult.

We are incorporated in Delaware. Certain anti-takeover provisions of Delaware law and our charter documents as currently in effect may make a change in control of us more difficult, even if a change in control would be beneficial to the stockholders. Our anti-takeover provisions include provisions in our restated certificate of incorporation and amended and restated bylaws ~~as amended,~~ providing that stockholders’ meetings may only be called by our Chairman, the lead independent director or the majority of our Board of Directors and that the stockholders may not take action by written consent and requiring that stockholders that desire to nominate any person for election to our Board of Directors or to make any proposal with respect to business to be conducted at a meeting of our stockholders be submitted in appropriate form to our Secretary within a specified period of time in advance of any such meeting. Additionally, our Board of Directors has the authority to issue shares of preferred stock and to determine the terms of those shares of stock without any further action by our stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, our Board of Directors approves the transaction. Our Board of Directors may use these provisions to prevent changes in the management and control of us. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.

The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take us over.

The terms of the Notes require us to repurchase the Notes in the event of a fundamental change. A takeover of us would trigger options by the respective holders of the applicable Notes to require us to repurchase such Notes. This may have the effect of delaying or preventing a takeover of us that would otherwise be beneficial to our stockholders or investors in the Notes.

Our amended and restated bylaws ~~as amended,~~ provide that the Court of Chancery of the State of Delaware will be the exclusive forum for the adjudication of certain disputes, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees.

Our amended and restated bylaws ~~as amended,~~ provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for:

•any derivative action or proceeding brought on our behalf;

•any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of BioMarin to us or our stockholders;

•any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the General Corporation Law of the State of Delaware, our restated certificate of incorporation or our amended and restated ~~bylaws, as amended;~~bylaws; and

•any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.

This exclusive-forum provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended, the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction, and further provides that any person or entity that acquires any interest in shares of our capital stock will be deemed to have notice of and consented to the provisions of such provision, including consent to the personal jurisdiction of the Court of Chancery of the State of Delaware related to any action covered by such provision.

This exclusive-forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers, and other employees. If a court were to find this exclusive-forum provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving the dispute in other jurisdictions, which could seriously harm our ~~business~~.

business.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table contains information about our ~~current~~ significant owned and leased properties as of December 31, ~~2017:~~

2019:

Approximate

Lease
Location

Square Feet

Use

Expiration Date
San Rafael facility, San Rafael, California

391,700

Corporate headquarters, laboratory and office

NA: owned
property
Several leased locations in Novato, California

225,000

Office, laboratory and warehouse

2018-2021
Shanbally facility, Cork, Ireland

183,200

Manufacturing, laboratory and office

NA: owned
property
Galli Drive facility, Novato, California

98,200

Clinical and commercial manufacturing and laboratory

NA: owned
property
Bel Marin Keys facility, Novato, California

83,000

Office and laboratory

NA: owned
property
Digital Drive facility, Novato, California

47,000

Office and laboratory

NA: owned
property
Leveroni Drive facility, Novato, California

38,300

Manufacturing

NA: owned
property
Leiden, The Netherlands

22,900

Office and laboratory

2018
London, England

22,600

Office

2025
Dublin, Ireland

17,500

Office

2024

Location

Approximate

Square Feet

Use

Lease

Expiration

Date

San Rafael facility, San Rafael, California

407,300

Corporate headquarters, laboratory and office

Owned
property

Several facilities in Novato, California

293,300

Clinical and commercial manufacturing, laboratory and office

Owned
property

Several leased facilities in Novato, California

203,700

Office and warehouse

2023-2026

Shanbally facility, Cork, Ireland

203,500

Manufacturing, laboratory and office

Owned
property

~~In addition to the above, we also maintain small offices in a variety of locations around the world.~~

We expect that these properties, together with our other smaller leased office facilities toin various countries, will be adequate for our operations for the foreseeable future. ~~We believe that, to the extent required, we will be able to lease or buy additional facilities at commercially reasonable rates. We plan to use~~

contract manufacturing when appropriate to provide product for both clinical and commercial requirements until such time as we believe it prudent to develop additional in-house clinical and/or commercial manufacturing capacity.

Item 3. Legal Proceedings

~~Paragraph IV Notices~~

We received a paragraph IV notice letter, dated December 23, 2016, from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL), notifying us that DRL had filed an abbreviated new drug application (ANDA) seeking approval of a proposed generic version of Kuvan (sapropterin dihydrochloride) 100 mg oral powder prior to the expiration of our patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). We filed a lawsuit alleging patent infringement against DRL. In August 2017, we entered into a settlement agreement with DRL (the DRL Powder Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral powder. Under the terms of the DRL Powder Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride in oral powder form in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.

We also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par Pharmaceutical, Inc. (Par), notifying us that Par had filed an ANDA seeking approval of proposed generic versions of Kuvan 100 mg oral powder and Kuvan 100 mg oral tablets, respectively, prior to the expiration of our patents listed in the FDA’s Orange Book. We filed two lawsuits alleging patent infringement against Par (the lawsuit against Par pertaining to the proposed generic version of Kuvan 100 mg oral tablets was filed together with Merck & Cie), and the two Par cases were consolidated. In April 2017, we and Merck & Cie entered into a settlement agreement with Par (the Par Settlement Agreement) that resolved both cases against Par. Under the Par Settlement Agreement, we granted Par a non-exclusive license to our Kuvan-related patents to allow Par to market a generic version of sapropterin dihydrochloride in 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.

We also received a paragraph IV notice letter, dated October 3, 2014, from DRL notifying us that DRL had filed an ANDA seeking approval of a proposed generic version of Kuvan 100 mg oral tablets prior to the expiration of our patents listed in the FDA’s Orange Book. We, together with Merck & Cie, filed a lawsuit alleging patent infringement against DRL. In September 2015, we and Merck & Cie entered into a settlement agreement with DRL (the DRL Tablet Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral tablets. Under the terms of the DRL Tablet Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride 100 mg oral tablets in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed under the symbol “BMRN” on the Nasdaq Global Select Market. ~~The following table sets forth the range of high and low quarterly sales prices for our common stock for the periods noted, as reported by Nasdaq.~~

Prices

Year

Period

High

Low

2017

Fourth Quarter

$
96.05

$
80.10

Third Quarter

$
95.45

$
80.29

Second Quarter

$
100.51

$
85.45

First Quarter

$
95.79

$
82.57

2016

Fourth Quarter

$
98.34

$
78.42

Third Quarter

$
102.49

$
77.04

Second Quarter

$
94.08

$
73.45

First Quarter

$
105.61

$
62.12

~~On February 13, 2018, the last reported sale price on the Nasdaq Global Select Market for our common stock was $81.57.~~ We have never paid any cash dividends on our common stock and we do not anticipate paying cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the ~~three years~~year ended December 31, ~~2017.~~

2019.

Issuer Purchases of Equity Securities

We did not make any purchases of our common stock during the year ended December 31, ~~2017.~~

2019.

Holders

As of February ~~13, 2018,~~12, 2020, there were 4644 holders of record of ~~176,072,261~~179,925,602 outstanding shares of our common stock.

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Performance Graph

The following is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing we make under the Securities Act of 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by reference language in such filing.

The following graph shows the value of an investment in BioMarin common stock, the Nasdaq Composite Index ~~(U.S.)~~ and the Nasdaq Biotechnology Index, assuming the investment of ~~$100~~$100.00 at the beginning of the period and the reinvestment of dividends, if any. Our common stock is traded on the Nasdaq Global Select Market and is a component of both the Nasdaq Composite Index and the Nasdaq Biotechnology Index. The comparisons shown in the graph are based upon historical data and we caution that the stock price performance shown in the graph is not indicative of, nor intended to forecast, the potential future performance of our stock.

*~~$100~~ $100 invested on December 31, ~~2012~~2014 in stock or index, including reinvestment of dividends.


	Fiscal Year Ending December 31,													Fiscal Year Ending December 31,
	2012		2013		2014		2015		2016		2017			2014		2015		2016		2017		2018		2019
BioMarin Pharmaceutical Inc.	$	100.00	$	142.99	$	183.74	$	212.93	$	168.37	$	181.24	BioMarin Pharmaceutical Inc.	$	100.00	$	115.88	$	91.64	$	98.64	$	94.19	$	93.53
Nasdaq Composite		100.00		141.63		162.09		173.33		187.19		242.29	Nasdaq Composite	$	100.00	$	106.96	$	116.45	$	150.96	$	146.67	$	200.49
Nasdaq Biotechnology		100.00		174.05		230.33		244.29		194.95		228.29	Nasdaq Biotechnology	$	100.00	$	111.77	$	87.91	$	106.92	$	97.45	$	121.92

Table of Contents Item

Item 6. Selected Consolidated Financial Data

We derived the selected consolidated statements of operations data for the years ended December 31, ~~2017, 2016~~2019, 2018 and ~~2015~~2017 and the selected consolidated balance sheet data as of December 31, ~~2017~~2019 and ~~2016~~2018 from the audited Consolidated Financial Statements appearing elsewhere in this Annual Report on Form 10-K. We derived the selected consolidated statements of operations data for the years ended December 31, ~~2014~~2016 and ~~2013~~2015 and the selected consolidated balance sheet data as of December 31, ~~2015, 2014~~2017, 2016 and ~~2013~~2015 from audited Consolidated Financial Statements not included in this Annual Report on Form 10-K. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Part II, Item 7, “~~Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the Consolidated Financial Statements and related notes thereto included in Item 15 of this Annual Report on Form 10-K to fully understand factors that may affect the comparability of the information presented below:

Years Ended December 31,

(In millions, except for per share data)

2017 (1)

2016 (2)

2015

2014

2013

Consolidated Statements of Operations data:

Total revenues ⁽³⁾

$
1,313.6

$
1,116.9

$
889.9

$
749.3

$
548.5

Total costs and expenses ⁽³⁾

$
1,328.3

$
1,920.3

$
1,000.6

$
842.2

$
704.5

Loss from operations

$
(14.7
)

$
(803.4
)

$
(110.7
)

$
(92.9
)

$
(156.0
)
Provision for (benefit from) income
  taxes

$
81.2

$
(200.8
)

$
17.1

$
9.1

$
(0.2
)
Net loss

$
(117.0
)

$
(630.2
)

$
(171.8
)

$
(134.0
)

$
(176.4
)
Net loss per share, basic

$
(0.67
)

$
(3.80
)

$
(1.07
)

$
(0.92
)

$
(1.28
)
Net loss per share, diluted

$
(0.67
)

$
(3.81
)

$
(1.07
)

$
(0.92
)

$
(1.28
)
Weighted average common shares
  outstanding, basic

174.4

166.0

160.0

146.3

137.8

Weighted average common shares
  outstanding, diluted

174.4

166.2

160.0

146.3

137.8

December 31,

(In millions)

2017

2016 (4)

2015

2014

2013

Consolidated Balance Sheets data:

Cash, cash equivalents and investments ^{(5) (6)}

$
1,781.7

$
1,362.4

$
1,018.3

$
1,043.0

$
1,052.4

Total assets ⁽¹⁾

$
4,633.1

$
4,023.7

$
3,729.4

$
2,475.4

$
2,225.5

Other long-term obligations

$
194.4

$
157.3

$
220.8

$
68.8

$
64.2

Long-term convertible senior notes, net⁽⁶⁾

$
813.5

$
660.8

$
662.3

$
642.9

$
637.0

Total stockholders' equity

$
2,808.7

$
2,766.3

$
2,400.8

$
1,527.9

$
1,341.0

~~(1)~~

Certain Consolidated Statement of Operations and Consolidated Balance Sheet data for the year ended December 31, 2017 included an incremental income tax expense of $42.3 million driven by to the Tax Cuts and Jobs Act (the 2017 Tax Act), enacted in December 2017. See Note 15 to our accompanying Consolidated Financial Statements for additional information.

~~(2)~~

~~In January 2016, we adopted Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) “Improvement to Employee Share-based Payment Accounting~~” (ASU 2016-09), which required us to record, among other items, excess tax benefits as a reduction of the provision for income taxes in the income statements. We were required to reflect any adoption adjustments as of January 1, 2016, the beginning of the annual period that includes the interim period of adoption. As such, certain Consolidated Statements of Operations data for the year ended December 31, 2016 included the impact of the ASU 2016-09 adoption.

~~(3)~~

~~See “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K for a description of our results of operations for 2017.~~


	Years Ended December 31, (In millions, except for per share data)
	2019 (1)		2018 (1)		2017 (1)		2016		2015
Consolidated Statements of Operations data:
Total revenues ⁽²⁾	$	1,704.0	$	1,491.2	$	1,313.6	$	1,116.9	$	889.9
Total costs and expenses	$	1,804.5	$	1,614.7	$	1,328.3	$	1,920.3	$	1,000.6
Loss from operations	$	(100.5)	$	(123.5)	$	(14.7)	$	(803.4)	$	(110.7)
Provision for (benefit from) income taxes	$	(71.0)	$	(65.5)	$	81.2	$	(200.8)	$	17.1
Net loss	$	(23.8)	$	(77.2)	$	(117.0)	$	(630.2)	$	(171.8)
Net loss per share, basic	$	(0.13)	$	(0.44)	$	(0.67)	$	(3.80)	$	(1.07)
Net loss per share, diluted	$	(0.13)	$	(0.44)	$	(0.67)	$	(3.81)	$	(1.07)
Weighted average common shares outstanding, basic	179.0		177.1		174.4		166.0		160.0
Weighted average common shares outstanding, diluted	179.0		177.3		174.4		166.2		160.0

~~(4)~~

Certain Consolidated Balance Sheets data as of December 31, 2016 include the impact of ASU 2016-09, which we early adopted in 2016. For instance, the net cumulative-effect adjustment of $131.3 million decrease to Accumulated Deficit, which was recorded as of January 1, 2016, mostly related to the recognition of the previously unrecognized excess tax benefits using the modified retrospective method.

~~(5)~~

~~See “Management's Discussion and Analysis of Financial Condition and Results of Operations— Financial Position, Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K for additional discussion.~~


	December 31, (In millions)
	2019 (1)		2018 (1)		2017		2016		2015
Consolidated Balance Sheets data:
Cash, cash equivalents and investments	$	1,165.8	$	1,320.2	$	1,781.7	$	1,362.4	$	1,018.3
Total assets ⁽²⁾	$	4,690.0	$	4,427.1	$	4,633.1	$	4,023.7	$	3,729.4
Convertible senior notes, net	$	848.1	$	830.4	$	1,174.5	$	683.2	$	662.3
Other long-term obligations ⁽²⁾	$	148.9	$	105.5	$	194.4	$	157.3	$	220.8
Total stockholders' equity	$	3,122.4	$	2,967.9	$	2,808.7	$	2,766.3	$	2,400.8

(1)Refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K for additional discussion of our operating results and changes in our financial position.

(2)Refer to the Consolidated Financial Statements and related notes thereto included in Item 15 of this Annual Report on Form 10-K for additional discussion of the impact of adoption of new accounting pronouncements.

~~(6)~~

~~During 2017 and 2013, we issued convertible senior notes in registered offerings with principal amounts of $495.0 million and $750.0 million, respectively.~~

Table of Contents

Quarterly Financial Data (unaudited)

You should read the following tables presenting our unaudited quarterly results of operations in conjunction with the Consolidated Financial Statements and related notes contained elsewhere in this Annual Report on Form 10-K. We have prepared this unaudited information on the same basis as our audited Consolidated Financial Statements. Our quarterly operating results have fluctuated in the past and may continue to do so in the future as a result of a number of factors, including, but not limited to, the timing and nature of research and development activities.

Three Months Ended

(In millions, except per share data, unaudited)

March 31,

June 30,

September 30,

December 31,

2017:

Total revenues

$
303.7

$
317.4

$
334.1

$
358.3

Net loss ⁽¹⁾

$
(16.3
)

$
(36.8
)

$
(12.5
)

$
(51.4
)
Net loss per share, basic ⁽¹⁾

$
(0.09
)

$
(0.21
)

$
(0.07
)

$
(0.29
)
Net loss per share, diluted ⁽¹⁾

$
(0.09
)

$
(0.21
)

$
(0.07
)

$
(0.30
)
2016:

Total revenues

$
236.7

$
300.1

$
279.9

$
300.1

Net loss ⁽²⁾

$
(83.1
)

$
(419.0
)

$
(37.4
)

$
(90.7
)
Net loss per share, basic and diluted ⁽²⁾

$
(0.51
)

$
(2.58
)

$
(0.22
)

$
(0.53
)

~~(1)~~

The fourth quarter of 2017 included an incremental income tax expense of $42.3 million related to the 2017 Tax Act. See Note 15 to our accompanying Consolidated Financial Statements for additional information.

~~(2)~~

In the second quarter of 2016, we recorded an impairment charge of $599.1 million related to the Kyndrisa and other exon and reveglucosidase alfa in-process research and development (IPR&D) assets based on the termination of the internal development of the respective programs. See “Management's Discussion and Analysis of Financial Condition and Results of Operations— Financial Position, Liquidity and Capital Resources” in Part II, Item 7 of this Annual Report on Form 10-K for additional discussion.


	Three Months Ended (In millions, except per share data, unaudited)
	March 31,		June 30,		September 30,		December 31,
2019:
Total revenues	$	400.7	$	387.8	$	461.1	$	454.4
Net income (loss)	$	(56.5)	$	(37.4)	$	55.0	$	15.0
Net income (loss) per share, basic	$	(0.32)	$	(0.21)	$	0.31	$	0.08
Net income (loss) per share, diluted	$	(0.32)	$	(0.21)	$	0.30	$	0.08
2018:
Total revenues	$	373.4	$	372.8	$	391.7	$	353.2
Net loss	$	(44.1)	$	(16.8)	$	(12.6)	$	(3.7)
Net loss per share, basic	$	(0.25)	$	(0.09)	$	(0.07)	$	(0.02)
Net loss per share, diluted	$	(0.26)	$	(0.09)	$	(0.07)	$	(0.03)

Refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K for discussion of our operating results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K, including the disclosures under “~~Risk Factors~~”“Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. 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~~”“Forward-Looking Statements” that appears at the beginning of this Annual Report on Form 10-K. These statements, like all statements in this report, speak only as of the date of this Annual Report on Form 10-K (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 Consolidated Financial Statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (GAAP) and are presented in U.S. ~~dollars~~Dollars (USD).

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 ~~therapy~~ portfolio consists of ~~six~~several commercial ~~products~~therapies and multiple clinical and ~~pre-clinical~~preclinical product candidates. ~~Our~~A summary of our major commercial products, ~~are Aldurazyme (laronidase)~~including key metrics, as of December 31, 2019, is provided below:

Major Commercial Products

Indication

United States

Orphan

Drug

Exclusivity

Expiration ⁽¹⁾

United

States

Biologic

Exclusivity

Expiration ⁽²⁾

European

Union

Orphan Drug

Exclusivity

Expiration ⁽¹⁾

Aldurazyme (laronidase)

MPS I⁽³⁾

Expired

Brineura (cerliponase alfa)

CLN2⁽⁴⁾

2024

2029

2027

Kuvan (sapropterin dihydrochloride)

PKU⁽⁵⁾

Expired

Not Applicable

2020⁽⁶⁾

Naglazyme (galsulfase)

MPS VI⁽⁷⁾

Expired

Palynziq (pegvaliase-pqpz)

PKU⁽⁸⁾

2025

2030

2029

Vimizim (elosulfase alpha)

MPS IVA ⁽⁹⁾

2021

2026

2024

(1)See “Government Regulation—Orphan Drug Designation” in Part I, Item 1 of this Annual Report on form 10-K for further discussion

(2)See “Government Regulation— Healthcare Reform” in Part I, Item 1 of this Annual Report on form 10-K for further discussion

(3)For the treatment of Mucopolysaccharidosis I (MPS I)~~, Brineura (cerliponase alfa) for~~

(4)For the treatment of late infantile neuronal ceroid lipofuscinosis type 2 (CLN2)~~, Firdapse (amifampridine phosphate) for Lambert Eaton Myasthenic Syndrome (LEMS), Kuvan (sapropterin dihydrochloride) for~~

(5)For the treatment of phenylketonuria (PKU)

(6)Kuvan, a small molecule therapy, has been granted orphan drug status in the European Union (EU), ~~Naglazyme (galsulfase) for~~which together with pediatric exclusivity, confers 12 years of market exclusivity in the EU that expires in December 2020

(7)For the treatment of Mucopolysaccharidosis VI (MPS VI) ~~and Vimizim (elosulfase alpha) for~~

(8)For adult patients with PKU

(9)For the treatment of Mucopolysaccharidosis IV Type A (MPS ~~IV A).~~

IVA)

A summary of our on-going major development programs, including key metrics as of December 31, 2019, is provided below:

Major Product Candidates

in Development

Target

Indication

U.S. Orphan

Designation

EU Orphan

Designation

Stage

Valoctocogene roxaparvovec

Severe Hemophilia A

Yes

Clinical Phase 3

Vosoritide

Achondroplasia

Yes

Clinical Phase 3

BMN 307

PKU

Yes

Clinical Phase 1/2 ⁽¹⁾

(1)We expect to start dosing patients in a Phase 1/2 study in the first quarter of 2020. See "Major Product Candidates - BMN 307" in Part I, Item 1 of this Annual Report on form 10-K for further discussion.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Business Developments

We continued to grow our commercial business and advance our product candidate pipeline during ~~2017.~~2019. 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 from 2019:

Product Approval

•Palynziq - In May 2019, the European Commission granted marketing authorization for Palynziq at doses of up to 60 mg once daily, to reduce blood Phe concentrations in ~~2017~~:

~~Product Approvals~~

~~Brineura was approved to treat children~~patients with ~~CLN2 disease by~~PKU aged 16 and older, who have inadequate blood Phe control (blood Phe levels greater than 600 micromol/L) despite prior management with available treatment options. EU commercial sales commenced in the third quarter of 2019 and we anticipate meaningful revenue contributions from this region in 2020.

Continued Emphasis on Research and Development

•Valoctocogene roxaparvovec – In February 2020, we announced that the U.S. Food and Drug Administration (FDA) ~~in April 2017 and by~~accepted for priority review our Biologics License Application (BLA) for valoctocogene roxaparvovec for the treatment of adults with severe hemophilia A. The Prescription Drug User Fee Act (PDUFA) target action date for the BLA has been set for August 21, 2020. In December 2019, the European ~~Commission (EC)~~Medicines Agency (EMA) validated the Marketing Authorization Application (MAA) for valoctocogene roxaparvovec, which has been in ~~June 2017.~~review under accelerated assessment since January 2020. These submissions are based on our Phase 3 interim analysis and the updated three-year Phase 1/2 data of patients treated with valoctocogene roxaparvovec. Both submissions represent the first time a gene therapy product for any type of hemophilia indication is under review for marketing authorization by health authorities.

In August 2019 we announced the discontinuation of the valoctocogene roxaparvovec study with the 4e13 vg/kg dose given the overwhelming preference by patients to be treated with the 6e13 vg/kg dose. We ~~began marketing Brineura~~have dosed 134 study participants in the ~~U.S.~~full GENEr8-1 Phase 3 open-label study and ~~EU following approval~~the 52-week results are anticipated in ~~each~~the first quarter of ~~these markets.~~

~~Continued Emphasis on Research~~2021. Although the trial is open-label, we have instituted a data access plan designed to substantially mirror a blinded trial, such that only a very limited group of medical personnel who are assisting with monitoring and ~~Development~~

~~The FDA completed its review~~managing the trial have access to any portion of the ongoing results, and then only to the extent necessary to perform their monitoring responsibilities.

•BMN 307 - In January 2020, both the U.S. FDA and the Medicines and Healthcare Products Regulatory Agency in the United Kingdom granted us Investigational New Drug (IND) ~~application~~status and approved our Clinical Trial Application (CTA), respectively, for ~~valoctocogene roxaparvovec (formerly referred~~BMN 307. We expect to asstart dosing patients in PHEARLESS, a Phase 1/2 study of BMN ~~270), an investigational~~307, in the first quarter of 2020 with product made at commercial scale from our gene therapy ~~treatment for severe hemophilia A, concluded that~~manufacturing facility. Both the FDA and EMA have granted BMN 307 Orphan status.

•Vosoritide – In December 2019, we could proceed with its clinical development, and granted valoctocogene roxaparvovec Breakthrough Therapy Designation in October 2017. The European Medicines Agency (EMA) has granted its Priority Medicines (PRIME) designation to valoctocogene roxaparvovec. We initiatedreported positive final results from the ~~first of two global~~randomized, double-blind, placebo-controlled, Phase 3 ~~program~~study evaluating the efficacy and safety of vosoritide. The study enrolled 121 children aged 5 to 14 with achondroplasia, the most common form of disproportionate short stature. The placebo-adjusted increased change from baseline in growth velocity after one year of treatment with vosoritide, the ~~fourth quarter of 2017. In early 2018,~~primary endpoint, was 1.6cm/yr (p<0.0001). The results were consistent across the broad patient population studied. Vosoritide was generally well tolerated with no clinically significant blood pressure changes. Based on these results, we plan to ~~enroll~~meet with the health authorities in the first ~~patient~~half of 2020 to discuss plans for submitting marketing applications in 2020.

In November 2019, we announced that vosoritide will be studied in broader genetic statural abnormalities, starting with dominantly inherited short stature (DISS), as part of a research collaboration with Children's National Hospital. We expect the ~~second global Phase 3 program and will begin another Phase 1/2 Study~~trial with ~~the 6e13kg/vg dose.~~

vosoritide for DISS to being mid-2020.

~~We selected~~•BMN 331 - In November 2019, we announced our ~~next~~third gene therapy product ~~development~~ candidate, BMN ~~290, a selective chromatin modulation therapy intended~~331, for the treatment of ~~Friedreich's ataxia, a rare autosomal recessive disorder that results in disabling neurologic and cardiac progressive decline.~~hereditary angioedema. We expect to ~~submit IND application~~begin IND-enabling studies for BMN 331 in ~~the second half~~early to mid-2020.

Table of ~~2018.~~

Contents

•

The FDA accepted for Priority Review the Biologics License Application (BLA) for pegvaliase, a PEGylated phenylanine-metabolizing enzyme product, to reduce blood phenylalanine (Phe) levels in adult patients with PKU who have uncontrolled blood Phe levels on existing management. ~~The Prescription Drug User Fee Act (PDUFA) target action date has been extended by three months to~~

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

~~May 28, 2018, which was changed to May 25, 2018 due to the Memorial Day holiday. We intend to submit a Marketing Authorization Application (MAA) to the EMA in the first quarter of 2018.~~

(continued)

~~We continued our ongoing trials for vosoritide for the treatment~~(In millions of children with achondroplasia, including a randomized, placebo-controlled Phase 3 study of vosoritide in approximately 110 children with achondroplasia 52 weeks and a long-term open-label Phase 2 study of approximately 23 children. In 2018, we expect to initiate an infant/toddler study and continue the natural history program to augment existing studies.

U.S. Dollars, except as otherwise disclosed)

~~We announced positive, preliminary results from a multicenter, international Phase 1/2 clinical trial for~~ •BMN 250 which began enrolling patients in April 2016. The study demonstrated that BMN 250 reduced heparan sulfate levels to normal range in cerebral spinal fluid of MPS IIIB patients and indicated that ICV-administered BMN 250 is well-tolerated by MPS IIIB patients. A complementary observational study was also initiated to study the progression of MPS IIIB over time.

~~Other 2017 Developments~~

We executed a license agreement and a settlement agreement (the Sarepta Agreements) with Sarepta Therapeutics (Sarepta) that provide Sarepta with global exclusive rights to our Duchenne muscular dystrophy (DMD) patent estate for EXONDYS 51 and all future exon-skipping products. The Sarepta Agreements resolved the ongoing worldwide patent proceedings related to the use of EXONDYS 51 and all future exon-skipping products for the treatment of DMD. See Note 21 to our accompanying Consolidated Financial Statements for additional information.

We commissioned our commercial gene therapy manufacturing facility, located in Novato, California, and began current Good Manufacturing Practices (GMP) production of valoctocogene roxaparvovec to support clinical development activities and anticipated commercial demand.

We- In October 2019, we entered into a ~~settlement~~licensing agreement with ~~Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (collectively, DRL) that resolves the patent litigation with DRL~~a third party for tralesinidase alfa (BMN 250) an investigational Enzyme Replacement Therapy (ERT) for MPS IIIB or Sanfilippo Syndrome Type B. We received a minority stake in the ~~U.S. related~~third party and we are entitled to ~~Kuvan 100 mg oral powder. Please see “Legal Proceedings” included in Part I, Item 3~~receive milestone payments if certain development, regulatory and sales milestones are met and royalties on net sales of ~~this Annual Report on Form 10-K, for additional information.~~

BMN 250. Upon closing, the third party assumed all financial obligations associated with the continued development and commercialization of BMN 250.

~~We entered into a settlement agreement with Par Pharmaceutical (Par)~~•Brineura - In February 2019, we announced that ~~resolves patent litigation~~twenty-three patients in the ~~U.S.~~ongoing open-label extension study treated with ~~Par related~~Brineura continued to ~~our Kuvan (sapropterin dihydrochloride) 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulations. Please see “Legal Proceedings” included in Part I, Item 3~~show a reduced rate of ~~this Annual Report on Form 10-K,~~decline compared to a natural history cohort of CLN2 disease for ~~additional information.~~

three years as measured by the CLN2 Clinical Rating Scale.

~~We issued $495.0 million in aggregate principal of 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes), which resulted in net proceeds of $481.7 million.~~

Outlook ~~2018~~

2020

In ~~2018,~~2020, we will continue to focus on our key operating objectives which include continued progression of our product pipeline and continued uptake of our commercial products. From a research and development (R&D) perspective, we expect to continue to invest in our various ongoing clinical studies, which support both our commercial products and pipeline of new product candidates. We expect to move forward on a number of late-stage clinical studies for new product candidates and plan to file marketing applications for various therapeutic areas.

From a commercial perspective, we expect to continue to build-out our commercial organization to support the commercialization of Brineura and ~~Vimizim~~Palynziq and incur pre-commercialization expenses related to valoctocogene roxaparvovec. Additionally, in January 2020, we completed the ~~international expansion~~sale of ~~Kuvan.~~

worldwide rights to Firdapse, our commercial product for the treatment of Lambert-Eaton myasthenic syndrome, to a third party in exchange for a one-time payment of $67.0 million. Under the terms of the agreement, we agreed to provide certain services to the third-party purchaser, such as customer sales and support, for up to 12 months after the closing of the transaction.

We continue to monitor conditions in the macroeconomic environment that could affect our ability to achieve our goals, such as changes in the reimbursement and payer landscape, a worsening of economic conditions in certain key markets, particularly in Europe and Latin America, patent ~~expirations~~expiration of competitive products and the launch of generic competitors, such as generic versions of Kuvan, which we expect to first become available in the U.S. in the fourth quarter of 2020, government pricing pressures internationally and the potential volatility in foreign currency exchange rates. We will adjust our business processes, as appropriate, to attempt to mitigate these risks to our business.

We expect that our product pipeline investments and expanding commercial infrastructure will enable us to execute on our ~~2018~~2020 operating objectives.

2019 Financial Highlights

Key components of our results of operations include the following:


	Years Ended December 31,
	2019		2018		2017
Net product revenues ⁽¹⁾	$	1,661.0	$	1,470.4	$	1,270.4
Cost of sales	$	359.5	$	315.3	$	241.8
R&D expense	$	715.0	$	696.3	$	610.8
Selling, general and administrative (SG&A) expense	$	680.9	$	604.4	$	554.3
Provision for (benefit from) income taxes	$	(71.0)	$	(65.5)	$	81.2
Net loss	$	(23.8)	$	(77.2)	$	(117.0)

(1) On January 1, 2018 we adopted Accounting Standard Codification (ASC) 606, Revenue from Contracts with Customers (ASC Topic 606) using the modified retrospective method. Results for 2019 and 2018 are presented under ASC Topic 606, while 2017 amounts are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605, Revenue Recognition.

The decrease in Net Loss for the year ended December 31, 2019 as compared to 2018 was primarily attributed to:

•increased gross profits driven by higher sales volume for products marketed by us; and

•increased benefit from income taxes; partially offset by

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

~~2017 Financial Highlights~~

~~Key components~~(continued)

(In millions of ~~our results~~U.S. Dollars, except as otherwise disclosed)

•increased SG&A expense primarily in support of ~~operations include the following (in millions):~~

EU commercial launch and continued U.S expansion of Palynziq and market preparation related to valoctocogene roxaparvovec; and

Years Ended December 31,

2017

2016

2015

Net product revenues

$
1,270.4

$
1,110.4

$
884.5

Cost of sales

$
241.8

$
209.6

$
152.0

R&D expense

$
610.8

$
661.9

$
634.8

Selling, general and administrative (SG&A) expense

$
554.3

$
476.6

$
402.3

Intangible asset amortization and
contingent consideration expense

$
46.5

$
(27.0
)

$
(17.7
)
Impairment of intangible assets

$
—

$
599.1

$
198.7

Net loss

$
(117.0
)

$
(630.2
)

$
(171.8
)
•increased R&D expense primarily attributed to preclinical and manufacturing activities related to PKU gene therapy development program and clinical activities related to valoctocogene roxaparvovec.

See “~~Results~~“Results of ~~Operations~~”Operations” below for ~~a discussion of~~additional information related to the ~~detailed components and analysis of the amounts noted~~Net Loss fluctuations presented above.

Total Revenues include net product revenues and royalty and other revenues. Net Product Revenues include revenues generated from our approved products. In the U.S., our commercial products are generally sold to specialty pharmacies or end-users, such as hospitals, which act as retailers. Outside the U.S., our commercial products are sold to our authorized distributors or directly to government purchasers or hospitals, which act as the end-users. Royalty and Other Revenues include royalties on net sales of products to licensees or sublicensees, collaborative agreement revenues and rental income associated with the tenants in our San Rafael, California facility.

Our cash, cash equivalents and investments totaled ~~$1.8~~$1.2 billion as of December 31, ~~2017,~~2019, compared to ~~$1.4~~$1.3 billion as of December 31, ~~2016.~~2018. 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”~~Resources” below for a further discussion of our liquidity and capital resources.

Critical Accounting Policies, Estimates and Judgments

In preparing our Consolidated Financial Statements in accordance with U.S. GAAP ~~in the U.S.~~ 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.

While our significant accounting policies are more fully described in Note 3 to our accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K, we believe the ~~following~~ critical accounting policies below reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial ~~Statements:~~

Statements.

•Revenue Recognition and Related ~~Allowances;~~

Allowances

~~Inventory;~~

•Inventory Produced Prior to Regulatory Approval

•Valuation of Goodwill and Acquired Intangible ~~Assets;~~

Assets

•Valuation of Contingent ~~Acquisition~~ Consideration ~~Payable; and~~

•Income Taxes.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.

Revenue Recognition and Related Allowances

Net Product Revenues~~— We~~–Following the adoption of ASC Topic 606, we recognize revenue when ~~persuasive evidence~~the customer obtains control of promised goods or services, in an ~~arrangement exists, delivery has occurred,~~amount that reflects the ~~price~~consideration which we expect to receive in exchange for those goods or services.For Aldurazyme revenues, we receive a payment ranging from 39.5% to 50% on worldwide net Aldurazyme sales by Sanofi Genzyme (Genzyme) depending on sales volume, which is included in Net Product Revenues in our Consolidated Statements of Operations. Under ASC Topic 606, we recognize our best estimate of the ~~buyer~~entire revenue that we expect to receive when the product is released and control is transferred to Genzyme. We record Aldurazyme net product revenues based on the estimated variable consideration payable when the product is sold through by Genzyme. Actual amounts of consideration ultimately received may differ from our estimates. Differences between the estimated variable consideration to be received from Genzyme and actual payments received are not expected to be material. If actual results vary from our estimates, we will make adjustments, which would affect Net Product Revenues and earnings in the period such variances become known.

Prior to adoption of ASC Topic 606, for Aldurazyme revenues, we only recognized a portion of the tiered payment as product transfer revenue when the product was released to Genzyme because all of our performance obligations were fulfilled at that point, the prices were substantially fixed or determinable and ~~collection~~title to, and risk of loss for, the product had transferred to Genzyme. The product transfer revenue only represented the fixed amount per unit of Aldurazyme that Genzyme was required to pay us if the product was unsold by Genzyme. The amount of product transfer revenue was eventually deducted from the ~~customer is reasonably assured.~~ calculated royalty recognized when the product was subsequently sold by Genzyme. We recorded the Aldurazyme revenues based on net sales information provided by Genzyme and recorded product transfer revenues based on the fulfillment of Genzyme purchase orders in accordance with the terms of the related agreements with Genzyme.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Gross-to-Net Sales Adjustments –We record product sales net of estimated mandatory and supplemental discounts to government payers, in addition to discounts to private payers, and other related charges. ~~These are generally referred to as gross to net~~Rebates, cash discounts and distributor fees represent the majority of our gross-to-net deductions and are recorded in the same period the related sales occur. Rebates, distributor fees and cash discounts represent the majority of our gross to net deduction and require complete and significant judgment by management. Estimates are assessed each period and updated to reflect current information.

~~Revenue Related Allowances~~ ~~– Our revenue related allowances include rebates, distributor fees and cash discounts.~~ Rebates include amounts paid to Medicaid, other government programs, certain managed care providers, as well as foreign government rebates. Rebates, cash discounts and distributor fees ~~and cash discounts~~ are estimates based on contractual arrangements or statutory ~~requirements~~obligations, which may vary by product and payer.

~~Our allowance for government~~Estimation requiresevaluation of our historical experience,customer mix,current contractual and ~~other rebates is estimated based on products sold, customer mix,~~statutory obligations, specific known market events and ~~program requirements.~~ trends and industry data.We evaluate our customer mix to estimate which sales will be subject to ~~rebates~~these revenue dilutive items and consider changes to government program guidelines that would impact the actual rebates and/or our estimates of which sales qualify for such rebates.

We update our estimates and assumptions each quarter based on actual historical experience, current contractual and statutory requirements, specific known market events and trends and forecasted customer buying and payment patters and record any necessary adjustments to our ~~reserves. We record fees paid~~reserves to ~~distributors and cash discounts as a reduction of revenue based on contractual terms and product sold.~~

reflect current information. We believe the methodologies that we use to estimate allowances are reasonable and appropriate given the facts and circumstances. However, actual results may differ significantly from our estimates.

The following table summarizes the consolidated activities and ending balances inof all our ~~revenue related allowances (in millions):~~

gross-to-net sales adjustments:

Accrued rebates, cash discounts and
distributor fees

Balance at Beginning of Year

Decrease/(Increase) to Product Sales

Payments

Balance at End of Year

Year ended December 31, 2017:

Activity related to 2017 sales

$
—

$
112.3

$
(73.0
)

$
39.3

Activity related to sales prior to 2017

43.4

(3.8
)

(27.1
)

12.5

Total

43.4

108.5

(100.1
)

51.8

Year ended December 31, 2016:

Activity related to 2016 sales

—

86.6

(58.4
)

28.2

Activity related to sales prior to 2016

39.2

(5.4
)

(18.6
)

15.2

Total

$
39.2

$
81.2

$
(77.0
)

$
43.4


	Balance at Beginning of Year		Provision for Current Period Sales		Payments		Balance at End of Year
Year ended December 31, 2019	$	80.7	$	198.1	$	(164.4)	$	114.4
Year ended December 31, 2018	63.3		151.6		(134.2)		80.7
Year ended December 31, 2017	$	48.8	$	121.0	$	(106.5)	$	63.3

Inventory

Produced Prior to Regulatory Approval

When future commercialization for a product candidate is probable and management expects to realize economic benefit in the future, we capitalize pre-launch inventory costs prior to regulatory approval. For inventories that are capitalized in preparation of product launch, management considers a number of factors, including the product candidate’s current status in the regulatory approval process, results from the related pivotal clinical trial, results from meetings with relevant regulatory agencies prior to the filing of regulatory applications, historical experience, as well as potential impediments to the approval process such as product safety or efficacy, commercialization and market trends.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

In applying the lower of cost or net realizable value to pre-launch inventory, we estimate a range of likely commercial prices based on our comparable commercial products and consider the product candidate’s stability data for all of the pre-approval production to date to determine whether there is adequate expected shelf life for the capitalized pre-launch production costs.

If the criteria for capitalizing inventory produced prior to regulatory approval are not met, we recognize such costs as R&D expense in the period incurred. As of December 31, 2019, there were $29.2 million of valoctocogene roxaparvovec pre-launch inventory costs on our Consolidated Balance Sheet.

Valuation of Goodwill and Acquired Intangible Assets

We have recorded goodwill and acquired intangible assets primarily related to in-process research and development (IPR&D) projects through acquisitions accounted for as business combinations. When identifiable intangible assets, including IPR&D, are acquired, we determine the fair value of these assets as of the acquisition date. Discounted cash flow models are typically used in these valuations if quoted market prices are not available, and the models require significant estimates and assumptions including but not limited to:

~~estimating future cash flows from product sales;~~

•estimating the time and resources needed to complete the development and approval of product candidate;

•estimating future cash flows from product sales;

•developing appropriate probability of success rates for unapproved product candidates considering their stages of development;

•projecting timing of regulatory approval; and

•risks related to the ~~viability~~viability of and potential alternative treatments in any future target markets.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination accounted for by the acquisition method of accounting and is not amortized, but subject to impairment testing. We review our goodwill and indefinite lived intangible assets for impairment annually in the fourth quarter, or more frequently if warranted by events or changes in circumstances indicate that the carrying ~~about~~amount may not be recoverable.

We ~~perform~~assess goodwill impairment by comparing the fair value of our single reporting unit with its carrying amount. If the carrying value of the reporting unit exceeds its fair value, an impairment loss equal to the difference will be recorded.

We assess impairment of indefinite-lived intangible assets first by performing a qualitative assessment. If the qualitative assessment ~~of goodwill and indefinite lived assets to determine if~~indicates that it is more likely than not that the fair value of our ~~single reporting unit or other indefinite live~~indefinite-lived intangible assets is less than its carrying ~~value. If it is determined that the fair value is more likely than not less than its carrying value,~~amount, then we will perform a quantitative assessment and record an impairment loss. We assess definite-lived intangible assets for recoverability when there is an indication of impairment by comparing the ~~two step impairment test. In~~estimated undiscounted future cash flows expected to result from the ~~first step~~use of the ~~impairment review, we compare~~asset or asset group and its eventual disposition to the carrying ~~value~~amount of ~~our single reporting unit or applicable~~the asset ~~to its fair value, which management estimates using a discounted cash flow analysis. If the carrying value of our single reporting unit~~ or asset ~~exceeds its fair value, we perform the second step, and determine the impairment loss, if any, as the~~group. Any excess of the carrying value of the ~~goodwill~~asset or ~~indefinite lived intangible~~ asset group over its estimated fair ~~value.~~

value is recognized as an impairment loss.

Valuation of Contingent ~~Acquisition~~ Consideration ~~Payable~~

Significant estimates and ~~judgements~~judgments are required in determining the acquisition fair value of any contingent obligations incurred in connection with an acquisition. WeWe estimate the fair value of contingent ~~acquisition~~ consideration ~~payments~~ utilizing a probability-based income approach inclusive of an estimated discount rate. Each period we reassess the fair value of the contingent ~~acquisition~~ consideration ~~payable~~ associated with certain acquisitions and record increases in the fair value as contingent consideration expense and record decreases in the fair value as a reduction of contingent consideration expense. Changes in the fair value of the contingent ~~acquisition~~ consideration ~~payable~~ can result from changes to one or multiple inputs including the estimated probability with respect to regulatory approval, changes in the assumed timing of when milestones are likely to be achieved and changes in assumed discount periods and rates. Accordingly, subsequent changes in the underlying facts and circumstances could result in changes to our estimates and assumptions, which could have a material impact on the estimated future fair values of contingent ~~acquisition consideration payable.~~

consideration.

We believe the fair value used to record contingent ~~acquisition~~ consideration ~~payable~~ incurred in connection with a business combinations is based on reasonable estimates and assumptions given the facts and circumstances as of the related valuation date.

Income Taxes

We calculate and provide for income taxes in each of the tax jurisdictions in which we operate. Our Consolidated Balance Sheets reflect net deferred tax assets and liabilities, which are measured using enacted tax

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

rates. The net deferred tax assets primarily represent the tax benefit of tax credits and timing differences between book and tax recognition of certain revenue and expense items, net of a valuation allowance. When it is more likely than not that all or some portion of deferred tax assets may not be realized, we establish a valuation allowance for the amount that may not be realized. We establish liabilities or reduce assets for certain tax position when we believe certain tax position are not more likely than not to be sustained if challenged. Each quarter, we evaluate these uncertain tax position and adjust the related tax assets and liabilities in light of changing facts and circumstances.

We utilize financial projections to support our net deferred tax assets, which contain significant assumptions and estimates of future operations. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. We assess our ability to realize our deferred tax benefits at the end of each period, If we determine it is more likely than not that we will not realize the deferred tax benefits, valuation allowance may need to be established against all or a portion of our deferred tax assets. Changes in our valuation allowance will result in a change to tax expense.

We establish liabilities or reduce assets for certain tax positions when we believe those certain tax positions are not more likely than not to be sustained if challenged. Each quarter, we evaluate these uncertain tax positions and adjust the related tax assets and liabilities in light of changing facts and circumstances.

We are subject to income taxes in the ~~United States~~U.S. and various foreign jurisdictions, including Ireland. Due to economic and political conditions, various countries are actively considering changes to existing tax laws. We cannot predict the form or timing of potential legislative changes that could have a material adverse impact on our results of operations. In addition, significant judgment is required in determining our worldwide provision for income taxes. Management is not aware of any potential changes that would have a material effect on our Consolidated Financial ~~Statements, except for the Tax Cuts and Jobs Act (the 2017 Tax Act), which was enacted in December 2017. We have estimated the impact of~~ ~~the 2017 Tax Act~~ ~~by incorporating assumptions made based upon our current interpretation and analysis to date of the law. The actual impact of~~ ~~the 2017 Tax Act~~ may differ from our estimates due to, among other things, further refinement of our calculations, changes in interpretations and assumptions we have made, guidance that may be issued and actions we may take as a result of the new legislation.

Statements.

Recent Accounting Pronouncements

See Note 4 to our accompanying Consolidated Financial Statements for a full description of recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.

Table of Contents

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 Loss

Net Loss consisted of the following:


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Total revenues	$	1,704.0	$	1,491.2	$	1,313.6	$	212.8	$	177.6
Cost of sales	359.5		315.3		241.8		44.2		73.5
R&D expense	715.0		696.3		610.8		18.7		85.5
SG&A expense	680.9		604.4		554.3		76.5		50.1
Intangible asset amortization and contingent consideration	74.1		48.8		46.5		25.3		2.3
Gain on sale of intangible asset	(25.0)		(50.0)		(125.0)		25.0		75.0
Other, net	5.7		(19.1)		(21.0)		24.8		1.9
Provision for (benefit from) income taxes	(71.0)		(65.5)		81.2		(5.5)		(146.7)
Net loss	$	(23.8)	$	(77.2)	$	(117.0)	$	53.4	$	39.8

Our net loss for the year ended December 31, ~~2017~~2019 was ~~$117.0~~$23.8 million, compared to a net ~~loss~~losses of ~~$630.2~~$77.2 million and ~~$171.8~~$117.0 million for the years ended December 31, ~~2016~~2018 and ~~2015,~~2017, respectively. The changes in Net Loss were primarily a result of the ~~following (in millions):~~

following:

Years Ended December 31,

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Total revenues

$
1,313.6

$
1,116.9

$
889.9

$
196.7

$
227.0

Cost of sales

241.8

209.6

152.0

32.2

57.6

R&D expense

610.8

661.9

634.8

(51.1
)

27.1

SG&A expense

554.3

476.6

402.3

77.7

74.3

Intangible asset amortization and
contingent consideration

46.5

(27.0
)

(17.7
)

73.5

(9.3
)
Impairment of intangible assets

—

599.1

198.7

(599.1
)

400.4

Gain on sale of intangible asset

(125.0
)

—

(369.5
)

(125.0
)

369.5

Other, net

(21.0
)

(27.7
)

(44.0
)

6.7

16.3

Provision for (benefit from)
income taxes

81.2

(200.8
)

17.1

282.0

(217.9
)
Net loss

$
(117.0
)

$
(630.2
)

$
(171.8
)

$
513.2

$
(458.4
)
Net Product Revenues

Net Product Revenues consisted of the following:


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Aldurazyme	$	97.8	$	135.1	$	90.0	$	(37.3)	$	45.1
Brineura	72.0		39.9		8.6		32.1		31.3
Firdapse	22.3		21.7		18.8		0.6		2.9
Kuvan	463.4		433.6		407.5		29.8		26.1
Naglazyme	374.3		345.9		332.2		28.4		13.7
Palynziq	86.9		12.2		—		74.7		12.2
Vimizim	544.3		482.0		413.3		62.3		68.7
Total net product revenues	$	1,661.0	$	1,470.4	$	1,270.4	$	190.6	$	200.0

2019 compared to 2018

The ~~decrease~~increase in Net ~~Loss~~Product Revenues for the year ended December 31, ~~2017~~2019 as compared to 2018 was primarily attributed to the following:

an•Palynziq: the increase ~~in Total Revenues driven by~~was attributed to a combination of revenue from more patients achieving maintenance dosing and new patients initiating therapy in the U.S. as the product launched in the third quarter of 2018;

•Vimizim: the increase was primarily attributed to increased sales volume due to patient growth in the U.S and orders from Latin America;

•Brineura: the ~~$31.5 million net upfront license payment from Sarepta pursuant~~increase was primarily attributed to growth in the ~~Sarepta Agreements;~~

number of patients in all regions;

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

•

the $125.0 million gain on the sale of the Rare Pediatric Disease Priority Review Voucher (the PRV) that we received in connection with the approval from the FDA of Brineura for the treatment of CLN2; and

(continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

•Kuvan: the ~~absence of~~increase was primarily attributed to increased sales volume due to patient growth in North America and in European markets;

•Naglazyme: the ~~$599.1 million intangible asset impairment charge recorded in 2016 when the Kyndrisa and reveglucosidase alfa programs were terminated;~~increase was primarily attributed to increased sales volume driven by orders from Brazil; partially offset by

•Aldurazyme: the decrease was primarily attributed to decreased sales volume to Genzyme.

2018 compared to 2017

The increase in Net Product Revenues for the year ended December 31, 2018 as compared to 2017 was primarily attributed to the following:

•Vimizim: the increase was primarily attributable to new patients initiating therapy and government ordering patterns;

•Aldurazyme: the increase was primarily attributable to an increase in sales volume and the adoption of ASC Topic 606 on January 1, 2018, which contributed $20.2 million to the increase;

•Brineura: the increase was primarily attributable to new patients initiating therapy as the product was commercially launched in mid-2017;

•Kuvan: the increase was primarily attributable to an increase in patients initiating therapy in North America;

•Naglazyme: the increase was primarily attributable to new patients initiating therapy in Turkey and North America and government ordering patterns in the ~~provision for income taxes and~~Middle East, partially offset by a ~~$5.8 million~~ ~~IPR&D asset impairment charge~~decrease due to the ~~termination~~impact of ~~related development programs~~.

orders from certain Latin American countries; and

~~See below for additional information related~~

•Palynziq: the increase was primarily attributable to the ~~Net Loss fluctuations presented above, including details~~conversion of ~~our operating expense fluctuations and~~clinical patients to commercial Palynziq in the ~~aforementioned impairment charge.~~

~~Net Product Revenues~~

~~A summary~~U.S. in 2018 following the commercial launch of ~~our various commercial products, including key metrics as of December 31, 2017, is provided below:~~

Commercial Products

Indication

U.S. Orphan Drug Exclusivity
Expiration

U.S. Biologic
Exclusivity
Expiration

EU Orphan Drug Exclusivity
Expiration
Aldurazyme

MPS I

Expired

Expired

Expired
Brineura

CLN2

2024

2029

2027
Firdapse

LEMS

NA⁽¹⁾

NA⁽¹⁾

2019
Kuvan

PKU

Expired

NA

2020 ⁽²⁾
Naglazyme

MPS VI

Expired

Expired

Expired
Vimizim

MPS IVA

2021

2026

2024
Palynziq in July 2018.

~~(1)~~

~~Firdapse has not received marketing approval in the U.S. We have licensed the North American rights to develop and market Firdapse to a third party.~~

~~(2)~~

Kuvan has been granted orphan drug status in the EU, which together with pediatric exclusivity, confers 12 years of market exclusivity in the EU that expires in 2020. Furthermore, Ares Trading S.A. (Merck Serono) marketed Kuvan in the EU until January 1, 2016. See Note 5 to our accompanying Consolidated Financial Statements for further discussion.

~~Net Product Revenues consisted of the following (in millions):~~

Years Ended December 31,

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Aldurazyme

$
90.0

$
93.8

$
98.0

$
(3.8
)

$
(4.2
)
Brineura

8.6

—

—

8.6

—

Firdapse

18.8

18.0

16.0

0.8

2.0

Kuvan

407.5

348.0

239.3

59.5

108.7

Naglazyme

332.2

296.5

303.1

35.7

(6.6
)
Vimizim

413.3

354.1

228.1

59.2

126.0

Total net product revenues

$
1,270.4

$
1,110.4

$
884.5

$
160.0

$
225.9

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

Our Brineura, Firdapse, Kuvan, Naglazyme and Vimizim customers include a limited number of specialty pharmacies and end-users, such as hospitals and foreign government agencies. We also sell Brineura, Kuvan, Naglazyme and Vimizim to our authorized distributors and to certain larger pharmaceutical wholesalers globally, which act as intermediaries between us and end-users and generally do not stock significant quantities of our products. However, inIn certain countries, such as in Latin America, governments place large periodic orders for Naglazyme and Vimizim. The ~~timing~~ordering patterns of these large government orders can be inconsistent and can create significant ~~quarter~~period to ~~quarter~~period variation in our revenues. ~~Genzyme Corporation (Genzyme) is our sole customer for Aldurazyme and is responsible for marketing and selling Aldurazyme to third parties.~~

~~The following is additional discussion of our revenues by product:~~

Aldurazyme: The decrease in 2017 compared to 2016 and the decrease in 2016 compared to 2015 were primarily attributable to the decreases in shipments to Genzyme, offset in part by the increase in Aldurazyme revenue reported by Genzyme. Aldurazyme revenues reported by Genzyme totaled $233.8 million, $223.3 million and $217.8 million in 2017, 2016 and 2015, respectively. Although Genzyme sells Aldurazyme worldwide, the net product revenues earned by us on Genzyme’s net sales are denominated in USD. We will adopt Accounting Standards Update No. 2014-09, ~~Revenue from Contracts with Customers~~, as amended, (commonly referred to as ASC Topic 606) on January 1, 2018. After adopting ASC Topic 606, we will recognize Aldurazyme revenues when the product is shipped to Genzyme and all required quality control certificates are complete, because our performance obligations are fulfilled at that point in time. We will record Aldurazyme net product revenues based on the estimated tiered payment that will be in effect when the product is sold through by Genzyme. We believe any differences between the estimated revenue from Genzyme and actual payments will be insignificant. See Note 4 to our accompanying Consolidated Financial Statements for additional information on the impact of ASC Topic 606 on the first quarter of 2018.

~~Brineura: The FDA and~~ EC granted marketing approval for Brineura in April 2017 and June 2017, respectively. We began marking the product following approval in each of these markets with the first commercial shipments in the U.S. and EU occurring in June 2017 and July 2017, respectively.

Kuvan: The increase in 2017 compared to 2016 was primarily attributable to an increase in patients on Kuvan therapy in the U.S. and the completion of the transition of the ex-North American territories acquired in 2016. The increase in 2016 compared to 2015 was primarily attributable to the addition of international Kuvan product sales through the acquisition of certain rights and other assets with respect to Kuvan and pegvaliase from Merck Serono and its affiliates (the Merck PKU Business) in January 2016 and new patients initiating therapy in the U.S. Prior to our acquisition of the Merck PKU Business, we earned royalties of 4% on Merck Serono’s net sales of Kuvan.

Two companies previously filed paragraph IV certifications and submitted abbreviated new drug applications (ANDAs) to produce sapropterin dihydrochloride tablets and powder. We entered into settlement agreements regarding Kuvan with both companies. Please see “~~Government Regulation – Hatch-Waxman Act” below and “Legal Proceedings” in Part I, Item 3 of this Annual Report on Form 10-K for additional information. Please see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K for a discussion of the risks posed by generic versions of Kuvan.~~

Naglazyme: The increase in 2017 compared to 2016 was primarily attributable to new patients initiating therapy, the positive impact of foreign currency exchange rates and the timing of central government orders from Latin America and Europe. The decrease in Naglazyme net product revenues for 2016 compared to 2015 was primarily attributable to the timing of central government orders from Latin America and the negative impact of foreign currency exchange rates, partially offset by new patients initiating therapy in Europe and the Middle East.

~~Vimizim: The increase in 2017 compared to 2016 and in 2016 compared to 2015 was primarily attributable to new patients initiating therapy.~~

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 (in millions):~~

currencies:

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~


	Years Ended December 31,							Years Ended December 31,
	2017		2016		2015			2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Sales denominated in USD	$	748.5	$	643.2	$	580.7	Sales denominated in USD	$	932.6	$	891.7	$	748.5	$	40.9	$	143.2
Sales denominated in foreign currencies		521.9		467.2		303.8	Sales denominated in foreign currencies	728.4		578.7		521.9		149.7		56.8
Total net product revenues	$	1,270.4	$	1,110.4	$	884.5	Total net product revenues	$	1,661.0	$	1,470.4	$	1,270.4	$	190.6	$	200.0

The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during 2019 was unfavorable by $24.8 million, which was primarily driven by weakening relative to the USD of currencies in emerging markets such as Brazil, Colombia and Argentina from 2018 to 2019. The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during 2018 was unfavorable by $0.7 million, due primarily to minimal movements in foreign currency exchange rates from 2017 to 2018 in the underlying currencies in which our non-USD revenues were denominated. During 2017, the net impact of foreign currency exchange rates was ~~positive~~favorable by $5.5 million, ~~compared to a negative impact of $3.6 million during 2016~~which was primarily driven by the Brazilian Real and ~~a negative impact of $37.3 million during 2015.~~the Euro. See “~~Quantitative~~“Quantitative and Qualitative Disclosures about Market ~~Risk~~” Risk” in Part II, Item 7A of this Annual Report on Form 10-K for information on currency exchange rate risk related to our revenues.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Royalty and Other Revenues

Royalty and Other Revenues ~~were $43.2 million for~~include royalties earned on net sales of products sold and milestones achieved by licensees or sublicensees and rental income associated with the ~~year ended December 31, 2017,~~tenants in our San Rafael, California facility.


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Royalty and other revenues	$	43.0	$	20.9	$	43.2	$	22.1	$	(22.3)

The 2019 increase in Royalty and Other Revenues compared to ~~$6.5 million and $5.4 million for the years ended December 31, 2016 and 2015, respectively. The increase in 2017 as compared to 2016 and 2015 was~~2018 is primarily due to a one time license payment from a third party due to their achievement of a regulatory milestone and royalty revenues earned from Catalyst on net product sales of Firdapse in North America, which was approved for sale in November 2018. See Note 20 to our accompanying Consolidated Financial Statements for additional information regarding our license and collaboration agreements.

The 2018 decrease in Royalty and Other Revenues compared to 2017 is primarily attributable to the recognition of ~~the~~ $31.5 million net upfront license revenue from ~~Sarepta and $3.8 million~~a third party in ~~royalty revenue earned on Sarepta net sales during~~ 2017.

We expect to continue to earn royalties from ~~Sarepta’s net sales under~~third parties in the ~~terms of the Sarepta Agreements in future quarters.~~

future.

Cost of Sales and Product Gross Margin

Cost of Sales includes raw materials, personnel and facility and other costs associated ~~primarily~~ with manufacturing ~~Aldurazyme, Brineura, Naglazyme and Vimizim~~our commercial products. These costs include production materials, production costs at our ~~production facilities.~~manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes third-party manufacturing costs for the production of the active ingredient in Kuvan and Firdapse and third-party production costs related to final formulation and packaging services for all products and cost of royalties payable to third parties ~~for all products~~

based on sales of our products.

The following table summarizes our cost of ~~goods sold~~sales and product gross ~~margin (in millions, except percentages):~~

margin:

Years Ended December 31,

2017

2016

2015

Total net product revenues

$
1,270.4

$
1,110.4

$
884.5

Cost of sales

241.8

209.6

152.0

Product gross margin

81
%

81
%

83
%

~~Our product gross margin for the year ended December 31, 2017 remained flat~~


	Years Ended December 31,
	2019			2018			2017			2019 vs. 2018			2018 vs. 2017
Total net product revenues	$	1,661.0		$	1,470.4		$	1,270.4		$	190.6		$	200.0
Cost of sales	$	359.5		$	315.3		$	241.8		$	44.2		$	73.5
Product gross margin	78.4		%	78.6		%	81.0		%	(0.2)		%	(2.4)		%

The 2019 increase in Cost of Sales compared to ~~2016, which~~2018 was primarily attributable to increased sales volumes. Product gross margins were relatively flat in 2019 compared to 2018.

The 2018 increase in Cost of Sales compared to 2017 was primarily attributable to increased Vimizim manufacturing costs and increased sales volume for Aldurazyme. Gross margins decreased ~~from 2015~~in 2018 compared to 2017 primarily due to the impact on Aldurazyme net product revenues of adopting ASC Topic 606 and increased ~~Naglazyme~~Vimizim and ~~Vimizim~~Naglazyme manufacturing costs. Under ASC Topic 606, which we adopted on January 1, 2018, we recognize the full amount of expected Aldurazyme revenue in the same period as related cost of sales. Prior to adoption, Aldurazyme gross margins fluctuated depending on the mix of product transfer revenue and variable consideration recognized in the period.

We expect total product gross margin to remain near ~~80 percent~~80% over the next twelve months.

Research and Development

R&D ~~Expense~~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~~expense primarily includes preclinical and clinical studies, personnel and raw materials costs associated with manufacturing clinical product, ~~candidates,~~ quality control and assurance, ~~research and development,~~other R&D activities, facilities and regulatory ~~costs~~

~~A summary~~costs.

Table of ~~our ongoing major development programs, including key metrics as of December 31, 2017, is provided below:~~

Contents

~~Major Product Candidates~~	~~Target~~	~~U.S. Orphan~~	~~EU Orphan~~
~~in Development~~	~~Indication~~	~~Designation~~	~~Designation~~	~~Stage~~
~~Pegvaliase~~	~~PKU~~	~~Yes~~	~~Yes~~	~~U.S. marketing authorization~~ ~~regulatory review~~
~~Valoctocogene roxaparvovec~~	~~Hemophilia A~~ ⁽¹⁾	~~Yes~~	~~Yes~~	~~Clinical Phase 3~~
~~Vosoritide~~	~~Achondroplasia~~	~~Yes~~	~~Yes~~	~~Clinical Phase 3~~
~~BMN 250~~	~~MPS IIIB~~ ⁽²⁾	~~Yes~~	~~Yes~~	~~Clinical Phase 1/2~~
~~BMN 290~~	~~Friedreich's Ataxia~~	~~Not applicable~~	~~Not applicable~~	~~Preclinical~~

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

~~(1)~~

~~Hemophilia A is also called factor VIII deficiency or classic hemophilia.~~

(continued)

~~(2)~~

~~Sanfilippo Syndrome Type B, or mucopolysaccharidosis type IIIB (MPS IIIB).~~

(In millions of U.S. Dollars, except as otherwise disclosed)

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.

R&D expense decreased to $610.8 million for the year ended December 31, 2017, compared to $661.9 million and $634.8 million for the years ended December 31, 2016 and 2015, respectively. R&D expense consisted of the following (in millions):

Years Ended December 31,

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Pegvaliase

$
122.1

$
88.6

$
74.0

$
33.5

$
14.6

Valoctocogene roxaparvovec

118.2

58.9

32.7

59.3

26.2

Vosoritide

55.1

55.8

49.4

(0.7
)

6.4

BMN 250

56.0

46.1

33.6

9.9

12.5

BMN 290

2.8

2.1

2.9

0.7

(0.8
)
Brineura

52.0

77.2

39.9

(25.2
)

37.3

Other approved products

72.1

65.0

82.0

7.1

(17.0
)
Early stage programs

65.4

55.9

39.0

9.5

16.9

Other and non-allocated

67.1

212.3

281.3

(145.2
)

(69.0
)
Total

$
610.8

$
661.9

$
634.8

$
(51.1
)

$
27.1

~~2017 compared to 2016~~

~~The decrease in R&D expense primarily comprised the following:~~

a decrease in R&D expense for other and non-allocated programs primarily related to R&D spending in 2016 on the Kyndrisa, other exon-skipping, and reveglucosidase alfa development programs, all of which were terminated in 2016; and

a decrease in R&D expense related to Brineura, which was approved for marketing in the U.S. and EU in June 2017 and July 2017, respectively. During the second quarter of 2016, we evaluated the facts and circumstances supporting recoverability of pre-launch manufacturing costs related to Brineura and concluded that recoverability was probable, resulting in the decrease in R&D costs as pre-launch manufacturing costs began to be capitalized during 2016. Prior to the second quarter of 2016, Brineura pre-launch manufacturing costs incurred were expensed to R&D expense as significant uncertainty existed over the recoverability of the costs at the time; partially offset by

~~an increase in clinical trial activities related to BMN 250, pegvaliase and~~ ~~valoctocogene roxaparvovec~~ ~~product candidates; and~~

~~an increase in pre-clinical activity for our early stage programs.~~

During 2018, we expect our R&D spending to increase over 2017 levels due to our BMN 250, BMN 290, pegvaliase, valoctocogene roxaparvovec, and vosoritide programs progressing in their development. We also expect increased spending on pre-clinical activities for our early development stage programs. Additionally, we expect to continue incurring R&D expense for the foreseeable future due to long-term clinical activities related to post-approval regulatory commitments for our approved products. 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, the costs subsequently incurred related to pre-launch or pre-qualification manufacturing activities for purposes of commercial sales will likely be capitalized.~~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 capitalized $29.2 million of manufacturing related costs for the commercial production of valoctocogene roxaparvovec from the second quarter of 2019 through December 31, 2019 as we believe those costs are likely to be recoverable. See Note 8 to our accompanying Consolidated Financial Statements for additional information regarding our inventory.

R&D expense increased to $715.0 million for the year ended December 31, 2019, compared to $696.3 million and $610.8 million for the years ended December 31, 2018 and 2017 respectively. R&D expense consisted of the following:


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Valoctocogene roxaparvovec	$	192.8	$	161.7	$	118.2	$	31.1	$	43.5
Vosoritide	120.9		89.3		55.1		31.6		34.2
BMN 307	89.2		18.1		—		71.1		18.1
Palynziq	71.7		94.8		122.1		(23.1)		(27.3)
Brineura	39.4		46.9		52.0		(7.5)		(5.1)
Tralesinidase alfa	27.4		82.2		56.0		(54.8)		26.2
Other approved products	64.7		70.6		72.1		(5.9)		(1.5)
Early stage programs	75.0		68.2		65.4		6.8		2.8
Other	33.9		64.5		69.9		(30.6)		(5.4)
Total	$	715.0	$	696.3	$	610.8	$	18.7	$	85.5

2019 compared to 2018

The increase in R&D expense primarily comprised the following:

•an increase in preclinical and manufacturing activities related to our BMN 307 development program, including clinical manufacturing costs; and

•an increase in clinical activity related to our late-stage product candidates valoctocogene roxaparvovec and vosoritide; partially offset by

•a decrease in tralesinidase alfa clinical manufacturing costs; and

•a decrease in costs related to Palynziq, for which capitalization of manufacturing costs began in the second quarter of 2018 following FDA approval.

During 2020, we expect our R&D spending to be generally flat compared to 2019, primarily due to lower development costs on Palynziq and valoctocogene roxaparvovec, along with the out-licensing of tralesinidase alfa; offset by increased spending on preclinical activities for our early stage development programs.

2018 compared to 2017

The increase in R&D expense primarily comprised the following:

•an increase in costs for clinical studies related to our valoctocogene roxaparvovec and vosoritide product candidates;

•an increase in costs of the manufacturing of our tralesinidase alfa clinical product; and

•an increase in costs related to other R&D expenses primarily related to activity for our preclinical programs; partially offset by

•a decrease in costs related to Palynziq, for which capitalization of manufacturing costs began in the second quarter of 2018 following FDA approval; and

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

~~2016 compared to 2015~~

~~The increase in R&D expense primarily comprised the following:~~

(continued)

~~an increase in R&D expense related to Brineura, pegvaliase, and vosoritide due to increased clinical trial activities related to these product candidates~~(In millions of U.S. Dollars, except as ~~they advanced to later stages of development;~~

otherwise disclosed)

an ~~increase in R&D expense related to BMN 250 and valoctocogene roxaparvovec due to increased pre-clinical and clinical activities related to these product candidates; and~~

~~an increase in R&D expense related to vosoritide and valoctocogene roxaparvovec due to payments totaling $12.0 million related to achievement of certain development milestones; partially offset by~~

•a decrease in ~~R&D expense for other and non-allocated programs primarily~~clinical manufacturing costs related to ~~talazoparib due to the completion of the sale of the assets to Medivation, Inc. in the fourth quarter of 2015.~~

Brineura.

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 employee-related expenses.

SG&A expense increased to ~~$554.3~~$680.9 million for the year ended December 31, ~~2017,~~2019, compared to ~~$476.6~~$604.4 million and ~~$402.3~~$554.3 million for the years ended December 31, ~~2016~~2018 and ~~2015,~~2017, respectively. SG&A expenses consisted of the ~~following (in millions):~~

following:


	Years Ended December 31,											Years Ended December 31,
	2017		2016		2015		2017 vs. 2016		2016 vs. 2015			2019		2018		2017		2019 vs. 2018		2018 vs. 2017
S&M expense	$	291.5	$	252.9	$	202.9	$	38.6	$	50.0	S&M expense	$	382.2	$	324.2	$	291.5	$	58.0	$	32.7
G&A expense		262.8		223.7		199.4		39.1		24.3	G&A expense	298.7		280.2		262.8		18.5		17.4
Total SG&A expense	$	554.3	$	476.6	$	402.3	$	77.7	$	74.3	Total SG&A expense	$	680.9	$	604.4	$	554.3	$	76.5	$	50.1

Years Ended December 31,

S&M expense by product:
2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Brineura
$
31.6

$
15.4

$
—

$
16.2

$
15.4

Kuvan

87.7

65.2

40.7

22.5

24.5

Naglazyme

51.3

50.9

46.8

0.4

4.1

Vimizim

77.4

66.7

56.4

10.7

10.3

Other and non-allocated

43.5

54.7

59.0

(11.2
)

(4.3
)
Total S&M expense
$
291.5

$
252.9

$
202.9

$
38.6

$
50.0

~~2017~~

Components of S&M expense were as follows:


	Years Ended December 31,
S&M expense by product:	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
PKU Products	$	137.2	$	118.6	$	99.1	$	18.6	$	19.5
MPS Products	119.2		115.8		129.2		3.4		(13.4)
Brineura	45.4		44.2		31.6		1.2		12.6
Valoctocogene roxaparvovec	50.3		17.0		7.7		33.3		9.3
Other	30.1		28.6		23.9		1.5		4.7
Total S&M expense	$	382.2	$	324.2	$	291.5	$	58.0	$	32.7

2019 compared to ~~2016~~

2018

The increase in S&M expense was primarily ~~comprised the following:~~

a result of an increase in ~~Kuvan~~pre-commercialization activities related to valoctocogene roxaparvovec and ~~Vimizim~~commercialization activities in support of the continued U.S. expansion and EU commercial launches of Palynziq.

The increase in G&A expense was primarily due to consulting fees and higher employee related expenses to support our growth.

We expect SG&A expense to increase in future periods as a result of pre-commercialization efforts related to valoctocogene roxaparvovec and the continued commercial launch of Palynziq.

2018 compared to 2017

The increase in S&M expense ~~due to~~was primarily a result of the following:

•the Palynziq U.S. commercial launch and European pre-commercialization activities;

•the continued ~~worldwide~~ expansion of ~~commercial activities; and~~

~~an increase in Brineura S&M expense primarily due to~~ marketing ~~expense~~activities related to ~~the commercial launch of Brineura in 2017;~~Brineura; and

•pre-commercialization activities related to our valoctocogene roxaparvovec product candidate; partially offset by

•a decrease in ~~other and not allocated S&M expense primarily due to the decrease in S&M expenses~~marketing activities related to ~~Kyndrisa and other terminated programs.~~

our mature products as resources were shifted toward activities noted above.

The increase in G&A expense was primarily due to increased personnel-related costs mainly due to increased ~~headcount.~~

~~We expect SG&A expense~~headcount to ~~increase in future periods as a result~~support our growth and other administrative-related costs.

Table of the continued commercial launch of Brineura, pre-commercialization efforts related to product candidates, the continued international expansion of Kuvan and Vimizim, and the increase in administrative support required for our expanding operations.

Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

~~2016 compared to 2015~~

~~The increase in S&M expense primarily comprised the following:~~

(continued)

~~an increase in Kuvan S&M expense due~~ ~~to expansion~~(In millions of ~~worldwide commercial activities~~U.S. Dollars, except as ~~a result of acquiring the worldwide rights to Kuvan, except for Japan, from Merck Serono on January 1, 2016;~~

otherwise disclosed)

~~an increase in Naglazyme and Vimizim S&M expense due to continued expansion of our worldwide commercial activities; and~~

~~an increase in Brineura S&M expense due to an increase in pre-commercialization marketing expense for Brineura.~~

~~G&A expense increased in 2016 as compared to 2015, primarily due to increased headcount, partially offset by the impact of foreign currency fluctuations.~~

Intangible Asset Amortization and Contingent Consideration

and Gain on Sale of Intangible Assets

Changes during the periods presented for Intangible Asset Amortization and Contingent Consideration and Gain on Sale of Intangible Assets were as follows:


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Increases in the fair value of contingent consideration	$	20.6	$	18.5	$	10.3	$	2.1	$	8.2
Amortization of intangible assets	53.5		30.3		36.2		23.2		(5.9)
Total intangible asset amortization and contingent consideration	$	74.1	$	48.8	$	46.5	$	25.3	$	2.3

Gain on sale of intangible assets	$	25.0	$	50.0	$	125.0	$	(25.0)	$	(75.0)

2019 compared to 2018

Fair value of contingent consideration: the increase in the fair value of the contingent ~~acquisition~~ consideration ~~payable result from updates~~in 2019 was primarily attributable to changes in the estimated probability of achieving development milestones, related to our Palynziq program which received EU marketing approval in May 2019.

Amortization of intangible assets: the increase in 2019 was due to the Palynziq IPR&D assets that were placed into service following EU marketing approval in May 2019.

Gain on Sale of Intangible Assets: we recognized a gain of $25.0 million in 2019 due to the achievement ~~or assumed timing~~ of milestones during the second and ~~adjustments~~fourth quarter of 2019 by third parties, related to previously sold intangible assets. See Note 6 to the ~~discount periods and rates. Intangible asset amortization and contingent consideration expense consisted of the following (in millions):~~

accompanying Consolidated Financial Statements for additional information.

Years Ended December 31,

2017

2016

2015

Increases (decreases) in the fair value of contingent acquisition
consideration payable

$
10.3

$
(57.2
)

$
(28.5
)
Amortization of intangible assets

36.2

30.2

10.8

Total intangible asset amortization and
contingent consideration

$
46.5

$
(27.0
)

$
(17.7
)

~~2017~~2018 compared to ~~2016~~

~~The~~2017

Fair value of contingent consideration: the changes in the fair value of the contingent ~~acquisition~~ consideration ~~payable~~in 2018 were ~~primarily~~ attributable to changes in the estimated probability of achieving development milestones based on the current status of the related development programs, ~~as well as the passage of time. The majority of the changes in fair value of contingent acquisition consideration payable for each period presented~~which was ~~attributed~~primarily related to ~~the following:~~

the continued progress of the ~~PKU developmental~~Palynziq program ~~for pegvaliase;~~to support the filing and

~~the~~ progress toward approval of the ~~talazoparib program currently being developed by Pfizer, Inc.; partially offset by~~

European MAA.

Amortization of intangible assets: the ~~reversal of the fair value of the Firdapse FDA approval milestone~~decrease in 2018 was due to ~~the reduction of the estimated probability of achieving the Firdapse FDA approval milestone prior to its expiration date; and~~

the termination of the Kyndrisa and reveglucosidase alfa development programs in 2016 resulted in the reversal of the fair value of the remaining contingent consideration payable to the former Prosensa Holding N.V. and Zystor Therapeutics, Inc. shareholders, respectively.

~~The increase in amortization of intangible assets during~~a 2017 ~~was primarily attributable to the~~ impairment of IPR&D assets that we had acquired from Zacharon Pharmaceuticals, Inc. (Zacharon), as the related development ~~programs were~~program was terminated. It is our policy to report impairment charges that are not material as a component of Intangible Asset Amortization and Contingent Consideration on our Consolidated Statements of Operations.

~~2016 compared to 2015~~

~~The majority~~

Gain on Sale of ~~the changes~~Intangible Assets: we recognized a gain of $50.0 million in ~~fair value of contingent acquisition consideration payable for~~ the year ended December 31, ~~2016 compared~~2018 due to ~~the year ended December 31, 2015 was attributed to the discontinuance~~a third party’s achievement of ~~the Kyndrisa~~development and ~~reveglucosidase alfa development programs, which resulted in the reversal of the fair value of the~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

~~remaining contingent consideration payable to the former Prosensa and ZyStor Therapeutics, Inc. shareholders, respectively, because the related sales~~regulatory approval milestones ~~were no longer expected to be attained.~~

~~The increase in amortization of intangible assets during 2016 was primarily attributable to the amortization of the Kuvan intangible assets acquired from Merck Serono in January 2016.~~

~~Impairment of Intangible Asset~~

~~No material impairment charges were recorded in 2017. In 2016, we recorded an impairment charge of $599.1 million~~ related to the Kyndrisa and other exon and reveglucosidase alfa IPR&D assets based on the termination of the internal development of the respective programs. In 2015, we recorded an impairment charge of $198.7 million relateda previously sold intangible asset. See Note 6 to the Kyndrisa IPR&D assets based on the then current status of our U.S. development efforts and the related discounted cash flows that no longer supported the full carrying-value of the Kyndrisa IPR&D assets. See Note 7 to our accompanying Consolidated Financial Statements for additional ~~information regarding our Intangible Assets.~~

~~Gain on Sale of Intangible Asset~~

In December 2017, we sold the PRV that we received in connection with the FDA approval of Brineura for the treatment of CLN2. In exchange for the PRV, we received lump sum payment of $125.0 million from Novartis Pharma AG. The proceeds from the sale of PRV were recognized as a gain on the sale of intangible asset. In 2015, we recognized a net gain of $369.5 million for the sale of talazoparib to Medivation, Inc.

information.

Interest Income

We invest our cash ~~short-term~~equivalents and ~~long-term~~ investments in U.S. government securities and other high credit quality debt securities in order to limit default and market risk. Interest income was ~~$14.9 million for~~comprised of the ~~year ended December 31, 2017,~~following:


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Interest income	$	22.7	$	22.8	$	14.9	$	(0.1)	$	7.9

Interest income during 2019 was flat compared to ~~$7.5 million and $4.5 million for~~2018 as higher average interest rates offset the ~~years ended December 31, 2016 and 2015, respectively.~~impact of lower investment balances. The increase in interest income during ~~2017~~2018 compared to ~~2016~~2017 was primarily due to a higher investment ~~balances, which increased due to~~balance during the ~~investment of the net proceeds of $481.7 million from our August 2017 issuance of the 2024 Notes~~period and higher average interest rate on investments. ~~Due to higher investment balances offset in part by planned spend, during 2018 we~~

Table of Contents

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 ~~an increase in~~ interest income ~~from present levels.~~

to remain relatively flat over the next 12 months.

Interest Expense

We incur interest expense primarily on our convertible debt. Interest expense consisted of the ~~following (in millions):~~

following:

Years Ended December 31,

2017

2016

2015

Coupon interest

$
10.4

$
9.6

$
9.8

Amortization of debt issuance costs

3.7

3.4

3.3

Accretion of discount on convertible notes

28.6

26.5

25.1

Total interest expense

$
42.7

$
39.5

$
38.2


	Years Ended December 31,
	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Total interest expense	$	23.5	$	43.7	$	42.7	$	(20.2)	$	1.0

The ~~increased~~decrease in interest expense in ~~2017~~2019 compared to ~~2016~~2018 was primarily due to the ~~August 2017 issuance~~maturity of ~~the 2024 Notes.~~ ~~The increased interest expense in 2016 compared to 2015 was attributable to an increase in the accretion of the discount on~~ our 0.75% senior subordinated convertible notes, ~~due in~~which matured on October 15, 2018 (the 2018 Notes) ~~and~~.

The increase in interest expense in 2018 compared to 2017 was primarily due to the issuance of our ~~1.50%~~0.599% senior subordinated convertible notes due in ~~2020~~2024 (the ~~2020 Notes and, together with~~2024 Notes) in August 2017, partially offset by the maturity of the 2018 Notes ~~and the 2024 Notes, the Notes) which were issued~~ in October ~~2013, using the effective interest rate method~~. 2018.

We expect interest expense to ~~increase~~remain relatively flat over the next 12 ~~months due to the coupon interest and amortization of issuance costs related to the 2024 Notes.~~months. See Note 13 to our accompanying Consolidated Financial Statements for additional information regarding our debt.

~~Other Expense~~

During the second quarter of 2015, we recorded write-offs of $12.8 million for investments and advances related to a supplier of one of our multi-sourced materials due to a deterioration in its financial condition.

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

Provision for (Benefit from) Income Taxes

On December 22, 2017, the ~~2017~~ Tax Cuts and Jobs Act (2017 Tax Act) was signed into law. The ~~new law~~2017 Tax Act has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from 35% to 21% and the elimination or reduction of certain domestic deductions and credits, including a 50% reduction in the orphan drug ~~credit benefit.~~credit. The 2017 Tax Act changed U.S. international taxation from a worldwide basis to a modified territorial system that includes base erosion prevention measures on foreign earnings. This ~~will result~~resulted in our foreign subsidiaries being subject to U.S. taxation in the ~~future. These changes are effective in 2018.~~

We recognized an income tax provision of $81.2 million, an income tax benefit of $200.8 million and an income tax provision of $17.1 million in the years ended December 31, 2017, 2016 and 2015, respectively.current year. Changes to tax laws and tax rates are required to be accounted for in the period of the enactment, therefore our 2017 tax provision included the impact of the 2017 Tax Act.

We recognized an income tax benefit of $71.0 million and $65.5 million in 2019 and 2018, respectively, and income tax expense of $81.2 million in 2017. Provision for (benefit from) income taxes for ~~2017, 2016~~2019, 2018 and ~~2015~~2017 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, federal R&D credits and California R&D credits. The provision for (benefit from) income taxes for the years ended December 31, ~~2017, 2016~~2019 and ~~2015~~2017 were further impacted by the following items:

•2019 included a tax benefit of $29.6 million for the release of the valuation allowance against the net deferred tax asset of our Dutch subsidiary. In the second quarter of 2019, we determined that it is more likely than not that the deferred tax assets, including net operating losses and tax credit carryforwards of our Dutch subsidiary, will be realized. In making this determination, we analyzed our recent history of earnings, forecasts of future earnings and cumulative earnings for the last three years of our Dutch subsidiary and we reached the conclusion that it was appropriate to release the valuation allowance reserve.

•2017 included a provisional expense of $42.3 million related to the 2017 Tax Act primarily consisting of $33.1 million for the re-measurement of the net deferred tax assets at the lower enacted corporate tax rate and $9.2 million related to the new limitations on tax deductible compensation. Our deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. Additionally, we established a $41.4 million valuation allowance on state tax credits as management assessed the impact of the 2017 Tax Act on our financial projections and concluded that it is more likely than not that these state tax credits will not be utilized in the foreseeable future because these credits do not expire and we project that we will be generating more credits than we will utilize on an annual basis. The 2017 Tax Act also includes a one-time mandatory deemed repatriation toll tax on accumulated earnings of our foreign subsidiaries that did not impact us due to a net deficit in these foreign ~~subsidiaries;~~

subsidiaries.

~~2016 included a deferred tax benefit of $143.5 million associated with~~•In December 2017, the ~~GAAP impairment~~Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the ~~Kyndrisa IPR&D;~~Tax Cuts and

~~2015 included~~ Jobs Act (SAB 118), which allowed us to record provisional amounts during a ~~deferred tax benefit of $49.7 million associated with the GAAP impairment~~measurement period not to extend beyond one year of the ~~Kyndrisa IPR&D, which was partially offset by~~enactment date. As a ~~$29.7 million increase in the valuation allowance related to future contingent consideration on the sale of talazoparib that is reasonably uncertain of receipt.~~

~~The 2017~~result, we previously provided a provisional ~~charge is an~~ estimate and the measurement of deferred tax assets is subject to further analysis and potential correlative adjustments as developing interpretations and guidance from the U.S. Treasury Department, the IRS, and other standard setting bodies provide additional clarifications of the ~~provisions~~effect of the 2017 Tax ~~Act. Updated guidance~~Act in our financial statements. In the fourth quarter of 2018, we completed our analysis to determine the effect of the 2017 Tax Act and ~~regulations could result in changes to this estimate during 2018 when the analysis is complete.~~recorded immaterial adjustments as of December 31, 2018. We have ~~not yet~~ elected ~~an accounting method regarding whether~~ to ~~record deferred tax assets and liabilities~~account for ~~expected amounts of~~ Global Intangible ~~Low-Taxed~~Low-taxed Income (GILTI) ~~inclusions or whether to treat such amounts~~ as a current period ~~cost.~~

~~The consolidated GAAP net loss includes all~~expense when incurred.

Table of ~~our foreign subsidiaries.~~ Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In ~~accordance with Accounting Standards Codification Topic 740, “Income Taxes,” we calculate our provision for (benefit from) income taxes on an entity-by-entity and jurisdiction-by-jurisdiction basis~~millions of U.S. Dollars, except as adjusted for differences between book-basis income and tax-basis income, which results in certain foreign entities being profitable and incurring foreign current income tax expense. Certain foreign entities incur significant amounts of R&D expense that results in significant losses that more than offset the income reported by the profitable foreign entities on a consolidated basis. The majority of these material R&D losses are in foreign jurisdictions that do not have net operating loss carryforward provisions that result in deferred tax assets, which results in an effective tax rate of 0% on approximately $53.5 million of foreign net losses during 2017. For the year ended December 31, 2017, our Dutch operations had GAAP income of $20.7 million. For the year ended December 31, 2017, other foreign operations generated GAAP income of approximately $16.3 million with an effective tax rate of approximately 22%.

otherwise disclosed)

Financial Position, Liquidity and Capital Resources

As of December 31, ~~2017,~~2019, we had ~~$1.8~~$1.2 billion in cash, cash equivalents, and ~~short-term and long-term~~ investments. We expect to fund our operations with our net product revenues from our commercial products, cash, cash equivalents and investments, potentially supplemented ~~as may become necessary~~ by proceeds from equity or debt financings and loans, or collaborative agreements with corporate partners. We may require additional financing to fund the repayment of our convertible debt, future milestone payments and our future operations,

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

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.

In managing our liquidity needs in the U.S., we do not rely on unrepatriated earnings as a source of funds and we have not provided for U.S. federal or state income taxes on these undistributed foreign earnings. We do not record U.S. tax expense on the undistributed earnings of our controlled foreign subsidiaries as these earnings are intended to be indefinitely reinvested offshore. As of December 31, ~~2017, the cumulative amount of these earnings was approximately $10.7 million.~~

~~As of December 31, 2017, $187.9~~2019, $162.7 million of our ~~$1.8~~$1.2 billion balance of cash, cash equivalents and investments was held in foreign subsidiaries, a significant portion of which is required to fund the liquidity needs of these foreign ~~subsidiaries.~~subsidiaries See Note 1518 to our accompanying Consolidated Financial Statements for additional ~~discussion.~~

discussion regarding income taxes.

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 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 December 31 were as ~~follows (in millions):~~

follows:

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Cash and cash equivalents

$
598.0

$
408.3

$
397.0

$
189.7

$
11.3

Short-term investments

797.9

381.3

195.6

416.6

185.7

Long-term investments

385.8

572.8

425.7

(187.0
)

147.1

Cash, cash equivalents and investments

$
1,781.7

$
1,362.4

$
1,018.3

$
419.3

$
344.1

Convertible debt, net

$
1,174.5

$
683.2

$
662.3

$
491.3

$
20.9


	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Cash and cash equivalents	$	437.4	$	494.0	$	598.0	$	(56.6)	$	(104.0)
Short-term investments	316.4		590.3		797.9		(273.9)		(207.6)
Long-term investments	412.0		235.9		385.8		176.1		(149.9)
Cash, cash equivalents and investments	$	1,165.8	$	1,320.2	$	1,781.7	$	(154.4)	$	(461.5)

Convertible debt, net	$	848.1	$	830.4	$	1,174.5	$	17.7	$	(344.1)

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Our cash flows for each of the years ended December 31 are summarized as ~~follows (in millions):~~

follows:

2017

2016

2015

2017 vs. 2016

2016 vs. 2015

Cash & cash equivalents at the beginning of
the period

$
408.3

$
397.0

$
875.5

$
11.3

$
(478.5
)
Net cash used in operating activities

(8.8
)

(227.8
)

(219.5
)

219.0

(8.3
)
Net cash used in investing activities

(305.5
)

(484.0
)

(1,179.6
)

178.5

695.6

Net cash provided by financing activities

507.1

727.1

925.7

(220.0
)

(198.6
)
Foreign exchange impact

(3.1
)

(4.0
)

(5.1
)

0.9

1.1

Cash & cash equivalents at the end
of the period

$
598.0

$
408.3

$
397.0

$
189.7

$
11.3

Short-term and long-term investments

1,183.7

954.1

621.3

229.6

332.8

Cash, cash equivalents and investments

$
1,781.7

$
1,362.4

$
1,018.3

$
419.3

$
344.1


	2019		2018		2017		2019 vs. 2018		2018 vs. 2017
Cash & cash equivalents at the beginning of the period	$	494.0	$	598.0	$	408.3	$	(104.0)	$	189.7
Net cash provided by (used in) operating activities	48.3		20.2		(8.8)		28.1		29.0
Net cash provided by (used in) investing activities	(31.0)		264.4		(305.5)		(295.4)		569.9
Net cash provided by (used in) financing activities	(74.7)		(388.0)		507.1		313.3		(895.1)
Foreign exchange impact	0.8		(0.6)		(3.1)		1.4		2.5
Cash & cash equivalents at the end of the period	$	437.4	$	494.0	$	598.0	$	(56.6)	$	(104.0)
Short-term and long-term investments	728.4		826.2		1,183.7		(97.8)		(357.5)
Cash, cash equivalents and investments	$	1,165.8	$	1,320.2	$	1,781.7	$	(154.4)	$	(461.5)

Cash ~~Used in~~Provided by (Used in) Operating Activities

~~Cash used in~~

Net cash provided by operating activities ~~for~~during 2019 was $48.3 million, compared to cash provided by operating activities of $20.2 million during 2018. Cash provided by operating activities was primarily attributed to the ~~year ended December 31, 2017~~timing of payments to vendors and cash receipts from customers partially offset by higher inventory levels.

Net cash provided by operating activities during 2018 was ~~$8.8~~$20.2 million, compared to cash used in operating activities of ~~$227.8~~$8.8 million ~~for the year ended December 31, 2016.~~during 2017. Cash ~~used in~~provided by operating activities was primarily ~~consisted~~attributed to the timing of ~~net loss of $117.0 million, adjusted for non-cash items such as $140.3 million for stock-based compensation expenses, $87.9 million for depreciation~~cash receipts from customers and ~~amortization expense, $44.5 million for a change in deferred income taxes and $32.3 million of non-cash interest expense,~~payments to vendors, partially offset by ~~a $125.0 million gain on the sale of an intangible asset. Changes~~higher inventory levels. The increase in ~~operating assets and liabilities resulted in a net~~

~~Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)~~

~~cash outflow of $94.0 million that consisted~~accounts receivable is primarily ~~of increased cash outflow for increased inventory spending for all commercial products to meet anticipated future sales demand.~~

Cash used in operating activities for the year ended December 31, 2016 was $227.8 million, compared to cash used in operating activities of $219.5 million for the year ended December 31, 2015. Cash used in operating activities primarily consisted of net loss of $630.2 million, adjusted for non-cash items such as $599.1 million of asset impairment charges, $134.6 million for stock-based compensation expenses, $96.9 million for depreciation and amortization expense, and $29.9 million of non-cash interest expense, partially offset by $228.1 million change in deferred income taxes and $57.2 million relateddue to the ~~decrease~~increase in Genzyme unbilled receivables due to the ~~fair value~~adoption of contingent acquisition consideration payable. Changes in operating assets and liabilities resulted in a net cash outflow of $160.3 million that consisted primarily of increased cash outflow for R&D expenses and increased inventory spending to meet anticipated future sales demand.

ASC Topic 606.

Cash ~~Used in~~Provided by (Used in) Investing Activities

Net cash used in investing activities ~~for the year ended December 31, 2017~~during 2019 was ~~$305.5~~$31.0 million, compared to net cash provided by investing activities of $264.4 million during 2018. Net cash used in investing activities in 2019 was primarily attributable to $145.0 million in purchases of property, plant and equipment, partially offset by $108.2 million in net maturities of available-for-sale debt securities and $25.0 million in milestone payment receipts related to previously sold intangible assets.

Net cash provided by investing activities during 2018 was $264.4 million, compared to net cash used in investing activities of ~~$484.0~~$305.5 million ~~for the year ended December 31, 2016. The decrease in net~~during 2017. Net cash ~~used in~~provided by investing activities ~~for the year ended December 31, 2017 compared to the prior year~~in 2018 was primarily attributable to ~~the $125.0 million in proceeds from the sale of the PRV and an increase of $102.7~~$359.0 million in net ~~purchases~~maturities of available-for-sale debt securities and $50.0 million in milestone payment receipts related to a previously sold intangible asset, partially offset by ~~a $50.8~~$144.6 million ~~increase~~ in ~~the~~ purchases of property, plant and equipment.

We expect to continue to make significant capital investments in our manufacturing facilities and our corporate headquarters to accommodate anticipated headcount growth.

Cash Provided by (Used in) Financing Activities

Net cash used in ~~investing~~financing activities ~~for the year ended December 31, 2016~~during 2019 was ~~$484.0~~$74.7 million, compared to net cash used in ~~investing~~financing activities of ~~$1.2 billion for the year ended December 31, 2015. The decrease in net~~$388.0 million during 2018. Net cash used in ~~investing~~financing activities ~~for the year ended December 31, 2016 compared to the prior year~~in 2019 was primarily ~~attributable~~attributed to ~~the absence of 2015~~$58.5 million in payments of ~~$538.4 million~~contingent consideration and cash paid for taxes related to ~~acquire Prosensa and $371.8 million deposit for the PKU rights from Merck Serono, a $79.3 million decrease in the purchases~~net settlement of ~~property, plant and equipment, and a decrease of $116.3 million in net purchases of available-for-sale securities.~~

~~Cash Provided by Financing Activities~~

equity awards.

Net cash ~~provided by~~used in financing activities ~~for the year ended December 31, 2017~~during 2018 was ~~$507.1~~$388.0 million, compared to net cash provided by financing activities of ~~$727.1~~$507.1 million ~~for the year ended December 31, 2016. The decrease~~during 2017. Net cash used in ~~net cash provided by~~ financing activities ~~for the year ended December 31, 2017 compared~~in 2018 was primarily related to the ~~prior year was primarily attributable a $712.9~~$375.0 million ~~decrease~~settlement of the 2018 Notes, which matured in ~~net proceeds from public offerings of common stock,~~October 2018, partially offset by ~~$481.7~~$31.6 million of net proceeds from ~~the issuance~~issuances under our equity

Table of ~~the 2024 Notes issued in August 2017.~~

Net cash provided by financing activities for the year ended December 31, 2016 was $727.1 million, compared to net cash provided by financing activities of $925.7 million for the year ended December 31, 2015. The decrease in net cash provided by financing activities for the year ended December 31, 2016 compared to the prior year was primarily attributable a $175.3 million decrease in net proceeds from public offerings of common stock.

Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

(continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

incentive plans.

Other Information

Our ~~$1.2 billion~~$870.0 million (undiscounted) of total convertible debt as of December 31, ~~2017~~2019 will impact our liquidity due to the semi-annual cash interest payments. ~~Our~~As of December 31, 2019, our indebtedness ~~consists primarily~~consisted of the 2020 Notes and the 2024 Notes (together with the 2020 Notes, the Notes), which, if not converted, will be required to be repaid in cash at maturity in ~~2018,~~October 2020 and August 2024, respectively. ~~Our senior subordinated convertible notes~~We will need cash not only to pay the ongoing interest due ~~in 2017 matured~~ on ~~April 23, 2017, with conversion~~the Notes during their term, but also to repay the principle amount of ~~all principal amounts except for a final cash settlement of $26,000~~.the Notes if not converted. See Note 13 to our accompanying Consolidated Financial Statements for additional discussion.

In the event the conditional conversion feature of the ~~2018 Notes or~~ 2020 Notes is triggered, holders of ~~such~~the 2020 Notes will be entitled to convert the ~~2018 Notes or~~ 2020 Notes at any time during specified periods at their option. In addition, the ~~2018 Notes will be freely convertible on or after July 15, 2018 and the~~ 2020 Notes will be freely convertible on or after July 15, ~~2020~~.2020. We ~~intend to~~may use ~~a majority~~the remaining balance of the net proceeds we received from the issuance of the 2024 Notes to repay, repurchase or settle in cash some or all of the ~~2018~~2020 Notes. We may ~~also~~ elect to settle conversions of the 2020 Notes in cash, in whole or in part, which could further affect our liquidity. While we could seek to obtain additional third-party financing to pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at ~~all. The $375.0 million principal amount of the 2018 Notes mature in October 2018 and therefore we~~all. We have reclassified the net outstanding principal of the 2018 Notes as a current liability. Even if holders of the 2020 Notes do not elect to convert their 2020 Notes, we could be required under applicable accounting rules to reclassify all ~~or a portion~~ of the outstanding principal of ~~such~~the 2020 Notes as a current liability ~~rather than long-term liability (for example, when~~as there are 12less than twelve months ~~or less~~ remaining until ~~maturity), which would result~~maturity.

Our 2018 Notes matured in October 2018 and were settled with a ~~material reduction~~combination of ~~our net working capital.~~

~~In August 2017, we completed an offering of $495.0 million in aggregate principal amount of the 2024 Notes, which resulted in net proceeds of $481.7 million, after deducting commissions~~cash and ~~offering expenses~~.

~~In August 2016, we sold 7.5 million~~ shares of our common stock, ~~at a~~consisting of approximately $375.0 million in cash and 190,220 in shares. The shares issued represented the value of the 2018 Notes in excess of the conversion price of ~~$96.00 per share in an underwritten public offering~~$94.15, as measured over a 25-day averaging period. The cash payment was comprised of the principal, the value of fractional shares and the value of unconverted 2018 Notes. In October 2018, pursuant to ~~an effective registration statement previously filed~~a capped call transaction, which was entered into concurrently with the ~~SEC. We~~issuance of the 2018 Notes, we received ~~net proceeds~~from the capped call counterparties 95,127 shares of ~~approximately $712.9 million from this public offering after accounting~~our common stock, which was accounted for as treasury shares and subsequently retired. No gain or loss was incurred upon the ~~underwriting discount and offering costs.~~

extinguishment of the 2018 Notes.

In ~~November 2016~~October 2018, we entered into aan unsecured revolving credit ~~agreement (the Credit Agreement) providing for~~facility of up to ~~$100.0~~$200.0 million ~~in revolving loans~~ (the ~~Revolving~~2018 Credit Facility). ~~We expect to use the proceeds~~The 2018 Credit Facility includes a letter of ~~the Revolving Credit Facility~~credit subfacility and a swingline loan subfacility and is also intended to finance ongoing working capital needs ~~(including timing differences resulting from the strategic management of short-term investments)~~ and for other general corporate purposes. Borrowings under the 2018 Credit Facility bear interest, at our option, at a rate equal to either (a) the LIBOR rate, or LIBOR successor rate, plus an applicable margin ranging from 1.00% to 1.95% per annum, based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods, or (b) the Base Rate, generally the prime lending rate, plus an applicable margin ranging from 0.00% to 0.95%, based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. Our obligations under the Credit Facility are guaranteed by our direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in the future be guaranteed from time to time by certain other material domestic subsidiaries. Commitment fees payable on the undrawn amount range from 0.15% to 0.35% per annum based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. The 2018 Credit Facility matures on October 19, 2021 at which time all outstanding amounts become due and payable, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, we may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020. The 2018 Credit Facility contains financial covenants requiring us to maintain a minimum interest coverage ratio and a minimum liquidity requirement. As of December 31, ~~2017, we had not drawn on the Revolving Credit Facility. Although quarterly interest payments will be~~2019, there were no outstanding amounts due on nor any ~~outstanding balance due, we anticipate any balance due to be short-term in nature.~~usage of the 2018 Credit Facility. See Note 13 to our accompanying Consolidated Financial Statements for additional discussion.

Funding Commitments

We cannot estimate with certainty the cost to complete any of our product development programs. Additionally, except as disclosed under “~~Overview~~”“Overview” above, 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~~”“Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K, for a discussion of the reasons we are unable to estimate such information, and in particular the following risk factors:


•If we fail to obtain regulatory approval to commercially market and sell our product candidates, or if approval of our product candidates is delayed, we will be unable to generate revenue from the sale of these product candidates, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will increase;
•If we are unable to successfully develop and maintain manufacturing processes for our products to produce sufficient quantities at acceptable costs, we may be unable to meet demand for our products and lose potential revenue, have reduced margins or be forced to terminate a program;
•If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected.

• If we fail to obtain regulatory approval to commercially market and sell our product candidates, or if approval of our product candidates is delayed, we will be unable to generate revenue from the sale of these product candidates, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

(continued)

•~~If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and the credibility of our management~~

~~may be adversely affected and, as a result, our stock price may decline.~~

(In millions of U.S. Dollars, except as otherwise disclosed)

increase;

• If we are unable to successfully develop and maintain manufacturing processes for our product candidates to produce sufficient quantities at acceptable costs, we may be unable to support a clinical trial or be forced to terminate a program, or if we are unable to produce sufficient quantities of our products at acceptable costs, we may be unable to meet commercial demand, lose potential revenue, have reduced margins or be forced to terminate a program;

• If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected.

• If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline.

Our investment in our product development programs and continued development of our existing commercial products has a major impact on our operating ~~performance~~.performance. Our R&D expenses infor the period since inception as of December 31, 2019 for certain of our key programs were as ~~follows (in millions~~):

follows:

Since Program

Inception

Brineura

$
240.2

Pegvaliase

522.9

Valoctocogene roxaparvovec

239.3

Vosoritide

229.7

BMN 250

154.6

BMN 290

7.8

Other approved products

979.8

Other and non-allocated

Not meaningful


	Since Program Inception
Palynziq	$	689.4
Valoctocogene roxaparvovec	593.8
Vosoritide	439.9
Brineura	326.5
BMN 307	107.3
Other approved products	1,115.1

We may need or elect to increase our spending above our current long-term plans ~~and consequently we may~~to be ~~unable~~able to achieve our long-term goals. This may increase our capital requirements, including: costs associated with the commercialization of our ~~products;~~products; additional clinical trials; investments in the manufacturing of our commercial ~~products; pre-clinical~~products; preclinical studies and clinical trials for our ~~other~~ product ~~candidates;~~candidates; potential licenses and other acquisitions of complementary technologies, products and ~~companies;~~companies; and general corporate purposes.

Our future capital requirements will depend on many factors, including, but not limited to:

~~product sales and profitability of our products;~~

~~manufacturing, supply or distribution of our product candidates and commercial products;~~

~~progress of our product candidates through the regulatory process and~~ •our ability to successfully ~~commercialize any such products that receive regulatory approval;~~

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;

~~results~~•the progress and success of our preclinical studies and clinical trials ~~announcements~~(including the manufacture of ~~technological innovations or new products~~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 ~~us or our competitors;~~

regulatory authorities; and

~~generic competition to Kuvan relating to our settlements with DRL and Par or potential generic competition from future competitors;~~

•the progress of research programs carried out by us.

~~government regulatory action affecting our product candidates, our products or our competitors’ product candidates and products in both the U.S. and non-U.S. countries; and~~

~~developments or disputes concerning patent or proprietary rights.~~

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.

Table of Contents

Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~– (Continued)~~

(continued)

(In millions of U.S. Dollars, except as otherwise disclosed)

Contractual and Commercial Obligations

We have contractual and commercial obligations under our convertible debt, operating leases and other obligations related to R&D activities, purchase commitments, licenses and sales royalties with annual minimums. Our contractual obligations as of December 31, ~~2017~~2019 are presented in the table ~~below (in millions).~~

below.

	Payments Due within
							More					Payments Due within
	1 Year		>1 -3		> 3 - 5		Than 5					1 Year or Less		>1 -3 Years		> 3 - 5 Years		More Than 5 Years		Total
	or Less		Years		Years		Years		Total
2018 Notes and related interest	$	377.8	$	—	$	—	$	—	$	377.8
2020 Notes and related interest		5.6		386.2		—		—		391.8	2020 Notes and related interest	$	380.6	$	—	$	—	$	—	$	380.6
2024 Notes and related interest		3.0		5.9		5.9		500.9		515.7	2024 Notes and related interest	3.0		5.9		500.9		—		509.8
Operating leases		9.7		13.6		8.9		5.9		38.1
Leases											Leases	13.7		23.3		20.4		17.0		74.4
R&D and purchase commitments		52.1		0.7		—		—		52.8	R&D and purchase commitments	105.2		1.0		—		—		106.2
Total	$	448.2	$	406.4	$	14.8	$	506.8	$	1,376.2	Total	$	502.5	$	30.2	$	521.3	$	17.0	$	1,071.0

~~We are~~

As of December 31, 2019, we were also subject to contingent payments ~~related to~~ totaling approximately $361.3 million upon achievement of certain development and regulatory activities and commercial sales and licensing milestones ~~totaling approximately~~ ~~$604.6 million as of December 31, 2017, which are due upon~~ ~~achievement of certain development and commercial milestones, and~~ if they occur before certain dates in the ~~future~~.future. Of this amount, ~~$222.0~~$67.3 million ~~(USD equivalent of~~ €~~185 million translated at 1.20 USD per Euro as of December 31, 2017) relates~~related to the acquisition of certain rights and other assets with respect to Kuvan and Palynziq from Merck ~~PKU Business acquisition~~Serono and ~~$53.4~~$243.8 million ~~relates~~related to programs that are no longer being developed.

As of December 31, ~~2017,~~2019, we have recorded ~~$189.0~~$50.8 million of contingent ~~acquisition~~ consideration ~~payable~~ on ~~its~~our Consolidated Balance Sheets, ~~in Short-term and Long-term Contingent Acquisition Consideration Payable,~~all of which ~~$53.6 million is expected to be paid by us in the next twelve months.~~

was long-term.

Any outstanding amounts due under the ~~Revolving~~2018 Credit Facility will be due in full in ~~November 2018~~October 2021 with related interest, if any, due on a quarterly ~~basis.~~basis, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, we may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020. As of December 31, ~~2017,~~2019, there was no outstanding balance.

Table of Contents Item

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

We are exposed to market risks that may result from changes in foreign currency exchange rates, interest rates and credit risks. To reduce certain of these risks, we enter into foreign currency derivative hedging transactions, follow investment guidelines and monitor outstanding trade receivables as part of our risk management program.

Foreign Currency Exchange Rate Risk

Our operations include manufacturing and sales activities in the U.S. as well as sales activities in regions outside the U.S, including Europe, Latin America and Asia Pacific. As a result, our financial results may be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. Our operating results are exposed to changes in foreign currency exchange rates between the U.S. ~~dollar~~Dollar (USD) and various foreign currencies, primarily the Euro. When the ~~U.S. dollar~~USD strengthens against these currencies, the relative value of the sales made in the respective foreign currency decreases. Conversely, when the ~~U.S. dollar~~USD weakens against these currencies, the relative value of such sales increases. Overall, we are a net receiver of foreign currencies and, therefore, benefit from a weaker ~~U.S. dollar~~USD and are adversely affected by a stronger ~~U.S. dollar~~USD relative to those foreign currencies in which we transact significant business.

During ~~2017,~~2019, approximately ~~41%~~44% of our net product sales were denominated in foreign currencies and ~~22%~~19% of our operating expenses were denominated in foreign currencies. To partially mitigate the impact of changes in currency exchange rates on net cash flows from our foreign currency denominated sales and operating expenses, we may enter into forward foreign currency exchange ~~contracts.~~contracts (forward contracts). We also hedge certain monetary assets and liabilities, primarily those denominated in Euros, using forward ~~foreign currency exchange~~ contracts, which reduces but does not eliminate our exposure to currency fluctuations between the date the transaction is recorded and the date the cash is collected or paid. Generally, the market risks of these contracts are offset by the corresponding gains and losses on the transactions being hedged.

We do not use derivative financial instruments for speculative trading purposes, nor do we hedge foreign currency exchange rate exposure in a manner that entirely offsets the effects of changes in foreign currency exchange rates. The counterparties to these forward ~~foreign currency exchange~~ contracts are creditworthy multinational commercial banks, which minimizes the risk of counterparty nonperformance. We regularly review our hedging program and may, as part of this review, make changes to the program.

As of December 31, ~~2017 and 2016,~~2019, we had open forward ~~foreign currency exchange~~ contracts with net notional amounts of ~~$276.1 million and $223.5 million, respectively.~~$654.7 million. A hypothetical 10% ~~strengthening~~adverse movement in foreign currency exchange rates compared with the ~~U.S. dollar~~USD relative to exchange rates at December 31, ~~2017~~2019 would have resulted in a reduction in the value received over the remaining life of these contracts ofby approximately ~~$29.7~~$68.1 million on this date and, if realized, would negatively affect earnings during the remaining life of the contracts. The ~~same hypothetical movement in foreign currency exchange rates with~~estimated fair value change was determined by measuring the ~~U.S. dollar relative to exchange rates at December 31, 2016, would have resulted in a reduction~~impact of the ~~value received over the remaining life of the contracts by approximately $21.0 million~~hypothetical exchange rate movement on ~~this date and, if realized, would have negatively affect earnings during the remaining life of these~~outstanding forward contracts. This analysis does not consider the impact of the hypothetical changes in foreign currency rates would have on the forecasted transactions that these foreign currency sensitive instruments were designated to offset.

Our use of this methodology to quantify the market risk of such instruments is subject to assumptions and actual impact could be significantly different.

Based on our overall foreign currency ~~exchange rate~~denominated exposures at December 31, ~~2017,~~2019, we believe that a near-term 10% fluctuation of the ~~U.S. dollar~~USD exchange rate could result in a potential change in the fair value of our net foreign currency ~~sensitive~~denominated assets and liabilities, excluding our investments and open forward ~~foreign currency exchange~~ contracts, by approximately ~~$4.7~~$5.1 million. We expect to continue to enter into transactions based in foreign currencies that could be impacted by changes in exchange rates.

Interest Rate Market Risk

Our exposure to market risk for changes in interest rates relates primarily to our investment ~~portfolio.~~portfolio, which includes our cash equivalents and marketable debt securities. By policy, we place our investments with highly rated credit issuers and limit the amount of credit exposure to any one issuer. As stated in our investment policy, we seek to improve the safety and likelihood of preservation of our invested funds by limiting default risk and market risk.

We mitigate default risk by investing in high credit quality securities and by positioning our portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

We have outstanding $375.0 million ~~of the 2018 Notes, $375.0 million~~(undiscounted) of the 2020 Notes and $495.0 million (undiscounted) of the 2024 Notes. The interest rates on these notes are fixed and therefore they do not expose us to risk related to rising interest rates. As of December 31, ~~2017,~~2019, the fair value of our convertible debt was ~~$1.3 billion.~~

$927.5 million.

Table of Contents

In connection with the October 2013 offering of the 2018 Notes, which matured in October 2018, and the 2020 Notes, we paid $29.8 million to purchase a capped call covering 3,982,988 shares of our common ~~stock.~~stock with 50% related to the 2018 Notes and 50% related to the 2020 Notes. If the per share price of our common stock remains below $94.15, ~~these~~the capped call ~~transactions~~transaction would be not applicable and, therefore, would provide us no benefit in offsetting potential dilution from ~~the 2018 Notes and~~ the 2020 Notes. If the per share price of our common stock exceeds $121.05, then, to the extent of the excess, ~~these~~the capped call ~~transactions~~transaction would result in additional dilution from conversion of the ~~2018 Notes and the~~ 2020 Notes.

As of December 31, ~~2017,~~2019, our investment portfolio did not include any investments with significant exposure to countries that face economic volatility and weakness. Although not predictive in nature, we believe a hypothetical 100 basis point threshold reflects a reasonably possible near-term change in interest rates. Based on our investment portfolio and interest rates at December 31, ~~2017,~~2019, we believe that a 100 basis point increase in interest rates could result in a potential loss in fair value of our investment portfolio of approximately ~~$9.6~~$7.6 million. Changes in interest rates may affect the fair value of our investment portfolio. However, we will not recognize such gains or losses in our Consolidated Statements of Operations unless the investments are sold or we determine that the decline in the investment’s value is ~~other-than-temporary.~~

other than temporary.

The table below summarizes the expected maturities and average interest rates of our interest-generating investments at December 31, ~~2017~~2019 (in millions):


	Expected Maturity																				Expected Maturity
	2018			2019			2020			2021		2022		Thereafter			Total				2020			2021			2022			2023		2024		Thereafter			Total
Available-for-sale debt securities	$	840.3		$	353.4		$	32.2		$	—	$	—	$	0.2		$	1,226.1		Available-for-sale debt securities	$	321.4		$	321.6		$	90.2		$	—	$	—	$	0.1		$	733.3
Average interest rate		1.7	%		2.1	%		2.1	%		—		—		5.1	%		1.8	%	Average interest rate	1.9		%	1.8		%	1.8		%	—		—		5.4		%	1.8		%

Counterparty credit risks

Our financial instruments, including derivatives, are subject to counterparty credit risk that we consider as part of the overall fair value measurement. Our financial risk management policy limits derivative transactions by requiring transactions to be with institutions with minimum credit ratings of A or equivalent by Standards & Poor’s, Moody's or Fitch. In addition, we have an investment policy that limits investments to certain types of debt and money market instruments issued by institutions primarily with investment grade credit ratings and places restriction on maturities and concentrations by asset class and issuer.

Item 8. Financial Statements and Supplementary Data

The information required to be filed in this item appears under “~~Exhibits,~~“Exhibits, Financial Statement ~~Schedules~~”Schedules” in Part IV, Item 15 of this Annual Report on Form 10-K and is set forth on pages ~~F-1 to F-44.~~

beginning on page 77.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out, under the supervision of and with the participation of our management, including our Chief Executive Officer and our Acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation, our Chief Executive Officer and our Acting Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of December 31, ~~2017.~~

2019.

Management’s Annual Report on Internal Control Over Financial Reporting

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

~~The effect of~~(1) See Note 3 to these Consolidated Financial Statements for additional information related to the Company’s ~~derivative instruments~~fair value measurements.

The ~~Company measures certain financial~~following table presents the Company’s ROU assets and lease liabilities ~~at fair value on a recurring basis, including available-for-sale fixed income securities and foreign currency derivatives.~~

~~The tables below present the fair value~~as of ~~these financial assets and liabilities determined using the following input levels.~~

Fair Value Measurements at December 31, 2017

Quoted Price in
Active Markets
For Identical
Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Cash equivalents (including available-for-sale debt securities):

Money market instruments

—

215,441

—

215,441

Corporate debt securities

—

3,096

—

3,096

Commercial paper

—

2,751

—

2,751

U.S. government agency securities

—

35,497

—

35,497

Foreign and other

—

990

—

990

Total cash and cash equivalents

—

257,775

—

257,775

Available-for-sale debt securities:

Short-term:

Corporate debt securities

—

406,188

—

406,188

Commercial paper

—

21,815

—

21,815

U.S. government agency securities

—

345,501

—

345,501

Foreign and other

—

24,436

—

24,436

Long-term:

Corporate debt securities

—

295,965

—

295,965

U.S. government agency securities

—

89,620

—

89,620

Foreign and other

—

200

—

200

Total available-for-sale debt securities

—

1,183,725

—

1,183,725

Other Current Assets:

NQDC Plan assets

—

967

—

967

Forward foreign currency exchange contract ⁽¹⁾

—

4,690

—

4,690

Restricted investments ⁽²⁾

—

15,647

—

15,647

Total other current assets

—

21,304

—

21,304

Other Assets:

NQDC Plan assets

—

11,859

—

11,859

Forward foreign currency exchange contract⁽¹⁾

—

4,973

—

4,973

Total other assets

—

16,832

—

16,832

Total assets

$
—

$
1,479,636

$
—

$
1,479,636

Liabilities:

Current Liabilities:

NQDC Plan liability

$
1,356

$
967

$
—

$
2,323

Forward foreign currency exchange contract⁽¹⁾

—

14,464

—

14,464

Contingent acquisition consideration payable

—

—

53,648

53,648

Total current liabilities

1,356

15,431

53,648

70,435

Other long-term liabilities:

NQDC Plan liability

18,272

11,859

—

30,131

Forward foreign currency exchange contract⁽¹⁾

—

12,686

—

12,686

Contingent acquisition consideration payable

—

—

135,318

135,318

Total other long-term liabilities

18,272

24,545

135,318

178,135

Total liabilities

$
19,628

$
39,976

$
188,966

$
248,570

December 31, 2019:

Lease Classification

Classification

December 31, 2019

Assets:

Operating

Other Assets

49,045

Financing

Other Assets

10,389

Total ROU assets

59,434

Liabilities:

Current:

Operating

Accounts payable and accrued liabilities

7,451

Financing

Accounts payable and accrued liabilities

3,249

Noncurrent:

Operating

Other long-term liabilities

44,092

Financing

Other long-term liabilities

6,708

Total lease liabilities

61,500

~~F-24~~

109

Table of Content

BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(In thousands of U.S. ~~dollars,~~Dollars, except per share amounts or as otherwise disclosed)

Fair Value Measurements at December 31, 2016

Quoted Price in
Active Markets
For Identical
Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Cash equivalents (including available-for-sale debt securities):

Money market instruments

—

235,571

—

235,571

Corporate debt securities

—

8,593

—

8,593

U.S. government agency securities

—

6,000

—

6,000

Total cash and cash equivalents

—

250,164

—

250,164

Available-for-sale debt securities:

Short-term:

Certificates of deposit

—

2,800

—

2,800

Corporate debt securities

—

193,974

—

193,974

Commercial paper

—

16,075

—

16,075

U.S. government agency securities

—

168,498

—

168,498

Long-term:

Corporate debt securities

—

437,150

—

437,150

U.S. government agency securities

—

135,427

—

135,427

Foreign and other

—

134

—

134

Total available-for-sale debt securities

—

954,058

—

954,058

Other Current Assets:

Nonqualified Deferred Compensation Plan assets

—

163

—

163

Forward foreign currency exchange contract ⁽¹⁾

—

14,012

—

14,012

Restricted investments ⁽²⁾

—

3,754

—

3,754

Total other current assets

—

17,929

—

17,929

Other Assets:

Nonqualified Deferred Compensation Plan assets

—

9,121

—

9,121

Forward foreign currency exchange contract ⁽¹⁾

—

8,194

—

8,194

Strategic investment ⁽³⁾

4,064

—

—

4,064

Total other assets

4,064

17,315

—

21,379

Total assets

$
4,064

$
1,239,466

$
—

$
1,243,530

Liabilities:

Current Liabilities:

Nonqualified Deferred Compensation Plan
liability

$
2,073

$
163

$
—

$
2,236

Forward foreign currency exchange contract ⁽¹⁾

—

5,201

—

5,201

Contingent acquisition consideration payable

—

—

46,327

46,327

Total current liabilities

2,073

5,364

46,327

53,764

Other long-term liabilities:

Nonqualified Deferred Compensation Plan
liability

17,303

9,121

—

26,424

Forward foreign currency exchange contract⁽¹⁾

—

2,342

—

2,342

Contingent acquisition consideration payable

—

—

115,310

115,310

Total other long-term liabilities

17,303

11,463

115,310

144,076

Total liabilities

$
19,376

$
16,827

$
161,637

$
197,840

Maturities of lease liabilities as of December 31, 2019 by fiscal year were as follows:


Maturity of Lease Liabilities	Operating		Financing		Total
2020	$	10,019	$	3,705	$	13,724
2021	9,081		3,090		12,171
2022	8,699		2,346		11,045
2023	7,748		1,748		9,496
2024	5,916		—		5,916
Thereafter	22,027		—		22,027
Total lease payments	63,490		10,889		74,379
Less: Interest	(11,947)		(932)		(12,879)
Present value of lease liabilities	$	51,543	$	9,957	$	61,500

~~(1)~~

~~See Note 11 to these Consolidated Financial Statements for further information regarding the derivative instruments.~~

Lease Cost

Classification

December 31, 2019

Operating (1)

Operating Expenses

13,026

Financing:

Amortization

Operating Expenses

2,615

Interest expense

Operating Expenses

606

Total lease costs

16,247

~~(2)~~

~~The restricted investments as of December 31, 2017 and 2016 secure the Company’s irrevocable standby letter of credit obtained in connection with certain commercial agreements.~~

~~(3)~~

The Company had investments in marketable equity securities measured using quoted prices in an active market that are considered strategic investments and included in Other Assets on the Company’s Balance Sheets. As of December 31, 2017, all holdings in the Company’s strategic investments have been liquidated.

~~There~~(1) Includes short-term leases and variable lease costs, both of which were ~~no transfers between levels during~~not material. Rent expense under operating leases for the ~~year~~years ended December 31, ~~2017.~~

~~F-25~~

2018 and 2017 was $12.2 million and $11.4 million, respectively.

See Note 1419 to these Consolidated Financial Statements for further discussion of the effect of conversion on net loss per common share.

(14) ~~NET LOSS PER COMMON SHARE~~

Potentially issuable shares of common stock include shares issuable upon the exercise of outstanding employee stock option awards, common stock issuable under the Company’s ESPP, unvested restricted stock units (RSUs), common stock held by the NQDC and contingent issuances of common stock related to convertible debt.

~~The following table sets forth the computation of basic and diluted earnings per common share (in thousands of common shares):~~

Years Ended December 31,

2017

2016

2015

Numerator:

Net loss, basic

$
(117,042
)

$
(630,210
)

$
(171,799
)
Less: gain on common stock held by the NQDC

—

(3,184
)

—

Net loss, diluted

(117,042
)

(633,394
)

(171,799
)
Denominator:

Weighted-average common shares outstanding, basic

174,427

165,985

160,025

Effect of dilutive securities:

Common stock held by the NQDC

—

234

—

Weighted-average common shares outstanding, diluted

174,427

166,219

160,025

Net loss per common share, basic

$
(0.67
)

$
(3.80
)

$
(1.07
)
Net loss per common share, diluted

$
(0.67
)

$
(3.81
)

$
(1.07
)

~~F-30~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

The table below presents potential shares of common stock that were excluded from the computation of basic and diluted earnings per common share as they were anti-dilutive using the if-converted or treasury stock method (in thousands):

Years Ended December 31,

2017

2016

2015

Options to purchase common stock

8,108

8,856

10,323

Common stock issuable under the 2017 Notes

—

1,105

1,544

Common stock issuable under the 2018 Notes

3,983

3,983

3,983

Common stock issuable under the 2020 Notes

3,983

3,983

3,983

Common stock issuable under the 2024 Notes

3,970

—

—

Unvested restricted stock units

2,911

2,618

1,743

Common stock potentially issuable for ESPP purchases

436

404

312

Common stock held by the NQDC

220

—

243

Total number of potentially issuable shares

23,611

20,949

22,131

The potential effect of the capped call transactions with respect to the 2018 Notes and the 2020 Notes was excluded from the diluted net income/loss per share as the Company’s closing stock price on December 31, 2017 and 2016 did not exceed the conversion price of $94.15 per share for the 2018 Notes and the 2020 Notes. Although the Company’s stock price exceeded the conversion price $94.15 at December 31, 2015, the potential shares issuable under the 2018 Notes and the 2020 Notes were excluded from the calculation of diluted loss per share as they were anti-dilutive using the if-converted method. There is no similar capped call transaction associated with the 2024 Notes. See Note 13 to these Consolidated Financial Statements for information on the Company’s debt.

~~(15) INCOME TAXES~~

~~The provision for (benefit from) income taxes is based on loss before income taxes as follows:~~

Years Ended December 31,

2017

2016

2015

U.S. Source

$
(19,461
)

$
10,696

$
182,215

Non-U.S. Source

(16,414
)

(841,746
)

(336,939
)
Loss before income taxes

$
(35,875
)

$
(831,050
)

$
(154,724
)

~~The U.S. and foreign components of the provision for (benefit from) income taxes are as follows:~~

Years Ended December 31,

2017

2016

2015

Provision for current income tax expense:

Federal

$
29,848

$
22,239

$
84,743

State and local

2,880

1,418

5,323

Foreign

3,975

3,557

3,836

36,703

27,214

93,902

Provision for (benefit from) deferred income tax
expense:

Federal

12,446

(78,428
)

(17,741
)
State and local

32,336

(6,012
)

(8,770
)
Foreign

(318
)

(143,614
)

(50,316
)

44,464

(228,054
)

(76,827
)
Provision for (benefit from) income taxes

$
81,167

$
(200,840
)

$
17,075

On December 22, 2017, the bill known as the Tax Cuts and Jobs Act (the 2017 Tax Act) was signed into law. The new law has resulted in significant changes to the U.S. corporate income tax system. These changes include a federal statutory rate reduction from ~~35% to 21%~~ and the elimination or reduction of certain domestic deductions and credits, including a 50% reduction in the orphan drug credit benefit. The 2017 Tax Act changed U.S. international taxation from a worldwide basis to a modified territorial system that includes base erosion

~~F-31~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

prevention measures on foreign earnings. This will result in the Company’s foreign subsidiaries being subject to U.S. taxation in the future. These changes are effective in 2018. Changes to tax laws and tax rates are required to be accounted for in the period of the enactment, therefore the Company’s tax expense for the year ended December, 31, 2017 included the impact of the 2017 Tax Act. The Company’s deferred tax assets and liabilities are measured at the enacted tax rate expected to apply when these temporary differences are expected to be realized or settled. The Company recorded a provisional expense of $42.3 million related to the 2017 Tax Act, which included $33.1 million for the re-measurement of the net deferred tax assets at the lower enacted corporate tax rate and $9.2 million related to the increased limitations on executive compensation. The Company also assessed the impact of the 2017 Tax Act on its financial projections and concluded that is more likely than not that certain of its state tax credits will not be utilized in the foreseeable future, and recognized $41.4 million of income tax expense during the fourth quarter of 2017 to establish a valuation allowance against those state tax credits. These credits do not expire, however, the Company projects that it will be generating more credits than it will utilize on an annual basis. The 2017 Tax Act also includes a one-time mandatory deemed repatriation toll tax on accumulated earnings of our foreign subsidiaries that did not impact the Company due to a net deficit in these foreign subsidiaries.

The incremental net income tax expense recognized as a result of the 2017 Tax Act was an estimate and the measurement of deferred tax assets is subject to further analysis and potential correlative adjustments as developing interpretations and guidance from the U.S. Treasury Department, the IRS, and other standard setting bodies provide additional clarifications of the provisions of the 2017 Tax Act. ~~Updated guidance and regulations~~ could result in changes to this estimate during 2018 when the analysis is complete. The Company has not yet elected an accounting method regarding whether to record deferred tax assets and liabilities for expected amounts of Global Intangible Low-Taxed Income (GILTI) inclusions or whether to treat such amounts as a period cost.

For the year ended December 31, 2016, the Company’s Dutch operations had a book net loss of $539.2 million, which included the impairment of the Kyndrisa IPR&D assets and a resulting deferred tax benefit of $143.5 million associated with the reversal of the deferred tax liability of such IPR&D assets.

~~The following is a reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate expressed as a percentage of loss before income taxes:~~

Years Ended December 31,

2017

2016

2015

Federal statutory income tax rate

35.0
%

35.0
%

35.0
%
State and local taxes

(20.3
)%

0.4
%

(2.2
)%
Orphan Drug & General Business Credit

93.9
%

7.5
%

34.8
%
Stock compensation expense

19.1
%

4.6
%

(2.8
)%
Changes in the fair value of contingent acquisition consideration payable

(3.1
)%

0.9
%

0.2
%
Subpart F income

(84.1
)%

—
%

(8.4
)%
Foreign tax rate differential

(26.2
)%

(18.6
)%

(46.2
)%
Section 162(m) limitation

(26.5
)%

(5.4
)%

(1.3
)%
Tax Cuts and Jobs Act of 2017

(118.0
)%

—
%

—
%
Other

1.9
%

0.3
%

(1.6
)%
Valuation allowance/deferred benefit

(97.9
)%

(0.5
)%

(18.5
)%
Effective income tax rate

(226.2
)%

24.2
%

(11.0
)%

~~F-32~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

~~The significant components of the Company’s net deferred tax assets are as follows:~~

December 31,

2017

2016

Net deferred tax assets:

Net operating loss carryforwards

$
48,374

$
49,787

Tax credit carryforwards

384,381

352,535

Accrued expenses, reserves, and prepaids

54,565

77,904

Intangible assets

17,556

26,751

Stock-based compensation

31,371

47,713

Inventory

13,206

15,581

Impairment

2,609

5,017

Other

2,358

1,519

Valuation allowance

(111,001
)

(73,037
)
Total deferred tax assets

443,419

503,770

Joint venture basis difference

(1,229
)

(1,714
)
Acquired intangibles

(3,332
)

(8,773
)
Convertible notes discount

(10,100
)

(24,394
)
Property, plant and equipment

(29,663
)

(22,103
)
Total deferred tax liabilities

(44,324
)

(56,984
)
Net deferred tax assets

$
399,095

$
446,786

In 2017, the increase in the valuation allowance was primarily due to the state tax credits discussed above. The incremental expense was partially offset by a reduction in the valuation allowance related to fully valued assets that expired in 2017.

~~As of December 31, 2017, the Company had the following net operating loss and tax credit carryforwards, which if not utilized, will expire as follows (dollars in thousands):~~

Type

Amount

Year
Federal net operating loss carryforwards

$
15,554

2028 – 2033
Federal R&D and orphan drug credit carryforwards

$
403,828

2030 – 2037
State net operating loss carryforwards

$
108,133

2019 – 2036
Dutch net operating loss carryforwards

$
145,150

2020 – 2025

~~The $9.5 million of Irish net operating losses and $83.7 million of state research credit carryovers will carry forward indefinitely.~~

The Company’s net operating losses and credits could be subject to annual limitations due to ownership change limitations provided by IRC Section 382 and similar state provisions. An annual limitation could result in the expiration of net operating losses and tax credit carryforward before utilization. There are limitations on the tax attributes of acquired entities however, the Company does not believe the limitations will have a material impact on the utilization of the net operating losses or tax credits.

~~F-33~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

The financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50% likely of being realized upon ultimate settlement. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2017 and 2016 is as follows:

December 31,

2017

2016

Balance at beginning of period

$
103,210

$
86,731

Additions based on tax positions related to the
current year

11,042

15,982

(Deletions) Additions for tax positions of prior years

(766
)

497

Balance at end of period

$
113,486

$
103,210

Included in the balance of unrecognized tax benefits at December 31, 2017 are potential benefits of $113.5 million that, if recognized, would affect the effective tax rate. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items in the income tax expense. The total amount of accrued interest and penalties was not significant as of December 31, 2017.

The Company files income tax returns in the U.S. and various foreign jurisdictions. The U.S. and foreign jurisdictions have statute of limitations ranging from three to five years. However, carryforward tax attributes that were generated in 2014 and earlier may still be adjusted upon examination by tax authorities. Currently, the Company is under audit by the Internal Revenue Service for the year 2014.

U.S. income and foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. This excess totaled approximately $10.7 million as of December 31, 2017, which will be indefinitely reinvested; deferred income taxes have not been provided on such foreign earnings.

~~(16) EQUITY COMPENSATION PLANS~~

~~Share Incentive Plan~~

The Company’s stock-based compensation plans include the 2017 Equity Incentive Plan and the ESPP. The 2017 Equity Incentive Plan, which was approved by the Company’s stockholders on June 6, 2017 and became effective that same date, and is the successor to and continuation of the Company’s Amended and Restated 2006 Share Incentive Plan (the 2006 Share Incentive Plan), provides for awards of RSUs and stock options as well as other forms of equity compensation. No additional awards will be granted under the 2006 Share Incentive Plan; however, there are vested and unvested awards outstanding under the 2006 Share Incentive Plan. Stock option awards granted to employees generally vest over a four-year period on a cliff basis twelve months after the grant date and then monthly thereafter. The contractual term of stock option awards is generally ten years from the grant date. RSUs granted to employees generally vest annually over a straight-line four-year period after the grant date. RSUs granted to directors generally vest in full one year after the grant date.

Shares formerly reserved for future issuance under the 2006 Share Incentive Plan were transferred to the 2017 Equity Incentive Plan, from which future shares shall be issued. The Company’s stock-based compensation plans are administered by the Company’s Board of Directors, or designated Committee thereof, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the awards. As of December 31, 2017, options to purchase approximately 8.1 million shares were outstanding under the Company’s stock option plans. As of December 31, 2017, approximately 10.9 million shares were authorized for future issuance under the 2017 Equity Incentive Plan.

~~Employee Stock Purchase Plan~~

Under BioMarin’s ESPP, which was initially approved in June 2006, replacing the Company’s previous plan, and was further amended on March 5, 2014, employees meeting specific employment qualifications are eligible to participate and can purchase shares on established dates (each purchase date) semi-annually through

~~F-34~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

payroll deductions at the lower of 85% of the fair market value of the stock at the commencement of the offering period or each purchase date of the offering period. Each offering period will span up to two years. The ESPP permits eligible employees to purchase common stock through payroll deductions for up to 10% of qualified compensation, up to an annual limit of $25,000. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the IRC. During the year ended December 31, 2017, the Company issued 0.2 million shares under the ESPP.

~~As of December 31, 2017, there were approximately 3.5 million shares were authorized and 0.6 million shares reserved for future issuance under the ESPP.~~

~~Board of Director Grants~~

On September 28, 2017, the Board of Directors (the Board) approved revised compensation for the Independent Directors of the Company as follows. On the date of the Company’s annual meeting of stockholders for a given year, each re-elected Independent Director receives an RSU grant valued at $375,000, with the number of RSUs to be granted calculated based on the three month trailing average closing price of our common stock ~~on the Nasdaq Global Select Market~~. The RSUs subject to the annual award vest in full on the one-year anniversary of the grant date, subject to each respective director providing service to the Company through such vesting date. Upon election or appointment, a new Independent Director will receive an RSU grant on the same terms as the annual award, pro-rated for amount and vesting to the nearest quarter for the time such new Independent Director will serve prior to the Company’s next annual meeting of stockholders.

Prior to September 28, 2017, each Independent Director was automatically granted an initial equity grant valued at $550,000, with the number of equity awards to be granted calculated based on the three month trailing average closing price of our common stock ~~on the Nasdaq Global Select Market~~. The initial value was allocated 40% to RSUs and 60% to options to purchase shares of the Company’s common stock (stock options) on the date that such person first becomes an Independent Director. The stock options subject to the initial grant vest quarterly over three years and the initial RSU grant vest annually over three years. On the date of the Company’s annual meeting of stockholders, each re-elected Independent Director was granted an additional equity grant valued at $375,000 with such valuation allocated 50% to RSUs and 50% to stock options. The stock options subject to the annual grant vest quarterly over one year and the additional annual RSUs vest in full on the one-year anniversary of the grant date. The additional stock option grant or RSU grant for a director that served for less than a year was prorated to the nearest quarter. These stock options and RSUs continue to vest only while the Independent Director serves on the Board. The exercise price per share of each of these stock options is 100% of the fair market value of a share of the Company’s common stock on the date of the grant. These stock options have a contractual term of 10 years from grant date.

~~See Note 3 to these Consolidated Financial Statements for discussion regarding the valuation of equity awards.~~

~~Shares Available Under Equity Compensation Plans~~

At December 31, 2017, an aggregate of approximately 30.0 million unissued shares was authorized for future issuance under the Company’s stock plans, which includes shares issuable under the 2017 Equity Incentive Plan, the ESPP and the Company’s expired plans. Under the 2017 Equity Incentive Plan, shares issued under the 2006 Share Incentive Plan and the 2017 Equity Incentive Plan that expire or are forfeited generally become available for future issuance under the 2017 Equity Incentive Plan.

~~F-35~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

~~(17) STOCK-BASED COMPENSATION~~

~~Stock Options~~

The following table summarizes activity under the Company’s stock option plans, including the 2012 and 2014 Inducement Plans and those suspended upon the adoption of the 2017 Share Incentive Plan, for the year ended December 31, 2017. All option grants presented in the table had exercise prices not less than the fair value of the underlying common stock on the grant date:

Shares

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Years

Aggregate
Intrinsic
Value ⁽¹⁾

Options outstanding as of
   December 31, 2016

8,856,208

$
51.13

5.4

$
304,356

Granted

801,170

$
87.74

Exercised

(1,367,307
)

$
34.96

Expired and forfeited

(182,090
)

$
92.98

Options outstanding as of
   December 31, 2017

8,107,981

$
56.53

5.1

$
281,141

Options unvested at
   December 31, 2017

1,462,941

$
88.19

8.5

$
6,313

Exercisable at December 31, 2017

6,645,032

$
49.56

4.3

$
274,828

~~(1)~~

The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock on the Nasdaq Global Select Market as of the last trading day for the respective year. The aggregate intrinsic value of options outstanding and exercisable includes options with an exercise price below $89.17, the closing price of the Company’s common stock on the Nasdaq Global Select Market on December 29, 2017, the last trading day of the year.

The weighted-average fair value per option granted in the years ended December 31, 2017, 2016 and 2015 were $36.07, $40.70 and $56.76, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $77.0 million, $127.4 million and $146.6 million, respectively. The aggregate intrinsic value of options exercised was determined as of the date of option exercise. Upon the exercise of the options, the Company issues new common stock from its authorized shares. There were 7.4 million options that were in-the-money at December 31, 2017.

~~The assumptions used to estimate the per share fair value of stock options granted during the periods presented were as follows:~~

Years Ended December 31,

2017

2016

2015

Expected volatility

38 – 40%

36 – 44%

36 – 45%

Dividend yield

0.00%

0.00%

0.00%

Expected life

4.9 – 6.6 years

5.0 – 8.1 years

6.4 – 8.0 years

Risk-free interest rate

1.8 – 2.2%

1.1 – 2.3%

1.5 – 2.2%

The Company recorded $36.7 million, $45.5 million and $41.5 million of compensation costs related to current period vesting of stock options for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, the total unrecognized compensation cost related to unvested stock options was $49.2 million. These costs are expected to be recognized over a weighted average period of 2.4 years. The net tax benefit from stock options exercised during the year ended December 31, 2017 was $7.8 million.

~~F-36~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

~~The assumptions used to estimate the per share fair value of stock purchase rights granted under the ESPP were as follows:~~

Years Ended December 31,

2017

2016

2015

Expected volatility

28 – 42%

42 – 50%

36 – 38%

Dividend yield

0.00%

0.00%

0.00%

Expected life

6 – 24 months

6 – 24 months

6 – 24 months

Risk-free interest rate

1.0 – 1.6%

0.4 – 0.8%

0.1 – 0.8%

The Company recorded $11.7 million, $10.1 million and $7.1 million of compensation costs related to shares granted under the ESPP for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $12.9 million of total unrecognized compensation cost related to unvested stock options issuable under the ESPP. These costs are expected to be recognized over a weighted average period of 1.4 years.

~~Restricted Stock Unit Awards with Service-Based Vesting Conditions~~

~~RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions.~~

~~Below is a summary of RSU activity under the plan for the year ended December 31, 2017:~~

Shares

Weighted
Average
Grant Date
Fair Value

Weighted
Average
Remaining
Years

Aggregate
Intrinsic
Value

Non-vested units as of December 31, 2016

2,444,966

$
92.70

1.4

$
202,541

Granted

1,382,900

$
87.88

Vested

(837,926
)

$
92.00

Forfeited

(310,406
)

$
96.02

Non-vested units as of December 31, 2017

2,679,534

$
90.04

1.4

$
238,934

The weighted-average grant date fair value per share of RSUs granted during the years ended December 31, 2017, 2016 and 2015, was $87.88, $84.18 and $119.86, respectively. The total intrinsic value of restricted stock that vested and was released in the years ended December 31, 2017, 2016 and 2015 was $76.5 million, $63.5 million and $59.5 million, respectively.

The Company recorded $86.5 million, $74.7 million and $47.9 million of compensation costs related to RSUs with service-based vesting conditions for the years ended December 31, 2017, 2016 and 2015, respectively. As of December 31, 2017, there was $173.7 million of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of 1.3 years.

~~Restricted Stock Unit Awards with Performance Conditions~~

The Compensation Committee of the Board (with respect to awards to certain executive officers other than the Chief Executive Officer) and the Board (with respect to awards to the Chief Executive Officer) may grant RSUs with performance-based vesting conditions to certain executive officers. In March 2017, the Compensation Committee and Board approved the grant of 133,250 RSUs (base RSUs) with performance-based vesting conditions. This award is contingent upon the achievement of a 2017 revenue target and the number of shares that may be earned range between 50% and 200% of the base RSUs, dependent on the percentage of 2017 “managed revenues” (defined as the Company’s net product revenues, excluding net revenues attributable to Aldurazyme, and determined using fixed foreign currency exchange rates) achieved against the target managed revenues, with a threshold achievement level of 75% of target and a ceiling achievement level of 125% of target. RSUs with performance-based vesting conditions with similar performance conditions were granted in 2016 and 2015.

~~F-37~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

The following table details the base RSUs granted, RSUs earned and expected to vest and the performance multiplier achieved and compensation expense recognized for the RSUs with performance-based vesting conditions for the years ended December 31, 2017, 2016 and 2015, respectively (dollars in thousands, except per RSU amounts):

Grant Date

Compensation Expense for the Years Ended December 31,

Date of Grant

Base RSUs Granted

Fair Value
per RSU

Multiplier Achieved

RSUs Earned

2017

2016

2015

March 2017 ⁽¹⁾

133,250

$
87.42

103
%

131,651

$
4,141

$
—

$
—

March 2016 ⁽²⁾

130,310

$
83.43

103
%

134,219

$
3,928

$
2,956

$
—

March 2015 ⁽²⁾

58,300

$
108.36

111
%

64,713

$
2,291

$
2,342

$
1,805

~~(1)~~

Based on the Company’s performance against the 2017 revenue target, the Company expects its Compensation Committee to approve a multiplier of 103% and the participating executive officers to earn 131,651 RSUs, which will continue to vest ratably over a three-year service period.

~~(2)~~

The RSUs with performance-based vesting conditions granted in 2016 and 2015 were earned on the one year anniversary upon achievement of the respective performance target and vest ratably over a three-year service period.

As of December 31, 2017, total unrecognized compensation expense of $12.4 million related to RSU awards with performance-vesting conditions is expected to be recognized over a weighted average period of 1.8 years.

~~Compensation expense included in the Company’s Consolidated Statements of Operations for all stock-based compensation arrangements was as follows:~~

Years Ended December 31,

2017

2016

2015

Cost of sales

$
10,636

$
9,121

$
6,836

Research and development

53,112

58,279

49,399

Selling, general and administrative

76,515

67,241

55,290

Total stock-based compensation expense

$
140,263

$
134,641

$
111,525

Stock-based compensation of $16.1 million, $11.4 million and $11.1 million was capitalized into inventory, for the years ended December 31, 2017, 2016 and 2015, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.

~~F-38~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)~~

~~(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)~~

~~(18)~~ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table summarizes total revenues from external customers and collaborative partners by geographic region. Net product revenues by geographic region are based on patient location for the Company’s commercial products, except for Aldurazyme, which is based on the location of Genzyme’s headquarters. Although Genzyme sells Aldurazyme worldwide, the revenues earned by the Company based on Genzyme’s net sales are included in the U.S. region as the transactions are with Genzyme whose headquarters are located in the U.S.

~~The following table summarizes non-monetary~~Non-monetary long-lived assets, ~~by geographic region. Non-monetary long-lived assets~~which primarily consist of property, plant and equipment, intangible assets, ROU assets, deferred tax assets and ~~goodwill.~~

Rent expense for the years ended December 31, 2017, 2016 and 2015 was $11.4 million, $11.6 million and $9.3 million, respectively. Deferred rent accruals at December 31, 2017 totaled $2.3 million, of which $2.0 million was current. Deferred rent accruals at December 31, 2016 totaled $2.4 million, of which $2.0 million was current.


	Years Ended December 31,
Major Commercial Products	2019	2018	2017
Aldurazyme	$97.8	$135.1	$90.0
Brineura	$72.0	$39.9	$8.6
Kuvan	$463.4	$433.6	$407.5
Naglazyme	$374.3	$345.9	$332.2
Palynziq	$86.9	$12.2	—
Vimizim	$544.3	$482.0	$413.3

	Years Ended December 31,
	2017		2016		2015
Net product revenues:
United States	$	495.7	$	411.9	$	343.4
Europe		266.2		252.6		171.2
Latin America		182.4		147.5		142.3
Rest of the world		236.1		204.6		129.6
Total net product revenues marketed by BioMarin		1,180.4		1,016.6		786.5
Aldurazyme net product revenues marketed by Genzyme		90.0		93.8		98.0
Total net product revenue	$	1,270.4		1,110.4	$	884.5

	December 31,
	2017		2016		2015
Non-monetary long-lived assets:
United States	$	1,183.8	$	1,183.9	$	940.5
Europe		823.7		812.8		865.2
Rest of World		2.7		2.6		2.3
Total long-lived assets	$	2,010.2	$	1,999.3	$	1,808.0

Reports of Independent Registered Public Accounting Firm							~~F-2~~ 85
Consolidated Financial Statements as of December 31, ~~2017~~2019 and ~~2016~~2018, and for the three years ended December 31, ~~2017:~~ 2019:
Consolidated Balance Sheets							~~F-4~~ 88
Consolidated Statements of Operations							~~F-5~~ 89
Consolidated Statements of Comprehensive Loss							~~F-6~~ 90
Consolidated Statements of Changes in Stockholders’ Equity							~~F-7~~ 91
Consolidated Statements of Cash Flows							~~F-8~~ 92
Notes to Consolidated Financial Statements							~~F-9~~ 93

~~2.1~~	Purchase Agreement, dated as of November 23, 2014, among BioMarin Falcons B.V., BioMarin Pharmaceutical Inc. and Prosensa Holding N.V., previously filed with the SEC on November 26, 2014 as Exhibit 2.01 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.
Exhibit Number			Description
~~2.2~~

2.1			Amended and Restated Termination and Transition Agreement, dated as of December 23, 2015, between BioMarin Pharmaceutical Inc. and Ares Trading S.A., previously filed with the SEC on January 7, 2016 as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.

~~2.3~~ 2.2		Termination Agreement, dated as of October 1, 2015, between BioMarin Pharmaceutical Inc. and Ares Trading S.A., previously filed with the SEC on January 7, 2016 as Exhibit 2.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.

~~2.4~~	Termination and Transition Agreement, dated as of October 1, 2015, between BioMarin Pharmaceutical Inc. and Ares Trading S.A., previously filed with the SEC on January 7, 2016 as Exhibit 2.3 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.

~~2.5~~ 2.3			First Amendment, dated as of December 12, 2016, to the Amended and Restated Termination and Transition Agreement, dated as of December 23, 2015 and effective as of October 1, 2015, between BioMarin Pharmaceutical Inc. and Ares Trading S.A., previously filed with the SEC on February 27, 2017 as Exhibit 2.6 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference. Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment. Omitted portions have been filed separately with the SEC.

~~2.6~~ 2.4			Asset Purchase Agreement between BioMarin Pharmaceutical Inc. and Medivation, Inc., dated August 21, 2015, previously filed with the SEC on October 7, 2015 as Exhibit 2.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~3.1~~ 2.5			Asset Purchase Agreement by and between Novartis Pharma AG, BioMarin Pharmaceutical Inc. and BioMarin Commercial Ltd., dated as of November 21, 2017, previously filed with the SEC on February 26, 2018 as Exhibit 10.47 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated by reference herein.

3.1			Restated Certificate of Incorporation of BioMarin Pharmaceutical Inc., previously filed with the SEC on June 12, 2017 as Exhibit 3.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

3.2			Amended and Restated Bylaws of BioMarin Pharmaceutical Inc., previously filed with the SEC on ~~October 31, 2017~~September 24, 2018 as Exhibit ~~3.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.~~

~~4.1~~	~~Indenture dated as of March 29, 2006, between BioMarin Pharmaceutical Inc. and Wilmington Trust Company, previously filed with the SEC on March 29, 2006 as Exhibit 4.1~~3.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.2~~ 4.1			Second Supplemental Indenture, dated as of April 23, 2007, between BioMarin Pharmaceutical Inc. and Wilmington Trust Company, previously filed with the SEC on April 23, 2007 as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.3~~	Form of 1.875% Senior Subordinated Convertible Notes due 2017, previously filed with the SEC on April 23, 2007 as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

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

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

		Prices
Year	Period	High		Low
2017	Fourth Quarter	$	96.05	$	80.10
	Third Quarter	$	95.45	$	80.29
	Second Quarter	$	100.51	$	85.45
	First Quarter	$	95.79	$	82.57

2016	Fourth Quarter	$	98.34	$	78.42
	Third Quarter	$	102.49	$	77.04
	Second Quarter	$	94.08	$	73.45
	First Quarter	$	105.61	$	62.12

	Years Ended December 31,
	(In millions, except for per share data)
	2017 (1)			2016 (2)			2015			2014			2013
Consolidated Statements of Operations data:
Total revenues ⁽³⁾	$	1,313.6		$	1,116.9		$	889.9		$	749.3		$	548.5
Total costs and expenses ⁽³⁾	$	1,328.3		$	1,920.3		$	1,000.6		$	842.2		$	704.5
Loss from operations	$	(14.7	)	$	(803.4	)	$	(110.7	)	$	(92.9	)	$	(156.0	)
Provision for (benefit from) income taxes	$	81.2		$	(200.8	)	$	17.1		$	9.1		$	(0.2	)
Net loss	$	(117.0	)	$	(630.2	)	$	(171.8	)	$	(134.0	)	$	(176.4	)
Net loss per share, basic	$	(0.67	)	$	(3.80	)	$	(1.07	)	$	(0.92	)	$	(1.28	)
Net loss per share, diluted	$	(0.67	)	$	(3.81	)	$	(1.07	)	$	(0.92	)	$	(1.28	)
Weighted average common shares outstanding, basic		174.4			166.0			160.0			146.3			137.8
Weighted average common shares outstanding, diluted		174.4			166.2			160.0			146.3			137.8

	December 31,
	(In millions)
	2017		2016 (4)		2015		2014		2013
Consolidated Balance Sheets data:
Cash, cash equivalents and investments ^{(5) (6)}	$	1,781.7	$	1,362.4	$	1,018.3	$	1,043.0	$	1,052.4
Total assets ⁽¹⁾	$	4,633.1	$	4,023.7	$	3,729.4	$	2,475.4	$	2,225.5
Other long-term obligations	$	194.4	$	157.3	$	220.8	$	68.8	$	64.2
Long-term convertible senior notes, net⁽⁶⁾	$	813.5	$	660.8	$	662.3	$	642.9	$	637.0
Total stockholders' equity	$	2,808.7	$	2,766.3	$	2,400.8	$	1,527.9	$	1,341.0

	Three Months Ended
	(In millions, except per share data, unaudited)
	March 31,			June 30,			September 30,			December 31,
2017:
Total revenues	$	303.7		$	317.4		$	334.1		$	358.3
Net loss ⁽¹⁾	$	(16.3	)	$	(36.8	)	$	(12.5	)	$	(51.4	)
Net loss per share, basic ⁽¹⁾	$	(0.09	)	$	(0.21	)	$	(0.07	)	$	(0.29	)
Net loss per share, diluted ⁽¹⁾	$	(0.09	)	$	(0.21	)	$	(0.07	)	$	(0.30	)
2016:
Total revenues	$	236.7		$	300.1		$	279.9		$	300.1
Net loss ⁽²⁾	$	(83.1	)	$	(419.0	)	$	(37.4	)	$	(90.7	)
Net loss per share, basic and diluted ⁽²⁾	$	(0.51	)	$	(2.58	)	$	(0.22	)	$	(0.53	)

Accrued rebates, cash discounts and distributor fees	Balance at Beginning of Year		Decrease/(Increase) to Product Sales			Payments			Balance at End of Year
Year ended December 31, 2017:
Activity related to 2017 sales	$	—	$	112.3		$	(73.0	)	$	39.3
Activity related to sales prior to 2017		43.4		(3.8	)		(27.1	)		12.5
Total		43.4		108.5			(100.1	)		51.8
Year ended December 31, 2016:
Activity related to 2016 sales		—		86.6			(58.4	)		28.2
Activity related to sales prior to 2016		39.2		(5.4	)		(18.6	)		15.2
Total	$	39.2	$	81.2		$	(77.0	)	$	43.4

Commercial Products	Indication	U.S. Orphan Drug Exclusivity Expiration	U.S. Biologic Exclusivity Expiration	EU Orphan Drug Exclusivity Expiration
Aldurazyme	MPS I	Expired	Expired	Expired
Brineura	CLN2	2024	2029	2027
Firdapse	LEMS	NA⁽¹⁾	NA⁽¹⁾	2019
Kuvan	PKU	Expired	NA	2020 ⁽²⁾
Naglazyme	MPS VI	Expired	Expired	Expired
Vimizim	MPS IVA	2021	2026	2024

	Since Program
	Inception
Brineura	$	240.2
Pegvaliase		522.9
Valoctocogene roxaparvovec		239.3
Vosoritide		229.7
BMN 250		154.6
BMN 290		7.8
Other approved products		979.8
Other and non-allocated	Not meaningful

~~4.4~~	Indenture, dated as of October 15, 2013, between BioMarin Pharmaceutical Inc. and Wilmington Trust, National Association, previously filed with the SEC on October 15, 2013 as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.5~~ 4.2		First Supplemental Indenture, dated as of October 15, 2013, between BioMarin Pharmaceutical Inc. and Wilmington Trust, National Association (including the form of 0.75% Senior Subordinated Convertible Notes due 2018), previously filed with the SEC on October 15, 2013 as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.6~~ 4.3		Second Supplemental Indenture, dated as of October 15, 2013, between BioMarin Pharmaceutical Inc. and Wilmington Trust, National Association (including the form of 1.50% Senior Subordinated Convertible Notes due 2020), previously filed with the SEC on October 15, 2013 as Exhibit 4.3 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.7~~ 4.4		Base Indenture, dated August 11, 2017, between the Company and Wilmington Trust, National Association, as Trustee, previously filed with the SEC on August 11, 2017 as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~4.8~~ 4.5		First Supplemental Indenture, dated August 11, 2017, between the Company and Wilmington Trust, National Association, as Trustee (including the form of 0.599% Senior Subordinated Convertible Note due 2024), previously filed with the SEC on August 11, 2017 as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.1†~~ 4.6*		Description of Capital Stock

10.1†		Form of Indemnification Agreement for Directors and Officers, previously filed with the SEC on December 19, 2016 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.


10.2†						BioMarin Pharmaceutical Inc. Amended and Restated 2006 Employee Stock Purchase Plan, as ~~adopted on June 21, 2006~~amended and ~~amended on March 5, 2014,~~restated April 12, 2019, previously filed with the SEC on ~~June 10, 2014~~August 2, 2019 as Exhibit ~~10.1~~10.2 to the Company’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q (File No. 000-26727), which is incorporated herein by reference.

10.3†						BioMarin Pharmaceutical Inc. Amended and Restated 2006 Share Incentive Plan, as adopted on May 2, 2006 and as amended and restated on April 16, 2015, previously filed with the SEC on June 15, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

10.4†						Form of Agreement Regarding Restricted Share Units for the BioMarin Pharmaceutical Inc. 2006 Share Incentive Plan, previously filed with the SEC on May 16, 2013 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

10.5†						Form of Amendment to Agreement Regarding Restricted Share Units for the BioMarin Pharmaceutical Inc. 2006 Share Incentive Plan, previously filed with the SEC on December 9, 2016 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

10.6†						Amended and Restated BioMarin Pharmaceutical Inc. Nonqualified Deferred Compensation Plan, as adopted on December 1, 2005 and as amended and restated on January 1, 2009 and further amended and restated on December 19, 2013 and October 7, 2014, previously filed with the SEC on October 14, 2014 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

10.7†						Summary of Bonus Plan, previously filed with the SEC on February 27, 2009 as Exhibit 10.33 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.8†~~	Amended and Restated Employment Agreement with Jean-Jacques Bienaimé effective December 13, 2016 previously filed with the SEC on December 19, 2016 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.9~~ 10.8		Grant Terms and Conditions Agreement between BioMarin Pharmaceutical Inc. and Harbor-UCLA Research and Education Institute dated April 1, 1997, as amended, previously filed with the SEC on July 21, 1999 as Exhibit 10.17 to the Company’s Amendment No. 3 to Registration Statement on Form S-1 (File No. 333-77701), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.10~~ 10.9		License Agreement dated July 30, 2004, between BioMarin Pharmaceutical Inc. and Daiichi Suntory Pharma Co., Ltd., as amended by Amendment No. 1 to License Agreement dated November 19, 2004, previously filed with the SEC on March 16, 2005 as Exhibit 10.25 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.11~~ 10.10		Operating Agreement with Genzyme Corporation, previously filed with the SEC on July 6, 1999 as Exhibit 10.30 to the Company’s Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-77701), which is incorporated herein by reference.

~~10.12~~ 10.11		Manufacturing, Marketing and Sales Agreement dated as of January 1, 2008, by and among BioMarin Pharmaceutical Inc., Genzyme Corporation and BioMarin/Genzyme LLC previously filed with the SEC on February 28, 2008 as Exhibit 10.30 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.13~~ 10.12		Amended and Restated Collaboration Agreement dated as of January 1, 2008, by and among BioMarin Pharmaceutical Inc., Genzyme Corporation and BioMarin/Genzyme LLC previously filed with the SEC on February 28, 2008 as Exhibit 10.31 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.14~~ 10.13		Members Agreement dated as of January 1, 2008 by and among BioMarin Pharmaceutical Inc., Genzyme Corporation, BioMarin Genetics Inc., and BioMarin/Genzyme LLC previously filed with the SEC on February 28, 2008 as Exhibit 10.32 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.15†~~ 10.14†		BioMarin Pharmaceutical Inc. 2012 Inducement Plan, adopted May 8, 2012, previously filed with the SEC on May 9, 2012 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.16†~~ 10.15†		Form of Stock Options Agreement for the BioMarin Pharmaceutical Inc. 2006 Share Incentive Plan. (as Amended and Restated 2010), previously filed with the SEC on August 2, 2012 as Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.

~~10.17†~~ 10.16†		Form of Stock Options Agreement for the BioMarin Pharmaceutical Inc. 2012 Inducement Plan, previously filed with the SEC on August 2, 2012 as Exhibit 10.13 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.

~~10.18†~~ 10.17		Form of Agreement Regarding Restricted Stock Units for the BioMarin Pharmaceutical Inc. 2012 Inducement Plan, previously filed with the SEC on August 2, 2012 as Exhibit 10.14 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.

~~10.19~~		Capped Call Confirmation for the 2018 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Bank of America, N.A., previously filed with the SEC on October 11, 2013 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.20~~		Capped Call Confirmation for the 2020 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Bank of America, N.A., previously filed with the SEC on October 11, 2013 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.


~~10.21~~ 10.18		Capped Call Confirmation for the 2018 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Morgan Stanley & Co. LLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.22~~	Capped Call Confirmation for the 2020 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Morgan Stanley & Co. LLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.23~~ 10.19		Capped Call Confirmation for the 2018 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Barclays Bank PLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.5 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.24~~	Capped Call Confirmation for the 2020 Notes, dated October 8, 2013, between BioMarin Pharmaceutical Inc. and Barclays Bank PLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.6 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.25~~ 10.20		Additional Capped Call Confirmation for the 2018 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Bank of America, N.A., previously filed with the SEC on October 11, 2013 as Exhibit 10.7 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.26~~	Additional Capped Call Confirmation for the 2020 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Bank of America, N.A., previously filed with the SEC on October 11, 2013 as Exhibit 10.8 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.27~~ 10.21		Additional Capped Call Confirmation for the 2018 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Morgan Stanley & Co. LLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.9 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.28~~	Additional Capped Call Confirmation for the 2020 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Morgan Stanley & Co. LLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.10 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.29~~ 10.22		Additional Capped Call Confirmation for the 2018 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Barclays Bank PLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.11 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.30~~	Additional Capped Call Confirmation for the 2020 Notes, dated October 9, 2013, between BioMarin Pharmaceutical Inc. and Barclays Bank PLC, previously filed with the SEC on October 11, 2013 as Exhibit 10.12 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.
10.23

~~10.31~~	Contract of Purchase and Sale and Joint Escrow Instructions, dated December 17, 2013, for the San Rafael Corporate Center, by and among BioMarin Pharmaceutical Inc., through its wholly-owned subsidiary, California Corporate Center Acquisition, LLC, SR Corporate Center Phase One, LLC, and SR Corporate Center Phase Two, previously filed with the SEC on February 26, 2014 as Exhibit 10.68 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.32~~ 10.24†		Convertible Promissory Note, dated as of November 26, 2014, between Prosensa Holding N.V. and BioMarin Falcons B.V., previously filed with the SEC on November 26, 2014 as Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.33†~~	BioMarin Pharmaceutical Inc. 2014 Inducement Plan, adopted December 17, 2014, previously filed with the SEC on December 23, 2014 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.34~~ 10.25†		Form of Contingent Value Rights Agreement, dated as of January 14, 2015, by and between BioMarin Pharmaceutical Inc., BioMarin Falcons B.V. and American Stock Transfer & Trust Company, LLC, previously filed with the SEC on January 16, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.35†~~	Form of Stock Options Agreement for the BioMarin Pharmaceutical Inc. 2014 Inducement Plan, previously filed with the SEC on March 2, 2015 as Exhibit 10.60 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.36†~~ 10.26†		Form of Agreement Regarding Restricted Share Units for the BioMarin Pharmaceutical Inc. 2014 Inducement Plan, previously filed with the SEC on March 2, 2015 as Exhibit 10.61 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.37†~~ 10.27†		Form of Amended and Restated Employment Agreement for the Company’s Executive Officers (other than the Company’s Chief Executive Officer) previously filed with the SEC on June 15, 2015 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.38~~ 10.28		Settlement and License Agreement among BioMarin Pharmaceutical Inc., Merck & Cie, Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd., dated September 14, 2015, previously filed with the SEC on November 2, 2015 as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.39~~ 10.29		Credit Agreement by and among BioMarin Pharmaceutical Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender, L/C Issuer and a Lender, and the Lenders party thereto, dated as of November 29, 2016, previously filed with the SEC on February 27, 2017 as Exhibit 10.49 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.40†~~	Form of Agreement Regarding Performance Compensation Award in the Form of Restricted Stock Units for the BioMarin Pharmaceutical Inc. 2006 Share Incentive Plan, previously filed with the SEC on February 27, 2017 as Exhibit 10.50 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated by reference herein.

~~10.41~~	Settlement and License Agreement among BioMarin Pharmaceutical Inc., Merck & Cie and Par Pharmaceutical, Inc., dated as of April 12, 2017, previously filed with the SEC on November 13, 2017 as Exhibit 10.1 to the Company’s Amendment No. 1 to Quarterly Report on Form 10-Q/A (File No. 000-26727), which is incorporated herein by reference. The SEC has granted confidential treatment with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

~~10.42†~~ 10.30†						Form of Agreement Regarding Performance Stock Award in the Form of Restricted Stock Units for the BioMarin Pharmaceutical Inc. ~~2017 Equity~~2006 Share Incentive Plan, previously filed with the SEC on ~~June 12,~~February 27, 2017 as Exhibit ~~10.1~~10.50 to the Company’s ~~Current~~Annual Report on Form ~~8-K~~10-K (File No. 000-26727), which is incorporated herein by reference.

~~10.43†~~ 10.31†						BioMarin Pharmaceutical Inc. 2017 Equity Incentive Plan, as adopted April 10, 2017 and amended April 12, 2019, previously filed with the SEC on August 2, 2019 as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.

10.32†						Form of Stock Options Agreement for the BioMarin Pharmaceutical Inc. 2017 Equity Incentive Plan, previously filed with the SEC on June 12, 2017 as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.44†~~ 10.33†						Form of Agreement Regarding Restricted Stock Units for the BioMarin Pharmaceutical Inc. 2017 Equity Incentive Plan, previously filed with the SEC on June 12, 2017 as Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.


~~10.45†~~ 10.34†		Form of Agreement Regarding Performance Stock Award in the Form of Restricted Stock Units for the BioMarin Pharmaceutical Inc. 2017 Equity Incentive Plan, previously filed with the SEC on June 12, 2017 as Exhibit 10.4 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

~~10.46†~~ 10.35†		BioMarin Pharmaceutical Inc. Summary of Independent Director Compensation, previously filed with the SEC on October 31, 2017 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26 727), which is incorporated herein by reference.

10.36†		BioMarin Pharmaceutical Inc. Summary of Independent Director Compensation, previously filed with the SEC on November 4, 2019 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference .

10.37		Credit Agreement by and among BioMarin Pharmaceutical Inc., as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and a Lender, and Citibank N.A. as L/C Issuer, and the Lenders party thereto, dated as of October 19, 2018, previously filed with the SEC on February 28, 2019 as Exhibit 10.48 to the Company’s Annual Report on Form 10-K (File No. 000-26727), which is incorporated by reference herein.

10.38		First Amendment to the Amended and Restated BioMarin Pharmaceutical Inc. Nonqualified Deferred Compensation Plan, as adopted June 4, 2019, previously filed with the SEC on August 2, 2019 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 000-26727), which is incorporated herein by reference.

10.47* 21.1*		~~Asset Purchase Agreement by and between Novartis Pharma AG, BioMarin Pharmaceutical Inc. and BioMarin Commercial Ltd., dated as of November 21, 2017.~~

21.1*	Subsidiaries of BioMarin Pharmaceutical Inc.

23.1*		Consent of KPMG LLP, Independent Registered Public Accounting Firm for BioMarin Pharmaceutical Inc.

24.1*		Power of Attorney (Included in Signature Page to this Report)

31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of Acting Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1*		Certification of Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies this report and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed for purposes of §18 of the Securities Exchange Act of 1934, as amended.

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101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Link Document

*			~~Filed herewith~~
104						XBRL tags for the cover page from the Company’s Quarterly Report on Form 10-K for the year ended December 31, 2019, are embedded within the Inline XBRL document.

	~~PAGE~~
		PAGE
Reports of Independent Registered Public Accounting Firm			~~F-2~~85
Consolidated Financial Statements as of December 31, ~~2017~~2019 and ~~2016~~2018, and for the three years ended December 31, ~~2017:~~ 2019:
Consolidated Balance Sheets			~~F-4~~88
Consolidated Statements of Operations			~~F-5~~89
Consolidated Statements of Comprehensive Loss			~~F-6~~90
Consolidated Statements of Stockholders’ Equity			~~F-7~~91
Consolidated Statements of Cash Flows			~~F-8~~92
Notes to Consolidated Financial Statements			~~F-9~~93


	December 31, 2019		December 31, 2018
ASSETS
Current assets:

Cash and cash equivalents	$	437,446	$	493,982
Short-term investments	316,361		590,326
Accounts receivable, net	377,404		342,633
Inventory	680,275		530,871
Other current assets	130,657		98,403
Total current assets	1,942,143		2,056,215
Noncurrent assets:
Long-term investments	411,978		235,864
Property, plant and equipment, net	1,010,868		948,682
Intangible assets, net	456,580		491,808
Goodwill	197,039		197,039
Deferred tax assets	549,422		460,952
Other assets	122,009		36,568
Total assets	$	4,690,039	$	4,427,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	570,621	$	437,290
Short-term convertible debt, net	361,882		—
Short-term contingent consideration	—		85,951
Total current liabilities	932,503		523,241
Noncurrent liabilities:
Long-term convertible debt, net	486,238		830,417
Long-term contingent consideration	50,793		46,883
Other long-term liabilities	98,124		58,647
Total liabilities	1,567,658		1,459,188
Stockholders’ equity:
Common stock, $0.001 par value: 500,000,000 shares authorized; 179,838,114 and 178,252,954 shares issued and outstanding, respectively.	180		178
Additional paid-in capital	4,832,707		4,669,926
Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC)	(9,961)		(13,301)
Accumulated other comprehensive income	20,164		5,271
Accumulated deficit	(1,720,709)		(1,694,134)
Total stockholders’ equity	3,122,381		2,967,940
Total liabilities and stockholders’ equity	$	4,690,039	$	4,427,128

							Company			Accumulated
					Additional		Stock			Other						Total
	Common stock				Paid-in		Held by			Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		NQDC			Income (Loss)			Deficit			Equity
Balance at December 31, 2014		149,094	$	149	$	2,359,744	$	(9,695	)	$	27,466		$	(849,770	)	$	1,527,894
Net loss														(171,799	)		(171,799	)
Other comprehensive loss											(6,433	)					(6,433	)
Issuance of common stock, net of offering costs		9,775		10		888,247											888,257
Issuances under equity incentive plans, net of tax		2,208		2		40,054											40,056
Conversion of convertible notes, net		449		1		9,111											9,112
Company stock held by NQDC								(3,921	)								(3,921	)
Excess tax benefit from stock option exercises						2,190											2,190
Stock-based compensation						115,491											115,491
Balance at December 31, 2015		161,526	$	162	$	3,414,837	$	(13,616	)	$	21,033		$	(1,021,569	)	$	2,400,847
Net loss														(630,210	)		(630,210	)
Cumulative-effect adjustment of new share-based compensation guidance														131,273			131,273
Other comprehensive loss											(8,217	)					(8,217	)
Issuance of common stock, net of offering costs		7,500		8		712,930											712,938
Issuances under equity incentive plans, net of tax		3,184		3		14,755											14,758
Conversion of convertible notes, net		438				8,928											8,928
Company stock held by NQDC								(705	)								(705	)
Stock-based compensation						136,663											136,663
Balance at December 31, 2016		172,648	$	173	$	4,288,113	$	(14,321	)	$	12,816		$	(1,520,506	)	$	2,766,275
Net loss														(117,042	)		(117,042	)
Other comprehensive loss											(35,777	)					(35,777	)
Issuances under equity incentive plans, net of tax		2,092		2		27,350											27,352
Conversion of convertible notes, net		1,104		1		22,476											22,477
Company stock held by NQDC								97									97
Stock-based compensation						145,281											145,281
Balance at December 31, 2017		175,844	$	176	$	4,483,220	$	(14,224	)	$	(22,961	)	$	(1,637,548	)	$	2,808,663


	Leasehold improvements		Shorter of life of asset or lease term
	Building and improvements		1520 to 50 years
	Manufacturing and laboratory equipment		5 to 1815 years
	Computer hardware and software		3 to 105 years
	Office furniture and equipment		5 ~~to 10~~ years
~~Vehicles~~	Vehicles	5 years
	Land improvements		~~5 to~~ 10 years
~~Land~~	Land	Not applicable
~~Construction-in-progress~~	Construction-in-progress	Not applicable


	December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-term Marketable Securities ⁽¹⁾		Long-term Marketable Securities ⁽²⁾
Level 1:
Cash	$	259,347	$	—	$	—	$	259,347	$	259,347	$	—	$	—

Level 2:
Money market instruments	173,100		—		—		173,100		173,100		—		—
Corporate debt securities	518,523		3,575		(12)		522,086		—		233,294		288,792
U.S. government agency securities	209,633		993		(67)		210,559		4,999		83,067		122,493
Foreign and other	549		145		(1)		693		—		—		693
Subtotal	901,805		4,713		(80)		906,438		178,099		316,361		411,978

Total	$	1,161,152	$	4,713	$	(80)	$	1,165,785	$	437,446	$	316,361	$	411,978


	December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Aggregate Fair Value		Cash and Cash Equivalents		Short-term Marketable Securities ⁽¹⁾		Long-term Marketable Securities ⁽²⁾
Level 1:
Cash	$	228,809	$	—	$	—	$	228,809	$	228,809	$	—	$	—

Level 2:
Money market instruments	205,736		—		—		205,736		205,736		—		—
Corporate debt securities	564,852		214		(2,288)		562,778		2,000		376,545		184,233
Commercial paper	77,702		—		—		77,702		21,964		55,738		—
U.S. government agency securities	240,436		144		(697)		239,883		31,474		156,967		51,442
Foreign and other	5,126		139		(1)		5,264		3,999		1,076		189
Subtotal	1,093,852		497		(2,986)		1,091,363		265,173		590,326		235,864

Total	$	1,322,661	$	497	$	(2,986)	$	1,320,172	$	493,982	$	590,326	$	235,864

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

	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Aggregate Fair Value at December 31, 2017
Corporate debt securities	$	707,652	$	150	$	(2,553	)	$	705,249
Commercial paper		24,566		—		—			24,566
U.S. government agency securities		472,593		—		(1,975	)		470,618
Foreign and other		25,540		150		(64	)		25,626
Total	$	1,230,351	$	300	$	(4,592	)	$	1,226,059

	Net Balance at December 31, 2017		Average Remaining Life
Repurchased royalty rights	$	39,938	5.9 years
Acquired intellectual property		149,229	7.2 years
License payments for marketing approvals		1,357	4.4 years
In-place and above market tenant leases		627	0.7 - 5.6 years
Total	$	191,151


	Net Balance		Average Remaining Life
Acquired intellectual property	$	406,058	7.8 years
Repurchased royalty rights	26,438		3.9 years
Technology transfer	23,078		Not applicable (1)
Other	1,006		1.2 - 4.6 years
Total	$	456,580


Fiscal Year	Amount		Fiscal Year	Amount
2018	$	30,400
2019		30,086
2020		27,605	2020	$	62,887
2021		26,681	2021	61,963
2022		26,657	2022	61,939
2023			2023	61,311
2024			2024	55,036
Thereafter		49,722	Thereafter	130,366
	$	191,151		$	433,502