UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2011March 31, 2012
Or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number: 000-26727
BioMarin Pharmaceutical Inc.
(Exact name of registrant as specified in its charter)
Delaware | 68-0397820 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
105 Digital Drive, Novato, California | 94949 | ||
(Address of principal executive offices) | (Zip Code) |
(415) 506-6700
Registrant’s telephone number including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No x
Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ¨ No ¨
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 114,214,407115,700,983 shares of common stock, par value $0.001, outstanding as of October 15, 2011.April 13, 2012.
BIOMARIN PHARMACEUTICAL INC.
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PART I. | 3 | |||||
Item 1. | 3 | |||||
3 | ||||||
4 | ||||||
5 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | |||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
Item 3. | 32 | |||||
Item 4. | 32 | |||||
PART II. | 32 | |||||
Item 1. | 32 | |||||
Item 1A. | 32 | |||||
Item 2. | 32 | |||||
Item 3. | 32 | |||||
Item 4. | 32 | |||||
Item 5. | 32 | |||||
Item 6. | 33 | |||||
33 |
PART I. FINANCIAL INFORMATIONBIOMARIN PHARMACEUTICAL INC.
BIOMARIN PHARMACEUTICAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2012 and December 31, 2011
(In thousands of U.S. dollars, except share and per share amounts)
September 30, 2011 | December 31, 2010 (1) | March 31, 2012 | December 31, 2011(1) | |||||||||||||
(Unaudited) | (unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 71,254 | $ | 88,079 | $ | 82,586 | $ | 46,272 | ||||||||
Short-term investments | 153,120 | 186,033 | 150,393 | 148,820 | ||||||||||||
Accounts receivable, net (allowance for doubtful accounts: $839 and $63, respectively) | 107,057 | 86,576 | ||||||||||||||
Accounts receivable, net (allowance for doubtful accounts: $471 and $513, respectively) | 105,828 | 104,839 | ||||||||||||||
Inventory | 115,628 | 109,698 | 124,064 | 130,118 | ||||||||||||
Other current assets | 39,965 | 33,874 | 50,519 | 39,753 | ||||||||||||
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Total current assets | 487,024 | 504,260 | 513,390 | 469,802 | ||||||||||||
Investment in BioMarin/Genzyme LLC | 1,168 | 1,082 | 1,082 | 559 | ||||||||||||
Long-term investments | 145,640 | 128,171 | 54, 751 | 94,385 | ||||||||||||
Property, plant and equipment, net | 266,190 | 221,866 | 264,317 | 268,971 | ||||||||||||
Intangible assets, net | 100,780 | 103,648 | 170,914 | 180,277 | ||||||||||||
Goodwill | 51,543 | 53,364 | 51,543 | 51,543 | ||||||||||||
Long-term deferred tax assets | 229,172 | 236,017 | 221,239 | 222,649 | ||||||||||||
Other assets | 13,559 | 14,215 | 19,849 | 15,495 | ||||||||||||
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Total assets | $ | 1,295,076 | $ | 1,262,623 | $ | 1,297,085 | $ | 1,303,681 | ||||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 83,254 | $ | 83,844 | $ | 96,359 | $ | 94,125 | ||||||||
Convertible debt | 23,455 | 0 | ||||||||||||||
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Total current liabilities | 83,254 | 83,844 | 119,814 | 94,125 | ||||||||||||
Convertible debt | 348,339 | 377,521 | ||||||||||||||
Long-term convertible debt | 324,872 | 348,329 | ||||||||||||||
Other long-term liabilities | 88,944 | 84,001 | 80,449 | 88,179 | ||||||||||||
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Total liabilities | 520,537 | 545,366 | 525,135 | 530,633 | ||||||||||||
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Stockholders’ equity: | ||||||||||||||||
Common stock, $0.001 par value: 250,000,000 shares authorized at September 30, 2011 and December 31, 2010: 114,149,780 and 110,634,465 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively | 114 | 111 | ||||||||||||||
Common stock, $0.001 par value: 250,000,000 shares authorized at March 31, 2012 and December 31, 2011: 115,681,825 and 114,789,732 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively. | 116 | 115 | ||||||||||||||
Additional paid-in capital | 1,175,422 | 1,090,188 | 1,221,933 | 1,197,082 | ||||||||||||
Company common stock held by Nonqualified Deferred Compensation Plan | (3,935 | ) | (1,965 | ) | (3,538 | ) | (3,935 | ) | ||||||||
Accumulated other comprehensive income | 1,304 | 188 | 2,512 | 4,887 | ||||||||||||
Accumulated deficit | (398,366 | ) | (371,265 | ) | (449,073 | ) | (425,101 | ) | ||||||||
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Total stockholders’ equity | 774,539 | 717,257 | 771,950 | 773,048 | ||||||||||||
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Total liabilities and stockholders’ equity | $ | 1,295,076 | $ | 1,262,623 | $ | 1,297,085 | $ | 1,303,681 | ||||||||
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(1) | December 31, |
The accompanying Notesnotes are an integral part of these Condensed Consolidated Financial Statements.condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE LOSS
Three and Nine Months Ended September 30,March 31, 2012 and 2011 and 2010
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
0000000 | 0000000 | 0000000 | 0000000 | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||
REVENUES: | ||||||||||||||||||||||||
Net product revenues | $ | 112,891 | $ | 96,559 | $ | 331,583 | $ | 271,224 | $ | 116,239 | $ | 109,076 | ||||||||||||
Collaborative agreement revenues | 97 | 130 | 375 | 507 | 96 | 125 | ||||||||||||||||||
Royalty and license revenues | 437 | 1,061 | 1,554 | 2,922 | 314 | 255 | ||||||||||||||||||
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Total revenues | 113,425 | 97,750 | 333,512 | 274,653 | 116,649 | 109,456 | ||||||||||||||||||
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OPERATING EXPENSES: | ||||||||||||||||||||||||
Cost of sales (excludes amortization of developed product technology) | 22,445 | 18,003 | 62,504 | 49,816 | ||||||||||||||||||||
Cost of sales (excludes amortization of certain acquired intangible assets) | 17,105 | 20,796 | ||||||||||||||||||||||
Research and development | 58,577 | 39,366 | 156,466 | 105,112 | 73,834 | 45,017 | ||||||||||||||||||
Selling, general and administrative | 44,880 | 38,348 | 126,969 | 109,625 | 45,248 | 41,037 | ||||||||||||||||||
Intangible asset amortization and contingent consideration | 3,040 | 3,972 | 28 | 6,206 | 2,328 | 312 | ||||||||||||||||||
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Total operating expenses | 128,942 | 99,689 | 345,967 | 270,759 | 138,515 | 107,162 | ||||||||||||||||||
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INCOME (LOSS) FROM OPERATIONS | (15,517 | ) | (1,939 | ) | (12,455 | ) | 3,894 | (21,866 | ) | 2,294 | ||||||||||||||
Equity in the loss of BioMarin/Genzyme LLC | (608 | ) | (639 | ) | (1,817 | ) | (2,194 | ) | (734 | ) | (542 | ) | ||||||||||||
Interest income | 722 | 968 | 2,302 | 3,193 | 505 | 782 | ||||||||||||||||||
Interest expense | (2,432 | ) | (3,008 | ) | (6,645 | ) | (8,072 | ) | (1,947 | ) | (2,163 | ) | ||||||||||||
Debt conversion expense | (1,896 | ) | 0 | (1,896 | ) | 0 | ||||||||||||||||||
Net gain from sale of investments | 0 | 0 | 0 | 927 | ||||||||||||||||||||
Other income (expense) | 36 | 22 | ||||||||||||||||||||||
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INCOME (LOSS) BEFORE INCOME TAXES | (19,731 | ) | (4,618 | ) | (20,511 | ) | (2,252 | ) | (24,006 | ) | 393 | |||||||||||||
Provision for (benefit from) income taxes | (2,078 | ) | (221,952 | ) | 6,590 | (220,260 | ) | (34 | ) | 4,764 | ||||||||||||||
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NET INCOME (LOSS) | $ | (17,653 | ) | $ | 217,334 | $ | (27,101 | ) | $ | 218,008 | ||||||||||||||
NET LOSS | $ | (23,972 | ) | $ | (4,371 | ) | ||||||||||||||||||
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NET LOSS PER SHARE, BASIC AND DILUTED | $ | (0.21 | ) | $ | (0.04 | ) | ||||||||||||||||||
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NET INCOME (LOSS) PER SHARE, BASIC | $ | (0.16 | ) | $ | 2.13 | $ | (0.24 | ) | $ | 2.14 | ||||||||||||||
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NET INCOME (LOSS) PER SHARE, DILUTED | $ | (0.16 | ) | $ | 1.68 | $ | (0.24 | ) | $ | 1.74 | ||||||||||||||
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Weighted average common shares outstanding, basic | 112,290 | 102,110 | 111,358 | 101,660 | 115,070 | 110,652 | ||||||||||||||||||
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Weighted average common shares outstanding, diluted | 112,290 | 131,278 | 111,358 | 130,821 | 115,070 | 110,743 | ||||||||||||||||||
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COMPREHENSIVE LOSS | $ | (26,347 | ) | $ | (10,346 | ) | ||||||||||||||||||
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The accompanying Notesnotes are an integral part of these Condensed Consolidated Financial Statements.condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NineThree Months Ended September 30,March 31, 2012 and 2011 and 2010
(In thousands of U.S. dollars)
(Unaudited)
Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 | 2012 | 2011 | |||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||||
Net income (loss) | $ | (27,101 | ) | $ | 218,008 | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Net loss | $ | (23,972 | ) | $ | (4,371 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 26,466 | 19,806 | 10,598 | 8,585 | ||||||||||||
Amortization of discount on investments | 3,055 | 3,506 | 852 | 1,080 | ||||||||||||
Equity in the loss of BioMarin/Genzyme LLC | 1,817 | 2,195 | 734 | 542 | ||||||||||||
Stock-based compensation | 32,721 | 28,527 | 11,155 | 10,151 | ||||||||||||
Net gain from sale of investments | 0 | (927 | ) | |||||||||||||
Deferred income taxes | 6,844 | (223,065 | ) | 712 | 3,910 | |||||||||||
Excess tax benefit from stock option exercises | (109 | ) | (32 | ) | (18 | ) | (415 | ) | ||||||||
Unrealized foreign exchange (loss) gain on forward contracts | 5,699 | (3,669 | ) | |||||||||||||
Impairment of intangible assets | 6,704 | 0 | ||||||||||||||
Unrealized foreign exchange gain on forward contracts | (1,878 | ) | (401 | ) | ||||||||||||
Changes in the fair value of contingent acquisition consideration payable | (2,390 | ) | 4,596 | (5,181 | ) | (493 | ) | |||||||||
Debt conversion expense | 1,896 | 0 | ||||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Accounts receivable, net | (20,481 | ) | (5,194 | ) | (989 | ) | (19,622 | ) | ||||||||
Inventory | (5,930 | ) | (13,079 | ) | 6,054 | (369 | ) | |||||||||
Other current assets | (6,147 | ) | 646 | (11,113 | ) | (2,051 | ) | |||||||||
Other assets | 110 | (2,148 | ) | (6,040 | ) | 1,599 | ||||||||||
Accounts payable and accrued liabilities | 1,459 | 4,318 | 3,826 | (2,204 | ) | |||||||||||
Other long-term liabilities | 1,019 | 1,040 | 1,385 | 560 | ||||||||||||
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Net cash provided by operating activities | 18,928 | 34,528 | ||||||||||||||
Net cash used in operating activities | (7,171 | ) | (3,499 | ) | ||||||||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||||
Purchases of property, plant and equipment | (64,539 | ) | (38,720 | ) | (6,179 | ) | (6,241 | ) | ||||||||
Maturities and sales of investments | 227,094 | 135,739 | 74,037 | 84,013 | ||||||||||||
Purchase of available-for-sale investments | (215,298 | ) | (148,886 | ) | (36,562 | ) | (74,210 | ) | ||||||||
Business acquisitions, net of cash acquired | 0 | (32,950 | ) | |||||||||||||
Investments in BioMarin/Genzyme LLC | (1,903 | ) | (2,915 | ) | (1,258 | ) | (593 | ) | ||||||||
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Net cash used in investing activities | (54,646 | ) | (87,732 | ) | ||||||||||||
Net provided by investing activities | 30,038 | 2,969 | ||||||||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||||
Proceeds from Employee Stock Purchase Plan (ESPP) and exercise of stock options | 23,436 | 19,888 | ||||||||||||||
Proceeds from exercise of stock options and Employee Stock Purchase Plan | 13,679 | 3,133 | ||||||||||||||
Excess tax benefit from stock option exercises | 109 | 32 | 18 | 415 | ||||||||||||
Net payment on debt conversion | (2,234 | ) | 0 | |||||||||||||
Payment of contingent acquisition consideration payable | (1,894 | ) | (6,230 | ) | ||||||||||||
Repayment of capital lease obligations | (524 | ) | (118 | ) | (250 | ) | (315 | ) | ||||||||
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Net cash provided by financing activities | 18,893 | 13,572 | 13,447 | 3,233 | ||||||||||||
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NET DECREASE IN CASH AND CASH EQUIVALENTS | (16,825 | ) | (39,632 | ) | ||||||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS | 36,314 | 2,703 | ||||||||||||||
Cash and cash equivalents: | ||||||||||||||||
Beginning of period | $ | 88,079 | $ | 167,171 | $ | 46,272 | $ | 88,079 | ||||||||
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End of period | $ | 71,254 | $ | 127,539 | $ | 82,586 | $ | 90,782 | ||||||||
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SUPPLEMENTAL CASH FLOW DISCLOSURES: | ||||||||||||||||
Cash paid for interest, net of interest capitalized into fixed assets | $ | 4,019 | $ | 6,675 | $ | 293 | $ | 637 | ||||||||
Cash paid for income taxes | 3,386 | 2,904 | 1,739 | 616 | ||||||||||||
Stock-based compensation capitalized into inventory | 3,978 | 3,705 | 894 | 1,173 | ||||||||||||
Depreciation capitalized into inventory | 4,067 | 3,179 | 1,062 | 2,651 | ||||||||||||
SUPPLEMENTAL CASH FLOW DISCLOSURES FROM INVESTING AND FINANCING ACTIVITIES: | ||||||||||||||||
Decrease in accrued liabilities related to fixed assets | $ | (2,373 | ) | $ | (7,606 | ) | $ | (3,149 | ) | $ | (3,239 | ) | ||||
Equipment acquired through capital leases | 190 | 0 | 0 | 366 | ||||||||||||
Change in asset retirement obligation | 44 | 0 |
The accompanying Notesnotes are an integral part of these Condensed Consolidated Financial Statements.condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
(1) NATURE OF OPERATIONS AND BUSINESS RISKS
BioMarin Pharmaceutical Inc. (the Company or BioMarin), a Delaware corporation, develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. BioMarin selects product candidates for diseases and conditions that represent a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market or offer a significant benefit over existing products. The Company’s product portfolio is comprised of four approved products and multiple investigational product candidates. ApprovedThe Company’s approved products includeare Naglazyme (galsulfase), Kuvan (sapropterin dihydrochloride), Firdapse (amifampridine phosphate) and Aldurazyme (laronidase).
Through September 30, 2011,March 31, 2012, the Company had accumulated losses of approximately $398.4$449.1 million. Management believes that the Company’s cash, cash equivalents and short-term and long-term investments at September 30, 2011March 31, 2012 will be sufficient to meet the Company’s obligations for the foreseeable future based on management’s current long-term business plans and assuming that the Company achieves its long-term goals. If the Company elects to increase its spending on development programs significantly above current long-term plans or enters into potential licenses and other acquisitions of complementary technologies, products or companies, the Company may need additional capital. The Company expects to continue to finance net future cash needs that exceed its operating activities primarily through its current cash, cash equivalents, short-term and long-term investments, and to the extent necessary, through proceeds from equity or debt financings, loans and collaborative agreements with corporate partners.
The Company is subject to a number of risks, including the financial performance of Naglazyme, Kuvan, Firdapse and Aldurazyme; the potential need for additional financings; its ability to successfully commercialize its product candidates, if approved; the uncertainty of the Company’s research and development efforts resulting in future successful commercial products; obtaining regulatory approval for new products; significant competition from larger organizations; reliance on the proprietary technology of others; dependence on key personnel; uncertain patent protection; dependence on corporate partners and collaborators; and possible restrictions on reimbursement from governmental agencies and healthcare organizations, as well as other changes in the health care industry.
(2) BASISSUMMARY OF PRESENTATIONSIGNIFICANT ACCOUNTING POLICIES
The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (U.S. GAAP) for complete financial statements. The Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 20102011 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 24, 2011.22, 2012.
The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the three and nine months ended September 30, 2011March 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011.2012.
The Company has evaluated events and transactions subsequent to the balance sheet date. Based on this evaluation, the Company is not aware of any events or transactions that occurred subsequent to the balance sheet date but prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the Condensed Consolidated Financial Statements.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
Significant Accounting Policies
There have been no material changes to the Company’s significant accounting policies during the ninethree months ended September 30, 2011,March 31, 2012, as compared to the significant accounting policies disclosed in Note 2 of the Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2010.2011.
Reclassifications
Certain items in the Company’s prior year Condensed Consolidated Financial Statements have been reclassified to conform to the current presentation.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05,Comprehensive Income (Topic 220): Presentation of Comprehensive Income, (ASU 2011-05). This newly issued accounting standard: (1) eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity; (2) requires the consecutive presentation of the statement of net income and other comprehensive income; and (3) requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments to this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income nor do the amendments affect how earnings per share is calculated or presented. This ASU is required to be applied retrospectively and is effective for fiscal years and interim periods within those years beginning after December 15, 2011, which for the Company means January 1, 2012. As this accounting standard only requires enhanced disclosure, the adoption of this standard will not impact the Company’s financial position or results of operations.
In September 2011, the FASB issued ASU 2011-08,Goodwill and Other (Topic 350): Testing Goodwill for Inpairment, which simplifies goodwill impairment tests. The new guidance states that a qualitative assessment may be performed to determine whether further impairment testing is necessary. The Company will adopt this accounting standard upon its effective date for periods beginning on or after December 15, 2011. The adoption of this ASU is not expected to have a material impact on the Company’s financial position or results of operations.
On January 1, 2011, the Company adopted ASU Nos, 2010-13 and 2010-17, Multiple Deliverable Revenue Arrangements (ASU 2010-13) and Revenue Recognition – Milestone Method (ASU 2010-17). The adoption of these accounting principles did not have an impact on the Company’s consolidated financial statements.
Other than the accounting pronouncements disclosed above, thereThere have been no new recent accounting pronouncements or changes in accounting pronouncements during the ninethree months ended September 30, 2011,March 31, 2012, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010,2011, that are of significance or potential significance to the Company.
(4) SHORT-TERM AND LONG-TERM INVESTMENTS
All investments were classified as available-for-sale at March 31, 2012 and December 31, 2011. The principal amounts of short-term and long-term investments by contractual maturity are summarized in the tables below:
Contractual Maturity Date for the Years Ending December 31, | ||||||||||||||||||||||||||||
2012 | 2013 | 2014 | 2015 | Total Book Value at March 31, 2012 | Unrealized Gain (Loss) | Aggregate Fair Value at March 31, 2012 | ||||||||||||||||||||||
Certificates of deposit | $ | 31,874 | $ | 22,325 | $ | 328 | $ | 0 | $ | 54,527 | $ | 18 | $ | 54,545 | ||||||||||||||
Commercial paper | 16,473 | 0 | 0 | 0 | 16,473 | (5 | ) | 16,468 | ||||||||||||||||||||
Corporate securities | 59,629 | 40,701 | 3,100 | 0 | 103,430 | 347 | 103,777 | |||||||||||||||||||||
U.S. Government agency securities | 0 | 8,556 | 13,372 | 8,400 | 30,328 | (23 | ) | 30,305 | ||||||||||||||||||||
Greek government-issued bonds | 0 | 0 | 0 | 49 | 49 | 0 | 49 | |||||||||||||||||||||
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Total | $ | 107,976 | $ | 71,582 | $ | 16,800 | $ | 8,449 | $ | 204,807 | $ | 337 | $ | 205,144 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Contractual Maturity Date for the Years Ending December 31, | ||||||||||||||||||||||||||||
2012 | 2013 | 2014 | Total Book Value at December 31, 2011 | Unrealized Gain (Loss) | Aggregate Fair Value at December 31, 2011 | |||||||||||||||||||||||
Certificates of deposit | $ | 38,547 | $ | 17,195 | $ | 0 | $ | 55,742 | $ | 13 | $ | 55,755 | ||||||||||||||||
Commercial paper | 24,730 | 0 | 0 | 24,730 | (9 | ) | 24,721 | |||||||||||||||||||||
Corporate securities | 85,595 | 40,899 | 3,100 | 129,594 | 53 | 129,647 | ||||||||||||||||||||||
U.S. Government agency securities | 0 | 32,877 | 0 | 32,877 | 13 | 32,890 | ||||||||||||||||||||||
Greek government-issued bonds | 0 | 192 | 0 | 192 | 0 | 192 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 148,872 | $ | 91,163 | $ | 3,100 | $ | 243,135 | $ | 70 | $ | 243,205 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The Company completed an evaluation of its investments and determined that it did not have any other-than-temporary impairments as of March 31, 2012. The investments are held in accounts with financial institutions that have a material, or potentially material, impact onstrong credit ratings and management expects full recovery of the Company’s Financial Statements.carrying amounts.
See Notes 10 and 13 for additional discussion regarding the Greek government-issued bonds held by the Company.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30,March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
The aggregate amounts of unrealized losses and related fair value of investments with unrealized losses as of March 31, 2012 and December 31, 2011 were as follows:
Less Than 12 Months to Maturity | 12 Months or More to Maturity | Totals at March 31, 2012 | ||||||||||||||||||||||
Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | |||||||||||||||||||
Certificates of deposit | $ | 11,753 | $ | (3 | ) | $ | 2,688 | $ | (1 | ) | $ | 14,441 | $ | (4 | ) | |||||||||
Commercial paper | 12,719 | (7 | ) | 0 | 0 | 12,719 | (7 | ) | ||||||||||||||||
Corporate securities | 10,471 | (6 | ) | 0 | 0 | 10,471 | (6 | ) | ||||||||||||||||
U.S. Government agency securities | 0 | 0 | 20,734 | (38 | ) | 20,734 | (38 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 34,943 | $ | (16 | ) | $ | 23,422 | $ | (39 | ) | $ | 58,365 | $ | (55 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less Than 12 Months to Maturity | 12 Months or More to Maturity | Totals at December 31, 2011 | ||||||||||||||||||||||
Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | |||||||||||||||||||
Certificates of deposit | $ | 7,489 | $ | 0 | $ | 8,118 | $ | (5 | ) | $ | 15,607 | $ | (5 | ) | ||||||||||
Commercial paper | 7,474 | (12 | ) | 0 | 0 | 7,474 | (12 | ) | ||||||||||||||||
Corporate securities | 26,840 | (184 | ) | 9,571 | (29 | ) | 36,411 | (213 | ) | |||||||||||||||
U.S. Government agency securities | 0 | 0 | 11,252 | (1 | ) | 11,252 | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 41,803 | $ | (196 | ) | $ | 28,941 | $ | (35 | ) | $ | 70,744 | $ | (231 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following:
March 31, 2012 | December 31, 2011 | |||||||
Leasehold improvements | $ | 49,816 | $ | 49,456 | ||||
Building and improvements | 142,711 | 141,484 | ||||||
Manufacturing and laboratory equipment | 74,032 | 72,039 | ||||||
Computer hardware and software | 48,343 | 48,566 | ||||||
Furniture and equipment | 7,773 | 7,679 | ||||||
Land | 10,056 | 10,056 | ||||||
Construction-in-progress | 55,028 | 55,436 | ||||||
|
|
|
| |||||
$ | 387,759 | $ | 384,716 | |||||
Less: Accumulated depreciation | (123,442 | ) | (115,745 | ) | ||||
|
|
|
| |||||
Total property, plant and equipment, net | $ | 264,317 | $ | 268,971 | ||||
|
|
|
|
Depreciation expense for the three months ended March 31, 2012 and 2011 was $8.4 million and $7.4 million, respectively, of which $1.1 million and $2.7 million was capitalized into inventory, respectively.
Capitalized interest related to the Company’s property, plant and equipment purchases for the three months ended March 31, 2012 and 2011 was insignificant.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
(4) GOODWILL(6) INTANGIBLE ASSETS
Goodwill isIntangible assets consisted of the following:
March 31, 2012 | December 31, 2011 | |||||||
Intangible assets: | ||||||||
Finite-lived intangible assets | $ | 118,242 | $ | 118,242 | ||||
Indefinite-lived intangible assets | 63,692 | 70,396 | ||||||
|
|
|
| |||||
Total intangible assets, gross | 181,934 | 188,638 | ||||||
Less: Accumulated amortization | (11,020 | ) | (8,361 | ) | ||||
|
|
|
| |||||
Total intangible assets, net | $ | 170,914 | $ | 180,277 | ||||
|
|
|
|
Finite-Lived Intangible Assets
The Company’s intangible assets consist of marketing rights in the U.S. and EU for Naglazyme, Kuvan and Firdapse, which are being amortized over their estimated useful lives using the straight-line method. The Company reviews these finite-lived intangible assets for impairment when facts or circumstances indicate a reduction in the fair value below their carrying amount.
Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of in-process research and development (IPR&D) assets related to both early and late stage product candidates purchased in the acquisitions of Huxley Pharmaceuticals Inc. (Huxley), LEAD Therapeutics, Inc. (LEAD) and ZyStor Therapeutics, Inc. (ZyStor).
Intangible assets related to IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the goodwillIPR&D assets below itstheir respective carrying amount.
The following table representsamounts. During the changes in goodwill for the ninethree months ended September 30, 2011:
Balance at December 31, 2010 | $ | 53,364 | ||
Reduction of goodwill related to acquisition of LEAD Therapeutics, Inc. | (309 | ) | ||
Reduction of goodwill related to acquisition of ZyStor Therapeutics, Inc. | (1,512 | ) | ||
|
| |||
Balance at September 30, 2011 | $ | 51,543 | ||
|
|
During the third quarter of 2011, in connection with the acquisition of ZyStor Therapeutics, Inc.,March 31, 2012, the Company recorded a reduction to goodwillan impairment charge of $1.5$6.7 million related to certain Firdapse IPR&D assets. These IPR&D assets are associated with marketing rights in the retentionU.S. for Firdapse, a product candidate that is in Phase 3 clinical trials in the U.S. for the treatment of Lambert-Eaton Myasthenic Syndrome. The Company was exploring strategic options for the Firdapse U.S. program, including the potential outlicense of rights in the U.S. In March 2012, the Company determined to suspend business development efforts. As a portionresult, management evaluated its plans and expectations regarding clinical development and commercialization of Firdapse in the U.S. The revised discounted cash flow projections no longer supported the carrying-value of the $2.0 million of acquisition consideration withheld at closing to cover any indemnifiable claims made byIPR&D intangible assets and the Company againstrecognized an impairment charge for the former stockholdersthree months ended March 31, 2012. The impairment charge is included in Intangible Asset Amortization and Contingent Consideration on the Company’s Condensed Consolidated Statements of ZyStor Therapeutics, Inc.Comprehensive Loss for the three months ended March 31, 2012.
During the first quarter of 2011, the Company recorded a reduction to goodwill of $0.3 million dueSee Note 10 to the adjustment ofCompany’s Consolidated Financial Statements included in the original assumptionsCompany’s Annual Report on Form 10-K for the year ended December 31, 2011, for additional information related to the contingent consideration payable for the acquisition of LEAD Therapeutics, Inc.Company’s intangible assets.
(5) SHORT-TERM AND LONG-TERM INVESTMENTS
All investments were classified as available-for-sale at September 30, 2011 and December 31, 2010. The principal amounts of short-term and long-term investments by contractual maturity are summarized in the tables below:
Contractual Maturity Date For the Years Ending December 31, | Unrealized Gain (Loss) | Aggregate Fair Value at September 30, 2011 | ||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | Total Book Value at September 30, 2011 | ||||||||||||||||||||||||
Certificates of deposit | $ | 3,919 | $ | 38,962 | $ | 17,240 | $ | 0 | $ | 60,121 | $ | 15 | $ | 60,136 | ||||||||||||||
Commercial paper | 14,994 | 24,706 | 0 | 0 | 39,700 | (15 | ) | 39,685 | ||||||||||||||||||||
Corporate securities | 10,558 | 95,701 | 41,098 | 3,100 | 150,457 | 64 | 150,521 | |||||||||||||||||||||
U.S. Government agency securities | 0 | 12,497 | 35,916 | 0 | 48,413 | 5 | 48,418 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | $ | 29,471 | $ | 171,866 | $ | 94,254 | $ | 3,100 | $ | 298,691 | $ | 69 | $ | 298,760 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Contractual Maturity Date For the Years Ending December 31, | Unrealized Gain | Aggregate Fair Value at December 31, 2010 | ||||||||||||||||||||||||||
2011 | 2012 | 2013 | Total Book Value at December 31, 2010 | |||||||||||||||||||||||||
Certificates of deposit | $ | 29,844 | $ | 22,748 | $ | 3,093 | $ | 55,685 | $ | 8 | $ | 55,693 | ||||||||||||||||
Commercial paper | 27,439 | 0 | 0 | 27,439 | 18 | 27,457 | ||||||||||||||||||||||
Corporate securities | 80,062 | 63,046 | 8,809 | 151,917 | 598 | 152,515 | ||||||||||||||||||||||
U.S. Government agency securities | 48,480 | 28,021 | 2,000 | 78,501 | 38 | 78,539 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 185,825 | $ | 113,815 | $ | 13,902 | $ | 313,542 | $ | 662 | $ | 314,204 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
The Company completed an evaluation of its investments and determined that it did not have any other-than-temporary impairments as of September 30, 2011. The investments are placed in financial institutions with strong credit ratings and management expects full recovery of the carrying amounts.
The aggregate amounts of unrealized losses and related fair value of investments with unrealized losses as of September 30, 2011 and December 31, 2010 were as follows:
0000000000 | 0000000000 | 0000000000 | 0000000000 | 0000000000 | 0000000000 | |||||||||||||||||||
Less Than 12 Months To Maturity | 12 Months or More To Maturity | Totals at September 30, 2011 | ||||||||||||||||||||||
Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | |||||||||||||||||||
Certificates of deposit | $ | 8,589 | $ | (1 | ) | $ | 9,982 | $ | (4 | ) | $ | 18,571 | $ | (5 | ) | |||||||||
Commercial paper | 19,196 | (22 | ) | 0 | 0 | 19,196 | (22 | ) | ||||||||||||||||
Corporate securities | 26,680 | (94 | ) | 39,142 | (186 | ) | 65,822 | (280 | ) | |||||||||||||||
U.S. Government agency securities | 0 | 0 | 22,320 | (7 | ) | 22,320 | (7 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 54,465 | $ | (117 | ) | $ | 71,444 | $ | (197 | ) | $ | 125,909 | $ | (314 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Less Than 12 Months To Maturity | 12 Months or More To Maturity | Totals at December 31, 2010 | ||||||||||||||||||||||
Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | Aggregate Fair Value | Unrealized Losses | |||||||||||||||||||
Certificates of deposit | $ | 13,283 | $ | (21 | ) | $ | 1,678 | $ | (1 | ) | $ | 14,961 | $ | (22 | ) | |||||||||
Commercial paper | 7,486 | (1 | ) | 0 | 0 | 7,486 | (1 | ) | ||||||||||||||||
Corporate securities | 19,606 | (7 | ) | 18,437 | (68 | ) | 38,043 | (75 | ) | |||||||||||||||
U.S. Government agency securities | 0 | 0 | 16,463 | (33 | ) | 16,463 | (33 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | $ | 40,375 | $ | (29 | ) | $ | 36,578 | $ | (102 | ) | $ | 76,953 | $ | (131 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(6) PROPERTY, PLANT AND EQUIPMENT(7) SUPPLEMENTAL BALANCE SHEET INFORMATION
Property, plant and equipment, netInventory consisted of the following:
000000000000 | 000000000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Leasehold improvements | $ | 48,869 | $ | 40,196 | ||||
Building and improvements | 138,235 | 138,025 | ||||||
Manufacturing and laboratory equipment | 70,609 | 59,711 | ||||||
Computer hardware and software | 45,801 | 37,651 | ||||||
Furniture and equipment | 7,553 | 6,573 | ||||||
Land | 10,056 | 10,056 | ||||||
Construction-in-progress | 52,924 | 14,729 | ||||||
|
|
|
| |||||
$ | 374,047 | $ | 306,941 | |||||
Less: Accumulated depreciation | (107,857 | ) | (85,075 | ) | ||||
|
|
|
| |||||
Total property, plant and equipment, net | $ | 266,190 | $ | 221,866 | ||||
|
|
|
|
March 31, 2012 | December 31, 2011 | |||||||
Raw materials | $ | 13,191 | $ | 12,145 | ||||
Work-in-process | 69,943 | 75,903 | ||||||
Finished goods | 40,930 | 42,070 | ||||||
|
|
|
| |||||
Total inventory | $ | 124,064 | $ | 130,118 | ||||
|
|
|
|
In August 2011, the Company acquired a bulk biologics manufacturing plant located in Shanbally, County Cork, Ireland (the Facility) for a total acquisition cost of $50.4 million, which includes $1.9 million of direct local transfer tax. The acquisitionOther current assets consisted of the Facility was accountedfollowing:
March 31, 2012 | December 31, 2011 | |||||||
Non-trade receivables | $ | 6,827 | $ | 6,093 | ||||
Prepaid expenses | 12,107 | 7,551 | ||||||
Foreign currency exchange forward contract asset | 2,743 | 4,705 | ||||||
Current deferred tax assets | 21,115 | 21,115 | ||||||
Deferred cost of goods sold | 6,419 | 0 | ||||||
Short-term restricted investments | 1,085 | 0 | ||||||
Other | 223 | 289 | ||||||
|
|
|
| |||||
Total other current assets | $ | 50,519 | $ | 39,753 | ||||
|
|
|
|
See Note 10 for as a purchaseadditional discussion regarding the fair value of an asset, as it did not meetrestricted investments.
Accounts payable and accrued liabilities consisted of the definitionfollowing:
March 31, 2012 | December 31, 2011 | |||||||
Accounts payable | $ | 12,439 | $ | 12,239 | ||||
Accrued accounts payable | 26,977 | 23,849 | ||||||
Accrued vacation expense | 7,696 | 6,530 | ||||||
Accrued compensation expense | 13,013 | 17,619 | ||||||
Accrued taxes payable | 399 | 713 | ||||||
Accrued interest expense | 2,680 | 1,300 | ||||||
Accrued royalties payable | 3,178 | 5,866 | ||||||
Accrued rebates payable | 5,310 | 6,025 | ||||||
Other accrued operating expenses | 13,267 | 9,259 | ||||||
Value added taxes payable | 3,894 | 3,165 | ||||||
Current portion of contingent acquisition consideration payable | 5,625 | 5,555 | ||||||
Other | 1,881 | 2,005 | ||||||
|
|
|
| |||||
Total accounts payable and accrued liabilities | $ | 96,359 | $ | 94,125 | ||||
|
|
|
|
Other long-term liabilities consisted of a business under ASC Topic 850,Business Combinations. Accordingly, the total purchase price was allocated to the identified assets based on their relative fair values on the date of acquisition.following:
March 31, 2012 | December 31, 2011 | |||||||
Long-term portion of deferred rent | $ | 1,898 | $ | 950 | ||||
Long-term portion of contingent acquisition consideration payable | 27,808 | 33,059 | ||||||
Long-term portion of asset retirement obligation liability | 3,035 | 2,991 | ||||||
Long-term portion of deferred compensation liability | 8,771 | 8,768 | ||||||
Long-term income taxes payable | 5,165 | 5,165 | ||||||
Deferred tax liabilities | 32,698 | 35,127 | ||||||
Other | 1,074 | 2,119 | ||||||
|
|
|
| |||||
Total other long-term liabilities | $ | 80,449 | $ | 88,179 | ||||
|
|
|
|
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011
(In thousands of U.S. dollars except per share amounts or as otherwise disclosed)
(Unaudited)
The allocation of the purchase price was as follows:
00000000000000 | ||||
Acquisition Date Relative Fair Value | ||||
Manufacturing and laboratory equipment | $ | 23,248 | ||
Furniture and fixtures | 912 | |||
Computer hardware and software | 328 | |||
Building and improvements | 24,057 | |||
Land | 1,127 | |||
Consumable supplies capitalized in other assets | 766 | |||
|
| |||
Total purchase price | 50,438 | |||
Less consumables | (766 | ) | ||
|
| |||
Net property, plant and equipment acquired | $ | 49,672 | ||
|
|
As of September 30, 2011, the fair value of the acquired assets is included in the construction in-process balance as the assets have not been placed into service.
Depreciation expense during the three and nine months ended September 30, 2011 was $8.1 million and $22.8 million, respectively, of which $2.1 million and $4.1 million was capitalized into inventory, respectively. Depreciation expense during the three and nine months ended September 30, 2010 was $6.3 million and $16.4 million, respectively, of which $1.5 million and $3.2 million was capitalized into inventory, respectively.
Capitalized interest related to the Company’s property, plant and equipment purchases for both the three and nine months ended September 30, 2011 was insignificant, compared to the three and nine months ended September 30, 2010 when capitalized interest was $0 and $0.7 million, respectively.
(7) INVENTORY
Inventory consisted of the following:
000000000000 | 000000000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Raw materials | $ | 15,267 | $ | 11,174 | ||||
Work-in-process | 58,541 | 65,336 | ||||||
Finished goods | 41,820 | 33,188 | ||||||
|
|
|
| |||||
Total inventory | $ | 115,628 | $ | 109,698 | ||||
|
|
|
|
Inventory as of September 30, 2011 and DecemberMarch 31, 2010 includes $12.6 million and $14.8 million, respectively, of Naglazyme product manufactured in the Company’s recently expanded production facility. The Company’s expansion of its manufacturing facility, as for any new manufacturing facility or process, is required to be approved by the U.S. Food and Drug Administration (FDA) and similar ex-U.S. regulatory agencies before the product manufactured in this facility can be sold commercially. As of September 30, 2011, the expanded facility and new process have not been approved by the FDA or any other regulatory agency; however, the Company expects to receive FDA approval in the fourth quarter of 2011 or early 2012 and realize the costs of the remaining Naglazyme pre-qualification inventories through future sales.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
(8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Other current assets consisted of the following:
0000000000 | 0000000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Non-trade receivables | $ | 7,284 | $ | 7,308 | ||||
Prepaid expenses | 14,952 | 8,452 | ||||||
Foreign currency exchange forward contract asset | 790 | 1,221 | ||||||
Current deferred tax assets | 16,658 | 16,658 | ||||||
Other | 281 | 235 | ||||||
|
|
|
| |||||
Total other current assets | $ | 39,965 | $ | 33,874 | ||||
|
|
|
|
Intangible assets, net consisted of the following:
0000000000 | 0000000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Intangible assets: | ||||||||
Finite-lived intangible assets | $ | 37,242 | $ | 37,242 | ||||
Indefinite-lived intangible assets | 70,396 | 70,396 | ||||||
|
|
|
| |||||
Gross intangible assets: | 107,638 | 107,638 | ||||||
Less: Accumulated amortization | (6,858 | ) | (3,990 | ) | ||||
|
|
|
| |||||
Net carrying value | $ | 100,780 | $ | 103,648 | ||||
|
|
|
|
Accounts payable and accrued liabilities consisted of the following:
0000000000000 | 0000000000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Accounts payable | $ | 7,107 | $ | 4,956 | ||||
Accrued accounts payable | 18,184 | 24,410 | ||||||
Accrued vacation expense | 6,469 | 5,629 | ||||||
Accrued compensation expense | 18,459 | 15,913 | ||||||
Accrued taxes payable | 159 | 529 | ||||||
Accrued interest expense | 2,864 | 1,804 | ||||||
Accrued royalties payable | 6,481 | 5,362 | ||||||
Accrued rebates payable | 5,980 | 5,899 | ||||||
Other accrued operating expenses | 5,840 | 4,330 | ||||||
Value added taxes payable | 3,678 | 2,950 | ||||||
Current portion of contingent acquisition consideration payable | 5,479 | 8,794 | ||||||
Current portion of foreign currency exchange forward contract liability | 926 | 1,673 | ||||||
Other | 1,628 | 1,595 | ||||||
|
|
|
| |||||
Total accounts payable and accrued liabilities | $ | 83,254 | $ | 83,844 | ||||
|
|
|
|
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011
(In thousands of U.S. dollars except per share amounts or as otherwise disclosed)
(Unaudited)
Other long-term liabilities consisted of the following:
00000000 | 00000000 | |||||||
September 30, 2011 | December 31, 2010 | |||||||
Long-term portion of deferred rent | $ | 993 | $ | 957 | ||||
Long-term portion of contingent acquisition consideration payable | 32,541 | 34,924 | ||||||
Long-term portion of asset retirement obligation liability | 2,947 | 0 | ||||||
Long-term portion of deferred compensation liability | 8,100 | 5,213 | ||||||
Long-term income taxes payable | 5,434 | 5,584 | ||||||
Deferred tax liabilities | 36,517 | 36,517 | ||||||
Other | 2,412 | 806 | ||||||
|
|
|
| |||||
Total other long-term liabilities | $ | 88,944 | $ | 84,001 | ||||
|
|
|
|
(9) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
Foreign Currency Exposure
The Company uses hedging contracts to manage the risk of its overall exposure to fluctuations in foreign currency exchange rates. The Company considers all of its designated hedging instruments to be cash flow hedges.
Foreign Currency Exchange Rate Exposure
The Company uses forward foreign currency exchange contracts to hedge certain operational exposures resulting from changes in foreign currency exchange rates. Such exposures result from portions of the Company’s forecasted revenues and operating expenses being denominated in currencies other than the U.S. dollar, primarily the Euro.Euro and Brazilian Real, respectively.
The Company designates certain of these forward foreign currency exchange contracts as hedging instruments and enters into some forward foreign currency exchange contracts that are considered to be economic hedges that are not designated as hedging instruments. Whether designated or undesignated, these forward foreign currency exchange contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from Naglazyme and Firdapse product revenues, Aldurazyme royalty revenues, operating expenses and net asset or liability positions designated in currencies other than the U.S. dollar. The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates, and take into consideration the current creditworthiness of the counterparties or the Company, as applicable. Details of the specific instruments used by the Company to hedge its exposure to foreign currency exchange rate fluctuations follow below. See Note 1110 for additional discussion regarding the fair value of forward foreign currency exchange contracts.
At September 30, 2011,March 31, 2012, the Company had 142141 forward foreign currency exchange contracts outstanding to sell a total of 80.980.6 million Euros and six forward foreign currency exchange contracts outstanding to buy 5.6 million Brazilian Reais with expiration dates ranging from October 31, 2011April 30, 2012 through June 30,December 27, 2013. These hedges were entered into in order to protect against the fluctuations in revenue associated with Euro denominated Naglazyme, Firdapse and Aldurazyme revenues.sales and operating expenses denominated in Brazilian Real. The Company has formally designated these forward foreign currency exchange contracts as cash flow hedges and expects them to be highly effective within the meaning of FASB ASCFinancial Accounting Standards Board’s Accounting Standards Codification Subtopic 815-30, Derivatives and Hedging-Cash Flow Hedges, in offsetting fluctuations in revenues denominated in Euros and operating expenses denominated in Brazilian Real related to changes in the foreign currency exchange rates.
The Company also enters into forward foreign currency exchange contracts that are not designated as hedges for accounting purposes. The changes in fair value of these forward foreign currency exchange contracts are included as a part of selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.Comprehensive Loss. At September 30, 2011,March 31, 2012, separate from the 142147 contracts discussed above, the Company had one outstanding forward foreign currency exchange contract to sell 25.927.6 million Euros that was not designated as a hedge for accounting purposes.
The maximum length of time over which the Company is hedging its exposure to the reduction in value of forecasted foreign currency cash flows through forward foreign currency exchange contracts is through June 30,December 2013. Over the next twelve months, the Company expects to reclassify $0.4$3.3 million from accumulated other comprehensive income to earnings as relatedthe forecasted revenue transactions and operating expenses occur.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
At September 30, 2011March 31, 2012 and December 31, 2010,2011, the fair value carrying amounts of the Company’s derivative instruments were as follows:
Asset Derivatives September 30, 2011 | Liability Derivatives September 30, 2011 | Asset Derivatives March 31, 2012 | Liability Derivatives March 31, 2012 | |||||||||||||||||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | Other current assets | $ | 777 | Accounts payable and accrued liabilities | $ | 926 | Other current assets | $ | 2,743 | | Accounts payable and accrued liabilities | | $ | 208 | ||||||||||||||||||
Forward foreign currency exchange contracts | Other assets | 748 | Other long-term liabilities | 0 | Other assets | 530 | | Other long- term liabilities | | 354 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 1,525 | $ | 926 | $ | 3,273 | $ | 562 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | Other current assets | $ | 13 | Accounts payable and accrued liabilities | $ | 0 | Other current assets | $ | 0 | | Accounts payable and accrued liabilities | | $ | 229 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 13 | $ | 0 | $ | 0 | $ | 229 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total derivative contracts | $ | 1,538 | $ | 926 | ||||||||||||||||||||||||||||
Total value of derivative contracts | $ | 3,273 | $ | 791 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Asset Derivatives December 31, 2010 | Liability Derivatives December 31, 2010 | Asset Derivatives December 31, 2011 | Liability Derivatives December 31, 2011 | |||||||||||||||||||||||||||||
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | |||||||||||||||||||||||||
Derivatives designated as hedging instruments | ||||||||||||||||||||||||||||||||
Derivatives designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | Other current assets | $ | 1,221 | Accounts payable and accrued liabilities | $ | 1,596 | Other current assets | $ | 4,705 | | Accounts payable and accrued liabilities | | $ | 189 | ||||||||||||||||||
Forward foreign currency exchange contracts | Other assets | 275 | Other long-term liabilities | 0 | Other assets | 1,977 | | Other long- term liabilities | | 26 | ||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 1,496 | $ | 1,596 | $ | 6,682 | $ | 215 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments | ||||||||||||||||||||||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||||||||||||||||||
Forward foreign currency exchange contracts | Other current assets | $ | 0 | Accounts payable and accrued liabilities | $ | 77 | Other current assets | $ | 0 | | Accounts payable and accrued liabilities | | $ | 5 | ||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total | $ | 0 | $ | 77 | $ | 0 | $ | 5 | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total derivative contracts | $ | 1,496 | $ | 1,673 | ||||||||||||||||||||||||||||
Total value of derivative contracts | $ | 6,682 | $ | 220 | ||||||||||||||||||||||||||||
|
|
|
|
The effect of the Company’s derivative instruments on the Condensed Consolidated Financial Statements for the three and nine months ended September 30,March 31, 2012 and 2011 and 2010 was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | Foreign Currency Forward Contracts | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||
Derivatives Designated as Hedging Instruments | ||||||||||||||||||||||||
Derivatives Designated as Hedging Instruments: | ||||||||||||||||||||||||
Net gain (loss) recognized in Other Comprehensive Income (OCI) (1) | $ | 7,913 | $ | (11,095 | ) | $ | 1,705 | $ | (858 | ) | $ | (4,373 | ) | $ | (5,837 | ) | ||||||||
Net gain (loss) reclassified from accumulated OCI into income (2) | (1,740 | ) | 1,693 | (3,854 | ) | 3,802 | 1,248 | (120 | ) | |||||||||||||||
Net gain (loss) recognized in income (3) | (1,164 | ) | 197 | (1,016 | ) | 517 | 481 | 325 | ||||||||||||||||
Derivatives Not Designated as Hedging Instruments | ||||||||||||||||||||||||
Derivatives Not Designated as Hedging Instruments: | ||||||||||||||||||||||||
Net gain (loss) recognized in income (4) | $ | 1,770 | $ | (2,370 | ) | $ | (961 | ) | $ | 892 | $ | (863 | ) | $ | (1,808 | ) |
(1) | Net change in the fair value of the effective portion classified as OCI |
(2) | Effective portion classified as net product revenue |
(3) | Ineffective portion and amount excluded from effectiveness testing classified as selling, general and administrative expense |
(4) | Classified as selling, general and administrative expense |
At September 30, 2011March 31, 2012 and December 31, 2010,2011, accumulated other comprehensive income/loss before taxes associated with foreign currency forward contracts qualifying for hedge accounting treatment was a gain of $1.6$3.5 million and a loss of $0.2$8.0 million, respectively.
The Company is exposed to counterparty credit risk on all of its derivative financial instruments. The Company has established and maintained strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company does not require collateral to be pledged under these agreements.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
(10)(9) CONVERTIBLE DEBT
In April 2007, the Company sold approximately $324.9 million of senior subordinated convertible notes due 2017 (the 2017 Notes). The debt was issued at face value and bears interest at the rate of 1.875% per annum, payable semi-annually in cash. The debt is convertible, at the option of the holder, at any time prior to maturity or redemption, into shares of the Company’s common stock at a conversion price of approximately $20.36 per share, subject to adjustment in certain circumstances. The debt does not include a call provision and the Company is unable to unilaterally redeem the debt prior to maturity on April 23, 2017. The Company also must repay the debt if there is a qualifying change in control or termination of trading of its common stock.
In connection with the placement of the 2017 Notes, the Company paid approximately $8.5 million in offering costs, which have been deferred and are included in other assets. The deferred offering costs are being amortized as interest expense over the life of the debt, and in each of the threethree-month periods ended March 31, 2012 and nine months ended September 30, 2011 and 2010,2011; the Company recognized amortization of expense of $0.2 million and $0.6 million, respectively.million.
In March 2006, the Company sold $172.5 million of senior subordinated convertible notes due 2013 (the 2013 Notes). The debt was issued at face value and bears interest at the rate of 2.5% per annum, payable semi-annually in cash. The debt is convertible, at the option of the holder, at any time prior to maturity or redemption, into shares of the Company’s common stock at a conversion price of approximately $16.58 per share, subject to adjustment in certain circumstances. The debt does not include a call provision and the Company is unable to unilaterally redeem the debt prior to maturity on March 29, 2013. The Company also must repay the debt if there is a qualifying change in control or termination of trading of its common stock.
In connection with the placement of the 2013 Notes, the Company paid approximately $5.5 million in offering costs, which have been deferred and are included in other assets. The deferred offering costs are being amortized as interest expense over the life of the debt. The Company recognized amortization expense of approximately $27 for the three months ended March 31, 2012, compared to $0.1 million and $0.2 million for the three and nine months ended September 30, 2011, respectively, compared to the three and nine months ended September 30, 2010 when amortization expense was $0.2 million and $0.6 million, respectively.March 31, 2011. The decrease in amortization expense for the three and nine months ended September 30, 2011, compared to the three and nine months ended September 30, 2010March 31, 2012 was attributed to the conversion of $119.6$29.2 million in aggregate principal of the 2013 Notes in November 2010.September 2011.
In September 2011, the Company entered into separate agreements with six of the existing holders of its 2013 Notes pursuant to which such holders converted $29.2 million in aggregate principal amount of the 2013 Notes into 1,760,178 shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock pursuant to the 2013 Notes, the Company paid the holders future interest of approximately $1.1 million along with an aggregate of approximately $0.8 million related to varying cash premiums for agreeing to convert the 2013 Notes, which was recognized in total as debt conversion expense on the Company’s Consolidated Statement of Operations for the three and nine monthsyear ended September 30,December 31, 2011. Additionally, the Company reclassified $0.2 million of deferred offering costs to additional paid-in capital in connection with the conversion of the 2013 Notes.
In November 2010, During the Company entered into separate agreements with ninefourth quarter of the existing2011, certain note holders voluntarily exchanged an insignificant number of its 2013 Notes pursuant to which such holders converted $119.6 million in aggregate principal amount of the 2013 Notes into 7,213,379convertible notes for shares of the Company’s common stock. In addition to issuing the requisite number of shares of the Company’s common stock pursuant to the 2013 Notes, the Company paid the holders future interest of approximately $7.2 million along with an aggregate of approximately $6.5 million related to varying cash premiums for agreeing to convert the 2013 Notes, which was recognized in total as debt conversion expense on the Company’s Consolidated Statement of Operations for the year ended December 31, 2010. Additionally, the Company reclassified $1.3 million of deferred offering costs to additional paid-in capital in connection with the conversion of the 2013 Notes.
Interest expense on the Company’s convertible debt for the three and nine months ended September 30, 2011 was $1.8 million and $5.5 million, respectively, compared to the three and nine months ended September 30, 2010 when interest expense related to the Company’s convertible debt was $2.6 million and $7.8 million, respectively. The decrease in interest expense related to the Company’s convertible debt in the three and nine months ended September 30, 2011, compared to the three and nine months ended September 30, 2010 was attributed to the conversion of $29.2 million and $119.6 million in aggregate principal of the 2013 Notes in September 2011 and November 2010, respectively.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
Interest expense on the Company’s convertible debt for the three months ended March 31, 2012 was $1.7 million, compared to $1.9 million for the three months ended March 31, 2011. The decrease in interest expense related to the Company’s convertible debt for the three months ended March 31, 2012, compared to the three months ended March 31, 2011 was attributed to the conversion of $29.2 million in aggregate principal of the 2013 Notes in September 2011.
(11)(10) FAIR VALUE MEASUREMENTS
The Company measures certain financial assets and 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 of these financial assets and liabilities determined using the following input levels at September 30, 2011March 31, 2012 and December 31, 2010.2011.
00000000000 | 00000000000 | 00000000000 | 00000000000 | |||||||||||||||||||||||||||||
Fair Value Measurements at September 30, 2011 | Fair Value Measurements at March 31, 2012 | |||||||||||||||||||||||||||||||
Total | Quoted Price in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Price in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||
Overnight deposits | $ | 36,493 | $ | 36,493 | $ | 0 | $ | 0 | $ | 33,689 | $ | 33,689 | $ | 0 | $ | 0 | ||||||||||||||||
Money market instruments | 34,761 | 0 | 34,761 | 0 | 48,897 | 0 | 48,897 | 0 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total cash and cash equivalents | $ | 71,254 | $ | 36,493 | $ | 34,761 | $ | 0 | $ | 82,586 | $ | 33,689 | $ | 48,897 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
Short-term | ||||||||||||||||||||||||||||||||
Certificates of deposit | $ | 31,987 | $ | 0 | $ | 31,987 | $ | 0 | $ | 44,182 | $ | 0 | $ | 44,182 | $ | 0 | ||||||||||||||||
Commercial paper | 39,685 | 0 | 39,685 | 0 | 16,468 | 0 | 16,468 | 0 | ||||||||||||||||||||||||
Corporate securities | 81,448 | 0 | 81,448 | 0 | 81,173 | 0 | 81,173 | 0 | ||||||||||||||||||||||||
U.S. Government agency securities | 8,570 | 0 | 8,570 | 0 | ||||||||||||||||||||||||||||
Long-term | ||||||||||||||||||||||||||||||||
Certificates of deposit | 28,149 | 0 | 28,149 | 0 | 10,363 | 0 | 10,363 | 0 | ||||||||||||||||||||||||
Corporate securities | 69,073 | 0 | 69,073 | 0 | 22,604 | 0 | 22,604 | 0 | ||||||||||||||||||||||||
U.S. Government agency securities | 48,418 | 0 | 48,418 | 0 | 21,735 | 0 | 21,735 | 0 | ||||||||||||||||||||||||
Greek government-issued bonds | 49 | 0 | 49 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total available-for-sale securities | $ | 298,760 | $ | 0 | $ | 298,760 | $ | 0 | $ | 205,144 | $ | 0 | $ | 205,144 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Deferred compensation asset (1) | 3,222 | 0 | 3,222 | 0 | ||||||||||||||||||||||||||||
Forward foreign currency exchange contract asset (2) | 1,538 | 0 | 1,538 | 0 | ||||||||||||||||||||||||||||
Restricted investments (1) | 4,713 | 4,713 | ||||||||||||||||||||||||||||||
Nonqualified deferred compensation plan assets (2) | 4,066 | 0 | 4,066 | 0 | ||||||||||||||||||||||||||||
Forward foreign currency exchange contract asset (3) | 3,273 | 0 | 3,273 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total assets | $ | 374,774 | $ | 36,493 | $ | 338,281 | $ | 0 | $ | 299,782 | $ | 33,689 | $ | 266,093 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Deferred compensation liability (3) | $ | 8,733 | $ | 5,511 | $ | 3,222 | $ | 0 | ||||||||||||||||||||||||
Forward foreign currency exchange contract liability (2) | 926 | 0 | 926 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition consideration payable (4) | 38,020 | 0 | 0 | 38,020 | ||||||||||||||||||||||||||||
Asset retirement obligation (5) | 2,947 | 0 | 0 | 2,947 | ||||||||||||||||||||||||||||
Nonqualified deferred compensation plan liability (4) | $ | 9,291 | $ | 5,225 | $ | 4,066 | $ | 0 | ||||||||||||||||||||||||
Forward foreign currency exchange contract liability (3) | 791 | 0 | 791 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition consideration payable (5) | 33,433 | 0 | 0 | 33,433 | ||||||||||||||||||||||||||||
Asset retirement obligation (6) | 3,035 | 0 | 0 | 3,035 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total liabilities | $ | 50,626 | $ | 5,511 | $ | 4,148 | $ | 40,967 | $ | 46,550 | $ | 5,225 | $ | 4,857 | $ | 36,468 | ||||||||||||||||
|
|
|
|
|
|
|
|
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
000000000000000 | 000000000000000 | 000000000000000 | 000000000000000 | |||||||||||||||||||||||||||||
Fair Value Measurements at December 31, 2010 | Fair Value Measurements at December 31, 2011 | |||||||||||||||||||||||||||||||
Total | Quoted Price in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Quoted Price in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||||||||||||||
Overnight deposits | $ | 51,647 | $ | 51,647 | $ | 0 | $ | 0 | $ | 44,212 | $ | 44,212 | $ | 0 | $ | 0 | ||||||||||||||||
Money market instruments | 36,432 | 0 | 36,432 | 0 | 2,060 | 0 | 2,060 | 0 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total cash and cash equivalents | $ | 88,079 | $ | 51,647 | $ | 36,432 | $ | 0 | $ | 46,272 | $ | 44,212 | $ | 2,060 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Available-for-sale securities | ||||||||||||||||||||||||||||||||
Short-term | ||||||||||||||||||||||||||||||||
Certificates of deposit | $ | 29,845 | $ | 0 | $ | 29,845 | $ | 0 | $ | 38,564 | $ | 0 | $ | 38,564 | $ | 0 | ||||||||||||||||
Commercial paper | 27,457 | �� | 0 | 27,457 | 0 | 24,721 | 0 | 24,721 | 0 | |||||||||||||||||||||||
Corporate securities | 80,186 | 0 | 80,186 | 0 | 85,535 | 0 | 85,535 | 0 | ||||||||||||||||||||||||
U.S. Government agency securities | 48,545 | 0 | 48,545 | 0 | ||||||||||||||||||||||||||||
Long-term | ||||||||||||||||||||||||||||||||
Certificates of deposit | 25,848 | 0 | 25,848 | 0 | 17,191 | 0 | 17,191 | 0 | ||||||||||||||||||||||||
Corporate securities | 72,329 | 0 | 72,329 | 0 | 44,112 | 0 | 44,112 | 0 | ||||||||||||||||||||||||
U.S. Government agency securities | 29,994 | 0 | 29,994 | 0 | 32,890 | 0 | 32,890 | 0 | ||||||||||||||||||||||||
Greek government-issued bonds | 192 | 0 | 192 | 0 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total available-for-sale securities | $ | 314,204 | $ | 0 | $ | 314,204 | $ | 0 | $ | 243,205 | $ | 0 | $ | 243,205 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Deferred compensation asset (1) | 2,748 | 0 | 2,748 | 0 | ||||||||||||||||||||||||||||
Nonqualified deferred compensation plan assets (2) | 3,505 | 0 | 3,505 | 0 | ||||||||||||||||||||||||||||
Forward foreign currency exchange contract asset | 1,496 | 0 | 1,496 | 0 | 6,682 | 0 | 6,682 | 0 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total assets | $ | 406,527 | $ | 51,647 | $ | 354,880 | $ | 0 | $ | 299,664 | $ | 44,212 | $ | 255,452 | $ | 0 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Deferred compensation liability (3) | $ | 5,560 | $ | 2,812 | $ | 2,748 | $ | 0 | ||||||||||||||||||||||||
Forward foreign currency exchange contract liability (2) | 1,673 | 0 | 1,673 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition consideration payable (4) | 43,718 | 0 | 0 | 43,718 | ||||||||||||||||||||||||||||
Nonqualified deferred compensation plan liability (4) | $ | 9,450 | $ | 5,945 | $ | 3,505 | $ | 0 | ||||||||||||||||||||||||
Forward foreign currency exchange contract liability (3) | 220 | 0 | 220 | 0 | ||||||||||||||||||||||||||||
Contingent acquisition consideration payable (5) | 38,614 | 0 | 0 | 38,614 | ||||||||||||||||||||||||||||
Asset retirement obligation (6) | 2,991 | 0 | 0 | 2,991 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total liabilities | $ | 50,951 | $ | 2,812 | $ | 4,421 | $ | 43,718 | $ | 51,275 | $ | 5,945 | $ | 3,725 | $ | 41,605 | ||||||||||||||||
|
|
|
|
|
|
|
|
(1) | At |
(2) | At March 31, 2012 and December 31, |
See Note |
At |
At |
At |
The Company’s level 2 securities are valued using third-party pricing sources, which generally use observable market prices, interest rates and yield curves observable at commonly quoted intervals of similar assets as observable inputs for pricing. The Company validates the prices provided by its third-party pricing services by understanding the models used, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming those securities traded in active markets. Due to the continued volatility associated with market conditions in Greece and reduced trading activity in its sovereign debt, the Company classified its Greek government-issued bonds as level 2 on March 31, 2012 and December 31, 2011. See Note 54 for further information regarding the Company’s financial instruments.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
The Company’s level 3 liabilities are estimated using a probability-based income approach utilizing an appropriate discount rate. Subsequent changes in the fair value of the contingent acquisition consideration payable, resulting from the revision of key assumptions, will be recorded in intangible asset amortization and contingent consideration on the Company’s Condensed Consolidated Statements of Operations.Comprehensive Loss.
During the three and nine months ended September 30, 2011,March 31, 2012, the fair value of the contingent acquisition consideration payable decreased by $0.8$5.2 million and $5.7 million, respectively, due to changes in estimated probability and assumed timing of achievement of certain milestones and a $3.0 million development milestone payment to the former stockholders of Huxley Pharmaceuticals, Inc. Approximately $0.3 million of this change was recorded as a reduction to goodwill during the first quarter of 2011 due to an adjustment to the original assumptions related to the acquisition of LEAD Therapeutics, Inc.milestones. Key assumptions used by management to estimate the fair value of contingent acquisition consideration payable include assumed probabilities, timing of when a milestone may be attained and assumed discount periods and rates.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011
(In thousands of U.S. dollars except per share amounts or as otherwise disclosed)
(Unaudited)
See Notes 5, 6 and 7, to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20102011 for additional discussion related to business acquisitions and contingent acquisition consideration payable.
(12)(11) STOCK-BASED COMPENSATION
The Company’s stock-based compensation plans include the 2006 Share Incentive Plan, as amended and restated on March 22, 2010 (2006 Share Incentive Plan) and the ESPP.Employee Stock Purchase Plan (ESPP). These plans are administered by the Compensation Committee of the Company’s Board of Directors, 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 award. See Note 18 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010,2011, for additional information related to these stock-based compensation plans.
Determining the Fair Value of Stock Options and Stock Purchase Rights
The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the tables below. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns were considered separately for valuation purposes, but none were identified that had distinctly different exercise patterns as of September 30, 2011.March 31, 2012. The expected volatility of stock options is based upon proportionate weightings of the historical volatility of the Company’s common stock and the implied volatility of traded options on the Company’s common stock for fiscal periods in which there is sufficient trading volume in options on the Company’s common stock. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future. The assumptions used to estimate the per share fair value of stock options granted under the 2006 Share Incentive Plan were as follows:
0000000000 | 0000000000 | 0000000000 | 0000000000 | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||
Stock Option Valuation Assumptions | 2011 | 2010 | 2011 | 2010 | 2012 | 2011 | ||||||
Expected volatility | 47% | 52% | 47 – 50% | 52% | 46% | 50% | ||||||
Dividend yield | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | ||||||
Expected life | 6.4 years | 6.2 years | 6.3 – 6.4 years | 6.2 years | 6.5 years | 6.3 years | ||||||
Risk-free interest rate | 1.3% | 1.8% | 1.3 – 2.7% | 1.8 – 2.7% | 1.1% | 2.7% | ||||||
Weighted average fair value of common stock per share | $29.08 | $21.70 | $27.54 | $21.39 |
During the ninethree months ended September 30, 2011,March 31, 2012, the Company granted 3.60.2 million options with a weighted average option value of $13.49$16.68 per option.
The Company did not grant any new stock purchase rights under the ESPP during the three months ended September 30, 2011.March 31, 2012.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
Restricted Stock UnitsUnit Awards with Service-Based Vesting Conditions
Restricted stock units (RSUs) are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. During the ninethree months ended September 30, 2011,March 31, 2012, the Company granted 0.3 million5,000 RSUs with a weighted average fair market value of $27.46$36.74 per share.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011
(In thousands of U.S. dollars except per share amounts or as otherwise disclosed)
(Unaudited)
Restricted Stock Unit Awards with Performance and MarketMarket-Based Vesting Conditions
On June 1, 2011, pursuant to the Board of Directors approval, the Company granted RSU awards under the 2006 StockShare Incentive Plan to certain executive officers that provide for a base award of 875,000 RSUs (Base RSUs), with a grant date fair value of $32.61. The number of RSUs that could potentially vest from the Base RSUs granted is contingent upon achievement of specific performance goals and will be multiplied by the Total Shareholder Return (TSR) multiplier which could range from 75% to 125% to determine the number of earned RSU’s.RSUs.
Stock-based compensation expense for this award will be recognized over the remaining service period beginning in the period the Company determines the strategic performance goal or goals is probable of achievement. Accordingly, because the Company’s management has not yet determined the goals are probable of achievement as of September 30, 2011,March 31, 2012, no compensation expense has been recognized for these awards for the three and nine months ended September 30,2011.March 31, 2012.
Compensation expense included in the Company’s Condensed Consolidated Statements of Comprehensive Loss for all stock-based compensation arrangements was as follows:
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Cost of sales | $ | 873 | $ | 1,402 | ||||
Research and development | 4,695 | 3,674 | ||||||
Selling, general and administrative | 5,566 | 5,304 | ||||||
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Total stock-based compensation expense | $ | 11,134 | $ | 10,380 | ||||
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Stock-based compensation of $0.9 million and $1.2 million was capitalized into inventory, for the three months ended March 31, 2012 and 2011, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
Compensation expense included in the Company’s Condensed Consolidated Statements of Operations for all stock-based compensation arrangements was as follows:
000000000000 | 000000000000 | 000000000000 | 000000000000 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Cost of sales | $ | 1,334 | $ | 1,044 | $ | 3,864 | $ | 2,852 | ||||||||
Research and development | 4,372 | 3,621 | 12,070 | 10,244 | ||||||||||||
Selling, general and administrative | 5,912 | 5,292 | 16,673 | 14,578 | ||||||||||||
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Total stock-based compensation expense | $ | 11,618 | $ | 9,957 | $ | 32,607 | $ | 27,674 | ||||||||
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During the nine months ended September 30, 2011 and 2010, stock-based compensation of $4.0 million and $3.7 million was capitalized into inventory, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.
(13)(12) EARNINGS (LOSS) PER SHARE
Potential shares of common stock include shares issuable upon the exercise of outstanding employee stock option awards, common stock issuable under the ESPP, unvested restricted stock, common stock issued intoheld by the Company’s Nonqualified Deferred Compensation Plan and contingent issuances of common stock related to convertible debt.
The following table sets forth the computation of basic and diluted earnings/loss per common share:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator: | ||||||||||||||||
Net income (loss), basic | $ | (17,653 | ) | $ | 217,334 | $ | (27,101 | ) | $ | 218,008 | ||||||
Interest expense on convertible debt | 0 | 2,599 | 0 | 7,797 | ||||||||||||
Amortization of deferred offering costs related to the convertible debt | 0 | 411 | 0 | 1,232 | ||||||||||||
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Net income (loss), diluted | $ | (17,653 | ) | $ | 220,344 | $ | (27,101 | ) | $ | 227,037 | ||||||
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Denominator (in thousands of common shares): | ||||||||||||||||
Basic weighted-average shares outstanding | 112,290 | 102,110 | 111,358 | 101,660 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
Stock options | 0 | 2,103 | 0 | 2,095 | ||||||||||||
Potentially issuable restricted common stock | 0 | 171 | 0 | 171 | ||||||||||||
Potentially issuable common stock for ESPP purchases | 551 | 0 | 552 | |||||||||||||
Common stock issuable under convertible debt | 0 | 26,343 | 0 | 26,343 | ||||||||||||
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Fully diluted weighted-average shares | 112,290 | 131,278 | 111,358 | 130,821 | ||||||||||||
Basic earnings (loss) per common share | $ | (0.16 | ) | $ | 2.13 | $ | (0.24 | ) | $ | 2.14 | ||||||
Diluted earnings (loss) per common share | $ | (0.16 | ) | $ | 1.68 | $ | (0.24 | ) | $ | 1.74 |
Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Numerator: | ||||||||
Net loss, basic | $ | (23,972 | ) | $ | (4,371 | ) | ||
Gain on Company stock held by the Nonqualified Deferred Compensation Plan | 0 | (156 | ) | |||||
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Net loss, diluted | $ | (23,972 | ) | $ | (4,527 | ) | ||
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Denominator (in thousands of common shares): | ||||||||
Basic weighted-average shares outstanding | 115,070 | 110,652 | ||||||
Effect of dilutive securities: | ||||||||
Common stock held by the Nonqualified Deferred Compensation Plan | 0 | 91 | ||||||
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Fully diluted weighted-average shares | 115,070 | 110,743 | ||||||
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Basic loss per common share | $ | (0.21 | ) | $ | (0.04 | ) | ||
Diluted loss per common share | $ | (0.21 | ) | $ | (0.04 | ) |
In addition to the equity instruments included in the table above, the table below presents potential shares of common stock that were excluded from the computation as they were anti-dilutive using the treasury stock method (in thousands):method:
00000000 | 00000000 | 00000000 | 00000000 | |||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||
Options to purchase common stock | 16,674 | 13,561 | 16,674 | 13,569 | 15,537 | 14,870 | ||||||||||||||||||
Common stock issuable under convertible debt | 17,372 | 0 | 17,372 | 0 | 17,371 | 19,130 | ||||||||||||||||||
Unvested restricted stock units | 1,033 | 251 | 1,001 | 251 | 1,425 | �� | 416 | |||||||||||||||||
Potentially issuable common stock for ESPP purchases | 326 | 0 | 312 | 0 | 308 | 371 | ||||||||||||||||||
Common stock issued to the Nonqualified Deferred Compensation Plan | 173 | 115 | 173 | 115 | ||||||||||||||||||||
Common stock held by the Nonqualified Deferred Compensation Plan | 153 | 0 | ||||||||||||||||||||||
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Total | 35,578 | 13,927 | 35,532 | 13,935 | 34,794 | 34,787 | ||||||||||||||||||
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BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
(14) COMPREHENSIVE INCOME (LOSS) AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss) and certain changes in stockholders’ equity that are excluded from net income (loss), such as changes in unrealized gains and losses on the Company’s available-for-sale securities, unrealized gains and losses on foreign currency hedges and changes in the Company’s cumulative foreign currency translation account. The provision for income taxes related to the items included in other comprehensive income (loss), assuming they were recognized in income, would be approximately $0.4 million and $0.4 million at September 30, 2011 and December 31, 2010, respectively.
During the three and nine months ended September 30, 2011, total comprehensive loss was approximately $10.4 million and $26.0 million, respectively, compared to the three and nine months ended September 30, 2010 when total comprehensive income was $205.5 million and $215.5 million, respectively. The fluctuation in accumulated other comprehensive income (loss) was comprised of the following:
00000000000 | 00000000000 | 00000000000 | 00000000000 | |||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net unrealized gain (loss) loss on available-for-sale securities | $ | (687 | ) | $ | 430 | $ | (593 | ) | $ | (513 | ) | |||||
Net unrealized gain (loss) on foreign currency hedges, net of taxes | 7,913 | (12,236 | ) | 1,704 | (1,998 | ) | ||||||||||
Net foreign currency translation gain (loss) | 1 | 1 | 5 | (3 | ) | |||||||||||
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Change in accumulated other comprehensive income (loss) | $ | 7,227 | $ | (11,805 | ) | $ | 1,116 | $ | (2,514 | ) | ||||||
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(15)(13) REVENUE AND CREDIT CONCENTRATIONCONCENTRATIONS
Net Product Revenue—The Company considers there to be revenue concentration risks for regions where net product revenue exceeds 10%ten percent of consolidated net product revenue. The concentration of the Company’s net product revenue within the regions below may have a material adverse effect on the Company’s revenue and results of operations if sales in the respective regions were to experience difficulties.
The table below summarizes net product revenue concentrations based on patient location for Naglazyme, Kuvan and Firdapse and the location of Genzyme’s headquarters for Aldurazyme. Although Genzyme sells Aldurazyme worldwide, the royalties earned by the Company on Genzyme’s net sales are included in the U.S. region, as the Company’s transactions are with Genzyme whose headquarters are located in the U.S.
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Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||
Region: | ||||||||||||||||||||||||
United States | 53 | % | 52 | % | 49 | % | 52 | % | 43 | % | 47 | % | ||||||||||||
Europe | 21 | % | 25 | % | 23 | % | 25 | % | 25 | % | 25 | % | ||||||||||||
Latin America | 16 | % | 13 | % | 15 | % | 12 | % | 18 | % | 13 | % | ||||||||||||
Rest of World | 10 | % | 10 | % | 13 | % | 11 | % | 14 | % | 15 | % | ||||||||||||
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Total net product revenue | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | ||||||||||||
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The following table illustrates the percentage of the Company’s consolidated net product revenue attributed to the Company’s three largest customers.
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2011 | 2010 | 2011 | 2010 | |||||||||||||
Customer A | 16 | % | 17 | % | 17 | % | 18 | % | ||||||||
Customer B | 21 | % | 17 | % | 18 | % | 18 | % | ||||||||
Customer C | 13 | % | 13 | % | 12 | % | 11 | % | ||||||||
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Total | 50 | % | 47 | % | 47 | % | 47 | % | ||||||||
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2012 | 2011 | |||||||
Customer A | 15 | % | 18 | % | ||||
Customer B (1) | 10 | % | 17 | % | ||||
Customer C | 16 | % | 12 | % | ||||
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Total | 41 | % | 47 | % | ||||
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(1) | Genzyme is the Company’s sole customer for Aldurazyme and is responsible for marketing and selling Aldurazyme to third-parties. Net product revenues from Genzyme are comprised of royalties on world wide net Aldurazyme sales and incremental product transfer revenue. |
The accounts receivable balances at September 30, 2011March 31, 2012 and December 31, 20102011 were comprised of amounts due from customers for net product sales of Naglazyme, Kuvan and Firdapse and Aldurazyme product transfer and royalty revenues. On a consolidated basis, the threetwo largest customers accounted for 43%,40% and 13% and 12% of the September 30, 2011March 31, 2012 accounts receivable balance, compared to December 31, 20102011 when the two largest customers accounted for 47%49% and 17%14% of the accounts receivable balance. As of September 30, 2011March 31, 2012 and December 31, 2010,2011, accounts receivable for ourthe Company’s largest customer balance included $28.4$24.3 million and $23.1$31.0 million, respectively, of unbilled accounts receivable related to net incremental Aldurazyme product transfers to Genzyme. The Company does not require collateral from its customers, but performs periodic credit evaluations of its customers’ financial condition and requires immediate payment in certain circumstances.
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
September 30, 2011March 31, 2012
(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)
(Unaudited)
The Company’s product sales to government-owned or government-funded customers in certain European countries, including Italy, Spain, Portugal and Greece are subject to payment terms that are statutorily determined. Because these customers are government-owned or government-funded, the Company may be impacted by declines in sovereign credit ratings or sovereign defaults in these countries. A significant or further decline in sovereign credit ratings or a default in these countries, may decrease the likelihood that the Company will collect accounts receivable or may increase the discount rates and the length of time until receivables are collected, which could result in a negative impact to the Company’s operating results. For the three months ended March 31, 2012, approximately 3.8% of the Company’s net product revenues were from these countries and approximately 12% of the Company’s outstanding accounts receivable at March 31, 2012 related to such countries.
The following table summarizes the accounts receivable by country that were past due related to Italy, Spain, Portugal and Greece as of March 31, 2012, the number of days past due and the total allowance for doubtful accounts related to each of these countries at March 31, 2012.
Days Past Due | ||||||||||||||||||||
< 180 Days | 180 -360 Days | > 360 Days | Total Amount Past Due | Allowance for Doubtful Accounts | ||||||||||||||||
Italy | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Spain | 2,340 | 2,299 | 0 | 4,639 | 0 | |||||||||||||||
Portugal | 0 | 0 | 0 | 0 | 0 | |||||||||||||||
Greece | 49 | 127 | 468 | 644 | 471 | |||||||||||||||
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Total | $ | 2,389 | $ | 2,426 | $ | 468 | $ | 5,283 | $ | 471 | ||||||||||
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The Company has not historically experienced a significant level of uncollected receivables and has received continued payments from its more aged accounts. The Company believes that the allowances for doubtful accounts related to these countries is adequate based on its analysis of the specific business circumstances and expectations of collection for each of the underlying accounts in these countries.
(16)(14) COMMITMENTS AND CONTINGENCIES
The Company has obligations under various license, collaboration and acquisition agreements foris also subject to contingent payments totaling approximately $359.2$357.0 million upon achievement of certain regulatory commercial and licensing milestones if they occur before certain dates in the future.
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under securities laws. Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “anticipates,” “plans,” “may,” “will,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. These forward-looking statements may be found in “Overview ,”,” of this Item 2 and other sections of this Quarterly Report on Form 10-Q. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the SecuritiesSecurity and ExchangeExchanges Commission (SEC) on February 24, 2011,22, 2012, as well as those discussed elsewhere in this Quarterly Report on Form 10-Q. You should carefully consider that information before you make an investment decision.
You should not place undue reliance on these statements, which speak only as of the date that they were made. These cautionary statements are based on the beliefs and assumptions of our management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or the occurrence of unanticipated events.
The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We develop and commercialize innovative biopharmaceuticals for serious 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.
Key components of our results of operations include the following (in millions):
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Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||
Total net product revenues | $ | 112.9 | $ | 96.6 | $ | 331.6 | $ | 271.2 | $ | 116.2 | $ | 109.1 | ||||||||||||
Cost of sales | 22.4 | 18.0 | 62.5 | 49.8 | 17.1 | 20.8 | ||||||||||||||||||
Research and development expense | 58.6 | 39.4 | 156.5 | 105.1 | 73.8 | 45.0 | ||||||||||||||||||
Selling, general and administrative expense | 44.9 | 38.3 | 127.0 | 109.6 | 45.2 | 41.0 | ||||||||||||||||||
Provision for (benefit from) income taxes | (2.1 | ) | (222.0 | ) | 6.6 | (220.3 | ) | |||||||||||||||||
Net income (loss) | (17.7 | ) | 217.3 | (27.1 | ) | 218.0 | ||||||||||||||||||
Provision for income taxes | 0 | 4.8 | ||||||||||||||||||||||
Net loss | (24.0 | ) | (4.4 | ) | ||||||||||||||||||||
Stock-based compensation expense | 11.6 | 10.0 | 32.6 | 27.7 | 11.1 | 10.4 |
See “Results“Results of Operations” below for a discussion of the detailed components and analysis of the amounts above.
Our product portfolio is comprised of four approved products and multiple investigational product candidates. ApprovedOur approved products includeare Naglazyme (galsulfase), Kuvan (sapropterin dihydrochloride), Firdapse (amifampridine phosphate) and Aldurazyme (laronidase).
Naglazyme, a recombinant form of N-acetylgalactosamine 4-sulfatase indicated for patients with mucopolysaccharidosis VI (MPS VI), a debilitiating life-threatening genetic disease for which no other drug treatment currently exists and is caused by the deficiency of arylsufatase B, received marketing approval in the U.S. in May 2005, in the EU in January 2006 and subsequently in other countries. Naglazyme net product revenues for the three and nine months ended September 30, 2011March 31, 2012, totaled $55.9$68.6 million, and $176.8 million, respectively, compared to $51.7 million and $147.5$60.6 million for the three and nine months ended September 30, 2010, respectively.
Kuvan was granted marketing approval for the treatment of phenylketonuria (PKU) in the U.S. and the EU in December 2007 and December 2008, respectively. Kuvan net product revenues for the three and nine months ended September 30, 2011 totaled $30.5 million and $86.0 million, respectively, compared to $26.2 million and $72.1 million for the three and nine months ended September 30, 2010, respectively.March 31, 2011.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Kuvan, was granted marketing approval for the treatment of phenylketonuria (PKU) in the U.S. and in the EU in December 2007 and December 2008, respectively. Kuvan net product revenues for the three months ended March 31, 2012 totaled $32.0 million, compared to $26.7 million for the three months ended March 31, 2011.
In December 2009, the European Medicines Agency (EMA) granted marketing approval for Firdapse, a proprietary form of 3-4-diaminopyridine (amifampridine phosphate), or 3-4-DAP, for the treatment of Lambert EatonLambert-Eaton Myasthenic Syndrome (LEMS). We launched this product on a country by country basis in the EU beginning in April 2010. Firdapse net product revenues for the three and nine months ended September 30, 2011March 31, 2012 totaled $3.5$3.6 million, and $9.8 million, respectively, compared to $2.2 million and $3.4$3.1 million for the three and nine months ended September 30, 2010, respectively.March 31, 2011. We also continue to develop Firdapse for the possible treatment of LEMS in the U.S. and initiated a Phase 3 clinical trial in the second quarter of 2011. We continue exploring options with the Firdapse program, including the potential outlicense of certain rights in the U.S. or elsewhere.
Aldurazyme (laronidase), which was developed in collaboration with Genzyme Corporation (Genzyme), was approved in 2003 for marketing in the U.S., the EU and subsequently in other countries for patients with mucopolysaccharidosis I (MPS I). Aldurazyme net product revenues for the three and nine months ended September 30, 2011March 31, 2012 totaled $23.0$12.0 million, and $59.0 million, respectively, compared to $16.5 million and $48.2$18.7 million for the three and nine months ended September 30, 2010, respectively.March 31, 2011.
We are conducting clinical trials on several investigational product candidates for the treatment of various diseases including:
GALNS, an enzyme replacement therapy for the treatment of MPSmucopolysaccharidosis Type IV or Morquio Syndrome Type A, (Morquio A Syndrome, a lysosomal storage disorder);disorder;
PEG-PAL, an enzyme substitution therapy for the treatment of phenylketonuria or PKU;
BMN-701, an enzyme replacement therapy for Pompe disease, a glycogen storage disorder; and
BMN-673, an orally available poly-ADP ribose polymerase (PARP) inhibitor for the treatment of patients with cancer.certain cancers;
BMN-111, a peptide therapeutic for the treatment of achondroplasia, a disorder of bone growth; and
Firdapse, for the treatment of LEMS in the U.S.
We are conducting preclinical development of several other product candidates for genetic and other metabolic diseases, including BMN-111,BMN-190 for late infantile neuronal ceroid lipofuscinosis, a peptide therapeutic for the treatmentform of achondroplasia.Batten disease.
Cost of sales includes raw materials, personnel and facility and other costs associated with manufacturing Naglazyme and Aldurazyme at our production facility in Novato, California. Cost of sales also includes third-party manufacturing costs for the production of Kuvan and Firdapse and third-party production costs related to vialingfinal formulation and packaging services for all products and cost of royalties payable to third parties for all products.
Research and development includes costs associated with the research and development of product candidates and post-marketing research commitments related to our approved products. These costs primarily include preclinical and clinical studies, personnel and raw materials costs associated with manufacturing product candidates, quality control and assurance and regulatory costs.
Selling, general and administrative expense primarily includes expenses associated with the commercialization of approved products and general and administrative costs to support our operations. These expenses include: product marketing and sales operations personnel; corporate facility operating expenses; information technology expenses and depreciation; and core corporate support functions including human resources, finance and legal, and other external corporate costs such as insurance, audit and legal fees.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Intangible asset amortization and contingent consideration includes amortization expense related to our definite-livedfinite-lived intangible assets associated with marketing rights in the EU for Firdapse. Contingent consideration includes increases or decreases related toFirdapse, impairment losses on intangible assets and changes in the fair value of contingent acquisition consideration payable. Changes in fair value can result from changes in assumed probability adjustments, changes in assumed timing of when a milestone may be achieved and changes in assumed discount periods and rates.
Our cash, cash equivalents, short-term investments and long-term investments totaled $370.0$287.7 million as of September 30, 2011,March 31, 2012, compared to $402.3$289.5 million as of December 31, 2010.2011. We have historically financed our operations primarily through the issuance of common stock and convertible debt and by relying on equipment and other commercial financing. During the fourth quarterremainder of 2011,2012, and for the foreseeable future, we will be highly dependent on our net product revenue to supplement our current liquidity and fund our operations. 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 or cash equivalents to repurchase our convertible debt or other securities. See “Financial“Financial Position, Liquidity and Capital Resources” below for a further discussion of our liquidity and capital resources.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Critical Accounting Policies and Estimates
In preparing our Condensed Consolidated Financial Statements in accordance with accounting principles generally accepted in the U.S. and pursuant to the rules and regulations promulgated by the SEC, we make assumptions, judgments and estimates that can have a significant impact on our net income/loss(loss) and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting policies and estimates with the Audit Committeeaudit committee of our Boardboard of Directors.directors.
We believe that the assumptions, judgments and estimates involved in the accounting for business combinations, contingent acquisition consideration payable, income taxes, long-lived assets, revenue recognition and inventory have the greatest impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.
There have been no significant changes to our critical accounting policies and estimates during the ninethree months ended September 30, 2011,March 31, 2012, as compared to the critical accounting policies and estimates disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the SEC on February 24, 2011.22, 2012.
Recent Accounting Pronouncements
See Note 3 of our accompanying Condensed 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.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Results of Operations
Net Income (Loss)Loss
Our net loss for the three and nine months ended September 30, 2011March 31, 2012 was $17.7$24.0 million, and $27.1 million, respectively, compared to net incomeloss of $217.3$4.4 million and $218.0 for the three and nine months ended September 30, 2010, respectively.March 31, 2011. The change in net income (loss)loss was primarily a result of the following (in millions):
000000000000 | 000000000000 | |||||||
Three Months | Nine Months | |||||||
Net income for the period ended September 30, 2010 | $ | 217.3 | $ | 218.0 | ||||
Absence of benefit from the reversal of deferred tax asset valuation allowance | (223.1 | ) | (223.1 | ) | ||||
Increased gross profit from product sales | 11.9 | 47.7 | ||||||
Increased research and development expense | (19.2 | ) | (51.4 | ) | ||||
Increased selling, general and administrative expense | (6.5 | ) | (17.3 | ) | ||||
Decreased intangible asset amortization and contingent consideration | 0.9 | 6.2 | ||||||
Debt conversion expense | (1.9 | ) | (1.9 | ) | ||||
(Increased) decreased income tax expense, excluding valuation allowance reversal | 3.2 | (3.8 | ) | |||||
Other individually insignificant fluctuations | (0.4 | ) | (1.5 | ) | ||||
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Net loss for the period ended September 30, 2011 | $ | (17.7 | ) | $ | (27.1 | ) | ||
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Net loss for the period ended March 31, 2011 | $ | (4.4 | ) | |
Increased gross profit from product sales | 10.9 | |||
Increased research and development expense | (28.8 | ) | ||
Increased selling, general and administrative expense | (4.2 | ) | ||
Decreased intangible asset amortization and contingent consideration expense | 4.7 | |||
Impairment loss on intangible assets | (6.7 | ) | ||
Decreased income tax expense | 4.8 | |||
Other individually insignificant fluctuations | (0.3 | ) | ||
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Net loss for the period ended March 31, 2012 | $ | (24.0 | ) | |
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During the third quarter of 2010, we determined that it was more likely than not that the majority of our deferred tax assets, including net operating loss carryforwards (NOLs), would be realized, which resulted in the reversal of the deferred tax asset valuation allowance and an income tax benefit of $223.1 million. The increase in gross profit from product sales during the three and nine months ended September 30, 2011March 31, 2012, as compared to the three and nine months ended September 30 , 2010March 31, 2011 was primarily a result of additional Naglazyme patients initiating therapy and additional Kuvan patients initiating therapy in the U.S., and the commercial launch of Firdapse in Europe in April 2010. The increase in research and development expense was primarily attributed to increased development expenses for our GALNS, PEG-PAL, Firdapse, BMN-701 and BMN-673 programs. The increase in selling, general and administrative expense was primarily due to increased facility and employee related costs and the continued international expansion of Naglazyme, U.S. commercialization activities related to Kuvan, the commercialization of Firdapse in Europe and bad debt expense. See below for additional information related to the primary net income (loss) fluctuations presented above, including details of our operating expense fluctuations.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Naglazyme.
Net Product Revenues, Cost of Sales and Gross Profit
Net product revenues were as follows (in millions):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
Naglazyme | $ | 55.9 | $ | 51.7 | $ | 4.2 | $ | 176.8 | $ | 147.5 | $ | 29.3 | ||||||||||||
Kuvan | 30.5 | 26.2 | 4.3 | 86.0 | 72.1 | 13.9 | ||||||||||||||||||
Firdapse | 3.5 | 2.2 | 1.3 | 9.8 | 3.4 | 6.4 | ||||||||||||||||||
Aldurazyme | 23.0 | 16.5 | 6.5 | 59.0 | 48.2 | 10.8 | ||||||||||||||||||
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Total net product revenues | $ | 112.9 | $ | 96.6 | $ | 16.3 | $ | 331.6 | $ | 271.2 | $ | 60.4 | ||||||||||||
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Net revenues and related gross profit attributed to our relationship with Genzyme were as follows (in millions):
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
Aldurazyme revenue reported by Genzyme | $ | 46.3 | $ | 40.8 | $ | 5.5 | $ | 136.4 | $ | 124.3 | $ | 12.1 | ||||||||||||
Royalties due from Genzyme | $ | 19.0 | $ | 16.5 | $ | 2.5 | $ | 53.0 | $ | 50.2 | $ | 2.8 | ||||||||||||
Incremental (previously recognized) Aldurazyme product transfer revenue | 4.0 | 0 | 4.0 | 6.0 | (2.0 | ) | 8.0 | |||||||||||||||||
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Total Aldurazyme net product revenues | $ | 23.0 | $ | 16.5 | $ | 6.5 | $ | 59.0 | $ | 48.2 | $ | 10.8 | ||||||||||||
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Gross profit | $ | 15.7 | $ | 12.4 | $ | 3.3 | $ | 42.1 | $ | 38.1 | $ | 4.0 | ||||||||||||
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2012 | 2011 | Change | ||||||||||
Naglazyme | $ | 68.6 | $ | 60.6 | $ | 8.0 | ||||||
Kuvan | 32.0 | 26.7 | 5.3 | |||||||||
Firdapse | 3.6 | 3.1 | 0.5 | |||||||||
Aldurazyme | 12.0 | 18.7 | (6.7 | ) | ||||||||
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Total net product revenues | $ | 116.2 | $ | 109.1 | $ | 7.1 | ||||||
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Net product revenues and related gross profit attributed to our collaboration with Genzyme were as follows (in millions):
Three Months Ended March 31, | ||||||||||||
2012 | 2011 | Change | ||||||||||
Aldurazyme revenue reported by Genzyme | $ | 45.9 | $ | 42.8 | $ | 3.1 | ||||||
Royalties due from Genzyme | $ | 18.4 | $ | 16.9 | $ | 1.5 | ||||||
Incremental (previously recognized) Aldurazyme product transfer revenue | (6.4 | ) | 1.8 | (8.2 | ) | |||||||
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Total Aldurazyme net product revenues | $ | 12.0 | $ | 18.7 | $ | (6.7 | ) | |||||
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Gross profit | $ | 11.1 | $ | 13.4 | $ | (2.3 | ) | |||||
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Naglazyme net product revenues duringfor the three and nine months ended September 30, 2011March 31, 2012 totaled $55.9$68.6 million, and $176.8 million, respectively, of which $48.2$60.0 million and $153.5 million, respectively, was earned from customers based outside the U.S. The impact of foreign currency exchange rates on Naglazyme sales denominated in currencies other than the U.S. dollar was negative by $0.5 million and positive $0.7$0.2 million for the three and nine months ended September 30, 2011, respectively.March 31, 2012. Gross profit from Naglazyme sales duringfor the three and nine months ended September 30, 2011March 31, 2012 was $46.4$58.8 million, and $146.9 million, respectively, representing gross margins of 83% in both periods.86%. Gross profit from Naglazyme sales infor the three and nine months ended September 30, 2010March 31, 2011 was $42.8$50.4 million and $120.9 million, respectively, representing gross margins of 83% and 82%, respectively. Naglazyme gross margins for the three and nine months ended September 30, 2011 were consistent with expectations and are not expected to fluctuate significantly in the future, however Naglazyme gross margins may increase as a result of manufacturing cost savings or other efficiencies.
Net product revenue for Kuvan during the three and nine months ended September 30, 2011 was $30.5 million and $86.0 million, respectively, compared to $26.2 million and $72.1 million for the three and nine months ended September 30, 2010, respectively. Gross profit from Kuvan during the three and nine months ended September 30, 2011 was approximately $25.5 million and $72.0 million, respectively, representing gross margins of approximately 83% and 84%, respectively, compared to the same periods in 2010 when gross profit totaled $21.6 million and $59.7 million, respectively, representing gross margins of 82% and 83%, respectively. The increase in gross margins was primarily attributed to price increases at the end of 2010. Cost of goods sold for the three and nine months ended September 30, 2011 and 2010 reflect royalties paid to third parties of approximately 9.8% and 11%, respectively. During the three and nine months ended September 30, 2011, we earned $0.4 million and $1.2 million, respectively, in royalties from Merck Serono on their net sales of $10.6 million and $29.4 million, respectively. Royalties earned from Merck Serono during the three and nine months ended September 30, 2010 were $0.3 million and $0.7 million, on their net sales of $6.3 million and $16.9 million, respectively. Kuvan gross margins for the three and nine months ended September 30, 2011 were consistent with expectations and are not expected to fluctuate significantly in the future.
We launched Firdapse in Europe on a country by country basis beginning in April 2010. Net product revenue for Firdapse during the three and nine months ended September 30, 2011 was $3.5 million and $9.8 million, respectively. Net product revenue for Firdapse during the three and nine months ended September 30, 2010 totaled $2.2 million and $3.4 million, respectively. Gross profit from Firdapse for the three and nine months ended September 30, 2011 was $2.9 million and $8.2 million, respectively, representing gross margins of 83% in both periods compared to the three and nine months ended September 30, 2010 when gross profit was $1.8 million and $2.7 million, respectively, representing gross margins of 80% and 79%, respectively..
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
The increased Naglazyme gross margins for the three months ended March 31, 2012 were consistent with expectations during the three months ended March 31, 2012 as a result of our purchase of the Naglazyme royalty rights from SA Pathology in November 2011. Prior to the purchase, we licensed the intellectual property from SA Pathology and paid it a five percent royalty on net sales of Naglazyme. For additional discussion of the transaction see Note 10 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Net product revenue for Kuvan for the three months ended March 31, 2012 was $32.0 million, compared to $26.7 million for the three months ended March 31, 2011. Gross profit from Kuvan for the three months ended March 31, 2012 was $26.2 million representing gross margins of 82%, compared to the three months ended March 31, 2011 when gross profit totaled $21.9 million representing gross margins of 82%. Cost of goods sold for the three months ended March 31, 2012 and 2011 reflect royalties paid to third parties of 10%. During the three and nine months ended September 30,March 31, 2012, we earned $0.5 million in royalties from Merck Serono on their net sales of $11.9 million, compared to the three months ended March 31, 2011 when we earned $0.3 million in royalties from Merck Serono on their net sales of $8.3 million. Kuvan gross margins for the three months ended March 31, 2012 were consistent with expectations and are not expected to fluctuate significantly in the future.
Net product revenue for Firdapse during the three months ended March 31, 2012 was $3.6 million, compared to $3.1 million for the three months ended March 31, 2011. Gross profit from Firdapse for the three months ended March 31, 2012 was $3.0 million representing gross margins of 82% compared to the three months ended March 31, 2011 when gross profit was $2.6 million representing gross margins of 82%. Cost of goods sold for the periods presented reflect royalties paid to third parties of approximately 8%.
During the three months ended March 31, 2012, Aldurazyme gross margins were 68% and 71%93%, respectively, compared to the three and nine months ended September 30, 2010March 31, 2011 when gross margins were 75% and 79%, respectively.72%. Aldurazyme gross margins reflect the profit earned on royalty revenue and net incremental product transfer revenue. The change in margins is attributed to the shift in revenue mix between royalty revenue and net product transfer revenues. Aldurazyme gross margins are expected to fluctuate depending on the mix of royalty revenue, from which we earn higher gross profit, and product transfer revenue, from which we earn lower gross profit.
Total cost of sales duringfor the three and nine months ended September 30, 2011March 31, 2012 was $22.4$17.1 million, and $62.5 million, respectively, compared to $18.0$20.8 million and $49.8 million duringfor the three and nine months ended September 30, 2010, respectively.March 31, 2011. The increasedecrease in cost of sales during the three and nine months ended September 30, 2011 compared to the same periods in 2010 was primarily attributed to the increase in productelimination of third party royalty fees paid to SA Pathology on net sales of Naglazyme offset by amortization of the acquired intellectual property and the shift in Aldurazyme revenue mix.
Royaltymix between royalty revenue and License Revenues
Royalty and license revenues were as follows (in millions):
000000000 | 000000000 | 000000000 | 000000000 | 000000000 | 000000000 | |||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
Orapred product royalties | $ | 0 | $ | 0.8 | $ | (0.8 | ) | $ | 0.5 | $ | 2.2 | $ | (1.7 | ) | ||||||||||
6R-BH4 royalty revenues | 0.4 | 0.3 | 0.1 | 1.1 | 0.8 | 0.3 | ||||||||||||||||||
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Total | $ | 0.4 | $ | 1.1 | $ | (0.7 | ) | $ | 1.6 | $ | 3.0 | $ | (1.4 | ) | ||||||||||
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Royalty and license revenues include Oraprednet product royalties, a product we acquired in 2004 and sublicensed in 2006, and 6R-BH4 royalty revenues for product sold in Japan. There is norevenues. Additionaly, Aldurazyme cost of sales associated with the royalty and license revenues recorded during the periods and no related costs are expected in future periods.
We receive a royalty of 10% to 30% on net sales of Orapred from Shionogi Inc. (Shionogi) and a 15% royalty on net sales of 6R-BH4 from Daiichi Sankyo Co., LTD. Shionogi recorded no net salesgoods sold during the three months ended September 30, 2011.March 31, 2012 included a $0.8 million write-off of finished goods inventory.
Research and Development Expense
Research and development expense increased to $58.6$73.8 million duringfor the three months ended September 30, 2011,March 31, 2012, from $39.4$45.0 million duringfor the three months ended September 30, 2010. Research and development expense increased to $156.5 million during the nine months ended September 30, 2011, from $105.1 million during the nine months ended September 30, 2010.March 31, 2011. The change in research and development expense was primarily a result of the following (in millions):
000000000000 | 000000000000 | |||||||||||
Three Months | Nine Months | |||||||||||
Research and development expense for the period ended September 30, 2010 | $ | 39.4 | $ | 105.1 | ||||||||
Research and development expense for the period ended March 31, 2011 | $ | 45.0 | ||||||||||
Increased GALNS for MPS IV A development expenses | 5.4 | 22.9 | 13.7 | |||||||||
Increased BMN-701 development expenses | 4.3 | 10.1 | 4.6 | |||||||||
Increased PEG-PAL development expenses | 4.6 | 9.3 | 2.6 | |||||||||
Decreased BMN-673 development expenses | (1.2 | ) | (1.0 | ) | ||||||||
(Decreased) increased ongoing development expenses related to commercial products | (0.8 | ) | 2.1 | |||||||||
Decreased BMN-195 for Duchenne muscular dystrophy development expenses | (0.5 | ) | (2.9 | ) | ||||||||
Increased BMN-111 development expenses | 2.2 | |||||||||||
Increased BMN-190 development expenses | 1.0 | |||||||||||
Increased development expense related to commercial products | 0.9 | |||||||||||
Increased BMN-673 development expenses | 0.7 | |||||||||||
Decreased development expenses on early development stage programs | (0.5 | ) | ||||||||||
Increased stock-based compensation expense related to research and development | 0.8 | 1.8 | 1.0 | |||||||||
Increase in non-allocated research and development expenses and other net changes | 6.6 | 9.1 | 2.6 | |||||||||
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Research and development expense for the period ended September 30, 2011 | $ | 58.6 | $ | 156.5 | ||||||||
Research and development expense for the period ended March 31, 2012 | $ | 73.8 | ||||||||||
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The increase in GALNS development expenses was attributed to increased clinical and manufacturing activities related to the product candidate. We expect that our GALNS manufacturing activities will be substantially completed by July 2012, resulting in lower GALNS development spend in the second half of 2012. The increase in PEG-PAL, BMN-673 and BMN-701 development expense was attributed to increased clinical trial activities related to these product candidates. The increase in BMN-673BMN-190 development expense relateswas attributed to clinicalincreased pre-clinical activities related to thethis product candidate acquired from LEAD Therapeutics, Inc. in February 2010. The increase in BMN-701 development expense relates to clinical activities related to the product candidate acquired from ZyStor Therapeutics, Inc. in October 2010. The increase in research and development expenses related to commercial products was primarily attributed to long-term Firdapse clinical activities related to post-approval regulatory commitments in the EU.candidate. The increase in stock-based compensation expense is a result of an increased number of options outstanding due to an increased number of employees. The increase in non-allocated research and development expense primarily includes increases in general research costs and research and development personnel costs that are not allocated to specific programs. We expect to continue incurring significant research and development expense for the foreseeable future due to long-term clinical activities related to post-approval regulatory commitments related to our approved products and spending on our GALNS, PEG-PAL, Firdapse, BMN-673, BMN-701, BMN-111 and BMN-701BMN-190 programs and our other product candidates.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $44.9$45.2 million duringfor the three months ended September 30, 2011,March 31, 2012, from $38.3$41.0 million duringfor the three months ended September 30, 2010. Selling, general and administrative expense increased to $127.0 million during the nine months ended September 30, 2011, from $109.6 million during the nine months ended September 30, 2010.March 31, 2011. The change in selling, general and administrative expenses was primarily a result of the following (in millions):
Three Months | Nine Months | |||||||
Selling, general and administrative expense for period ended September 30, 2010 | $ | 38.3 | $ | 109.6 | ||||
Increased sales and marketing expenses related to commercial products | 0.3 | 5.3 | ||||||
Bad debt expense | 0 | 1.0 | ||||||
Absence of transaction costs related to the acquisition of ZyStor | (1.8 | ) | (1.8 | ) | ||||
Increased stock-based compensation expense | 0.6 | 2.1 | ||||||
Increased foreign exchange loss on unhedged transactions | 2.9 | 2.3 | ||||||
Net increase in corporate overhead and other administrative expenses | 4.6 | 8.5 | ||||||
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Selling, general and administrative expense for the period ended September 30, 2011 | $ | 44.9 | $ | 127.0 | ||||
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Selling, general and administrative expense for the period ended March 31, 2011 | $ | 41.0 | ||
Net increase in corporate overhead and other administrative expenses | 3.8 | |||
Increased sales and marketing expenses related to commercial products | 1.0 | |||
Absence of bad debt expense | (0.9 | ) | ||
Increased stock-based compensation expense | 0.3 | |||
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Selling, general and administrative expense for the period ended March 31, 2012 | $ | 45.2 | ||
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We continue to incur sales and marketing expense for Naglazyme and Kuvan as a result of continued expansion of our international and U.S. activities, respectively, and spending related to the European commercialization of Firdapse, which launched in April 2010.Firdapse. The increase in corporate overhead and other administrative costs during the three and nine months ended September 30, 2011 was primarily comprised of increased employee related costs, legal costs, accounting costs and facility costs. We expect selling, general and administrative expenses to increase in future periods as a result of the international expansion of Naglazyme, the European commercialization activities for Firdapse and the U.S. commercialization activities for Kuvan.Kuvan and the administrative support of our operations.
Intangible Asset Amortization and Contingent Consideration Expense
Intangible asset amortization and contingent consideration expense is comprised of amortization of the European marketing rights for Firdapse, and changes in the fair value of contingent acquisition consideration payable to former stockholders of our acquired businesses.businesses and impairment loss on intangible assets. Changes in the fair value of contingent acquisition consideration payable results from adjustments to the discount rates and updates to the assumed probability of achievement or timing of milestones.milestones and adjustments to the discount periods and rates. Intangible asset amortization and contingent consideration expense consisted of the following:following (in millions):
Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | Change | ||||||||||||||||||||||
Amortization of Firdapse European marketing rights | $ | 0.8 | $ | 0.8 | $ | 2.4 | $ | 1.6 | $ | 0.8 | $ | 0.8 | $ | 0 | ||||||||||||||
Impairment loss on intangible assets | 6.7 | 0 | 6.7 | |||||||||||||||||||||||||
Changes in the fair value of contingent acquisition consideration payable | 2.2 | 3.2 | (2.4 | ) | 4.6 | (5.2 | ) | (0.5 | ) | (4.7 | ) | |||||||||||||||||
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Total intangible asset amortization and contingent consideration | $ | 3.0 | $ | 4.0 | $ | 0 | $ | 6.2 | $ | 2.3 | $ | 0.3 | $ | 2.0 | ||||||||||||||
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The increaseDuring the three months ended March 31, 2012, we recorded an impairment charge of $6.7 million related to certain Firdapse in-process research and development (IPR&D) assets. These IPR&D assets are associated with marketing rights for Firdapse in the intangible asset amortization portion was attributedU.S., a product candidate that is in Phase 3 clinical trials for the treatment of LEMS in the U.S. We were exploring strategic options for the Firdapse U.S. program, including the potential outlicense of rights in the U.S. In March 2012, we determined to the European commercial launchsuspend business development efforts. As a result, our management evaluated its plans and expectations regarding clinical development and commercialization of Firdapse in April 2010the U.S. The revised discounted cash flow projections no longer supported the carrying-value of the IPR&D intangible assets and we recognized an impairment charge for the decreasethree months ended March 31, 2012. The change in the contingent consideration amountsamount was due to changes in the fair value of contingent acquisition consideration payable resulting from changes in estimated probability and the estimated timing of when certain milestones may be achieved.
See Notes 5,For additional discussion see Note 6 and 7 to our accompanying Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010, for additional discussion.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Equity in the Loss of BioMarin/Genzyme LLC
Equity in the loss of BioMarin/Genzyme LLC includes our 50% share of the joint venture’s loss for the period. BioMarin/Genzyme LLC’s operations consist primarily of certain research and development activities and the intellectual property that are managed by the joint venture, with costs shared equally by BioMarin and Genzyme.
Equity in the loss of the joint venture totaled $0.6 million and $1.8$0.7 million for the three and nine months ended September 30, 2011, respectively,March 31, 2012, compared to $0.6 million and $2.2$0.5 million for the three and nine months ended September 30, 2010, respectively.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
March 31, 2011.
Interest Income
We invest our cash, short-term and long-term investments in government and other high credit quality securities in order to limit default and market risk. Interest income totaled $0.7$0.5 million and $2.3 million, duringfor the three and nine months ended September 30, 2011, respectively,March 31, 2012, compared to $1.0$0.8 million and $3.2 million duringfor the three and nine months ended September 30, 2010, respectively.March 31, 2011. The reduced interest income during the three and nine months ended September 30,March 31, 2012, as compared to the three months ended March 31, 2011 was due to decreased levels of cash and investments and lower market interest rates. We expect that interest income will continue to decline during the remainder of 20112012 as compared to 20102011 due to lower cash and investment balances and reduced interest yields.
Interest Expense and Debt Conversion Expense
We incur interest expense on our convertible debt. Interest expense duringfor the three and nine months ended September 30, 2011March 31, 2012 was $2.4$1.9 million, and $6.6 million, respectively, compared to $3.0$2.2 million and $8.1 million duringfor the three and nine months ended September 30, 2010, respectively.March 31, 2011. The decrease in interest expense was attributed to the early conversion of $29.2 million and $119.6 million in aggregate principal of our 2013 Notes in September 2011 and November 2010, respectively.2011. We expect interest expense for the fourth quarterremainder of 2011 until2012 and the first quarter of 2013 to be $1.7 million per quarter based on the amount of our outstanding debt at September 30, 2011.March 31, 2012. See Note 1015 to our accompanying Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 for additional discussion.
Provision for (Benefit from) Income Taxes
During the three and nine months ended September 30, 2011March 31, 2012 we recognized aincome tax benefit from income taxes of $2.1 million and$34,000, compared to income tax expense of $6.6 million, respectively, compared to a benefit from income taxes of $222.0 million and $220.3$4.8 million during the three and nine months ended September 30, 2010, respectively. Our deferred tax assets increased due to a projected increase in research and development spend in 2011, which resulted in a lower 2011 forecasted tax rate and a benefit in the third quarter ofMarch 31, 2011. The provision for income taxtaxes for the ninethree months ended September 30,March 31, 2012 and 2011 consisted of federal, foreign and state current tax expense and deferred tax expense related to the utilization of a portion of our federal net operating loss carryforwards and a portion of our credit carryforwards. The benefit from income tax in the three and nine months ended September 30, 2010 consisted of foreign and state currentOur overall tax expense andis significantly reduced by deferred tax benefits from the federal orphan drug credit. The current period provision was further reduced by the benefit related to the release of $230.6 million of our valuation allowance in 2010 of which $223.1 million was releasedstock option exercises during the third quarter of 2010.three months ended March 31, 2012. See Note 22 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010,2011 for additional discussion.discussion of the components of income tax expense.
Financial Position, Liquidity and Capital Resources
We have historically financed our operations primarily through the issuance of common stock and convertible debt and by relying on equipment and other commercial financing. During the fourth quarterremainder of 2011,2012, and for the foreseeable future, we will be highly dependent on our net product revenue to supplement our current liquidity and fund our operations. 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 or cash equivalents to repurchase our convertible debt or other securities.
Our financial condition as of September 30, 2011 and December 31, 2010 included the following (in millions):
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September 30, 2011 | December 31, 2010 | Change | ||||||||||
Cash and cash equivalents | $ | 71.3 | $ | 88.1 | $ | (16.8 | ) | |||||
Short-term investments | 153.1 | 186.0 | (32.9 | ) | ||||||||
Long-term investments | 145.6 | 128.2 | 17.4 | |||||||||
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Cash, cash equivalents and investments | $ | 370.0 | $ | 402.3 | $ | (32.3 | ) | |||||
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Current assets | $ | 487.0 | $ | 504.3 | $ | (17.3 | ) | |||||
Current liabilities | 83.3 | 83.8 | (0.5 | ) | ||||||||
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Working capital | $ | 403.7 | $ | 420.5 | $ | (16.8 | ) | |||||
Convertible debt | $ | 348.3 | $ | 377.5 | $ | (29.2 | ) |
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Our financial condition as of March 31, 2012 and December 31, 2011 was as follows (in millions):
March 31, 2012 | December 31, 2011 | Change | ||||||||||
Cash and cash equivalents | $ | 82.6 | $ | 46.3 | $ | 36.3 | ||||||
Short-term investments | 150.4 | 148.8 | 1.6 | |||||||||
Long-term investments | 54.7 | 94.4 | (39.7 | ) | ||||||||
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Cash, cash equivalents and investments | $ | 287.7 | $ | 289.5 | $ | (1.8 | ) | |||||
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Current assets | $ | 513.4 | $ | 469.8 | $ | 43.6 | ||||||
Current liabilities | 119.8 | 94.1 | 25.7 | |||||||||
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Working capital | $ | 393.6 | $ | 375.7 | $ | 17.9 | ||||||
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Convertible debt | $ | 348.3 | $ | 348.3 | $ | 0 |
Our cash flows for each of the nine months ended September 30,March 31, 2012 and 2011 and 2010 areis summarized as follows (in millions):
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2011 | 2010 | Change | ||||||||||
Cash and cash equivalents at the beginning of the year | $ | 88.1 | $ | 167.2 | $ | (79.1 | ) | |||||
Net cash provided by operating activities | 18.9 | 34.4 | (15.5 | ) | ||||||||
Net cash used in investing activities | (54.6 | ) | (87.7 | ) | 33.1 | |||||||
Net cash provided by financing activities | 18.9 | 13.6 | 5.3 | |||||||||
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Cash and cash equivalents at the end of the year | 71.3 | 127.5 | (56.2 | ) | ||||||||
Short-term and long-term investments | 298.7 | 313.4 | (14.7 | ) | ||||||||
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Cash, cash equivalents and investments | $ | 370.0 | $ | 440.9 | $ | (70.9 | ) | |||||
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Cash, cash equivalents and investments
Cash, cash equivalents and investments totaled $370.0 million at September 30, 2011, a decrease of $32.3 million from December 31, 2010. The decrease was primarily attributed to the $50.4 million of cash used in the purchase of the Shanbally facility and a $15.5 million decrease in net cash provided by operating activities, partially offset by proceeds from ESPP and stock option exercises of $23.4 million.
2012 | 2011 | Change | ||||||||||
Cash and cash equivalents at the beginning of the period | $ | 46.3 | $ | 88.1 | $ | (41.8 | ) | |||||
Net cash used in operating activities | (7.2 | ) | (3.5 | ) | (3.7 | ) | ||||||
Net cash provided by investing activities | 30.1 | 3.0 | 27.1 | |||||||||
Net cash provided by financing activities | 13.4 | 3.2 | 10.2 | |||||||||
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Cash and cash equivalents at the end of the period | $ | 82.6 | $ | 90.8 | $ | (8.2 | ) | |||||
Short-term and long-term investments | 205.1 | 303.1 | (98.0 | ) | ||||||||
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Cash, cash equivalents and investments | $ | 287.7 | $ | 393.9 | $ | (106.2 | ) | |||||
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Working Capital
Working capital was $403.7$393.6 million at September 30, 2011, a decreaseMarch 31, 2012, an increase of $16.8$17.9 million from working capital of $375.7 million at December 31, 2010.2011. The decreaseincrease was primarily attributed to a decreaseincreases of $49.7$37.9 million in cash, cash equivalents and short-term investments and $10.8 million in other current assets, offset by increasesa decrease in inventory of $6.1 million and the classification of the 2013 Notes as a current liability from long-term convertible debt based on their maturity in March 2013.
Our product sales to government-owned or government-funded customers in certain Southern European countries, including Greece, Spain, Italy and Portugal are subject to payment terms that are imposed by government authority. Because these customers are government-owned or government-funded, we may be impacted by declines in sovereign credit ratings or sovereign defaults in these countries. A significant or further decline in sovereign credit ratings or a default in Greece, or in other Southern European countries, may decrease the likelihood that we will collect accounts receivable inventoryor may increase the discount rates and other current assetthe length of $20.5 million, $5.9 milliontime until receivables are collected, which could result in a negative impact to our operating results. Historically we have not experienced a significant level of uncollected receivables and $6.1 million, respectively.have received continued payments from our more aged accounts. We believe that the allowances for doubtful accounts for these countries is adequate based on our analysis of the specific business circumstances and expectations of collection for each of the underlying accounts in these countries. As of March 31, 2012, approximately 12% of our outstanding accounts receivable relate to such countries. See Note 13 of our accompanying Condensed Consolidated Financial Statements for additional discussion.
Cash Provided byUsed in Operating Activities
Cash provided byused in operating activities was $7.2 million for the three months ended March 31, 2012, compared to cash used in operating activities of $18.9$3.5 million for the ninethree months ended September 30, 2011March 31, 2011. The increase in cash used in operating activities was primarily related to increased research and development expense that drove our increased net loss of $27.1$24.0 million, adjusted for non-cash items such as $26.5$10.6 million of depreciation and amortization expenses, $32.7$11.2 million of stock-based compensation expense, $6.8$6.7 million of deferred income taxes and $5.7impairment loss on intangible assets, $5.2 million of unrealized foreign exchange gains on forward foreign currency exchange contracts.
Cash provided by operating activities of $34.5 million for the nine months ended September 30, 2010 primarily relate to net income of $218.0 million, adjusted for non-cash items such as $223.1 million income tax benefit related to the reversal of a substantial portion of our deferred tax asset allowance, $19.8 million of depreciation and amortization expenses, $28.5 million of stock-based compensation expense, and $4.6 million increasedecrease in the fair value of contingent acquisition consideration payable.payable and $1.9 million of unrealized foreign exchange gain on forward foreign currency exchange contracts.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
Cash Used inProvided by Investing Activities
Net cash usedprovided by investing activities duringfor the ninethree months ended September 30, 2011March 31, 2012 was $54.6$30.1 million, compared to net cash usedprovided by investing activities of $87.7$3.0 million duringfor the ninethree months ended September 30, 2010.March 31, 2011. Our investing activities have consisted primarily of purchases and sales and maturities of investments, capital expenditures and cash paid for net assets acquired in business combinations. The increase in net cash used inprovided by investing activities for the ninethree months ended September 30, 2011March 31, 2012 compared to the ninethree months ended September 30, 2010March 31, 2011 was primarily due to increased capital expenditures of $25.8 million, lower spending on business acquisitions of $33.0 million and $24.9 million of net settlements of investment securities. The increase in capital expenditures was primarily driven by the purchasesecurities of the Shanbally facility in August 2011 for a total purchase price of $50.4$27.7 million.
Cash Provided by Financing Activities
Net cash provided by financing activities duringfor the ninethree months ended September 30, 2011March 31, 2012 was $18.9$13.4 million, compared to net cash provided by financing activities of $13.6$3.2 million duringfor the ninethree months ended September 30, 2010.March 31, 2011. Our financing activities primarily include payments related to our contingent acquisition obligations, payments related to our convertible debt obligations and proceeds from the Employee Stock Purchase Plan (ESPP)ESPP and stock option exercises. The increase in net cash provided by financing activities during the ninethree months ended September 30, 2011,March 31, 2012, compared to the ninethree months ended September 30, 2010March 31, 2011 was due to the decrease in paymentsprimarily comprised of contingent acquisition consideration of $4.3 million, increased proceeds from ESPP and stock option exercises of $3.5 million offset by an increase in net payments on debt conversion of $2.2 million.and ESPP contributions. See Note 10 of11 to our accompanying Condensed Consolidated Financial Statements for additional discussion.
Other Information
In March 2006, we sold approximately $172.5 million of senior subordinated convertible notes duethe 2013 (the 2013 Notes).Notes of which $23.5 million remains outstanding at March 31, 2012. The debt was issued at face value and bears interest at the rate of 2.5% per annum, payable semi-annually in cash. In September 2011, $29.2 million in aggregate principal of the 2013 Notes were converted into approximately 1.8 million shares of the Company’s common stock. In November 2010, $119.6 million in aggregate principal of the 2013 Notes were converted into approximately 7.2 million shares of our common stock. There is noThe debt does not contain a call provision included and we are unable to unilaterally redeem the remaining debt prior to maturity in 2013. The remaining debt$23.5 million of the 2013 Notes is convertible, at the option of the holder, at any time prior to maturity, into shares of our common stock at a conversion price of approximately $16.58 per share, subject to adjustment in certain circumstances. However, we must repay the remaining debt prior to maturity if there is a qualifying change in control or termination of trading of our common stock.
In April 2007, we sold approximately $324.9 million of senior subordinated convertible notes due April 2017 (the 2017 Notes). The debt was issued at face value and bears interest at the rate of 1.875% per annum, payable semi-annually in cash. The debt is convertible, at the option of the holder, at any time prior to maturity, into shares of our common stock at a conversion price of approximately $20.36 per share, subject to adjustment in certain circumstances. Our debt does not contain a call provision and we are unable to unilaterally redeem the debt prior to maturity in 2017. We also must repay the debt if there is a qualifying change in control or termination of trading of our common stock. See Note 10 of9 to our accompanying Condensed Consolidated Financial Statements for additional discussion. Our $348.3 million of total convertible debt as of September 30, 2011March 31, 2012 will impact our liquidity due to the semi-annual cash interest payments and will impact our liquidity if the holders do not convert on or prior to the scheduled repayments of the debt.
We expect to fund our operations with our net product revenues from our commercial products; cash; cash equivalents; short-term and long-term investments supplemented by proceeds from equity or debt financings; and loans or collaborative agreements with
corporate partners, each to the extent necessary. We expect our current cash, cash equivalents and short-term and long-term investments will meet our operating and capital requirements for the foreseeable future based on our current long-term business plans and assuming that we are able to achieve our long-term goals. This expectation could also change depending on how much we elect to spend on our development programs and for potential licenses and acquisitions of complementary technologies, products and companies.
On October 23, 2009, we acquired Huxley, which has rights to Firdapse for a total purchase price of $37.2 million, of which $15.0 million was paid in cash and $22.2 million represented the acquisition date fair value of contingent acquisition consideration payable. In connection with the acquisition, we agreed to pay the Huxley stockholders additional consideration in future periods of up to $41.9 million (undiscounted) in milestone payments if certain annual sales, cumulative sales and U.S. development milestones are met. During 2011, 2010 and 2009 we made milestone payments of $3.0 million, $6.5 million and $1.0 million, respectively, related to the attainment of development milestones.
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
On February 10, 2010, we acquired LEAD, which had the key compound now referred to as BMN-673, for a total purchase price of $39.1 million, of which $18.6 million was paid in cash and $20.5 million represented the acquisition date fair value of contingent acquisition consideration payable. We paid $3.0 million of the $18.6 million in cash during December 2009. In connection with the acquisition, we agreed to pay the LEAD stockholders additional consideration in future periods of up to $68.0 million (undiscounted) in milestone payments if certain clinical, development and sales milestones are met. In December 2010, the Medicines and Healthcare Products Regulatory Agency the United Kingdom issued a notice of acceptance for BMN-673 triggering the payment of an $11.0 million regulatory milestone to the former LEAD stockholders.
On August 17, 2010, we acquired ZyStor, which had the compound now referred to as BMN-701, for a total purchase price of $35.9 million, of which $20.3 million was paid in cash, $2.0 million was held back and $15.6 million represented the acquisition date fair value of contingent acquisition consideration payable. The purpose of the holdback of the purchase price was to satisfy any obligations of the former ZyStor stockholders to pay any indemnification claims to BioMarin. During 2011, we recorded a reduction to goodwill of $1.5 million related to the retention of a portion of the $2.0 million held back at closing. The remainder of the holdback was released to the former ZyStor stockholders in the fourth quarter of 2011. In connection with the acquisition, we agreed to pay ZyStor stockholders additional consideration in future periods of up to $93.0 million (undiscounted) in milestone payments if certain clinical, development and sales milestones are met.
Funding Commitments
Our investment in our product development programs and continued development of our existing commercial products has a major impact on our operating performance. Our research and development expenses during the three and nine months ended September 30,March 31, 2012 and 2011 and 2010 and during the period since inception (March 1997 for the portion not allocated to any major program) were as follows (in millions):
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Three Months Ended September 30, | Nine Months Ended September 30, | Since Program Inception | Three Months Ended March 31, | Since Program Inception | ||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2012 | 2011 | |||||||||||||||||||||||||||
Naglazyme | $ | 2.7 | $ | 2.6 | $ | 7.7 | $ | 6.7 | $ | 149.8 | $ | 2.6 | $ | 2.3 | $ | 155.0 | ||||||||||||||||
Kuvan | 3.6 | 3.7 | 9.2 | 10.2 | 123.3 | 3.3 | 2.6 | 130.0 | ||||||||||||||||||||||||
Firdapse | 2.4 | 3.2 | 8.3 | 6.2 | 17.6 | 2.1 | 2.5 | 22.4 | ||||||||||||||||||||||||
GALNS for MPS IV A | 13.1 | 7.7 | 41.1 | 18.2 | 103.3 | 24.7 | 11.0 | 139.5 | ||||||||||||||||||||||||
BMN-673 | 2.0 | 3.2 | 5.3 | 6.3 | 13.6 | 2.4 | 1.7 | 18.1 | ||||||||||||||||||||||||
BMN-701 | 4.7 | 0.4 | 10.5 | 0.4 | 13.0 | 6.9 | 2.3 | 26.9 | ||||||||||||||||||||||||
BMN-111 | 3.7 | 1.5 | 19.6 | |||||||||||||||||||||||||||||
BMN-190 | 1.2 | 0.2 | 7.8 | |||||||||||||||||||||||||||||
PEG-PAL | 8.8 | 4.2 | 21.6 | 12.3 | 80.4 | 8.8 | 6.2 | 95.3 | ||||||||||||||||||||||||
Not allocated to specific major current projects | 21.3 | 14.4 | 52.8 | 44.8 | 410.7 | 18.1 | 14.7 | 425.5 | ||||||||||||||||||||||||
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Totals | $ | 58.6 | $ | 39.4 | $ | 156.5 | $ | 105.1 | $ | 911.7 | $ | 73.8 | $ | 45.0 | $ | 1,040.1 | ||||||||||||||||
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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 FactorsFactors”” included in our Annual Report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the SEC on February 24, 2011,22, 2012, for a discussion of the reasons we are unable to estimate such information, and in particular the following risk factors included in such Annual Report on Form 10-K:
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Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
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We may elect to increase our spending above our current long-term plans whichand consequently we may be unable to achieve our long-term goals. This may increase our capital requirements. For instance, we may elect to increase our spendingrequirements, including: costs associated with the commercialization of our products; additional clinical trials; investments in the manufacturing of Naglazyme, Aldurazyme, Kuvan Firdapse and Aldurazyme;Firdapse; preclinical studies and clinical trials for our other product candidates; potential licenses and other acquisitions of complementary technologies, products and companies; general corporate purposes; and working capital.
Our future capital requirements will depend on many factors, including, but not limited to:
our ability to successfully market and sell Naglazyme, Kuvan and Kuvan;Firdapse;
Genzyme’s ability to continue to successfully market and commercialize Aldurazyme;
the progress, timing, scope and results 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;
Management’s Discussion and Analysis of Financial Condition and Results of Operations – (Continued)
the time and cost necessary to develop commercial manufacturing processes, including quality systems and to build or acquire manufacturing capabilities;
the time and cost necessary to respond to technological and market developments;
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; and
whether our convertible debt is converted to common stock in the future.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements other than our operating lease commitments totaling $23.5 million that are currently material or reasonably likely to be material to our consolidated financial position or results of operations.
We have obligations under various license, collaboration and acquisition agreements forare also subject to contingent payments related to various development activities totaling approximately $359.2$357.0 million, which are due upon achievement of certain development commercial and licensingcommercial milestones, and if they occur before certain dates in the future.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Our market risks during the ninethree months ended September 30, 2011March 31, 2012 have not materially changed from those discussed in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the SEC on February 24, 2011.22, 2012.
Item 4. | Controls and Procedures |
(a) 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 Chief Financial Officer, regarding the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report.
Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
(b) Change in Internal Controls over Financial Reporting
There were no changes in our internal control over financial reporting, as such term is defined in RuleRules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Item 1. | Legal Proceedings. |
None.
Item 1A. | Risk Factors |
As of September 30, 2011,March 31, 2012, there have not been any material changes from the risk factors previously disclosed in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2010,2011, which was filed with the SEC on February 24, 2011.22, 2012.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
On September 14, 2011, we entered into agreements with three of our existing holders of our 2013 Notes, pursuant to which such holders have converted $9.6 million face amount of the 2013 Notes, in accordance with their terms, into 576,168 shares of our common stock. In addition to issuing the requisite number of shares of common stock required pursuant to the 2013 Notes, we also paid each of those holders varying cash premiums for agreeing to convert their 2013 Notes, which, in aggregate, totaled approximately $0.3 million. We also made a cash payment of approximately $0.1 million to the holders of accrued and future interest payments that will no longer be required. The issuance of our common stock upon conversion of the 2013 Notes was made in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 3(a)(9) thereof, as the conversion of the 2013 Notes into our common stock was made by us with our existing security holders exclusively in a series of privately negotiated transactions where no commission or other remuneration was paid.None.
Item 3. | Defaults |
None.
Item 4. |
None.
Item 5. | Other Information. |
None.
Item 6. | Exhibits. |
10.1 | Lease Agreement entered into on January 6, 2012 between BioMarin Pharmaceutical Inc. and SR Corporate Center Phase Two, LLC for 770 Lindaro Street, San Rafael, California, previously filed with the Commission on February 22, 2012 as Exhibit 10.34 to the Company’s Annual Report on Form 10-K, which is incorporated herein by reference. | |
10.2 | Lease Agreement entered into on January 6, 2012 between BioMarin Pharmaceutical Inc. and SR Corporate Center Phase Two, LLC for 790 Lindaro Street, San Rafael, California, previously filed with the Commission on February 22, 2012 as Exhibit 10.35 to the Company’s Annual Report on Form 10-K, which is incorporated herein by reference. | |
10.3 | Severance Agreement and Release of All Claims with Jeffrey H. Cooper, dated February 21, 2012, previously filed with the SEC on February 22, 2012 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, which is incorporated herein by reference. | |
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 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 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. | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Link Document |
* | Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BIOMARIN PHARMACEUTICAL INC. | ||||
Dated: | By | /S/ JEFFREY H. COOPER | ||
Jeffrey H. Cooper, Senior Vice President, Chief Financial Officer | ||||
(On behalf of the registrant and as principal financial officer) |
Exhibit Index
10.1 | Lease Agreement entered into on January 6, 2012 between BioMarin Pharmaceutical Inc. and SR Corporate Center Phase Two, LLC for 770 Lindaro Street, San Rafael, California, previously filed with the Commission on February 22, 2012 as Exhibit 10.34 to the Company’s Annual Report on Form 10-K, which is incorporated herein by reference. | |
10.2 | Lease Agreement entered into on January 6, 2012 between BioMarin Pharmaceutical Inc. and SR Corporate Center Phase Two, LLC for 790 Lindaro Street, San Rafael, California, previously filed with the Commission on February 22, 2012 as Exhibit 10.35 to the Company’s Annual Report on Form 10-K, which is incorporated herein by reference. | |
10.3 | Severance Agreement and Release of All Claims with Jeffrey H. Cooper, dated February 21, 2012, previously filed with the SEC on February 22, 2012 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, which is incorporated herein by reference. | |
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 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 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. | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase | |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Link Document |
* | Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language). Users of this data are advised that, pursuant to Rule 406T of Regulation S-T, the interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is otherwise not subject to liability under these sections.
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