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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
March 31, 2020
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Delaware | 68-0397820 | ||||||||||||||||
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| 770 Lindaro Street | San Rafael | California | 94901 | ||||||||||||||
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| Common Stock, par value $0.001 | BMRN | The Nasdaq Global Select Market | ||||||||||||
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2
2019 September 30, December 31, 2017 2016(1) ASSETS (unaudited) Current assets: Cash and cash equivalents $ 431,399 $ 408,330 Short-term investments 825,700 381,347 Accounts receivable, net 251,891 215,280 Inventory 457,393 355,126 Other current assets 83,646 61,708 Total current assets 2,050,029 1,421,791 Noncurrent assets: Long-term investments 416,304 572,711 Property, plant and equipment, net 878,624 798,768 Intangible assets, net 530,957 553,780 Goodwill 197,039 197,039 Deferred tax assets 484,759 446,786 Other assets 22,985 32,815 Total assets $ 4,580,697 $ 4,023,690 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 364,920 $ 370,505 Short-term convertible debt, net — 22,478 Short-term contingent acquisition consideration payable 52,609 46,327 Total current liabilities 417,529 439,310 Noncurrent liabilities: Long-term convertible debt, net 1,166,036 660,761 Long-term contingent acquisition consideration payable 126,790 115,310 Other long-term liabilities 56,780 42,034 Total liabilities 1,767,135 1,257,415 Stockholders’ equity: Common stock, $0.001 par value: 500,000,000 shares authorized; 175,495,350 and 172,647,588 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. 176 173 Additional paid-in capital 4,435,449 4,288,113 Company common stock held by Nonqualified Deferred Compensation Plan (NQDC) (14,473 ) (14,321 ) Accumulated other comprehensive income (loss) (21,434 ) 12,816 Accumulated deficit (1,586,156 ) (1,520,506 ) Total stockholders’ equity 2,813,562 2,766,275 Total liabilities and stockholders’ equity $ 4,580,697 $ 4,023,690 INCOME (LOSS) 2019 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 REVENUES: Net product revenues $ 298,752 $ 278,262 $ 916,868 $ 812,195 Royalty and other revenues 35,396 1,634 38,473 4,568 Total revenues 334,148 279,896 955,341 816,763 OPERATING EXPENSES: Cost of sales 59,480 50,738 165,791 145,473 Research and development 154,103 160,831 442,145 486,663 Selling, general and administrative 130,532 118,758 394,056 333,635 Intangible asset amortization and contingent consideration 3,760 9,654 26,096 (34,318 ) Impairment of intangible assets — — — 599,118 Total operating expenses 347,875 339,981 1,028,088 1,530,571 LOSS FROM OPERATIONS (13,727 ) (60,085 ) (72,747 ) (713,808 ) Equity in the loss of BioMarin/Genzyme LLC (253 ) (104 ) (996 ) (374 ) Interest income 3,976 1,633 10,031 4,561 Interest expense (10,884 ) (9,980 ) (31,043 ) (29,767 ) Other income, net 267 1,723 4,282 504 LOSS BEFORE INCOME TAXES (20,621 ) (66,813 ) (90,473 ) (738,884 ) Benefit from income taxes (8,094 ) (29,388 ) (24,823 ) (199,394 ) NET LOSS $ (12,527 ) $ (37,425 ) $ (65,650 ) $ (539,490 ) NET LOSS PER SHARE, BASIC $ (0.07 ) $ (0.22 ) $ (0.38 ) $ (3.29 ) NET LOSS PER SHARE, DILUTED $ (0.07 ) $ (0.22 ) $ (0.38 ) $ (3.30 ) Weighted average common shares outstanding, basic 175,103 167,714 174,071 163,963 Weighted average common shares outstanding, diluted 175,103 167,714 174,071 164,216 COMPREHENSIVE LOSS $ (19,303 ) $ (39,795 ) $ (99,900 ) $ (558,365 ) March 31, 2020 and 2019 Company Accumulated Additional Common Other Total Common stock Paid-in Stock Held Comprehensive Accumulated Stockholders' Shares Amount Capital by NQDC Income (Loss) Deficit Equity Balance at December 31, 2016 172,648 $ 173 $ 4,288,113 $ (14,321 ) $ 12,816 $ (1,520,506 ) $ 2,766,275 Net loss — — — — — (65,650 ) (65,650 ) Other comprehensive loss — — — — (34,250 ) — (34,250 ) Issuances under equity incentive plans, net of tax 1,648 2 7,550 — — — 7,552 Issuances of common stock under the Employee Stock Purchase Plan (the ESPP) 95 — 6,704 — — — 6,704 Conversion of convertible notes, net 1,104 1 22,476 — — — 22,477 Common stock held by NQDC — — — (152 ) — — (152 ) Stock-based compensation — — 110,606 — — — 110,606 Balance at September 30, 2017 175,495 $ 176 $ 4,435,449 $ (14,473 ) $ (21,434 ) $ (1,586,156 ) $ 2,813,562 2019 2017 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (65,650 ) $ (539,490 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 59,197 76,805 Non-cash interest expense 23,792 22,276 Accretion of discount on investments 2,162 681 Stock-based compensation 106,678 97,220 (Gain) loss on the sale of equity investments (3,252 ) 2,020 Impairment of intangible assets — 599,118 Deferred income taxes (36,150 ) (218,700 ) Unrealized foreign exchange (gain) loss 4,348 (10,961 ) Non-cash changes in the fair value of contingent acquisition consideration payable 3,382 (56,954 ) Other 4,657 1,044 Changes in operating assets and liabilities: Accounts receivable, net (21,598 ) (52,023 ) Inventory (80,885 ) (59,802 ) Other current assets (20,787 ) (1,556 ) Other assets (1,030 ) (5,002 ) Accounts payable and accrued liabilities (1,732 ) (77,852 ) Other long-term liabilities 3,497 (4,451 ) Net cash used in operating activities (23,371 ) (227,627 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (159,329 ) (96,806 ) Funds held in escrow for the purchase of real property — (8,383 ) Maturities and sales of investments 325,678 302,801 Purchase of available-for-sale securities (609,794 ) (370,393 ) Business acquisitions, net of cash acquired — (1,467 ) Other (1,560 ) (150 ) Net cash used in investing activities (445,005 ) (174,398 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercises of stock options and the ESPP 46,119 49,498 Taxes paid related to net share settlement of equity awards (31,863 ) (55,241 ) Proceeds from public offering of common stock, net — 712,938 Proceeds from convertible senior subordinated note offering, net 481,713 — Payment of contingent acquisition consideration payable (1,894 ) — Other (26 ) — Net cash provided by financing activities 494,049 707,195 Effect of exchange rate changes on cash (2,604 ) 5,139 NET DECREASE IN CASH AND CASH EQUIVALENTS 23,069 310,309 Cash and cash equivalents: Beginning of period $ 408,330 $ 397,040 End of period $ 431,399 $ 707,349 SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for interest, net of interest capitalized into fixed assets 4,287 4,564 Cash paid for income taxes 21,744 95,163 Stock-based compensation capitalized into inventory 12,077 8,960 Depreciation capitalized into inventory 17,899 13,402 SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES: Decrease in accounts payable and accrued liabilities related to fixed assets (25,047 ) (13,988 ) Conversion of convertible debt 22,477 8,924 Accrual for inventory purchases related to the acquisition of the Merck PKU Business — 1,322 The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other period. change materially in future periods. - (continued) Cash payments $ 374,545 Estimated fair value of contingent acquisition consideration payable 138,974 Total consideration $ 513,519 Kuvan intangible assets $ 172,961 Pegvaliase IPR&D 326,359 Inventory 14,199 Total identifiable assets acquired $ 513,519 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Numerator: Net loss, basic $ (12,527 ) $ (37,425 ) $ (65,650 ) $ (539,490 ) Less: gain on common stock held by the NQDC — — — 1,753 Net loss, diluted $ (12,527 ) $ (37,425 ) $ (65,650 ) $ (541,243 ) Denominator: Weighted-average common shares outstanding, basic 175,103 167,714 174,071 163,963 Effect of dilutive securities: Common shares held by the NQDC — — — 253 Weighted-average common shares outstanding, diluted 175,103 167,714 174,071 164,216 Net loss per common share, basic $ (0.07 ) $ (0.22 ) $ (0.38 ) $ (3.29 ) Net loss per common share, diluted $ (0.07 ) $ (0.22 ) $ (0.38 ) $ (3.30 ) Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Options to purchase common stock 8,328 9,610 8,328 9,610 Common stock issuable under the 2017 Notes — 1,105 — 1,105 Common stock issuable under the 2018 and 2020 Notes 7,966 7,966 7,966 7,966 Common stock issuable under the 2024 Notes 3,970 — 3,970 — Unvested restricted stock units 2,923 2,728 2,923 2,728 Common stock potentially issuable for ESPP purchases 365 330 365 330 Common stock held by the NQDC 224 253 224 — Total number of potentially issuable shares 23,776 21,992 23,776 21,739 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value at September 30, 2017 Corporate debt securities $ 762,462 $ 413 $ (1,091 ) $ 761,784 Commercial paper 28,039 — — 28,039 U.S. government agency securities 434,533 2 (980 ) 433,555 Foreign and other 18,525 123 (22 ) 18,626 Total $ 1,243,559 $ 538 $ (2,093 ) $ 1,242,004 Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Aggregate Fair Value at December 31, 2016 Certificates of deposit $ 2,800 $ — $ — $ 2,800 Corporate debt securities 641,670 329 (2,282 ) 639,717 Commercial paper 16,075 — — 16,075 U.S. government agency securities 310,635 37 (747 ) 309,925 Foreign and other 48 86 — 134 Total $ 971,228 $ 452 $ (3,029 ) $ 968,651 September 30, December 31, 2017 2016 Maturing in one year or less $ 825,700 $ 395,940 Maturing after one year through five years 416,304 572,711 Total $ 1,242,004 $ 968,651 occurs. Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is September 30, December 31, 2017 2016 Intangible assets: Finite-lived intangible assets $ 303,297 $ 305,122 Indefinite-lived intangible assets 332,199 332,199 Gross intangible assets: 635,496 637,321 Accumulated amortization (104,539 ) (83,541 ) Net carrying value $ 530,957 $ 553,780 - (continued) September 30, December 31, 2017 2016 Building and improvements $ 636,697 $ 510,805 Manufacturing and laboratory equipment 284,269 242,899 Computer hardware and software 139,241 129,506 Leasehold improvements 43,900 44,184 Furniture and equipment 29,451 27,229 Land improvements 4,881 4,881 Land 62,702 55,412 Construction-in-progress 68,204 126,446 1,269,345 1,141,362 Accumulated depreciation (390,721 ) (342,594 ) Total property, plant and equipment, net $ 878,624 $ 798,768 September 30, December 31, 2017 2016 Raw materials $ 48,355 $ 51,250 Work-in-process 262,840 167,788 Finished goods 146,198 136,088 Total inventory $ 457,393 $ 355,126 BIOMARIN PHARMACEUTICAL INC. - (continued) September 30, December 31, 2017 2016 Accounts payable and accrued operating expenses $ 157,024 $ 191,353 Accrued compensation expense 100,481 109,038 Accrued rebates payable 38,321 34,737 Accrued royalties payable 16,419 15,151 Value added taxes payable 10,577 7,848 Forward foreign currency exchange contracts 14,428 5,201 Deferred Revenue 17,430 985 Other 10,240 6,192 Total accounts payable and accrued liabilities $ 364,920 $ 370,505 - (continued) September 30, December 31, 2017 2016 Convertible Notes due in 2017 $ — $ 22,503 Unamortized deferred offering costs — (25 ) Convertible Notes due in 2017, net — 22,478 Convertible Notes due in 2018 374,980 374,980 Unamortized discount (16,329 ) (27,566 ) Unamortized deferred offering costs (2,030 ) (3,484 ) Convertible Notes due in 2018, net 356,621 343,930 Convertible Notes due in 2020 374,993 374,993 Unamortized discount (43,593 ) (53,239 ) Unamortized deferred offering costs (3,954 ) (4,923 ) Convertible Notes due in 2020, net 327,446 316,831 Convertible Notes due in 2024 495,000 — Unamortized discount (9,707 ) — Unamortized deferred offering costs (3,324 ) — Convertible Notes due in 2024, net 481,969 — Total convertible debt, net $ 1,166,036 $ 683,239 Fair value of fixed rate convertible debt Convertible Notes due in 2017 (1) $ — $ 90,977 Convertible Notes due in 2018 (1) 417,956 423,202 Convertible Notes due in 2020 (1) 454,334 442,754 Convertible Notes due in 2024 (1) 502,960 — Total $ 1,375,250 $ 956,933 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Coupon interest $ 2,692 $ 2,466 $ 7,250 $ 7,491 Amortization of issuance costs 1,138 826 2,910 2,476 Accretion of debt discount 7,054 6,688 20,883 19,800 Total interest expense on convertible debt $ 10,884 $ 9,980 $ 31,043 $ 29,767 The Company designates certain of these forward Aggregate Notional Number of Amount in Foreign Exchange Contracts Contracts Foreign Currency Maturity Brazilian Reais – Sell 2 33.0 Oct. 2017 Canadian Dollars – Sell 6 6.1 Oct. 2017 - Dec. 2017 Colombian Pesos – Sell 3 15,576.0 Oct. 2017 - Dec. 2017 Euros – Purchase 72 116.7 Oct. 2017 - Sep. 2020 Euros – Sell 304 381.9 Oct. 2017 - Sep. 2020 Total 387 issue derivative instruments for trading or speculative purposes. The maximum length of time over which the Company is hedging its exposure to the reduction in value of forecasted foreign currency revenues through forward Aggregate Notional Number of Amount in Foreign Exchange Contracts Contracts Foreign Currency Maturity Brazilian Reais – Purchase 1 33.0 Oct. 2017 British Pounds – Sell 1 5.2 Oct. 2017 Euros – Purchase 4 109.8 Oct. 2017 Total 6 Asset Derivatives Liability Derivatives September 30, 2017 September 30, 2017 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments: Forward foreign currency exchange contracts Other current assets $ 3,096 Accounts payable and accrued liabilities $ 14,428 Forward foreign currency exchange contracts Other assets 4,414 Other long- term liabilities 11,380 Total 7,510 25,808 Derivatives not designated as hedging instruments: Forward foreign currency exchange contracts Other current assets 1,139 Accounts payable and accrued liabilities — Total 1,139 — Total value of derivative contracts $ 8,649 $ 25,808 BIOMARIN PHARMACEUTICAL INC. - (continued) Asset Derivatives Liability Derivatives December 31, 2016 December 31, 2016 Balance Sheet Location Fair Value Balance Sheet Location Fair Value Derivatives designated as hedging instruments: Forward foreign currency exchange contracts Other current assets $ 13,048 Accounts payable and accrued liabilities $ 5,176 Forward foreign currency exchange contracts Other assets 8,194 Other long- term liabilities 2,342 Total 21,242 7,518 Derivatives not designated as hedging instruments: Forward foreign currency exchange contracts Other current assets 964 Accounts payable and accrued liabilities 25 Total 964 25 Total value of derivative contracts $ 22,206 $ 7,543 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Derivatives Designated as Hedging Instruments: Net gain (loss) recognized in accumulated other comprehensive loss (1) $ (10,569 ) $ (1,984 ) $ (33,933 ) $ (5,857 ) Net gain (loss) reclassified from accumulated other comprehensive income (loss) into earnings (2) (3,700 ) 1,486 (489 ) 4,616 Net gain recognized in net loss (3) 689 9 2,395 5,276 Derivatives Not Designated as Hedging Instruments: Net gain (loss) recognized in net loss(4) $ 1,655 $ 826 $ 7,286 $ (2,446 ) The Company is exposed to counterparty credit risk on - (continued) Fair Value Measurements at September 30, 2017 Quoted Price in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Cash and cash equivalents: Money market instruments $ — $ 223,845 $ — $ 223,845 Total cash and cash equivalents — 223,845 — 223,845 Available-for-sale securities: Short-term: Corporate debt securities — 444,966 — 444,966 Commercial paper — 28,039 — 28,039 U.S. government agency securities — 334,241 — 334,241 Foreign and other — 18,454 — 18,454 Long-term: Corporate debt securities — 316,818 — 316,818 U.S. government agency securities — 99,314 — 99,314 Foreign and other — 172 — 172 Total available-for-sale securities — 1,242,004 — 1,242,004 Other current assets: NQDC Plan assets — 1,226 — 1,226 Forward foreign currency exchange contract(1) — 4,235 — 4,235 Restricted investments (2) — 14,878 — 14,878 Total other current assets — 20,339 — 20,339 Other assets: NQDC Plan assets — 11,272 — 11,272 Forward foreign currency exchange contract(1) — 4,414 — 4,414 Total other assets — 15,686 — 15,686 Total assets $ — $ 1,501,874 $ — $ 1,501,874 Liabilities: Current liabilities: NQDC Plan liability $ 2,635 $ 1,226 $ — $ 3,861 Forward foreign currency exchange contract(1) — 14,428 — 14,428 Contingent acquisition consideration payable — — 52,609 52,609 Total current liabilities 2,635 15,654 52,609 70,898 Other long-term liabilities: NQDC Plan liability $ 18,405 $ 11,272 — 29,677 Forward foreign currency exchange contract(1) — 11,380 — 11,380 Contingent acquisition consideration payable — — 126,790 126,790 Total other long-term liabilities 18,405 22,652 126,790 167,847 Total liabilities $ 21,040 $ 38,306 $ 179,399 $ 238,745 - (continued) Fair Value Measurements at December 31, 2016 Quoted Price in Active Markets For Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Cash and cash equivalents: Money market instruments $ — $ 235,571 $ — $ 235,571 Corporate debt securities — 8,593 — 8,593 U.S. government agency securities — 6,000 — 6,000 Total cash and cash equivalents — 250,164 — 250,164 Available-for-sale securities: Short-term: Certificates of deposit — 2,800 — 2,800 Corporate debt securities — 193,974 — 193,974 Commercial paper — 16,075 — 16,075 U.S. government agency securities — 168,498 — 168,498 Long-term: Corporate debt securities — 437,150 — 437,150 U.S. government agency securities — 135,427 — 135,427 Greek government-issued bonds — 134 — 134 Total available-for-sale securities — 954,058 — 954,058 Other current assets: NQDC Plan assets — 163 — 163 Forward foreign currency exchange contract(1) — 14,012 — 14,012 Restricted investments (2) — 3,754 — 3,754 Total other current assets — 17,929 — 17,929 Other assets: NQDC Plan assets — 9,121 — 9,121 Forward foreign currency exchange contract(1) — 8,194 — 8,194 Strategic investment (3) 4,064 — — 4,064 Total other assets 4,064 17,315 — 21,379 Total assets $ 4,064 $ 1,239,466 $ — $ 1,243,530 Liabilities: Current liabilities: NQDC Plan liability $ 2,073 $ 163 $ — $ 2,236 Forward foreign currency exchange contract(1) — 5,201 — 5,201 Contingent acquisition consideration payable — — 46,327 46,327 Total current liabilities 2,073 5,364 46,327 53,764 Other long-term liabilities: NQDC Plan liability 17,303 9,121 — 26,424 Forward foreign currency exchange contract(1) — 2,342 — 2,342 Contingent acquisition consideration payable — — 115,310 115,310 Total other long-term liabilities 17,303 11,463 115,310 144,076 Total liabilities $ 19,376 $ 16,827 $ 161,637 $ 197,840 - (continued) four-quarter measurement periods, or (b) the Base Rate, generally the prime lending rate, plus an applicable margin ranging from 0.00% to 0.95%, based upon the Company’s net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. Commitment fees payable on the undrawn amount range from 0.15% to 0.35% per annum based upon the Company’s net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. The Company’s August 1, 2020. The Company Contingent acquisition consideration payable at December 31, 2016 $ 161,637 Milestone payments to former Huxley Pharmaceuticals, Inc. shareholders (3,500 ) Reversal of contingent liability related to revised estimate of Firdapse FDA acceptance and approval milestones (4,245 ) Changes in the fair value of other contingent acquisition consideration payable 7,627 Foreign exchange remeasurement of Euro denominated contingent acquisition consideration payable 17,880 Contingent acquisition consideration payable at September 30, 2017 $ 179,399 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Expected volatility 38 – 40% 38 – 40% 38 – 40% 36 – 44% Dividend yield 0.0% 0.0% 0.0% 0.0% Expected life 4.9 – 6.6 years 5.0 – 6.7 years 4.9 – 6.6 years 5.0 – 8.1 years Risk-free interest rate 1.8 – 2.1% 1.1 – 1.4% 1.8 – 2.2% 1.1 – 2.1% Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Cost of sales $ 3,007 $ 2,092 $ 7,803 $ 5,943 R&D 13,832 14,165 39,973 42,929 SG&A 19,064 16,645 58,902 48,348 Total stock-based compensation expense $ 35,903 $ 32,902 $ 106,678 $ 97,220 Three Months Ended September 30, Nine Months Ended September 30, Consolidated Statement of Details about AOCI Components 2017 2016 2017 2016 Comprehensive Loss Classification Gains (losses) on cash flow hedges: Forward foreign currency exchange contracts $ (4,643 ) $ 1,436 $ 18 $ 4,036 Net product revenues Forward foreign currency exchange contracts 943 50 (507 ) 4,874 SG&A Total gain (loss) on cash flow hedges (3,700 ) 1,486 (489 ) 8,910 Gain (loss) on sale of available-for-sale securities — 7 3,252 (2,020 ) Other income Income tax effect of the above — (2 ) (1,176 ) 735 Benefit from income taxes $ (3,700 ) $ 1,491 $ 1,587 $ 7,625 Net loss Three Months Ended September 30, 2017 Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Foreign Currency Items Total AOCI balance at June 30, 2017 $ (13,569 ) $ (1,080 ) $ (9 ) $ (14,658 ) Other comprehensive income (loss) before reclassifications (10,569 ) 147 2 (10,420 ) Less: net loss reclassified from AOCI (3,700 ) — — (3,700 ) Tax effect — (56 ) — (56 ) Net current-period other comprehensive income (loss) (6,869 ) 91 2 (6,776 ) AOCI balance at September 30, 2017 $ (20,438 ) $ (989 ) $ (7 ) $ (21,434 ) Three Months Ended September 30, 2016 Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Foreign Currency Items Total AOCI balance at June 30, 2016 $ 2,305 $ 2,231 $ (8 ) $ 4,528 Other comprehensive income (loss) before reclassifications (1,984 ) 1,738 (1 ) (247 ) Less: gain reclassified from AOCI 1,486 7 — 1,493 Tax effect — (630 ) — (630 ) Net current-period other comprehensive income (loss) (3,470 ) 1,101 (1 ) (2,370 ) AOCI balance at September 30, 2016 $ (1,165 ) $ 3,332 $ (9 ) $ 2,158 - (continued) Nine Months Ended September 30, 2017 Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Foreign Currency Items Total AOCI balance at December 31, 2016 $ 13,006 $ (178 ) $ (12 ) $ 12,816 Other comprehensive income (loss) before reclassifications (33,933 ) 1,981 5 (31,947 ) Less: gain (loss) reclassified from AOCI (489 ) 3,252 — 2,763 Tax effect — 460 — 460 Net current-period other comprehensive income (loss) (33,444 ) (811 ) 5 (34,250 ) AOCI balance at September 30, 2017 $ (20,438 ) $ (989 ) $ (7 ) $ (21,434 ) Nine Months Ended September 30, 2016 Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-Sale Securities Foreign Currency Items Total AOCI balance at December 31, 2015 $ 13,602 $ 7,441 $ (10 ) $ 21,033 Other comprehensive income (loss) before reclassifications (5,857 ) (8,477 ) 1 (14,333 ) Less: gain (loss) reclassified from AOCI 8,910 (2,020 ) — 6,890 Tax effect — 2,348 — 2,348 Net current-period other comprehensive income (loss) (14,767 ) (4,109 ) 1 (18,875 ) AOCI balance at September 30, 2016 $ (1,165 ) $ 3,332 $ (9 ) $ 2,158 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 United States 43 % 38 % 39 % 38 % Europe 22 % 23 % 21 % 23 % Latin America 9 % 14 % 13 % 13 % Rest of world 19 % 16 % 20 % 19 % Total net product revenue marketed by the Company 93 % 91 % 93 % 93 % Aldurazyme net product revenues marketed by Genzyme 7 % 9 % 7 % 7 % Total net product revenues 100 % 100 % 100 % 100 % Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Customer A 20 % 19 % 18 % 19 % Customer B 16 % 13 % 14 % 13 % Customer C 11 % 10 % 10 % 10 % Total 47 % 42 % 42 % 42 % The Company operates in Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net product revenues by product: Aldurazyme $ 22,341 $ 23,751 $ 61,681 $ 58,819 Brineura 3,107 — 3,361 — Firdapse 5,086 4,981 14,051 13,685 Kuvan 105,837 90,899 300,127 257,806 Naglazyme 72,083 77,728 238,392 221,575 Vimizim 90,298 80,903 299,256 260,310 Total net product revenues $ 298,752 $ 278,262 $ 916,868 $ 812,195 The following table Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Total revenues by geographic region: United States $ 151,010 $ 130,356 $ 425,107 $ 365,674 Europe 97,825 62,821 228,775 187,328 Latin America 26,356 38,789 121,824 106,803 Rest of world 58,957 47,930 179,635 156,958 Total revenues $ 334,148 $ 279,896 $ 955,341 $ 816,763 consideration. The following discussion of our financial condition and results of operations should be read in conjunction with our Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties. When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that could impact our business. In particular, we encourage you to review the Our Condensed Consolidated Financial Statements have been prepared in accordance with United States (U.S.) generally accepted accounting principles (U.S GAAP) and are presented in U.S. Dollars (USD). IVA) •Valoctocogene roxaparvovec – In Financial Highlights Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Total revenues $ 334.1 $ 279.9 $ 955.3 $ 816.8 Cost of sales 59.5 50.7 165.8 145.5 Research and development (R&D) expense 154.1 160.8 442.1 486.7 Selling, general and administrative (SG&A) expense 130.5 118.8 394.1 333.6 Intangible asset amortization and contingent consideration expense 3.8 9.7 26.1 (34.3 ) Impairment of intangible assets — — — 599.1 Net loss (12.5 ) (37.4 ) (65.7 ) (539.5 ) Stock-based compensation expense 35.9 32.9 106.7 97.2 Net Income/(Loss) fluctuations presented above. Judgments 2019. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Total revenues $ 334.1 $ 279.9 $ 54.2 $ 955.3 $ 816.8 $ 138.5 Cost of sales 59.5 50.7 8.8 165.8 145.5 20.3 R&D expense 154.1 160.8 (6.7 ) 442.1 486.7 (44.6 ) SG&A expense 130.5 118.8 11.7 394.1 333.6 60.5 Intangible asset amortization and contingent consideration expense 3.8 9.7 (5.9 ) 26.1 (34.3 ) 60.4 Impairment of intangible assets — — — — 599.1 (599.1 ) Other, net (1) (6.8 ) (6.7 ) (0.1 ) (17.7 ) (25.1 ) 7.4 Benefit from income taxes (8.1 ) (29.4 ) 21.3 (24.8 ) (199.4 ) 174.6 Net loss $ (12.5 ) $ (37.4 ) $ 24.9 $ (65.7 ) $ (539.5 ) $ 473.8 Net Product Revenues Commercial Products Indication U.S. Orphan Drug Exclusivity Expiration U.S. Biologic Exclusivity Expiration EU Orphan Drug Exclusivity Expiration Aldurazyme MPS I Expired Expired Expired Brineura CLN2 2024 2029 2027 Firdapse LEMS NA (1) NA 2019 Kuvan PKU Expired NA 2020 (2) Naglazyme MPS VI Expired Expired Expired Vimizim MPS IVA 2021 2026 2024 Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Aldurazyme $ 22.4 $ 23.7 $ (1.3 ) $ 61.7 $ 58.8 $ 2.9 Brineura 3.1 — 3.1 3.4 — 3.4 Firdapse 5.1 5.0 0.1 14.0 13.7 0.3 Kuvan 105.8 90.9 14.9 300.1 257.8 42.3 Naglazyme 72.1 77.8 (5.7 ) 238.4 221.6 16.8 Vimizim 90.3 80.9 9.4 299.3 260.3 39.0 Total net product revenues $ 298.8 $ 278.3 $ 20.5 $ 916.9 $ 812.2 $ 104.7 additional information. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Sales denominated in USD $ 178.4 $ 168.2 $ 10.2 $ 544.9 $ 473.8 $ 71.1 Sales denominated in foreign currencies 120.4 110.1 10.3 372.0 338.4 33.6 Total net product revenues $ 298.8 $ 278.3 $ 20.5 $ 916.9 $ 812.2 $ 104.7 Royalty and Other Revenues Sales facility and other costs associated with manufacturing our commercial products. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes royalties payable to third parties based on sales of our products. For the Three Months Ended September 30, For the Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Total net product sales $ 298.8 $ 278.3 $ 20.5 $ 916.9 $ 812.2 $ 104.7 Cost of sales 59.5 50.7 8.8 165.8 145.5 20.3 Product gross margin 80 % 82 % (2.0 )% 82 % 82 % 0 % We manage our R&D expense by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of successful development, market potential, available human and capital resources and other similar considerations. We continually review our product pipeline and the development status of product candidates and, as necessary, reallocate resources among the research and development portfolio that we believe will best support the future growth of our Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change BMN 250 $ 17.0 $ 11.4 $ 5.6 $ 37.9 $ 35.3 $ 2.6 Brineura 10.8 20.2 (9.4 ) 39.5 52.4 (12.9 ) Pegvaliase 28.7 19.5 9.2 85.1 59.0 26.1 Valoctocogene roxaparvovec 29.7 12.8 16.9 83.6 38.9 44.7 Vosoritide 13.3 11.6 1.7 39.2 35.5 3.7 Other approved products 17.4 16.2 1.2 54.7 49.9 4.8 Early stage programs 16.3 15.3 1.0 47.7 40.0 7.7 Other and non-allocated 20.9 53.8 (32.9 ) 54.4 175.7 (121.3 ) Total $ 154.1 $ 160.8 $ (6.7 ) $ 442.1 $ 486.7 $ (44.6 ) Starting in the second quarter of 2019, we have capitalized $52.5 million of manufacturing related costs for the commercial production of valoctocogene roxaparvovec through March 31, 2020 as we believe those costs are likely to be recoverable. See Note 8 to our accompanying Condensed Consolidated Financial Statements for additional information regarding our inventory. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Sales and marketing (S&M) expense $ 67.0 $ 61.3 $ 5.7 $ 201.9 $ 174.9 $ 27.0 General and administrative (G&A) expense 63.5 57.5 6.0 192.2 158.7 33.5 Total SG&A expense $ 130.5 $ 118.8 $ 11.7 $ 394.1 $ 333.6 $ 60.5 Three Months Ended September 30, Nine Months Ended September 30, S&M expense by product 2017 2016 Change 2017 2016 Change Brineura $ 8.3 $ 4.9 $ 3.4 $ 20.7 $ 9.2 $ 11.5 Kuvan 19.4 13.6 5.8 62.6 42.9 19.7 Naglazyme 11.9 12.6 (0.7 ) 37.3 36.6 0.7 Vimizim 18.4 16.9 1.5 53.7 48.0 5.7 Other and not allocated 9.0 13.3 (4.3 ) 27.6 38.2 (10.6 ) Total S&M expense $ 67.0 $ 61.3 $ 5.7 $ 201.9 $ 174.9 $ 27.0 impact of revaluation of non-USD denominated foreign currency balance sheet exposures. Intangible Asset Amortization and Contingent Consideration Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Changes in the fair value of contingent acquisition consideration payable $ (3.8 ) $ 2.1 $ (5.9 ) $ 3.4 $ (57.0 ) $ 60.4 Amortization of intangible assets 7.6 7.6 — 22.7 22.7 — Total intangible asset amortization and contingent consideration $ 3.8 $ 9.7 $ (5.9 ) $ 26.1 $ (34.3 ) $ 60.4 three months ended March 31, 2020. The changes in the fair value of the contingent discussion on this transaction. prior period. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 Change 2017 2016 Change Coupon interest $ 2.7 $ 2.5 $ 0.2 $ 7.2 $ 7.5 $ (0.3 ) Amortization of issuance costs 1.1 0.8 0.3 2.9 2.5 0.4 Accretion of discount on convertible notes 7.1 6.7 0.4 20.9 19.8 1.1 Total interest expense $ 10.9 $ 10.0 $ 0.9 $ 31.0 $ 29.8 $ 1.2 March 31, 2020. Our ability to raise additional capital may also be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the U.S. and worldwide resulting from the 2019. Our liquidity and capital resources as of September 30, December 31, 2017 2016 Change Cash and cash equivalents $ 431.4 $ 408.3 $ 23.1 Short-term investments 825.7 381.3 444.4 Long-term investments 416.3 572.8 (156.5 ) Cash, cash equivalents and investments $ 1,673.4 $ 1,362.4 $ 311.0 Convertible debt $ 1,166.0 $ 683.2 $ 482.8 2017 2016 Change Cash and cash equivalents at the beginning of the period $ 408.3 $ 397.0 $ 11.3 Net cash used in operating activities (23.4 ) (227.6 ) 204.2 Net cash used in investing activities (445.0 ) (174.4 ) (270.6 ) Net cash provided by financing activities 494.0 707.2 (213.2 ) Foreign exchange impact (2.5 ) 5.1 (7.6 ) Cash and cash equivalents at the end of the period $ 431.4 $ 707.3 $ (275.9 ) Short-term and long-term investments 1,242.0 690.5 551.5 Cash, cash equivalents and investments $ 1,673.4 $ 1,397.8 $ 275.6 the year ended December 31, 2019. •If we fail to obtain regulatory approval to commercially market and sell our product candidates, or if approval of our product candidates is delayed, we will be unable to generate revenue from the sale of these product candidates, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will increase; • If we are unable to successfully develop and maintain manufacturing processes for our • If we do not achieve our projected development goals in the timeframes we announce and expect, the commercialization of our product candidates may be delayed and the credibility of our management may be adversely affected and, as a result, our stock price may decline. Since Program Inception BMN 250 $ 136.5 Brineura 227.7 Pegvaliase 485.9 Valoctocogene roxaparvovec 204.7 Vosoritide 213.8 Other approved products 962.4 Other and non-allocated Not meaningful Payments Due Within More 1 Year >1 -3 > 3 - 5 Than 5 or Less Years Years Years Total 2018 Notes and related interest $ 2.8 $ 376.4 $ — $ — $ 379.2 2020 Notes and related interest 5.6 11.3 377.8 — 394.7 2024 Notes and related interest 3.0 5.9 5.9 500.9 515.7 Operating leases 8.8 6.2 4.2 12.2 31.4 R&D and purchase commitments 41.5 — — — 41.5 Total $ 61.7 $ 399.8 $ 387.9 $ 513.1 $ 1,362.5 March 31, 2020. investment. 2020. the risks associated with obtaining FDA or EMA approval. We may not obtain foreign regulatory approvals on a timely basis, if at all. We may not be able to file for regulatory approvals and even if we file we may not receive necessary approvals to commercialize our product candidates in any market. product. From time to time during the development and regulatory approval process for our products and product candidates, we engage in discussions with the FDA and comparable international regulatory authorities regarding our development programs, including discussions about the regulatory requirements for approval. As part of these discussions, we sometimes seek advice in the design of our clinical programs from various regulatory agencies globally, but we do not always follow such guidance. This increases the chance of adverse regulatory actions, but we try to always provide appropriate scientific evidence to support approval. •restrictions on our ability to conduct clinical trials, including full or partial clinical holds on ongoing or planned trials; •restrictions on product manufacturing processes; •restrictions on the marketing of a product; •restrictions on product distribution; •requirements to conduct post-marketing clinical trials; •untitled or warning letters or other adverse publicity; •withdrawal of the products from the market; •refusal to approve pending applications or supplements to approved applications that we submit; •recall of products; •refusal to permit the import or export of our products; •product seizure; •fines, restitution or disgorgement of profits or revenue; •imposition of civil or criminal penalties. Because the extent and scope of patent protection for some of our products is limited, orphan drug designation is especially important for our products that are eligible for orphan drug designation. For eligible products, we plan to rely on the exclusivity period under the Orphan Drug Act to maintain a competitive position. If we do not obtain orphan drug exclusivity for our products that do not have broad patent protection, our competitors may then sell the same drug to treat the same condition and our revenues will be reduced. Likewise, preliminary, initial or interim data from clinical trials should be considered carefully and with caution since the final data may be materially different from the preliminary, initial or interim data, particularly as more patient data become available. •slow or insufficient patient enrollment; •slow recruitment of, and completion of necessary institutional approvals at, clinical sites; •budgetary constraints or prohibitively high clinical trial costs; •longer treatment time required to demonstrate efficacy; •lack of sufficient supplies of the product candidate; •adverse medical events or side effects in treated patients, including immune reactions; •lack of effectiveness of the product candidate being tested; •availability of competitive therapies to treat the same indication as our product candidates; •regulatory requests for additional clinical trials or •deviations in standards for Good Clinical Practice (GCP); and •disputes with or disruptions in our relationships with clinical trial partners, including CROs, clinical laboratories, clinical sites, and principal roxaparvovec. Due to the relative novelty of gene therapy and the potential to provide extended duration therapeutic treatment with a one-time administration, we investment in the development of valoctocogene roxaparvovec. Palynziq. •our ability to successfully market and sell our products; build or acquire manufacturing capabilities the progress and success of our preclinical studies and clinical trials (including studies and the manufacture of materials); •the timing, number, size and scope of our preclinical studies and clinical trials; •the time and cost necessary to obtain regulatory approvals and the costs of post-marketing studies which may be required by regulatory authorities; •the progress of research programs carried out by us; •our possible achievement of development and commercial milestones •whether our convertible debt is converted to common stock in the future. •additional licenses and collaborative agreements; •additional contracts for product manufacturing; and •additional financing facilities or arrangements. •limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes; •limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes; •require us to use a substantial portion of our cash flow from operations to make debt service payments; •limit our flexibility to plan for, or react to, changes in our business and industry; •place us at a competitive disadvantage compared to our less leveraged competitors; and •increase our vulnerability to the impact of adverse economic and industry conditions. financing to pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all. Even a developed manufacturing process can encounter difficulties. Problems may arise during manufacturing for a variety of reasons, including human error, mechanical breakdowns, problems with raw materials and cell banks, malfunctions of internal information technology systems, and other events that cannot always be prevented or anticipated. Many of the processes include biological systems, which add significant complexity, as compared to chemical synthesis. We expect that, from time to time, consistent with biotechnology industry expectations, certain production lots will fail to produce product that meets our quality control release acceptance criteria. To date, our historical failure rates for all of our product programs, including Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim, have been within our expectations, which are based on industry norms. If the failure rate increased substantially, we could experience increased costs, lost revenue, damage to customer relations, time and expense investigating the cause and, depending upon the cause, similar losses with respect to other lots or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. •timing, scheduling and prioritization of production by our contract manufacturers or a breach of our agreements by our contract manufacturers; •labor interruptions; •changes in our sources for manufacturing; •the timing and delivery of shipments; •our failure to locate and obtain replacement suppliers and manufacturers as needed on a timely basis; and •conditions affecting the cost and availability of raw materials. demand and adversely affect our financial results and financial condition. These programs are not well defined in some countries and are subject to changes in requirements and funding levels. Any change to these programs could adversely affect our ability to sell our products in those countries and delay sales. If the programs are not funded by the respective government, there could be insufficient funds to pay for all patients. Further, governments have Since its enactment, there have been judicial and challenges and amendments to the PPACA in the future. Since January 2017, the U.S. President 2020. statement to have a false claim paid, or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), we also are prohibited from knowingly and willfully executing a scheme to defraud any •the increased complexity and costs inherent in managing international operations; •diverse regulatory and compliance requirements, and changes in those requirements that could restrict our ability to manufacture, market and sell our products; •political and economic instability; •diminished protection of intellectual property in some countries outside of the U.S.; •trade protection measures and import or export licensing requirements; •difficulty in staffing and managing international operations; •potentially negative consequences from changes in or interpretations of tax laws; •changes in international medical reimbursement policies and programs; •financial risks such as longer payment cycles, difficulty collecting accounts receivable, exposure to fluctuations in foreign currency exchange rates and potential currency controls imposed by foreign governments; •regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ and service providers’ activities that may fall within the purview of the Foreign Corrupt Practices Act (the FCPA); and •rapidly evolving global laws and regulations relating to data remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the •Competitors may interfere with our patent process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us or that they filed their application for a patent on a claimed invention before we did. Competitors may also claim that we are infringing on their patents and therefore we cannot practice our technology. Competitors may also contest our patents by showing the patent examiner or a court that the invention was not original, was not novel or was obvious, for example. In litigation, a competitor could claim that our issued patents are not valid or are unenforceable for a number of reasons. If a court agrees, we would not be able to enforce that patent. •Generic manufacturers may use litigation and regulatory means to obtain approval for generic versions of our products notwithstanding our filed patents or patent applications. •Enforcing patents is expensive and may absorb significant time of our management. Management would spend less time and resources on developing products, which could increase our operating expenses and delay product programs. •Receipt of a patent may not provide much, if any, practical protection. For example, if we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent. •The Leahy-Smith America Invents Act of 2011, which reformed certain patent laws in the U.S., may create additional uncertainty. Among the significant changes are switching from a Under policies recently adopted in the EU, clinical trial data submitted to the EMA in MAAs that were traditionally regarded as confidential commercial information are now subject to public disclosure. Subject to •Defending a lawsuit takes significant executive resources and can be very expensive. •If a court decides that our product infringes a •With respect to patents, in addition to requiring us to pay substantial damages, a court may prohibit us from making, selling, offering to sell, importing or using our product unless the patent holder licenses the patent to us. The patent holder is not required to grant us a license. If a license is available, it may not be available on commercially reasonable terms. For example, we may have to pay substantial royalties or grant cross licenses to our patents and patent applications. •We may need to redesign our product so it does not infringe the intellectual property rights of others. •Redesigning our product so it does not infringe the intellectual property rights of competitors may not be possible or could require substantial funds and time. If the MMS Agreement is terminated for breach, the breaching party will transfer its interest in the BioMarin/Genzyme LLC to the non-breaching party, and the non-breaching party will pay a specified buyout amount for the breaching party’s interest in Aldurazyme and in the BioMarin/Genzyme LLC. If we are the breaching party, we would lose our rights to Aldurazyme and the related intellectual property and regulatory approvals. If the MMS Agreement is terminated without cause, the non-terminating party would have the option, exercisable for one year, to buy out the terminating party’s interest in Aldurazyme and in the BioMarin/Genzyme LLC at a specified buyout amount. If such option is not exercised, all rights to Aldurazyme will be sold and the BioMarin/Genzyme LLC will be dissolved. In the event of termination of the buyout option without exercise by the non-terminating party as described above, all right and title to Aldurazyme is to be sold to the highest bidder, with the proceeds to be split between Genzyme and us in accordance with our percentage interest in the BioMarin/Genzyme LLC. operations. We treatment of genetic diseases, the use of enzyme replacement therapy, such as Aldurazyme, Naglazyme, and Vimizim in MPS diseases, could be greatly reduced. Moreover, if we obtain regulatory approval for valoctocogene roxaparvovec, effectively and have a material adverse effect on our business, reputation, financial condition, and results of operations. our products and product candidates. Our Galli Drive facility, located in Novato, California, is currently our only manufacturing facility for Aldurazyme, Naglazyme and •product sales and profitability of our products; •manufacturing, supply or distribution of our product candidates and commercial products; •progress of our product candidates through the regulatory process and our ability to successfully commercialize any such products that receive regulatory approval; •results of clinical trials, announcements of technological innovations or new products by us or our competitors; •generic competition to Kuvan tablets and powder relating to our settlements with •government regulatory action affecting our product candidates, our products or our •developments or disputes concerning patent or proprietary rights; •general market conditions and fluctuations for the emerging growth and pharmaceutical market sectors; •economic conditions in the U.S. or abroad; •negative publicity about •cybersecurity incidents experienced by us or others in our industry; •actual or anticipated fluctuations in our operating results, including due to timing of large •changes in company assessments or financial estimates by securities analysts; •acquisitions of products, businesses, or other assets; and •sales of our shares of stock by us, our significant stockholders, or members of our management or Board of Directors. In the past, following periods of large price declines in the public market price of a company’s securities, securities class action litigation has often been initiated against that company. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which would hurt our business. Any adverse determination in litigation could also subject us to significant liabilities. In addition, our stock price can be materially adversely affected by factors beyond our control, such as disruptions in global financial markets or negative trends in the biotechnology sector of the economy, even if our business is operating well. The fundamental change repurchase feature of the Notes may delay or prevent an otherwise beneficial attempt to take us over. •any derivative action or proceeding brought on our behalf; •any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of BioMarin to us or our stockholders; •any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the General Corporation Law of the State of Delaware, our restated certificate of incorporation or our amended and restated •any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. 3.1 31.2* XBRL Instance Document Inline XBRL Taxonomy Extension Schema Document Inline XBRL Taxonomy Extension Calculation Document Inline XBRL Taxonomy Extension Definition Linkbase Inline XBRL Taxonomy Extension Labels Linkbase Document Inline XBRL Taxonomy Extension Presentation Link Document Dated: By /S/ FINANCIALFINANCIAL INFORMATIONSeptember 30, 20172016of U.S. dollars, except share amounts)(1)December 31, 2016 balances were derived from the audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 27, 2017.March 31,
2020ASSETS (unaudited) Current assets: Cash and cash equivalents $ 476,632 $ 437,446 Short-term investments 381,764 316,361 Accounts receivable, net 396,384 377,404 Inventory 705,652 680,275 Other current assets 155,817 130,657 Total current assets 2,116,249 1,942,143 Noncurrent assets: Long-term investments 290,796 411,978 Property, plant and equipment, net 1,009,972 1,010,868 Intangible assets, net 443,717 456,580 Goodwill 196,199 197,039 Deferred tax assets 539,990 549,422 Other assets 125,918 122,009 Total assets $ 4,722,841 $ 4,690,039 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 454,506 $ 570,621 Short-term convertible debt, net 365,964 361,882 Total current liabilities 820,470 932,503 Noncurrent liabilities: Long-term convertible debt, net 486,713 486,238 Long-term contingent consideration 50,524 50,793 Other long-term liabilities 125,172 98,124 Total liabilities 1,482,879 1,567,658 Stockholders’ equity: Common stock, $0.001 par value: 500,000,000 shares authorized; 180,761,969 and 179,383,114 shares issued and outstanding, respectively. 181 180 Additional paid-in capital 4,854,814 4,832,707 Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC) (9,832) (9,961) Accumulated other comprehensive income 34,127 20,164 Accumulated deficit (1,639,328) (1,720,709) Total stockholders’ equity 3,239,962 3,122,381 Total liabilities and stockholders’ equity $ 4,722,841 $ 4,690,039 LOSS and Nine Months Ended September 30, 2017March 31, 2020 and 2016 of U.S. dollars, except per share amounts)(Unaudited) Three Months Ended
March 31, 2020 2019 REVENUES: Net product revenues $ 489,043 $ 394,483 Royalty and other revenues 13,026 6,262 Total revenues 502,069 400,745 OPERATING EXPENSES: Cost of sales 111,374 89,182 Research and development 142,257 183,591 Selling, general and administrative 187,295 162,158 Intangible asset amortization and contingent consideration 15,677 19,765 Gain on sale of nonfinancial assets (59,495) — Total operating expenses 397,108 454,696 INCOME (LOSS) FROM OPERATIONS 104,961 (53,951) Equity in the loss of BioMarin/Genzyme LLC (77) (185) Interest income 5,244 6,298 Interest expense (6,915) (6,727) Other income (expense), net (1,861) 1,608 INCOME (LOSS) BEFORE INCOME TAXES 101,352 (52,957) Provision for income taxes 19,971 3,516 NET INCOME (LOSS) $ 81,381 $ (56,473) NET INCOME (LOSS) PER SHARE, BASIC $ 0.45 $ (0.32) NET INCOME (LOSS) PER SHARE, DILUTED $ 0.44 $ (0.32) Weighted average common shares outstanding, basic 179,898 178,271 Weighted average common shares outstanding, diluted 187,163 178,271 COMPREHENSIVE INCOME (LOSS) $ 95,344 $ (41,950) NineSeptember 30, 2017thousands of U.S. dollars)(Unaudited)Three Months Ended
March 31, 2020 2019 179,838 178,253 Issuances under equity incentive plans 924 780 Shares of Common Stock, ending balances 180,762 179,033 $ 3,122,381 $ 2,967,940 Common stock: 180 178 Issuances under equity incentive plans, net of tax 1 1 Ending balance 181 179 Additional paid-in capital: 4,832,707 4,669,926 Issuances under equity incentive plans, net of tax (24,227) (28,732) Stock-based compensation 46,463 41,706 Common stock held by the NQDC (129) — Ending balance 4,854,814 4,682,900 Company common stock held by the NQDC: (9,961) (13,301) Common stock held by the NQDC 129 389 Ending balance (9,832) (12,912) Accumulated other comprehensive income: 20,164 5,271 Other comprehensive income 13,963 14,523 Ending balance 34,127 19,794 Accumulated Deficit: (1,720,709) (1,694,134) Impact of change in accounting principles — (2,727) Net income (loss) 81,381 (56,473) Ending balance (1,639,328) (1,753,334) Total stockholders' equity, ending balances $ 3,239,962 $ 2,936,627 NineSeptember 30, 2017March 31, 2020 and 2016thousands of U.S. dollars)(Unaudited)Three Months Ended
March 31,2020 2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 81,381 $ (56,473) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 25,964 22,427 Non-cash interest expense 4,618 4,409 (Accretion of discount) Amortization of premium on investments 60 (891) Stock-based compensation 46,994 42,761 Gain on sale of nonfinancial assets (59,495) — Deferred income taxes 10,603 (704) Unrealized foreign exchange (gain) loss 9,400 (419) Non-cash changes in the fair value of contingent consideration (4) 12,260 Other (383) (19) Changes in operating assets and liabilities: Accounts receivable, net (31,898) (51,690) Inventory (20,706) 1,735 Other current assets 8,302 10,112 Other assets (441) 2,220 Accounts payable and accrued liabilities (94,733) (42,070) Other long-term liabilities 5,144 1,474 Net cash used in operating activities (15,194) (54,868) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (40,554) (28,756) Maturities and sales of investments 94,701 219,894 Purchases of available-for-sale securities (40,104) (239,843) Proceeds from sale of nonfinancial assets 67,159 — Purchase of intangible assets (3,463) (1,706) Other (335) (68) Net cash provided by (used in) investing activities 77,404 (50,479) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercises of awards under equity incentive plans 10,116 5,798 Taxes paid related to net share settlement of equity awards (28,844) (30,105) Principal repayments of financing leases (943) (674) Net cash used in financing activities (19,671) (24,981) Effect of exchange rate changes on cash (3,353) 715 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 39,186 (129,613) Cash and cash equivalents: Beginning of period $ 437,446 $ 493,982 End of period $ 476,632 $ 364,369 SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for income taxes $ 2,267 $ 906 Cash paid for interest $ 1,403 $ 1,483 SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON-CASH INVESTING AND FINANCING ACTIVITIES: Decrease in accounts payable and accrued liabilities related to fixed assets $ (19,927) $ (3,502) UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTSdollars,Dollars, except per share amounts or as otherwise disclosed) AND BUSINESS RISKStherapy portfolio consists of six approved productsseveral commercial therapies and multiple clinical and pre-clinicalpreclinical product candidates.short-term and long-term investments and through proceeds from debt or equity offerings, commercial borrowing, or through collaborative agreements with corporate partners. 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 is subject to a number of risks, including: the financial performance of its commercial products; the potential need for additional financings; the Company’s ability to successfully commercialize its approved products; the uncertainty of the Company’s research and development (R&D) efforts resulting in future successful commercial products; the Company’s ability to successfully obtain regulatory approval for new products; 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. Please see “Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q for a more detailed discussion of these risks.20162019 included in the Company’s Annual Report on Form 10-K.forand financial condition, including revenues, expenses, reserves and allowances, manufacturing, clinical trials and research and development costs, will depend on future developments that are highly uncertain at this time. As events continue to evolve and additional information becomes available, the three and nine months ended September 30, 2017 are not necessarily indicative of the results thatCompany’s estimates may be expected for the fiscal year ending December 31, 2017 or any other period.Thereninethree months ended September 30, 2017,March 31, 2020, as compared to the significant accounting policies disclosed in Note 3 of the Consolidated Financial Statements– Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.7– (Continued)described below, there have been no new accounting pronouncementseither short-term or changes to accounting pronouncements during the nine months ended September 30, 2017, as compared to the recent accounting pronouncements describedlong-term investments based on each instrument’s underlying contractual maturity date and its availability for use in Note 4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, that the Company believescurrent operations. Available-for-sale debt securities are of significance or potential significance to the Company.Effective January, 1, 2018, the Company will adopt Accounting Standards Update (ASU) No. 2014-09 (ASU 2014-09), Revenue from Contractsrecorded at fair market value with Customers, as amended (commonly referred to as ASC Topic 606), which provides principles for recognizing revenue to depict the transfer of promised goods or services to customersunrealized gains and losses included in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.As of September 30, 2017, the Company has not elected to early adopt ASC Topic 606 and plans to adopt the new standard using the modified retrospective method. The Company has formed a task force that is in the process of analyzing the Company’s customer contracts and the potential impacts the standard may have on previously reported revenues and future revenues. As the Company completes its analysis of the accounting for the Company’s customer contracts under the new revenue standard, management is assessing the required changes to the Company’s accounting policies, systems and internal control over financial reporting. Based on management’s preliminary analysis of the Company’s material contracts with customers, management does not anticipate that ASC Topic 606 will have a material impact on the timing of revenue recognition for the products that are marketed by the Company. Management is still assessing the application of ASC Topic 606 to Aldurazyme revenues earned from Genzyme Corporation (Genzyme).In January 2016, the Financial Accounting Standards Board (FASB) issued ASU No. 2016-01 (ASU 2016-01), Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 changes accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. In addition, the update clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The guidance will become effective for the Company’s fiscal year beginning January 1, 2018 and must be adopted using a modified retrospective approach, with certain exceptions. Early adoption is permitted for certain provisions. The Company is currently evaluating the impact that the standard will have on its Consolidated Financial Statements. Management’s assessment indicates that the amendment will not have a significant impact as the Company currently has no significant equity investments, however, the update may have a significant impact in the future. As of September 30, 2017, the Company has not elected to early adopt the amendments of ASU 2016-01.In February 2016, the FASB issued ASU No. 2016-02, Leases (ASU 2016-02). The amended guidance requires balance sheet recognition of lease right-of-use (ROU) assets and liabilities by lessees for leases classified as operating leases, with an option to not recognize lease ROU assets and lease liabilities for leases with a term of 12 months or less. The amendments also require new disclosures providing additional qualitative and quantitative information about the amounts recorded in the financial statements. Lessor accounting is largely unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted, but, as of September 30, 2017, the Company has not made the election to do so. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019. The amendments require a modified retrospective approach with optional practical expedients.As of September 30, 2017, the Company has formed a task force that is in the process of analyzing the Company’s lease contracts and the potential impacts the standard may have on its Consolidated Financial Statements and related disclosures. After completing the analysis of the accounting for the Company’s lease contracts under the amendments, management will assess the required changes to the Company’s accounting policies, systems and internal control over financial reporting. Based on management’s preliminary analysis, the Company anticipates the amendments may have a material impactAccumulated Other Comprehensive Income (AOCI) on the Company’s Consolidated Balance Sheets, due to the requirement to recognize lease ROU assets and corresponding liabilities related to leases on the Company’s Consolidated Balance Sheets, but they are not anticipated to have a material impact on the Company’s other Consolidated Financial Statements.In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). The amendment provides clarification about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. The Company has8BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)elected to early adopt ASU 2017-09, which did not have a material impact on the Company’s Consolidated Financial Statements because the Company’s policies had already been in compliance.In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). The amendment changes the recognition and presentation requirements of hedge accounting, including eliminating the requirement to separately measure and report hedge ineffectiveness and presenting all items that affect earnings in the same income statement line as the hedged item. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. Although the Company is currently evaluating the impact that the standard will have on its Consolidated Financial Statements, adoption of the amendment is not expected to have a material impact due to the nature of the Company’s hedging activity. As of September 30, 2017, the Company has not elected to early adopt the amendments of ASU 2017-12.(5) ACQUISITIONSOn October 1, 2015, the Company entered into a Termination and Transition Agreement with Ares Trading S.A. (Merck Serono), as amended and restated on December 23, 2015 (the A&R Kuvan Agreement), to terminate the Development, License and Commercialization Agreement, dated May 13, 2005, as amended (the License Agreement), between the Company and Merck Serono, including the license to Kuvan the Company had granted to Merck Serono under the License Agreement. Also on October 1, 2015, the Company and Merck Serono entered into a Termination Agreement (the Pegvaliase Agreement) to terminate the license to pegvaliase the Company had granted to Merck Serono under the License Agreement. On January 1, 2016, pursuant to the A&R Kuvan Agreement and the Pegvaliase Agreement, the Company completed the acquisition from Merck Serono and its affiliates of certain rights and other assets with respect to Kuvan and pegvaliase (the Merck PKU Business). As a result, the Company acquired all global rights to Kuvan and pegvaliase from Merck Serono, with the exception of Kuvan in Japan. Previously, the Company had exclusive rightsunrealized losses believed to Kuvan in the U.S. and Canada and pegvaliase in the U.S. and Japan. In connection with the acquisition of the Merck PKU Business, the Companybe related to credit losses, which, if any, are recognized transaction costs of $0.6 million, of which $0.3 million was recognized in each of the years ended December 31, 2016 and 2015.Pursuant to the A&R Kuvan Agreement, the Company paid Merck Serono $374.5 million, in cash, the majority of which was paid in January 2016, and is obligated to pay Merck Serono up to a maximum of €60.0 million, in cash, if future sales milestones are met. Pursuant to the Pegvaliase Agreement, the Company is obligated to pay Merck Serono up to a maximum of €125.0 million, in cash, if future development milestones are met. Merck Serono transferred certain inventory, regulatory materials and approvals, and intellectual property rights to the Company and will perform certain transition services for the Company. As of December 31, 2016, the inventory acquired from Merck Serono had been sold through to customers. The Company and Merck Serono have no further rights or obligations under the License Agreement with respect to Kuvan or pegvaliase.Prior to the consummation of the transactions described above, the Company sold Kuvan to Merck Serono at a price near its manufacturing costs, and Merck Serono resold the product to end-users outside the U.S., Canada and Japan. The royalty earned by the Company from Kuvan product sold by Merck Serono was included as a component of Net Product Revenuesearnings in the period earned.Kuvan is a commercialized product for the treatment of patients with phenylketonuria (PKU) and/or for primary BH4 deficiency in certain countries. At the time of the acquisition, pegvaliase was in pivotal studies as a potential therapeutic option for adult patients with PKU. In March 2016, the Company announced that its pivotal Phase 3 PRISM-2 study of pegvaliase met the primary endpoint of change in blood Phe compared with placebo (p<0.0001); and the Company submitted a marketing application in the U.S. in June 2017 and announced its plans to submit an application for registration in the European Union (EU). Kuvan has Orphan Drug exclusivity in the EU until 2020, and pegvaliase has Orphan Drug designation in the U.S. and the EU.The acquisition date fair value of the contingent acquisition consideration payments, Kuvan global marketing rights, with the exception of Japan, and pegvaliase in process research and development (IPR&D) acquired was estimated by applying a probability-based income approach utilizing an appropriate discount rate. This estimation was based on significant inputs that are not observable in the market, referred to as level 3 inputs. Key assumptions include a discount rate and various probability factors. The range of outcomes and assumptions used to develop these estimates has been updated to estimate the fair value of the contingent acquisition consideration payable as of September 30, 2017. See Note 13 to these Condensed Consolidated Financial Statements for additional9BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)discussion regarding fair value measurements of the contingent acquisition consideration payable included on the Company’s Condensed Consolidated Balance Sheet. The following table presents the final allocation of the purchase consideration for the Merck PKU Business acquisition, including the contingent acquisition consideration payable based on the acquisition date fair value. The allocation of the purchase price below reflects an inventory adjustment in the second quarter of 2016.The amount allocated to the Kuvan intangible assets is considered to be finite-lived and will be amortized on a straight-line basis over its estimated useful life through 2024.The amount allocated to acquired pegvaliase IPR&D is considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate the reduction in the fair value of the IPR&D assets below their respective carrying amounts. When development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point. See Note 8 to these Condensed Consolidated Financial Statements for further discussion of the indefinite-lived intangible assets.(6) NET LOSS PER COMMON SHAREPotentially issuable shares of common stock include shares issuable upon the exercise of outstanding employee stock option awards, common stock issuable under the Company’s ESPP, unvested restricted stock units (RSUs), common stock held by the NQDC and contingent issuances of common stock related to convertible debt.The following table sets forth the computation of basic and diluted earnings per common share (in thousands of common shares):10BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)The table below presents potential shares of common stock that were excluded from the computation of basic and diluted earnings per common share as they were anti-dilutive using the if-converted or treasury stock method (in thousands):The potential effect of the capped call transactions with respect to the Company’s 0.75% senior subordinated convertible notes due in 2018 (the 2018 Notes) and the Company’s 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes) was excluded from the diluted net income/loss per share as the Company’s closing stock price on September 30, 2017 and 2016 did not exceed the conversion price of $94.15 per share for the 2018 Notes and the 2020 Notes. There is no similar capped call transaction associated with the Company’s 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes). See Note 11 to these Condense Consolidated Financial Statements for information on the Company’s debt.(7) AVAILABLE-FOR-SALE SECURITIESAll investments were classified as available-for-sale at September 30, 2017 and December 31, 2016. The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s available-for-sale securities by major security type at September 30, 2017 and December 31, 2016 are summarized in the tables below:As of December 31, 2016, the Company had one investment in marketable equity securities, measured using quoted prices in its active market, which was considered a strategic investment. In the first quarter of 2017, the strategic investment was sold for a realized gain of $3.3 million. As of December 31, 2016, the fair value of the Company’s marketable equity securities was $4.1 million, which included an unrealized gain of $2.3 million, and was recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheet.11BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)The fair values of available-for-sale securities by contractual maturity were as follows:other-than-temporaryrelated to a credit loss and, if it is, other-than-temporary, anthe portion of the impairment relating to credit loss is recognizedrecorded as an allowance through net income.earnings equalNote 2 – Basis of Presentation, there have been no new accounting pronouncements adopted by the Company or new accounting pronouncements issued by the FASB during the three months ended March 31, 2020, as compared to the difference between the investment’s amortized cost and fair value at such date. As of September 30, 2017, somerecent accounting pronouncements described in Note 4 of the Company’s investments were in an unrealized loss position, whichAnnual Report on Form 10-K for the year ended December 31, 2019, that the Company considers temporarybelieves are of significance or potential significance to the Company.March 31, 2020 Amortized Cost Gross
Unrealized
GainsGross
Unrealized
LossesAggregate Fair Value Cash and Cash Equivalents Level 1: Cash $ 287,756 $ — $ — $ 287,756 $ 287,756 $ — $ — Level 2: Money market instruments 188,876 — — 188,876 188,876 — — Corporate debt securities 475,439 1,450 (1,888) 475,001 — 286,894 188,107 U.S. government agency securities 181,818 3,561 185,379 — 92,597 92,782 Asset-backed securities 11,454 59 (33) 11,480 — 2,273 9,207 Foreign and other 549 152 (1) 700 — 700 Subtotal 858,136 5,222 (1,922) 861,436 188,876 381,764 290,796 Total $ 1,145,892 $ 5,222 $ (1,922) $ 1,149,192 $ 476,632 $ 381,764 $ 290,796 nature.one year or less.have beenwere in a continuousan unrealized loss position until maturity or recovery, thus no other-than-temporary impairment is deemedrecovery. The Company considered the extent to have occurred.See Note 13 to these Condensed Consolidated Financial Statements for additional discussion regarding thewhich fair value of the Company’s available-for-sale securities.(8) INTANGIBLE ASSETSIntangible assets consisted of the following:Indefinite-Lived Intangible AssetsIntangible assets related to IPR&D assets are considered to be indefinite-lived until the completion or abandonment of the associated R&D efforts. During the period the assets are considered indefinite-lived, they will not beis less than amortized but will be tested for impairment on an annualcost basis, and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D assets below their respective carrying amounts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time.During the second quarter of 2016, the Company recorded impairment charges of $574.1 million based on the status of development efforts. These impairments reduced the remaining book value of certain IPR&D assets to zero due to the termination of the Kyndrisa and other exon programs. During the second quarter of 2016, the Company also recognized an impairment charge of $25.0 millionconditions specifically related to the reveglucosidase alfa IPR&D assets duesecurity’s industry and geography, payment structure and history and changes to the decisionratings (if any) in determining that the decline in fair value compared to terminate that development program. When a triggering event occurs, management evaluates both IPR&D assets and goodwill for possible impairments. Although management concluded these IPR&D assets were impaired as of June 30, 2016, management determined that goodwill was not impaired as of June 30, 2016. Because the Company’s single reporting unit is the consolidated entity, management compares the total carrying value of the single reporting unit, including goodwill, to the fair value of the reporting unit, as evidenced by the Company’s market capitalization. As of June 30, 2016, the Company’s capitalization exceeded the carrying value of its single reporting unit supporting management’s conclusion that goodwill wasis not impaired.In July 2017, the Company executed a license agreement and a settlement agreement (the Agreements) with Sarepta Therapeutics (Sarepta) that provide Sarepta with global exclusive rights to our Duchenne muscular dystrophy (DMD) patent estate for EXONDYS 51 and all future exon-skipping products. The Agreements resolved the ongoing worldwide patent proceedings related to12– (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)December 31, 2019 Amortized Cost Gross
Unrealized
GainsGross
Unrealized
LossesAggregate Fair Value Cash and Cash Equivalents Level 1: Cash $ 259,347 $ — $ — $ 259,347 $ 259,347 $ — $ — Level 2: Money market instruments 173,100 — — 173,100 173,100 — — Corporate debt securities 518,523 3,575 (12) 522,086 — 233,294 288,792 U.S. government agency securities 209,633 993 (67) 210,559 4,999 83,067 122,493 Foreign and other 549 145 (1) 693 — — 693 Subtotal 901,805 4,713 (80) 906,438 178,099 316,361 411,978 Total $ 1,161,152 $ 4,713 $ (80) $ 1,165,785 $ 437,446 $ 316,361 $ 411,978 usefair value of EXONDYS 51 and all future exon-skipping productsthe Company’s strategic investments was $6.2 million in each period. These investments were recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheets.March 31,
2020December 31,
2019Intangible assets: Finite-lived intangible assets $ 623,972 $ 652,734 Accumulated amortization (180,255) (196,154) Net carrying value $ 443,717 $ 456,580 DMD. PursuantLambert-Eaton myasthenic syndrome, to a third party in exchange for a one-time cash payment of $67.2 millionplus residual royalties. Under the terms of the agreement, the Company agreed to provide certain transition services to the Agreements, Sarepta paidthird-party purchaser, such as customer sales and support, for up to 12 months after the closing of the transaction. During the first quarter of 2020, the Company recognized a one-time upfront feenet before-tax gain of $35.0$59.5 million which was recognized as license revenue. Under the Agreements, Sarepta may pay certain additional regulatory and commercial milestone fees for exons 51, 45, 53 and possibly on future exon-skipping productsrelated to the Company if certain developmentsale of the Firdapse intellectual property and sales milestones are achieved.existing inventory. Additionally, Sarepta will pay the Company royalties based on 5%recognized a $0.8 million reduction to goodwill and disposed of $32.2 million in intangible assets, including related accumulated amortization of $31.6 million, as a result of the sale of Firdapse.salesconsisted of the following: March 31,
2020December 31,
2019Building and improvements $ 727,272 $ 725,906 Manufacturing and laboratory equipment 376,035 366,951 Computer hardware and software 170,132 167,554 Leasehold improvements 51,323 51,324 Furniture and equipment 38,124 38,569 Land improvements 7,349 7,349 Land 90,418 90,418 Construction-in-progress 119,328 111,897 1,579,981 1,559,968 Accumulated depreciation (570,009) (549,100) Total property, plant and equipment, net $ 1,009,972 $ 1,010,868 March 31,
2020December 31,
2019Raw materials $ 82,207 $ 74,442 Work-in-process 371,963 349,978 Finished goods 251,482 255,855 Total inventory $ 705,652 $ 680,275 through the end of 2023Dollars, except per share amounts or as otherwise disclosed)8% of net sales through September 30, 2024 in the EU and in other countries where certainAccrued Liabilities consisted of the Company’s patents exist. following:March 31,
2020December 31, 2019 Accounts payable and accrued operating expenses $ 235,163 $ 240,981 Accrued compensation expense 95,148 192,467 Accrued rebates payable 63,917 57,163 Accrued royalties payable 20,331 30,797 Deferred revenue 7,889 13,037 Value added taxes payable 8,444 8,395 Forward foreign currency exchange contracts 7,675 10,448 Lease liabilities 10,401 10,700 Other 5,538 6,633 Total accounts payable and accrued liabilities $ 454,506 $ 570,621 retainedmeasures certain financial assets and liabilities at fair value in accordance with the right to convert the license to a co-exclusive rightpolicy described in the event it decides to proceed with an exon-skipping therapy for DMD.See Note 7 to the Consolidated Financial Statements3 – 20162019.additional information related to the Company’s intangible assets.(9) PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment, net consistedidentical assets (Level 1) as of the following:Fair Value Measurements at March 31, 2020 Significant Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total Assets: Other current assets: NQDC Plan assets $ 367 $ — $ 367 Other assets: NQDC Plan assets 14,917 — 14,917 4,554 — 4,554 Total other assets 19,471 — 19,471 Total assets $ 19,838 $ — $ 19,838 Liabilities: Current liabilities: NQDC Plan liability $ 367 $ — $ 367 Other long-term liabilities: NQDC Plan liability 14,917 — 14,917 Contingent consideration — 50,524 50,524 Total other long-term liabilities 14,917 50,524 65,441 Total liabilities $ 15,284 $ 50,524 $ 65,808 The construction-in-process balance primarily includes costs related to the Company’s significant in-process projects at its facilities in Marin County, California, and in Shanbally, Ireland.Depreciation expense for the three and nine months ended September 30, 2017 was $19.4 million and $54.8 million, respectively,In the third quarter of 2016, process qualification production activities commenced in the Company’s Shanbally facility related to the Brineura manufacturing process. As of September 30, 2017, the value of the Shanbally qualification campaign was $25.4 million, which was capitalized into inventory because the product is expected to be sold commercially. While the Company believes it is unlikely that the manufacturing process will not be approved for Brineura, should that occur, the value of the inventory would be expensed at that time.13– (Continued)Fair Value Measurements at December 31, 2019 Significant Other
Observable
Inputs
(Level 2)Significant
Unobservable
Inputs
(Level 3)Total Assets: Other current assets: NQDC Plan assets $ 1,177 $ — $ 1,177 Other assets: NQDC Plan assets 16,288 — 16,288 3,168 — 3,168 Total other assets 19,456 — 19,456 Total assets $ 20,633 $ — $ 20,633 Liabilities: Current liabilities: NQDC Plan liability $ 1,177 $ — $ 1,177 Other long-term liabilities: NQDC Plan liability 16,288 — 16,288 Contingent consideration — 50,793 50,793 Total other long-term liabilities 16,288 50,793 67,081 Total liabilities $ 17,465 $ 50,793 $ 68,258 Accrued Liabilities consistedDecember 31, 2019 secure the Company's irrevocable standby letters of the following:(11) DEBTConvertible NotesIn August 2017, the Company issued $495.0 million in aggregate principal amount of senior subordinated convertible notes with a maturity date of August 1, 2024. The 2024 Notes were issued to the public at 98% of face value and bear interest at the rate of 0.599% per annum. Interest is payable semi-annually in cash on February 1 and August 1 of each year, beginning February 1, 2018. The 2024 Notes are convertible, at the option of the holder into shares of the Company’s common stock. The initial conversion rate for the 2024 Notes is 8.0212 shares per $1,000 principal amount of the 2024 Notes, which represents a conversion price of approximately $124.67 per share, subject to adjustment under certain conditions. Following certain corporate transactions, the Company will, in certain circumstances, increase the conversion rate for a holder that elects to convert its 2024 Notescredit obtained in connection with such corporate transactions by a number of additional shares of the Company’s common stock. A holder may convert fewer than all of such holder’s 2024 Notes so long as the amount of the 2024 Notes converted is an integral multiple of $1,000 principal amount. Net proceeds from the offeringcertain commercial agreements.$481.7 million.The 2024 Notes are senior subordinated, unsecured obligations, and rank (i) subordinated in right of payment to the prior payment in full of any of the Company’s existing and future senior debt, (ii) equal in right of payment to any of the Company’s existing and future senior subordinated debt, (iii) senior in right of payment to any of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the 2024 Notes, and (iii) effectively subordinated to any of the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness and structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. Upon the occurrence of a “fundamental change,” as defined in the indenture governing the 2024 Notes, the holders may require the Company to repurchase all or a portion of such holder’s 2024 Notes for cash at 100% of the principal amount of the 2024 Notes being purchased, plus any accrued and unpaid interest.In connection with the issuance of the 2024 Notes, the Company recorded a discount on the 2024 Notes of $9.9 million, which will be accreted and recorded as additional interest expense over the life of the 2024 Notes. During each ofno transfers between levels during the three and nine months ended September 30, 2017, the Company recognized $0.2 millionMarch 31, 2020. The following table represents a roll forward of debt discount accretion. The Company also incurred $3.4 millioncontingent consideration.Contingent consideration at December 31, 2019 $ 50,793 Changes in fair value of contingent consideration (4) Foreign exchange remeasurement of Euro denominated contingent acquisition consideration (265) Contingent consideration at March 31, 2020 $ 50,524 – (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)The following table summarizes information regarding the Company’s convertible debt:(1)The fair value of the Company’s fixed rate convertible debt is based on open market trades and is classified as Level 1 in the fair value hierarchy.Interest expense on the Company’s convertible debt consisted of the following:In April 2017, the Company’s 1.875% senior subordinated convertible notes due in 2017 (the 2017 Notes) matured, with holders thereof converting $22.5 million of the 2017 Notes prior to the maturity date into 1,103,704 shares of the Company’s common stock. During three and nine months ended September 30, 2016, certain existing holders of the Company’s 2017 Notes elected to convert $2.0 million and $8.9 million, respectively, in aggregate principal amount of the 2017 Notes into 97,348 and 438,315 shares of the Company’s common stock, respectively.See Note 13 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for additional information related to the Company’s convertible debt.15BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)In November 2016, the Company entered into a credit agreement (the Credit Agreement) with Bank of America, N.A., as the administrative agent, swing line lender and letter of credit issuer. The Credit Agreement provides for up to $100.0 million in revolving loans (the Revolving Credit Facility), a $10.0 million letter of credit subfacility and a $15.0 million swing line loan subfacility. The maturity date of the Revolving Credit Facility will occur on November 29, 2018. Interest on any outstanding balance of the Revolving Credit Facility is payable quarterly and draws may be voluntary prepaid at any time without penalty. In connection with entering into the Credit Agreement, $0.6 million in financing costs were incurred and will be amortized as Interest Expense over the term of the Credit Agreement. As of September 30, 2017 and December 31, 2016, there were no outstanding amounts due under the Revolving Credit Facility.In connection with the Revolving Credit Facility, the Company and certain of its subsidiaries are required to comply with covenants, including, among other things, restrictions on the Company’s and such subsidiaries’ ability to incur additional indebtedness, dispose of its assets, incur liens, make investments, and pay dividends or other distributions, in each case subject to specified exceptions. The Credit Agreement also contains customary indemnification obligations and customary events of default. If the Company’s Global Liquidity, which is defined as the sum of the market value of unrestricted cash, marketable securities and other assets to the extent constituting “cash and cash equivalents,” “short-term investments” or “long-term investments” as reflected in the Company’s Condensed Consolidated Balance Sheet, in each case, held by the Company or certain of the Company’s subsidiaries at such time, regardless of where such assets are domiciled, falls below $225.0 million at the end of any month or at the time of any borrowing or issuance of a letter of credit under the Revolving Credit Facility, then the Company’s obligations under the Credit Agreement will also be secured by the assets held by the Company in the custody account, which was established in the first quarter of 2017. As of September 30, 2017, the Company and certain of its subsidiaries that serve as guarantors were in compliance with all covenants.(12)(10) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIESdollar,Dollar (USD), primarily the Euro.foreign currency exchange contracts as hedging instruments and also 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 product revenues, royalty revenues, operating expenses and 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. Information regarding the specific instruments used by the Company toUSD. To receive hedge its exposure to foreign currency exchange rate fluctuations is provided below. See Note 13 to these Condensed Consolidated Financial Statements for additional discussion regarding the fair value of forward foreign currency exchange contracts.The Company enters into forward foreign currency exchange contracts in order to protect against the fluctuations in revenue and operating expenses associated with foreign currency-denominated cash flows. The Company has formally designated these forward foreign currency exchange contracts asaccounting treatment, cash flow hedges and expects them tomust be highly effective in offsetting fluctuations in operating expenses denominated in Euros and revenues denominated in currencies other than the U.S. dollar relatedchanges to changes in foreign currency exchange rates.16BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amountsexpected future cash flows on hedged transactions. The Company does not hold or as otherwise disclosed)The following table summarizes the Company’s designated forward foreign currency exchange contracts outstanding as of September 30, 2017 (notional amounts in millions):foreign currency exchange contracts is through September 2020. OverMarch 2023.next twelve months,Company’s derivatives designated as hedging instruments outstanding as of March 31, 2020 (notional amounts in millions):Foreign Exchange Contracts Number of
ContractsAggregate Notional
Amount in
Foreign CurrencyMaturity Purchase: Euros 137 165.4 Apr 2020 - Mar 2023 Sell: Australian Dollars 36 12.8 Apr 2020 - Mar 2021 Canadian Dollars 50 41.2 Apr 2020 - Mar 2021 Colombian Pesos 27 93,150.0 Apr 2020 - Mar 2021 Euros 374 605.3 Apr 2020 - Mar 2023 Norwegian Krone 36 82.0 Apr 2020 - Mar 2021 Total 660 Foreign Exchange Contracts Number of
ContractsAggregate Notional
Amount in
Foreign CurrencyMaturity Purchase: Euros 1 4.1 Jun 2020 Great British Pounds 1 8.3 Jun 2020 Sell: Colombian Pesos 1 49,800.0 Jun 2020 Rubles 1 1,055.0 Jun 2020 Total 4 Balance Sheet Location March 31, 2020 December 31, 2019 Derivatives designated as hedging instruments: Other current assets $ 30,077 $ 19,584 Other assets 16,984 13,539 Subtotal $ 47,061 $ 33,123 Accounts payable and accrued liabilities $ 7,522 $ 8,184 Other long-term liabilities 5,790 5,493 Subtotal $ 13,312 $ 13,677 Derivatives not designated as hedging instruments: Other current assets $ 200 $ 469 Accounts payable and accrued liabilities $ 153 $ 2,264 Total Derivatives Assets $ 47,261 $ 33,592 Total Derivatives Liabilities $ 13,465 $ 15,941 Three Months Ended Derivatives Designated as Cash Flow Hedging Instruments March 31, 2020 March 31, 2019 Amount of Gain (Loss) Recognized in Other Comprehensive Income $ 19,630 $ 12,825 Three Months Ended March 31, 2020 March 31, 2019 Derivatives Designated as Cash Flow Hedging Instruments Cash Flow Hedging Gains (Losses)
Reclassified into EarningsCash Flow Hedging Gains (Losses)
Reclassified into EarningsNet product revenues as reported $ 489,043 $ 6,329 $ 394,483 $ 695 Operating expenses as reported $ 397,108 $ (1,673) $ 454,696 $ 271 Derivatives Not Designated as Hedging Instruments Gains (Losses) Recognized in Earnings Gains (Losses) Recognized in Earnings Operating Expenses $ 3,809 $ (2,978) lossesgains of $12.9$21.0 million from accumulated other comprehensive income (loss)AOCI to earnings as the forecasted revenue and operating expense transactions occur.The Company also enters into forward foreign currency exchange contracts that are not designated as hedges for accounting purposes. The changes in fair valueoccur over the next 12 months.The fair value carrying amounts of the Company’s derivative instruments were as follows:17– (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)The effect of the Company’s derivative instruments on the Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2017 and 2016 was as follows:(1)Net change in the fair value of the effective portion classified as accumulated other comprehensive income (loss).(2)Effective portion classified as Net Product Revenues and SG&A expense.(3)Ineffective portion and amount excluded from effectiveness testing classified as SG&A expense.(4)Classified as SG&A expense.all of its derivative financial instruments.derivatives. The Company has established and maintains strict counterparty credit guidelines and enters into hedges onlyhedging agreements with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company doesis not requirerequired to pledge collateral to be pledged under these agreements.18Lease Classification Classification March 31,
2020December 31,
2019Assets: Operating Other Assets $ 49,116 $ 49,045 Financing Other Assets 9,703 10,389 Total ROU assets $ 58,819 $ 59,434 Liabilities: Current: Operating Accounts payable and accrued liabilities $ 7,114 $ 7,451 Financing Accounts payable and accrued liabilities 3,287 3,249 Noncurrent: Operating Other long-term liabilities 44,529 44,092 Financing Other long-term liabilities 5,844 6,708 Total lease liabilities $ 60,774 $ 61,500 – (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)(13) FAIR VALUE MEASUREMENTSThe Company measures certain financial assetsMaturity of Lease Liabilities Operating Financing Total Remainder of 2020 $ 8,814 $ 2,763 $ 11,577 2021 9,441 3,070 12,511 2022 8,749 2,339 11,088 2023 7,805 1,749 9,554 2024 5,995 — 5,995 Thereafter 22,044 — 22,044 Total lease payments 62,848 9,921 72,769 Less: Interest (11,205) (790) (11,995) Present value of lease liabilities $ 51,643 $ 9,131 $ 60,774 Three Months Ended
March 31,Lease Cost Classification 2020 2019 Operating Expenses $ 2,748 $ 3,080 Financing: Amortization Operating Expenses 707 607 Interest expense Operating Expenses 125 161 Total lease costs $ 3,580 $ 3,848 liabilities at fair value on a recurring basis, including available-for-sale fixed income securities and foreign currency derivatives. The tables below presentvariable lease costs, both of which were not material in the fair valueperiods presented.Three Months Ended
March 31,Other Information 2020 2019 Weighted average remaining lease term (in years): Operating leases 7.6 7.8 Financing leases 3.1 4.0 Weighted average discount rate: Operating leases 5.1 % 5.2 % Financing leases 5.3 % 5.4 % these financial assets and liabilities determined usingMarch 31, 2020, 0 operating leases are expected to commence in the following input levels.remainder of 2020.Three Months Ended
March 31,Supplemental Cash Flow Information 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Cash used in operating activities: Operating leases $ 1,440 $ 1,600 Financing leases $ 127 $ 161 Cash used in financing activities: Financing leases $ 823 $ 674 ROU assets obtained in exchange for lease obligations: Operating leases $ 2,427 $ 19 Financing leases $ 27 $ 68 19– (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)
(12) DEBT(1)See Note 12 to these Condensed Consolidated Financial Statements for further information regarding the derivative instruments.
Convertible Notes(2)The restricted investments at September 30, 2017 and December 31, 2016 secure the Company’s irrevocable standby letter of credit obtained in connection with certain commercial agreements.20March 31,
2020December 31,
20191.50% senior subordinated convertible notes due in October 2020 (the 2020 Notes) $ 374,993 $ 374,993 Unamortized discount (8,322) (12,078) Unamortized deferred offering costs (707) (1,033) 365,964 361,882 0.599% senior subordinated convertible notes due in August 2024 (the 2024 Notes) 495,000 495,000 Unamortized discount (6,179) (6,533) Unamortized deferred offering costs (2,108) (2,229) Convertible Notes due in 2024, net 486,713 486,238 Total convertible debt, net $ 852,677 $ 848,120 Convertible Notes due in October 2020 401,081 405,679 Convertible Notes due in August 2024 513,147 521,839 Total fair value of fixed rate convertible debt $ 914,228 $ 927,518 Three Months Ended
March 31,2020 2019 Coupon interest expense $ 2,172 $ 2,157 Amortization of debt issuance costs 508 507 Accretion of discount on convertible notes 4,110 3,902 Total interest expense on convertible debt $ 6,790 $ 6,566 – (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)There were no transfers between levels duringthreeCompany entered into an unsecured revolving credit facility of up to $200.0 million (the 2018 Credit Facility). The 2018 Credit Facility includes a letter of credit subfacility and nine monthsa swingline loan subfacility and is intended to finance ongoing working capital needs and for other general corporate purposes. Borrowings under the 2018 Credit Facility bear interest, at the Company’s option, at a rate equal to either (a) the LIBOR rate (except that if LIBOR is less than zero it shall be deemed to be zero for purposes of the 2018 Credit Facility), or LIBOR successor rate, plus an applicable margin ranging from 1.00% to 1.95% per annum, based upon the Company’s net leverage ratio and earnings before interest, taxes, depreciation and amortization (EBITDA) for each of the two most recently ended September 30, 2017.Level 2 securitiesobligations under the Credit Facility are valued using third-party pricing sources.guaranteed by its direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in the future be guaranteed from time to time by certain other material domestic subsidiaries. The pricing services utilize industry standard valuation models, including both income2018 Credit Facility matures on October 19, 2021 at which time all outstanding amounts become due and market-based approaches, for whichpayable, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, the Company may be required to repay all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotesamounts borrowed under the 2018 Credit Facility on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.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. See Note 6 to these Condensed Consolidated Financial Statements for further information regarding the Company’s financial instruments.Liabilities measured at fair value using Level 3 inputs consistedincurred approximately $1.0 million of contingent acquisition consideration payable and asset retirement obligations.The Company’s contingent acquisition consideration payable is estimated using a probability-based income approach utilizing an appropriate discount rate. Key assumptions used by management to estimate the fair value of contingent acquisition consideration payable include estimated probabilities, the estimated timing of when a milestone may be attained and assumed discount periods and rates. Subsequent changes in the fair value of the contingent acquisition consideration payable, resulting from management’s revision of key assumptions,issuance costs, which will be recorded in Intangible Asset Amortization and Contingent Consideration in the Company’s Condensed Consolidated Statements of Comprehensive Loss. The probability-based income approach used by managementamortized to estimate the fair value of the contingent acquisition consideration is most sensitive to changes in the estimated probabilities.Under certain of the Company’s lease agreements, the Company is contractually obligated to return leased space to its original condition upon termination of the lease agreement. The Company records an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation, when estimable. In subsequent periods, for each such lease, the Company records interest expense to accrete the asset retirement obligation liability to full value and depreciates each capitalized asset retirement obligation asset, bothInterest Expense over the term of the associated lease agreement.2018 Credit Facility. The 2018 Credit Facility contains financial covenants requiring the Company to maintain a minimum interest coverage ratio and a minimum liquidity requirement. As of September 30, 2017, the balanceMarch 31, 2020, and December 31, 2019, there were 0 outstanding amounts due on nor any usage of the asset retirement obligation liability was $4.1 million.The Company acquired intangible assets as a result2018 Credit Facility. As of various business acquisitions. The estimated fair value of these long-lived assets was measured using Level 3 inputs as of the acquisition date.(14) STOCK-BASED COMPENSATIONThe Company’s stock-based compensation plans include the 2017 Equity Incentive Plan (the 2017 Equity Incentive Plan) and the ESPP. The 2017 Equity Incentive Plan, which was approved by the Company’s stockholders on June 6, 2017 and became effective that same date, and is the successor to and continuation of the Company’s Amended and Restated 2006 Share Incentive Plan (the 2006 Share Incentive Plan), provides for awards of RSUs and stock options as well as other forms of equity compensation. No additional awards will be granted under the 2006 Share Incentive Plan; however, there are vested and unvested awards outstanding under the 2006 Share Incentive Plan. Stock option awards granted to employees generally vest over a four-year period on a cliff basis one year after the grant date and then monthly thereafter. The contractual term of the outstanding options is generally ten years. RSUs granted to employees generally vest annually on a straight-line basis over a four-year period after the grant date. RSUs granted to directors21BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)generally vest in full one year after the grant date. Shares formerly reserved for future issuance under the 2006 Share Incentive Plan were transferred to the 2017 Equity Incentive Plan, from which future shares shall be issued. The Company’s stock-based compensation plans are administered by the Company’s Board of Directors, or designated Committee thereof, which selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures and other provisions of the awards.Determining the Fair Value of Stock Options and Stock Purchase RightsThe 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 are considered separately for valuation purposes. The Company has identified two groups with distinctly different exercise patterns. The two groups identified are executive and non-executive employees. The executive employee group has a history of holding options for longer periods than non-executive employees. The expected volatility of stock options is based upon the weighted-average 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 thatMarch 31, 2020, the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future. Effective January 1, 2016, forfeitures were accounted for as they occurred. The assumptions used to estimate the per share fair value of stock options granted under the 2017 Equity Incentive Plan and the 2006 Share Incentive Plan were as follows:During the nine months ended September 30, 2017, the Company granted options to purchase 785,300 shares of common stock with a weighted-average fair value of $36.11 per share.The Company did not issue any new stock purchase rights under the ESPP during the three months ended September 30, 2017.Restricted Stock Unit Awards with Service-Based Vesting ConditionsRSUs 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 value of the shares of common stock underlying the RSUs at the date of grant, based on the closing price of the Company’s common stock on that date, ratably over the period during which the vesting restrictions lapse. During the nine months ended September 30, 2017, the Company granted 1,312,350 RSUs with service-based vesting conditions with a weighted-average fair value of $87.82 per share. Restricted Stock Unit Awards with Performance ConditionsOn March 22, 2017, pursuant to Board approval, the Company granted 133,250 RSUs with performance-vesting conditions (the 2017 Base RSUs) under the 2006 Share Incentive Plan to certain executive officers. The award of the RSUs under this specific grant is contingent upon the achievement of a 2017 revenue target and the awarded RSUs, if any, vest ratably over a three-year service period. The number of RSUs to be awarded upon achievement of the performance condition may range between 50% and 200% of the 2017 Base RSUs, dependent on the percentage of 2017 “managed revenues” (defined as the Company’s net product revenues, excluding net revenues attributable to Aldurazyme) achieved against the target managed revenues with a threshold achievement level of 75% of target and a ceiling achievement level of 125% of target. Stock-based compensation for these awards will be recognized over the service period beginning in the period the Company determines it is probable that the revenue target will be achieved. The cost of the 2017 Base RSUs was determined to be $87.42 per RSU, based on the fair value of the common stock underlying the 2017 Base RSUs on the grant date based on the closing price of the Company’s common stock on that date. The Company evaluated the 2017 revenue target in the context of its current 2017 revenue forecast and related confidence levelsubsidiaries that served as guarantors were in the forecast, and determined that attainment of the revenue target was probable for accounting purposes commencingcompliance with the first quarter of 2017. As a result, the Company recognized $1.2 million and $2.8 million of compensation expense related to these awards during the three and nine months ended September 30, 2017, respectively.22BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)On March 15, 2016, pursuant to Board approval, the Company granted 130,310 RSUs with performance-vesting conditions (the 2016 Base RSUs) and a three-year service period, under the 2006 Share Incentive Plan, to certain executive officers. Based on the Company’s performance against the 2016 revenue target, the Company applied a multiplier of 103% and issued 134,219 RSUs with a grant date fair value of $83.43 per RSU. The Company recognized $0.9 million and $3.2 million of compensation expense related to these awards during the three and nine months ended September 30, 2017, respectively. The Company recognized $1.0 million and $2.1 million of compensation expense related to these awards during the three and nine months ended September 30, 2016, respectively.On March 3, 2015, pursuant to Board approval, the Company granted 58,300 RSUs with performance-vesting conditions (the 2015 Base RSUs) and a three-year service period, under the 2006 Share Incentive Plan, to certain executive officers. Based on the Company’s performance against the 2015 revenue target, the Company applied a multiplier of 111% and issued 64,713 RSUs with a grant date fair value of $108.36 per RSU. The Company recognized $0.5 million and $1.7 million of compensation expense related to these awards during the three and nine months ended September 30, 2017, respectively. The Company recognized $0.6 million and $1.8 million of compensation expense related to these awards during the three and nine months ended September 30, 2016, respectively.Compensation expense included in the Company’s Condensed Consolidated Statements of Comprehensive Loss for all stock-based compensation arrangements was as follows:The Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, in 2016, noting that the impact of the election to use actual forfeitures rather than estimated forfeitures on quarterly reporting was not significant.Stock-based compensation expense of $4.5 million and $12.1 million was capitalized into inventory for the three and nine months ended September 30, 2017, respectively, compared to stock-based compensation expense of $3.5 million and $9.0 million that was capitalized into inventory for the three and nine months ended September 30, 2016, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.23BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)(15) (LOSS)Accumulated Other Comprehensive Income (Loss) (AOCI)AOCI and their effect on the Company’s Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and nine months ended September 30, 2017March 31, 2020 and 2016.2019. Condensed Consolidated
Statement of Comprehensive Income (Loss)
ClassificationThree Months Ended
March 31,2020 2019 Gains (losses) on cash flow hedges: Forward contracts Net product revenues $ 6,329 $ 695 Forward contracts Operating expenses (1,673) 271 Total gain (loss) on cash flow hedges $ 4,656 $ 966 and nine months ended September 30, 2017March 31, 2020 and 2016.2019.Three Months Ended March 31, 2020 Unrealized Gains
(Losses) on Cash
Flow HedgesUnrealized Gains
(Losses) on
Available for-Sale
Debt SecuritiesOther Total AOCI balance at December 31, 2019 AOCI balance at December 31, 2019 $ 16,614 $ 3,565 $ (15) $ 20,164 19,630 (1,334) 15 18,311 Less: net gain (loss) reclassified from AOCI Less: net gain (loss) reclassified from AOCI 4,656 — 4,656 Tax effect — 308 — 308 Net current-period other comprehensive income (loss) 14,974 (1,026) 15 13,963 AOCI balance at March 31, 2020 AOCI balance at March 31, 2020 $ 31,588 $ 2,539 $ — $ 34,127 24– (Continued)dollars,Dollars, except per share amounts or as otherwise disclosed)Three Months Ended March 31, 2019 Unrealized Gains
(Losses) on Cash
Flow HedgesUnrealized Gains
(Losses) on
Available for-Sale
Debt SecuritiesOther Total AOCI balance at December 31, 2018 AOCI balance at December 31, 2018 $ 7,201 $ (1,917) $ (13) $ 5,271 Other comprehensive income (loss) before
reclassifications12,825 3,455 (1) 16,279 Less: gain (loss) reclassified from AOCI 966 — — 966 Tax effect — (790) — (790) Net current-period other comprehensive income (loss) 11,859 2,665 (1) 14,523 AOCI balance at March 31, 2019 AOCI balance at March 31, 2019 $ 19,060 $ 748 $ (14) $ 19,794 (16)AND CREDIT CONCENTRATIONSNet Product Revenue - The Company considers there to be revenue concentration risks for regions where net product revenue exceeds 10% 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 experience difficulties.The table below summarizes consolidated net product revenue concentrations based on patient location for Brineura, Firdapse, Kuvan, Naglazyme, and Vimizim, which are sold directly by the Company, and global sales of Aldurazyme, which is marketed by Genzyme. Genzyme is the Company’s sole customer for Aldurazyme and is responsible for marketing and selling Aldurazyme to third-parties.25BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)The following table illustrates the percentage of the Company’s consolidated net product revenues attributed to the Company’s largest customers for the three and nine months ended September 30, 2017 and 2016.On a consolidated basis, the Company’s two largest customer accounts receivable balances accounted for 20% and 17% of the September 30, 2017 total accounts receivable balance, respectively, compared to December 31, 2016, when the two largest customer accounts receivable balances accounted for 26% and 20% of the total accounts receivable balance, respectively. As of September 30, 2017, and December 31, 2016, the accounts receivable balance for Genzyme included $17.8 million and $30.7 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 does perform periodic credit evaluations of its customers’ financial condition and requires immediate payment in certain circumstances.The Company sells its products in countries, including Southern European countries, Russia, Chile and Brazil, which face economic crises and local currency devaluation. Although the Company has historically collected receivables from customers in those countries, sustained weakness or further deterioration of the local economies and currencies may cause customers in those countries to be unable to pay for the Company’s products. The Company has not historically experienced a significant level of uncollected receivables and has received continued payments from its more aged accounts in these countries. The Company believes that the allowances for doubtful accounts related to these countries, if any, is adequate based on its analysis of the specific business circumstances and expectations of collection for each of the underlying accounts in these countries.(17) SEGMENT INFORMATIONone1 business segment, which primarily focuses on the development and commercialization of innovative therapies for people with serious and life threateninglife-threatening rare diseases and medical conditions. All products are included in one segment because allThe Company considers there to be revenue concentration risks for regions where Net Product Revenues exceed 10% of consolidated Net Product Revenues. The concentration of the Company’s productsNet Product Revenues within the regions below may have similar economica material adverse effect on the Company’s revenues and other characteristics, includingresults of operations if sales in the nature of the products and production processes, type of customers, distribution methods and regulatory environment.26BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)summarizes total revenuesdisaggregates Total Revenues from external customers and collaborative partners by geographic region. Net product revenues by geographic region are based on patient location for the Company’s commercial products, except for Aldurazyme, which is based on the locationsold exclusively to Genzyme Corporation, a wholly owned subsidiary of Genzyme’s headquarters. Although GenzymeSanofi (Genzyme) who markets and sells Aldurazyme worldwide, theworld-wide. Aldurazyme revenues earned by the Company based on Genzyme’s net sales are included in the U.S. region as the transactions are with Genzyme whose headquarters areis located in the U.S.Three Months Ended
March 31,2020 2019 Total revenues by geographic region: United States $ 244,172 $ 190,936 Europe 145,036 124,539 Latin America 59,924 33,839 Rest of world 52,937 51,431 Total revenues $ 502,069 $ 400,745 (18)Three Months Ended
March 31,2020 2019 Net product revenues by product: Brineura $ 23,970 $ 12,180 Firdapse 1,288 5,112 Kuvan 122,028 106,924 Naglazyme 114,256 86,927 Palynziq 34,632 12,272 Vimizim 137,203 125,801 Total net product revenues marketed by the Company $ 433,377 $ 349,216 Aldurazyme net product revenues marketed by Genzyme 55,666 45,267 Total net product revenues $ 489,043 $ 394,483 Three Months Ended
March 31,2020 2019 United States $ 181,671 $ 144,285 Europe 140,851 123,085 Latin America 59,924 33,840 Rest of world 50,931 48,006 Total net product revenues marketed by the Company 433,377 349,216 Aldurazyme net product revenues marketed by Genzyme 55,666 45,267 Total net product revenues $ 489,043 $ 394,483 Three Months Ended
March 31,2020 2019 Customer A 13 % 18 % Customer B 12 % 11 % Customer C 11 % 12 % Customer D 11 % 11 % Total 47 % 52 % Three Months Ended March 31, 2020 2019 Cost of sales $ 5,084 $ 4,819 Research and development 13,711 13,833 Selling, general and administrative 28,199 24,109 Total stock-based compensation expense $ 46,994 $ 42,761 Three Months Ended March 31, 2020 2019 Numerator: Net Income (Loss), basic $ 81,381 $ (56,473) Add: Interest on 2024 notes 936 — Net Income (Loss), diluted $ 82,317 $ (56,473) Denominator: Weighted-average common shares outstanding, basic 179,898 178,271 Effect of dilutive securities: Options to purchase common stock 1,708 — Common stock issuable under the 2024 notes 3,970 — Unvested RSUs 1,037 — Common stock potentially issuable for ESPP purchases 346 — Common shares held by the NQDC 204 — Weighted-average common shares outstanding, diluted 187,163 178,271 Net Income (Loss) per common share, basic $ 0.45 $ (0.32) Net Income (Loss) per common share, diluted $ 0.44 $ (0.32) Three Months Ended March 31, 2020 2019 Options to purchase common stock 6,063 7,749 Common stock issuable under the 2020 Notes 3,983 3,983 Common stock issuable under the 2024 Notes — 3,970 Unvested RSUs 3,811 4,164 Common stock potentially issuable for ESPP purchases 232 417 Common stock held by the NQDC — 202 Total number of potentially issuable shares 14,089 20,485 most significant of these actions are described below.The process ofandor cash flows. The Company’s generalParagraph IV Notices The Company received a paragraph IV notice letter, dated December 23, 2016, from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL), notifying it that DRL had filed an abbreviated new drug application (ANDA) seeking approvala proposed generic version of Kuvan (sapropterin dihydrochloride) 100 mg oral powder prior to the expiration of the Company’s patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). The Company filed a lawsuit alleging patent infringement against DRL. In August 2017,March 31, 2020, the Company entered into a settlement agreement with DRL (the DRL Powder Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral powder. Under the terms of the DRL Powder Settlement Agreement, the Company granted DRL a non-exclusive license to its Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride in oral powder form in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.The Company also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par Pharmaceutical, Inc. (Par), notifying it that Par had filed an ANDA seeking approval of proposed generic versions of Kuvan 100 mg oral powder and Kuvan 100 mg oral tablets, respectively, prior to the expiration of the Company’s patents listed in the FDA’s Orange Book. The Company filed two lawsuits alleging patent infringement against Par (the lawsuit against Par pertaining to the proposed generic version of Kuvan 100 mg oral tablets was filed together with Merck & Cie), and the two Par cases were consolidated. In April 2017, the Company and Merck & Cie entered into a settlement agreement with Par (the Par Settlement Agreement) that resolved both cases against Par. Under the Par Settlement Agreement, the Company granted Par a non-exclusive license to its Kuvan-related patents to allow Par to market a generic version of sapropterin dihydrochloride in 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.The Company also received a paragraph IV notice letter, dated October 3, 2014, from DRL notifying it that DRL had filed an ANDA seeking approval of a proposed generic version of Kuvan 100 mg oral tablets prior to the expiration of the Company’s patents27BIOMARIN PHARMACEUTICAL INC.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(In thousands of U.S. dollars, except per share amounts or as otherwise disclosed)listed in the FDA’s Orange Book. The Company, together with Merck & Cie, filed a lawsuit alleging patent infringement against DRL. In September 2015, the Company and Merck & Cie entered into a settlement agreement with DRL (the DRL Tablet Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral tablets. Under the terms of the DRL Tablet Settlement Agreement, the Company granted DRL a non-exclusive license to its Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride 100 mg oral tablets in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.Contingent PaymentsAs of September 30, 2017, the Company is subject to contingent payments totaling approximately $600.2$355.4 million upon achievement of certain development and regulatory activities and commercial sales and licensing milestones, if they occur$218.3$66.0 million (or €185 million based on the exchange rate of 1.18 USD per Euro in effect on September 30, 2017) relates to the Merck PKU Business acquisition of certain rights and $53.3other assets with respect to Kuvan and Palynziq from a third party and $243.1 million relates to programs that are no longer being developed.139 to these Condensed Consolidated Financial Statements for further information regarding the fair value of the Company’s contingent acquisition consideration payable.As of September 30, 2017, the Company has recorded a total of $179.4 million of short-term and long-term contingent acquisition consideration payable on its Condensed Consolidated Balances Sheet, of which $52.6 million is expected to be paid in the next twelve months.inventory related items.third-party R&D services. As of September 30, 2017, theseMarch 31, 2020, such commitments and other minimum contractual obligations for the next five years were approximately $41.5 million. The amounts primarily represent minimum purchase requirements for active pharmaceutical ingredientsclinical and post-marketing commitments related to the Company’s approved products.(19) BENEFIT FROM INCOME TAXESThe Company has historically computed its interim period benefit from income taxes by applying its forecasted effective tax rate to year-to-date earnings. However, due to a significant amountservices were estimated at approximately $113.4 million.U.S. forecasted income used in computing the effective tax rate, the effective tax rate can be highly sensitive to minor fluctuations in U.S. forecasted income. As such, the Company has computed the U.S. componentFinancial Condition and Results of the consolidated benefit from income taxes for the three and nine months ended September 30, 2017 and 2016 using an actual year-to-date tax calculation. Foreign tax expense was computed using a forecasted annual effective tax rate for the three and nine months ended September 30, 2017 and 2016.
Operationsrisksrisk factor related to the impact of the coronavirus pandemic, “The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations and uncertaintiesfinancial condition.” described in “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q.10-Q, amongst the other risk factors. These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled “Forward-Looking Statements” that appears at the beginning of this Quarterly Report on Form 10-Q. These statements, like all statements in this report, speak only as of the date of this Quarterly Report on Form 10-Q (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments. therapy portfolio consists of six productsseveral commercial therapies and multiple clinical and pre-clinicalpreclinical product candidates. OurA summary of our major commercial products, are Aldurazyme (laronidase)as of March 31, 2020, is provided below:Major Commercial Products Indication Aldurazyme (laronidase) Expired Expired Expired Brineura (cerliponase alfa) 2024 2029 2027 Kuvan (sapropterin dihydrochloride) Expired Not Applicable Naglazyme (galsulfase) Expired Expired Expired Palynziq (pegvaliase-pqpz) 2025 2030 2029 Vimizim (elosulfase alpha) 2021 2026 2024 , Brineura (cerliponase alfa) for, Firdapse (amifampridine phosphate) for Lambert Eaton Myasthenic Syndrome (LEMS), Kuvan (sapropterin dihydrochloride) forNaglazyme (galsulfase) forwhich together with pediatric exclusivity, confers 12 years of market exclusivity in the EU that expires in December 2020 and Vimizim (elosulfase alpha) forIV A).Major Product Candidates
in DevelopmentTarget
IndicationU.S. Orphan
DesignationEU Orphan
DesignationStage Valoctocogene roxaparvovec Severe Hemophilia A Yes Yes Clinical Phase 3 Vosoritide Achondroplasia Yes Yes Clinical Phase 3 BMN 307 PKU Yes Yes 2017.the first quarter of 2020. We believe that the combination of our internal research programs, acquisitions and partnerships will allow us to continue to develop and commercialize innovative therapies for people with serious and life-threatening rare diseases and medical conditions. Below is a summary of key business developments during the three months ended March 31, 2020:2017the third quarter of 2020 for vosoritide based on recent meetings with the health authorities.date:14 with achondroplasia, the most common form of disproportionate short stature. The placebo-adjusted increased change from baseline in growth velocity after one year of treatment with vosoritide, the primary endpoint, was 1.6cm/yr (p<0.0001). The results were consistent across the broad patient population studied. Vosoritide was generally well tolerated with no clinically significant blood pressure changes.October 2017,February 2020, we announced that the FDA had completed its review of the Investigational New Drug (IND) application for valoctocogene roxaparvovec (formerly referred to as BMN 270), an investigational gene therapy treatment for severe hemophilia A, and concluded that we could proceed with its clinical development. The IND application included 52-week data at the 6e13 vg/kg dose and the protocol for the Phase 3 study using the 6e13 vg/kg dose. We expect to file for approval of valoctocogene roxaparvovec with 52-week data from the Phase 3 studies. The protocol for the second Phase 3 study using the 4e13 vg/kg dose has also been submitted to the FDA. The FDA granted valoctocogene roxaparvovec Breakthrough Therapy Designation in October 2017. The FDA’s Breakthrough Therapy Designation is intended to facilitate and expedite development and review of new drugs to address unmet medical need in the treatment of a serious condition. We also announced that the Phase 3 Clinical Trial Application was approved by the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA). In July 2017, we announced that median and mean Factor VIII levels from week 20 through 52 for the 6e13 vg/kg dose cohort have been consistently within the normal levels post treatment. We expect to initiate the global Phase 3 program in the fourth quarter of 2017.In October 2017, we announced the selection of our next drug development candidate, BMN 290, a selective chromatin modulation therapy intended for treatment of Friedreich's Ataxia (FA), a rare autosomal recessive disorder that results in disabling neurologic and cardiac progressive decline. Currently, there are no approved disease modifying therapies for FA. BMN 290 is a second-generation compound derived from a compound acquired from Repligen Corporation (Repligen) that had human clinical data demonstrating increases in frataxin in FA patients. BMN 290 was selected for its favorable penetration into the central nervous system and cardiac target tissues, and its preservation of the selectivity of the original Repligen compound. We expect to submit the IND application in the second half of 2018.followed by a subsequent open-label extension. In April 2017, following discussions with global health authorities, we announced plans to augment the growth velocity data in the Phase 3 study with assessments of proportionality, functionality and cumulative growth observed in that study and the ongoing Phase 2 study, as well as safety and efficacy in infants.In August 2017, the FDA accepted for Priority Review thepriority review our Biologics License Application (BLA) for pegvaliase, a PEGylated phenylanine-metabolizing enzyme product, to reduce blood phenylalanine (Phe) levels in adult patientsvaloctocogene roxaparvovec for the treatment of adults with PKU who have uncontrolled blood Phe levels on existing management. The FDA is not currently planning to hold an advisory committee meeting to discuss the BLA.severe hemophilia A. The Prescription Drug User Fee Act (PDUFA) target action date is February 28, 2018. However,for the FDABLA has requested additional Chemistry, Manufacturing, and Controls (CMC) information, which we expect, when submitted, will be classified as a major amendment and result in a three month extension ofbeen set for August 21, 2020. In December 2019, the PDUFA date. We also intend to submit aEMA validated the Marketing Authorization Application (MAA) for valoctocogene roxaparvovec, which has been in review under accelerated assessment since January 2020.EMAstandard review procedure, as is the case with most filings that initially receive accelerated assessment. Because of the combination of these events, we expect an opinion from the Committee for Medicinal Products for Human Use in late 2020/early 2021.first quarterUnited Kingdom granted BMN 307 Investigational New Drug (IND) status and approved our Clinical Trial Application (CTA), respectively. The impact of 2018.In August 2017, we entered into a settlement agreement with Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories, Ltd. (collectively, DRL)COVID-19 has created uncertainty about when it will be safe for patients to be dosed in PHEARLESS, our Phase 1/2 study of BMN 307. We currently estimate that resolves the patent litigation with DRLdosing will begin in the U.S. relatedsecond half of 2020. In the meantime, new sites are currently being prepared to Kuvan 100 mg oral powder. Under the terms of the agreement, we granted DRL a non-exclusive license to our patents related to Kuvan to allow DRL to market a generic version of sapropterin dihydrochloride in oral powder form in 100 mgopen and 500 mg packet formulationsenroll patients. All subjects participating in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.In July 2017, we executed a license agreement and a settlement agreement (the Agreements) with Sarepta Therapeutics (Sarepta) that provide Sarepta with global exclusive rights toPHEARLESS study will receive product made at commercial scale from our Duchenne muscular dystrophy (DMD) patent estate for EXONDYS 51 and all future exon-skipping products. The Agreements resolved the ongoing worldwide patent proceedings related to the use of EXONDYS 51 and all future exon-skipping products for the treatment of DMD. Pursuant to the Agreements, Sarepta paid us a one-time upfront fee of $35.0 million, which we recognized as license revenue. Under the Agreements, Sarepta may pay certain additional regulatory and commercial milestone fees for exons 51, 45, 53 and possibly on future exon-skipping products to us if certain development and sales milestones are achieved. Additionally, Sarepta will pay us royalties based on 5% of net sales in the U.S. through the end of 2023 and 8% of net sales through September 30, 2024 in the EU and in other countries where certain of our patents exist. We retained the right to convert the license to a co-exclusive right in the event we decide to proceed with an exon-skipping therapy for DMD.In July 2017, we commissioned our commercial gene therapy manufacturing facility. Both the FDA and EMA have granted BMN 307 Orphan Drug Status.located- In January 2020, we announced that significant improvements in Novato, California, and began Good Manufacturing Practices (GMP) production of valoctocogene roxaparvovecproductivity at our gene therapy facility had increased capacity for up to support clinical development activities and anticipated commercial demand. This facility is capable of supporting the manufacturing of product for approximately 2,00010,000 patients per year, depending on dose and the production process was developed in accordance with International Conference on Harmonisation guidance for Pharmaceuticals for Human Use facilitating worldwide registration with health authorities.product mix.In June 2017, the European Commission granted marketing authorization for Brineura in the European Union (EU) to treat children with CLN2 disease. The marketing authorization for Brineura includes all 28 countries of the EU, Norway, Iceland and Liechtenstein. Brineura is the first treatment approved in the EU for the treatment of CLN2 disease. We immediately began marketing Brineura in the EU and began shipping the product within the EU in July 2017.In April 2017, the United States (U.S.) Food and Drug Administration (FDA) approved Brineura to treat children with CLN2 disease. Brineura is the first treatment approved in the U.S. to slow the progression of loss of ambulation in children with CLN2 disease. We immediately began marketing Brineura in the U.S., and began shipping the product within the U.S. in June 2017.In April 2017, we entered into a settlement agreement with Par Pharmaceutical (Par) that resolves patent litigation in the U.S. with Par related to our Kuvan (sapropterin dihydrochloride) 100 mg oral tablets and powder for oral solution in 100 mg packets. Under the terms of the settlement, we granted Par a non-exclusive license to our patents related to Kuvan to allow Par to market a generic version of sapropterin dihydrochloride 100 mg tablets and powder for oral solution in 100 mg and 500 mg sachets in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.continued to observe that BMN 250 reduced heparan sulfate levels to normal range in cerebral spinal fluid of MPS IIIB patients and observed liver size decreases and Development Quotient stabilization or improvement.We reported total revenues of $334.1 million $955.3 million for the three and nine months ended September 30, 2017, respectively, compared to $279.9 million and $816.8 million for the three and nine months ended September 30, 2016, respectively.following (in millions):following:Three Months Ended
March 31,2020 2019 Total revenues $ 502.1 $ 400.7 Cost of sales $ 111.4 $ 89.2 Research and development (R&D) expense $ 142.3 $ 183.6 Selling, general and administrative (SG&A) expense $ 187.3 $ 162.2 Intangible asset amortization and contingent consideration Intangible asset amortization and contingent consideration $ 15.7 $ 19.8 Gain on sale of nonfinancial assets Gain on sale of nonfinancial assets $ (59.5) $ — Provision for income taxes Provision for income taxes $ 20.0 $ 3.5 Net Income (Loss) Net Income (Loss) $ 81.4 $ (56.5) See “ResultsOperations” below for a discussionnonfinancial assets related to the divestiture and sale of the detailed components and analysisFirdapse business to a third party;the amounts above.Total Revenues include net product revenues and royalty and other revenues. Net Product Revenues are generated from the six approved products in our product portfolio as of September 30, 2017. In the U.S., our commercial products are generally sold to specialty pharmacies or end-users, such as hospitals, which act as retailers. Outside the U.S., our commercial products are sold to our authorized distributors or directly to government purchasers or hospitals, which act as the end-users. Royalty and Other Revenues include royalties on net sales of products to licensees or sublicensees, collaborative agreement revenues and rental income associated with the tenants in our San Rafael, California facility.Cost of Sales includes raw materials, personnel and facility and other costs associated primarily with manufacturing Aldurazyme, Brineura, Naglazyme and Vimizim at our production facilities. Cost of Sales also includes third-party manufacturingrelated costs for the commercial production of the active ingredient in Kuvan and Firdapse and third-party production costsvaloctocogene roxaparvovec ; partially offset byfinal formulationvaloctocogene roxaparvovec and packaging servicesall products and costincome taxes.royalties payable to third partiesOperations” below for all products.R&D Expense includes costs associated with the research and development of product candidates and post-marketing research commitmentsadditional information related to our approved products. R&D Expense primarily includes preclinical and clinical studies, personnel and raw materials costs associated with manufacturing product candidates, quality control and assurance, research and development, facilities and regulatory costs.SG&A 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, legal fees and other professional services.short-term investments and long-term investments totaled approximately $1.7$1.1 billion as of September 30, 2017,March 31, 2020, compared to $1.4$1.2 billion as of December 31, 2016. 2019. We have historically financed our operations primarily through our cash flows from operating activities and the issuance of common stock and convertible debt. We expect to fund our operations withwill be highly dependent on our net product revenues fromto supplement our current liquidity and fund our operations for the foreseeable future. We may in the future elect to supplement this with further debt or equity offerings or commercial products, cash, cash equivalents, and short-term and long-term investments, supplemented by proceeds from equity or debt financings and loans, or collaborative agreements with corporate partners. The timing and mix of our funding options could changeborrowing. Further, depending on manymarket conditions, our financial position and performance and other factors, including how much we electmay in the future choose to spend on our development programs, potential licenses and acquisitions of complementary technologies, products and companies or if we elect to settle all oruse a portion of our cash, cash equivalents or investments to repurchase our convertible debt in cash.or other securities. See “Financial“Financial Position, Liquidity and Capital Resources” below for a further discussion of our liquidity and capital resources.Estimatesgenerally accepted accounting principles (U.S. GAAP)GAAP and pursuant to the rules and regulations promulgated by the Securities and Exchange Commission (SEC)(the SEC), we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors. We base our assumptions, judgments and estimates on historical experience and various other factorsassumptions 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 evaluateassumptions, judgmentsbusiness, results of operations and estimates. We also discussfinancial condition, including revenues, expenses, reserves and allowances, manufacturing, clinical trials and research and development costs, will depend on future developments that are highly uncertain at this time. As events continue to evolve and additional information becomes available, our critical accounting policiesestimates may change materially in future periods.estimates with the Audit CommitteeAnalysis of our BoardFinancial Condition and Results of 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 and revenue recognition 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.ThereOperations (continued)estimatesjudgments during the ninethree months ended September 30, 2017,March 31, 2020, compared to the critical accounting policies, estimates and estimatesjudgments disclosed in “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.if any, on our results of operations and financial condition.Net LossOur net loss for the three months ended September 30, 2017 was $12.5 million, compared to a net loss of $37.4 million for the three months ended September 30, 2016. Our net loss for the nine months ended September 30, 2017, was $65.7 million, compared to a net loss of $539.5 million for the nine months ended September 30, 2016. The decrease in net loss was primarily a result of the following (in millions):
Revenues(1)Includes Equity in the loss of BioMarin/Genzyme LLC, interest income, interest expense and other income, net.The decrease in net loss for the three and nine months ended September 30, 2017 was primarily attributed to an increase in total revenues mainly due to a $31.5 million net upfront license payment from Sarepta and patients initiating therapy. The increase in revenues was partially offset by a decrease in the benefit from income taxes for the three and nine months ended September 30, 2017 compared to the same periods in 2016. Additionally, during the nine months ended September 30, 2016 we recorded an impairment charge of $599.1 million primarily due to the termination of the Kyndrisa program, which was partially offset by the reversal of the deferred tax liability that had been established for the future amortization of those intangible assets. There was no similar charge during the nine months ended September 30, 2017. See below for additional information related to the net loss fluctuations presented above, including details of our operating expense fluctuations and the aforementioned impairment charge.A summary of our various commercial products, including key metrics as of September 30, 2017, is provided below:(1)Firdapse has not received marketing approval in the U.S. We have licensed the North American rights to develop and market Firdapse to a third party.(2)Kuvan has been granted orphan drug status in the EU, which together with pediatric exclusivity, confers 12 years of market exclusivity in the EU that expires in 2020. Furthermore, Merck Serono marketed Kuvan in the EU until January 1, 2016. See Note 5 to our accompanying Condensed Consolidated Financial for further discussion.Net product revenues consisted of the following (in millions):Three Months Ended
March 31,2020 2019 Change Net product revenues by product: Net product revenues by product: Brineura $ 24.0 $ 12.2 $ 11.8 Firdapse 1.2 5.1 (3.9) Kuvan 122.0 106.9 15.1 Naglazyme 114.3 86.9 27.3 Palynziq Palynziq 34.6 12.3 22.4 Vimizim 137.2 125.8 11.4 Total net product revenues marketed by the Company Total net product revenues marketed by the Company $ 433.3 $ 349.2 $ 84.1 Aldurazyme net product revenues marketed by Genzyme Aldurazyme net product revenues marketed by Genzyme 55.7 45.3 10.4 Total net product revenues $ 489.0 $ 394.5 $ 94.5 Our Brineura, Firdapse, Kuvan, NaglazymeVimizim customers include a limited number ofAldurazyme, are generally sold to specialty pharmacies andor end-users, such as hospitals, and foreign government agencies. We also sell Brineura, Kuvan, Naglazyme and Vimizim to our authorized distributors and to certain larger pharmaceutical wholesalers globally, which act as intermediaries between usretailers. Palynziq is distributed in the U.S. through certain certified specialty pharmacies under the Palynziq Risk Evaluation and end-usersMitigation Strategy (REMS) program, and generally do not stock significant quantities ofAldurazyme is marketed world-wide by Sanofi Genzyme (Genzyme). Outside the U.S., our products. However, incommercial products are sold to authorized distributors or directly to government purchasers or hospitals, which act as the end-users. In certain countries, particularlysuch as in Latin America, governments place large periodic orders for Naglazyme and Vimizim. The timing of these large government orders can be inconsistent and can create significant quarter to quarter variation in our revenues.Genzyme Corporation (Genzyme) issole customerproducts are administered via infusions in a clinic or hospital setting and/or by a healthcare professional. Although we are working with our patients and providers to find alternative arrangements where necessary, like providing infusions at home, we may not be able to accommodate all patients and doses that are missed may never be recouped. See “The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations and financial condition.” in “Risk Factors” included in Part II, Item 1A of this Quarterly Report for Aldurazyme and is responsible for marketing and selling Aldurazyme to third parties.net product revenuesNet Product Revenues denominated in U.S. dollar (USD)USD and foreign currencies (in millions):Three Months Ended
March 31,2020 2019 Change Sales denominated in USD $ 274.5 $ 235.2 $ 39.3 Sales denominated in foreign currencies 214.5 159.3 55.2 Total Net Product Revenues $ 489.0 $ 394.5 $ 94.5 and nine months ended September 30, 2017March 31, 2020 was positiveunfavorable by $0.2$4.6 million, which was primarily driven by weakening of currencies in emerging markets relative to the USD, such as the Brazilian Real, Colombian Peso and $1.6 million, respectively,Argentinian Peso, partially offset by the Euro compared to a positivean unfavorable impact of $0.5 million and a negative impact of $3.0 million, respectively, during the three and nine months ended September 30, 2016.The following is additional discussion of our revenue results by product:Aldurazyme: The Aldurazyme net product revenues for the three and nine months ended September 30, 2017, compared to the three and nine months ended September 30, 2016, remained relatively flat. The modest changes were primarily attributable to the timing of Aldurazyme revenues reported by Genzyme, offset in part by the timing of shipments to Genzyme. Aldurazyme revenues reported by Genzyme totaled $58.4 million and $176.3$5.4 million for the three and nine months ended September 30, 2017, respectively, compared to $58.9 million and $168.5 million for the three and nine months ended September 30, 2016, respectively. Although Genzyme sells Aldurazyme worldwide, the net product revenues earned by us on Genzyme’s net sales are denominated in USD.Brineura: The FDA and European Commission granted marketing approval for Brineura in April 2017 and June 2017, respectively. We began marking the product following approval in each of these markets with the first commercial shipments in the U.S. and EU occurring in June 2017 and July 2017, respectively.Kuvan: The increase in Kuvan net product revenues for the three and nine months ended September 30, 2017, compared to the three and nine months ended September 30, 2016, was primarily attributable to an increase in patients on Kuvan therapy in the U.S. and the completion of the transition of the ex-North American territories acquired in 2016.Naglazyme: The decrease in Naglazyme net product revenues for the three months ended September 30, 2017, compared to March 31, 2019 driven by fluctuations in the three months ended September 30, 2016, was mainly due to timing of government orders in Latin America, partially offset by new patients initiating therapy. The increase in Naglazyme net product revenues for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily attributable to new patients initiating therapy.Vimizim: The increase in Vimizim net product revenues for the three and nine months ended September 30, 2017, compared to the three and nine months ended September 30, 2016, was primarily attributed to new patients initiating therapy.Three Months Ended
March 31,2020 2019 Change Royalty and other revenues $ 13.0 $ 6.3 $ 6.7 and nine months ended September 30, 2017 included recognitionMarch 31, 2020 compared to the same periods in 2019 was primarily due to license revenues earned from the third-party that licensed tralesinidase alfa from us and royalties earned from Catalyst Pharmaceuticals on their net product sales of the $31.5 million net upfront license revenue from Sarepta and $1.4 millionFirdapse in royalty revenue earned on Sarepta net sales during the third quarter of 2017. North America.Sarepta’s net sales underthird parties in the termsfuture.the Agreements in future quarters.Product Gross MargincostCost of goods soldSales and product gross margin (in millions, except percentages):margin:Three Months Ended
March 31,2020 2019 Change Total Net Product Revenues $ 489.0 $ 394.5 $ 94.5 Cost of Sales $ 111.4 $ 89.2 $ 22.2 Product gross margin 77 % 77 % — % Product gross margin (defined as net product revenues less costOur Cost of sales, expressed as a percentage of net product revenues) for the three months ended September 30, 2017 compared to 2016 decreased modestly. The decrease in product gross marginSales increased for the three months ended September 30, 2017 was primarily attributed to increased Naglazyme and Vimizim manufacturing costs. Product gross margin for the nine months ended September 30, 2017March 31, 2020 compared to the comparablesame periods in 2019 due to increased sales volumes. Product gross profits for the three months ended March 31, 2020 compared to the same period in 20162019 remained flat. We expect product gross margin to remain in the low 80 percent range over the next twelve months.A summaryon-going major development programs, including key metrics as of September 30, 2017, is provided below:approved products. R&D expense primarily includes preclinical and clinical studies, personnel and raw materials costs associated with manufacturing clinical product, quality control and assurance, other R&D activities, facilities and regulatory costs.U.S. OrphanEU OrphanMajor Products in DevelopmentTarget IndicationDesignationDesignationStageBMN 250MPS IIIBYesYesClinical Phase 1/2PegvaliasePKUYesYesMarketing authorizationregulatory reviewValoctocogene roxaparvovecHemophilia AYesYesClinical Phase 1/2VosoritideAchondroplasiaYesYesClinical Phase 3business.R&D Expense decreased to $154.1 million and $442.1 million for the three and nine months ended September 30, 2017, respectively, from $160.8 million and $486.7 million for the three and nine months ended September 30, 2016, respectively. R&D expense consisted of the following (in millions):For the three and nine months ended September 30, 2017, R&D expense decreased by $6.7 million and $44.6 million, respectively, compared to the same periods in 2016. The decrease in R&D expense was primarily a result of the following:a decrease in R&D expense for other and non-allocated programs is primarily related to R&D spending in 2016 on the Kyndrisa, other exon-skipping, and reveglucosidase alfa development programs, all of which were terminated in 2016; anda decrease in R&D expense related to Brineura due to the approval of the product in the U.S. and EU in June 2017 and July 2017, respectively; offset byan increase in clinical trial activities related to BMN 250, pegvaliase, valoctocogene roxaparvovec and vosoritide product candidates; andan increase in pre-clinical activity for our early stage programs.During the remainder of 2017, we expect our R&D spending to increase over 2016 levels due to our BMN 250, pegvaliase, valoctocogene roxaparvovec, and vosoritide programs progressing in their development. We also expect increased spending on pre-clinical activities for our early development stage programs. Additionally, we expect to continue incurring significant R&D expense for the foreseeable future due to long-term clinical activities related to post-approval regulatory commitments for our approved products. We continuously evaluate the recoverability of costs associated with pre-launch or pre-qualification manufacturing activities, and capitalize the costs incurred related to those activities if it is determined that recoverability is highly likely and therefore future revenues are expected, the costs subsequently incurred related to pre-launch or pre-qualification manufacturing activities for purposes of commercial sales will likely be capitalized.expected. When regulatory approval and the likelihood of future revenues for a product candidate are less certain, the related manufacturing costs are expensed as R&D expenses.Three Months Ended March 31, 2020 2019 Change Valoctocogene roxaparvovec $ 30.8 $ 53.0 $ (22.2) Vosoritide 31.1 32.0 (0.9) PKU gene therapy (BMN 307) 17.5 11.8 5.7 Palynziq 11.4 22.8 (11.4) Brineura 8.0 10.5 (2.5) Tralesinidase alfa 0.1 8.8 (8.7) Other approved products 13.9 17.1 (3.2) Early stage programs 25.2 16.7 8.5 Other 4.3 10.9 (6.6) Total $ 142.3 $ 183.6 $ (41.3) SG&A Expense increased to $130.5 million$394.1 million for the three and nine months ended September 30, 2017, respectively, from $118.8 million and $333.6 million for the three and nine months ended September 30, 2016, respectively. The increase in SG&A expense was primarily a result of the following (in millions):S&MMarketing (S&M) expense primarily consisted of employee-related expenses for our sales group, brand marketing, patient support groups and pre-commercialization expenses related to our product candidates. For the threeGeneral and nine months ended September 30, 2017, the increase of $5.7 million and $27.0 million in S&M expense, respectively, compared to the same periods in 2016, was primarily related to the following:an increase in Kuvan S&M expense due to continued worldwide expansion of commercial activities as a result of acquiring the worldwide rights to Kuvan, except for Japan, on January 1, 2016;an increase in Brineura S&M expense primarily due to commercial marketing expense related to the launch of Brineura; andan increase in Vimizim S&M expense due to continued expansion of our worldwide commercial activities; offset bya decrease in other and not allocated S&M expense primarily due to the decrease in S&M expenses related to the terminated programs, primarily Kyndrisa.G&Aadministrative (G&A) expense primarily consisted of corporate support and other administrative expenses, including employee-related expenses, which increasedemployee-Three Months Ended March 31, 2020 2019 Change Selling & Marketing expense $ 94.9 $ 83.5 $ 11.4 General & Administrative expense 92.4 78.7 13.7 Total SG&A expense $ 187.3 $ 162.2 $ 25.1 Three Months Ended March 31, Selling & Marketing expense by product 2020 2019 Change PKU Products (Kuvan and Palynziq) $ 30.8 $ 31.1 $ (0.3) MPS Products (Aldurazyme, Naglazyme and Vimizim) 28.5 28.9 (0.4) Brineura 10.2 9.4 0.8 Valoctocogene roxaparvovec 18.1 6.9 11.2 Other 7.3 7.2 0.1 Total Selling & Marketing expense $ 94.9 $ 83.5 $ 11.4 and nine months ended September 30, 2017,March 31, 2020 as compared to the three and nine months ended September 30, 2016,same periods in 2019 was primarily a result of an increase in pre-commercialization activities related to valoctocogene roxaparvovec.increased personnel and related costs mainly due to increased headcount.commercial launchglobal expansion of Brineura,Palynziq and pre-commercialization efforts related to product candidates,valoctocogene roxaparvovec and vosoritide.continued international expansion of Kuvan and Vimizim, and the increase in administrative support requiredperiods presented for our expanding operations.Changes include:Three Months Ended March 31, 2020 2019 Change Changes in the fair value of contingent consideration $ — $ 12.3 $ (12.3) Amortization of intangible assets 15.7 7.5 8.2 Total intangible asset amortization and contingent consideration $ 15.7 $ 19.8 $ (4.1) Gain on sale of nonfinancial assets $ 59.5 $ — $ 59.5 contingent acquisition consideration payable result from updates to the estimated probability of achievement or assumed timing of milestones and adjustments to the discount periods and rates. Intangible asset amortization and contingent consideration expense consisted offor the following (in millions):acquisition consideration payablefor the three months ended March 31, 2019 were primarily attributable to changes in the estimated probability of achieving development milestones, based on the current status of thewhich was primarily related development programs as well as the passage of time. The majority of the changes in fair value of contingent acquisition consideration payable for each period presented was attributed to the following:during the three months ended September 30, 2017, we reduced the estimated probability of achieving the Firdapse FDA approval milestone prior to its expiration date to zero, which resulted in a decrease of $4.2 million due to the reversal of the fair value of a portion of the contingent consideration payable to the former Huxley Pharmaceuticals Inc. shareholders;during the nine months ended September 30, 2017, the continued progress of the PKU developmentalPalynziq program for pegvaliase, offset bytoward the reversalanticipated European MAA approval.fair value of the Firdapse FDA approval milestone; andduring the nine months ended September 30, 2016, the termination of the Kyndrisa and reveglucosidase alfa development programs that resulted in the reversal of the fair value of the remaining contingent consideration payable to the former Prosensa Holding N.V. and Zystor Therapeutics, Inc. shareholders.Impairment of Intangible AssetsIn the second quarter of 2016, we recorded an impairment charge of $599.1 million related to the Kyndrisa and other exon and reveglucosidase alfa IPR&D assets based on the termination of the internal development of the respective programs. No impairment charges were recordedincrease in the three and nine months ended September 30, 2017.March 31, 2020 was primarily due to the Palynziq acquired in-process research and development assets that were placed into service following EU marketing approval in May 2019.86 to our accompanying Condensed Consolidated Financial Statements for additional information regarding our Intangible Assets.short-termequivalents and long-term investments in U.S. government securities and other high credit quality debt securities in order to limit default and market risk. Interest income totaled $4.0 million and $10.0 millionwas comprised of the following:Three Months Ended March 31, 2020 2019 Change Interest income $ 5.2 $ 6.3 $ (1.1) and nine months ended September 30, 2017, respectively,March 31, 2020 compared to $1.6 million and $4.6 million for the three and nine months ended September 30, 2016, respectively. The increase in interest income during the three and nine months ended September 30, 2017, compared to the three and nine months ended September 30, 20162019 was primarily due to higherlower investment balances which increased duecompared to the investment of the net proceeds of $481.7 million from the August 2017 issuance of $495.0 million in aggregate principal amount of 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes) and higher average interest rate on investments. Due to higher investment balances offset in part by planned spend, over the next 12 months we expect an increase in interest income from present levels.following (in millions):following:Three Months Ended March 31, 2020 2019 Change Total interest expense $ 6.9 $ 6.7 $ 0.2 InterestThe interest expense primarily consisted of amounts related to our senior subordinatedon convertible notes. Interest expense indebt for the three and nine months ended September 30, 2017,March 31, 2020 compared to the three and nine months ended September 30, 2016 increased due to the issuance of the 2024 Notes. 2019 was flat.increaseremain relatively flat over the next 12 months duemonths. coupon interest and amortization of issuance costs related to the 2024 Notes. See Note 11 to our accompanying Condensed Consolidated Financial Statements for additional information regarding our debt. Benefit from Income TaxesFor the three and nine months ended September 30, 2017, we recognized a benefit from income taxes of $8.1 million and $24.8 million, respectively, compared to the three and nine months ended September 30, 2016 when we recognized an income tax benefit of $29.4 million and $199.4 million, respectively. The benefit from income taxes for the nine months ended September 30, 2016 primarily included the reversal of the deferred tax liability associated with the write-off of the IPR&D related to Kyndrisa and reveglucosidase alfa. We have historically computed our interim period benefit from income taxes by applying our forecasted effective tax rate to year-to-date earnings. However, due to a significant amount of U.S. permanent differences relative to the amount of U.S. forecasted income used in computing the effective tax rate, the effective tax rate can be highly sensitive to minor fluctuations in U.S. forecasted income. As such, we have computed the U.S. component of the consolidated benefit from income taxes for the three and nine months ended September 30, 2017 and 2016 using an actual year-to-date tax calculation. Foreign tax expense was computed using a forecasted annual effective tax rate for the three and nine months ended September 30, 2017 and 2016.The benefit from income taxes for the three and nine months ended September 30, 2017 and 2016 also consisted of state, federal and foreign current tax expense that was offset by deferred tax benefits from federal orphan drug and the federal and California R&D credits, and the tax benefit related to stock option exercises during these periods, which resulted in a net tax benefit in both periods. See Note 15 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 20162019 for additional discussioninformation related to our convertible debt. componentsCARES Act did not result in any material adjustments to our income tax provision for the three months ended March 31, 2020, or to our net deferred tax assets as of our benefit from income taxes.September 30, 2017,March 31, 2020, we had approximately $1.7$1.1 billion in cash, cash equivalents and short-term and long-term investments. We expect to fund our operations with our net product revenues from our commercial products, cash, cash equivalents and short-term and long-term investments, supplemented as may become necessary by proceeds from equity or debt financings and loans, or collaborative agreements with corporate partners. We may require additional financing to fund the repayment of our convertible debt, future milestone payments and our future operations, including the commercialization of our products and product candidates currently under development, preclinical studies and clinical trials, and potential licenses and acquisitions. We will need to raise additional funds from equity or debt securities, loans or collaborative agreements if we are unable to satisfy our liquidity requirements. The timing and mix of our funding options could change depending on many factors, including how much we elect to spend on our development programs, potential licenses and acquisitions of complementary technologies, products and companies or if we elect to settle all or a portion of our convertible debt in cash.September 30, 2017, $87.3March 31, 2020, $185.8 million of our $1.7$1.1 billion balance of cash, cash equivalents, and investments was held in foreign subsidiaries, a significant portion of which is required to fund the liquidity needs of these foreign subsidiaries. For additional discussion regarding income taxes, see Note 1518 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.SomeWe sell our products in certain countries that face economic volatility and weakness. Although we have historically collected receivables from customers in such countries, sustained weakness or further deterioration of the factors that could affectlocal economies and currencies and adverse effects of the impact of the ongoing COVID-19 pandemic may cause customers in those countries to be unable to pay for our business include: future changes to healthcare reform in the U.S., a continuation of uncertainty with respect to, or worsening of, global economic conditions, patent expirations of competitive products and the launch of generic competitors, continued government pricing pressures internationally and the potential volatility in foreign currency exchange rates.products. We will continue to monitor these conditions and will attempt to adjust our business processes, as appropriate, to mitigate thesemacroeconomic risks to our business.September 30, 2017March 31, 2020 and December 31, 20162019 were as follows (in millions):March 31, 2020 December 31, 2019 Change Cash and cash equivalents $ 476.6 $ 437.4 $ 39.2 Short-term investments 381.8 316.4 65.4 Long-term investments 290.8 412.0 (121.2) Cash, cash equivalents and investments $ 1,149.2 $ 1,165.8 $ (16.6) Convertible debt $ 852.7 $ 848.1 $ 4.6 ninethree months ended September 30, 2017March 31, 2020 and 20162019 are summarized as follows (in millions):follows:2020 2019 Change Cash and cash equivalents at the beginning of the period $ 437.4 $ 494.0 $ (56.6) Net cash used in operating activities (15.2) (54.9) 39.7 Net cash provided by (used in) investing activities Net cash provided by (used in) investing activities 77.4 (50.5) 127.9 Net cash used in financing activities Net cash used in financing activities (19.7) (25.0) 5.3 Foreign exchange impact (3.4) 0.8 (4.2) Cash and cash equivalents at the end of the period $ 476.6 $ 364.4 $ 112.2 Short-term and long-term investments 672.6 850.5 (177.9) Cash, cash equivalents and investments $ 1,149.2 $ 1,214.9 $ (65.7) $204.2$39.7 million from $227.6to $15.2 million duringin the ninethree months ended September 30, 2016March 31, 2020, compared to $23.4$54.9 million duringin the ninethree months ended September 30, 2017. Cash used in operating activitiesMarch 31, 2019. The decrease is primarily consistedattributed to the timing of net loss of $65.7 million, adjusted for non-cash items such as $106.7 million for stock-based compensation expenses, $59.2 million for depreciationcash receipts from customers and amortization expense, $23.8 million of non-cash interest expense,payments to vendors partially offset by $36.2higher inventory levels.for deferred income taxes and $3.3to $77.4 million gain on the sale of strategic investments. Cash used in operating activities in the comparable period in 2016 was adjusted for the non-cash impairment of intangible assets of $599.1 million. Changes in operating assets and liabilities during the ninethree months ended September 30, 2017 resulted in a net cash outflow of $122.5 million that consisted primarily of increased cash outflow for increased inventory spending for all commercial productsMarch 31, 2020, compared to meet anticipated future sales demand.Cash Used in Investing ActivitiesNet cash used in investing activities increased by $270.6 million from $174.4of $50.5 million during the ninethree months ended September 30, 2016 to $445.0 million during the nine months ended September 30, 2017. March 31, 2019. The increase is primarily attributable to the receipt of $67.2 million in cash due to the divestiture and sale of Firdapse assets to a third party and higher net maturities of available-for-sale debt securities. investing activities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 was primarily attributable to a $216.5 million increase in net purchases of available-for-sale securities and a $62.5 million increase of capital purchases. We expect to continue to make significant capital investments in our manufacturing and administrative facilities to accommodate anticipated demand for new commercial products, clinical studies and the related growth in personnel to support those activities.Cash Provided by Financing ActivitiesNet cash provided by financing activities decreased by $213.2$5.3 million from $707.2to $19.7 million forused in the ninethree months ended September 30, 2016March 31, 2020, compared to $494.0$25.0 million used during the ninethree months ended September 30, 2017.March 31, 2019. The decrease in net cash provided by financing activities for the nine months ended September 30, 2017 wasis primarily attributableattributed to a decrease of $712.9 million in proceeds from public offerings of common stock and a $3.4 million decreasean increase in proceeds from employeethe exercise of awards under our equity transactions, partially offset by $481.7incentive plans. net proceeds fromtotal convertible debt as of March 31, 2020 will impact our liquidity due to the semi-annual cash interest payments. As of March 31, 2020, our indebtedness consisted of the 2020 Notes and the 2024 Notes issued in August 2017 and a $23.4 million decrease in taxes paid related to net share settlement of employee equity awards.Our indebtedness consists primarily of(together with the Company’s 0.75% senior subordinated convertible notes due in 2018 (the 20182020 Notes, the Notes), the Company’s 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes) and the 2024 Notes, which, if not converted, will be required to be repaid in cash at maturity in 2018,October 2020 and August 2024, respectively. The 2018We will need cash not only to pay the ongoing interest due on the Notes 2020 Notes and 2024 Notes are referredduring their term, but also to collectively herein asrepay the Notes. Our senior subordinated convertible notes due in 2017 matured on April 23, 2017, with conversion of all principal amounts except for a final cash settlement of $26,000. In August 2017, we completed an offering of $495.0 million in aggregate principal amount of the 2024 Notes which resulted in net proceeds of $481.7 million, after deducting commissions and offering expenses. The 2024 Notes bear interest at the stated annual rates, which is payable semiannually in arrears on February 1 and August 1 of each year beginning on February 1, 2018. See Note 11 to our accompanying Condensed Consolidated Financial Statements for additional discussion.Our $1.2 billion (undiscounted) of total convertible debt as of September 30, 2017 will impact our liquidity due to the semi-annual cash interest payments and will further impact our liquidity if we elect to settle all or portions of the 2018 Notes or the 2020 Notes in cash upon conversion. not converted. addition, in the event the conditional conversion feature of the 2018 Notes or 2020 Notes is triggered, holders of such 2018 Notes andthe 2020 Notes will be entitled to convert the 2018 Notes and 2020 Notes at any time during specified periods at their option. Our liquidity couldIn addition, the 2020 Notes will be adversely affected iffreely convertible on or after July 15, 2020. We may use the remaining balance of the net proceeds we do notreceived from the issuance of the 2024 Notes to repay, repurchase or settle in cash some or all of the 2020 Notes. We may elect to settle conversions of the 2018 Notes and 2020 Notes solely in shares ofcash, in whole or in part, which could further affect our common stock. Even if holders of the 2018 Notes or 2020 Notes do not elect to convert their 2018 Notes and 2020 Notes,liquidity. While we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of such Notes as a current rather than long-term liability (for example, if there are 12 months or less remaining until maturity), which would result in a material reduction of our net working capital. Moreover, if holders of the Notes do not elect to convert their Notes and we are unable to refinance the Notes, we must repay the Notes. We may seek to refinance or repay these obligations through funds raised fromobtain additional third-party financing or equity or debt financings, none of which mayto pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all. all, particularly in light of the ongoing uncertainty due to the COVID-19 pandemic. We have reclassified all of the outstanding principal of the 2020 Notes as a current liability as there are fewer than twelve months remaining until maturity.addition, 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.In August 2016, we sold 7.5 million shares of our common stock at a price of $96.00 per share in an underwritten public offering pursuant to an effective registration statement previously filed with the SEC. We received net proceeds of approximately $712.9 million from this public offering after accounting for the underwriting discount and offering costs. In November 2016October 2018, we entered into aan unsecured revolving credit agreementfacility of $200.0 million (the Credit Agreement) providing for up to $100.0 million in revolving loans (the Revolving2018 Credit Facility). We expect to use the proceedsThe 2018 Credit Facility includes a letter of the Revolving Credit Facilitycredit subfacility and a swingline loan subfacility and is also intended to finance ongoing working capital needs (including timing differences resulting from the strategic management of short-term investments) and for other general corporate purposes. Borrowings under the 2018 Credit Facility bear interest, at our option, at a rate equal to either (a) the LIBOR rate, or LIBOR successor rate, plus an applicable margin ranging from 1.00% to 1.95% per annum, based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods, or (b) the Base Rate, generally the prime lending rate, plus an applicable margin ranging from 0.00% to 0.95%, based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. Our obligations under the Credit Facility are guaranteed by our direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in the future be guaranteed from time to time by certain other material domestic subsidiaries. Commitment fees payable on the undrawn amount range from 0.15% to 0.35% per annum based upon our net leverage ratio and EBITDA for each of the two most recently ended four-quarter measurement periods. The 2018 Credit Facility matures on October 19, 2021 at which time all outstanding amounts become due and payable, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, we may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020. The 2018 Credit Facility contains financial covenants requiring us to maintain a minimum interest coverage ratio and a minimum liquidity requirement. As of September 30, 2017, we had not drawn on the Revolving Credit Facility. Although quarterly interest payments will beMarch 31, 2020, there were no outstanding amounts due on nor any outstanding balance due, we anticipate any balance due to be short-term in nature. See Note 11 to our accompanying Condensed Consolidated Financial Statements for additional discussion.We sell our products in other countries, including Southern European countries, Russia, Chile and Brazil, which face economic volatility and weakness. Although we have historically collected receivables from customers in those countries, sustained weakness or further deteriorationusage of the local economies and currencies may cause customers2018 Credit Facility.those countries to be unable to payour Annual Report on Form 10-K for our products.“Risk Factors”“Risk Factors” included in Part II, Item 1A of this Quarterly Report on Form 10-Q, for a discussion of the reasons we are unable to estimate such information, and in particular the following risk factors:productsproduct candidates to produce sufficient quantities at acceptable costs, we may be unable to meet demand forsupport a clinical trial or be forced to terminate a program, or if we are unable to produce sufficient quantities of our products andat acceptable costs, we may be unable to meet commercial demand, lose potential revenue, have reduced margins or be forced to terminate a program;
• If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenue could be adversely affected.our major development programs from inception to September 30, 2017March 31, 2020 were as follows (in millions):follows:Since Program Inception Palynziq $ 700.8 Valoctocogene roxaparvovec $ 624.6 Vosoritide $ 471.0 Brineura $ 334.5 PKU gene therapy $ 124.8 Other approved products $ 1,129.0 and consequently we mayto be unableable to achieve our long-term goals. This may increase our capital requirements, including: costs associated with the commercialization of our products;products; additional clinical trials; investments in the manufacturing of our commercial products; pre-clinicalproducts; preclinical studies and clinical trials for our other product candidates;candidates; potential licenses and other acquisitions of complementary technologies, products and companies;companies; and general corporate purposes.product sales and profitability of our products;manufacturing, supply or distribution of our product candidates and commercial products;progress of our product candidates through the regulatory process and •our ability to successfully commercialize any such products that receive regulatory approval;results•the progress and success of our preclinical studies and clinical trials announcements(including the manufacture of technological innovations or new products by us or our competitors;generic competition to Kuvan relating to our settlements with DRL (related to Kuvan tablets•the timing, number, size and powder) and Par (related to Kuvan tablets and powder) or potential generic competition from future competitors;government regulatory action affecting our product candidates, our products or our competitors’ product candidates and products in both the U.S. and non-U.S. countries;developments or disputes concerning patent or proprietary rights;general market conditions and fluctuations for the emerging growth and pharmaceutical market sectors;economic conditions in the U.S. or abroad;negative publicity about our company or the pharmaceutical industry;broad market fluctuations in the U.S., the EU or in other parts of the world;actual or anticipated fluctuations in our operating results, including due to timing of large order for our products, in particular in Latin America, where governments place large periodic orders for Naglazyme and Vimizim;changes in company assessments or financial estimates by securities analysts;acquisitions of products, businesses, or other assets; andsalesscope of our sharespreclinical studies and clinical trials;stockpost-marketing studies which may be required by us, our significant stockholders, or membersregulatory authorities; andour management or Board of Directors. operating leases and other obligations related to R&D activities, purchase commitments, licenses and sales royalties with annual minimums.Our contractual obligations asSeptember 30, 2017 are presented in the table below (in millions).We areMarch 31, 2020, we were also subject to contingent payments related tototaling approximately $355.4 million upon achievement of certain development and regulatory activities and commercial sales and licensing milestones totaling approximately $600.2 million as of September 30, 2017, which are due upon achievement of certain development and commercial milestones, and if they occur before certain dates in the future. Of this amount, $218.3$66.0 million (USD equivalent of 185 million Euros translated at 1.18 USD per Euro) relatesrelated to the acquisition of certain rights and other assets with respect to Kuvan and Palynziq from Merck PKU Business acquisitionSerono and $53.3$243.1 million relatesrelated to programs that are no longer being developed.1817 to our accompanying Condensed Consolidated Financial Statements for additional discussion.discussion on our commitments.ninethree months ended September 30, 2017March 31, 2020 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, 2016, which was filed with the SEC on February 27, 2017.2019.September 30, 2017.Paragraph IV NoticesWe received a paragraph IV notice letter, dated December 23, 2016, from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL), notifying us that DRL had filed an abbreviated new drug application (ANDA) seeking approval of a proposed generic version of Kuvan (sapropterin dihydrochloride) 100 mg oral powder prior to the expiration of our patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). We filed a lawsuit alleging patent infringement against DRL. In August 2017, we entered into a settlement agreement with DRL (the DRL Powder Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral powder. Under the terms of the DRL Powder Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride in oral powder form in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.We also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par Pharmaceutical, Inc. (Par), notifying us that Par had filed an ANDA seeking approval of proposed generic versions of Kuvan 100 mg oral powder and Kuvan 100 mg oral tablets, respectively, prior to the expiration of our patents listed in the FDA’s Orange Book. We filed two lawsuits alleging patent infringement against Par (the lawsuit against Par pertaining to the proposed generic version of Kuvan 100 mg oral tablets was filed together with Merck & Cie), and the two Par cases were consolidated. In April 2017, we and Merck & Cie entered into a settlement agreement with Par (the Par Settlement Agreement) that resolved both cases against Par. Under the Par Settlement Agreement, we granted Par a non-exclusive license to our Kuvan-related patents to allow Par to market a generic version of sapropterin dihydrochloride in 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.We also received a paragraph IV notice letter, dated October 3, 2014, from DRL notifying us that DRL had filed an ANDA seeking approval of a proposed generic version of Kuvan 100 mg oral tablets prior to the expiration of our patents listed in the FDA’s Orange Book. We, together with Merck & Cie, filed a lawsuit alleging patent infringement against DRL. In September 2015, we and Merck & Cie entered into a settlement agreement with DRL (the DRL Tablet Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral tablets. Under the terms of the DRL Tablet Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride 100 mg oral tablets in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.investment.2016,2019, which was filed with the SEC on February 27, 2017.European Medicines Agency (EMA).EMA. The FDA and EMA approval processes are typically lengthy and expensive, and approval is never certain. Accordingly, there are no assurances that we will obtain regulatory approval for any of our product candidates, including pegvaliase, in any jurisdiction. For example, even though the pivotal Phase 3 PRISM-2 study of pegvaliase met the primary endpoint of change in blood Phe compared with placebo (p<0.0001), we did not demonstrate a statistically significant improvement in inattention or mood scores, a key secondary clinical neurocognitive endpoint. In August 2017, the FDA accepted for Priority Review our Biologics License Application (BLA) for pegvaliase, butcandidates. Furthermore, there iscan be no assurance that approval of one of our product candidates by one regulatory agency will mean that other agencies will also approve the same product candidate. Similarly, regulatory authorities may approve a reductionproduct candidate for fewer or more limited indications than requested or may grant approval subject to the performance of post-marketing studies. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of our product candidates.blood Phe alone willone country may not be sufficient to supportaccepted by regulatory authorities in other countries. Approval by the FDA’s fullFDA or EMA does not ensure approval by regulatory authorities in other countries, and approval by one or more foreign regulatory authorities does not ensure approval by regulatory authorities in other foreign countries or by the FDA or EMA. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. The foreign regulatory approval process may include all of pegvaliase.candidates. Because of the riskscandidates, which would have a negative effect on our business and uncertainties in pharmaceutical development, ourfinancial condition.couldthrough clinical trials, the FDA has only approved a very small number of vector-based gene therapy products thus far. Moreover, there are very few approved gene therapy products outside the U.S. As a result, it is difficult to determine how long it will take a significantly longer timeor how much it will cost to gainobtain regulatory approvals for valoctocogene roxaparvovec in any jurisdiction. Regulatory requirements governing gene and cell therapy products are still evolving and may continue to change in the future. Regulatory review agencies and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our treatment candidate or lead to significant post-approval studies, limitations or restrictions. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval thannecessary to bring valoctocogene roxaparvovec to market could have a negative effect on our business and financial condition. Even if we expectdo obtain regulatory approval, ethical, social and legal concerns about gene therapy arising in the future could result in additional regulations restricting or may never gain approval. We also rely on independent third-party contract research organizations (CROs) to file someprohibiting sale of our foreign marketing applications and important aspects of the services performed for us by the CROs are out of our direct control. If we fail to adequately manage our CROs, if the CRO elects to prioritize work on our projects below other projects or if there is any dispute or disruption in our relationship with our CROs, the filing of our applications may be delayed.isare not a well-established area,areas, which could also lead to delays in the approval process. In addition, because these delivery devices are provided by unaffiliated third-party companies, we are dependent on the sustained cooperation and effort of those third-party companies both to obtain regulatory approval and to maintain their own regulatory compliance. Failure of third-party companies to assist in the approval process or to maintain their own regulatory compliance could delay or prevent approval of our product candidates, or limit our ability to sell a product once it is approved.Also,For example, although we designed our Phase 3 study of vosoritide in a manner that we believe can demonstrate efficacy and safety of the product candidate for the target patient population, the FDA may ultimately disagree. Moreover, sometimes different regulatory agencies provide different or conflicting advice. While we attempt to harmonize the advice we receive from multiple regulatory authorities, it is not always practical to do so. Also, we may choose not to harmonize conflicting advice when harmonization would significantly delay clinical trial data or is otherwise inappropriate. If we are unable to effectively and efficiently resolve and comply with the inquiries and requests of the FDA and other non-U.S. regulatory authorities, the approval of our product candidates may be delayed and their value may be reduced.Allwith the exception of Firdapse, whichand Palynziq has received regulatory approval to be commercially marketed only in the U.S. and the EU. Any product for which we have obtained regulatory approval, or for which we obtain regulatory approval in the future, along with the manufacturing processes and practices, post-approval clinical research, product labeling, advertising and promotional activities for such product, are subject to continual requirements of, and review by, the FDA, the EMA and other comparable international regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, current good manufacturing practices (cGMP) requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians, import and export requirements and recordkeeping.Promotionalrecord keeping.
•injunctions; ortheour value of our company and our operating results will be adversely affected. Additionally, if the FDA, the EMA or any other comparable international regulatory agency withdraws its approval of a product, we will be unable to generate revenue from the sale of that product in the relevant jurisdiction, our potential for generating positive cash flow will be diminished and the capital necessary to fund our operations will be increased. Accordingly, we continue to expend significant time, money and effort in all areas of regulatory compliance, including manufacturing, production, product surveillance, post-marketing studies and quality control.granted to drugsavailable if a sponsor can establish: that the medicine is intended to treatfor the diagnosis, prevention or treatment of (1) a rare diseaselife-threatening or chronically debilitating condition defined as having a prevalence ofaffecting no more than five in 10,000 people in the EU, which is equivalent to around 250,000 people or fewer.fewer or (2) a life-threatening, seriously debilitating or serious and chronic condition in the EU and that without incentives it is unlikely that the marketing of the medicinal product in the EU would generate sufficient return to justify the necessary investment. For either of these conditions, the applicant must demonstrate that there exists no satisfactory method of diagnosis, prevention or treatment of the condition in question that has been authorized in the EU or, if such method exists, the medicinal product will be of significant benefit to those affected by that condition. The company that first obtains FDA approval for a designated orphan drug for a given rare disease receives marketing exclusivity for use of that drug for the stated condition for a period of seven years. Orphan drug exclusive marketing rights may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug. Similar regulations are available inIn addition, the FDA may approve another drug during a period of orphan drug exclusivity if the second drug is found to be clinically superior to the first drug. In the EU, with a ten-year period of market exclusivity (extendable to twelve years for medicines that have complied with an agreed pediatric investigation plan pursuant to Regulation 1901/2006) is available. Orphan drug marketing exclusivity may be lost in the EU if a manufacturer is unable to supply sufficient quantities and marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this medicinal product is safer, more effective or otherwise clinically superior to the original orphan medicinal product. The period of market exclusivity may, in addition, be reduced to six years if, at the end of the fifth year, it can be demonstrated on the basis of available evidence that the criteria for its designation as an orphan medicine are no longer satisfied, for example if the original orphan medicinal product has become sufficiently profitable not to justify maintenance of market exclusivity.*BLABiologics License Application (BLA) and approval by the FDA prior to being marketed in the U.S. Historically, a biologic product approved under a BLA was not subject to the generic drug review and approval provisions of the FDC Act. However, theThe Biologics Price Competition and Innovation Act of 2009 (BPCIA) created a regulatory pathway under the PHS Act for the abbreviated approval of biological products that are demonstrated to be “biosimilar” or “interchangeable” with an FDA-approved biological product. A similar abridged marketing authorization process is available to biosimilar products in the EU. In order to meet theSuch biosimilars would reference biological products approved in the U.S. The BPCIA establishes a period of 12 years of exclusivity for reference products. Aldurazyme’sIn Europe, a medicinal product containing a new active substance benefits from eight years of data exclusivity, underduring which biosimilar applications referring to the BPCIA expired in 2015, Brineura’sdata of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, underduring which such biosimilar products may not be placed on the BPCIA expires in 2029, Naglazyme’s exclusivity undermarket. The two-year period may be extended to three years if during the BPCIA expired in June 2017, and Vimizim’s exclusivity under the BPCIA expires in 2026.first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved. Our products approved under BLAs in the U.S. or MAAs in Europe, as well as products in development that may be approved under BLAsthose regimes in the future, could be reference products for biosimilar marketing applications.*To obtain regulatory approval to market our products, preclinical studies and costly and lengthy clinical trials are required and the results of the studies and trials are highly uncertain.We expect theThe number of preclinical studies and clinical trials that the regulatory authorities will require will varyvaries depending on the product candidate, the disease or condition the drug is being developed to address and regulations applicable to the particular drug. Generally, new drugs for diseases or conditions that affect larger patient populations, are less severe, or are treatable by alternative strategies must be validated through additional preclinical and clinical trials and/or clinical trials with higher enrollments. With respect to our early stage product candidates, we may need to perform multiple preclinical studies using various doses and formulations before we can begin clinical trials, which could result in delays to our development timeline. Furthermore, even if we obtain favorable results in preclinical studies, the results in humans may be significantly different. After we have conducted preclinical studies, we must demonstrate that our product candidates are safe and efficacious for use in the targeted human patients in order to receive regulatory approval for commercial sale. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials, and favorable data from interim analyses do not ensure the final results of a trial will be favorable. From time to time, we have and may in the future publish or report preliminary, initial or interim data from our clinical trials, such as the data we have announced from the GENEr-8-1 study for valoctocogene roxaparvovec. Preliminary, initial or interim data from our clinical trials may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and/or more patient data become available. In this regard, such data may show initial evidence of clinical benefit, but as patients continue to be followed and more patient data become available, there is a risk that any therapeutic effects will not be durable in patients and/or will decrease over time or cease entirely. Preliminary, initial or interim data also remain subject to audit and verification procedures that may result in the final data being materially different from such preliminary, initial or interim data. As a result, preliminary, initial or interim data should be considered carefully and with caution until the final data are available. including us with respect to Kyndrisa, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Also, as noted above, we do not always follow the advice of regulatory authorities or comply with all of their requests regarding the design of our clinical programs. In those cases, we may choose a development program that is inconsistent with the advice of regulatory authorities, which may limit the jurisdictions where we conduct clinical trials and/or adversely affect our ability to obtain approval in those jurisdictions where we do not follow the regulatory advice.pre-clinicalpreclinical studies;investigators*Our valoctocogene roxaparvovec (formerly referred to as BMN 270) program is based on a gene therapy approach, which, as a novel technology, presents additional treatment, regulatory, manufacturing,development and commercialtreatment risks in relation to our other, more traditional drug development programs.and commercializing more traditional pharmaceutical drugs, there are additional, unique development and treatment risks associated with gene therapy products like our product candidate valoctocogene roxaparvovec. The goal of gene therapy is to be able to correct an inborn genetic defect through one-time administration of therapeutic genetic material containing non-defective gene copies. The gene copies are designed to reside permanently in a patient, allowing the patient to produce an essential protein or ribonucleic acid (RNA) molecule that a healthy person would normally produce. There is a risk, however, that the new gene copies will produce too muchlittle or too littlemuch of the desired protein or RNA. ThereAlthough a one-time administration of a gene therapy product like our product candidate valoctocogene roxaparvovec is alsointended to correct an inborn genetic defect for the entire lifetime of a patient, there is a risk that the therapeutic effect will not be durable and production of the desired protein or RNA will increase or decrease over time.time or cease entirely. Because the treatment is irreversible, there may be challenges in managing side effects, particularly those caused by overproduction.potential overproduction of the desired protein. Adverse effects would not be able to be reversed or relieved by stopping dosing, and we may have to develop additional clinical safety procedures. Furthermore, because the new gene copies are designed to reside permanently in a patient, there is a risk that they will disrupt other normal biological molecules and processes, including other healthy genes, and we may not learn the nature and magnitude of these side effects until long after clinical trials have been completed.We may experience development problems relatedprogram that cause significant delays or unanticipated costs, or that cannot be solved. Although numerous companies are currently advancing gene therapy product candidates through clinical trials,candidate valoctocogene roxaparvovec, if approved, may present additional problems with respect to the FDA has only approved cell-based gene therapy treatments thus farpricing, coverage, and is only currently reviewing a vector-based gene therapy,reimbursement and acceptance of the product candidate.a decision expected in January 2018. Moreover,commercializing more traditional pharmaceutical drugs, there are very few approvedadditional, unique commercial risks associated with gene therapy products outside the U.S. As a result, it is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals forlike our product candidate in any jurisdiction. Regulatory requirements governing gene and cell therapy products are still evolving and may continue to change in the future. Regulatory review agencies and the new requirements and guidelines they promulgate may lengthen the regulatory review process, require us to perform additional or larger studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of our treatment candidate or lead to significant post-approval studies, limitations or restrictions. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring valoctocogene roxaparvovec to market could have a negative effect on our business and financial condition. Even if we do obtain regulatory approval, ethical, social and legal concerns about gene therapy arising in the future could result in additional regulations restricting or prohibiting sale of our product.Even if we obtain regulatory approval for valoctocogene roxaparvovec, we may experience delays, and increased costs, in developing a sustainable, reproducible and large-scale manufacturing process. Gene therapy products are novel, complex and difficult to manufacture, and have only in limited cases been manufactured at scales sufficient for pivotal trials and commercialization. Few pharmaceutical contract manufacturers specialize in gene therapy products and those that do are still developing appropriate processes and facilities for large-scale production. Whether we produce valoctocogene roxaparvovec at a contract manufacturer or at our own gene therapy manufacturing facility, we will likely face technical and scientific challenges, considerable capital costs, and potential difficulty in recruiting and hiring experienced, qualified personnel. As a result, we could experience manufacturing delays that prevent us from completing our clinical studies or commercializing valoctocogene roxaparvovec in a timely, or on a profitable, basis, if at all.also face uncertainty with respect to the pricing, coverage and reimbursement of valoctocogene roxaparvovec,, if approved. In order to recover our research and development costs and commercialize this one-time treatment on a profitable basis, we expect the cost of a single administration of valoctocogene roxaparvovec to be substantial. Therefore, we expect that coverage and reimbursement by governments and other third-party payorspayers will be essential for the vast majority of patients to be able to afford valoctocogene roxaparvovec.roxaparvovec. Accordingly, sales of valoctocogene roxaparvovec,, if approved, will depend substantially, both domestically and internationally, on the extent to which its cost will be paid by third-party payors.payers. Even if coverage is provided, the reimbursement amounts approved by third-party payorspayers may not be high enough to allow us to realize a sufficient return onrevenues from our investment., the commercial success of valoctocogene roxaparvovec will depend, in part, on the acceptance of physicians, patients and health care payorsthird-party payers of gene therapy products in general, and our product candidate in particular, as medically necessary, cost-effective and safe. In particular, our success will depend upon physicians prescribing our product candidate in lieu of existing treatments they are already familiar with and for which greater clinical data may be available. Even if valoctocogene roxaparvovec displays a favorable efficacyMoreover, physicians and safety profile in clinical trials and is ultimately approved, marketpatients may delay acceptance of valoctocogene roxaparvovec will not be fully known until after it is launched.the product candidate has been on the market for a certain amount of time. Negative public opinion or more restrictive government regulations or could have a negative effect on our business and financial condition and may delay or impair the development andsuccessful commercialization of, and demand for, valoctocogene roxaparvovec.
We have implemented a data access plan for valoctocogene roxaparvovec, which restricts our management’s review of emerging data from these trials. Without access to ongoing data, management does not have the ability to adjust the trials based on such emerging data, which could adversely impact the ultimate outcome of these trials.and experience netor are unable to sustain positive cash outflowsflows for a period longer than anticipated, we may be unable to continue our operations at planned levels and be forced to reduce our operations. Based upon our current plan for investments in research and development for existing and new programs, as well as capital investments in our facilities and working capital needs, such as for inventory, we expect to operate at a net loss and experience net cash outflows for at least the next 12 months. Our future profitability and cash flows depend on our marketing and selling of our products, the receipt of regulatory approval of our product candidates, our ability to successfully manufacture and market any products, either by ourselves or jointly with others, our spending on our development programs, the impact of any possible future business development transactions and other risks set forth in this Risk Factors section. The extent of our future losses and the timing of profitability and positive cash flows are highly uncertain. If we fail to become profitable and cash flow positive or are unable to sustain profitability and positive cash flows on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce our operations.September 30, 2017,March 31, 2020, we had cash, cash equivalents and short and long-term investments totaling $1.7$1.1 billion and long-term debt obligations of $1.2 billion$870.0 million (undiscounted). , which consisted of our 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes) and our 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes and, together with the 2020 Notes, the Notes), which, if not converted, will be required to be repaid in cash at maturity in October 2020 and August 2024, respectively. We will need cash not only to pay the ongoing interest due on the Notes during their term, but also to repay the principal amount of the Notes if not converted.(Merck Serono)(Merck Serono). Pursuant to the Termination and Transition Agreement related to Kuvan and the Termination Agreement related to pegvaliase,Palynziq, we made cashare obligated to make certain payments on this transaction totaling $374.5 million in the nine months ended September 30, 2017,to Merck Serono if sales and development milestones are achieved. The remaining milestone payments that may pay Merck Seronobecome payable include up to a maximum of €60 million, in cash, if future sales milestones are met with respect to Kuvan and up to a maximum of €125 million, in cash, if future development milestones are met with respect to pegvaliase. In October 2013, we completed an offering of senior subordinated convertible notes and received net proceeds of approximately $696.4 million, after deducting commissions, estimated offering expenses payable by us and the purchase of the related capped calls. In August 2017, we completed an offering of senior subordinated convertible notes and received net proceeds of approximately $481.7 million, after deducting commissions and estimated offering expenses payable by us. We will need cash to not only repay the principal amount of our 0.75% senior subordinated convertible notes due in 2018 (the 2018 Notes), 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes), and 0.599% senior subordinated convertible notes due in 2024, (the 2024 Notes, and together with the 2018 Notes and the 2020 Notes, the Notes) but also the ongoing interest due on the Notes during their term. ourthe Notes, future milestone payments and our future operations, including the commercialization of our products and product candidates currently under development, preclinical studies and clinical trials, and potential licenses and acquisitions. We may be unable to raise additional financing due to a variety of factors, including our financial condition, the status of our product programs, and the general condition of the financial markets. If we fail to raise any necessary additional financing we may have to delay or terminate some or all of our product development programs and our financial condition and operating results will be adversely affected.Genzyme’s ability•the time and cost necessary to continuedevelop commercial manufacturing processes, including quality systems, and to successfully commercialize Aldurazyme;the time and cost necessary to develop commercial manufacturing processes, including quality systems, and to build or acquire manufacturing capabilities;identified in our purchaseunder agreements with third parties, such as the former stockholders of LEAD Therapeutics, Inc., ZyStor Therapeutics, Inc., Huxley Pharmaceuticals, Inc.,Kuvan and Zacharon Pharmaceuticals Inc., andPalynziq milestones under the termination agreements with Merck Serono relatedSerono;Kuvanor new developments in, our existing collaborative, licensing and pegvaliase milestones;other commercial relationships or any new collaborative, licensing and other commercial relationships that we may establish;
•Sanofi Genzyme’s (Genzyme) ability to continue to successfully commercialize Aldurazyme; andSeptember 30, 2017,March 31, 2020, we had $1.2 billion$870.0 million (undiscounted) principal amount of indebtedness, including $375.0 million (undiscounted) of indebtedness under the 2018 Notes, $375.0 million (undiscounted) principal amount of indebtedness under the 2020 Notes and $495.0 million (undiscounted) principal amount of indebtedness under the 2024 Notes. In November 2016,October 2018, we also entered into aan unsecured credit agreement (the 2018 Credit Agreement)Facility) with Bank of America, N.A., as the administrative agent, swing lineswingline lender and a lender, Citibank N.A. as letter of credit issuer and each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citibank, N.A. and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners, providing for up to $100.0$200.0 million in revolving loans.loan commitments. Our indebtedness may:Agreement does,Facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. If we default under the 2018 Credit Agreement,Facility, the outstanding borrowings thereunder could become immediately due and payable, the 2018 Credit AgreementFacility lenders could refuse to permit additional borrowings under the facility, or it could lead to defaults under agreements governing our current or future indebtedness, including the indentures governing ourthe Notes. If we default under any of the Notes, such notesNotes could become immediately due and payable and it could lead to defaults under the other Notes and/or the 2018 Credit Agreement.*Facility. 2018 Notes, 2020 Notes and 2024 Notes, which, if not converted, will be required to be repaid in cash at maturity in 2018,October 2020 and August 2024, respectively. In addition, in the event the conditional conversion feature of the 2018 Notes or 2020 Notes is triggered, holders of suchthe 2020 Notes will be entitled to convert the 2018 Notes or 2020 Notes at any time during specified periods at their option. Our liquidity couldoption, and the 2020 Notes will be adversely affected if we do notfreely convertible on or after July 15, 2020. We may elect to settle conversions of the 2018 Notes and 2020 Notes solely in shares ofcash, in whole or in part, which could further affect our common stock. Even if holders of the 2018 or 2020 Notes do not elect to convert their 2018 or 2020 Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of such Notes as a current rather than long-term liability (for example, if there are 12 months or less remaining until maturity), which would result in a material reduction of our net working capital. Moreover, if holders of the Notes do not elect to convert their Notes and we are unable to refinance the Notes, we must repay the Notes.liquidity. While we could seek to obtain additional third-party Furthermore, if werequired to share settle any conversions12 months or less remaining until maturity), which resulted in a material reduction of Notes, due to lackour net working capital. although we had no outstanding balance under the Credit Agreement as of September 30, 2017, we also may borrow up to $100.0$200.0 million in revolving loans under the 2018 Credit Agreement,Facility, which would be required to be repaid in cash at maturity inon October 19, 2021, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remains outstanding on August 1, 2020 and certain other conditions have not been met, we may be required to repay all amounts borrowed under the 2018.* Credit Facility on August 1, 2020.EC,manufacture of Palynziq, and it has been approved by the FDA, the European Commission (EC), and health agencies in other countries for the manufacture of Aldurazyme, Brineura, Naglazyme and Vimizim. Our manufacturing facility in Shanbally, Cork, Ireland has been approved by the FDA, the EC, and health agencies in other countries for the manufacture of Vimizim.Vimizim, and it has been approved by the FDA and the EMA as a formulated bulk drug substance manufacturing and quality control facility for Brineura. In addition, our third-party manufacturers’ facilities involved with the manufacture of our products have also been inspected and approved by various regulatory authorities. Although we are not involved in the day-to-day operations of our contract manufacturers, we are ultimately responsible for ensuring that our products are manufactured in accordance with cGMP regulations.*productsproduct candidates to produce sufficient quantities at acceptable costs, we may be unable to meet demand forsupport a clinical trial or be forced to terminate a program, or if we are unable to produce sufficient quantities of our products andat acceptable costs, we may be unable to meet commercial demand, lose potential revenue, have reduced margins or be forced to terminate a program.Although wethe active ingredientingredients in FirdapseKuvan and Kuvan, ifPalynziq. If those manufacturers are unwilling or unable to fulfill their contractual obligations, we may be unable to meet demand for FirdapseKuvan and KuvanPalynziq, or sell these products at all, we may lose potential revenue, and we may be forced to terminate a program. We have contracts for the production of final product for FirdapseKuvan and Kuvan.Palynziq. We also currently rely on third parties for portions of the manufacture of Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim. If those manufacturers are unwilling or unable to fulfill their contractual obligations or satisfy demand outside of or in excess of the contractual obligations, we may be unable to meet demand for these products or sell these products at all and we may lose potential revenue. Further, the availability of suitable contract manufacturing capacity at scheduled or optimum times is not certain.demand.*Because the target patient populations for our products are small, we must achieve significant market share and maintain high per-patient prices for our products to achieve profitability.payors,payers, the sales of our products would be adversely affected or there may be no commercially viable markets for our products.payors.payers. Additionally, even if there is a commercially viable market, if the level of reimbursement is below our expectations, our revenue and gross margins will be adversely affected.payors,payers, such as government or private health carehealthcare insurers, carefully review and increasingly challenge the prices charged for drugs. Reimbursement rates from private companies vary depending on the third-party payor,payer, the insurance plan and other factors. Obtaining coverage and adequate reimbursement for our products may be particularly difficult because of the higher prices often associated with drugs administered under the supervision of a physician. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis.payorspayers are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payorspayers are requiring that drug companies provide them with predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in competitive classes, and are challenging the prices charged for medical products. Further, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payorspayers in the U.S. Therefore, coverage and reimbursement for drug products can differ significantly from payorpayer to payor.payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payorpayer separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.*in the past undertaken and may in the futurecontinue to undertake unofficial measures to limit purchases of our products, including initially denying coverage for purchasers, delaying orders and denying or taking excessively long to approve customs clearance. Any such actions could materially delay or reduce our revenues from such countries.both in all the U.S. and internationally.markets in which we sell our products. The escalating cost of health carehealthcare has led to increased pressure on the health carehealthcare industry to reduce costs. In particular, drug pricing by pharmaceutical companies has recently come under increased scrutiny and continues to be subject to intense political and public debate in the U.S. and abroad. Governmental and private third-party payorspayers have proposed health carehealthcare reforms and cost reductions. A number of federal and state proposals to control the cost of health care,healthcare, including the cost of drug treatments, have been made in the U.S. Specifically, there have been several recent U.S. Congressionalcongressional inquiries and proposed bills and enacted legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs. Further, Congress and the executive branch have each indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. In some international markets, the government controls the pricing, which can affect the profitability of drugs. Current government regulations and possible future legislation regarding health carehealthcare may affect coverage and reimbursement for medical treatment by third-party payors,payers, which may render our products not commercially viable or may adversely affect our future revenues and gross margins.or threatenedand continue to imposepropose revenue caps limiting the annual volume of sales of our products. To the extent thatSome of these caps are significantly below the actual demand in certain countries, and if the trend regarding revenue caps continues, our future revenues and gross margins may be adversely affected.*health carehealthcare reform could increase our costs and adversely affect our revenue and results of operations.TheIn the U.S., the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (the PPACA) is a sweeping measure intended to, among other things, expand healthcare coverage within the U.S., primarily through the imposition of health insurance mandates on employers and individuals and expansion of the Medicaid program. Several provisions of the law have affected us and increased certain of our costs.Congressionalcongressional challenges to certain aspects of the PPACA, as well as recent efforts by the TrumpU.S. Presidential administration to repeal or replace certain aspects of the PPACA, and we expect there will be additional Trump has signed two Executive Orders and other directives designed to delay, circumvent, or loosen certain requirements mandated by the implementationPPACA. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the PPACA. While Congress has not passed legislation repealing the PPACA in its entirety, it has enacted laws that modify certain provisions of the PPACA or otherwise circumvent somesuch as removing penalties for not complying with the PPACA’s individual mandate to carry health insurance, delaying the implementation of certain ACA-mandated fees, and increasing the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. Additionally, on December 14, 2018, a Texas U.S. District Court Judge ruled that the PPACA is unconstitutional in its entirety because the individual mandate was repealed by Congress as part of the requirementsTax Cuts & Jobs Act. While the Texas U.S. District Court Judge, as well as the current U.S. Presidential administration and the Centers for health insurance mandated byMedicare and Medicaid Services (CMS), have stated that the PPACA. The Trump administration has also announced that itruling will discontinue the payment of cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds for such CSR payments. The losshave no immediate effect pending appeal of the CSR paymentsdecision, it is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. A bipartisan bill to appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. Further, each chamber of Congress has put forth multiple bills designed to repeal or repealunclear how this decision, subsequent appeals, and replace portions of the PPACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislationefforts to repeal and replace elements of the PPACA. It is uncertainPPACA will impact the extent to which any such changes may impactPPACA and our business or financial condition.business. In addition, other legislative changes have been adopted since the PPACA was enacted. Some of these changes have resulted in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and, accordingly, our financial operations. For example,U.S. Congressionalcongressional inquiries and proposed billsand enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the cost of drugs under Medicare, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the U.S. Presidential administration’s budget proposal for the fiscal year 2021 includes a $135.0 billion allowance to support legislative proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient access to lower-cost generic and biosimilar drugs. Moreover, the U.S. Presidential administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. Although a number of these and other measures may require additional authorization to become effective, Congress and the U.S. Presidential administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. Any reduction in reimbursement from Medicare and other government programs may result in a similar reduction in payments from private payors.payers. In addition, individual states in the United States have also become increasingly active in passingpassed legislation and implementingimplemented regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm our business, results of operations, financial condition and prospects. In addition,Moreover, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs.health carehealthcare reform, see “Government Regulation - Health Reform” in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, filed with the SEC on February 27, 2017.*federalhealthcare laws or state health careprivacy and data protection laws, we may be required to pay a penaltypenalties, be subjected to scrutiny by regulators or governmental entities, or be suspended from participation in federal or state health caregovernment healthcare programs, which may adversely affect our business, financial condition and results of operations.federal and state health carehealthcare laws and regulations in the U.S. and internationally, including anti-kickback laws, false claims laws, data privacy and security laws, and laws related to ensuring compliance. TheIn the U.S., the federal Anti-Kickback Statute makes it illegal for any person or entity, including a pharmaceutical company, to knowingly and willfully offer, solicit, pay or receive any remuneration, directly or indirectly, in exchange for or to induce the referral of business, including the purchase, order or prescription of a particular drug, for which payment may be made under federal health carehealthcare programs, such as Medicare and Medicaid. Under the federal governmentAnti-Kickback Statute and related regulations, certain arrangements or safe harbors, are deemed not to violate the federal Anti-Kickback Statute.Statute if they fit within a statutory exception or regulatory safe harbor. However, the exemptionsexceptions and safe harbors are drawn narrowly, and practices that involve remuneration not intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exemptionexception or safe harbor. Our practices may not in all cases meet all of the criteria for safe harbor protection from Anti-Kickback liability, although we seek to comply with these safe harbors. Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to referral of patients for health carehealthcare services reimbursed by any source, not just governmental payors.health carehealthcare benefit program, including private payors,payers, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health carehealthcare benefits, items or services.HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on certain types of individuals and entities, with respect to safeguarding the privacy, security and transmission of individually identifiable health information. Many state and foreign laws also govern the privacy and security of health information. They often differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.Substantial new provisions affecting compliance have also been adopted, which may require us to modify our business practices with health care practitioners. The PPACA, through the Physician Payments Sunshine Act, requires drug manufacturers to collect and report to CMS information on payments or transfers of value to physicians and teaching hospitals, as well as investment and ownership interests held by physicians and their immediate family members during the preceding calendar year. Failure to submit required information may result in civil monetary penalties.In addition, there has been a recent trend of increased state regulation of payments made to physicians. Certain states mandate implementation of compliance programs, compliance with the Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America (PhRMA) Code on Interactions with Healthcare Professionals, and/or the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting compliance environment and the need to implement systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the possibility that a pharmaceutical manufacturer may violate one or more of the requirements.Due to the breadth of these laws, the narrowness of available statutory and regulatory exceptions and the increased focus by law enforcement agencies in enforcing such laws, our business activities could be subject to challenge under one or more of such laws.health carehealthcare reform legislation has strengthened these laws.laws in the U.S. For example, the PPACA, among other things, amends the intent requirement of the federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to commit a violation. Moreover, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act.federal or state health caregovernment healthcare programs, any of which could adversely affect our business, financial condition and results of operations.* and all of the sales of Firdapse are generated from countries other than the U.S. Similarly, we expect a significant portion of the sales of BrineuraPalynziq to be generated from countries other than the U.S. We have operations in Canada and in several European, Middle Eastern, Asian, and Latin American countries. We expect that we will continue to expand our international operations in the future. International operations inherently subject us to a number of risks and uncertainties, including:
•differing labor regulations and business practices;securityprotection and the unauthorized useprivacy and security of or access to, commercial and personal information.*failmay face disruptions in our supply chain, inventory management, manufacturing process and product distribution network, which could adversely affect our business and results of operations. Moreover, Brexit may also lead to comply with new regulatory costs and challenges that could have a material adverse effect on our operations. The EMA has issued guidance to marketing authorization holders of centrally authorized medicinal products regarding certain requirements that need to be considered as part of Brexit, such as the requirement for the marketing authorization holder of a product centrally approved by the EC to be established in the EU, and the requirement for some activities relating to centrally approved products, such as batch release and pharmacovigilance, be performed in the EU. Furthermore, there are few indications of the effect Brexit will have on the pathway to obtaining marketing approval for any of our product candidates in the U.K.resultsresults. Moreover, compliance with such regulatory requirements may be adversely affected.We rely on a general licenseincrease our costs and negatively impact our ability to sell our products and collect cash from customers.Moreover, aA violation of the OFAC general license could result in substantial fines, sanctions, civil or criminal penalties, competitive or reputational harm, litigation or regulatory action and other consequences that might adversely affect our results of operations, financial condition or strategic objectives.*UKU.K. Bribery Act and other similar laws in other countries in which we do business. We operate in a number of countries that are recognized to have a reputation for corruption and pose an increased risk of corrupt practices. We also regularly interact with government regulators in many countries, including those that are considered higher risk for corruption, in order to secure regulatory approval to manufacture and distribute our products. The anti-corruption and anti-bribery laws to which we are subject generally prohibit companies and their intermediaries from making improper payments to foreign officials or other persons for the purposes of influencing official decisions or obtaining or retaining business and/or other benefits. These laws also require us to make and keep books and records that accurately and fairly reflect our transactions and to devise and maintain an adequate system of internal accounting controls. As part of our business, we deal with state-owned business enterprises, the employees and representatives of which may be considered foreign officials for purposes of applicable anti-corruption laws.the Company,we, our employees and third-party agents will comply with such laws, there can be no assurance that such policies or procedures will work effectively at all times or protect us against liability under these or other laws for actions taken by our employees, partners and other third parties with respect to our business. If we are not in compliance with anti-corruption laws and other laws governing the conduct of business with government entities and/or officials (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could harm our business, financial condition, results of operations, cash flows and prospects. Investigations of any actual or alleged violations of such laws or policies related to us could harm our business, financial condition, results of operations, cash flows and prospects.euro,Euro, the Brazilian real,Real, the U.K. pound,Great British Pound, the Canadian dollar, the Swiss franc, the Japanese yenDollar and several other currencies, changes in those currencies relative to the U.S. dollarDollar (USD) will impact our revenues and expenses. If the U.S. dollarUSD were to weaken against another currency, assuming all other variablesU.S. dollarUSD were to strengthen against another currency, assuming all other variables remained constant, our revenues would decrease, having a negative impact on earnings, and our overall expenses would decrease, having a positive impact on earnings. In addition, because our financial statements are reported in U.S. dollars,USD, changes in currency exchange rates between the U.S. dollarUSD and other currencies have had, and will continue to have, an impact on our results of operations. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance.*and 3,4-DAP (the active ingredient in Firdapse) havehas also been published. Publication of this information may prevent us from obtaining or enforcing patents relating to our products and product candidates, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection. We have no meaningful experience with competitors interfering with or challenging the validity or enforceability of our patents or patent applications.“first-to-invent”“first-to-invent” system to a “first-to-file”“first-to-file” system, and the implementation of new procedures that permit competitors to challenge our patents in the U.S. Patent and Trademark Office after grant.BioMarin’sour ability to review and redact a narrow sub-set of confidential commercial information, the new EU policies will result in the EMA’s public disclosure of certain of our clinical study reports, clinical trial data summaries and clinical overviews for recently completed and future MAA submissions. The move toward public disclosure of development data could adversely affect our business in many ways, including, for example, resulting in the disclosure of our confidential methodologies for development of our products, preventing us from obtaining intellectual property right protection for innovations, requiring us to allocate significant resources to prevent other companies from violating our intellectual property rights, adding even more complexity to processing health data from clinical trials consistent with applicable data privacy regulations, and enabling competitors to use our data to gain approvals for their own products., focus on therapeutic areas that have been the subject of extensive research and development by third parties for many years. Due to the amount of intellectual property in our field of technology, we cannot be certain that we do not infringe intellectual property rights of competitors or that we will not infringe intellectual property rights of competitors granted or created in the future. For example, if a patent holder believes our product infringes its patent, the patent holder may sue us even if we have received patent protection for our technology. If someone else claims we infringe its intellectual property, we would face a number of issues, including the following:competitor’scompetitor’s intellectual property, we may have to pay substantial damages.one yearone-year prior written notice for any reason.dependsdepend in part on our ability to successfully develop new products from our research and development activities. The development of biopharmaceutical products is very expensive and time intensive and involves a great degree of risk. The outcomes of research and development programs, especially for innovative biopharmaceuticals, are inherently uncertain and may not result in the commercialization of any products. Firdapse, Kuvan and Naglazyme. These collaborations include licensing proprietary technology from, and other relationships with, academic research institutions. Our future success will depend, in part, on our ability to identify additional opportunities and to successfully enter into partnering or acquisition agreements for those opportunities. If our competitors successfully enter into partnering arrangements or license agreements with academic research institutions, we will then be precluded from pursuing those specific opportunities. Because each of these opportunities is unique, we may not be able to find a substitute. Several pharmaceutical and biotechnology companies have already established themselves in the field of genetic diseases. These companies have already begun many drug development programs, some of which may target diseases that we are also targeting, and have already entered into partnering and licensing arrangements with academic research institutions, reducing the pool of available opportunities.*If generic manufacturers are successful in their useThe sale of litigation or regulatory means to obtain approval for generic versions of Kuvan by generic manufacturers may adversely affect our revenue and results of operations would be adversely affected.ANDAsabbreviated new drug applications (ANDAs) for generic versions of branded drugs. We refer to this process as the ANDA process. The ANDA process permits competitor companies to obtain marketing approval for a drug with the same active ingredient as a branded drug, but does not generally require the conduct and submission of clinical efficacy studies for the generic product. In place of such clinical studies, an ANDA applicant usually needs only to submit data demonstrating that its product is bioequivalent to the branded product. In addition to our patent protection,have received three-year Hatch-Waxman exclusivity for a New Patient Population for Kuvanparagraph IV notice letters from two pharmaceutical companies notifying us that expires in October 2017, including pediatric exclusivity. Thus, depending on theeach had filed ANDAs seeking approval of proposed labeling of a generic product, generic versions of Kuvan may be prohibited until October 2017, though it is possible that an ANDA applicant could propose to carve out information in the Kuvan labeling protected by the New Patient Population exclusivity and obtain approval earlier.We received a paragraph IV notice letter, dated December 23, 2016, from Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL), notifying us that DRL had filed an abbreviated new drug application (ANDA) seeking approval of a proposed generic version of Kuvan (sapropterin dihydrochloride) 100 mg oral powder prior to the expiration of our patents listed in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book).Kuvan. We filed a lawsuitlawsuits alleging patent infringement against DRL. In Augusteach company, and between 2015 and 2017 we entered into a settlement agreementagreements with DRL (the DRL Powder Settlement Agreement)the companies that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral powder. UnderThe settlement agreements granted the terms of the DRL Powder Settlement Agreement, we granted DRL acompanies non-exclusive licenselicenses to our Kuvan-related patents to allow DRLthem to market a generic versionversions of sapropterin dihydrochloride in oral powder form in 100 mg and 500 mg packet formulations in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances.also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par notifying us that Par had filed an ANDA seeking approval of proposedexpect generic versions of Kuvan 100 mg oral powder and Kuvan 100 mg oral tablets, respectively, prior to the expiration of our patents listed in the FDA’s Orange Book. We filed two lawsuits alleging patent infringement against Par (the lawsuit against Par pertaining to the proposed generic version of Kuvan 100 mg oral tablets was filed together with Merck & Cie), and the two Par cases were consolidated. In April 2017, we and Merck & Cie entered into a settlement agreement with Par (the Par Settlement Agreement) that resolved both cases against Par. Under the Par Settlement Agreement, we granted Par a non-exclusive license to our Kuvan-related patents to allow Par to market a generic version of sapropterin dihydrochloride in 100 mg oral tablets and oral powder in 100 mg and 500 mg packet formulationsfirst become available in the U.S. for the indications approved for Kuvan beginning on: April 1, 2021 if Par is not entitled to the statutory 180-day first filer exclusivity period; October 1, 2020 if Par is entitled to the statutory 180-day first filer exclusivity period; or earlier under certain circumstances.We also received a paragraph IV notice letter, dated October 3, 2014, from DRL notifying us that DRL had filed an ANDA seeking approval of a proposed generic version of Kuvan 100 mg oral tablets prior to the expiration of our patents listed in the FDA’s Orange Book. We, together with Merck & Cie, filed a lawsuit alleging patent infringement against DRL. In September 2015, we and Merck & Cie entered into a settlement agreement with DRL (the DRL Tablet Settlement Agreement) that resolved the patent litigation with DRL in the U.S. related to Kuvan 100 mg oral tablets. Under the termsfourth quarter of the DRL Tablet Settlement Agreement, we granted DRL a non-exclusive license to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride 100 mg oral tablets in the U.S. for the indications approved for Kuvan beginning on October 1, 2020, or earlier under certain circumstances. For more information regarding these matters, see “Legal Proceedings” in Part II, Item 1 of this Interim Report on Form 10-Q.The DRL Powder Settlement Agreement, the Par Settlement Agreement, and the DRL Tablet Settlement Agreement, as well as anyAny future ANDA or related legal proceeding could have an adverse impact on our stock price, and litigation to enforce our patents has, and is likely to continue to, cost a substantial amount and require significant management attention. If the patents covering Kuvan and its use are not upheld in litigation, or if DRLany ANDA filer we bring suit against is found to not infringe our asserted patents, the resulting generic competition following the expiration of regulatory exclusivity would have a material adverse effect on our revenue and results of operations. Moreover, generic competition from DRL (relating to Kuvan tablets) and Par (relating to Kuvan tablets and powder) following the settlements described above could have a material adverse effect on our revenue and results of operations.ourthere is a process equivalent to the ANDA process under Article 10 of Directive 2001/83/EC in the EU. Our ability to successfully market and sell Kuvan in many countries in which we operate is based upon patent rights or certain regulatory forms of exclusivity, or both. The scope of our patent rights and regulatory exclusivity for Kuvan vary from country to country and are dependent on the availability of meaningful legal remedies in each country. If our patent rights and regulatory exclusivity for Kuvan are successfully challenged, expire, or otherwise terminate in a particular country, the resulting generic competition could have a material adverse effect on our revenue and results of operations., the commercial success of valoctocogene roxaparvovec will still depend, in part, on the acceptance of physicians, patients and health care payorshealthcare payers of gene therapy products in general, and our product candidate in particular, as medically necessary, cost-effectivecost effective and safe. Changes in treatment method can be caused by the introduction of other companies’ products or the development of new technologies or surgical procedures which may not directly compete with ours, but which have the effect of changing how doctors decide to treat a disease.effectively.and manufacturing infrastructuresystems to effectively manage and maintain our operations, inventory and internal reports, to manufacture and ship products to customers and to timely invoice them. Any failure, inadequacy or interruption of that infrastructure or security lapse of that technology, including cybersecurity incidents or attacks, could harm our ability to operate our business effectively. Our ability to manage and maintain our operations, inventory and internal reports, to manufacture and ship our products to customers and timely invoice them depends significantly on our enterprise resource planning, production management and other information systems. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, misappropriation of our confidential or otherwise protected information and corruption of data. Cybersecurity incidents resulting in the failure of our enterprise resource planning system, production management or other systems to operate effectively or to integrate with other systems, or a breach in security or other unauthorized access of these systems, may affect our ability to manage and maintain our operations, inventory and internal reports, and result in delays in product fulfillment and reduced efficiency of our operations. A breachsecurity,our technology systems, and those of our research collaborators, CROs, contract manufacturers, suppliers, distributors, or other third parties for which we depend to operate our business, may be vulnerable to loss, damage, denial-of-service, unauthorized access resulting in misappropriation, theft, or sabotage with respectmisappropriation. Such cybersecurity breaches may be the result of unauthorized activity by our employees or contractors or malware, hacking, business email compromise, phishing or other cyberattacks directed by third parties. While we have implemented measures to protect our information and data, our efforts may not be successful.confidential information, including research ormitigate cybersecurity incidents could be significant. For example, the loss of clinical trial data could result in delays in our product development or regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Any security breach that results in the unauthorized access, use or disclosure of personal data may require significant capital investmentsus to remediatenotify individuals, governmental authorities, credit reporting agencies, or other parties pursuant to privacy and security laws and regulations or other obligations. Such a security compromise could harm our reputation, erode confidence in our information security measures, and lead to regulatory scrutiny. To the extent that any disruption or security breach resulted in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential, proprietary or personal information, we could be exposed to a risk of loss, enforcement measures, penalties, fines, indemnification claims, litigation and potential civil or criminal liability, which could materially adversely affect our business, financial condition and results of operations.*or terrorist or criminal activity or other unforeseen event caused significant damage to our facilities or the facilitiesthose of our third-party manufacturers and suppliers or significantly disrupted our operations or those of our third-party manufacturers and suppliers, we may be unable to meet demand for our products and lose potential revenue, have reduced margins, or be forced to terminate a program.We manufacture Aldurazyme, Brineura, Naglazyme and a portion of Vimizim in a manufacturing facility located near known earthquake fault zones, and theourthe ability to manufacture Aldurazyme, Brineura, Naglazyme and Vimizimfor us or our third-party manufacturers’ abilitymanufacturers to manufacture Firdapse or Kuvan.NaglazymePalynziq and is one of two manufacturing facilities for Brineura and Vimizim. ItOur gene therapy manufacturing facility is also located in Novato, California, and it is currently our only manufacturing facility to support valoctocogene roxaparvovec clinical development activities and the anticipated commercial demand for valoctocogene roxaparvovec, if approved. These facilities are located in the San Francisco Bay Area near known earthquake fault zones and isare vulnerable to significant damage from earthquakes. We, the third-party manufacturers with whom power loss and similar events. If any disaster were to occur, or any terrorist or criminal activity caused significant damage to our facilities or the facilities of our third-party manufacturers and suppliers, our ability to manufacture Aldurazyme, Brineura, Naglazyme and Vimizim,our products, or to have Firdapse or Kuvanour products manufactured, could be seriously, or potentially completely, impaired, and our commercialization efforts and revenue could be seriously impaired.
*Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business and financial condition.*health carehealthcare providers are reimbursed for our products by the government. Interest rates, the liquidity of the credit markets and the volatility of the capital markets could also affect the value of our investments and our ability to liquidate our investments in order to fund our operations. We purchase or enter into a variety of financial instruments and transactions, including investments in commercial paper, the extension of credit to corporations, institutions and governments and hedging contracts. If any of the issuers or counter parties to these instruments were to default on their obligations, it couldweakness, including Southern European countries, Russia, Chile and Brazil.weakness. Although we have historically collected receivables from customers in those countries, sustained weakness or further deterioration of the local economies and currencies may cause customers in those countries to be unable to pay for our products. Additionally, if one or more of these countries were unable to purchase our products, our revenue would be adversely affected.*DRL (related to Kuvan tablets and powder) and Par (related to Kuvan tablets and powder)the two pharmaceutical companies described above in this Risk Factors section or potential generic competition from future competitors;competitors’competitors’ product candidates and products in both the U.S. and non-U.S. countries;our companyus or the pharmaceutical industry;orderorders for our products, in particular in Latin America, where governments place large periodic orders for Naglazyme and Vimizim;become in the future become convertible at the option of their holders prior to their scheduled terms under certain circumstances. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions, or anticipated conversion of the Notes into shares of our common stock could depress the price of our common stock. 2018 Notes and 2020 Notes, we entered into capped call transactions with respect to 50% of the principal amount of the 2018 Notes and 50% of the principal amount of the 2020 Notes with certain hedge counterparties. The capped call transactions will cover, subject to customary anti-dilution adjustments, the aggregate number of shares of common stock underlying 50% of the principal amount of the relevant2020 Notes and are expected generally to reduce potential dilution to the common stock upon conversion of the relevant2020 Notes in excess of the principal amount of such converted 2020 Notes. In connection with establishing their initial hedges of the capped call transactions, the hedge counterparties (or their affiliates) entered into various derivative transactions with respect to the common stock concurrently with, and/or purchased the common stock shortly after, the pricing of the relevant notes.2020 Notes. The hedge counterparties (or their affiliates) are likely to modify their hedge positions by entering into or unwinding various derivative transactions with respect to the common stock and/or by purchasing or selling the common stock or other securities of ours in secondary market transactions prior to the maturity of the relevant2020 Notes (and are likely to do so during the settlement averaging period under the relevant capped call transactions, which precedes the maturity date of the relevant2020 Notes, and on or around any earlier conversion date related to a conversion of the relevant2020 Notes).*our companyus more difficult, even if a change in control would be beneficial to the stockholders. Our anti-takeover provisions include provisions in our restated certificate of incorporation and amended and restated bylaws as amended, providing that stockholders’ meetings may only be called by our Chairman, the lead independent director or the majority of our Board of Directors and that the stockholders may not take action by written consent and requiring that stockholders that desire to nominate any person for election to our Board of Directors or to make any proposal with respect to business to be conducted at a meeting of our stockholders be submitted in appropriate form to our Secretary within a specified period of time in advance of any such meeting. . Additionally, our Board of Directors has the authority to issue shares of preferred stock and to determine the terms of those shares of stock without any further action by our stockholders. The rights of holders of our common stock are subject to the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could make it more difficult for a third party to acquire a majority of our outstanding voting stock. Delaware law also prohibits corporations from engaging in a business combination with any holders of 15% or more of their capital stock until the holder has held the stock for three years unless, among other possibilities, our Board of Directors approves the transaction. Our Board of Directors may use these provisions to prevent changes in the management and control of our company.us. Also, under applicable Delaware law, our Board of Directors may adopt additional anti-takeover measures in the future.over our company.our companyus would trigger options by the respective holders of the applicable Notes to require us to repurchase such Notes. This may have the effect of delaying or preventing a takeover of our companyus that would otherwise be beneficial to our stockholders or investors in the Notes.* as amended, provide that the Court of Chancery of the State of Delaware will be the exclusive forum for the adjudication of certain disputes, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. as amended, provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for:bylaws, as amended;bylaws; andExhibit NumberDescriptionExhibit Number Description 2.12.1 2.2 2.3 2.4 2.5 3.2* 4.1 4.2 10.1*BioMarin Pharmaceutical Inc. Summary of Independent Director Compensation. 31.1* 32.1*+101.INS*101.SCH*101.CAL*Exhibit NumberDescription101.DEF 101.LAB*101.PRE**Filed herewith+The certifications attached as Exhibit 32.1 accompany thisXBRL tags for the cover page from the Company’s Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 offor the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” byquarter ended March 31, 2020, are embedded within the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of the Registrant’s filings under the Securities Act of 1933, as amended, irrespective of any general incorporation language contained in any such filing.September 30, 2017March 31, 2020 and December 31, 2016,2019, (ii) Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and nine months ended September 30, 2017March 31, 2020 and 2016,2019, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the ninethree months ended September 30, 2017,March 31, 2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30, 2017March 31, 2020 and 2016,2019, and (v) Notes to Condensed Consolidated Financial Statements.BIOMARIN PHARMACEUTICAL INC. October 31, 2017DANIEL SPIEGELMANDaniel Spiegelman,ExecutiveBrian R. Mueller
Senior Vice President, Finance and
Acting Chief Financial Officer(On behalf of the registrant and as principal financial officer)69