Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

2020

Or

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

For the transition period from to .

Commission File Number: 000-26727

______________________________________
BioMarin Pharmaceutical Inc.

(Exact name of registrant as specified in its charter)

Delaware

68-0397820

Delaware

68-0397820
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer


Identification No.)

770 Lindaro StreetSan Rafael California

California

94901

(Address of principal executive offices)

(Zip Code)

(415) 506-6700

(Registrant’s telephone number including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001BMRNThe Nasdaq Global Select Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

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

Large accelerated filer

Accelerated filer

Large Accelerated Filer

Accelerated Filer

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

Non-accelerated Filer

Smaller Reporting Company
Emerging growth company

Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  



Table of Contents

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

Applicable only to corporate issuers:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 175,621,277181,529,667 shares of common stock, par value $0.001, outstanding as of October 25, 2017.

23, 2020.



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BIOMARIN PHARMACEUTICAL INC.

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Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to “BioMarin,” the “Company,” “we,” “us,” and “our” refer to BioMarin Pharmaceutical Inc. and, where appropriate, its wholly owned subsidiaries.

BioMarin®, Brineura®, VimizimKuvan®, Naglazyme®, KuvanPalynziq® and FirdapseVimizim® are our registered trademarks. KyndrisaTM is our trademark. Aldurazyme® is a registered trademark of BioMarin/Genzyme LLC. All other brand names and service marks, trademarks and other trade names appearing in this report are the property of their respective owners.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” as defined under securities laws. Many of these statements can be identified by the use of terminology such as “believes,” “expects,” “intends,” “anticipates,” “plans,” “may,” “will,” ���projects,“could,” would,” “projects,” “continues,” “estimates,” “potential,” “opportunity” or the negative versions of these terms and other similar expressions. Our actual results or experience could differ significantly from the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in “Risk Factors,” in Part II, Item 1A of this Quarterly Report on Form 10-Q as well as information provided elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2016,2019, which was filed with the Securities and Exchange Commission (the SEC) on February 27, 2017.2020. You should carefully consider that information before you make an investment decision.

You should not place undue reliance on these types of forward-looking statements, which speak only as of the date that they were made. These forward-looking statements are based on the beliefs and assumptions of the Company’s management based on information currently available to management and should be considered in connection with any written or oral forward-looking statements that the Company may issue in the future as well as other cautionary statements the Company has made and may make. Except as required by law, the Company does not undertake any obligation to release publicly any revisions to these forward-looking statements after completion of the filing of this Quarterly Report on Form 10-Q to reflect later events or circumstances or the occurrence of unanticipated events.

The discussion of the Company’s financial condition and results of operations should be read in conjunction with the Company’s Condensed Consolidated Financial Statements and the related Notes thereto included in this Quarterly Report on Form 10-Q.

2

3


PART I. FINANCIALFINANCIAL INFORMATION

Item 1.

Financial Statements

Item 1.    Financial Statements
BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 20172020 and December 31, 2016

2019

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

 

 

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

 

(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.

September 30,
2020
December 31,
2019 (1)
ASSETS(unaudited) 
Current assets:
Cash and cash equivalents$1,015,675 $437,446 
Short-term investments489,998 316,361 
Accounts receivable, net411,712 377,404 
Inventory700,847 680,275 
Other current assets120,747 130,657 
Total current assets2,738,979 1,942,143 
Noncurrent assets:
Long-term investments265,122 411,978 
Property, plant and equipment, net1,015,062 1,010,868 
Intangible assets, net427,172 456,580 
Goodwill196,199 197,039 
Deferred tax assets1,396,547 549,422 
Other assets119,009 122,009 
Total assets$6,158,090 $4,690,039 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$480,403 $570,621 
Short-term convertible debt, net374,290 361,882 
Total current liabilities854,693 932,503 
Noncurrent liabilities:
Long-term convertible debt, net1,074,164 486,238 
Long-term contingent consideration54,103 50,793 
Other long-term liabilities121,237 98,124 
Total liabilities2,104,197 1,567,658 
Stockholders’ equity:
Common stock, $0.001 par value: 500,000,000 shares authorized; 181,492,344 and 179,838,114 shares issued and outstanding, respectively.181 180 
Additional paid-in capital4,937,791 4,832,707 
Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC)(10,756)(9,961)
Accumulated other comprehensive income10,385 20,164 
Accumulated deficit(883,708)(1,720,709)
Total stockholders’ equity4,053,893 3,122,381 
Total liabilities and stockholders’ equity$6,158,090 $4,690,039 

(1)December 31, 2019 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, 2019, filed with the SEC on February 27, 2020.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


4



BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

INCOME (LOSS)

Three and Nine Months Ended September 30, 20172020 and 2016

2019

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

(Unaudited)

 

 

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

)

(unaudited)

 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
REVENUES: 
Net product revenues$460,741 $450,900 $1,368,816 $1,224,458 
Royalty and other revenues16,043 10,197 39,522 25,147 
Total revenues476,784 461,097 1,408,338 1,249,605 
OPERATING EXPENSES:
Cost of sales188,793 96,949 398,134 263,567 
Research and development147,053 172,963 471,449 542,195 
Selling, general and administrative179,450 170,112 542,157 493,024 
Intangible asset amortization and contingent consideration17,429 17,063 48,018 57,114 
Gain on sale of nonfinancial assets(59,495)(15,000)
Total operating expenses532,725 457,087 1,400,263 1,340,900 
INCOME (LOSS) FROM OPERATIONS(55,941)4,010 8,075 (91,295)
Equity in the loss of BioMarin/Genzyme LLC(921)(551)(1,077)(780)
Interest income4,004 5,340 13,539 17,537 
Interest expense(9,597)(2,937)(24,560)(16,530)
Other income, net1,239 3,960 1,886 6,038 
INCOME (LOSS) BEFORE INCOME TAXES(61,216)9,822 (2,137)(85,030)
Benefit from income taxes(846,019)(45,214)(839,138)(46,158)
NET INCOME (LOSS)$784,803 $55,036 $837,001 $(38,872)
NET INCOME (LOSS) PER SHARE, BASIC$4.33 $0.31 $4.63 $(0.22)
NET INCOME (LOSS) PER SHARE, DILUTED$4.01 $0.30 $4.39 $(0.22)
Weighted average common shares outstanding, basic181,142 179,289 180,592 178,873 
Weighted average common shares outstanding, diluted197,674 185,924 194,959 178,873 
COMPREHENSIVE INCOME (LOSS)$765,138 $74,600 $827,222 $(7,140)
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


5



BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 30, 2017

2020 and 2019

(In thousands of U.S. dollars)

(Unaudited)

thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

(unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
 2020201920202019
Shares of common stock, beginning balances (1)
181,148 179,433 179,838 178,253 
Issuances under equity incentive plans344 171 2,172 1,351 
Repurchase of common stock(518)
Shares of common stock, ending balances181,492 179,604 181,492 179,604 
Total stockholders' equity, beginning balances (1)
$3,236,679 $2,960,954 $3,122,381 $2,967,940 
Common stock:
Beginning balances (1)
181 179 180 178 
Issuances under equity incentive plans, net of tax
Ending balance181 180 181 180 
Additional paid-in capital:
Beginning balance (1)
4,885,637 4,744,316 4,832,707 4,669,926 
Issuances under equity incentive plans, net of tax7,319 (1,294)17,601 (19,183)
Stock-based compensation44,757 40,144 136,688 122,212 
Repurchase of common stock(50,000)
Common stock held by the NQDC78 (250)795 (692)
Accounting impact of NQDC Plan change10,653 
Ending balance4,937,791 4,782,916 4,937,791 4,782,916 
Treasury stock:
Beginning balance (1)
Purchase of treasury stock(50,000)
Retirement of treasury stock50,000 
Ending balance
Company common stock held by the NQDC:
Beginning balance (1)
(10,678)(10,211)(9,961)(13,301)
Common stock held by the NQDC(78)250 (795)692 
Accounting impact of NQDC Plan change2,648 
Ending balance(10,756)(9,961)(10,756)(9,961)
Accumulated other comprehensive income:
Beginning balance (1)
30,050 17,439 20,164 5,271 
Other comprehensive income (loss)(19,665)19,564 (9,779)31,732 
Ending balance10,385 37,003 10,385 37,003 
Accumulated Deficit:
Beginning balance (1)
(1,668,511)(1,790,769)(1,720,709)(1,694,134)
Impact of change in accounting principles(2,727)
Net income (loss)784,803 55,036 837,001 (38,872)
Ending balance(883,708)(1,735,733)(883,708)(1,735,733)
Total stockholders' equity, ending balances$4,053,893 $3,074,405 $4,053,893 $3,074,405 
(1)The beginning balances for the nine-month periods were derived from the audited Consolidated Financial Statements included in Company’s Annual Report on Form 10-K for the years ended December 31, 2019 and 2018, respectively, filed with the SEC on February 27, 2020.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


6



BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 20172020 and 2016

2019

(In thousands of U.S. dollars)

(Unaudited)

thousands)

 

 

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

 

(unaudited)

Nine Months Ended September 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$837,001 $(38,872)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization77,814 79,510 
Non-cash interest expense14,766 9,395 
 Amortization of premium (accretion of discount) on investments175 (1,897)
Stock-based compensation142,125 121,763 
Gain on sale of nonfinancial assets(59,495)(15,000)
Inventory write-off, net of stock-based compensation75,609 
Deferred income taxes(854,199)(59,780)
Unrealized foreign exchange loss9,082 784 
Non-cash changes in the fair value of contingent consideration1,352 5,646 
Other388 (18)
Changes in operating assets and liabilities:
Accounts receivable, net(32,915)(61,803)
Inventory(73,310)(52,571)
Other current assets32,848 (13,259)
Other assets(5,543)(7,112)
Accounts payable and accrued liabilities(76,174)21,747 
Other long-term liabilities9,225 2,386 
Net cash provided by (used in) operating activities98,749 (9,081)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment(83,286)(94,241)
Maturities and sales of investments345,224 635,678 
Purchases of available-for-sale securities(369,942)(528,497)
Proceeds from sale of nonfinancial assets67,159 15,000 
Purchase of intangible assets(14,369)(8,323)
Investment in convertible note(8,709)
Other(725)(1,747)
Net cash provided by (used in) investing activities(64,648)17,870 
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of awards under equity incentive plans60,268 21,768 
Taxes paid related to net share settlement of equity awards(42,667)(40,951)
Payment of contingent acquisition consideration(57,508)
Repurchase of common stock(50,000)
Proceeds from convertible senior subordinated note offering, net585,752 
Principal repayments of financing leases(6,080)(2,025)
Net cash provided by (used in) financing activities547,273 (78,716)
Effect of exchange rate changes on cash(3,145)(835)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS578,229 (70,762)
Cash and cash equivalents:
Beginning of period$437,446 $493,982 
End of period$1,015,675 $423,220 
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes$4,355 $6,088 
Cash paid for interest$5,615 $5,777 
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON-CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in accounts payable and accrued liabilities related to fixed assets$(13,281)$(5,801)
Increase (decrease) in accounts payable and accrued liabilities related to intangible assets$(3,043)$2,053 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.


7


Table of Contents
BIOMARIN PHARMACEUTICAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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


(1) NATURE OF OPERATIONS AND BUSINESS RISKS

BioMarin Pharmaceutical Inc. (the Company) is a global biotechnology company that develops and commercializes innovative therapies for people with serious and life-threatening rare diseases and medical conditions. The Company selects product candidates for diseases and conditions that represent a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market or offer a significant benefit over existing products. The Company’s therapy portfolio consists of six approved productsseveral commercial therapies and multiple clinical and pre-clinicalpreclinical product candidates.

The Company expects to continue to finance future cash needs that exceed its operating activities primarily through its current cash, cash equivalents short-term and long-term investments and through proceeds from 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.


(2) BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to United States (U.S.) generally accepted accounting principles (U.S. GAAP) and the rules and regulations of the SEC for Quarterly Reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. GAAP for complete financial statements, although the Company believes that the disclosures herein are adequate to ensure that the information presented is not misleading. The Condensed Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended December 31, 20162019 included in the Company’s Annual Report on Form 10-K.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other period.

On January 1, 2020, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as amended, using a modified retrospective approach. The standard has amended the guidance for measuring and recording credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model. This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than by reducing the carrying amount under the current, other-than-temporary impairment model. Results for reporting periods beginning January 1, 2020 are presented under ASU 2016-13 and the adoption of this standard had no impact on the Company’s Financial Statements.
U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Condensed Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from those estimates. The Condensed Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The full extent to which the novel coronavirus disease (referred to as COVID-19) pandemic will directly or indirectly impact the Company’s business, results of operations 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.

change materially in future periods.

Management performed an evaluation of the Company’s activities through the date of filing of this Quarterly Report on Form 10-Q, and has concluded that, except for the maturity and settlement of our convertible debt discussed in Note 12 - Debt, there were no subsequent events or transactions that occurred subsequent to the balance sheet date prior to filing this Quarterly Report on Form 10-Q that would require recognition or disclosure in the Condensed Consolidated Financial Statements.


(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2017,2020, as compared to the significant accounting policies disclosed in Note 3 of the Consolidated Financial StatementsSignificant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

7

2019.

8

Table of Contents
BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

(4) RECENT ACCOUNTING PRONOUNCEMENTS

Except as described below,in Note 2 – Basis of Presentation, there have been no new accounting pronouncements adopted by the Company or changes tonew accounting pronouncements issued by the FASB during the nine months ended September 30, 2017,2020, as compared to the recent accounting pronouncements described in Note 4 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, that the Company believes 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 Contracts with Customers,



(5) FINANCIAL INSTRUMENTS
All marketable securities were classified 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 customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

As ofavailable-for-sale at September 30, 2017, the Company has not elected to early adopt ASC Topic 6062020 and plans to adopt the new standard using the modified retrospective method. December 31, 2019.

The Company has formed a task force that is in the process of analyzingfollowing tables show the Company’s customer contractscash, cash equivalents and the potential impacts the standard may have on previously reported revenues and future revenues. As the Company completes its analysisavailable-for-sale securities by significant investment category for each period presented:
September 30, 2020
Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregate Fair ValueCash and Cash Equivalents
Short-term
Marketable
Securities (1)
Long-term
Marketable
Securities (2)
Level 1:
Cash$378,705 $$$378,705 $378,705 $$
Level 2:
Money market instruments557,006 557,006 557,006 
Corporate debt securities435,954 4,558 (14)440,498 280,000 160,498 
U.S. government agency securities361,336 2,182 (1)363,517 79,964 199,559 83,994 
Asset-backed securities23,430 129 23,559 3,639 19,920 
Commercial paper6,800 6,800 6,800 
Foreign and other549 161 710 710 
Subtotal1,385,075 7,030 (15)1,392,090 636,970 489,998 265,122 
Total$1,763,780 $7,030 $(15)$1,770,795 $1,015,675 $489,998 $265,122 


December 31, 2019
Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Aggregate Fair ValueCash and Cash Equivalents
Short-term
Marketable
Securities (1)
Long-term
Marketable
Securities (2)
Level 1:
Cash$259,347 $$$259,347 $259,347 $$
Level 2:
Money market instruments173,100 173,100 173,100 
Corporate debt securities518,523 3,575 (12)522,086 233,294 288,792 
U.S. government agency securities209,633 993 (67)210,559 4,999 83,067 122,493 
Foreign and other549 145 (1)693 693 
Subtotal901,805 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 
(1)    The Company’s short-term marketable securities mature in one year or less.
9

Table 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 impact 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.

ContentsIn 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 has

8


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

(In thousands of U.S. dollars,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

(2)    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, Derivativeslong-term marketable securities mature between one 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. five years.

As of September 30, 2017, the Company has not elected to early adopt the amendments of ASU 2017-12.

(5) ACQUISITIONS

The Merck PKU Business

On October 1, 2015, the Company entered into a Termination and Transition Agreement with Ares Trading S.A. (Merck Serono), as amended and restated on December 23, 2015 (the A&R Kuvan Agreement), to terminate the Development, License and Commercialization Agreement, dated May 13, 2005, as amended (the License Agreement), between the Company and Merck Serono, including the license to Kuvan2020, the Company had grantedthe ability and intent to Merck Serono underhold all investments that were in an unrealized loss position until maturity. The Company considered its intent and ability to hold the License Agreement. Also on October 1, 2015,securities until recovery of amortized cost basis, the Company and Merck Serono entered into a Termination Agreement (the Pegvaliase Agreement)extent to terminate the license to pegvaliase the Company had granted to Merck Serono under the License Agreement. On January 1, 2016, pursuantwhich fair value is less than amortized cost basis, conditions specifically related to the A&R Kuvan Agreementsecurity’s industry and the Pegvaliase Agreement, the Company completed the acquisition from Merck Seronogeography, payment structure and its affiliates of certain rightshistory and other assets with respect to Kuvan and pegvaliase (the Merck PKU Business). As a result, the Company acquired all global rights to Kuvan and pegvaliase from Merck Serono, with the exception of Kuvan in Japan. Previously, the Company had exclusive rights to Kuvan in the U.S. and Canada and pegvaliase in the U.S. and Japan. In connection with the acquisition of the Merck PKU Business, the Company recognized transaction costs of $0.6 million, of which $0.3 million was recognized in each of the years ended December 31, 2016 and 2015.

Pursuantchanges to the A&R Kuvan Agreement,ratings (if any) in determining that the Company paid Merck Serono $374.5 million,decline in cash, the majority of which was paid in January 2016, andfair value compared to carrying value is obligated to pay Merck Serono upnot related 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. credit loss.

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 Revenueshas 3 investments 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 additional

9


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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.

Cash payments

 

$

374,545

 

Estimated fair value of contingent acquisition consideration payable

 

 

138,974

 

Total consideration

 

$

513,519

 

Kuvan intangible assets

 

$

172,961

 

Pegvaliase IPR&D

 

 

326,359

 

Inventory

 

 

14,199

 

Total identifiable assets acquired

 

$

513,519

 

The amount allocated to the Kuvan intangible assets is considered to be finite-lived and will be amortized on a straight-line basis over its estimated useful life through 2024.

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 SHARE

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

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

 

 

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

)

10


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

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):

 

 

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

 

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 SECURITIES

All 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:

 

 

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

 

As of December 31, 2016, the Company had one investment in marketablenon-marketable equity securities, measured using quoted prices in its active market,unobservable valuation inputs remeasured on a nonrecurring basis, which wasare collectively considered a strategic investment. In the first quarter of 2017, the strategic investment was sold for a realized gain of $3.3 million.investments. As of September 30, 2020 and December 31, 2016,2019, the fair value of the Company’s marketable equity securitiesstrategic investments was $4.1 million, which included an unrealized gain of $2.3$8.0 million and was$6.2 million, respectively. These investments were recorded in Other Assets in the Company’s Condensed Consolidated Balance Sheet.

11

Sheets.

(6) GOODWILL AND INTANGIBLE ASSETS
Intangible assets consisted of the following:
September 30,
2020
December 31,
2019
Intangible assets:
Finite-lived intangible assets$638,468 $652,734 
Accumulated amortization(211,296)(196,154)
Net carrying value$427,172 $456,580 
In January 2020, the Company completed the sale of worldwide rights to Firdapse, the Company's commercial product for the treatment of Lambert-Eaton myasthenic syndrome, to a third party in exchange for a one-time cash payment of $67.2 million plus residual royalties. Under the terms of the agreement, the Company agreed to provide certain transition services to the third-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 before-tax net gain of $59.5 million related to the sale of the Firdapse intellectual property (IP) and existing inventory. Additionally, the Company 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.
During the second quarter of 2019, the Company recorded $15.0 million of gain on sale of intangible assets, reported in Gain on Sale of Nonfinancial Assets in the Consolidated Statements of Comprehensive Income (Loss), due to a third party's achievement of a commercial sales milestone related to a previously sold intangible asset.

10

Table of Contents
BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

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

 

 

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

 

(7) PROPERTY, PLANT AND EQUIPMENT

Impairment assessments are made at the individual security level each reporting period. When the fair value of an investment is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary

Property, plant and if it is other-than-temporary, an impairment loss is recognized in earnings equal to the difference between the investment’s amortized cost and fair value at such date. As of September 30, 2017, some of the Company’s investments were in an unrealized loss position, which the Company considers temporary in nature. The Company has the ability and intent to hold all investments that have been in a continuous loss position until maturity or recovery, thus no other-than-temporary impairment is deemed to have occurred.

See Note 13 to these Condensed Consolidated Financial Statements for additional discussion regarding the fair value of the Company’s available-for-sale securities.

(8) INTANGIBLE ASSETS

Intangible assetsequipment, net consisted of the following:

 

 

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

 

September 30,
2020
December 31,
2019
Building and improvements$756,479 $725,906 
Manufacturing and laboratory equipment402,357 366,951 
Computer hardware and software187,722 167,554 
Land90,418 90,418 
Leasehold improvements52,479 51,324 
Furniture and equipment39,360 38,569 
Land improvements7,349 7,349 
Construction-in-progress92,581 111,897 
1,628,745 1,559,968 
Accumulated depreciation(613,683)(549,100)
Total property, plant and equipment, net$1,015,062 $1,010,868 

Indefinite-Lived Intangible Assets

Intangible assets

The construction-in-progress balance primarily included costs related to IPR&D assets are considered to be indefinite-lived untilsignificant in-progress projects at the completion or abandonmentCompany's facilities in Marin County, California, and Shanbally, Ireland.

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Depreciation expense$22,187 $24,238 $65,749 $67,206 
Depreciation capitalized into inventory$10,883 $9,807 $34,053 $24,894 


11

Table of the associated R&D efforts. During the period the assets are considered indefinite-lived, they will not be amortized but will be tested for impairment on an annual basis and between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D assets below their respective carrying amounts. If and when development is complete, which generally occurs if and when regulatory approval to market a product is obtained, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time.

During the second quarter of 2016, the Company 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 million related to the reveglucosidase alfa IPR&D assets due to the decision 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 was not impaired.

ContentsIn 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 to

12


BIOMARIN PHARMACEUTICAL INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

(8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventory consisted of the use of EXONDYS 51 and all future exon-skipping productsfollowing:
September 30,
2020
December 31,
2019
Raw materials$73,857 $74,442 
Work-in-process296,685 349,978 
Finished goods330,305 255,855 
Total inventory$700,847 $680,275 
Valoctocogene roxaparvovec is an investigational gene therapy product candidate for the treatment of DMD. Pursuantsevere hemophilia A. The Company must receive marketing approval from the applicable regulators before the valoctocogene roxaparvovec inventory can be sold commercially. Starting in the second quarter of 2019, the Company believed that material uncertainties related to the Agreements, Sarepta paidultimate regulatory approval of valoctocogene roxaparvovec for commercial sale had been significantly reduced and included the manufacturing-related costs for the commercial production of valoctocogene roxaparvovec in inventory. A number of factors were taken into consideration based on the information available at the time, including the status in the drug development process, pivotal clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, historical experience, as well as potential impediments to the approval process such as product safety or efficacy, as well as commercialization and marketplace trends. If the marketing application is rejected, the manufacturing-related costs for the commercial production of valoctocogene roxaparvovec will be expensed to Research and Development (R&D).
In the third quarter of 2020, the Company unexpectedly received a one-time upfront feeComplete Response Letter from the U.S. Food and Drug Administration (FDA) and a Joint Assessment Report from the European Medicines Agency (EMA) respectively, both indicating that the Company’s regulatory applications for valoctocogene roxaparvovec could not be approved in their present form and requested additional safety and efficacy data from the ongoing Phase 3 study. The Company evaluated the impact of $35.0 million, whichthe new requirement for Phase 3 data that is currently unknown and determined the value of the pre-launch inventory was recognized as license revenue. Under the Agreements, Sarepta may pay certain additionalno longer recoverable due to delays in anticipated regulatory and commercial milestone fees for exons 51, 45, 53 and possibly on future exon-skipping products toapprovals. As a result, the Company if certain developmentadjusted the pre-launch inventory to 0, its net realizable value, and sales milestones are achieved. Additionally, Sarepta will pay the Company royalties based on 5%recorded $81.2 million to Cost of net salesSales in the U.S. through the end of 2023three and 8% of net sales throughnine months ended September 30, 2024 in the EU2020.
Accounts Payable and in other countries where certainAccrued Liabilities consisted of the Company’s patents exist. following:
September 30,
2020
December 31,
2019
Accounts payable and accrued operating expenses$218,021 $240,981 
Accrued compensation expense137,415 192,467 
Accrued rebates payable65,999 57,163 
Accrued royalties payable20,426 30,797 
Lease liabilities10,930 10,700 
Value added taxes payable7,222 8,395 
Forward foreign currency exchange contracts7,774 10,448 
Deferred revenue3,240 13,037 
Other9,376 6,633 
Total accounts payable and accrued liabilities$480,403 $570,621 


12

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
(9) FAIR VALUE MEASUREMENTS
The Company 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 – Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for additional information related to2019.

The following tables present the classification within the fair value hierarchy of financial assets and liabilities not disclosed elsewhere in these Condensed Consolidated Financial Statements that are remeasured on a recurring basis as of September 30, 2020 and December 31, 2019. Other than the Company’s intangible assets.

(9) PROPERTY, PLANT AND EQUIPMENT

Property, plantfixed-rate convertible debt disclosed in Note 12 – Debt, there were 0 financial assets or liabilities that were remeasured using a quoted price in active markets for identical assets (Level 1) as of September 30, 2020 or December 31, 2019.

Fair Value Measurements at September 30, 2020
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets:
Other current assets:
NQDC Plan assets$1,902 $$1,902 
Other assets:
NQDC Plan assets17,652 17,652 
Restricted investments (1)
2,987 2,987 
Total other assets20,639 20,639 
Total assets$22,541 $$22,541 
Liabilities:
Current liabilities:
NQDC Plan liability$1,902 $$1,902 
Other long-term liabilities:
NQDC Plan liability17,652 17,652 
Contingent consideration— 54,103 54,103 
Total other long-term liabilities17,652 54,103 71,755 
Total liabilities$19,554 $54,103 $73,657 

13

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
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 $$1,177 
Other assets:
NQDC Plan assets16,288 16,288 
Restricted investments (1)
3,168 3,168 
Total other assets19,456 19,456 
Total assets$20,633 $$20,633 
Liabilities:
Current liabilities:
NQDC Plan liability$1,177 $$1,177 
Other long-term liabilities:
NQDC Plan liability16,288 16,288 
Contingent consideration50,793 50,793 
Total other long-term liabilities16,288 50,793 67,081 
Total liabilities$17,465 $50,793 $68,258 
(1)    The restricted investments at September 30, 2020 and equipment, net consistedDecember 31, 2019 secure the Company's irrevocable standby letters of the following:

 

 

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

 

The construction-in-process balance primarily includes costs related to the Company’s significant in-process projects at its facilitiescredit obtained in Marin County, California, and in Shanbally, Ireland.

Depreciation expense forconnection with certain commercial agreements.

There were no transfers between levels during the three and nine months ended September 30, 2017 was $19.4 million and $54.8 million, respectively,2020. The following table represents a roll forward of which $6.1 million and $17.9 million, respectively, was capitalized into inventory. Depreciation expense for the three and nine months ended September 30, 2016 was $23.2 million and $56.1 million, respectively,contingent consideration.
Contingent consideration at December 31, 2019$50,793 
Changes in fair value of contingent consideration1,352 
Foreign exchange remeasurement of Euro denominated contingent acquisition consideration1,958 
Contingent consideration at September 30, 2020$54,103 
14

Table of which $4.4 million and $13.4 million, respectively, was capitalized into inventory. Capitalized interest related to the Company’s property, plant and equipment purchases for each of the three and nine months ended September 30, 2017 and 2016 was insignificant.

(10) SUPPLEMENTAL BALANCE SHEET INFORMATION

Inventory consisted of the following:

Contents

 

 

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

 

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


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

Accounts Payable

(10) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES
The Company uses forward foreign currency exchange contracts (forward contracts) to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Such exposures result from portions of the Company’s forecasted revenues and Accrued Liabilitiesoperating expenses being denominated in currencies other than the U.S. Dollar (USD), primarily the Euro. Certain of these forward contracts are designated as hedging instruments and have maturities up to two and a half years. The Company also enters into forward contracts that are considered to be economic hedges that are not designated as hedging instruments and have maturities up to three months. Whether designated or undesignated, these forward 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 USD. To receive hedge accounting treatment, cash flow hedges must be highly effective in offsetting changes to expected future cash flows on hedged transactions. The Company does not hold or issue derivative instruments for trading or speculative purposes.
The Company is exposed to counterparty credit risk on its derivatives. The Company has established and maintains strict counterparty credit guidelines and enters into hedging agreements with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company is not required to pledge collateral under these agreements.
The following table summarizes the aggregate notional amounts for the Company’s derivatives designated as hedging instruments outstanding as of the periods presented.
Foreign Exchange ContractsSeptember 30, 2020December 31, 2019
Sell$729,998 $820,546 
Purchase$163,116 $212,348 
The following table summarizes the aggregate notional amounts for the Company’s derivatives not designated as hedging instruments outstanding as of the periods presented.
Foreign Exchange ContractsSeptember 30, 2020December 31, 2019
Sell$41,031 $77,335 
Purchase$30,031 $30,818 
The fair value carrying amounts of the Company’s derivatives, as classified within the fair value hierarchy, were as follows:
Balance Sheet LocationSeptember 30, 2020December 31, 2019
Derivatives designated as hedging instruments:
Asset Derivatives - Level 2 (1)
Other current assets$13,537 $19,584 
Other assets4,621 13,539 
Subtotal$18,158 $33,123 
Liability Derivatives - Level 2 (1)
Accounts payable and accrued liabilities$7,704 $8,184 
Other long-term liabilities4,406 5,493 
Subtotal$12,110 $13,677 
Derivatives not designated as hedging instruments:
Asset Derivatives - Level 2 (1)
Other current assets$16 $469 
Liability Derivatives - Level 2 (1)
Accounts payable and accrued liabilities$70 $2,264 
Total Derivatives Assets$18,174 $33,592 
Total Derivatives Liabilities$12,180 $15,941 
(1)    For additional discussion of fair value measurements, see Note 3 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
15

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
The following tables summarize the impact of gains and losses from the Company's derivatives on its Condensed Consolidated Statements of Comprehensive Income (Loss) for the periods presented.
Three Months Ended
September 30, 2020September 30, 2019
Derivatives Designated as Cash Flow Hedging InstrumentsCash Flow Hedging Gains (Losses)
Reclassified into Earnings
Cash Flow Hedging Gains (Losses)
Reclassified into Earnings
Net product revenues as reported$460,741 $2,693 $450,900 $6,196 
Operating expenses as reported$532,725 $(815)$457,087 $(1,388)
Derivatives Not Designated as Hedging InstrumentsGains (Losses) Recognized in EarningsGains (Losses) Recognized in Earnings
Operating expenses$4,166 $(1,286)

Nine Months Ended
September 30, 2020September 30, 2019
Derivatives Designated as Cash Flow Hedging InstrumentsCash Flow Hedging Gains (Losses)
Reclassified into Earnings
Cash Flow Hedging Gains (Losses)
Reclassified into Earnings
Net product revenues as reported$1,368,816 $17,301 $1,224,458 $11,171 
Operating expenses as reported$1,400,263 $(4,274)$1,340,900 $(1,885)
Derivatives Not Designated as Hedging InstrumentsGains (Losses) Recognized in EarningsGains (Losses) Recognized in Earnings
Operating expenses$9,600 $(5,182)
As of September 30, 2020, the Company expected to reclassify unrealized gains of $4.8 million from Accumulated Other Comprehensive Income (AOCI) to earnings as the forecasted revenue and operating expense transactions occur over the next 12 months. For additional discussion of balances in AOCI see Note 13 – Accumulated Other Comprehensive Income.

16

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
(11) LEASES
The following table presents the Company’s right-of-use (ROU) assets and lease liabilities as of September 30, 2020:
Lease ClassificationClassificationSeptember 30,
2020
December 31,
2019
Assets:
OperatingOther Assets$45,764 $49,045 
FinancingOther Assets12,018 10,389 
Total ROU assets$57,782 $59,434 
Liabilities:
Current:
OperatingAccounts payable and accrued liabilities$7,813 $7,451 
FinancingAccounts payable and accrued liabilities3,117 3,249 
Noncurrent:
OperatingOther long-term liabilities40,831 44,092 
FinancingOther long-term liabilities4,570 6,708 
Total lease liabilities$56,331 $61,500 
Maturities of lease liabilities as of September 30, 2020 by fiscal year were as follows:
Maturity of Lease LiabilitiesOperatingFinancingTotal
Remainder of 2020$3,460 $940 $4,400 
20219,908 3,080 12,988 
20229,095 2,375 11,470 
20238,055 1,797 9,852 
20246,253 48 6,301 
Thereafter21,714 20 21,734 
Total lease payments58,485 8,260 66,745 
Less: Interest(9,841)(573)(10,414)
Present value of lease liabilities$48,644 $7,687 $56,331 

Lease costs associated with payments under the Company’s leases were as follows:

Three Months Ended
September 30,
Nine Months Ended
September 30,
Lease CostClassification2020201920202019
Operating (1)
Operating Expenses$3,227 $3,535 $8,953 $9,946 
Financing:
AmortizationOperating Expenses841 600 2,307 1,811 
Interest expenseOperating Expenses111 142 352 455 
Total lease costs$4,179 $4,277 $11,612 $12,212 
(1)    Includes short-term leases and variable lease costs, both of which were not material in the periods presented.
The following table includes the weighted average remaining lease terms and the weighted average discount rate used to calculate the present value of the Company’s lease liabilities:
17

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
Other InformationSeptember 30,
2020
September 30,
2019
Weighted average remaining lease term (in years):
Operating leases7.18.0
Financing leases2.84.2
Weighted average discount rate:
Operating leases5.1 %5.2 %
Financing leases5.2 %5.4 %
    As of September 30, 2020, 1 operating lease is expected to commence in the fourth quarter of 2020.
Nine Months Ended September 30,
Supplemental Cash Flow Information20202019
Cash paid for amounts included in the measurement of lease liabilities:
Cash used in operating activities:
Operating leases$7,007 $5,918 
Financing leases$354 $454 
Cash used in financing activities:
Financing leases$6,080 $2,027 
ROU assets obtained in exchange for lease obligations:
Operating leases$3,299 $9,268 
Financing leases$3,941 $72 
18

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
(12) DEBT
Convertible Notes
As of September 30, 2020, the Company had outstanding fixed-rate notes with varying maturities for an undiscounted aggregate principal amount of $1.5 billion (collectively the Notes). The Notes are senior subordinated convertible obligations, and interest is payable in arrears, semi-annually. The following table summarizes information regarding the Company’s convertible debt:
September 30,
2020
December 31,
2019
1.25% senior subordinated convertible notes due in May 2027 (the 2027 Notes)$600,000 $
Unamortized discount(12,792)
Unamortized deferred offering costs(709)
2027 Notes, net586,499 
0.599% senior subordinated convertible notes due in August 2024 (the 2024 Notes)495,000 495,000 
Unamortized discount(5,470)(6,533)
Unamortized deferred offering costs(1,865)(2,229)
2024 Notes, net487,665 486,238 
1.50% senior subordinated convertible notes due in October 2020 (the 2020 Notes)374,993 374,993 
Unamortized discount(649)(12,078)
Unamortized deferred offering costs(54)(1,033)
2020 Notes, net (1)
374,290 361,882 
Total convertible debt, net$1,448,454 $848,120 
Fair value of fixed rate convertible debt (2):
2027 Notes$590,010 $
2024 Notes517,730 521,839 
2020 Notes374,997 405,679 
Total fair value of fixed rate convertible debt$1,482,737 $927,518 
(1)    The 2020 Notes are classified as a current liability in the periods presented because they matured on October 15, 2020 and were settled in cash for approximately $375.0 million. NaN shares were issued in connection with the settlement as the Company’s share price did not exceed the conversion price of $94.15, as measured over a 25-day averaging period, and the capped call transaction entered into concurrently with the issuance of notes was not triggered. The Company incurred no gain or loss upon the extinguishment of the 2020 Notes.
19

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
(2)    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. For additional discussion of fair value measurements, see Note 3 – Summary of Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Interest expense on the Company’s convertible debt consisted of the following:

 

 

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

 

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Accretion of discount on convertible notes$4,696 $4,005 $13,201 $11,860 
Coupon interest expense4,255 2,271 9,443 6,681 
Amortization of debt issuance costs535 508 1,565 1,522 
Total interest expense on convertible debt$9,486 $6,784 $24,209 $20,063 

(11) DEBT

Convertible

2027 Notes

In August 2017,May 2020, the Company issued $495.0$600.0 million in aggregate principal amount of senior subordinated unsecured convertible notes with a maturity date of August 1, 2024. The 2024May 15, 2027. The 2027 Notes were issued to the public at 98% of facepar value and bear interest at the rate of 0.599%1.25% per annum. Interest is payable semi-annually in cash in arrears on February 1May 15 and August 1November 15 of each year, beginning February 1, 2018.November 15, 2020. The 20242027 Notes are convertible, at the option of the holder intointo shares of the Company’s common stock. The initial conversion rate for the 20242027 Notes is 8.02127.2743 shares per $1,000 principal amount of the 20242027 Notes, which represents a conversion price of approximately $124.67$137.47 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 20242027 Notes 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 20242027 Notes so long as the amount of the 20242027 Notes converted is an integral multiple of $1,000 principal amount. Net proceeds from the offering were $481.7$585.8 million.

In connection with the issuance of the 2027 Notes, the Company recorded a discount on the 2027 Notes of $13.5 million, which will be accreted and recorded as additional interest expense over the life of the 2027 Notes. The 2024Company also incurred $0.7 million of issuance costs, which were deferred and are being amortized over the life of the 2027 Notes and recorded as additional interest expense.

The 2027 Notes are senior subordinated, unsecured obligations, and rank (i) subordinated in right of payment to the prior payment in full of anyall of the Company’s existing and future senior debt, (ii) equal in right of payment to any ofwith 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)notes, (vi) 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 (v) 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 20242027 Notes, the holders may require the Company to repurchase all or a portion of such holder’s 20242027 Notes for cash at 100% of the principal amount of the 20242027 Notes being purchased, plus any accrued and unpaid interest.

In connection with the issuance

The offer and sale 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 of the three and nine months ended September 30, 2017, the Company recognized $0.2 million of debt discount accretion. The Company also incurred $3.4 million of issuance costs. These costs were deferred and are being amortized over the life of the 20242027 Notes and recorded as additional interest expense. During each of the three and nine months ended September 30, 2017, the Company recognized $0.1 million of amortization of deferred issuance costs related to the 2024 Notes.

14


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The following table summarizes information regarding the Company’s convertible debt:

 

 

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

 

(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:

 

 

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

 

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.

issuable upon conversion of the 2027 Notes have not been registered under the Securities Act or any state securities laws and the 2027 Notes were offered only to qualified institutional buyers as defined in Rule 144A under the Securities Act.

See Note 13 to the Consolidated Financial Statements included- Debt in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162019 for additional information related to the Company’s convertible debt.

15

Revolving Credit Facility
In October 2018, the Company 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 a 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 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
20

Table of Contents
BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

Revolving

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 obligations under the Credit Facility

In November 2016, are guaranteed by its direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in 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.future be guaranteed from time to time by certain other material domestic subsidiaries. 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 Revolving2018 Credit Facility will occurmatures on November 29, 2018. Interest on anyOctober 19, 2021, at which time all outstanding balanceamounts become due and payable. The Company incurred approximately $1.0 million 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 financingissuance costs, were incurred and will bewhich are amortized asto Interest Expense over the term of the 2018 Credit Agreement.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, 20172020, and December 31, 2016,2019, there were no0 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 sumnor any usage 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 Revolving2018 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.Facility. As of September 30, 2017,2020, the Company and certain of its subsidiaries that serveserved as guarantors were in compliance with all covenants.

(12) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

The Company uses forward foreign currency exchange contracts to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Such exposures result from portions of the Company’s forecasted revenues and operating expenses being denominated in currencies other than the U.S. dollar, primarily the Euro.

The Company designates certain of these forward foreign currency exchange contracts as hedging instruments and enters into some forward foreign currency exchange contracts that are considered to be economic hedges that are not designated as hedging instruments. Whether designated or undesignated, these forward foreign currency exchange contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from 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 to 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 as cash flow hedges and expects them to be highly effective in offsetting fluctuations in operating expenses denominated in Euros and revenues denominated in currencies other than the U.S. dollar related to changes in foreign currency exchange rates.

16


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The following table summarizes the Company’s designated forward foreign currency exchange contracts outstanding as of September 30, 2017 (notional amounts in millions):

 

 

 

 

 

 

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

 

 

 

 

 

 

 

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 foreign currency exchange contracts is through September 2020. Over the next twelve months, the Company expects to reclassify unrealized losses of $12.9 million from accumulated other comprehensive income (loss) 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 value of these forward foreign currency exchange contracts are included as a part of selling, general and administrative (SG&A) expense in the Company’s Condensed Consolidated Statements of Comprehensive Loss.

The following table summarizes the Company’s non-designated forward foreign currency exchange contracts outstanding as of September 30, 2017 (notional amounts in millions):

 

 

 

 

 

 

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

 

 

 

 

 

 

 

The fair value carrying amounts of the Company’s derivative instruments were as follows:

 

 

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

 

17


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

 

 

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

 

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:

 

 

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

)

(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.

The Company is exposed to counterparty credit risk on all of its derivative financial instruments. The Company has established and maintains strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company does not require collateral to be pledged under these agreements.

18


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

(13) FAIR VALUE MEASUREMENTS

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income securities and foreign currency derivatives. The tables below present the fair value of these financial assets and liabilities determined using the following input levels.

 

 

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

 

19


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

 

 

Fair Value Measurements at December 31, 2016

 

 

 

Quoted Price in

Active Markets

For Identical

Assets

(Level 1)

 

 

Significant Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash 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

 

(1)

See Note 12 to these Condensed Consolidated Financial Statements for further information regarding the derivative instruments.

(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.

20


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

(3)

The Company had investments in marketable equity securities measured using quoted prices in an active market that were considered strategic investments. See Note 7 to these Condensed Consolidated Financial Statements for additional discussion regarding the Company’s strategic investment.

There were no transfers between levels during the three and nine months ended September 30, 2017.

The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs.

The Company validates the prices provided by its third-party pricing services by understanding the models used, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming those securities traded in active markets. 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 consisted 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, 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 management to estimate the fair value of the contingent acquisition consideration is most sensitive to changes in the estimated probabilities.

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

 

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, both over the term of the associated lease agreement. As of September 30, 2017, the balance of the asset retirement obligation liability was $4.1 million.

The Company acquired intangible assets as a result 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 COMPENSATION

The 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 directors

21


BIOMARIN 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 Rights

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the tables below. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns 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 that 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:

 

 

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%

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 Conditions

RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair 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 Conditions

On 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 level in the forecast, and determined that attainment of the revenue target was probable for accounting purposes commencing 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.

22


BIOMARIN 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 Companys 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 Companys 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:

 

 

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

 

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.

23


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

(15) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes amounts reclassified out of 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, 20172020 and 2016.

2019. 

 

 

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

Condensed Consolidated
Statement of Comprehensive Income (Loss)
Classification
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Gains (losses) on cash flow hedges:
Forward contractsNet product revenues$2,693 $6,196 $17,301 $11,171 
Forward contractsOperating expenses(815)(1,388)(4,274)(1,885)
Total gain (loss) on cash flow hedges$1,878 $4,808 $13,027 $9,286 

The following tables summarize changes in the accumulated balances for each component of AOCI, including current period other comprehensive income (loss) and reclassifications out of AOCI for the three and nine months ended September 30, 20172020 and 2016.

2019.

 

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

 

Three Months Ended September 30, 2020

AOCI balance at June 30, 2017

 

$

(13,569

)

 

$

(1,080

)

 

$

(9

)

 

$

(14,658

)

Unrealized Gains
(Losses) on Cash
Flow Hedges
Unrealized Gains
(Losses) on
Available for-Sale
Debt Securities
OtherTotal
AOCI balance at June 30, 2020AOCI balance at June 30, 2020$22,963 $7,087 $$30,050 

Other comprehensive income (loss) before

reclassifications

 

 

(10,569

)

 

 

147

 

 

 

2

 

 

 

(10,420

)

Other comprehensive income (loss) before
reclassifications
(16,094)(2,201)(18,295)

Less: net loss reclassified from AOCI

 

 

(3,700

)

 

 

 

 

 

 

 

 

(3,700

)

Less: net gain (loss) reclassified from AOCILess: net gain (loss) reclassified from AOCI1,878 1,878 

Tax effect

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Tax effect508 508 

Net current-period other comprehensive income (loss)

 

 

(6,869

)

 

 

91

 

 

 

2

 

 

 

(6,776

)

Net current-period other comprehensive income (loss)(17,972)(1,693)(19,665)

AOCI balance at September 30, 2017

 

$

(20,438

)

 

$

(989

)

 

$

(7

)

 

$

(21,434

)

AOCI balance at September 30, 2020AOCI balance at September 30, 2020$4,991 $5,394 $$10,385 

 

 

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

 


24

21

Table of Contents
BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

 

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

 

Three Months Ended September 30, 2019

AOCI balance at December 31, 2016

 

$

13,006

 

 

$

(178

)

 

$

(12

)

 

$

12,816

 

Unrealized Gains
(Losses) on Cash
Flow Hedges
Unrealized Gains
(Losses) on
Available for-Sale
Debt Securities
OtherTotal
AOCI balance at June 30, 2019AOCI balance at June 30, 2019$14,181 $3,271 $(13)$17,439 

Other comprehensive income (loss) before

reclassifications

 

 

(33,933

)

 

 

1,981

 

 

 

5

 

 

 

(31,947

)

Other comprehensive income (loss) before
reclassifications
23,973 522 (3)24,492 

Less: gain (loss) reclassified from AOCI

 

 

(489

)

 

 

3,252

 

 

 

 

 

 

2,763

 

Less: gain (loss) reclassified from AOCI4,808 4,808 

Tax effect

 

 

 

 

 

460

 

 

 

 

 

 

460

 

Tax effect(120)(120)

Net current-period other comprehensive income (loss)

 

 

(33,444

)

 

 

(811

)

 

 

5

 

 

 

(34,250

)

Net current-period other comprehensive income (loss)19,165 402 (3)19,564 

AOCI balance at September 30, 2017

 

$

(20,438

)

 

$

(989

)

 

$

(7

)

 

$

(21,434

)

AOCI balance at September 30, 2019AOCI balance at September 30, 2019$33,346 $3,673 $(16)$37,003 

 

 

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

 


(16)


Nine Months Ended September 30, 2020
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unrealized Gains
(Losses) on
Available for-Sale
Debt Securities
OtherTotal
AOCI balance at December 31, 2019$16,614 $3,565 $(15)$20,164 
Other comprehensive income (loss) before
     reclassifications
1,404 2,379 15 3,798 
Less: gain (loss) reclassified from AOCI13,027 13,027 
Tax effect(550)(550)
Net current-period other comprehensive income (loss)(11,623)1,829 15 (9,779)
AOCI balance at September 30, 2020$4,991 $5,394 $$10,385 

Nine Months Ended September 30, 2019
Unrealized Gains
(Losses) on Cash
Flow Hedges
Unrealized Gains
(Losses) on
Available for-Sale
Debt Securities
OtherTotal
AOCI balance at December 31, 2018$7,201 $(1,917)$(13)$5,271 
Other comprehensive income (loss) before
     reclassifications
35,431 7,256 (3)42,684 
Less: gain (loss) reclassified from AOCI9,286 9,286 
Tax effect(1,666)(1,666)
Net current-period other comprehensive income (loss)26,145 5,590 (3)31,732 
AOCI balance at September 30, 2019$33,346 $3,673 $(16)$37,003 


(14) REVENUE, AND CREDIT CONCENTRATIONS

Net 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 Companys sole customer for Aldurazyme and is responsible for marketing and selling Aldurazyme to third-parties.

AND GEOGRAPHIC INFORMATION

 

 

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

%

25


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

The 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.

 

 

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

%

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 INFORMATION

The Company operates in one1 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 naturerespective regions experience difficulties.

22

Table of the products and production processes, type of customers, distribution methods and regulatory environment.

Contents

 

 

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

 

26


BIOMARIN PHARMACEUTICAL INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

- (continued)

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

The following table 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 location of Genzyme’s headquarters. Althoughsold exclusively to Sanofi Genzyme (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 September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended
September 30,
Nine Months Ended
September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2020201920202019

Total revenues by geographic region:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues by geographic region:

United States

 

$

151,010

 

 

$

130,356

 

 

$

425,107

 

 

$

365,674

 

United States$252,948 $201,874 $729,672 $562,217 

Europe

 

 

97,825

 

 

 

62,821

 

 

 

228,775

 

 

 

187,328

 

Europe121,158 125,485 375,453 369,585 

Latin America

 

 

26,356

 

 

 

38,789

 

 

 

121,824

 

 

 

106,803

 

Latin America44,064 83,799 141,852 164,132 

Rest of world

 

 

58,957

 

 

 

47,930

 

 

 

179,635

 

 

 

156,958

 

Rest of world58,614 49,939 161,361 153,671 

Total revenues

 

$

334,148

 

 

$

279,896

 

 

$

955,341

 

 

$

816,763

 

Total revenues$476,784 $461,097 $1,408,338 $1,249,605 


The following table disaggregates Net Product Revenues by product.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net product revenues by product:
Vimizim$147,891 $163,466 $401,789 $411,953 
Kuvan123,993 120,524 368,604 340,771 
Naglazyme76,323 94,408 271,585 279,462 
Palynziq46,092 24,142 121,354 55,250 
Brineura25,455 19,840 75,223 46,815 
Firdapse5,668 1,316 16,262 
Total net product revenues marketed by the Company$419,754 $428,048 $1,239,871 $1,150,513 
Aldurazyme net product revenues marketed by Genzyme40,987 22,852 $128,945 $73,945 
Total net product revenues$460,741 $450,900 $1,368,816 $1,224,458 
The table below disaggregates total Net Product Revenues based on patient location for products sold directly by the Company, and global sales of Aldurazyme, which is marketed by Genzyme.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
United States$203,892 $175,127 $582,734 $480,330 
Europe115,548 121,363 360,718 358,041 
Latin America44,064 83,799 141,852 164,132 
Rest of world56,250 47,759 154,567 148,010 
Total net product revenues marketed by the Company419,754 428,048 1,239,871 1,150,513 
Aldurazyme net product revenues marketed by Genzyme40,987 22,852 128,945 73,945 
Total net product revenues$460,741 $450,900 $1,368,816 $1,224,458 
The following table illustrates the percentage of the Company’s total Net Product Revenues attributed to the Company’s largest customers for the periods presented. 
23

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Customer A16 %16 %15 %17 %
Customer B14 %13 %14 %12 %
Customer C11 %10 %12 %11 %
Customer D%12 %%%
Total42 %51 %44 %46 %

On a consolidated basis, two customers accounted for 33% and 15% of the September 30, 2020 accounts receivable balance, respectively, compared to December 31, 2019, when two customers accounted for 24% and 16% of the accounts receivable balance, respectively. As of September 30, 2020, and December 31, 2019, the accounts receivable balance for Genzyme included $106.5 million and $60.2 million, respectively, of unbilled accounts receivable, which becomes payable to the Company when the product is sold by Genzyme. The Company does not require collateral from its customers but does perform periodic credit evaluations of its customers’ financial condition and requires prepayments in certain circumstances.
The outbreak of COVID-19 continues to affect economies and business around the world. The Company experienced a modest impact on its global revenue sources, mostly in the form of demand interruptions such as missed patient infusions and delayed treatment starts for new patients, in the three and nine months ended September 30, 2020 and the Company anticipates a continued impact on its financial results for the remainder of 2020 and into fiscal year 2021. The extent and duration of such effects are highly uncertain and difficult to predict. The Company is actively monitoring and managing its response and assessing actual and potential impacts to its operating results and financial condition, as well as developments in its business, which could further impact developments, trends and expectations. See the risk 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 financial condition.” described in “Risk Factors” in Part II, Item 1A of this Quarterly Report, for additional details on the impact of the COVID-19 pandemic.
The Company is mindful that conditions in the current macroeconomic environment could affect the Company’s ability to achieve its goals. The Company sells its products in countries that face economic volatility and weakness. Although the Company has historically collected receivables from customers in certain countries, sustained weakness or further deterioration of the local economies and currencies and effects of the impact of the ongoing COVID-19 pandemic may cause customers in those countries to delay payment or be unable to pay for the Company’s products. The Company believes that the allowances for doubtful accounts related to these countries, if any, are adequate based on its analysis of the specific business circumstances and expectations of collection for each of the underlying accounts in these countries. The Company will continue to monitor these conditions and will attempt to adjust its business processes, as appropriate, to mitigate macroeconomic risks to its business.

(15) STOCK-BASED COMPENSATION
The Company has stockholder-approved equity incentive plans that provide for the granting of service-based restricted stock units (RSUs), market-based RSUs, performance-based RSUs, stock options and other types of awards to its employees, officers and non-employee directors. Compensation expense included in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for all stock-based compensation arrangements was as follows:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Cost of sales$10,342 $4,093 $20,381 $12,629 
Research and development15,705 14,261 45,333 43,037 
Selling, general and administrative24,122 20,819 76,411 66,097 
Total stock-based compensation expense$50,169 $39,173 $142,125 $121,763 
Stock-based compensation of $4.9 million and $14.9 million was capitalized into inventory for the three and nine months ended September 30, 2020, respectively. Stock-based compensation of $5.1 million and $13.2 million was capitalized into inventory for the three and nine months ended September 30, 2019, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.
24

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
Restricted Stock Unit Awards with Market Conditions
In March 2020, the Compensation Committee and Board approved the grant of 126,710 RSUs with market-based vesting conditions (base TSR-RSUs) to certain executives. These base TSR-RSUs vest, if at all, in full following a three-year service period only if certain total shareholder return (TSR) results relative to the Nasdaq Biotechnology Index comparative companies are achieved. The number of shares that may be earned range between 0% and 200% of the base TSR-RSUs, with a ceiling achievement level of 100% of the base TSR-RSUs in the event the Company’s absolute TSR multiplier is above the 50th percentile but the Company’s TSR multiplier is negative on an absolute basis. The Company utilized a Monte Carlo simulation model to determine the grant date fair value of $112.12 per base TSR-RSU. Compensation expense for awards with market conditions is recognized over the service period using the straight-line method and is not reversed if the market condition is not met.
Restricted Stock Unit Awards with Performance Conditions
In March 2020, the Compensation Committee and Board approved the grant of 63,400 RSUs with performance-based vesting conditions (base RSUs) and a grant date fair value of $73.82 per RSU. This award is contingent upon the achievement of a three-year Non-GAAP income target and the awarded RSUs, if any, vest ratably over a three-year service period. The Company evaluated the target in the context of its current long-range financial plan and determined that attainment of the target was probable for accounting purposes commencing in the first quarter of 2020. The number of shares that may be earned range between 50% and 200% of the base RSUs.
In March 2020, the Compensation Committee and Board approved the grant of 63,400 RSUs with performance-based vesting conditions (base RSUs) and a grant date fair value of $73.82 per RSU. This award is contingent upon the achievement of a three-year strategic goal target and the awarded RSUs, if any, vest ratably over a three-year service period. The Company evaluated the target in the context of its product candidate development pipeline and planned regulatory activity and determined that attainment of the target was probable for accounting purposes commencing in the first quarter of 2020. The number of shares that may be earned range between 50% and 200% of the base RSUs.

(16) INCOME TAXES
In the third quarter of 2020, the Company completed an intra-entity transfer of certain intellectual property rights to an Irish subsidiary where the Company’s Ex-US regional headquarters are located and has significant manufacturing and commercial operations, to better align ownership of intellectual property rights with how the business operates. The transaction did not result in a taxable gain; however, the Company’s Irish subsidiary recognized a deferred tax asset for the book and tax basis difference of the transferred intellectual property rights. As a result, the Company recognized a deferred tax asset of $835.1 million and related tax benefit on its Condensed Consolidated Financial Statements based on the fair value of the transferred intellectual property rights. The tax deductions related to the amortization of these intangible assets will be recognized in the future and any amortization not deducted for tax purposes will be carried forward indefinitely under Irish tax laws. The Company expects to be able to realize the deferred tax asset resulting from this transaction and has not recorded a valuation allowance as of September 30, 2020.

(17) NET INCOME (LOSS) PER COMMON SHARE
Potentially issuable shares of common stock include shares issuable upon the exercise of outstanding employee stock option awards, common stock issuable under the Company’s Employee Share Purchase Plan (ESPP), unvested RSUs, common stock held by the NQDC and contingent issuances of common stock related to the Company’s convertible debt.
The following table sets forth the computation of basic and diluted earnings per common share (common shares in
25

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Numerator:
Net Income (Loss), basic$784,803 $55,036 $837,001 $(38,872)
Add: Interest on convertible notes7,070 937 18,333 
Net Income (Loss), diluted$791,873 $55,973 $855,334 $(38,872)
Denominator:
Weighted-average common shares outstanding, basic181,142 179,289 180,592 178,873 
Effect of dilutive securities:
Options to purchase common stock1,731 1,560 1,728 
Common stock issuable under the 2020 notes3,983 3,983 
Common stock issuable under the 2024 notes3,970 3,970 3,970 
Common stock issuable under the 2027 notes4,365 2,373 
Unvested RSUs1,926 669 1,765 
Common stock potentially issuable for ESPP purchases346 231 337 
Common shares held by the NQDC211 205 211 
Weighted-average common shares outstanding, diluted197,674 185,924 194,959 178,873 
Net Income (Loss) per common share, basic$4.33 $0.31 4.63 (0.22)
Net Income (Loss) per common share, diluted$4.01 $0.30 4.39 (0.22)
In addition to the equity instruments included in the table above, the table below presents potential shares of common stock that were excluded from the computation of diluted earnings per common share as they were anti-dilutive (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Options to purchase common stock5,172 5,829 5,175 7,388 
Common stock issuable under the 2020 Notes3,983 3,983 
Common stock issuable under the 2024 Notes3,970 
Unvested RSUs2,900 3,360 3,060 4,029 
Common stock potentially issuable for ESPP purchases193 222 204 453 
Common stock held by the NQDC205 
Total number of potentially issuable shares8,265 13,394 8,439 20,028 
The potential effect of the capped call transactions and potential shares issuable under the 2020 Notes were excluded from the calculation of diluted net income (loss) per share in the three and nine months ended September 30, 2020 and 2019, as the Company’s closing price on September 30, 2020 and 2019 did not exceed the conversion price of $94.15 per share. The Company’s 2020 Notes matured on October 15, 2020 and were settled in cash. The potential effect of the capped call transactions with respect to the 2020 Notes was excluded from the diluted net income (loss) per share as of September 30, 2020.There is no similar capped call transaction associated with the 2024 Notes or the 2027 Notes. See Note 12 – Debt for additional information on the Company’s 2020 Notes and 2027 Notes. Refer to Note 13 - Debt to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 for additional information related to the 2024 Notes and details of the capped call transaction.

(18) COMMITMENTS AND CONTINGENCIES

Contingencies

From time to time the Company is involved in legal actions arising in the normal course of its business. The most significant of these actions are described below.

The process of

resolving matters through litigation or other means is inherently uncertain and it is possible that an unfavorable resolution of these
matters could adversely affect the Company, its results of operations, financial condition andor cash flows. The Company’s general
26

Table of Contents
BIOMARIN PHARMACEUTICAL INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. Dollars, except per share amounts or as otherwise disclosed)
practice is to expense legal fees as services are rendered in connection with legal matters, and to accrue for liabilities when losses
are probable and reasonably estimable.

Paragraph 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 approval of a 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, 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 patents

27


BIOMARIN 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 Payments

As of September 30, 2017,2020, the Company iswas subject to contingent payments totaling approximately $600.2$622.4 million upon achievement of certain development, and regulatory activities and commercial sales and licensing milestones, if they occur before certain dates in the future. Of this amount, $218.3$235.0 million (or €185related to an early stage development programs licensed from a third party in the second quarter of 2020, $70.3 million based on the exchange rate of 1.18 USD per Euro in effect on September 30, 2017) relatesrelated to the Merck PKU Business acquisition of certain rights and $53.3other assets with respect to Kuvan and Palynziq from a third party and $236.0 million relatesrelated to programs that are no longer being developed.
As of September 30, 2020, the Company recorded a total of $54.1 million of contingent liabilities on its Condensed
Consolidated Balances Sheet. See Note 139 – Fair Value Measurements 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.

consideration.

Other Commitments

In the normal course of business, the Company enters into various firm purchase commitments primarily related to active
pharmaceutical ingredients, certain inventory-related items and certain inventory related items.third-party R&D services. As of September 30, 2017, these2020, 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 TAXES

The 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 $150.3 million.


27

Table of U.S. permanent differences relative to the amountContents
Item 2.    Management’s Discussion and Analysis 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, 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.


Operations

Item 2.

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

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 risksrisk 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.

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).

28

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Overview

We are a global biotechnology company that develops and commercializes innovative therapies for people with serious
and life-threatening rare diseases and medical conditions. We select product candidates for diseases and conditions that represent
a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market or offer a
significant benefit over existing products.

Our 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 September 30, 2020, is provided below:
Major Commercial ProductsIndication
U.S. Orphan Drug Exclusivity
Expiration (1)
U.S. Biologic
Exclusivity
Expiration (2)
EU Orphan Drug Exclusivity
Expiration (1)
Aldurazyme (laronidase)
 MPS I (3)
ExpiredExpiredExpired
Brineura (cerliponase alfa)
 CLN2 (4)
202420292027
Kuvan (sapropterin dihydrochloride)
 PKU (5)
ExpiredNot Applicable
2020 (6)
Naglazyme (galsulfase)
 MPS VI (7)
ExpiredExpiredExpired
Palynziq (pegvaliase-pqpz) (8)
 PKU
202520302029
Vimizim (elosulfase alpha)
 MPS IVA (9)
202120262024

(1)See “Government Regulation—Orphan Drug Designation” in Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020 (Annual Report) for further discussion
(2)See “Government Regulation— Healthcare Reform” in Part I, Item 1 of our Annual Report for further discussion
(3)For the treatment of Mucopolysaccharidosis I (MPS I), Brineura (cerliponase alfa) for
(4)For the treatment of late infantile neuronal ceroid lipofuscinosis type 2 (CLN2), Firdapse (amifampridine phosphate) for Lambert Eaton Myasthenic Syndrome (LEMS), Kuvan (sapropterin dihydrochloride) for
(5)For the treatment of phenylketonuria (PKU)
(6)Kuvan, a small molecule therapy, has been granted orphan drug status in the European Union (EU), Naglazyme (galsulfase) forwhich together with pediatric exclusivity, confers 12 years of market exclusivity in the EU that expires in December 2020
(7)For the treatment of Mucopolysaccharidosis VI (MPS VI) and Vimizim (elosulfase alpha) for
(8)For adult patients with PKU
(9)For the treatment of Mucopolysaccharidosis IV Type A (MPS IV A).

IVA)

A summary of our ongoing major development programs, as of September 30, 2020, is provided below:
Major Product Candidates
in Development
Target
Indication
U.S. Orphan
Designation
EU Orphan
Designation
Stage
Valoctocogene roxaparvovecSevere Hemophilia AYesYesClinical Phase 3
VosoritideAchondroplasiaYesYesClinical Phase 3
BMN 307PKUYesYesClinical Phase 1/2

Uncertainty Relating to the COVID-19 Pandemic
The outbreak of novel coronavirus disease (COVID-19) continues to affect economies and business around the world. We experienced a modest impact on our global revenue sources, mostly in the form of demand interruptions such as missed patient infusions and delayed treatment starts for new patients, and our overall business operations during the three and nine months ended September 30, 2020. We anticipate a continued impact due to COVID-19 on our financial results for the remainder of 2020 and into fiscal year 2021. The extent and duration of such effects are highly uncertain and difficult to predict. We are actively monitoring and managing our response and assessing actual and potential impacts to our operating results and financial condition, as well as developments in our business, which could further impact the developments, trends and expectations described below. See the risk factor related to the impact of the coronavirus pandemic, “The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations and financial condition.” described in “Risk Factors” in Part II, Item 1A of this
29

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Quarterly Report, for additional details on the impact of the COVID-19 pandemic.
Business Developments

We continued to grow our commercial business and advance our product candidate pipeline during 2017.2020. 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 recent key business developmentsdevelopments:
Continued Emphasis on Research and Development
Valoctocogene roxaparvovec - We are working with the U.S. Food and Drug Administration (FDA) to align on steps forward to obtain marketing approval following the August 18, 2020 Complete Response Letter (CRL) to our Biologics License Application (BLA) for valoctocogene roxaparvovec gene therapy for severe hemophilia A. The FDA recommended that we complete the Phase 3 study and submit two-year follow-up safety and efficacy data on all study participants. The Phase 3 study was fully enrolled in 2017November 2019 and will complete one-year of follow-up in November 2020. We intend to date:

share the one-year top-line Phase 3 data in the first quarter of 2021.
Additionally, the European Medicines Agency (EMA) recently requested the 52-week results from the full Phase 3 study cohort of 134 subjects to inform their benefit-risk assessment. To facilitate this submission within the EMA regulatory framework, we recently withdrew the Marketing Authorization Application (MAA) and plan to resubmit the MAA with these data in the second quarter of 2021.


Vosoritide - Marketing applications for vosoritide were validated and accepted by the EMA and FDA, respectively, in the third quarter of 2020. The Committee for Medicinal Products for human use (CHMP) opinion is expected in Europe in the second half of 2021. The U.S. New Drug Application (NDA) for Vosoritide is under Standard review by the FDA with Prescription Drug User Fee Act (PDUFA) Target Action Date of August 20, 2021. Vosoritide is an investigational, once daily injection of an analog of C-type Natriuretic Peptide (CNP) for children with achondroplasia, the most common form of disproportionate short stature in humans. Vosoritide has Orphan Drug designation from the FDA and EMA.

Palynziq - In October 2017,2020 we announced that the FDA had completed its reviewapproved our supplemental BLA (sBLA) to increase the maximum allowable dose of Palynziq Injection for treatment of adults with PKU to 60 mg daily. Previously, 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/kgmaximum dose and the protocol forwas 40 mg daily. In the Phase 3 PRISM studies, 19% of study using the 6e13 vg/kg dose. We expectparticipants required a 60 mg dose to file for approval of valoctocogene roxaparvovec with 52-week data fromachieve adequate response to Palynziq.

BMN 307 - In September 2020, we announced that we began dosing participants in PHEARLESS, the Phase 3 studies. The protocol1/2 study of BMN 307 our gene therapy candidate for the second Phase 3 study using the 4e13 vg/kg dosePKU, which has also been submitted togranted fast track designation by 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 needAll subjects participating in the treatment of a serious condition. We also announced thatPHEARLESS study will receive product made at commercial scale from our gene therapy manufacturing facility. In January 2020, both the Phase 3 Clinical Trial Application was approved byFDA and the United Kingdom Medicines and Healthcare Products Regulatory Agency (MHRA).in the United Kingdom granted BMN 307 Investigational New Drug (IND) status and approved our Clinical Trial Application (CTA), respectively. Both the FDA and EMA have granted BMN 307 Orphan Drug Status.
BMN 331 - In July 2017,2020, we announced that median and mean Factor VIII levels from week 20 through 52began Investigational New Drug (IND)-enabling studies 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 developmentthird gene therapy product 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.

In October 2017, updated results on the open-label Phase 2 study of vosoritide demonstrated a sustained increase in annualized growth velocity that was accompanied by sustained improvements over time in height compared to age- and gender-matched unaffected children as measure by z-scores. In addition, continued improvement over time in proportionality as measured by a ratio of the upper and lower body measurements, or U/L ratio, was demonstrated. Our on-going Phase 3 trial for vosoritide for the treatment of children with achondroplasia is a randomized, placebo-controlled study of vosoritide in approximately 110 children with achondroplasia ages 5-14 for 52 weeks. This study will be


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 the Biologics License Application (BLA) for pegvaliase, a PEGylated phenylanine-metabolizing enzyme product, to reduce blood phenylalanine (Phe) levels in adult patients with PKU who have uncontrolled blood Phe levels on existing management. The FDA is not currently planning to hold an advisory committee meeting to discuss the BLA. The Prescription Drug User Fee Act (PDUFA) action date is February 28, 2018. However, the FDA 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 of the PDUFA date. We also intend to submit a Marketing Authorization Application to the EMA in the first quarter 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) that resolves the patent litigation with DRL in the U.S. related 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 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.

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 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 to the use of EXONDYS 51 and all future exon-skipping products331, 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.

hereditary angioedema.

In July 2017, we commissioned our commercial geneGene therapy manufacturing facility 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.
30

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)

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.

In January 2017, we announced preliminary results from a Phase 1/2 trial of BMN 250, an investigational enzyme replacement therapy using a novel fusion of recombinant human NAGLU with a peptide derived from insulin-like growth factor 2 (IGF2), for the treatment of Sanfilippo B syndrome, or MPS IIIB, which began enrolling patients in April 2016.  In September 2017, we announced interim data from the dose escalation portion of a Phase 1/2 trial of BMN 250. We


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.

Financial Highlights

Key components of our results of operations include the following (in millions):

following:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Three Months Ended
September 30,
Nine Months Ended
September 30,

 

2017

 

 

2016

 

 

2017

 

 

2016

 

2020201920202019

Total revenues

 

$

334.1

 

 

$

279.9

 

 

$

955.3

 

 

$

816.8

 

Total revenues$476.8 $461.1 $1,408.3 $1,249.6 

Cost of sales

 

 

59.5

 

 

 

50.7

 

 

 

165.8

 

 

 

145.5

 

Cost of sales$188.8 $96.9 $398.1 $263.6 

Research and development (R&D) expense

 

 

154.1

 

 

 

160.8

 

 

 

442.1

 

 

 

486.7

 

Research and development (R&D) expense$147.1 $173.0 $471.4 $542.2 

Selling, general and administrative (SG&A) expense

 

 

130.5

 

 

 

118.8

 

 

 

394.1

 

 

 

333.6

 

Selling, general and administrative (SG&A) expense$179.5 $170.1 $542.2 $493.0 

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

 

Intangible asset amortization and contingent considerationIntangible asset amortization and contingent consideration$17.4 $17.1 $48.0 $57.1 
Gain on sale of nonfinancial assetsGain on sale of nonfinancial assets$— $— $(59.5)$(15.0)
Provision for (benefit from) income taxesProvision for (benefit from) income taxes$(846.0)$(45.2)$(839.1)$(46.2)
Net Income (Loss)Net Income (Loss)$784.8 $55.0 $837.0 $(38.9)

The increase in Net Income for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 was primarily due to the following:

an increase in the benefit from income taxes of $800.8 million primarily due to the completion of an intra-entity transfer of certain intellectual property rights to an Irish subsidiary where our Ex-US regional headquarters are located and we have significant manufacturing and commercial operations, to better align ownership of intellectual property rights with how the business operates, resulting in a tax benefit of $835.1 million based on the fair value of the transferred intellectual property rights; and
decreased R&D expense primarily resulting from decreasing clinical manufacturing costs for BMN 307 and lower clinical activity spend for valoctocogene roxaparvovec; partially offset by

an increase in Cost of Sales resulting from an $81.2 million inventory charge related to pre-launch valoctocogene roxaparvovec inventory reserves due to regulatory responses received requesting additional data extending anticipated regulatory approvals timelines; and
higher SG&A expense primarily related to pre-commercialization activities related to valoctocogene roxaparvovec.
We recognized Net Income for the nine months ended September 30, 2020 as compared to a Net Loss for the nine months ended September 30, 2019, primarily due to the following:
an increase in the benefit from income taxes of $792.9 million primarily due to the completion of an intra-entity transfer of certain intellectual property rights to an Irish subsidiary where our Ex-US regional headquarters are located and we have significant manufacturing and commercial operations, to better align ownership of intellectual property rights with how the business operates, resulting in a tax benefit of $835.1 million based on the fair value of the transferred intellectual property rights;
increased Total Revenues driven primarily by Palynziq and Aldurazyme Net Product Revenues; and
decreased R&D expense primarily due to lower clinical manufacturing costs and a decrease in clinical study activities; partially offset by
an increase in Cost of Sales resulting from an $81.2 million inventory charge related to pre-launch valoctocogene roxaparvovec inventory reserves due to regulatory responses received requesting additional data extending anticipated regulatory approval timelines; and
increased SG&A expense primarily due to pre-commercialization activities related to valoctocogene roxaparvovec.
See “Results of Operations” below for additional information related to the Net Income/(Loss) fluctuations presented above.
31

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations” below for a discussion of the detailed componentsOperations (continued)
(In millions, except as otherwise disclosed)
Our cash, cash equivalents and analysis of 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 portfolioinvestments totaled approximately $1.8 billion as of September 30, 2017. In the U.S.,2020, which includes net proceeds of $535.8 million from 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 manufacturing costs for the production of the active ingredient in Kuvan and Firdapse and third-party production costs related to final formulation and packaging services for all products and cost of royalties payable to third parties for all products.

R&D Expense includes costs associated with the research and development of product candidates and post-marketing research commitments related to our approved products. R&D Expense primarily includes preclinical and clinical studies, personnel and raw materials costs associated with manufacturing 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.

Our cash, cash equivalents, short-term investments and long-term investments totaled approximately $1.7 billion as of September 30, 2017,May 2020 convertible debt offering, 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.



Critical Accounting Policies, Estimates and Estimates

Judgments

In preparing our Condensed Consolidated Financial Statements in accordance with U.S. generally 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 evaluate

The full extent to which the ongoing COVID-19 pandemic will directly or indirectly impact our assumptions, 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 policies and estimates with the Audit Committee ofmay change materially in future periods.
Except as detailed in Note 2 to our Board 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 ouraccompanying 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.

Therethere have been no significant changes to our critical accounting policies, estimates and estimatesjudgments during the nine months ended September 30, 2017,2020, compared to the critical accounting policies, estimates and estimatesjudgments disclosed in Management’s“Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations” included in our Annual Report on Form 10-K for the year ended December 31, 2016.

2019.


Recent Accounting Pronouncements

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


32

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

Net Loss

Our net loss for the three months ended September 30, 2017 was $12.5 million, compared to a net loss (continued)

(In millions, except as otherwise disclosed)
Results 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):

 

 

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

 

Operations

(1)

Includes Equity in the loss of BioMarin/Genzyme LLC, interest income, interest expense and other income, net.

Revenues

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.

Net Product Revenues

A summary of our various commercial products, including key metrics as of September 30, 2017, is provided below:

Commercial Products

 

Indication

 

U.S. Orphan Drug Exclusivity

Expiration

 

U.S. Biologic

Exclusivity

Expiration

 

EU Orphan Drug Exclusivity

Expiration

Aldurazyme

 

MPS I

 

Expired

 

Expired

 

Expired

Brineura

 

CLN2

 

2024

 

2029

 

2027

Firdapse

 

LEMS

 

NA (1)

 

NA

 

2019

Kuvan

 

PKU

 

Expired

 

NA

 

2020 (2)

Naglazyme

 

MPS VI

 

Expired

 

Expired

 

Expired

Vimizim

 

MPS IVA

 

2021

 

2026

 

2024

(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):

following:

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2017

 

 

2016

 

 

Change

 

 

2017

 

 

2016

 

 

Change

 

Three Months Ended
September 30,
Nine Months Ended
September 30,

Aldurazyme

 

$

22.4

 

 

$

23.7

 

 

$

(1.3

)

 

$

61.7

 

 

$

58.8

 

 

$

2.9

 

20202019Change20202019Change
Net product revenues by product:Net product revenues by product:
VimizimVimizim$147.9 $163.5 $(15.6)$401.8 $412.0 $(10.2)
KuvanKuvan124.1 120.6 3.5 368.7 340.8 27.9 
NaglazymeNaglazyme76.3 94.4 (18.1)271.6 279.5 (7.9)
PalynziqPalynziq46.1 24.1 22.0 121.4 55.2 66.2 

Brineura

 

 

3.1

 

 

 

 

 

 

3.1

 

 

 

3.4

 

 

 

 

 

 

3.4

 

Brineura25.4 19.8 5.6 75.2 46.8 28.4 

Firdapse

 

 

5.1

 

 

 

5.0

 

 

 

0.1

 

 

 

14.0

 

 

 

13.7

 

 

 

0.3

 

Firdapse— 5.7 (5.7)1.2 16.3 (15.1)

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 marketed by the CompanyTotal net product revenues marketed by the Company$419.8 $428.1 $(8.3)$1,239.9 $1,150.6 $89.3 
Aldurazyme net product revenues marketed by Sanofi GenzymeAldurazyme net product revenues marketed by Sanofi Genzyme40.9 22.8 18.1 128.9 73.9 55.0 

Total net product revenues

 

$

298.8

 

 

$

278.3

 

 

$

20.5

 

 

$

916.9

 

 

$

812.2

 

 

$

104.7

 

Total net product revenues$460.7 $450.9 $9.8 $1,368.8 $1,224.5 $144.3 

Our Brineura, Firdapse, Kuvan, Naglazyme

Net Product Revenues include revenues generated from our approved products. In the U.S., our commercial products, except for Palynziq and Vimizim 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) is
The increase in Net Product Revenues for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 was primarily attributed to the following:
Palynziq: the increase was primarily driven by a combination of revenue from U.S. patients achieving maintenance dosing and new patients initiating therapy;
Aldurazyme: the increase was primarily attributed to higher sales volume to Genzyme;
Brineura: the increase was primarily attributed to strong patient growth in Europe, Middle East, Africa and North America; partially offset by
Naglazyme and Vimizim: the decreases were primarily attributed to decreased sales volume due to timing of orders placed from Latin America as well as the impact of missed infusions resulting from the COVID-19 pandemic; and
Firdapse: the decrease was primarily attributed to the divestiture and sale of the Firdapse business in January 2020.
The increase in Net Product Revenues for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 was primarily attributed to the following:
Palynziq: the increase was primarily driven by a combination of revenue from U.S. patients achieving maintenance dosing and new patients initiating therapy;
Aldurazyme: the increase was primarily attributed to higher sales volume to Genzyme;
Brineura: the increase was primarily attributed to growth in the number of patients in all regions;
Kuvan: the increase was primarily driven by growth in the U.S.; partially offset by
Firdapse: the decrease was primarily attributed to the divestiture and sale of the Firdapse business in January 2020;
33

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Vimizim: the decrease was primarily attributed to decreased sales volumes in Latin America and EMEA as well as the impact of missed infusions resulting from the COVID-19 pandemic offset by growth in North America; and
Naglazyme: the decrease was primarily attributed to the timing of orders received from Latin America as well as the impact of missed infusions resulting from the COVID-19 pandemic.
We anticipate the COVID-19 pandemic will have a continued impact on future Net Product Revenues in the remainder of 2020 and into 2021 as many of our sole customerproducts are administered via infusions in a clinic or hospital setting and/or by a healthcare professional. Although we are working with our patient community and health care providers to find alternative arrangements where necessary, such as providing infusions at home, the revenue from the doses of our products that are missed by patients and the lost revenue from delayed treatment starts for Aldurazymenew patients will never be recouped. See the risk factor “The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations and is responsiblefinancial condition” in “Risk Factors” included in Part II, Item 1A of this Quarterly Report for marketingadditional information.
In October of 2020, we lost U.S market exclusivity for Kuvan. We have been preparing for the loss of exclusivity which will result in a reduction in market share and selling Aldurazyme to third parties.

affect our revenue and results of operations in the remainder of 2020 and into 2021. See the risk factor “The sale of generic versions of Kuvan by generic manufacturers may adversely affect our revenues and results of operations” in “Risk Factors” included in Part II, Item 1A of this Quarterly Report for additional information. Additionally, the responses received from the FDA and EMA requesting additional safety and efficacy data from our valoctocogene roxaparvovec Phase 3 studies have extended our anticipated regulatory approval timelines which will have an impact on Net Product Revenues for remainder of 2020 and 2021.

We face exposure to movements in foreign currency exchange rates primarily the Euro. Weand we use foreign currency exchange contracts to hedge a percentage of our foreign currency exposure. The following table shows our net product revenuesNet Product Revenues denominated in U.S. dollar (USD)USD and foreign currencies (in millions):

 

 

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

 

currencies:

Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Sales denominated in USD$302.6 $284.6 $18.0 $846.4 $738.6 $107.8 
Sales denominated in foreign currencies158.1 166.3 (8.2)522.4 485.9 36.5 
Total Net Product Revenues$460.7 $450.9 $9.8 $1,368.8 $1,224.5 $144.3 

The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during the three and nine months ended ending September 30, 20172020 was positiveunfavorable by $0.2$4.0 million and $1.6$14.8 million, respectively, compareddriven primarily by weakening of currencies in Latin American markets relative to a positivethe USD, such as the Brazilian Real and Colombian Peso. This compares to an unfavorable impact of $0.5$6.9 million and a negative impact of $3.0$18.6 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 endedending September 30, 2017, compared to the three and nine months ended September 30, 2016, remained relatively flat. The modest changes2019, respectively, which were driven primarily attributable to the timing of Aldurazyme revenues reported by Genzyme, offsetfluctuations in part by the timing of shipments to Genzyme. Aldurazyme revenues reported by Genzyme totaled $58.4 million and $176.3 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 Genzymes 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 the three months ended September 30, 2016, was mainly due to timing of government orders in Latin America,Euro, 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.

Brazilian Real.

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.

Royalty and Other Revenues

Royalty and Other Revenues include royalties earned on net sales of products sold, milestones achieved by licensees or sublicensees, manufacturing and transition services for licensees and rental income associated with the tenants in our facilities.
Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Royalty and other revenues$16.0 $10.2 $5.8 $39.5 $25.1 $14.4 
The increase in Royalty and Other Revenues for the three and nine months ended September 30, 2017 included recognition of2020 compared to the $31.5 million net upfrontsame period in 2019 was primarily due to license revenuerevenues earned from Sareptathe third-party that licensed tralesinidase alfa from us and $1.4 million in royalty revenueroyalties earned on Sarepta net sales during the third quarter of 2017. products sold by our licensees.
We expect to continue to earn royalties from Sarepta’s net sales underthird parties in the termsfuture.
Cost of the Agreements in future quarters.

Sales

Cost of Sales includes raw materials, personnel and Product Gross Margin

facility and other costs associated with manufacturing our commercial products, as well as inventory valuation reserves. 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

34

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
includes royalties payable to third parties based on sales of our products.
The following table summarizes our costCost of goods soldSales and product gross margin (in millions, except percentages):

margin:

 

 

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

%

Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Total Net Product Revenues$460.7 $450.9 $9.8 $1,368.8 $1,224.5 $144.3 
Cost of Sales$188.8 $96.9 $91.9 $398.1 $263.6 $134.5 
Product gross margin59.0 %78.5 %(19.5)%70.9 %78.5 %(7.6)%


Product gross margin (defined as net product revenues less costCost of sales, expressedSales increased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to an $81.2 million inventory reserve related to pre-launch valoctocogene roxaparvovec inventory as a percentageresult of net product revenues) for the three months ended September 30, 2017 compared to 2016 decreased modestly. The decrease in productanticipated regulatory approval delays. Product gross margin for the three and nine 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, 20172020 compared to the comparable periodsame periods in 2016 remained flat. We expect2019 decreased primarily due to higher cost of sales and product grossmix as there were higher sales of lower margin to remain in the low 80 percent range over the next twelve months.

products.

Research and Development

A summary

R&D expense includes costs associated with the research and development of product candidates and post-marketing research commitments related to our on-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. Orphan

EU Orphan

Major Products in Development

Target Indication

Designation

Designation

Stage

BMN 250

MPS IIIB

Yes

Yes

Clinical Phase 1/2

Pegvaliase

PKU

Yes

Yes

Marketing authorization

regulatory review

Valoctocogene roxaparvovec

Hemophilia A

Yes

Yes

Clinical Phase 1/2

Vosoritide

Achondroplasia

Yes

Yes

Clinical Phase 3

We manage our R&D expense by identifying the R&D activities we anticipate will be performed during a given period and then prioritizing efforts based on scientific data, probability of successful development, market potential, available human and capital resources and other similar considerations. We continually review our product pipeline and the development status of product candidates and, as necessary, reallocate resources among the research and development portfolio that we believe will best support the future growth of our business.

business.

R&D Expense decreased to $154.1 million and $442.1 millionexpense consisted of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Early stage programs$34.5 $21.1 $13.4 $116.7 $57.9 $58.8 
Vosoritide30.7 25.3 5.4 97.8 85.4 12.4 
Valoctocogene roxaparvovec28.4 40.9 (12.5)92.6 144.8 (52.2)
PKU gene therapy (BMN 307)18.6 31.9 (13.3)53.7 73.1 (19.4)
Other approved products14.0 14.1 (0.1)41.8 48.1 (6.3)
Palynziq11.5 17.3 (5.8)35.3 57.3 (22.0)
Brineura5.7 9.2 (3.5)20.4 30.4 (10.0)
Tralesinidase alfa0.4 6.8 (6.4)1.0 22.6 (21.6)
Other3.3 6.4 (3.1)12.1 22.6 (10.5)
Total R&D expense$147.1 $173.0 $(25.9)$471.4 $542.2 $(70.8)
The decrease in R&D expense for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily due to the following:
a decrease in clinical manufacturing costs related to BMN 307, which was manufactured in 2019;
a decrease in costs related to valoctocogene roxaparvovec due to lower clinical activity spend;
a decrease in costs related to tralesinidase alfa as the program was licensed to a third-party in the fourth quarter of 2019; and
a decrease in clinical study costs related to Palynziq due to completion of studies to support European regulatory approval; partially offset by
an increase in early stage programs costs related primarily to pre-clinical studies for BMN 331 program for the treatment of hereditary angioedema.
35

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
The decrease in R&D expense during the 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):

 

 

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

)

For the three and nine months ended September 30, 2017, R&D expense decreased by $6.7 million and $44.6 million, respectively,2020 as compared to the same periodsperiod in 2016. The decrease in R&D expense was2019 primarily a result ofdue to the following:

a decrease in R&D expense for other and non-allocated programs is primarilycosts related to R&D spendingvaloctocogene roxaparvovec, due to lower clinical activity spend and a regulatory milestone payment made to a third-party in 2016 on the Kyndrisa, other exon-skipping, and reveglucosidase alfa development programs, all of which were terminated in 2016; and

2019;

a decrease in R&D expenseclinical study costs related to Palynziq due to completion of studies to support European regulatory approval;

a decrease in tralesinidase alfa as the program was licensed to a third-party in the fourth quarter of 2019;
a decrease in clinical manufacturing costs related to BMN 307, which was manufactured in 2019; and
a decrease in costs related to Brineura due to the approvalcompletion of the product in the U.S. and EU in June 2017 and July 2017, respectively;clinical studies; partially offset by

an increase in clinical trial activitiesearly stage programs primarily related to the $26.3 million payment made for preclinical programs licensed from a third party in the second quarter of 2020 and costs related pre-clinical studies for BMN 250, pegvaliase, 311 for the treatment of hereditary angioedema.

We expect R&D expense to be generally flat in future periods, primarily due to increased spending on preclinical activities for early stage development programs, offset by lower development costs on valoctocogene roxaparvovec and vosoritide product candidates; and

Palynziq.

an 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 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. 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.

Selling, General and Administrative

SG&A Expense increased to $130.5 million

Sales and $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):

 

 

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

 

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; and

an increase in Vimizim S&M expense due to continued expansion of our worldwide commercial activities; offset by

a 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 increasedexpenses.

Selling, General and Administrative (SG&A) expense consisted of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Selling & Marketing expense$101.1 $93.5 $7.6 $293.0 $264.7 $28.3 
General & Administrative expense78.4 76.6 1.8 249.2 228.3 20.9 
Total SG&A expense$179.5 $170.1 $9.4 $542.2 $493.0 $49.2 

Three Months Ended
September 30,
Nine Months Ended
September 30,
Selling & Marketing expense by product20202019Change20202019Change
PKU Products (Kuvan and Palynziq)$30.0 $32.8 $(2.8)$91.8 $97.3 $(5.5)
Valoctocogene roxaparvovec26.9 12.6 14.3 70.6 28.7 41.9 
MPS Products (Aldurazyme, Naglazyme and Vimizim)25.4 28.5 (3.1)78.0 85.2 (7.2)
Brineura8.5 11.3 (2.8)27.3 31.0 (3.7)
Other10.3 8.3 2.0 25.3 22.5 2.8 
Total Selling & Marketing expense$101.1 $93.5 $7.6 $293.0 $264.7 $28.3 
The increase in S&M expense for the three and nine months ended September 30, 2017,2020 as compared to the same periods in 2019 was primarily a result of an increase in pre-commercialization activities related to valoctocogene roxaparvovec partially offset by decreases in MPS Products, PKU Products and Brineura as well as lower travel expenses due to the COVID-19 pandemic.
G&A expense for the three andmonths ended September 30, 2020 as compared to 2019 was generally flat.
The increase in G&A expense for the nine months ended September 30, 2016,2020 as compared to the same period in 2019 was primarily due to increased personnelthe impact of revaluation of non-USD denominated assets and related costs mainly due to increased headcount.

liabilities and employee-related expenses.

We expect SG&A expense to increase in future periods as a result of the continued commercial launchglobal expansion of Brineura,Palynziq and pre-commercialization efforts related to product candidates,vosoritide.
Contingent Consideration, Intangible Asset Amortization and Gain on Sale of Nonfinancial Assets
36

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Changes during the continued international expansion of Kuvan and Vimizim, and the increase in administrative support requiredperiods presented for our expanding operations.


Intangible Asset Amortization and Contingent Consideration

Changes include:

Three Months Ended
September 30,
Nine Months Ended
September 30,
20202019Change20202019Change
Changes in the fair value of contingent consideration$1.9 $0.8 $1.1 $1.4 $19.9 $(18.5)
Amortization of intangible assets15.5 16.3 (0.8)46.6 37.2 9.4 
Total intangible asset amortization and contingent consideration$17.4 $17.1 $0.3 $48.0 $57.1 $(9.1)
Gain on sale of nonfinancial assets$— $— $— $59.5 $15.0 $44.5 
Fair value of contingent consideration – there was no significant change in the fair value of 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):

 

 

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 and nine months ended September 30, 2020 and the three months ended September 30, 2019. The changes in the fair value of the contingent acquisition consideration payablefor the nine months ended September 30, 2019 were primarily attributable to changes in the estimated probability of achieving development milestones, based on the current status of theprimarily 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:

duringPalynziq program’s European MAA which was approved in the three months ended September 30, 2017, we reduced the estimated probabilitysecond quarter of achieving the Firdapse FDA approval milestone prior to its expiration date to zero, which resulted2019.

Amortization of intangible assets – The increase 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, 2017,2020 was primarily due to the continued progressPalynziq acquired in-process research and development assets that were placed into service following EU marketing approval in May 2019.

Gain on Sale of the PKU developmental program for pegvaliase, offset by the reversalNonfinancial Assets – we recognized a gain of the fair value of the Firdapse FDA approval milestone; and

during$59.5 million in 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 payable2020 due to the former Prosensa Holding N.V.divestiture and Zystor Therapeutics, Inc. shareholders.

Impairmentsale of Intangible Assets

In the second quarterFirdapse compared to a gain of 2016, we recorded an impairment charge of $599.1$15.0 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 recorded in the three and nine months ended September 30, 2017.2019 due to a third party's achievement of a commercial sales milestone related to a previously sold intangible asset. See Note 86 to our accompanying Condensed Consolidated Financial Statements for additional information regarding our Intangible Assets.

discussion on this transaction.

Interest Income

We invest our cash 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 September 30,Nine Months Ended September 30,
20202019Change20202019Change
Interest income$4.0 $5.3 $(1.3)$13.5 $17.5 $(4.0)
The decrease in interest income for the three and nine months ended September 30, 2017, respectively,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 higher investment balances, which increased duelower interest rates.
We expect interest income 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,be lower over the next 12 months we expect an increase indue to lower interest income from present levels.

rates and yields on our cash equivalents and investments.

Interest Expense

We incur interest expense on our convertible debt. Interest expense for the periods presented consisted of the following (in millions):

following:

 

 

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

 

Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change
Total interest expense$9.6 $2.9 $6.7 $24.6 $16.5 $8.1 


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, 2017,2020 compared to the three and nine months ended September 30, 2016 increased2019 was higher due primarily to the issuance of the 2024 Notes. 2027 Notes in the second quarter of 2020.

We expect interest expense to increasebe lower over the next 12 months duedue to the couponsettlement of the 2020 Notes, partially offset by increased interest expense for the 2027 Notes.
37

Table of Contents
Management’s Discussion and amortizationAnalysis of issuance costs related to the 2024 Notes. Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
See Note 1112 to our accompanying Condensed Consolidated Financial Statements for additional information regardingrelated to our convertible debt. 

Benefit from Income Taxes

For 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

The following table summarizes our income tax benefit:
Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change
Benefit from income taxes$846.0 $45.2 $800.8 $839.1 $46.2 $792.9 
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, 20172020 and 2016.

The benefit from2019. Provision for income taxes for the three and nine months ended September 30, 20172020 and 2016 also2019 consisted of state, federal and foreign current tax expense thatwhich was offset by tax benefits related to stock option exercises and deferred tax benefits from federal orphan drug credits and the federal and California R&D credits,credits.

In the third quarter of 2020, we completed an intra-entity transfer of certain intellectual property rights to an Irish subsidiary where our Ex-US regional headquarters are located and we have significant manufacturing and commercial operations, to better align ownership of intellectual property rights with how the business operates. The transaction did not result in a taxable gain; however, our Irish subsidiary recognized a deferred tax asset for the book and tax basis difference of the transferred intellectual property rights. As a result, we recognized a deferred tax asset of $835.1 million, and related tax benefit related to stock option exercises during these periods, which resulted in a net tax benefit in both periods. See Note 15 toon our Condensed Consolidated Financial Statements includedbased on the fair value of the transferred intellectual property rights. The tax deductions related to the amortization of these intangible assets will be recognized in our Annual Report on Form 10-Kthe future and any amortization not deducted for tax purposes will be carried forward indefinitely under Irish tax laws. We expect to be able to realize the deferred tax asset resulting from this transaction and have not recorded a valuation allowance as of September 30, 2020.
On March 27, 2020, The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law which lifts certain limitations originally imposed by the Tax Cuts and Jobs Act of 2017. The CARES Act allows taxpayers to now carryback net operating losses (NOLs) to the prior five years for NOLs originating during 2018 through 2020 and eliminates the 80% limitation allowing taxpayers to fully offset 100% of taxable income in 2018, 2019 or 2020. The CARES Act also allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the yearfull amount rather than over a period of years. Taxpayers may generally deduct interest up to 50% of adjusted taxable income plus business interest income which was previously limited to 30% for tax years beginning January 1, 2019 and 2020. The CARES Act also raises the charitable deduction limit to 25% of taxable income and reinstates qualified improvement property eligible for 15-year classification and 100% bonus depreciation. On June 29, 2020, California enacted legislative changes (AB 85) which suspended California net operating loss utilization for years 2020 through 2022. In addition, an annual cap of $5 million was imposed on the amount of business incentive tax credits companies can utilize. The enactment of both the CARES Act and California AB 85 did not result in any material adjustments to our income tax provision for the three and nine months ended December 31, 2016 for additional discussionSeptember 30, 2020, or to our net deferred tax assets as of September 30, 2020.
In the componentsfirst quarter of 2020, it came to our benefit from income taxes.

attention that certain historical transactions may be interpreted to be subject to withholding tax regulation. We recorded a reserve as of June 30, 2020 to reflect the uncertain tax position.


Financial Position, Liquidity and Capital Resources

As of September 30, 2017,2020, we had approximately $1.7$1.8 billion in cash, cash equivalents and short-term and long-term investments.investments which includes net proceeds of $535.8 million from our May 2020 convertible debt offering. 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.

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 ongoing COVID-19

38

Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
pandemic.
In managing our liquidity needs in the U.S., we do not rely on unrepatriated earnings as a source of funds and we have not provided for U.S. federal or state income taxes on these undistributed foreign earnings. We do not record U.S. tax expense on the undistributed earnings of our controlled foreign subsidiaries as these earnings are intended to be indefinitely reinvested offshore. As of September 30, 2017, $87.32020, $244.8 million of our $1.7$1.8 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 Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

2019.

We are mindful that conditions in the current macroeconomic environment could affect our ability to achieve our goals. 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.


Our liquidity and capital resources as of September 30, 20172020 and December 31, 20162019 were as follows (in millions):

follows:

 

September 30,

 

 

December 31,

 

 

 

 

 

 

2017

 

 

2016

 

 

Change

 

September 30, 2020December 31, 2019Change

Cash and cash equivalents

 

$

431.4

 

 

$

408.3

 

 

$

23.1

 

Cash and cash equivalents$1,015.7 $437.4 $578.3 

Short-term investments

 

 

825.7

 

 

 

381.3

 

 

 

444.4

 

Short-term investments490.0 316.4 173.6 

Long-term investments

 

 

416.3

 

 

 

572.8

 

 

 

(156.5

)

Long-term investments265.1 412.0 (146.9)

Cash, cash equivalents and investments

 

$

1,673.4

 

 

$

1,362.4

 

 

$

311.0

 

Cash, cash equivalents and investments$1,770.8 $1,165.8 $605.0 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible debt

 

$

1,166.0

 

 

$

683.2

 

 

$

482.8

 

Total convertible debt, netTotal convertible debt, net$1,448.5 $848.1 $600.4 

Our cash flows for the nine months ended September 30, 20172020 and 20162019 are summarized as follows (in millions):

follows:

 

2017

 

 

2016

 

 

Change

 

20202019Change

Cash and cash equivalents at the beginning of the period

 

$

408.3

 

 

$

397.0

 

 

$

11.3

 

Cash and cash equivalents at the beginning of the period$437.4 $494.0 $(56.6)

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

)

Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities98.7 (9.1)107.8 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(64.6)17.9 (82.5)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities547.3 (78.7)626.0 

Foreign exchange impact

 

 

(2.5

)

 

 

5.1

 

 

 

(7.6

)

Foreign exchange impact(3.1)(0.9)(2.2)

Cash and cash equivalents at the end of the period

 

$

431.4

 

 

$

707.3

 

 

$

(275.9

)

Cash and cash equivalents at the end of the period$1,015.7 $423.2 $592.5 

Short-term and long-term investments

 

 

1,242.0

 

 

 

690.5

 

 

 

551.5

 

Short-term and long-term investments755.1 729.4 25.7 

Cash, cash equivalents and investments

 

$

1,673.4

 

 

$

1,397.8

 

 

$

275.6

 

Cash, cash equivalents and investments$1,770.8 $1,152.6 $618.2 

Cash Used inProvided by (Used in) Operating Activities

Cash provided by operating activities increased by $107.8 million to $98.7 million in the nine months ended September 30, 2020, compared to $9.1 million cash used operating activities in the nine months ended September 30, 2019. The increase is primarily attributed to the timing of cash receipts from our customers, licensees and sublicensees partially offset by timing of payments to vendors and higher inventory levels.
Cash Provided by (Used in) Investing Activities
Net cash used in operatinginvesting activities decreasedin the nine months ended September 30, 2020 increased by $204.2$82.5 million from $227.6to $64.6 million, compared to $17.9 million cash provided by investing activities during the nine months ended September 30, 20162019. The increase is primarily attributable to $23.4higher net purchases of available-for-sale debt securities offset by the receipt of $67.2 million in cash due to the divestiture and sale of Firdapse assets to a third party. 
Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities in the nine months ended September 30, 2020 increased by $626.0 million to $547.3 million compared to $78.7 million cash used in financing activities during the nine months ended September 30, 2017. Cash used2019 due primarily to the proceeds from the issuance of the 2027 Notes and an increase in operating activities primarily consistedproceeds from the exercise 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 depreciation and amortization expense, $23.8 million of non-cash interest expense,awards under our equity incentive plans, partially offset by $36.2 million for deferred income taxesthe repurchase of our common stock.
39

Table of Contents
Management’s Discussion and $3.3 million gain on the saleAnalysis of strategic investments. Cash used in operating activities in the comparable period in 2016 was adjusted for the non-cash impairmentFinancial Condition and Results of intangible assetsOperations (continued)
(In millions, except as otherwise disclosed)
Other Information
Our $1.5 billion (undiscounted) of $599.1 million. Changes in operating assets and liabilities during the nine months ended total convertible debt as of September 30, 2017 resulted in a net2020 will impact our liquidity due to the semi-annual cash outflowinterest payments. As of $122.5 million that consisted primarily of increased cash outflow for increased inventory spending for all commercial products to meet anticipated future sales demand.

Cash Used in Investing Activities

Net cash used in investing activities increased by $270.6 million from $174.4 million during the nine months ended September 30, 2016 to $445.0 million during2020, our indebtedness consisted of the nine months ended September 30, 2017. The increase in net cash used in 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 Activities

Net cash provided by financing activities decreased by $213.2 million from $707.2 million for the nine months ended September 30, 2016 to $494.0 million during the nine months ended September 30, 2017. The decrease in net cash provided by financing activities for the nine months ended September 30, 2017 was primarily attributable to a decrease of $712.9 million in proceeds from public offerings of common stock and a $3.4 million decrease in proceeds from employee equity transactions, partially offset by $481.7 million of net proceeds from2020 Notes, 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.


Other Information

Our indebtedness consists primarily of the Company’s 0.75% senior subordinated convertible notes due in 2018 (the 2018 Notes), the Company’s 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes)  and the 20242027 Notes (collectively, the Notes), which, if not converted, will be required to be repaid in cash at maturity in 2018,October 2020, August 2024 and 2024,May 2027 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 if not converted.

Subsequent to quarter-end, our 2020 Notes matured on October 15, 2020 and were settled in cash for approximately $375.0 million. No shares were issued in connection with the settlement as our share price did not exceed the conversion price of $94.15, as measured over a 25-day averaging period and the capped call transaction, which resulted inwas entered into concurrently with the issuance of notes, was not triggered. We used a portion of the net proceeds we received from the issuance of $481.7 million, after deducting commissions and offering expenses. The 2024the 2027 Notes bear interest atto repay the stated annual rates, which is payable semiannually in arrears on February 1 and August 1principal balance of each year beginning on February 1, 2018.the 2020 Notes. We incurred no gain or loss upon the extinguishment of the 2020 Notes. See Note 1112 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

In October 2018, Notes or the 2020 Notes in cash upon conversion. In addition, in the event the conditional conversion feature of the 2018 Notes or 2020 Notes is triggered, holders of such 2018 Notes and 2020 Notes will be entitled to convert the 2018 Notes and 2020 Notes at any time during specified periods at their option. Our liquidity could be adversely affected if we do not elect to settle conversions of the 2018 Notes and 2020 Notes solely in shares of our common stock. Even if holders of the 2018 Notes or 2020 Notes do not elect to convert their 2018 Notes and 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. We may seek to refinance or repay these obligations through funds raised from third-party financing, or equity or debt financings, none of which may be available on commercially reasonable terms, if at all. In 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 2016 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. 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 be2020, there were no outstanding amounts due on nor any outstanding balance due, we anticipate any balance dueusage of the 2018 Credit Facility.

For additional information related to be short-term in nature. Seeour convertible debt see Note 1112 to our accompanying Condensed Consolidated Financial Statements and Note 13 - Debt included in our Annual Report on Form 10-K 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 deterioration of the local economies and currencies may cause customers in those countries to be unable to pay for our products.

year ended December 31, 2019.

Funding Commitments

We cannot estimate with certainty the cost to complete any of our product development programs. Additionally, we cannot precisely estimate the time to complete any of our product development programs or when we expect to receive net cash inflows from any of our product development programs. Please see Risk Factors“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:

The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations, and financial condition;

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 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; and

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; and

•    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.

40


Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Our investment in our product development programs and continued development of our existing commercial products has a major impact on our operating performance. Our R&D expenses of our major development programs fromfor the period since inception toas of September 30, 20172020 were as follows (in millions):

follows:

 

 

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

 

Since Program Inception
Palynziq$724.7 
Valoctocogene roxaparvovec$686.4 
Vosoritide$537.7 
Brineura$346.9 
PKU gene therapy$161.0 
Other approved products$1,156.9 

We may need or elect to increase our spending above our current long-term plans 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; potential licenses and other acquisitions of complementary technologies, products and companies; and general corporate purposes.

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

product sales and profitability of our products;

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

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

market and sell our products;
the time and cost necessary to develop commercial manufacturing processes, including quality systems, and to build or acquire manufacturing capabilities;

resultsthe 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;

materials for use in such preclinical studies and clinical trials);

generic competition to Kuvan relating to our settlements with DRL (related to Kuvan tabletsthe 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; and

salesscope of our sharespreclinical studies and clinical trials;

the time and cost necessary to obtain regulatory approvals and the costs of stockpost-marketing studies which may be required by us, our significant stockholders, or membersregulatory authorities; and
the progress of our management or Board of Directors.

research programs carried out by us.


Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are currently material or reasonably likely to be material to our consolidated financial position or results of operations.


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Table of Contents
Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
(In millions, except as otherwise disclosed)
Contractual and Commercial Obligations

We have contractual and commercial obligations under our convertible debt, operating leases and other obligations related to R&D activities, purchase commitments, licenses and sales royalties with annual minimums. Our contractual obligations as of September 30, 20172020 are presented in the table below (in millions).

below.

 

Payments Due Within

 

 

 

 

 

 

 

 

 

 

 

 

 

 

More

 

 

 

 

 

Payments Due Within

 

1 Year

 

 

>1 -3

 

 

> 3 - 5

 

 

Than 5

 

 

 

 

 

Remainder of 2020>1 -3
Years
> 3 - 5
Years
More
Than 5
Years
Total

 

or Less

 

 

Years

 

 

Years

 

 

Years

 

 

Total

 

2018 Notes and related interest

 

$

2.8

 

 

$

376.4

 

 

$

 

 

$

 

 

$

379.2

 

2027 Notes and related interest (1)
2027 Notes and related interest (1)
$3.8 $15.0 $22.5 $611.3 $652.6 
2024 Notes and related interest2024 Notes and related interest— 5.9 500.9 — 506.8 

2020 Notes and related interest(1)

 

 

5.6

 

 

 

11.3

 

 

 

377.8

 

 

 

 

 

 

394.7

 

377.8 — — — 377.8 

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

 

R&D and purchase commitments110.8 39.5 — — 150.3 
LeasesLeases4.4 24.4 22.8 15.2 66.8 

Total

 

$

61.7

 

 

$

399.8

 

 

$

387.9

 

 

$

513.1

 

 

$

1,362.5

 

Total$496.8 $84.8 $546.2 $626.5 $1,754.3 

We are

(1)    Our 2027 Notes were issued in May 2020 and our 2020 Notes matured and settled in cash on October 15, 2020. Refer to Note 12 to our accompanying Condensed Consolidated Financial Statements for additional discussion of our convertible debt.
As of September 30, 2020, we were also subject to contingent payments related tototaling approximately $622.4 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$235.0 million (USD equivalentrelated to early stage development programs licensed from a third party in the second quarter of 1852020, $70.3 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$236.0 million relatesrelated to programs that are no longer being developed.
As of September 30, 2020, we recorded $54.1 million of contingent consideration on our Condensed Consolidated Balance Sheets, all of which was long-term.
See Note18 to our accompanying Condensed Consolidated Financial Statements for additional discussion.

discussion on our commitments.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk



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Table of Contents
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
Our market risks during the nine months ended September 30, 20172020 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.

Item 4.

Controls and Procedures


Item 4.    Controls and Procedures
(a) Controls and Procedures

An evaluation was carried out, under the supervision of and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this report.

Based on the evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2017.

2020.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management must apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure controls system are met.


(b) Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. We are utilizing the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 Framework on internal control.

We believe that our ability to maintain an effective internal control environment has not been impacted by the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

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Table of Contents
PART II. OTHER INFORMATION

Item 1.

Legal Proceedings.

Paragraph IV Notices

We received

Item 1.    Legal Proceedings
On September 25, 2020, a paragraph IV notice letter, dated December 23, 2016, from Dr. Reddy’s Laboratories, Inc.purported shareholder class action lawsuit was filed against us, our Chief Executive Officer, our President of Worldwide Research 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 ofDevelopment and our patents listedExecutive Vice President and Chief Financial Officer 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 DRLUnited States District Court in the U.S. related to Kuvan 100 mg oral powder. Under the termsNorthern District of California, alleging violations under Sections 10(b) and 20(a) of the DRL Powder Settlement Agreement, we granted DRL a non-exclusive licenseSecurities Exchange Act of 1934. The complaint alleges that the Company made materially false or misleading statements regarding the clinical trials and Biologics License Application (BLA) for valoctocogene roxaparvovec by purportedly failing to our Kuvan-related patents to allow DRL to market a generic version of sapropterin dihydrochloride in oral powder form in 100 mgdisclose that differences between the Company’s Phase 1/2 and 500 mg packet formulations inPhase 3 clinical studies limited 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 termsability of the DRL Tablet Settlement Agreement,Phase 1/2 study to support valoctocogene roxaparvovec’s durability of effect and, as a result, that it was foreseeable that the Food and Drug Administration (FDA) would not approve the BLA without additional data. The complaint seeks an unspecified amount of damages, pre-judgment and post-judgment interest, attorneys’ fees, expert fees, and other costs. We believe that the claims have no merit and we granted DRL a non-exclusive licenseintend 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.


vigorously defend this action.

Item 1A.

Risk Factors


Item 1A.    Risk Factors
An investment in our securities involves a high degree of risk. We operate in a dynamic and rapidly changing industry that involves numerous risks and uncertainties. The risks and uncertainties described below are not the only ones we face. Other risks and uncertainties, including those that we do not currently consider material, may impair our business. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. This could cause the value of our securities to decline, and you may lose all or part of your investment.

investment.

We have marked with an asterisk (*) those risk factors below that include a substantive change from or update to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2016,2019, which was filed with the SEC on February 27, 2017.

2020.

Risks Related to Our Business

*The coronavirus, or COVID-19, pandemic could materially adversely affect our business, results of operations, and financial condition.
On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic has resulted in travel restrictions, quarantines, “work-from-home” and “shelter-in-place” orders and extended shutdown of certain businesses around the world, including in many countries in which we operate. We experienced a modest impact on our product revenues in the third quarter of 2020 from the COVID-19 pandemic, and we expect that the outbreak may continue to adversely impact our financial results and our business generally. Ongoing and future effects of the COVID-19 pandemic (or any future pandemic) on all aspects of our business and operations, including revenues, expenses, reserves and allowances, manufacturing, clinical trials and research and development costs, and the duration of such effects, are highly uncertain and difficult to predict. We anticipate that the COVID-19 pandemic will likely continue to have an adverse impact on our business, results of operations, and financial condition.
The continued spread of COVID-19 has adversely affected and will likely continue to adversely impact our product development programs, including preclinical study and clinical trial operations. We have been, and will likely continue to be, unable to initiate or continue conducting clinical trials as originally planned due to the prioritization of hospital resources toward the outbreak, difficulty in recruiting and retaining healthcare providers and staff due to their diversion toward treating COVID-19 patients or their heightened exposure to COVID-19, potential unwillingness of patients to enroll or continue in trials for fear of exposure to COVID-19 at sites, or the inability of patients to comply with clinical trial protocols as quarantines or travel restrictions impede patient movement or otherwise interrupt healthcare services. For example, we experienced delays in certain clinical trials and have had to reevaluate expected timelines for those trials. In addition, we rely on independent clinical investigators, contract research organizations (CROs) and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us. Additionally, the COVID-19 pandemic has delayed, and may continue to postpone, necessary interactions with regulators regarding our products in development, which could delay review or approval of our regulatory submissions.
44

COVID-19 could adversely affect our ability to source materials and supplies and successfully manufacture and distribute our product candidates and products. The outbreak could result in reduced operations of third-party suppliers of raw materials and supplies upon whom we rely or otherwise limit our ability to obtain sufficient materials and supplies necessary for production of our therapies. Our manufacturing facilities and those of our contract manufacturers are located in areas impacted by the COVID-19 pandemic, which may result in delays or disruptions in our ability to produce product candidates and products. If we or any third party in our supply or distribution chain are adversely impacted by the COVID-19 pandemic, including as a result of required closures, staffing shortages, production slowdowns and disruptions in delivery systems, our operations may be disrupted, limiting our ability to manufacture and distribute our product candidates for clinical trials and research and development operations and our products for commercial sales.
Our commercial operations have also been, and will likely continue to be, adversely impacted by the COVID-19 pandemic. Many of our products are administered via infusions in a clinic or hospital setting and/or by a healthcare professional. Treating COVID-19 patients has become the priority for many healthcare facilities and workers, so it has become, and may continue to be, difficult for some of our patients to receive our therapies that are administered by infusion. Although we are working with our patient community and healthcare providers to find alternative arrangements where necessary, such as providing infusions at home, the revenue from doses of our products that are missed by patients and the lost revenue from delayed treatment starts for new patients will never be recouped. Moreover, some patients may choose to skip infusions because they do not want to risk exposure to COVID-19 by having a healthcare provider administer the therapy at a healthcare facility or at home. The pandemic has also hindered our ability to find new patients and start treating newly found patients, and it has limited our sales force’s ability to promote our products to distributors, hospitals, clinics, doctors and pharmacies, which could adversely affect our revenues and results of operations. In addition, the COVID-19 pandemic could adversely affect our workforce and the employees of companies with which we do business, thereby disrupting our business operations. We have implemented work-from-home policies for employees whose jobs do not require them to be onsite. Increased reliance by us and the companies with which we do business on personnel working from home may negatively impact productivity, increase cyber security risk, create data accessibility issues, increase the risk for communication disruptions, or otherwise disrupt or delay normal business operations. For our employees whose jobs require them to be onsite, we have taken precautions to avoid the spread of COVID-19 among our employees, but we cannot guarantee our workforce will not face an outbreak that could adversely impact our operations.
While the long-term economic impact and the duration of the COVID-19 pandemic may be difficult to predict, the widespread pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which could reduce our ability to access capital and could negatively affect our liquidity and the liquidity and stability of markets for our common stock and convertible notes. In addition, a recession, further market correction or depression resulting from the COVID-19 pandemic could materially adversely affect our business and the value of our common stock and convertible notes.
To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Risk Factors section, such as those relating to our conducting a significant amount of our sales and operations outside of the United States (U.S.), exposure to changes in foreign exchange rates, our substantial indebtedness, our need to generate sufficient cash flows to service our indebtedness and finance our operations, our ability to comply with the covenants contained in the agreements that govern our indebtedness and the volatility of our stock price.
*If we fail to obtain and maintain 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.

We must obtain and maintain regulatory approval to market and sell our product candidates. For example, in the U.S., we must obtain Food and Drug Administration (FDA)FDA approval for each product candidate that we intend to commercialize, and in Europe we must obtain approval from the European Medicines Agency (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.
45

We have had fewer interactions with regulatory authorities outside the U.S. and the European Union (EU) as compared to our interactions with the FDA and EMA. The approval procedures vary among countries and can involve additional clinical testing, and the time required to obtain approval may differ from that required to obtain FDA or EMA approval. Moreover, clinical trials conducted in 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.

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.

Because of the risks and uncertainties in pharmaceutical development, our product candidates could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. We also rely on independent third-party CROs to file some 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.
Although the FDA and the EMA have programs to facilitate expedited development and accelerated approval processes, the timelines agreed under legislative goals or mandated by regulations are subject to the possibility of substantial delays. In addition, the FDA, the EMA and other international regulatory authorities have substantial discretion over the approval process for pharmaceutical products. These regulatory agencies may not agree that we have demonstrated the requisite level of product safety and efficacy to grant approval and may require additional data. Moreover, if original FDA approval for one of our product candidates is granted via the accelerated approval pathway, we may be required to conduct a post-marketing confirmatory trial to verify and describe the clinical benefit in support of full approval. An unsuccessful post-marketing study or failure to complete such a study with due diligence could result in the withdrawal of the FDA’s marketing approval for a product candidate. If we fail to obtain and maintain regulatory approval for our product candidates, we will be unable to market and sell those product candidates. Becausecandidates, which would have a negative effect on our business and financial condition.
With respect to valoctocogene roxaparvovec, we may experience challenges specific to gene therapy 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, 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 or how much it will cost to obtain 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. For example, in October 2020, it was reported that the Director of the risksCenter for Biologics Evaluation and uncertaintiesResearch, the center of the FDA responsible for reviewing marketing applications for gene therapies, stated that the FDA will assess the importance of durability of effect differently for a gene therapy that treats a disease that has no other available therapies versus a condition for which there are multiple approved treatments. 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 pharmaceutical development,regulatory positions and interpretations, delay or prevent approval and commercialization of our product candidates could taketreatment candidate or lead to significant post-approval studies, limitations or restrictions. For example, on August 18, 2020 the FDA issued a significantly longer timeComplete Response Letter (CRL) to gainour BLA for valoctocogene roxaparvovec for the treatment of adults with severe hemophilia A. In the CRL, the FDA introduced a new request for additional data from our ongoing Phase 3 study of valoctocogene roxaparvovec that will not be available until November 2021. Continued 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 aspectsproduct.
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In addition, some of our product candidates are intended to be used in combination with a delivery device, such as an injector or other delivery system. Medical products containing a combination of new drugs, biological products or medical devices may be regulated as “combination products” in the U.S. A combination product generally is defined as a product consisting of components from two or more regulatory categories (e.g., drug/device, device/biologic, drug/biologic). Each component of a combination product is subject to the requirements established by the FDA for that type of component, whether a new drug, biologic or device. In order to facilitate pre-market review of combination products, the FDA designates one of its centers to have primary jurisdiction for the pre-market review and regulation of the overall product based upon a determination by the FDA of the primary mode of action of the combination product. The determination whether a product is a combination product or two separately regulated products is made by the FDA on a case-by-case basis. Our product candidates intended for use with such devices, or expanded indications that we may seek for our products used with such devices, may not be approved or may be substantially delayed in receiving approval if the devices do not gain and/or maintain their own regulatory approvals or clearances. Where approval of the drug or biologic product and device is sought under a single application, the increased complexity of the review process may delay approval. The FDA review process and criteria 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.


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. 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.

Any product for which we have obtained regulatory approval, or for which we obtain approval in the future, is subject to, or will be subject to, extensive ongoing regulatory requirements by the FDA, the EMA and other comparable international regulatory authorities, and if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products, we may be subject to penalties, we will be unable to generate revenue from the sale of such products, our potential for generating positive cash flow will be diminished, and the capital necessary to fund our operations will be increased.

All of our products

Aldurazyme, Brineura, Kuvan, Naglazyme and Vimizim have received regulatory approval to be commercially marketed and sold in the U.S., the EU and certain other countries, with 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.

An example of the ongoing regulatory requirements our products are subject to is the Palynziq Risk Evaluation and Mitigation Strategy (REMS) program. In the U.S., Palynziq is only available through the REMS program, which is required by the FDA to mitigate the risk of anaphylaxis while using the product. Notable requirements of our REMS program include the following:
prescribers must be certified by enrolling in the REMS program and completing training;
prescribers must prescribe auto-injectable epinephrine with Palynziq;
pharmacies must be certified with the REMS program and must dispense Palynziq only to patients who are authorized to receive it;
patients must enroll in the REMS program and be educated about the risk of anaphylaxis by a certified prescriber to ensure they understand the risks and benefits of treatment with Palynziq; and
patients must have auto-injectable epinephrine available at all times while taking Palynziq.
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Failure of prescribers, pharmacies or patients to enroll in our REMS program or to successfully complete and comply with its requirements may result in regulatory action from the FDA or decreased sales of Palynziq. The restrictions and requirements under our REMS program, as well as potential changes to these restrictions and requirements in the future, subject us to increased risks and uncertainties, any of which could harm our business. The requirement for a REMS program can materially affect the potential market for and profitability of a drug. We cannot predict whether the FDA will request, seek to require or ultimately require modifications to, or impose additional requirements on, the Palynziq REMS program, or whether the FDA will permit modifications to the Palynziq REMS program that we consider warranted. Any modifications required or rejected by the FDA could make it more difficult or expensive for us to distribute Palynziq in the U.S., impair the safety profile of Palynziq, disrupt continuity of care for Palynziq patients and/or negatively affect sales of Palynziq.
Moreover, promotional communications with respect to prescription drugs, including biologics, are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product's approved labeling. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal and administrative penalties. Thus, we will not be able to promote any products we develop for indications or uses for which they are not approved.

In addition, the FDA often requires post-marketing testing and surveillance to monitor the effects of products. The FDA, the EMA and other comparable international regulatory agencies may condition approval of our product candidates on the completion of such post-marketing clinical studies. These post-marketing studies may suggest that a product causes undesirable side effects or may present a risk to the patient.

Discovery after approval of previously unknown problems with any of our products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

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;


injunctions; or

injunctions; or

imposition of civil or criminal penalties.

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

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

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As part of our business strategy, we have developed and may in the future develop some drugs that may be eligible for FDA and EU orphan drug designation. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population of fewer than 200,000 in the U.S. In the EU, orphan drug designation is granted to 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.

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

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

*

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

Our Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim products are regulated by the FDA as biologics under the Federal Food, Drug, and Cosmetic Act (the FDC Act) and the Public Health Service Act (the PHS Act). Biologics require the submission of a BLA 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 the standard of interchangeability, a sponsor must demonstrate that the biosimilar product can be expected to produce the same clinical result as the reference product, and for a product that is administered more than once, that the risk of switching between the reference product and biosimilar product is not greater than the risk of maintaining the patient on the reference product. Such biosimilars would reference biological products approved in the U.S. The BPCIA establishes a period of 12 years of exclusivity for reference products. Aldurazyme’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 Marketing Authorization Applications (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.

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

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

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

slow or insufficient patient enrollment;

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

budgetary constraints or prohibitively high clinical trial costs;

longer treatment time required to demonstrate efficacy;

lack of sufficient supplies of the product candidate;

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

lack of effectiveness of the product candidate being tested;

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

regulatory requests for additional clinical trials or pre-clinicalpreclinical studies;

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

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

investigators.

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


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

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In addition to the risks set forth in this Risk Factors section associated with developing and commercializing more traditional pharmaceutical drugs, there are additional, unique development and treatment risks associated with gene therapy products like our product candidate valoctocogene roxaparvovec. The goal of gene therapy is to be able to correct an inborn genetic defect through one-time administration of therapeutic genetic material containing non-defective gene copies. The gene copies are designed to reside permanently in a patient, allowing the patient to produce an essential protein or ribonucleic acid (RNA) molecule that a healthy person would normally produce. There is a risk, however, that the new gene copies will produce too 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 related

As compared to our other, more traditional products, our gene therapy program that cause significant delays or unanticipated costs, or that cannot be solved. Although numerous companies are currently advancing gene therapy product candidates through clinical trials,candidate valoctocogene roxaparvovec, if approved, may present additional problems with respect to the 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.
In addition to the risks set forth in this Risk Factors section associated with 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.

roxaparvovec. Due to the relative novelty of gene therapy and the potential to provide extended duration therapeutic treatment with a one-time administration, we also face uncertainty with respect to the pricing, coverage and reimbursement of valoctocogene roxaparvovec,, if approved. In order to recover our research and development costs and commercialize this one-time treatment on a profitable basis, we expect the cost of a single administration of valoctocogene roxaparvovec to be substantial. Therefore, we expect that coverage and reimbursement by governments and other third-party 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.

investment in the development of valoctocogene roxaparvovec.

We also face uncertainty as to whether gene therapy will gain the acceptance of the public or the medical community. Even if we obtain regulatory approval for valoctocogene roxaparvovec,, the commercial success of valoctocogene roxaparvovec will depend, in part, on the acceptance of physicians, patients and 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.

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

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

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

As of September 30, 2017,2020, we had cash, cash equivalents and short and long-term investments totaling $1.7$1.8 billion and long-term debt obligations of $1.2$1.5 billion (undiscounted), which consisted of our 1.50% senior subordinated convertible notes due in 2020 (the 2020 Notes), our 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes) and our 1.25% senior subordinated convertible notes due in 2027 (the 2027 Notes). We settled or repaid in cash all outstanding 2020 Notes at maturity in October 2020. The 2024 Notes and the 2027 Notes (collectively, the Notes), if not converted, will be required to be repaid in cash at maturity in August 2024 and May 2027, respectively. We will need cash not only to pay the ongoing interest due on the Notes during their term, but also to repay the principal amount of the Notes if not converted.
In January 2016, we terminated our License and Commercialization Agreement with Ares Trading, S.A. (Merck Serono)(Merck Serono). Pursuant to the Termination and Transition Agreement related to Kuvan and the Termination Agreement related to pegvaliase,Palynziq, we made 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.    

Palynziq.

We may require additional financing to fund the repayment of 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.

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

our ability to successfully market and sell our products;

Genzyme’s abilitythe time and cost necessary to continuedevelop commercial manufacturing processes, including quality systems, and to successfully commercialize Aldurazyme;

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 time and cost necessary to develop commercial manufacturing processes, including quality systems, and to build or acquire manufacturing capabilities;

the progress of research programs carried out by us;

our possible achievement of development and commercial milestones 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;

any changes made to, 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; and

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

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

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

additional licenses and collaborative agreements;

additional contracts for product manufacturing; and

additional financing facilities or arrangements.

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We will need to raise additional funds from equity or debt securities, loans or collaborative agreements if we are unable to satisfy our liquidity requirements. The sale of additional securities will result in additional dilution to our stockholders. Furthermore, additional financing may not be available in amounts or on terms satisfactory to us or at all. This could result in the delay, reduction or termination of our research, which could harm our business.

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

As of September 30, 2017,2020, we had $1.2$1.5 billion (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 and $600.0 million (undiscounted) principal amount of indebtedness under the 2027 Notes. We settled or repaid in cash all outstanding 2020 Notes at maturity in October 2020. 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:

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

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

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

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

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

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

In addition, the 2018 Credit Agreement does,Facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full. If we default under the 2018 Credit Agreement,Facility, the outstanding borrowings thereunder could become immediately due and payable, the 2018 Credit 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.

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

Our outstanding indebtedness consists primarily of the 2018 Notes, 20202024 Notes and 20242027 Notes, which, if not converted, will be required to be repaid in cash at maturity in 2018, 2020August 2024 and 2024,May 2027, respectively. In addition, in the event the conditional conversion feature of the 2018 Notes or 2020 Notes is triggered, holders of such Notes will be entitled to convert the 2018 Notes or 2020 Notes at any time during specified periods at their option. Our liquidity could be adversely affected if we do not elect to settle conversions of the 2018 Notes and 2020 Notes solely in shares of 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. While we could seek to obtain additional third-party


financing to pay for any amounts due in cash upon such events,maturity of the Notes, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all. Furthermore, if we are required to share settle any conversions of Notes, due to lack of requisite liquidity or otherwise, we may cease to be eligible to account for the Notes using the treasury stock method, which may adversely impact our diluted earnings per share.

In addition, although we had no outstanding balance under the Credit Agreement as of 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 in 2018.

*on October 19, 2021.

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

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

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

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

*

If we are unable to successfully develop and maintain manufacturing processes for our 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.

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

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

With respect to valoctocogene roxaparvovec, gene therapy products are relatively novel and complex and have only in limited cases been manufactured at scales sufficient for pivotal trials and commercialization. Few pharmaceutical contract manufacturers specialize in gene therapy products and those that do are still developing appropriate processes and facilities for large-scale production. We invested a considerable amount of capital building our own commercial gene therapy manufacturing facility, which may be subject to significant impairment if our gene therapy programs are unsuccessful. As we develop, seek to optimize and operate the valoctocogene roxaparvovec manufacturing process, we will likely face technical and scientific challenges, considerable capital costs, and potential difficulty in recruiting and hiring experienced, qualified personnel. There may also be unexpected technical or operational issues during clinical or commercial manufacturing campaigns. As a result, we could experience manufacturing delays that prevent us from completing our clinical studies in a timely manner, if at all, or commercializing valoctocogene roxaparvovec on a profitable basis, if at all.
Also, we may be required to demonstrate product comparability between a biological product made after a manufacturing change and the product made before implementation of the change through additional types of analytical and functional testing or may have to complete additional clinical studies. If we contract for manufacturing services with an unproven process, our contractor is subject to the same uncertainties, high standards and regulatory controls, and may therefore experience difficulty if further process development is necessary.


Even a developed manufacturing process can encounter difficulties. Problems may arise during manufacturing for a variety of reasons, including human error, mechanical breakdowns, problems with raw materials and cell banks, malfunctions of

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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.

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

Although we

We have entered into contractual relationships with third-party manufacturers to produce the active 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.

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

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

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

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

labor interruptions;

changes in our sources for manufacturing;

the timing and delivery of shipments;

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

conditions affecting the cost and availability of raw materials.

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

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

demand and adversely affect our financial results and financial condition.

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


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

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

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

The course of treatment for patients using our products is expensive. We expect patients to need treatment for extended periods, and for some products throughout the lifetimes of the patients. We expect that most families of patients will not be capable of paying for this treatment themselves. There will be no commercially viable market for our products without coverage and reimbursement from third-party 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.

Third-party 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.

Government authorities and other third-party 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.

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

Reimbursement in the EU and many other territories must be negotiated on a country-by-country basis and in many countries the product cannot be commercially launched until reimbursement is approved. The timing to complete the negotiation process in each country is highly uncertain, and in some countries we expect that it will exceed 12 months. Even after a price is negotiated, countries frequently request or require reductions to the price and other concessions over time.

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

*

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

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


These programs are not well defined in some countries and are subject to changes in requirements and funding levels. Any change to these programs could adversely affect our ability to sell our products in those countries and delay sales. If the programs are not funded by the respective government, there could be insufficient funds to pay for all patients. Further, governments have in the past undertaken and may in the 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.

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

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

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

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

We expect that coverage and reimbursement may be increasingly restricted both in all the U.S. and internationally.markets in which we sell our products. The escalating cost of 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.

International operations are also generally subject to extensive price and market regulations, and there are many proposals for additional cost-containment measures, including proposals that would directly or indirectly impose additional price controls or mandatory price cuts or reduce the value of our intellectual property portfolio. As part of these cost containment measures, some countries have imposed or 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.

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

*Government health carehealthcare reform could increase our costs and adversely affect our revenue and results of operations.

Our industry is highly regulated and changes in law may adversely impact our business, operations or financial results. 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.

Since its enactment, there have been There remain judicial and 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


challenges and amendments to the PPACA in the future. Since January 2017, the U.S. President Trump has signed twoseveral 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, eliminating the implementation of certain PPACA-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. On December 18, 2019, the U.S. Court of Appeals for health insurance mandated by the PPACA. The Trump administration has also5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well. On March 2, 2020, the U.S. Supreme Court announced that it will discontinue the payment of cost-sharing reduction (CSR) payments to insurance companies until Congress approves the appropriation of funds forwould review this case. It is unclear how such CSR payments. The loss of the CSR payments 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 repeallitigation 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.

We anticipate that the PPACA, as well as other healthcare reform measures that may be adopted in the future in the U.S. or abroad, may result in more rigorous coverage criteria and an additional downward pressure on the reimbursement our customers may receive for our products. Recently there has been heightened governmental scrutiny in countries worldwide over the manner in which manufacturers set prices for their marketed products. For example,
In the U.S., there have been several recent U.S. 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. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for legislation that would, among other things, place limits on pharmaceutical price increases. Moreover, the U.S. Presidential administration previously released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contained 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. On July 24, 2020, the current U.S. President announced four executive orders related to prescription drug pricing that attempt to implement several of the administration’s proposals, including, among other things, one that directs the U.S. Department of Health and Human Services (HHS) to finalize the Canadian drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from Canada one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for plans, pharmacies, and pharmaceutical benefit managers The FDA also recently released a final rule, effective November 30, 2020, implementing a portion of the importation executive order providing guidance for states to build and submit importation plans for drugs from Canada. 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. Further, it is possible that additional governmental action is taken in response to the COVID-19 pandemic.
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Likewise, in many EU countries, legislators and other policymakers continue to propose and implement healthcare cost-containing measures in response to the increased attention being paid to healthcare costs in the EU. Certain of these changes could impose limitations on the prices we will be able to charge for our products and any approved product candidates or the amounts of reimbursement available for these products from governmental and private third-party payers, may increase the tax obligations on pharmaceutical companies or may facilitate the introduction of generic competition with respect to our products. Further, an increasing number of EU countries and other foreign countries use prices for medicinal products established in other countries as “reference prices” to help determine the price of the product in their own territory. Consequently, a downward trend in prices of medicinal products in some countries could contribute to similar downward trends elsewhere. Moreover, in order to obtain reimbursement for our products in some countries, we may be required to conduct clinical trials that compare the cost-effectiveness of our products to other available therapies.
Legally mandated price controls on payment amounts by governmental and private third-party payers or other restrictions could harm our business, results of operations, financial condition and prospects. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.
For more information regarding government 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.

2020.

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

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

*If we are found in violation of 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.

We are subject to various 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.

payers.

Federal and state false claims laws, including the civil False Claims Act, prohibit any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false


statement to have a false claim paid, or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government. In addition, certain marketing practices, including off-label promotion, may also violate false claims laws. Under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), we also are prohibited from knowingly and willfully executing a scheme to defraud any 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.

In addition, recent 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.
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act and its implementing regulations, also imposes obligations, including mandatory contractual terms, on certain types of individuals and entities, with respect to safeguarding the privacy, integrity, availability, security and transmission of individually identifiable health information. Many state and foreign laws also govern the privacy and security of health information. They often differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. The global data protection landscape is rapidly evolving, and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future. In the United States, California recently enacted the California Consumer Privacy Act (CCPA), which took effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA has increased our compliance costs and may increase our potential liability. The CCPA has prompted a number of proposals for new federal and state privacy legislation, including a November 2020 California ballot measure that passed and will substantially expand the requirements of the CCPA. These new regulations could increase our potential liability, increase our compliance costs and adversely affect our business.
The European Regulation 2016/679, known as the General Data Protection Regulation (GDPR), as well as EU Member State implementing legislations, apply to the collection and processing of personal data, including health-related information, by companies located in the EU, or in certain circumstances, by companies located outside of the EU and processing personal information of individuals located in the EU. These laws impose strict obligations on the ability to process personal data, including health-related information, in particular in relation to their collection, use, disclosure and transfer. These include several requirements relating to (i) obtaining, in some situations, the consent of the individuals to whom the personal data relates, (ii) the information provided to the individuals about how their personal information is used, (iii) ensuring the security and confidentiality of the personal data, (iv) the obligation to notify regulatory authorities and affected individuals of personal data breaches, (v) extensive internal privacy governance obligations, and (vi) obligations to honor rights of individuals in relation to their personal data (for example, the right to access, correct and delete their data). The GDPR prohibits the transfer of personal data to countries outside of the European Economic Area (EEA), such as the United States, which are not considered by the European Commission to provide an adequate level of data protection. Switzerland has adopted similar restrictions. Potential pecuniary fines for noncompliant companies may be up to the greater of €20 million or 4% of annual global revenue. The GDPR has increased our responsibility and liability in relation to personal data that we process, and we may be required to put in place additional potential mechanisms to ensure compliance with the new EU data protection rules.
The GDPR and other European data protection laws generally restrict the transfer of personal information from Europe, including the European Economic Area, United Kingdom (U.K.) and Switzerland, to the U.S. and most other countries unless the parties to the transfer have implemented specific safeguards to protect the transferred personal information. One of the primary safeguards allowing U.S. companies to import personal information from Europe has been the European Commission’s Standard Contractual Clauses. However, the Court of Justice issued a decision that called into question whether the Standard Contractual Clauses can lawfully be used for transfers of personal information from Europe to the United States or most other countries. At present, there are few, if any, viable alternatives to the Standard Contractual Clauses, on which we have relied for personal information transfers from Europe to the United States and other countries. Authorities in the U.K. and Switzerland may similarly question the viability of the Standard Contractual Clauses, as a mechanism for the lawful transfer of personal information from those countries to the United States. Furthermore, it is unclear whether transfer of personal information from Europe to the U.K. will remain lawful after the post-Brexit transition period ends on December 31, 2020 and what if any transfer mechanisms will be available for such transfers. If we are unable to implement sufficient safeguards to ensure that our transfers of personal information from Europe are lawful, we will face increased exposure to regulatory actions, substantial fines, and injunctions against processing personal information from Europe. In addition, we may be required to increase our data processing capabilities in Europe at significant expense. Inability to import personal information from Europe may also restrict our clinical trials activities in Europe and limit our ability to collaborate with contract research organizations, service providers, contractors and other companies subject to European data protection laws. Additionally, other countries outside of Europe have enacted or are considering enacting similar cross-border data transfer restrictions and laws requiring local data residency, which could increase the cost and complexity of operating our business.

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Substantial new laws and regulations affecting compliance have also been adopted in the U.S. and certain foreign countries, which may require us to modify our business practices with healthcare practitioners. For example, in the U.S., the PPACA, through the Physician Payments Sunshine Act, requires certain drug, biologicals and medical supply manufacturers to collect and report to CMS information on payments or transfers of value to physicians (including certain other healthcare professionals) and teaching hospitals, as well as investment and ownership interests held by such physicians and their immediate family members during the preceding calendar year. Effective January 1, 2022, manufacturers will also be required to report on payments or transfers of value, and ownership and investment interests held, during the previous year to physician assistants, nurse practitioners or clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives. In addition, there has been a recent trend of increased state regulation of payments made to physicians. Certain states and/or local jurisdictions mandate implementation of compliance programs, compliance with the Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and the Pharmaceutical Research and Manufacturers of America (PhRMA) Code on Interactions with Healthcare Professionals, the registration of pharmaceutical sales representatives and/or the tracking and reporting of gifts, compensation and other remuneration to physicians, marketing expenditures, and drug pricing. Likewise, in many foreign countries there is an increasing focus on the relationship between drug companies and healthcare practitioners. Recently enacted foreign legislation creates reporting obligations on payments, gifts and benefits made to these professionals; however, implementing regulations enacting such laws are still pending and subject to varying interpretations by courts and government agencies. The shifting regulatory environment and the need to implement systems to comply with multiple jurisdictions with different compliance and/or reporting requirements increases the costs of maintaining compliance and the possibility that we may violate one or more of the requirements and be subject to fines or sanctions.
Due to the breadth of the healthcare and privacy and data protection laws described above, the narrowness of available statutory and regulatory exceptions and safe harbors and the increased focus by law enforcement agencies in enforcing such laws, our business activities could be subject to challenge under one or more of such laws. If we are found in violation of one of these laws, we may be subject to significant criminal, civil or administrative sanctions, including damages, fines, disgorgement, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, curtailment of our operations, and debarment, suspension or exclusion from participation in federal or state health caregovernment healthcare programs, any of which could adversely affect our business, financial condition and results of operations.

*

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

A significant portion of the sales of Aldurazyme, Brineura, Kuvan, Naglazyme and Vimizim and all of the sales of Firdapse are generated from countries other than the U.S. Similarly, we expect a significant portion of the sales of 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:

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;


differing labor regulations and business practices;

differing labor regulations and business practices;

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

changes in international medical reimbursement policies and programs;

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

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

rapidly evolving global laws and regulations relating to data securityprotection and the unauthorized useprivacy and security of or access to, commercial and personal information.

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

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

*The U.K.’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and our business, which could adversely affect our revenue and results of operations.
In June 2016, a majority of the eligible members of the electorate in the U.K. voted to withdraw from the EU in a national referendum (Brexit). On March 29, 2017, the U.K.’s Prime Minister formally delivered the notice of withdrawal. After significant negotiation between the U.K. and the EU, the withdrawal of the U.K. from the EU took effect on January 31, 2020. There is now a transition period while the U.K. and EU negotiate additional arrangements, including their future trading terms. The U.K. has stated that it wants the transition period to expire, and the future trading terms to be agreed, by December 31, 2020. No agreement has yet been reached between the U.K. and the EU and it may be the case that no formal customs and trading agreement will be reached prior to the expiration of the transition period on December 31, 2020.
The uncertainties regarding the U.K.’s future relationship with the EU, have had and may continue to have an adverse effect on global economic conditions and the stability of global financial markets. In particular, depending on what terms are agreed between the U.K. and the EU, if any, it could lead to a period of considerable uncertainty in relation to global financial and banking markets, as well as on regulatory processes in Europe and the EEA. Lack of clarity about future U.K. laws and regulations as the U.K. determines which EU rules and regulations to replace or replicate, including financial laws and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in all markets, increase costs, depress economic activity and restrict access to capital.
If the U.K. and the EU are unable to negotiate acceptable future trading terms or if other EU countries pursue withdrawal, barrier-free access between the U.K. and other EU or EEA countries could be diminished or eliminated, which could make our doing business in the EU more difficult. As a result of Brexit, we 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.
U.S. export control and economic sanctions may adversely affect our business, financial condition and operating 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.

Our products are subject to U.S. export control laws and regulations, including the U.S. Export Administration Regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). Exports of our products and solutions must be made in compliance with these laws and regulations. Changes to these laws and regulations, or to the countries, governments, persons or activities targeted by such laws, could result in decreased use of our products, or hinder our ability to export or sell our products to existing or potential customers, which would likely adversely affect our results of operations, financial condition or strategic objectives. If we fail to comply with these laws and regulations, we could be subject to substantial civil or criminal penalties, including the possible loss of export or import privileges and fines.
We rely on a general license from OFAC to sell our medicines for eventual use by hospital and clinic end-users in Iran. The use of this OFAC general license requires us to observe strict conditions with respect to products sold, end-user limitations and payment requirements. Although we believe we have maintained compliance with the general license requirements, there can be no assurance that the general license will not be revoked, be renewed in the future or that we will remain in compliance. Moreover, 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.

*

Moreover, U.S. export control and economic sanctions may make operating in certain countries more difficult and expensive. For example, we may be unable to find distributors or financial institutions willing to facilitate the sale of our products and collection of cash from such sales in a cost-effective manner, if at all.
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Failure to comply with applicable anti-corruption legislation could result in fines, criminal penalties and materially adversely affect our business, financial condition and results of operations.

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

Although we have adopted policies and procedures designed to ensure that 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.

Moreover, there has been enhanced scrutiny of company-sponsored patient assistance programs, including insurance premium and co-pay assistance programs and donations to third-party charities that provide such assistance. There has also been enhanced scrutiny by governments on reimbursement support offerings, clinical education programs and promotional speaker programs. If we, our third-party agents or donation recipients are deemed to have failed to comply with laws, regulations or government guidance in any of these areas, we could be subject to criminal or civil sanctions. Any similar violations by our competitors could also negatively impact our industry reputation and increase scrutiny over our business and our products
Changes in funding for the FDA, the EMA and other government agencies or government shutdowns could hinder the ability of such agencies to hire and retain key leadership and other personnel or otherwise prevent those agencies from performing normal functions on which the operation of our business may rely, which could negatively impact our business.
Changes in funding levels of government agencies can affect their ability to hire and retain key personnel and carry out their normal functions that support our business. For example, the ability of the FDA to timely review and approve INDs or marketing authorizations for our product candidates may be hindered by a lack of resources and qualified personnel. In addition, funding of other government agencies on which our operations rely, including those that fund research and development activities, is subject to the political budget process, which is inherently fluid and unpredictable.
Government shutdowns could also impact the ability of government agencies to function normally and support our operations. For example, the U.S. federal government has shut down repeatedly since 1980, including for a period of 35 days beginning on December 22, 2018. During a shutdown, certain regulatory agencies, such as the FDA, have had to furlough key personnel and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
Our international operations pose currency risks, which may adversely affect our operating results and net income.

A significant and growing portion of our revenues and earnings, as well as our substantial international net assets, are exposed to changes in foreign exchange rates. As we operate in multiple foreign currencies, including the euro,Euro, the Brazilian real,Real, the U.K. pound,Great British Pound, the Canadian dollar, the Swiss franc, the Japanese 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 variables


remained constant, our revenues would increase, having a positive impact on earnings, and our overall expenses would increase, having a negative impact on earnings. Conversely, if the U.S. 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

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operations. Therefore, significant changes in foreign exchange rates can impact our results and our financial guidance.

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

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

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

The patent positions of biopharmaceutical products are complex and uncertain. The scope and extent of patent protection for some of our products and product candidates are particularly uncertain because key information on some of our product candidates has existed in the public domain for many years. The composition and genetic sequences of animal and/or human versions of Aldurazyme, Naglazyme and many of our product candidates have been published and are believed to be in the public domain. The chemical structure of 6R-BH4 (the active ingredient in Kuvan) and 3,4-DAP (the active ingredient in Firdapse) 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 own or have licensed patents and patent applications related to our products. However, these patents and patent applications do not ensure the protection of our intellectual property for a number of reasons, including without limitation the following:

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

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

Competitors may interfere with our patent process in a variety of ways. Competitors may claim that they invented the claimed invention prior to us or that they filed their application for a patent on a claimed invention before we did. Competitors may also claim that we are infringing on their patents and therefore we cannot practice our technology. Competitors may also contest our patents by showing the patent examiner or a court that the invention was not original, was not novel or was obvious, for example. In litigation, a competitor could claim that our issued patents are not valid or are unenforceable for a number of reasons. If a court agrees, we would not be able to enforce that patent. We have no meaningful experience with competitors interfering with or challenging the validity or enforceability of our patents or patent applications.

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

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

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

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

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


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Under policies recently adopted in the EU, clinical trial data submitted to the EMA in MAAs that were traditionally regarded as confidential commercial information are now subject to public disclosure. Subject to BioMarin’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.

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

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

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

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

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

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

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

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

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

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

If our Manufacturing, Marketing and Sales Agreement with Genzyme were terminated, we could be prevented from continuing to commercialize Aldurazyme or our ability to successfully commercialize Aldurazyme would be delayed
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or diminished.

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


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

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

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

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

Our future growth and development 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.

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

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


*If generic manufacturers are successful in their 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.

operations.

The Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, permits the FDA to approve 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.

Pursuant to the Hatch-Waxman Act, companies were permitted to file ANDA applications for proposed generic versions of Kuvan at any time after December 2011. We own several patents that cover Kuvan, and we have listed those patents in conjunction with that product in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (the Orange Book). The Hatch-Waxman Act requires an ANDA applicant seeking FDA approval of its proposed generic product prior to the expiration of our Orange Book-listed patents to certify that the applicant believes that our patents are invalid or will not be infringed by the manufacture, use or sale of the drug for which the application has been submitted (a paragraph IV certification) and notify us of such certification (a paragraph IV notice). Upon receipt of a paragraph IV notice, the Hatch-Waxman Act allows us, with proper basis, to bring an action for patent infringement against the ANDA filer, asking that the proposed generic product not be approved until after our patents expire. If we commence a lawsuit within 45 days from receipt of the paragraph IV notice, the Hatch-Waxman Act provides a 30-month stay, during which time the FDA cannot finally approve the generic’s application. If the litigation is resolved in favor of the ANDA applicant during the 30-month stay period, the stay is lifted and the FDA may approve the ANDA if it is otherwise ready for approval. The discovery, trial and appeals process in such a lawsuit is costly, time consuming, and may result in generic competition if the ANDA applicant prevails. In addition to our patent protection,
Between 2014 and 2016 we 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.

We also received two separate paragraph IV notice letters, dated January 14, 2016 and January 22, 2015, from Par notifying us that Par had filed an ANDA seeking approval of proposed generic 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 became 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;in 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.  

For more information regarding these matters, see “Legal Proceedings” in Part II, Item 1 of this Interim Report on Form 10-Q.

2020.

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.

We also face potential generic competition for Kuvan in certain foreign countries, and 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.

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

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

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

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

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

Our success depends on our ability to manage our growth.

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

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

Even if our product candidates are approved, if doctors elect a course of treatment which does not include our products, this decision would reduce demand for our products and adversely affect revenues. For example, if gene therapy becomes widely used as a


treatment of genetic diseases, the use of enzyme replacement therapy, such as Aldurazyme, Naglazyme, and Vimizim in MPS diseases, could be greatly reduced. Moreover, if we obtain regulatory approval for valoctocogene roxaparvovec,, the commercial success of valoctocogene roxaparvovec will still depend, in part, on the acceptance of physicians, patients and 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.

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

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

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

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

We rely significantly on our information technology and manufacturing 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 breach
As part of our business, we collect, store and transmit large amounts of confidential information, proprietary data, intellectual property and personal data. The information and data processed and stored in security,our technology systems, and those of our research collaborators, CROs, contract manufacturers, suppliers, distributors, or other third parties for which we depend to operate our business, may be vulnerable to loss, damage, denial-of-service, unauthorized access resulting in misappropriation, theft, or sabotage with 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.
We have experienced and may continue to experience cybersecurity incidents. Although to our knowledge we have not experienced any material incident or interruption to date, if such an event were to occur it could result in a material disruption of our development programs and commercial operations, including due to a loss, corruption or unauthorized disclosure of our trade secrets, personal data or other proprietary or sensitive information. Moreover, the costs to us to investigate and confidential information, including research 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.

*

If a natural disaster, 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 the

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

our products and product candidates. Our Galli Drive facility, located in Novato, California, is currently our only manufacturing facility for Aldurazyme, Naglazyme and 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 we contract and our single-source suppliers of raw materials, which include many of our critical raw materials, are also vulnerable to damage from other types of disasters, including fires, explosions, floods, power loss and similar events. If any disaster were to occur, or any terrorist or criminal activity caused significant damage to our facilities or the facilities of our third-party manufacturers and suppliers, our ability to manufacture Aldurazyme, Brineura, Naglazyme and Vimizim,our products, or to have Firdapse or Kuvanour products manufactured, could be seriously, or potentially completely,

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


*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.

*

New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, modified or applied in a manner that is adverse to us or our customers, which could adversely affect our business and financial condition. For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (TCJA), enacted many significant changes to the U.S. tax laws, including changes in corporate tax rates, the application of certain tax credits (including a reduction of tax credits under the Orphan Drug Act), the deductibility of expenses, the utilization of net operating losses (NOLs) and other deferred tax assets, and the taxation of foreign earnings. Future guidance from the Internal Revenue Service and other tax authorities with respect to the TCJA may affect us, and certain aspects of the TCJA could be repealed or modified in future legislation. For example, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, enacted on March 27, 2020, modified certain provisions of the TCJA, including provisions relating to NOL utilization. In addition, it is uncertain if and to what extent various states will conform to the TCJA, the CARES Act, or any newly enacted federal tax legislation. The impact of changes under the TCJA, the CARES Act, or future reform legislation could increase our future U.S. tax expense and could have a material adverse impact on our business and financial condition.
Moreover, changes in the tax laws of foreign jurisdictions could arise, including as a result of the base erosion and profit shifting (BEPS) project that was undertaken by the Organization for Economic Co-operation and Development (OECD), or other initiatives led by the European Commission. The OECD, which represents a coalition of member countries including the United States and other countries in which we have operations, made several recommendations with the aim of addressing tax avoidance and ensuring that profits are taxed where economic activities generating the profits are performed and where value is created. These changes, as adopted by countries, may increase tax uncertainty and may adversely affect our provision for income taxes, results of operations and cash flows. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm's length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. If tax authorities successfully challenge our transfer prices as not reflecting arm's length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, resulting in a higher tax liability. In addition, if a country from which income is reallocated does not agree with the reallocation, both that country and the other country to which the income was allocated could tax the same income, potentially resulting in double taxation. If tax authorities were to allocate income to a higher tax jurisdiction, subject our income to double taxation or assess interest and penalties, it would increase our consolidated tax liability, which could adversely affect our business, financial condition, results of operations and cash flows.
Our business is affected by macroeconomic conditions.

Various macroeconomic factors could adversely affect our business and the results of our operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from the current and future conditions in the global financial markets. For instance, if inflation or other factors were to significantly increase our business costs, it may not be feasible to pass price increases on to our customers due to the process by which 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 could materially reduce the value of the transaction and adversely affect our cash flows.

We sell our products in countries that face economic volatility and weakness, 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.

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

Risks Related to Ownership of Our Securities

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

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

product sales and profitability of our products;

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

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

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

generic competition to Kuvan tablets and powder relating to our settlements with DRL (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;

government regulatory action affecting our product candidates, our products or our competitorscompetitors’ 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 companyus or the pharmaceutical industry;

changes in the structure of healthcare payment systems;

cybersecurity incidents experienced by us or others in our industry;

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

actual or anticipated fluctuations in our operating results, including due to timing of large orderorders 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; and

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


Furthermore, the stock markets have recently experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. In some cases, these fluctuations have been unrelated or disproportionate to the operating performance of those companies. In the past, following periods of large price declinescompanies that have experienced volatility in the public market price of a company’s securities,their stock have been subject to securities class action litigation has often been initiated againstlitigation. For example, in September 2020, after a substantial drop in our stock price that company. Litigationfollowed an announcement providing a regulatory update regarding valoctocogene roxaparvovec, we and certain of our officers were sued in a putative class action lawsuit alleging violations of the federal securities laws for allegedly making materially false and misleading statements. We may be the target of additional litigation of this type in the future as well. Securities litigation against us could result in substantial costs and diversion ofdivert our management’s time and attention and resources,from other business concerns, which would hurtcould harm our business. Any adverse determination in litigation could also subject us to significant liabilities.

In addition, our stock price can be materially adversely affected by factors beyond our control, such as disruptions in global financial markets or negative trends in the biotechnology sector of the economy, even if our business is operating well.

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

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

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

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

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

*

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

We are incorporated in Delaware. Certain anti-takeover provisions of Delaware law and our charter documents as currently in effect may make a change in control of 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.


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

us over.

The terms of the Notes require us to repurchase the Notes in the event of a fundamental change. A takeover of 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.

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

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

for the following types of actions or proceedings under Delaware statutory or common law:

any derivative action or proceeding brought on our behalf;

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

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

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

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

While the Delaware courts have determined that such choice of forum provision is facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provision. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provision of our amended and restated certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

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

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.


Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
None.

Item 3.

Defaults Upon Senior Securities.



Item 3.    Defaults Upon Senior Securities
None.

Item 4.

Mine Safety Disclosures


Item 4.    Mine Safety Disclosures
Not applicable.

Item 5.

Other Information.


None.


Item 5.    Other Information
On November 4, 2020, we entered into a part-time employment agreement with Dr. Robert A. Baffi, effective January 1, 2021, setting forth the terms under which Dr. Baffi will continue to serve as a Senior Advisor to us on a part-time basis through December 31, 2021 (the Part-Time Agreement). As of January 1, 2021, the Part-Time Agreement terminates Dr. Baffi’s full-time employment agreement with us and entitles Dr. Baffi to an annual salary of $200,000 and continuation of insurance benefit plans and programs for him and his spouse during the term of the Part-Time Agreement.


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Item 6.    Exhibits

Item 6.

Exhibits.

Exhibit Number

Description

Exhibit Number

Description

    2.1

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

2.1

    2.2

    2.3

2.2

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

    2.4

    2.5

2.3

3.1

   3.2*

3.2

   4.1

Base Indenture, dated August 11, 2017, between the Company and Wilmington Trust, National Association, as Trustee, previously filed with the SEC on August 11, 2017September 24, 2018 as Exhibit 4.13.1 to the Company’s Current Report on Form 8-K (File No. 000-26727), which is incorporated herein by reference.

   4.2

31.1*

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

 10.1*

BioMarin Pharmaceutical Inc. Summary of Independent Director Compensation.

 31.1*

31.2*

 32.1*+

32.1+

101.INS*

101.INS

XBRL Instance Document

- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL*

101.CAL

Inline XBRL Taxonomy Extension Calculation Document


Exhibit Number

Description

101.DEF

101.DEF*

Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*

101.LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE*

101.PRE

Inline XBRL Taxonomy Extension Presentation Link Document

*

Filed herewith

+

104

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 September 30, 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.

Inline XBRL document.

*    Filed herewith
+    The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by 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.
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Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 20172020 and December 31, 2016,2019, (ii) Condensed Consolidated Statements of Comprehensive LossIncome (Loss) for the three and nine months ended September 30, 20172020 and 2016,2019, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the three and nine months ended September 30, 2017,2020 and 2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20172020 and 2016,2019, and (v) Notes to Condensed Consolidated Financial Statements.


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BIOMARIN PHARMACEUTICAL INC.

Dated: October 31, 2017

November 6, 2020

By

/S/ DANIEL SPIEGELMAN

BRIAN R. MUELLER

Daniel Spiegelman,

Brian R. Mueller
Executive Vice President,  and
Chief Financial Officer

(On behalf of the registrant and as principal financial officer)

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