(In thousands)

~~(Unaudited)~~

Company

Accumulated

Additional

Common

Other

Total

Common Stock

Paid-in

Stock Held

Comprehensive

Accumulated

Stockholders'

Shares

Amount

Capital

by the NQDC

Income (Loss)

Deficit

Equity

Balance at December 31, 2017

175,844

$
176

$
4,483,220

$
(14,224
)

$
(22,961
)

$
(1,637,548
)

$
2,808,663

Impact of change in accounting
   principle - ASC 606

—

—

—

—

—

20,048

20,048

Impact of change in accounting
   principle - ASU 2018-02

—

—

—

—

(586
)

586

—

Adjusted balance at January 1, 2018

175,844

$
176

$
4,483,220

$
(14,224
)

$
(23,547
)

$
(1,616,914
)

$
2,828,711

Net loss

—

—

—

—

—

(60,941
)

(60,941
)
Other comprehensive income

—

—

—

—

22,418

—

22,418

Issuances under equity incentive
  plans, net of tax

1,664

2

16,310

—

—

—

16,312

Common stock held by the NQDC

—

—

—

834

—

—

834

Stock-based compensation

—

—

77,770

—

—

—

77,770

Balance at June 30, 2018

177,508

$
178

$
4,577,300

$
(13,390
)

$
(1,129
)

$
(1,677,855
)

$
2,885,104

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Shares of Common Stock
Beginning balance at March 31, 2019 and 2018 and December 31, 2018 and December 31, 2017, respectively ⁽¹⁾	179,033			176,653			178,253			175,844
Issuances under equity incentive plans	400			855			1,180			1,664
Ending balance	179,433			177,508			179,433			177,508

Beginning balance at March 31, 2019 and 2018 and December 31, 2018 and December 31, 2017, respectively⁽¹⁾	$	2,967,940		$	2,808,663		$	2,967,940		$	2,808,663
Common stock:
Beginning balance ⁽¹⁾	179			177			178			176
Issuances under equity incentive plans, net of tax	—			1			1			2
Ending balance	179			178			179			178
Additional paid-in capital:
Beginning balance ⁽¹⁾	4,682,900			4,510,451			4,669,926			4,483,220
Issuances under equity incentive plans, net of tax	10,843			26,076			(17,889		)	16,310
Stock-based compensation	40,362			40,773			82,068			77,770
Common stock held by the NQDC	(442		)	—			(442		)
Accounting impact of NQDC Plan change (See Note 9)	10,653			—			10,653			—
Ending balance	4,744,316			4,577,300			4,744,316			4,577,300
Company common stock held by the NQDC:
Beginning balance ⁽¹⁾	(12,912		)	(14,017		)	(13,301		)	(14,224		)
Common stock held by the NQDC	53			627			442			834
Accounting impact of NQDC Plan change (See Note 9)	2,648			—			2,648			—
Ending balance	(10,211		)	(13,390		)	(10,211		)	(13,390		)
Accumulated other comprehensive income (loss):
Beginning balance ⁽¹⁾	19,794			(28,545		)	5,271			(22,961		)
Impact of changes in accounting principle	—			—			—			(586		)
Other comprehensive income (loss)	(2,355		)	27,416			12,168			22,418
Ending balance	17,439			(1,129		)	17,439			(1,129		)
Accumulated Deficit:
Beginning balance ⁽¹⁾	(1,753,334		)	(1,661,063		)	(1,694,134		)	(1,637,548		)
Impact of changes in accounting principles	—			—			(2,727		)	20,634
Net loss	(37,435		)	(16,792		)	(93,908		)	(60,941		)
Ending balance	(1,790,769		)	(1,677,855		)	(1,790,769		)	(1,677,855		)
Total stockholders' equity, ending balances at June 30, 2019 and June 30, 2018, respectively	$	2,960,954		$	2,885,104		$	2,960,954		$	2,885,104


(1)	The beginning balances for the six month periods were derived from the audited Consolidated Financial Statements included in Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019.

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

BIOMARIN PHARMACEUTICAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, ~~2018~~2019 and ~~2017~~

2018

(In thousands)

~~(Unaudited)~~

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$
(60,941
)

$
(53,123
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

44,610

38,497

Non-cash interest expense

17,300

15,601

Accretion of discount on investments

(41
)

1,327

Stock-based compensation

75,214

70,775

Gain on sale of intangible assets

(20,000
)

—

Gain on the sale of equity investments

—

(3,252
)
Deferred income taxes

(29,681
)

(22,770
)
Unrealized foreign exchange gain

(5,693
)

(4,870
)
Non-cash changes in the fair value of contingent acquisition consideration

1,828

7,195

Other

1,772

3,806

Changes in operating assets and liabilities:

Accounts receivable, net

(77,416
)

(16,834
)
Inventory

15,493

(60,369
)
Other current assets

(2,037
)

(3,710
)
Other assets

(6,448
)

(1,109
)
Accounts payable and accrued liabilities

(32,989
)

(36,286
)
Other long-term liabilities

2,663

3,459

Net cash used in operating activities

(76,366
)

(61,663
)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment

(52,682
)

(116,847
)
Maturities and sales of investments

311,969

234,617

Purchases of available-for-sale securities

(345,458
)

(130,986
)
Proceeds from sale of intangible asset

20,000

—

Other

(841
)

(1,560
)
Net cash used in investing activities

(67,012
)

(14,776
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercises of awards under equity incentive plans

44,926

40,659

Taxes paid related to net share settlement of equity awards

(28,614
)

(26,624
)
Payment of contingent acquisition consideration

(43,108
)

(1,894
)
Other

—

(28
)
Net cash (used in) provided by financing activities

(26,796
)

12,113

Effect of exchange rate changes on cash

(443
)

10,860

NET DECREASE IN CASH AND CASH EQUIVALENTS

(170,617
)

(53,466
)
Cash and cash equivalents:

Beginning of period

$
598,028

$
408,330

End of period

$
427,411

$
354,864

SUPPLEMENTAL CASH FLOW DISCLOSURES:

Cash paid for income taxes

$
14,858

$
16,341

Cash paid for interest, net of interest capitalized into fixed assets

5,831

4,519

SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES:

Decrease in accounts payable and accrued liabilities related to fixed assets

$
(7,734
)

$
(29,300
)
Conversion of convertible debt

—

22,477

(unaudited)



	Six Months Ended June 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(93,908	)	$	(60,941	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	48,771			44,610
Non-cash interest expense	8,870			17,300
Accretion of discount on investments	(1,510		)	(41		)
Stock-based compensation	82,590			75,214
Gain on sale of intangible assets	(15,000		)	(20,000		)
Deferred income taxes	(10,083		)	(29,681		)
Unrealized foreign exchange (gain) loss	799			(5,693		)
Non-cash changes in the fair value of contingent consideration	4,891			1,828
Other	(3,603		)	1,772
Changes in operating assets and liabilities:
Accounts receivable, net	(31,030		)	(77,416		)
Inventory	(33,119		)	15,493
Other current assets	(4,989		)	(2,037		)
Other assets	(4,593		)	(6,448		)
Accounts payable and accrued liabilities	(37,571		)	(32,989		)
Other long-term liabilities	10,279			2,663
Net cash used in operating activities	(79,206		)	(76,366		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(61,387		)	(52,682		)
Maturities and sales of investments	423,477			311,969
Purchases of available-for-sale securities	(386,320		)	(345,458		)
Proceeds from sale of intangible asset	—			20,000
Purchase of intangible assets	(5,770		)	—
Other	(808		)	(841		)
Net cash used in investing activities	(30,808		)	(67,012		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of awards under equity incentive plans	19,013			44,926
Taxes paid related to net share settlement of equity awards	(36,900		)	(28,614		)
Payment of contingent acquisition consideration	(57,507		)	(43,108		)
Other	(1,347		)	—
Net cash used in financing activities	(76,741		)	(26,796		)
Effect of exchange rate changes on cash	350			(443		)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(186,405		)	(170,617		)
Cash and cash equivalents:
Beginning of period	$	493,982		$	598,028
End of period	$	307,577		$	427,411
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes	$	3,933		$	14,858
Cash paid for interest	4,295			5,831
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in accounts payable and accrued liabilities related to fixed assets	$	(3,467	)	$	(7,734	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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)

(1) NATURE OF OPERATIONS

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 ~~seven~~several commercial ~~products~~therapies and multiple clinical and ~~pre-clinical~~preclinical product candidates. ~~Palynziq (formerly known as pegvaliase) was granted marketing approval in the United States (U.S.) on May 24, 2018.~~

The Company expects to continue to finance future cash needs that exceed its operating activities primarily through its current cash, cash equivalents and 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.

(2) BASIS OF PRESENTATION

The accompanying Condensed Consolidated Financial Statements have been prepared pursuant to ~~U.S.~~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, ~~2017~~2018 included in the Company’s Annual Report on Form 10-K.

~~Effective~~ The results of operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019 or any other period.

On January 1, ~~2018,~~2019, the Company adopted ~~the requirements of~~Financial Accounting Standards Board (FASB) Accounting Standards Codification ~~606,~~ ~~Revenue from Contracts~~(ASC) Topic 842, Leases (ASC Topic 842) using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC Topic 842, while prior period amounts were not adjusted and continue to be presented in accordance with ~~Customers~~ ~~(ASC 606)~~the Company’s historical accounting under ASC Topic 840, Leases. ASC Topic 842 had a material impact on the Company’s Condensed Consolidated Balance Sheet but did not have a significant impact on the Company’s consolidated net loss. The Company elected to use the practical expedient allowing the use-of-hindsight and reassessed the lease term for all unexpired leases that commenced before the effective date of ASC Topic 842. For leases that commenced and expired before the effective date of ASC Topic 842, the Company elected not to reassess the expired leases. The Company also elected not to include leases with initial terms of twelve months or less in the recognized right-of-use (ROU) assets and lease liabilities.

As a result of the cumulative impact of adopting ASC Topic 842, the Company recorded lease ROU assets of $55.9 million and lease liabilities of $59.0 million as of January 1, 2019, primarily related to real estate and equipment, based on the present value of future lease payments on the date of adoption. The difference between the ROU assets and lease liabilities was recorded as an adjustment to Accumulated Deficit. Refer to Note 11 for additional disclosures required by ASC Topic 842.

On January 1, 2019, the Company adopted Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12), using the modified retrospective ~~method as discussed in Note 3 -~~ ~~Significant Accounting Policies. The Company recognized~~method. This ASU provides new guidance about income statement classification and eliminates the ~~cumulative effect of initially applying the new revenue standard as an adjustment~~requirement to ~~the opening balance of Accumulated Deficit. The comparative information~~separately measure and report hedge ineffectiveness. Results for ~~the~~reporting periods beginning January 1, 2019 are presented under ASU 2017-12, while prior ~~to 2018 have~~period amounts were not ~~been restated~~adjusted and continue to be ~~reported under~~presented in accordance with the ~~accounting standards in effect~~Company’s historical accounting. The adoption of this ASU did not have a material impact on the Company’s Condensed Consolidated Financial Statements. See Note 10 for ~~those periods.~~

additional disclosures required by ASU 2017-12.

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 results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018 or any other period.

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 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.

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)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except as detailed below, there have been no material changes to the Company’s significant accounting policies during the three and six months ended June 30, ~~2018,~~2019, as compared to the significant accounting policies disclosed in Note 3 ~~of the Consolidated Financial Statements~~– Significant Accounting Policies included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

~~Effective January 1, 2018,~~2018.

Leases

The Company determines if an arrangement is a lease at inception. For leases where the Company ~~adopted~~is the ~~provisions~~lessee, ROU assets represent the Company’s right to use the underlying asset for the term of ~~ASC 606~~the lease and the lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date of the underlying lease arrangement to determine the present value of lease payments. The ROU asset also includes any prepaid lease payments and any lease incentives received. The lease term to calculate the ROU asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s lease agreements generally do not contain any material variable lease payments, residual value guarantees or restrictive covenants.

Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense while expense for financing leases is recognized as depreciation expense and interest expense using the ~~modified retrospective~~accelerated interest method of recognition. When an arrangement requires payments for ~~all contracts not completed~~lease and non-lease components, the Company has elected to account for lease and non-lease components separately. Lease expense for leases with a term of twelve months or less is recognized on a straight-line basis.

Derivatives and Hedging Activities

The Company accounts for its derivative instruments as either assets or liabilities on the balance sheet and measures them at fair value, which is estimated using current exchange rates and interest rates, and takes into consideration the current creditworthiness of the ~~date of adoption. For contracts that were modified before the effective date,~~counterparties or the Company, ~~reflected~~as applicable. For derivatives designated as hedging instruments, the ~~aggregate~~entire change in the fair value of qualifying derivative instruments is recorded in Accumulated Other Comprehensive Income (AOCI) and amounts deferred in AOCI will be reclassified to earnings in the same line item in which the earnings effect of ~~all modifications when identifying performance obligations and allocating transaction price~~the hedged item is reported. Derivatives not designated as hedging instruments are adjusted to fair value through earnings in accordance with available practical expedients. The reported results for 2018 reflect the application of ASC 606 guidance, while the reported results for 2017 were prepared under the guidance of ASC 605, ~~Revenue Recognition~~ ~~(ASC 605), which is also referred to herein as "previous guidance."~~

Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, the Company performs the following five steps:

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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

~~(i)~~

~~identification of the promised goods or services~~Operating Expenses in the ~~contract;~~

~~(ii)~~

~~determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;~~

~~(iii)~~

~~measurement of the transaction price, including the constraint on variable consideration;~~

~~(iv)~~

~~allocation of the transaction price to the performance obligations based on estimated selling prices; and~~

~~(v)~~

recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606.

~~Net Product Revenues~~

In the U.S., the Company’s commercial products are generally sold to specialty pharmacies or end-users, such as hospitals, which act as retailers. Outside the U.S., the Company’s commercial products are sold to its authorized distributors or directly to government purchasers or hospitals, which act as the end-users. Revenues from product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment to the customer. Amounts collected from customers and remitted to governmental authorities, which primarily consist of value-added taxes related to product sales in foreign jurisdictions, are presented on a net basis in the Company’s Condensed Consolidated Statements of Comprehensive ~~Income (Loss), in that taxes billed to customers are not included as a component of Net Product Revenues.~~

For Aldurazyme revenues, the Company receives a payment ranging from 39.5% to 50% on worldwide net Aldurazyme sales by Genzyme Corporation (Genzyme) depending on sales volume, which is included in Net Product Revenues in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss). Under the previous guidance the Company only recognized a portion of this amount as product transfer revenue when the product was released to Genzyme because all of the Company’s performance obligations were fulfilled at that point, the prices were substantially fixed or determinable and title to, and risk of loss for, the product had transferred to Genzyme. The product transfer revenue only represented the fixed amount per unit of Aldurazyme that Genzyme was required to pay the Company if the product was unsold by Genzyme. The amount of product transfer revenue was eventually deducted from the calculated royalty recognized when the product was subsequently sold by Genzyme. The Company recorded the Aldurazyme revenues based on net sales information provided by Genzyme and recorded product transfer revenues based on the fulfillment of Genzyme purchase orders in accordance with the terms of the related agreements with Genzyme.

Under ASC 606, the Company recognizes its best estimate of the entire revenue that it expects to receive when the product is released and control is transferred to Genzyme. The Company records Aldurazyme net product revenues based on the estimated variable consideration payable when the product is sold through by Genzyme. Actual amounts of consideration ultimately received may differ from the Company’s estimates, however the Company does not expect any such difference to be material. If actual results in the future vary from the Company’s estimates, the Company will make adjustments, which would affect Net Product Revenues and earnings in the period such variances become known.

~~Revenue Reserves~~

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established and which result from government rebates, sales returns, and other incentives that are offered within contracts between the Company and its customers, as such specialty pharmacies, hospitals, authorized distributors and government purchasers. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as the Company’s historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust its estimates, which would affect net product revenue and earnings in the period such variances become known.

~~Government Rebates~~: The Company records reserves for rebates payable under Medicaid and other government programs as a reduction of revenue at the time product revenues are recorded. The Company’s reserve calculations require estimates, including estimates of customer mix, to determine which sales will be subject to rebates and the amount of such rebates. The Company updates its estimates and assumptions on a quarterly basis and records any necessary adjustments to its reserves.

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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

Loss.

~~Sales Returns~~: The Company records allowances for product returns, if appropriate, as a reduction of revenue at the time product sales are recorded. Several factors are considered in determining whether an allowance for product returns is required, including market exclusivity of the products based on their orphan drug status, the patient population, the customers’ limited return rights and the Company’s historical experience with returns. Because of the pricing of the Company’s commercial products, the limited number of patients and the customers’ limited return rights, most customers and retailers carry a limited inventory. The Company relies on historical return rates to estimate returns. Based on these factors and the fact that the Company has not experienced significant product returns to date, management has concluded that product returns will be minimal. In the future, if any of these factors and/or the history of product returns change, an allowance for product returns may be required.

~~Other Incentives~~: Other incentives include fees paid to the Company’s distributors, discounts for prompt payment and the estimated costs of the Company’s patient co-payment assistance programs. Beginning in 2018, the Company also offers a branded co-pay assistance program for eligible patients with commercial insurance in the U.S. who are on Kuvan or Brineura therapy. The branded co-pay assistance programs assist commercially insured patients who have coverage for Kuvan or Brineura and are intended to reduce each participating patient’s portion of the financial responsibility for Kuvan’s or Brineura’s purchase price up to a specified dollar amount of assistance. The Company records fees paid to distributors, cash discounts and amounts paid under the branded specific co-pay assistance program for each patient as a reduction of revenue.

~~Royalty and Other Revenues~~

~~Royalties~~: For arrangements that include the receipt of sales-based royalties, including milestone payments based on the level of sales when the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

~~Licenses of intellectual property:~~ If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

~~Milestone payments: At the inception of each arrangement that includes developmental, regulatory or commercial milestone payments, the Company evaluates whether achieving the~~ ~~milestones~~ is considered probable and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission by the Company) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators or where attainment of the specified event is dependent on the development activities of a third-party, are not considered probable of being achieved until those approvals are received or the specified event occurs. Revenue is recognized from the satisfaction of performance obligations in the amount billable to the customer.

(4) RECENT ACCOUNTING PRONOUNCEMENTS

Except as described in Note 2 – Basis of Presentation and below, there have been no new accounting pronouncements adopted by the Company or ~~changes to~~new accounting pronouncements issued by the FASB during the six months ended June 30, ~~2018,~~2019, 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, ~~2017,~~2018, that the Company believes are of significance or potential significance to the Company.

Accounting Pronouncements Not Yet Adopted

~~In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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 the Company’s fiscal year beginning

Effective January 1, ~~2019. Early adoption is permitted, but~~2020, the Company ~~has not made the election to do so.~~will adopt ASU ~~2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019. The amendments require~~No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), as amended, using a modified retrospective approach, with ~~optional practical expedients.~~

Ascertain exceptions allowed. The standard amends 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. The Company is evaluating the impact of ~~June 30, 2018, the Company’s task force formed in connection with~~ the adoption of ASU ~~2016-02 was in the process of analyzing the Company’s lease contracts and the potential impact the standard may have~~2016-13 on its Condensed Consolidated Financial ~~Statements and related disclosures. After completing the analysis~~Statements.

Table of ~~the accounting for the Company’s lease contracts under the standard, management will assess the required changes to the Company’s accounting policies, systems and internal control over~~

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)

financial reporting. Based on management’s preliminary analysis, the Company anticipates the standard may have a material impact on the Company’s Condensed Consolidated Balance Sheets due to the requirement to recognize lease ROU assets and corresponding liabilities related to leases on the Company’s Condensed Consolidated Balance Sheets, however it is not anticipated to have a material impact on the Company’s other Condensed Consolidated Financial Statements.

~~Accounting Pronouncements Adopted~~

Effective January 1, 2018, the Company adopted ASC 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. The Company adopted ASC 606 on a modified retrospective basis through a cumulative adjustment to equity. See Note 3 – ~~Significant Accounting Policies~~ ~~and Note 15 –~~ ~~Revenue, Credit Concentrations and Geographic Information~~ ~~for additional disclosures related to the adoption of ASC 606.~~

~~The cumulative effect of applying the new guidance~~ ~~of ASC 606~~ to all contracts with customers that were not completed as of January 1, 2018 was recorded as an adjustment to Accumulated Deficit as of the adoption date. As a result of applying the modified retrospective method to adopt the new revenue guidance, the following adjustments were made to accounts on the Condensed Consolidated Balance Sheet as of January 1, 2018:

As Reported

Adjusted

December 31, 2017

Aldurazyme ⁽¹⁾

Tax Provision ⁽²⁾

January 1, 2018

Balance Sheet

Assets:

Accounts receivable, net

$
261,365

$
26,012

$
—

$
287,377

Deferred tax assets

$
399,095

$
—

$
(5,964
)

$
393,131

Total assets

$
4,633,125

$
26,012

$
(5,964
)

$
4,653,173

Equity:

Accumulated deficit

$
(1,637,548
)

$
26,012

$
(5,964
)

$
(1,617,500
)
Total liabilities and stockholders' equity

$
4,633,125

$
26,012

$
(5,964
)

$
4,653,173

~~(1)~~

This adjustment represents management’s estimate of the variable consideration to be earned on worldwide sales of Aldurazyme by Genzyme in excess of the product transfer revenue previously recognized for Genzyme’s ending inventory at December 31, 2017. The product transfer revenue previously recognized as revenue represents the fixed amount per unit of Aldurazyme that Genzyme was required to pay the Company if the product was unsold by Genzyme.

~~(2)~~

The adoption of ASC 606 primarily resulted in an acceleration of the variable consideration components of revenue as of December 31, 2017, which in turn generated additional deferred tax liabilities that ultimately reduced the Company's net deferred tax asset position. The tax provision amount has been calculated using the Company’s estimated statutory rate.

~~The impact of adoption on the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2018 was as follows:~~

Three Months Ended June 30, 2018

Balance without

Adoption of

As Reported

Adjustments ⁽¹⁾

ASC 606

Net product revenues

$
367,786

$
48

$
367,834

Benefit from income taxes

$
(12,385
)

$
11

$
(12,374
)
Net loss

$
(16,792
)

$
37

$
(16,755
)

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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

Six Months Ended June 30, 2018

Balance without

Adoption of

As Reported

Adjustments ⁽¹⁾

ASC 606

Net product revenues

$
736,885

$
(27,150
)

$
709,735

Benefit from income taxes

$
(19,040
)

$
(6,225
)

$
(25,265
)
Net loss

$
(60,941
)

$
(20,925
)

$
(81,866
)

~~(1)~~

The adoption of ASC 606 resulted in additional revenues recognized in the first half of 2018, which in turn generated additional deferred tax liabilities that reduced the Company's benefit from income taxes. The Benefit from Income Taxes amount has been calculated using the Company’s estimated statutory rate.

~~The impact of adoption on the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 was as follows:~~

Balance without

Adoption of

As Reported

Adjustments ⁽¹⁾

ASC 606

Net loss

$
(60,941
)

$
(20,925
)

$
(81,866
)
Deferred income taxes

$
(29,681
)

$
(6,225
)

$
(35,906
)
Changes in operating assets and liabilities:

Accounts receivable, net

$
(77,416
)

$
27,150

$
(50,266
)
Net cash used in operating activities

$
(76,366
)

$
—

$
(76,366
)

~~(1)~~

The adoption of ASC 606 resulted in decreased Net Loss and increased Accounts Receivable, Net due to additional revenues recognized in the first quarter of 2018, which in turn generated additional deferred tax liabilities that reduced the Company's net Deferred Tax Assets. The Deferred Income Taxes amount has been calculated using the Company��s estimated statutory rate.

~~In February 2018, the FASB issued ASU No. 2018-02,~~ ~~Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income~~ (ASU 2018-02). The amendments allow a reclassification from Accumulated Other Comprehensive Income (Loss) (AOCI) to Accumulated Deficit for stranded tax effects resulting from the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts at the date of enactment of the Tax Cuts and Jobs Act of 2017 (the 2017 Tax Act). ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company elected to early adopt ASU 2018-02 using the modified retrospective approach on an aggregate portfolio basis on January 1, 2018. As a result of adoption ASU 2018-02, the Company reclassified $0.6 million from AOCI to Accumulated Deficit in the first quarter of 2018.

(5) ~~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 Employee Stock Purchase Plan (ESPP), unvested restricted stock units (RSUs), common stock held by the NQDC and contingent issuances of common stock related to convertible debt.

~~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 of common shares):

Three and Six Months Ended June 30,

2018

2017

Options to purchase common stock

7,829

8,440

Common stock issuable under the 2018 Notes

3,983

3,983

Common stock issuable under the 2020 Notes

3,983

3,983

Common stock issuable under the 2024 Notes

3,970

—

Unvested restricted stock units

3,544

3,041

Common stock potentially issuable for ESPP purchases

433

387

Common stock held by the NQDC

208

224

Total number of potentially issuable shares

23,950

20,058

In connection with the issuance of 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), the Company 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 with conversion price of $94.15 per share. Although the Company’s stock price on June 29, 2018 (the last trading day before June 30, 2018) exceeded the conversion price, the potential effect of the capped call transactions and potential shares issuable under the 2018 Notes and the 2020 Notes were excluded from the calculation of diluted loss per share in the ~~three and six~~ ~~months ended June 30, 2018 as they were anti-dilutive using the if-converted method. The potential effect of the capped call transactions with respect to the 2018 Notes and the 2020 Notes was~~ ~~excluded from the diluted net loss per share in the three and six months ended~~ ~~June 30, 2017 as the Company’s closing stock price on June 30, 2017 did not exceed the conversion price.~~

~~(6)~~ FINANCIAL INSTRUMENTS

All marketable securities were classified as available-for-sale at June 30, ~~2018~~2019 and December 31, ~~2017.~~

2018.

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively:

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

Cash and Cash Equivalents

Short-term
Marketable Securities ⁽¹⁾

Long-term
Marketable Securities ⁽²⁾

Level 1:

Cash

$
209,062

$
—

$
—

$
209,062

$
209,062

$
—

$
—

Level 2:

Money market instruments

177,882

—

—

177,882

177,882

—

—

Corporate debt securities

643,979

136

(3,452
)

640,663

7,708

411,185

221,770

Commercial paper

51,818

1

—

51,819

18,947

32,871

—

U.S. government agency securities

532,066

4

(1,597
)

530,473

11,312

461,143

58,019

Foreign and other

33,035

150

(23
)

33,162

2,500

30,463

199

Subtotal

1,438,780

291

(5,072
)

1,433,999

218,349

935,662

279,988

Total

$
1,647,842

$
291

$
(5,072
)

$
1,643,061

$
427,411

$
935,662

$
279,988

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-term Marketable Securities ⁽¹⁾		Long-term Marketable Securities ⁽²⁾		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Aggregate Fair Value		Cash and Cash Equivalents		Short-term Marketable Securities ⁽¹⁾		Long-term Marketable Securities ⁽²⁾
Level 1:
Cash	$	340,253	$	—	$	—		$	340,253	$	340,253	$	—	$	—	$	226,959	$	—	$	—		$	226,959	$	226,959	$	—	$	—

Level 2:
Money market instruments		215,441		—		—			215,441		215,441		—		—	68,648		—		—			68,648		68,648		—		—
Corporate debt securities		707,652		150		(2,553	)		705,249		3,096		406,188		295,965	564,624		3,270		(216		)	567,678		—		279,033		288,645
Commercial paper		24,566		—		—			24,566		2,751		21,815	—		16,972		—		—			16,972		8,981		7,991		—
U.S. government agency securities		472,593		—		(1,975	)		470,618		35,497		345,501		89,620	224,071		1,185		(141		)	225,115		2,989		136,502		85,624
Foreign and other		25,540		150		(64	)		25,626	990			24,436		200	550		147		(1		)	696		—		—		696
Subtotal		1,445,792		300		(4,592	)		1,441,500		257,775		797,940		385,785	874,865		4,602		(358		)	879,109		80,618		423,526		374,965

Total	$	1,786,045	$	300	$	(4,592	)	$	1,781,753	$	598,028	$	797,940	$	385,785	$	1,101,824	$	4,602	$	(358	)	$	1,106,068	$	307,577	$	423,526	$	374,965

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

~~(8)~~

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

In October 2018, the Company entered into an unsecured revolving credit facility of up to $200.0 million (the 2018 Credit Facility) and terminated the 2016 Credit Facility, which had availability of up to $100.0 million in revolving loans. 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 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 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 are guaranteed by its direct subsidiary, California Corporate Center Acquisition LLC, and such obligations may in the future be guaranteed from time to time by certain other material domestic subsidiaries. The 2018 Credit Facility matures on October 19, 2021 at which time all outstanding amounts become due and payable, except that if at least $100.0 million aggregate principal amount of the 2020 Notes remain outstanding on August 1, 2020 and certain other conditions have not been met, the Company may be required to repay all amounts borrowed under the 2018 Credit Facility on August 1, 2020. The Company ~~uses forward foreign currency exchange contracts~~incurred approximately $1.0 million of issuance costs, which will be amortized to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Such exposures result from portions of the Company’s monetary assets and liabilities and forecasted revenues and operating expenses being denominated in currencies other than the U.S. Dollar (USD), primarily the Euro.

The Company designates certain of 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 USD related to changes in foreign currency exchange rates. The Company also enters into some forward foreign currency exchange contracts 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 USD. 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.

~~The following table summarizes the Company’s designated forward foreign currency exchange contracts outstanding as of June 30, 2018 (notional amounts in millions):~~

Aggregate Notional

Number of

Amount in

Foreign Exchange Contracts

Contracts

Foreign Currency

Maturity
Brazilian Reais – Sell

2

143.8

Aug. 2018
Canadian Dollars – Sell

12

15.0

Jul. 2018 - Dec. 2018
Colombian Pesos – Sell

6

48,000.0

Jul. 2018 - Dec. 2018
Euros – Purchase

108

134.4

Jul. 2018 - Jun. 2021
Euros – Sell

394

488.2

Jul. 2018 - Jun. 2021
Total

522

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 June 2021. Over the next twelve months, the Company expects to reclassify unrealized losses of $2.2 million ~~from Accumulated Other Comprehensive Loss to earnings as the forecasted revenue and operating expense transactions occur.~~

~~The following table summarizes the Company’s non-designated forward foreign currency exchange contracts outstanding as of June 30, 2018 (notional amounts in millions):~~

Aggregate Notional

Number of

Amount in

Foreign Exchange Contracts

Contracts

Foreign Currency

Maturity
Brazilian Reais – Purchase

5

52.2

Aug. 2018
British Pounds – Sell

1

2.6

Jul. 2018
Colombian Pesos – Sell

1

34,000.0

Jul. 2018
Euros – Purchase

3

52.2

Jul. 2018
Total

10

~~The fair value carrying amounts of the Company’s derivative instruments, as classified within the fair value hierarchy, were as follows:~~

Asset Derivatives

Liability Derivatives

June 30, 2018

June 30, 2018

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Level 2⁽¹⁾

Forward foreign currency exchange contracts

Other current assets

$
8,599

Accounts payable and accrued liabilities

$
6,608

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

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

Forward foreign currency exchange contracts

Other assets

5,852

Other long- term liabilities

4,571

Total

14,451

11,179

Derivatives not designated as hedging instruments:

Level 2⁽¹⁾

Forward foreign currency exchange contracts

Other current assets

1,440

Accounts payable and accrued liabilities

557

Total

1,440

557

Total value of derivative contracts

$
15,891

$
11,736

Asset Derivatives

Liability Derivatives

December 31, 2017

December 31, 2017

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Level 2⁽¹⁾

Forward foreign currency exchange contracts

Other current assets

$
4,015

Accounts payable and accrued liabilities

$
14,420

Forward foreign currency exchange contracts

Other assets

4,973

Other long- term liabilities

12,686

Total

8,988

27,106

Derivatives not designated as hedging instruments:

Level 2⁽¹⁾

Forward foreign currency exchange contracts

Other current assets

675

Accounts payable and accrued liabilities

44

Total

675

44

Total value of derivative contracts

$
9,663

$
27,150

~~(1)~~ ~~See Note 12 to these Condensed Consolidated Financial Statements for additional information related to the Company’s fair value measurements.~~

~~The effect of the Company’s derivative instruments on the Condensed Consolidated Financial Statements for the three and six months ended June 30, 2018 and 2017 was as follows:~~

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Derivatives Designated as Hedging Instruments:

Net gain (loss) recognized in accumulated other
comprehensive loss ⁽¹⁾

$
23,582

$
(19,165
)

$
14,356

$
(23,364
)
Net gain (loss) reclassified from accumulated
other comprehensive income (loss) into earnings⁽²⁾

(2,659
)

695

(8,444
)

3,211

Net gain recognized in net loss ⁽³⁾

2,700

826

2,322

1,706

Derivatives Not Designated as Hedging Instruments:

Net gain (loss) recognized in net loss⁽⁴⁾

(4,238
)

5,373

2,985

5,631

~~(1)~~

~~Net change in the fair value of the effective portion classified as accumulated other comprehensive loss.~~

~~(2)~~

~~Effective portion classified as Net Product Revenues and Operating expenses.~~

~~(3)~~

~~Ineffective portion and amount excluded from effectiveness testing classified as Operating expenses.~~

~~(4)~~

~~Classified as Operating expenses.~~

~~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 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.

~~(12) FAIR VALUE MEASUREMENTS~~

The Company measures certain financial assets and liabilities at fair value on a recurring basis. In addition to available-for-sale debt securities, debt and foreign currency derivatives, which are disclosed in Notes 6, 10 and 11, respectively, the following tables below present the classification within fair value hierarchy of financial assets and liabilities not disclosed elsewhere.

Fair Value Measurements at June 30, 2018

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Other current assets:

NQDC Plan assets

$
—

$
1,018

$
—

$
1,018

Restricted investments ⁽¹⁾

—

7,721

—

7,721

Total other current assets

—

8,739

—

8,739

Other assets:

NQDC Plan assets

—

12,832

—

12,832

Restricted investments ⁽¹⁾

—

6,889

—

6,889

Strategic investments⁽²⁾

1,616

—

—

1,616

Total other assets

1,616

19,721

—

21,337

Total assets

$
1,616

$
28,460

$
—

$
30,076

Liabilities:

Current liabilities:

NQDC Plan liability

$
1,050

$
1,018

$
—

$
2,068

Contingent acquisition consideration

—

—

76,466

76,466

Total current liabilities

1,050

1,018

76,466

78,534

Other long-term liabilities:

NQDC Plan liability

$
18,588

$
12,832

—

31,420

Contingent acquisition consideration

—

—

57,674

57,674

Total other long-term liabilities

18,588

12,832

57,674

89,094

Total liabilities

$
19,638

$
13,850

$
134,140

$
167,628

~~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, 2017

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

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Assets:

Other current assets:

NQDC Plan assets

$
—

$
967

$
—

$
967

Restricted investments ⁽¹⁾

—

15,647

—

15,647

Total other current assets

—

16,614

—

16,614

Other assets:

NQDC Plan assets

—

11,859

—

11,859

Total other assets

—

11,859

—

11,859

Total assets

$
—

$
28,473

$
—

$
28,473

Liabilities:

Current liabilities:

NQDC Plan liability

$
1,356

$
967

$
—

$
2,323

Contingent acquisition consideration

—

—

53,648

53,648

Total current liabilities

1,356

967

53,648

55,971

Other long-term liabilities:

NQDC Plan liability

18,272

11,859

—

30,131

Contingent acquisition consideration

—

—

135,318

135,318

Total other long-term liabilities

18,272

11,859

135,318

165,449

Total liabilities

$
19,628

$
12,826

$
188,966

$
221,420

~~(1)~~

~~The restricted investments at June 30, 2018 and December 31, 2017 secure the Company’s irrevocable standby letters of credit obtained in connection with certain commercial agreements.~~

~~(2)~~

The Company has investments in marketable equity securities measured using quoted prices in an active market that are considered strategic investments and included in other assets on the Company’s Consolidated Balance Sheets.

~~There were no transfers between levels during the three and six months ended June 30, 2018.~~

The Company’s Level 2 instruments 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.

Liabilities measured at fair value using Level 3 inputs consisted of contingent acquisition consideration and asset retirement obligations. The following tables represent a roll-forward of contingent acquisition consideration.

Contingent acquisition consideration at December 31, 2017

$
188,966

Changes in the fair value of other contingent acquisition consideration

8,284

Milestone payments to Ares Trading S.A. (Merck Serono)

(61,607
)
Foreign exchange remeasurement of Euro denominated contingent
acquisition consideration

(1,503
)
Contingent acquisition consideration at June 30, 2018

$
134,140

Under certain of the Company’s lease agreements, the Company is contractually obligated to return leased space to its original condition upon termination of the lease agreement. The Company records an asset retirement obligation liability and a corresponding capital asset in an amount equal to the estimated fair value of the obligation, when estimable. In subsequent periods, for each such lease, the Company records interest expense to accrete the asset retirement obligation liability to full value and depreciates each capitalized asset retirement obligation asset, bothInterest Expense over the term of the ~~associated lease agreement.~~2018 Credit Facility. The 2018 Credit Facility contains financial covenants requiring the Company to maintain a minimum interest coverage ratio and a minimum liquidity requirement. As of June 30, ~~2018~~2019 and December 31, ~~2017, the balance~~2018, there were no outstanding amounts due on nor any usage of the ~~asset retirement obligation liability was $4.2 million at each period.~~

~~BIOMARIN PHARMACEUTICAL INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (continued)~~

~~(In thousands~~2018 Credit Facility. As of ~~U.S. Dollars, except per share amounts or as otherwise disclosed)~~

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. Refer to Note 3 – ~~Significant Accounting Policies~~ ~~in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for details on valuation.~~

~~(13) STOCK-BASED COMPENSATION~~

~~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 June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Cost of sales

$
3,246

$
2,510

$
6,386

$
4,796

R&D

15,573

14,647

28,842

26,141

Selling, general and administrative

19,787

22,944

39,986

39,838

Total stock-based compensation expense

$
38,606

$
40,101

$
75,214

$
70,775

~~Stock-based compensation expense of $5.4 million and $9.0 million was capitalized into inventory for the three and six months ended~~ June 30, 2018, respectively, compared to stock-based compensation expense of $4.4 million and $7.6 million that was capitalized into inventory for the three and six months ended June 30, 2017, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.

~~Equity Awards with Service-Based Vesting Conditions~~

The assumptions used to estimate the per share fair value of stock options granted under the Company’s 2017 Equity Incentive Plan and the Company’s Amended and Restated 2006 Share Incentive Plan were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017
Expected volatility

38.4%

37.8 – 39.6%

37.8 – 38.4%

37.6 – 39.7%
Dividend yield

0.0%

0.0%

0.0%

0.0%
Expected life

5.7 years

5.0 – 6.6 years

4.6 – 5.7 years

5.0 – 6.6 years
Risk-free interest rate

2.7%

1.8 – 1.9%

2.3 – 2.7%

1.8 – 2.2%

~~During the~~ ~~six~~ ~~months ended June 30, 2018,~~2019, the Company ~~granted options to purchase 775,380 shares~~and certain of ~~common stock~~its subsidiaries that served as guarantors were in compliance with ~~a weighted-average fair value of $33.34 per share.~~

~~The Company issued new stock purchase rights under the ESPP during the three and six months ended June 30, 2018, using the following assumptions to estimate the per share fair value:~~

all covenants.

~~During the~~ ~~six~~ ~~months ended June 30, 2018, the Company granted 1,519,780 RSUs with service-based vesting conditions with a weighted-average fair value of $84.19 per share.~~

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

Net Product Revenues include revenues generated from our approved products. In the U.S., our commercial products, except for Palynziq and Aldurazyme, are generally sold to specialty pharmacies or end-users, such as hospitals, which act as retailers. Palynziq is distributed in the U.S. through certain certified specialty pharmacies under the Palynziq Risk Evaluation and Mitigation Strategy (REMS) program, and Aldurazyme is marketed world-wide by Sanofi Genzyme (Genzyme). Outside the U.S., our commercial products are sold to ~~our~~ authorized distributors or directly to government purchasers or hospitals, which act as ~~intermediaries between us and end-users and generally do not stock significant quantities of our products. However, in~~the end-users. In certain countries, such 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 our sole customer for Aldurazyme and is responsible for marketing and selling Aldurazyme to third parties~~. 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.

~~The following is additional discussion of our Net Product Revenue results for our major products:~~

•

~~Aldurazyme: Aldurazyme net product revenues for~~ ~~the three months ended June 30, 2018~~ ~~compared to~~ 2017 increased primarily due to an increase in volume. The increase in Aldurazyme net product revenues for the six months ended June 30, 2018 compared to 2017 is attributed to an increase in volume and the adoption of ASC 606, which contributed $27.2 million as we now recognize the estimated variable consideration that we expect to receive when the product is sold through by Genzyme at the time our performance obligation is met. Our performance obligation is met when the product is delivered and the required quality certification documentation is issued. We believe any differences between the estimated variable consideration to be received from Genzyme and actual payments will be insignificant. Prior to the adoption of ASC 606, we recognized product transfer revenues, representing the fixed amount per unit of Aldurazyme that Genzyme is required to pay us if they do not sell the product, at the time of fulfillment of Genzyme purchase orders. Product transfer revenue was subsequently deducted from the calculated variable consideration recognized when the product was sold by Genzyme to third parties. Although Genzyme sells Aldurazyme worldwide, the net product revenues earned by us on Genzyme’~~s net sales are denominated in U.S. Dollar (USD).~~

~~Brineura:~~ The increase in ~~Brineura net product revenues~~Net Product Revenues for the three ~~and six~~ months ended June 30, ~~2018~~2019 as compared to ~~2017 was primarily attributable to new patients initiating therapy as the product was launched in mid-2017~~.

~~Kuvan: The increase in Kuvan net product revenues for~~ the three ~~and six~~ months ended June 30, 2018 ~~compared to~~ ~~2017~~ was primarily ~~attributable~~attributed to anthe following:

Palynziq: the increase ~~in patients on Kuvan therapy, the majority of which were in the U.S.~~

•

~~Naglazyme: The increase in Naglazyme net product revenues for~~ ~~the three months ended June 30, 2018~~ ~~compared to~~ ~~2017~~ ~~was~~ mainly due to increased sales in the U.S. and Middle East. Naglazyme net product revenues for both the three and six months ended June 30, 2018 were impacted by government ordering patterns in certain Latin American countries. During the six months ended June 30, 2018, the effect of government ordering patterns in certain Latin American countries was partially offset by increased sales in the Middle East.

~~Vimizim: The increase in Vimizim net product revenues for~~ ~~the three and six months ended June 30, 2018~~ ~~compared to~~ ~~2017~~ was primarily attributed to new patients initiating ~~therapy.~~

therapy in the U.S. as the product launched in the third quarter of 2018;

~~Management’s Discussion~~

Naglazyme: the increase was primarily attributed to increased sales volume driven by government ordering patterns from certain Latin American and ~~Analysis~~European countries; and

Kuvan: the increase was primarily attributed to increased sales volume driven by government ordering patterns from certain European countries; partially offset by

Aldurazyme: the decrease was primarily attributed to the unfavorable timing of ~~Financial Condition~~customer acceptance for product shipped to Genzyme; and ~~Results~~

Vimizim: the decrease was primarily attributed to decreased sales volume driven by government ordering patterns in certain Latin American countries and European countries.

The increase in Net Product Revenues for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018 was primarily attributed to the following:

Palynziq: the increase was primarily attributed to new patients initiating therapy in the U.S. as the product launched in the US during the third quarter of ~~Operations (continued)~~

~~(In millions, except as otherwise disclosed)~~

2018;

Naglazyme: the increase was primarily attributed to increased sales volume driven by government ordering patterns from certain Latin American and European countries;

Kuvan: the increase was primarily attributed to increased sales volume driven by government ordering patterns from certain European countries and new patients initiating therapy in the U.S.; and

Brineura: the increase was primarily attributed to increased sales volume driven by government ordering patterns in certain European countries and new patients initiating therapy; partially offset by

Aldurazyme: the decrease was primarily attributed to the unfavorable timing of customer acceptance for product shipped to Genzyme.

We face exposure to movements in foreign currency exchange rates, primarily the Euro. We use foreign currency exchange contracts to hedge a percentage of our foreign currency exposure.

Table of Contents

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

(In millions, except as otherwise disclosed)

The following table shows our Net Product Revenues denominated in ~~USD~~U.S. Dollar (USD) and foreign ~~currencies:~~

currencies (as-converted to USD):

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2018

2017

Change

2018

2017

Change

Sales denominated in USD

$
219.8

$
187.3

$
32.5

$
456.2

$
366.5

$
89.7

Sales denominated in foreign currencies

148.0

128.6

19.4

280.7

251.6

29.1

Total net product revenues

$
367.8

$
315.9

$
51.9

$
736.9

$
618.1

$
118.8



	Three Months Ended June 30,							Six Months Ended June 30,
	2019		2018		Change			2019		2018		Change
Sales denominated in USD	$	218.8	$	218.9	$	(0.1	)	$	454.0	$	455.3	$	(1.3	)
Sales denominated in foreign currencies	160.3		148.9		11.4			319.6		281.6		38.0
Total Net Product Revenues	$	379.1	$	367.8	$	11.3		$	773.6	$	736.9	$	36.7

The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during the three ~~and six~~ months ended June 30, ~~2018~~2019 was ~~positive~~negative by ~~$3.4~~$6.4 million, ~~and $9.5 million, respectively,~~ compared to a positive impact of ~~$1.5~~$3.4 million ~~and $2.4 million~~for the three months ended June 30, 2018, both of which were driven primarily by the fluctuations in Euro exchange rates. The net impact of foreign currency exchange rates on product sales denominated in currencies other than USD during the ~~three and~~ six months ended June 30, ~~2017, respectively. The currency primarily driving the~~2019 was negative by $11.7 million, compared to a positive impact ~~was~~of $9.5 million for the six months ended June 30, 2018, both of which were driven primarily by the fluctuations in Euro ~~partially offset by a negative impact related to the Brazilian Real.~~

exchange rates.

Cost of Sales ~~and Product Gross Margin~~

Cost of Sales includes raw materials, personnel and facility and other costs associated ~~primarily~~ with manufacturing ~~Aldurazyme, Brineura, Naglazyme and Vimizim~~our commercial products. These costs include production materials, production costs at our ~~production facilities.~~manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes ~~third-party manufacturing costs related to 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~~based on sales of our products.

The following table summarizes our ~~cost~~Cost of ~~goods sold~~Sales and product gross margin:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2018

2017

Change

2018

2017

Change

Total net product revenues

$
367.8

$
315.9

$
51.9

$
736.9

$
618.1

$
118.8

Cost of sales

79.0

56.3

22.7

161.4

106.3

55.1

Product gross margin

79
%

82
%

(3.0
)%

78
%

83
%

(5.0
)%



	Three Months Ended June 30,									Six Months Ended June 30,
	2019			2018			Change			2019			2018			Change
Total Net Product Revenues	$	379.1		$	367.8		$	11.3		$	773.6		$	736.9		$	36.7
Cost of Sales	77.4			79.0			(1.6		)	166.6			161.4			5.2
Product gross margin	80		%	79		%	1		%	78		%	78		%	—		%

Our Cost of Sales ~~increased and gross margins~~ decreased for the three ~~and six~~ months ended June 30, ~~2018~~2019 compared to ~~2017~~ ~~primarily~~the same period in 2018 due to ~~higher~~lower per-unit costs for Naglazyme and Vimizim, ~~manufacturing costs and higher volume of Aldurazyme and Vimizim product sales. We expect~~which resulted in improved product gross ~~margin~~margins for the period. Our cost of sales for the six months ended June 30, 2019 compared to ~~remain near 80 percent over the next twelve months.~~

2018 increased due to increased sales volumes and product gross margins remained flat.

Research and Development

R&D expense includes costs associated with the research and development of product candidates and post-marketing research commitments related to our approved products. R&D expense primarily includes preclinical and clinical studies, personnel and ~~cost to manufacture our~~raw materials costs associated with manufacturing clinical product, ~~candidates, and related~~ quality control and assurance, ~~research and development,~~other R&D activities, facilities and regulatory costs.

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

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

~~(In millions, except as otherwise disclosed)~~

R&D expense increased to $175.6 million for the three months ended June 30, 2018 from $143.0 million for the three months ended June 30, 2017. R&D expense increased to $359.5 million for the six months ended June 30, 2018 from $288.0 million for the six months ended June 30, 2017. R&D E~~xpense consisted of the~~ ~~following:~~

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

Change

2018

2017

Change

Palynziq

$
22.4

$
30.6

$
(8.2
)

$
56.9

$
56.4

$
0.5

Valoctocogene roxaparvovec

37.2

32.6

4.6

72.2

53.9

18.3

Vosoritide

19.5

12.3

7.2

40.4

25.9

14.5

Tralesinidase alfa

23.6

11.4

12.2

54.3

20.9

33.4

Brineura

12.8

12.1

0.7

24.2

28.7

(4.5
)
Other approved products

17.7

20.1

(2.4
)

35.6

37.3

(1.7
)
Early stage programs

15.8

11.8

4.0

32.6

31.4

1.2

Other and non-allocated

26.6

12.1

14.5

43.3

33.5

9.8

Total

$
175.6

$
143.0

$
32.6

$
359.5

$
288.0

$
71.5

~~The increase in R&D expense was primarily a result of the following:~~

~~increased manufacturing of clinical products, primarily to support our ongoing development of our~~ ~~tralesinidase alfa, valoctocogene roxaparvovec and vosoritide product candidates; and~~

business.

an increase in other and non-allocated R&D expenses primarily related to preclinical activity for programs recently announced, such as BMN 290, and personnel-related costs not allocated to specific programs; partially offset by

~~a decrease in the three months ended~~ ~~June 30, 2018~~ ~~related to Palynziq, for which capitalization of manufacturing costs began in the second quarter of 2018; and~~

~~a decrease for the six months ended~~ ~~June 30, 2018~~ ~~related to Brineura was primarily due to a decrease in manufacturing costs for clinical product.~~

For the remainder of 2018, we expect our R&D spending to increase over 2017 levels due to our valoctocogene roxaparvovec, vosoritide, tralesinidase alfa and BMN 290 programs progressing in their development. We also expect increased spending on pre-clinical activities for our early development stage programs and we expect to continue incurring R&D expense for the foreseeable future due to long-term clinical activities related to post-approval regulatory commitments for our approved products.

We continuously evaluate the recoverability of costs associated with pre-launch or pre-qualification manufacturing activities, and 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 ~~recorded~~expensed as R&D ~~expense.~~

~~Selling, General and Administrative~~

~~SG&A expense increased to $153.3~~expenses. During the second quarter of 2019, we capitalized $1.9 million of manufacturing related costs for the ~~three months ended June 30, 2018 from $143.5 million~~commercial production of valoctocogene roxaparvovec as we believe those costs are recoverable. See Note 8 to our accompanying Condensed Consolidated Financial Statements for ~~the three months ended June~~ additional information regarding our inventory.

30 ~~2017. SG&A expense increased to $291.6 million for the six months ended June 30, 2018 from $263.5 million for the six months ended June 30, 2017. The increase in SG&A expense was primarily a result~~

Table of ~~the following:~~

Contents

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

Change

2018

2017

Change

Selling & Marketing expense

$
81.1

$
72.1

$
9.0

$
157.2

$
134.9

$
22.3

General & Administrative expense

72.2

71.4

0.8

134.4

128.6

5.8

Total SG&A expense

$
153.3

$
143.5

$
9.8

$
291.6

$
263.5

$
28.1

Three Months Ended June 30,

Six Months Ended June 30,

Selling & Marketing expense by product

2018

2017

Change

2018

2017

Change

Brineura

$
10.6

$
7.6

$
3.0

$
21.1

$
12.4

$
8.7

Palynziq

7.4

1.5

5.9

12.4

2.3

10.1

Other approved products

54.9

55.9

(1.0
)

106.0

106.1

(0.1
)
Other and not allocated

8.2

7.1

1.1

17.7

14.1

3.6

Total Selling & Marketing expense

$
81.1

$
72.1

$
9.0

$
157.2

$
134.9

$
22.3

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

(In millions, except as otherwise disclosed)

From time to time during the 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. 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.

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:

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

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.

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

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:

~~The 2018 Notes mature on October 15, 2018, and therefore we have reclassified the outstanding principal of such Notes as a current liability.~~ We could ~~also~~ be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of ~~such~~ the 2020 Notes as a current rather than long-term liability (for example, if there are 12 months or less remaining until maturity), which would result in a material reduction of our net working capital. While we could seek to obtain third-party financing to pay for any amounts due in cash upon such events, we cannot be sure that such third-party financing will be available on commercially reasonable terms, if at all. Furthermore, if we are required to share settle any conversions of Notes, due to lack of requisite

Even a developed manufacturing process can encounter difficulties. Problems may arise during manufacturing for a variety of reasons, including human error, mechanical breakdowns, problems with raw materials and cell banks, malfunctions of internal information technology systems, and other events that cannot always be prevented or anticipated. Many of the processes include biological systems, which add significant complexity, as compared to chemical synthesis. We expect that, from time to time, consistent with biotechnology industry expectations, certain production lots will fail to produce product that meets our quality control release acceptance criteria. To date, our historical failure rates for all of our product programs, including Aldurazyme, Brineura, Naglazyme, Palynziq and Vimizim, have been within our expectations, which are based on industry norms. If the failure rate increased substantially, we could experience increased costs, lost revenue, damage to customer relations, time and expense investigating the cause and, depending upon the cause, similar losses with respect to other lots or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred.

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.

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. For instance, the EU has adopted a comprehensive data protection law called the General Data Protection Regulation (GDPR) that took effect on May 25, 2018. The GDPR establishes extensive new requirements applicable to the handling of personal data of individuals in the EU and imposes penalties for non-compliance of up to the greater of €20 million or 4% of worldwide revenue. The significant costs of compliance with, risk of regulatory enforcement actions under, and other burdens imposed by, the GDPR could have an adverse impact on our business.

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

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

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

If 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~~non-

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

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

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

Attached as Exhibit 101 to this report are documents formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, (ii) Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the three and six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, (iii) Condensed Consolidated Statement of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, and (v) Notes to Condensed Consolidated Financial Statements.

~~Delaware~~			~~68-0397820~~

Delaware	68-0397820
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


770 Lindaro Street	San Rafael ~~California~~	California	94901
(Address of principal executive offices)				(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	BMRN	The NASDAQ Global Select Market

				~~Page~~
~~PART I.~~	~~FINANCIAL INFORMATION~~		3
~~Item 1.~~	~~Financial Statements~~		3 Page
PART I.	FINANCIAL INFORMATION	4
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 (Unaudited) and December 31, ~~2017~~2018		3 4
	Condensed Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss (Unaudited) for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018		4 5
	Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2019 and 2018		5 6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018		6 7
	Notes to Condensed Consolidated Financial Statements (Unaudited)		7 8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37 38
Item 4.	Controls and Procedures		37 38
~~PART II.~~	~~OTHER INFORMATION~~		37
~~Item 1.~~ PART II.	~~Legal Proceedings~~OTHER INFORMATION		37 39
Item ~~1A.~~ 1.	~~Risk Factors~~Legal Proceedings		38 39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		60 61
Item 3.	Defaults Upon Senior Securities		60 61
Item 4.	Mine Safety Disclosures		60 61
Item 5.	Other Information		60 61
Item 6.	Exhibits		61 62

SIGNATURES			63 64

	June 30,			December 31,
	2018			2017(1)
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	427,411		$	598,028
Short-term investments		935,662			797,940
Accounts receivable, net		363,566			261,365
Inventory		473,356			475,775
Other current assets		80,072			74,036
Total current assets		2,280,067			2,207,144
Noncurrent assets:
Long-term investments		279,988			385,785
Property, plant and equipment, net		900,480			896,700
Intangible assets, net		502,295			517,510
Goodwill		197,039			197,039
Deferred tax assets		425,380			399,095
Other assets		39,430			29,852
Total assets	$	4,624,679		$	4,633,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	358,732		$	401,921
Short-term convertible debt, net		369,752			360,949
Short-term contingent acquisition consideration		76,466			53,648
Total current liabilities		804,950			816,518
Noncurrent liabilities:
Long-term convertible debt, net		821,871			813,521
Long-term contingent acquisition consideration		57,674			135,318
Other long-term liabilities		55,080			59,105
Total liabilities		1,739,575			1,824,462
Stockholders’ equity:
Common stock, $0.001 par value: 500,000,000 shares authorized; 177,508,135 and 175,843,749 shares issued and outstanding, respectively.		178			176
Additional paid-in capital		4,577,300			4,483,220
Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC)		(13,390	)		(14,224	)
Accumulated other comprehensive loss		(1,129	)		(22,961	)
Accumulated deficit		(1,677,855	)		(1,637,548	)
Total stockholders’ equity		2,885,104			2,808,663
Total liabilities and stockholders’ equity	$	4,624,679		$	4,633,125

☒

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

☐

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



	June 30, 2019			December 31, 2018(1)
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	307,577		$	493,982
Short-term investments	423,526			590,326
Accounts receivable, net	377,150			342,633
Inventory	578,736			530,871
Other current assets	119,779			98,403
Total current assets	1,806,768			2,056,215
Noncurrent assets:
Long-term investments	374,965			235,864
Property, plant and equipment, net	962,970			948,682
Intangible assets, net	476,632			491,808
Goodwill	197,039			197,039
Deferred tax assets	475,554			460,952
Other assets	99,456			36,568
Total assets	$	4,393,384		$	4,427,128
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	429,502		$	437,290
Short-term contingent consideration	9,926			85,951
Total current liabilities	439,428			523,241

Noncurrent liabilities:
Long-term convertible debt, net	839,165			830,417
Long-term contingent consideration	50,151			46,883
Other long-term liabilities	103,686			58,647
Total liabilities	1,432,430			1,459,188
Stockholders’ equity:
Common stock, $0.001 par value: 500,000,000 shares authorized; 179,433,316 and 178,252,954 shares issued and outstanding, respectively.	179			178
Additional paid-in capital	4,744,316			4,669,926
Company common stock held by Nonqualified Deferred Compensation Plan (the NQDC)	(10,211		)	(13,301		)
Accumulated other comprehensive income	17,439			5,271
Accumulated deficit	(1,790,769		)	(1,694,134		)
Total stockholders’ equity	2,960,954			2,967,940
Total liabilities and stockholders’ equity	$	4,393,384		$	4,427,128


(1)	December 31, ~~2017~~2018 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, ~~2017,~~2018, filed with the SEC on February ~~26, 2018.~~ 28, 2019.

							Company			Accumulated
					Additional		Common			Other						Total
	Common Stock				Paid-in		Stock Held			Comprehensive			Accumulated			Stockholders'
	Shares		Amount		Capital		by the NQDC			Income (Loss)			Deficit			Equity
Balance at December 31, 2017		175,844	$	176	$	4,483,220	$	(14,224	)	$	(22,961	)	$	(1,637,548	)	$	2,808,663
Impact of change in accounting principle - ASC 606		—		—		—		—			—			20,048			20,048
Impact of change in accounting principle - ASU 2018-02		—		—		—		—			(586	)		586			—
Adjusted balance at January 1, 2018		175,844	$	176	$	4,483,220	$	(14,224	)	$	(23,547	)	$	(1,616,914	)	$	2,828,711
Net loss		—		—		—		—			—			(60,941	)		(60,941	)
Other comprehensive income		—		—		—		—			22,418			—			22,418
Issuances under equity incentive plans, net of tax		1,664		2		16,310		—			—			—			16,312
Common stock held by the NQDC		—		—		—		834			—			—			834
Stock-based compensation		—		—		77,770		—			—			—			77,770
Balance at June 30, 2018		177,508	$	178	$	4,577,300	$	(13,390	)	$	(1,129	)	$	(1,677,855	)	$	2,885,104

	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(60,941	)	$	(53,123	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		44,610			38,497
Non-cash interest expense		17,300			15,601
Accretion of discount on investments		(41	)		1,327
Stock-based compensation		75,214			70,775
Gain on sale of intangible assets		(20,000	)		—
Gain on the sale of equity investments		—			(3,252	)
Deferred income taxes		(29,681	)		(22,770	)
Unrealized foreign exchange gain		(5,693	)		(4,870	)
Non-cash changes in the fair value of contingent acquisition consideration		1,828			7,195
Other		1,772			3,806
Changes in operating assets and liabilities:
Accounts receivable, net		(77,416	)		(16,834	)
Inventory		15,493			(60,369	)
Other current assets		(2,037	)		(3,710	)
Other assets		(6,448	)		(1,109	)
Accounts payable and accrued liabilities		(32,989	)		(36,286	)
Other long-term liabilities		2,663			3,459
Net cash used in operating activities		(76,366	)		(61,663	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(52,682	)		(116,847	)
Maturities and sales of investments		311,969			234,617
Purchases of available-for-sale securities		(345,458	)		(130,986	)
Proceeds from sale of intangible asset		20,000			—
Other		(841	)		(1,560	)
Net cash used in investing activities		(67,012	)		(14,776	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercises of awards under equity incentive plans		44,926			40,659
Taxes paid related to net share settlement of equity awards		(28,614	)		(26,624	)
Payment of contingent acquisition consideration		(43,108	)		(1,894	)
Other		—			(28	)
Net cash (used in) provided by financing activities		(26,796	)		12,113
Effect of exchange rate changes on cash		(443	)		10,860
NET DECREASE IN CASH AND CASH EQUIVALENTS		(170,617	)		(53,466	)
Cash and cash equivalents:
Beginning of period	$	598,028		$	408,330
End of period	$	427,411		$	354,864
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for income taxes	$	14,858		$	16,341
Cash paid for interest, net of interest capitalized into fixed assets		5,831			4,519
SUPPLEMENTAL CASH FLOW DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES:
Decrease in accounts payable and accrued liabilities related to fixed assets	$	(7,734	)	$	(29,300	)
Conversion of convertible debt		—			22,477

	As Reported								Adjusted
	December 31, 2017			Aldurazyme ⁽¹⁾		Tax Provision ⁽²⁾			January 1, 2018
Balance Sheet
Assets:
Accounts receivable, net	$	261,365		$	26,012	$	—		$	287,377
Deferred tax assets	$	399,095		$	—	$	(5,964	)	$	393,131
Total assets	$	4,633,125		$	26,012	$	(5,964	)	$	4,653,173
Equity:
Accumulated deficit	$	(1,637,548	)	$	26,012	$	(5,964	)	$	(1,617,500	)
Total liabilities and stockholders' equity	$	4,633,125		$	26,012	$	(5,964	)	$	4,653,173

	Three Months Ended June 30, 2018
						Balance without
						Adoption of
	As Reported			Adjustments ⁽¹⁾		ASC 606

Net product revenues	$	367,786		$	48	$	367,834
Benefit from income taxes	$	(12,385	)	$	11	$	(12,374	)
Net loss	$	(16,792	)	$	37	$	(16,755	)

	Six Months Ended June 30, 2018
							Balance without
							Adoption of
	As Reported			Adjustments ⁽¹⁾			ASC 606

Net product revenues	$	736,885		$	(27,150	)	$	709,735
Benefit from income taxes	$	(19,040	)	$	(6,225	)	$	(25,265	)
Net loss	$	(60,941	)	$	(20,925	)	$	(81,866	)

	Three and Six Months Ended June 30,
	2018		2017
Options to purchase common stock		7,829		8,440
Common stock issuable under the 2018 Notes		3,983		3,983
Common stock issuable under the 2020 Notes		3,983		3,983
Common stock issuable under the 2024 Notes		3,970		—
Unvested restricted stock units		3,544		3,041
Common stock potentially issuable for ESPP purchases		433		387
Common stock held by the NQDC		208		224
Total number of potentially issuable shares		23,950		20,058



	June 30, 2019			December 31, 2018
Intangible assets:
Finite-lived intangible assets	$	640,125		$	307,995
Indefinite-lived intangible assets	—			326,359
Gross intangible assets:	640,125			634,354
Less: Accumulated amortization	(163,493		)	(142,546		)
Net carrying value	$	476,632		$	491,808



	June 30, 2019		December 31, 2018
Raw materials	$	67,397	$	74,616
Work-in-process	303,231		231,064
Finished goods	208,108		225,191
Total inventory	$	578,736	$	530,871



	June 30, 2019		December 31, 2018
Accounts payable and accrued operating expenses	$	223,947	$	207,620
Accrued compensation expense	101,111		149,937
Accrued rebates payable	49,183		43,116
Accrued royalties payable	23,059		19,977
Value added taxes payable	9,196		7,785
Forward foreign currency exchange contracts	6,423		4,178
Lease liability	10,165		—
Other	6,418		4,677
Total accounts payable and accrued liabilities	$	429,502	$	437,290



	Fair Value Measurements at June 30, 2019
		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Other current assets:
NQDC Plan assets		$	1,116	$	—	$	1,116
Other assets:
NQDC Plan assets		15,003		—		15,003
Restricted investments ⁽¹⁾		2,713		—		2,713
Total other assets		17,716		—		17,716
Total assets		$	18,832	$	—	$	18,832
Liabilities:
Current liabilities:
NQDC Plan liability ⁽²⁾		$	1,116	$	—	$	1,116
Contingent consideration		—		9,926		9,926
Total current liabilities		1,116		9,926		11,042
Other long-term liabilities:
NQDC Plan liability ⁽²⁾		15,003		—		15,003
Contingent consideration		—		50,151		50,151
Total other long-term liabilities		15,003		50,151		65,154
Total liabilities		$	16,119	$	60,077	$	76,196



	Fair Value Measurements at December 31, 2018
	Quoted Price in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Other current assets:
NQDC Plan assets	$	—	$	370	$	—	$	370
Restricted investments ⁽¹⁾	—		9,581		—		9,581
Total other current assets	—		9,951		—		9,951
Other assets:
NQDC Plan assets	—		12,828		—		12,828
Restricted investments ⁽¹⁾	—		2,450		—		2,450
Strategic investments ⁽³⁾	942		—		—		942
Total other assets	942		15,278		—		16,220
Total assets	$	942	$	25,229	$	—	$	26,171
Liabilities:
Current liabilities:
NQDC Plan liability	$	55	$	370	$	—	$	425
Contingent consideration	—		—		85,951		85,951
Total current liabilities	55		370		85,951		86,376
Other long-term liabilities:
NQDC Plan liability	17,598		12,828		—		30,426
Contingent consideration	—		—		46,883		46,883
Total other long-term liabilities	17,598		12,828		46,883		77,309
Total liabilities	$	17,653	$	13,198	$	132,834	$	163,685


(1)	The restricted investments at June 30, 2019 and December 31, 2018 secure the Company's irrevocable standby letters of credit obtained in connection with certain commercial agreements.


(3)	The Company had investments in marketable equity securities measured using quoted prices in an active market that were considered strategic investments and were included in Other Assets on the Company's Condensed Consolidated Balance Sheets. During the second quarter of 2019, all shares were sold and an immaterial gain was realized.



Contingent consideration at December 31, 2018	$	132,834
Changes in fair value of other contingent consideration	19,161
Milestone payments to Ares Trading S.A. (Merck Serono)	(83,472		)
Milestone payments to former LEAD Therapeutics, Inc. shareholders	(5,987		)
Realized gain on settlement of contingent consideration	(1,928		)
Foreign exchange remeasurement of Euro denominated contingent consideration	(531		)
Contingent consideration at June 30, 2019	$	60,077



Foreign Exchange Contracts	Number of Contracts	Aggregate Notional Amount in Foreign Currency	Maturity
Australian Dollars – Sell	12	5.6	July 2019 - Dec. 2019
Brazilian Reais – Sell	3	40.4	Aug 2019
Canadian Dollars – Sell	12	17.9	July 2019 - Dec. 2019
Colombian Pesos – Sell	12	98,000.0	July 2019 - June 2020
Euros – Purchase	154	194.0	July 2019 - June 2022
Euros – Sell	466	572.6	July 2019 - June 2022
Norwegian Krone – Sell	6	23.4	July 2019 - Dec. 2019
Total	665



Balance Sheet Location	June 30, 2019		December 31, 2018
Derivatives designated as hedging instruments:
Asset Derivatives - Level 2 ⁽¹⁾
Other current assets	$	15,577	$	12,686
Other assets	13,214		10,324
Subtotal	$	28,791	$	23,010

Liability Derivatives - Level 2 ⁽¹⁾
Accounts payable and accrued liabilities	$	5,250	$	4,036
Other long-term liabilities	4,988		3,653
Subtotal	$	10,238	$	7,689

Derivatives not designated as hedging instruments:
Asset Derivatives - Level 2 ⁽¹⁾
Other current assets	$	614	$	168
Other assets	—		—
Subtotal	$	614	$	168
Liability Derivatives - Level 2 ⁽¹⁾
Accounts payable and accrued liabilities	$	1,173	$	142
Other long-term liabilities	—		—
Subtotal	$	1,173	$	142

Total Derivatives Asset	$	29,405	$	23,178
Total Derivatives Liabilities	$	11,411	$	7,831


(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, 2018.



	Three Months Ended			Six Months Ended
Derivatives Designated as Cash Flow Hedging Instruments	June 30, 2019			June 30, 2019
Amount of Gain (Loss) Recognized in Other Comprehensive Income	$	(1,367	)	$	11,458



Lease Classification	Classification	June 30, 2019
Assets:
Operating	Other Assets	$	51,196
Financing	Other Assets	8,599
Total ROU assets		$	59,795
Liabilities:
Current:
Operating	Accounts payable and accrued liabilities	$	7,277
Financing	Accounts payable and accrued liabilities	2,888
Noncurrent:
Operating	Other long-term liabilities	45,921
Financing	Other long-term liabilities	7,958
Total lease liabilities		$	64,044



Maturity of Lease Liabilities	Operating			Financing			Total
2019	$	5,418		$	1,683		$	7,101
2020	9,518			3,466			12,984
2021	8,533			2,866			11,399
2022	8,205			2,259			10,464
2023	6,773			1,747			8,520
Thereafter	27,942			—			27,942
Total lease payments	66,389			12,021			78,410
Less: Interest	(13,191		)	(1,175		)	(14,366		)
Present value of lease liabilities	$	53,198		$	10,846		$	64,044



Lease Cost	Classification	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating ⁽¹⁾	Operating Expenses	$	3,233	$	6,418
Financing:
Amortization	Operating Expenses	605		1,211
Interest expense	Operating Expenses	152		313
Total lease costs		$	3,990	$	7,942


(1)	Includes short-term leases and variable lease costs, both of which were not material.



Other Information	June 30, 2019
Weighted average remaining lease term (in years):
Operating leases	8.2
Financing leases	3.8

Weighted average discount rate:
Operating leases	5.2		%
Financing leases	5.4		%

Additional leases not yet commenced (undiscounted):
Operating lease liability to commence in the second half of 2019	$	973



Supplemental Cash Flow Information	Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Cash used in operating activities:
Operating leases	$	3,712
Financing leases	$	312
Cash used in financing activities:
Financing leases	$	1,346
ROU assets obtained in exchange for lease obligations:
Operating leases	$	8,909
Financing leases	$	72



2019	$	12,976
2020	12,549
2021	11,198
2022	10,574
2023	9,993
Thereafter	27,701
Total	$	84,991



	June 30, 2019			December 31, 2018
1.50% senior subordinated convertible notes due in October 2020 (the 2020 Notes)	374,993			374,993
Unamortized discount	(19,432		)	(26,581		)
Unamortized deferred offering costs	(1,684		)	(2,334		)
Convertible Notes due in 2020, net	353,877			346,078

0.599% senior subordinated convertible notes due in August 2024 (the 2024 Notes)	495,000			495,000
Unamortized discount	(7,240		)	(7,946		)
Unamortized deferred offering costs	(2,472		)	(2,715		)
Convertible Notes due in 2024, net	485,288			484,339

Total convertible debt, net	$	839,165		$	830,417

Fair value of fixed rate convertible debt
Convertible Notes due in October 2020⁽¹⁾	420,727			419,722
Convertible Notes due in August 2024 ⁽¹⁾	512,582			491,626
Total fair value of fixed rate convertible debt	$	933,309		$	911,348