BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) Q4 2023 Earnings Call Transcript

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) Q4 2023 Earnings Call Transcript February 22, 2024

BioMarin Pharmaceutical Inc. misses on earnings expectations. Reported EPS is $0.18 EPS, expectations were $0.44. BMRN isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by, and welcome to the BioMarin Pharmaceutical Fourth Quarter and Full Year 2023 Conference Call. I would now like to welcome Traci McCarty, Head of Investor Relations to begin the call. Traci, over to you.

Traci McCarty: Thank you, Mandeep. Thank you, everyone, for joining us today. To remind you, this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical, Inc., including expectations regarding BioMarin’s financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin’s product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in BioMarin’s filings with the SEC such as 10-Q, 10-K and 8-K reports. In addition, we will use non-GAAP financial measures as defined in Regulation G during the call today.

These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with US GAAP. And you can find the related reconciliations to US GAAP in the earnings release and earnings presentation, both of which are available on the Investor Relations section of our website. On the call from BioMarin management today are Alexander Hardy, President and Chief Executive Officer; Hank Fuchs, President of Worldwide R&D; and Brian Mueller, Executive Vice President, Chief Financial Officer; Jeff Ajer, Executive Vice President, Chief Commercial Officer; and Greg Guyer, Executive Vice President and Chief Technical Officer, are here with us to answer questions during the Q&A portion of the call.

I will now turn the call over to BioMarin’s President and CEO, Alexander Hardy.

Alexander Hardy: Thank you, Traci, and good afternoon, everyone. Thank you all for joining us today. As I said in January and reiterate today, the opportunity at BioMarin to positively impact patients’ lives through transformative therapies, while delivering value creating revenue growth and profitability to shareholders has never been more evident. Touching on today’s financial results. Total revenue grew 20% in the fourth quarter of 2023 compared to the fourth quarter of 2022. And total revenue grew 15% for the full year of 2023 compared to the prior year. This is a very strong performance. On a constant currency basis, total revenue growth was 25% in the fourth quarter and 20% for the full year, equally as important to BioMarin’s growth story of bottom line results.

Non-GAAP earnings per share increased 48% in the fourth quarter versus the fourth quarter of 2022, an increase by 36% year-over-year. These 2023 results along with our growth expectations, as implied by our full 2024 financial guidance provided today, solidifies our position as a financially self-sustaining business that can grow revenue, expand operating margins and accelerate earnings per share. Brian will provide more details on the financials in a moment. So I will now turn to update you on our progress on the priorities I outlined in January. The first, to accelerate and maximize the VOXZOGO opportunity remains front and center. As demonstrated by the VOXZOGO financial results today, 178% growth year-over-year, with close to 300 new patients added in Q4.

The launch in achondroplasia is on a path to blockbuster status. We were pleased that 70% of new US prescriptions in Q4, with the children under the age of five, following FDA’s age expansion approval last October. The US and EU approvals last quarter, allowing treatment from infancy sets VOXZOGO up to be a major multiyear growth driver. Beyond having an expanded age label, VOXZOGO’s profile benefits from more than 1,000 patient years of long-term safety and efficacy data beyond just height. We believe this substantial clinical track record will encourage families to pursue VOXZOGO treatment as early and for as long as possible to enable maximum potential therapeutic benefit. As a result of the growing global demand for VOXZOGO treatment and the scope of our extensive long-term clinical data, we’re seeing an increase in the breadth of our prescriber base.

Our world – our work to build prescribing confidence and relationships with pediatric endocrinologists in the United States has been extremely well received. With recent VOXZOGO uptake for children with achondroplasia under five being twice as fast as launch uptake in children over five, our plan to drive earlier and longer intervention, with the goal of greater therapeutic outcomes is on track. We plan to build on our established leadership in achondroplasia treatment to expand into multiple other statural [ph] conditions. In the fourth quarter, BioMarin began the enrollment in the six month observational run-in portion of the pivotal program of VOXZOGO for the treatment of children with hypochondroplasia, and we are actively engaging global health authorities regarding development programs in idiopathic short stature and multiple genetic short stature pathway conditions, with plans to begin pivotal studies later this year.

As Hank will discuss later, we believe that there is strong proof of concept and indications beyond achondroplasia. As we expand into these indications, we hope VOXZOGO treatment will empower patients and families across a spectrum of statural conditions to live their lives to the fullest. For this reason, VOXZOGO acceleration, achondroplasia and expansion into other indications remains the top priority of BioMarin. The second priority is establishing the ROCTAVIAN opportunity. As I said in January, we believe 2024 and 2025 will inform ROCTAVIAN’s uptake curve and long-term potential. We have been very pleased with the strong and positive payer response to the value proposition associated with ROCTAVIAN and how this has translated into published payer policies and lives covered.

Furthermore, we continue to be confident with the clinical profile of the product, which is evidenced by the warranty agreement which has been equally well received in the marketplace. We have also continued to make good progress, activate in the global marketplace, including the recent publishing of the Italian ROCTAVIAN price. We want to reiterate, however, that the complexity of aligning the required pre-infusion checklist will take time. As I outlined last month, for successful ROCTAVIAN treatment, we need a motivated patient, a supportive payer and a treatment site with a physician who is willing and able to use the product. For a pioneering new therapy, this isn’t a surprise and is the reason why we intend to let the results do the talking for ROCTAVIAN uptake.

We do expect patients to be treated with ROCTAVIAN in 2024, as implied by its inclusion in our 2024 total revenue guidance. In the meantime, we will continue our work to activate the global marketplace and look forward to reporting ROCTAVIAN revenues on a quarterly basis… The third priority is our focus on the most productive R&D assets, those with transformational benefits for patients and high commercial potential. I’ve been spending a lot of time with the R&D team to understand the unique profile of each pipeline asset currently under development. I’ve been impressed by the level of innovation and expertise in developing transformational therapies. But in keeping with our ambitious financial goals, we intend to hold a very high bar in terms of disciplined spend and prioritization of the most impactful midst.

To that end, we are undertaking a strategic portfolio review to determine, which pipeline assets will advance and which will not. A complete update on prioritized R&D assets, those with the highest potential patient impact and highest potential value creation for shareholders will be communicated at our Investor Day later in 2024. In the meantime, we have a number of promising candidates advancing, and Hank will provide an update on those in a moment. And lastly, our fourth priority is increasing profitability faster than originally planned. Our 2023 results and our full year guidance for 2024 both demonstrate our transition to growing profitability and significant operating leverage. Our full year 2024 guidance reflects double-digit revenue growth regardless of ROCTAVIAN contributions, and non-GAAP earnings per share growing faster than revenues.

VOXZOGO is expected to be a major driver of year-over-year growth, and is reflected in our streamline guidance, total revenues guidance item, which includes all BioMarin commercial products. Non-GAAP operating margin is a new line item put into BioMarin’s 2024 full year guidance, primarily because it reflects our focus on leverage across the P&L and anticipated margin expansion this year, as well as providing you with a clear line of sight into our business performance. We believe the streamlined full year guidance items will allow you to track our financial progress as we strive to achieve the four strategic priorities I just described. So in summary, it’s truly an exciting time at BioMarin, and I see tremendous opportunity to create value for patients and for shareholders.

The entire leadership team is hard at work on shaping future corporate strategy, which will include views on R&D and capital allocation, as well, as setting and taking steps to achieve ambitious long-term financial targets. The entire organization is mobilized and approaching this work with a sense of urgency. We will be making significant progress that we will want to share externally on a timely basis. That could be incrementally and at the Investor Day, for which we are evaluating the specific timing. Please stay tuned for additional updates. Thank you for your attention. And I will now turn over the call to Hank to provide an update on key R&D highlights. Hank?

Henry Fuchs: Thank you, Alexander, and good afternoon, everyone. The R&D organization is gratified by the productivity achieved on behalf of those who benefit from our innovative therapies. As we take BioMarin into the future and align our drug development capabilities with our ambitious financial goals, we will continue to prioritize the most high impact medicines for patients. What will change is the level of spend and the rigor of the criteria used to determine, which assets advance. As Alexander mentioned, we are undertaking a strategic assessment of our portfolio with the goal of ranking, prioritizing and then advancing only those assets that represent the highest value to patients. The assessment will evaluate the amount of time and investment required to determine proof-of-concept through global approvals, as well as the market opportunity and competitive landscape for each asset.

The higher bar is designed to expedite development, increase the probability of success, and improve cost effectiveness. We look forward to sharing the results of the strategic investment – assessment at our Investor Day later in 2024. Touching briefly on a few clinical updates, we intend to open the treatment study of the pivotal trial with VOXZOGO for hypochondroplasia in the middle of this year. Results from Dr. Dauber’s 52-week Phase 2 study with VOXZOGO in hypochondroplasia were recently posted to the ACMG website ahead of his oral presentation at the meeting in Toronto next month. We are encouraged to see an increase in the 12 month annualized growth velocity of 1.81 centimeters in VOXZOGO-treated children treated with hypochondroplasia, and a safety and sustained durability profile observed in achondroplasia at 6 months and 12 months.

These data provide further support for our imminent plans to initiate the treatment phase of our pivotal program in hypochondroplasia expected to begin in mid-2024. Regarding our development programs in idiopathic short stature and multiple genetic stature pathway conditions, we are in discussions with global health authorities with plans to begin the pivotal studies later this year. We look forward to Dr. Dauber’s ISS update at the Pediatric Endocrine Society Meeting in May. BioMarin is securing our leadership position for treating multiple genetic central conditions, and we look forward to updating you on our progress across the three pilot [ph] programs just described. Turning briefly to other assets in the early stage pipeline. We’re pleased to share that the Phase 2 proof-of-concept study of BMN-351 for the treatment of Duchenne muscular dystrophy is open for enrollment.

The 52-week study will enroll 18 boys with Duchenne muscular dystrophy, with the potential to expand enrollment as needed and is designed to assess both dystrophin levels and functional measures. BMN 349 is an early bioavailable, small molecule designed for the treatment of alpha-1 antitrypsin deficiency liver disease. Our non-clinical studies indicate 349 enables secretion of the mutant protein and prevents its polymerization in liver cells which if unchecked, drives the progression of liver disease. The single ascending dose study in healthy human volunteers is progressing with no safety signals observed thus far. We look forward to providing an update on our other pipeline assets following the strategic assessment described by Alexander.

Thanks for your attention. Thanks for your support. And I will now turn the call over to Brian for financial updates. Brian?

Brian Mueller: Thank you, Hank. Please refer to today’s press release summarizing our financial results for full details on the fourth quarter and full year 2023, including reconciliations of GAAP to non-GAAP financial measures. I will provide my comments on a GAAP basis for 2023 results and will comment on key financial updates and guidance for 2024. All 2023 financial results will be available in our upcoming Form 10-K, which we expect to file within the next few days. In the fourth quarter of 2023, BioMarin generated strong total revenue of $646 million, representing 20% year-over-year growth, including KUVAN, and 26% growth, excluding KUVAN. As expected, the strength of our enzyme products generated more than $1.7 billion of net product revenues for the full year 2023, an increase of 4% year-over-year.

Looking more closely at performance in the fourth quarter, VOXZOGO revenues of $146 million represented 118% quarter-over-quarter growth. We’ve previously discussed the supply constraint on VOXZOGO revenue in 2023. Our plans for supply to satisfy forecasted commercial demand around the middle of this year remain intact, and our fourth quarter revenue result being higher than guidance was driven by some incremental supply that became available late in the quarter. Double-digit revenue growth of both VIMIZIM and PALYNZIQ in the fourth quarter was partially offset by anticipated lower KUVAN revenues, and were also an important contributor to total revenues exceeding $2.4 billion for the full year 2023 and in line with our expectations. R&D expenses in the fourth quarter were $206 million, up $34 million year-over-year, primarily due to increased early stage research activities as well as increased activity in our clinical program.

SG&A expense in the fourth quarter was $275 million, up $29 million from last year. Please note, we had a number of unique expenses during the fourth quarter of 2023, including impairment charges related to the discontinuation of our first-generation VOXZOGO. The devaluation of the Argentinean peso along with incremental G&A expense related to corporate governance matters and leadership transitions, together, these items combined to total over $40 million in Q4 2023. Moving to the bottom line. GAAP net income for the fourth quarter was $20.4 million, contributing to $168 million of GAAP net income for the full year, representing GAAP diluted earnings per share of $0.87 per share. GAAP net income for the fourth quarter was also impacted by the recognition of a loss on an impairment recorded in the other income and expense line.

I will note that on taxes, similar to the third quarter, we recognized some incremental discrete tax benefits in the fourth quarter that lowered our effective tax rate for the full year. We continue to project, on a consolidated global level, an effective tax rate in the low 20s for 2024 and beyond. Non-GAAP income for the fourth quarter was $95 million and $405 million for the full year, representing full year non-GAAP diluted EPS of $2.08 per share, and growth over 36% over 2022. As we move into 2024, please note that, there are select changes in BioMarin’s P&L geography becoming effective in 2024. We are expecting to classify foreign currency revaluation in other income and expense going forward, instead of its prior classification within SG&A expense, and idle plant time-related costs will be classified in cost of sales going forward instead of their prior classification within SG&A expense.

These changes, which again are classification only and do not impact the bottom line are being made to provide greater clarity on our core operating results as well as to better align with industry peers. Details of the revised presentation of idle plant costs and foreign exchange gains and losses from previously reported 2023 and 2022 periods to conform with the presentation that we’ll use going forward are available on our website. As Alexander mentioned, for 2024, we are guiding to total revenues, non-GAAP operating margin and non-GAAP diluted earnings per share. For the full year 2024, total revenues, we expect between $2.7 billion and $2.8 billion, which at its midpoint represents approximately 14% growth compared to 2023. To provide some additional context, since this is the first time that we are not guiding to specific brand revenues, our 2024 revenue guidance is driven by continued strong growth in VOXZOGO, with expansion into younger age groups being a key driver of anticipated 2024 new patient starts, mid to high single-digit growth across the five brands in our ERT portfolio, and offset by the continued decline of KUVAN due to the loss of market exclusivity.

While ROCTAVIAN is definitively included in our total revenue forecast, the revenue contribution from ROCTAVIAN is relatively modest and risk-adjusted based on our recent experience. Going forward, we will let the actual ROCTAVIAN results speak to the performance. Also, one comment specific to the first quarter of 2024, that we are expecting a Q4 to Q1 dynamic with respect to order timing and volumes, whereby Q4 included some modest incremental revenue that will impact Q1 growth. We stand behind full year 2024 total revenue guidance provided today, and we expect most of the 2024 total revenue growth to be weighted to the second half of the year. With respect to non-GAAP operating margin for the full year 2024, we are guiding to between 23% and 24%, which represents 4 percentage points of expansion versus the 2023 non-GAAP operating margin of 19.4%.

This is inclusive of our G&A reclassifications that I just mentioned. Over the last three years, including through our 2024 guidance, our non-GAAP operating margin is projected to increase by approximately 13 percentage points, from approximately 10% in 2021, to the 23.5% midpoint of our 2024 guidance. This demonstrates our commitment to growing profitability, however, it’s not the end of the story as we are working through our cost efficiency and resource allocation priorities to help set ambitious long-term financial targets to be communicated this year. And for non-GAAP diluted earnings per share, we expect between $2.60 and $2.80 per share for the full year 2024, which at the midpoint represents 30% growth over last year. As we move into the next chapter of BioMarin, we are executing on our growth strategy with impressive performance driven by VOXZOGO and achondroplasia, in pursuit of new indications, a durably growing enzyme products business and the potential to realize the value of ROCTAVIAN.

Thank you for your continued support, and we’ll now open up the call to your questions. Operator?

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Q&A Session

Operator: The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Salveen Richter with Goldman Sachs. Please go ahead.

Salveen Richter: Good afternoon. Thanks for taking my question. I just wanted to better understand your EPS guidance for 2024 and what that assumes? Are there some OpEx and overall R&D cuts that are basically baked into the assumptions there? And help us also understand that you do – your strategic portfolio review of the R&D program, what the criteria is for further investment in advancement? Thank you.

Brian Mueller: Yes. Thanks, Salveen. This is Brian. Appreciate the question. So first of all, we’re pleased that the non-GAAP EPS guidance midpoint implies 30% growth over this year. And this year, as noted, was over 30% growth over 2022. There are a few items that impact the year-over-year non-GAAP analysis. One is those – some of those tax benefits that I mentioned in 2023. So now that tax, since the beginning of ’23 is in our non-GAAP income to the extent those benefits, don’t recur, that would be a headwind, if you will, to 2024 non-GAAP. There’s also some unique – I mentioned the unique SG&A charges in ’23. We’ve got some incremental SG&A in ’24. We’re implementing a new ERP system, which is commanding some G&A resources in ’24.

So those are some of the dynamics. And to the part of your question about how much of our strategic savings or cost efficiency opportunities are included, just a modest amount of the known items at this point that we were already working on. We are embarking on the cost efficiency and operating model efficiency exploration. As we speak, this is going to be part of the more ambitious financial target setting for the future to be communicated later this year. So we ask you to stay tuned on that part. But I will say that there’s not a substantial amount of savings related to that in this guide.

Henry Fuchs: Hi, Salveen. In response to the second question about prioritization of the R&D portfolio, we are undertaking a strategic assessment of our portfolio with the goal of ranking, prioritizing and then advancing only those assets that represent the highest value to patients and shareholders. The assessment will include considerations of time and money involved to prove concept or to advance to global approvals as the case may be, as well as consideration of market opportunity and competitive landscape. And the concept of having a very high bar for going forward is to foster expedited development. When things happen early that are impressive and important subsequent development in registration and market access happens much more quickly.

And so with those higher bars, we can also see that subsequent events have a higher probability of success and also contribute to improving the cost effectiveness of programs. We look forward to sharing the results of the strategic investments later in 2024.

Operator: Our next question comes from the line of Akash Tewari with Jefferies. Please go ahead.

Akash Tewari: Hey. Thanks so much. Alexander, in the past, BioMarin spent a lot of time and resources building up its gene therapy capabilities, but we haven’t really seen that translate to shareholder value. For example, it looks like you’re spending almost identical amounts on VOXZOGO or ROCTAVIAN but with different results. What are your thoughts on potentially divesting your gene therapy platform or even ROCTAVIAN, in order to cut costs and focus the story is that option out of the question in your mind? Thanks.

Alexander Hardy: Thanks very much for the question. As I mentioned in terms of our priorities, we’re still very much at the early stage with ROCTAVIAN. We really want to establish the opportunity there. We are seeing progress in terms of market access, market activation. So we wanted to see that run through 2024, we also think probably into 2025 is when we’ll be able to really determine. In the meantime, we’re spending wisely and cautiously supporting the launch. But we’re very mindful of the return on investment that we’re currently seeing from ROCTAVIAN. At the same time, we referenced in this conversation today a strategic review. So we’re also thinking about the future strategy of BioMarin. We’re looking at the R&D portfolio.

We’re looking at our own experience with gene therapy, the scientific challenges, regulatory market access, market uptake and also taking note of what’s happening in the world outside BioMarin’s walls. And as part of that, we’ll assess do we have the right exposure to gene therapies in our pipeline. Is it something we want to double down on, stay the course or take a lower exposure to gene therapies. So we’ll continue to keep you updated. We’ll provide more information at our Investor Day later this year.

Operator: Our next question comes from the line of Jessica Fye with JPMorgan. Please go ahead.

Jessica Fye: Great. Good afternoon, Thanks for taking my questions. A couple on VOXZOGO. First, on the financial side, you mentioned 4Q revenue, I think you’re seeing sort of broadly 4Q revenue reflected modest incremental revenue that would impact 1Q growth. Can you talk to whether the 4Q VOXZOGO number specifically benefited from any channel inventory changes or lumpy international orders? And if so, just quantify what was out of the ordinary? And then on the pipeline side, can you do basket trials with multiple indications for some of these additional potential VOXZOGO development areas. How likely is the FDA or other regulators to sign off on something like that, that type of approach? Thank you.

Brian Mueller: Hi, Jess, it’s Brian. Thanks. I’ll take the first part of your question. Good question. And the way I’d respond is nothing excessive with respect to the channel and nothing broad across the marketplaces. I made that comment because when we gave our full year guide, essentially Q4 guide back on the 1st of November, the high end was $455 million, and we talked about how that high end was supply constrained. And so here we are reporting close to $470 million for the quarter. So I want to explain that the circumstances there were some additional commercial supply that became available. So we used it to meet demand that was out there. And the point is that with respect to Q1, we don’t necessarily expect or guarantee that, that same dynamic can recur.