TEXT-S&P rates BioMarin Pharmaceutical notes

Mon Jun 11, 2012 10:23am EDT

June 11 - Overview	
     -- U.S. biotechnology company BioMarin Pharmaceutical Inc. 
completed an equity offering that raised $250 million, more than doubling its
cash balance, extending its ability to fund research by about one year.	
     -- We are affirming our 'B' corporate credit and convertible debt ratings 	
on the company.	
     -- We are revising our liquidity descriptor to "adequate," from "less 	
than adequate."	
     -- Our stable outlook on the company reflects our expectation that 	
BioMarin's increased liquidity will better support growing new product 	
investment.	
	
Rating Action	
On June 11, 2012, Standard & Poor's Ratings Services affirmed its 'B' 	
corporate credit and convertible debt ratings on Novato, Calif.-based BioMarin 	
Pharmaceutical Inc. Our rating outlook is stable. The ratings are unsolicited.	
	
We revised our liquidity descriptor for BioMarin to "adequate" from "less than 	
adequate" (according to our criteria) after the company completed an equity 	
offering with net proceeds of at least $250 million.	
	
Rationale	
Standard & Poor's unsolicited ratings on BioMarin reflect its "highly 	
leveraged" financial risk profile, featuring rising debt leverage on dwindling 	
EBITDA. However, this otherwise foreboding financial development is offset by 	
improved liquidity from a just-completed stock offering. We believe BioMarin's 	
business risk profile is "weak" because of its relatively small and niche 	
product portfolio, the uncertain success of its research pipeline, and lack of 	
profitability.	
	
BioMarin's highly leveraged financial risk profile reflects the biotechnology 	
company's rising adjusted leverage-over 11x at March 31, 2012--and our 	
expectation that adjusted EBITDA will fall to about $8 million in 2012, from 	
$47 million in 2011. This reflects the company's relatively small size, and 	
research and infrastructure spending needed to bring GALNS, an enzyme 	
replacement therapy, to market. We expect R&D in 2012 to rise 20% to about 	
$260 million, and sales, general, and administrative expenses to rise 15%, to 	
about $200 million. Furthermore, rising working capital and capital 	
expenditures to expand its operations influence our base-case expectation that 	
free operating cash outflows in 2012 and 2013 could require the company to 	
draw down more than $125 million of its cash and short-term investments, which 	
totaled $233 million at March 31, 2012. However, an equity offering just 	
raised some $250 million, providing adequate liquidity to pursue this strategy.	
	
We expect revenue growth to taper to a low-double-digit rate in 2012 and 2013, 	
as BioMarin's two largest products mature. The reliance on these products for 	
about three-quarters of revenues highlights the company's product 	
concentration, as captured in its weak business risk profile. Our base case 	
recognizes that Naglazyme, which accounts for about half of company revenues, 	
loses its seven-year orphan drug marketing exclusivity in the U.S. in June. We 	
do not forecast early competition, given the limited size of the market, and 	
ongoing orphan drug status in the EU into 2016. This drug is indicated for the 	
treatment of a debilitating life-threatening genetic disease with no other 	
drug treatment. Kuvan, which accounts for about one-quarter of revenues, was 	
launched in December 2007 as an oral treatment for an inherited metabolic 	
disease. While Kuvan loses orphan drug status in mid-2014, patents should 	
provide protection for an additional 10 years. Contributions from the 	
company's remaining commercialized products--Aldurazyme and Firdapse--are 	
likely to remain relatively small, with growth rates we expect will not be 	
significantly better than BioMarin's two more significant products.    	
	
BioMarin is significantly ramping up its research investment. We anticipate 	
that R&D, which totaled $214 million in 2011, could average $275 million 	
annually in 2012 and 2013. The company recently entered expensive Phase III 	
clinical trials for GALNS. We believe that results from the study could be 	
available by 2012 year-end. Still, the success of GALNS is uncertain, and we 	
consider a meaningful contribution from it before 2014 unlikely in any case. 	
The longer term product pipeline has several candidates. Our base case assumes 	
that increasing costs for GALNS research, production, and development will 	
exceed BioMarin's ability to fund it; we expect sharp declines in EBITDA, to 	
negligible levels in 2012.  	
	
Liquidity	
We have revised our liquidity descriptor to adequate, from less than adequate, 	
with a recent equity offering that more than doubled BioMarin's cash. We 	
anticipate that the company will draw more than $125 million of this in 	
conjunction with its new product funding through 2013. The balance provides a 	
bridge for sustaining research beyond that time. 	
	
Relevant aspects of BioMarin's liquidity profile are:	
     -- We expect liquidity sources to exceed uses by 1.2x over the next 12 to 	
24 months. 	
     -- Sources of liquidity include cash and short-term investments ($233 	
million at March 31, 2012) that was just expanded with some $250 million in 	
proceeds from an equity offering. 	
     -- About $24 million of convertible notes come due in 2013. Another 	
convertible note issue matures in 2017.	
     -- We believe BioMarin might not be able to absorb a high-impact, 	
low-probability event, given its cash needs for operations.	
     -- In our assessment, the company has no particular core bank 	
relationships.	
	
Outlook	
Our rating outlook on BioMarin is stable. We expect the company's increased 	
liquidity to better support growing new product investment. We expect 	
continued, but slower revenue growth in 2012 from its mature main franchises, 	
Naglazyme and Kuvan. GALNS clinical success by year-end could aid prospects 	
for a sharp turnaround in EBITDA and cash generation by the end of 2013. In 	
the near term, however, dwindling EBITDA will sharply raise debt leverage, 	
limiting prospects for a higher rating in the year ahead. 	
	
At the same time, now that the company's cash balances have been replenished, 	
a downgrade also is unlikely. Even, if GALNS clinical trial results turn out 	
to be unfavorable or delayed, the liquidity improvement should allow the 	
company to sustain its research and other operating needs for at least a 	
couple of years. 	
	
Related Criteria And Research	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
	
Ratings List	
	
Ratings Affirmed	
	
BioMarin Pharmaceutical Inc. (Unsolicited Ratings)	
 Corporate Credit Rating                B/Stable/--        	
 Subordinated                           B                  	
   Recovery Rating                      4                  	
	
	
This unsolicited rating(s) was initiated by Standard & Poor's. It may be based 	
solely on publicly available information and may or may not involve the 	
participation of the issuer. Standard & Poor's has used information from 	
sources believed to be reliable based on standards established in our Credit 	
Ratings Information and Data Policy but does not guarantee the accuracy, 	
adequacy, or completeness of any information used.	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
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