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
-- Our stable outlook on the company reflects our expectation that
BioMarin's increased liquidity will better support growing new product
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.
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
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.
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
-- 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
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
BioMarin Pharmaceutical Inc. (Unsolicited Ratings)
Corporate Credit Rating B/Stable/--
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
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