BIOMARIN PHARMACEUTICAL INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our audited Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements and other disclosures included in this Annual Report on Form 10-K, including the disclosures under "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K. In particular, we encourage you to review the risk factor related to the impact of the coronavirus pandemic, "The COVID-19 pandemic could continue to materially adversely affect our business, results of operations and financial condition." These risks and uncertainties could cause actual results to differ significantly from those projected in forward-looking statements contained in this report or implied by past results and trends. Forward-looking statements are statements that attempt to forecast or anticipate future developments in our business, financial condition or results of operations. See the section titled "Forward-Looking Statements" that appears at the beginning of this Annual Report on Form 10-K. These statements, like all statements in this report, speak only as of the date of this Annual Report on Form 10-K (unless another date is indicated), and, except as required by law, we undertake no obligation to update or revise these statements in light of future developments. Our Consolidated Financial Statements have been prepared in accordance withUnited States (U.S. ) generally accepted accounting principles (GAAP) and are presented inU.S. Dollars (USD).
Overview
We are a global biotechnology company that develops and commercializes innovative therapies for people with serious and life-threatening rare diseases and medical conditions. We select product candidates for diseases and conditions that represent a significant unmet medical need, have well-understood biology and provide an opportunity to be first-to-market or offer a significant benefit over existing products. Our portfolio consists of seven commercial products and multiple clinical and preclinical product candidates for the treatment of various diseases. A summary of our commercial products, as ofDecember 31, 2021 , is provided below: Commercial Products Indication Vimizim (elosulfase alpha) MPS IVA (1) Naglazyme (galsulfase) MPS VI (2) Kuvan (sapropterin dihydrochloride) PKU (3) Palynziq (pegvaliase-pqpz) PKU (4) Brineura (cerliponase alfa) CLN2 (5) Voxzogo (vosoritide) Achondroplasia Aldurazyme (laronidase) MPS I (6)
(1)For the treatment of Mucopolysaccharidosis IV Type A
(2)For the treatment of mucopolysaccharidosis VI
(3) For the treatment of Phenylketonuria
(4)For adult patients with PKU
(5) For the treatment of late infantile neuronal ceroid lipofuscinosis type 2
(6)For the treatment of mucopolysaccharidosis I
A summary of our on-going clinical development programs as ofDecember 31, 2021 , is provided below: Target Clinical Development Programs Indication Stage Valoctocogene roxaparvovec Severe Hemophilia A Clinical Phase 3 BMN 307 PKU Clinical Phase 1/2 BMN 255 Primary hyperoxaluria Clinical Phase 1/2 58
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
2021 Financial Highlights
Key elements of our operating results include the following:
Years Ended December 31,
2021 2020 2019
Total revenues $ 1,846.3 $ 1,860.5 $ 1,704.0
Cost of sales $ 470.5 $ 524.3 $ 359.5
Research and Development (R&D) expense $ 628.8 $ 628.1 $ 715.0
Selling, general and administrative (SG&A) expense $ 759.4 $ 737.7 $ 680.9
Gain on sale of nonfinancial assets $ - $ (59.5) $ (25.0)
Benefit from income taxes $ (11.3) $ (901.4) $ (71.0)
Net income (loss) $ (64.1) $ 859.1 $ (23.8)
See “Results of Operations” below for a discussion of our results for the periods presented.
Uncertainty related to the COVID-19 pandemic
The COVID-19 pandemic continues to affect economies and business around the world. Our global revenue sources, mostly in the form of demand interruptions such as missed patient infusions and delayed treatment starts for new patients, and our overall business operations were impacted by COVID-19 during the years endedDecember 31, 2021 and 2020 and we anticipate a continued impact on our financial results in 2022. The extent and duration of such effects remain uncertain and difficult to predict, particularly as virus variants continue to spread. We are actively monitoring and managing our response and assessing actual and potential impacts to our operating results and financial condition, as well as developments in our business, which could further impact the developments, trends and expectations described below. See the risk factor related to the impact of the COVID-19 pandemic, "The COVID-19 pandemic could continue to materially adversely affect our business, results of operations and financial condition." described in "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K. Business Developments We continued to grow our commercial business and advance our product candidate pipeline during 2021. We believe that the combination of our internal research programs, acquisitions and partnerships will allow us to continue to develop and commercialize innovative therapies for people with serious and life-threatening rare diseases and medical conditions. Below is a summary of key business developments:
Continuous focus on research and development
Late-stage regulatory portfolio
•Voxzogo: InAugust 2021 , theEuropean Commission approved Voxzogo for the treatment of children, ages two years and older. Regulatory approvals were also received inBrazil and in theU.S. inNovember 2021 , for children ages five and older with open growth plates. The launch is actively underway, with market access and reimbursement progressing as anticipated. At the end of 2021, there were seven active markets contributing to Voxzogo sales.
Voxzogo Marketing Authorization Notice in
InFebruary 2022 , we announced an update from the Phase 2 randomized, double-blind, placebo-controlled Voxzogo study in infants and young children up to five years of age with achondroplasia. Results at 52 weeks trended in favor of Voxzogo compared to placebo on height (adjusted for age and gender) and annualized growth velocity, with no worsening in proportionality in the overall study population. The safety profile was generally consistent with older children from the Phase 3 study and product label population. We intend to initiate discussions with regulatory health authorities to discuss next steps regarding efforts to expand access to Voxzogo treatment for this younger age group. •Valoctocogene roxaparvovec: TheEuropean Medicines Agency (EMA) validated our Marketing Authorization Application (MAA) for valoctocogene roxaparvovec resulting in an anticipated Committee for Medicinal Products for Human Use opinion in the second quarter of 2022. We have provided the EMA with two-year follow-up safety and efficacy data from theGENEr8 -1 study. 59
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
Based on the favorable results from the two-year follow-up safety and efficacy
data from the GENEr8 -1 study, we are targeting a Biologics License Application
(BLA) resubmission for valoctocogene roxaparvovec in the second quarter of 2022.
If the resubmission satisfies Food and Drug Administration's (FDA) response to
the Complete Response Letter received in August 2020 , we expect resubmission
will be followed by a six-month review procedure by the FDA.
Select a development portfolio at an early stage
•BMN 307 gene therapy product candidate for PKU: InSeptember 2021 , the FDA placed a clinical hold on PHEarless, the Phase 1/2 study evaluating BMN 307, an investigational AAV5-phenylalanine hydroxylase (PAH) gene therapy, on adults with PKU. The hold was based on pre-clinical study findings from a model designed to understand the durability of BMN 307 activity in mice bearing two germline mutations, one rendering the mice immunodeficient. The durability study was one of multiple pre-clinical studies we conducted and was not designed to test safety. However, we promptly notified the FDA upon availability of the integration site analysis results. The FDA initiated a clinical hold shortly after being notified and we announced the hold before the next business day after informing the FDA. InFebruary 2022 , the FDA requested data from additional non-clinical studies to assess theoretical oncogenic risk to human study participants, which is expected to take several quarters. We will communicate next steps for the program when available. •BMN 255 for primary hyperoxaluria type 1, a subset of chronic renal disease: The Investigational New Drug application (IND) for BMN 255 is active and we are dosing subjects with dose selection for advanced studies expected in the second half of 2022. We believe the availability of a potent, orally bioavailable, small molecule like BMN 255 may be able to significantly reduce disease and treatment burden in certain people with chronic renal disease.
Outlook 2022
We expect that our product pipeline investments and expanding commercial infrastructure will enable us to execute on our 2022 operating objectives. In 2022, we will continue to focus on our key operating objectives which include continued progression of our product pipeline and continued global expansion of our commercial products. From an R&D perspective, we expect to continue to invest in our various ongoing clinical studies which support both our commercial products and research and early development pipeline. We expect to move forward on our late and early-stage clinical studies for new product candidates, including the resubmission of the BLA for valoctocogene roxaparvovec as noted above. From a commercial perspective, we expect to continue to support our global business as it grows, including support of the commercialization of Voxzogo and pre-commercialization activities related to valoctocogene roxaparvovec. We expect to continue to experience significant declines in Kuvan revenues in theU.S. due to theOctober 2020 loss of market exclusivity. We anticipated and prepared for this loss of exclusivity and the reduction in our market share, as well as the adverse effect on our revenues and results of operations. We expect to experience growth in Net Product Revenues with respect to our new and other existing commercial products. We continue to monitor conditions in the macroeconomic environment that could affect our ability to achieve our goals, such as the continuing impact of the COVID-19 pandemic on all aspects of our business, changes in the reimbursement and payer landscape, changes in economic conditions in certain key markets, particularly inEurope andLatin America , market competition and the launch of generic competitors, international government pricing pressures and the potential volatility in foreign currency exchange rates. We will adjust our business processes, as appropriate, to attempt to mitigate these risks to our business.
Critical accounting estimates
In preparing our Consolidated Financial Statements in accordance withU.S. GAAP and pursuant to the rules and regulations promulgated by theSecurities and Exchange Commission (theSEC ), we make assumptions, judgments and estimates that can have a significant impact on our net income/loss and affect the reported amounts of certain assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and discuss our critical accounting policies and estimates with the Audit Committee of our Board of Directors. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. The full extent to which the ongoing COVID-19 pandemic could continue to directly or indirectly impact our business, results of operations and financial condition, including revenues, expenses, reserves and allowances, manufacturing, clinical trials and research and development costs will depend on future developments that continue to remain highly uncertain at this time, 60
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
especially as variants of the virus continue to spread. As events continue to evolve and additional information becomes available, our estimates may change significantly in future periods.
Our significant accounting policies are described in Note 1 to our accompanying Consolidated Financial Statements included in this Annual Report on Form 10-K. We believe the critical accounting policies below reflect the most critical judgments and estimates used in the preparation of our Consolidated Financial Statements.
Revenue recognition and related allowances
Net Product Revenues - We recognize revenue when the customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. For Aldurazyme revenues, we receive a payment ranging from 39.5% to 50% on worldwide net Aldurazyme sales by Sanofi (formerly referred to as Sanofi Genzyme) depending on sales volume, which is included in Net Product Revenues in our Consolidated Statements of Operations. We recognize our best estimate of the entire revenue that we expect to receive when the product is released and control is transferred to Sanofi. We record Aldurazyme net product revenues based on the estimated variable consideration payable when the product is sold through by Sanofi. Differences between the estimated variable consideration to be received from Sanofi and actual payments received are not expected to be material. If actual results vary from our estimates, we will make adjustments, which would affect Net Product Revenues and earnings in the period such variances become known. Gross-to-Net Sales Adjustments - We record product sales net of estimated mandatory and supplemental discounts to government payers, in addition to discounts to private payers, and other related charges. Rebates, cash discounts and distributor fees represent the majority of our gross-to-net deductions and are recorded in the same period the related sales occur. Rebates include amounts paid to Medicaid, other government programs, certain managed care providers, as well as foreign government rebates. Rebates, branded co-pay assistance programs, cash discounts and distributor fees are estimates based on contractual arrangements or statutory obligations, which may vary by product and payer. Estimation requires evaluation of our historical experience, customer mix, current contractual and statutory obligations, specific known market events and trends and industry data. We evaluate our customer mix to estimate which sales will be subject to these revenue dilutive items and consider changes to government program guidelines that would impact the actual rebates and/or our estimates of which sales qualify for such rebates. We update our estimates and assumptions each quarter based on actual historical experience, current contractual and statutory requirements, specific known market events and trends and forecasted customer buying and payment patterns and record any necessary adjustments to our reserves to reflect current information. We believe the methodologies that we use to estimate allowances are reasonable and appropriate given the facts and circumstances. However, actual results may differ significantly from our estimates.
The following table summarizes the consolidated operations and closing balances of all our gross to net sales adjustments:
Balance at Provision for
Beginning of Current Period Balance at End
Year Sales Payments of Year
Year ended December 31, 2021 $ 104.4 $ 252.9 $ (271.7) $ 85.6
Year ended December 31, 2020 $ 114.4 $ 239.9 $ (249.9) $ 104.4
Year ended December 31, 2019 $ 80.7 $
198.1
Product inventory prior to regulatory approval
When future commercialization for a product candidate is considered probable and
management believes that material uncertainties related to the ultimate
regulatory approval have been significantly reduced and we expect to realize
economic benefit in the future, we capitalize pre-launch or pre-qualification
manufacturing costs prior to regulatory approval. For inventories that are
capitalized in preparation of product launch, management considers a number of
factors based on the information available at the time, including the product
candidate's current status in the drug development and regulatory approval
process, results from the related pivotal clinical trial, results from meetings
with relevant regulatory agencies prior to the filing of regulatory
applications, historical experience, as well as potential impediments to the
approval process such as product safety or efficacy, as well as
commercialization and market trends.
In applying the lower of cost or net realizable value to pre-launch inventory,
we estimate a range of likely commercial prices based on our comparable
commercial products and consider the product candidate's stability data for all
of the pre-approval production to date to determine whether there is adequate
expected shelf life for the capitalized pre-launch production costs. If
additional requirements are subsequently presented by the regulatory authorities
prior to their final decision, thus extending anticipated regulatory approval
timelines resulting in expiration of the product prior to revised demand
forecasts, as occurred in the
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
third quarter of 2020 with valoctocogene roxaparvovec, the pre-launch inventory
costs are expensed to Cost of Sales. If the marketing application is ultimately
rejected by the applicable regulators and the pre-launch inventory cannot be
sold for commercial use, the pre-launch inventory costs are expensed to R&D. As
of December 31, 2021 , there were no pre-launch inventory costs on our
Consolidated Balance Sheets.
Income taxes
We calculate and provide for income taxes in each of the tax jurisdictions in which we operate. Our Consolidated Balance Sheets reflect net deferred tax assets and liabilities, which are measured using enacted tax rates. The net deferred tax assets primarily represent the tax benefit of tax credits and timing differences between book and tax recognition of certain revenue and expense items, net of a valuation allowance. When it is more likely than not that all or some portion of deferred tax assets may not be realized, we establish a valuation allowance for the amount that may not be realized. We utilize financial projections to support our net deferred tax assets, which contain significant assumptions and estimates of future operations. If such assumptions were to differ significantly, it may have a material impact on our ability to realize our deferred tax assets. Changes in our valuation allowance will result in a change to tax expense. We establish liabilities or reduce assets for certain tax positions when we believe those certain tax positions are not more likely than not to be sustained if challenged. Each quarter, we evaluate these uncertain tax positions and adjust the related tax assets and liabilities in light of changing facts and circumstances. We are subject to income taxes in theU.S. and various foreign jurisdictions, includingIreland . Due to economic and political conditions, various countries are actively considering changes to existing tax laws. We cannot predict the form or timing of potential legislative changes that could have a material adverse impact on our results of operations. Management is not aware of any potential changes that would have a material effect on our Consolidated Financial Statements. See Note 15 to our accompanying Consolidated Financial Statements for additional discussion.
Recent accounting pronouncements
See Note 1 to our accompanying consolidated financial statements for a complete description of recent accounting pronouncements and our expectations as to their impact, if any, on our results of operations and financial condition.
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
Operating results
Net profit (net loss)
Net income (net loss) is made up of the following:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Total revenues $ 1,846.3 $ 1,860.5 $ 1,704.0 $ (14.2) $ 156.5
Cost of sales 470.5 524.3 359.5 (53.8) 164.8
R&D expense 628.8 628.1 715.0 0.7 (86.9)
SG&A expense 759.4 737.7 680.9 21.7 56.8
Intangible asset amortization
and contingent consideration 69.9 66.7 74.1 3.2 (7.4)
Gain on sale of nonfinancial
assets - (59.5) (25.0) 59.5 (34.5)
Other income (expense), net 7.0 (5.5) 5.7 12.5 (11.2)
Benefit from income taxes (11.3) (901.4) (71.0) 890.1 (830.4)
Net income (loss) $ (64.1) $ 859.1 $ (23.8) $ (923.2) $ 882.9
2021 compared to 2020
The increase in net loss for the year ended
•decreased benefit from income taxes of$890.1 million , primarily due to the completion of an intra-entity transfer of certain IP rights to an Irish subsidiary where our Ex-U.S. regional headquarters are located and we have significant manufacturing and commercial operations, to better align ownership of IP rights with how the business operates, which resulted in a tax benefit of$835.1 million based on the fair value of the transferred IP rights in the third quarter of 2020. There was no similar transaction in 2021; and
• decrease in the gain on the sale of non-financial assets of
•an increase in gross profit primarily driven by the absence of the$81.2 million inventory charge related to pre-launch valoctocogene roxaparvovec inventory reserves following regulatory responses received in the third quarter of 2020 requesting additional data extending the anticipated regulatory approval timelines. 63
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
Net revenue from products
Net product revenue consisted of the following:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Net product revenues by
product:
Vimizim $ 623.1 $ 544.4 $ 544.3 $ 78.7 $ 0.1
Naglazyme 380.4 391.3 374.3 (10.9) 17.0
Kuvan 285.8 457.7 463.4 (171.9) (5.7)
Palynziq 237.5 171.0 86.9 66.5 84.1
Brineura 128.0 110.2 72.0 17.8 38.2
Voxzogo 5.9 - - 5.9 -
Firdapse - 1.2 22.3 (1.2) (21.1)
Total net product revenues
marketed by the Company $ 1,660.7 $ 1,675.8
Net sales of the Aldurazyme product marketed by Sanofi
122.8 130.1 97.8 (7.3) 32.3 Total net product revenues$ 1,783.5 $ 1,805.9 $ 1,661.0 $ (22.4) $ 144.9 2021 compared to 2020
The decline in net product revenues for the year ended
•Kuvan: the decrease was primarily attributed to generic competition as a result of the loss of exclusivity in theU.S. that occurred inOctober 2020 . We anticipated and prepared for this loss of exclusivity and the reduction in our market share, as well as the adverse effect on our revenues and results of operations. We expect to continue to experience adverse effects on our market share and revenues in the future.
• Naglazyme: the decrease is mainly attributable to the timing of orders for
• Aldurazyme: the decrease was attributed to a higher volume of product deliveries to Sanofi in 2020 compared to 2021; partially offset by
•Palynziq: the increase was primarily attributed to a combination of revenue from more patients achieving maintenance dosing in theU.S. and new patients initiating therapy in theU.S. ;
• Brineura: the increase was mainly attributed to new patients who started treatment in
•Voxzogo: the increase was due to the commercial launch in 2021, following regulatory approvals in the EU and theU.S. in the third and fourth quarters of 2021, respectively. In certain countries governments place large periodic orders for Naglazyme and Vimizim. We expect that the timing of these large government orders will continue to be inconsistent, which can create significant period to period variation in our revenues. We anticipate the COVID-19 pandemic will have a continued impact on 2022 Net Product Revenues as many of our products are administered via infusions in a clinic or hospital setting and/or by a healthcare professional. Although we continue to work with our patient community and health care providers to find alternative arrangements where necessary, such as providing infusions at home, the revenue from the doses of our products that are missed by patients and the lost revenue from delayed treatment starts for new patients will never be recouped. See the risk factors "The sale of generic versions of Kuvan by generic manufacturers may adversely affect our revenues and results of operations" and "The COVID-19 pandemic could continue to materially adversely affect our business, results of operations and financial condition" in "Risk Factors" included in Part I, Item 1A of this Annual Report on Form 10-K for additional information. 64
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
We face exposure to movements in foreign currency exchange rates, primarily the
Euro. We use forward foreign currency exchange contracts to hedge a percentage
of our foreign currency exposure. The following table shows our Net Product
Revenues denominated in USD and foreign currencies:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Sales denominated in USD
Sales denominated in foreign currencies
822.4 742.7 728.4 79.7 14.3 Total net product revenues$ 1,783.5 $ 1,805.9 $ 1,661.0 $ (22.4) $ 144.9 Years Ended December 31, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Favorable (unfavorable) impact of foreign currency exchange rates on product sales denominated in currencies other than USD$ 2.3 $ (23.3) $ (24.8) $ 25.6 $ 1.5
Against the USD, the favorable impact in 2021 is mainly due to a strengthening of the euro and the pound sterling; partially offset by weakening currencies in Latin American markets such as
See "Quantitative and Qualitative Disclosures about Market Risk" in Part II, Item 7A of this Annual Report on Form 10-K for information on currency exchange rate risk related to our Net Product Revenues.
Royalties and other income
Royalty and Other Revenues include royalties earned on net sales of products
sold by third parties, up-front licensing fees, milestones achieved by licensees
or sublicensees and rental income associated with the tenants in our facilities.
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Royalty and other revenues $ 62.8 $ 54.6
The increase in royalty and other income in 2021 compared to 2020 was primarily due to a license payment received from a third party due to reaching a regulatory milestone in the first quarter of 2021 and subsequent royalties received on third party net sales of approved product.
We expect to continue to collect royalties from third parties in the future.
Cost of sales and gross margin
Cost of Sales includes raw materials, personnel and facility and other costs associated with manufacturing our commercial products. These costs include production materials, production costs at our manufacturing facilities, third-party manufacturing costs, and internal and external final formulation and packaging costs. Cost of Sales also includes royalties payable to third parties based on sales of our products and charges for inventory valuation reserves.
The following table summarizes our cost of sales and gross margin:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Total revenues $ 1,846.3 $ 1,860.5 $ 1,704.0 $ (14.2) $ 156.5
Cost of sales $ 470.5 $ 524.3 $ 359.5 $ (53.8) $ 164.8
Gross margin 74.5 % 71.8 % 78.9 % 2.7 % (7.1) %
Cost of Sales decreased for 2021 compared to 2020 primarily due to the absence
of the $87.2 million pre-launch valoctocogene roxaparvovec inventory charge
following regulatory responses received in third quarter of 2020 requesting
additional data extending the anticipated regulatory approval timelines. Gross
margin for 2021 compared to 2020 increased
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
primarily due to the pre-launch valoctocogene roxaparvovec inventory charge in
the third quarter of 2020, partially offset by unfavorable impact of product mix
as there were higher sales of lower margin products.
We expect the gross margin to be between 75% and 77% over the next twelve months.
Research and development
R&D expenses include costs associated with research and development of product candidates and post-marketing research commitments related to our approved products. R&D expenses primarily include preclinical and clinical studies, personnel and raw material costs associated with manufacturing the clinical product, quality control and assurance, 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. We continuously evaluate the recoverability of costs associated with pre-launch or pre-qualification manufacturing activities, and capitalize the costs incurred related to those activities if it is determined that recoverability is highly likely and therefore future revenues are expected. When regulatory approval and the likelihood of future revenues for a product candidate are less certain, the related manufacturing costs are expensed as R&D expenses. We did not have any pre-launch or pre-qualification manufacturing activities capitalized as ofDecember 31, 2021 . See "Critical Accounting Estimates - Inventory Produced Prior to Regulatory Approval" above, and Note 5 to our accompanying Consolidated Financial Statements for additional information regarding our inventory.
R&D expenses break down as follows:
Years Ended
2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Research and early development$ 190.9 $ 156.4 $ 75.0 $ 34.5 $ 81.4 Voxzogo 129.3 130.8 120.9 (1.5) 9.9 Valoctocogene roxaparvovec 115.1 116.2 192.8 (1.1) (76.6) Other approved products 108.5 133.7 175.8 (25.2) (42.1) BMN 307 60.9 72.6 89.2 (11.7) (16.6) BMN 255 8.7 8.6 4.4 0.1 4.2 Other 15.4 9.8 56.9 5.6 (47.1) Total R&D expense$ 628.8 $ 628.1 $ 715.0 $ 0.7$ (86.9) 2021 compared to 2020
R&D expenses remained relatively stable but included the following compensating items:
• higher spending on research and early development programs due to increased preclinical activities and a
• a reduction in clinical activities related to approved products as various long-term post-marketing studies have been completed and
• Lower BMN 307 program expenses mainly due to lower clinical manufacturing activities, as no clinical product was manufactured in 2021.
We expect R&D expense to increase in future periods compared to 2021, primarily due to increased spending on preclinical activities for our research and early development programs while we continue to develop our later stage programs.
Selling, general and administrative expenses
Sales and marketing (S&M) expenses consisted primarily of employee-related expenses for our sales group, brand marketing, patient support groups and pre-marketing expenses related to our product candidates. general and
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Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
administrative expenses (G&A) consisted mainly of business support expenses and other administrative expenses, including personnel expenses.
SG&A expenses consisted of the following:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
S&M expense $ 405.1 $ 403.4 $ 382.2 $ 1.7 $ 21.2
G&A expense 354.3 334.3 298.7 20.0 35.6
Total SG&A expense $ 759.4 $ 737.7 $ 680.9 $ 21.7 $ 56.8
S&M spend by product was as follows:
Years Ended December
31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019 PKU Products (Kuvan and Palynziq)$ 124.6 $ 127.5
102.9 108.1 119.2 (5.2) (11.1) Voxzogo 75.1 34.5 13.3 40.6 21.2 Valoctocogene roxaparvovec 54.0 87.3 50.3 (33.3) 37.0 Brineura 36.2 37.8 45.4 (1.6) (7.6) Other 12.3 8.2 16.8 4.1 (8.6) Total S&M expense$ 405.1 $ 403.4 $ 382.2 $ 1.7 $ 21.2 2021 compared to 2020 The increase in S&M expense was primarily a result of an increase in pre-commercial activities related to Voxzogo, partially offset by a reduction in valoctocogene roxaparvovec activities, based on a change in anticipated timelines for potential approval following regulatory responses received in the third quarter of 2020 requesting additional data, and decreased activity related to our MPS Products. The increase in G&A expense was primarily due to the idle plant time related to maintaining our valoctocogene roxaparvovec manufacturing capabilities and higher employee-related expenses.
We expect SG&A expenses to increase in future periods as we prepare for new product launches and support our global business as it expands.
Amortization of intangible assets and contingent consideration and gain on sale of non-financial assets
Changes during the periods presented for Intangible Asset Amortization and
Contingent Consideration and Gain on Sale of Nonfinancial Assets were as
follows:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Amortization of intangible assets $ 61.9 $ 62.2 $ 53.5 $ (0.3) $ 8.7
Changes in the fair value of
contingent consideration (gain) /
loss 8.0 4.5 20.6 3.5 (16.1)
Total intangible asset
amortization and contingent
consideration $ 69.9 $ 66.7 $ 74.1 $ 3.2 $ (7.4)
Gain on sale of nonfinancial
assets $ - $ 59.5 $ 25.0 $ (59.5) $ 34.5
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
2021 vs. 2020
Fair value of contingent consideration: the 2021 increase in the change in the fair value of contingent consideration as compared to 2020 was due to changes in the estimated probability of achieving sales milestones related to our PKU products.
Amortization of intangible assets: the variation in 2021 compared to 2020 is relatively stable.
Gain on Sale of Nonfinancial Assets: the decrease in 2021 as compared to 2020 is due to the recognition of a$59.5 million gain in 2020 related to the divestiture and sale of the Firdapse business. See Note 3 to our accompanying Consolidated Financial Statements for additional information.
interest income
We invest our cash equivalents and investments inU.S. government securities and other high credit quality debt securities in order to limit default and market risk. Years Ended December 31, 2021 2020 2019 2021 vs. 2020 2020 vs. 2019 Interest income$ 10.5 $ 16.6 $ 22.7 $ (6.1) $ (6.1)
The decline in interest income in 2021 compared to 2020 is mainly due to lower interest rates.
We expect interest income to be higher over the next 12 months due to expected higher interest rates and returns on our cash equivalents and investments.
Interest charges
We incur interest expense primarily on our convertible debt. Interest expense for the periods presented is as follows:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Interest expense $ 15.3 $ 29.3 $ 23.5 $
(14.0) $5.8
The decrease in Interest Expense in 2021 compared to 2020 was primarily due to the maturity of our 1.50% senior subordinated convertible notes which matured and were settled inOctober 2020 . We do not expect Interest Expense to fluctuate significantly over the next 12 months. See Note 10 to our accompanying Consolidated Financial Statements for additional information regarding our debt. 68
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
Other income, net
Other net income for the periods presented is as follows:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Other income, net $ 11.8 $ 7.1 $ 6.4 $
$4.7 0.7
Other Income, Net in 2021 increased compared to the same period in 2020 primarily due to the receipt of insurance proceeds in excess of direct costs incurred in the third quarter of 2021 partially offset by a decrease in grant income and the fair value of the assets held in our deferred compensation plan.
Benefit from income tax
The income tax benefit for the periods presented was as follows:
Years Ended December 31,
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Benefit from income taxes $ (11.3) $ (901.4) $ (71.0) $
890.1
Benefit from income taxes in 2021 decreased compared to the same period in 2020, primarily due to the 2020 intra-entity transfer of certain intellectual property rights to an Irish subsidiary for which there was no a similar transaction in 2021. Our Benefit from Income Taxes in 2021 and 2020 consisted of state, federal and foreign current tax expense which was offset by tax benefits related to stock option exercises and deferred tax benefits from federal orphan drug credits, federal R&D credits and California R&D credits. The Benefit from Income Taxes for the year endedDecember 31, 2021 was further impacted by the renegotiation of a license agreement in the fourth quarter of 2021. As a result of the renegotiated agreement, royalty projections for our Dutch subsidiary decreased through the remaining contractual life of the agreement. These royalties are the only source of income for our Dutch entity. The revised royalty projections required an increase to the valuation allowance on net operating loss deferred tax assets that are no longer expected to be realizable. See Note 15 to our accompanying Consolidated Financial Statements for additional information.
Operating results 2020 compared to 2019
For a discussion of our results of operations pertaining to 2020 as compared to 2019 see Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Financial position, liquidity and capital resources
Our cash, cash equivalents, and investments as ofDecember 31, 2021 and 2020 were as follows: 2021 2020 Cash and cash equivalents$ 587.3 $ 649.2 Short-term investments 426.6 416.2 Long-term investments 507.8 285.5
Total cash, cash equivalents and investments
We believe our cash generated from sales of our commercial products, in addition
to our cash, cash equivalents and investments will be sufficient to satisfy our
liquidity requirements for the next 12 months. We believe we will meet
longer-term expected future cash requirements and obligations through a
combination of cash flows from operating activities, available cash and
investments balances and available revolving loan balances. We will need to
raise additional funds from equity or debt securities, loans or collaborative
agreements if we are unable to satisfy our liquidity requirements. For example,
we may require additional financing to fund the repayment of our convertible
debt, future milestone payments and our future operations, including the
commercialization of our products and product candidates currently under
development, preclinical studies and clinical trials, and potential licenses and
acquisitions. The timing and mix of our funding options could change depending
on many factors, including how much we elect to spend on our development
programs, potential licenses and acquisitions of complementary
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
technologies, products and companies or if we elect to settle all or a portion
of our convertible debt in cash. Our ability to raise additional capital may
also be adversely impacted by potential worsening global economic conditions and
the recent disruptions to, and volatility in, financial markets in the U.S. and
worldwide resulting from the ongoing COVID-19 pandemic.
We are mindful that conditions in the current macroeconomic environment could
affect our ability to achieve our goals. We sell our products in countries that
face economic volatility and weakness. Although we have historically collected
receivables from customers in such countries, sustained weakness or further
deterioration of the local economies and currencies and adverse effects of the
impact of the ongoing COVID-19 pandemic may cause customers in those countries
to be unable to pay for our products. We will continue to monitor these
conditions and will attempt to adjust our business processes, as appropriate, to
mitigate macroeconomic risks to our business.
Our cash flows for each of the years ended December 31, 2021 and 2020 were as
follows:
2021 2020 2021 vs. 2020
Net cash provided by operating activities $ 304.5 $ 85.4 $
219.1
Net cash used in investing activities
(312.7)
Net cash provided by financing activities – $
(181.1)
The increase in net cash provided by operating activities in 2021 compared to 2020 was primarily attributed to the timing of cash receipts from our customers and licensees, the timing of payments made to vendors and tax refund proceeds. The increase in net cash used in investing activities in 2021 compared to 2020 was primarily attributable to higher net purchases of available-for-sale debt securities and the absence of the$67.2 million in proceeds received from the divestiture and sale of Firdapse to a third party in the first quarter of 2020 partially offset by lower purchases of property, plant and equipment. The decrease in net cash provided by financing activities in 2021 compared to 2020 was primarily attributed to the absence of net proceeds from the 1.25% senior subordinated convertible notes due in 2027 Notes (the 2027 Notes) issued in 2020 and lower exercises of awards under our equity incentive plans.
Financing and credit facilities
Our$1.1 billion (undiscounted) of total convertible debt as ofDecember 31, 2021 will impact our liquidity due to the semi-annual cash interest payments as well as the repayment of the principal amount, if not converted. As ofDecember 31, 2021 , our indebtedness consisted of the 2027 Notes and our 0.599% senior subordinated convertible notes due in 2024 (the 2024 Notes and together with the 2027 Notes, the Notes), which, if not converted, will be required to be repaid in cash at maturity inAugust 2024 andMay 2027 , respectively. Our 2020 Notes matured onOctober 15, 2020 and were settled in cash for approximately$375.0 million . No shares were issued in connection with the settlement as our share price did not exceed the conversion price of$94.15 , as measured over a 25-day averaging period, and the capped call transaction entered into concurrently with the issuance of the 2020 Notes was not triggered. InOctober 2018 , we entered into an unsecured revolving credit facility of up to$200.0 million that included a letter of credit subfacility and a swingline loan subfacility. The credit facility is intended to finance ongoing working capital needs and for other general corporate purposes. InMay 2021 , we amended the credit facility agreement, extending the maturity date fromOctober 19, 2021 toMay 28, 2024 , among other changes. The amended credit facility contains financial covenants including a maximum leverage ratio and a minimum interest coverage ratio. As ofDecember 31, 2021 , there were no outstanding amounts due on nor any usage of the credit facility and we were in compliance with all covenants.
See Note 10 to our accompanying consolidated financial statements for additional discussion of our convertible debt and credit facility.
Other important sources of liquidity
InFebruary 2022 , we entered into an agreement to sell our Rare Pediatric Disease Priority Review Voucher (PRV) received from the FDA in connection with theU.S. approval of Voxzogo. In exchange for the PRV, we will receive a lump sum payment of$110.0 million . See Note 19 to our accompanying Consolidated Financial Statements for additional discussion. 70
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Management report and analysis of the financial situation and the results of
Operations (continued)
(In millions of U.S. Dollars, except as otherwise disclosed)
Material cash needs
Funding commitments
Our investment in our research and early development of product candidates and continued development of our existing commercial products has a major impact on our operating performance. Our R&D expenses for the period since inception as ofDecember 31, 2021 for certain of our key programs were as follows: Since Program Inception Valoctocogene roxaparvovec$ 825.1 Voxzogo$ 700.0 BMN 307$ 240.8 BMN 255 $ 25.9 Other approved products$ 2,373.2 We cannot estimate with certainty the cost to complete any of our product development programs. We may need or elect to increase our spending above our current long-term plans to be able to achieve our long-term goals. This may increase our capital requirements, including: costs associated with the commercialization of our products? additional clinical trials; investments in the manufacturing of our commercial products? preclinical studies and clinical trials for our product candidates? potential licenses and other acquisitions of complementary technologies, products and companies? and general corporate purposes. Additionally, we cannot precisely estimate the time to complete any of our product development programs or when we expect to receive net cash inflows from any of our product development programs. Please see "Risk Factors" included in Part I, Item 1A of this Annual Report on Form 10-K, for a discussion of the reasons we are unable to estimate such information.
Purchase and lease obligations
As ofDecember 31, 2021 , we had obligations of approximately$133.3 million , all of which was short term and primarily related to firm purchase commitments entered into in the normal course of business to procure active pharmaceutical ingredients, certain inventory-related items and certain third-party R&D services, production services and facility construction services.
From
Conditional bonds
From
As ofDecember 31, 2021 , we were subject to contingent payments deemed reasonably possible of incurring losses totaling approximately$788.5 million upon achievement of certain development, regulatory and commercial sales milestones if they occur before certain dates in the future. Of this amount, we may pay$37.7 million in 2022 if certain contingencies are met. See Note 18 to our accompanying Consolidated Financial Statements for additional discussion on our contingent obligations.
Unrecognized tax advantages
As ofDecember 31, 2021 , our liability for unrecognized tax benefits was$205.1 million . Due to their nature, we cannot reasonably estimate the timing of future payments. See Note 15 to our accompanying Consolidated Financial Statements for a full discussion on our income taxes. 71
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