BIOMARIN PHARMACEUTICAL INC (BMRN) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. 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 with United States (U.S.) generally accepted accounting principles (GAAP) and are presented in U.S. Dollars (USD).

Overview

We are a global biotechnology company dedicated to translating the promise of genetic discovery into medicines that make a profound impact on the life of each patient. Our San Rafael, California-based company, founded in 1997, has a proven track record of innovation with eight commercial therapies and a strong clinical and preclinical pipeline. Using a distinctive approach to drug discovery and development, we pursue treatments that offer new possibilities for patients and families around the world navigating rare or difficult to treat genetic conditions. A summary of our commercial products, as of December 31, 2024, is provided below:

2024 Financial Highlights

Key components of our results of operations include the following:

See “Results of Operations” below for discussion of our results for the periods presented.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Uncertainty Relating to Macroeconomic Environment

Conditions in the current macroeconomic environment, such as inflation, changes in interest and foreign currency exchange rates, natural disasters, geopolitical instability, tariffs and tensions, and supply chain disruptions, could impact our global revenue sources and our overall business operations. The extent and duration of such effects remain uncertain and difficult to predict. 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, “Our business is affected by macroeconomic conditions.” 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 2024. We believe that the combination of our internal research programs 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.

In 2024, we achieved $2.9 billion in total revenues, including a significant contribution from our ongoing expansion of VOXZOGO, and we continued making important advancements in our product development pipeline. In the first half of 2024, we focused on value creation through working to accelerate growth, optimize efficiencies and drive operational excellence, including progress in executing on key strategic priorities first outlined in January 2024. We also completed a strategic portfolio assessment of research and development programs to determine which we believe have the strongest combination of scientific merit, opportunity for commercial success and potential value creation for stockholders. In September 2024, we held an Investor Day, during which we provided an overview of our new corporate strategy focused on innovation, growth, and value commitment. Our new strategy includes, among other things, our plans to expand VOXZOGO for the treatment of conditions beyond achondroplasia, our initiatives to drive sustained growth of the Enzyme Therapies portfolio (ALDURAZYME, BRINEURA, NAGLAZYME, PALYNZIQ and VIMIZIM), and our decision to focus on the U.S., Germany and Italy with respect to ROCTAVIAN. See the risk factor, “Our success depends on our ability to manage our growth and execute our corporate strategy.” described in “Risk Factors” in Part I, Item 1A of this Annual Report.

Change in Presentation

On January 1, 2024, we changed our presentation of foreign currency transaction gains and losses resulting from remeasurement and idle plant costs within our Consolidated Statements of Income. See Note 1 to our accompanying Consolidated Financial Statements for additional details.

Results of Operations

Net Product Revenues

Net Product Revenues consisted of the following:

The increase in Net Product Revenues in 2024 as compared to 2023 was primarily attributed to the following:

•VOXZOGO: higher sales volume from new patients initiating therapy across all regions;

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(In millions of U.S. Dollars, except as otherwise disclosed)

•NAGLAZYME: higher sales volume due to timing of orders in countries that place large government orders, particularly in the Middle East;

•ALDURAZYME: higher sales volume due to timing of order fulfillment to Sanofi as we recognize ALDURAZYME revenues when the product is released and control is transferred to Sanofi;

•PALYNZIQ: higher sales volume from new patients initiating therapy, primarily in the U.S.;

•VIMIZIM: higher sales volume due to new patients initiating therapy in the U.S. and timing of orders in countries that place large government orders, particularly in Europe; and

•ROCTAVIAN: higher sales volume from new patients treated in the U.S. and Europe.

These increases were partially offset by the following:

•KUVAN: lower product revenues attributed to increasing generic competition as a result of the loss of market exclusivity.

In certain countries, governments place large periodic orders for our products. We expect that the timing of these large government orders will continue to be inconsistent, which has created in the past and may continue to create significant period to period variation in our revenues.

With respect to VOXZOGO, see also the risk factor “Our success depends on our ability to manage our growth and execute our corporate strategy.” in "Risk Factors" included in Part I, Item 1A of this Annual Report for additional information on risk factors that could impact our business and operations.

With respect to KUVAN, see also the risk factor “If we fail to compete successfully with respect to product sales, we may be unable to generate sufficient sales to recover our expenses related to the development of a product program or to justify continued marketing of a product and our revenues could be adversely affected.” in “Risk Factors” included in Part I, Item 1A of this Annual Report for additional information on risks we face.

We face exposure to movements in foreign currency exchange rates, and use foreign currency exchange forward contracts to hedge a percentage of our foreign currency exposure, primarily the Euro. Certain currencies are not included in our hedging program, such as the Argentine Peso. With respect to the risks posed by fluctuations of both hedged and unhedged currencies against the USD, see the risk factor “Our international operations pose currency risks, which may adversely affect our operating results and net income” in “Risk Factors” included in Part I, Item 1A of this Annual Report for additional information. The following table shows our Net Product Revenues denominated in USD and foreign currencies:

The unfavorable impact of foreign currency exchange rates on USD reported results in 2024 was primarily driven by the weakening of the Argentine Peso and Japanese Yen.

See “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of this Annual Report on Form 10-K and the risk factor “Our international operations pose currency risks, which may adversely affect our operating results and net income” in “Risk Factors” included in Part I, Item 1A of this Annual Report for information on currency exchange rate risk related to our Net Product Revenues.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Cost of Sales and Gross Margin

Cost of Sales includes raw materials, personnel, 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, amortization of technology transfer intangible assets 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, idle plant costs and charges for inventory valuation reserves.

The following table summarizes our Cost of Sales and gross margin:

Cost of Sales increased for 2024 compared to 2023 primarily due to higher sales volumes. Gross margin increased compared to 2023 primarily due to lower per unit manufacturing costs of our enzyme products driven by improved yields.

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 commercial products. R&D expense primarily includes preclinical and clinical studies, personnel and raw materials costs associated with manufacturing clinical product, quality control and assurance, other R&D activities, R&D facilities and regulatory costs.

We group all of our R&D activities and related expense into three categories: (i) Research and early pipeline, (ii) Later-stage clinical programs and (iii) Marketed products as follows:

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, if any, and capitalize the costs incurred related to those activities if we determine that recoverability is highly likely and therefore future revenues are expected. If the related product candidate's marketing application is rejected by the applicable regulators and the likelihood of future revenues for a product candidate become uncertain, the related manufacturing costs are expensed as R&D expenses.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

R&D expense consisted of the following:

R&D expense marginally increased in 2024 compared to 2023 primarily due to higher spend in Research and early pipeline related to pre-clinical activities for new VOXZOGO indications and our prioritized pipeline. This increase was partially offset by lower spend in Later-stage clinical programs related to ROCTAVIAN, which was moved to Marketed products following Food and Drug Administration approval in the second quarter of 2023.

Selling, General and Administrative

Sales and marketing (S&M) expense primarily consists of employee-related expenses for our sales group, brand marketing, patient support groups and pre-commercialization expenses related to our product candidates. General and administrative (G&A) expense primarily consists of corporate support and other administrative expenses, including employee-related expenses.

SG&A expenses consisted of the following:

S&M expenses by product were as follows:

The decrease in S&M expense for 2024 compared to 2023 was primarily due to reduced activities related to ROCTAVIAN as we focused commercial efforts in the U.S., Germany and Italy to align with our updated ROCTAVIAN strategy. This decrease in S&M expense was partially offset by increased spending related to global expansion of VOXZOGO for achondroplasia.

The increase in G&A expense for 2024 compared to 2023 was primarily due to severance and restructuring costs associated with our portfolio strategy review and the associated organizational redesign efforts announced in 2024, and increased bad debt expense during the fourth quarter of 2024.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Intangible Asset Amortization and Gain on Sale of Nonfinancial Assets

Changes during the periods presented for Intangible Asset Amortization and Gain on Sale of Nonfinancial Assets were as follows:

Amortization of intangible assets: the decrease in expense for 2024 as compared to 2023 was due to the increase in the estimated useful life of an intangible asset as a result of the extension of a patent and an intangible asset becoming fully amortized during the fourth quarter of 2023.

Gain on Sale of Nonfinancial Assets: in the first quarter of 2024, we recognized a gain of $10.0 million due to a third party’s achievement of a regulatory approval milestone related to previously sold intangible assets.

Interest Income

We invest our cash equivalents and investments in U.S. government securities and other high credit quality debt securities in order to limit default and market risk.

The increase in Interest Income during 2024 compared to 2023 was primarily due to higher balances and higher yields on our cash equivalents and investment portfolio. We do not expect Interest Income to fluctuate significantly over the next 12 months due to anticipated interest rates and yields on our cash equivalents and investments.

Interest Expense

We incur interest expense primarily on our convertible debt. Interest Expense for the periods presented was as follows:

The decrease in Interest Expense in 2024 as compared to 2023 was primarily due to the August 1, 2024 maturity of our convertible debt (the 2024 Notes). We expect Interest Expense to decrease over the next 12 months due to the settlement of our 2024 Notes. See Note 10 to our accompanying Consolidated Financial Statements for additional information regarding our debt.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Other Expense, Net

Other Expense, Net for the periods presented was as follows:

The decrease in Other Expense, Net, in 2024 compared to 2023 was primarily due to the lower foreign currency transaction losses and decreased loss on non-marketable securities.

Provision for Income Taxes

Provision for Income Taxes for the periods presented was as follows:

Provision for income taxes in 2024 increased compared to 2023, primarily due to taxes on higher earnings and foreign-source income taxed in the U.S. Tax expense in 2023 included additional benefits from a one-time valuation allowance release related to future royalty earnings and additional R&D credits generated. Our Provision for income taxes in 2024 and 2023 consisted of state, federal and foreign current tax expense which was offset by tax benefits related to stock option exercises, foreign tax credits, and deferred tax benefits from federal orphan drug credits and federal R&D credits. See Note 16 to our accompanying Consolidated Financial Statements for additional information.

In the third quarter of 2023, we determined that it is more likely than not that the deferred tax assets related to a future royalty stream will be realized. In making this determination, we analyzed both the consistent historical royalty earnings and the forecast of future royalty earnings and reached the conclusion that it was appropriate to release the valuation allowance reserve.

Certain countries in which we have operations, including Ireland, have adopted Pillar Two rules, recently released from the Organisation for Economic Co-operation and Development (OECD), including a minimum tax rate of 15%. It is uncertain whether the United States will enact legislation to adopt the Pillar Two framework. The adoption of the Pillar Two framework did not have a material impact on our effective tax rate and we plan to continue evaluating additional guidance released by the OECD, along with the pending legislative adoption by additional individual countries.

Results of Operations 2023 Compared to 2022

For a discussion of our results of operations pertaining to 2023 as compared to 2022 see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023 (filed with the Securities and Exchange Commission (SEC) on February 26, 2024).

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Financial Condition, Liquidity and Capital Resources

Our cash, cash equivalents, and investments as of December 31, 2024 and 2023 were as follows:

We believe cash generated from sales of our commercial products, in addition to our cash, cash equivalents and short-term investments will be sufficient to satisfy our liquidity requirements for at least 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 and available cash and long-term investment balances. We will need to raise additional funds by issuing equity, debt or convertible securities, taking loans or entering into collaborative or other 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 due in 2027, 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 alternatives could change depending on many factors, including how much we elect to spend on our development programs, potential licenses and acquisitions of complementary technologies, products and companies or if we settle our convertible debt in cash. In addition, depending on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors, we may also from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise.

We are mindful that conditions in the current macroeconomic environment, such as inflation, changes in interest and foreign currency exchange rates, natural disasters, geopolitical instability, tariffs and trade tensions, and supply chain disruptions could affect our ability to achieve our goals. In addition, we sell our products in certain 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 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, 2024 and 2023 were as follows:

The increase in net cash provided by operating activities in 2024 compared to 2023 was primarily attributed to the improved operating performance and timing of cash receipts from our customers, partially offset by the timing of payments to vendors, increased personnel-related payments resulting from our ongoing organizational redesign efforts and payments of income taxes.

The increase in net cash provided by investing activities in 2024 compared to net cash used in investing activities in 2023 was primarily attributable to lower net purchases of investments, lower purchases of property, plant and equipment, and a $10.0 million milestone payment received in connection with the sale of previously sold intangible assets.

The increase in net cash used in financing activities in 2024 compared to 2023 was primarily due to the $495.0 million settlement of the 2024 Notes, which matured in August 2024.

Financing and Credit Facilities

Our $600.0 million (undiscounted) of total convertible debt as of December 31, 2024 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 of December 31, 2024, our indebtedness consisted of our 1.250% senior subordinated convertible notes due in 2027 (the 2027 Notes), which, if not converted, will be required to be repaid in cash at maturity in May 2027.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

In August 2024, we entered into an unsecured revolving credit facility providing for $600.0 million in revolving loan commitments. The credit facility is intended to finance ongoing working capital needs and for other general corporate purposes. The credit facility contains financial covenants including a maximum total net leverage ratio and a minimum interest coverage ratio. The credit facility matures in August 2029. As of December 31, 2024 there were no amounts outstanding under the credit facility and we were in compliance with all covenants.

See Note 10 to our accompanying Consolidated Financial Statements for additional discussion on our convertible debt and credit facility.

Material Cash Requirements

Purchase and Lease Obligations

As of December 31, 2024, we had purchase obligations of approximately $641.9 million, of which $482.0 million is expected to be paid in 2025. Our purchase obligations are primarily related to firm purchase commitments entered into in the normal course of business to procure active pharmaceutical ingredients, certain inventory-related items, certain third-party R&D services, production services and facility construction services. The amount also includes hosting fees and other enterprise resource planning (ERP) system implementation costs for which we are committed.

As of December 31, 2024, we had lease payment obligations of $48.0 million, of which $9.5 million is payable in 2025. See Note 9 to our accompanying Consolidated Financial Statements for details on our lease liabilities.

Contingent Obligations

As of December 31, 2024, we were subject to contingent payments considered reasonably possible of $258.1 million, of this amount we may pay up to $3.1 million in 2025 if certain contingencies are met. See Note 19 to our accompanying Consolidated Financial Statements for additional discussion on our contingent obligations.

Unrecognized Tax Benefits

As of December 31, 2024, our liability for unrecognized tax benefits was $325.0 million. Due to their nature, we cannot reasonably estimate the timing of future payments. See Note 16 to our accompanying Consolidated Financial Statements for a full discussion on our income taxes.

Critical Accounting Estimates

In preparing our Consolidated Financial Statements in accordance with U.S. GAAP and pursuant to the rules and regulations promulgated by the SEC, 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.

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 estimates 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 depending on sales volume, which is included in Net Product Revenues in our Consolidated Statements of Income. 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 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.

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

(In millions of U.S. Dollars, except as otherwise disclosed)

Gross-to-Net Sales Adjustments – We record product sales net of estimated mandatory and supplemental discounts to government payers, 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 may include amounts paid to Medicaid or other U.S. or foreign government programs, certain managed care providers, or other payers. 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 actual historical experience, customer and payer mix, current contractual and statutory obligations, patient outcomes, specific known market events and trends and industry data. We evaluate our customer and payer mix to estimate which sales will be subject to these revenue dilutive items and consider changes to government program guidelines or contractual obligations that would impact the actual rebates and/or our estimates of which sales qualify for such rebates. Any necessary adjustments to our reserves are made each quarter 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 activities and ending balances of all our gross-to-net sales adjustments:

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 net 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 the U.S. and various foreign jurisdictions, including Ireland. 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 16 to our accompanying Consolidated Financial Statements for additional discussion.

Impairments of Long-Lived Assets

We assess changes in economic, regulatory and legal conditions and make assumptions regarding estimated future cash flows in evaluating the value of our property, plant and equipment, goodwill and other long-lived assets. We periodically evaluate whether current facts or circumstances indicate that the carrying values of our long-lived assets may not be recoverable. Should there be an indication of impairment, we test for recoverability by comparing the estimated undiscounted future cash flows expected to result from the use of the asset or asset group and its eventual disposition to the carrying amount of the asset or asset group. Any excess of the carrying value of the asset or asset group over its estimated fair value is recognized as an impairment loss.

Recent Accounting Pronouncements

See Note 1 to our accompanying Consolidated Financial Statements for a full description of recent accounting pronouncements and our expectation of their impact on our results of operations and financial condition.

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