BMRN - BioMarin: Keeping Bullish View After Q3 Earnings

2023-11-07 01:36:02 ET

Summary

• BioMarin's stock has fallen over 12% in recent months, but the pullback presents an opportunity to accumulate positions.
• 3Q results showed lower-than-expected revenues, but adjusted EBITDA and EPS beat market expectations.
• Voxzogo's sales are growing, and the company plans to initiate a Phase 3 trial for hypochondroplasia treatment. Concerns remain about ValRox's delayed launch.
• I keep my bullish view on BMRN's shares.

Background

It has been several months since my previous article highlighted the undervaluation of BioMarin's shares ( BMRN ), and the stock has fallen more than 12% in that time. Last week accounted for most of that decline as investors did not like the company's quarterly results , sending the stock down more than 6% on Friday and losing another 3% on Monday. Nevertheless, I believe that the pullback in the company's stock creates another opportunity to accumulate positions in BioMarin's shares. Let's move on to analyzing the earnings.

3Q Results

The company reported revenues of $581 million (+15% YoY, -2% sequentially) for the quarter, 4% below the consensus expectations. Adjusted EBITDA totaled $100 million, implying a margin of 17% (+2 p.p. YoY, -6 p.p. QoQ). EPS was at $0.29 (+95% YoY, +6% QoQ), 26% better than market expected. Free cash flow was $114 million (20% margin). Management lowered its revenue guidance for the year to $2.39-2.47 billion (previously $2.37-2.5 billion). The lower top line was due to the delayed launch of ValRox. The company also announced the resignation of CEO Jean-Jacques Bienaimé, who will be succeeded by Alexander Hardy (CEO of Genentech) effective December 1.

Core business overview

The company's portfolio of mucopolysaccharidosis drugs generated sales of $282 million (-1% YoY). Vimizim sales were $159 million (+2% YoY, -10% QoQ), 8% below market expectations due to the timing of purchases. Naglazyme sales were $109 million (+9% YoY, +21% QoQ), 6% ahead of consensus expectations. Aldurazyme contributed $14 million in sales, down 52% YoY and 66% QoQ. The decline was also due to the timing of purchases. The phenylketonuria drug portfolio generated $122 million in sales (-1% YoY). Kuvan sales continued to decline due to the patent expiration and were $43 million (-25% YoY, -25% QoQ), but the actual result was 16% ahead of consensus expectations. Palynziq sales of $79 million (+19% YoY, +5% QoQ) were in line with the market expectations.

Voxzogo

Voxzogo revenue was $123 million, up 155% year over year. Sequential sales growth was 9%. In Q3, the company received US approval for Voxzogo to treat children under 5 years of age with achondroplasia. The company also received approval in Europe for the treatment of achondroplasia in children 4 months of age and older. Both approvals expand the company's addressable market by 1,000 patients.

At the end of Q3 23, 2,320 patients had been treated with the drug in 38 countries (+320 patients QoQ). Management expects 2,600 patients to be treated by the end of the year, and therefore updated its full-year sales guidance for the drug to $435-455 million (pre-report consensus was $437 million, previous guidance was at $400-440 million). Last quarter, the company noted that there were some supply constraints, but in the press release it noted that it plans to significantly increase supply in Q1 and Q2 2024 and that there should be no more supply constraints for the drug by mid-year.

The company plans to initiate a Phase 3 trial of Voxzogo for the treatment of hypochondroplasia in the coming weeks. This disease is caused by a mutation in the FGFR3 gene. There will be an initial 6-month observational phase followed by a 52-week randomized, double-blind, placebo-controlled phase with 80 subjects. If successful, this trial may be sufficient for regulatory approval. The company also plans to initiate two additional studies of Voxzogo for the treatment of idiopathic and genetic short stature. As you can see from all of the above, things are looking pretty good for this drug. However, the main concern for investors is ValRox.

ValRox

ValRox only brought the company $0.8 million in revenue in 3Q23. As of the date of the report, the second commercial patient in Germany has started treatment with the drug. However, there are still issues with reimbursement and final pricing of the drug in the country. The company plans to finalize the price agreement in Germany for ValRox in the coming weeks, and the final price for the drug will be announced at the end of the year. Also, there are approximately 60 patients on the waiting list in Germany who have already passed all necessary tests and meet the criteria for treatment with the drug. The final price will also be agreed with the regulatory authorities in Italy by the end of the year.

However, due to the delay in final pricing in Europe and insurance reimbursement, management lowered its sales guidance for the year to less than $10 million (previously $50-150 million) versus the consensus expectations of $56 million. This caused the stock to fall.

Final Thoughts

Despite the delay in the launch of ValRox, I continue to believe that the market is underestimating the commercial potential of the company's two new drugs, Voxzogo and ValRox, as the stock is trading close to the valuation of its traditional business excluding these drugs. However, the potential of Voxzogo is already being validated by successful actual sales. Against this backdrop, I remain bullish on the company's stock. However, my valuation of the company's stock is lowered from $123 to $117 per share after revising my sales forecast for ValRox this year. I also believe the company could be a takeover target and a candidate for inclusion in the S&P 500 Index if it reports positive GAAP net income in 4Q23. However, like all investments, the stock could be very volatile if some risks materialize. I recommend that you familiarize yourself with the key risks in the company's financial statements ( 10-K ).

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