SNY - BioMarin: More Growth

• The recent Japan approval of Voxzogo for achondroplasia would generate a leaping sales growth in the coming quarters.
• BioMarin is also expanding Voxzogo's label for younger kids afflicted by achondroplasia.
• The long-term safety/efficacy data for valoctocogene signifies its upcoming regulatory clearance for Hemophilia A.

American magic has always prevailed, and it will do so again. - Warren Buffet

Author's Note : This article is an abridged version of an article originally published for members of the Integrated BioSci Investing marketplace on June 23, 2022.

Contrary to conventional wisdom, the most opportunistic time to invest is during a bear market. As my general rule-of-thumb, you should not sell your shares amid a down market cycle. The prudent occasion to sell was during a raging bull market. That being said, you should either hold your stocks "as is" or average down on fundamentally sound companies. While the optimal time to purchase most shares is at the "point of maximum pessimism," it's highly difficult for you to gauge when that would occur. Therefore, a prudent strategy is to average down whenever the market experiences a significant drop.

In this research, I want to bring to your attention another excellent investing prospect known as BioMarin Pharmaceutical Inc. ( BMRN ). Accordingly, I'll feature a fundamental analysis of this company and share you with my expectation of its growth prospects.

Figure 1: BioMarin chart

About The Company

As usual, I'll present a brief corporate overview for new investors. If you are familiar with the firm I recommend that you skip to the next section. I noted in the prior research :

Operating out of San Rafael, California, BioMarin is focused on the innovation and commercialization of novel therapeutics to fulfill the unmet needs of orphan diseases. Viewing the figure below , you can see that BioMarin is assessing various molecules for different therapeutic areas including, heme/metabolic, cardiovascular, CNS, and musculoskeletal. Hence, the early developmental efforts here can generate massive growth in the coming years.

Figure 2: Developmental pipeline

Beyond the developing molecules, there are seven commercialized drugs for various genetic disorders. As enzyme replacement therapies, these therapeutics are designed to treat different rare genetic diseases. They include laronidase (Aldurazyme), galsufase (Naglazyme), saproterin (Kuvan), elosulfase (Vimizim), pegvaliase-pqpz (Palynziq), cerliponase (Brineura), and vosoritide (Voxzogo).

Figure 3: Commercialized therapeutics

Voxzogo's Japan Approval

A crucial aspect of BioMarin's growth story is the additional approvals for its flagship medicine (Voxzogo). As you know, Voxzogo is already approved and launched in the United States, Europe, and Brazil. With more regulatory clearances, there would be upcoming sales growth. On that note, BioMarin announced on June 21 that the company successfully gain Voxzogo marketing authorization in Japan.

Figure 4: Voxzogo market

Specifically, the Ministry of Health, Labor, and Welfare of Japan approved Voxzogo for the treatment of achondroplasia in children of all ages. As a modified C-type natriuretic peptide (i.e., CNP), Voxzogo is excellent for treating the orphan condition coined achondroplasia - the most common form of disproportionate short stature.

As a rare genetic condition, achondroplasia causes abnormality in the fibroblast growth factor receptor 3 (FGFR3), thus leading to short-statue and growth defects. By down-regulating FGFR3 signaling, Voxzogo promotes endochondral bone formation to ameliorate the growth defects. Commenting on the aforesaid development, the Chairman and CEO (Jean-Jacques Bienaimé) remarked ,

We are delighted to offer children in Japan of all ages with achondroplasia access to a treatment option that addresses the underlying genetic mechanism of the condition. CNP was discovered as a natural regulator of bone growth in Japan in 1990 so we are especially proud to be able to offer a therapeutic choice there. We look forward to nurturing our partnerships with advocates and the achondroplasia community in Japan and beyond.

Worldwide, one in 25K live births has achondroplasia. Though it's a rare condition, the premium reimbursement ensures a healthy profit margin to reward the innovation process. As it takes approximately $1B to fund a drug from bench research to commercialization (in a nearly 10-year long process), innovators need to be adequately compensated. Else, innovation would dry up for orphan conditions.

With the upcoming launch, you can expect Voxzogo to procure leaping growth in the coming quarters. As such, this development is a solid indication that the stalwart (BioMarin) is growing healthily.

Voxzogo Phase 2 Data Presentation

As you can appreciate, growing by label expansion is a sophisticated strategy for biotech companies. Further growth by this approach would give more supporting evidence that the BioMarin growth story is working out. Notably, the company is trying to gain additional label expansion for younger kids in the USA and Europe.

Here is your proof in the pudding. On June 13, BioMarin published the strong data of its Phase 2 study of Voxzogo in children (age 0 to less than 5 years old) with achondroplasia. The high-quality (randomized and placebo-controlled) study demonstrated an improvement in height Z-score (i.e., height adjusted for sex and age) at 52 weeks.

Precisely speaking, 43 patients treated with Voxzogo showed a Z-score improvement of 0.30SD (95% CI 0.07, 0.54) compared to 32 on the placebo (i.e., the control arm). The drug was overall well-tolerated. As a whole, the results were consistent with the finding for kids older than 5 years. Excited with the data, the President of Worldwide Research and Development at BioMarin (Dr. Hank Fuchs) stated :

We are pleased by these 52-week analysis results showing positive changes with Voxzogo compared to placebo in height Z-score ... We look forward to discussing next steps regarding our efforts to expand access to Voxzogo treatment for this younger age group. We remain grateful to the children and families participating in the clinical study program."

Riding strong results, BioMarin plans to meet with regulatory authorities to discuss its label expansion for younger patients. If approved (and I believe there is a very good chance of approval), Voxzogo would enjoy more leaping sales growth. That aside, BioMarin is expanding Voxzogo for other conditions like GSS and foramen magnum. With previous approval, you can bet that the hurdles for additional approval would be much lower. Ultimately, that'll translate into higher sales for shareholders while delivering hopes to patients worldwide.

Figure 5: Voxzogo programs

Valoctocogene Roxaparvovec for Hemophilia A

Shifting gears, let us analyze the other franchise valoctocogene (i.e., Valo). Back on May 31, BioMarin published a long-term (i.e., 6-year) efficacy/safety data for its Phase 1/2 study of Valo in patients having Hemophilia A. Of note, this is the longest duration study of gene therapy for the aforesaid orphan condition.

As follows, there was a 95% reduction in the mean annualized bleed rate (i.e., ABR) for patients who took the 6e13 vg/kg dose through a 6-years follow-up. Regarding the group that received the 4e13 vg/kg dose, they experienced the reduction of 91% mean ABR and a 93% mean incidence of needing a rescue medication (i.e., Factor 8) to stop their bleed.

As you can appreciate, Valo works for Hemophilia A with unequivocal results. Therefore, the company will present these data at the upcoming International Society on Thrombosis and Haemostasis (i.e., ISTH) 2022 Congress that is scheduled for July 9-13.

Asides from waiting for approval by the EMA sometime mid-year, BioMarin is poised to resubmit its Biologic License Application (i.e., BLA) to the FDA by the end of September. It's great news that the FDA didn't ask for a new trial. Instead, they only requested more data. Based on my Integrated System of Forecasting, I ascribed a 65% (i.e, more than favorable) chance of FDA and EMA approval. I based my forecast on available data, my forecasting experience of several decades, and my intuition. Of note, the recent EMA experts committee backing give more credence to a smoother runway toward approval.

Figure 6: Valo geographic footprints

Competitor Landscape

About competition, BioMarin's drugs are competing against other enzyme replacement therapies (i.e., ERTs) that are the standard of care for these diseases. I mentioned in the prior article :

Examples of orphan disease innovators making such enzymes are Sanofi Genzyme ( SNY ), Amicus Therapeutics ( FOLD ), Protalix Biotherapeutics ( PLX ), etc. Despite the competition, there is plenty of space in the orphan sector for multiple blockbusters. Moreover, the competitive pressure is not as intense as in the other biotech sub-sectors like oncology.

Figure 7: Various orphan conditions

Financial Assessment

Given that I already analyzed the 1Q2022 financials in the previous article , I'll briefly mention some salient points here. Accordingly, BioMarin generated $519.3M in revenue compared to $486.0M for the same quarter a year prior. The research and development (R&D) for the respective periods also registered at $160.6M and $149.7M. Moreover, the net incomes for the corresponding comparison are tallied at $120.7M ($0.63 per share) and $17.3M ($0.09 per share).

That aside, the balance sheet is flush with cash. That is to say, there were $605.4M in cash, equivalents, and investments. Of note, I'm not concerned about the $382.0M quarterly OpEx because there are $519.3M recurring revenues. Essentially, the company is operating at a net profit for you not to have to worry about cash flow constraints. Additionally, BioMarin is conservative with stock dilution.

Valuation Analysis

It's important that you appraise BioMarin to determine how much your shares are truly worth. Before running our figure, I liked to share with you the following:

Wall Street analysts typically employ a valuation method coined Discount Cash Flows (i.e., DCF). This valuation model follows a simple plug-and-chug approach. That aside, there are other valuation techniques such as price/sales and price/earnings. Now, there is no such thing as a right or wrong approach. The most important thing is to make sure you use the right technique for the appropriate type of stocks.

Given that developmental-stage biotech has yet to generate any revenues, I steer away from using DCF because it is most applicable for blue-chip equities. For developmental biotech, I leverage the combinations of both qualitative and quantitative variables. That is to say, I take into account the quality of the drug, comparative market analysis, chances of clinical trial success, and potential market penetration. For a medical diagnostic device, I focus on market penetration and sales. Qualitatively, I rely heavily on my intuition and forecasting experience over the decades.

Figure 8: Valuation Analysis

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the most pertinent concern for BioMarin is whether the company can continue to ramp up sales for commercialized therapeutics.

It's important that BioMarin continues to increase sales by penetrating into new markets. Concurrently, there is a risk that BioMarin would not be able to garner more label expansion as well as deliver positive pipeline data.

Conclusion

In all, I recommend BioMarin as a buy with the 4.8/5 stars rating. BioMarin's investment story is playing out beautifully. By focusing on the orphan niche, BioMarin is enjoying a very deep moat that protects its profit margin. With a diversified number of medicines already on the market, the company is garnering strong sales growth. As it's already a stalwart, BioMarin would continue to deliver more upsides through various growth catalysts. Nevertheless, you can expect that growth won't be as robust as it once was. Now, one such growth seed is the recent Japanese approval of Voxzogo. Riding that regulatory win, you can anticipate Voxzogo to see more sales ramp up in the coming quarters. That aside, there is a very good chance that its gene therapy (Valo) would see better regulatory luck this year for Hemophilia A.

As usual, I'd like to remind investors that the choice to buy, sell, or hold is always yours to make. In my view, you should take full advantage of this golden opportunity to purchase more fundamentally robust companies like BioMarin and thereby hold them until we are well into the next bull market cycle.

For further details see: