2023-06-29 13:27:29 ET
Summary
- A major catalyst may arrive tomorrow for BioMarin as the FDA announces whether it will approve hemophilia gene therapy Roctavian.
- The drug is already approved in Europe, although pricing disputes are hindering sales. That ought not to be a problem in the US.
- BioMarin generated >$2bn of revenues in 2022 and is guiding for ~$2.4bn in 2023. Newly approved achondroplasia therapy VOXZOGO is expected to become a blockbuster.
- The company also became profitable for the first time in 2022 - but some drugs are set to lose patent protection.
- As such, tomorrow's PDUFA date decision is absolutely vital for BioMarin. Data seems to suggest the decision will be favorable, and the stock is likely to spike on positive news.
Investment Overview
BioMarin ( BMRN ) is a $17bn market cap (at the time of writing) commercial stage pharmaceutical company that is often spoken about as an attractive target for a larger Pharma engaging in M&A.
The rare disease drug developer earned $2.1bn in total revenues in 2022 from 7 different products. In order of sales volumes:
VIMIZIM (elosulfase alfa) and NAGLAZYME (galsulfase) are indicated for Mucopolysaccharidosis ("MPS"), PALYNZIQ (pegvaliase-pqpz) and KUVAN (sapropterin dihydrochloride) for phenylketonuria (PKU), VOXZOGO (vosoritide) for Achondroplasia, BRINEURA (cerliponase alfa) for CLN2, a form of Batten disease, and ALDURAZYME (laronidase) for MPS (although Aldurazyme is not sold directly by BioMarin).
BioMarin earned net income of $141.6m in FY22, made a net loss of $(64m) in FY21 and a net profit of $854m in 2020 - owing to an income tax benefit. Since 2015, when operating loss was $(310m), operating losses have decreased in each year since, finally becoming positive last year to the tune of $46m.
Revenues in Q1'23 were generated as follows:
BioMarin revenues by product Q1'23 (BioMarin Q1'23 10-Q submission)
VOXZOGO - The Blockbuster-in-Waiting Driving Revenue Growth
In total, BioMarin increased revenues by 15% year-on-year in Q1'23, the drug making the biggest gain being VOXZOGO - revenues were up 95% year-on-year. The drug is indicated for Achondroplasia - the most common form of short-limbed dwarfism, caused by a genetic mutation that prevents the conversion of cartilage to bone. The disease is associated with a range of co-morbidities, including obesity and spinal stenosis, which causes "pain, tingling, and weakness in the legs" according to medlineplus . The condition affects ~1 in 15k - 40k newborns.
VOXZOGO is a once daily injection analog of C-type Natriuretic Peptide ("CNP") - according to BioMarin's 2022 10K submission (annual report), the drug "acts as a positive regulator of the signaling pathway downstream of FGFR3 to promote endochondral bone growth". The 10K also states:
VOXZOGO is approved for marketing in the EU, Australia and Brazil for patients with achondroplasia ages two and older with open growth plates and in Japan for children with achondroplasia of all ages with open growth plates. The FDA granted accelerated approval for the use of VOXZOGO in the U.S. for patients with achondroplasia ages five and older with open growth plates.
After conducting detailed market research and speaking with physicians, some analysts have concluded that VOXZOGO can go on to achieve "blockbuster" (>$1bn per annum) sales, and become a mainstay of BioMarin's product pipeline, protecting the company against the patent expiries of other assets, such as Naglazyme and Kuvan, which have patents expiring this year and next, whilst looking further ahead, VIMIZIM has a composition patent expiring in 2029.
BioMarin CEO Jean-Jacques Bienaime told analysts on the Q1'23 earnings call that:
We are very pleased with the continued cadence of VOXZOGO take worldwide. VOXZOGO is now being used in around 1,500 patients in 35 different geographies, and we have seen significant growth of VOXZOGO in Japan since approval there.
And as a result, we are raising again our 2023 full year guidance midpoint by $50 million at the midpart level based on increasing expectations for the brand.
Here is BioMarin's 2023 revenues and income guidance for 2023 as shared by management in its Q1'23 earning presentation:
Biomarin FY23 guidance (Biomarin earnings presentation)
From a price to sales perspective, BioMarin's ratio is ~7x, which is on the higher side for a commercial stage pharmaceutical company - the average Big Pharma sector P/S ratio is closer to ~5x. From a price to earnings perspective, the forward P/E ratio of ~48x is also high, and with many of its drug products showing flat or negative growth, key to the future of BioMarin and its valuation is its hemophilia A therapy Roctavian.
Why Roctavian's upcoming PDUFA Date Is Crucial For BioMarin
If BioMarin is to maintain its push into profitability and keep generating revenue growth, the US approval for Roctavian is absolutely key for the company. According to BioMarin's 10K submission:
ROCTAVIAN is an adeno associated virus (AAV5) vector gene therapy designed to restore factor VIII plasma concentrations in patients with severe hemophilia A. People living with hemophilia A are not able to form blood clots efficiently and are at risk for excessive bleeding from modest injuries, potentially endangering their lives. People with severe hemophilia often bleed spontaneously into their muscles or joints.
Roctavian has been conditionally approved in Europe for the treatment of severe hemophilia A in adult patients without a history of factor VIII inhibitors and without detectable antibodies to AAV5, but Europe is a tough market for several reasons.
US drug developers can typically charge high prices in the US market, as a reward for the billions of dollars they have invested in developing the drug and guiding it through the approval process. Gene therapies such as Roctavian, which offer a "one and done" functional cure, tend to be priced highest of all, because patients need only use the therapy once.
The list price of Roctavian in the EU is said to be ~€1.5m euros, or ~$1.65m dollars, but European authorities are reluctant to pay such a high price. Much of the Q1'23 earnings call was taken up with discussion around the "outcomes-based agreements ("OBAs") BioMarin attempted to secure with third party payers in Germany, which - long story short - do not appear to have succeeded.
Now, BioMarin has switched tack and is attempting work with a "single national German insurance fund", referred to as GKV, and according to CEO Bienaime:
Our initial interactions with the GKV have been positive, and we anticipate a final German reimbursement price that would be representative of the full value ROCTAVIAN delivering to patients, especially based on our recent PDUFA update of our Phase III trial.
It is not unheard of for US based gene therapies to be withdrawn from European markets altogether owing to pricing disputes - in 2021, bluebird bio ( BLUE ) pulled its blood disorder treatment Zynteglo from Europe altogether, describing the market as "broken", and "untenable". Furthermore, BioMarin is unable to advertise Roctavian in Europe, so patients may only be told about the drug when they attend bi-annual appointments with their physician.
As such, BioMarin will likely be desperate to secure an approval for Roctavian in the US, which is a market used to paying the highest prices of any country for drugs, albeit with reimbursement provided by health insurers and often, programs introduced by the drug-seller itself to provide financial assistance to patients struggling to pay.
The Prescription Drug User Fee Act for Roctavian - when the FDA rules on whether the drug can be approved for commercial use based on evidence provided by the company in its Biologics License Application ("BLA") - was supposed to arrive at the end of March, but, according to BioMarin's Q1'23 10Q submission:
In March 2023, the FDA determined that the submission of the three-year data analysis from the ongoing Phase 3 GENEr8-1 study, as requested by the FDA, constituted a Major Amendment to our Biologics License Application (BLA) for ROCTAVIAN gene therapy for adults with severe hemophilia A, due to the substantial amount of additional data and set a new Prescription Drug User Fee Act (PDUFA) Target Action Date of June 30, 2023.
The setback is already costing the company - as shown above in the FY23 guidance, expectations for Roctavian sales have been downgraded from $100 - $200m, to $50 - $150m. Although there are no clear peak sales expectations for Roctavian, blockbuster sales would appear to be a distinct possibility if the FDA opts to approve the drug tomorrow. For context, UniQure's ( QURE ) HEMGENIX, marketed and sold by CSL Behrig, is approved to treat Hemophilia B, and analysts have set peak sales expectations of nearly $2.5bn for that drug. Hemophilia A is the more common condition.
Will The FDA Approve Roctavian?
This is the billion-dollar question for BioMarin investors to answer. The FDA declined to approve the drug back in 2020, but in its 10K, BioMarin states that:
The BLA resubmission incorporates our responses to all deficiencies identified in the FDA's August 2020 Complete Response Letter to our original BLA submission.
BioMarin's data appears to make the case for approval. In January, BioMarin shared long-term results from its Phase 3 study - according to the press release :
- - Mean Annualized Bleed Rate Reduced by 80% from Baseline and Factor VIII Usage Reduced by 94% in Year 3 Compared to Baseline
- 92% of Patients off Prophylaxis at the End of Year 3
From a safety perspective, the news also seems to be positive:
Overall, to date, a single 6e13 vg/kg dose of valoctocogene roxaparvovec has been well tolerated with no delayed-onset treatment related adverse events (AEs). In Year 3, no new treatment-related serious adverse events or Grade 3 events attributed to valoctocogene roxaparvovec or corticosteroid use emerged.
Even the FDA extension appears to have been anticipated by BioMarin. The agency's main objection when rejecting the therapy 3 years ago was concerns over durability, and safety, but BioMarin's updated data would appear to have answered those satisfactorily.
Concluding Thoughts: Tomorrow Will Be A Vital Day For BioMarin - The Omens Look Promising
As discussed in the introduction to this post, BioMarin is a commercially successful company that has just begun to deliver profits, and it represents an attractive target for a Big Pharma concern looking to add a rare disease specialist to its portfolio - witness AstraZeneca's ( AZN ) $39bn buyout of Alexion Pharmaceuticals in 2020.
The issue that BioMarin may have is that several of its key revenue generating assets are ageing and may not be patent protected much longer. The company has moved to offset that risk with the approvals of Voxzogo and Roctavian, although there are teething problems associated with both. Voxzogo would benefit from a full FDA approval to give the market confidence it is here to stay and a blockbuster in waiting, whilst Roctavian is being held back by pricing issues in the EU, and delays securing approval in the US.
There appears to be a strong chance that one of these issues - perhaps the most important one - will be resolved tomorrow when the FDA makes its decision on Roctavian. If that does prove to be the case, I would expect BioMarin's share price to challenge January highs of >$115, presenting a ~25% upside opportunity. Even though BioMarin's P/S and P/E ratios are high, a US approval for a "one and done" hemophilia cure is a momentous achievement and would make the company an even more attractive M&A target.
If the FDA declines to approve the drug, shareholders ought to expect substantial losses, as BioMarin's product portfolio would surely look too thin to support a P/S ratio of >7x. A rejection seems the less likely outcome to me. A final point to note is that Roctavian, if approved, may not have the market to itself for long. According to BioMarin's 10K:
potential competition from marketed recombinant factor VIII replacement therapies, a novel bispecific antibody marketed by the Roche Group (OTCQX: RHHBY ), and clinical stage programs, including gene therapy product candidates under development by ASC Therapeutics, Inc., Bayer AG, Pfizer, Inc. ( PFE ), the Roche Group and Sangamo Therapeutics ( SGMO ). In addition, Novo Nordisk ( NVO ), Pfizer, Inc., the Roche Group and Sanofi ( SNY ) are developing novel non-factor replacement product candidates in the clinic for the treatment of hemophilia A.
All things considered, if I were holding BioMarin, I would be anticipating a positive day tomorrow.
For further details see:
BioMarin: Decision Day For Hemophilia Gene Therapy Upcoming - Approval Likely