2024-01-19 14:33:49 ET
Summary
- BioMarin Pharmaceutical is a biotech company that focuses on delivering enzyme products for rare genetic disorders.
- The company has launched two new products, Voxzogo for Achondroplasia and Valoctocogene Roxaparvovec (Roctavian) for severe hemophilia A.
- While BioMarin is a highly diversified company, making it a relatively safe bet, its stock appears expensive and limits its upside potential.
- Despite Roctavian and Voxzogo's promising potential, approximately 70% of BMRN's revenues come from enzyme-based therapies.
- Overall, I believe BMRN's underlying business should do very well in the future, but its current valuation seems excessive. Thus, I rate the stock a "hold" for now.
BioMarin Pharmaceutical Inc. ( BMRN ) is a promising biotechnology company that delivers established enzyme products for rare genetic disorders. BMRN has also launched two new products: Voxzogo for Achondroplasia, a form of dwarfism, and Valoctocogene Roxaparvovec (Roctavian), a gene therapy for severe hemophilia A. These products are FDA-approved and, over time, I believe could become meaningful revenue contributors due to their efficacy and being first-in-market. For the most part, BMRN is a highly diversified company, as its revenues stem from several different products, mitigating the typical risk profile of the usual biotech stock. BMRN's main business focus is enzyme-based therapies, making it a biotech behemoth in its sector. In my valuation analysis, this also moderates further meaningful upside potential. The stock also appears to be relatively expensive, so putting it all together, I am neutral on BMRN for now, rating it a “Hold” at this juncture.
A Biotech Behemoth: Business Overview
BioMarin Pharmaceutical Inc. is a commercial and clinical-stage biotechnology company based in San Rafael, California, with offices and facilities in the US, South America, Europe, and Asia. Most importantly, BMRN focuses on developing medicines and treatments for rare genetic disorders. This would normally make it a niche company, yet despite its narrow focus, it has grown into a sprawling $17.6 billion market cap stock.
Currently, BRMN has two market launches of innovative products. First, Voxzogo is the first and only approved drug for Achondroplasia, a form of dwarfism. Voxzogo was approved in the US for children of all ages and in the EU for children four months and older . This therapy mitigates some symptoms and increases growth rates in children. There was no prior treatment for this disorder. According to the company's reports, the drug is expected to achieve blockbuster status, with around $1 billion in revenue. Seeking Alpha’s dashboard shows that BMRN is anticipated to generate about $2.85 billion in revenues in 2024. This means that Voxzogo’s potential is significant and should soon provide the company with steady revenues.
Likewise, BMRN’s Valoctocogene Roxaparvovec (BMN 270) is an adeno-associated virus serotype 5 [AAV5] gene therapy for severe hemophilia A. It is a one-time gene therapy to reduce bleeds in adults suffering from this disease, already conditionally approved for use in the EU and commercialized under Roctavian. On June 29, 2023, the FDA approved Roctavian for adults with severe hemophilia A without pre-existing antibodies to AAA5. The therapy was designated as Orphan, Breakthrough Therapy, Regenerative Medicine Advanced Therapy, and Priority Review treatment. Usually, when a drug gets these designations, I’ve noticed it’s a good sign for shareholders, as it signals that regulators have a positive view on the IP, and further approvals are increasingly likely.
Interestingly, this particular gene therapy aims to enable clotting factor production according to the results obtained in the clinical trials. It is a safe alternative to repeat treatments that used to be the only option for this condition. Roctavian is insurance covered in the US, and numerous treatment centers for hemophilia are ready to dispense the therapy, which means there’s already a distribution network in place. This is partly why BRMN expects revenue from Voxzogo and Roctavian to grow significantly and shouldn’t require major additional investments for production and commercialization.
The BRMN research pipeline also presents drug candidates in gene therapy, small molecules, oligonucleotides, and biologics for treating rare genetic disorders. However, BMRN emphasized Roctavian and Voxzogo in their November 2023 corporate presentation due to their significant long-term potential in their IP portfolio. Roctavian is essentially a gene therapy, whereas I’d call Voxzogo a growth regulation therapy because it inhibits the overactive FGFR3 signaling pathway in achondroplasia.
Enzyme-Based Therapies: BMRN’s Bread and Butter
Therefore, BRMN’s enzyme products remain the most important revenue contributors. Concretely, enzyme products such as Vimizim, Naglazyme, Palynziq, Aldurazyme, and Brineura are BMRN’s bread and butter as of early 2024. These enzymes are mostly used in various therapies for genetic diseases involving enzyme manipulation to target the causes of disorders such as mucopolysaccharidosis I, Morquio A syndrome, mucopolysaccharidosis VI, CLN2 disease, a form of Batten disease, and adult phenylketonuria. Vimizim is an enzyme replacement therapy for solving the cause of Morquio A syndrome, an inherited progressive disease affecting the patient's body's major organ systems. Naglazyme is a recombinant version of the enzyme missing in patients suffering from mucopolysaccharidosis VI [MPS VI]. In MPS VI, there is a deficiency of an enzyme required for the breakdown of glycosaminoglycans [GAGs], and the GAG residues accumulate and disrupt the functioning of the cells.
Hence, even though Voxzogo and Roctavian are promising launches with ample potential, enzyme-based therapies remain BMRN’s main value drivers. Concretely, Palynziq is a substitution therapy for the phenylketonuria [PKU] treatment. On the other hand, Aldurazyme is used to improve pulmonary function in patients with Hurler and Hurler-Scheie mucopolysaccharidosis I [MPS I] and for patients with moderate to severe Scheie forms of the disease. MPS I is another disorder caused by a deficiency of the enzyme alpha-L-iduronidase required to break GAGs and avoid its residue accumulation in the cells, avoiding the clinical manifestations of the disease. Lastly, Brineura is indicated as enzyme replacement therapy administered into the brain's fluid for patients three years and older with late infantile neuronal ceroid lipofuscinosis type 2 (CLN2), also known as tripeptidyl peptidase 1 (TPP1) deficiency. Enzyme-based therapies diversify BMRN’s revenues and generate about $2 billion yearly. This is approximately 70% of this year’s expected revenues, making them the company’s main business focus.
Shake-up Rumors: Maximizing BioMarin's Market Impact
Another notable development that caught my attention was that BMRN signed a cooperation agreement with Elliot Management in December 2023. As a result of this, Elliot Management will now get three new independent board seats with M&A experience. Naturally, these changes suggest a potential shake-up brewing at BRMN, as Elliot Management has a track record as an activist investor firm. Previously, they played roles in major companies such as Twitter (now known as the private company "X"), Salesforce ( CRM ), and Match Group ( MTCH ). Thus, it’s reasonable to think that BMRN is now not only focusing on ways to maximize Roctavian's market potential but also potentially exploring M&A options to increase shareholder value.
Yet, on January 10, 2024, the new BMRN CEO, Alexander Hardy, a former Genentech CEO, expressed the company's top priorities , and none of them seemed to be M&A-related. The first objective is to maximize the commercial potential of Voxzogo, expanding the patient number from 21,000 to 600,000. The second one is to boost the commercialization of Roctavian. The third priority is to impulse the most promising R&D projects and cut if necessary. While these are sensible priorities, they dampen the potential for major M&A deals in BMRN’s future. In my experience, management teams usually hint at M&A intentions when actively searching for deals.
Limited Upside: Valuation Analysis
According to a report from Clarivate , it is calculated that Roctavian's global revenue could reach $1 billion in 2027 because this drug is the first in-market gene therapy for severe hemophilia A, with a possible market share of 30% by 2027 for BRMN. The forecast considers the treatment a one-dose cure with an approximate cost of $3 million per dose that may be under insurance coverage. This aspect will be crucial for market adoption and patient access. If Roctavian achieves this $1 billion milestone, it would greatly contribute to BMRN's total revenue and give a positive outlook for its financial performance.
Note that Seeking Alpha’s dashboard projects higher revenue numbers than the ones in the table above. This suggests the market expectations are higher than management's internal projections. This leads me to believe they’ll probably beat most quarterly revenue numbers this year. I think BMRN's guidance will anchor market expectations, which could have positive effects, such as management overdelivering on their guidance and generating favorable investor sentiment.
But overall, from an investment perspective, the company’s valuation is rather simple. Since it’s a highly diversified biotech in terms of revenue sources, we can easily assign valuation multiples to its topline. Using BMRN’s guidance of about $2.5 billion in revenues for 2024 and its current market cap of $17.6 billion, it would put its forward P/S ratio at about 7.04. This valuation multiple is, on its face, relatively high. When we compare it to BMRN’s sector median forward P/S multiple of 3.98 , it becomes clear there’s a hefty embedded premium in BMRN’s stock price at these levels. Even if we add $1 billion each in sales for Voxzogo and
Roctavian, the forward P/S multiple would still be 3.91, signaling a fair valuation at best. Besides, such additional revenue streams will undoubtedly take time to grow, so I think BMRN’s valuation appears to be stretched even in the best-case scenario.
So, BMRN’s investment profile is a mixed bag. On the one hand, you have a premium company with a great IP portfolio that should continue to deliver consistent revenues over time, coupled with an activist investor on the board who will surely push for catalysts that yield favorable stock price performance. But on the other hand, BMRN’s price tag is undoubtedly on the expensive side. Moreover, this is not a microcap that can double your money as it increases from $100 million to $200 million in market capitalization. Instead, BMRN is a well-established biotech behemoth. This mitigates its risk profile but also caps the upside potential compared to other smaller biotech companies. Thus, as a whole, I am optimistic about BMRN’s business, but I don’t think it’s a great investment at the current levels, mostly because of its presently inflated valuation. Hence, I rate it a “Hold” for now, but I think it can be a great buy during market corrections.
Conclusion
Overall, BMRN is undoubtedly a great biotech company with a promising IP portfolio that will do well in the long run. Moreover, I think management is capable, and the recent activist investor interest should bode well for BMRN’s shareholders. However, BMRN’s valuation does seem excessive at this time, and given that it’s already a relatively big company in market cap terms, I think the upside is muted for now. This leads me to a neutral stance on the stock at these levels, though I feel it could be a great buy on dips. But for now, I rate BRMN a “Hold” for these reasons.
For further details see:
BioMarin's Growth Potential And Valuation: Is Now The Right Time To Invest?