Is There Any Substance To The Buyout Rumors Surrounding BioMarin And Catalyst?

Includes: BMRN, CPRX, PFE
by: George Shrader

(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)

BioMarin Pharmaceutical, Inc. (NASDAQ:BMRN) is a fast growing orphan drug developer with the history of a strong appetite for gobbling up small pharma companies with promising pipelines while they are cheap. Always on the lookout for low priced buyout candidates that fit their orphan drug profile, BioMarin now finds itself both the buyer, and the target.

Ever since October 2012 when it was announced that BioMarin purchased 17% of Catalyst Pharmaceutical Partners, Inc. (NASDAQ:CPRX), buyout rumors have been circulating about BioMarin making an offer for the balance of the company. Is Catalyst a good fit? If so, what will the buyout price be? When will the offer be made? On the other side of the fence, BioMarin shareholders are asking the same questions about their company if a larger company makes a bid for them as rumors are suggesting.

The following history may be helpful to answer these questions:

In 2009, BioMarin acquired Huxley Pharmaceuticals for approximately $22.5 million and $36 million in royalties from future sales of Firdapse for the treatment of the orphan disease Lambert-Eaton Myasthenic Syndrome, LEMS.

In 2010, BioMarin paid $22 million for Zystor Therapeutics giving them a drug now being developed for Pompe disease, a muscle disabling disorder.

Also in 2010, BioMarin purchased LEAD Therapeutics for $97 million. This acquisition provided BioMarin the opportunity to treat rare cancers with PARP-sensitive mutations, as a single agent and in combination with other DNA damaging agents, and to improve on PARP inhibitors currently in development for more common tumor types.

In October 2012, BioMarin may have made the best investment in its history by investing only $5,000,000 for a 17% stake in Catalyst Pharmaceutical Partners. At the same time, they out-licensed the North American rights for Firdapse to Catalyst that has already begun the Phase III clinical trials. Firdapse has already been approved and is selling in Europe and with its multiple orphan drug indications, North American Firdapse sales are projected to be between $200 and $400 million yearly.

It is especially important to note that Catalyst owns CPP115 that is very attractive to BioMarin because it is expected to treat several Orphan Drug indications such as, Epilepsy, Refractory Epilepsy, Tourette Syndrome, Infantile Spasms, Movement Disorders, Post Traumatic Stress Disorders and others. CPP115 was designed by the well-known Dr. Richard Silverman, who also designed the blockbusters Lyrica and Neurontin for Pfizer (NYSE:PFE). An April 18th analyst report initiating coverage of Catalyst projects peak sales for CPP115 at $1.6 billion.

Like other big-pharma companies, Pfizer is seeking opportunities in lucrative Orphan Drugs and they know how successful Dr. Silverman has already been for them so it would not be a surprise if Pfizer also becomes interested in BioMarin if CPP115 becomes part of their pipeline. There have even been a few rumors recently that Pfizer may be interested in Catalyst because of their confidence in Silverman and because of the large potential for CPP115.

With BioMarin's resources, CPP115 would be an extremely valuable addition to their pipeline that could increase their valuations substantially in the next two to three years. CPP115 could almost double the size of BoMarin's already robust pipeline. Catalyst is therefore another logical but understandably quiet takeover target for BioMarin.

In January 2013, BioMarin acquired Zacharon Pharmaceuticals for $10 million plus additional undisclosed milestone payments. This gave BioMarin control of Zacharon's heparan sulfate synthesis inhibition platform, which BioMarin plans on researching in the treatment of MPS III, other MPS disorders, and ganglioside diseases such as Tay-Sachs.

After all the successful takeovers that helped BioMarin grow, now the company finds itself a target as rumors are heating up again. An article in Fierce Biotech suggests GlaxoSmithKline and Shire, two U.K. drugmakers with a keen interest in lucrative rare diseases, are rumored to be considering bids for BioMarin.

Even in the face of persistent buyout rumors, Bienaime, BioMarin's CEO said he didn't anticipate interest from an acquirer until BioMarin reports later this year on final testing on GALNS, a treatment for the rare genetic bone disease Morquio A syndrome. Analysts predict peak sales for GALNS of $500 million. In April this year, after positive data from a Vimizim Trial (previously known as GALNS), BioMarin Submitted its Vimizim BLA to the FDA for the Treatment of MPS IVA and now the rumors are flying again. And the stock is following right along with the rumors. Michael Yee, an analyst at RBC described GALNS as the biggest driver and most important data set of the year for BioMarin.

Given Bienaime's statement that BioMarin would not be interested in an acquisition even at a 25% to 30% premium, that would set a buyout price in the neighborhood of $90 per share based on the recent high over $70. If BioMarin can lock up Catalyst's CPP115, soon, that makes them even more attractive and may give them more leverage for a loftier price. Until a formal takeover offer is made, the predicted price is not known for certain, but based on BioMarin's expected growth, it could easily be north of $100.

If BioMarin moves forward with an offer for Catalyst, a reasonable assumption is that it might come right after results from the current CPP109 trial for Tourette's Syndrome are released. Top Line results are expected to be released in Q4 2013 that is coming up very soon. CPP115 is at least 200 times more powerful than CPP109 and does not have the potential adverse side effects to peripheral vision that have been associated with CPP109. If results are positive, that could trigger the green light BioMarin needs to make an offer for the remainder of Catalyst.

If BioMarin makes a bid for the remainder of Catalyst shares, it is in their best interests to do it while shares are cheap, and when there is enough evidence that CPP115 really works as well as believed. If BioMarin paid $8.00 per share for Catalyst, that would translate to about $300 million that seems like a bargain for both Firdapse and CPP115. They could easily pay $50 million in cash and the balance in BioMarin shares. BioMarin has the resources to expedite CPP115 for multiple indications faster than Catalyst can and time gives them the clear advantage.

BioMarin is relatively low investment risk because they are adequately capitalized and have large revenues flowing. The primary risk associated with BioMarin is a share price retreat due to failed trials or negative news. Catalyst is higher risk than BioMarin because although the company has adequate cash through next year it will have to offer a round of finance sometime next year. Catalysts drugs could also fail trials, but with a European approval already in place for Firdapse and with Silverman behind CPP115, the risk looks favorable. Given Catalyst's low price today, and the potential for high percentage returns over the coming year, the risk to reward appears justified.

BioMarin and Catalyst are both being watched very closely and Catalyst is under unusually heavy accumulation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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