BioMarin: Voxzogo Approval Could Trigger A Lengthy Bull Run For Cash Rich Biotech

Summary

• BioMarin has 6 commercialised assets in the rare disease space, targeting e.g. lysosomal storage diseases.
• The company is on track for ~$1.8bn of revenues in FY21, and importantly, a small non-GAAP net income, reversing years of heavy losses.
• The company also has a PDUFA date on November 30th when the FDA will decide whether to approve its candidate Voxzogo for Achondroplasia.
• The trial data - and an approval in Europe - suggests Voxzogo will get over the line, and the therapy has blockbuster potential.
• Another major catalyst is hemophilia therapy Roxavian. Rejected by the FDA last year, BioMarin may now have the data it needs for an approval, and multi-billion market in the US and EU. I am bullish.
• This idea was discussed in more depth with members of my private investing community, Haggerston BioHealth. Learn More »

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Investment Thesis

BioMarin (NASDAQ:BMRN) is a $14.5bn market cap biotech with 6 commercialised drug products, all targeting rare diseases. The San Rafael, California based company has grown its revenues from $750m in 2014, to $1.86bn in 2020, but for the last 5 years, excepting a brief spike to $125 in July last year, BioMarin stock has traded in a range of $75 - $90, and is down 3% over the period.

BioMarin's commercial portfolio and its pipeline leverages Enzyme Replacement Therapy ("ERT"), a type of therapy that replaces enzymes which are deficient or absent in a patients' body. ERT's treat conditions such as Lysosomal Storage Diseases ("LSDs"), and BioMarin's 6 commercial drugs have delivered consistent sales volumes for the past 3 years, as shown below.

Sales of BioMarin's commercialised drug portfolio. Source: BioMarin 2020 10K statement.

These therapies are approved to treat, respectively: Vimizim - Mucopolysaccharidosis type IVA, otherwise known as Morquio syndrome. Kuvan - Phenylketonuria ("PKU"), Naglazyme - Mucopolysaccharidosis type VI ("MPS VI"), Palynziq - adult patients with PKU, Aldurazyme - MPS I, a progressive and debilitating life-threatening genetic disease, and Brineura - CLN2, a form of Batten disease.

These diseases are rare, but severely debilitating, and life-threatening in most cases, often affecting children. List prices for such drugs are high - typically in the six-digit region, and BioMarin has a commanding market share in most of the above-mentioned markets, thanks to patent protections and Orphan Drug exclusivity (although Kuvan and Naglazyme's have expired).

BioMarin's products have been approved for some time, however, and are close to their peak sales, which is why the market is placing great emphasis on the commercialisation prospects of BioMarin's 2 most advanced pipeline candidates to help the company grow, and grow profitable.

The first is Vosoritide, indicated for Achondroplasia - a form of short limbed dwarfism, caused by changes or mutations in the fibroblast growth factor receptor 3 (FGFR3) gene.

BioMarin's Prescription Drug User Fee Act ("PDUFA") decision date - when the FDA announces if it will approve a drug for commercialisation, or issue the dreaded Complete Response Letter ("CRL"), detailing its reasons for rejecting a company's New Drug Application ("NDA") or Biologics License Application ("BLA") - arrives on 20th November - less than 1 month away.

Vosoritide - brand name Voxzogo - was approved in Europe at the end of August, and becomes the first ever approved for Achondroplasia in the region, with a list price of ~$300,000, raising hopes that the FDA will follow suit and approved the drug in the US next month. Analysts believe the drug could earn sales of $600m - $1bn

The second potentially transformational (for BioMarin's fortunes) candidate in the biotech's pipeline is Valoctocogene Roxaparvovec, or Roctavian, indicated for treatment of severe hemophilia A.

Pegged for peak sales of ~$1.7bn by some analysts, owing to a list price that may well reach $2m for a course of the "one and done" gene therapy, Roxavian has generated much excitement amongst investors and the market, pushing BioMarin's share price from $94, to $127 in August last year, before the FDA unexpectedly decided against approving the drug, issuing a CRL owing to Roxavian's apparent declining efficacy over time.

The rejection dragged BioMarin's share back down to $72, with many observers suggesting that there was no coming back for the therapy, but BioMarin is pushing for an approval in Europe, and expects to re-submit its BLA to the FDA in Q222, meaning the drug could be approved before the end of next year.

From an investor's perspective, both Vosoritide and Roxavian represent a departure from the ERT approach that made BioMarin successful, but the risk appears worth taking, given that BioMarin has never been a profitable company, and in fact, a heavy loss-maker over most of the past decade, as we can see below.

BioMarin annual income statements since 2011. Source: Seeking Alpha

The company still has >$1.5bn of cash on its balance sheet, as of Q321, and its full-year forecasts represent a significant step towards profitability, but if the company wants to generate the share price momentum investors demand, and bring its longer term pipeline through to commercialisation, it is crucial that at least one, and ideally both of Vosoritide and Roxavian make it to market.

BioMarin Q321 updated full year guidance. Source: BioMarin investor presentation.

In terms of investor downside, the strength of the current marketed portfolio is arguably strong enough to ensure that share price downside is risk-mitigated. A forward price to sales ratio of ~8x, if guidance is met, is perhaps a little high, but there is still growth potential in assets such as Vimizim, and Palynziq, and although there is no PE ratio to speak of given there are no profits yet, management appears to have finally brought operating expenses under control, doing a good job of future-proofing the company.

As such, BioMarin is a relatively attractive investment opportunity, in my view. The potential upside from its 2 late-stage pipeline drugs has not been baked into the share price (we know this due to the spike to a price $127, a >60% premium to current price, in August last year when Roxavian's approval was anticipated), whilst the current portfolio is self-sustaining, and there is an intriguing longer term pipeline to fall back on should current commercialisation efforts fall flat.

In the rest of this post, I'll take a more detailed look at both Vosoritide and Roxavian's chances of approval. In my view, Roxavian is the key asset, and that is the more troubling of the 2 assets in terms of gaining an approval. Although BioMarin could provide investors with value for money at current price, and perhaps offer 10-20% upside across the next 12 months on an approval for Vosoritide, BioMarin appears to be a less enticing prospect overall without its hemophilia opportunity.

Vosoritide - Approval in Europe May Pave Way For An FDA Approval Nod Whilst Label Expansion Beckons

Vosoritide might have been approved in the US before it was approved in the EU, had it not been for the FDA's delaying its decision by 2 months, in order to go over BioMarin's 2-year pivotal data.

Vosoritide Phase 3 data summarised. Source: BioMarin investor presentation.

On the face of it, as we can see above, it does not look like BioMarin has much to fear from the FDA, with a clean safety profile at 2 years, and statistically significant efficacy, with a cumulative height gain of 3.52cm.

Vosoritide is the active ingredient in Voxzogo, and attached to a receptor called natriuretic peptide receptor type B ("NPR-B") on the surface of cells, inhibiting the activity of FGFR3 and thereby stimulate the normal growth of bones, and alleviating symptoms of the disease.

The European Medicines Agency ("EMA") based its decision on the study of 121 patients between ages 5-18, resulting in a statistically significant improvement in growth in patients treated with vosoritide compared to placebo, adding an average 1.57 cm in height after a year of treatment.

Given that there are no other approved therapies for Achondroplasia, it's difficult to see how the FDA could reject Voxzogo, although it is never a good idea to second guess the agency, who may find something they do not like in the manufacturing process, trial protocols, safety records etc. that is not to their liking.

If approved, the patient population addressable by BioMarin is estimated by management to be ~21,000 patients, with 11,000 in EMEA, and 3,000 in the US. At a list price of $300k, the total addressable market is theoretically $6.3bn, but list prices are often misleading, as reimbursement deals and kickbacks, and patient assistance programs drastically reduce prices.

Most analysts believe BioMarin will do well to make Voxzogo a blockbuster (sales >$1bn per annum) asset, although management has Phase 2 studies ongoing in Genetic forms of Short Stature, Achondroplasia in 0-5 year olds, and Foramen Magnum in 0-1 year olds, to try to expand the drugs label, and is apparently targeting a patient population of 275k patients.

Roxavian - Management Remain Optimistic About Getting It Right Second Time Around, Starting in Europe

Roxavian met both of its primary and secondary endpoints after 1 year of its Phase 3 study, outperforming prior Factor VIII prophylaxis, and reducing Mean Annualized Bleeding Rate by 84% in a 112-patient study.

The problem was that the FDA indicated in its CRL that it required to see at least 2 years' data - likely a reaction to signs that Roxavian's 4-year data shows signs of waning efficacy - with Factor VIII activity falling to a median 16.4%, from 19.9% at the 3-year mark.

BioMarin management were outraged by the FDA's decision, accusing the regulator of moving the goalposts by asking for 2-year data, but the collapse in BioMarin's share price after the rejection suggests the market also had doubts about Roxavian's durability. A mooted >$2m price point means that BioMarin's therapy needed to provide a permanent fix, not a temporary one.

Nevertheless, BioMarin recently released 5-year data from a Phase 1 study, at a 6e13 vg/kg dose which led to mean reduction in annualized bleeding rate ("ABR") of 95%, and then published data from its Phase 3 trial, indicating that patients "saw mean annualized Factor VIII infusion rates reduced by 99% from 135.9 (median 128.6) to 2.0 (median 0.0) infusions per year".

Now the company believes it also has the 2-year data the FDA requires, and expects to submit its BLA for the second time in the first half of next year. Once again, the EMA will act as a bellwether - BioMarin has already submitted its marketing application to the agency, and thinks it may have a decision in the first half of next year.

BioMarin has another problem, however, in the form of its competition. Pfizer (PFE) and partner Sangamo have a hemophilia therapy in development that has shown strong durability data, with Factor VIII activity levels, measured by chromogenic assay at 61 weeks, sustained at a median of 64.2%. Bayer AG, Roche (OTCQX:RHHBY), and Takeda (TAK) are also all working on hemophilia therapies, as are several biotech's, including Catalyst Biosciences (CBIO), (my note here).

The key question is whether the EMA and FDA weigh up the risk / reward of Roxavian, and decide that the drastic reduction in patient bleeds and a satisfactory safety profile justifies an approval, even if the durability issues mean that the therapy cannot be considered a "one time only" fix. BioMarin may be forced to adjust its pricing strategy if Roxavian cannot provide a permanent cure, but patients would still surely want to see such a drug on the market, based on the tangible benefits.

Conclusion - BioMarin Has A Solid Portfolio of Gene Therapies Protecting Its Valuation, And Attractive Catalysts - The Risk / Reward Looks Favourable

It's never easy to forecast which way an FDA approval decision will go for a biotech, no matter how persuasive the evidence may seem, but BioMarin has an EMA endorsement for Voxzogo, and may have something similar for Roxavian by the middle of next year.

BioMarin management have dragged the company to the brink of profitability through the strength of its rare disease portfolio, and as discussed in this article, can forge a new direction with a win in either of the above assets, moving away from Enzyme Replacement Therapy - not that there is too much wrong with that approach.

The company's stock price has been stagnant for a long period, and things looked grim after the unexpected Roxavian knock-back 1 year ago. BioMarin management have not panicked, however, and look to be in line for a shot at a multi-billion dollar market in hemophilia, with another potential blockbuster pending approval at the end of November.

This is probably as good a time to be opening a position in BioMarin as any across the past 5 years, with downside protection in place and attractive catalysts to look forward to. A >$1.5bn cash position is also a major plus point for the company, and can be used to propel an exciting early stage pipeline towards commercialisation.

As such, 2022 could be a breakout year for BioMarin, after years of treading water. I am hopeful that Voxzogo's approval in the US could trigger a lengthy bull run for the company.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in BMRN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.