BioMarin: Keep Waiting For The Growth

Summary

• BioMarin released positive financials, but investors were disappointed by some clinical trial data.
• Voxzogo: positive start to sales, but negative data from trials in children under five years old.
• ValRox: waiting for the EU approval.

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Background

In my previous articles, I highlighted the undervaluation of BioMarin's (NASDAQ:BMRN) shares. Nevertheless, after the last report, the company's shares fell. In this article, I would like to analyze the reasons for the fall of the company's shares after the publication of the 4Q results and explain why I remain bullish on the company's shares. Let's start with the analysis of the last report.

Revenue for the quarter was $450 million (2% above consensus, close to last year's results). Non-GAAP net income was $7 million (consensus expected $10 million, a year earlier it was $39 million). Total revenue in 2022 is expected at $2.05-2.15 billion (consensus expected $2.1 billion), implying 12% YoY growth. Net income (non-GAAP) is expected at $350-390 million (consensus $394 million).

Moderate growth in current business remains robust

Vimizim's sales were $156 million (+9% YoY, 11% above consensus), partly due to order timing. The number of patients increased by 5% YoY. Sales of Naglazyme brought the company $83 million (-31% YoY, 5% below the consensus forecast). The drop in sales YoY is associated with increased purchases in last year's 4Q. The number of patients increased by 1% over the past year. Palynziq sales were $64 million (+29% YoY, 8% below expectations). The number of patients increased by 15% YoY. Management notes the limited operation of PKU clinics as a barrier to business growth. Despite the end of patent protection, Kuvan still brings tens of millions of dollars to BMRN. Its sales were $69 million (-22% YoY, but 15% above the consensus). Revenue from the sale of Brineura was $37 million (+7% YoY, in line with expectations). The number of patients grew by 18% in 2021.

Voxzogo: positive start to sales, but negative data from trials in children under five years old.

Recall that the drug was approved for patient treatment with achondroplasia from 2 years of age in August in Europe, and then in November for patients from 5 years of age in the USA. To date, sales have already started in 10 countries. According to the results of the 4th quarter, the drug brought the company revenue of $5.8 million. 210 patients have already been treated by Voxzogo. Additional 54 patients will begin treatment in the US soon. The company plans to get Voxzogo's approval in Australia and Japan later this year.

The company provided a general comment on the Phase 2 trial of Voxzogo, which found the drug to be more effective than a placebo. As a negative, there was a fixation of sleep apnea (a mild-to-moderate form that did not require stopping treatment) in some patients. The number of sleep apnea cases was more frequent in the group who received Voxzogo. The company plans to study sleep and MRI data as it becomes available and then confirm or deny the effect of Voxzogo on sleep apnea cases. So Voxzogo's treatment possibility may not be extended to younger patients in the USA. However, these patients can receive treatment when they reach the age of 5 years as there was no such side effect at this age. In addition, I note that the proportion of such patients is not so high. Patients under 5 years of age represent approximately 5% of the potential patients with achondroplasia (according to my estimates). Based on the reporting results, the company raised its forecast for Voxzogo's sales to $90-115 million for 2022. I single out Voxzogo as the main driver of BMRN's sales growth this year.

ValRox

In January, ValRox published positive data on the drug's effectiveness for Hemophilia type A treatment. I note that I assume that the drug will not completely cure patients once and for all. However, based on data from the first phase of trials, the drug's effectiveness may last more than five years. Given that the current standard of care for hemophilia involves permanent injections, ValRox can be a convenient and relatively economical alternative at a justified price, especially if repeat therapy is possible.

A decision on approval of the drug in Europe is expected in 2Q 2022. In the US, the company plans to resubmit the application for approval in the second quarter. The most worrying question right now is whether the suspension of trials for BMN307 will have any impact on the FDA's decision on ValRox. There is also concern about the fixation of a case of cancer in one of the patients. Salivary gland carcinoma was recorded in a patient who underwent treatment five years ago. However, no relationship with the use of the drug has been previously identified. But knowing the caution of the FDA regarding gene therapy, cancer case identification may lead to a more thorough investigation of this situation and a delay in the approval of the drug. An additional opportunity for the company is a possible future expansion to treat patients with factor 8 inhibitors and anti-AAV5 antibodies. The company is conducting a study using corticosteroids to bypass antibodies and inhibitors (~25% of potential Hemophilia A patients). Data from this study is expected in 2023. If successful, this will increase the addressable number of patients. However, I do not yet include this possibility in my valuation.

BMN-307

Regarding BMN307, a couple of days before reporting, the company released the information about the FDA request for additional preclinical studies, which may take several quarters. Let me remind you that last year there was a suspension of drug trials due to the detection of malignant tumors in several mice during preclinical trials. I wrote about this in detail in my previous article. The company provided all the required information. The decision to reopen was to be made in Q1. As a result, the FDA requested additional information, which once again confirms the careful approach of the regulator to the approval of gene therapies.

The risks and final thoughts

As the main risk, I will single out the possibility of refusal to approve ValRox by regulators. In my DCF model, I use the 70% probability of drug approval. Without ValRox, the cost of the current business+Voxzogo is $104, according to my DCF. Now the company is trading close to the core business valuation without Voxzogo ($77 in my estimate). With ValRox, my company valuation is $127 (December 2022). In my DCF model, I used an 8% WACC and a terminal growth rate of 2%. I wrote about my revenue forecast in my previous article. Thus, the current price looks attractive, given the potential return/risk profile. I keep being bullish on the BMRN's shares. Also, given the discrepancy between the intrinsic value of the business and BMRN's market price, I think that the likelihood of BMRN's buyout is high.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BMRN either through stock ownership, options, or other derivatives. 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.

This is not investment advice. I am not an investment adviser. Before making any investment, please do your own research!