On Friday, BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) received a positive CHMP opinion in Europe for ValRox for the treatment of Hemophilia type A. In my past articles (BioMarin: Keep Waiting For The Growth, BioMarin: The New Obstacle To Growth), I have repeatedly noted the undervaluation of BioMarin’s shares. In this article, I am going to update the company’s investment case considering the latest financials and news that appeared after the release of the financials. Let’s start with the last quarterly report.
Quarterly revenue was $590 million (+7% YoY, 2% better than expected). R&D spending increased to $161 million (+8% YoY). The increase was due to the increased spending on ValRox's clinical trials and an increase of the initial stage drug R&D. SG&A spending rose 12%, from $174 million to $195 million, driven by the launch of Voxzogo and preparations for ValRox’s second-half European possible launch. Operating profit was $137.3 million. A year earlier, there was $25 million of operating profit. The result was 304% better than expected. Excluding the effect of Priority Review Voucher’s sale, non-GAAP net income was $105 million, close to $104 million a year ago. The company had $1.5 billion in cash at the end of the quarter.
Vimizim generated $183 million in revenue for the company (+16% YoY, 11% better than expected). Revenue from the sale of Naglazyme was $128 million (+19% YoY, 24% better than expected). The strong results are partly due to the timing of orders from the EMEA region, which will be mainly concentrated in 1H 2022. Aldyrazyme sales were at $24.4 million (-51% YoY, 32% worse than expected).
Kuvan brought the company $59.3 million (-16% YoY, -13% QoQ, 6% worse than consensus expected). The drug sales continued to decline due to the generic erosion. The sales of Palynziq was $54.9 million (+2% YoY, 19% worse than expected). Quarter-to-quarter, sales were down 14%, driven by seasonality in the US and the continued impact of the pandemic. Although in 1Q, more clinics reopened, most of the patients still mainly preferred the treatment of life-threatening diseases. As a result, the management expects 2022 Palynziq's revenue to be closer to the lower end of the $280-310 million forecast.
Brineura’s revenue was $36.2 million (+33% YoY and 1% better than expected). Growth was mainly due to an increase in the number of commercial patients (+18% YoY).
Voxzogo’s sales were at $19.7 million (31% better than expected). $15 million of this amount came from non-US sales. Voxzogo’s sales had already started in 15 markets by the end of March. During the quarter, 5 new markets were added (Saudi Arabia, Slovenia, Czech Republic, UAE and Italy). Management expects reimbursement to be approved within a year of launch in Germany and France.
As of March 31, 284 children have already been treated with the drug, 201 children outside the U.S. and 83 in the U.S. At the time of the previous report, there were 210 patients. An additional 53 children were in the process of starting treatment in the U.S. as of April 15. The drug is also expected to be approved in Australia by the end of the year.
I note the recent (June 21) approval in Japan. It is noteworthy that in Japan the drug was approved for the treatment of children under 5 years of age too. There was a similar approval in Europe, while in the U.S., the drug is only approved for children over 5 years old. Let’s try to evaluate the sales prospects of Voxzogo in Japan. Considering a population under 15 in Japan of 14.9 million and an achondroplasia prevalence at 0.003%, the addressable number of patients is estimated at 447 patients. At the price of $225 thousands, this gives us a potential market size of $100M.
In mid-June, the efficacy data of Voxzogo for the treatment of achondroplasia in children under 5 years of age was published. Voxzogo, compared to placebo, increased height Z-score by 0.3 SD and annualized growth velocity by 0.92 cm/year. These results are comparable to those obtained in children older than 5 years. The company plans to meet with regulators in the second half of the year to discuss the possibility of expanding the label in the U.S.
Thus, Vozxogo remains the main driver of revenue growth this year. Management also upgraded Voxzogo’s sales forecast to a range of $100-125 million from the previous range of $90-115 million.
The company has completed a genomic analysis of salivary gland in participants in the second phase of the ValRox trial, who were treated 5 years ago. According to management, the study showed that there was no integration of the viral vector into the salivary gland. This improves the safety profile of both the drug itself and the entire class of AAV-based gene therapies. However, the road to approval is unlikely to be smooth.
While the drug received a positive recommendation for conditional approval in Europe, the situation in the U.S. is not as positive. In May, the FDA requested additional data for its planned BLA resubmission for Hemophilia A therapy ValRox. Previously, BMRN's management planned to reapply for registration in June. The federal agency has requested “additional information and analyzes of data to be included in the BLA prior submission.” As a result, it will take time to add the new data, so the resubmission of BLA is postponed to the end of September. That once again delays the release of the drug to the market. As a result, in the U.S., the approval and market entry is possible no earlier than 2023.
Let’s return to the situation with the approval in Europe. Let me remind you that the drug will only receive a positive opinion for the approval, and not the approval itself. Also, note that the approval is conditional. However, this is certainly positive news. The likelihood of the final approval is high. Previously, in my model, I used the 1.5 million price of ValRox for the forecasting the sales in the U.S.A. In Europe, the average price, considering the discount, was around 1.12 million.
Based on the latest management comments, the price, if approved in the U.S.A, will be in the range of 2-3 million. Let’s take 2 million as a basis and with a price discount of 30%, the price of the drug will be around 1.4 million in Europe. Using this price tag, the sales in Europe can reach up to $1.1 billion. If approved, the start of sales will probably begin as early as Q4.
As a result, taking into account all potential drivers and risks, I continue to maintain my bullish view on BioMarin shares. Considering the potential profitability/risk ratio, the company’s securities look attractive. Nevertheless, like any investment in stocks, BioMarin shares are not without risks. For a detailed acquaintance with the risks, I recommend to you the corresponding section in the annual reporting (10-k).
Separately, I would like to note that there is a possibility of a takeover of the company by larger pharmaceutical companies, as I expect an increase in M&A activity. In my last article, I already analyzed the probability of a takeover of Seagen (SGEN) by Merck (MRK). I will try to write a separate article on the possible growth of M&A activity in the sector in the coming weeks.
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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.
Additional disclosure: This is not investment advice. I am not an investment adviser. Before making any investment, please do your own research!