Michael Vi
Background
As part of my past articles, I have repeatedly drawn attention to the undervaluation of BioMarin’s (NASDAQ:BMRN) shares. Although the company’s shares performed well at the end of the summer, the stock fell after the publication of quarterly results. The main reason for the BMRN’s shares fall on the reporting was the information about the FDA’s plans to hold an advisory committee regarding the possibility of ValRox’s approval in the United States. That information swept away all positive from the actual quarterly results. Taking into account the latest news and the 3Q results, I keep thinking that BioMarin’s shares are undervalued. Now, let’s move on to the reporting and the latest news in order to understand what facts support my positive opinion regarding the investment attractiveness of the company.
Revenue
Quarterly revenue was $505 million (+24% YoY), which was 2% worse than expected. The negative impact of the dollar strengthening on the results was almost completely offset by hedging (the impact was limited to only 3 p.p.). Note that non-US revenue accounts for 60% of BMRN’s revenue. For 2022, management reaffirmed its revenue guidance of $2.06-2.16 billion, implying 14% YoY growth.
Margins
Adjusted EBITDA was $78 million (15% margin), up from $7 million a year earlier (2% margin). R&D expenses were $158 million, unchanged year-on-year. SG&A expenses increased by 19% YoY, mainly due to the growth of the commercial costs of Voxzogo and ValRox’s launches. EPS loss was at $0.04, while a positive value of $0.38 was expected. A year earlier, it was at $0.18. The result turned out to be worse than consensus expected due to the timing of revenue and expenses, as well as due to one-time items. For the 2022 year, the company expects positive earnings in the range of $105-145 million. Free cash flow was $129 million (+65% YoY, margin 26%) in the 3Q.
MPS
Sales of the MPS drugs remain a strong core of the BMRN’s business. Sales of Aldurazyme (partnership with Sanofi) were $29 million (+19% YoY), 2% below expectations. Revenue from Naglazyme was $100 million (+40% YoY, -14% QoQ, 1% better than expected). Vimizim generated $156 million in revenue (+14% YoY, -10% QoQ), 3% worse than expected. The QoQ drop in sales of drugs is associated with the timing of purchases.
Phenylketonuria
Kuvan’ sales were at $57 million (-16% YoY, but 4% better than expected). Kuvan is at the end of its life cycle. In October 2020, its US patent protection ended. The end of the patent in Europe is expected towards the middle of 2023, so the sale of the product will further be hit by generics. Management singles out Palynziq as a long-term driver of segment revenue growth and a replacement for Kuvan, but so far, its sales results are not very impressive. In the 3Q, Palynziq brought the company $66 million in revenue (+9% YoY), 5% worse than expected. Management attributes this to the fact that clinics are prioritizing treatment for life-threatening conditions over PKU in the post-pandemic period.
Voxzogo
Voxzogo’s revenue was $48 million (+41% YoY, 11% better than consensus expected). In Japan, the drug received approval for the treatment of the children of all ages in August. Japan is a very large and important market for the company. Approximately 2/3 of addressable patients in the Asia-Pacific region are in Japan. In Japan, it is customary to treat achondroplasia with growth hormone from an early age. Given the benefits of Voxzogo over the growth hormone, I expect strong demand in this region. It is noteworthy that the smallest patient who started treatment in Japan is only 3 weeks old.
As of September 30, 713 patients (+60% QoQ) in 29 countries were already being treated with the drug. There were 446 patients (20 countries) in the previous quarter. Based on a strong sales start, management raised its full-year revenue forecast for the drug to a range of $140-170 million (previous $130-160 million). In Europe, management plans to apply for Voxzogo’s label extension for the treatment of children under 2 years of age. If approved, it could expand the addressable EU market by 12%. Management also plans to apply for Voxzogo’s label expansion for patients under 6 years of age in the US before the year end. If approved, the addressable US market could expand by 30%. In addition, management is planning to appoint a meeting with the FDA to discuss a regulatory road to approve Voxzogo for the treatment of other conditions. Data from the first phase of the drug’s efficacy study for the treatment of 6 different conditions will be published in the middle of next year.
Given the publication of clinical data of the main competitor, I do not expect that there will be any threats to Voxzogo’s monopoly position in the coming years. The drug will continue to be a significant driver of the company’s revenue growth.
ValRox
In Q3 (August 24), the company received approval for ValRox in Europe. The company is currently in negotiation about reimbursement and a price for the drug in Germany. It is expected that the first commercial patient will begin treatment as early as November. In other European countries, the launch is expected in the 1Q of next year. In Germany, the estimated price will be €60,781. Given an average number of 32 vials needed, it makes the course cost €1.94 million. Taking into account all discounts and rebates, the net price for the company will be below the initial management target of €1.5 million. It is likely that the price will be around €1.4 million.
In the US, the company re-applied for the approval of the drug. A PDUFA date is scheduled on March 31, 2023. Management noted that the FDA plans to hold an AdCom to determine whether the drug needs to be approved. Based on the results of AdCom, the FDA will decide whether to approve the drug in March. AdCom date has not yet been scheduled.
To be conservative, I keep the US approval probability rate at 70%. At the same time, the approval of the drug in Europe clearly increases the likelihood of the drug approval in the United States.
Final thoughts and risks
The actual results of the company are quite solid. The fall of share price, in my opinion, provides another opportunity for the purchase of shares by patient investors. The date of the advisory committee has not yet been determined, but this event will definitely become a key event for the company’s investment case for the coming year. It could finish the long regulatory road of ValRox.
In my opinion, the current market price does not reflect the growth prospects of Voxzogo sales, ValRox’s sales in Europe and the possible approval of ValRox in the US next year. As a result, I maintain my positive view on the stock and believe that the potential return/risk ratio at this level looks attractive. According to my DCF model, the fair value of the company’s shares is $118 per share. However, like any investment, and especially an investment in a biotech stock, the purchase of BioMarin shares involves a certain level of risk. I recommend that you familiarize yourself with all the risks in the company’s annual statement (10-K).
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