Is BioMarin's Vimizim Grabbing Suitors Attention?

Is BioMarin's Vimizim Grabbing Suitors Attention?

Shire's $4.2 billion acquisition of orphan drugmaker ViroPharma has investors wondering who might be bought next. One company on that list is specialty biotech firm BioMarin Biomarin got the go-ahead for its orphan drug Vimizim from a key advisory panel in November. But will the Vimizim news help prompt a suitor to make an offer?

Treating the rare Morquio A disease
BioMarin's Vimizim is an enzyme replacement therapy for patients with Morquio A, a very rare disease affecting just 3,000 people worldwide. Only one in 200,000 births will be diagnosed with Morquio A in the United States, translating into a patient pool of just 520 to 800 Americans.

The disease is caused by a hereditary inability to produce an enzyme necessary for musculoskeletal development. Sadly, there are no approved treatments for Morquio A, and most people endure progressively more limited daily function every year with the majority of patients failing to live beyond 40 years old. If eventually approved, the rarity and poor prognosis for Morquio A suggests a significant revenue opportunity for Vimizim.

Commercializing orphan drugs
BioMarin is no stranger to treating uncommon conditions. All four of the company's commercialized drugs target rare disease and those drugs combined to generate $136.9 million in the third quarter sales, up 6.9% year-over-year.

Of the four, BioMarin's biggest seller is Naglazyme, which is used to treat Maroteaux-Lamy syndrome -- a disease occurring in just one in 250,000 to 600,000 newborns. Naglazyme carries an annual price tag of $365,000 and contributed $63.2 million in the third quarter sales, which was essentially unchanged from last year.

BioMarin collaborated with German drug company Merck KGaA on Kuvan, a drug used to treat phenylketonuria, or PKU. PKU affects just one in about every 10,000 Caucasians and sales of Kuvan grew 19.8% from a year ago to $43.6 million last quarter.

BioMarin also partners with Sanofi's Genzyme unit on Aldurazyme. That drug treats MPS1 and produced sales of $23.4 million in Q3. Finally, BioMarin sells Firdapse in the European Union for Lambert-Eaton myasthenic syndrome, or LEMS. Sales of Firdapse grew 13.9% year-over-year to $4.1 million last quarter.

Rumors of potential acquirers -- but who can foot the bill?
BioMarin's partner Merck KGaA may be unwilling to make the leap to acquire the company given that Merck's market cap is only $27 billion. But Sanofi could conceivably be willing to buy BioMarin given its high profile acquisition of Genzyme shows a willingness to boost its pipeline through acquisition. And Sanofi, with a market cap of $140 billion, is certainly large enough to digest a big deal.

Reports have also surfaced previously suggesting drug giants Roche and Shire may be willing to buy BioMarin.

Roche spent $46 billion buying Genentech in 2009, and some analysts believe another acquisition would be welcome given upcoming patent expiration in the EU for its $6 billion a year breast cancer drug Herceptin. However, the company may still be stinging from its failed $6 billion bid to buy Illumina last year. And with Shire buying ViroPharma, it's unlikely it'll be ready to jump into another big deal right away.

Closing a deal may be particularly challenging since Shire acquired ViroPharma for roughly 10 times sales and Amgen bought Onyx for roughly 17 times sales. BioMarin already trades at roughly 20 times sales, suggesting it may be priced too richly for any acquirer.

Of course, that valuation is based on current sales, which means Vimizim's potential impact could help an acquirer justify the steep price. Based on BioMarin's experience selling drugs with six-figure prices and Vimizim's weekly dosing, some analysts project Vimizim's peak sales could be near the company's current revenue, which BioMarin forecasts at $530 million to $555 million this year.

Advancing additional drugs through clinic
But BioMarin isn't relying solely on Vimizim, or its other existing drugs, for future growth. The company has a number of ongoing trials for additional rare disease, including a phase 3 trial for BMN-701 for Pompe disease, which affects 5,000-10,000 people worldwide. The company's BMN-111 for achondroplasia -- a common cause of dwarfism with estimated incidence of 1.3 in 100,000 live births -- will enter phase 2 shortly. And BMN-190 for neuronal ceroid lipofuscinosis type 2, or NCL-2 -- a form of Batten disease -- with an incidence rate of just two to four per 100,000 live births is in phase 1/2 trials.

A Fool's final thoughts
BioMarin appears to have another lucrative orphan drug on its hands. While the FDA could go against the advisory panel when it meets to decide on Vimizim's approval in February, the administration usually follows panel guidance. If approved, BioMarin will have five approved orphan drugs with more coming through clinic, and that could have acquisition-hungry companies paying attention.

However, a deal may be difficult to strike, even with megacap companies Roche and Sanofi. Investors already value the company above other deals. And that means investors need to evaluate BioMarin on a stand-alone basis. On that measure, the richly valued company appears to have a solid pipeline of future drug candidates, including Vimizim, that could help it substantially grow revenue. However, whether that will translate into big enough profits to justify its $10 billion market cap remains to be seen.

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Todd Campbell is long BioMarin. Todd owns E.B. Capital Markets, LLC, an institutional research firm. E.B. Capital's clients may or may not have a position in the companies mentioned. Todd also owns Gundalow Advisors, LLC. Gundalow's clients do not have a position in the companies mentioned. The Motley Fool recommends BioMarin Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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