Will BioMarin Climb Even Higher?

Shares of BioMarin Pharmaceuticals (NASDAQ: BMRN  ) jumped almost 8% last Friday after the Food and Drug Administration, or FDA, released the briefing documents for the company's enzyme-replacement therapy for Morquio syndrome Type A. The therapy, called Vimizim, is set to be reviewed by an Advisory Committee on November 19th, with a potential approval by February 28th of next year.

Mr. Market obviously liked the content of the briefing documents and viewed them as a harbinger for the drug's approval come February. My take on the briefing documents is that they aren't overly positive, but also don't contain any obvious red flags. For instance, the reviewer notes that patients taking Vimizim "reasonably maintained their improvement on the 6 minute walk test...after 72 weeks of exposure." I take this to mean that the FDA views Vimizim as providing a modest benefit to individuals afflicted with Morquio Type A.

Turning to the drug's safety, the FDA reviewer points out that anaphylaxis and hypersensitivity are the major safety concerns for all enzyme replacement therapies, including Vimizim. In the clinical trials, 7.7% of patients receiving Vimizim experienced anaphylaxis and 27% experienced hypersensitivity reactions. Most importantly, there were no deaths in the trials resulting from Vimizim treatment.

Are those bad safety numbers? The answer is no. Vimizim's safety data, in terms of anaphylaxis and hypersensitivity, were in line with other approved therapies. So in short, the market liked the briefing documents because the FDA appears to think the drug provides a clinically meaningful benefit, albeit modest, without undue risks.

Disease Background

Morquio syndrome Type A, is a rare, lysosomal storage disease caused by mutations in the gene encoding for the enzyme that breaks down keratin and chondroitin sulfate. The end result is an accumulation of these metabolic products in multiple organs that typically results in organ failure and frequently death. Patients suffering from this disease usually have skeletal abnormalities and higher than normal keratin sulfate levels in their urine. Fortunately, the disease is quite rare, affecting only about 1 in 200,000 people globally.

Market Opportunity

Because Morquio syndrome Type A is so rare, it's reasonable to wonder if the drug can be commercially successful. What's important to understand is that Vimizim has been granted the coveted Orphan Drug Status, or ODS, by the FDA, as well as the European Medicines Agency. Consequently, BioMarin will enjoy several marketing and tax benefits if Vimizim is approved. On top of that, Vimizim will probably carry a hefty price per dose, which is typical of drugs for rare diseases.

To give investors a better feel for Vimizim's market opportunity, I think a comparison to Sanofi's (NYSE: STAR  ) enzyme-replacement therapy for Pompe disease is helpful. Although Pompe disease affects fewer than 10,000 people worldwide, Sanofi's therapy called Myozyme still generated sales of over $400 million last year.

How did Sanofi achieve such a strong sales number for an extremely rare disease? In large part, pricing. Myozyme costs an average of $300,000 per dose, and insurance companies tend to offer little resistance in terms of reimbursement for rare disorders, despite their hefty price tags. Although Vimizim's exact price hasn't been announced yet, I expect it to be in line with other enzyme-replacement therapies.

How will a Vimizim approval affect BioMarin shareholders?

BioMarin is quickly becoming a leader in the orphan drug game, with four approved therapies already. And if you aren't aware, orphan drugs are big business in the pharma industry. Several big pharmas, for example, are racing to develop their own pipelines for treatments of rare diseases. For companies late to the organ drug game but tons of cash on hand, acquisitions are a good way to play catch-up. Sanofi went this route with their acquisition of Genzyme in 2011, and rumors are swirling that BioMarin is the next buyout candidate.

Roche (NASDAQOTH: RHHBY  ) has specifically been named as an interested party in BioMarin, and was rumored to be raising equity for a takeover earlier this year. Roche CEO Severin Schwan threw cold water on this rumor by stating that he believes that biopharmas in general are simply overvalued at the current time. If Vimizim does get approved as expected, however, I wouldn't be surprised to see Roche or another big pharma throw their hat in the ring for BioMarin's commercial pipeline.

The bottom line for Foolish investors is that Vimizim's potential approval is a big deal for BioMarin, and shares have already started to react accordingly. My take is that Vimizim's approval would push BioMarin even higher, and the buyout talk could start to heat up again.

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