The rare-disease specialist BioMarin Pharmaceutical (BMRN -0.86%) posted an outstanding third-quarter earnings report yesterday after the closing bell. Specifically, the biotech crushed FactSet's consensus Q3 GAAP net income estimate by a whopping 75%, and beat the prevailing revenue forecast for the three-month period by a modest 1.16% as well. Investors, in turn, cheered this news by bidding up the company's stock by 3.83% in after-hours trading on moderate volume.
While better-than-expected earnings are always a plus from an investing standpoint, there's actually a lot more to like about this orphan drugmaker other than its encouraging Q3 results. Here are three additional reasons to consider buying this top biotech stock right now.
BioMarin's stock checks all the right boxes
When it comes to picking top revenue-generating biotech stocks, there are three core areas investors should focus on:
- The stock's valuation within the context of its long-term outlook. Cheap biotechs, more often than not, are cheap because they have a middling to unfavorable long-term outlook. So, investors should be on the lookout for biotech stocks with a below-average valuation but a strong near-term outlook.
- The deep value offered by the company's late-stage clinical pipeline. Clinical pipelines are the lifeblood of all biotechs, so it's paramount to consider the commercial viability and potential of a company's most important candidates before buying shares.
- The overall health of the company's balance sheet. Biotechs are well-known for diluting shareholders to oblivion, taking on debt on less-than-stellar terms or signing away the commercial rights to a key revenue generator, all in the name of funding operations. A large cash position, therefore, is a promising sign that the company won't have to undercut its shareholders to simply remain a going concern.
BioMarin passes each of these checkpoints with flying colors
On the valuation front, its shares are trading somewhere along the lines of 6.2 times next year's sales right now. While that figure might jump off the screen as a sky-high valuation in absolute terms, the stock is actually cheap for a top maker of orphan drugs -- especially for one whose annual revenue could more than double within the next four years.
Keeping with this theme, shares of the Duchenne muscular dystrophy specialist Sarepta Therapeutics (SRPT -1.92%) are presently trading at nearly 10 times next year's sales, and the cystic fibrosis giant Vertex Pharmaceuticals' (VRTX -1.35%) stock isn't much cheaper at 8.2 times the company's 2020 sales forecast.
The point is that both of these top orphan-drug stocks are markedly more expensive than BioMarin's at current levels. Best of all, BioMarin should at least match -- if not surpass -- both Sarepta and Vertex from a revenue growth standpoint over the next decade.
BioMarin also ticks the late-stage clinical pipeline box. During its Q3 conference call, management noted that the company is on track to submit regulatory filings for the severe hemophilia A treatment valoctocogene roxaparvovec in both the U.S. and EU and release the top-line results for vosoritide's pivotal trial for children with achondroplasia (a form of dwarfism) before the end of the year. Both of these experimental rare-disease treatments are expected to achieve blockbuster level sales early in the next decade.
Regarding the health of its balance sheet, BioMarin sports one of the strongest cash positions among all mid-cap biotechs right now. Specifically, the company exited the most recent quarter with an eye-catching $1.2 billion in cash and cash equivalents. That means that BioMarin shouldn't have to dilute current shareholders, take on boatloads of debt, or cut a bad licensing deal due to an imminent cash crunch.
BioMarin's relatively cheap valuation, strong growth prospects, and sizable cash cushion are three solid reasons to buy its stock soon. Now, it's true that this orphan-drug maker hasn't been a great investing vehicle over the past few years, but this situation should change for the better in early 2020. After all, BioMarin's late-stage pipeline has consistently produced big wins for shareholders over the years -- and valoctocogene roxaparvovec and vosoritide both appear poised to follow in this rich tradition in the not-so-distant future.