What: Shares of BioMarin Pharmaceutical (BMRN -9.90%), a biopharmaceutical company focused on developing therapies to treat rare and ultra-rare diseases and disorders, roared higher by 14% in October, based on data from S&P Capital IQ, after the company crushed Wall Street's earnings expectations in the third quarter and boosted its full-year guidance.
So what: For the quarter, BioMarin Pharmaceutical reported revenue of $176.8 million, 29.1% higher than the year-ago period, led by $25.2 million in Vimizim revenue in just its second full quarter since it was approved by the Food and Drug Administration, a 22.5% increase in Kuvan's net revenue, and a 6.8% increase in sales of BioMarin's best-selling drug Naglazyme, which also happens to be one of the most expensive drugs in the world.
BioMarin's adjusted loss per share grew to $22.9 million, or $0.16 per share, compared to an adjusted loss of $16.7 million in Q3 2013. However, on a GAAP basis (which factors in one-time costs and benefits, or costs and benefits considered to be non-recurring) BioMarin earned $0.05 per share in profits compared to a GAAP loss of $0.38 in the year-ago period. The big swing was because of the one-time sale and profit of the company's Rare Pediatric Disease Priority Review Voucher for $67.5 million. Comparatively, Wall Street was expecting a loss of $0.38 per share on an adjusted basis (meaning BioMarin crushed adjusted estimates by $0.22 per share), while the Street was looking for a more robust $209.6 million in sales.
In addition, BioMarin boosted its full-year sales guidance to a fresh range of $700 million-$710 million, which is up nicely from its prior forecast of $680 million-$700 million.
Also helping BioMarin is speculation (which has been going on for years) that it could be a buyout target. BioMarin is right in the sweet spot of the buyout valuation range and its focus on rare disease drugs means incredible pricing power and practically no competition.
Source: Flickr user Alberta Innovation and Advanced Education.
Now what: While I couldn't agree more that BioMarin is a potentially attractive takeover candidate, I'm absolutely terrified by the company's current valuation considering that it isn't expected to be profitable until 2017 at the earliest.
One positive for BioMarin is that competition for its disease indications is practically nonexistent. It would cost a lot of money for a rival biopharmaceutical company to develop a competing drug only to wind up splitting sales, so BioMarin is likely going to hang onto its full share of existing disease indications for a long time. Pricing will also work in BioMarin's favor as long as it serves a handful of patients and few, if any, alternative treatment options exist.
However, BioMarin's ongoing losses and limited patient pool make it a very risky play here with a valuation north of $12 billion. I'm used to investors looking into future, but I foresee them valuing BioMarin based on its 2020 earnings potential ... which doesn't make much sense to me. Given that, current shareholders may want to consider taking some of their chips off the table here. If you're on the outside looking in, I'd suggest keeping your distance until there's a sizable pullback.
