The nice thing about investing in orphan drug makers is that they usually don't have much competition. The bad news is that they still have to sell drugs.
Shares of BioMarin Pharmaceutical (NASDAQ:BMRN), a darling of the drug world whose shares more than doubled in 2007, came crashing down today because the growth of years past seems to be waning.
Revenue for 2008 grew by a whopping 144% year over year. This year? The company is expecting a much more modest 3.5% to 13%. Things look even worse at the bottom line. Last year, the company earned more than $30 million, but this year it's expecting to lose as much as $15 million. Ouch. So what changed?
The problem on the revenue side is mostly because there will be no product launch this year. Kuvan, the company's enzyme replacement therapy for phenylketonuria (PKU), launched in late December 2007, so the year-over-year comparison for 2008 benefited nicely. BioMarin also got $35 million from collaborators last year, which won't materialize this year. Kuvan launched in Europe this year through its partner Merck Serono, but that will only result in manufacturing and royalty payments of about $1.5 million.
On the earnings side, the company will record upward of a $15 million expense for its calculated risk on licensing Riquent, La Jolla Pharmaceutical's lupus nephritis treatment. The drug recently failed its phase 3 trial, so the company is out the $7.5 million it paid to license the drug and much of the $7.5 million equity investment in La Jolla. It wasn't a major investment, considering the company ended the year with $560 million in cash and short-term investments, but when a company is borderline profitable, it's a major hit to earnings.
After today's drop, BioMarin is trading at a little over four times revenue. That may seem cheap considering the high-margin business, but there are plenty of companies that have been knocked down even lower. Elan (NYSE:ELN) is trading at 3.3 times last year's revenue, and Amylin Pharmaceuticals (NASDAQ:AMLN) is at 2.8 times revenue after correcting for what it pays Eli Lilly (NYSE:LLY) on Byetta.
Some investors might be buying BioMarin now based on hopes for a buyout by partner Genzyme (NASDAQ:GENZ) or perhaps a company like Merck (NYSE:MRK) or Sanofi-Aventis (NYSE:SNY), or other companies facing a patent cliff. But they may not get much of a premium, even at this beaten-down level.
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