I try very hard to keep an emotional detachment from the companies I own, but this week BioMarin Pharmaceuticals (NASDAQ:BMRN) really got me hot under the collar. On Tuesday the company revised its financial guidance for the year with anticipated revenues from recently acquired drug Orapred coming in at a whopping total of zero.
Specifically, the warning was for zero contribution from Orapred in the third and fourth quarters because of "larger than anticipated levels of inventory held by distributors." That's a heck of a warning with the end of the third quarter only a week away. Thanks for the notice, guys; we lowly shareholders appreciate it.
BioMarin picked up Orapred earlier this year as part of an acquisition of Medicis Pharmaceuticals' (NYSE:MRX) pediatrics business. In my opinion, the reason Orapred is going to disappoint for the remainder of the year is channel-stuffing prior to the deal closing. I just took another listen to conference call on April 21 of this year in which the deal was discussed. During the Q&A a very astute analyst, Gabe Hoffman, pressed management about inventory levels. CEO Fred Price's responses were "overstocking does not exist today" and "no stuffing going on right now." Heh.
Maybe that was the case in April, and maybe it wasn't. I'm not privy to that information. But when a CEO makes statements like that, they better be correct. Shareholders had every reason to believe all was dandy when BioMarin updated its financial guidance for the year on Aug. 10. Just seven weeks ago, the expected Orapred sales figure for 2004 was $42 million in sales. And the phrase "on track" was even used.
So what has happened in the last seven weeks to get so far "off track"? Are we to seriously believe that the channel-stuffing just recently came to light? I'm not that gullible. Or was this why Fred Price suddenly resigned on Aug. 12? I'll let you draw your own conclusions.
A miscue of this magnitude is unacceptable. Donald Trump has fired people for much less, so I'm glad there's new management coming in. I continue to think that BioMarin has a promising future, and I'm looking forward to watching the company turn around in the coming year.
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Charly Travers doesn't pull any punches when he analyzes biotech companies. If you want to find out which companies in the biotech sector he thinks offer the best growth opportunities, take a free trial to the new Motley Fool Rule Breakers newsletter.
Fool contributor Charly Travers owns shares of BioMarin Pharmaceuticals.
