BioMarin Pharmaceutical (NASDAQ: BMRN) has been a rough investment for a long time. Over the past 10 years, shares have provided a total return of -28%. However, Wall Street analysts have consistently given this stock price targets that are much higher than its trading price.
They see more fundamental value in the company than the market will give it credit for. That remains true today. The stock’s average price target of $94 implies that shares would need to rise 53% to meet that level. So, can BioMarin Pharma reach the potential analysts have placed on it, or is avoiding this stock a better idea?
Breaking Down BioMarin’s Drugs and Strong Financial Improvement
BioMarin is a commercial-stage pharmaceutical company that makes medicines for rare genetic conditions. In its most recent quarterly results, three drugs accounted for two-thirds of the firm’s revenue: VOXZOGO, VIMIZIM, and NAGLAZYME. The former accounted for the most revenue and the latter the least. VOXZOGO is a treatment for children with achondroplasia, the most common form of dwarfism.
At this point, VOXZOGO is clearly the company’s most important drug. Not only because it is now the largest quarterly revenue generator, but it is also growing at a brisk pace. Last quarter, sales of VOXZOGO grew by 54% from the previous year. Another exciting drug is ALDURAZYME, which saw revenues grow by 407%.
From a financial perspective, the company has been doing many good things over the past five years. It has substantially increased both its gross margin and operating margin. The operating margin now sits at a solid 12% over the last twelve months, compared to -6% at the end of 2019.
Revenue growth was at or near zero for much of the pandemic period; however, it has recovered strongly, hitting almost 30% last quarter. Free cash flow per share is at its highest level of all time after hovering at or below zero for decades. However, the company is worth around $2.5 billion less than it was at the end of 2019.
The reason for this is the massive contraction in the company’s valuation multiples. Almost every one of these metrics is at its lowest level of the past 10 years. However, it's not out of the realm of possibility to say that BioMarin still might be trading at an elevated multiple. Its 17x forward price to earnings (P/E) multiple is the eighth highest among 32 profitable large-cap pharma and biotech firms in the United States and Europe.
Just When Things Were Looking Up, Competition Struck
BioMarin started gaining some steam back in June, with shares rising 21% by the end of August. However, devastating news hit the company when a drug competing with VOXZOGO saw positive results in late-stage Food and Drug Administration trials. The results from Ascendis Pharma A/S (NASDAQ: ASND) showed efficacy “in the same ballpark” as VOXZOGO.
This makes approval of the drug likely; it should compete with VOXZOGO on the market. Additionally, the Ascendis drug offers one key advantage over VOXZOGO: patients only need to take it weekly versus daily. Essentially, the Ascendis drug can produce the same results but is more convenient. This news wiped out any gains BioMarin's stock achieved.
However, Evercore ISI analyst Cory Kasimov outlines multiple very important points about VOXZOGO. Kasimov says BioMarin will maintain “at least a 4+ year head start in the U.S.” in terms of commercializing its drug. BioMarin wants to expand the penetration of VOXZOGO in the United States and Europe to make its product a staple that patients trust before Ascendis’s drug can gain traction.
VOXZOGO also remains the only approved dwarfism drug for children under the age of 2. Lastly, VOXZOGO is in trials to treat five more related conditions. This could expand its market into areas that Ascendis's treatment is not currently intended to reach.
BioMarin May Continue Teasing the Bulls
BioMarin feels like it deserves more than the market will give it. It has clearly improved the business a lot over the years. But, its history of poor performance and the recent bad news for VOXZOGO make optimism difficult. As such, BioMarin remains a company that I am interested in watching.
The company’s future hinges largely on VOXZOGO. The company must use its first-mover advantage to push hard into squeezing all the proverbial juice it can out of the VOXZOGO lemon. It could increase sentiment if VOXZOGO sales significantly exceed expectations and the drug gets new approvals.
