A Speculative Play in Rare Diseases
Perceptive readers may note that BioMarin Pharmaceuticals isn’t the only company in the pharmaceutical industry that is dedicated to rare diseases. Sarepta Therapeutics Inc (NASDAQ:SRPT) is a development stage company that appears to have a breakthrough treatment called eteplirsen for the treatment of Duchenne’s Muscular Dystrophy (DMD).
BioMarin is also developing a treatment for DMD, although its compound BMN 195, a small-molecule utrophin upregulator, entered Phase I trials as recently as January 2010 with only a single patient. In contrast, Sarepta Therapeutics has completed both Phase I and II trials, and is planning to meet with the FDA to seek early approval following unprecedented success in its own clinical program.
In addition to rare diseases, Sarepta is developing treatments for infectious diseases such as ebola virus, influenza, and dengue fever. The stock has been extremely volatile since the company released positive Phase II results on Oct. 3, sending shares from $15 to $45 in a single trading session. Short sellers who question the data have brought the stock beneath $30, and Sarepta has been in a trading range between the low-to-high $20 range ever since.
In my opinion, the “easy money” in Sarepta is over. Depending on the company’s outcome with regulators, the stock is either worth $60 per share or a fraction of the current market price. Sarepta is also an attractive takeover target, whether the company receives immediate approval or otherwise. If regulators require Sarepta to complete further testing on eteplirsen, it’s possible management could choose to sell out.
Foolish Bottom Line
Analysts often compare BioMarin’s success in rare diseases to that of Genzyme early in its life cycle. Genzyme earned FDA approval for Cerezyme, used to treat Gaucher disease, and Fabrazyme, used to treat Fabry disease before being purchased by Sanofi SA (ADR) (NYSE:SNY) for a respectable premium. Sanofi made an initial offer for Genzyme in August 2010 for $18.5 billion, which was rejected by Genzyme’s board. Sanofi came back in February 2011 and offered $20.1 billion, accepted by shareholders.
BioMarin and Genzyme are so similar that the companies formed a joint venture to market BioMarin’s first drug Aldurazyme, which is effective for only 3,000 people in the developed world. Genzyme continues to fire on all cylinders, although investors would be required to purchase Sanofi SA in order to gain exposure. Sanofi has its own risks, with major patent expirations through mid-2013 and an uncertain pipeline. The company recently stated it expects flat to negative EPS growth for 2013.
For readers who dive into BioMarin’s financial statements, I would advise you not read into the company’s weak profitability in recent years. The company has been investing all of its cash into research and development, which is well-recognized by the Wall Street community. Furthermore, the stock trades completely on revenue expectations and its patent-protected pipeline.
As my friend Guy Adami states, “where there’s smoke, there’s fire” and a BioMarin sell-out seems nearly inevitable in a world where Big Pharma is searching for new drugs to fill an ever-widening patent expiration gap. I expect shares of BioMarin Pharmaceutical to be significantly higher in the next 12 months.
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Investors interested in further reading in the biopharmaceutical space should reference Revlimid Ramp-Up, New Drug Launches Make Celgene a Buy. Shares of Celgene have risen approximately 26.4% between Nov. 28 and Feb. 15.
The article This Mid-Cap Pharmaceutical is a Prime Takeover Target originally appeared on Fool.com and is written by John Macris.
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