BioMarin Downgraded to Hold

We downgrade BioMarin Pharmaceutical Inc. (BMRN - Analyst Report) shares from Buy to Hold based on worse-than-expected 4th quarter financials and the not-rosy outlook for 2009.

Fourth Quarter 2008 Results Fall Short of Expectations; Outlook Not Rosy

BioMarin continues to deliver strong results in 4Q08, but the outlook for 2009 and beyond is not rosy.  

Total revenue in 4Q08 came in at $99.3 million, up 121.4% from $44.9 million in the same quarter of 2007. Fourth quarter total revenue included $15.2 million from Kuvan sales, which was not included in 4Q07. Total revenue of $99.3 million was short of our $109 million estimate.

Net product revenue in 4Q08 reached $66 million, up 154.8% from $25.9 million for the 4Q07. Fourth quarter net product revenue was $8 million less than our estimate of $74 million.

Naglazyme sales were $36.5 million for the 4th quarter of 2008, up 43.1% year on year compared to Naglazyme sales of $25.5 million for 4Q07, but less than our estimate of $38.5 million.

Net sales of Aldurazyme, recorded by Genzyme (GENZ - Analyst Report), were $37.6 million for 4Q08, an increase of 6.2% compared to net sales of $35.4 million for 4Q07. 4Q08 Aldurazyme sales were also slightly short of our expectation of $38.7 million. Net product revenue to BioMarin related to Aldurazyme was $14.4 million for the 4th quarter of 2008.

Net product revenue from Kuvan was $15.1 million for the 4th quarter of 2008 which was in line with our estimate of $15.5 million. An initial ramp of Kuvan sales has been impressive with sales of $5.8, $12, $13.8 and $15.1 million respectively in the four quarters of 2008.  

Non- GAAP net loss was $1.4 million ($0.01 per share) for 4Q08, compared to non-GAAP net loss of $12.4 million ($0.12 per share) for 4Q07. We estimated non-GAAP net income of $1.1 million or $0.01 per share for 4Q08.

In general, we think BioMarin delivered a solid financial performance for the 4th quarter of 2008. We believe the company will post solid growth in Naglazyme and Kuvan sales in 2009, but we are not optimistic about Aldurazyme growth.

Actually, growth in Aldurazyme sales has slowed down in 2008, with a growth rate of 22.4% compared to the growth rate of 28.3% in 2007. Quarterly sales growth has been diminishing in 2008 with sales growth of 37.3%, 33%, 18.3% and 6.2% respectively for Q1, Q2, Q3 and Q4. The dramatic slowdown in 4Q08 sales growth makes us believe that Aldurazyme may be approaching its maturity.

With Aldurazyme approaching its maturity, and with no product launch in the next few years, growth will decrease dramatically in 2009 and beyond. Actually, BioMarin’s guidance for 2009, 2010 and 2011 is way below our expectations.

Pipeline Gap Apparent After Failure of Phase III Candidate Riquent

Although the company’s pipeline is robust, all drug candidates are in early or middle stages of development. With the failure of Riquent, a phase III candidate for lupus nephritis, there is a deep gap in the pipeline, which means that there will be no new product launch in the next few years. As such, top line growth will decrease dramatically in 2009 and beyond until the company can launch new products.

BioMarin recently entered into an agreement with La Jolla Pharmaceutical Company to develop and commercialize Riquent(R), which is under phase III ASPEN studies by La Jolla for lupus nephritis in the United States, Europe and all other territories of the world, excluding the Asia-Pacific region.

However, on Feb. 12, 2009, the two companies announced that in the first interim efficacy analysis (IEA) for the Riquent(R) phase III ASPEN trial, the Independent Data Monitoring Board (DMB) determined that the continuation of the trial is futile. BioMarin and partner La Jolla Pharmaceutical have decided to stop the study, unblind the data and evaluate all of the clinical results including secondary endpoints such as SLE (Systemic Lupus Erythematosus) disease activity indices and proteinuria.

BioMarin only lost $15 million in the investment. This is a small amount of the loss. However, we are more concerned about the gap left in the pipeline after the failure of the phase III candidate. The company is under pressure to come up with new idea to provide near term growth strategy after sales mature for Aldurazyme, in our view.

Read the full analyst report on BMRN