BioMarin Top-Line Diminishing

Highlights include BioMarin Pharmaceutical Inc. (BMRN - Analyst Report) and Genzyme Corp. (GENZ - Analyst Report).

1Q09 revenue was in line with our expectation, but EPS fell short

On April 30, 2009, BioMarin Pharmaceutical Inc. (BMRN - Analyst Report) reported financial results for the first quarter ended March 31, 2009.

Total revenue in 1Q09 came in at $74 million, up 22.5% from $60.4 million in the same quarter of 2008. Total revenue of $74 million was in line with our estimate of $74.9 million.

Net product revenue in 1Q09 reached $71.9 million, up 24.8% from $57.6 million for the 1Q08. 1Q09 net product revenue was also in line with our estimate of $70.9 million. BioMarin currently markets three products.

Net product revenue from Naglazyme was $39.4 million for the first quarter of 2009, an increase of 42.2 percent compared to Naglazyme net product revenue of $27.7 million for the first quarter of 2008. Naglazyme sales for 1Q09 were $2 million higher than our estimate of $37.5 million. BioMarin is directly commercializing Naglazyme in the United States, Western Europe, Brazil and Turkey and through distributors in other international markets.

Net sales of Aldurazyme, recorded by Genzyme (GENZ - Analyst Report), were $36.8 million for the first quarter of 2009, which was flat compared to net sales by Genzyme for the first quarter of 2008. We are concerned about the growth of Aldurazyme. Aldurazyme sales in 4Q08 were $37.6 million, only a 6.2% increase year over year -- dramatically diminished from the 37.3% growth rate in 1Q08.

Net product revenue to BioMarin related to Aldurazyme was $17.0 million for the first quarter of 2009, including $2.5 million in incremental product transfer revenue. This compares to net product revenue to BioMarin of $24.1 million, which included $9.5 million of incremental product transfer revenue for the first quarter of 2008. During both the first quarter of 2009 and the first quarter of 2008, BioMarin recorded net product revenue that was higher than the royalty earned on Genzyme's third-party sales during the respective periods due to the incremental product transfer revenue related to net increases in Genzyme Aldurazyme inventory levels during each period.

Net product revenue from Kuvan was $15.5 million for the first quarter of 2009, compared to $5.8 million for the first quarter of 2008. The quantity of commercial tablets dispensed to patients, the best metric to track true patient demand, increased 9.5 percent in the first quarter of 2009, compared to the fourth quarter of 2008.

GAAP net loss was $13.2 million ($0.13 per fully diluted share) for the first quarter of 2009, compared to GAAP net income of $1.7 million ($0.02 per fully diluted share) for the first quarter of 2008.

Non-GAAP net income was $9.3 million ($0.09 per fully diluted share) for the first quarter of 2009, compared to non-GAAP net income of $4.1 million ($0.04 per fully diluted share) for the first quarter of 2008. Including share-based expenses, adjusted net income was $1.5 million, or $0.02 per share.

As of March 31, 2009, BioMarin had cash, cash equivalents and short-term investments totaling $556 million. Cash burn is not a concern.

In general, BioMarin delivered in-line financial performance for the first quarter of 2009. We believe the company will post solid growth in Naglazyme and Kuvan sales in 2009, but we are not optimistic about Aldurazyme growth. Growth of Aldurazyme sales have been diminishing since the first quarter of 2008, with a growth rate of 22.4% in 2008 compared to a growth rate of 28.3% in 2007. Quarterly sales growth diminished 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 and 1Q09 sales growth makes us believe that Aldurazyme may be approaching its maturity.

Pipeline gap apparent after failure of phase III candidate Riquent

In early Jan, 2009, BioMarin and La Jolla Pharmaceutical Company entered into an agreement to develop and commercialize Riquent, 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, only one month after the agreement announcement, on Feb. 12, 2009 BioMarin announced that in the first interim efficacy analysis (IEA), Riquent failed to achieve its goal. BioMarin and La Jolla 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 lost $15 million in the investment, which is only a small loss. However, we are more concerned about the gap left in the pipeline after the failure of the phase III candidate. Except for Riquent, other drug candidates in the pipeline are only in early or middle stages of development

With Aldurazyme approaching its maturity and with no product launch in the next a few years, growth will decrease dramatically in 2009 and the next few years. Actually, BioMarin’s guidance for 2009, 2010 and 2011 is way below our expectations. BioMarin is under pressure to come up with new ideas, in our view, to provide a near-term growth strategy after sales mature for Naglazyme and Aldurazyme.

As such, we maintain our Hold rating for BioMarin shares.