BioMarin Beats Zacks Estimates

Yesterday, BioMarin Pharmaceutical Inc. (BMRN - Analyst Report) reported second-quarter net income of $1.31 million or $0.01 per share, beating the Zacks Consensus Estimate of a loss of $0.01 per share. The company reported a net income of $3.81 million or $0.04 per share in the comparable quarter of 2008.
 
Revenues for the quarter increased 29% to $82.78 million from $64.17 million in the year-ago period. This too exceeded Zacks Estimate of $79.8 million. Net product revenues in the quarter reached $81.47 million, up 34.77% from $60.45 million for the comparable quarter of 2008. This was also higher than the Zacks Estimate of $76.3 million.
 
The lower profit for the quarter is attributable to the higher operating expenses, which increased 31.57% to $78.47 million from $59.64 million. The rise in expenses was primarily due to higher cost of sales, research and development expenses, and selling, general, and administrative expenses. For 2009, Zacks expects total revenue to be $326 million.
 
As a reminder, the company now has three products on the market- Aldurazyme is co-marketed with Genzyme Corporation (GENZ) for the treatment of MPS-I (mucopolysaccharidosis), Naglazyme, for MPS-VI- a rare genetic enzyme deficiency disorder and Kuvan for phenylketonuria (PKU).
 
Although we believe that both Naglazyme and Kuvan will continue to post solid growth in 2009, we are not optimistic about the growth of Aldurazyme, which grew only 1% in the quarter. As such, growth of Aldurazyme sales slowed down from 2008 with a growth rate of 22.4% compared to 28.3% in 2007.

Quarterly sales growth has been declining since 2008 with sales growth of 37.3%, 33%, 18.3% and 6.2% respectively. The dramatic slowdown in 2008 sales growth and flat sales in the first two quarters of 2009 makes us believe that Aldurazyme is approaching its maturity. We estimate sales will grow only 2.6% to $155 million in 2009.
 
The company has a strong balance sheet and exited the quarter with cash and short and long-term investments of $485.3 million. We are comfortable with the company’s cash position.
 
On the same day, the company was granted patents for stable tablet formulation and once daily dosing regimen for Kuvan from the United States Patent Office for the treatment of PKU. The patent for stable tablet formulation expires in 2025, and the patent for the once daily dosing regimen expires in 2024.
 
We are concerned about growth in 2009 and beyond. The company has a robust pipeline, but all candidates are in early or middle stage of development. There is a relatively deep gap between the pipeline and marketed products since no product launch is expected in the next few years. As such, the company’s growth will decline in 2009 and beyond.
 
Therefore, we maintain our Hold rating for BioMarin shares.

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