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BioMarin Pharmaceutical Inc.’s (BMRN - Analyst Report) fourth quarter 2011 loss of 23 cents per share was wider than the Zacks Consensus loss estimate of 11 cents per share. The wider-than-expected loss was attributable to increased operating expenses which more than mitigated the rise in revenues. The company reported break-even earnings in the year-ago quarter.

The Fourth Quarter in Details

Total revenues climbed 6.1% to $107.8 million in the reported quarter. Revenues fell short of the Zacks Consensus Estimate of $115 million.

Net product revenues in the reported quarter climbed approximately 7.7% to $106.1 million. Naglazyme, approved for treating MPS-VI, a rare genetic enzyme deficiency disorder, contributed the bulk of the net product revenues recorded in the quarter. Revenues from the drug climbed 6.7% to $48.1 million. The increase in patient demand outweighed the negative foreign exchange impact on Naglazyme sales during the reported quarter.

Net product revenues from Kuvan tablets, indicated for treating mild-to-moderate forms of phenylketonuria, grew 12.8% to $30.8 million. The increase was attributable to the higher demand for the drug in the US.

Revenues for BioMarin from another enzyme replacement therapy, Aldurazyme, co-marketed with Sanofi (SNY - Analyst Report), increased 3% to $23.8 million. In addition to the above-mentioned products, BioMarin possesses the rights to Firdapse through its acquisition of Huxley Pharmaceuticals in October 2009.

Net revenues from Firdapse, currently marketed in Europe, were $3.3 million in the quarter, up 10%. Firdapse was launched in April 2010, in the European Union, for treating patients suffering from LEMS -- a rare autoimmune disorder. The drug has performed disappointingly since being launched. The sales of the drug were a mere $3 million in the final quarter of 2010, $3.1 million in the first quarter of 2011, $3.2 million in the second quarter and $3.5 million in the third quarter of 2011.

Both research & development (R&D) expenses (up 37.2%) and selling, general &administrative expenses (SG&A) expenses (up 15.1%) were on the upswing during the reported quarter leading to a 23.2% rise in total operating expenses.

While BioMarin’s focus on developing its pipeline led to the increase in R&D expenses, increased sales and marketing expenses towards Naglazyme and Kuvan were mainly responsible for the rise in SG&A costs.

Annual Results

For the full year 2011, BioMarin suffered a loss of 48 cents as opposed to earnings of $1.79 in 2010. The Zacks Consensus loss estimate for 2011 was 35 cents per share on revenues of $449 million. Revenues for 2011 climbed 17.3% to $441.4 million due to higher product sales.

2012 Guidance

BioMarin also provided guidance for 2012. Total revenues are expected in the range of $465 million-$510 million, as opposed to $441 million recorded in 2011. The increase is due to higher product sales expected in 2012. Net product revenues are expected in the range of $460 million-$505 million. Net product sales were $438 million in 2011.

We expect BioMarin to easily achieve the revenue guidance driven by Naglazyme and Kuvan. Consequently, the Zacks Consensus Estimate of $514 million for 2012 is above the company’s guidance range.

Revenue guidance for the marketed products at BioMarin is as follows: Naglazyme - $240 million-$265 million: Kuvan - $126 million-$136 million; Aldurazyme - $81 million-$87 million; and Firdapse - $13 million-$17 million.

Both SG&A expenses and R&D expenses are expected to be higher in 2012 compared to 2011 levels. While SG&A expenses are expected in the range of $195 million-$205 million (2011: $175 million), R&D expenses are expected in the range of $255 million-$265 million (2011: $214 million).

Our Recommendation

We recently downgraded our long-term recommendation on BioMarin to Underperform from Neutral as we believe the stock to be overvalued at current levels. Moreover, we are disappointed by the initial sales ramp of Firdapse.

Furthermore, we expect cash burn to increase since the company is investing heavily in its pipeline. Any negative news regarding the pipeline would have an adverse impact on the stock. The stock carries a Zacks #5 Rank (Strong Sell) in the short-run.

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