February 26, 2015 BioMarin Pharmaceutical Inc. (BMRN-NASDAQ) Analyst Note Current Recommendation Prior Recommendation Neutral Date of Last Change 02/22/2015 Current Price (02/26/15) $108.84 Target Price $131.00 SUMMARY DATA OUTPERFORM 52-Week High $108.84 52-Week Low $55.78 One-Year Return (%) 31.83 Beta 0.93 Average Daily Volume (sh) 1,090,519 Shares Outstanding (mil) 157 Market Capitalization ($mil) $17,088 Short Interest Ratio (days) 3.99 Institutional Ownership (%) Insider Ownership (%) 2 Annual Cash Dividend $0.00 Dividend Yield (%) 0.00 5-Yr. Historical Growth Rates Sales (%) 14.8 Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2015 Estimate P/E using 2016 Estimate Zacks Rank *: Short Term 1 3 months outlook 1 - Strong Buy * Definition / Disclosure on last page SUMMARY BioMarin s fourth-quarter 2014 loss of $0.30 per share was much narrower than the Zacks Consensus Estimate of a loss of $0.59 but wider than the yearago loss of $0.27 per share. Total revenues increased 57.2% to $231 million in the reported quarter, beating the Zacks Consensus Estimate of $191 million. The Prosensa acquisition should boost BioMarin s rare disease portfolio. Meanwhile, BioMarin s robust orphan disease focused pipeline is progressing well with several pipeline related updates and data readouts lined up for the rest of 2015. We maintain an Outperform recommendation on the stock. Risk Level * Average Type of Stock Large-Growth Industry Med-Biomed/Gene Zacks Industry Rank * 82 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 128 A 138 A 138 A 149 A 553 A 2014 152 A 192 A 177 A 231 A 752 A 2015 197 E 213 E 218 E 242 E 870 E 2016 1,118 E Note: Quarterly numbers may not add to annual figures due to rounding off. Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 -$0.31 A -$0.16 A -$0.38 A -$0.27 A -$0.76 A 2014 -$0.27 A -$0.19 A -$0.16 A -$0.30 A -$0.77 A 2015 -$0.56 E -$0.52 E -$0.56 E -$0.57 E -$2.21 E 2016 -$0.77 E Note: Quarterly numbers may not add to annual figures due to rounding off and adjustments. Projected EPS Growth - Next 5 Years % 2015 Zacks Investment Research, All Rights reserved. www.zacks.com 10 S. Riverside Plaza, Chicago IL 60606
RECENT NEWS BioMarin's Fourth Quarter Loss Narrower than Expected, Gives 2015 View Feb 25 BioMarin s fourth-quarter 2014 loss (including stock-based compensation expense) of $0.30 per share was much narrower than the Zacks Consensus Estimate of a loss of $0.59 but wider than the year-ago loss of $0.27 per share. Total revenues increased 57.2% to $231 million in the reported quarter, beating the Zacks Consensus Estimate of $191 million. The increase was mainly due to higher net product revenues. BioMarin s full-year loss (including stock-based compensation expense) of $0.77 per share was a penny wider than the year-ago loss of $0.76 per share but much narrower than the Zacks Consensus Estimate of a loss of $1.06. Full year 2014 revenues also increased 37% to $751 million, beating the Zacks Consensus Estimate of $711 million. The Quarter in Detail Vimizim contributed $36.9 million to total revenues in the fourth quarter of 2014, up 46.4% sequentially. Net product revenues from Kuvan increased 26.7% year over year to $57.4 million. Naglazyme sales in the quarter increased 28.8% year over year to $88.5 million. The company attributed higher Naglazyme revenues to a large government order from Latin America. BioMarin receives royalties from its partner Sanofi on Aldurazyme. Aldurazyme royalties (excluding transfer revenues) amounted to $27.9 million in the fourth quarter, up 1.5% year over year. Firdapse revenues came in at $4.1 million, down 4.7% year over year. Research and development (R&D) expenses increased 46% year over year to $142.1 million. Selling, general and administrative (SG&A) expenses increased 39% year over year to $99.8 million during the quarter. BioMarin completed the acquisition of Prosensa last month. The acquisition added Duchenne muscular dystrophy candidate, drisapersen, to BioMarin s portfolio apart from multiple orphan-drug candidates. BioMarin expects to complete the rolling new drug application for drisapersen in the U.S. in Apr 2015. The EU application will be submitted shortly. 2015 Outlook BioMarin expects total revenues in the range of $840 million to $870 million. The pre-earnings Zacks Consensus Estimate for total revenues was $879 million. BioMarin projects net loss in the $130 $170 million range. The company expects net loss to widen assuming regulatory expenses associated with drisapersen and pipeline progress. Naglazyme revenues are expected in the range of $315 million to $340 million. The company expects Kuvan net product sales in the range of $210 million to $230 million. The company projects 2015 Vimizim sales in the range of $170 million to $200 million. Equity Research BMRN Page 2
SG&A spend is expected in the range of $360 million to $395 million. The guidance includes costs associated with the marketing of Vimizim, servicing of patients on Vimizim, Naglazyme and Kuvan, sales activity in anticipation of the potential launch of drisapersen and the integration of Prosensa. R&D spend is expected in the range of $610 million to $640 million, up from $461.5 million in 2014, including the integration of drisapersen and Prosensa. Our Take We are pleased with the company s top- and bottom-line results with revenues beating the estimates and losses coming in narrower than expected. With Vimizim already off to a strong start, sales should increase further in 2015, as reimbursement in additional EU countries pick up. BioMarin expects multiple pipeline related news with multiple data readouts lined up for the rest of the year. We expect investor focus to remain on pipeline updates from the company. VALUATION BioMarin s fourth-quarter 2014 loss of $0.30 per share was much narrower than the Zacks Consensus Estimate of a loss of $0.59 but wider than the year-ago loss of $0.27 per share. Total revenues increased 57.2% to $231 million in the reported quarter, beating the Zacks Consensus Estimate of $191 million. The company s guidance for 2015 looks achievable. Vimizim and other key products should continue to perform well. Meanwhile, the addition of DMD candidate, drisapersen, following the Prosensa acquisition should boost BioMarin s rare disease portfolio. BioMarin s deep orphan disease focused pipeline is progressing well with several pipeline related updates and data readouts lined up for the rest of 2015. The successful development and commercialization of the robust pipeline will help drive long-term growth at BioMarin. We maintain an Outperform recommendation on the stock. BioMarin s current trailing 12-month P/S multiple is 22.7, compared to the 3.1 average for its peer group. Based on forward estimates, the stock is trading at 19.6x our 2015 sales estimate. Our target price of $131 is based on 23.6x our 2015 sales estimate. Key Indicators Equity Research BMRN Page 3
P/S F1 P/S F2 Est. 5-Yr EPS Gr% P/CF P/S P/E 5-Yr High P/E 5-Yr Low BioMarin Pharmaceutical Inc. (BMRN) 19.6 15.3 22.7 Peer Group Average 3.0 2.9 3.1 Integra LifeSciences Holdings Corporation (IART) 2.0 1.9 10.9 17.4 2.1 20.0 10.4 Qiagen NV (QGEN) 4.3 4.1 10.2 13.1 4.3 25.0 14.5 Myriad Genetics Inc. (MYGN) 3.4 3.1 13.7 13.0 3.5 21.6 9.0 The Medicines Company (MDCO) 2.5 2.4 25.0 15.2 2.6 44.1 9.9 TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA BioMarin Pharmaceutical Inc. (BMRN) 9.5 9.5 3.5 0.4 0.0 Industry Average 14.9 14.9 14.9 0.0 0.1 S&P 500 5.3 9.8 3.2 25.5 2.1 Equity Research BMRN Page 4
Earnings Surprise and Estimate Revision History Equity Research BMRN Page 5
DISCLOSURES & DEFINITIONS OVERVIEW The analysts contributing to this report do not hold any shares of BMRN. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1126 companies covered: Outperform - 15.8%, Neutral - 78.3%, Underperform 5.7%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. NOTE: THIS IS A NEWS-ONLY UPDATE; THE REST OF THIS REPORT HAS NOT BEEN UPDATED YET. San Rafael, CA based BioMarin Pharmaceutical Inc. focuses on the development and commercialization of treatments for serious diseases and medical conditions. The company's product portfolio comprises five marketed products namely Aldurazyme (mucopolysaccharidosis type I (MPS I)), Naglazyme (MPS- VI), Kuvan (phenylketonuria (PKU) - a rare genetic enzyme deficiency disorder), Firdapse (Lambert Eaton myasthenic syndrome (LEMS) - a rare autoimmune disorder) and Vimizim (MPS IVA or Morquio syndrome type A). BioMarin has a collaboration agreement with Sanofi for Aldurazyme. BioMarin has several interesting candidates in its pipeline including PEG-PAL (phase III; severe PKU; results due in the first quarter of 2016) and talazoparib (phase III; BRCA breast cancer; enrollment to complete in the second half of 2015). BioMarin acquired Prosensa in an all cash transaction valued at about $680 million or $17.75 per share. The Prosensa acquisition added Duchenne muscular dystrophy (DMD) candidate, drisapersen, to BioMarin s portfolio. With this acquisition, BioMarin also gained worldwide rights to Prosensa s multiple orphan drug candidates that have the potential to be developed for the treatment of various genotypes of DMD and other genetic disorders. BioMarin generated total sales of $538.4 million in 2013, up 8.4%. Naglazyme, Kuvan, Aldurazyme and Firdapse contributed 50.4%, 31.1%, 15.5% and 3.0%, respectively, to total net product revenues in 2013. REASONS TO BUY Upgrading to Outperform on Narrowing Loss Estimates and Updated Vimizim Guidance: At the J.P. Morgan Health Conference, BioMarin increased its guidance for Vimizim, on the back of continued impressive performance. The company expects Vimizim sales in the range of $75 million to $77 Equity Research BMRN Page 6
million (old guidance: $65 million to $70 million) in 2014 with fourth quarter sales expected in the range of $34.6 million to $36.6 million. In addition to this, BioMarin presented encouraging interim data from an ongoing phase I/II pivotal study on its Batten disease candidate, BMN 190. Final data from the study is expected in the fourth quarter of 2015. Meanwhile, estimate revisions are also encouraging with analysts narrowing their loss estimates for 2014 and 2015, respectively. We believe 2015 to be a catalyst rich year for BioMarin with several data readouts lined up for the rest of the year that could allow for significant upside in the stock. Key Products Continue to Drive Growth: Naglazyme, the company s biggest contributor to revenues, continues to show steady growth. Naglazyme, which enjoys orphan drug status both in the U.S. and the EU, is expected to post sales of $305 million to $320 million in 2014. We believe that the product will continue to perform well. Meanwhile, other products like Kuvan and Aldurazyme are also performing well. The new formulation of Kuvan (powder for oral solution), launched in 2014, should be a growth driver. Vimizim, a Potential Blockbuster: Vimizim s approval in 2014 was a major catalyst for BioMarin. Vimizim is off to a strong start since its launch even surpassing the company s expectations. The EU approval of Vimizim in Apr 2014 is a big positive for the company 85% of Morquio A or MPS IVA patients are estimated to live in ex-u.s. countries. The product should continue performing well with existing and new patient referrals converting to commercial therapy. BioMarin has identified more than 1,650 MPS IVA patients as of Dec 10, 2014. The company expects Vimizim sales in the range of $75 million to $77 million (old guidance: $65 million to $70 million) in 2014. Sales should increase further as reimbursement in additional EU and Latin American countries pick up. The company believes Vimizim could generate revenues of approximately $110 million in its first full four quarters. With Vimizim already off to a strong start, the product could help the company s total revenues cross $1 billion over the next 2-3 years. Deep Pipeline: We are pleased with the company s efforts to build its orphan disease focused pipeline. BioMarin has a robust pipeline with several data readouts lined up for the rest of 2015. Interesting candidates include PEG-PAL (phase III; severe PKU; results due in the first quarter of 2016) and talazoparib (phase III; BRCA breast cancer; enrollment to complete in the second half of 2015). BioMarin has several early and mid-stage candidates in its pipeline like BMN-701 (late-onset Pompe disease with data due in late 2015), BMN-111 (achondroplasia data from first 3 dose cohorts in mid-2015), BMN 190 (late infantile form of Batten disease), BMN 270 (hemophilia A phase I/II to commence in the first half of 2015) and BMN 250 (Sanfilippo B syndrome or MPS IIIB; phase I to commence in the second half of 2015). The successful development and commercialization of the pipeline will help drive long-term growth at BioMarin. Prosensa Acquisition to Boost Rare Disease Portfolio: BioMarin acquired Prosensa for about $680 million. The acquisition added DMD candidate, drisapersen, to BioMarin s portfolio. With this acquisition, BioMarin also gained worldwide rights to Prosensa s multiple orphan drug candidates that have the potential to be developed for the treatment of various genotypes of DMD and other genetic disorders. DMD, a devastating and debilitating disease, is estimated to affect nearly 75,000 people across the world and 1 infant in 3,500 5000 newborn boys. Drisapersen has the potential to address up to 13% of the DMD population or 10,000 patients. The drug has Fast Track status and Breakthrough Therapy designation in the U.S. and has been granted orphan drug status in the U.S., EU, Japan and Australia. Prosensa expects to complete the rolling NDA for drisapersen in the U.S. in the first quarter of 2015 and a couple of confirmatory studies are expected to commence in the first half of 2015. The EU Equity Research BMRN Page 7
application will be submitted in the second quarter of 2015. The deal is expected to be accretive to BioMarin s earnings beginning 2017 assuming drisapersen gains early approvals. RISKS Pipeline Setbacks: While we believe that BioMarin has an impressive pipeline, delayed approvals or development setbacks would have a negative impact on the stock. BioMarin has several data readouts lined up for 2015. Any pipeline related setback would lead us to revisit our recommendation. Kuvan under Generic Threat: The company is facing a generic challenge from Dr. Reddy s for Kuvan. Kuvan is one of the most promising drugs at BioMarin and has been performing well since its launch. As a result, the earlier-than-expected entry of generics could lead us to revisit our recommendation. Analyst: Copy Editor Content Editor QCA Lead Analyst Last Updated by Reason for Update Kanchan Khanna Pushpanjali Banerjee Arpita Dutt Lopamudra Bhattacharya Lopamudra Bhattacharya Kanchan Khanna Note Equity Research BMRN Page 8