We have recently downgraded BioMarin Pharmaceutical Inc. (BMRN) to Underperform from Neutral with a target price of $35.00.
Our decision is based on valuation grounds as we believe that the stock is overvalued at current levels. Moreover, we are disappointed by the initial sales ramp of the company’s latest marketed product – Firdapse. The drug was launched in the European Union in April 2010 for treating patients suffering from Lambert Eaton Myasthenic Syndrome – a rare autoimmune disorder.
Firdapse 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. If Firdapse continues with its disappointing performance, BioMarin’s results will be impacted adversely.
Apart from Firdapse the other marketed products at BioMarin include Aldurazyme, Naglazyme and Kuvan. BioMarin co-markets Aldurazyme with Sanofi (SNY). Naglazyme and Kuvan are the key growth drivers at BioMarin. If there is a slowdown in the sales of these products then the stock will be adversely impacted.
Moreover, we expect cash burn to increase since the company is investing heavily in its pipeline. Any negative news relating to the pipeline would have an adverse impact on the stock. For example, in 2010, BioMarin halted the development of BMN-195 for treating a type of muscle disease following the disappointing showing of the candidate in an early-stage study.
In view of these headwinds, we believe that BioMarin is overvalued at current levels. We advise long-term investors to avoid the stock.
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