BioMarin needs to follow cash call with clinical successes

Even an unexpected fundraising cannot take the shine off BioMarin. The US biotech’s surprise plan to tap investors for $250m, doubling its cash reserves, was largely shrugged off by the markets yesterday, a sign that the company’s rare disease focus remains relished.

That a company can easily sell new stock – admittedly the offering is equivalent to only 6% of its current outstanding shares – at the price available on the public markets is a sign of investor confidence. As is BioMarin’s share price, which has almost tripled over the last two years. With four products on the market and three closely watched projects in phase III and II, all addressing the desirable orphan disease space, the company has easily attracted fans. Pipeline data due over the course of the year needs to please to keep it in favour.

Too good to miss

BioMarin expects to raise $249m from the offering of 6.5 million shares, which implies a price of around $38.29 a share. That was the closing price of the stock on May 30; the company announced the share sale plans after market close that day.

News of the cash call did dent the stock – shares slipped 7% to $35.64 yesterday – but on the whole investors and analysts have been forgiving, seeing the move a strategically wise step given demands on cash and imminent clinical data.

Raising cash ahead of critical data readouts can often go down as a sign of management nervousness around the outcome; however investors seem happy in this case with the company’s explanation that it is taking advantage of favourable market conditions.

A share price at three year highs was clearly considered too good an opportunity to be missed. Analysts, meanwhile, pointed to the company’s relatively low cash to market cap ratio of 4% against around 7% for many of its biotech peers.

On the horizon

The biggest event on the horizon for BioMarin is the read out of a phase III study of GALNS, an enzyme replacement therapy bidding to be the first treatment for Morquio A syndrome. The inherited condition results from a lower amount of an enzyme called N-acetylgalactosamine-6 sulfatase (GALNS) which breaks down keratan sulphate, the buildup of which causes problems that include difficulty walking, trouble breathing, hearing loss and heart valve disease. It is estimated to occur in 1 in 200,000 to 300,000 babies.

Seeking to recruit 162 patients and with the primary endpoint improvement in the 6-minute walk test, results are anticipated in November.

Analysts are pretty confident in the product’s chance of success – consensus data from EvaluatePharma shows sales of $429m by 2018 – which would make it the company’s biggest selling product that year. Those estimates also make it BioMarin’s most valuable pipeline product with a net present value of $803m, equal to 19% of its $4.2bn market capitalisation.

Phase II data on two enzyme replacement therapies are also due this year. PEG-PAL is being studied in patients with phenylketonuria who do not respond the company’s existing product, Kuvan, and should yield data around September; BMN-701, a treatment for Pompe’s disease, is due to report in December. All eyes will be on how it stacks up to Sanofi’s Myozyme.

Whatever the weather

Being only phase II products, hopes are not as high for PEG-PAL or BMN-701 so disappointing read-outs from these would not be a disaster. But given the company’s full valuation – its market cap is a full $1bn higher than the consensus net present value of its product portfolio, EvaluatePharma data show – any setback will be felt. However GALNS is clearly the most important read out for BioMarin this year.

Following the fundraising just announced - and it seems likely the company could have raised more if it had wanted - the company is now likely to end up with around $500m on its balance sheet. That should be enough to see out the next couple of years comfortably, whatever the weather brings.