BioMarin Delays Profit to Pursue New Products
Struggling biotechnology companies feel the heat from Wall Street when their drug candidates fall flat. But successful biotech companies can face a different kind of pressure from investors, says BioMarin CEO Jean-Jacques Bienaimé.
BioMarin’s total revenues are still rising for the three drugs it shepherded to FDA approval from 2003 to 2007. The drugs–laronidase (Aldurazyme), galsulfase (Naglazyme), and sapropterin dihydrochloride (Kuvan)–treat rare genetic disorders that can cause severe symptoms such as deformed bones and mental impairment. The Novato, CA-based company, with revenues approaching $500 million for 2012, can choose when to become profitable, says Bienaimé.
Wall Street investors have been pressing the company (NASDAQ: BMRN) to realize short-term profits while it can, says Bienaimé. But the chief executive continues to nurture a sizeable research program in the hope of adding to BioMarin’s product line.
“We could be profitable today,’’ Bienaimé says. “But that would not be good for the long-term value of the company, and I don’t think it would be good for patients.”
Bienaimé is betting that BioMarin can beat the daunting odds in drug development and continue to field successful new treatments. The company’s research and development costs have been rising as its pipeline drugs move forward into clinical trials. BioMarin’s R&D expenditures in 2011 were $214 million, or more than 48 percent of revenues. In 2012, R&D approached $300 million, and is expected to surpass that amount in 2013.
Recent news on BioMarin’s pipeline drugs may have helped the company justify those big R&D bills to investors. The company’s share price jumped more than 30 percent in November, after BioMarin announced encouraging Phase III trial data on its leading drug candidate, GALNS, (N-acetylgalactosamine 6-sulfatase). The compound is an experimental treatment for an inherited enzyme deficiency, Morquio A syndrome, that can cause a host of damage including skeletal malformations, a constricted chest cavity, and breathing difficulties. BioMarin plans to file for FDA approval of GALNS in March.
If GALNS wins FDA approval, it may secure the future Bienaimé envisions for BioMarin—as a company that remains independent while its profits become sustainable. The CEO estimates that GALNS revenues would exceed $400 million after four or five years on the market, thus doubling BioMarin’s 2011 revenues of $441 million. Peak revenues for GALNS could eventually reach as much as $750 million, Bienaimé says. The FDA’s decision on the drug could come by the end of 2013, with significant revenues beginning in 2014 if GALNS is approved.
BioMarin also reported progress in September for PEG-PAL, a drug candidate for patients who don’t respond to Kuvan, the company’s first-in-class treatment for an inherited metabolic disorder called phenylketonuria. BioMarin announced it expects to be able to move PEG-PAL into a Phase III trial in the second quarter of 2013.
BioMarin’s pipeline also includes drug candidates for achondroplasia, the most common form of dwarfism; Pompe disease, a degenerative disorder caused by an enzyme deficiency; and certain cancers that are genetically vulnerable to targeted molecular inhibitors.
While the company pursues those long-term goals, however, it must maintain the confidence of Wall Street, Bienaimé says. “You have to deliver regularly on milestones so investors stick with you.”
BioMarin is building on a solid track record as a developer of drugs for orphan diseases, starting with laronidase (Aldurazyme), which the FDA approved in 2003 as the first the first specific treatment for mucopolysaccharidosis I (MPS I). The therapy, developed in a joint venture with Genzyme, replaces a missing enzyme. The inherited enzyme deficiency, in severe cases, can cause bone deformities, developmental delays, and early death. BioMarin manufactures the drug, and Genzyme markets it.
The company went on to tackle two more diseases related to MPS I.
In 2005, BioMarin received FDA approval for galsulfase (Naglazyme) for mucopolysaccharidosis VI (MPS VI). Galsulfase is now the company’s top revenue source. Its lead experimental drug GALNS (N-acetylgalactosamine 6-sulfatase) is designed to treat mucopolysaccharidosis IVA (MPS IVA), or Morquio A Syndrome. The drug candidate is designed to replace a missing enzyme to help clear the body of damaging compounds that can cause skeletal abnormalities and dysfunctions of organs, including the lungs, eyes and heart.
BioMarin’s third FDA approval came in 2007 for sapropterin dihydrochloride (Kuvan), which it developed with Merck Serono, its marketing partner in Europe. Because Kuvan helps only about half of patients, BioMarin started work on the experimental drug PEG-PAL, the company’s second treatment for phenylketonuria.
The Novato company’s market capitalization is hovering around $6 billion, and it raised nearly $250 million from the sale of 6.5 million common shares in May. Bienaimé says the company will finish the year with about $500 million in cash to fund its ongoing operations. BioMarin’s shares have risen 37 percent since the beginning of 2012.
The factors that sustain BioMarin are, ironically, the same aspects of its business focus that once made people wonder whether it would ever make any money at all.
The Novato company tackles diseases so rare that the entire patient population can number as little as 1,100 people–the market for Naglazyme in developed countries.
However, developers of such orphan drugs benefit from incentives, such as priority review and periods of market exclusivity, offered by the FDA and by European regulatory agencies to encourage their work. Insurance reimbursement policies also make it possible for BioMarin to charge as much as $400,000 for a year’s treatment—the price for Naglazyme.
Although demands for cost cutting are sweeping through the health care system, Bienaimé says he is not concerned health care administrators will target the prices for BioMarin’s drugs, although they ask the company for discounts. Insurers cover the cost of the drugs because they are often the only option available for young patients with life-threatening conditions, Bienaimé says.
The treatments also help avoid expensive surgeries, hospitalizations, and other costs. It’s understood by insurers that the complex biological drugs are expensive to manufacture, Bienaimé says. And the diseases are so rare that most insurers have few of these patients, or none. Even if BioMarin’s prices were reduced, that wouldn’t make a dent in the nation’s total drug bill, Bienaimé maintains.
BioMarin has other advantages: Developing an orphan drug can absorb less time and expense than bringing a blockbuster drug to market. Mainstream drugmakers may spend as much as $1.7 billion on a drug development program that yields one approval, and the process can take nine years or more, Bienaimé says. BioMarin’s three FDA-approved drugs took five years or less, he says.
Drug trials in rare diseases may include a very small number of subjects compared to the hundreds or even thousands commonly tested in a Phase III study. BioMarin’s Phase III trial of GALNS was conducted in 176 subjects. If the drug for Morquio A syndrome is approved, BioMarin will have spent about $250 million on the product’s development, Bienaimé says.
BioMarin may never face a threat from generic competition, the CEO says, because its drugs are complex biological molecules that are tricky to make. A generic drugmaker would need to make a substantial investment in a manufacturing plant, which would be unlikely to produce drugs identical to BioMarin’s. Therefore, regulators might insist that the generic drug company conduct its own clinical trials, Bienaimé says. And after all that expense, the competitor would be sharing a very small market with BioMarin.
“At the end of the day they wouldn’t be able to reduce the price very much,’’ Bienaimé says.
Given those advantages, BioMarin will still lose money in 2013, because its top priority is advancing its pipeline drugs. Adding products would help BioMarin remain an independent entity, an important goal for Bienaimé. He says companies that stay independent have often done so by pushing back profitability.
“Of course eventually we will have to be profitable,’‘ Bienaimé says. But the company is aiming for long-term gains. “We don’t want to rush to profitability.”