BioMarin Seen Luring $13 Billion Takeover Bid: Real M&A

BioMarin Pharmaceutical Inc. may draw bidders to the biggest biotechnology deal in three years after its most promising rare-disease drug came one step closer to U.S. regulatory approval this week.

An advisory committee to the Food and Drug Administration said this week that BioMarin’s Vimizim drug should be approved to treat the rare metabolic disease Morquio A syndrome. A favorable FDA ruling by the end of February would remove some risk for acquirers and may encourage them to pay a premium for the $9.8 billion company, Robert W. Baird & Co. said.

Vimizim, which would be BioMarin’s fifth orphan drug to hit the market, is projected by analysts to be the company’s best-selling therapy by 2017. Large drugmakers such as Pfizer Inc. and GlaxoSmithKline Plc may covet BioMarin’s treatments that target concentrated markets and sell for higher prices, said Janney Montgomery Scott LLC. BioMarin could fetch at least $93 a share, said William Blair & Co. At about $13 billion, it would be the largest deal for a pharmaceutical or biotechnology company since 2010, according to data compiled by Bloomberg.

“It’s a good acquisition candidate given big pharma’s interest in the orphan drug development space and given BioMarin’s deep pipeline,” Kimberly Lee, a San Francisco-based managing director and analyst at financial services firm Janney, said in a phone interview. Approval of Vimizim would “increase their attractiveness.”

FDA Approval

Debra Charlesworth, a spokeswoman for San Rafael, California-based BioMarin, declined to comment when asked if the company would be interested in a sale.

An advisory committee to the FDA voted on Nov. 19 to recommend that Vimizim be approved for sale in the U.S. A majority of the panel said it should be approved for all patients with Morquio A syndrome, a rare genetic disorder that causes skeletal malformation. The FDA, which isn’t required to follow the advisers’ recommendation, is scheduled to make its decision on the drug by Feb. 28.

Today, BioMarin shares rose 2.4 percent to $70.82, after increasing 3.3 percent yesterday on news of the advisory committee’s vote.

Vimizim may generate $416 million in annual revenue by 2017, more than the projected sales for any of BioMarin’s drugs already on the market, according to analysts’ estimates compiled by Bloomberg. The company currently sells enzyme replacement therapies Naglazyme and Aldurazyme, Kuvan for metabolic genetic disorder PKU and Firdapse for the autoimmune disease Lambert-Eaton Myasthenic Syndrome.

Orphan Drugs

Large drugmakers “do want good products and growing products, and with Vimizim now very likely to get to the market, that’s another one of those in BioMarin’s portfolio,” Phil Nadeau, a New York-based analyst at Cowen Group Inc., said in a phone interview. “BioMarin is a good candidate and probably a likely candidate at this point to be acquired.”

Orphan drugs such as those sold by BioMarin command premium prices of as much as $400,000 a year per patient and target diseases that affect as few as 5,000 to 10,000 people worldwide. The market has attracted interest from larger pharmaceutical companies seeking to boost earnings as mass-market pills lose patent protection, with Shire Plc agreeing this month to buy rare-disease drugmaker ViroPharma Inc. for about $4.2 billion.

BioMarin would likely command takeover bids of at least $93 a share, according to Tim Lugo, a San Francisco-based analyst at William Blair. That would be a 35 percent premium to yesterday’s closing price of $69.14.

Takeover Valuation

“There are only a limited number of companies that do rare diseases well and BioMarin is at the top of the list,” Lugo said in a phone interview.

At that price, the deal would cost at least $13 billion, the most for a biotechnology or pharmaceutical deal since Sanofi agreed to buy orphan drugmaker Genzyme Corp. in 2010, according to data compiled by Bloomberg. The cash bid was ultimately raised to about $20 billion.

Given its position in the market for rare disease treatments after acquiring Genzyme, Sanofi could be among large pharmaceutical companies interested in buying BioMarin, Nadeau of Cowen said. Glaxo or Pfizer are also potential suitors, said Lee of Janney.

Jack Cox, a spokesman for Paris-based Sanofi, and Joan Campion of New York-based Pfizer said the companies don’t comment on speculation when asked about a potential takeover of BioMarin. Representatives for London-based Glaxo didn’t respond to a request for comment.

‘Too Expensive’

DealReporter said in a Sept. 19 report that Roche Holding AG was lining up $15 billion in debt financing for an acquisition of BioMarin. Roche CEO Severin Schwan responded later that day, saying the company wasn’t raising funds for a deal.

“We are scratching our heads” at valuations in the biotechnology industry, Schwan said in an interview at the time. As of yesterday, the Nasdaq Biotechnology Index had gained 54 percent this year, while BioMarin rose 41 percent to add $3.7 billion to its market value.

Other potential buyers may feel the same way, said Liana Moussatos of Wedbush Inc.

“I’m sure plenty of companies would love to be able to buy” BioMarin, Moussatos, a San Francisco-based analyst, said in a phone interview. “Except it’s too expensive.”

BioMarin trades at about 17 times its trailing 12-month revenue of $534 million, compared with the price-sales multiple of almost 5 times paid in the acquisition of Genzyme. In 2016, BioMarin is projected to post its first profit in six years, analysts’ estimates show.

With large pharmaceutical companies more willing to pay up for biotechnology targets with proven products and fewer risks, the advisory committee’s backing of Vimizim may help ease those concerns, said Christopher Raymond of Baird.

BioMarin is “right in the wheelhouse of attractiveness in terms of being in the rare disease space,” Raymond, a Chicago-based analyst, said in a phone interview. A takeover “is absolutely a possibility.”

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