BioMarin Still Presents Upside Despite Gains

Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

BioMarin Pharmaceuticals (NASDAQ: BMRN) is a biotechnology company with very modest sales growth, is not profitable, and trades with a valuation that implies it to be one of the faster growing companies in biotechnology. The company, which sports a price/sales ratio of 9.72, is priced expensively because of its pipeline and its potential. On Monday the company’s stock traded higher by 30% after positive results from its most important candidate, GALNS.

BioMarin’s GALNS is a product that is being tested to treat Morquio A Syndrome, which is a rare genetic disorder. The company announced that its Phase 3 study met its primary goal, and that it will now seek regulatory approval in Q1 2013.

The goal of the study was to measure walking distance for patients treated with a weekly infusion of GALNS compared to those treated with placebo. In the study, patients walked an average of 22.5 meters further than those treated with placebo.

So what does this data mean for BioMarin? Apparently, it means a lot! Analysts have been upgrading the stock ever since the news was announced, and many believe that this one product could more than double the company’s current sales. This is an orphan drug company, and typically companies granted this status sport higher valuations due to a clear benefit of innovation, potential, and support from the FDA.

If peak sales are reached, then its 9.72 price/sales ratio does not seem too expensive. A good comparison might be another orphan drug company such as Alexion Pharmaceuticals (NASDAQ: ALXN). This is a company that has fallen to $90 from its high of $119.54 in the last month. Yet despite this massive loss the company still trades with a price/sales of 16.62, more than double that of BioMarin. Finally, once you consider upside potential moving into 2013, with BioMarin having a revenue-doubling product, it appears that BioMarin is presenting value compared to one of its peers. 

As a value investor it is not my preference to purchase stocks that trade with such large valuations, but in the case of BioMarin I might be willing to make an exception. The company looks poised for tremendous growth, and if it can become profitable then a significant amount of upside is present. The key will be for the company to develop its pipeline further, and then capitalize on its opportunity with GALNS. Either way the upside looks far greater than the downside, and with Alexion falling further, BioMarin might become the next great momentum stock in the space. 

BrianNichols has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend BioMarin Pharmaceutical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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