BioMarin Pharmaceutical, Inc. (BMRN)

Biomarin targets diseases caused by genetic defects. Most of these are relatively rare, so there is not a large market, and this makes it less likely that a lot of competitors will get into the business. Also, the nature of the drug creation and testing is pretty technical and demanding in terms of the genetics, biochemistry and clinical support needed. Although this does not create a wide moat, it does create somewhat of a sustainable competitive advantage, as the research infrastructure and personal contacts developed for one genetic disorder will apply to a fair extent to other disorders.





On the other hand, since many of the diseases caused by genetic defects are quite severe and disabling, often leading to physical deformities, neurological malfunctions and mental retardation, the cost of caring for these individuals if they are not treated is quite high.





Thus, BMRN's products produce great value to society, by reducing the cost of lifetime care for otherwise developmentally disabled individual, or even allowing them to grow up to become tax-paying citizens. Its products can be priced accordingly. The affected individuals will need to remain on BMRN's products their entire life, barring advances in genetic therapy that will permanently correct the inborn errors in metabolism. Even when medical modification of our genetic make-up becomes possible, useful and safe, (still quite a few years off, imho) it will almost certainly be applied first to diabetes, cardiovascular disease, and other much more common conditions.





Thus, it seems quite likely that patients on BMRN products will take them for many years, leading to a predictable recurring revenue stream.





A further reason BMRN should outperform the S&P over the next 2 to 4 years (my rating) is that it rose from a low of under $4.00 a share (November 2004) to $40 last January. It is more than 35% off that high right now, apparently in large part due to slower than anticipated growth in sales of Kuvan, its newly approved drug for treating phenylketonuria (PKU), and likely also reflecting the general market malaise. BMRN has two other successful and growing drugs on the market, Aldurazyme and Naglazyme. The long-term story remains intact, or as there are no other drugs to treat PKU with which Biomarin needs to compete for market share. If doctors are a little slow to catch on to using Kuvan, it is only a minor bump in the road. Most of BMRN's products are the only option for the conditions they treat.





PKU results in high levels of phenylalanine (Phe), about which the FDA says, "In infants and children, high blood Phe levels over time can result in mental retardation, smaller brain size, delayed speech, and other neurologic problems. In adolescents and adults, high blood Phe levels can result in problems with concentration and attention." Treatment with a protein-restricted diet (no dairy products, meat, fish, eggs, beans, and nuts) is the only other option, and while this works, it is not exactly the best diet for a growing child.





All newborn babies in the US are tested for PKU, and about 1 in 15,000 has it. About half of people with PKU respond to Kuvan, so this is a potential market of 7,500 new patients per year in the US. Treatment costs about $55.000 a year. Biomarin had hoped to get 1,000 patients started on Kuvan in 2008, but won't make that goal. Nevertheless, with 7,500 newborn babies every year representing over half a million dollars in new patient business for Kuvan, BMRN only turning profitable this year, more drugs in the pipeline, and the stock off 35%, it seems very, very likely to beat the S&P over the next few years.





Steve Tackett-Nelson M.D.


Diplomate, American Board of Psychiatry and Neurology


(Long BMRN and soon to buy more)