Exploding Pipeline Makes BioMarin Pharmaceutical Inc. (BMRN) Attractive Takeover Target

The Orphan Drug pipeline of BioMarin Pharmaceutical Inc. (NASDAQ:BMRN) has been growing so rapidly that the company has been the object of many takeover rumors since 2006 when it was believed that Genzyme was eyeing them for a buyout. No buyout has occurred yet, but rumors persist and since 2006, shares have risen from $3.87 to over $70.  Further supporting this potential buyout is that Genzyme has been acquired by Sanofi SA (ADR) (NYSE:SNY), and Sanofi has expressed a strong interest in Orphan Drugs and even stated that they are a good pharma model.  If Sanofi’s Genzyme unit successfully acquires BioMarin, then it will add greatly to Sanofi’s pipeline of fast growing Orphan Drugs and help position Sanofi even stronger in this very high growth area.

There are two primary reasons for BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)’s spectacular growth, and the first one is that they specialize in Orphan Drugs that have tremendous advantages over traditional drugs. Orphan Drugs are frequently priced very high and generate very large profit margins. The global Orphan Drugs market generated revenue of $84.9 billion in 2009 and is growing exceptionally fast, expected to reach $112.1 billion by 2014. Orphan Drugs may now the biggest growth driver for the pharmaceutical industry as big pharma is faced with the patent cliff of expiring patents for their aging pipelines.

Time for FDA approval can be accelerated or granted “Fast Track” status. Prices can often be reimbursed for over $100,000 per year per patient for treatment. An example is BioMarin’s Naglazyme with an annual per patient cost of $365,000. Clinical trials are far cheaper because there are fewer patients to study, dictating lower numbers of patients in the trials. According to Genetic Engineering News, Phase III trials for the top ten orphan drugs was 592 patients as opposed to 8,614 for their non-orphan counterparts.

The Orphan Drug Act provides federal tax credits of up to 50% of orphan drug research costs and provides seven-year exclusivity on drug sales for the first company to receive FDA marketing approval. The Orphan Drug Act can also provide for waivers for certain FDA fees including drug approval application and annual product fees.

Orphan drugs treat rare conditions and don’t require a large sales force therefore creating a much lower marketing cost. Thomson Reuters Research claims that about one third of orphan drugs make over $1 billion a year in sales. Collectively, these advantages for Orphan Drugs add up to very fast growth and fast-rising share prices.

The second big reason for BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)’s strong growth is their underlying plan to acquire smaller companies that can enhance their pipeline cost-effectively. In January 2012, BioMarin CEO, Jean-Jacques Bienaime, said in an interview that BioMarin is seeking to buy smaller companies to expand its pipeline for treatment of rare diseases, but not to be acquired itself. Bienaime further said, the company will follow a similar acquisition strategy to one used for purchases such as Zystor Therapeutics Inc., which BioMarin bought in 2010 for $22 million in upfront cash. That acquisition gained the company a medicine now being tested for Pompe disease, a muscle-disabling disorder.