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Morningstar | Maintaining Our $119 FVE for BioMarin Following Overall Positive Val-Rox Update

BioMarin released initial data from a subset of its phase 3 study of hemophilia A gene therapy val-rox as well as updated (three-year) data from the phase 2 study that appears to confirm the product's efficacy, safety, and potential approval timeline. We're maintaining our $119 fair value estimate. We continue to expect BioMarin to file for approval this year and receive Food and Drug Administration approval and launch val-rox by the end of 2020, setting up long-term sales approaching $2 billion in our probability-weighted model.

Last week's approval of Novartis' spinal muscular atrophy drug Zolgensma, which is priced at $2.125 million (or $425,000 per year for five years), gives some indication of how gene therapies for rare diseases could be priced, and we've slightly raised our assumed average global price for val-rox to $1 million. We've also raised our assumed probability of approval from 50% to 70% with this confirmatory data, although we've slightly slowed our sales ramp as a result of the competitive landscape (Hemlibra and gene therapies, including Roche's recent backing of Spark's gene therapy). Overall, we see BioMarin shares trading at a discount to their fair value, as sales potential for val-rox and achondroplasia drug vosoritide (phase 3 data coming late this year) appears underappreciated. BioMarin's rare-disease drug portfolio and growing experience in gene therapy support a narrow moat and positive moat trend rating.

Eight patients in a 20-patient cohort of the key phase 3 study saw factor VIII levels of at least 40 IU/dL between 23 and 26 weeks, which was the prespecified threshold for early filing. BioMarin will analyze an additional three patients in the coming months, so efficacy could end up exceeding the regulatory threshold, which we believe was already a fairly high hurdle, as this would allow BioMarin to obtain early approval based on data in just a handful of patients (which also includes six patients in the high-dose cohort in the midstage study). We're also reassured by updated data from BioMarin's midstage study showing that factor VIII level declines slowed in year three relative to year two, putting the drug on a trajectory to protect patients (keep factor VIII levels north of 5 IU/dL) for at least eight years, or potentially years longer if this is a true plateau. Investors had a mixed reaction to the data, which appears to confirm expected timelines for approval, but also shows slightly lower efficacy (lower factor VIII levels around six months after treatment) in the phase 3 data than in comparable phase 2 data. Given the small number of patients in this analysis, we're not surprised in the variability. We see reduction in factor VIII usage (a key payer focus) of 86% in the midstage study at years 2 and 3 and a 95% reduction in usage between weeks 4-23 in the phase 3 study, which we think indicates a positive bigger-picture story.