Orphan Drugs-The Latest Hot Spot in Biotech
Large Cap Biotechs Were Red-Specualtive Stocks Were Green
XBI 214.9 up 2.36% GEVA $203.4 up 112% NASDAQ 4919 down 0.4%
Alexion Pharmaceuticals (ALXN) the leading company in severe and life threatening rare diseases with revenues of $2.27B will pay $8.4B in cash and stock for Syngeva BioPharm (GEVA) with revenues of $6.5 M. Alexion stock was down 9% at the opening to $160. Syngeva has a broad pipeline that fits with Alexion. Alexion’s blockbuster drug Soliris for a rare kidney condition can cost upwards of $500k per year per patient. Rare disease companies have large margins due to hefty pricing and monopolistic share of market. Moreover the cost to market is very low due to small number of patients. Alexion has been on our focus list for five years is up 93% over 3 years but has been flat in 2015 due to slowing Q to Q revenue growth of 5.9%.
Syngeva’s lead product is an enzyme replacement therapy for LAL D ( Lysosomal Acid Lipase Deficiency).
What this deal could mean for the biotech industry:
- M&A is an ongoing trend that can happen at any time at any level.
- Valuations do not matter if the product pipeline is a fit.
- Revenue growth matters- not earnings near term.
- Low interest rates provides financing for big M&A deals.
- Bubble talk picks up but biotech financial metrics are unique.
Biomarin Pharmaceuticals (BMRN) a well known larger cap rare disease play was up 5% to $119.70 but off its YTD high of $130. Biomarin revenues are $751M with a generous P/S of 24.32. Alexion (ALXN) has a market cap of $33.64B so BMRN might be too large to digest.
An issue for rare disease companies down the road is pricing as government agencies may question spending hundreds of thousands of dollars per year for one patient. But the number of patients are very small in the 10,000 range so manageable at the present time.