This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Roche Buying BioMarin And Not Alexion Makes More Sense

SAN RAFAEL, Calif. ( TheStreet) -- The biotech takeout rumor of the day has Roche (RHHBY) lining up $15 billion in financing to acquire BioMarin Pharmaceuticals (BMRN - Get Report), according to a report by DealReporter.

Who knows if such a deal will really happen -- Roche is actually denying the financing report -- but takeout interest in BioMarin makes more sense than the similar rumor floated last July in which Roche was readying a buyout offer for Alexion Pharmaceuticals (ALXN - Get Report).

With BioMarin, Roche would get a more diversified orphan drug business. BioMarin brought in $500 million in revenue last year from four drugs that treat rare, life-threatening disorders. BioMarin has a fifth orphan disease drug, Vimizim, which is likely receive FDA approval early next year. Three additional orphan disease drugs are still in clinical trials. BioMarin is also developing a PARP inhibitor for breast and ovarian cancer.

Cancer is Roche's sweet spot, so the opportunity to pick up a company with a proven track record of orphan drug development and a cancer drug as a bonus might prove irresistible.

Deutsche Bank analyst Robyn Karnauskas pegs "fair value" for BioMarin at around $92 per share in a takeover scenario, or roughly $13 billion.

Simplistically, Roche could be getting more bang for its buck by paying $13 billion for BioMarin, although that's still a lot of money to pay for a company which still isn't profitable. Cost synergies in a Roche-BioMarin deal may not be great given the lack of overlap in research and development and marketing. Roche doesn't have an existing orphan drug business.

But a $13 billion price tag values BioMarin at 26 times sales, which is expensive. (BioMarin revenue could double or more in the next few years, so the deal may actually be less expensive.)

Still, if Roche were to pay $25 billion for Alexion (the rumored price tag back in July), that's 19-20 times sales. Cheaper, perhaps, although the knock on the rumored Alexion deal is that Roche would essentially be spending all that money for a single orphan drug, albeit one used to treat multiple diseases.

All stuff to think about.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
RHHBY $34.54 0.00%
ALXN $169.50 0.00%
BMRN $120.95 0.00%
AAPL $124.25 0.00%
FB $81.66 0.00%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs