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BioMarin Pullback Offers New Opportunity

The stock's recent drop provides an entry point for those bullish on this biotech's prospects.

Despite

BioMarin's

(BMRN) - Get BioMarin Pharmaceutical Inc. Report

solid quarterly report on Tuesday, investors were discouraged that hypertension drug candidate 6R-BH4 failed to show efficacy in phase II trials. The stock opened sharply down Tuesday but pared those losses somewhat to finish the session at $18, 12% lower than Friday's close.

Perhaps investors realized that while a marketable hypertension drug would certainly have been a positive, the stock is more reflective of the company's two marketed drugs and Phenoptin, a treatment for mild to moderate phenylketonuria (PKU) that could hit the market later this year.

Tuesday morning, BioMarin said there was no statistically significant or clinically meaningful effect of 6R-BH4 relative to placebo in a study of 116 patients over eight weeks. This was a bit of a surprise, because the drug did show

efficacy in an earlier trial. Management said it would halt its research in hypertension but would continue studying the drug in other indications, such as peripheral arterial disease and sickle cell anemia.

While the results were clearly disappointing, investors can take some solace in the fact that there were no safety issues raised. This is significant because 6R-BH4 is the active ingredient in Phenoptin, so the hypertension trial should have little impact on whether Phenoptin receives approval for PKU at the end of the year.

Morningstar's Karen Andersen said she only modeled for a 30% chance of approval of 6R-BH4 for hypertension. While investors would have liked to have seen success in treating hypertension, Andersen adds, "rare diseases are their

BioMarin's bread and butter."

In fact, BioMarin's products for the rare disorder Mucopolysaccharidosis (MPS) performed extremely well in the fourth quarter, and further strength is projected for 2007.

Aldurazyme, which treats MPS I, brought in $26.5 million in sales, up from $21.2 million in the year-ago period and higher by $1.5 million from the third quarter. The company, which splits sales of Aldurazyme with

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Genzyme

(GENZ)

, forecasts a roughly 25% increase in sales this year.

Naglazyme, for the treatment of MPS VI, is expected to rack up sales of $74 million to $78 million in 2007. BioMarin, which owns the full rights to the drug, recorded Naglazyme sales of $46.5 million in 2006. In the case of Naglazyme, success breeds success. As patients live longer, they gain weight. Because dosage is based on weight, the more a patient thrives, the more drug he or she will require.

The Technical Side

The stock has had an impressive run, trending upward since early 2005. John Hughes of technical research firm Epiphany Equity Research says, "The stock was previously in a strong uptrend and moving higher with supporting volume." Tuesday's weakness "brought the stock back to a key intermediate-term support level in the $17 area."

Hughes suggests that a break below $17 indicates the advance is ending, with further price vulnerability to the $14-$15 level. He concludes, "The longer-term weekly configuration remains positive and suggests that any weakness can eventually be used as a buying opportunity." Hughes and his firm have no position in BioMarin. Epiphany does not engage in investment banking.

Based on both the fundamentals and technicals, I agree with Hughes' last assertion. Currently, BioMarin is expected to turn profitable in 2008. The company's balance sheet, while not perfect, is solid. And management has proved that it can successfully bring products to market.

Setbacks are an unfortunate part of biotech investing. Sometimes a failed trial is a binary event than can sink a stock. Other times, it is a disappointment, as it is in this occurrence, but does not significantly alter the company's prospects.

In keeping with TSC's editorial policy, Lichtenfeld doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships.

Marc Lichtenfeld was previously an analyst at Avalon Research Group and The Weiss Group and a trader at Carlin Equities. He holds NASD 86, 87, 7 and 63 licenses. His prior journalism experience includes being a reporter/anchor for On24 in San Francisco and a managing editor of InvestorsObserver, a personal finance Web site. He is a graduate of the State University of New York at Albany. He appreciates your feedback;

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