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), 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).

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.

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