BioMarin (BMRN) stock surged on Thursday, jumping as much as 12% after the biotech company reported promising Phase II trial data for a drug treating dwarfism. The stock’s surge is also lifting shares of the iShares Nasdaq Biotechnology ETF (IBB), which added 3%.
Both BMRN and IBB have proven themselves extraordinary investments over the last year, gaining 54% and 24%, respectively, over that time.
Of course, high risks typically go hand in hand with high rewards, and IBB and BMRN are no exceptions. Still, if your risk tolerance can hand the potential pitfalls that come with the industry, these two names are worth your consideration. Let’s start by taking a look at what’s driving BioMarin stock higher today:
Why BioMarin Is Growing on Investors, Analysts
BMN-111, also known as vosoritide, is a so-called “orphan drug” in BioMarin’s drug pipeline. Aimed at treating achondroplasia, more commonly known as dwarfism, Phase II results showed some serious promise, increasing the annual rate of growth by 50% in the 26-child study. Importantly, no serious adverse events were observed, an encouraging sign for the drug’s safety profile.
Orphan drugs like BRMN’s vosoritide can be big moneymakers for the companies that develop them. Though by definition they only affect a small percentage of the population — incidents of dwarfism occur in between 1 in 15,000 and 1 in 40,000 births — orphan drugs can command eye-popping prices when they hit the market.
There is currently no approved treatment for achondroplasia.
Wall Street analysts, encouraged by the promising results, rushed to increase the BMRN stock price target:
- Canaccord Genuity raised its price target from $115 per share to $150 per share.
- Jefferies raised its price target from $135 to $150.
- Piper Jaffray raised its price target from $123 to $147.
- RBC Capital Markets raised its price target from $125 to $145.
- SunTrust Robinson Humphrey raised its price target from $151 to $170.
RBC’s Michael Yee touched on the rationale behind today’s bullishness, saying that vosoritide sales could eventually peak between $1 billion and $2 billion annually. BioMarin had revenue of $751 million in 2014.
Appropriately, a drug aiming to cause growth spurts may be the next driver of growth for BMRN stock.
IBB Remains the Way to Play Biotech
While IBB isn’t up 12% today, it’s benefiting from the rally in BMRN stock, which is one of the ETF’s top-10 holdings. That’s quite a statement for a diversified pool of 146 different holdings.
Unlike the other leading biotech ETF, the SPDR S&P Biotech ETF (XBI), IBB focuses on larger, mostly established players in the field. While this bias toward larger-cap stocks limits its potential returns, it also limits its risk. IBB’s top four holdings, though large-caps, have posted pretty amazing 1-year returns:
- Gilead Sciences (GILD) stock: +52%
- Amgen (AMGN) stock: +36%
- Biogen (BIIB) stock: +30%
- Regeneron Pharmaceuticals (REGN) stock: +74%
I know, I know: Past results are no indication of future performance. But, with these hot large-cap biotechs showing that enormous returns aren’t restricted to speculative small-cap names, IBB is the best diversified play on the industry if you’re not comfortable betting on just a few stocks.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
