BioMarin Pharmaceutical Inc (BMRN) 2004 Q2 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the BioMarin second quarter 2004 conference call. (OPERATOR INSTRUCTIONS). I will now turn the conference over to Mr. Joshua Grass, Senior Manager of Investor and Financial Relations. Please go ahead, Mr. Grass.

BioMarin participants on the call today include Fred Price, Chairman and CEO of BioMarin; Emil Kakkis, MB, Ph.D. and Senior Vice President of Business Operations; Lou Drapeau, Chief Financial Officer; and Jeff Cooper, Vice President and Controller.

At this time I would like to remind you that this nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical, including potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market, and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K reports. With that out of the way, I will now hand the call over to Fred.

Good morning. My agenda for this call is to have Lou Drapeau summarize the financial results, and to have Emil Kakkis review the progress of our clinical stage pediatric product development programs, including Aryplase and Phenoptin. And finally to have Josh wrap up the call.

During the discussion of the financial results we will touch on some of the important changes to our financial statements as a result of the Ascent Pediatrics acquisition from Medicis Pharmaceutical Corporation. At the end we will open up the call for questions.

Before I turn it over to Lou, I would just like to say that BioMarin has come a long way in the last year. We now have 2 products on the market, another that has just demonstrated very positive Phase 3 data, and that also could be in the market next year, a promising pipeline of candidates for diseases with significant unmet needs, an out licensing pipeline for products outside of the genetics and pediatric space, a talented management team and an ability to make things happen in short order.

We're much, much stronger than we were a year ago. And we anticipate that when we are here year from now we will be reporting on substantial progress that we will have made in the intervening 12 months. Now to Lou for the financial update.

This is the first quarter that we have reported Orapred revenue, a result of our acquisition of Ascent Pediatrics. Net sales from Orapred for the quarter were 4.6 million. This represents about 6 weeks of sales, from the time we closed the transaction on May 18, through June 30. Net sales of Orapred for the first 6 months of 2004 were about 18 million. There are approximately 1.2 million prescriptions for the first 6 months of the year, an increase of 10 percent over the same period in 2003. So we're on track for our guidance of 42 million in net sales for the year.

Let me remind you that prescriptions of Orapred have historically increased in the second half of the year relative to the first half driven by a higher incidence of asthma exacerbations in children from viral infections in the fall and early winter.

Now turning to Aldurazyme, sales of Aldurazyme for MPS I by our joint venture partner Genzyme Corporation were 9.2 million for the second quarter and 16.6 million in the first 6 months of 2004.

Genzyme reported a couple of weeks ago that approximately 300 patients and are receiving weekly Aldurazyme infusion -- infusions. This figure includes both patients being reimbursed and patients on Phase 4 trials. At the same time Genzyme also reconfirmed 2004 sales guidance for Aldurazyme 40 to 44 million. BioMarin's share of the loss from the joint venture for the second quarter was 1.7 million and 3.5 million for the first 6 months. Aldurazyme sales have increased steadily since its launch in the second quarter of 2003. Sales were 1.1 million, 3.4 million, 6.7 million, 7.4 million and now 9.2 million for the 5 consecutive quarters since launch.

Overall, excluding non-cash acquisition related charges, our pro forma net adjusted net loss for the quarter of 18 million and 37.9 million for the 6 months ended June 30, 2004 are consistent with our prior net loss guidance of less than 68 million, with the assumption that we will hit our sales target of 42 million for Orapred this year.

Please see the press release we issued earlier today for the reconciliation of GAAP net loss to our pro forma adjusted net loss. Our new guidance for the 2004 pro forma adjusted net loss is 66 to 68 million.

As I mentioned earlier, net sales of Aldurazyme recorded by BioMarin during the second quarter were 4.6 million. I'm sorry, net sales of Orapred -- this represents sales recorded by BioMarin between the closing of the Ascent Pediatrics transaction on May 18 and June 30, 2004. Total sales of Orapred for the first 6 months of 2004 were approximately 18 million. The gross margin on Orapred for the second quarter was about 92 percent after adjusting for an acquisition related inventory adjustment. Normally we would expect gross margins to be in the range of 85 to 90 percent.

The GAAP net loss for the quarter and the 6 months ended June 30, 2004 was 55.6 million and 75.5 million, respectively, or 86 cents a share for the quarter and $1.18 per share for the first 6 months. The pro forma adjusted net losses for the same period were 18 million and 37.9 million, respectively. This translates into a pro forma adjusted loss per share of 28 cents for the second quarter of 2004 and 59 cents per share for the first 6 months of 2004.

The following non-cash deal related expenses were subtracted from the GAAP net loss to arrive at the pro forma adjusted net loss. First, a onetime non-cash expense of 35.4 million for in process R&D related primarily to new formulations of Orapred.

Second, a non-cash expense of 252,000 to adjust purchased inventory costs to market. Third, a recurring non-cash expense of 1.1 million, which represents imputed interest on the Orapred acquisition liability. And finally, a recurring non-cash amortization expense of 819,000 for acquired intangible assets. The total of these adjustments add up to $37.6 million.

For the Company overall R&D expenses for the quarter and the 6 months ended June 30, 2004 were 12.3 million and 26.2 million compared to 11.7 and 22.7 for the same periods in 2003. The increase in spending is related primarily to costs associated with the clinical development of Aryplase for MPS VI and Phenoptin for PKU.

Selling, general and administrative expenses were 7.5 million for the second quarter and 11.2 million for the 6 months ended June 30, 2004 versus 4.5 million and 7.3 million for the same periods in 2003. The increase is largely due to selling and marketing costs of approximately 2.7 million for Orapred, which we incurred for the first time this quarter as a result of the Orapred acquisition.

From a cash perspective, we ended the second quarter of 2004 with about 153.9 million in cash, cash equivalents, short-term investments and restricted cash. Restricted cash represents cash held in escrow as collateral for the first year of acquisition payments to Medicis. This will be fully released after the scheduled payment in May 2005.

In the second quarter we paid 11.2 million in cash to Medicis as part of the consideration for the Ascent Pediatrics business. We will pay Medicis an additional 30 million in consideration over the balance of this year.

Now I will cover the results of the BioMarin/Genzyme joint venture. Aldurazyme sales were 9.2 million for the quarter and 16.6 million for the 6 months ended June 30, 2004. On July 14, Genzyme Corporation confirmed Aldurazyme sales guidance for 2004 of 40 to 44 million. BioMarin's share of the loss for the joint venture for the quarter and the 6 months ended June 30, 2004 was 1.7 million and 3.5 million, respectively. BioMarin's share of the loss in the joint venture for the same periods in 2003 was much higher, 5.4 million and 12.1 million. The difference is due to launch expenses in 2003 and increasing sales of Aldurazyme in 2004.

Now I will turn it over to Dr. Emil Kakkis, who will review the import developments in our lead pediatric product development programs, namely Aryplase for MPS VI and Phenoptin for PKU.

In early June we announced positive results from our pivotal Phase 3 trial of Aryplase in MPS VI. The results demonstrated a statistically significant and clinically meaningful improvement of 92 meters in the primary endpoint in patients on Aryplase compared to placebo.

The P value for this endpoint, the 12 minute walk test, was P is 0.025. The data for the secondary endpoint also demonstrated statistically significant differences. The urine GAG (ph) reduction was 75.5 percent with a P value of less than 0.001. And the 3 minutes stair climb showed an improvement of 6 stairs per minute with a P value of 0.053.

We plan to file for marketing authorization of Aryplase in both the U.S. and EU in the fourth quarter of this year, and are planning for a potential launch in the fourth quarter of 2005. However, as you well now, we can not predict the outcome of regulatory reviews.

From the commercialization standpoint, we continue to make progress identifying patients with MPS VI. We have now identified about 250 MPS VI patients globally, an increase of 50 patients since our last update. In the not too distant future, our 70 person sales force will initiate new programs to raise awareness of MPS disorders among pediatricians with the goal of identifying additional patients and to educate patients about potential new therapeutics currently in development.

Now I'll turn over to our PKU program. A few weeks ago we released positive results from a clinical study in PKU of oral 6R-BH4, the active agent in Phenoptin. PKU, or phenylketonuria, affects more than 50,000 patients in the developed world. For decades PKU has been diagnosed in newborn screening programs in place in most of the developed world. People with PKU have reduced levels of the enzyme phenylalanine hydroxylase and cannot sufficiently metabolized amino acids phenylalanine, also known as PHE, which is found in essentially all proteins containing food.

As a result, PKU patients must adhere to a strict and unpalatable PHE restricted diet. Additionally in order stay properly nourished they must eat specially formulated and expensive medical foods and formula. Children who do not adhere to this diet suffer severe and irreversible neurological impairment such as mental retardation. Adults who do not comply with it are more likely to have shortened attention span, a reduced IQ, depression and other neurological problems.

There are no drugs approved for PKU, and there is strong demand for a more convenient alternative to diet. At this stage it appears that Phenoptin could be useful for about half of the PKU patient population, primarily those with a mild to moderate form of the disease who have some residual enzyme activity that the 6R-BH4 can enhance.

Those who have the most severe form of the disease with no effective enzyme activity will most likely not benefit significantly from Phenoptin. We're in the early stages of development for an enzyme therapy called Phenylase for these more severe PKU patients.

Now I'll go into the study in more detail. The open label study enrolled 20 PKU patients at 2 clinical sites located in the United States. The patients were given 10 milligrams per kilogram of oral doses of 6R-BH4 daily for 7 days. Blood phenylalanine levels were measured before treatment, and on the first, third and seventh day of 6R-BH4 treatment. After a week without taking drugs the experiment was then repeated at a dose of 20 mg per kilogram per day for 7 days. The patients were not on a strict low PHE diet prior to or during the study.

Results for the study demonstrated 9 out of 20 patients, 45 percent responded with a 30 percent or greater reduction in blood PHE levels after receiving a daily dose of 10 milligrams per kilogram of 6R-BH4 for 7 days.

A responder was defined as a patient who had a 30 percent or greater drop in blood PHE after the seventh day of 6R-BH4 treatment. The number of patients that responded with a 30 percent or greater reduction in blood PHE levels increased to 12 out of 20 patients, or 51 percent, with daily doses of 20 milligrams per kilogram of 6R-BH4 for 7 days. The average blood PHE reduction responder at the 10 milligrams per kilogram dose was 50 percent, while the average reduction responders at the 20 milligrams per kilogram dose was 64 percent.

Supporting evidence for the treatment effect was observed when PHE levels in responders rose sharply 7 days after discontinuing treatment with the 6R-BH4. Importantly, the responders experienced dose dependent increases in triaphine (ph) levels during the study further suggesting that 6R-BH4 is increasing the normal metabolic conversion of phenylalanine to triaphine, which is deficient in PKU patients. The investigators did not report any serious side effects for 6R-BH4 in the study.

So this trial of 6R-BH4 was successful from 3 perspectives. First, we have a better understanding of the dose response and length of time required to measure initial response in patients. Second, the number of patients responding to 6R-BH4 in this study is similar to that observed in several other larger studies, which suggested that a significant percentage of PKU patients respond to 6R-BH4, and that these reductions are substantial in many patients. Lastly, we do not see serious problems at doses higher than those we plan to evaluate in future trials.

Our next step is to meet with the FDA so we can discuss our clinical plans and get a consensus on the potential clinical development path for Phenoptin. We expect to start another clinical study of Phenoptin by the end of this year.

Now outside of pediatrics we're wrapping up the Phase 1-V trial of Vibrilase for serious burns, our third clinical development program. We expect to announce the results in this trial at the 12th Congress of the International Society of Burn Injuries being held August 22 through August 25 in Yokohama, Japan. We're in discussions now with several companies who have expressed interest in licensing Vibrilase for burns and other wounds.

Now I'll hand the call back over to Josh.

Before opening up the call for questions, I will briefly reiterate our updated financial guidance for 2004, which is also detailed in the press release.

For Orapred net sales it remains unchanged at $42 million for 2004. Our adjusted net loss guidance is 66 to 68 million for 2004. On a GAAP basis this represents a loss of approximately 112 to $114 million. We expect to end the year with the approximately 85 to $90 million in cash, cash equivalents and restricted cash.

As a reminder, in the upcoming months we will be providing updates to the investment community at 3 investor conferences, the UBS Global Life Science Conference, September 27 to the 30th, the Rodman & Renshaw 6th Annual Healthcare Conference, October 26 to 28, and the CIBC World Markets 15th Annual Life Science Conference, November 8th through the 10th, all being held in New York City.

We will have a significant presence at 2 medical conferences later this year, The Society for (indiscernible) Errors in Metabolism to be held in Amsterdam, August, 31 to September 3, and at the American Society of Human Genetics Annual Meeting to be held in Toronto, Canada, October 26th to the 30th. Please refer to the press release issued earlier today for a comprehensive listing of the abstracts submitted for presentations at these conferences.

With that out of the way, I would like to the operator now to open up the call for questions.

(OPERATOR INSTRUCTIONS). Buddy Lyons of the Sanford Group.

Could you give us some sense of the clinical and regulatory pathway for the Phenoptin product? Clinical trials -- the trial that you're going to do later on -- start later on this year -- is this like a Phase 2 type trial, and what might happen thereafter?

This is Emil Kakkis. We believe that the program is a relatively more advanced program because there is substantial data already in existence for the compound. Later in the year we expect to treat several hundred patients with the drug. It could be considered a Phase 2 trial, but we haven't set what that interpretation of that trial would be with the FDA. We would expect to do a Phase 3 trial, thereafter however, at this point we haven't discussed our details with the FDA and gotten essentially agreement from them on the development path.

Just a follow-up. The patients that you have identified in MPS VI patients could you break those out geographically?

We haven't done that in the past. They are worldwide though. And many of the patients are in Europe, but we have them worldwide.

Matthew Geller of CIBC.

Fred, could you talk a little bit about the progress you have made in terms of what you have been doing to identify MPS VI patients? And also the progress you have made in terms are preparing for marketing?

This Emil again. We have programs going on both in the U.S. and outside in Europe and elsewhere to identify patients specifically through various means. And what we've reported today was that we identified an additional 50 patients in addition to what we had identified and studied in the past -- the 200.

We're continuing to set up programs and individuals worldwide to help with the identification of patients and also education about how did to diagnose in MPS VI. Some of those efforts we will be talking about in the future, but today I still don't want to go into a great deal of detail. But it does involve both eventually using our field force in the U.S. to educate and identify patients. That is one of the reasons we did that acquisition. It will allow us to get out and really beat the bushes in the United States to find the patients that we know are out there. But we will also be doing special programs in Europe and using other methodologies to identify patients.

(OPERATOR INSTRUCTIONS) Joshua Schimmer (ph) of SG Cowen.

On the SG&A for the second quarter, where is that in relation to where the ultimate steady state SG&A is once you will be accounting for the full quarter of Orapred?

We anticipate that the run rate SG&A in the first 6 weeks will be approximately what on a weekly basis will be -- approximately what it will be for the second half of the year.

And then can you give us an update on the other Orapred formulations, Orapred 2 and 3, the flash dissolve and room temperature formulations?

This is Emil Kakkis. The Orapred room temperature product is ready to be filed. We're moving aggressively with the other program, the oral dissolving tablet program, which we expect to file sometime this year. But in general we won't be giving very specific time lines for when those products will be launched.

Tillman Dunreese (ph) with Bank Mount Devail (ph).

I have a quick question on your guidance. Am I assuming correctly that you're expecting some more additional charges related to the Ascent drug transaction? Because if I simply sum up the guidance, excluding these costs plus the 37.6 million, this is certainly below the 112 to 114 million. In which quarter do you expect to incur these charges?

The additional charges we will be incurring over the year will be imputed interest, amortization of intangibles principally. And those will be recorded in each of the periods for the remainder of the year, and then ongoing as long as the amortization of intangibles occurs, and as long as we have the outstanding obligation to Medicis.

And another question. For the patient numbers on Aryplase, when I remembered it correctly on the Web page it stated that it is about 1,100 patients, so there is still a whole lot more patients to be identified for Aryplase, it this correct?

Yes, this is Emil Kakkis. We believe that the developed world population is about 1,100 patients. Our efforts so far have been primarily U.S. and Europe. But we are certainly at least a year before launch, and between now and then we will be continuing to identify more patients. They are scattered about many different locations and divisions. And it does take some time, but we began well ahead of the lunch and we do expect to have substantially more patients by the time of the launch. The 1,100 is an estimate of the population of patients. There's no way to know exactly how many. There's no perfect way to determine that.

Also, Tillman, this is Fred. What happens as the product -- on the assumption that the product gets approved and publicity surrounding that provides a forum also to speak to physicians and patients and creates much more awareness. So as the product makes regulatory progress you'll see those numbers will also increase.

All right. Another question regarding the SG&A line. How do you expect this line to proceed for the second half of the year? Do you expect the same level as in the first half?

It will be higher based on the incurring of the selling and marketing costs for Orapred that was in the first half. But as I mentioned earlier the run rate that we have incurred since the acquisition of Orapred is expected to continue for the second half of the year.

And a last question. It is again about these non-cash charges. So there are some more non-cash charges to be expected throughout the year?

Yes, there will be the normal amortization of the intangibles and the recording of the imputed interest that is associated with the obligation to Medicis. And those will be period charges for the remainder of this year and then ongoing.

Ron Ellis (ph) of Lever & Swan (ph).

I just have something directed towards Orapred and how we should be thinking about it annually based? On seasonality are there any quarters that you think may show more fluctuation than others?

This is Emil speaking. We know there is basically an annual cycle of use of Orapred that relates to the onset of virus infections and asthma exacerbations that occur primarily in the fall and early winter. So the third and fourth quarters are generally bigger month for prescription writing. And then by the first quarter it is starting to wean. And then in the second quarter it is basically bottoming out.

So we're just coming out of that bottoming out phase. And it is just -- it is the way it always has been. But if you look year-on-year the scripts are up 10 percent from last year. So we're continuing to gain market share for the product even with competitors.

(OPERATOR INSTRUCTIONS) Buddy Lyons of the Stanford Group.

Given that the MPS VI patients seemed to be a little more scattered around the globe, what is the plan for marketing that? Will you keep the rights in the U.S. and Europe and partner elsewhere or what is the plan there?

It is Fred. We have said consistently for well over a year that our emphasis for our commercial organization will be our entity in the U.S., and we now have the capability to do that through the Ascent deal.

Outside of the U.S., we have said we would always prefer to have a partner who is well entrenched, and knows how to sell these kinds of orphan drugs. As you can imagine, when the results of the Phase 3 trial became known there were a significant number of people who discussed with us their interest in securing partnership rights outside the U.S.

So we can't obviously talk about the specifics of something until it is done. But it is our intention to get a partner, and the kind of partnership is still being discussed. But it is not our intention to incur substantial costs and to create an organization outside of the United States for this product.

Gabe Hoffman (ph) of Assider Capital Management (ph).

Just if you can help me with a little math. I wanted to reconcile a couple of cash items. The Company began the year with roughly 206 million in cash, or that was at least the balance at the end of 2003. And there is 35 million that has been paid out to Medicis thus far. And then if we subtract what the Company's guidance was, at least at the beginning -- or at least at the end of last quarter, it was that would be between 69 and 73 million in cash consumption, which gets me to a range of between 102 million and 98 million roughly as a year-end cash balance. Should I assume that the difference between that and what you're talking about in today's press release refers to the 15 million in assumed liabilities regarding Orapred?

Yes, I think that is an accurate statement. We have paid so far to Medicis about 11.2 million so far this year. We have another 30 million to go in that. So it would be about $41.2 million for the year.

So then you'll be paying 6. -- since it was 10 on close and 25 by the end of '04 that implies that you'll be paying a little over 6 million of that 15 in liabilities out?

The total payments for the year are projected to be, as we have mentioned, about 40 million. The total assumed liabilities are probably closer to about 5 or 6 million.

I guess could you help walk me through where the cash -- the cash balance at the beginning of the year was roughly 206 million. If you could just walk me through how the payments to Medicis plus your financial -- your cash utilization on an operating basis guidance gets us to what you're projecting for -- to end '04 with roughly 85 to 90, I would appreciate it.

Well, again, the total Medicis payments are around $40 million. The remaining cash payments represent operating needs. That gets you to our guidance of 85 to $90 million at the end of the year.

It is Fred. If you start, and I don't have a calculator in front of me and I'm going to try to do from memory. If you start at about 205 and you take about 73 million off of that for guidance, as you indicated prior to the transaction, you also subtract about 40 million for Medicis. That is about 113 million from 206 -- 205. And that gets you to pretty darn close to what we're saying.

There may be a few million dollars in anticipation of building a little inventory at the end of year going forward for Orapred for 2005. There is always a couple of million dollars in small companies and it is difficult to project whether it is going to be some cash pay out that is going to be in the third or fourth week of a quarter or the first week of the following quarter. But those numbers I gave you get you awfully close to about the $90 million.

Now -- that is what I was getting at and I appreciate that. It is helpful so that -- the sort of 3 or 4 million difference is perhaps some Orapred inventory building.

Just finally to wrap it up, given that you had stated on previous calls that the Orapred operating margin, that is net of any sort of SG&A or associated R&D, was in the '30s. And given that the acquisition would be immediately accretive, what is going on as an offset in terms of increased spend such that the cash utilization guidance is only going down by 2 million, given the sales of Orapred and the sort of margin?

We were very careful when we made the revised guidance not to give any new number when we did the transaction with Medicis. We simply said it would be better. And we have, in fact, come in better by $2 million.

Also, just as kind of a general idea that when you make an acquisition through a transaction you don't know absolutely everything they you're going to be doing over the next 6 or 8 months. And so there are some things that we're doing now in terms of market development work, market research. And I don't want to call it a relaunch of Orapred, but new marketing emphasis. So we're spending a few million dollars doing that, which we think is awfully important and will sustain the brand.

But the most important thing is we never gave guidance other than to say it would be a little bit better. And we are a little bit better at 2 million. We also said that things will be much better next year. And we haven't given specific guidance on that next year, but we're not talking about a $2 million reduction for next year. We will talk about more of that near the end of this year.

Just to understand, if we're talking about -- let's just say roughly if Orapred were going to do $20 million in the second half of the year, and we were talking about at minimum a 30 percent operating margin, we would be thinking about $6 million in operating income. And just to understand you're planning on spending roughly 4 million of that on some of these additional market research, etc.?

Yes, I think that is very fair.

If there are no further questions, I'll now turn the conference back to Mr. Price.

Thanks very much. In closing I would really like to express excitement about the outlook for the Company. In a year from now I expect that the financial and product development profile of the Company will be yet again improved. Combined sales of Aldurazyme and Orapred are likely to total more than 100 million. Although we won't provide guidance, as I just indicated for 2005 until the end of this year, the pro forma adjusted net loss is likely to be significantly lower than what we are projecting for this year, based on estimated profitability of the joint venture with Genzyme and profits from Orapred.

By the middle of next year we could be on the cusp of a worldwide launch of our third product, Aryplase for MPS VI. And we plan to be running a major efficacy focused clinical trial with Phenoptin, the drug that could address approximately 25,000 patients of PKU.

I would also like to point out that all of our products and product candidates address serious diseases or conditions, and are protected by strong intellectual property, or orphan drug status or designation. We also own the rights to several compelling pre-clinical products that could be the basis for valuable partnerships in the future.

And finally, although we can't predict with any degree of certainty, we have a program to out license our non-core compounds that if successful could also enhance our financial picture.

Thanks for being on the call. We look forward to seeing you in person. If you have any follow-up or other questions, please call Josh and Investor Relations at 415-506-6777. Thanks for your participation and good bye.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 363459. This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.