BioMarin Pharmaceutical Inc (BMRN) 2004 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the third-quarter 2004 BioMarin Pharmaceutical Inc. earnings conference call. My name is Andrea and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to the host of today's call, Joshua Grass, senior manager of Investor Relations. Please proceed.

Thank you, Andrea. On the call with me today is Lou Drapeau, acting Chief Executive Officer of BioMarin, Emil Kakkis, Senior Vice President of business operations and Jeff Cooper, acting Chief Financial Officer and Eric Davis, BioMarin's corporate attorney. I would like to remind everybody that this nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical including the 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 and regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and known 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 hand the call over to Lou.

Thank you, Josh, and good morning. I'll begin this call with some brief comments and then have Jeff Cooper summarize the financial results. He will then turn it over to Emil Kakkis to review the progress of our clinical stage product development programs including Aryplase and Phenoptin. Josh Grass will then wrap it up and open the call for questions.

However, before I turn it over to Jeff I would like to make a few comments on the status of our company. As most of you know, we have recently announced several challenges related to the Ascent Pediatrics business. Regards to the larger than expected levels of inventory held by our distributors, we remain confident that the level of inventory in the distribution channel will normalize by the end of this year. We are also implementing strategies to minimize the impact from a new generic competitor. This new generic competitor is not taste masked and therefore is not equivalent to Orapred. We believe that the taste masking properties of Orapred provided with a strong competitive advantage over this generic product. In the long run we believe that patients, their parents and pediatricians will choose Orapred for its superior taste, which leads to better compliance, fewer callbacks to the pediatricians and fewer visits to the emergency room.

With regard to our negotiations with Medicis, we recently met with their management to discuss our complaint. As you may know, we filed a lawsuit against Medicis a few weeks ago but agreed with Medicis to withdraw that lawsuit without prejudice, so the companies could enter into a good faith settlement negotiation. We are in the process of settlement negotiations. If we are unable to come to an agreement promptly, we expect to reinstate our suit and seek significant damages through the legal process.

I would also like to add that we fully recognize the financial challenges that we face, and we are implementing companywide measures to reduce costs, which we expect to reduce the need for cash in 2005. More importantly, the outcomes of negotiations with several companies on product outlicensing partnerships outside the United States could provide the company with significant amounts of cash, as well as reduce our development and launch costs.

We expect to retain the rights to market our products in the United States and leverage the sales force we recently acquired. Therefore, we will retain a larger fraction of the value of our pipeline. We are making very good progress with our clinical development programs and Emil will update you on this for you shortly. Lastly, with respect to a new CEO of the Company, the Board has interviewed several highly qualified candidates for the permanent CEO position of BioMarin. Their process continues.

And now Jeff, will you cover the financial results for the third quarter?

Thanks, Lou. Net sales for Orapred for the quarter were $0.2 million, clearly below our original expectations and in light of growing prescriptions indicative of the high levels of inventory already held by distributors. Orapred sales reported by BioMarin for the nine months ended September 30, 2004 were approximately $4.8 million. This represents our sales from the time we closed the transaction on May 18 through September 30th. Total net sales of Orapred for the first nine months of 2004 were about 18 million.

There were approximately 1.6 million prescriptions for the first nine months of the year, an increase of 6 percent over the same period in 2003. Sales of Aldurazyme for MPS I by our joint venture partner Genzyme Corporation were 10.3 million for the third quarter and 27 million for the first nine months of 2004, compared to 3.4 million and 4.9 million for the same periods in 2003. Our net loss for the quarter was 29.5 million and 105 million for the nine months ended September 30, 2004. Our net loss for the quarter and nine months included 3.8 million and 41.4 million, respectively in non-cash charges related to the acquisition of the Ascent Pediatrics business.

Now I will review the third-quarter financial results in more detail. R&D expenses for the quarter and nine months ended September 30, 2004 were 11.8 million, and 37.7 million compared to 14.2 million and 36.8 million for the same periods in 2003. The decrease in spending for the year-to-date was primarily due to the lack of spending related to the Neutralase program which was discontinued in 2003. This was offset to some extent by an increase in spending during 2004 on Aryplase for MPS VI, Phenoptin for PKU and Orapred.

Spending on these programs for the nine months ended September 30, 2004 was 24.5 million, 5 million, and 1.3 million, respectively. In the third quarter of 2004 we spent 5.7 million in R&D on Aryplase and approximately 2.6 million in R&D on Phenoptin for PKU. R&D spending on Aryplase (indiscernible) for the quarter was one million.

Selling, general administrative expenses were 12.8 million for the third quarter and 24.3 million for the nine months ended September 30, 2004 versus 2 million and 9.4 million for the same periods in 2003. The increase for the quarter and year-to-date is largely due to the selling marketing costs for Orapred, which we incurred for the first time this year as a result of the Orapred acquisition, and the onetime separation cost of 2.9 million, the BioMarin Pharmaceuticals former Chairman and Chief Executive Officer.

From a cash perspective we ended the third quarter of 2004 with about 111.7 million in cash, cash equivalents, short-term investments and restricted cash. Restricted cash primarily 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 third quarter we paid 15 million in cash to Medicis as a part of the consideration for the (indiscernible) business. Also we will play Medicis an additional 50 million in consideration over the balance of this year.

Now I will cover the results for BioMarin Genzyme joint venture. Aldurazyme sales were 10.3 million for the quarter and 27 million for the nine months ended September 30, 2004. BioMarin's share of the loss for the joint venture for the quarter and nine months ended September 30, 2004 was .5 million and 4 million, respectively. BioMarin's share of the loss in the joint venture for the same periods in 2003 was much higher, 4.5 million and 16.6 million. The difference is due to increasing sales of Aldurazyme in 2004.

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

Beginning with our Aryplase program we announced positive results in early June from our Phase III trial in MPS VI. These positive results were presented in detail at the American site of human genetics meeting in Toronto on October 29, 2004. In the third (ph) quarter of 2005 we will announce the results of the Phase III extension study that will provide additional insight into the durability of the response in patients with giving drug for one year and the initial response in patients that are receiving placebo in the double-blind portion of the study.

In September we have an encouraging pre (indiscernible) meeting with the FDA on Aryplase and based on that meeting we plan to file for marketing authorization of Aryplase in both the U.S. and the EU by the end of this year. We will request six-month priority review and we do not know if the FDA will seek input from an advisory committee on our application.

We are already fully engaged in the premarketing activities in both the U.S. and Europe and this will allow us to hit the ground running if Aryplase is approved for marketing. We also continue to make progress in the development of Phenoptin for mild to moderate PKU. We recently filed an investigational new drug application for Phenoptin with the FDA that contains an unusually large amount of preclinical and clinical data compared to most INDs. Early in the year we were granted a working (ph) drug designation in the United States and Europe for Phenoptin for treating PKU and we have also licensed and applied for intellectual property related to manufacturing and stabilization of Phenoptin for PKU.

Building on the results of our successful pilot study completed earlier this year, in the next few weeks we will initiate a Phase II (indiscernible) study for Phenoptin and PKU patients. We are also scheduled to meet with the FDA at the end of this month to discuss the key elements of our clinical development program, including Phase III study design. Once we get feedback from FDA we plan to disclose in more detail our near-term plans for our Phenoptin program.

Now lastly I would like to report some positive developments related to Aldurazyme and MPS I. At last week's ASHG conference there were several exciting presentations regarding Aldurazyme. A number of course described the benefits of Aldurazyme therapy in a variety of MPS I patients as well as the use of combination Aldurazyme treatment with stem cell transplantation. So the data was also presented on the use of Aldurazyme to treat the brain in the canine model of MPS I, using once per month intrafecal treatment. Data from our studies in the canine model of MPS I and from TKT with idronic (ph) tosolpitase (ph) in MPS 2, are encouraging, and we believe that have shown to be safe and effective in humans. This application of Aldurazyme could provide a new, safer option for patients that currently receive stem cell or cord blood transplants. That covers it for the clinical program update. Back to you, Josh.

Before we open up the call for questions, I just like to remind everybody that we will be presenting at the CIBC Biotechnology conference next Tuesday, the ninth. You can access this presentation live through our website at www.BMRN.com. Operator, now I would like to open up the call for questions.

(OPERATOR INSTRUCTIONS) Buddy Lyons from Stanford Group.

Yes, could you tell me or give us a sense of what your premarketing activities for Aryplase has demonstrated as far as patient population in the U.S. and the distribution of those patients?

What we've put out previously was that we had 250 patients in the developed world individually identified patients that we could get reimbursement on. We have not broken out U.S. and Europe at this point. The majority of patients are ex U.S. in that group of 250. We are continuing to identify more patients in the U.S.

Does that mean you have identified 250 or you think there are 250 in the developed world?

We have identified, individually identified patients who could potentially be treated with Aryplase. We believe that there is about 1100 in the world. However, that includes patients who are not diagnosed, or may have been lost to follow-up as well as patients that are identified. 250 individually identified patients.

The patients around that 1100, they are fairly well scattered throughout the rest of the world, are they not? I mean there is not like a lot of patients in any one central geographic region is there?

They are relatively well scattered. There are some populations where there are more patients, such as in Portugal and Brazil there is a founder in fact that you can see in those groups. So there are some places where there are more patients than in other locations, but it isn't the 1100 patients is a fairly widely scattered population of patients, we believe based on estimates of the incidence rate and survival of patients.

So you'll still be looking for a partner outside of the United States, is that correct?

Yes, we are actively looking to develop a partner for the ex U.S. market.

Okay, thank you.

Alan Leong.

Actually from Biotech Monthly. A couple questions. One, could you provide any additional guidance on the Orapred. You said the trending towards the normalization at the end of the year, does this mean somewhere early next year where the sales will be fully normalized?

Wit it getting so late in the year we are not going to comment further on guidance this year. As Lou mentioned earlier we expect the inventories to normalize by the end of this year.

Okay. We got Phenoptin and Phenylase up, do you hope to have them partnered with a single entity or do you view these two as very separate distinct products as you go into negotiation?

Well, Phenoptin and Phenylase are both PKU products. Our goal would be to partner with a single partner for both because it would be far more efficient from a development standpoint to do that. So that would be our preference. However, it will depend on what the partners interested in obviously.

Last question what venue will you be releasing the results of Aldurazyme on kids less than five?

That study is still ongoing with the under five patients. There are still some patients that remember it is a one-year in-life study. And our expectation is going to be sometime next year, and I don't know the exact timing of when the data would be available.

Okay thanks. I look forward to your 2005.

Chris Tenga (ph) from (indiscernible) capital.

Thanks for taking my call. What would be the endpoint of the Phase II Phenoptin trial?

The Phase II trial will be looking at blood phenylalanine level before treatment and after treatment; the measure of the responsiveness of the patient to Phenoptin.

And based on your discussion so far with the FDA, do you expect that you will need to have a some sort of an outcomes endpoint for registration trial?

Right now we haven't had that discussion yet. We expect to have that discussion at the meeting we just announced that we would be having. Generally that is something you would do at a meeting ahead of the Phase III study to decide both what is an agreeable primary endpoint and what the breadth and depth of study required for registration. We believe based on our analysis of literature and independent net analysis of literature that phenylalanine is a very strong predictor of outcomes in patients. And that outcome studies based on losing IQ or other neurologic damage would not be ethical. However, we need to work with the FDA closely to define appropriate endpoint which we believe is phenylalanine level.

Also one question on Aryplase. On the second quarter call you guys stated that you had identified 50 incremental patients during the second quarter with the Ascent sales force. Am I to understand from your comments today that you have not identified any additional patients since the last update?

No, we haven't given out another update. We are continuing to identify patients, and we will provide an additional update on the exact status at an appropriate time. But we are continuing to find patients, it’s just a process that takes time.

And do you expect that rate to accelerate going forward beyond 50 patients a quarter or do you think that we are reaching sort of a point of diminishing returns?

It is hard to predict that. I think that we are certainly going to push very hard to get as many identified as possible, but it would be very hard to predict how many we would find per quarter. And I wouldn't want to project out 50 per quarter all the way through. I don't think that would be necessarily an appropriate thing to do.

Gabe Hoffman.

Thank you for taking the question. I was curious if you could quantify either at present or actually if you could quantify at the end of the quarter, September 30th, what the estimated amount of inventory in the channel was for Orapred.

This is Eric Davis. We have entered into negotiations with Medicis as we mentioned and those negotiations are ongoing and active. And so we prefer not to talk about things that relate to our clients in their negotiations. That question kind of goes to that.

Well, this is relatively mathematical. You purchased, you took over the product at a certain time, and it had a certain amount in the channel at that time. And there have been prescriptions and I guess could you -- okay, could you give us a sense then mathematically since you purchased the product, you have recorded let's say X number of dollars in sales and the prescriptions have been of Y dollar value. So at least we could get a sense of the amount that has been destocked since then, that way you're not telling us what we think is left, just what you have gone through between now and then. (indiscernible) clearly you have booked less sales than the amount of scripts that I would suggest.

We are still confident that the sales will normalize by the end of the year but we really can't go into detail beyond that.

Just as a follow-up, it was brought up by myself and other investors at the time that you guys made this purchase with regard specifically to whether the agreement covered anything such as inventory specifically. And what was -- are you saying now that you have somewhat of a different view than you did at that time?

We can't go into issues that relate to our conduct between Medicis and the deal. We can't go into those because of negotiations we are having.

Finally, could you give us a sense of timing as to when you will -- I assume inform the street of either one of the two scenarios which would be obviously some sort of agreement with Medicis or resumption of lawsuit, just what that timing would be?

This is Lou Drapeau. We are in active negotiations with Medicis at this point in time. But if we don't reach a resolution relatively quickly, we will reinstate the lawsuit and make a public announcement.

Okay. So I should take relatively quickly as let's say sometime in the month of November?

Yes.

Thank you.

Ron Ellis from Leerink Swann.

Thank you and thanks for taking the question. Just had a couple of points and following up on the last questioners one, just noting in the press release it says that prescriptions for Orapred were up 6 percent for the first nine months of the previous year. And as we look back last year they were up maybe 8, 9 percent over the previous year. Are we seeing prescriptions declining here? Is the rate of growth for this product down or do you just want to contribute that to a large seasonality which was outside that of the previous years?

I think, Ron, (indiscernible) I think the seasonality makes it very hard to compare period to period. But there are certain years where the asthma or the (indiscernible) or other factors which affect the use of Orapred can vary. So it's a little hard to decide that. What we've seen, though, consistently month to month growing scripts over the period and we've seen, as well for Orapred an improving market share consistently. So we believe there is still room to grow the product further. But clearly its a more mature product than it was say two or three years ago when it launched and was growing very, very rapidly.

But in the second quarter you were at about 10 percent growth for the first half of the year. You have over 90 percent market share of the flavored products and greater than 50 percent of the overall market. I'm not sure where all this growth is coming from.

Well, the growth is -- there are several possible areas for growth in the product. One is we still are gaining some ground against some of the other generics that are out there. We are also expanding our efforts into areas that are not currently promoted. Our field force of 66 reps cover a wide territory but not the entire United States and we've initiated efforts in other areas that are not covered and where a marketshare is much lower in the 20 to 30 percent range. Those are areas where we can actually apply some resource and get some returns.

The problem with understanding how the growth is going this year, let's say 10 percent through the first two quarters and 6 percent in the first nine months, is the timing of the season that is coming up and how bad that season will be will have a big impact on how the product does. And that keeps the seasonality very hard for us to predict. But I wouldn't respond to the issue of whether with 10 percent through six months and then 6 percent through the additional nine-month period as meaningful difference in the overall market. The overall asthma market will be dependent on how the flu and other respiratory illnesses go through the season.

For flu, then, do you think that any disruptions in flu vaccinations will have an impact on the use of Orapred?

If the flu season is severe we would expect there would be more acute exacerbations, which would increase the need for asthma treatment and Orapred.

And then differentiating your product from the generic version, is it correct in that the generic with their flavoring has to use alcohol in it?

The product does have alcohol, but Orapred does have a small amount of alcohol, too. The main differentiation between our product and the new generic is that our product is taste-masked. Their product is therapeutically equivalent based on FDA guidelines, but it won't be equivalent to patients. And there are already other generics steroid light products that patients can the doctors can prescribe and they don't have they have been moving to Orapred. So we believe on the features of the product at Orapred is still a superior or liquid steroid over the current generic and the new generic.

One last question. In terms of licensing you spoke about out-licensing for other territories, is there any updated timeline for that as you mention where for the cash position is now, if we are not talking partnerships in the near term, are we going to be discussing equity raising?

Well as far as partnership discussions we are actively discussing partnering Aryplase outside the U.S. plus other programs, including Orapred. So we are actively doing that. However, it would be difficult for me to predict that we would get a deal done because it depends on the partner and what we're doing. We understand the urgency for it. We are pushing ahead to do it. But we won't do a bad deal just to get the cash. We'll make sure we do a right deal because it is going to last for the company, not just for this year, this quarter but for several years to come. With regard to a financial or financing, maybe Lou would want --.

Our plan is obviously to maximize the cash inflows coming from the deals, do a substantial amount of cost containment, cost savings of our cash burn next year be substantially less than what it is this year and only if needed do a financing. But we are investigating and actively pursuing all of those things as Emil said as we speak.

Just a question then for cost containment; I guess we have the trials which are pretty much set up you discussed that. The only other line would be G&A. Should we expect some reductions in headcount?

We are looking at absolutely everything that drives G&A plus the program costs and we're trying to turn every one of those dials.

Okay. Thank you.

(OPERATOR INSTRUCTIONS) Gabe Hoffman.

Thank you for taking the follow-up question. So just as a follow-up on the last gentlemen's question, should we take in -- should we assume from your previous statement that the company would take some of the steps that you mentioned, such as cost containment and out licensing prior to any potential financing?

Gabe, I think we are in discussions with our Board and with our investment bankers to decide exactly what the plan is and the timing of it and I can't comment any further than that at this point.

Okay. Well, it would be nice if you guys could do something for your current shareholders first before to enhance value prior to going through a substantial dilution. Thanks very much.

Sure.

Matt Peblits (ph) from Quaker Capital Management.

As it relates to the comments about cost containment if I look at your SG&A run rate this quarter ex the settlement costs, I guess about 10 million or 40 million annualized, and if I annualize your R&D its 45 to 50 million. Are those good baselines, and if so could you give us any thoughts about what '05 looks like as it relates to those run rates?

We are not providing guidance on 2005 at this point. Regarding the spending for this year, again the SG&A costs include the selling and marketing costs that where (indiscernible) for the first time for Orapred for the quarter and the year-to-date. So that is why the run rate has increased from what it was earlier in the year.

I guess my question would be presumably you are keeping Orapred and you're expecting abnormalized sales next year. So that 40 million number presumably continues. Unless you can sizably reduce it.

Our commitment is to substantially reduce the net cash burn for the company next year. And all of those things, R&D and our G&A will go down appropriately.

Can you give any idea of what normalized R&D looks like?

I can't at this time, Matt.

Buddy Lyons.

Would there be any additional charges, non-cash charges related to the Ascent acquisition for next quarter?

Yes, the non-cash charges related to the deal related to the amortization of the acquired intangible assets will continue as well as the imputed interest which relates to the discount of the purchase price. Those two elements will continue on next quarter and into next year.

So at least for the near term, I mean in Q4 the SG&A should not probably go down significantly?

I think that is a fair comment, but again, getting late in the year, we are not providing specific guidance on our spending for the rest of this year.

Guys you've got to eventually give us something.

This concludes the question-and-answer portion of today's call. I would now like to turn the representation back over to Lou Drapeau for closing remarks.

Thank you. And in closing our stockholders, our employees and our other stakeholders should know that senior management team and the Board of Directors recognize the opportunities and the challenges facing the company in the near term. We are confident we can execute our plan to move the company forward, and we are also confident that our products and development will greatly benefit patients and physicians and will provide value for our stockholders.

Aldurazyme, still in its infancy, given the very long life cycle for enzyme replacement therapy -- we're so confident that its sales and profits will grow steadily for many years to come. Orapred continues to perform well in the marketplace despite the challenges with the transition of the business to BioMarin. We expect it to continue to be an important product for treating asthma for the foreseeable future. In a year from now I expect the financial and product development profile of the Company will be markedly improved. Although we won't provide any guidance for 2005 until the beginning of next year, our net loss will be significantly lower than we are projecting for this year based on the estimated profitability of the joint venture with Genzyme, profits from Orapred and the results of our cost containment efforts.

By the middle of 2005 we will likely be ready to launch our third product, Aryplase for MPS VI. We are cautiously optimistic that we will be running a major efficacy focused clinical trial with Phenoptin, a drug that represents the largest market opportunity for BioMarin. I want to thank you all for being on the call, and we look forward to seeing you in person in the near future. If you have any questions or other reasons to contact BioMarin, please do so calling Joshua Grass at Investor Relations at 415-506-6777. Thank you for your participation. Goodbye.

As a reminder, ladies and gentlemen, the replay information for this call is triple 8 (ph)286-8010 or toll-free 617-801-6888. The replay pass code is 98459011. Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.