BioMarin Pharmaceutical Inc (BMRN) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter, 2005 BioMarin Pharmaceutical, Incorporated earnings conference call. My name is Colby, and I will be your coordinator for today. At this time, all participants in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. For assistance at any time during the call, please press star zero and a coordinator to be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Joshua Grass, Director of Business Development and Finance. Please proceed, sir.

Thank you, Colby. On the call today is Jean-Jacques Bienaime, BioMarin's Chief Executive Officer, Lou Drapeau, Chief Financial Officer, Jeff Cooper, Vice President and Controller, Stephen Aselage, Senior Vice President of Global Commercial Operations, and Stuart Swiedler, Senior Vice President of Clinical Affairs. Before we get started today, I'd like to remind everybody that this presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceuticals, 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 and availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in BioMarin's filings with the Security and Exchange Commission, such as 10-Q, 10-K and 8-K reports. Now I would like to turn the call over to J.J.

Thank you for joining us on today's call to discuss our second quarter financial results; and after a few brief opening remarks, Lou Drapeau will present the second quarter financial results and 2005 year-end financial guidance. Then I will provide an update on the status of our plans for production in the PKU and will also provide an update on the U.S. launch of Naglazyme and our commercial plans to launch in the European Union, and then we will open up the call for questions.

And before Lou gets into the details of the financial results, I would like to briefly discuss some recent events. First, as you may already know, a few weeks ago we raised approximately 60.5 -- or $66.5 million net of expenses from the sale of 8.5 million shares of common stock. This cash, in addition to the $25 million from the transaction with Roanoke, we [INAUDIBLE] with the funds needed to launch Genzyme and continued development of Phenoptin for PKU, as well as for the development of our other programs. As a result of these financings, we do not anticipate [INAUDIBLE] option to go down on any of the $25 million on the loan from Medicis in 2005. We will reevaluate the need to [INAUDIBLE] Medicis in 2006. We also recently made the difficult but necessary decision to drastically reduce spending on -- spending for [INAUDIBLE] to [pediatrician].

In total, 52 positions were eliminated in order to focus our resources and attention to the development of proprietary products for genetics and metabolism. We have continued to settle Orapred's inquest, and yesterday filed the [INAUDIBLE] NDA with the FDA. In June, we resolved the [proxy conference] we'd organized and are pleased that they continue to be supportive and interested in strengthening the board of directors in a fashion that we believe is in the interest of all shareholders. Alan Lewis and Steve Kline were elected to the board on June 28th. And management and the rest of the board thinks that their experience and insights will be helpful in making the important strategic decisions that lie ahead.

I would also like to thank Gwynn Williams and John Urquhart their years of service and wish them well in their retirement. We also have an ongoing search for an eighth board member also that we hope to fill in the coming months. Now, Lou will cover the financial results for the quarter.

Thank you, J.J. Net sales for Naglazyme during the quarter wer $108,000 and represent sales following the first few days of product launch, which was June 20, 2005. Sales of Aldurazyme recorded by the BioMarin joint venture were $19.2 million, an increase of 109% over sales of $9.2 million in the second quarter 2004, and an increase of 21% over the 15.9 million recorded in the first quarter 2005. BioMarin's share of the profits from the joint venture in the second quarter 2005 was $3.3 million compared to a loss of $1.7 million in the second quarter of 2004. Aldurazyme sales for the six months ended June 30, 2005, were $35.1 million. Net sales of Orapred for the second quarter of 2005 were $1.3 million, compared to the 4.6 million in the second quarter of 2004.

Net sales of Orapred for the six months ended June 30, 2005 were $6.3 million. Collaboration revenue for the second quarter was $2.1 million. This is a new item, and includes the prorata portion of the $25 million up-front payment from Serono, which is being recognized as revenue over a 33-month period, and reimbursement by Serono for 50% of the second quarter development expenses for Phenoptin in PKU. The Company incurred a net loss of $21.3 million or $0.33 per share in the second quarter of 2005, compared to a loss of $55.6 million, $0.86 per share in the second quarter 2004. The difference is primarily due to 36 million of deal-related expenses resulting from the purchase of the Ascent Pediatrics business in 2004.

Research and development expenses increased by $2.6 million, to $14.8 million in the second quarter of 2005, from $12.2 million in the second quarter of 2004. The increase is primarily attributable to a $5.6 million increase in Phenoptin clinical and manufacturing activities, offset somewhat by a $3.4 million decrease in Naglazyme research and development costs. Selling, general and administrative expenses increased by $2.4 million to $10.1 million in the second quarter 2005, from $7.7 million in the second quarter of 2004. This is largely due to increased commercial expenses for the launch of Naglazyme, and the cost of the Orapred sales force for a full quarter this year, as opposed to a half a quarter in 2004. Cash, cash equivalents, short-term investments, and cash balances related to long-term debt totaled $45.8 million as of June 30, 2005, which includes the $25 million up front payments from Serono.

If the $56.5 million financing had closed at the end of the second quarter rather than early in July, the cash balances at the end of the quarter would have been approximately $102 million. Our financial guidance for the year is as follows: As previously announced, we expect Naglazyme sales of 4 to $6 million. BioMarin and Genzyme expect Aldurazyme's sales to be in the $70 to $75 million range, and we expect 2005 Orapred net sales to be in the range of $8 to $10 million. We project our GAAP 2005 net loss to be approximately 75 to $80 million. This includes Orapred deal-related expenses of approximately $6.7 million, with spend in the year with 55 to $60 million in cash, cash equivalents and cash balances related to long-term debt.

Note that this excludes the $25 million in cash that's now available from the Medicis note. I think that covers the Q2 financial results, and now J.J. has a few updates prior to opening up the call for questions.

I just have a few updates to share. I am happy to report that the U.S. launch of Naglazyme is proceeding as planned. And we are pleased that MPS patients are starting to receive Naglazyme therapy. Some patients are already receiving weekly infusions and other patients are having baseline assistance completed. We have [INAUDIBLE] and first infusion dates scheduled. We are pleased with the progress being made so far and are committed to ensuring that every patient that would benefit from Naglazyme therapy has access to the product as quickly as possible. Based on our initial experience in the market, we are very comfortable with the guidance of $4 to $6 million in revenue by the end of 2005.

With respect to our funding in Europe, we expect to receive a response from the EMEA next quarter and if positive approval, then launch will occur in Q1, 2006. We plan to commercialize that our design in the EU ourselves, so that we can develop with minimal cost and by doing it ourselves gives us the benefit of not having to share revenue. In the rest of the world, we are actively engaged in setting up partnerships with companies having strong operations in their respective parts of world. [INAUDIBLE], we have updated our database of identified patients and we have currently identified 294 patients, up from the previous figure of 250. But now that Naglazyme has been launched, we will be reporting quarterly sales, as these should be the most important metrics to measure performance of the product, but we will not be recording the number of patients in our data base in the future.

For Phenoptin PKU, [INAUDIBLE] a clinical trial on lung patients, and approximately 30,000 in the U.S. and Europe are currently activated. We expect to announce data from the development portion of the Phase 3 clinical trial in the first quarter of 2006. As far as the legal program [INAUDIBLE] with the FDA, we will also be running a 22-week Phase 3 extension study which will meet finding requirements for total patient exposure of 26 weeks. Based on a review of the program, along with our partner Serono, we are now projecting that we will file the NDA and MAA in early 2007. We should not be receiving [INAUDIBLE] status in the U.S.. Approval in the mid 2007 is possible in the United States.

Additionally, BioMarin and Serono have also decided to conduct a supplemental 12-week study aimed to show that Phenoptin can allow patients to consume higher levels of [INAUDIBLE] and therefore reduce their reliance on the medical diet. We expect this study to enroll approximately 40 patients and to start in early Q1 of next year. With respect to the rest of the pipeline, we continue to evaluate outside opportunities for Vibrilase. Vibrilase has the most ready potential to meet the [INAUDIBLE] and medical need for burn patients. If developed, it would be the first approved debridement agent to be fully tested in human clinical trials and could therefore advance the field of burn care that currently relies in debridement agents that have never been tested in controlled studies and [INAUDIBLE].

We're also evaluating opportunities to spin out the NeuroTrans [INAUDIBLE]. The NeuroTrans program focuses on novel strategies to deliver therapeutics across a broad range area, and have been receiving encouraging results in [INAUDIBLE]. Corporate returns and DD&A, although potentially valuable [INAUDIBLE] are not currently part of our primary research focus on genetic or metabolic diseases. We I have number of other compelling opportunities in our pipeline, including [6rbh4], the [INAUDIBLE] pharmaceutical [INAUDIBLE] [INAUDIBLE] for treating endothelial destruction in diabetes and perhaps other diseases. Later this year, we will [INAUDIBLE] our clinical studies for 6rbh4 to treat endothelial dysfunction. That concludes our prepared remarks, and now I would like the operator to open up the call for question.

Yes, sir. Ladies and gentlemen, if you would like to ask a question, please press star one on your touch-tone phone. If your question has been answered or you would like to withdraw your question, press star two. Please press star one to begin, and please stand by while we register the list. Your first question comes from the line of Phil Nadeau with SG Cowen, please proceed.

Good afternoon and congratulations on a productive quarter. J.J, I wanted to ask you about the Phase III extension study. Can you about how many patients need to be exposed to the drug for 26 weeks in order for the FDA's guidelines to be met?

I mean, I'll ask Stuart to answer that question.

Yes, in general, you like to have at least kind of 100 patients exposed ,and in combination with our Phase III extension trial and, given the fact that we are going to be doing the diet study, we will have more than enough patients to satisfy that requirement.

Okay. And it seems like we are going to be waiting for a full year after we see the Phase III data, before the package is filed with the FDA --

A little less than a year.

I'm sorry?

A little less than a year than the -- the double blind phase, because we need to continue to study 26 weeks of therapy.

So in addition to the 26 weeks extension, what else needs to be done over that time?

No, there's really nothing. The diet study will be done but those will all be finished, so as soon as that extension study is over, we will be moving as quickly as possible to close that study down and prepare the filing. You can do the math in terms of when -- when we -- when we announce that the Phase III is completely enrolled, you can then be able to calculate exactly when that would be.

We need a few weeks once the study is complete to key the database and prepare the filing.

Okay.

Which takes to you a month or so until that completion.

Okay. And the Phase II trial that is still ongoing, will we see results from that at any point? In particular, it seems at least of some interest for us to know how many patients or what portion of patients respond to BH4. Will we see that data before we see the Phase III data?

No, not likely. Because those patients, remember, are rolling into the Phase III study, and that's the real critical information, is really how the two groups compare in that Phase III study.

Okay, so will you announce the Phase III data at the same time as the Phase II?

Yes, that would be the best way to do it.

Okay, great. Thank you.

Your next question comes from the line of Ron Ellis with Leerink Swann. Please proceed.

Hi, and thanks for taking the question. Just following up on the extension study, Emil, you mentioned that at least 100 patients would be required, but wouldn't that be on a rolling basis? So I'm not sure that we need to wait until the last patient is enrolled to actually start this process. It seems that your guidance is relatively conservative, at completing the time line for this study.

Emil is not on the call, he's taking a few days off, well deserved. So it's Stu who will answer the question.

Oh, Stu, I'm sorry.

Well, the patients who are in the Phase III double blind study will, at least as at their discretion, would roll over into that extension study. So the timing of when those patients get in the Phase III will determine when they finish the extension study. So the faster we enroll the Phase III, the faster we are done with the extension study, but they are totally linked. There's really no flexibility in terms of speeding that up, or -- to make it end quicker.

But -- so just to understand better, the patients are Phase II, and they roll into the Phase III, if they respond.

Right.

And that Phase III rolls into the extension.

Right, and in the extension will be doing a little bit more fine tuning and looking at some other, you know, issues, obviously longer term exposure.

And could you just remind us how many patients -- what the goal is for target enrollment from the Phase II?

Well, you mean the Phase -- you mean to get into the Phase III?

Well, the Phase II you have to have a response?

Right, so you are saying, if the Phase III study will have 80 to 100 patients and somewhere in that range. And we're screening more patients than we need because you have patients who decide not to go on and you also have patients who enter the Phase II study who are classic patients who won't respond to Phenoptin. So those patients, obviously, can't get into the Phase III study, even though the physicians know that they should be looking for patients who have the more attenuated form of the disease.

So the target was previously 80 to 100 patients to complete it?

Right. That's more than enough patients to show a difference, and then there's the issue of the total exposure, and with the diet study, we should be way over what would be expected in terms of safety.

And now you will screen and have over 100 patients?

We do -- yes, the screening -- there is a very short screening process for the Phase III, but these are patients who have already demonstrated their ability to qualify based on the inclusion criteria in the Phase II study. So you will have a few dropouts and a few other things that we normally see in clinical studies, but it's a very small number. In other words, we don't have to screen that many to enroll the Phase III because they have been preselected.

But, again, it's basically 100 patients for the Phase III and 100 patients for the extension?

No. Yes. Every patient goes through the Phase III study would be expected to go through the extension. That would be the optimal result; and we don't see any reason why they wouldn't want to, given the fact that they are receiving treatment at our -- at our expense.

Okay. Thank you.

They need -- this is Jean -- as you know, we haven't talked much about the supplemental diet study in the past, which I think is a very exciting study that can potentially increase the [INAUDIBLE] Phenoptin, if we are able to specifically show that patients can be used their life on medical food diet. And actually, there has been a recent publication a few days ago in the Journal of Microgenetics and Metabolism that has shown that 11 out of 14 BH4 responsive PKU patients were able to totally abandon their medical food diet while they are taking low [INAUDIBLE] levels as they [INAUDIBLE] per day, so that's very exciting news.

Okay. Thank you.

Your next question comes from the line of Dr. Anthony Pfaffle with Black Diamond Research. Please proceed.

Yes, hi, good morning. I just wanted to ask you how the phenylase programs, or follow up to Phenoptin, would work in terms of the eventual therapeutic strategy between both agents and where -- where in terms of the time line would you expect that would occur? And also a little color on your European strategy for Naglazyme in terms of where -- number of reps and how it's going to be constructed, and would that be something that you would leverage for future products?

Okay. Let me say just a few words in our phenylase, our plan [INAUDIBLE] right now is [INAUDIBLE] elaborate to hopefully be able to file our [INAUDIBLE] by the year 2006 or so. So that's our current plan, but Stu can elaborate on the rationale of phenylase as compared to Phenoptin and then I'll have [INAUDIBLE] say a few words about our European strategy for the launch of Genzyme. Stu?

Right, so phenylase would be an injectable product, and that product is really geared towards patients who have classic PKU, and those are more severe. Yes, patients who essentially have no enzymes. Phenoptin will not work if the patient doesn't have any enzymes. And there is a large percentage of the patients who have either no enzyme or insufficient amounts even in the presence for Phenoptin. So that product will be able to take care of that part of the market -- Those patients who really will not respond to Phenoptin. So with both products, we will be able to treat -- we should be able to treat the entire spectrum of PKU disease; and obviously, if you have on the milder side, and are taking a pill once a day, certainly would seem to be an easier option than getting an injection as a basis for keeping phenylalanine levels. So we feel that both products will actually complement one another in being able to capture the entire market.

Excellent. And European strategy, I know with regard to Phenoptin, the deal with Serono is that they would I guess carry the ball in terms of marketing and selling it and -- but Naglazyme, that would be something you would do separate from them?

Yes.

Yes, it is. We have taken a hard look at Europe. Already, there's been over 100 patients identified with MPS 6 in Europe, so there's a significant potential for us there. We have taken a look at the TKT and Genzyme models and we feel that we can actually set up a very effective EU commercial group with minimal cost and minimal head count. The back of the envelope estimate is that we can put a group in place for no more than $6 million annually, and with that type of a cost structure, the EU could be a profitable operation, really in its first full year.

Well, thank you very much, and congratulations on the progress that you are making improving the company.

Thank you.

Your next question comes from the line of Alan Leong with BioTech Monthly. Please proceed.

Hi, everyone. Thanks for taking the questions. Can you supply some color regarding your plans to the clinical development of additional indications for Phenoptin, any emerging priorities among the indications?

I mean, again, I think we are putting together our clinical strategy right now. We -- I think we are presenting to investors in New York in Q4 -- we haven't planned exactly, but I think this is one where we will give some more specifics and granularity on our plans for 6R-BH4 in cardiovascular, because we -- you know, it's a new area for us and we want to make sure we go after the right indication the first time we try the product in that field and there are lots of different options. And we are quite ready -- we haven't finalized our plans but basically our intent is to do a Phase II-A study sometime next year, a proof of concept study of the efficacies of 6R-BH4 in cardiovascular indication. We think it will open up all sorts of interesting potential down the road for BioMarin. [INAUDIBLE] in Q4, we'll be communicating more about it.

Okay. And you have raised 56 -- about $56 million from an equity offering. How far did that cash get you?

Jeff, do you want to talk about it?

Well, we're -- you know, we are pleased with the $56.5 million that we've raised in cash and we expect to continue to utilize this cash, as well as the cash that we have on hand to fund our operation going forward. We are not specifically commenting on the timing or the method of how we would continue to fund our operations, but we feel comfortable that this will carry forward and allow us to continue to develop our programs going forward.

Okay. Thank you.

As a reminder, ladies and gentlemen, if you wish to ask a question, please press star one on your touch-tone phone. Your next question comes from the line of Tilman Dumrese with Bank Vontobel. Please go ahead.

Thank you very much for taking my question. I have a quick question concerning the SG&A line, could you please indicate where you do expect this line to go throughout the remainder of the year; and secondly, could you remind me about the status of [INAUDIBLE] RT.

Right, as far as the SG&A is concerned, we would expect SG&A expenditures as it relates to Naglazyme to increase as we invest in marketing and selling costs here in the United States, as well as costs for applying for European launch. That will be offset by a reduction in spending for work that we announced last month that we would -- as a result of the reduction in the quarter that we would save about $3 million net of severance cost for that. So we've seen some increases related to Naglazyme, but decreases related to Orapred.

And the annual decrease to the Orapred sales force reduction is $9 million.

I see. I'm only wondering -- I mean, when I look at your guidance and I see that you are projecting a net loss of 75 to $80 million, I'm just wondering where this is coming from basically.

That's for the full year.

For the full year, yes.

So our -- our net loss during the second half of the year is dropping compared to the first half of the year when you take into account the full-year guidance.

Okay. And then probably another question concerning about the milestone payments by Serono. Can one expect that the upcoming milestone payments when you are filing for Phenoptin, that they are booked in a similar way, once the product gets filed and gets approval?

The milestone basement payments will be recorded as a one-time revenue when that milestone is, in fact, achieved.

And you are expecting both milestone payments in 2007, right?

Well, it will depend on the -- on how -- I mean, again, the first milestone will be based on the filing, which we anticipate 2007 in Europe as well as the U.S.

I see.

So we should get milestone in 2007; and then the approval in Europe, you know, that will depend on the European authorities. If -- you know, if we looked at the -- the Aldurazyme experience, and now the upcoming Naglazyme experience, we got that approval in about ten months. So if, indeed the European authorities take about ten months to approve Phenoptin, then we have a chance to get in late 2007 approval --

I see.

-- in Europe or very early 2008.

Okay. But you would expect to get improvement in the U.S. earlier in 2007?

Late -- no. No. In the U.S. not before late 2007. If we file Q1 '07, [INAUDIBLE] we could get approval in Q4.

Okay. And then another question, if I may, is about Orapred at room temperature. I'm not really sure what is the current status of this product. So you are selling right now Orapred -- I mean the -- let's say the classical one that you store it in the refrigerator; and the Orapred at room temperature, when is this going to be sold?

At this point, we have no plans to launch it in the United States. Orapred at room temperature, probably has some ex-U.S. opportunities, either to be licensed out or to be launched in European countries since there's already a room temperature generic.

Yes.

It would not make sense for us to put cash behind launching it into the U.S.

I see.

[INAUDIBLE] that the ODT, you know is potentially around the corner, and the OTC, I mean these [INAUDIBLE] tablets is a more interesting opportunity than just the room temperature.

Sure. Sure. Sure. All right, thanks.

As an additional reminder, ladies and gentlemen, if you wish to ask a question, please press star one. Your next question comes from the line of [Vernon Vernadida] with Rodman & Renshaw. Please proceed.

Hi, thanks for taking my question. You had mentioned in a previous conference call that there have been some patients that were on Naglazyme that hadn't been treated for a few months. Just wondering if you could comment on the transition of these patients back on to treatment and the efforts on them getting reimbursement.

I think you are probably referencing patients that were either on a compassionate use protocol or were part of the clinical trials.

Mm-hmm.

Patients in the U.S. that have been in either of those situations are steadily being transitioned to commercial product. There's a process involved in that, and that process includes a number of things, including taking a baseline assessment to the patients. It also includes making sure that reimbursement is set up, that the infusion center where the patient is going to receive therapy has been trained and has access to the drug. So the all the patients aren't coming on at the exact time time; but there's been a transition and we've been, I think, relatively pleased with how quickly that transition is taking place. There's also some initial patients being treated in the EU now on a named patient basis, and we expect some modest increase in that number between now and the end of the year as well. So overall, we are very happy with the transition.

And approximately how many patients were there?

How many patients are being treated currently on the commercial product?

Of those that were transitioned from the clinical trials.

Yes, I don't think we're going to give specific patient numbers at this point.

Okay. Thank you.

Sure.

There are no further questions in the queue. So I will turn the conference over to Mr. Bienaime.

Okay, thank you. In closing, I would like to thank you for participating in today's call. The situation at BioMarin has been challenge in the past year, for both investors and as a Company. So I believe we have taken the first but most difficult step in getting the Company refocusing on developing innovative products that can both help patients with their diseases and create value for our shareholders. I look forward to meeting with many of you in the coming months. So in the meantime, if you have additional questions, please call the Biomarin Investor Relations Department at 415-506-6777. And you can also find information about the Company and its products and its development programs at www.bmrn.com. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.