BioMarin Pharmaceutical Inc (BMRN) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the fourth quarter and year end 2005 BioMarin Pharmaceutical Inc. earnings conference call. [OPERATOR INSTRUCTIONS] I would now like the turn the presentation over to your host for today's conference, Mr. Joshua Grass, Director of Business Development and Finance. Please proceed, sir.

Thank you. On the call with me today is J.J. Bienaimé, BioMarin's Chief Executive Officer; Jeff Cooper, Chief Financial Officer; Steve Aselage, Senior Vice President of Global Operations, and Stu Swiedler, Senior Vice President of Clinical Affairs.

As a reminder, this non-confidential presentation will contain 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, developments by competitors and those factors detailed in BioMarin's filings with the Securities & Exchange Commission such as 10-Q, 10-K and 8-K reports. Now I will hand the call over to J.J..

Thank you, Josh. Good afternoon to everybody. So, I will begin today's call by providing some general comments about the Company and then turn it over to Jeff Cooper, our CFO, who will summarize the financial results for the fourth quarter and year-ended December 31, 2005, and then provide financial guidance for 2006. Joshua Grass will then update you on investor conferences we will be attending in the coming months and we will then ask the operator to open up the call for questions.

This past year we accomplished a great deal of work that has set the stage for an exciting 2006. In 2005 we initiated and have since completed the double blind portion of the Phase III trial synopsis for PKU. We added 6R-BH4 to our pipeline and developed a clinical strategy for evaluating its use for the treatment of cardiovascular indications. We formed a strategic partnership that will help fund development of both our PKU and cardiovascular programs. We we were recently approved for Naglazyme, our second product to be approved since our company was founded just eight years ago, and the first product for us to commercialize on our own. This is a tremendous amount of work to have accomplished in a year's time.

And now just a few months in 2006 we already off to a strong start. BioMarin Europe is in place and ready to actively market Naglazyme following its approval in late January, and the FDA has granted Phenoptin for PKU fast track designation. We remain on track to announce results from the Phase III trials of Phenoptin for PKU just a few weeks from now and we expect to initiate a Phase II clinical trial of 6R-BH4 in fully-controlled hypertension in the second or third quarter of this year followed by a Phase II clinical trial in peripheral arterial disease in 2004. I look forward to updating you on our progress as the year continues and with that I will turn the call over to Jeff Cooper to go over financial results for the fourth quarter and the year-ended December 31, 2005. Jeff?

Thanks, J.J.. I am going to begin by reviewing product revenues of Naglazyme and Aldurazyme for the fourth quarter and year-ended 2005. I will then review our net loss for the same periods and follow with a more in depth look at our financial results. I will then review fourth quarter and year-end results of the BioMarin/Genzyme LLC and end with financial guidance for 2006.

Net sales of Naglazyme for the fourth quarter and year-ended December 31, 2005, were 3.7 million and 6.1 million respectively. This includes named patient sales outside the U.S. of 1.1 million and 1.5 million respectively for the fourth quarter and year-ended 2005. Naglazyme was approved by the FDA on May 31, 2005, and launched by BioMarin's U.S.-based sales force on June 20, 2005.

Net sales of Aldurazyme by the BioMarin/Genzyme LLC increased 36% to 21.2 million for the fourth quarter of 2005 compared to 15.6 million in the fourth quarter of 2004. Net sales for the twelve months ended December 31, 2005, were 76.4 million compared to 42.6 million for the same period in 2004 representing an increase of 79%. Net sales of Orapred including the branded and authorized generic products were 0.4 million for the fourth quarter of 2005 compared to 13.9 million for the fourth quarter of 2004. Net sales for Orapred for the twelve months ended December 31, 2005, were 6.9 million compared to 18.6 million for the same period in 2004.

This decrease in net sales can be attributed to the introduction of generic competitors that entered the market in late 2004. BioMarin began recording sales of Orapred in May 2004 at the time the product was acquired. Additionally, for the year ended December 31, 2005, BioMarin recorded 12.6 million in collaboration agreement revenue associated with our partnership with Serono for the development and commercialization of Phenoptin for PKU.

Our net loss is 15 million or $0.20 per share for the fourth quarter of 2005 compared to 82.4 million, $1.28 per share for the fourth quarter of 2004. The net loss was 74.3 million or $1.08 per share for the twelve months ended December 31, 2005, compared to a net loss of 187.4 million, or $2.91 per share for the twelve months ended 2004. The reduced net loss for the fourth quarter and twelve months ended December 31, 2005, as compared with the same periods of the prior year was due primarily to a significant decrease in the Orapred impairment and acquisition costs as well as improved operating performance.

Now I will review the financial results in more detail. R&D expenses for the fourth quarter and twelve months ended December 31, 2005, were 12.7 million and 56.4 million respectively compared to 12.1 million and 49.8 million for the same periods in 2004. The overall increase in spending in 2005 relative to 2004 related primarily to an increase in R&D spending for Phenoptin which increased from 8.3 million in 2004 to 22.7 million in 2005. These are Phenoptin related R&D expenses the majority related to Phase III development for the treatment of PKU.

R&D expenditures in all other programs varied to a lesser degree for the fourth quarter and year ended 2005 in comparison to the same periods in 2004. In the fourth quarter of 2005 we spent approximately 6.4 million in R&D on Phenoptin, 3.3 million on Naglazyme, 0.5 million on Phenylase and 0.3 million on Orapred. R&D spending on Naglazyme, Orapred and Phenylase for the year ended December 31, 2005 was 20.6 million, 3.9 million and 2.2 million respectively. Selling, general and administrative expenses were 11.1 million for the fourth quarter and 41.6 million for the year ended December 31, 2005, versus 13.3 million and 37.6 million for the same periods in 2004. The reduced spending for the fourth quarter of 2005 was due to reduced Orapred selling expenses partially offset by higher Naglazyme launch and commercialization costs.

Now I will cover the results for the BioMarin/Genzyme joint venture. BioMarin's 50% share of the profit from the BioMarin/Genzyme LLC was 3.1 million for the fourth quarter of 2005 compared to 1 million for the fourth quarter of 2004. BioMarin's share of the profit from BioMarin's Genzyme LLC for the twelve months ended December 31, 2005, was 11.8 million compared to a loss of 3 million for the twelve months ended December 31, 2004. Improved profitability for the fourth quarter and full-year 2005 as compared to the prior periods were driven by increased Aldurazyme sales. From a cash perspective, we ended 2005 with 64.8 million in cash, cash equivalents, short term investments and cash related to long-term debt.

Now for the BioMarin 2006 financial guidance. On January 30, 2006, we provided the following estimates for 2006 product sales. For Naglazyme we expect net sales to be in the range of 28 million to 32 million, and for Aldurazyme, BioMarin and Genzyme estimate net sales to be in the range of 90 million to 100 million. As a reminder all Aldurazyme related costs and revenue are shared equally with Genzyme Corporation and are reported as part of the BioMarin/Genzyme LLC joint venture.

Regarding projected GAAP net loss for 2006 we estimate it will be in a range of 49 million to 52 million which includes 5.9 million of expenses related to the acquisition of Orapred and 7.5 million of stock option compensation related expenses pursuant to the new stock option compensation rules. That concludes my prepared rules. That concludes my prepared remarks. I will now turn the call over to Joshua Grass for comments regarding upcoming events.

Thanks, Jeff. Before we open up the call for questions I would like to remind everyone that we will be presenting in a few healthcare conferences in the coming months. On Tuesday March 7th we'll be presenting at the SG Cowen's 26th annual Global Health Care Conference in Wisconsin and on March 23, we will be presenting at the Bear, Stearns West Coast Biotech Confab Conference in San Francisco. You can access the presentations live through our website at www.biomarinpharm.com. Operator, we would like the open up the call for questions.

[OPERATOR INSTRUCTIONS] Your first question is from the line of Maneesh Jain of Thomas Weisel Partners. Please proceed.

Good afternoon. Thanks for taking my question. Is sounds like the BioMarin effort was ready and waiting for European approval of Naglazyme. So, I am hoping you can give us an update on the SKU's commercialization effort and specifically maybe some details regarding the number of markets in which you now have reimbursement secured, the pricing that you have secured and how that pricing compares to U.S.?

Sure. The European commercial group has come into place over the last six months or so and is almost 100% in place right now. We have named patient sales in four major markets in the EU: Italy, Spain, France and Germany. In each of those countries there is a process ongoing to get full reimbursement post approval. We anticipate the first of those countries within the next few weeks. The rest of the major markets in Europe will come on over a period of months throughout the remainder of 2006. As we mentioned on a previous call, we have been pleasantly surprised by how rapidly Naglazyme has been adopted in most of the markets in Europe on a named patient basis. We feel very comfortable that it will work through normal processes and achieve full reimbursement in Europe throughout the course of 2006, and I think, as you know, each country is going to come on in a little different in time line.

With regard to pricing, our pricing is in a fairly narrow band. That band has a center point of 1,445 euros per buyer. That is a slight premium to U.S. pricing because of the exchange rate between the euro and the dollar. We anticipate being able to keep the pricing in that tight band. I think I have covered all your questions.

Great. And if I could also ask you a question on the Aldurazyme, actually some color on the Aldurazyme JV accounting because it seems like sequentially at least, quarter-over-quarter sales grew but BioMarin's share of the JV profits declined slightly?

Jeff Cooper will answer that question.

Yes. I will be happy to answer that for you. In the fourth quarter of 2005 the gross margins decreased in comparison to third quarter of the year which accounts for the slight reduction in the profitability quarter-on-quarter. The decrease in the gross margin is attributable to the recognition of higher cost of sales in Q4 as joint venture sales through more of the inventory that was produced after obtaining regulatory approval which has a higher cost basis. That being said, we do expect profitability in 2006 to grow in comparison to 2005 consistent with the expected growth in Aldurazyme sales.

Have you guys worked through all of the pre-approval inventory at this point?

We worked through just about all of it.

Gotcha. Great. Thank you.

Your next question is from the line of Phil Nadeau of Cowen. Please proceed.

Good afternoon. Thanks for taking my question. Seems like the next big event for BioMarin is going to be the release of the Phase III data for Phenoptin and PKU. First, just one question around that data release. Have you ever disclosed what the powering of the Phase III study is, what the powering assumptions behind that trial are?

No.

You never have?

I don't think we have disclosed the exact power amount, but it is powered in a way that similar to most clinical trial related to price there.

Okay. Do you have any plans to disclose the full data set at a medical meeting? Is there any medical meetings that are upcoming that we should look forward to?

Stu, can you answer the question?

Right. As of right now there will be -- there will certainly be a meeting -- I know there is a meeting in Japan in August, September, where there will be a lot of PKU information being disclosed. I am not sure if there is anything earlier. ASHA is also later in the fall. I am not familiar with there being an earlier meeting that will have the data altogether and ready to be really presented before then that I know of. It may take because of just the way the conferences have turned out this year, it may not be until the summer.

Okay.

But the key and safety data will be communicated toward the end of March by us.

Okay. And last question is in licensing. I think this is the second or third press release in a row you talked about having infrastructure over in Europe that you could put other products through. What are you seeing on the licensing? Are there a lot of products out there that you find attractive or is this going to be tough to achieve?

No. There is a few products that are indeed attractive for us. They target small patient population or highly specialized physician specialties. We don't have anything imminent or anything in negotiations, but we have a few opportunities that we are exploring.

Okay. Fair enough. Thanks a lot.

Your next question is from the line of Allen Leon [ph] of Biotech Research.

Hi J. J. Congratulations on the quarter and for the year. And, Michael, hi to Susan and Josh. We have a lot of subscribers invested in your company. I think they would love to hear a little more about BH4. Could you provide some color on how the researchers chose pulmonary hypertension and how you all came to arrive at choosing peripheral artery disease as your first Phase II indication? And if you like you could also provide color on some of the clinical research coming out all over the place on BH4.

I will get started and ask Stu elaborate. First of all, actually, the first indication we are going to go after as a BioMarin-sponsored study actually is going to be resistant or fully-controlled hypertension, not pulmonary hypertension. That's for the record.

We do have evidence of efficacy there, in fact some work has been done by some clinicians at Emory University, and actually there will be an update on their data in a few weeks at the American College of Cardiology meeting in March. There will be a poster presentation about the impact of BH4 on resistant hypertension. We will also be sponsoring BioMarin trial in peripheral arterial disease because there is early data that's suggestive that the product would be effective and Stu can elaborate on that in a few seconds. And pulmonary hypertension will also be looked at, but it will be an investigator initiated trial whereby we would be involved but it would not be a BioMarin trial. Stu, do you want to --

Yes, well, I think as J.J. explained there are already clinical data being generated on hypertension, so that's the logical first target. In terms of the peripheral arterial disease, there is a lot of information showing that BH4 administration to patients that have oxidated stress and that can include diabetic patients taking tobacco and who have other metabolic problems, in those patients application of BH4 seems to stimulate flow-mediated rehabilitation, and that's usually to vasoactive compound. There is a lot of literature in all of these affected patients showing that the drug has biological activity.

Within peripheral arterial disease, it also gives you other information because there is a large subset in diabetics, and the drug is also been shown to improve insulin sensitivity in diabetic patients. In terms of the pulmonary hypertension, a lot of that has to do with proof of principle. If you know from the animal model studies, that studies in mice where BH4 synthesis has been knocked out because of elimination of the first enzyme in the biosynthetic pathway, the actual physiology in the animals is in the lung.

That's why it is an investigators study. It is really measuring much of the biochemical response to the addition of BH4 because it is in a much different population than our other studies. Pulmonary hypertension is generally in younger patients, in female patients that don't have these other conditions that would confound us trying to measure the biochemical activity of the compound. Does that answer your question?

Just a quick follow up on the peripheral artery disease patient, are you going to be focused on getting a critical mass of subjects that has diabetes or smokers or are you kind of doing all comers and collecting information on them?

Well, right now based on the literature we would like to try to balance our studies between diabetes and nondiabetics and not bias it in any other way because it is still a first study. But we will be trying to balance diabetics and non-diabetics and that's really based on literature and trying to establish at least in these patients which of the ones who really have the largest amounts of oxidated stress.

Thanks. You've answered my questions. A little bit more information here.

Allen, just to remind you we have a list of all of the publications with the relevant research on BH4 in the literature. They're in the investor section of our website if you want to look at those.

Thanks. I think I have them with me here. You have answered my questions thoroughly and I will let someone else get in and I will get back in the queue.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Vernon Bernardino of Rodman & Renshaw. Please proceed.

Hi. Thanks for taking my question. Congratulations again on your accomplishments so far. My question just pertains to operational details. R&D expenses were rather very low in the fourth quarter. Just wondering if you can provide some more details on whether that's going to be a run rate that's similar in 2006? And details as to, again, perhaps the various break down in Phenoptin and other areas?

Sure. We expect our R&D spending for Phenoptin to increase in 2006 as we complete our Phase III clinical trials, and continue to see patients on expansion studies and begin enrollment for the diet study, and prepare for regulatory activities. Additionally we'll be increasing our spending on the cardiovascular program we just discussed for several new studies, and finally we'll be spending increased amounts on our preclinical program for Phenylase. This will be partially offset by reduced Naglazyme R&D spending which is now primarily related to post approval clinical surveillance programs and regulatory activities.

Okay. Thank you very much.

Your next question comes from the line of Rod Wang [ph] of DK Capital. Please proceed.

Hi, guys. Thanks for taking my question. I was just wondering, when you go through the BH4 literature, can you talk about what kind of magnitude blood of pressure reduction you've seen in PKU patients? Is there that data out there?

There is this -- PKU? Sorry.

Yes, I am wondering if PKU patients, whether you measure blood pressure data or other investigators have?

PKU, until we started working on this, most of the time data on PKU patients were anecdotal data, small, little studies. There were no real large studies. There are a few now that are being published but most of these are younger patients and they really were not studying or looking at hypertension or cardiovascular effects.

Right and can you talk a little bit about what this data going to be at ACC in terms of what kind of study this is?

Rod, this is a study looking at giving twice daily BH4 for two patients who have elevated blood pressure we're calling uncontrolled. We can't really provide any of the results because that will be provided at the meeting. That would be against the spirit, but basically what you're going to see is these are open labeled studies looking at the effect of BH4 in a small number of patients.

These are initial studies. They give information about safety and they give information about the duration of the effect. We will really have to wait until that meeting occurs for you to really talk about the data. Pretty standard, what you would expect in a first study looking at a new patient population. No PKU patients of course.

Great. Thank you.

The data will be presented on March 14th at ACC.

Thank you.

And we have a follow-up question from the line of Allan Leon of Biotech Research. Please proceed.

Thanks. This is more of a general picture question. We're entering a period in which big biotechs look at strategic alternatives for small biotechs, do you see yourself possibly being acquired in the near term or would rather build value? And I know you can't answer that specifically. But can you provide color on how you view the upcoming alternatives?

Again, we can't comment on these things except our plan is to maximize shareholder value, continue to build the Company for the long-term. We believe we have multiple product opportunities, you know. We have three products on the market today. One product in Phase III, other products coming after that. I believe this company can build a sustainable business, and it is to maximize long-term value for shareholders.

Can I ask one more question or should I do that off line with you?

One more.

Okay. Thanks. Looking at your guidance for 2006, it looks like you're going to have to raise money at some time. Are you able to give us some sense on timing or on timing or capital on that or amounts? In other words, will you be raising enough to reach certain milestones?

We're not providing formal guidance on cash Allen, but we believe our cash to investments in balance is related to long-term debt as of the end of the year plus funds are sufficient to meet our operating needs in the first quarter of 2007. We'll access the capital markets at the appropriate time, taking into account the market conditions, the progress our programs development, and our specific operating needs.

Thanks.

[OPERATOR INSTRUCTIONS] At this time I am showing no further questions. I would like to hand the call over to Mr. Bienaimé for closing remarks.

Okay. Thank you. I would like to say thank you to a lot of you for your continued interest in BioMarin. 2005 was a year marked with success and progress, and 2006 is shaping up to be a productive year with numerous, important milestones on the horizon. If you have any questions or would like to receive information about BioMarin, please contact our Investor Relations department. I look forward to speaking with you again in late March in conjunction with the Phenoptin Phase III results. Thank you.

Ladies and gentlemen, we thank you for your participation in today's conference. If you wish to access the replay please dial 888-286-8010 and the replay pass code is 32640583. Once again, we thank you for your participation. This concludes today's presentation. You may now disconnect. Have a great day.