BioMarin Pharmaceutical Inc (BMRN) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2006 BioMarin Pharmaceutical Inc. earnings conference call. My name is Minosha and I will be your coordinator for today. At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of today's presentation. If at any time during the call your require assistance, please press star followed by zero and a coordinator will be happy to assist you. I would now like to turn the presentation over to your host for today's call, Mrs. Joseph Grass, Director of Business Development and Finance. Please proceed, sir.

Thank you. On the call for BioMarin today is J.J. Bienaime, BioMarin's Chief Executive Officer, Jeff Cooper, Chief Financial Officer, Emil Kakkis, Chief Medical Officer, Stephen Aselage, Senior Vice President of Global Commercial Operations. Before we get started today I'd like to remind everybody that this non confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical, including expectations regarding BioMarin's commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product program, 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, I'd like to hand the call over to J.J.

Thank you, Josh, and good afternoon to everyone. So I will begin today's call by providing some general comments about the Company and we will turn it over to Jeff Cooper, our CFO, who will summarize the financial results for the first quarter and provide a bit of financial guidance. Josh will then go over the investor conferences that we will be attending in the coming months and we will then ask the operator to open up the call for questions.

(indiscernible) first quarter we accomplished a number of our significant milestones that further strengthen our business position and position us for continued growth and progress in the months ahead. With regard to our products in January we received European approval for Naglazyme for MPS VI and subsequently launched it through BioMarin Europe Limited. Commercialization is going very well, as indicated in today's Earning Release. We have increased our estimated Naglazyme net product sales guidance for 2006 to be in the range of $31 million to $34 million. As for Aldurazyme for MPS I we are pleased with the continued growth of product sales through our joint venture with Genzyme and reconfirm estimated sales of Aldurazyme by the JV in 2006 to be in the range of $90 million to $100 million. As a reminder pursuant to the joint venture BioMarin manufactures Aldurazyme, and Genzyme commercializes it. Profits and losses are equally shared between the two companies.

With regard to the Orapred product line, in mid-March we entered into a North American licensing and acquisition agreement with Alliant Pharmaceutical, which is a privately held specialty pharma company focused on pediatric medicines. This partnership allows us to place greater attention onto our core programs and positions us to maximize the value of the Orapred product line.

In 2006 we expect to receive $14 million of the $18 million total in milestone payments associated with this agreement, as well as royalties on all product sales. We expect to receive a final determination from the FDA on the Orapred ODT marketing application in early June.

As for our pipeline, we continue to make progress with our lead product candidates, namely Phenoptin for PKU and 6R-BH4 for the treatment of cardiovascular indications. In mid-March we announced the positive results of a Phase III clinical study of Phenoptin for PKU. In short, all primary and secondary end points were met and the therapy was well tolerated. Since this time we have enrolled the last patient into the 22 week extension study and remain on track to announce data from this trial in early 2007. Additionally, we have initiated the diet study, which includes patients as young as four years of age and is designed to evaluate the potential of Phenoptin to allow patients with PKU to reduce their reliance on a low Phe diet and still maintain low Phe levels.

As a reminder, all Phenoptin (indiscernible) phase III costs are equally shared with Serono, our corporate partner for this program. We remain on track to file an ANDA for Phenoptin in early 2007. As for our 6R-BH4 program for cardiovascular indications, in the first quarter we filed the IND for 6R-BH4 in poorly controlled hypertension and we plan to initiate a phase II clinical trial in this indication in the coming weeks.

And finally, at the close of the quarter we raised approximately $295 million in concurrent offering of common stock and convertible notes. We intend to use these proceeds primarily to support our commercialization efforts and to fund the development of our current pipeline. And with that I will now turn the call over to Jeff Cooper who will review first quarter financial results.

Thanks, J.J. I'm going to begin by reviewing product revenues of Naglazyme, Aldurazyme and Orapred for the first quarter of 2006. I will then review our net loss for the same period and follow with a more in depth look at our financial results. I will then review first quarter results of the BioMarin Genzyme LLC and conclude with updated financial guidance for 2006.

Net sales of Naglazyme for the first quarter were 7 million. Naglazyme was approved by the FDA and European Commission in late May 2005 and in late January 2006 respectively. Net sales of Aldurazyme by the BioMarin Genzyme LLC increased 34% to 21.3 million for the first quarter of 2006 compared to 15.9 million in the first quarter of 2005. Net sales of Orapred, including the branded and authorized generic products, were 2 million for the first quarter of 2006 compared to 5 million for the same period in 2005. Royalties and license revenues for the first quarter 2006 were approximately $300,000 and includes the amortization of the 2.5 million up front license payments received from Alliant Pharmaceuticals pursuant to the license and acquisition agreement entered into on March 15, 2006, and royalties on Orapred sales made thereafter.

Additionally, in the first quarter of 2006 BioMarin recorded 4.5 million in collaborative agreement revenue associated with our partnership with Serono for the development and commercialization of Phenoptin for PKU. Our net loss was 9.8 million or $0.13 per share for the first quarter of 2006 compared to 22.5 million or $0.35 per share for the same period of 2005. The reduced net loss for the first quarter ended March 31st, 2006 as compared with the same period of the prior year was due primarily to an increase in product revenue, improved performance of the BioMarin Genzyme LLC, and improved operating performance.

Now I'll review the financial results in more detail. R&D expenses for the first quarter of 2006 were 12.3 million compared to 15 million for the same period in 2005. The decrease in R&D expense is due primarily to reduced clinical trial and manufacturing expenses related to Naglazyme. These decreases were partially offset by increased clinical trial and manufacturing expenses related to Phenoptin for PKU. We expect our R&D spending to ramp up during the year as we continue to develop Phenoptin for PKU and initiate clinical trials for 6R-BH4 in cardiovascular indications.

Selling, general and administrative expenses for the first quarter of 2006 were 10.9 million compared to 10.6 million for the first quarter of 2005. Although the total SG&A expense was flat between the two periods, SG&A expense related to Orapred decreased significantly and SG&A expense related to Naglazyme has increased as a result of our ongoing worldwide commercialization efforts.

BioMarin's share of the profit from the BioMarin Genzyme LLC for the three months ended March 31st, 2006 was 3.8 million compared to a profit of 2.1 million for the same period of the previous year. This improved profitability is related primarily to an increase in Aldurazyme sales. From a cash perspective, we ended the first quarter of 2006 with 347.7 million in cash, cash equivalents and short-term investments, which reflect the capital raised in our March 2006 equity and debt offerings.

Additionally, I'd like to note that during April 2006 we addressed some of the existing debt on our balance sheet and finalized the purchase of our CGMP manufacturing facility as a result of the cash that we raised during equity and debt financing. First, we paid off our existing Comerica facility and equipment loan, which totaled 19.9 million. This made sense given the rising variable interest rates on the Comerica loan. Secondly, we purchased our manufacturing facility, which we had previously leased, for a total of 17 million in cash. We chose not to finance this transaction given the proposed loan terms. However, we retain the flexibility to take out a loan on the facility at a later date should it make economic sense to do so.

Now for the 2006 financial guidance. As J.J. mentioned earlier in the call, we are increasing our projected 2006 net sales guidance for Naglazyme from a range of 28 million to 32 million to a range of 31 million to 34 million. As for projected 2006 net product sales for Aldurazyme for MPS I through the BioMarin Genzyme LLC, we are reconfirming guidance provided earlier in the year and expect sales to be in the range of 90 million to 100 million. We are also lowering our estimated GAAP net loss for 2006 from a range of 49 million to 52 million to a range of 42 million to 45 million, which is equivalent to $0.51 per share to $0.54 per share. This guidance reflects 8.7 million of expenses related to the 2004 acquisition of Orapred, 7.5 million of expenses related to stock option compensation, and finally 14 million in milestone revenue, which is contingent upon the anticipated approval and launch of Orapred ODT. That concludes my prepared remarks. I will now turn over the call to Joshua Grass for some comments regarding upcoming events.

Before we open up the call for questions I'd like to let everyone know that we'll be presenting at a few health care conferences in the coming months. On May 15th we'll be presenting at the Rodman and Renshaw Third Annual Global Health Care Conference in Monte Carlo. On May 31st we will be presenting at the Bear Stearns Biotech Boston Confab Conference being held in Boston. On June 12th we will be presenting at the Pacific Growth Equities Life Sciences Growth Conference in San Francisco, and on June 19th we will be presenting at Prudential Equity Group's West Coast Biotech Investor Day in San Francisco. You can access these presentations live through our Web site at www.bmrn.com. With that, operator, I think we're ready to open up the call for questions.

[Operator Instructions] Your first question will come from the line of Phil Nadeau of SG Cowen.

Just three hopefully relatively quick questions -- first, on the diet study, you mentioned that was enrolling but you didn't say when we might see data from that study. When could we see that data?

This is Emil Kakkis. We haven't announced when the data would be. We would expect to see it probably in early '07 by the time it's all completed and cleaned and locked.

Okay, and what form will that data take? Will it be percent of patients who maintain plasma phenylalanine levels below a certain target despite changing their diet, or -- I guess the question is it seems like you have two variables, plasma phenylalanine levels and dietary change, no matter how you incorporate those two into a single primary end point.

Well, the primary end point will be the change in phenylalanine tolerance in the treated group relative to placebo group, so it's the amount of increase in phenylalanine intake in that group compared to the other group while maintaining control. That is the criteria for relaxing the diet will assure that patients stay in the recommended control guidelines. But what we'll be measuring and comparing is the amount of Phe intake with patients who are treated as compared to the placebo group as the primary end point in that study.

And as far as I'm aware you've never specifically disclosed what those criteria are for changing the diet. Would you be able to do that today?

We haven't disclosed the details, but they are based on the current NIH and European recommended guidelines for control points for patients of that age.

And then my second question is I guess for you, J.J. There seems to be some or a good amount of controversy on how long Phenoptin would be able to maintain exclusivity in the PKU indication. Could you remind us or give us the details on what patents are for drug whatever --?

Yes, I know it's an important question, so thanks for asking. So let me review, again, the situation. So to invite [inaudible], so we have licensed intellectual property and we are developing additional IP surrounding the use of BH4 for cardiovascular treatment. And some pediatric extension might be possible, but the key thing is that in addition to whatever IP we have, and also in addition to the orphaned draft protection that we are going to get in PKU, we will receive five years of new chemical entity or entity exclusivity for BH4 if the marketing approval is granted for PKU indication. So that's irrespective of the orphan drug status. So this will protect the market, the product from generic and for our so-called 505 B2 applications, which are abbreviated applications related to any indications for five years after the first approval. So if we are approving, let's say [inaudible] 7 in the U.S. then no one can file anything for any indication for five years after that. That's filing, not approval. And then, in addition, we will likely get pediatric exclusivity and protection by a patent that we intend to list in the applications that may extend the protection even further than the five years if Phe VI goes further. And also, if any cardiovascular indication is approved during the five-year entity exclusivity, it will be subject to the balance of the remaining entity exclusivity, so we'll still be protected there.

And also, finally, independent of that, once we get our first cardiovascular indication, we'll obtain an additional three-year period of [wax and hatch] protection for this indication. That's irrespective of the first five years time line because we will be conducting new clinical studies that we believe will be essential for that indication. So at the end of the day, even without any IP protection at all, just based on the [wax and hatch] and extensions, no one can file anything before the [OES] that would say of late 2012. Filing, I'm not thinking about approval here, so that gives us market protection for at least until the mid to late 2013 worst case. Does that answer your question?

Yes, maybe just a couple of follow-ups. Within PKU itself do you have orphan drug? That's correct, right?

Yes, PKU -- we anticipate that PKU will get orphan drug, but -- and that's great, so that we get seven years on PKU, but the issue is how's the PKU? And that's where entity becomes important.

We have received orphan drug designation, and when we get approval then we'll get the orphan drug protection.

In the formulation of BH4 that you're using, my understanding is it's not the typical BH4 formulation. Do you have formulation patents around that as well?

We do have applications around the stable form. The compound that's been sold at the chemical companies so far is not stable, and one of our areas of application pursuing is the stable room temperature formulations, which are, I think, quite critical in being able to use this as a pharmaceutical. And so that we are pursuing protection in those areas, which would protect the compound both for PKU as well as for cardiovascular.

And presumably, if those are issued, they'd last until sometime after 2020? Is that correct?

Yes.

And your next question will come from the line of Joseph Schwartz of Leerink Swann.

Congratulations on a great quarter and all of the accomplishments. I was wondering since the profitability of the Aldurazyme JV has continued to increase, if you could help us understand what's driving that, if it's gross margin related or other operating expenses? And any help in how to think about that going forward would be appreciated.

In terms of the joint venture, as you look at the first quarter profitability compared to last year, clearly the increase in sales by around $6 million is driving the sizable increase in profitability quarter-on-quarter. As compared to the fourth quarter of last year, the main driver is a slight reduction in operating spending, as well as a slight improvement in the gross margin in the first quarter of this year versus the fourth quarter of last year. Going forward for the rest of the year, we do expect the profitability of the joint venture to continue to improve as the sales grow for the product.

And your next question is from Alan Leong of Biotech Stock Research.

I'm almost [inaudible] to ask this question, looking at your outside cash position, but how far does it get you and is it possible this is the last time you'll be raising capital again?

Why don't I let Jeff start on that and then maybe try to comment on it.

I would say that based on our current long-term business plan our current cash position should be sufficient for us to fund our operations and meet our debt obligations for the foreseeable future. I'd also say while another financing may not be necessary based on our current business plan, that will ultimately be dependent upon how much we spend on our development programs, including potentially multiple indications for cardiovascular and other indications for 6R-BH4.

Again, I mean based on our current view, three to five year plan, we don't anticipate needing to raise any additional cash at this time.

You've recently completed the purchase price on the manufacturing facility. Can you give me a little color on this facility? What's being made there and what kind of capacity does it have?

Well, what we manufacture in the facility is basically Naglazyme and Aldurazyme for worldwide sales. So, again, we will manufacture Aldurazyme for the joint venture and Naglazyme for our own commercial activities. We have sufficient capacity at this time for the next I would say two to three years without any significant capital improvement. We keep monitoring the situation, so we are looking at the possibility of improving the yields by making some change in process, but we don't really believe that manufacturing capacity is a rate limiting factor for the growth of the Company at this time.

[Operator Instructions] Your next question will come from Navdeep Jaikaria of Rodman and Renshaw.

Hi, this is [Vernon Bernardino] for Navdeep Jaikaria, thanks for taking my questions. Just a few, if you will. Just wondering what is the status of the marketing research study that you had intended to do for Phenoptin, especially regarding percent adoption you're seeing, as well as the group -- the likely target positions are providing you, as well as what are the current challenges for the Aldurazyme? And then lastly, just wondering what the status of the Naglazyme launch is in Europe? Thank you.

Now, on the first question regarding some Phenoptin marketing research, I'm not sure I know exactly what you -- ? Yes, of course, we have a little time before the launch, so we are on a going forward basis going to be implementing the marketing research and pricing research and reimbursement peer analysis. That's in process. We have nothing to report at this time, but all this will be completed well before launch. Maybe before I get to Aldurazyme and Naglazyme, maybe Steve Aselage, who is our Head of Commercial Operations, do you have anything to add on this?

No, only that now that we have data from the Phase III study we are designing pricing research and adoption research. We will roll that out in Q2 and hopefully have some answers by fall of this year.

Your second question was related to Aldurazyme and -- ?

Yes what are the current challenges, given the fact Aldurazyme's uptake in the beginning of 2006 has been reportedly slow, as well as -- ?

First, again, we are confirming our guidance of $91 hundred million for significant growth versus year. Regarding the Q1, I'd say it was the same exact issue as what happened last year, has to do with buying patterns. To give you some perspective on this change, if we look at Q1 2005 a year ago, the revenues were $15.9 million and in Q4 2004, the quarter before, was 15.6, so basically last year Q1 '05 sales were almost flat versus Q4 '04. We are facing a similar situation today. It is buying patterns and these things, so we don't believe, far from it, that Aldurazyme is starting to reach peak sales, and that's why we anticipate significant growth in Aldurazyme sales this year, as well as confirming the guidance and in future years.

And the status of Naglazyme's launch in Europe?

Let me have Steve answer that.

Naglazyme is going extremely well in Europe. We got EMEA approval in January. Since then we've been working with the individual countries that fulfill individual country regulatory requirements. We now have sales in Spain, Portugal, France, Italy and Germany, in the five major markets in the EU. Some of that is on a full commercialization and full reimbursement basis. Some is still on a name patient special authorization, but it is progressing really more rapidly than we had hoped almost across the board in Europe.

And if you will, a follow-up on that, the product being used there is still the clinical supply, or is it the newly manufactured inventory?

No, this is commercial supply. We still have a small number of patients in follow-up from the clinical trial who are on compassionate use of the product, but the markets I mentioned all have significant commercial product being sold to them at this time.

There are no further questions at this time. I would like to turn the call over to Mr. Bienaime for closing remarks.

Thank you. So in closing I'd like to say that I am very pleased with the progress we've made over the past few quarters. We'd also like to highlight some of the other important [nature] milestones for BioMarin. And so as I was communicating earlier, in the coming weeks we plan to initiate a phase II clinical trial for BH4 in poorly controlled hypertension. We expect to follow this later in the year with a phase II clinical trial of 64-BH4 in peripheral arterial disease and/or erectile dysfunction targeted to begin in the fourth quarter of this year. In addition, we plan to support two physician sponsored clinical trials for 6R-BH4, one in pulmonary arterial hypertension and the other in coronary artery disease, so both of these trials are targeted to begin in the second half of this year. On June 1st we expect to receive a determination from the FDA on the new drug application for Orapred ODT. Regulatory approval followed by the product launch by Alliant Pharmaceutical will result if we get approval and a total of $14 million in milestone payments for BioMarin.

In the fall we plan to present the results from the Phase III clinical trial of Phenoptin for PKU at genetic conferences including the 10th International Congress on Inborn Error Metabolism or ICIEM, which is the being held in Chiba, Japan September 12th to the 16th. The results will also be presented in meetings entitled "Tetrahydrobiopterin and Alternative Treatments for PKU, Cardiovascular Diseases and Diabetes," which is being held in association with the ICIEM meeting also this summer. Then in October the phase II results will be presented as part of a workshop that's being held in conjunction with the 2006 annual meeting of the American Society of Human Genetics, which is being held in New Orleans, Louisiana, assuming no hurricane between October 3rd and 14th. So we also plan to submit an abstract to the meeting for both the phase III trials, as well as the phase II screening trial. So as you can see from our progress, we continue to build a valuable pipeline of opportunities both in and beyond our core business in genetic diseases, while at the same time improving the financial profile for the Company.

Thank you for your continued support. We look forward to providing you with additional updates as the year progresses. Should you have any questions or would like to receive information about BioMarin, please contact our Investor Relations department. Thank you and good-bye.

Ladies and gentlemen, thank you for your participation in today's conference. To access the replay for today's call, please dial 888-286-8010. Please use the access code of 28412863. Again, thank you for participating in today's conference. You may now disconnect. Have a great day.