BioMarin Pharmaceutical Inc (BMRN) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2006 BioMarin Pharmaceutical earnings conference call. My name is Jennifer, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the call over to Mr. Joshua Grass, Senior Director of Business Development and Finance. Please proceed, sir.

Thank you. On the call today is J.J. Bienaime, BioMarin's Chief Executive Officer, Jeff Cooper, Chief Financial Officer, Emil Kakkis, Chief Medical Officer and Steve Aselage, Senior Vice President of Global Commercial Development.

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 and different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and development by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K reports.

With that out of the way, now I'd like to hand the call over to BioMarin's CEO, J.J. Bienaime.

Thank you, Josh, and good afternoon. And thank you for joining us on today's call. I have a few introductory remarks before Jeff goes into details on the second quarter financial results, and Josh will then go over the investor conferences we will be presenting at in the coming months. We will then ask the operator to open the call for questions.

So, first, sales of Naglazyme have again exceeded our projections. We now expect net sales for the year to fall between a range of 40 to $44 million, about 30% greater than what we had projected following our first upward revision to guidance in May. In addition to the positive news on the top line, we also have been able to achieve our goals to date while funding less than we had initially projected. Therefore, we have revised our projected net loss for 2006 to be in the range of $33 to $37 million, which is significantly lower than our previous estimates of 42 to $45 million. Operationally, commercialization of our two enzymes for patient therapies is going well, and as I just noted, commercial launch of Naglazyme for MPS VI through our U.S. and EU-based sales force is off to a strong start.

Looking ahead, we will continue to implement strategic and cost-effective ways to further strengthen and extend our commercial reach. In many cases, this will entail establishing partnerships with the regional distributors. In other instances, we may choose to establish our own operations to oversee commercialization activities, depending on a variety of factors, such as market potential and for the business and regulatory environments in the region.

In Brazil, for instance, we plan to commercialize Naglazyme on our own, given the relatively large MPS VI population in the region. Thus far, Aldurazyme for MPS I commercialization continues to go well through our joint venture with Genzyme, and Jeff will go over the details in a moment. With regards to our pipeline, beginning with Phenoptin for PKU, both the phase III extension study and the diet study are fully enrolled, and we remain on track to file a new drug application with the FDA by the end of the first quarter of 2007.

Earlier this year, the agency granted Phenoptin fast-track status, and given that the criteria for granting fast-track status is essentially the same as that used assign priority review status. We are optimistic that once submitted, the application may be granted priority review. This would mean a six months review process instead of the standard 10-month process.

Moving on to our 6R-BH4 program for cardiovascular indications, in early July we initiated a phase IIa study in poorly controlled hypertension. Based on our current [inaudible] rates, we remain on track to announce data in the first quarter of 2007. The initial screening phase is proceeding well and approximately 20 patients have already begun treatment in the trial.

At the close of the year, we plan to initiate a phase II trial of 6R-BH4 trial in patients with peripheral arterial disease. We have a process of fully defining the clinical plan for this study and plan to provide you with an update during our next quarterly call.

Three other studies are in the works, as well, one in pulmonary arterial hypertension and the other one in endothelial dysfunction in patients with coronary artery disease. We expect [these] to be started by the end of the year or in early 2007. As a reminder, 6R-BH4 is the same enzyme cofactor used in the Phenoptin for PKU program, and similarly our corporate partner for both the PKU and cardiovascular program.

And, with that, I will now turn the call over to Jeff Cooper, who will review the financial results for the separate quarter.

Thanks, J.J. I'm going to begin by reviewing product revenues of Naglazyme and Aldurazyme for the second quarter of 2006, six months ended June 30th, 2006, followed with royalty and license revenue for the same period. I will then review our net loss for the quarter and follow with a more in-depth look at our financial results. Finally, I will go over the updated financial guidance relating to projected net product sales and net loss for 2006.

Beginning with Naglazyme, net product sales for the second quarter of 2006 were 10.3 million and 17.3 million for the six months ended June 30th, 2006. Naglazyme was approved by the FDA and European Commission in late May 2005 and in late January 2006 respectively.

Net product sales of Aldurazyme by the BioMarin/Genzyme LLC were 23.5 million for the second quarter and 44.9 million for the six months ended June 30th, 2006, representing increases of 23% and 28% over the same period last year. BioMarin's share of the profit of the BioMarin/Genzyme LLC was 4.7 million for the second quarter of 2006, compared to a profit of 3.3 million for the second quarter of 2005. BioMarin's share of the profit from the BioMarin/Genzyme LLC for the six months ended June 30th, 2006, was 8.5 million, compared to 5.4 million for the six months ended June 30th, 2005.

With regard to royalty and license revenues, BioMarin recorded 9.4 million in the second quarter and 9.7 million for the six months ended June 30th, 2006. These revenues relate to the Orapred licensing and acquisition agreement that we entered into with Alliant Pharmaceuticals in mid March of this year and include receipt of a one-time milestone payment of 7.5 million relating to FDA approvals of Orapred ODT, amortization of the 2.5 million upfront license payment received from Alliant at the signing of the agreement and royalties on net product sales of the Orapred product line.

After collaborative agreement revenues associated with our partnership with Serono, BioMarin recorded 4.4 million in the second quarter of 2006 and 8.9 million for the six months ended June 30th, 2006. Our net loss was 1.3 million, or $0.02 per share for the second quarter of 2006 compared to 21.3 million, or $0.33 per share for the second quarter of 2005. The net loss was 11.1 million or $0.14 per share for the six months ended June 30th, 2006, compared to 43.8 million, or $0.68 per share, for the six months ended June 30th, 2005.

The reduced net loss for the second quarter and six months ended June 30th, 2006, was due primarily to an increase in Naglazyme revenue, the Orapred license and royalty revenue from Alliant, improved performance of the BioMarin/Genzyme LLC and improved operating performance. Now, I'll review the financial results in more detail.

Research and development expenses increased 1 million to 15.8 million in the second quarter of 2006 from 14.8 million in the second quarter of 2005. The increase in R&D spending is attributed primarily to increases [spend outs] in clinical trial activities, increased development costs for our other programs, including Orapred ODT and Phenylase and stock-based compensation expense that was not required to be recognized as expense last year. The increase in R&D spending was partially offset by a decrease in Naglazyme research and development costs following marketing approval in May 2005.

Looking ahead, we expect to increase our R&D spending during the second half of the year for the 6R-BH4 program for cardiovascular indications, but not the manufacturing involvement and Phenylase preclinical work.

Selling, general and administrative expenses increased by 1.8 million to 11.9 million in the second quarter of 2006, from 10.1 million in the second quarter of 2005. This increase is largely due to increased commercial expenses related to European commercial launch of Naglazyme and increased U.S. commercial activity as well as stock-based compensation expense. SG&A expenses for the second quarter of 2006 were partially offset by reduced sales and marketing activities related to Orapred.

SG&A spending is expected to increase from the second half of the year due to the continued Naglazyme expansion of our European operations, as well as Naglazyme commercialization opportunities in Latin America and other parts of the world. From a cash perspective, we ended the second quarter with 305.9 million of cash and cash equivalents and short-term investments. The net cash spending during the second quarter of 2006 reflected the $17 million purchase of our manufacturing facilities that we previously rented and a $20 million repayment of our equipment and facility loans.

Now I will review the revised 2006 financial guidance that J.J. touched upon earlier in the call. With regard to Naglazyme, we have increased our 2006 projected net product sales to be in a range of 40 to 44 million, which is an approximately 30% increase over our previous projection of 31 to 34 million. As for Aldurazyme, BioMarin and Genzyme corporation reconfirmed estimated sales of Aldurazyme through the joint venture for 2006 to be in a range of 90 to 100 million. And, finally, we have revised our projected net loss to be in a range of 33 to 37 million, which is significantly lower than our previous estimate of 42 to 45 million.

That concludes my prepared remarks. I will now turn the call over to Joshua Grass for some comments regarding upcoming events.

Before we open up the call for questions, I want to remind everybody that we will be presenting at a few investor conferences in the coming months. On September 6th, we will be presenting at the Thomas Weisel Partners Healthcare Conference in Boston. On the 7th, we will be presenting at BioCentury's NewsMakers and the Biotech Industry Conference being held in New York City.

In November, we will be presenting at the Rodman & Renshaw 8th Annual Healthcare Conference in New York City, and finally, immediately following this conference, we will be presenting at Cowen & Company's 7th Annual Global Healthcare Conference, being held in London.

You can access these presentations live from our website at www.bmrn.com. Also, I'd like to highlight that researchers will be presenting data on Naglazyme in MPS VI and Phenoptin in PKU at two upcoming medical conferences, beginning with a satellite meeting to the 2006 conference of inborn errors of metabolism, being held September 10th and 11th in Sendai, Japan. The actual [ICIM] conference being held September 12th in Shiba, Japan.

Then, in October, data will be presented at the 56th Annual Meeting of the American Society of Human Genetics, or ASHG, being held October 9th through 13th in New Orleans. These abstracts relate to the Phenoptin program and have been accepted for presentation at the conference.

The first presentation is a phase III study of efficacy of Phenoptin in reducing blood phe levels in subjects with PKU. This has been accepted for our platform presentation, which will be made by Dr. Harvey Levy of Children's Hospital of Boston on Wednesday, October 11th at 4:30 Eastern time.

The additional two abstracts that have been accepted for the poster presentations include a multicenter open-label study to evaluate the safety and response to an eight-day course of Phenoptin in subjects with PKU who have elevated blood phe levels.

Dr. Barbara Burton of Children's Memorial Hospital, Northwestern University's Feinberg School of Medicine will present a poster on Thursday, October 12th. And, finally, a presentation entitled Phenylalanine Blood Levels and Clinical Outcomes in Phenylketonuria, a Systematic Review and Meta-Analysis by Dr. Susan Waisbren of Children's Hospital, Boston, will be presented on Tuesday, October 10th. Additional information on these presentations is available online at www.ashg.org.

With that, I think we're ready to open up the call for questions.

[OPERATOR INSTRUCTIONS]. And your first question will come for Joseph Schwartz from Leerink Swann. Please proceed.

Hi, thanks for taking the question and congratulations on another great performance this quarter. I was wondering if you could help us understand what other work needs to be done to characterize the optimal dose of Phenoptin based on the severity of individual patients. I understand that it was a 10 milligram per kilogram does in the phase II and III. Just wondering how that might be adjusted based on the diet and extension studies. Thanks.

Joseph, I'll get started and let Emil elaborate. But, as you say, the first pivotal phase III double-blind study was a fixed 10-milligram to kilogram dose. In the extension study, there is a dose adjustment between five, 10 and 20 milligrams, and Emil will explain exactly how that's done. And then the follow-up study is actually done at 20 milligrams. We're going to have some information that basically arrives - I mean, three different doses between five and 20 milligrams, which will help us guide the clinicians once the product is approved.

Emil, do you want to elaborate further onto the dose-ranging adjustments in the extension.

Sure. So, Joe, in our discussion with the FDA at the end of the phase II meeting, we agreed upon a plan which would put all patients through a four-dose titration of five, 10 and 20, analyzing their phenylalanine levels done at each of those dose levels. Then what we did is, following that, the patients then - their levels at the different doses were evaluated, and based on the know control criteria for phe levels, the patients then were individualized in which dose they were put on and then they were maintained on that dose for an entire period to complete the six months of exposure.

So that means there will be patients who are on 20, patients on 10, patients on five, individually optimized, then, based on exposure to those three doses during the first part of the extension study. So we expect to have in our filing phase III data at 10, but also significant amounts of exposure data at 20, 10 and five, individually optimized based on the severity of the patient, the level achieved based on known control criteria expected from the clinical community today.

That's very helpful, thank you.

If I could just ask one question on Naglazyme, the mix of patients that you've identified and treated now in the U.S. and the rest of the world, do you have any update on those estimates?

You mean the number of patients treated?

Just the general mix of the patients that you've identified and have under treatment in the U.S. versus the rest of the world.

Okay, so it's like the regional segmentation?

Right.

We haven't gotten into specific numbers in the past, but as we projected prior to the launch, Europe has significantly more patient numbers than the U.S. does, and Europe has been largely the driver of our increases in sales from Q1 to Q2.

Okay, great. Thanks again.

But patient treatment is more concentrated in Europe, too, so it's somewhat easier to penetrate - faster to penetrate the European market.

Great, thank you.

Your next question is from Ron Ellis with Prudential.

Hi, and thanks for taking the question and congratulations on a good quarter as well. I just wanted to know if I could follow up on the last question as well, just getting a little bit more visibility on the growth. You mentioned that it's mostly coming from Europe, and, J.J., you had mentioned that it's a better concentration of patients in Europe. Could you comment...

I'll let Steve elaborate, but it was like really the patients are treated in a few centers. It's patient treatment that is more concentrated in Europe than in the U.S., was that we have, though obviously it's easier to penetrate the European market, not that we are not penetrating the U.S. market, we are, but I would say that the fact that our results are better than our expectations may lead you to acceleration of penetration in Europe as compared to plan and maybe a little bit the fact that average wait of patients in Europe might be a little higher than we anticipated, too. But do you want say few more words, Steve?

You're exactly correct. In Europe not only are there more patients, but there tend to be centers of excellence in the European countries where the preponderance of patients will be seen and followed from one or two centers where in the U.S. patients are spread in ones and twos over a large number of centers. So where you have a concentration of patients in one center, the center has more focus, more interest and more experience in getting those patients treated.

The U.S. has also increased substantially from Q1 to Q2. I hope I didn't imply that it didn't in my previous comment. Simply because Europe has so many more patients than the U.S., it's been really the predominant driver of the overall increase.

Steve, just a follow-up if I may. The Naglazyme sales have been much more consistent than what we've seen with Aldurazyme in terms of the choppiness or the volatility there. Can you explain that any way, this consistency, and then are we penetrating Europe too rapidly? Could we saturate quickly and see the growth tail off, and then what would be your expectations for Brazil?

Well, my boss never thinks that anything is penetrated too rapidly, so I don't think that's a problem. We want to get as may patients on therapy as quickly as we can. With regard to Brazil, Brazil is an intermediate-term significant opportunity for us. From our knowledge of the patient base spread around the world, the genetic mutation is most common in populations with Portuguese lineage. The combination of Portuguese genetics with the very high population in Brazil makes Brazil probably the largest potential country in the developed world.

There are significant barriers to adoption in Brazil, primarily reimbursement, but there is significant expertise within the genetic centers down there, a lot of experience, a significant pool of known patients and there is a pathway to reimbursement, which we are currently pursuing.

We will file a registration as soon as possible. There is essentially a name-patient type of procedure there, difficult, arduous, but possible, and we are working hard and Brazil has become a significant priority for us.

Okay, thank you, congratulations.

Again, if I may, the market, overall, sales are better than we planned, but the market is far from being saturated, because according to epidemiology co-studies, one has to evaluate or estimate that is about 1,000 patients in the developed world with MPS VI, so at about $300,000 per patient, it's about $300 million market, so even with our current guidance for this year, there is still room to grow.

Thanks, J.J.

Your next question is from Phil Nadeau with Cowen.

Good afternoon. Thanks for taking my question and congratulations on another good quarter. The first question is actually for you, Jeff, and then it's on the cost of goods sold. It looks like that was a low number this quarter and a sequential decrease versus last quarter. Why was that, and can we project out from this current gross margin?

Right. In the first quarter, the cost of goods sold included a couple of one-time items, one being the transfer of inventory to Alliant. That was part of cost of goods sold, when we did the Alliant deal. Then the other component was the small reserve that we set up for inventory in the first quarter.

In the second quarter, there were no such adjustments, and it just primarily relates to minimal costs associated with Naglazyme. As we've mentioned previously, the inventory related to Naglazyme and the expense prior to approval, so you don't see that showing up in cost of goods sold. We'll begin to see more of that as we work through the inventory, probably in the fourth quarter of this y ear.

Okay, so it's reasonable to think that Q3's cost of goods will look like Q2, but maybe not subsequent quarters. Is that fair?

Yes, I think it's fair to say that once we hit fourth quarter, you'll begin to see an increase in cost of goods sold.

And then second, for you, J.J., I don't think you said when exactly the extension and diet study data are going to be out. Are those still on track for early '07...

Yes, I can say that the studies are both fully enrolled, so we are indeed on track for completion by the end of the year and then we are going to file the extension data with the NDA. The FDA so far has not required the diet study, but we might file it or file it later. It hasn't been required, but we will be ready basically again by the end of Q1.

Okay, and will you press release that data?

Excuse me?

Will you press release that data, or will you wait for a medical meeting before releasing it?

We will very likely press release the data. I mean, I think the top line data.

Okay. And it sounds like you're going to present the phase II data from Phenoptin at the ASHG meeting. That's not data that's been previously released. Do you have any other plans to release that to investors or the medical community before ASHG?

Emil, do you want to talk about it?

No, the ASHG is the place we're going to bring out all the data. There are substantial details that we've put together for that presentation by Dr. Burton that Josh mentioned, so that's the place we were planning to do it.

Okay, great. And last question is actually on Brazil. You mentioned that you're going to file for approval soon and you're working through the reimbursement process. When could we expect to start seeing sales from Brazil in your revenue?

Steve?

We already have some sales from Brazil in our revenue. I mentioned a process where patients can get access to the product prior to approval, but I think for substantial revenues it is probably going to be 2008 when we see a significant impact from Brazilian sales.

Okay, thanks a lot.

[OPERATOR INSTRUCTIONS].

And the next question is from [Kim Lee] with Pacific Growth Equity.

Hi. Thanks for taking the question. A quick question on the BH4 program. Can you elaborate on the plans and timing for the investigator-related, sponsored trials, and any plans to initiate trials in erectile dysfunction and coronary artery disease. Thanks.

I'll get started and let Emil expand on this. But on the [pure] hypertension, it's likely any study we'd start out of this year early next year, and erectile dysfunction, I think we said during the call, I mean, during the comments, that the peripheral arterial disease study will start by the end of the year. And coronary artery disease, I'll let Emil talk about that. Erectile dysfunction we are very likely going to wait for results of the ongoing hypertension study, poorly controlled hypertension study before finalizing our development plan in erectile dysfunction.

Emil, do you want to talk about coronary artery disease and [inaudible].

The [evascan] issue study in coronary artery disease is really the study endothelial function and physiology of BH4 in patients who have coronary artery disease. So it's not studying coronary disease directly, but that's the population of patients. That study will be initiated by the fourth quarter and in the United Kingdom. So that's that one. So I think that's everything you had asked about.

Great. Thanks.

Your next question is from Vernon Bernardino from Rodman & Renshaw.

Most of my questions have been answered, but just wondering if you could provide some details regarding what drove the results on Orapred, and also just give a current comment on your status of manufacturing supplying contractors and so on. Thanks.

With regard to Orapred, we mentioned earlier that the royalty and licensee revenue is 9.4 million for the quarter, and that consisted of three components. First was a 7.5 million payment that we received, milestone payment that we received upon approval of ODT from Alliant. The second was the amortization of the $2.5 million upfront payment that we received in March from Alliant, about 1.8 million during the quarter, and the rest, less than $100,000, represents the royalty on Orapred liquid sales.

Basically, to your question was are we ready to launch ODT?

Yes - Alliant and the preparation there.

Should happen by the end of this month, nearly September it's basically ready to go.

Okay, and then manufacturing for Phenoptin?

Yes, in manufacturing for Phenoptin, we've been making lots of progress, finding set contractors, several potential suppliers for drug substance and drug products in the U.S. and in Europe. We had one at the beginning in Japan, but we very likely will have two additional potential suppliers in Europe of the drug substance, and one or two suppliers for packaging and vialing tableting.

Is what you have now then adequate for satisfying the FDA's [inaudible] in the first quarter '07?

Yes, we believe we will have all the necessary sections of the CMC. I mean, the CMC filing ready for the late March 2007. We should not - I don't expect any progress there. There's work to be done, but we are on track for a filing not only in the clinical section but the CMC section as well.

Will that require any stability testing or just finding the contract there?

No, no, I mean, we have found the contractor. We have some stability on the way that we believe that by the time we get approval, we will have 18 months of stability.

Great. Thanks for taking my questions and congrats on the Naglazyme results.

Your next question is a follow-up from Ron Ellis from Prudential.

Hi, and thanks for taking the follow-up. Just curious, looking at the Aldurazyme gross margins that you seem to have some improvements there, can you tell us a little bit what's happening?

Jeff?

Sure. No, there's really nothing specific to report. The margins went up a little bit to about 77%. They've been around the 75% range, but nothing specific to account for that.

So we just expect some volatility around a mean there or is that the new rate going forward.

I think the rate is in that 75, 76, 77% is reasonable. Obviously, as volumes increase over time, we expect to achieve 80% gross margin once sales continue to grow.

Okay, thank you.

And this concludes the question and answer session. Will turn the call back to Mr. Bienaimé for any closing remarks.

Thank you. So in closing I would like to add that at this midpoint of the year, 2006 is shaping up quite well for BioMarin. The commercialization of Naglazyme is going well in both the United States and the European Union. And now with greater experience and proven success on this front, BioMarin is likely to look even more attractive to companies that are looking for a partner to commercialize orphan drugs in these regions.

We continue to make progress with the Phenoptin for PKU program, and we remain on track to file the NDA late in the first quarter of 2007. We're excited to have our BH4 programs for cardiovascular indications underway and we look forward to the completion of phase II trial in poorly controlled hypertension by the end of the year, of the next year. This program will hopefully serve to open the door to larger market opportunities for the company. And, finally, we are pleased with the company's improving financial profile. We have adequate cash to maintain a healthy pipeline, and given our current operating plan, we believe that we could become profitable in the latter half of 2008.

This of course will ultimately be dependent upon how much we spend on our development programs, including potential multiple indications for BH4. Thank you for your continuing interest in BioMarin, and I look forward to speaking with you again later this year.

Thank you for your participation in today's conference. A replay of this conference will be available for the next seven days. You may access the call by dialing 888-286-8010 and entering the passcode 52624487. Thank you and have a great day.