BioMarin Pharmaceutical Inc (BMRN) 2006 Q3 法說會逐字稿

Welcome to the third quarter 2005 BioMarin Pharmaceutical, Inc., earnings call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session for the end of this conference. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. A replay of today's conference will be available for seven days at 1-888-286-8010 using access code 74682255. I would now like to turn the call over to Joshua Grass, Senior Director of Business Development and Finance. Please proceed, sir.

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

As a reminder, this non-confidential presentation will contain forward-looking statements about the business prospects of BioMarin Pharmaceutical including 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 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.

Now I'd like to hand the call over to J.J.

Thank you, Josh. Good afternoon to everyone and thank you for joining us on the call. I have a few introductory remarks before Jeff goes into details on the third quarter financial results, and then Josh will go over the investor conferences we'll be presenting at in the coming days, and then we will ask the operator to open the call for questions.

So, first, the launch of Naglazyme in the United States, Europe, and certain international markets is going very well. We are just seeing our guidance upwards slightly from $40 million to $44 million to $43 million to $45 million. But we also have lowered our projected net loss for 2006 to be in the range of $28 million to $32 million, which is an improvement from our previous estimates of $33 million to $37 million. This revision also includes the one-time charge of $3.3 million in connection with the conversion of most of the 2008 convertible bond [inaudible].

Aldurazyme for MPSI commercialization to the BioMarin/Genzyme joint venture continues to go well, and Jeff will go over the details in a moment. BioMarin is reconfirming the previously provided guidance of $90 million to $100 million.

As you may have seen from our announcement yesterday, Aldurazyme was approved in Japan recently. This is a significant achievement for the BioMarin/Genzyme joint venture and one that should allow the many MPS I patients in Japan to have access to Aldurazyme. There are currently about 30 MPS 1 patients identified in Japan, most of whom we believe should be eligible for treatment. Reimbursement for Aldurazyme in this country for MPS 1 patients could occur in a few weeks, and BioMarin's and Genzyme incorporate revenue projections for Aldurazyme sales in Japan into its global 2007 Aldurazyme revenue guidance, which we expect to provide in Q107.

Looking at our pipeline over the past quarter as we continue to make significant progress with both our PKU and our cardiovascular programs.

Beginning with the Phenoptin program, in mid-October we met with the FDA in a pre-NDA meeting to discuss expectations related to our anticipated new drug application. The meeting went well and based on the feedback that the FDA gave us, we have confirmed that data from the Phase III [occo] study and its extension that it provides sufficient data for filing the NDA.

Although not required by the FDA, we have made a strategic decision to also include data from the ongoing diet study in the NDA, and this study is evaluating Phenoptin in young patients age 4 to 12. While we postponed our NDA filing by a couple of months, based on our discussion with the FDA, we believe that this additional data will support, including a broader range, age range, on the product label at launch.

As you may recall, the FDA has credited Phenoptic fast-track status, and we are optimistic that once submitted the application will be granted priority review, which would mean a six-months' review cycle instead of the standard 10-month cycle and, assuming this occurs, we believe that an approval in late 2007 in the U.S. is a very good possibility. And the data on Phenoptin PKU was recently presented at the American Society of Human Genetics, and we are pleased with the enthusiasm for the product among the genetics community.

With respect to our 6R-BH4 program for cardiovascular indications, in mid-September we announced that the Phase II study in patients with poorly controlled hypertension had been fully enrolled with 160 patients of whom 55 have type II diabetes. This study enrolled quickly, and we were able to enroll far more than the projected 80 patients within the same timeframe. We remain on track to announce results from this study in the first quarter of 2007.

By the close of the year we plan to initiate a multi-center, double-blind, placebo-controlled Phase II clinical study of 6R-BH4 in individuals with intermittent claudication caused by peripheral arterial disease. This quarter we enrolled approximately 200 individuals and will be designed to evaluate the safety and efficacy of 6R-BH4 administered at approximately 800 mg or roughly 10 mg per kilogram per day for 24 weeks.

We have also been able to address some of the key technical hurdles in developing Phenylase in subcutaneously administered enzyme therapy for more severe PKU patients who do not respond to Phenoptin. Based on these advances, we are now planning the IND using toxicology studies with a goal of filing an IND by the end of 2007.

As you may recall, Serono is our corporate partner for both the PKU and the cardiovascular program.

With that, I will now turn the call over to Jeff Cooper, who will review the financial results for the third quarter.

Thanks, J.J. I'm going to start by reviewing product revenues of Naglazyme and Aldurazyme for the third quarter of 2006 and the nine months ended September 20, 2006, and follow with royalty and license revenue for the same period. I will then go over a net loss for the quarter and follow with a more in-depth look at our financial results. Lastly, 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 in the third quarter of 2006 were 12.9 million and 30.2 million for the nine months ended September 30, 2006. Naglazyme was approved by the FDA and European Commission in late May 2005 and in late January 2006, respectively, and the sales growth, to date, is nearly all related to initiation of therapy by previously identified or newly diagnosed patients.

Net product sales of Aldurazyme by the BioMarin/Genzyme LLC were 25 million for the third quarter and 69.9 million for the nine months ended September 30, 2006, representing increases of 24% and 27%, respectively, over the same periods of the previous year. BioMarin's share of the profit of the BioMarin/Genzyme LLC was 5.1 million for the third quarter of 2006 compared to a profit of 3.4 million for the third quarter of 2005. BioMarin's share of the profit from BioMarin/Genzyme LLC for the nine months ended September 30, 2006, was 13.6 million compared to 8.8 million for the nine months ended September 30, 2005.

With regard to royalty and license revenue, BioMarin recorded 5.4 million in the third quarter and 15 million for the nine months ended September 30, 2006. These revenues related to Orapred licensing and acquisition agreements entered into with Alliant Pharmaceuticals in mid-March of this year and include royalties on net product sales of the Orapred product line. Orapred royalties of $800,000 for the quarter were driven primarily by initial sales of Orapred ODT by a line of wholesalers early in the quarter.

After collaborative agreement revenue associated with our partnership with Serono, BioMarin recorded 4.9 million in the third quarter of 2006 and 13.9 million for the nine months ended September 30, 2006. Our net loss of 7 million, or $0.08 per share for the third quarter of 2006 compared to 15.5 million, or $0.21 per share for the third quarter of 2005. A net loss of 18.1 million, or $0.22 per share for the nine months ended September 30, 2006, compared to 59.3 million, or $0.88 per share for the nine months ended September 30, 2005.

The reduced net loss for the third quarter and nine months ended September 30, 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 4.2 million to 18.1 million in the third quarter of 2006 from 13.9 million in the third quarter of 2005. The increase in R&D spending is attributed primarily to increased Phenoptin clinical study activity, increased the development costs for other programs, including 6R-BHR for cardiovascular indications and Phenylase, and stock-based compensation expense that was not required to be recognized as an expense last year.

The increase in R&D spending was partially offset by a decrease in Naglazyme region development costs following market approval in May 2005.

Looking ahead, we expect to increase our R&D spending into 2007 with the 6R-BH4 program for cardiovascular indication, Phenoptin regulatory activities, and Phenylase preclinical work.

Selling, general, and administrative expenses increased by 2.5 million to 4.3 million in the third quarter of 2006 from 9.8 million in the third quarter of 2005. This increase is largely due to increased commercial expenses related to European commercial launch of Naglazyme and increased U.S. commercial activities as well as stock-based compensation expense.

SG&A expenses for the third quarter of 2006 were partially offset by reduced sales from marketing activities related to Orapred. SG&A spending at current levels is expected to increase into 2007 due to continued Naglazyme expansion of our European operation and commercialization opportunities in Latin America as well as pre-launch commercialization activities for Phenoptin in the United States.

From a cash perspective, we ended the third quarter with 293.9 million of cash and cash equivalents and short-term investments.

Now I will review the revise 2006 financial guidance that J.J. mentioned earlier in the call. With regard to Naglazyme, we have increased our 2006 projected net product sales to be in the range of 43 million to 45 million, which has been revised from our previous projection of 40 million to 44 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 million to 100 million. And, finally, we have revised our projected net loss for 2006 to be in the range of 28 million to 32 million. This is an improvement from our previous estimate of 33 million to 37 million.

That concludes our 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'd like to note that we'll be presenting at a few investor conferences in the coming days.

On November 7th, we'll be presenting at the Rodman and Renshaw Annual Healthcare Conference being held in New York City and immediately following this conference, we'll be presenting at the Cowen & Company 7th Annual Global Healthcare Conference being held in London. You can access these presentations live from our website at www.bmrn.com.

In addition, there are several abstracts related to BH4's role in endothelial function scheduled to be presented at the American Heart Association 2006 Scientific Sessions being held in Chicago November 12th through the 15th. One of particular interest is the study of BH4 in a preclinical model of congestive heart failure. This will be presented by Dr. David Kass from Johns Hopkins on Wednesday, November 15th at 2 p.m. Eastern time. For additional information about this conference, please visit the AHA website at AmericanHeart.org.

With that, I think we can open up the call for questions, Operator.

[Operator Instructions] Chris Raymond, Robert W. Baird.

Just on Phenoptin, I was wondering, with the bigger data set that you'll have, it looks like you'll have coverage in terms of data from 4 years and up. Can you comment on the potential for any use -- certainly, it would be an off-label use, but what's your sense of use in kids that are under 4 years?

Emil can answer your question.

Well, we would expect to get support in the label based on what we submitted data so, yes, it might be that the label would say four and up. The fact that it's in the literature today there are at least four large series and numerous case reports of patients being treated from birth with BH4 with good control over up to five years or more in time with good Phe control as well as good intellectual outcome. And so our belief is that the academic community believes this drug is useful in that age range.

Okay, so did I -- is there a chance that you'd have a label that includes kids that are four years and younger?

There's a chance, and we believe that it should be labeled that way, but we will have to negotiate that once we're in the approval process.

Right. And then on quick follow-up question, if I can -- I was struck by the level of enrollment in your poorly controlled hypertension study. Can you maybe comment or give some level of detail as to any anecdotal feedback as to the reason why?

Well, we have a number of very good centers who were enthusiastic about getting patients in the program, and it enrolled, quite surprisingly, quickly. I don't have a great deal of other insight other than to say they wanted to be part of the study and enrolled very well. So there's no special knowledge that we would have that would indicate anything about the outcome of the study. I think we'll have to wait until we unwind it in the first quarter.

Since we know -- I mean -- we know the drug is safe and well-tolerated, so we don't know yet, you know, what the safety data is going to be in the specific study, but the drug has been shown to be safe in the past, so it is likely that patients, you know, no issue with the product, you know, had no problem enrolling patients.

Phil Nadeau, Cowen & Company.

Good afternoon, congratulations on the good quarter. My first quarter is actually on the timing of the upcoming data releases. I think in the past you had said that the diet study data and the extension study data would be available in early Q1. Is that still the case? When might we see that data?

Yes, we'd be expecting it in early Q1, the diet data.

Okay, and the extension data also?

The extension data as well, yes.

About the same time.

Okay, and you noted how the inclusion of the diet study could change the age ranges of kids in the Phenoptin label. How could it change the language around the use of Phenoptin with people compliant with the diet? Was it your understanding that, without the diet study, there might be language saying, you know, "To be used mostly in people who aren't on the diet," you know, that would change or do you expect no substantial change in that language because of the diet data?

Well, I think that you don't get -- the label that we would be seeking, of course, would be for BH4 and lower [inaudible] levels in patients with PKU. The impact of that study certainly we believe would be in the age range. However, the study also demonstrates the improvement of phenylalaline tolerance; that is, the ability to [melax] the diet, and that's information that's different. It's been studied and published before, just to remind the audience, so it's been shown that it does that, but it hasn't been formally done, and we will get information so you can [melax] the diet. It will also show that you can use it in combination with the diet, but we don't think that that's a major driver of what physicians would do. It's a question of whether you can lower phenylalaline and how much proven intolerance you would get.

So of all the things, though, I think the age range is probably the most important factor, and the reason this study was done this way is because under age 8, the phenylalaline level is more -- can cause more neurological problems, and so the only way to do a study of patients who are off diet was to take older patients -- to approach a patient population in the earlier, more critical period you required a study in which phenylalaline was always maintained in control and, hence, the study design.

We don't believe that this is going to have an impact on the labeling in terms of drugs having to be taken by patients on diet or off diet is going add information on [indiscernible] younger patients because in the -- so far, in the previous randomized double-blind controlled placebo study that we communicated back in March, the patients were over 8 years of age. So it's one issue. This one is only 12, but patients under 8.

And, second, the dose is different, you know. In the first study, the dose was 10 mg per kg per day. This is 20. So in the extension study we [announce] it on 5, 10, 20, but this one keep it on 20, so we're going to have more information on different dose, younger age group, and potential [indiscernible] to show that each will allow a patient to relax their diet as we had already been publication BPH4 showing that, indeed, patients generally melax their diet when they take BPH4.

Okay. Talking to some physicians, it sounds like they expect -- if Phenoptin is approved, to push the dose beyond what was studied in the Phase III trials and perhaps use mostly the higher doses like 20 mg per kg. What do you expect the label will say on dosing?

We have data -- we will have data in the filing that supports use of the drug between 5 and 20 mg per kg both in short term as well as in the extension study where we have patients on each of those doses. So we would expect to have a label that would allow dosing within the range of 5 to 20 mg per kg.

Okay, and one last question -- on Aldurazyme in Europe, we've seen other LST drugs get premium pricing -- sorry -- in Japan -- Aldurazyme, in particular, I think is at a much higher price in Japan than it is in the U.S. or Europe. What type of pricing are you and Genzyme going for for Aldurazyme?

At this point, I think that's a question that would have to go to Genzyme. That's not one that we can answer for them.

From what we know, we don't expect the pricing to be substantially different from the U.S. and the European price.

Alan Leong, Biotech Stock Research.

Congratulations on the quarter. I want to get your update on Phenylase. How is that program progressing, and do we see an IND in the future?

This is Emil. The Phenylase program we had announced in September that we had achieved our internal product profile goal for the project, which was the once-week-daily treatment that would control phenyalaline levels, and we were able to achieve that in the PKU mouth model. We present that data in Japan -- at a couple of meetings in Japan. So what we're doing right now is preparing a clinical manufacturing supply and doing the toxicology program, and we will be spending some time doing that toxicology during the part of next year as well as getting clinical supply of the product ready in our -- what we've said publicly, we expect to have it on IND file by the -- toward the end of 2007.

Can you review the program for 6R-BH4 vascular indications, especially those trials that weren't mentioned yet in this call?

Yes, I can summarize them quickly. We have the first study, which is control, which is a study in hypertension, which is 116 patients being treated in double-blind control study. This is a blind in Q1.

The second study is in peripheral arterial disease, or intermittent claudication, which is a study we talked about today, starting this quarter, and we suspect to see data in 2008. That's a 200-patient double blind, placebo-controlled study.

Third area we're planning to look at are -- is in pulmonary arterial hypertension, and that is expected to start in Q107 and [indiscernible] an investigator-sponsored study, relatively small, dose-escalating trial type study.

And there is fourth investigator study, which is a study of [anesthesial] function, arterial compliance being conducted at Oxford. It's another investor-initiated study that will help understand how BH4 affects vascular function in patients who have coronary artery disease.

Those are the key programs that we've publicly announced at this point in time.

Are there any trials -- major trial -- that you might want to mention that's going on outside now attached to BioMarin, like, for example, the Emory University folks?

Well, the folks at Emory, Dr. [Kumi] certainly did the hypertension study, but he is working with us now on the hypertension program. There are other people with interest in BH4, however, in general, it's been difficult for the investigator community to get access to what's a very expensive chemical, and to get the kind of product that's stabilized, because our BH4 product is stabilized, has a stable room temperature formulation, and so if we're not supplying the drug, it's not as much -- there's not major activity in the cardiovascular field that I am aware of. Now, there may be small studies going along. I know there are people that are interested in the compound all around, and there's certainly a number of preclinical studies going on in the area as well.

Tom McGahren, Merrill Lynch.

I was just wondering if Phenoptin's filing in Europe is still on track for the first quarter of '07? And then maybe you could discuss the market size for intermittent claudication, maybe the end point of that trial?

The filing in Europe would be conducted by our partner, Serono, in Europe, and the expectation has been in third quarter for that filing. They have to take our filing and convert it for the MAA filing, and so that has not changed. We are, of course, taking a little more time up front, but because we're including the data from the diet study, that actually makes their job a little easier in Europe, where they always planned to include that diet study in their filing.

You asked another question, which was the market size?

Yes.

For intermittent claudication?

No, no, he's talking about--

Yes, in intermittent claudication -- kind of what are you thinking there and the end point of the trial.

It's in the millions.

Eight million [inaudible].

It's huge. Depending on what subsection of that intermittent claudication, whether you go into the severe limb ischemia group. The numbers are going to change, and until we have some preliminary data, at least, I would hate to give a specific number, but it's a very, very large target market.

It appears that the overall PAD market for, peripheral arterial disease, is estimated to be around 8 million patients in the U.S. The subset of those patients is high intermittent claudication, so the more severe form of the disease, but this is, you know, we're talking 1 million to 2 million patients. So very large compared to PKU.

And then, finally, just an income statement question -- the extra product sales beyond -- that goes on in this quarter -- those related to Orapred?

That's right.

Kind of residual sales?

Yes, it really consisted of two pieces. One was an inventory transfer of raw material related to [indiscernible] product, and the second piece just relates to accounting adjustments related to sales return reserve.

[Operator Instructions] Joseph Schwartz, Leerink Swan.

Hi, congratulations on a strong quarter. I wanted to ask what potential use outside of mild to moderate PKU patients we could expect and what the label might read like with respect to mild to moderate PKU versus all comers with PKU given that it seems like a unique product launch with the need to test every patient to see whether they respond to the drug or not, and how do you anticipate managing the dynamics of that launch?

Well, first of all, the mild/moderate certainly has a higher rate of response than the more severe patients. But there are clearly patients on the whole spectrum that do respond to the drug. And our studies have included patients from all of the whole spectrum. So we wouldn't expect a limitation to mild/moderate patients. We'd expect it to be treat PKU patients who are responsive to BH4.

So I don't think there will be a restriction in the use of mild/moderate. I think it's just that the frequency of response is greater there.

And we would certainly encourage physicians to test, to screen, all PKU patients for responsiveness and, at least, to date, at the medical meetings and the talks we've heard given about PKU, the thought leaders in the field are encouraging that as well.

And what plans -- or maybe you've already done this already -- do you have to study Phenoptin in maternal PKU patients since it would appear that it also comes up in pregnant women as well?

Well, there is actually some experience that's been presented at the meeting showing that women can be controlled who are responsive to BH4 and controlled with BH4 during pregnancy successfully. We also have, in our preclinical package data, showing that BH4 is not teratogenic and doesn't have any developmental toxicity associated with it.

Our expectation is, post-approval, that in a registry-like setting we may look at patients in that regard. However, of course, as during the filing and approval process, we will negotiate with the FDA what the post-market business might include. But because those patients have a very severe problem in that high Phe levels, even moderately elevated Phe levels cause significant major malformations in their children. There is a very high medical interest and need in getting better and tighter Phe control of patients. So we expect there will be a lot of interest in using it when it can be used.

At this time there are no further questions. I will turn the call over to Mr. Bienaime for closing remarks.

Thank you. In summary today, BioMarin has two products on the market and a third could be launched in late 2007, and based on these products, BioMarin could be a profitable, self-sustaining business in the next 24 months. We are also working on several other significant opportunities that leverage existing physical data, intellectual property, and manufacturing investments related to BH4 and PKU.

Given the increasing body of clinical data with BH4 and cardiovascular disease, we strongly feel that our decision to invest in this program maximizes value of our primary stockholders and could result in new therapeutic treatments for a range of cardiometabolic disease.

Thank you for joining us on the call today. I look forward to keeping you posted on our progress. Goodbye.

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