BioMarin Pharmaceutical Inc (BMRN) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2007 BioMarin Pharmaceutical Incorporated earnings conference call. My name is Grace Ann, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's conference, Ms. Eugenia Shen, Manager of Investor Relations. Please proceed.

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 would like to remind everyone that this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical including expectations regarding BioMarin's financial performance, 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 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.

And now I'd like to turn the call over to J. J., BioMarin's CEO.

Thank you, Eugenia, and good afternoon and thank you for joining us on today's call. I have a few introductory comments before Jeff reviews the financial details of the second quarter of 2007. Emil will then provide an update on our ongoing R&D program. Then Eugenia will review the list of investor conferences where we will be presenting in the coming months, before we ask the operator to open the call for questions.

So, first the commercial progress of Naglazyme in the United States, Europe and international markets continues to go very well. We expect ongoing momentum in 2007 to be driven by geographic expansion and the initiation of new patients on commercial therapy.

As for Aldurazyme for MPS I, commercialization through the BioMarin Genzyme joint venture continues to go well, and Jeff will go over the details in a moment.

Moving on to Kuvan, we have reached three notable milestones. First is the submission of the NDA filing. Second is the initiation of the Expanded Access Program, and just two weeks ago we received priority review status. We will be working closely with the FDA in the coming months and anticipate a decision on the Kuvan implication in late November.

I would also like to provide a little information about the Expanded Access Program for Kuvan, which was initiated in mid-June. We currently have a number of centers actively moving into the program, and we continue to target approximately 500 patients enrolled prior to approval. We are also making progress on the development of Phenylase, an enzyme therapy for PKU patients who either do not adequately respond to Kuvan or wish to reduce their blood Phe levels beyond what is possible with Kuvan.

We're still on track to file an IND by the end of 2007, and expect to be in the clinic in early 2008. Merck Serono, our corporate partner for both PKU programs, is progressing on the Kuvan NDA filing. We expect to receive the $15 million milestone payments related to the formal acceptance of the MEA filing submission in the fourth quarter of 2007.

Now, I would like to turn the call over to Jeff Cooper, who will review the financial results for the second quarter of 2007.

Thanks J.J. I will start by reviewing the product revenues of Naglazyme and Aldurazyme for the second quarter and six months ended June 30, 2007, and follow with royalty and license revenue for the same periods. I will then review our net loss for the quarter and six months ended June 30, 2007, and follow with a more in-depth look at our financial results.

Beginning with Naglazyme, net product sales for the second quarter of 2007 were 20.9 million, a sequential increase of 13.6% over net product sales of 18.4 million in the first quarter of 2007, and a 103% increase over product sales of 10.3 million in the second quarter of 2006.

Net product sales of Naglazyme for the six months ended June 30, 2007 and June 30, 2006, were 39.3 million and 17.3 million, respectively. Net sales growth was attributable to geographic expansion and the initiation of therapy by previously identified or newly diagnosed patients.

Net product sales of Aldurazyme by the BioMarin Genzyme LLC were 29.1 million and 55.9 million for the second quarter and six months ended June 30, 2007, representing increases of 23.8% and 24.5% over the same period last year.

Aldurazyme net sales for the first quarter of 2007 were 26.8 million. BioMarin's share of the profit of the BioMarin Genzyme LLC was 6.6 million and 12.7 million for the second quarter and six months ended June 30, 2007, compared to a profit of 4.7 million and 8.5 million for the second quarter and six months ended June 30, 2006.

As a result, profitability of the joint venture during 2007 is growing at a faster rate than sales with increases of 40.4% and 49.4%, respectively, compared to the second quarter and the first half of 2006.

With regard to royalty and license revenues, BioMarin recorded 4.4 million in the second quarter of 2007, compared to 9.4 million in the second quarter of 2006. These revenues relate to the Orapred licensing and acquisition agreement we entered into with Alliant Pharmaceutical, now Sciele Pharma in mid-March of 2006, and include royalties of net product sales of the Orapred product line.

Results include a $4 million milestone payment in the second quarter of 2007 related to the one-year anniversary of FDA approval for Orapred ODT, and a 7.5 million milestone payment in the second quarter of 2006 related to the FDA approval of a marketing application for Orapred ODT.

Royalty and license revenues for the six months ended June 30, 2007 were 4.8 million, compared to revenues of 9.7 million for the six months ended June 30, 2006. As for collaborative agreement revenues associated with our partnership with Merck Serono, BioMarin recorded 3.5 million and 7.7 million for the second quarter and six months ended June 30, 2007, compared to 4.4 million and 8.9 million for the second quarter and six months ended June 30, 2006.

The reduction of collaborative agreement revenues is due to the lower overall R&D expense for Kuvan in 2007.

Net loss of 3.9 million, or $0.04 per share for the second quarter of 2007, compared to a net loss of 1.3 million, or $0.02 per share for the second quarter 2006. The net loss during the second quarter of 2007 includes 4.3 million of noncash stock compensation expense compared to 2.1 million of noncash stock compensation expense during the second quarter of 2006.

Results also include Orapred milestone and license revenue of $4 million in the second quarter of 2007, and 9.2 million in the second quarter of 2006. The reduced Orapred milestone and license revenue in the second quarter of 2007, along with increased investments in operating costs contributed to an increased net loss in the second quarter of 2007 compared to the second quarter of 2006.

Net loss for the six months ended June 30, 2007 was 13.2 million, or $0.14 per share compared to a net loss of 11.1 million, or $0.14 per share for the six months ended June 30, 2006.

Now I'll review the operating expenses in more detail. Research and development expenses increased 3.4 million to 19.2 million in the second quarter of 2007, from 15.8 million in the second quarter of 2006. The increase in R&D spending is attributed primarily to increased development costs for 6R-BH4 for cardiovascular indications in the Phenylase program, as well as noncash stock-based compensation expense.

Looking ahead, we expect to increase our R&D spending in the second half of 2007 to support the 6R-BH4 program for cardiovascular and sickle cell indications, Kuvan manufacturing activities, and Phenylase preclinical work.

Selling, general and administrative expenses increased by 5.7 million to 17.6 million in the second quarter of 2007, from 11.9 million in the second quarter of 2006. This increase is largely due to continued international expansion of Naglazyme, increased pre-launch activities related to Kuvan, as well as noncash stock-based compensation expense. SG&A spending is expected to increase in the second half of 2007 due to continued commercialization of Naglazyme in Europe, Latin America, and other parts of the world, as well as prelaunch commercialization activities for Kuvan in the United States including the Expanded Access Program.

From a cash perspective, we ended the second quarter with 587.7 million of cash, cash equivalents, and short-term investments. With regard to 2007 guidance, we are maintaining our expectations for Naglazyme and Aldurazyme revenue, as well as for net loss. We expect Naglazyme net sales to be in the range of 76 million to 82 million, and are tracking toward the higher end of this range.

As for Aldurazyme, BioMarin and Genzyme continue to expect sales for the joint venture for 2007 to be in the range of 115 million to 125 million.

Finally, we continue to expect net loss for 2007 to be in the range of 18 million to 23 million, which factors in 16 million to 18 million in noncash stock compensation expense. Our 2007 guidance also includes a $15 million milestone payment from Merck Serono in the fourth quarter of 2007, for the acceptance of the Kuvan MEA filing.

Now, I would like to turn the call over to Emil, who will review our R&D pipeline.

Thanks, Jeff. We are working on several early stage projects to supplement our R&D pipeline, and in general we've only talked publicly about programs that are in clinical development.

Starting with Phenylase, as J.J. mentioned earlier, we are on track to file an IND in the fourth quarter and move into the clinic by the first quarter of 2008. The preclinical data in the PKU mice demonstrates the Phenylase administered subcutaneously once weekly resulted in sustained decrease in blood C levels in a 12-week study. Phenylase has also shown potency level reductions in primate studies as well.

Preclinical toxicology work is underway and clinical scale manufacturing is moving forward well. We do not see any barriers at this point to filing the IND this year.

Beyond Phenylase we have a number of ongoing preclinical programs with potentially interesting drug candidates. Two of these programs could become candidates for an IND filing in the coming year. We expect to make a decision on whether or not to pursue them, on these candidates in 16 to 18 months. We'll keep you updated on our progress.

We have our enhanced, our early stage pipeline strategies to supplement our pipeline growth in the coming few years, and our goal is to file one IND per year.

BH4 in cardiovascular disease is still a significant part of our development effort. And as we have previously indicated, we continue to believe BH4 has a role in the treatment of endothelial dysfunction, and to that end we are performing several Phase II and exploratory studies to better understand this.

I will first review the ongoing studies and move on to our future planned studies. Starting with the Phase II trial for peripheral arterial disease, enrollment is ongoing in a target subject number of 210 subjects. The dose is 800 mg per day, and the primary endpoint in the study is a mean peak change in walking time from baseline to 24 weeks. The study is expected to conclude in the second half of 2008.

After a thorough analysis of the Phase II hypertension results, we plan to conduct two additional small studies in an effort to better understand the role of BH4 in treating endothelial dysfunction and the relationship of this to cardiovascular disease.

The first is a double-blind placebo controlled study of approximately 40 patients with more severe systolic hypertension, and with confirmed significant endothelial dysfunction. This study should help confirm whether BH4 has a clinically meaningful effect in the more severe subset of patients with confirmed endothelial dysfunction as was suggested by the additional analyses of the Phase II hypertension study.

The second study is designed to assess the effect of co-administration of vitamin C on protecting BH4 from oxidation, including effects on BH4 pharmacokinetics and pharmacodynamics in approximately 40 subjects with more severe hypertension and significant endothelial dysfunction. Both of these small studies will start this year. We expect results in the first half of 2008 for the vitamin C plus BH4 study, and by the second half of 2008 for the isolated systolic hypertension study.

Moving on to sickle cell disease. We initiated a multi-center, open label Phase IIa trial in early May. The primary objective of this 40-patient, 16-week study is to evaluate the safety of oral BH4 administered in escalating doses with results expected in the first half of 2008.

In addition to those studies, there are two Phase II investigator sponsored studies ongoing. The first is studying the effect of BH4 on arterial compliance and endothelial function in a controlled study of patients with coronary artery disease that is ongoing at one site in the United Kingdom.

The second is an open label study of BH4 on top of existing medications to treat pulmonary arterial hypertension. It is expected to initiate in the second half of 2007 at one site in the U.S. and one site in the UK.

In summary, these Phase II and exploratory studies will help us better understand how BH4 regulates endothelial function and provide us more information on how to guide the development in cardiovascular disease. We expect to have data from all of these studies by the second half of 2008, and the collective results will help us determine the future of the cardiovascular program.

Together, we have programs from early stage preclinical development to Phase II, and that should provide BioMarin additional drug candidates going forward in addition to any late-stage products that we might in-license.

Now, I'd like to turn the call over to Eugenia for some comments regarding upcoming events.

Before we open up the call for questions, I'd like to note that we will be presenting at a few investor conferences in the coming months. On September 11, we'll be presenting at the Bear Stearns Annual Healthcare Conference in New York, and on September 18, we will be presenting at the Merrill Lynch Global Pharma Biotech and Medtech Conference in London. You can access these presentations live through our website at www.bmrn.com.

With that, we would now like to open up the call for questions. Grace Ann?

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Chris Raymond of Robert Baird & Co.

Hi. Thanks for taking the question. I wanted to just talk about Naglazyme for a sec. Typically drugs in this category, once they've reached a certain trajectory you do see a bit of a summer slowdown. I wonder if you could maybe talk to whether it's too early to tell or if this is something we might expect this year, or if it's maybe something in the future?

Emil, do you want to go over that?

Sure. At this point we continue to be positive about Naglazyme prospects for the future. We shared I think expected results in the U.S. and in Europe, and we've been pleasantly surprised by the extent of the uptake in the international markets this year. I think we got a call a couple of quarters ago where I mentioned that Turkey and the Middle East were significant opportunities that I didn't expect to kick in until 2008 or 2009. But we've been very pleased with the rapid acceptance of the product in some of the areas that we really thought would take longer to access. And we continue to see geographic areas hold significant potential for us in the future.

Can you give maybe a little bit of detail as to what's happening in Brazil in terms of the uptake there, and also maybe reimbursement policy?

Brazil is a very unique market. For genetic reasons, the MPS6 phenotype is expressed there much more commonly than in [any other] country that we've run into. There is a really significant number of patients there, probably more than any other country that we know of.

The reimbursement situation in Brazil is very unique. The Brazilian constitution guarantees each patient access to healthcare, and for all of the enzyme replacement products with the exception of, I believe, SerraZyme, which is on a special list. Brazilian patients, whether the product is approved or not approved, go through a judicial writ process which their physician writes a prescription, they attempt to access the drug. They're denied. After the denial they file suit normally against the health minister in the state in which they reside. And then a court of law provides a judicial writ, which directs the health minister to provide reimbursement for the product, and then the product is made available to the patient.

As awkward as that sounds here, it's just the way things are done in Brazil. The patient associations are familiar, comfortable and support the patients through that process. We've had our office in Sao Paulo open since late in the fourth quarter of last year, and we've staffed out so that we've now got medical support to make sure that the centers treating patients in Brazil have adequate education and medical backup from BioMarin. To date it's been very encouraging to see how well the product has been accepted in Brazil.

Great. Thanks. I'll get back in the queue. Thanks.

Your next question comes from the line of Michelle Ha of Ferris Baker Watts.

Hi. Good afternoon. Could you please, Jeff, break down the stock-based compensation?

Yes. For the second quarter the stock-based compensation was 100,000 for cost of goods sold, 1.6 million for research and development, and 2.6 million for selling, general and administrative costs.

Thanks. And going back to Naglazyme, it looked like a pretty nice sequential bump up from the previous March quarter, and yet you're maintaining your guidance. Can you talk about what drove that sequential increase and what factors we should think about in considering the second half of the year, and why we're not raising that guidance?

Sure. In terms of -- let me start with what drove the increase. As J.J. mentioned in his introductory comments, we did have some international expansion. We also saw additional patients go onto commercial therapy in Europe and in the United States.

One of the things that isn't talked about much, but the majority of the MPS VI patients are children. When they go on therapy, they tend to develop better growth patterns, they get taller, they get heavier. And so as doses are adjusted, because this is weight-based, then there is some incremental revenue per patient.

So, I think our increase from Q1 to Q2 is a combination of increased dose, new patients found in the U.S. and Europe, therapy initiated in some of the smaller countries in Europe that have taken longer to get reimbursement lined up, and international expansion in places like Latin America, the Middle East and Turkey. Did I answer your question?

Sort of. I'm still trying to understand why those factors -- why we shouldn't consider those factors to be applicable -- to apply towards the second half as well?

I think we've tended to be fairly conservative. J.J. said previously that we are tracking toward the upper end of our guidance, which is certainly true. And I think most of us are a little uneasy projecting continued rapid uptake in markets where we don't have an approval and we have no ability to promote the product. We can provide education and medical support, but I think, at least myself, I'm uneasy continuing to project significant new patients coming in markets where we can't do any promotional activity.

Great. That's helpful. Thank you.

J.J., is there anything you want to add to that?

Again, we say we're tracking to the upper end of the guidance, it makes sense based on the Q1 and Q2 results, and we think -- considering the variables that were outlined by Steve and the fact that we did big countries like Brazil and most of the international markets, although we are growing significant sales; as we know we don't have approval. We haven't even filed in some countries. So, we just want to be a little careful. But things are going very well. And if they continue to go as well as they are going right now, then we'll look at this at the end of Q3 and make the appropriate decision regarding guidance for the rest of the year.

Your next question comes from the line of Phil Nadeau of Cowen and Company.

Good afternoon. Thanks for taking my question. My question is on the Kuvan early access program. Could you provide some more information about how that's going? How many centers are currently putting patients on therapy and how many patients do you have on therapy nationwide?

I think we made a previous agreement that we weren't going to give specific patient numbers at any point in time. If nothing else, because it's changing from day to day, and almost no matter what I say is out of date by the time I say it. I would give you the general feedback that it is going very well. We said previously we've had over 50 PKU clinics. Almost half of the PKU programs in the United States sign up in the enrollment forms to participate in the EAP. The majority of those are at some point in the process of going through their IRB, their Institutional Review Board approval, signing the contracts, and then getting patients lined up to come in and be tested for BH4 responsiveness. We have a handful of centers that are actively enrolling patients right now, but the majority of the centers that have enrolled are at some point in either the contracting or IRB approval process.

We're generally happy with the way things are going. The centers that are enrolling patients, we've tested out our systems to make sure the drug is shipped. Pharmacies can receive, repackage, get the drug to the patient. The proper safety reporting procedures are in place. So, the system is working. We anticipate more and more centers coming on over the course of the rest of the summer.

Okay. And what have you learned about the prevalence of PKU in the U.S. from the Early Access Program? Are the numbers of patients approximately equal to what you thought before you started this program, or are they at all higher or lower?

Can I go back and add one thing to my previous comment? One of the things that I think I should mention. I take it for granted, but maybe everybody isn't familiar, that the IRB process can take a while in centers, and particularly in the summer. IRBs shut down or meet less frequently, and it takes a little bit longer. We're actually very encouraged by how quickly some of the centers and surprised by how quickly some have come online. So, again, we're happy with the EAP progress to date.

In terms of numbers of patients, I think we have an extremely good handle on the number of PKU patients in the U.S. prior to EAP, because there is a newborn screening program in the States. Results of that newborn screening go into a central database. That database does have accessible information. We felt like we had a good handle on the number of patients in the U.S. We don't have a good handle, admittedly, on how many patients may have immigrated into the U.S. over the last 20 years. But the core number we believe to be somewhere between 12,000 and 13,000 patients, who have been identified through newborn screening since the onset of that screening in the early '60s.

There are additional agents with PKU who were born prior to newborn screening, and unfortunately and tragically those patients for the most part are either institutionalized or in group homes because the PKU wasn't identified quickly enough to save them from cognitive dysfunction as a result of the disease.

Okay. And one last question on the Early Access Program. What do you expect to learn about dosing, pricing, or any other aspects of this program from the EAP?

Well, we do hope to get a better handle on dosing. We know that most centers anticipate starting out with 20 mg/kg and then titrating. But where centers end up, we hope that early access information will give us a better handle on how the product will actually be used post launch. I don't think it will tell us much.

When you say titrate is that titrate either up or down, or is that titrate --

That would be titrate down, 20 mg/kg is the maximum dose. That gives the maximum response, and we feel that's the best way to find out if a patient is BH4 responsive. And then the physician will titrate downward, if appropriate, to get the patient into the target B levels that he's shooting for. I've got our chief medical officer right next to me who knows much more about this than I do. Maybe I could surf this to him and see if he'd like to add anything?

No, I think the key thing is you want to make sure that if you're treating a patient that you're giving them the best opportunity to respond, and so that's why 20 mg would be used. And after you've identified someone who has a response, then the doctor will, based on the criteria and goal for that patient on phenylalanine control, the degree of response may take it down. So, we will learn more about where patients line up on dosing. We have said before that our extension study, that about half of the patients were on 20 and about half are on 10. So, we expect that that range should be similar in the population.

Great. That's very helpful. Thank you.

Your next question comes from the line of Joseph Schwartz of Leerink Swann.

Hi. Thanks for taking the question. I was wondering if just before we leave the EAP if you could give us a sense of how admission into the program is determined? Is it an all comers program? And then I'd like to ask a couple of questions about the pre-commercialization.

Sure. The EAP is open to any PKU program in the United States.

Okay, great. And what are your plans for, if any, to sample the product, and will it be distributed through large distributors or specialty distributors? How will that work out?

We have no plans to sample the product, and we plan on having a limited distribution system relying primarily on specialty pharmacies in the U.S.

Okay. So, the initial week or two that a patient trials the product to see if they respond though, that will be considered sales then?

Yes.

Okay, thanks. I'll get back in the queue.

Your next question comes from the line of Lianna Moussatos of Pacific Growth Equities.

Thank you. Can you tell us how you're going to book the 15 million milestone payment in Q4? And can you break out Naglazyme sales by U.S., Europe, and the rest of the world?

Based upon the timeline that we see right now, that we would book the $15 million in the fourth quarter of this year. In terms of Naglazyme sales, we've not quite broken it down to the level of U.S., international and Europe, but the majority of the sales are outside of the United States.

Okay. And you're going to book all 15 million in Q4?

That's correct.

Okay.

Although there is a payment, also, that is due upon this filing. Jeff, do you want to go over that?

Well, there's not -- first of all, the $15 million relates to the acceptance of the MEA, which we will record in the fourth quarter of 2007. There is also another $30 million payment that we would expect by the end of 2008 related to the actual approval of Kuvan in Europe. That would be --

Because there is also a payment that we have to make.

There is also a smaller payment to our partners, about $2 million, that will occur in the fourth quarter upon approval in the United States.

So the net is around 13.

Okay, got it. You said Naglazyme is primarily outside the U.S., the sales?

The number one market for us right now is Europe, the U.S. is No. 2, international is No. 3.

Okay. And would you say that two-thirds of the sales are in the U.S. and Europe?

I think that's probably fair to say at this point, but those ratios are changing and we expect international to contribute a bigger and bigger percentage of overall revenues over the next several years.

I think another way to look at it is greater than two-thirds of the sales are outside of the United States.

Okay. Thank you very much.

Your next question comes from the line of Carol [Werther] of Summer Street Research.

Hi. Could you tell us if you have any plans to publish the Kuvan data or present it later this year?

The Kuvan PKU data, it is in process. I thought that the paper -- there is a paper coming out relatively soon.

The Phase III data has been accepted. We anticipate publication sometime this fall, and it has been accepted by the Lancet. There is also a metanalysis on cognitive function that has been accepted. We think it's important as background and overall care for PKU patients, and emphasizes the need for additional tools to manage these patients. And that again should be published prior to launch.

Okay. And have you started hiring the extra sales reps?

We have offers out and accepted to the four regional sales managers that will come onboard. We anticipate offers and hiring of the actual salespeople in September.

Okay. And I think you mentioned you have six -- it will be six studies going on with BH4. When do we expect the results of those different studies? Before the second half of next year or in the second half of next year?

It's actually -- this is (inaudible) -- the results will be distributed out during the year. The vitamin C plus BH4 combination study would be expected in the first half, as well as the sickle cell study. The PAD study and the CAD study might be in the second half. Also, the isolated systolic hypertension study, or the severe systolic hypertension study will probably be the second half based on the projections currently. So, we expect to see data coming out -- spread out during 2008.

Okay, great. And my last question has to do with reimbursement and what kind of progress you've made there for Kuvan?

We've had a variety of meetings both ad boards and individual meetings with payers. We feel that the feedback that we've gotten from the payer community has been consistent, and that is that it will be covered as a drug. It will be -- we have yet to have a payer tell us they will not cover Kuvan for PKU. As long as it's used within indication it should be covered.

Okay, great. Thank you.

Your next question comes from the line of Alan Long of Biotech Stock Research.

Hey, thanks. I love your clinical news flow for the next 18 months. Emil, I wonder if you can compare Phenylase with the [Altas] pharma product for treating PKU? What are some key differences between the two compounds?

Well, the Phenylase is a subcutaneous self-injectable drug. We originally had studied the oral route and the Altas product is an oral route, and I don't know anything about their products. I can't comment a lot how well it works, doesn't work. We had studied the oral route with a different form and found that the injectable was substantially more potent.

So, with Phenylase in the current form, injectable pegylated protein, we have an extraordinary potency and able to take PKU mice from very high neurotoxic levels of around 1500, 2000 micromolar all the way down to normal for weeks, and have had animals on repeat injection for many weeks without immunological problems so far.

So, we believe the potency makes the product an excellent choice for PKU, as long as we can demonstrate in the clinic that the patients can tolerate repeat injections. I think that's one of the key questions we'll get answered is the immunological response. But so far we're very encouraged with how potent and effective it is at reducing P levels.

Last question. You've got a great cash position. Have you moved closer to in licensing or are you really keeping the cash as a reserve for a big Phase III study, if you need to go it alone on BH4, or are all the options in play?

J.J., do you want to answer that the --?

As we explained with the cash, we did it because the terms were very good and we thought it was the right time to do it. Actually, with the recent events in the capital markets, it looks like our timing was pretty good. It looks like the availability of debt and the private financing is getting a little bit tougher these days. So, clearly our intent is not going to keep those cash reserves forever, so we have been actually working on different deals.

We have probably one, maybe two early stage programs that we believe we have a good chance to close before the end of the year. We're also working on other potential in-licensing opportunities for a late-stage compound.

So, we are very active on the business development front. There is no guarantee of any deals, as usual. But we believe that with our track record in developing compounds, getting them approved by the regulatory authorities, and with the successful launch of Naglazyme worldwide, that we are a viable partner for a company looking for out-licensing of compounds.

Great to hear that. I looking forward to seeing you soon.

(OPERATOR INSTRUCTIONS) Your next question comes from the line of Todd [McGarrin] of Merrill Lynch.

Oh, hi. Another question on the EAP. I was wondering if you can give us an idea of the anticipated costs for the program, for the anticipated 500 patients? And then, secondly, if you could remind us on the manufacturing source for Kuvan for the program?

We haven't really talked about the cost of the program. The cost consists of the drug material that we provide to the different hospitals, as well as certain other administrative costs, but those costs are just part of the overall bolus of prelaunch costs that we're incurring for Kuvan, which will rise as the rest of the year plays out. But we haven't talked about specific costs of the program.

And the manufacturing source for the Kuvan for the program?

We have you know three active [substance] suppliers. We have two established European manufacturers that have been approved by the FDA regarding G&P operations. So we believe that supply of drugs should not be an issue at launch. We believe also that we have a significant amount actually of active substance that is ready. The timing between availability of active substance and the finished product is only two months. So, if sales are significantly greater than we anticipated, we can move pretty fast to meet the demand, so we don't believe that is going to be an issue.

Okay, thanks a lot.

Could I maybe put one additional comment on overall costs, because it struck me that you may be looking at this in terms of is this a clinical study type cost structure, and it's really not. As Jeff mentioned, our overhead administrative costs, we have been willing to reimburse participating centers to cover their IRB fees and the shipping costs of having our pharmacies package the product and get it out to the patients. But we're not paying on a per-patient basis like a clinical trial. So, the overall cost burn is fairly minimal.

Okay, thanks.

Your next question comes from the line of Aaron [Reins] of A.G. Edwards.

I just had two follow-up questions. On manufacturing, do you perceive needing to expand the capacity at some point in time, and when, I guess, are you planning for that? If you have two suppliers, you said that shouldn't be an issue, but that kind of leads to the fact that you may need to expand capacity. Can you just provide some color there?

We actually have three suppliers. Two of them are in Europe and if we see the demand running up very fast, the new suppliers have the ability to expand the capacity significantly. Also, we are continuing to work on the manufacturing process itself to improve the yield and improve our ability to manufacture larger amounts of tablets with less substance. So, again, right now we don't anticipate this being a potential bottleneck. We have different possibilities to deal with the significant increase in demand.

Okay. And then on the opportunities that you're evaluating right now for in-licensure acquisition, previously you mentioned that you would focus on cardiovascular indications. Does that still seem to be the case? Are there other areas of interest that have come to light more recently?

We are pretty open minded regarding the circuit area. We really are looking at products that are either first in class or providing a very significant improvement versus what is already existing, generally addressing a limited patient population and high value product, highly specialized product, because this is what we know how to develop and how to commercialize. But we believe this can be happening in many different therapeutic areas. Once our representatives are in tertiary care centers calling on genetic centers, they can also call on other specialty areas in or around the hospitals. So, we're pretty open minded in this respect.

Okay. And just the last question I have. Now that you're in the middle of completing the [NNA] filing, I was wondering if the integration between Merck and Serono has had any impact? I know the majority of the dossiers are coming from BioMarin, but I was wondering if you could just provide any insight and color there?

Emil, you want to go over that?

Sure. Well, it's been a very orderly process. We've not seen any issues in putting together the filing. We (inaudible) provide them the filing and they're assembling the MEA, but at this point there is no impact of the integration, that we can see.

Okay. Thank you.

And you have a follow-up question from the line of Joseph Schwartz of Leerink Swann.

Hi. Thanks again. I was wondering what your strategy is when dealing with some of the larger centers that could even have 500 or more patients that they actively manage? Obviously there would be the constraint of having to screen and test for response in those people, but will the enrollment per center be limited in any way?

We have not limited enrollment for any specific center. I don't know of any centers that have anywhere near 500 patients. So at least according to our data, I think the biggest in the U.S. is about 300. The centers are somewhat self-limited just by the logistical challenge they have of getting patients in. Most of the genetics programs are not huge revenue producers for their affiliated hospitals and aren't over-staffed and sitting with a lot of open capacity. So, centers are needing to coordinate, line up the patients, bring them in on a regular basis. And I don't anticipate having to limit any center who wants to get all of their patients in.

Very good. Thanks.

You have no questions at this time. I would now like to turn the presentation back over to management for closing remarks.

So, we definitely had a very strong quarter thanks to closing the Naglazyme sale. We are well positioned with the developing pipeline with the development of the pre-IND activities for Phenylase and the continuation of the BH4 development.

Also, thanks, as I said earlier, to a very successful introduction of Naglazyme. We have demonstrated our ability to move molecules from preclinical all the way to commercialization very successfully, which positions BioMarin as a partner of choice for companies looking for out-licensing partners. And we, as I said also earlier, we are in active negotiations with different parties, and we anticipate potentially closing on some of those agreements for two early stage molecules before the end of the year.

So, we are looking forward to continuing to update you and meeting you at different upcoming conferences, investor conferences. So, thank you for your support. Goodnight.

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