BioMarin Pharmaceutical Inc (BMRN) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2008 BioMarin Pharmaceutical, Inc. earnings conference call. I will be your coordinator for today. At this time all participants are in a listen-only mode. We'll facilitate a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host of today's conference, Eugenia Shen, Senior Manager of Investor Relations. Please proceed.

Thank you. On the call today is JJ 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. This non-confidential presentation contains forward-looking statements about the business prospects about 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 program, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission such as 10-Q, 10-K and 8K reports. Now I would like the call over to JJ, BioMarin's CEO.

Thank you, Eugenia and good afternoon and thank you for joining us on today's call. I have a few introductory remarks before Jeff reviews the financial details of the second quarter and also the first half of the year and Steve will provide more detail of our progress about our Kuvan launch and Emil will provide update on our ongoing R&D programs. Eugenia will then review [investor] conferences and we will be presenting in the coming months before we ask the operator to open the call to questions. We're pleased with second quarter results with an increase of 122% in total BioMarin revenue as compared to the second quarter of 2007, Naglazyme, Aldurazyme and Kuvan enjoying strong top line revenues, which increased profitability for the third consecutive quarter and we are well on our way to achieving our first profitable year. First, Naglazyme was a 68% increase in net sales as compared to the second quarter of 2007 continues to perform exceedingly well surpassing our internal expectations. As a result we are once again raising expectations for 2008 from initial guidance in the range of $115 million (sic - see Press Release) to $116 million at the beginning of the year to $130 million to $140 million. Notable milestones in the second quarter included increased progress in several key international markets. We filed and received prior to review of Naglazyme in Brazil and received formal notification of government funding in Australia, two very challenging and important achievements. Or so as you might remember, Naglazyme received approval in Japan at the end of the first quarter and also making tremendous progress in other international markets and we continue to aggressively pursue further growth opportunities and initiation of new patients on commercial therapy.

Next are the results of strong third party sales of Aldurazyme during the first half of the year with a 32% increase in net sales in the second quarter of 2008 as compared to second quarter of 2007. We are raising the lower end of our 2008 guidance for revenue to BioMarin. While Genzyme did not raise guidance for total sales of Aldurazyme, the annual rate for the first half of the year is over $150 million and we have no reason to expect a slow-down in the business in the second half of the year. Also this marks the second quarter following the restructure joint venture with Genzyme, which we believe has resulted in improved efficiencies of operations of both parties and clearly increased sales.

Finally, the Kuvan launch is progressing well with net revenues of $12 million in the second quarter, which is more than double that of the first quarter. So far the launch is on track although screening of patients by some PKU centers has been slower than anticipated by some. We are pleased with the progress made during the first half of the year. Most of all we remain strongly optimistic about the log-term potential of Kuvan, the drug continues to maintains excellent safety profile and efficacy profile and the percentage of patients remain on therapy is higher than we expected on launch with a very low discontinuation rate seen so far. Although due to order cycles it is still too early to make predictions about long-term response rates and long-term compliance rates, we feel very confident about long-term future of the product and our estimate of Kuvan sales are still the same as they were at approval in December of last year and Steve will elaborate on the details of the Kuvan launch a little later. With respect to Kuvan's regulatory studies outside of the United States our partner is Asubio recently received approval from the Ministry of Health Labor and Welfare for Biopten, which contains the same active ingredients as Kuvan for the treatment of PKU. As you know, Biopten has been sold in Japan for many years by Asubio for -- be it for deficiency and ultra-rare disorder.

In Europe, BioMarin is working closely with Merck Serono and EMEA throughout the review process and we remain on track for a decision and potential positive opinion and improving Europe this year. As a reminder BioMarin will receive net single-digit royalty sales in Europe and in Japan we will receive substantially higher double-digit royalties, which will partially offset royalties we paid to Asubio on US sales of Kuvan.

To maximize our IP position around Kuvan we're developing strategies that will significantly extend exclusivity beyond our product protection of seven and a half years in's US and 10 years in Europe. We're aggressively building our patent portfolio with 87 applications in active prosecution. One in particular, which will prove very significant is an application for one daily dosing. This patent is issued as we expect it will offer protection until 2024 and further support our advances in the treatment of PKU and our IP position we are developing a pro-drug with superior bio-availability and we're making good progress with the development of this pro-drug.

Moving on to PEG-PAL. The first patient in the Phase I trial was dosed in mid-May and while it is still too early to speculate on efficacy, initial indications are quite encouraging. This is a very exciting program and Emil will review additional details of this when he reviews the R&D program a little later.

Finally as announced two weeks ago we entered into an exclusive world-wide licensing agreement with Summit regarding a novel pre-clinical candidate SMTC1100, which is being developed to treat Duchenne Muscular Dystrophy or DMD. And the DMD aligns very well with our growing product development pipeline as it is a genetic disorder with no approved treatment and a very high unmet medical need. We expect to be in clinic with SMTC1100 in the first half of 2009. We look forward to keeping you updated on this and our other pre-clinical programs and now I would like to turn the call over to Jeff Cooper who will review the financial results for the first quarter of 2008 and give detailed financial guidance.

Thanks, JJ, I will start by reviewing product revenues for Naglazyme, Aldurazyme and Kuvan for the second quarter and six months ended June 30, 2008 and follow collaborative revenue for the same period. I'll then review bottom line for the quarter ended June 30, 2008 and follow with a more in depth look at financial results. Beginning with Naglazyme net product revenue for the second quarter of 2008 was $35.1 million an increase of 67.9% over net product revenue of $20.9 million in the second quarter of 2007. Net product revenue for the six months ended June 30, 2008 was $62.8 million compared to net product revenue of $39.3 million for the six months ended June 30, 2007. Net product revenue growth is attributable to geographic expansion internationally, initiation of therapy by previously identified or newly diagnosed patients and weight gain as patients grow. Net sales of Aldurazyme by Genzyme was $38.7 million for the second quarter ending June 30, 2008, represented an increase of 33% over net sales of $29.1 million for the second quarter ended June 30, 2007. Net product revenue to BioMarin under the restructured agreement with Genzyme was $13.4 million for the second quarter of 2008. This reflects a reduction of net product revenue from the amount payable by Genzyme due to the timing of inventory transfers to Genzyme, which was less than unit shipped to third party customers. Net third party sales of Aldurazyme by Genzyme for the six months ended June 30, 2008, were $75.4 million compared to net sales of $55.9 million for six months ending June 30, 2007.

As noted previously beginning January 1, 2008, as a result of the restructuring of the joint venture with Genzyme, BioMarin received a royalty of 39.5% to 50% of worldwide net sales. In addition, BioMarin recognizes product transfer revenue when product is shipped to Genzyme. This amount will eventually be deducted from royalties earned when the product is sold by Genzyme. Because of the timing of shipment to Genzyme in the second quarter this resulted in a reduction in the royalty revenue recorded.

Net product revenue for Kuvan during the second quarter ended June 30, 2008, was $12 million, more than double first quarter sales of $5.8 million. Net product growth is due to increasing number of patients initiating therapy with Kuvan. As for collaborative agreement revenues associated with our partnership with Merck Serono, BioMarin recorded $2.5 million for the second quarter of 2008 compared to $3.5 million for the second quarter of 2007. Collaborative agreement revenues for the six months ended June 30, 2008, were $5 million compared to $7.7 million for the six months ended June 30, 2007. This reduction of collaborative agreement revenues is due to lower reimbursable Kuvan development expenses from clinical trial and manufacturing activities in the second quarter and first half of 2008. Net income was $3.8 million or $0.04 per share for the second quarter of 2008 compared to net loss of $3.9 million or $0.04 per share for the second quarter of 2007. The net income during the second quarter of 2008 includes $5.9 million of non-cash stock compensation expense compared to $4.3 million of non-cash stock compensation expense in the second quarter of 2007. Non-GAAP net income which excludes stock option expense was $9.7 million or $0.10 per share for the second quarter of 2008 compared to non-GAAP net income of $400,000 or $0.00 per share for the second quarter of 2007. Net income for the six months ended June 30, 2008, $5.5 million or $0.06 per share compared to net loss of $13.2 million or $0.14 per share for the six months ended June 30, 2007.

Non-GAAP net income was $15.9 million or $0.16 per share for the six months ended June 30, 2008, compared to non-GAAP net loss of $5.4 million or $0.06 per share for the six months ended June 30, 2007. Non-cash stock compensation expense for the six months ended June 30, 2008, and June 30, 2007, was $10.4 million and $7.8 million respectively.

Now, I'll review the operating expenses and non-operating interest income in more detail. Gross margins for Naglazyme were 81% during the second quarter of 2008 compared to 79% for the second quarter of 2007, due to improved yields and impact of foreign currency exchange gains. Aldurazyme gross margins will continue to fluctuate from quarter to quarter depending upon the timing of product transfers to Genzyme, which is the basis for cost of goods sold recognized BioMarin. During Q2 2008, Aldurazyme gross margins were higher at 89%, due to fewer inventory transfers to Genzyme that occurred during the second quarter. For the first half of the year Aldurazyme gross margins were approximately 67%, which is closer to the mid-60% range that we would expect over time. Kuvan gross margins during the quarter were 88%, which primarily reflects an 11% royalty on net sales. Once the inventory that was previously expensed as R&D is used up we expect Kuvan margins including 11% royalty to be in the low 80% range. Research and development increased $4.6 million to $23.8 million in the second quarter of 2008, from $19.2 million in the second quarter of 2007. This is attributed primarily to increased costs at the PEG-PAL program, early stage development programs, including BMN 110 for MPS IVA and non-cash stock-based compensation. And we expect to further increase our R&D spending as 2008 progresses to expand early stage development programs, support the PEG-PAL clinical studies, BMN 110 for MPS IVA, our recently acquired to program for Duchenne Muscular Dystrophy, ongoing 6R-BH4 program for Cardiovascular and Sickle Cell indication and non-cash stock compensation expense.

Selling, general and administrative expenses increased by $7.9 million to $25.2 million in the second quarter of 2008 from $17.3 million in the second quarter of 2007. This was largely due to increased commercialization activities related to Kuvan, continued international expansion of Naglazyme and growth in corporate expenses, including non-cash stock-based compensation expense. SG&A spending is expected to continue to increase in 2008 due to selling and marketing activities for Kuvan in the US, commercialization of Naglazyme in the Europe and Latin America and other parts of the world and non-cash stock compensation expense. Non-operating interest income decreased by $2.8 million to $4.1 million in the second quarter of 2008 from $6.9 million in the second quarter of 2007. During the remainder of 2008 we expect to earn less interest income on a cash balances as compared to 2007 primarily due to the decline in market interest rates. From a cash perspective, we ended the second quarter with $575.7 million of cash , cash equivalence and short term investments. Our inventory levels grew to $61.8 million as a result of the Aldurazyme inventory distribution upon the restructure of the JV, and growth and Naglazyme and Kuvan inventory requirements to meet future demands. Accounts receivable grew to $52.2 million primarily as a result of the increase in accounts receivable from Genzyme through the JV restructure, as well as increased receivables for Naglazyme and Kuvan.

With regard to 2008 guidance Naglazyme net product revenue is expected to be in the range of $130 million to $140 million, from a previous range of $115 million to $125 million. As for Aldurazyme, Genzyme maintained expectations of total net sales in the range of $135 million to $145 million.

We have adjusted our expectations for net product revenue to BioMarin range of $72 million to $80 million from previous range of $70 million to $80 million. Kuvan net product revenue is now expected to be in the range of $45 million to $65 million revised from range of $45 million to $70 million. Interest income is expected to be in the range of $15 million to $18 million, result of reduced yields on investments due to declining in market interest rates. As for net income for 2008 we raised expectations for an updated range from $30 million to $42 million from a previous range of $28 million to $40 million, which includes the impact of the recently announced licensing deal with Summit and assumes that the $30 million milestone for EU Kuvan approval will be earned in 2008. The estimate of 2008 net income includes approximately $24 million to $27 million in non-cash stock compensation expense. Non-GAAP net income excluding the impact of non-cash stock compensation, is estimated to be in the range of $54 million to $69 million from a previous range of $52 million to $67 million.

And now I'd like to turn the call over to Steve who will provide an update on the Kuvan

Thanks, Jeff. Let me start with Naglazyme, we've had an encouraging quarter with Naglazyme. Besides record revenues, Naglazyme received approval in Japan, government funding was approved for Naglazyme in Australia and registration packet was filed in Brazil. Naglazyme is already received priority review status in Brazil subsequent to that filing. In South Korea where approval was received in Q1 we anticipate government funding around the year-end. We continue to find significant numbers of new patients, particularly in Latin America, Middle East and Turkey. Naglazyme is now being sold commercially in 32 countries around the world with several additional countries likely to begin purchase by the end of the year. Growing patient base combined with continued geographic expansion made for exceptional quarter and bodes very well for the future.

With regard to Kuvan, six months into the launch, we continue to make solid progress. As JJ. mentioned we observed thus far is very encouraging and we're still very optimistic observe the long time of Kuvan. Percentage of patients kept on therapy is higher than we anticipated and there has been a low percentage of discontinuations once response has been established. In addition the blood Phe level reductions, many patients have noted qualitative benefits, such as better concentration, less depression, improved sleep, and generally just feeling better overall. There are also some accounts of patients being able to increase the amount of natural protein in their diets while keeping blood Phe levels under control. In our view, outcomes such as feeling better physically and the ability to increase natural protein intake will help with compliance. In addition through our BPPS system we have the ability to monitor the compliance and encourage patients to remain on track with regular therapy. We do not have data to be able to accurately predict long-term compliance but data from the Kuvan extension study gives us some insights who what we might reasonably expect to see. Of the 49 US patients in the extension study, approximately 73%, or 36 patients, have continued on therapy and transitioned to commercial drug when they reach the two-year mark. Of the 36 patients that were referred to BPPS and started commercial Kuvan, all 36 remain on therapy as of today. All of those patients have been on Kuvan for over two years at this point with the longest term patient at the two and a half year mark. Also as of June 30, 2008, of all the commercial patients on Kuvan for 90 days or more, 88% remain on therapy and are current with refills. This data is the best indication we have regarding the percentage of responders who will remain on therapy and bodes well for the long-term prospect for Kuvan.

We have seen a summer slow down of referrals, which is not completely unexpected. We have a number of patient information days already scheduled for the fall and anticipate we will see referral numbers go back up once we get through the vacation period. It may be worth noting patient information days are what we sometimes call town hall meetings. Our clinic sponsored programs designed specifically to educate patients about Kuvan in a group setting where patients have access to the clinicians, and often other patients currently on Kuvan, specialists and insurance and reimbursement and sometimes outside experts. Additionally initial investigators meeting was held for the Kudos registry, initial enrollment into that registry should begin in Q3. All US PKU clinics have been invited to participate in this program, which will build a data center and Kuvan and document its use in PKU populations including patients under the age of four, maternal PKU patients and hyper-Phe patients. To date, roughly half of the US PKU centers have expressed interest in participating.

Overall the response from payors continues to be encouraging. To date we've seen very few denials from payors mostly due to administrative errors, which we've been able to reverse. We do not anticipate reimbursement to be a limiting factor going forward. Processing times for patients that do not require financial aid or prior authorization of improved significantly in both BPPS and with our specialty pharmacy partners. Our current observed average dose is still approximately 18 milligrams per kilogram per day and the average weight is approximately 50 kilogram. We do not have enough information, yet, to assess compliance, assuming 80% compliance yields an average price of approximately $76,000 per year before factoring in mandatory government discounts. At this time 112 of the approximately 130 PKU clinics have referred patients for therapy and these referring clinics generally represent the larger clinics, which account for the majority of the PKU patient population.

In summary, we're encouraged by momentum generated thus far, the positive response from patients and the high percentage patients that remain on therapy after their initial exposure. We remain dedicated to the successful execution of this program and look forward to keeping you updated as the launch progresses. I'll turn the call over to EMIL who will provide update on R&D pipeline.

Thanks, Steve. Starting with PEG-PAL, the first patient in the Phase I trials was dosed mid-May, while the first few patients showed a drop in blood Phe levels with a dose of just 0.001 milligram per kilo, 10 times lower than the expected minimum effective dose level, we remain cautious regarding the safety and efficacy of the drug until we have additional data. The Phase I study will assess safety and PK of single injections of PEG-PAL and 35 PKU patients in a series of up to seven escalating dose cohorts of five patients each. The study expected to include by the end of 2008 or beginning of 2009, the early hint of high potency suggests that we may not complete all of the cohorts for the study, which will allow it to end earlier. Phase I studies would later be offered continuation into a Phase II study that will evaluate with the safety and efficacy of injections for eight weeks, followed by dose optimization in an extension period. This will be the true proof of concept study for the drug since the efficacy of repeat dosing in the presence of any immune responding is the key question to answer for PEG-PAL. Based on the FDA's additional regulatory requirements for initiating multi-dose therapy, we expect to initiate Phase II in the first quarter of 2009 regardless of when the Phase I study ends. Beyond PEG-PAL we announced at our R&D day in June, our GALNS program for MPS IVA for Morquio A syndrome, which is expected to enter the clinic in the first quarter of 2009. This indication fits our strengths well and hope to provide treatment option for this disease with our proven track record of expeditiously bringing products to market.

In addition our pre-clinical stage program for Pompe Disease is moving along nicely. In our second Pompe mouth study, treatment was provided weekly over a four-week period replicating a study published by Genzyme. In this study the glycogen storage measured in skeletal muscles was further reduced after a longer treatment period with [EMN 103] and glycogen storage reduction is superior to Myozyme and all muscle. This is significant as muscles are difficult to treat with Enzyme replacement therapy and one of the challenges to developing a successful therapy for Pompe. We are still considering our options for this program and we'll keep you updated on our progress. Regarding the BH4 cardiovascular program, we are performing several Phase II and exploratory studies with Sickle Cell disease study being the closest to result with the others following through the end of 2008 to early 2009. Expect to have data from the sponsor study for Sickle Cell disease by early Q4 and for PAD by early Q1 of 2009. Remainder of the studies should complete by Q4 2008 up to mid-2009 depending on enrollment in some of the investigator initiated studies. Collective results will help us determine the future of the 6R-BH4 cardiovascular program.

Also, as JJ mentioned earlier we entered into worldwide licensing agreement for Summit novel SMTC1100, which is being developed to treat Duchenne Muscular Dystrophy. SMTC1100 is an oral, small molecule utrophin upregulator showing promise in a mouse model of DMD and may have the potential for treating the entire spectrum of DMD patients, not just those with a particular type of mutation. Utrophin is an endogenous protein that substitutes for the defective dystrophin in DMD patients. The DMD indication aligns well with our growing products, development pipelines as it is a genetic disease with no approved treatments. IND-enabling studies with SMTC1100 are under way and we plan on entering the clinic in 2009.

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

Thanks, Emil. Before we open up the call for questions I would like to note that we will be presenting at a few investor conferences in the coming months. In September we will present at the Morgan Stanley Global Health Care Conference in New York City, the Merrill Lynch Global Health Care Conference in London, the UBS Health Care Conference in New York City and the Biotech in Europe Investor Forum Zurich. You can access these presentations live through our website at www.BMRN.com. With that we would like to open the call for questions.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Brian Abrahams with Oppenheimer. Please proceed.

Thanks for taking my questions. A question on the Kuvan launch it sounds like a vast majority of the patients on both commercial therapy and those on the long-term extension studies are remaining on treatment. I was just wondering if you could give us a sense of some of the reasons why the patients who dropped out did drop out, if there are any--if there is any clear pattern to some of the issues there, whether it be compliance or side effects or reimbursement that you might be able to address going forward?

I think there's like a couple of different ways to answer the question. Maybe a good place to start would be the patients who dropped out during this study itself and I'll ask Emil to add to what I say, but my understanding was, because of the study was set up for a test of one-day and eight days, our response test. We ended up having some patients in who initially looked like responders but were not true responders. It was fairly predictable they would drop off the longer therapy, when I'm speaking clear they weren't really responders. We had few patients drop off relative to side effects. We've had a handful that I've heard about that have had headaches or some type of GI disturbance that made them to go off they therapy. Some of those have come back on, some of those have not come back on.

What we see in the initial period in the first 90 days of therapy we see patients going on and off therapy on a more regular basis. Seems once they've been on for three months or so, they've stabilized, they understand what the drug is going to do, their diets become more standard, it's not shifting, there are fewer complications in their life and they seem to be pretty stable. But in that first initial period, we have patients who want to change their diets with out the physician's approval. We have physicians looking at the patient response in different ways, and it tends to be a little more unstable in those first couple months on therapy. Let me pause and see if Emil would like to add anything.

I think that is true, Steve. Perhaps some color on the Phase III patients in the US. There were 25 patients, and of the five that didn't go on, four of the five were of the type that were not true responders and one was a compliance issue. And so it was I think one of the factors in the US market where the patient could go on from that Phase III program. Those are the patients who had been on drugs now the longest. So I think that some of the patients were not really responders in there, and so that was I think one of the --

Brian you had question about patients dropping because of insurance?

I was wondering if reimbursement was of any issue?

We haven't heard about patients dropping as a result of insurance. I think it's fair to say we're still in process of helping our clinicians understand that the list price of the drug really has no impact on patient costs or ability to get reimbursement from insurance. This is a new kind of a product for geneticist are dealing with and we have and are still going through a bit of a learning curve on that. But we have not had significant issue with insurance. We've had isolated issues. We have routine Medicaid coverage, we're going through some wrestling right now with one program in one state out of 50, the other 40 -- actually 51 states when you include District of Columbia and Puerto Rico are going very smoothly. Over all of the reimbursement and insurance environment have been very positive for Kuvan.

Of the 49 patients from the extension study, are any of those still on the extension study or have all those who are going to roll over to commercial therapy already rolled over?

I think Emil and I can respond to that to symptom extent. The patients are eligible to come off the extension study when they hit the two-year mark, so they have come off in a staggered fashion. What we tried to do to coordinate as their two years are up they're referred over to BPPS to go over to commercial therapy. In most cases that has worked pretty smoothly. Off the top of my head I can't tell you how many are in the extension study, Emil may or may not have that number.

It's still just a handful now.

We're through most of those patients and I think the last one is scheduled to hit two years in October and November. Sometime in Q4.

Got you. And now just one more question on PEG-PAL and then I'll hop back in the queue. You mentioned in the past that you've seen 40% to 50% lowering with the 0.001 cohort. As you getting through additional cohorts, I believe you're on the second cohort now, what is your level of comfort that you're in the right dosing range here? Do you think about potentially going lower, maybe that the Enzyme is more potent in humans than you expected from the pre-clinical studies?

I think the data we're surprising us, I don't think we would necessarily go lower unless we were interested in setting out a safety issue. We are looking at that, whether that would be needed to go lower than that. We are in the second cohort and we confirm the data that had been reported and analysts report and by some patients online, but we're not going to confirm what the data are on a patient by patient basis going forward but we are in the second cohort now, and things are moving along well. So I would say I don't think there's at this point great need to go lower, we may look at it for the purpose of safety, but 40% in efficacy is good but these are patients with high Phe levels, and so in terms of hitting control criteria some still have some ways to go. We want to look at all of the data and get some more efficacy information and higher doses, and plus I would also point out to you when we get to repeat dosing things will change too. So it's a little hard to predict both dose and how it's going to play out in the presence of continued repeat dosing and immune response. Some other variables to consider.

I also point out as Phe levels drop, the efficacy Enzymes falls, which helps creates a soft landing in Phe levels, the challenge will be if you go up higher in dose the efficacy will go down somewhat. This will factors that will also play into how dose moves forward. It is our Phase I study, we're learning as we go and we'll certainly keep you updated. The only time point coming up would be the DSMB study, which would be in October for the first three cohort, which the number investors have asked about that. That might be another point at which some information we put out on the program.

Great, thank for taking my questions and thanks for the added information.

Sure.

Your next question comes from the line of Chris Raymond with Robert Baird & Company, please proceed.

Thanks for taking the question. Just another sort of Kuvan question. So I know you guys have said in the past that you've--you would rather not talk about specific patient numbers and other stuff but can you maybe you have some sort of flavor for where -- what the percentage of total patients are that are still on the drug that have started?

I think it's really hard to do that because at any given time you've got a significant percentage of patients who are going through their 30 or sometimes 30-day or sometimes longer test period. What we can say is the patients who have gone through the test period have shown to be responders and have stabilized at 90 days -- roughly 90%, I think it is 88% of those patients remain on therapy afterwards.

Okay. Great.

And if I may, (inaudible) before launch we say we anticipated 40% to 60% responders and I think, although I guess with a caveat that Steve said, the data is hard to analyze when we have so little history. But, I mean, it is clearly in that range and very likely north of 50%. If you take one patient who tries the drug how many decide to stay on therapy it is north of 50%.

JJ's comments are exactly accurate.

Can you maybe say if you have any info, what is the average amount of time that physicians are giving patients to respond?

30 days. We have a very small number of centers who are adamant that two weeks is their test period and they don't want to go for a month and we have a few centers who are continuing out beyond 30 days, but the vast majority of centers are making an evaluation at the 30-day mark if it's--at the latest they're making an evaluation at the 30-day mark.

Okay. And maybe also just finally give update on Canada and where things stand there, for Kuvan?

Sure. Canada we do have set up through Health Canada access for through the special access program to be able to supply Kuvan in Canada. The extension study patients that referred to before in the US, we have several of those in Canada as well. Those patients have been rolled over to Kuvan. At this point in Canada that is free goods Kuvan. We have no commercial sales in Canada at this point. I don't know how much detail we want to go into but we do plan to file in Canada and anticipate that will happen sometime in the first half of 2009.

Thank you.

Maybe it's worth mentioning we are investigating actively the ability to use special access programs to sell Kuvan into Canada for the remainder of this year, which is unlikely that would turn into significant revenue stream in 2008.

Great. Thanks.

Sure.

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

Thank you. I was wondering if you could quantify for us how much of the deceleration throughout the quarter you saw since I know that you gave us patient numbers a third of the way through the second quarter when you reported your first quarter, and at that point it seemed like there might have even been an acceleration. But apparently June must have been much slower than the first two months.

June is the beginning of the third month so unless Steve (inaudible).

We don't want to get into trying to quantify numbers. I think we probably did a little bit too much of that early on in an effort to be transparent, and my own read was that the more specific we got with numbers, the further things tended to get twisted out of shape. We saw significant deceleration in the summer months. If it wasn't significant we wouldn't have reported it. Don't want to get into what percentage there was of relative to previous months but it has been slow through the summer, we anticipate referrals are going to continue to be slow through August. I think I've said previously most of you are aware that we worked very hard with centers to try to set up patient information days. To me that's one of the real keys to getting patients referred into BPPS, is to give patients an opportunity to get, not five minutes in a waiting room but a couple hours with the experts to really get all their questions answered about Kuvan, learn about the product, learn about its impact on the disease, and have experts available relative to reimbursement, have other patients on the drug be able to tell them their stories, so that if we can get those set up we tend to get significant numbers of referral. Those have not happened during the course of July and June to any significant degree. We've had a lot of events, walks and runs and awareness type of events. So there's been I think improvement in the overall knowledge about Kuvan but they were not the type of events that generated specific referrals and we are not going to get any of those events set up until staffing gets back to normal, patients come off and physicians and care-givers come off vacation and that's going to happen really the first week of September. We've got significant numbers of events like that already set up in September. But it's really going to be the start of the school year before we can get those going.

Okay. Great. That's helpful. And longer term as far as other missionary selling activity, helping physicians buying their databases, do you have any plans to expand beyond the patients that have been identified and are treated already?

Sure. We're -- we're focussed right now on the patients in the clinic and that's always been the plan is to help clinicians work through their current base of patients. Until they get through them, it really doesn't make any sense to try to pull in additional patients. We've got actually two centers now that have been I think quicker than most in working through their current patient bases and we're doing programs with both of them, pilot programs, to reach out into the community and pull in patients that have been lost to follow-up. There are several different approaches to doing that. We hope that by the time most centers are ready to do that, we will have tried , tested and viable mechanisms that will work for them and not require them to reinvent the wheel in terms of pulling lost patients back in. I think there was a press release already from Children's Memorial in Chicago that was the first of those centers that embarked on that type of a

Okay. I'll get back in the queue. Thank you.

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

Thanks for taking my question. Couple follow-up questions to Joe. You mentioned a couple times that there is a summer slow-down in June and July and I just wanted to push you a little bit on that. How do you know it is a summer slow-down and not the low-hanging fruit at most clinics has already been picked. Where do you think you are in screening most of those patients that are already in physicians' offices?

We think we have a relatively small percentage of the patients being followed, probably somewhere in the 15% range. Some fairly wide confidence bars around that number, but the majority of patients who are actively being followed have not yet been screened for Kuvan.

Okay.

And the question here on the summer slow-down, we know from reports from the [reps] and I'll let Steve elaborate on that, lots of docs and nurses are on vacation and PKU centers are not going full speed right now.

I mean, we've said from the beginning that one of the real challenges with this launch has been that the PKU clinics tend to be short-staffed, are only open one or two afternoons a week or mornings a week. There just isn't a lot of excess capacity to put in the extra time to get Kuvan patients started, and if you take a situation where the centers are already short-staffed and under resourced, and then have nurses, genetic counselors, dieticians and physicians taking vacations, you just have things come to a significant slow-down. And that's what we've seen. I'm sorry, go ahead.

The reason why we think, we observing that so we have some new programs that are being lined up for late August or early September, while on these patient days but other is implementation of the registry. It will make a big difference in actually providing resources or electing to the sensors. Not allowed (inaudible) centers (inaudible) nurses, and not allowed to hire nurses for them, and that would be, you know, clearly outside of regulations. But through the registry, which is a study approved by the FDA we will be able to provide some additional resources, which we think will accelerate enrollment.

I mean, what I would say that makes me feel pretty strongly that summer is having a major impact is, we've got it at a minimum 12 patient days set up in September right now, lock, loaded, dates in place, speakers arranged, the whole nine yards. To the best of my knowledge we have zero set up for August. The fact we can get that many done in September while we're getting none done in August, which makes me feel that it is the summer that's having a significant impact on our inability to drive the market.

And what percentage of patients who are actually in the clinic do you think you'll ultimately be able to screen and has that changed at all since early launch?

I don't think I want to take a guess at that one, what we feel comfortable with is that we're going to continue to see additional patients come in. We're going to see significant numbers of those stay on therapy after they're tested for responsiveness and we're going to continue to build a base of business between now and the end of the year that will get us firmly within our current guidance.

Okay. Great, thank you.

Your next question comes from the line of Tom McGahren with Merrill Lynch, please proceed.

Couple quick questions on Kuvan and one on Naglazyme. Maybe you can expand on the clinical improvements you have been seeing with the Kuvan patients in terms of age distribution, older versus younger. And then secondly have you seen any Kuvan inventory issues? I know it is early. And lastly if you can break down the distribution offer the Naglazyme sales. You've done it previously for US and EU and the rest of the world.

Sure, let's I think the first question related more to the qualitative clinical outcomes with Kuvan patients. We aren't, at least until we get registry implemented and data being collected, we are not able to collect that in a coordinated fashion. What we get is anecdotal information. The anecdotal information crosses a range of different types of discussions ranging from parents reporting that their children are sleeping through the night fort first time. Their children have done better in school, better behaved, better attention. They feel better. Just a qualitative feeling of well-being.

I'll told at least some of you the story we had a patient who is a college student who was doing actually pretty well without Kuvan. He said after he went on Kuvan it was like the fog was lifted all of a sudden, everything was just clearer to him. So it's difficult to generalize, because it seems to have a different impact on different patients in different ways. We hear a spectrum of changes in well-being of the patient that is routinely positive, and which is one of the reasons why we feel so encouraged over the long term potential for this product. In terms of--

I want to make sure, Tom, we answer your question, we observe a difference response between older and younger patients?

Yeah, just maybe patients who are lost to treatment or over 40, they go back into the clinic, they go see a doctor again, are they seeing an improvement--different than the younger patients?

I don't have any data that would lead me to believe that it's different. It is not data we've been able to collect in any kind of organized way that I can give you information on that, that I would feel very good about.

Once we have the registry we can establish that. Apparently, as Steve said, we have not observed anything traumatic that would lead us to believe there is a substantial difference in response by age and I don't think there would be any scientific reason for that.

I don't think so. We are supporting some investigator initiated studies that will help quantify that data in addition to the registry and provide information about neuro cognitive function and how that might affect it.

And then your question on inventory --

Actually because we have limited distribution network we track that really closely. We correlate our bottles sold to bottles dispensed and they correlate almost bottle-for-bottle on monthly basis. We consistently run between two-tenths and four-tenths of a month's inventory and our specialty pharmacies and we have not seen that change since launch.

Okay. And then lastly Naglazyme.

The Naglazyme sales for the EU during second quarter was $16.7 million, for international outside of the EU, $13.2 million and in the United States $5.2 million.

Thanks a lot.

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

Thanks for taking my call. Congratulations on the Naglazyme sales. They were awesome. Did you have any increase in inventory in Q2 of Naglazyme that was responsible for the $35 million being higher than what we estimated? And then will it take longer than a quarter to recoup the dip in recognized Aldurazyme revenues? And can you repeat your comments on gross margins for both products, and when are you going to start the registry?

Sure.

Steve will start and Jeff will get on the Aldurazyme.

I can do two of those four and then I'll hand it over to the Jeff. Start with the last one first. We anticipate first patients into the Kuvan registry in September, in regard to Naglazyme inventory we have no additional inventory that has been put in place as I believe you know most of the Naglazyme sales are either direct from BioMarin to hospitals, or to government agencies that are supplying patients depending on the country and its system. So there is no inventory build up of Naglazyme that has anything to do with the Q2 numbers. I'll turn it to Jeff.

So with regard to the shipments of product to Genzyme, I should note that the timing of shipment to Genzyme varies from quarter to quarter depending upon both shipping schedules and the timing of lab release. So we expect that the transfer product into Genzyme in Q3 will be much higher as a number of labs that were originally planned for Q2 are released into Q3 so we should see the net transfer revenue increase during the third quarter. As it relates to the gross margin, I think you just had a general questions on gross margins?

And also for the two products, how is gross margin affected like for what happened with Aldurazyme and then for Kuvan.

All right. So with regard to Kuvan, the gross margins were 88 %, and as I noted majority of that relates to the 11% royalty that we paid to our partners, so we just had a minor amount of manufacturing costs that was recognized for Kuvan for the quarter, and we'll see relatively high margins for Kuvan throughout the rest of the year and you will begin to see that dip down in 2009, eventually down in the low 80% range including the royalty we pay out.

With regard to Aldurazyme, the gross margins for Aldurazyme in the second quarter were higher at 89%, so keep in mind that we recognized cost of goods sold for Aldurazyme based upon the quantity of products that we shipped to Genzyme, not the quantity of product that Genzyme ships to the third party, for Q2 even though our Aldurazyme revenues were lower we had relatively few shipments to Genzyme and low cost of goods sold. When applying low absolute cost of goods sold even to a reduced net revenue total it still resulted in a relatively high gross profit margin at 89%. If you compare that to the first quarter we had high quantity of shipments into Genzyme which increased cost of goods sold. Although BioMarin's Aldurazyme products sales were higher during Q1, significant amount of low margin product was transferred to Genzyme. So this resulted in a higher absolute cost of goods sold in the first quarter and that brought the overall margins down to 55%. So as I noted earlier if you look at the margins on a year-to-date basis for the first half of the year they average out to about 67%, which is closer to the mid-60% range we expect over the longer period of time. Does that answer your question?

Yes, thank you.

Your next question comes from the line of Carol Werther with Summer Street Research. Please proceed.

Thanks for taking my question. Could you just describe how the centers are deciding if the patient is responding or not? Are they using that 30% reduction in Phe level or how are they determining that?

Varies from center to center. I think most centers use 30% as kind of a starting point but they also take into account clinical changes in patient behavior, cognition. If you see a 30% drop and (inaudible) and maybe 40% drop and no ability to take incremental natural protein, no improvement in cognition, no improvement in emotional or social well-being, that is not nearly as exciting to them as a 15% or 20% drop where the patient's behavior changes substantially for the better. So the 30% is a lab value. It is important and it is used. But it is really just a starting point and they combine the blood Phe drop with the clinical drop to make a decision on whether the product is worth continuing or not.

And they can do that in like 30 days?

Normally. The only time it should take longer than 30 days is if you have a patient having something unusual going on and the patient is sick or has a fever, or they take labs and the samples are contaminated. There are exceptional situations where they will go longer. But for the most part you know in 30 days if you have a patient that is having a significant response.

Do you have a sense how many patients have been able to either come off formula?

I think very few patients have come come completely off any type of a low-Phe formula. We've had anecdotal reports that some have. But we really encourage patients and clinicians to look at Kuvan not as drug just used to liberalize diet, it is really a drug that protects the brain. Phe kills the brain and if Kuvan can be used to protect patients' ability to function, good emotional well-being, good social skills, to be able to process information, retain information, that's significantly more important than being able to eat a few extra french fries in the course of a week.

Okay. And then just lastly, are you--do you have any sense of the number of patients under four years old or over 40 that have been exposed to Kuvan, or doctors are holding off on that?

We've actually had a surprising number of patients under the age of five that have gone on to Kuvan, almost 10% of our patients, it is actually last numbers I have 8.2% of our patients are zero to four. We don't track over the age of 40. It really doesn't make any difference if they're over the age of 40 or if they're 39 or 35. As long as they were born post-newborn screening implementation, where the disease was caught early, and they were put on a Phe-restricted diet, then they avoided severe mental retardation and would be good candidates for Kuvan. We have heard anecdotal reports of institutionalized patients getting Kuvan but not many and I don't think we'll see many institutionalized patients get Kuvan until we generate some date attachment we have investigator sponsored trial that opened up now and hope to have some data over the course of the next year on those patients.

Thank you very much.

Sure.

Your next question comes from the line of Vernon Bernardino with Rodman & Renshaw. Please proceed.

Hi, thanks for taking my question. You had mentioned the average weight of PKU patients are 50 kilograms. Approximately what percent of patients treated with Kuvan are under 40 kilograms in weight and what is the average age of patients being treated with Kuvan? Currently how many PKU patients are in the BPPS? And approximately what percentage do you believe are now being treated with commercial Kuvan overall?

Let me start with the easy part of the question. We're not going to continue to give specific patient numbers. We decided that, we said that a couple times. We are not going to go there. I can tell you that the average age of patients right now is 15.7. The single largest group of patients being treated are patients in the five-year to 12-year-old age group. And if you include five to 18, that constitutes almost two-thirds of the patients that are currently on therapy. So I don't think it is particularly surprising, but it is the school-age, from really kindergarten through high school, that have gotten most of the attention early on from the PKU clinics. And I can't talk about specific patient numbers but it seemed like you had one additional question in there that I'm blanking on right now. Was there something I didn't answer that I can?

No, but just a follow-up, what approximately what percentage of patients are refilling their Kuvan prescription?

If you go past 90 days, 88% of patients are refilling and are current.

Great.

If you stay within the 30 to 60-day range, it's a very difficult percentage to give you because it fluctuates. We've seen patients go on Kuvan, come off Kuvan, go back on Kuvan, go back off Kuvan. There is a fluctuation during the early weeks and months on Kuvan that makes it very difficult to get an accurate numbers on exactly who's staying on and who is going off at any given time.

And I'm sorry if I missed this, what is the status of MA filing for Kuvan in the EU and the status of MN110?

The MAA for Kuvan in is under review, and we are expecting to hear about an opinion in the probably Q4 and potential approval is here somewhere in that time frame. We're working as we talked about in the script with our partner Merck Serono on that.

For the BMN110 we said that we will be--probably expect to file a regulatory filing, hope to do it by the end of the year, intent the study in Q1 of next year.

We anticipate [completion], again for BM110 for Morquio interim in Q1 of next year.

Great. Thank you for taking my questions.

Your next question comes from the line of Andrew Vaino with Roth Capital. Please proceed.

Thanks for taking my call. You mentioned earlier that patients were able to add more protein to their diets. I wonder if you can comment on how much protein? For example, could they go into the In-N-Out burger a couple times a week or just once a week?

It is variable to an extreme from a patient to patient situation. I can't generalize on it. I will ask Emil to take a look at it from a more medical perspective.

We have done studies looking at that specific questions.

I think we did a study to specifically measure and I don't think we have that kind of visibility (inaudible) to how much protein people are taking. Perhaps in the Kudos we might start getting some of that. What we found in PKU '06 study was that patients had average of 20 milligram per kilo increase in Phe tolerance above a baseline that was around 16 to 20 migs per kilo, so they ended up with around 40 milligrams per kilo. For the average Phe tolerance about a third of the patients had 30 to 50 mig per kilo increase for tolerance. So the average I gave you was about 20 but about a third had 30 to 50 which is a substantial increase. That work is -- a manuscript is prepared, it is in review and that will hopefully become published. It has been presented at scientific meetings.

Okay. Great. Thank you.

Your next question comes from the line of Lucy Lu with Citi, please proceed.

Thank you. With respect to the two converts, I want to understand better basically with net income crossing over to the above $40 million range, can you just talk about how should we think about the total diluted share count with respect to the two convert? Thank you.

Well, the two converts have about the equivalent of 26.4 million shares outstanding. But we don't reflect that in diluted earnings per share at lower levels of net income because of the feature where you add back the interest expense. So we've estimated that based upon our current shares outstanding that the convertible debt, there is two sets of convertible debt but they would become dilutive in the low to higher $40 million range of annual net income. So it is at that range we would expect that you would begin to dilute the earnings with the additional shares from the convertible debt.

Is there one convertible that you count first or both at the same time?

No, you start with one and then the other. In this case you would likely start with the larger convertible debt that has the 16 million shares outstanding and then the smaller one is 10.4 million shares.

It will be more dilution, of course, because of more shares, but as Jeff said, it would be reduction in or a reduction of interest expense in some respect in the calculation.

In the calculation you basically add back the interest expense to your net income to do the calculation.

Great. Thank you.

Your next question comes from the line of [Alan Leron] with Biotech. Please proceed.

Congratulations on the quarter. I appreciate how the portfolio is being built. You in licensed a couple of early stage programs you continue to in license a few programs a year. You might competent are you looking for more early or late stage programs or might you even swallow something big?

Thanks for your question, I mean, now we are starting to have a pretty substantial -- early to medium stage pipeline, because we have four molecules in the clinics in the first half of next year. But they are all like Phase I, Phase II. Indeed I don't think we have much of a need for additional early stage products. That doesn't mean if we find one that is really exciting we would do a deal. But if we do--I would say our focus is more late stage molecule. Although again since we have a pretty nice pipeline, we have top-line revenues growing at healthy double-digit, not like we're desperate for a deal here. So looking at and there is no guarantee we will find something.

I have to ask you this about Genzyme. You have got Aldurazyme relationship and now you have the potential competitor with Myozyme and a couple other indications. Has a condition Aldurazyme relationship if at all and has interest or discussion been ongoing between the two companies?

I mean our relationship Genzyme is very positive regarding Aldurazyme, it's also simpler now. They're in charge of commercialization, we're in charge of manufacturing that you know prevents sort of non-productive management discussions, so our relationship is very good. The only now issue of potential direct competition with them is the (inaudible) for Pompe and I think as we communicated at the R&D day when we first talked about the project, our intention and preference is to partner with Genzyme and we are in early discussion with them so I don't know where that is going to go. And if that doesn't go anywhere, that doesn't mean we won't develop the product ourself or potentially with another partner.

I think he's talking about Duchenne too.

You're talking about Duchenne? (Inaudible) I missed that one. Talking about Duchenne because of the deal that Genzyme PCC therapeutics I presume and the one we did. I think, again this is we are (inaudible) early stage unless Emil can add more on that. I understand the PCC mutation they're going after is less than 10% of the Duchenne population. So in some respects we're not going exactly after the same patient population. And there is room for probably more than one player here because it is a pretty large offering, indication--pretty large indication compared to storage license -- not talking about 3,000 or 4,000 patients in the world. We're talking about more than that. And maybe Emil will add.

In clinical development there is many patients to work with and I think it's going to be who comes up with better product. Utrophin regulation mechanism has the advantage of being able to treat everybody, but could be that the non-sense of pressure strategy being taken for a few patients might work really well or better. But I think both mechanisms could work and co-exist and both companies could do well.

Thank you. Fantastic. I'll say again, I like your portfolio.

Thanks.

I'd like to turn the call over to JJ Bienaime for closing remarks.

Thank you so. In conclusion, we've had significantly good, second quarter, strong sales on Naglazyme and Aldurazyme, doubling of Kuvan sales. This is our third consecutive proximal quarter, and we are encouraged by the first six months of the Kuvan launch, we remain very optimistic about the long-term potential of the drug and we are obviously dedicated to the successful execution of the program. So in addition to Kuvan we will still continue to focus on the geographic expansion of Naglazyme and Naglazyme international in turning into a major opportunity bigger than anticipated before launch and it is also emerging as a very significant product for BioMarin, also bigger than we anticipated before launch.

(Inaudible) of R&D pipeline. We just talked about it, including PEG-PAL, as a compliment to Kuvan, PKU, GALNS for Morquio 4A, BM103 for Pompe and possible additional in licensing for acquisition opportunities, such as the recently (inaudible) we did with Summit. So we have now a pipeline of products in development, four of them will be in the clinic in 2009, PEG-PAL, GALNS, SMTC1100 and Duchenne and BH4 for various cardiovascular disease. We look forward to keeping you up to date on progress and thank you for your continued support. Thank you for joining us on the call today. Good-bye.

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