BioMarin Pharmaceutical Inc (BMRN) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2009 BioMarin Pharmaceutical Incorporated Earnings Conference Call. My name is Shamika, and I will be your coordinator for today. (Operator Instructions) I would now like to turn the call over to Ms. 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, Hank Fuchs, Chief Medical Officer, and Steve Aselage, Senior Vice President of Global Commercial Development. I'd like to remind everyone that this nonconfidential 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.

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

Thank you, Eugenia. Good afternoon to all and thank you for joining us on the call. I'll make a few introductory comments before Jeff reviews the financials of the first quarter of 2009. Steve will then provide more details on the commercial activities, and Hank will provide an update on our ongoing R&D program before we open the call for questions.

So, first, looking at the big picture. We are proud of the business we built and we believe that in this tough economic environment we are well positioned for continued long-term growth. We have three commercial products on the market, each one independently profitable, and two of them are basically [annuities] with significant revenue contributions. We are transitioning from a business based on both products and collaborative revenue to mainly a products revenue driven business.

We have developed into a full integrated company with considerable manufacturing and R&D capabilities, and a promising product pipeline. We are operationally cash flow positive and we have $556 million in cash and investments. We believe we are a sustainable business that will continue growing for years to come.

After our Q4 call we received a lot of feedback from analysts and investors on our financial results. This feedback was constructive and reflected the difficulty investors face in understanding and tracking the investments of our core business.

In order to make the results of our business more transparent and to provide a better basis of comparison over time periods, we have adjusted our non-GAAP metric to exclude certain nonrecurring material items and the tax effect of the adjustments, in addition to noncash stock compensation expense.

We have compared our methodology with our peers in the biotech industry, and we believe that our methodology is somewhat conservative. The non-GAAP metrics do not include (inaudible) from licensees, milestone payments and impairment or investments that are recorded through the P&L, but they do not (inaudible) excluding ongoing amortization of deferred revenue or amortization of acquired intangible assets.

Although our GAAP net loss in the first quarter of 2009 was $13.2 million, compared to a net income of $1.7 million in the first quarter of 2008, when comparing the year-over-year results of non-GAAP net income on an apples-to-apples basis, we see increasing leverage in our core business as non-GAAP net income more than doubled. A detailed reconciliation of GAAP and non-GAAP net income is provided in the press release issued this afternoon, and Jeff will review this in more detail a little later.

Naglazyme continues to perform well with an increase in sales of 42% as compared to the first quarter of 2008, despite currency headwinds and the slowdown in the world economy. We continue to make tremendous progress in the international markets, and we remain confident that Naglazyme represents a $300 million-plus market opportunity.

Next, net third-party sales of Aldurazyme by Genzyme were flat in the first quarter of 2009 as compared to the first quarter of 2008. Although revenues were negatively impacted $3.6 million because of foreign currency weaknesses, the number of patients on therapy continues to increase.

Aldurazyme and other enzyme (inaudible) therapies, Aldurazyme benefits from built-in growth drivers such as dosing by weight and theoretically extension of life expectancy and consequently the disease [prevalence].

In terms of the challenging healthcare environment, we propose (inaudible) and reimbursement concerns. We believe Naglazyme and Aldurazyme will unlikely be significantly affected (inaudible) in the near term. Those products treat very small (inaudible) indications in disease populations with limited impact on payer's budget and many more risk of (inaudible).

Additionally, they are very expensive and complex to manufacture. So, we continue to carefully monitor for potential competitors and reimbursement threats, but in this uncertain environment, these two products are relatively well insulated.

Finally, Kuvan generated net earnings of $15.5 million in the first quarter compared to $15.1 million in the fourth quarter of 2008, and $5.8 million in the first quarter of 2008. We are encouraged to see positive feedback emerging from the PKU community, and we believe that this along with results from the numerous investigator sponsor trials, the registry program and the long-term (inaudible) should offer additional support for the use of Kuvan.

During the first quarter we received Notice of Allowance from the US Patent Office for the once daily dosing patent for Kuvan. We expect that the patent will be officially issued later this year and if issued, will expire in 2024.

We believe this is a significant asset in protecting the IP position of Kuvan. Potential competitors, we need to conduct clinical trials to demonstrate the efficacy of the BH4 product using the twice daily dosing regimen.

Moving on to clinical programs. We have a completed the fifth cohort in the PEG-PAL Phase I trial and we believe we have enough safety and efficacy data at this point, so we are transitioning to a Phase II study and working to finalize the protocol.

So, we announced the initiation of a Phase I/II trial for GALNS and MPS IVA last week. This product has a similar development timeline as PEG-PAL. Assuming success in these Phase I/II studies, we expect to initiate a Phase III study in the second half of 2010. This indication lies in our core area of expertise and we plan to leverage our strength in manufacturing, clinical, regulatory and commercial to quickly develop a therapy for the many untreated MPS IV patients who are very eager for treatment.

We remain excited about both of these programs, and Hank will review additional details on our overall R&D program a little later.

And now I would like to turn the call over to Jeff Cooper, who will review the financial results for the first quarter of this year.

Thanks, JJ. I will start by reviewing product revenue of Naglazyme, Aldurazyme and Kuvan for the first quarter ended March 31, 2009. I will then follow with a more in-depth look at our operating expenses and financial results before reviewing our expectations for 2009.

Beginning with Naglazyme, net product revenue for the first quarter of 2009 was $39.4 million, an increase of 42.2%, for a net product revenue of $27.7 million for the first quarter of 2008. Naglazyme net product revenue growth is attributable to geographic expansion internationally, the initiation of therapy by previously identified or newly diagnosed patients, and weight gain of patients grow.

Naglazyme sales in the first quarter of 2009 were negatively impacted by foreign exchange rates of about $2 million as compared to the first quarter of 2008, which is net of our impact of our revenue hedging program. However, after factoring in the offsetting natural hedge of expenses denominated in foreign currencies, the net negative impact of foreign exchange on our P&L was about $1.2 million.

Net sales of Aldurazyme by Genzyme of $36.8 million for the first quarter of 2009, or flat compared to net sales for the first quarter of 2008. First quarter of each year has been historically weak and foreign currency exchange rates had a $3.6 million negative impact on Aldurazyme sales by Genzyme in the first quarter of 2009.

However, in the first quarter of 2009, the Aldurazyme unit volume increased by 9%, compared to the first quarter of 2008, as the number of patients on therapy worldwide continues to grow.

Net product revenue to BioMarin related to Aldurazyme was $17 million for the first quarter of 2009. This includes $2.5 million of incremental net product transfer revenue as transfers applied to Genzyme exceeded the amount of products shipped to third-party customers by Genzyme during the first quarter of 2009.

Net product revenue to BioMarin was $24.1 million for the first quarter of 2008, and included incremental net product transfer revenue of $9.5 million compared to $2.5 million in the first quarter of 2009.

Net product revenue for Kuvan was $15.5 million for the first quarter of 2009, compared to $15.1 million for the fourth quarter of 2008, and $5.8 million for the first quarter of 2008. Net product growth was primarily due to patients initiating therapy with Kuvan.

Now, I'll review gross margins, operating expenses and nonoperating items in more detail. Gross margin for Naglazyme were 80% during the first quarter of 2009, compared to 80% in the first quarter of 2008.

Aldurazyme growth margins will continue to fluctuate from quarter-to-quarter depending upon the timing of product transfer to Genzyme, which is the basis for cost of goods sold recognized by BioMarin. In the first quarter of 2008, the Aldurazyme gross margins were 77%, which reflects both the royalty and product transfer revenue from Genzyme to BioMarin.

Kuvan gross margins during the first quarter were 84%, which primarily reflect an 11% royalty payable on net sales. Once the inventory that was previously expensed with R&D is mostly used up in the first half of 2009, we expect US Kuvan margins, including the 11% royalty payable to be in the lower 80% range.

R&D expenses increased $16.7 million to $34.4 million in the first quarter of 2009, from $17.6 million in the first quarter of 2008. This includes $8.8 million related to the upfront cash payment and premium on the equity investment related to the Riquent deal. The increase in R&D expense was also attributed to increased costs for clinical and early stage development programs and non-cash stock-based compensation expense. Of the total R&D spend of $34.4 million in Q1 2009, $2.5 million was stock-based compensation expense.

Excluding the $8.8 million related to the Riquent deal, R&D was $25.6 million in the first quarter of 2009, compared to $25.7 in the fourth quarter of 2008.

Selling, General and Administrative Expenses increased by $4.9 million to $28.6 million in the first quarter of 2009, from $23.7 million in the first quarter of 2008. This was largely due to continued international expansion of Naglazyme, commercial costs for Kuvan, and growth and corporate expenses including noncash stock-based compensation expense.

Of the total $28.6 million of SG&A spent in Q1 2009, $4.8 million was for stock-based compensation expense. SG&A expense in the first quarter of 2009 was just slightly lower compared to the fourth quarter of 2008.

Overall, we will continue to manage our spending closely, but we do expect operating expense to increase from the current level as the year progresses due to the advancement of our development program and expansion of our commercialization activities.

Nonoperating interest income decreased by $3.4 million to $2.2 million in the first quarter of 2009, from $5.6 million in the first quarter of 2008, due to decline in market interest rates. Current yields of invested funds are now in the 1% range compared to 5% just 18 months ago.

Nonoperating interest expense was $4.1 million in the first quarter of 2009, essentially flat as compared to the same quarter of 2008. Interest expense consists primarily of interest on our convertible debt and imputed interest on the (inaudible) debt.

In the first quarter of 2009, BioMarin also recorded impairment losses of $4.5 million related to our equity investment in La Jolla Pharmaceutical, and $1.4 million related to our equity investment in Summit PLC, for a total impairment loss of $5.9 million. The remaining investments of $1.8 million in La Jolla and $200,000 in Summit are reflected on our balance sheet as of March 31, 2009, based upon their trading price on public exchanges on that date.

Because both of these companies have announced that they do not have sufficient resources to fund operations for the next 12 months, the 2009 guidance reflects an assumption that the remaining investments in both companies will be written down to zero by the end of the year.

Also in March 2009, we entered into an asset purchase agreement with Summit, in which we purchased certain of Summit's assets which included all of Summit's rights to preclinical drug candidate known as VMN195 for Duchenne muscular dystrophy, and does remain in the original 2008 license agreement. The purchase consideration was principally deferred milestone payments matching the terms of the original license.

Now, I will review the gap and non-GAAP bottom line results. Our GAAP net loss for the first quarter of 2009 was $13.2 million, or $0.13 per fully diluted share compared to net income of $1.7 million, or $0.02 per fully diluted share for the first quarter of 2008.

Moving on to non-GAAP net income, as JJ mentioned earlier, beginning in the first quarter of 2009, our non-GAAP net income for 2009 guidance and historical financial results exclude material nonrecurring items and the tax effect of the adjustment, as well as noncash stock compensation expense. We believe this provides more clarity and a better basis for comparison of our ongoing business.

We define material nonrecurring items as transactions that are recorded to the P&L in the current period but are not incurred on a routine or ongoing basis. Examples of material nonrecurring items that are relevant to our 2008 and 2009 P&L are the upfront license fees for Summit plc and the Riquent deal, and the subsequent impairment charges on our investments in Summit plc and La Jolla Pharmaceutical Company.

Additionally, the one-time P&L benefit that we received during the first quarter of 2008 from the initial transfer of Aldurazyme inventory concurrent with the restructuring of our joint venture with Genzyme is also considered as a nonrecurring item.

Other examples of material nonrecurring items include milestone revenue and upfront payments to the extent they are recorded directly to our P&L in their entirety in the current period. However, license fees paid and milestones received and paid that are amortized over a period of time in accordance with GAAP, rather than being recognized in the current period in their entirety are considered recurring due to their ongoing nature. As a result, such items with an ongoing P&L impact are not excluded from our non-GAAP income.

For example, the ongoing amortization expense associated with the Oraped transaction and the ongoing amortization of the upfront payment received from Merck Serono in 2005, which is recorded as collaborative revenue for several years, are considered recurring items.

The reason that we have modified our non-GAAP reporting is to provide transparency to the financial performance of our commercial products, our R&D stage programs, and supporting functions. Previously we included only stock-based compensation expense due to its noncash and nonoffering nature. However, during 2008 and 2009, we have recognized material nonrecurring revenues and expenses that make the analysis of our core ongoing business more complex in the investment community. A detailed reconciliation of the GAAP and non-GAAP bottom line that includes descriptions of each of the non-GAAP adjustments is provided in the press release issued this afternoon.

Non-GAAP net income for the first quarter of 2009 was $9.3 million or $0.09 per fully diluted share compared to non-GAAP net income of $4.1 million, or $0.04 per fully diluted share for the first quarter of 2008.

Also, please note that in the first quarter of 2009 and 2008, both GAAP and non-GAAP net income were not high enough to reflect the impact of convertible debt, as their inclusion would be antidilutive. The inclusion or exclusion of convertible debt shares in the calculation of dilutive earnings per share is driven by the accounting requirement in accordance with generally accepted accounting principles.

From a cash perspective, we ended the first quarter of 2009 with $555.9 million of cash and short- and long-term investments. I should also note that we have an additional $7.7 million of restricted cash classified as part of other current assets on the balance sheet that will be used as part of the final payment for the (inaudible) debt obligation, which is due later this year.

With regards to 2009 guidance, we are essentially maintaining our previously provided guidance in mid-February. The only exceptions are R&D expense, where we now include $8.8 million of expenses associated with the Riquent transaction and the write-off our investments in Summit and La Jolla.

Additionally, we are adjusting our non-GAAP net income guidance reflected previously described methodology. Naglazyme net product revenue is expected to be in the range of $160 million to $175 million. Kuvan net product revenue is expected to be in the range of $70 million to $80 million. This includes up to $1.5 million in net product revenue related to Kuvan royalties on European sales, and product transfer revenue to our partner, Merck Serono.

For Aldurazyme we expect net product revenue to BioMarin to be in the range of $69 million to $74 million. Our estimate for 2009 reflects net incremental inventory transfer revenue between $3 million and $7 million, compared to $12.4 million in net incremental inventory transfer revenue in 2008.

Turning to expenses, we continue to except cost of sales in the range of 19% to 21% as percent of sales. R&D in the range of $118 million to $128 million, including upfront research and development expenses of $8.8 million associated with the Riquent transaction, and SG&A in the range of $120 million to $130 million.

For the 2009 bottom line, we expect our GAAP net results to be in the range of a loss of $15 million to break even. As noted in the press release issued this afternoon to provide more clarity on our ongoing core business, non-GAAP net income excludes noncash stock compensation expense, nonrecurring material items and the tax effect of the adjustments. Non-GAAP net income for 2009 is estimated to be in the range of $33.7 million to $51.7 million.

Regarding cash flow, we plan to spend over $80 million in capital expenditures to complete expansion of our Novato manufacturing facility, corporate campus and warehouse facilities. We also expect to pay up to $72.1 million for the remainder of the (inaudible) debt due in 2009.

And now I'd like to turn the call over to Steve, who will provide an update on commercial activities.

Thank you, Jeff. First, as JJ touched upon earlier, we are closely monitoring the impact of the worldwide economic slowdown and weakened healthcare sector on our business. In aggregate, we see no material impact on overall Naglazyme or Kuvan sales, volume of patient assistant requests, patient compliance or dosing regimen.

Turning to Naglazyme, we continue to make progress in international markets, particularly in regions such as Latin America and the Middle East. While fluctuations in foreign currency have masked the truth growth of Naglazyme, we are encouraged by progress made in new geographic regions and the number of newly identified patients initiated on the therapy.

It is probably worth noting that Latin American transactions, including Brazil, which is currently our largest market, are done in US dollars, so currency fluctuations do not impact revenues from that region.

Please also keep in mind that as international becomes a larger portion of our overall revenue, a greater percentage of orders come from government entities who tend to buy larger quantities less frequently. This situation is likely to cause some quarterly fluctuations going forward, as we experienced in 2008.

From our assessment of the market, we believe there remains significant untapped potential particularly in the international region, which is the largest contributor to Naglazyme growth. In addition to Brazil and Turkey, some areas where we see significant near-term growth opportunities include Columbia, Saudi Arabia, early stage markets such as Poland, Russia, Belarus, Mexico, and the Baltic States.

Markets where we have identified MPS VI patients but are unsure about our ability to secure reimbursement include Iran, Venezuela and China. We remain confident with our current peak sales estimate for Naglazyme for around $300 million, which is double our expectations at the time of launch.

Moving on to Kuvan, we continue to make progress in this very complex market. We have continued to see fluctuations in specialty pharmacy inventories, so we will provide end-user demand information as well as revenues. The quantity of commercial tablets dispensed to patients is the best metric to track true patient demand. In the first quarter of 2009, that increased 9.5%, as compared to the fourth quarter of 2008.

In order to continue building the clinical dataset with Kuvan, we are supporting a number of investigator-initiated trials that will assess a range of measures including improvement in behavioral symptoms, depression, anxiety, short-term memory, processing speed, executive function, and changes in bone density and nutrition. The trials will evaluate various patient populations including some that were not included in our Phase II and Phase III trials.

We continue to work to provide education and information to the PKU community. This is a patient population that has not had access to the types of support and information that are normally seen in orphan disease populations, and we are committed to making sure that patients get the information they need to make informed decisions. We feel that we are making progress in this regard and are encouraged to see increasing support from the PKU community.

The American College of Medical Genetics Annual Meeting in March, Dr. Anstel from SUNY Upstate Medical University highlighted the children with a PKU on diet alone are at risk for significantly lower IQ than unaffected peers and siblings. He also pointed out that increases in phobias, depressed moods and anxiety, and decreases in positive emotions, autonomy and social confidence are associated with PKU.

We believe that it is important to quantify the impact with PKU, such as described by Dr. Anstel and the various treatment options through the investigator-sponsored trials and our registry program and seven-year post-marking study. We also expect that these trials will provide important data about the effects of Kuvan beyond lowering Phe levels in some patients, such as the effects on neurocognitive function.

It is worth mentioning that we have also reorganized our commercial team, creating three geographic franchises. In North America, Sales, Marketing and Patient Services and Operations will all now report to one person. And our Kuvan sales representatives and managers will be responsible only for Kuvan. A small group of representatives will support only Naglazyme in the US. We feel that these changes can improve both focus and coordination of our Kuvan selling efforts.

While we expect additional challenges and fluctuations in the coming year, we remain confident about our long-term potential in the market and our ability to successfully execute this program.

Now, I'd like to turn the call over to Hank, who will provide an update on our R&D pipeline.

Thanks, Steve. Starting with GALNS program, or MTS IVA, the Phase I/II trial was initiated last week. In terms of timing, this program is on par with PEG-PAL program as both will yield Phase I/II results by early next year.

GALNS has been shown in mice to reach important tissues including cartilage and different zones of the bone including bone marrow, calcified bone, and importantly, the growth plate. We have also shown that GALNS has taken up into human Morquio chondrocytes in vitro and reaches the lysosome to clear keratin sulfate. This indication fits well with our core development, regulatory and commercial competencies, and we hope to leverage our strengths to provide the first treatment option to this unmet medical need.

Moving on to PEG-PAL, as JJ mentioned earlier, we have completed the fifth cohort of the Phase I study, and we believe we have enough safety and efficacy data to move onto the Phase II study. We are transitioning to the Phase II study and working to finalize the protocol, and working with sites to get them activated in enrolling patients.

This Phase II study will evaluate the safety and efficacy of weekly injections for eight weeks, followed by dose optimization in an extension period. This will be the proof of concept study for the drug, since it is the efficacy of repeat dosing in the presence of any immune response that is the key question to answer.

To put this in perspective, minor immune reactions with enzyme therapies are not unusual. The question is whether we are able to dose around this through pretreatment or possibly identification of patients who may react to therapy. We would like to reiterate that there are no serious adverse events in the Phase I trial, and while we have always been concerned about potential safety issues with PEG-PAL, we are no more concerned now than we were at the beginning of the trial.

As for the BH4 cardiovascular program, the investigator-sponsored Phase Ib multi-center, open label dose escalation study in pulmonary arterial hypertension showed that the drug was well tolerated and improved the six-minute walk distance in patients compared with their pretreatment baseline levels. Complete results for this study were presented at the American Thoracic Society Meeting in May in San Diego. As for the single center investigator-sponsored trial for chronic kidney disease, BH4 was safe and well tolerated in patients, but there were no improvements in the primary endpoint of albuminuria or secondary endpoints of the albumin-to-creatinine ratio, eGFR and blood pressure.

We are now reviewing the data from the completed BH4 cardiovascular studies and make a decision on the future BH4 cardiovascular program.

Turning to our product BMN103 for Pompe disease, we believe our highly phosphorylated enzyme could result in more efficient uptake in cells and potentially need to improve glycogen reduction in key affected muscle groups not addressed with current therapy. We continue to evaluate several partnering options for this program, although we have not excluded the possibility of developing this product for ourselves.

In terms of other preclinical programs, BMN-195 is a small molecule inducer of utrophin, a protein that can potentially replace the defective dystrophic protein in patients with Duchenne muscular dystrophy. After completing reformulation work and toxicology studies, we intend to enter this program into the clinic by early next year.

Regarding development of the handheld blood Phe monitor, we have successfully completed early proof-of-concept studies and are proceeding with prototype development. Near term plans include user studies as well as engineering scale-up and finalization of commercial product design with expected availability in late 2010.

We are also working on two undisclosed preclinical programs for which we expect to make IND enabling decisions during the course of the year. We will keep you updated on our progress on this and our other exciting programs as they advance. And with that, Operator, we'd now like to open up the call for questions.

Thank you. (Operator Instructions) You have a question from the line of Salveen Kochnover of Collins Stewart. Please proceed.

Good afternoon. Thanks for taking my questions. Could you provide us with some color on the first quarter Kuvan new patient additions into the free drug program, and just comments from physicians and patients and how the XUS launch is progressing?

We have said publicly that referrals into BPPS were somewhat down from Q4. We're continuing to add net new patients into the program, though, as reflected by the end user demand.

As far as XUS, Merck Serono has approval in EU. They have launched now in three countries. Those launches took place, I believe it was April 21 or 22, so it is really too soon to say much about uptake of Kuvan in the European marketplace.

Can you maybe just give us a little bit more clarity as to why you think referrals are down versus the fourth quarter?

We saw a significant bolus of referrals in the fourth quarter. Most of the PKU clinics worked on the assumption that the starter Kuvan program would end on December 31, and really worked pretty hard and pulled some extra patients in to take advantage of that program.

We had a number of centers that actually pulled the patients in, got them into BPPS, but then had BPPS put the patients on hold until they could get them back into clinic and start them up again. But I think we ended up in a situation where there was some backlog of patients from Q4 that rolled over into Q1 to actually come in and go through the logistics of getting started, and I believe that had some negative impact on Q1 referrals in.

Great. And then is there any chance for an interim look at the Phase II PEG-PAL data post the eight week dosing?

We're really just finalizing the design of that program and getting it started, so I think we'll -- as we get clearer on the program that we're going to implement, I think we'll give you an update then.

And then just one last question. What are the determining factors that you intend to take into consideration on deciding whether to continue with BH4 cardiovascular program going forward?

I think the core considerations are the strength of the clinical evidence, the degree to which an important medical need might be provided by the drug, physician/investigator interest, potential regulatory pathway considerations. And obviously we're running a business here and we're going to pay very close attention to business considerations in making a decision.

All right. Thank you.

Your next question comes from the line of Brian Abrahams of Oppenheimer. Please proceed.

Hi. Thank you very much for taking my questions. Question on the Phe handheld device. I was wondering if you could outline it in a little bit more detail some of the steps that are going to be necessary in order to make that available? And what's your sense, based on your market research as to the potential this might have in increasing Kuvan uptake?

Do you want to start with the regulatory, or would you like me to start with the commercial?

Why don't you start with the commercial.

We think the home Phe monitor would be a significant benefit to Kuvan and also an essential part of a PEG-PAL launch in the future. One of the barriers for patients getting started and staying compliant is the logistics involved in getting a patient to the hospital, getting a blood draw. Many institutions require three to four weeks of stable blood levels prior to starting a patient on Kuvan.

If a patient can use a dried blood spot, mailing it in is awkward, but if it's a center that requires the patient to actually show up at the hospital, get a blood draw, family lives 100, 150 miles away, it's a huge logistical barrier for patients. Being able to put a simple standard, easy-to-use way to measure blood Phe, all the results back into the center we think would it make it much easier for patients to get started.

Once patients are on therapy, being able to routinely check their blood, I think, would give them a significant motivation to stay more complaint both with their diet and with their Kuvan therapy. But we see it as a win-win both in getting patients started and keeping patients on therapy.

Regarding the -- as explained by Hank, we have a working prototype already. I mean, we're basically talking about making some modifications to blood glucose monitoring devices to adapt them to measuring Phe levels, and we've done that. Now we need to develop several prototypes to be able to do an end-user study and to look at how patients interact with the device and how to optimize the device before we do the scale up and prepare for launch. By the way, we see commercial availability, but it's actually -- we're not going to sell, it's unlikely we're going to sell the device. We're probably going to provide it free to the patient to actually potentially improve Kuvan and down the road potentially PEG-PAL sales.

Great. And then just a quick follow-up. Can you describe in a little bit more detail the reactions that we're seeing with PEG-PAL at the higher doses independent of the Depo-Provera? And based on your dialogue with the FDA, how high is your level of confidence that the Agency will enable you to proceed into Phase II?

I think one of the most important perspectives to have on this is that we have not observed serious adverse reactions in patients who have been treated with PEG-PAL. The events that we've seen are the events that would be expected to be seen with a product of protein nature. We have not reported any alarming or severe, serous adverse reactions to the FDA, and as far as ongoing dialogue with the FDA to wait until we really are at the stage of implementing a Phase II trial, then we can characterize all the feedback we receive from investigators, IRB, regulatory authorities, etc., in terms of how we capture that into the final design of the Phase II program.

But we are pretty confident that we are going to be able to start on study 2.

Great. Thanks for the additional clarity.

Your next question comes from the line of Chris Raymond of Robert Baird. Please proceed.

Yes, thanks. I just want to make sure I understand some of the dynamics here with the Kuvan numbers. Steve, you mentioned, I think I heard you say that unit sales for Kuvan were up. Am I correct, 9% over Q4 '08; is that correct?

9.5%, and that is the measurement of tablets dispensed from specialty pharmacies to the patients, (inaudible) tablets dispensed.

Okay. And so I understand Q1 -- or Q4 had an inventory impact, but is it an accurate statement to say that obviously your sales, your revenue run rate was not up 9.5%, so should we, from our perspective for thinking purposes, assume that maybe that $1 million inventory issue that we heard about in Q4 has been sort of worked out, or are we at sort of a steady state inventory level among the distributors?

Well, we'll find out, but I think we're close to a steady state at this point. Chris, what has surprised us a little bit, really, for a product with this small a volume is the ups and downs on a month-to-month basis of the inventories the SPs are keeping. The ordering patterns haven't been particularly predictable, so it's the reason why we went to the end-user demand metric. We found trying to count patients and communicate patients has not been particularly helpful and sometimes misleading.

The one thing that is unarguable is how many patients are going to the -- or how many tablets are going to the patient. We get good, accurate information on that, we can track it on a relatively real time basis, so we felt like going forward that might be something that would help everybody with their models, which would be, I think, pretty clear insight into the true demand.

So, remind us, what was the tablet unit growth sequentially in Q4 versus Q3?

9.5%.

No, that's Q1 over Q4.

Over Q3?

Yes, Q4 versus Q3.

It was smaller. It was -- doing some math in my head here -- it was more like 2%.

Okay, okay. So, it essentially looks like they just worked off the inventory from Q4.

Yes, I mean, Chris, since the dollar sales didn't (inaudible) 9.5%, there was some destocking that took place at the pharmacy level -- I mean, specialty pharmacy level.

Okay, thanks.

You have a question from the line of Phil Nadeau of Cowen and Company. Please proceed.

Good afternoon. Thanks for taking my question. JJ, the first one is for you. After the long-term guidance you gave last quarter, there was a pretty violent reaction in the stock. I'm wondering if that has caused you and the management team to change your long-term plans as far as expenses, and if there are any -- if there is any way that you can actually decrease the expenses that you had projected you were going to have?

Yes, we decided not to give long-term guidance or to update for this quarter, and we make no commitment to provide further long-term guidance at this time, but we are managing expenses very carefully. We actually have gone through a review with Jeff Cooper and the management team of all different expenses that are being incurred within the Company and the different programs.

We believe we are very fiscally responsible specifically compared to all the companies that are about our size with significant revenues. At the same time, (inaudible), I think their SG&A was $160 million, significantly higher than ours when they're only selling one product around the world and we're selling two products and supporting three. But we are managing expenses and hopefully we'll continue to grow the GAAP and non-GAAP income. That's what we've been (inaudible).

Okay. And just a follow-up to that. Understanding that there are priorities within every company and it's hard to make any definitive statements, but if you did decide to cut costs, were there fertile areas to do that, or do you find that your expense structure is kind of as streamlined as it possibly could be given the projects that you think should be --

Even the projects that we have ongoing right now, I think it would be difficult to significantly cut the expense at this time. Although there are expenses, obviously. We'll fluctuate in the future depending on how many projects survive and how many projects we bring in from pre-clinical into the clinical, and that's somewhat difficult to predict. That's why we gave a range. But maybe Jeff can elaborate, but clearly with the products we have today, we provided a pretty long list, I think, in the press release. We believe we have the right infrastructure and it will be difficult to significantly reduce the expenses from where we are now.

I pretty much share what JJ says. I think, really, the ultimate spending will be dependent upon the projects that make it through the pipeline. And, of course, as projects move further along in the pipeline into later stages of development there become more expenses. So, to the extent that we're spending a little bit more money on certain programs, in one sense it's positive because it might mean that we're actually getting success with those programs.

Obviously, to the extent that some programs don't make it, we won't be spending money on those programs. But clearly, as we look at our portfolio of all of our programs, we look at that carefully at least a couple times a year in terms of all of our programs, and then prioritize in terms of where we want to go and also factoring in the overall spending impact. So, we look at that pretty closely.

Okay, that's very helpful. Hank, one for you. It seems like the guidance for mid-2010 data for the Phase II PEG-PAL trial is maybe somewhat later than we had thought, maybe a quarter or maybe even two quarters later than we thought. Is there any change in the design that you are thinking about versus what you have suggested in the past, or I guess why is that in mid-2010 rather than like Q1 or earlier?

To my knowledge there hasn't been any major change in the design of the program, and I think we're probably being conservative about all the things that we have to do to get the program through the patients, go through the stages of the protocol and report it.

Okay.

But hopefully it can happen earlier, but our target (inaudible).

Okay. And one last question, just housekeeping question for Jeff. Jeff, do you have the quarterly non-GAAP EPS numbers for 2008, using the new method of computing non-GAAP EPS?

Sure. For the first quarter of 2008, it's $0.04 a share, and for the full year 2008, and that's basic and diluted. For the full year 2008, basic is about $0.30 and diluted about a penny less, $0.29.

Do you have the intervening quarters, Q2, Q3 and Q4?

I don't have them handy, but we can get those to you.

Okay, great. Thank you.

You have a question from the line of Lucy Lu of Citi. Please proceed.

Great. Thank you. I have a question on the Pompe disease program. What goes into your calculation and consideration in terms of finding a partner versus doing this program yourself? And I also want to know, if you decide to do it yourself, how soon can this program enter clinical testing, and do you need to change your R&D expense guidance for this year? I think it would probably take a lot of resources to do this. Thanks.

In answer to your other question, whatever we do will be an increase already built in our 2009 guidance. This year with the program, we're not going to be in the clinic this year. We're just doing some pre-clinical work. So, what enters into the decision? There are actually a lot of variables, risk assessments of the program and potential (inaudible) of the partner for different reasons, ability to break the orphan drug status in Europe and the US, and basically an MPD analysis of what would be or adjusted MPD analysis, probability of adjusted MPD analysis as to what we can do on our own versus going with a partner. Some (inaudible) considerations, of course. We just talked about expenses and obviously if we do this program on our own, (inaudible) P&L would be much higher than if we partner it (inaudible). So, this is taken into account. I have to say we are in active discussion with a potential partner right now. But we feel pretty confident that either we will finalize a deal with a partner or have made the decision of going alone by the end of the summer, I would say.

JJ, it sounds like you're a little more open than before in terms of maybe wanting to take on this program on your own. Am I reading that correctly --

No, no, no, you're not reading that correctly. It's just that maybe what difference, perhaps a year ago we thought, well, either we partner it or we just shelve it, and here it's either we partner it or we do it alone. That's the difference. But we have not made a decision. I would say there's a higher probability that we're going to partner it than not.

Okay. And then the last question the BH4 program. If you were to discontinue that program, how much money can you save from an R&D budget?

This year -- Jeff, do you want to try that?

Yes. I think as you look at our BH4 spending for this year, clearly, as you look at the BH4 in total, we'll spend less than last year. We had a full range of development during 2008, and we're wrapping up a number of studies, or completed a number of studies now, so the spending is less. However, we are also looking at prodrug development and assuming that we continue to move forward on that program, that spending will ramp up, so there will be somewhat of an offset. So, overall, our spending will be a bit less than last year. If you look at BH4 and prodrug, but not too much.

But, also to summarize as to where we stand based on what (inaudible) BH4 (inaudible), there are only two indications that could potentially move forward. One is sickle cell and one is PAH. That's about it. And then we're going to make a decision, if we move with one, unlikely we would move with two, or we don't do anything anymore, we just shelve the program. And we make that decision in the summer.

Okay, thank you.

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

Hi. Thanks for taking my question. I think I heard you say that BPPS referrals were down versus the fourth quarter, but there is a backlog of patients, and I'm wondering now that we're looking towards the summer, do you expect more weakness this year in the summer months? And are all of the patients that were in the investigator-sponsored study that can get commercial therapy already on Kuvan? Thanks.

With regard to projecting future referrals into BPPS, we think we can increase referrals over the next few months. I think if there is one thing we've learned in the last and a half is it's dangerous to predict what referral levels are going to look like downstream. So, we feel confident that we're putting in place some programs that are going to help referrals. But I honestly can't tell you it's going to increase by X percent or certainly that it's going to increase at all. We feel good about what's happening and we feel like we're making progress. We feel like we're going to come in within the revenue guidance that JJ has provided, which is going to require some increase in referrals. So, I'm generally positive about it.

With regard to the bolus of patients, maybe it's worth saying that one of the reasons why we had that 9.5% increase in tablets dispensed in Q1, because we had some success in taking the starter patients that came in in Q4, and moving them through reasonably rapidly on the commercial product in Q1. You had a third question in there, and if you could repeat that for me, I'd appreciate it.

I think there were a couple fairly large investigator-sponsored studies, and you were waiting to begin until those protocols were all figured out, and yet they were going to be using commercial drugs. So, I'm wondering, have those already begun, what stage are there?

Yes, we have, I believe, eight different investigator-sponsored trials in PKU. Of those eight trials, they range from almost completely enrolled. Probably the furthest along only has one or two additional patients to go into the study. We've got a couple that are still at IRB stage that we don't have the first patient in. Really, a scattering of patients between those two extremes. The product is used in all the PKU-related investigator-sponsored trials. We do provide free drugs in trials outside of PKU, and we do have a couple of those going as well.

Okay, great. Thank you.

If I can maybe read between the lines on your question, I think you previously asked about one large trial that seemed to be going pretty slow, and that trial has ramped up significantly and we're seeing good patient accrual, and hope to have some data on that by early next year.

Your next question comes from the line of [Leanna Mosotos] of Wedbush. Please proceed.

JJ, you said, just kind of following up on Lucy's questions about business development, but you had said earlier this year that there was a potential for a late stage opportunity in licensing this summer, that you guys were still in active negotiations. This is after the Riquent announcement. Is that still a possibility?

No. We keep looking at business development opportunities on an ongoing basis, and that is a possibility. But, as you know, in business development, you're never sure of any deal until you decide and the price established and the parameters of the deal are established. So, that could happen, but we are very careful as to how we are going to spend our money. We are not looking at major acquisitions at this time. We are looking at product deals that would leverage our infrastructure in Europe and also the rest of the world, and also the US potentially. So, there are actually several negotiations going on at this time and there is no guarantee of anything happening.

Okay. And you had said that if something late stage was going to happen, it would happen in the summer, or Q3. Still the same or you don't want to define it that much?

Yes, I don't want to -- it's a possibility, but far from being sure.

Okay. And could you repeat, as part of product sales guidance, you're giving guidance on transfer fees and things that were nonorganic sales. Can you repeat that, please?

Are you referring to Aldurazyme?

Aldurazyme and I think there was something with Kuvan.

No, no. We had provided the Aldurazyme -- the revenue to BioMarin, the guidance that we provided was $69 million to $74 million in total, and I think I noted during the earlier discussion that about $3 million to $7 million related to net incremental product transfer revenue.

Okay. And none of the other ones have anything like that?

Well, the only other thing for Kuvan is we have Kuvan guidance $70 million to $80 million, and of that I know about $1.5 million relates to product transfer revenue and royalties that would go to Merck Serono.

Okay, thank you very much.

You have a question from the line of Josh Schimmer of SCN. Please proceed.

Hey, thanks for taking the question. For the Morquio program, aside from safety, what efficacy or disease measures will you be evaluating in that Phase I/II study? What activity will you be looking for specifically, and how will you decide what the appropriate dose is to move into Phase III? Thanks.

Yes. We're going to test three different doses, and we're going to look at a bunch of biological markers of activity, which could include keratin measurements in both plasma and in urine. In addition, we're looking at some other biological markers of either bone production and turnover or inflammatory state of the patient. I think one of the most important and exciting aspects of the program is the opportunity to observe improvements in either function or wellbeing of patients, which could be measured either in terms of pulmonary function tests or walk tests.

As you know, with the other enzyme replacement therapies for lysosomal storage disease, the treatment effect has been so dramatic as to be relatively evident early on in the clinical trials. And so we'll be paying very careful attention to clinical efficacy outcome measures in these trials at a variety of different doses and using that information, together with a registry study that we're doing to pick a Phase III dose and design and endpoints.

Great. Thanks so much.

Your next question comes from the line of Shiv Kapoor of Morgan Joseph. Please proceed.

Hi. I've got two questions. First on business development. It seems like you've got three drugs that are growing pretty fast, and you've got a strong pipeline. You just announced that there are two additional undisclosed drug candidates that could do an -- you could do an IND for pretty soon. I want to know, why do you feel that you need to end license more drugs, and perhaps the question should be, has that need decreased over the past six months?

Well, that's a good question. I mean, we don't absolutely need to end license something to keep growing. I would say by adding another late-stage product, like Phase II, Phase III product, we maximize our chance to maintain healthy, double-digit top line growth for years and years to come. But in clinical development, you need to have lots of (inaudible) because some projects die. It's an issue of product development in the biopharmaceutical world. So, but we're not desperate like we absolutely need to license something or we are going to be in trouble. It's not the case. That's why we are (inaudible).

So, to answer your question to increase or decrease (inaudible) remaining about flat. There is no increased need to end license something, but I think if we find the right product at the right price, we'll end license. It's just a question of financial analysis and product analysis. I know we have over $5 million of cash for over two years now and we've been very careful with it. There is no reason why did the option on Riquent, which didn't work. That wasn't really related to amount of money. The fact that we have money doesn't mean we need to spend it. It's available in case we find the right opportunity.

And it's true there are lots of assets which prices declined significantly in the past six to nine months, but the fact that they are cheap doesn't mean that they are good. So, we are -- I think it's good business to keep looking at what's available and specifically when some assets are for sale or available, then we do that and we might end license something. And we have bids for a couple of things in the past, as some of you know, and when the price got beyond what we believed was the right price on the asset, we stopped and we didn't buy -- we didn't do a deal. (Inaudible).

So, what I'm hearing is you're not desperate so you won't do a deal until it's very strategically beneficial and leverages your infrastructure.

It has to be financially beneficial first.

Sure. I'll ask the second question. On Naglazyme, can you go over some intra-quarter trends? It seems like you got the marketing approval in Brazil, and although you have been able to sell there before, it seems, according to my calculations, your penetration there is still only 30%, 35%. Have you seen a stronger trend toward the end of this quarter on Naglazyme?

I'll just correct one of your statements and let Steve answer the question. In Brazil, although we didn't have approval until January of this year, we have been studying Brazil in the past couple of years already on a name patient basis, but I'll let Steve elaborate here.

I think the change in Brazil that the approval gives us is the ability to go out and educate much more aggressively about identification and treatment of MPS VI patients. In the course of the very brief period time since that approval came in, we ran three educational meetings in different parts of Brazil, one in Salvador, one in Rio, one in Sao Palo, where we had almost 50 physicians, specialists in genetic diseases, who met with experts both from the US and from the genetic centers in Brazil that have done a lot of work with Naglazyme. And we were able to do a tremendous amount of work in terms of increasing awareness, facilitating referrals, and initiation of therapy for patients in Brazil.

It also allows us to work much closer with the diagnostic labs. Working with the labs gives us the ability again to find patients sooner and get them started sooner, improve their lives and increase our business. I would say that your comment about 30% penetration in Brazil is a little iffy of the known patients in Brazil right now. We have a substantially better penetration than that, but we also know that there is significant numbers of patients in Brazil, or at least we believe there are significant numbers of patients in Brazil that we have not identified yet, and we think there is a significant upside potential now that we have approval to be more aggressive in going out and trying to find those patients.

Okay, thanks.

Sure.

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

Hey, thanks for taking my questions. That there weren't too many serious adverse events with --

Andrew, could you speak a little louder? We have a hard time to hear you.

You mentioned that there were no serious AEs with PEG-PAL. I wonder if you could mention what percentage of patients had antibodies raised to PEG-PAL?

You know, we're actually just finishing the analysis of those data and I think we're going to need a little bit more time before we can pull all together the data and have it presented for you.

Okay. Thank you.

Your next question comes from the line of Steven Willey of Thomas Weisel Partners. Please proceed.

Hi. Thanks for taking my question. Just one quick question on the GALNS compound that was just moved in the clinic. Can you just update us what the IT is there and maybe just comment on what [Avanade] is doing over in Europe? Thanks.

So, the product we're developing is a wild-type enzyme, so there is no composition (inaudible) on the drug. We are looking at different things that could be patented we'd rather not disclose at this time. But, as you know, in this field, the true protection is the fact that you need to measure investments in many factory and process developments and clinical to launch this kind of product more than anything else. (Inaudible) offering protection for, what, seven years now and (inaudible). So, we got Avanade, Avanade, we understand is ceasing operations. They're assets are for sale and so we don't believe that they are likely competitors of ours, and that's all I can say at this time. So, basically they have discontinued operations, and as far as we know discontinued development of their enzymes. Hello?

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

Thanks for taking the follow-up. At a higher level, I was wondering if you could help us understand how do you assess the risk of pricing controls for your drugs in the current era we're in? And how prepared are you to counter that risk with pharmacoeconomic data?

I'll get started and maybe Steve can elaborate. But in the US we haven't seen in all the draft plans for healthcare reform, we haven't seen anything that specifically targets orphan drugs at this time. (Inaudible), we have no reason to be more worried than any other pharmaceutical manufacturer. The good news is that most of our products (inaudible) components is very small. It's not nonexistent, so we have less exposure in this respect. And I'll let Steve elaborate and talk about XUS at this time.

I think it's a similar situation XUS as well, if you think about traditional pharmacoeconomics and quality adjusted life years and cost, payers willing to pay for quality. Those type of calculations just don't fit with these type of orphan diseases. We have a core dossier with Naglazyme, which we use with pricing authorities around the world. We adjust that dossier to any specific countries requirements. If they have additional information that they want. And we've been reasonably successful, I think, in working payers, government payers, for the disease, of the impact of the disease, the cost of the disease, the cost of Naglazyme and the benefit to the patients receiving Naglazyme.

This is not a drug, though, where you can say you spend X dollars on Naglazyme and save 2X dollars with fewer hospitalizations. The government has to be willing to say we are willing to spend extra money to improve the lives of these patients. To date, most developed countries have been willing to do that. We work closely with the payers and have had some recent success with additional countries. And there has been no sign to date that the economic crisis is going to change that.

And as I said, some of this is related to (inaudible), that these are often orphan diseases where the impact on any payer, whether it's a private payer or a government payer can be easily calculated by the payers so they know what is the maximum exposure that they have. And also for Naglazyme and Aldurazyme, there is very little risk of off-label use, which is not the case for all orphan (inaudible) products. As you know, Aldurazyme, we only work on MPS I patients, and Naglazyme only MPS VI patients, and there is no risk of major (inaudible) usage and major explosion of usage in (inaudible) indication. Kuvan at this time is pretty limited to PKU and I don't think that's as expensive Naglazyme and Aldurazyme.

That's correct. And besides that, we've generally gotten pretty positive response from the payers regarding what we've done with the 30-day starter program. At the time the payer has to make a decision, they know that there's a significant beneficial impact from the Kuvan therapy that they have not had to pay for. But what frustrates many of the payers in the US are these drugs that have a 30% or 40% or 50% response rate are very expensive and payers are paying for things that aren't working. We can show them with Kuvan, if they're paying for it, it's because the patient is deriving a benefit.

I would think that these drugs would stack up well on a quality adjusted life years basis, because you're adding quality to the early part of a patient's life as opposed to the latter part, as with a cancer drug or the like. Is that correct? And what about the ability to reduce surgeries and things like that? These are very sick patients that often need a lot of other interventions. Do you have data that you're able to use to defend yourself, if that ever came to pass?

Again, that is not an approach we take. In all probability, surgeries are reduced. There is no way we can quantify that or dollarize that. The basic equation that payers have to look at with enzyme replacement is are they willing to pay more money to improve the lives of the patients. And, again, to date that is an approach that has worked and worked reasonably well.

Great. Thank you.

Sure.

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

Oh, thanks for taking the question. I was just wondering how -- what different parameters will go into deciding whether you'll go ahead with sickle cell anemia or PAH? The markets are quite different. I guess the length of trial you might have to do quite different.

You're right, absolutely, and that's why we would take all things into account, in addition to the weight, the strength of the evidence of efficacy we have so far (inaudible), and the cost of clinical development, and then the potential market opportunity and probability of success always gets into account before we decide.

Do you have all the information now that you need?

Pretty much.

Okay, thank you.

Your next question comes from the line of Leanna Mosotos of Wedbush. Please proceed.

I just wondered, of the $39.4 million in Q1 Naglazyme sales, how much was in the US, Europe, rest of the world, or however you want to break it down geographically?

Sure. I have that information. US sales were $5.1 million, EU sales were $16.7 million, and the rest of the world was $17.6 million.

Thank you.

There are no further questions in the queue. I would now like to turn the call over to Mr. JJ Bienaime. Please proceed.

Thank you. We have three growing commercial products treating (inaudible) disorders, and Naglazyme and Aldurazyme are stable recurring revenue streams, which are well protected, we believe, from (inaudible) and reimbursement threats. We also have a solid pipeline of products in development including (inaudible).

We're making sound investments in our R&D program to ensure continued double-digit revenue growth in the coming years. But we remain cautious about the allocation of our resources to maximize long-term value to BioMarin and our shareholders. We are committed to the extension of our pipeline. We continue to pursue attractive later stage end licensing or acquisition opportunities, and we look forward to keeping you up-to-date on our progress. So, I want to thank you for your continued support and for joining us on today's call. Bye.

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