BioMarin Pharmaceutical Inc (BMRN) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2010 BioMarin Pharmaceutical Inc. earnings conference call. My name is Regina, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Eugenia Shen with Investor Relations. You may proceed maam.

Thank you. On the call today is J.J. Bienaime, our Chief Executive Officer; Jeff Cooper, Chief Financial Officer; Hank Fuchs, Chief Medical Officer, and Steve Aselage, Chief Business Officer.

I'd like to remind everyone that this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc.; 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, which is 10-Q, 10-K, and 8-K report.

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

Thank you Eugenia, and good afternoon, and thank you for joining us on today's call. So, I have a few introductory comments before Jeff reviews the financials for the second quarter, and Steve provides more detail on commercial activities. Hank will then provide an update on our ongoing R&D programs, with a focus on PEG-PAL before we open the call for questions.

Overall, we're pleased with the performance of our commercial business with an increasing BioMarin net revenues of 11.2% in the second quarter of 2010, as compared to the second quarter of 2009. We generated cash flow from--cash from operations of $22.2 million during the quarter, as compared to $3.3 million in the quarter for 2010. We had a cash balance in excess of $455 million at the end of Q2.

Naglazyme continues to show growth in both new and established markets. Revenues in Q2 were down sequentially from the first quarter due to government ordering patterns, and currency situations. However, we saw a 4.9% increase in the number of patients on Naglazyme 30 from Q1 to Q2, and a 21. 8% increase year-over-year, which is consistent with growth in previous quarters. We feel we have many attractive opportunities ahead of us in both new and existing markets for this product, and we remain confident that Naglazyme presents a $300 million flush market opportunity for BioMarin.

Next, the third-party sales of Aldurazyme by Genzyme increased as the number of patients on therapy continues to grow. In the second quarter, there was an 18.7% increase in the unit volume of Aldurazyme shipped to third-party customers as compared to the second quarter of 2009. And in terms of future growth, we view the 700-plus MPS one bone marrow transplant patients, not currently treated with Aldurazyme as a significant opportunity, and the next major inception point for this quarter. Current revenues increased 45.3% in the second quarter of this year, or the second quarter of last year. In the second quarter of 2002 - see press release -- the number of commercial tablets dispensed increased 36.6% compared to the second quarter of last year, and increased 14.7% compared to the first quarter of this year. We expect to initiate the PKU 016 trial imminently to document the potential new (inaudible) benefits of Kuvan, and assuming the results are positive, to use this as an important value driver for Kuvan.

Finally, we're now generating commercial revenue from Firdapse in seven countries, in Europe; the UK, Germany, Spain, Italy, France, Greece just got added, and Portugal. Although the initial launch was a little delayed, and the availability of compound of products presents some challenges, we are now getting traction into these markets he markets. And also, we met in (inaudible) in mid June to discuss the development strategy for [lant] in the US, and have defined a key fast forward and Hank will elaborate on this later.

Moving on to our PEG-PAL, we had a positive meeting with health authorities in the US and EEU regarding the pre-trial design for GALNS. So, we expect to start on enrolling patients in December, early January. Assuming the GALNS team program is successful, we are very optimistic about the commercial potential of a product. There are over 600 MPS IV patients identified today. Like MPS one and VI, the geographic distribution of the MPS IV patient is having the ex-US, and we already have a strong worldwide commercial infrastructure in place, and relationships with treating physicians who want to treat MPS VI and MPS one patients. Since we have laid much of the groundwork with the commercialization's of Naglazyme, we expect to achieve significant leverage if and when GALNS, reaches the market. We also provided a positive update to the phase two PEG-PAL trial earlier today. There are no as new safety concerns, and we are encouraged to see things like sustained blood Phe level reductions into an acceptable therapeutic range in patients whose dose as greater than one milligram per kilogram per week. Assuming continuity of (inaudible) these trends seen so far in the studies, we anticipate initiating with the phase three trial for PEG-PAL in the December-January timeframe.

We also announced earlier today that phase one results for BMN 195, due to (inaudible) charges, we will not pursue further development of BMN 195 as a treatment for DMD; however, we continue to believe that utrophin up-regulation is a viable approach, and are currently working on additional product candidates to take forward in the field. Hank will review additional details on this, and our overall R&D program a little later. Now, I would like to turn the call over to Jeff Cooper, who will review the financial results for the second quarter of 2010.

Thanks, J.J. I will start by reviewing the product revenues for the second quarter of 2010, and then follow with a more in-depth look at the operating expenses and financial results. Beginning with Naglazyme, net product revenue for the second quarter of 2010 was $47.3 million, an increase of 10.3% over net product revenue of $42.9 million in the second quarter of 2009. Net product revenue for Naglazyme for the six months ending June 30, 2010, was $95.9 million, an increase of 16.5% from net product revenue of $82.3 million for the six months ended June 30, 2009. Changes in foreign currency rates and net of hedges had a $1.4 million and $1.5 million negative impact on Naglazyme sales for the three and six months ended June 30, 2010, respectively.

Net sales of Aldurazyme by Genzyme is $43.7 million for the second quarter of 2010, increased 11.5% compared to net sales for the second quarter of 2009. The net sales of Aldurazyme by Genzyme for the six months ended June 30, 2010 were $83.5 million, an increase of 9.9% from net sales of $76 million for the six months ended June 30, 2009. Foreign currency exchange rates caused a decrease of Aldurazyme sales by Genzyme of $0.8 million and increased Aldurazyme sales by $0.9 million for the three and six months ended June 30, 2010, respectively. The net product revenue of BioMarin related to Aldurazyme was $17.5 million for the second quarter of 2010, compared to net product revenue of BioMarin $21.6 million for the second quarter of 2009. For the second quarter of 2010, BioMarin transferred $200,000 less in inventory to Genzyme compared to the unit shift to third-party customers by Genzyme. This resulted in a decrease of BioMarin net product revenue from the royalty payable to BioMarin by Genzyme. This compares to a positive $6.1 million impact on the net Aldurazyme revenue to BioMarin in the second quarter 2009.

Net product revenue for Kuvan was $24.7 million for the second quarter of 2010, an increase of 45.3% compared to $17 million for the second quarter of 2009 due to growth of the number of patients on drugs. The net product revenue for Kuvan for the six months ended June 30, 2010, was $45.9 million, an increase of 41.2% from net revenue of $32.5 million for the six months ended June 30, 2009. Finally, net product revenue for Firdapse was $1.1 million for the second quarter of 2010, and $1.2 million for the six months ending June 30, 2010.

Now I will review gross margins, operating expenses and non-operating items in more detail. During the second quarter 2010, gross margins for Naglazyme were 82%. Aldurazyme gross margins, which can from fluctuate from quarter-to-quarter, were 92% during the second quarter of 2010. The gross margin for Aldurazyme reflects both the royalty and product transfer revenue from Genzyme to BioMarin. Kuvan gross margins from the second quarter were 83%, reflecting 11% relative payable on net sales. And finally, gross margins for Firdapse for the second quarter were 78%. R&D expenses increased $9.3 million to $35.6 million in the second quarter of 2010 from $26.3 million in the second quarter of 2009. A higher spending was driven by the Morquio clinical phase one-two trial, the PEG-PAL phase two trial, and the Phase one trial for BMN 195 for DMD, and Firdapse post-market commitment. Of the total R&D spend of $35.6 million for the second quarter of 2010, $3.4 million was for stock-based compensation expense.

Selling, general and administrative expenses increased by $6.8 million to $37.3 million in the second quarter of 2010, from $30.5 million in the second quarter of 2009. This is largely due to increased spending for Naglazyme and Firdapse as well as corporate expenditures. Of the total $37.3 million of the SG&A spend in the second quarter of 2010, $4.9 million was the stock-based compensation expense. We expect operational spending in the second half of 2010 to be higher than the first half of the year, due to continued progress in clinical trial and commercial activities. Interest expense was $2.6 million in the second quarter of 2010, compared to $4.4 million in the second quarter of 2009. Interest expense, which now consists primarily of interest on our convertible debt declined in Q2 2010, due to the reduction of the good interest expense associated with the final payment on the Medicis end.

Now, I will review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the second quarter of 2010 was $500,000 or $0.01 per diluted share, compared to net income of $1.3 million or $0.01 per diluted share for the second quarter of 2009. The non-GAAP net income for the second weather of 2010 was $8.6 million or $0.08 per diluted share, compared to non-GAAP net income of $9 million or $0.09 per diluted share for the second quarter of 2009. From a cash respect, we generated cash from operations of $22.2 million during the quarter. We ended the second quarter of 2010 with $455.4 million in cash in short and long-term investments, up from $452.4 million at the end of the first quarter 2010.

With regard to 2010 guidance, we're making a few adjustments. We now expect total BioMarin revenues in the range of $370 million to $393 million from a previous range of $374 million to $405 million, and total net product revenues in the range of $355 million to $387 million from a previous range of $368 million to $398 million. Kuvan revenue is now expected to be in the range of $98 million to $102 million from a previous range of $98 million to $108 million. And Firdapse revenue is now expected to be in the range of $7 million to $10 million from a previous range of $10 million to $15 million.

As a result of these changes, we now expect GAAP net income or loss in the range of net loss of $6 million to net income of $2 million from a previous net income range of $2 million to $12 million. And non-GAAP net income in the range of the $30 million to $38 million from a previous range of $39 million to $49 million. Complete 2010 guidance was provided in the press release issued earlier today. Now, I would like to turn the call over to Steve who will provide an update on commercial activity.

Thanks, Jeff. Overall, our four commercial products are performing well, and largely funding the development of our clinical and pre-clinical pipeline. Starting with Naglazyme, we continue to see good patient growth consistent with that of previous quarters with growth of 4.9% over the first quarter of 2010, and 21.8% over the second quarter of 2009. Revenues were impacted during the quarter by erratic government ordering patterns. Specifically, Brazil placed a large order at the end of Q1, which resulted in 1 million to 2 million of excess inventory that we worked off in Q2. Currency changes resulted in a negative impact versus the same quarter last year, as well as versus or guidance assumption. We're encouraged by our progress, and continue to see significant growth opportunities for Naglazyme over the coming months and years. As J.J. mentioned earlier, we remain confident that Naglazyme is a $300 million-plus opportunity for the Company.

As for some of the issues going in Europe, we're constantly monitoring the changing environment, specifically in Germany. It looks like we will be subject to the 10% price cut on August first. It is currently written as temporary, expiring at the end of 2013, although we are not sure we can count on that. We're looking at the expanse--exemption components, but until we determine additional specifics, it is impossible to tell if we may qualify for an exemption to this cut. We're taking the conservative approach, and assuming we'll be impacted by approximately $1 million over the remainder of 2010. We will keep you updated on this as we gain more clarity.

Kuvan sales showed 36.6% growth in tablet demand over the same time last year, and an increase of 14.7% over the first quarter of 2010. As you may recall, at the beginning of the year a number of patients changed insurance carriers, which resulted in a loss sales as we bridged patients with free drugs. The majority of these patients are back on commercial therapy. We continue to struggle with patient adherence, and discontinuations have had a negative impact on the ramp of product growth. We're adjusting our efforts to provide additional case management support to patients in an effort to aid those individuals who struggle to maintain themselves on therapy. At this time, we're trending for the lower-end of our previous guidance, and, as a result, we have lowered the top-end of our expected range for the year.

Our clinical group expects to initiate the Kuvan outcomes study imminently, which will evaluate the neuropsychiatric effect of Kuvan on PKU patients. If successful, that will be instrument in building the value proposition for Kuvan and we plan to file for a label amendment. Our launch of Firdapse in Europe was off to a late start due to a delay in the transfer of the MAH. The file gives marketing authorization for the holder. We're also experiencing challenges from the continued availability of compounded products in some markets. The launch assumes gained traction, and we're now selling Firdapse in the UK, Germany, Spain, Italy, France, Greece and Portugal. Most countries have progressed rapidly, and pricing negotiations have gone well.

But the latest in Germany have hurt initial update. Germany continues to be a challenge, but we're very pleased with the progress in all other western European markets. Although, we were seeing a nice ramp in overall sales, we do not think it's enough to catch up from our original guidance, and as a result, have lowered our expectations for the year in a range of $7 million to $10 million. We have -- hit a positive meeting with the FDA in mid-june regarding the US development plan this, which Hank will elaborate on a little bit later. We're also actively looking at potential markets outside of the US and Europe for Firdapse, as well as additional indications, and we'll keep you updated as things progress.

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

Thanks, Steve.

With regard to PEG-PAL, I'm pleased to provide a more detailed progress report on the safety and efficacy from our ongoing phase two, and its extension. As a brief reminder, we previously showed that a single dose of 0.1 milligrams per kilogram lowered blood Phe by a median 58% in the prior study, and was associated with injection site and generalized skin reactions in some patients. Therefore, the purpose of the new study was to characterize the safety of repeated administration of PEG-PAL, and to try to identify a not only safe and effective dose and schedule for administration. This study PAL 002 was designed in two parts. In part one, sequential cohorts of five patients would to receive escalating doses starting at 0.001 milligrams for kilo per week, and increasing in subsequent cohorts to 0.003, 0.01, 0.03, and 0.06 milligrams per kilo for week for eight weeks. The primary outcome measures were safety and blood phenylalanine levels. In part two, the physicians could alter the dose and frequency of administration to optimize heat control and efficacy. And then in an extension study, known as PAL 003, the physicians could further optimize the dosing schedule for patients.

Adult PKU patients were eligible to participate if they were non-responsive to Kuvan. A total of 23 patients have been accrued to the study. Median age was 25, and weight was 78-kilos, and baseline blood Phe levels were 1291 micromoles per liter. The medium duration of followup is 111 days. I'll present data using the cutoff of July 23 for this presentation.

While the majority of the clinical data in this report has been verified, these data are considered preliminary. A total of 7 patients have received more than one milligram per kilo per week for four or more weeks in several different frequencies; including, once weekly, twice weekly and thrice weekly. Dose escalation continues in the remaining 16 patients still on study. Mean compliance with treatment has been nearly 90%. Three patients have discontinued from the program of three studies, due to personal reasons.

One of these patients also had a generalized skin reaction at the time of discontinuation. Injection-site reaction is the most common treatment emergent adversary event occurring in 43% of patients. An additional three patients have developed generalized rash. These three patients have continued on study with medical management and temporary dose reduction. Generalized skin reaction has abated in all patients. Importantly, generalized rash has not been accompanied by other analogic sequelae; such as, joint pain, evidence of nephropathy, or other things. Importantly, generalized skin reaction has dissipated in all patients with continued dosing No other treatment emergent side effects have been observed to occur at greater than grade one in any patient. Antibody and PK analysis is ongoing.

Turning now to efficacy, all but one patient escalated to at least one milligram per kilo per week for one week for at least four weeks. Regardless of the schedule, has had blood Phe lowered in the range of 120 to 600 micromolar. These six patients have experienced Phe level reductions for at least three weeks, and in some cases, up to three months. Two of these patients have had blood Phe levels documented below five micromolar. The only observed changes in these patients attributed to low blood Phe was characterized by investigators as improved mental clarity. These patients were able to substantially increase their dietary intake of Phe. PEG-PAL doses had been now lowered in the patients. Patients are liberalizing their diet and their blood Phe is remaining in responding realm.

Of the alternative schedules for administration, no schedule appears to be superior to it another schedule in regard to lowering Phe, though sample sizes remain small. Phe levels do fluctuate, possibly related to adjustments in dietary intake. Importantly, Phe levels remain below treatment baseline levels in all of patients who have experienced generalized rash. Thus, there is no clinical evidence that suggests an immunologic contribution to fluctuation at Phe levels. As I said, dose and schedule adjustment is ongoing as is modification dietary intake.

So, overall, we're very encouraged by these preliminary findings, especially in line of rash observed in prior phase one study of PEG-PAL. We know that doses required to achieve Phe lowering after dose titration in this study, appear to be substantially higher than those documented to lower blood Phe acutely in the prior phase one study. There are several possible explanations for this finding. We made some process improvements from phase one to the phase two, reducing aggregate and increasing coagulation. The apparent need for higher dose in the present study, may be the result of antibody neutralizing enzyme, but we feel that is unlikely given the data we obtained. This might also be the result of antibody clearing PEG-PAL from the circulation more rapidly, and this awaits further evaluation. We plan to evaluate the acute formatic dynamic effect of both materials, imminently.

With higher numbers of patients enrolled and all assuming continued safety and efficacy findings, we're confident that these could support the development of a phase three trial with Phe lowering as a primary implicit of product registration. In addition to gathering additional data on these doses and regimens, we also intend to explore initiation of therapy on a dally schedule to assess whether that regimen is better tolerated with lower injections per dose or as improved PK antibody profiles. We'll be starting that study in the fall, and expect that data from that study in early 2011. With all this data in hand, we expect to make a decision on how to proceed to Phase 3, label enabling studies in early 2011, with the goal of starting those studies by the end of 2011.

Moving on to GALNS for MPS IVA, the complete results from the phase trial were very well received by physicians and the patient community at the International MPS Society Meeting in Adelaide, Australia in mid-june. Congratulations to our scientific team led by Michael Vellard, who recognized at the meeting for having two of the best three best poster presentations of scientific data. We have now discussed our plans with the health authorities in the US and European Union, and have received support for starting a six-month phase three registation-enabling trial. We plan to incorporate their comments into a final protocol, and remain on track to initiate a pivotal phase three study with six-minute walk distance as the study's primary end-point in the coming months, by December or January. We're very excited about the program and look forward to updating you as things progress.

Earlier today, we announced phase one results for BMN 195, and concluded that we're unable to achieve and sustain sufficient exposure to the compound in helping volunteers. Therefore, we will not pursue further development of BMN 195 as a treatment for DMD. However, we continue believe that utrophin-up regulation is a viable approach, and we're currently working on additional candidates to take forward into the clinic. Moving on to the Kuvan outcome study and life cycle development, we expect to initiate a randomized placebo control 13-week study imminently. End points include clinically validated measures of neuro-psychiatric symptoms, and if successful, may support a label amendment. As for the handheld blood Phe monitor, human studies are planned for the fourth quarter 2010, and regulatory approval and commercial availability is expected in mid-2011.

Regarding Firdapse, after meeting with the FDA in the second quarter of 2010, the Company has now a defined and clear pathway for Firdapse's development in the US. BioMarin expects to initiate a phase three trial by late 2010 or early 2011, file in the second half of 2011, and if all is successful, receive approval by the third quarter of 2012. In terms of our preclinical programs, we still expect to file an IND for the park inhibitor, BMN-673 by the end of the year, initiate a phase one-b trial in the first quarter of 2011. Several undisclosed programs are also advancing, including two undisclosed biological programs, which are advancing towards INE--IND- enabling decisions. We expect to announce the next IND filings for one of these biologics at our R&D date, and to initiate the phase one study in the fourth quarter of 2011. So, as you can see, we have a very full pipeline, ranging from early preclinical products to GALNS, which is about to enter a phase three pivotal study. We'll keep you updated on our progress on this, and other programs as they advance. Also please note, we're planning to hold an R&D day on October 19 in New York. At the meeting, Company experts will be joined by external experts to provide a more in-depth examination of the Company's pipeline and scientific strategies. With that operator, we'd now like to open the call up for questions.

(Operator Instructions) Your first question today comes from the line of Cory Kasimov with JPMorgan.

Good afternoon, guys. Thanks for taking the questions. Obviously, a lot of information here. I'll keep to two. First of all, with PEG-PAL, can you talk a little bit more about the generalized skin reactions and whether there is any common denominator with regard to dose or schedule, and maybe how they compare with other enzyme programs? And then I have a followup regarding Aldurazyme.

Yes, hi Cory, thanks for the questions. As I said, we've observed a total of four patients having generalized skin reactions, and, again, just to reiterate the characterizations of them. They're generally self-limited, managed medically,don't interfere with the efficacy and patients who've been dosed--in the three patients who have been dosed, subsequently their Phe levels have dropped from pre-treatment baseline levels. So, in terms of comparison with other enzyme replacement therapies, as you know, most other enzyme replacement therapies are administered systemically, and have infusion reactions associated with them. I would say that what was observed so far is substantially better tolerated than we see for enzyme replacement therapies and, of course, we're going to continue to monitor patients.

So, the dosing schedule hasn't had an impact that you have seen so for far?

Not an overt one yet, but again, I'd caution that we still have a total of 23 patients enrolled today.

Okay. And then on Aldurazyme, the question we're getting a lot, and just to see if you guys can explain it a little bit on this call, are you able to talk about your trigger to terminate the Aldurazyme contract if there is a changing control at Genzyme?

Yes, let me start with saying that right now the acquisition of Genzyme speculation, there is nothing has been done yet. So, this is very perspective, but there are some facts that are out in the public and I'm going reiterate. Yes, there is a chance of control triggers--triggers that triggered the right for BioMarin to terminate the current Aldurazyme agreement with Genzyme. If we terminate, we have to propose a buyout price, and then Genzyme's acquirer has to make a decision within 90 days to sell our interest for that price, or buy our own interest, also for that price. So, this is the situation, as you know, we are commercializing Naglazyme today. The Naglazyme prescribers are the same subscribers as the Aldurazyme prescribers, and we're also manufacturing the product today. So, I would say that we're monitoring the situation and should an acquisition of Genzyme occur, we, obviously, will make the decision that it is in the on that is in the best interest of BioMarin shareholders.

Okay, great. Thanks for taking the questions.

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

Great, thank you. Just following up on that question, can you please comment on the degree of difficulty in terms of technology transfer for Aldurazyme manufacturing--if there is a change of control at Genzyme and the other party decides that they're interested in this product?

Again, this is speculation, and we don't want to comment too much on that. There is a technology transfer agreement, and the current agreement with obligations on both parties. So, regarding the difficulty, we get in--we comment on enzymes here. These are difficult products to manufacture.

Okay. Just to follow on PEG-PAL, can you please tell us the highest dose tested so far--achieved so far in the trial?

Yes, we're--as I said on the call, we're over one meg per kilo per week in seven patients. Six of them have had beneficial responses, and we have gone as high as two milligrams per kilo per week in the presence of protocol.

Okay, thank you.

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

Hi, thanks for taking my questions. First one on PEG-PAL, just trying to understand why those other 16 patients hadn't gotten to that 1 meg per kilo per week level since they were titrated based on effect. Was is just that they started off at some of the lower doses in the study, and hadn't gotten there yet, or was there some other limiting factor, or reasons why they might have been titrated more slowly?

No, it's just a time issue. They have to go through a sequence. They can only increase their dose by a certain amount during part one, both during part two. So, they--the real dose increases are occurring in PAL 003, and takes awhile to satisfy all the protocol criteria.

Okay. Can you give us any sense what doses you might be thinking about for the next study using the daily schedule, and how large of a study that might be?

Well, I think in the first instance, we're thinking about that as take the doses shown to be active on a weekly schedule and divide them by seven. As to the size of the study, we haven't finalized that. It's probably no more than a couple dozen patients.

Okay and then lastly, based on the Dr. Longo's comments in the press release, sounds like you're still thinking about PEG-PAL as an option for patients who don't control their disease with diet or Kuvan. Can you remind us what type of opportunity you see in that setting? And what would you need to see with the additional data rolling out that might get you more enthusiastic about earlier-line use of the agent? Thanks.

This is Steve. I'm going to comment on that. I think the reason we set up the protocol the way we have is that PEG-PAL is obviously still an experimental drug. Kuvan's a product that has been approved by the FDA, has shown efficacy and safety in a large number of patients. And in the early stages of PEG-PAL development, it seems prudent to use it in patients that have not responded to an FDA-approved drug. I think Hank and his group will certainly look at a broader application of PEG-PAL in future studies, but we think its a prudent way to start off with PEG-PAL. In terms of the potential for the product, at least half of US patients that have been tested with Kuvan did not respond to Kuvan. So, it would be at a minimum of the doubling of the size of the marketplace for BioMarin's PKU products should PEG-PAL be approved.

Thanks very much.

Sure.

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

Good afternoon. Thanks for taking my questions. First a question on Naglazyme. In the prepared remarks, you called out the effect of the Brazilian order on the quarterly sales. Was that the only nation that had lumpiness, or was there other distributor effects that you didn't specifically mention?

It was the only country that had significant lumpiness. We do have some smaller countries. We have one in Asia-Pacific that only orders once a year. It's the most efficient way for us to do the quality testing to ship to that country. So there is lumpiness around the world, but Brazil is a country that's large enough where the lumpiness has an impact on our overall sales.

Okay, great. That is helpful. Then, second, on PEG-PAL, you mentioned in your prepared remarks, Hank, that the reactions of both medically managed and self-limited, and could you give us some idea what type of medical management was necessary?

So, straightforward dose reduction, antihistamine, pretreatment, really fairly non-invasive types of remedies. And when the patients reaction subsides, and it's been time for the next dose, they have gotten their next dose and, as I said, the reactions in most cases didn't recur, in one case did. But, an in subsequent injections had completely gone away, and so therefore, we were able to resume dose escalation and observe that blood Phe levels were falling in response to the resumed higher doses compared to the pre-treatment baseline levels.

Okay. Can you give us some idea of what these things look like? Are they a little bit of redness that is covering a little bit of the body, or is it like people turn bright red like a tomato over 99% of their body?

I think substantially similar to what we observed and characterized in the prior study, which was diffused. It's called a maculopapular rash. That means it's red and raised in some areas. Some people describe it as like a sunburn in some cases, but--and can be accompanied by the itching. I think the important thing is that it's not debilitating to people. They're able to dose through it, and it's fairly, managed fairly straight forwardly.

Okay one last PEG-PAL question, is there any rebound in positive phenylalanine in those patients who continue with dosing?

Any rebound, you mean past--higher above pre-treatment baseline levels?

No, coming off a low at baseline--I know you said there is fluctuation. Is there any discernible return of the curve? Anything that looks like taxiphylaxis?

Well, it's a little hard to sort out because at the same time, we're liberalizing diets and sometimes lowering doses. I mentioned there are two patients with blood Phe levels below five micromolars. To put that in perspective, the medium starting level for the population was over 1200. The protocol's eligibility criteria for a Phe level of over 600, and we're able to lower two patients down to five. And so, in those patients, we were particularly attentive to what was going on with them. As I said, there were no medical problems associated with that. If anything, investigators reported the patients felt better from a mental clarity perspective. So, in those patients, we--as we reduced their next doses, we also allowed them to liberalize their diet, in both cases, to normal dietary intake, which, by the way for the patients, can be their first experience with the doctor-approved normalized diet. So, yes. Their Phe levels moved up. They certainly didn't move up past their pre-treatment starting level, and then once the dose reduction was accomplished, and they got more Phe in them, their Phe levels did start to come back down again.

Again, this is something we wanted to happen. To make sure, if you wanted (inaudible) like five micromolars, this is less than 10% of normal levels for healthy patients, healthy people. We want below normal level. Significantly below normal levels. So, we wanted to go back above that.

No, I understand that. I guess what I'm wondering, it seems like there is one concern, possibly just theoretical, that antibodies to the drug could, over time, could neutralize the effect. I'm trying to understand if you saw any taxiphylaxis in the broader population and it sounds like it's too early to tell.

I think the fact that ratchet based, and then Phe levels reduced is also very helpful data in that regard. We haven't seen any antibodies, like I said, we haven't seen any antibody data. But nothing clinically suggests an interference caused by antibodies with lowering blood Phe. It all has a greater appearance of just managing the amount of Phe that you take in and the amount of PEG-PAL that you have on board, and don't forget, this is our first study. You're familiar with the diabetes settings we had to adjust these things to get the balance right, and that's the place where we are at here.

Great. Thanks for taking my questions.

Yes.

Your question comes from the line with Joseph Schwartz with Leerink Swann.

Thanks. I was wondering if the injection sites you're seeing, are they related to the volume of dose that's injected, or are there other patterns you have noticed?

Well, we saw the injection site reaction in the prior study as well at very low doses and very low volumes. So, not crystal clear what the basis of it is. I think what is very helpful to know is that it's the minority of patients, and it's also transient and self-limited and managed medically and doesn't connote anything that is operationally in the way of a patient experiencing Phe reduction.

And for phase three, I was wondering if you anticipate using the similar type of endpoint as for Kuvan with a cutoff or response, I think, around 30% reduction in Phe, or will you be looking to see those that meet goal or something like that?

Well, that is still probably a year or so ahead of us, as I said, in my prepared comments. I think--as I said in my prepared comments, we can see our way forward to a phase three trial that has blood Phe lowering as its primary endpoint. The basis was simply a drug has been approved on the basis of lowering blood Phe, and we don't see any reason why PEG-PAL would necessarily be held to a different standard now. What we do and what health authorities say between now and we start the trial, there's still a bit of more knowledge to be gained in time to answer that question.

Just by extension, I think, two patients were able to liberalize their diet and that has been an issue for Kuvan, not being able to do that in many patients. So, what is the right way to think about the market opportunity here? Do you think that PEG-PAL is different? That significant reductions would be enough to encourage folks to use it, or is there a number of patients that you will be trying to achieve this in order to determine whether to bring this to market?

Certainly when you ask patients what they're looking for in a therapy, it's the ability to go to a more normal diet. So, to the extent that PEG-PAL was able to provide that option for patients, it's going to make it a fairly attractive option for them.

Okay. Thank you.

Your next question comes from the line of Salveen Kochnover with Collins Stewart.

Thanks for taking my questions. In terms of Kuvan, can you comment why you're seeing difficulties in terms of patient adherence and discontinuation?

I can, although, I can't give you a cut-and-dried one reason, or even a short list of reasons. The PKU patient community is populated by a variety of different extents of degree of how much the patient is impacted by the disease, and for patients who have some neurocognitive instabilities caused by their disease, it's very easy for them to get off track. It's pretty well-documented that PKU causes problems with short-term memory, with information processing and, if you think about chronic meds in general, and the problems companies have with keeping patients on chronic meds, when you're in a patient population that has underlying difficulties anyway, it exacerbates that problem. What we're doing is, have already put out in the field some clinical case managers. So, we're giving clinicians the option of turfing some of the more difficult patients to one of our own clinical case managers who can help them through the baseline testing period, which is tough for them, and then during the first six months the initial time on therapy and help work them through if they have questions, issues, concerns, basically, any change in their life that could throw them off track. We want to have someone there that can support them.

Great, and then just given all the trials that are expected to be ongoing in 2011, how should we think about R&D spend going forward?

It's unlikely to go down, but we will give you the 2011 guidance when we report the Q4 results as usual.

Thanks.

We believe the revenues are unlikely to go down, too.

Your next question comes from the line of Eun Yang with Jefferies & Company.

Thanks. Regarding PEG-PAL what do you think would be the optimal Phe levels for the patients to go under normal diet? Would that be like a two to three times the normal level?

Well, you know, this is a good question. Like I said, it's a little bit of an uncontemplated realm. The NIH has a guideline out that needs to be revised in the availability of Kuvan, but it called for diet management to be down to between a range of 120 and 600 micromolar, and whereas, we can get practically half the patients, and treat it with Kuvan to have a blood Phe reduction of 20% or so. What is different about PEG-PAL is that we can serve a median 60% reduction in blood Phe levels. So, in terms of what is optimal to achieve, I think I have to encompass also what's the safety of going too low is, and what is practical to achieve in terms of a diet perspective. These are all things we'll have to work out over the next little while.

I think it's a balancing act. The patients want to go to a more normal diet, have normal nutritional intake, and the closer we can get them to a normal diet while keeping them in a target range, the younger patients, 120 to 600 to 360, and older patients, 120 or 600. If you can have a normal diet and keep a patient in that range, that is a win-win for the patient.

Thank you and then a question on MorCAP. I don't know if you provide an update, but how many patients have been enrolled in the MorCAP registry, and also with that, what percentage--how many patients in the registry are actually--could be on enrolled in your phase three trial?

Yes, the MorCAP has an enrollment--an update, over 200 patients enrolled in the trial, and MorCAP doesn't have restrictions on baseline walk-distance, and as I talked about before, the eligibility criteria for the phase three trial will require some impairment of walking baselines. So, we think of 75% of the MorCAP patients will meet that criteria. But, as we said, I think previously in other possibly in other settings, not just in MorCAP, but elsewhere around the world, we've identified quite a large number of Morquio patients for potential participation of the phase three trial, perhaps as many as 600 patients. And so, we're thinking that we have a good leg up on identifying the phase three cohort.

Thank you.

Your next question comes from the line of Ian Somaiya with Piper Jaffray.

Thanks, congratulations on the encouraging PEG-PAL results. Question to you, Hank, was there any correlation with dose or duration or frequency in terms of skin reactions on the PEG-PAL trial?

I don't think so. I think the thing that we saw a correlation between dose and frequency with was the efficacy. It took us--it's--taking a little bit of a step back, when we started this study the data that we had in hand was two out of five patients that were treated with PEG-PAL, 100 micrograms per kilo, 0.1 mix per kilo and had generalized skin reactions just from the first dose. And the worry, of course, was that two out of five number would go to 100% and not wouldn't be just generalized reactions. Where we are at today is we have achieved that level of efficacy in terms of 60% reductions in blood Phe levels. But instead of that number going from two out of five to 100%, it's actually been quite low, and not in the way of continuing for most of the vast majority of patients. So, we're very pleased by the progress of the study. It's a limited amount of data, so I can't correlate every adverse event with the dosing scheduling frequency. I think the big picture here is a tremendous amount of Phe control with no apparent safety limitations, and continued--and supports continued investigation.

You don't anticipate any type of monitoring requirements, or think about those as you pursue the phase three trial.

Well, I think we could be talking about home sub Q administration of a protein. Actually, we have to do more work here. I don't think we're out of the woods entirely, but we're very encouraged by the fact that we have been able to sustain the efficacy while seeing a safety profile, which is better than what we saw in our previous study.

All right, congratulations again. Thanks.

Thanks.

Your next question comes from the line of Liana Moussatos with Wedbush Securities.

Thank you. What was the geographic breakdown of Naglazyme sales?

Q2 was $6.5 million, in the US $6.5 million, $21.6 million in the EU and $19.2 million international.

Thank you.

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

Thanks for taking the question. Of the six patients who got their phenylalanine levels below 600 micromols, what was their dosing in--what was their dosing schedules?

Those six patients were of seven who had been treated for at least four weeks with at least one milligram per kilo per week. Their schedules differed from each patient. Some were a single once-weekly injection, some were twice a week, and some three times a week.

Okay. Thank you.

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

Thanks for taking my question. A couple of topics--one, starting on GALNS, can you give us an update on whether you had any agreements with the FDA on the phase three trial, and an update on clinical drug supply. Are you--do you have--will you have clinical drug supplies like Q4 to start the trials?

We have met now with European and US authorities and the feed back we got has been supportive of the durations. I think, in my prepared comments, I emphasized that for the simple reason that was one of the big outstanding items that I had said before we met with the health authorities that we would want to cover off on. And as I said, we also planned to implement a phase three trial with the six-minute walk as a primary endpoint, and we feel good about that because there is so much regulatory precedent for the six-minute walk. Our data that we've observed so far in our phase one study is very supportive of achieving in a clinically meaningful six-minute walk test. So, the health authority feedback has been essentially positive in support of the program moving forward on the timeframe that I previously mentioned. In terms of drug supply, we have materials to start the clinical trial. It depends on how fast enrollment goes. We'll obviously be monitoring that, but we do plan to be able to supply the trial in a fashion that is consistent with the timeline that we put out in the press release, which would call for a (inaudible) submission in Q4, 2012.

If I may also, I stated in my prepared remarks too, but it's important of course to have agreements with the FDA and the US market is a very large market. But similar to other MPS products, most of the market is outside the US. So, it's also very important for us to have agreements with excellent authorities, and we had a positive meeting with the European authorities this summer.

Okay, and because it's a topical issue, can you remind us what your role is on Aldurazyme as it relates to manufacturing and selling? What--what territories and what portions?

Yes. Actually we are responsible in our agreements with Genzyme today, we are responsible for manufacturing the active substance, and for [viodine] which is actually done neither by BioMarin or Genzyme, but by subcontractors. Genzyme does do some packaging of it, but most of the activities in terms of supply chain is basically within the control of BioMarin at this time. It terms of marketing, we have no marketing responsibility for the product, and Genzyme is responsible today for marketing with Aldurazyme on a worldwide basis.

We are the licensor in the US--

Yes, sorry. Good point. We are the license holder in the US.

Okay. Thanks.

Your next question comes from in the line of Carol Werther with Summer Street.

Thanks for taking my question. On PEG-PAL, I'm trying understand, do we know what at this time what the one milligram per kilogram per week, if that is the optimal dose?

No and I think you have to remember that we got to this dose because of titration. I wanted to emphasize that when we started the study, we had only treated a single--patients with a single dose. We were very conservative on getting the pharmacological active doses, and that may have something to do with both why it's taken so long and also why higher doses are required. It may be that if we start patients on a higher dose, that the optimal dose to control could actually be quite a bit lower, and that of course, is something we'll investigate over the next little while.

So, it might be that you will have a better than a 60% reduction because when I was originally thinking about this product, I thought that more than just two patients would get to very low Phe levels.

It might be that we can get to higher degrees of Phe lowering, two out of six. The other thing you have to keep in mind is that, although the patients are instructed not to change their diet in the study, we have no real assurance about that. These patients are seeing their blood Phe levels in the clinic. They're in constant conversations about their blood Phes. So, for patients whose blood Phe level was 2,000 micromolar, and they're starting to see 100 to 200 for the first time in their lives, you can imagine that it might be hard to get them down to five.

And these are new [at toxic] levels that Phe patients would not respond to Kuvan, and I think the 60% average drop is pretty dramatic.

Okay. Okay.

And this is the way it's perceived by the clinicians and the patients. They're getting to Phe levels that they haven't seen in their lifetime.

Is there an optimal dose you're trying to get to, so you can liberalize the diet, or is pretty much individual patient-by-patient.

I don't think it's an optimal dose to liberalize the diet. I think, as Steve described, its hard to profile. What he said was that, from a patient perspective, they're not so focused on what their blood Phe is. Their focused on what their activity of life is. If we can--if they can liberalize their diet, and they can stay in that guideline range, that would be a huge win for patients.

Thank you.

I think the administration wod be whatever dose gets you to that.

Okay. And if I may, a second question, what is the discontinued rate with patients on Kuvan, and--and/or do you know the average duration a patient stays on treatment?

We haven't gotten into specific percentages on who comes off Kuvan. What I will say is that our discontinuation rate in 2009 was not as bad as it was in 2008, and 2010 is doing better than 2009 was. We're having an impact with the programs we have put in, but it's still high enough that it has a negative impact, and neutralizes some of the new patient starts that we get every quarter, and we're working hard to further men minimize those discontinuations.

Okay, thank you very much.

Your next question comes from line of Chris Raymond with Robert W. Baird.

Thanks for taking the question. I think you guys might have addressed this a little bit in various answers to questions, but I'm not sure if I heard the total answer. Looking at the schedule, so you're starting the phase three for PEG-PAL as your guidance in the fourth quarter of 2011, yet we'll have the full data from the phase two in the fourth quarter this year. What exactly are the activities that need to go on between those two events?

Yes. Hi Chris. So, I think I indicated a couple of things. One, we want to, evaluate the material that was used in phase one directly compared to the material used in the phase two trial, to determine the acute pharmacogenomic effects of each of these materials. And the second major activity is to evaluate the daily dosing schedule. One of those studies we can accommodate in the ongoing already implemented program. In fact, it's expected to start imminently. The second will require its own protocol, and a benefit, by the way, of its own protocol is to tremendously lighten up on some of the oversight of the patients in the clinic because the safety protocol that was observed is favorable compared to when we started the program.

And we also need to fill that clinical supply inventory for the phase three program.

Right. And so the daily dosing schedule will be with existing patients in your phase two?

No, those will be on new patients.

Okay, so will that be another data point we'll get then before you start your phase three trials?

Yes.

Thank you.

But the patients are complying with the current schedule. We just wanted to investigate an alternative dosing schedule to see if it's better tolerated and to see the PK and PD of daily versus a weekly schedule.

And 23 patients have been started and the median duration of therapy is 111 days. And some patients have been on the drug for 300 days.

Thanks.

Your next question comes from the line of Stephen Willey with Stifel Nicolaus.

Yes, thanks for taking the question. I wondered if you could characterize on PEG-PAL, the kinetics of dose escalation relative to the reduction in Phe that you're seeing. As you dose escalate through these cohorts, if I remember correctly, in the phase one trial, you saw a belt of an interesting threshold between .03 and the .01 dose. I was wondering if that was something you were able to recapitulate in this trial.

Well, as I said, we don't have the PK, the blood concentration data yet, so the correlation is still yet to be made, and also the nature of the dose titration, as I said, because we were relatively conservative in dose escalation, it took awhile to escalate patients. So, I think it will still take us a little while to get the PK/PD in the multi-dose setting to where it's as easily understood as it was in the single dose setting.

And quickly on Kuvan, you mentioned some of the challenges you're having with respect to discontinuations and adherence. How much of that, do you think, becomes with the introduction of a Phe monitor, potentially in 2011. Thanks.

That is a great question and it's to be determined how big of an impact we can have with the Phe monitor. It's certainly going to be helpful for patients to be able to get routine, immediate and frequent reads on their Phe levels. As it is, they go sometimes months or even years between getting a Phe level, and when they get one, it's two, three, seven, 10 days after they have taken a sample before they get to level read and back to them. We see, even with Naglazyme, the clinicians give routine gag results back to their patients, have more motivated patients. The same principle will apply with Kuvan to give patients better Phe levels, more frequent Phe levels, they're going to comply and adhere better. To what extent that is going to take place, we'll have to get there before we know for sure.

Thanks.

I would now like to turn the call over to Mr. Bienaime for closing remarks.

Thank you, we're pleased with our performance to date as we look forward to an exciting second half of the year. We expect additional highlights this year with final top-line results from the PEG-PAL phase two trial and the filing of the IND for BMN 673 in [cancer] in the fourth of this year. Initiation of the phase three trials for GALNS is December, January timeframe, and initiating of the PAL 003 trial for Firdapse (inaudible) in the US in late 2010, early 2011. In terms of future growth, we're focused on carefully managing our (inaudible) portfolio. We will also continue to evaluate (inaudible) assets to ensure continued double-digit revenue growth for BioMarin in the coming years and to maximize long-term value to BioMarin and our shareholders. So, we look forward to keeping you up to date on our progress. Thank you for your continued support and for joining us on today's call. Goodbye.