BioMarin Pharmaceutical Inc (BMRN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the quarter three 2010 BioMarin Pharmaceutical financial results conference call. My name is Jennifer, and I will be your operator for today. (Operator Instructions). I would like to turn you over to Ms. Eugenia Shen. 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, Chief Business Officer.

I would like to remind even 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 program, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission such as 10-Q, 10-K and 8-K reports.

Now I would like to turn it over to JJ Bienaime, 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 third quarter, and Steve provides more details on the commercial activities, and Hank will then provide an update on our ongoing R&D programs before we open the call for questions.

So overall we are very pleased with the performance of our commercial business, with an increasing BioMarin net product revenue of 23.2% in the third quarter of 2010 as compared to the third quarter of last year. We had a cash balance in excess of $440 million at the end of Q3, and even with our commitments to invest significantly in a pipeline over the next two years, we plan to remain operationally cash flow neutral, and consequently we did not anticipate any need for financing, of course excluding any potential large transaction.

Through the third quarter we recorded a one-time noncash gain of $223.1 million based upon our expectations of generating taxable income in the future and the resulting expected utilization of our net operating loss carry forwards and R&D tax credits. Jeff will elaborate on this a little later.

Naglazyme net product revenue of $51.7 million was strong in Q3, which has been a seasonally weak quarter in the past. We still see many attractive opportunities ahead in both new and existing markets for this product, and remain confident Naglazyme represents a $300-plus million market opportunity for BioMarin.

Moving on to Aldurazyme, total revenue reported by Genzyme was $40.8 million, and net product revenue to BioMarin was $16.5 million in the third quarter. In terms of future growth we view the 700-plus MPS I bone marrow transplant patients not currently treated with Aldurazyme as a significant opportunity and the next major inflection point for this product.

As for Kuvan, net product revenue was $26.2 million in the third quarter. The PKU-016 Kuvan outcome study is ongoing to document the potential neurocognitive benefits of Kuvan, and assuming results are positive, we view this as an important value driver for Kuvan.

Finally, for Firdapse, net product revenue was $2.2 million in Q3. We are gaining traction in the European market and are gearing up to start the Phase III trials programs in the US by early next year.

As for our clinical and preclinical programs, we provided an in-depth update at our R&D day last week, including our newest program, BMN-111 for Achondroplasia. We have built a deep pipeline over the last two years, with programs in different stages of development. We plan to have six programs in [this phase] by early next year, which is the most in BioMarin history. The programs range from early stage to the Phase II PEG-PAL trial and Phase III GALNS to the Kuvan outcome study.

We are also getting ready to issue the Phase I trial for BMN-701 for Pompe Disease in December or January. There remains an unmet need in this market and we have strong preclinical data suggesting that BMN-701 has stronger uptake and efficacy in animal models, and Hank will provide more details on our R&D pipeline a little later.

Now I would like to turn the call over to Jeff Cooper, who will review the financial results for the third quarter of 2010.

Thanks, JJ. I will start by reviewing product revenues for the third quarter of 2010, and the follow with a more in-depth look at our operating expenses and financial results.

Beginning with Naglazyme, net product revenue of $51.7 million for the third quarter of 2010 increased 22.8% over the third quarter of 2009. Net product revenue for Naglazyme was $147.5 million for the nine months ended September 30,2010, increased by 18.7% for the nine months ended September 30, 2009. Changes in foreign currency rates, net of hedges, has a positive $0.1 million impact in the third quarter of 2010, and a negative $1.4 million impact on Naglazyme sales for the nine months ended September 30, 2010.

Net sales of Aldurazyme by Genzyme were $40.8 million for the third quarter of 2010, increased 1.2% compared to net sales for the third quarter of 2009. The number of Aldurazyme vials shipped increased 5.1% for the third quarter of 2009 to the third quarter of 2010. Net sales of Aldurazyme by Genzyme of $124.3 million for the nine months ended September 30, 2010, increased 6.8% from the nine month ended September 30th, 2009. Foreign currency exchange rates caused a decrease of Aldurazyme sales by Genzyme of $1.5 million and $0.6 million for the three and nine months ended September 30, 2010, respectively.

Net product revenue to BioMarin-related Aldurazyme was $16.5 million for the third quarter of 2010, compared to net product revenue to BioMarin of $14.6 million for the third quarter of 2009. During the quarter of -- during the third quarter of 2010 there was no net impact from inventory transfer revenue, compared to a negative $1.3 million impact on net Aldurazyme revenue to BioMarin in the third quarter of 2009.

Net product revenue for Kuvan of $26.2 million for the third quarter of 2010 increased 20.7% compared to the third quarter of 2009 due to growth in the number of patients on drug. Net product revenue for Kuvan was $72.1 million for the nine months ended September 30, 2010, increased 33.3% from the nine months ended September 30, 2009.

Finally, net product revenue for Firdapse was $2.2 million for the third quarter of 2010 and $3.4 million for the nine months ended September 30, 2010.

Now I will review gross margins, operating expenses and other items in more detail. During the third quarter of 2010, gross margins for Naglazyme were 83%. Aldurazyme gross margins, which can fluctuate from quarter to quarter, were 75% during the third quarter of 2010. The gross margin for Aldurazyme reflects both the royalty and product transfer revenue from Genzyme to BioMarin. Kuvan gross margins during the third quarter were 82%, which reflected an 11% royalty payable on net sales. And finally, gross margins for Firdapse during the third quarter were 80%.

Research and development expenses increased $12.4 million to $39.4 million in the third quarter of 2010 from $27 million in the third quarter of 2009. The higher spending was driven by the Morquio clinical activities, the PEG-PAL Phase II trial, Firdapse post-[market] commitments in Europe, and preclinical spending. Of the total R&D spend of $39.4 million in the third quarter of 2010, $3.6 million was for stock-based compensation expense.

Selling, general and administrative expenses increased by $9.6 million to $38.3 million in the third quarter of 2010 from $28.7 million in the third quarter of 2009. This was largely due to increased spending for Naglazyme, Kuvan, and Firdapse, as well as corporate expenditures such as facility costs and noncash depreciation. Additionally, we incurred $1.8 million in one-time costs associated with the ZyStor Therapeutics acquisition, which were recorded as general and administrative costs. Of the total $38.3 million of SG&A spend in the third quarter 2010, $5.3 million of which was stock-based compensation expense.

Intangible asset and amortization and the continued consideration costs during the third quarter of 2010 totaled $4 million. The increase in cost compared to prior quarters is due to the recognition of additional contingent consideration expense associated with the increased likelihood of achieving certain near-term milestones, primarily related to BMN-673 development, including the filing of an IND and clinical milestones. Such costs during the same period in Q3 2009 were insignificant.

During the third quarter of 2010 we recorded a one-time noncash gain in our consolidated statement of operations totaling $223.1 million related to the reversal of our tax valuation allowance. Based upon our expectations of generating taxable income in the future and the resulting expected utilization of net operating loss carryforwards and R&D tax credits, we recorded a $223.1 million noncash benefit to the provision for and benefit from income taxes line item on the consolidated statement of operations and a corresponding increase in other current asset and other asset categories on our balance sheet.

Now I will review the GAAP and non-GAAP bottom line results. Our GAAP net income for the third quarter of 2010 was $7217.3 million or $1.68 per diluted share, compared to net income of $6.6 million or $0.07 per diluted share for the third quarter of 2009. Non-GAAP net income for the third quarter 2010 was $6 million or $0.06 per diluted share, compared to non-GAAP net income of $15.5 million or $0.14 per diluted share for the third quarter of 2009.

From a cash perspective we ended the third quarter of 2010 with $440.9 million of cash and short- and long-term investments.

With regard to 2010 guidance we are making a few adjustments. We now expect total BioMarin revenues in a range of $372 million to $393 million, from a previous range of $370 million to $393 million, and total net product revenues in the range of $367 million to $387 million, from a previous range of $365 million to $387 million. Naglazyme net product revenue is expected to be in the range of $194 million to $200 million, from a previous range of $190 million to $200 million, and Aldurazyme is expected to be in the range of $68 million to $75 million, from a previous range of $70 million to $75 million.

In terms of expenses, SG&A is expected to be in the range of $147 million to $152 million, from a previous range of $145 million to $150 million, and R&D is expected to be in the range of $147 million to $152 million, from a previous range of $140 million to $145 million. Please note that these new guidance ranges take into account up to $7 million in expenses associated with the ZyStor acquisition, which were not included in the previous guidance.

As a result of the changes we now expect GAAP net income in the range of $213 million to $218 million, from a previous range of a net loss of $6 million to net income of $2 million, and non-GAAP net income in the range of $28 million to $33 million from a previous range of $30 million to $38 million. Complete 2010 guidance is provided in the press release issued earlier today.

Now I would like to turn it the call over to Steve Aselage, who will provide an update on our commercial business.

Thanks, Jeff. Overall our commercial products are performing well and largely funding the development of our clinical and preclinical pipeline. Starting with Naglazyme, we are encouraged by our progress and see significant growth opportunities for the months and years ahead. We continue to pursue geographic expansion and had our first commercial patient in Hong Kong during Q3. Please note that we continue to see erratic ordering patterns in Latin America that may result in revenue fluctuations from quarter to quarter. Specifically, orders in our largest country, Brazil, were somewhat lower than normal in Q2, somewhat higher than normal in Q3, and difficult to predict on an ongoing basis.

Kuvan sales showed a 29.7% growth in tablet demand over the same quarter last year. We had encouraging data presented on Kuvan effect on executive function and maladaptive behaviors presented at the SSIM meeting in Istanbul. Updated data from those trials is expected at the ISG meeting in Washington DC later in November, where it should reach a broader audience of US physicians. We remain hopeful the ongoing Kuvan outcome study will document the neuropsychiatric affects of Kuvan on PKU patients. If successful, we plan to file for a label amendment, and the data will be instrument in building the value proposition for Kuvan.

The launch of Firdapse in Europe is progressing. We have now received commercial orders from all of the major Western European countries and will be launching the product in some additional markets over the coming months. Sales growth is continuing, and we look forward to keeping you updated on progress.

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

Thanks, Steve. First I would like to give a brief recap from our research and development day last week, where we highlighted the deep pipeline we have built over the last two years. We covered five of the six programs that will be in clinical development in the next year or so, and each program paired an internal expert with an external opinion leader to provide insight and critical evaluation on both the drug and the disease. We provided details on the design of the Phase III trial for GALNS, a positive update on the PEG-PAL Phase II study, revealed our new IND candidate, BMN-111 for Achondroplasia, as well as provided detailed updates on status of -701 and -673.

Thank you to more than 100 investors and analysts for participating in an exciting day. We also reviewed our R&D strategy going forward, which involves in investing for future growth, clearly defined inflection points for each of our programs, and discipline in R&D expense control. A replay of the event is available on our website for the next couple of weeks.

Starting with GALNS for MPS IVa, we feel confident with our plans to initiate a 24-week pivotal trial with 6-minute walk distance as the primary end point in 160 patients across approximately 40 international sites early in the first quarter of 2011. We are very excited about this program and look forward to providing you updates as things progress.

With regard to PEG-PAL, we provided a positive update to the ongoing Phase II trial at R&D day last week. We continue to see a good safety profile and substantially -- substantial lowering of blood Phe to the targeted range for a significant percentage of patients. We expect to have final Phase II results, including the study comparing daily to weekly dosing and the formulation study, by mid-2011. We believe this will be sufficient to inform the design of a Phase III trial, which we expect to start in the fourth quarter of 2011 and first quarter of 2012.

Moving on to the Kuvan outcome study and lifecycle development, the randomized placebo-controlled 13-week study is ongoing. End points include clinically validated measures of neuropsychiatric symptoms, and if successful, may support a label amendment. As for the handheld blood Phe monitor, regulatory approval and commercial availability is expected in late 2011.

Regarding Firdapse, we expect to initiate a Phase III trial by 2011, file in the first half of 2012, and if all is successful, receive approval by the fourth quarter of 2012.

We are also getting ready to enter the clinic with BMN-701 for Pompe disease. BMN-701, a fusion of IGF2 and GAA, acid alpha-glucosidase, has higher affinity for the mannose-6-phosphate receptor, which translates into superior potency and efficacy as shown in animal models. Although still early stage, as with other programs we expect to move quickly with this program in terms of getting into patients and getting a readout of the data.

In terms of preclinical programs we plan to initiate a Phase Ib trial for BMN-673, the PARP inhibitor, in the first quarter of 2011. We recently announced BMN-111 for Achondroplasia at R&D day last week. Achondroplasia is the most common form of dwarfism, affecting 18,000 to 24,000 patients in the US and Europe, and there are no approved therapies today. BMN-111 is an analogue of CNP, which is a positive regulator of bone growth, and proof of concept studies demonstrates that BMN-111 can reverse the Achondroplastic phenotype in mice. We are very excited about this program and excited to -- and expect to initiate a Phase I trial in the fourth -- first quarter of 2012.

So as you can see, we have a very full pipeline from very early preclinical products to GALNS, which is about to enter Phase III pivotal study. We will keep you updated on our progress on this and other programs as they advance.

With that, operator, we would now like to open the call up for questions.

(Operator Instructions). Our first question comes from the line of Salveen Kochnover with Collins Stewart. Please proceed.

Thanks for taking my question. How should we think about the effect of the Phe monitor on Kuvan patient utilization patterns when it is approved in 2011, and what is the current rate of compliance for Kuvan?

Steve, do you want to go over that?

Sure. Good question, Salveen. Current compliance to the best we can track it, is roughly 85%, which is actually pretty good for a chronic care medication. Adherence, which refers to patients dropping off therapy for extended period of time, has been an ongoing problem, which we have talked about in the past. We think the Phe monitor will have beneficial impact on compliance, but we think the two areas where it will be significantly impactful will be on adherence by keeping patients on by giving them routine feedback. That the benefits of Kuvan be can be seen by giving them real-time and more frequent blood Phe levels that they can see.

We think it is also going to help with recruitment of Kuvan patients, the logistical barriers for getting multiple blood draws, stabilizing diet, and getting a patient into a situation where the physician feels comfortable starting them on Kuvan. It is going to be substantially easier with the Phe monitor than having a patient have to drive in to the hospital for blood draw or by sending in filter paper with a dried blood spot. So we are very excited about the Phe monitor and think it is going to be a significant help to our business.

Thank you.

Our next question comes from the line of Karen Jay with JPMorgan. Please proceed.

Hi, this is Karen Jay for Cory Kasimov. Just a couple questions. Thank you for taking them. First, Aldurazyme, could you provide a sense when you might reach an inflection point of capturing transplant patients?

Well, it has to do first with the completion of the study that is about to start in post bone marrow and stem cell transplant patients. The study has actually not started yet, but should start any week now, and probably going to take about a year and a half or so to get it finished and get the data. So I think it is such a small physician community that I think even if it is a limited number of patients, that should have a positive impact on the product. And then we'll have to decide which enzyme, whether we want to do a larger trial or not to more aggressively move the business.

Okay, thank you. My second one is on Kuvan and where you see the best growth opportunities going forward, and has physician reception changed at all now that you are adding more patients, or your marketing strategy going forward -- outside of the Phe monitor?

I think you have several good questions. In terms of physician reception, I think as physicians have gotten more experienced with Kuvan, they are more comfortable with Kuvan and they tend to use Kuvan a little more aggressively. There has been no dramatic shift in receptivity, but we think it has been slow, gradual, but very steady progress in that regard.

In terms of marketing plans, I think what we've seen anecdotally and in several investigator-sponsored trials is that Kuvan can have a significant beneficial impact on executive function and brain function and on psychiatric well being in many Kuvan patients. And the -O16 trial that Hank's group is rolling out right now is designed to show that in a scientific, credible way with the intent of a label change that can allow us to make claims for Kuvan that right now we just can't make. We are looking forward to that with a lot of anticipation, and it will be a significant impact with how we market the drug, assuming that comes through positively.

As a reminder, please limit yourself to one question. (Operator Instructions). Our next question comes from the line of Robyn Karnauskas from Deutsche Bank. Please proceed.

Hi, guys, thanks for taking my question. That's like the third way I've heard my name today. But what is the -- I was getting a lot of questions after your R&D day about what is the percentage improvement of walk that must be show to hit significance in the GALNS trial.

Hi, Robyn. So we don't really look at it that way, but what we saw, just to remind you, in the Phase I/II trial was a 42 meter improvement on a baseline walk value of about 237 meters, something like that, in a group of patients whose baseline walk was less than 325 meters. So that gives you a sense of what magnitude improvement in walk this is.

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

Good evening. Thanks for taking my question. JJ, in your prepared remarks you mentioned there was no seasonality for Naglazyme and Kuvan, two typically seasonal drugs, but still unclear to me why exactly that was. I was wondering if Steve has any insight into why you didn't see seasonality this year.

I thought -- [I'll let Steve] -- I mean, on Kuvan it had to do with the significant growth in the underlying business. On Naglazyme, I think as Steve said, that actually maybe some of the seasonality -- there is some, although again we -- and Steve will elaborate, but we have also implemented some programs to actually dampen the effect of the summer months. But also there is the fact that we had some big orders from Brazil in Q3, which might have matched some seasonality for Naglazyme, but Steve, do you want to elaborate?

I think you hit it on the head, JJ. We have worked really hard. Where we get hit the hardest on seasonality with Naglazyme is in Europe, where for most of August and even parts of July both physicians and patients simply go on vacation. We have set up a number of programs to be able to get drug to patients, even if they are at a remote location on vacation. That's helped. We still get hurt a little bit by that, but not as bad as we did before we started becoming proactive to try to reduce the interruptions.

We have had, as I mentioned, some fluctuations in ordering patterns in Brazil that may have covered some of that European downturn in Q3 -- traditional European downturn in Q3. We have also had some fundamental growth in the business. We are continuing to find new patients. That continued through Q3 just like it did through the earlier quarters in the year. So the base of business for Naglazyme grows quarter over quarter. And if that's growing fast enough, then the seasonality pretty much gets washed out by the growth.

Great, thank you.

Our next question comes from the line of John Sonnier with William Blair. Please proceed.

Thanks for taking the question. I apologize if I missed this. Congrats, JJ, on the NOL roll through and the sustained profitability. That's an important inflection point. How do we think about the tax rate going forward?

So let me talk about how this works. So first of all from a tax perspective, nothing has really changed. We will continue to utilize our NOLs and R&D credits against taxable income, which will effectively minimize the cash payments that we make to the federal and state governments until they are all used up in the future. From a GAAP book perspective, it's handled a little bit differently. So starting in 2011 we will begin to recognize noncash income tax expense on our books based on the amount of taxable income that we generate. So the normal result is GAAP noncash tax expense close to the statutory rates, which could be in the high 30% to close to 40% range. However, I should also note that since we now immediately will recognize the benefit of orphan and R&D credits on the P&L due to the ongoing R&D costs that we incur for our program, we expect that these credits will partially offset the GAAP noncash tax expense in the near term. So going forward in 2011 we will likely call this out in our reporting so that it is clear what portion of our net tax expense is noncash related.

That's helpful. And just maybe a bit of a follow-up to KJ's question on the Aldurazyme? Can you talk a little bit, JJ, about this? You've mentioned this transplant population a couple of times recently. Is it realistic that you guys will really take these patients on and get them on Aldurazyme, short of a change of control at Genzyme and a renegotiation of the Aldurazyme relationship? Thanks.

I mean, again, that change in control is still speculative at this time. I think whether or not something happens in that area, I think there will be a way, even if Genzyme continues to be responsible for marketing of a product, to capture some of those patients. I think if we were in charge of the marketing of the product, we probably would capture the patients maybe a little faster, but even if that doesn't happen I think we have agreed with Genzyme. We still have a small joint venture for the Phase IV studies basically for the lifecycle management of the product. And we have agreements with Genzyme to do this study, adding Aldurazyme to patients who have received bone marrow transplants. So I think there is a desire on Genzyme part, as far as we know, to try to capture those patients. I would say, if we were in charge of marketing, we probably would have more freedom and we might be more aggressive in going after those patients. But I think even if Genzyme remains in charge of the marketing of the product, I think they will go after that market too.

I would echo that Genzyme is committed to testing Aldurazyme in this population, and I think they are a little frustrated it has gone as slowly as it has too, and they are really trying to move it forward.

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

Thank you. Can you give us a geographic breakdown of Naglazyme sales?

Sure. In the third quarter US sales were about 16% of the total, European sales 40%, and the international, which is everything else, about 44%.

Did you say 44%?

Yes.

Okay. Thank you.

Our next question comes from the line of Ian Somaiya. Please

Hi, it is Ian Somaiya at Piper Jaffray. Just a quick question on PEG-PAL. Clearly, we were able to get a lot of information at the R&D meeting. I'm just curious, what is the minimum, I guess, acceptable profile of the drug as you move into Phase III trials? I know you have already decided to move forward, but what is an acceptable profile as you think about the data that we could see in the middle of the year and the product moving forward?

Yes, I think what we talked about is we need to see substantial Phe lowering efficacy in about half or more of the patients that tolerate it reasonably well. And I think that's pretty much where we have been, and that's where we continue to be. We're encouraged that we are seeing fairly substantial Phe lowering efficacy. In fact, we mentioned that 15 patients have been enrolled in the trial, and 11 out of 15 have their Phe reduced into a control range, and five patients have their Phe levels normalized, which is really quite dramatic. And the adverse event profile appears to be favorable, in that only one patient appears to have discontinued due to a side effect, although that patient's story is not completely clear. And the side effects that are experienced don't require, in the main, interruption or discontinuation from therapy. So as compared to the minimum profile, I think we believe we are quite favorable to the minimum profile at this point.

Yes, in terms of efficacy and safety I think we believe we already have a product in our hands here. The issue -- the question is why don't we start the Phase III trial right now, and the answer is we don't believe we know for sure what is the optimum dose and regimen for the drug and for the design of the Phase III trial. This is why we need to gather more information, which is what we are doing right now, in terms of trying to figure out the optimal schedule of injections and the optimal dose according to that schedule, to design the optimal Phase III trial and minimize the number of injections and the volume of injections.

Our next question comes from the line of Peter Hellman with Robert W. Baird.

Hi, thanks for taking my question. I couldn't recall. Are you pursuing a SPA for the GALNS program?

Yes.

Okay. And when might -- I guess, will you announce the details of that or will those be provided?

I think at R&D day we indicated the primary purpose of the SPA was to enable and afford the FDA the time to go through the review of the documents since we had conducted the Phase I/II trial ex-US. I don't think that we have an expectation that we drive the interaction with the US authority to agreement under the SPA. We have a relatively small patient population being studied globally, so it may not be possible or desirable to wrestle all of the issues all the way to the ground. And so we have been giving folks the -- we're working toward starting the trial in the first quarter of the coming year, and we are on track for that.

Thank you.

If I may also, although it is normal that one focuses on the largest market in the world, which is the US, for this product as it has been for Naglazyme, the majority of the opportunities that we is actually ex-US, and so the priority for us is to actually start and implement the proper registration trials to ensure registration ex-US. We want the US market too, but the priority in terms of opportunity is actually outside the US.

Our next question comes from the line of Yang Eun with Gleacher and Company. Please proceed.

Thank you for taking the question. I see that the quantity of commercial tablets dispensed for Kuvan this quarter increased 3.7%, but the reported sales figure actually increased 6% quarter over quarter from second quarter. I take it -- I guess it is a sign of fewer patients using free drugs. I mean, should we use this also for future as a trend?

I think that's a good pick up. The delta there is largely a result of the first meaningful patient starts on commercial product in Canada. The tablets dispensed is what goes through the specialty pharmacies in the US, and the difference, I believe, is almost completely accounted for by the Canadian sales.

Thank you, and if I may, I think JJ mentioned 3Q was seasonally weak for Aldurazyme here, but in third quarter of '09 it was not seasonally weak, though, compared to second quarter and first quarter of '09 of Aldurazyme sales. Can you elaborate on this, please?

Yes, I think my comment on seasonal weakness was in general, not specifically for Aldurazyme. We know that, I think as was explained by Steve, in the summertime, specifically outside the US, more specifically in Europe, patients and physicians have a tendency to take some vacations from the infusions. So there are lots of different variables at play that explain fluctuations from quarter to quarter, and we don't commercialize Aldurazyme ourselves, so I'm not sure I can provide some -- I think --

Also what you are seeing is some timing on ordering patterns from country to country that are resulting in revenues fluctuating from quarter to quarter with Aldurazyme.

Our next question comes from the line of Chris Schaefer with UBS. Please proceed.

Hi. Thanks for taking my question. So on last quarter's call you had said you had 600 patients, approximately, Morquio patients identified, and on R&D day you said over 900. Could you explain to us a little bit what was behind driving this really accelerated of patients? Is it just specifically communication within the community, knowing that a new treatment is close to maybe in late-stage development?

Should I take that one, JJ?

Yes.

I think the difference between what we were able to do with the Morquio product and what we were able to do with Naglazyme is largely the fact that we have a commercial organization in place that already calls on the centers that treats MPS patients. So we have people on the ground and relationships in place with the geneticists who care for most of these patients. So we are in those places, we are able to access information reasonably quickly, and because we have that infrastructure right now, we have been able to get good quality intelligence about where the patients are and profiles of the patients, concentrations of the patients, and be able to feed that back to Hank's group so they can make good decisions on where they move forward with their clinical trial sites. And as of this morning we have been able to identify 970 patient at last count.

Close to 1,000.

Yes, I was hoping to get to 1,000 by this call, but we didn't quite make it.

We'll be there by Christmas.

We will be there by Thanksgiving.

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

Hi, guys. I wanted to follow-up on a question that was asked on Phe monitoring marketing. I want to know about the Phe monitor marketing strategy, but specifically how will you be selling it as a drug to patient through physicians? Who's going to be spending the money on it? How is it going to be reimbursed? And who will be doing the spending on the marketing?

A lot of questions there. Let me try to start at the beginning. The general approach for marketing the product will be to provide demo units to the PKU clinics so that they can teach patients how to use it and for that matter use it themselves. If the clinician at the PKU clinic wants a patient to get a PKU monitor, he will write a prescription. That prescription will go into a specialty pharmacy. Specialty pharmacy will ship the product to the clinic, not to the patient, so the patient will have to come in to be trained on how to use the monitor. What we don't want is for monitors to be randomly flying around the country to patients and having them used inappropriately.

So the clinic will be responsible for getting the monitor to the patient and training the patient on that monitor. Specialty pharmacy will bill insurance. Prior to the launch of the product, we will do an insurance blitz to the major payers in the United States to make sure they are aware of the Phe monitor. And we feel like in general the Phe monitor will save insurance significant money. The cost of a dry blood spot or cost of a blood draw that's sent to a hospital lab is significantly higher than the cost of doing a strip with the Phe monitor, so we feel like it should be fairly rapidly accepted by the payers. I feel like I missed at least one of your questions in there. But did I get most of it?

No, I think you got most of it. Who will be doing the spend on this?

Who will be doing the spending?

Yes.

The marketing spending.

Yes.

The marketing spending will be done by BioMarin. The spending for the product, the payers for the product we anticipate will be private insurance.

Or government insurance.

Or Medicaid.

Is that a significant spend for next year?

No. It is an insignificant spend.

Okay, thank you.

Our next question comes from the line of Andrew Vaino with ROTH Capital Partners. Please proceed.

Hi, thanks for taking my questions. I had a question on the dosing of the PEG-PAL study. Is the desire to look at weekly versus daily dosing, is that driven by an attempt to keep Cmax limited, is it a half-life issue, or something else?

No, I think the desire -- so we started the program thinking based on the PEGylation the half-life was going to be relatively long and that that would be a more convenient presentation of the product. And what we found was that we had to go to higher doses than we anticipated, and that's likely because of -- well, we don't exactly have the data about this, but one very strong hypothesis that may have to do with a clearing antibody that is not clinically meaningful except in shortening the halftime of the circulation. So a daily presentation is more consistent with that kind of pharmacology than the pharmacology that we anticipated just based on single dose data. And a related aspect of that is that from a convenience and patient preference perspective, given the volumes that we anticipate would need to be used, we imagine that a patient would rather receive one or two injections a day than seven or 14 injections once a week. And so for those two reasons we want to evaluate the safety and activity of daily dosing.

Thank you.

Our next question comes from the line of Vernon Bernardino from Dawson James. Please proceed.

Hi, thanks for taking my question. You've announced that construction is completed on the facility expansion and that final approval is anticipated in 2011. Could you remind us again the current manufacturing capacity? Given the problems Genzyme has experienced with expanding its manufacturing, can you please comment on the current capacity regarding manufacturing for commercial product as well as clinical supplies?

Yes, what we've communicated is that this new facility basically allows us to double our enzyme manufacturing capacity. So we say once both plants are on-line, which again we anticipate by the middle of next year or early next year, we should be able to supply $1 billion worth of enzyme at market prices or more. So our current capacity I would say is about $500 million or more actually, $500 million to $600million of enzymes at commercial value. And we are talking about continuous perfusion manufacturing. [I think that it uses] sizes of fermentation vessels is not comparable to batch processing, so I would rather give you some capacity in terms of sales. This is the way we look at it. And we built it because, as I think we stated on R&D day, we anticipate sometime in the next few years to generate -- assuming GALNS is launched, to generate over $1 billion or over of enzyme sales.

Great, thank you.

Our next question comes from the line of Steven Willey with Stifel Nicolaus. Please proceed.

Yes, I had just a quick follow-up on PEG-PAL if I may. Hank, I think you mentioned patients would be potentially more willing to administer drug once or twice a day. So is the plan, then, in the daily dosing, the Phase II, that you have cued up for next year to look at multiple injections over daily basis versus single injection as well?

I think it is going to depend on the size of the patient and the number of milligrams drug they need and the concentration of the drug. So if a given day's dose is more than a couple mils, they will probably want to split that into two injections and maybe they want to choose split that morning and evening for their own preference.

Again, it is hard to tell right now until we do the trial to see what is the effective dose of the once a day drug.

Okay. And then I just know -- just quickly from some other injectables that there's -- that volume sometimes plays into injection site reactions and wondering if that also has something to do with the possibility of breaking it up into multiple injections over the course of a day or not?

Not really. Injection site reactions are an observed complication, even with the higher volumes we have been using, but they seem to be mild to moderate at worse, but self-limited and don't get in the way of therapy, so not really.

Great, thanks.

At this time I would like to turn the call back over to Mr. Bienaime for closing remarks.

Thank you. So in summary we are pretty pleased with our performance to date this year as we enter the final quarter of the year and position ourselves for long-term growth and success. Our commercial products performed well during the quarter, and I think they serve as a solid foundation to fuel our advancing pipeline. We have reinforced our manufacturing capabilities to support an excess of $1 billion of revenues and have recently added two extremely qualified members to our Board of Directors. We highlighted our exciting portfolio, our program last week in New York at R&D day, and we are committed to investing in the pipeline the next several years to ensure continued growth of the Company. We are cognizant of the balance between investing in the pipeline and achieving profitability, and we have a goal to remain neutral to positive in 2011. We are focused on executing on our ongoing programs, and look forward to keeping you up-to-date on our progress. So thank you for your continued support and for joining us on today's call. Good-bye.

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