BioMarin Pharmaceutical Inc (BMRN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 BioMarin Pharmaceutical Incorporated earnings conference call. My name is Jonathan, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes. I would now like to hand the call off to Ms. Eugenia Shen with Investor Relations. Please proceed, ma'am.

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. This non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions of the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities & Exchange Commission such as 10-Q, 10-K, and 8-K reports. Now I would like to turn the call over to JJ Bienaime, BioMarin's CEO.

Thanks, Eugenia. Good afternoon, and thank you for joining us on today's call. So overall we believe we are off to a strong start in 2011. We consider BioMarin uniquely positioned with four commercial products growing in the mid-teens, serving as a stable foundation for R&D development. All of our commercial products are the only licensed products specifically for the diseases they treat and all are for serious and most often life-threatening diseases. So far there is no competitive pressure on the horizon. However, we are not taking a laissez-faire approach to growing the Company. Our pipeline is progressing quickly with three trial initiations in the first quarter including the GALNS pivotal Phase 3 trial.

Starting with the foundation of our business, our commercial products in 2010, there was an increase in BioMarin net product revenue of 17.1% to $370 million as compared to 2009 of $316 million. Our cash balance was in excess of $402 million at the end of the year. Going forward, even with our commitment to invest significantly in the pipeline, we plan to remain operationally cash flow neutral to slightly positive in 2011. Consequently, we do not anticipate a need for financing excluding any potential larger transactions. For our largest product Naglazyme, net product revenue was $192.7 million in 2010, affecting significant growth over 2009 of $168.7 million.

Growth was even stronger when looking fundamentally at the number of new patients initiated on therapy in 2010 as sales in Q4 were negatively impacted by delays in several countries including Brazil, due to the timing of large government orders. This resulted in artificially lower revenues in the fourth quarter and will result in significantly higher revenues in the first quarter of this year. We experienced this in the past and continue to expect this type of variability going forward but continue to see steady patient additions across the quarters. We still see many attractive opportunities for growth in both new and existing markets for this product and we remain confident that Naglazyme represents a $300 million plus market for BioMarin.

Moving onto Aldurazyme, total revenue reported by Genzyme was $166.8 million and net product revenue to BioMarin was $71.2 million in 2010 with a 14.5% increase in Aldurazyme vials shipped by Genzyme in the fourth quarter of 2010 as compared to the fourth quarter of 2009. In terms of future growth, we view the 700 patients or so, MPS-1 patients that receive bone marrow transplants but not currently treated with Aldurazyme as a significant growth opportunity for this product. As for Kuvan, net product revenues was $99.4 million in 2010. We are making progress on the development of the fee monitor and are still on track to launch this by the end of the year. The PKU-016 neurocognitive study is open for enrollment and if positive, should offer a more compelling value proposition for the users of Kuvan. Finally for Firdapse, net product revenue was $6.4 million in 2010. We continue to gain traction in European markets and are give gearing up to start the Phase 3 trial for LEMS in the US in the second quarter.

As for our ongoing clinical and pre-clinical programs, we have made important progress on advancing our pipeline. We achieved a significant milestone in the GALNS program with initiation of the pivotal Phase 3 study in early February of this year. We also initiated the Phase 1/2 trials for BMN 701 for Pompe and BMN 673 for genetically-defined cancers in January. The PEG-PAL Phase 2 program is ongoing and we continue to see a good safety profile and significant efficacy. 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 fourth quarter and full year 2010.

Thanks, JJ. I will start by reviewing product revenues for the fourth quarter of 2010 and then follow with a more in-depth look at our operating expenses and financially results. Beginning with Naglazyme, net product revenue was $45.1 million for the fourth quarter of 2010 as compared to $44.4 million in the fourth quarter of 2009. Net product revenue for Naglazyme for the year ended December 31, 2010, was $192.7 million, an increase of 14.2% from the year ended December 31, 2009. Changes in foreign currency rates, net of hedges, had a negative $100,000 impact on fourth quarter of 2010 and a negative $1.7 million impact on Naglazyme sales for the year ended December 31, 2010.

Net sales of Aldurazyme by Genzyme were $42.5 million for the fourth quarter of 2010, an increase of 9.8% compared to net sales for the fourth quarter of 2009. The number of Aldurazyme vials shipped to customers by Genzyme increased 14.5% from the fourth quarter of 2009 to the fourth quarter of 2010. Net sales of Aldurazyme by Genzyme were $166.8 million for the year ended December 31, 2010, increased 7.5% for the year ended December 31, 2009. Foreign currency exchange rates caused a decrease to total Aldurazyme sales of $1 million for the fourth quarter of 2010 and $1.4 million for the year ended December 31, 2010. Net product revenue to BioMarin-related Aldurazyme was $23.1 million for the fourth quarter of 2010 compared to net product revenue BioMarin of $16.8 million for the fourth quarter of 2009.

During the fourth quarter of 2010, there was a positive $5.3 million net impact from inventory transfer revenue compared to a positive $1.1 million impact in the fourth quarter of 2009. Net product revenue to BioMarin for Aldurazyme was $71.2 million for the year ended December 31, 2010, compared to $70.2 million for the year ended December 31, 2009. This reflects incremental inventory transfer revenue of $3.2 million and $8.4 million for the years ended December 31, 2010, and 2009, respectively. Net product revenue for Kuvan was $27.3 million for the fourth quarter of 2010, increased 20.3% compared to the fourth quarter of 2009. NET product revenue for Kuvan of $99.4 million for the year ended December 31, 2010 increased 29.4% from the year ended December 31, 2009. Finally, net product revenue for Firdapse was $3 million for the fourth quarter of 2010 and $6.4 million for the year ended December 31, 2010.

Now I will review gross margins, operating expenses, and other items in more detail. Gross margins for Naglazyme were 83% and 82% for the three months and year ended December 31, 2010. Aldurazyme gross margins which can fluctuate from quarter to quarter depending upon the level of product transfer revenue were 66% during the fourth quarter of 2010 and 75% for the year ended December 31, 2010. The gross margin for Aldurazyme reflects both the royalty and product transfer revenue from Genzyme to BioMarin. Kuvan gross margins were 84% in the fourth quarter and 83% for the year which reflects a royalty payable on net sales of approximately 10%. Finally, gross margins for Firdapse were 79% for both the three months and year ended December 31, 2010, which includes an 8% royalty on net sales.

Research and development expenses increased by $14.8 million to $42.2 million in the fourth quarter of 2010 from $27.4 million in the fourth quarter of 2009. The higher spending was driven by clinical trial activities for GALNS, the PEG-PAL Phase 2 trial, Firdapse post-marketing commitments in Europe and the development of BMN 701 for Pompe disease and BMN 673, our PARP inhibitor. Selling, general and administrative expenses increased by $5.6 million to $42.1 million in the fourth quarter of 2010 from $36.5 million in the fourth quarter of 2009. This is largely due to increased spending for Naglazyme and Firdapse as well as corporate expenditures such as IT, facility costs, depreciation, and stock-based compensation expense. Non-operating income and expense in the fourth quarter and full year 2010 includes a one-time charge of $13.7 million related to the early conversion of $119.6 million of our convertible debt into equity that was due in 2013.

Now I will review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the fourth quarter of 2010 was $12.2 million or $0.11 per diluted share compared to net income of $4.7 million or $0.05 per diluted share for the fourth quarter of 2009. Non-GAAP net income for the fourth quarter of 2010 was $11.3 million or $0.10 per diluted share compared to non-GAAP net income of $13.5 million or $0.13 per diluted share for the fourth quarter of 2009. From a cash perspective, we ended the fourth quarter of 2010 with $402.3 million of cash and short and long-term investments. This decrease from $440.9 million at the end of the third quarter of 2010 and as a result of the debt conversion expense of $13.7 million, a milestone payment of $11 million to the former LEAD shareholders related to the acceptance of the IND for BMN 673 and planned increases in working capital primarily for inventory.

Going forward in 2011, we expect to remain cash flow break even to slightly positive. With regard to 2011 guidance, we expect total revenues in the range of $417 million to $452 million including Naglazyme net product revenue in the range of $206 million to $225 million, Aldurazyme net product revenue BioMarin in the range of $79 million to $83 million, Kuvan net product revenue in the range of $112 million to $120 million, and Firdapse net product revenue in the range of $14 million to $18 million. We also expect cost of sales in the rage of 18% to 20% of total revenue, SG&A expense in the range of $164 million to $174 million, and R&D expense in the range of $195 million to $205 million. Income tax expense is projected to be approximately $15 million in 2011 primarily reflecting taxable income generated in the US.

For the bottom line we expect a GAAP net loss in the range of $60 million to a loss of $48 million. A substantial part of the GAAP net loss during 2011 is driven by increased non-cash expenses that impact the P&L including depreciation and amortization, contingent consideration costs related to acquisitions, income taxes, and stock compensation expenses. Additionally the planned increase in operating spending, primarily investments in R&D, is driving the GAAP net loss for 2011. At this time we are introducing a non-GAAP adjusted EBITDA income measure that will be used going forward. We believe this is a better representation of our ongoing business as more in line with management's internal goal setting process. Appendix A in the press release issued earlier today contains a reconciliation of our quarterly and annual GAAP net income to our EBITDA and adjusted EBITDA results for fiscal years 2010 and 2009. We have also included our 2011 expectations for adjusted EBITDA.

For 2011 we expect non-GAAP adjusted EBITDA in the range of $43 million to $55 million, non-GAAP adjusted EBITDA excludes depreciation and amortization, contingent consideration expenses, interest income and expense, income taxes, stock compensation expense, and material non-recurring items. Please note that the bottom line result for the existing non-GAAP measure is similar to our newly introduced adjusted EBITDA income measure for the fourth quarter of 2010. On a full year basis, including 2011, we expect that the adjusted EBITDA income measure will generally result in a different outcome than the old non-GAAP methodology. Now, I would like to turn the call over to Steve Aselage, who will provide an update on our commercial business.

Thanks, Jeff. Overall our four commercial products are performing well and largely funding the development of our clinical and pre-clinical pipeline. As mentioned previously, we have seen significant choppiness in ordering patterns as a greater percentage of our revenues come from government entities. They tend to order larger quantities but less frequently. In Q4, several major orders missed being booked in December and the very weak December pulled down the entire quarter. As JJ mentioned, that included a significant order from Brazil, our largest single market. We have consequently seen an extremely strong January as those orders came through and anticipate Q1 will be very strong for Naglazyme revenues.

Our core business remained strong. We continue to see growth in patient numbers and the Q4 net patient increase was in line with prior quarters in 2010. We've made progress in a number of areas and believe we'll see meaningful revenue contributions from Russia and Mexico in 2011, countries where we have been putting effort in for the last several years. In Q4 we received an OFAC waiver to sell directly into Iran, a country with significant patient numbers, and we're beginning to work to commercialize Naglazyme there. We are confident that overall market growth will continue in both new and existing territories. Kuvan sales showed a 16.4% growth in commercial tablet demand over the same quarter last year. The product is growing steadily but we continue to be challenged by patient discontinuations. We have committed resources to follow up with these patients and to restart them on therapy and have had some success in our efforts.

Also availability of the blood Phe monitor later this year should help with patient compliance and adherence. The 016 study being run by Hank's group is helping focus awareness on cognitive, psychiatric, and social struggles that PKU patients sometimes have to deal with and the need to provide them with better care. The launch of Firdapse in Europe is progressing. We're selling commercial product in all major western European countries and we'll 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 our progress. Now I would like to turn the call over to Hank who will provide an update on our research and development pipeline.

Thanks, Steve. We have made significant progress on advancing our pipeline and are committed to investing for future growth, identifying clear inflection points for each of our programs and using disciplined and R&D expense control. Starting with GALNS for MPS-4A, we initiated a randomized, double-blind, placebo-controlled pivotal Phase 3 trial in early February with six-minute walk distances to primary endpoint. A treatment duration of 24 weeks and treatment doses of 2 milligrams per kilogram per week and 2 milligrams per kilogram every other week. To be eligible for the trial, patients must be older than five years of age and have a baseline walk distance no greater than 325 meters, similar to the criteria used in the Naglazyme pivotal trial.

We expect to enroll approximately 150 patients across 40 international sites including Brazil, Japan, Taiwan, many western European countries, Canada, and the US, making this the largest enzyme replacement trial conducted to date. We received feedback from the FDA on the special protocol assessment prior to initiation of the trial. They were in agreement on all major points of the study including the endpoints, study duration and eligibility criteria. Since our understanding with the FDA and intention was to file the special protocol assessment to help them familiar -- to help familiarize them with our GALNS program but not necessarily reach full agreement, we feel very confident in proceeding with the trial.

With regard to PEG-PAL, the Phase 2 study is ongoing. We continue to see a good safety profile, substantial lowering of blood Phe to the target range for significant percentage of patients and even reductions to normal range of levels of under 65 micromolar for some patients. This is quite remarkable as patients in this trial start at the severe end of the PKU spectrum with starting levels around 1,200 micromoles per liter. We're gearing up to start the daily dosing study which will assess whether we can safely administer the drug on a daily regimen which we believe is more convenient for patients. We are on track to have top line Phase 2 results by mid-2011 and believe this will be sufficient data to inform the design of Phase 3 trial which we expect to start in the first quarter of 2012.

Moving onto the Kuvan outcome study and life cycle development, the randomized, placebo-controlled 13-week study is ongoing. Endpoints 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 3 trial in the second quarter of 2011, file in the first half of 2012, and if all is successful, receive approval by the fourth quarter of 2012. In January we initiated the Phase 1/2 trial of BMN 701 for Pompe disease. The trial is an open label study to evaluate the safety, pharmacokinetics, pharmacodynamic and clinical activity of BMN 701 administered as intravenous infusion every two weeks at doses of 5 milligrams per kilo, 10 milligrams per kilo and subsequently 20 milligrams per kilo.

We expect to enroll up to 30 patients between the ages of 13 and 65 years with late-onset Pompe disease for a treatment period of 24 weeks. The primary objective of the study to establish the maximum tolerated dose of every other week administration of BMN 701 and to treat an expanded cohort of patients with the maximum tolerated dose. Although this is an early stage clinical program, we expect to move quickly to a data readout.

We also initiated a Phase 1/2 trial for BMN 673 our PARP inhibitor in January. The trial is an open label study of once daily orally administered BMN 673 and up to 70 patients ages 18 and older with advanced to recurrent solid tumors. The primary objective of the study is to establish the maximum tolerated dose of daily oral BMN 673 and to obtain preliminary efficacy data in an expanded cohort of patients with genetically-defined tumors. At R&D Day last October, we introduced BMN 111 for achondroplasia. Achondroplasia is the most common form of dwarfism with approximately 18,000 to 24,000 patients in the US and Europe and no approved therapy.

BMN 111 is an analog of C-type Natriuretic Peptide which is a positive regulator of bone growth and proven concept studies demonstrate that BMN 111 can reverse the achondroplasia phenotype in mice. We're very excited about this program and expect to initiate a Phase 1 trial in the first quarter of 2012. As you can see, we have a very full, diversified pipeline ranging from very early pre-clinical products to GALNS, a Phase 3 pivotal study. We'll keep you updated on our progress on this and other programs as they advance and now I would like to turn the call back over to JJ.

Thank you Hank. I wish to provide some additional perspective on our 2011 plans. As Hank just detailed, we have an exciting and full pipeline. At our R&D Day in New York last year, we announced that to support the development of this pipeline, we decided to substantially increase our R&D activities this year towards a $200 million expenditure. While we have to manage the delicate balance between earnings growth and investment for the future, we are cognizant of the negative impact earnings this year resulting from this investment. But we strongly believe it is the right thing to do for the long-term value creation for shareholders and of course, the many patients expecting to benefit from our products. Morquio patients today have no hope for the management of their conditions. They are the reason why we are developing GALNS.

A case in point, we are very proud, humbled and inspired to hear about a Morquio patient in our Phase 2 study who, prior to treatment, was wheelchair bound 100% of the time and suffering greatly. Today, after treatment with GALNS, he is able to walk. Patients of a baby newly diagnosed -- sorry, parents of a baby newly diagnosed with Achondroplasia have to resign themselves to the serious life-long complications of this diagnosis on their child. They also are the reason why we are developing our CNP analog. Despite the advances we have seen with Kuvan therapy, many PKU patients need a stronger therapy to manage their new [toxic] Phe levels and get closer to a normal diet. They are why we are developing PEG-PAL.

And though there are therapies currently available for Pompe, Pompe patients continue to deterioriate and they're why we're developing BMN 701, our [built] fusion protein for Pompe. I think it is not necessary to elaborate on the unmet need in cancer patients. We believe our PARP inhibitor has a very good chance to be best-in-class for a genetically-defined subset of cancer patients. For all the products we have on the market or in development except for the PARP inhibitor and 701 for Pompe, there are no competitors. If we stop trying to find therapy for these patients, they will have no hope whatsoever because no one else in the world is spending resources to provide relief to them. For all of these reasons we're excited about our investment in these programs and the potential benefits that they will have for patients.

Finally, there is a lot of talk in the industry about personalized medicine. I would propose to you that BioMarin is the ultimate personalized medicine Company. In every aspect of our business from research and development of treatments tailored to the genetics of the patients that are affected with rare diseases, two commercial operations focus on ensuring our patients and many of them know us by name have access to life-saving medicine. We believe that personalized medicine is not a futuristic idea, it is something we are currently practicing every day. We are looking for creative ways to further leverage our position as a pioneer in personalized medicine. With that, operator, I would like to open up the call for questions.

(Operator Instructions)Your first question is from the line of Cory Kasimov with JPMorgan. Please proceed, sir.

Good afternoon, guys. Thanks for taking the questions. I have one on Aldurazyme and then a follow-up if I can on PEG-PAL, but now that the Sanofi-Genzyme deal has officially been announced, can you talk a little bit more about your strategy going forward and how you may approach Sanofi with regards to Aldurazyme?

Hi, Cory. Long time no see. I am not surprised you are [saying] this question. I would just say a few things and then we basically -- our position from now on is that we cannot really comment much on this because we actually have already issued a negotiation with Sanofi on this asset. So a few comments I will make is that our intent is indeed to try to re-acquire the asset or de minimus to be significantly involved in the market [with] Aldurazyme worldwide because we believe all reasons we can significantly increase the sales of this product. And that would be beneficiary to everybody including the patients, so we are very happy that the transaction did -- was announced and is very, very likely to occur now between Sanofi and Genzyme, and we are looking forward to a renewed and restructured collaboration between BioMarin and Sanofi.

Okay. Great. And then this question is probably for Hank, but with regard to the PEG-PAL Phase 2 and the evaluation of a daily formulation, aside from reducing the cumulative dose and possibly improving patient tolerability, do you expect this to have any impact on the potential for antibody formation?

That's a good question, Cory. I think the primary driver is to improve the convenience because at the present volume of administration that would essentially call for an average patient something like seven shots or eight shots administered in one session, and by -- instead of doing that weekly, we feel it is probably in the patient's better interest to administer one shot of medication a day. As far as predicting things about the total dose administered or the antibody reaction, I could see that going a couple of different ways, favorable or unfavorable, and of course, that's why we're doing the study. The most recent data from a PEGylated enzyme is the data from Savient's KRYSTEXXA and that drug was -- appeared to be safer when administered every two weeks compared to every four weeks. So I don't know how that trend line continues to -- a frequency every day, and how that applies to PEG-PAL, so we look forward to the results with hopeful optimism.

Great. Thanks for taking the questions.

The next question is from Salveen Kochnover with Collins Stewart.

Thanks for taking my questions. Can you discuss in terms of Aldurazyme the territories that the drugs currently marketed in that BioMarin does not have a commercial presence in? And then just a follow-up on PEG-PAL. It looks like all the data is coming in mid-2011. Can you comment on why the trial is starting in first quarter 2012? Thanks.

So let me --

Sorry, is that Steve?

Yes.

Why don't you get going on the Aldurazyme territories, and then Hank can answer the PEG-PAL question.

Yes, it is a good question, Salveen and we have taken a look at it. We overlap currently with 95% plus of the territories where Aldurazyme is currently available. There are a few small countries where they have a patient or two where we do not have a partner or presence, and an example, they have one patient in Jordan to the best of our knowledge. We have no patients in Jordan, but it is the bulk of their business base is areas that we do have feet on the ground and could pick up fairly rapidly and quickly.

Hank, do you want to answer the PEG-PAL question?

Sure. Hi, Salveen. So in planning to get the PEG-PAL data in mid-2011, then the next steps would be to prepare a briefing document for [NDA] Phase 2 meeting with the FDA, hold the discussion with the FDA, fold their comments into the final design of a Phase 3 clinical trial and then submit that to IRBs and get contracts approved at sites. So we're just guesstimating that will take from mid-2011 to begin in the first quarter of 2012.

Thank you.

Your next question is from the line of Chris Raymond with Robert Baird. Please proceed, sir.

Thanks. Just wanted to delve a little bit into the artificial drag on the revenue line for Naglazyme that you guys described. Is there any way you can maybe give some range as to the magnitude of that impact or at least what -- quantify what that swing is from Q4 to Q1? And maybe a second part of that question is just looking at the trajectory of Naglazyme, even with the swing taken into account, the mid-range of your guidance really does show a slowing of growth year-on-year when you look at the percentage growth that -- [even] back to last year. Can you maybe talk to what's behind that, if there is something that you would expect going forward that could reinvigorate that in terms of patient identification geographically or some other levers of growth? That would be great.

Yes. Steve, I will get started. I don't think we want to quantify the swing. We definitely -- Q1 and as Steve said January sales for Naglazyme were very strong, so Q1 will be significantly stronger than in Q4. We continue to see growth in patients. We are having -- [expanding] into new territories, as Steve said, Russia, Mexico, potentially Iran -- looks this year, so the business is still very healthy. We're still very confident about the $3 million plus opportunity. We are a little careful in our guidance this year because of all the turmoil around the world and if you watch the news, you might know what I am talking about. We do have significant business in the Middle East in general and southern Europe, Middle East, so that's why we want to be a little careful, but the growth is still very healthy and we are very confident in the future of this product. Steve, do you want to add some more --

No, I think you covered it. We were surprised last year with -- taking a 10% hit in Germany on a mandatory price reduction and the Obama Care program that gave us an additional 8% liability for Medicaid patients. And I think as you look at the global economy as getting better but there is still a lot of pricing pressures out there. I think we want to be careful we don't just assume everything is going to go perfectly this year and we're taking that into account as we give our guidance.

Thank you.

Your next question is from Robyn Karnauskas with Deutsche Bank.

Hi, guys. Thanks for taking my questions. I guess I had two. I guess, number one. Do you have an update on the number of GALNS patients that you identified and maybe your thoughts on -- you're giving a guidance of data coming out the middle of next year and it seems like you've already identified a lot of patients in the six-month trial. Why -- What are your expectations for enrollment time and why are you pushing out the results for such a long time? Thanks.

So let me start with (multiple speakers) and turn it over to Hank for enrollment times. Patient numbers, we're still over 1,000. It is not going to come in on a steady basis. We're going to have data sweeps where various countries don't put into a central database, so don't expect to see quarter-over-quarter changes in the identified patient numbers but those are going to increase steadily between now and the launch. Hank?

As far as timeline, I think what I mentioned before is that, thanks to Steve's group as well as our own team's efforts, we have a lot of patients identified but they're also in a lot of countries. And we do put some value on including a lot of opinion leaders in a variety of countries around the world who have been great supporters of BioMarin and the development of drugs for mucopoly-saccharidosis in the past. And the time limiting factor there often is the various regulatory processes in each of these countries, and it is a bit of a balancing act because we obviously don't want to hold up the train for the whole at the expense of one or two countries. And so this is our current best understanding of expected enrollment timeline but as the trial progresses obviously we'll have more updates to provide if they're materially different from what we have already provided.

Again, to summarize, again the question is not that we don't have the patients available, we do, we have way more patients available, identified than we need for the study. And as Hank said, we have decided to make this study a multi-national study because 85% of the patients are outside the US, so we need to prepare the market for the product to give hands-on experience to key opinion leaders around the world, to prepare the market. The downside of that is just it takes more time to implement in a lot of different centers but we believe it is worth the investment.

Great. Thanks for taking my question.

Your next question is from Phil Nadeau with Cowen & Co. Please proceed.

Good afternoon. Thanks for taking my question. JJ, one for you. Could you tell us what is in, specifically in the Change of Control Agreement around the time during which you and Sanofi have to nail down an agreement? Does Change of Control expire at some point and does that change your negotiating position and similarly along those lines, what are your obligations to make the drug should Sanofi actually buy it from you?

I think we've -- so I can comment on that because we talked about this before. If we go by the letter of the agreement, the current agreement, we have to make an offer and we go with the shotgun approach. We have to make an offer to Sanofi between now and the closing of the transactions, so anticipated as per the Sanofi press release in early Q2 and regarding manufacturing, should Sanofi acquire our share and in that case, they would be responsible for manufacturing. And they have a specific amount of time to prepare for manufacturing the product ,either build a new plant or retrofit the plant, do some qualification lots, transfer the process, file with the regulatory authorities around the world and get it approved around the world, and it is not an unlimited amount of time, I would say.

And in your initial interactions with them, can you give us some idea whether they're willing to extend the period during which you have this Change of Control?

As I said earlier, we are negotiating with them since basically this morning, so I cannot comment on that.

Okay. And just one housekeeping question for Jeff. Jeff, could you let us know what the stock comp expense was in COGS R&D and SG&A?

Sure. So the stock compensation expense, if you just give me a second I will pull that up for you. So for the fourth quarter 2010, the total stock comp was $9.8 million. SG&A was $4.9 million, R&D was $3.5 million, and cost of sales was $1.4 million. If you take a look at page nine of the press release, it has the comparisons for both the quarters and the full year.

Okay. Great. Thank you.

Your next question is from John Sonnier with William Blair. Please proceed.

This is actually Tim [Mulrooney] for John. Thank you for taking the question. I believe there is an Advisory Panel coming up on March 2 to discuss development for orphan and rare diseases, clinical endpoints and trial designs. Did this factor into the FDA's discussion for your SPA for GALNS and what do you expect to be the outcome from this panel meeting?

Hank, do you want to talk about it?

Yes. I think that's an Advisory Board discussion that's being held by, I think it is Clinical Pharmacology, and primarily addresses issues like pharmacodynamic endpoints and measures. And at this point I think the main message is we've received feedback from the FDA twice, both at the end of Phase 2 meeting in the context of discussing the Special Protocol Assessment, and have incorporated the most important of their suggestions and felt that the time was ready to start the Phase 3 clinical trial and not spend more time continuing to negotiate. We believe that we have covered off on all the substantive points that have been raised and they recognize also that, in the context of reforming a multi-national clinical trial for a rare disease program, it is not going to be feasible to adjudicate every health authority's various and different inputs into program design. And so we feel comfortable that the trial is well designed and if positive, would support registration, not just in the US whereas JJ mentioned, there is [relatively] small fraction of the overall Morquio market but also ex US as well.

That makes sense. Thank you for that.

Your next question is from Eun Yang with Jefferies.

Thank you. A question on Aldurazyme. We understand that Aldurazyme is not really being used much in the post-transplant setting and you're currently running pilot setting in this setting. So the fact that post-transplant is already on the label, can you talk about how much of realistically the incremental revenue potential that you can obtain by running pilot study?

You are talking about Aldurazyme here?

Yes.

Steve, do you want to --

Sure. What are the best of our understanding is that there's roughly 700 post-transplant patients who have MPS-1 and virtually none of those patients are currently on enzyme therapy. We've seen in our MPS-6 population, patients who've had bone marrow or stem cell transplants, successful grafting, over a period of time the benefits of that graph deterioriate. Patients continue to have clinical manifestations of the disease despite a successful graft. We believe the same thing is going on in MPS-1 population, and what we have seen in the MPS-6 group is that patients who, post-transplant, go onto enzyme therapy improve clinical outcomes and improve measures of performance.

We think there is an opportunity with MPS to show the same thing. We think there are really two different approaches to it. One is to do a clinical trial to show that definitively and secondly, is to simply convey the data we already have and promote the product in that specific patient niche. Both of those efforts I think can be done simultaneously and I would hate to try to quantify it at this point but we think there is significant upside as a result of that opportunity.

Currently, the ongoing pilot study, is there any timeframe for data release?

The study that has been designed is an investigator-sponsored trial, and it is not open, and it has not enrolled a patient yet.

Okay. Thank you.

Your next question is from Liana Moussatos with Wedbush Securities. Please proceed.

Thank you. Can you repeat the Naglazyme gross margin data from Q4 and full year and the geographic breakdown of sales?

Sure. So the gross margin in the fourth quarter was -- I am sorry, fourth quarter was 83%, and for the full year, 82% for Naglazyme. Then the breakdown is in the US for the fourth quarter, 16% in the US and 47% in Europe, and 37% in internationally.

Thank you very much.

Your next question is from Ying Huang with Gleacher and Company. Please proceed.

Thanks for taking my questions. The first question I have is I noted that the Phase 2 PEG-PAL trial you [saw] (inaudible) product here so the dose now ranges from 0.02 mg/kg per day all the way to 0.8 mg/kg per day starting from the old trial which was up to 0.3 mg/kg per day here. Can you explain the reason behind the increasing dose here and also can you also elaborate? I know that from Phase 1 to Phase 2, you guys changed the manufacturing process a little bit. In this trial, are you going to use the Phase 1 protocol or the Phase 2 manufacturing [material] here?

Yes, so our desire in the daily dosing study is both to, as I said, investigate the safety of what we believe to be a more convenient regimen, but we also want to see if we can push the dose and obtain even greater efficacy. As you know, the holy grail for a patient with PKU would be to be able to have their blood Phe levels in a normal range and to effectively return to being able to eat an unrestricted amount of Phe in their diet. And what we have seen so far is about half of the patients, or more who continue on PEG-PAL, can actually achieve being in a normal range and we believe they're probably taking in a relatively normal amount of phenylalanine in their diet. And so we're very pleased by the safety data we have seen so far and believe that we can explore higher doses to get an even higher fraction of patients towards that ultimate goal. And as far as the second question, we do plan to use the super-PEGylated material we have been using in the Phase 2 trial in the daily dosing study, and examine its safety on a go-forward basis.

Okay. Thanks. Then another question on Aldurazyme here. So if you're counting this $1.0 million FX impact from Genzyme reported Aldurazyme revenue which is going to be $42.5 million plus $1 million. That's $43.5 million, and then that represents an increase of 12.4% over fourth quarter '09, but then actually the [balance] shift increased by 14.5%, so can you explain that about 2% [data] there?

It's probably just mix, combination of FX, pricing and volume.

Foreign exchange, variations, pricing and volume and timing of orders.

Do you actually have a ceiling of, in a single country, it doesn't matter how much patients. Once you're above the ceiling you're reimbursed for fixed amount only?

There are countries where there is a cap on total government exposure to the price of the product. We do not have any visibility to -- at least I do not have any visibility to that being a factor in Genzyme's reported revenues at this time.

Okay. Thank you. That was very helpful.

Your next question is from Vernon Bernardino with Dawson James. Please proceed.

Thanks for taking my questions. Robyn actually asked my question on GALNS but just wondering if you can then elaborate on the current strategy for Firdapse in Europe and then in penetration and sales?

Sure. We are continuing to promote Firdapse to treating neurologists with the focus on providing their patients with the drug with proven stability, potency and consistency as opposed to the variable compounded formulations that have been available in the past. Our focus is on the largely on the academic tertiary centers that make the initial diagnosis, and who prescribe or who write the initial prescription. It has gone a little bit slower than we had hoped when we launched the product, but the EU team I think has handled obstacles extremely well. We're seeing month-over-month, quarter-over-quarter increases now and feel that the product is moving in the right direction, and we have guidance this year in the $14 million to $18 million range and we're comfortable that we'll come in with at least that.

Okay. Thanks. Regarding the (inaudible) taxes, just wondering, you said it's primarily in the US, what do you think would be the average for housekeeping purposes, the average tax rate?

Well, the tax rate, the statutory tax rate is in the higher 30% range, but I think to bear in mind is that a very small proportion of the taxes is actually paid in cash. There is a little bit of AMT in the US and the majority of any taxes that we have are offset by our NOLs and R&D credits, so the theoretical statutory rates are in the high 30% but the actual amount that we pay out is relatively small.

And what is the strategy in how you're going to use the NOLs?

Well, currently the NOLs are being applied against our taxable income in the US, and as we continue to generate taxable income in the US, we'll continue to utilize those NOLs. As those run out, then the R&D credits will be applied, and that's basically how we utilize them. Now, of course, we continue to generate R&D credits for some of the research activities that are incurred in the US and those will be utilized at a future date.

So we utilize the existing NOLs and but we [really] nuance new credits, so it is hard to guesstimate exactly when we're going to start generating cash tax obligations, but probably --

There is a modest amount but it is a few years out.

Okay. I was just thinking for cash flow purposes. Thank you.

Your next question is from Carol Werther with Summer Street. Go ahead.

Thank you. I was wondering, when you start the pivotal trial with PEG-PAL, is the every day dosing going to be in a pre-filled syringe?

Yes. We haven't gotten down to that level of detail yet. But certainly the overall intention is to try to prepare a product that can be administered at home by the patient with as much convenience as possible, and exactly what the configuration of that is going to be I think is going to depend a little bit on some of the findings of the ongoing studies.

Okay. And then just secondly on the Pompe product, are you planning to develop that yourself fully or are you still thinking about partnering the product?

Actually, we have never really thought about partnering the product. Maybe you are referring to when we had 703 around -- 103. Sorry. I'm getting confused in the numbers between one and seven. Our own GA product that we have put this product on hold. This one is the one we acquired through the acquisition of ZyStor. At this time, we have no plans to partner this product.

Okay. Thank you.

Your next question is Shiv Kapoor with Morgan Joseph. Please proceed.

Thanks for taking my question. I've got a couple. First, JJ, can you talk about how you think about the balance of future growth and your pipeline and profitability? I would love to hear your opinion on this as it relates to the next two to three years and one more question. What -- which products have a Mid East -- have sales coming from the Mid East and what percentage is it?

On the first question on the balance of R&D and profitability, I think as I commented earlier, clearly, this year is a year where we invest in the future. However, the guiding principle for us is that we do not want to burn cash. We don't want to create financial risk, and this is why we limited the R&D spend this year to around $200 million because we could actually have gone higher than that. But we don't want to burn cash. That's for the short-term. I mean, projecting two, three years from now, I mean I think we have communicated before that where we are going to see some pretty significant operating leverage is when we're going to launch GALNS.

The reason being that GALNS is -- will be prescribed if it gets approved, will be prescribed by the basically the same physicians that are currently prescribing Naglazyme and Aldurazyme, we're calling all the physicians, so we don't need to significantly increase our commercial infrastructure expenses. There will be some increase but not nowhere near commensurate with the increase in revenues, so we're basically investing right now so that we're creating significant leverage with this product when we launch the product hopefully in late '13.

And I think we've also communicated in the past that this product is likely to be at least in the medium term the largest BioMarin product because, to give you perspective when we -- when Naglazyme was approved, we had only identified about 250 patients in the world. And here we are two years, more than two years ahead of launch, and we have identified over 1,000 patients. So we believe this is a very significant product. Question in the Middle East. It's mainly Naglazyme but I am going to let Steve Aselage answer that question.

We're watching the situation there very carefully. Roughly 6% of our global revenues come from north Africa and the Middle East. We lump those two areas together. The bulk of that comes from Saudi Arabia, Qatar and Kuwait, and we have no current business in Algeria, in Egypt, or in Libya, which seem to be three of the more unstable situations right now. So I think it is a good question. We're monitoring it very carefully, at least at this point we feel that where we do have a business base, those countries are relatively stable and we're continuing with our normal commercial operations.

If I may, there is one country where we have significant business. It's Saudi Arabia. So far they seem to be doing okay but as it's obviously something we're watching. Turkey is not the Middle East. It's between Europe and Middle East, it's a huge business so far. Looks like pretty stable country politically, but this goes back to the comments we made earlier that we want to be careful around Naglazyme guidance because there is a lot of uncertainty in different parts of the world where we have some business.

That 6% number I gave obviously does not include Turkey.

Okay. Thank you.

Your next question is from Alan Leong with Analysis Biotech. Please proceed.

Thanks. By the way, I really like the floor of your pipeline, so congratulations. I wonder if you could provide some color at least in broad strokes on your pre-clinical and research pipeline and a couple of things of interest are, if you have a really full research pipeline, is that changing your approach or aggressiveness to in-licensing vis-a-vis internally generated projects? And the other part, is if you could give some indication of the depth or number of projects and also the breadth, whether it is you're sticking to everything that you are [commonly] associated with or you're also getting areas that we wouldn't commonly know through your clinical projects? Thanks.

Hank, do you want to get started on that?

Well, I think we're -- in general, feel like we have made quite a substantial amount of progress filling out our pipeline. Two years ago when I came, we had essentially a single dose clinical trial for PEG-PAL ongoing, and nothing else had really started yet in the clinic, and here we are a couple years later and we're progressing GALNS into a Phase 3 pivotal trial. It looks like PEG-PAL will be progressing into a pivotal trial beginning next year, and we have an early stage portfolio, three assets that will, in the next couple of years, will have a couple dozen patients, preliminary efficacy data and we can make critical decisions. So I don't think we feel under a tremendous amount of pressure to continue to expand, but we're well capitalized, healthy Company, and we have a fairly healthy set of books, and can afford to be opportunistic when that comes across.

I think that the main focus for BioMarin has been on disease areas where the disease is seriously unmet, where the product has a chance to make a significant contribution to patient outcomes, where the science is extremely rational and well thought out, and where we can get proof of principle relatively early in the clinic before we have to make much larger investments. Those -- we believe that there are more assets that fill those criteria. We have a number of things in our own internal pre-clinical pipeline that are unannounced, and so I would say stay tuned to this space for more updates.

Just to add more color to what Hank said. Of course, because in terms of our early stage clinical or late stage clinical, we have lots of products now, probably it would be difficult for BioMarin's organization to handle more products right now. However, there is always attrition in discovery in pre-clinical pipeline. You need to have three or four programs to get one to move to Phase 1, Phase 2, so we're always on the look out for new [micro-deals] there. They are generally small deals, but we continue and need to continuously replenish this pipeline, early stage, very early stage pipeline.

And as Hank said, we, now with the image of the Company which is pretty positive, our track record we're getting a lot of calls from smaller companies that need a partner to develop and then commercialize their product. So we always take a look, we're not extremely hungry so we are pretty picky about what we would want to in-license. We're not really hungry for a transformative deal, which we're not hungry whatsoever for a big deal outside of Aldurazyme, but -- so basically that's where we stand today. The good news is that we're experienced. We have resources. We have a good track record, and so we attract a lot of potentially pretty exciting partners.

Great. Thanks.

Your next question is from Brian Abrahams with Wells Fargo. Please proceed.

Good afternoon. This is Matthew Andrews calling in for Brian. Couple quick ones on the MorCAP program. With you update us on the number of patients who enrolled, when may data be presented from the program this year at a medical meeting? And lastly, if there is anything you have learned from the patients within the program that you have incorporated into your thinking about the GALNS Phase 3 study that provides you confidence that you will hit on the primary endpoint? Thank you.

So we have launched the MorCAP program in at least in part to begin to pre-identify patients for the Phase 3 clinical trial. Now that we're moving into -- now that we've started the Phase 3 trial, we're going to shift our emphasis to actually conducting the Phase 3 trial and not further expanding the MorCAP study at the present time. And we do plan to present updated data, but I don't know that we've fixed on a particular medical meeting, and how we've use the data so far has been a couple of ways. First, we've been able to compare the level of endurance impairment experienced by Morquio patients with patients enrolled in a similar survey study for MPS-6 and found that the endurance impairment in Morquio syndrome is a bit more pronounced than it is in MPS-6.

And that gives us a lot of confidence that we're measuring a primary endpoint in a Phase 3 trial for GALNS that's relevant to patients and likely to benefit from enzyme replacement therapy. We also use the data to identify the distribution of walk impairments at baseline to help shape the eligibility criteria of the Phase 3 so that we can concentrate on the group that we believe is going to give us the biggest signal of effectiveness in the pivotal trial. So the MorCAP study has been highly effective for us both in pre-identifying patients and helping us shape the Phase 3 trial and again we look forward to presenting more specific data in a medical meeting during the year but we haven't identified which one.

Great. Thank you.

Your next question is from Eun Yang with Jefferies. Please proceed.

Thank you very much. The GALNS, you guys mention that you have agreed upon all the endpoints with the FDA regarding the Phase 3 study, so what's the reason not getting an SPA at this point?

So again very technical, very specific terminology. We did get an assessment under the Special Protocol Assessment process. Agreement involves going potentially back and forth several rounds to wrestle down every point in the review. FDA advised us at the beginning of that, that they didn't think that, that was going to be a useful exercise from their point of view. And they understood there was not going to be this whole exercise from our point of view given that this is an orphan disease, multi-national program was going to need to be undertake. And frankly, so many of the patients are ex US that we were going to be duty bound to press ahead with the trial even while individual health authorities, including the FDA, might have some pending suggestions for us to consider.

We looked at the nature of the comments as I said. From a substantive perspective, they've agreed on all the substantive points of design. We didn't feel that there was value in continued back and forth discussion with the FDA at the expense of starting the clinical trial and therefore, elected to start the clinical trial. We believe that if the trial is positive and it's certainly designed in such a way to maximize the chance of that, that all of the residual comments that were contained in the review will be adequately addressed at the time of review.

Thank you.

To add more color on this again, we looked at some statistics, out of 30 SPA submissions in the SPA, a system has been put in place. Only 12 of them resulted in agreements so it is not unusual to have SPA submissions but not go all the way to final agreement. It is more to allow the FDA to spend more time on reviewing the files and understand the product and Hank said, we have agreement on the fundamental aspects of the Phase 3 design which was important to us. But considering again that 85% of the market is outside the US, we do not want to delay the initiation of international study for several weeks or months just to satisfy the FDA and then delay 85% of the market.

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

Hello, thanks for letting me sneak in the follow-up. Just curious how much of your cash balance right now is domiciled outside the United States?

Very little, just a few percentage points. The overwhelming majority of it is in the US.

Great. Thank you.

That's all the time we have for questions today. I would like to understand that the call back to Mr. Bienaime for closing remarks.

Thank you. So in summary, we ended 2010 and started off 2011 in a very favorable position. We have four growing commercial programs that help fund the pipeline we have of innovative products we focused on advancing R&D portfolio which includes success with exiting -- successfully executing the Phase 3 GALNS trial, concluding the Phase 2 PEG-PAL program, moving forward with a Phase towards the Phase 3 trial and getting results on 701 and 673 that are both in Phase 1 to development. So we are cognizant of the balance between investing in the pipeline and achieving profitability. We have a goal to remain cash flow neutral to slightly positive in (inaudible). We are looking forward if the GALNS program is successful. We expect to achieve significant leverage with this product as we discussed during the Q&A, and we are focused on executing on our ongoing programs. And we look forward to keeping you up to date on our progress and with this, I want to thank you for continued support and for joining us on today's call. Good bye.

Ladies and gentlemen, thank you for your participation in today's call. The presentation has ended. You may now disconnect. Have a good day.