BioMarin Pharmaceutical Inc (BMRN) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2011 BioMarin Pharmaceutical earnings call. My name is Colby and I will be your Operator for today. At this time all participants are in listen only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Eugenia Shen, Investor Relations, please proceed.

Thank you. On the call today is Mr. J.J. 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 authority, 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-Qs, 10-K and 8-K report. And now, I would like to turn the call over to J.J., BioMarin's CEO.

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

We're off to a great start in 2011. The first quarter of this year there was a year-over-year increase in biograde net product revenue of 30% to [$109] million, driven by a strong quarter for Myozyme. Our cash balance was $394 million at the end of the quarter, down slightly from $402 million at the end of 2010 due to the timing of cash receipts, which were collected in early April.

In 2011, even with our commitments to invest significantly in the R&D pipeline, we plan to remain operationally cash flow neutral to slightly positive. The strength in Myozyme during the quarter was driven in part by a large government order from Brazil. It was booked in early January, but also, it helped the international growth around the globe. As we mentioned on the Q4 call, this is also the artificially low revenue in the fourth quarter of 2010 and significantly higher revenues in this quarter.

We had experienced this type of fluctuation in the past and continue to expect this type of variability on a going forward basis. The important thing is that we continue to see steady patient admissions across the [boards]. We still see many attractive opportunities for growth in both new and existing markets. For Myozyme, we remain confidence that Myozyme peak sales will be north of $300 million. Steve will elaborate further on Myozyme and the rest of our commercial portfolio a little later.

I want to briefly touch on Sanofi's acquisition of Genzyme. After in-depth discussion with Sanofi and Genzyme and careful consideration of all of our options we believe it is in the best interest of BioMarin and our shareholders to continue with the current arrangements with regard to Aldurazyme and not to challenge Sanofi's interpretation of the contract. Sanofi has assured us that it's committed to working with us to grow the product and maximize the potential of Aldurazyme.

As for our phenylketonuric program we have been very busy this year so far and have made important progress on advancing our pipeline this quarter.

We have brought three micro-entities to the team this year. The pivotal phase 3 study for GALNS, the phase 1/2 trial for BMN 701 for Pompe's disease, and BMN-673 for traditionally defined cancers, have all started in Q1. We expect to report PEG-PAL phase 2 top-line results in the third quarter of 2011 of this year, and we continue to see encouraging safety and efficacy trends and feel confident that we will be able to progress more safely early next year.

The successful advancement of our pipeline project remains a top priority for the Company and Hank will provide details on our R&D efforts a little later. So [in a 2011] guidance I would like to highlight a few items we have arranged at the bottom end of our Naglazyme guidance by $500 million, which takes into account our Q1 upside, but also the uncertainty of the international market.

This results in a new range of $211 to $225 million, and consequently, total (inaudible) of revenue increased to a range of $416 to $446 million and total BioMarin revenues increased to a range of $422 to $452 million. The result of increases in early sales and expense trends will remain for 2011 and also raise guidance for GAAP net income to a range of a loss of $52 million to $42 million and non-GAAP adjusted EBITDA to the range of positive $51 million to $61 million. Now I would like to turn the call over to Jeff Cooper, who will review the financial results for the first quarter of this year.

Thanks, J.J. I will start by reviewing product revenues for the first quarter of 2011 and then follow with a more in-depth look at our operating expenses and financial results.

Beginning with Naglazyme, net product revenue was $60.6 million for the first quarter of 2011, an increase of 24.7% as compared to $48.6 million in the first quarter of 2010. Changes in foreign currency rate, net of hedges, had a positive $100,000 impact in the first quarter of 2011.

Net sales of Aldurazyme by Genzyme were $42.8 million for the first quarter of 2011, an increase of 7.3% compared to net sales for the first quarter of 2010. The number of Aldurazyme bottles shipped to customers by Genzyme increased 6.4% for the first quarter of 2010 as compared to first quarter of 2011.

Foreign currency exchange rates caused an increase of total Aldurazyme sales to $400,000 for first quarter 2011. Net product revenue to BioMarin related Aldurazyme was $18.7 million for the first quarter 2011, compared to net product revenue to BioMarin of 14.2 million for the first quarter of 2010.

During the first quarter 2011 there was a positive $1.8 million net impact from the inventory transfer revenue compared to a negative $1.7 million impact in the first quarter of 2010.

Net product revenue for Kuvan of $26.7 million for the first quarter of 2011 increased 25.9% as compared to the first quarter of 2010. Finally, net product revenue for Firdapse was $3.1 million for the first quarter 2011 as compared to $100,000 in the first quarter of 2010.

Now I'll review gross margins, operating expenses and other items in more detail. Gross margins for Naglazyme were 83% for the three months ended March 31, 2011. Aldurazyme gross margins, which can fluctuate from quarter to quarter depending upon the level of product transfer revenue, were 72% through the first quarter of 2011. Gross margin for Aldurazyme reflects both the royalty and product transfer revenue from Genzyme to BioMarin.

Kuvan gross margins were 82% in the first quarter, which reflects a royalty payable on net sales of a possible 10%. Finally, gross margins for Firdapse were 82% for the three months ending March 31, 2011, which includes an 8% royalty on net sales.

Research and Development expenses increased by $14.9 million to $45 million in the first quarter of 2011 from $30.1 million in the first quarter of 2010. The higher spending was driven by clinical activities for the GALNS phase 2 trial, the PEG-PAL phase 2 trial and the phase 1/2 trial for BMN-701 and BMN-673 and Firdapse post marketing commitments in Europe.

Selling, general and administrative expenses increased by $7 million to $41 million in the first quarter of 2011, from $34 million in the first quarter of 2010. This was largely due to increased spending for Naglazyme, Kuvan and Firdapse as well as corporate expenditures such as IT, facility costs, depreciation, and stock-based compensation expenses.

Now I will review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the first quarter of 2011 was $4.4 million or $0.04 per diluted share compared to net income of $1.2 million or $0.01 per diluted share for the first quarter of 2010. Non-GAAP adjusted EBITDA for the first quarter of 2011 was a positive $17.3 million or $0.14 per diluted share compared to non-GAAP adjusted EBITDA of positive $14.8 million or $0.14 per diluted share for the first quarter of 2010.

From a cash perspective, we ended the first quarter of 2011 with $394 million of cash and short- and long-term investments, down from $402.3 million at the end of the fourth quarter 2010, due primarily to the timing of cash receipts, which reflected in early April. For the full year of 2011 we expect to remain cash flow break-even to slightly positive.

With regards to 2011 guidance, we now expect total revenues in the range of $422 million to $452 million from a previous range of $417 million to $452 million as a result of an increase in the low end of the Naglazyme revenue of $5 million. We now expect Naglazyme net product revenue in the range of $211 million to $225 million from a previous range of $206 million to $225 million. We continue to expect Aldurazyme net product revenue to BioMarin in the range of $79 million to $83 million; Kuvan net product in the range of $112 million to $120 million; and Firdapse net product revenue in the range of $14 million to $18 million.

Our expense guidance remains unchanged. We continue to expect positive sales in the range 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. The breakdown of the expected R&D expense is approximately 50% on clinical programs, 20% on commercial programs, 10% on discovery and the remaining 20% consisting of stock compensation, non allocated and other expenses.

For the bottom line, we now expect GAAP net loss in the range of $52 million to a loss of $42 million from a previous range of a net loss in the range of $60 million to a loss of $48 million. A substantial part of the GAAP net loss from 2011 is driven by increased non-cash expenses that impacted P&L, including depreciation and amortization, continued consideration cost-related acquisitions, income taxes, and stock compensation expenses. Additionally the planning [freeze] in operating spending, primarily reductions in R&D, is driving the GAAP net loss for 2011.

Also for 2011 we now expect non-GAAP adjusted EBITDA in the range of positive $51 million to $61 million from a previous range of a positive $42 million to $55 million. Non-GAAP adjusted EBITDA excludes depreciation and amortization, continued consideration expense, interest income expense, income taxes, stock compensation expense and material non-recurring items.

We introduced this measure on our Q4 2010 call, and believe this is a better representation of our ongoing business as more in line with Management's internal goal setting process. Please feel free to contact us after the call if you'd like to walk through this methodology in more detail. Now I'd like to turn the call over to Steve Aselage, who will provide an update on our commercial business.

Thanks, Jeff. We're pleased with the performance of our commercial portfolio which is off to a strong start in 2011. Starting with Naglazyme, as J.J. mentioned earlier, several significant orders, including one from Brazil shifted from Q4 2010 to January, which helped to drive a very strong quarter.

As mentioned previously we have seen significant choppiness in ordering patterns as a greater percentage of our revenues come from government entities which tend to order larger quantities but less frequently. We finished Q1 with what we believe is appropriate inventory in our major markets, but it is likely we will continue to see some unevenness in quarter-to-quarter revenues. Our core Naglazyme business remains strong. We continue to see steady growth in patient numbers, and the Q1 net patient increase was in line with prior quarters in 2010. We received our first orders from Russia and Mexico last year and are now seeing meaningful contributions from those countries in 2011. We are also continuing geographic expansion to new regions, hope to be shipping product into Iran before the end of this year. We are confident that overall market growth will continue in both new and existing territories.

Kuvan sales showed a 21.1% growth in commercial tablet demand over the same quarter last year and a 2.8% decline from fourth quarter of 2010. The decline from Q4 to Q1 is normal as the beginning of the year is when insurance coverages normally change and a percentage of patients always require re-approval of their coverage. Our patient services group works hard to minimize this disruption. We have lessened the impact over previous years, but it still had some negative effect. We are continuing to see growth in the number of patients on therapy and we continue to have challenges with patient discontinuations as well.

We hope that the availability of the blood feed monitor early next year will help the patient compliance and adherence. Also the PKU-016 study is focusing awareness on cognitive, psychiatric and social struggles that PKU patients sometimes have to deal with and the need to provide them with better care. We believe the more aware healthcare professionals are of these issues, the more likely they are to provide their patients with a trial of Kuvan.

The launch of Firdapse in Europe is progressing. We are 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 has been modest but is moving in the right direction. 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 R&D pipeline.

Thanks, Steve. The successful execution of our pipeline is a top priority for the Company and we've made significant progress in advancing our R&D programs. We're committed to investing the Company's future growth and improving the lives of patients while maintaining financial discipline. We plan to do this by identifying attractive market opportunities and clear [inflection] points for each of our programs. Starting with GALNS for Mps4a we are enrolling patients in the pivotal phase 3 trial.

We now have regulatory approval in 9 countries and expect to enroll approximately 160 patients across 40 international sites making this the largest enzyme replacement trial conducted. Although there are over 1000 patients identified, and the majority of patients are eligible for the trial the logistics of conducting a large international trial are the winning factors of this study. Assuming approximately a year for enrollment we expect to report top-line results in the second half of 2012, and file by either the end of 2012 or the beginning of 2015.

With regard to PEG-PAL we expect to report top-line phase 2 results in the third quarter, including results from the daily dosing study, which is now underway. The daily dosing study will enroll between 8 and 10 patients for treatment duration of 4 weeks starting at a dose of 0.4 milligrams per kilo for 5 days a week. We believe this will be sufficient data to inform the design of a phase 3 trial which we expect to start in the first quarter of 2012.

We continue to see a good safety profile, substantial lowering of blood feed of the target range for a significant percentage patients and even reductions to physiologic levels of 65 micromolar or lower for some patients. This is really quite remarkable as patients in this trial start at the severe end of the PKU spectrum, with starting blood feed levels of around 1,200 micromoles per liter.

Moving on to the Kuvan life cycle development, the randomized placebo controlled, thirteen weeks outcome study is ongoing. Influence include clinical validated measures of neuropsychiatric symptoms and if successful, may support a label amendment. As for the hand-held blood feed monitor, regulatory approval and commercial availability is expected in the first half of 2012.

Regarding Firdapse, we plan to initiate a phase 3 trial in the US in the current quarter.

In January, we initiated the phase 1/2 trial of BMN-701 for early onset Pompe disease. The trial is an open label study to evaluate the safety, pharmacokinetics, pharmacodynamic and clinical activity of BMN-701 administered as an intravenous infusion every two weeks, at doses of 5 mgs per kilo, 10 mgs per kilo and 20 mgs per kilo. We expect to enroll up to 30 patients between the ages of 13 and 65 with late onset Pompe disease for a treatment period of 24 weeks. We expect to report top-line results in the second half of 2012.

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 in patients 18 and older with advanced recurrent solid tumors. The primary objective of this study is to establish the maximum tolerated dosage of daily oral BMN-673 and to obtain preliminary efficacy data in an expanded [cohort] of patients with genetically defined tumors.

We are also advancing BMN-111 for achondroplasia through the pre-clinical pipeline. We are very excited about this program and expect to initiate a phase 1 trial within the first quarter of 2012. Animal model data for BMN-111, as well as data from our more cap registry for MPS4 patients will be presented at the international Scala dysplasia meeting in June in Australia. So as you can see we have a very full, diversified pipeline ranging from pre-clinical products to GALNS in the phase 3 pivotal study. We will keep you updated on our progress of our programs as they advance. With that, Operator, we'd like to now open the call for questions.

(Operator Instructions) Your first question comes from the line of Salveen Richter with Collins Stewart.

Hi thanks for taking my question. Just in terms of the Phase II PEG-PAL study, maybe you could just frame for us what we should be looking for. Is it the once-daily dosing that you intend to take forward into the Phase III and is there a threshold level of Phe reduction and a long-term safety profile you are looking for internally to take this forward?

Yes, so as I mentioned, we will have the treatment data from approximately 8 or so patients who have been treated for at least four weeks, and what we are looking for is to verify that it's safe to treat patients on a daily schedule, and we're starting patients directly on a daily schedule. We have been treating patients with PEG-PAL for over a year and we're pretty satisfied with the safety, so on some level, this is dotting an I by demonstrating you can start directly on once-daily dosing.

As far as the product efficacy profile, I think you have heard us say that we are looking to achieve a response in over 50% of the patients, net of patients who have either safety or non responsiveness problems, and at this point, we are really pleased by both of the efficacy side of the equation and the safety side of the equation. Just to reiterate, the main safety observational studies, injection site reactions, which tend to be transient; patients have generalized skin reactions, those tend to be transient and non-dose limiting. We do not see any systemic sequelae from PEG-PAL administration.

And on the efficacy side, we've really seen substantial Phe reductions in the majority of patients who are treated, and more specifically we see Phe reductions in the target range and in some cases, Phe reductions into the normal range. So we are very pleased with the safety and efficacy profile, look to confirm the safety of starting patients on a daily oral dosing, and look to have that data by the third quarter to corroborate and take forward into an [andi fixing] meeting.

Thanks, Hank. And then just a follow-up question. Was the timing for approval of the Phe monitor pushed out to next year from the end of this year?

Yes.

Was there any specific reason for that?

Yes, I can help a little bit with that, too. FDA responded to our proposed protocol with a request for some additional samples, that increase the number of patients, which in turn is going to increase the number of sites, and it's going to take a little bit longer to get that data and be ready to submit.

Thank you.

It looks like the FDA in the past year or two has been increasing, and raising the bar on the requirements for approval of devices, and this is a device. So they keep raising the bar in terms of number of patients needed. Also, review time at the FDA has been increasing substantially in the past couple of years, so we have to take that into account.

Thank you.

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

Great, thanks, I appreciate the question. I was wondering if, since the low end of your range sort of implies that the second quarter could decrease substantially for Naglazyme, perhaps to the fourth-quarter level, is that something that you think could happen with these lumpy ordering patterns in Brazil? Or basically, what sort of pattern should we assume for the remainder of the year, given those dynamics?

I think the best way to look at Naglazyme is to avoid the quarter-to-quarter comparisons and really look at the trend. And if you take a look at really the last eight or nine quarters, trend that out, I think it gives you a good perspective on what the rest of the year should look like, not on a quarter to quarter basis but on an annual basis.

Okay. And for PEG-PAL, sorry, JJ did you have something?

Yes, again, as we said, we had a great quarter for Naglazyme, there's no question, even (inaudible) from these extra Brazilian orders but we want to be careful because we know that a lot of the orders, particularly from Brazil and other countries are very lucky, but [the scenario] we keep recruiting new patients, adding patients, and that's really why are so [ready to talk] about [that].

But at the same time, we are careful about our guidance. Two reasons why is because of the -- somewhat unstable situation in the developed world, in terms of financial and economic situation, whether it's North America or Western Europe, which can make it sometimes difficult to predict what could happen. And back to the government orders, we could have a big order in December of this year or it could shoot into January again of 2012, so it's difficult to predict exactly where Naglazyme is going to fall, but the dynamics are very positive.

The thing I mentioned in my comments as well, is we really feel like we ended Q1 with appropriate inventory in all of our major markets. We are not going into Q2 with any kind of an overload in the pipeline out there as a result of a large Q1. So if orders are relatively smooth, you should see a Q2 that is in line with traditional growth rates over the last eight quarters, but we cannot guarantee you that they're going to go smoothly, so again I think if you look at it on an annual basis rather than on a quarterly basis, it's really the way to analyze our business.

Okay, great, that's very helpful; thank you. And then on PEG-PAL can you remind us what the volume and number of injections that patients are doing each day? And have many been able to liberalize their diet, and what have drop-outs looked like?

Yes, so I mentioned that we are starting at 0.4 milligrams per kilo, which for an 80 kilo person represents 32 milligrams a day, which for a 10 mg per ml formulation is 3.2 mls, so that's probably two 1.5 ml shots a day.

That's for the average patient.

That's for the average patient. And bear in mind that we're starting at a total weekly dose level that is twice as high as where we have been in the previous study, and so we are looking to see if we can get even more efficacy.

I think another part of your question was the drop-out rate. There had been a total of I think about 10 discontinuations from the study. They've been primarily for logistical reasons, although one patient was discontinued both with -- for logistical regions and with the generalized reaction that ended up resolving but we have seen any increasing pattern of intolerability of the product. And I think you had a third component of your question, Joe? (multiple speakers)

I think our basic assumption is that with the level of 1200 micromolar for an adult PKU patient, is they are probably taking in a pretty healthy amounts of blood Phe -- of dietary Phe. It can be difficult to document this; we are working on trying to document the levels of dietary Phe intake and I'd say stay tuned for more data.

And (inaudible)_the profile, versus maybe the [weak] part of the study, you can understand some patients have been on the drug for 18 or 19 months now with basically not seeing any basic problems, even after you are going to have therapy, but some of them have dropped out, as Hank said, for social reasons, like chronic fatigue, they're not particularly optimal, and for these kind of decisions, it is every week. Some have logistical reasons, they move, their family reasons make the difficult decisions, but only one of them had a combination of timing reasons and adverse reactions that dropped.

So the 10 discontinuations was out of a denominator of how many again?

We created a total of 33 patients in the study.

Okay, great. Thanks very much.

Your next question comes from the line of Cory Kasimov with JPMorgan. Please proceed

Hi there, it's actually Matt Lowe in for Cory today. I just have a couple of questions on Aldurazyme. I think you mentioned in the past that Sanofi is also interested in growing the Aldurazyme franchise. Just wondered if you could talk about the central source of this growth, if it's post-transplant patients or simply continuous penetration into different markets, and then also if you have met with Sanofi since completion of the Genzyme acquisition to discuss the commercial strategy. Thank you.

Yes I think the growth is going to come from the combination of the new territory, increased penetration of existing territories, and indeed hopefully some penetration of the post-bone marrow transplant market, as very clearly now a willingness on both parts, between Sanofi, Genzyme and us to move forward with a study comparing Aldurazyme with bone marrow transplant to bone marrow transplant alone, there is no more discussion about that; it's just a question of (inaudible) the study. And I think there is a true willingness on both parts to try to penetrate this market. I think -- Steve, (inaudible) with Genzyme?

We will be talking to Genzyme in the future; those meetings are already set up. We've got a couple of different structures that allow us to communicate with them, and there are some areas that we think we can work with them that would be beneficial for both Aldurazyme and for Naglazyme. So we're looking forward now that we have the issues related to the reacquisition settled, the smoke has cleared on that. And I think the opportunity to engage into a constructive working relationship and that is what we intend to do.

Okay, that's great, thank you.

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

Good afternoon, thanks for taking my questions. First, Hank. One for you. Is there any effort underway to increase the concentration of the formulation from 10 milligrams per ml or is that something that you think is even possible?

Yes there is quite a bit of effort on that in our technical operations group, and we do have some pretty good ideas for how to achieve that, but not anything that we are ready to go live with just yet.

And how do you think the product could be launched? Would it be launched with a 10-milligram per ml formulation, or is there a chance that a better formulation is available, even before launch?

It's a little early to talk about this. I think we definitely want to come up with the best net presentation of the product, with the best target efficacy profile and I think we are pretty optimistic about some opportunities to achieve something that could be once a day and substantial Phe lowering in the majority of patients and Phe normalization in some fraction of those patients, but it's really too early to tell by what the design of the Phase 3 trial with the commercial launch product could look like.

And it's not only the timing of the approved concentration and formulation, but really one thing is that we launched with the current formulation and then come up with a better product a couple years later, or we wait. It truly depends [on the timing].

Okay, great. Then second is a question on the manufacturing facility; I think last time you talked about it, approval was expected this year. Could you give us an update on what's going on with manufacturing?

Yes this year the evaluations are going on right now, and so far so good, so we feel pretty confident that the facility will be approved by the US and European regulatory authorities by the end of the year.

Okay. And it looks like there was a delay; when does capacity become constraining with the current facility?

With the addition of the new facility?

No, no. Just with what you're able to produce today with the current facility, if there was a delay to the new facility, when would the current facility become capacity constrained?

We're not anticipating a delay, but even if there were a delay, we have sufficient inventory to be more than covered, so that's not an issue.

Yes, that is not an issue. If the facility was never approved, that could be a problem, but even if it were nearly a year, we would no issue. We are not anticipating that we would have an issue.

Okay. And then one last question for Hank. Any update on the Kuvan study in autism, when we might see results there?

(inaudible). The last patient in was this week; we anticipate having data some time in early August. And tentatively, that data will be presented at a medical conference in October.

Great, thanks for taking my questions.

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

Thanks, just a couple of questions, here. First on GALNS, I'm sure you're not really going to be willing to give a blow-by-blow update on enrollment, but can you maybe give us a rough sort of update on the number of patients you have in the MorCAP registry? And also maybe talk a little bit of the biggest barrier you have seen to date in enrolling patients in the Phase 3?

Yes, so on MorCAP, I think we have crossed the 300 patient mark, we actually shift our attention to enrollment in the Phase 3 trial. And so we'd look for MorCAP numbers at this point, any further, just because we are focused on the Phase 3 trial.

As far as barriers to enrollment, I think that does start to get a little bit into the blow-by-blow. It's early days. We feel really good about the assumptions we made going into the trial and the timeline for the trial.

And as I said in my comments, a lot of logistics involved in activating all the countries and getting to all of the clinical trial sites, and getting all the opinion leaders an opportunity to have a chance to participate in the pivotal clinical trial. And this is going to be a landmark study, and so it's really important to us that people have a chance to participate and get their patients in the study. So with all that said, we feel pretty confident about the timeline of a year-plus to enroll the trial.

And as Hank said, the key is to -- [activity] -- unless you obtain approval, regulatory approval in different countries, we are planning two different studies, and as Hank said in his prepared remarks we have approval already in nine countries that we have achieved in the past few weeks.

Great, okay, and then maybe a question for Jeff. I am just curious on your new non-GAAP treatment in the presentation. It just seems a little different from other stuff that we have seen. There is some stuff that is pulled out that I don't think I've really seen before like interest income and expense and income tax. Can you maybe talk about the sort of logic behind doing it this way now?

Well in terms of the logic, this is really how we measure ourselves in terms of our goals that are reported to the Board. So the logic in terms of the methodology is based upon how we are actually measuring ourselves. In terms of the components, EBITDA is a pretty time-tested measure, and income tax expense, interest income expense are excluded from that, so it's a fairly well-known and widely used methodology. For us, income tax expense is included, especially since the majority of our income tax expense is non-cash, since we reverse our valuation reserve, we only actually incur a small amount of taxes that we actually pay in cash.

So we think that this is a better representation in terms of how we manage our business. There's a significant number of non-cash expenses in this adjusted EBITDA measure, including stock compensation, which we have given guidance, well over $40 million; depreciation and amortization as well as some of the deal-related accounting that we [call continued] consideration. So all in all, we think is a pretty good measure in terms of how we conduct our business.

There are a number of other companies that utilize this measure. Sometimes they don't call it adjusted EBITDA, but you'll find that a number of these components are actually excluded, but there certainly is variety in practice out there, but we think it's a pretty good measure for us.

And we announced this like a quarter ago.

That's right.

Your next question comes from the line of Eun Yang with Jefferies. Please proceed.

Thank you. On the PEG-PAL, I just want to make sure that I understood you correctly. So 10 patients out of 33 patients dropped out in the trial, and then I think you mentioned that most of the patients who dropped out were due to logistics. Can you actually comment on what the real issues were, and what is the 10 dropouts? Is it a difference between daily dosing versus weekly dosing?

I think JJ actually already covered the reasons behind the logistics. It's a study, a lot of the measurements that have to be made, a lot of return visits to the clinic. People with PKU have lives to lead, sometimes they're not, because of the morbidity of the disease, sometimes their lives to lead aren't the easiest lives to lead. They may not have the social or economic support systems that enable them to participate in a chronic clinical trial. We have been at this clinical trial, as JJ mentioned, for about 18 months. And so that's a pretty long time to be able to keep patients on study.

And they have to go back to the doctor every week.

And as far as whether once a day, or any dose-related, we don't find that there any patterns related to the frequency of delivery. It really is more related to just the overall logistics involved in participating in a clinical trial.

So by the time we see the complete Phase 2 data in third quarter, how many patients will there be?

As I mentioned on the call, in addition to the 33, we anticipate another 18 or so patients coming on in the trial.

Okay. And then in terms of your planned Phase 3 study for PEG-PAL, starting in the first quarter next year, in terms of the primary endpoint, will that be different from Kuvan? For example you are looking at the number of percentage of patients achieving normal Phe level and also come off a restricted diet?

Well I think our starting assumption is that blood Phe serves as the basis of approval for Kuvan, and therefore, there is regulatory precedent or it serves as a basis of approval for PEG-PAL. And we think that there is substantial upside in that some of the parameters that you mentioned, for example, the percent of patients who are in the target range, and the patients who experienced a normal blood Phe level or sustained a blood Phe level. These are all good additional things to have happen.

We have not sat down and designed that Phase 2 trial or put it in front of a regulatory authority, so I'm a little reluctant to say what the design of the Phase 2 trial is other than to say the reduction of blood Phe has been accepted as a basis of approval, and the level of efficacy we're observing so far with PEG-PAL is really substantial relative to the level of efficacy we observed with Kuvan, as we expected. And the only difference in PEG-PAL from when we started the PEG-PAL program was approving and continues to be a safer product than we had originally anticipated.

Thank you. And the last question is on the GALNS, it's a 160 patient trial but when you ran the Naglazyme study, I think there were only about 40 patients. So the question to you is that it seems like you guys are overpowering the GALNS study, and I want to ask you what is the minimum number of patients that you needed in order to see a 40 meter improvement in the study?

Yes, we have somewhat more significant resources and [interference] today than we had when we got Naglazyme. Actually, if you go back to Aldurazyme and Naglazyme clinical studies we were clearly underpowered, so the Company had very little resources, and we got, in a sense, lucky. Although I will remind you that Aldurazyme met one of its co-primary end points (inaudible) approved. I think it would be difficult for a Company our size and our visibility to do these kind of things.

And I think, as Hank discussed earlier, but I want to remind also people that this is a three-arm study, which increases the sample size. But we also already in Phase 2, we've showed 41 or 42 meters improvements in baseline, non placebo-controlled in I think about only 8 or 9 patients. Hank can give you updates on the discussion further.

Yes, I wouldn't call it overpowered. I would call it appropriately-powered. And as JJ mentioned, we are a Company that has quite a bit more robustness and resource and feel that we can enroll this trial in a timely fashion, bring the product to patients expeditiously. I think the risk that we could imagine is if you underpower the trial, you might have to do it again, and that takes even longer, so we felt like this was the optimal combination of risk reduction and time to get a pretty reliable answer, as to the effectiveness of GALNS in Morquio syndrome.

Thank you.

Your next question comes from the line of Robyn Karnauskas with Deutsche Bank. Please proceed.

Hi, guys; thanks for taking my question. I guess my first question comes from Myozyme, so it looks like you will be having some decent data in the second half of next year potentially, and you're dosing up to 20 milligrams per kilogram. Can you maybe comment on why you're choosing to only dose up to 20 milligrams per kilogram and not the 40 milligrams per kilogram in adults that you do with Myozyme, just so that you might be able to, across trial, see some better efficacy?

Second, you mentioned that you're doing -- I think you said you're starting at a 0.4 milligram dose, and that would be about two injections per day? So if I'm understanding it right in the ClinicalTrials.gov, there was a dosing up to higher than 0.4 milligrams, and is there a risk that there is more injections per day with that drug?

So on Pompe, first, the LOCK study, which is going on, that trial in Pompe of Myozyme/Lumizyme, was dosed at 20 milligrams per kilo. There were other studies of Myozyme in infants that went to higher doses. But the historical compare that we're going to use is the study was conducted at 20 milligrams per kilo per day. And we're going to that high dose in the belief that we're going to have superior efficacy, and that we will be able to determine that in a relatively small number of patients as a result of the biology of how 701 was designed.

We saw in the past, but so far we've treated patients with 0.4 dose, one-fourth of the dose of Myozyme.

And can you say, with the treating patients with 5 milligrams per kilograms, can you already -- do patients already get a sense they're actually seeing a benefit, because I don't think that benefit at a lower dose was seen with Myozyme.

It's a little early in the trial to being talking about efficacy at this stage. And then as far as the doses of PEG-PAL, we do have the efficacy to increase the doses, and what we want to do is we want to create a fairly complete dose response curve, and really understand where the safety issues, if they're going to occur, might occur as a consequence of dose, or where intolerability might occur as a consequence of dose. As you've heard us say before, we are already pretty excited about 1 milligram per kilo efficacy. So we're just exploring higher doses starting at 0.4 milligrams per kilo five days a week and have not made a decision on the final dose for the Phase 3 trial.

You said that 0.4 was about two injections per day, or was the 1 milligram per kilogram about two injections per day?

No, 0.4 milligrams per kilo is two injections a day. One milligram per kilo, if you divided that into 0.2 milligrams per kilo, that would be one injection per day.

And again, it depends on the weight if the patients. With 40 [kilogram] patients, 0.4 would be one injection with respect to 40 kilograms.

Okay, great, that's helpful. Thank you.

You next question comes from the line of Liana Moussatos with Wedbush. Please proceed.

Thank you. Can you give us the geographic breakdown of Naglazyme sales, Europe, rest of world and US?

Sure; in the United States, it was $7.2 million, Europe $22.6 million, international $30.8 million, total $50.6 million for Q1 2011.

Thank you.

As a reminder, ladies and gentlemen, please limit your questioning to one question per queue. Your next question comes from the line of Brian Abrahams with Wells Fargo Securities. Please proceed.

Hi, thanks very much for taking the question. It seems like seems like the Kuvan uptake has been reasonably steady in the US. I was wondering if you could maybe talk a little bit about your level of satisfaction with the uptake of the drug in Europe and maybe comment on the potential to regain European Kuvan rights from Merck Serono. If this is a possibility, the terms under which it might -- this could occur, and if it did, to what extent you might be able to leverage your existing sales force?

Let me just start with the uptake in Europe. We routinely meet with Merck Serono. Merck Serono has been able to achieve reimbursement in all but one of the major European countries, the major markets, and the feedback we've received from them is that they are very satisfied and happy with the progress with the product.

With regards to reacquiring rights, I don't think there is anything we can say about that. Merck has told us they love the product and are enjoying it and feel like it's an important part of their portfolio, and we couldn't comment on reacquisition or any kind of terms.

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

Thanks, just a question on the GALNS Phase III trial. I'm just trying to better understand how quickly you can enroll that trial. Hank, you made the comment that of the thousand patients that have been identified, the majority would be candidates for the study. So can you just help me understand the logistics of getting to that 160 number, when you have roughly 1,000 identified which could be in the trial?

Yes. Well let's start with those thousand patients or so come from a fairly large number of countries in which [we've seen] has a commercial presence. And we are targeting about 20 of those countries. So, and we are targeting about 40 sites, roughly about two sites per country. Some countries more, some countries less. So the logistics are, you have to file for regulatory approval from the competent health authority of that nation which requires a lot of paperwork and discussion back and forth. And of those 20 that we've targeted, we've already been successful in nine of those.

And in addition to the approval of the competent health authorities in the government, you have get the approvals from the various institutions that will participate in the clinical trial. And this can also be a fairly complicated process. This involves Ethical Board of approval, often requires separate scientific community approval, can often involve approval by facilities and pharmacy committees. And in addition then, it requires approval by the contracts and grants office of the budget and the contractual relationship between BioMarin and any contractors that we're using in the participating institution.

So there's really quite a few layers involved. And we think it's well worth our while to go through all those layers as I said, because it gives the opportunity for opinion leaders in a variety of different countries to participate in the process.

And then we think that pays a huge dividend when it comes to getting regulatory approval of the drug to be sold in those countries as well as commercial adoption and launch in those countries.

And it's also more important that -- I think we (inaudible) before that based on the first 1,000 patients we have identified, so it's a pretty reliable (inaudible), 85% of the patients are outside of the US. So it is very important to do a multi-national study for the reasons that Hank explained. You kind of preview the product for regulatory studies that handle the experience (inaudible) around the world, because that's where the market is.

Next question comes from the line of Ying Huang with Gleacher & Company. Please proceed.

Thanks for taking my question. I have a hypothetical question on PEG-PAL for Hank, I guess. Recall that the last batch of Phase 2 for PEG-PAL, you saw some inter-patient variability there in terms of the Phe lowering. Now if still that is the case for the daily dosing regimen, is it your intention to take six doses for everyone into the Phase 3? Or maybe you can allow this kind of maybe ascending dose regimen in the patients again in Phase 3.

Again in the Phase 3 trial I think we have designed -- I know we have not designed the Phase 3 trial, so it's a little premature to talk about the Phase 3 trial. I think one of the reasons to go to higher doses is to see what impact higher dose has on inter- and intra-patient variability, and then we can decide how that informs the choice of dose and regimen in the subsequent Phase 3 trial. So I encourage us to be patient and let's get the data, and then we can talk to you about the data and how we will use it very precisely in the design of the Phase 3 trial.

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

Thanks for taking my question. JJ, could you readdress what your current stance is on business development? You had been somewhat active last year, but you haven't really talked about it much this year. Are you mostly dormant? Are you still looking at new opportunities, and what kind of opportunities are you looking at?

We have been somewhat active in licensing the past couple of years, but we now have built a [reputable] pipeline, but we are getting, because of the visibility of the Company, the fact that we are now one of the very few pure-play companies in the orphan space, which is getting a lot of attention. We are getting lots of calls, so although we are not extremely hungry for new deals, we are always evaluating licensing opportunities as they present to ourselves.

But as Hank has explained and explains that we've been pretty busy just moving our current pipeline so we don't have a lot of capacity left to take additional clinical development products, but if we could acquire a product where the partner is in charge of the clinical development, that would be a possibility. So that's why we look at opportunities and different stages of development.

Clearly, we need to always fill our very early stage pipeline because there is always attrition there as these products move forward. So the answer is we are not looking at this at a big, transforming move, but we are evaluating opportunities that would fit our core strengths of developing and commercializing therapies that address the high unmet medical needs and that deliver high patient benefits. And again, I think we stated before what we were looking at is a big effect on a small patient population, instead of a small effect in a big patient population, is the best way to summarize the [trend].

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

Hi, thanks for taking my question. Just I wanted to drill down a little bit on Kuvan. If you could, you are still seeing pretty good growth year-over-year and perhaps over third quarter. Can you just drill down on what are the primary drivers for the growth, for example, like weight gain, reimbursement, compliance and so on? Thanks.

Our average weight of a patient, average age of a patient, number of tablets dosed per day, none of that has really changed substantially over the last couple years. The increase in Kuvan demand is directly related to an increased number of patients on therapy. We feel that the increased number of patients on therapy is largely related to positive experiences that our Kuvan prescribers have had with previous patients. The more experience they get, the more they have a comfort level, and the more willing they are to try the product on additional patients.

Your next question comes from the line of Lucy Lu with Citigroup. Please proceed.

Yes, great, thank you. Just a quick question on the PEG-PAL study. Can you just remind us if pediatric patients are included in the trial, and if not, what's our plan for developing the drug in the peds patient population for Phase 3 because it seems to me that that's the most important patient group? And also on that line of reasoning, is there any reason to think that their metabolism of the drug may be different from adults? Thank you.

The [eligible] criteria of that trial are older than the traditional pediatric population, I think it's either 18 years or 16 years. And as far as rationale for that, and attractiveness of other segments, I was going to turn that over to Steve.

I think the adult components of the PKU population is probably the most important, at least initially for launching PEG-PAL. It is the adult group that has patients largely out of clinic and out of control. That's been the toughest group to get penetration for Kuvan, that segment has been the toughest group to get Kuvan penetration. And having PEG-PAL come in with clear beneficial data for untreated patients, off-diet patients, and patients who have been out of clinic, this can be used as an attraction to get them back into clinic, plus they are larger patients, and they're weight-dosed products. Every patient, from a revenue perspective, who generates significantly more revenue than pediatric patients. That's not the reason to do it, but if you're looking at it from a revenue importance, it's a component. So I'm very pleased with the fact that Hank and his group are starting with the adult patients; I think it's the perfect strategy.

This now concludes our Q&A session, so I will now turn over the call to Mr. Bienaime for closing remarks.

Thank you. So in summary, we believe we are in a unique position or situation for a biotechnology company. We are focused on developing personalized beneficial [treatments] for patients with rare diseases. As you all know, we have four growing commercial programs that help fund our advancing pipeline.

We are aware of the important balance between investing in the future growth of the company and achieving leverage and profitability, and we have committed to remain operationally cash-flow neutral to slightly positive this year. And we look forward to multiple [approval] milestones over the coming months and quarters, and keeping you up to date on our progress. So thank you for your continued support and for joining us on today's call. And good bye.

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