BioMarin Pharmaceutical Inc (BMRN) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen. Welcome to quarter two 2011 BioMarin Pharmaceutical income earnings conference call.

My name is Maurice. I will be the operator for this conference call. At this time, all the participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

Now I'd like to turn the conference over to Ms. Eugenia Shen. Please go ahead.

Thank you. On the call today is 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 authorities, availability of capital, future actions in the pharmaceutical market, and developments by competitors and those factors detailed in BioMarin's filings with the SEC, such as 10-Q, 10-K and 8-K reports.

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

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

We are pleased with the progress we have made in the first quarter of this year. In the first half of 2011, starting with our commercial portfolio in the second quarter of 2011, there was a year-over-year increase in BioMarin net product revenue of 21%, to $110 million, driven by another strong quarter for Naglazyme. Our cash balance was $412 million at the end of the second quarter, up from $394 million at the end of the first quarter of this year.

As for our clinical and pre-clinical programs, we have been very busy and have made important progress on advancing our pipeline. As per our press release today, we now have data on GALNS Phase 2 extension, including data on patients treated for approximately 2 years. The GALNS Phase 2 extension study clearly shows an improvement in long-term patient outcomes and gives us increased confidence in the GALNS program.

It is remarkable that improvements in [endurance] are sustained, in spite of the severe and progressive nature of MTS IV amorphous syndrome. We continue to see encouraging safety and efficacy trials from the Phase 2 PEG-PAL trial. We're confident in initiating a Phase 3 trial in the first or second quarter of next year.

And as you will hear in a few minutes from Hank, we anticipate that safe and effective dosing can be administered in a single daily injection consisting of a volume under 1 ml. In addition, we initiated phase 3 trial for amifampridine phosphate for treatment of LEMS in the US. And a Phase 1 study for BMN-673, our PARP inhibitor, in patients with hematological malignancies.

Successful execution of our pipeline remains a top priority for the Company. Thus, by the end of June, we announced a strategic acquisition of the Shanbally plant in Ireland from Pfizer. While we have strategically planned for our commercial products in pipeline, and currently have the capacity to manufacture biological products worth roughly $1 billion in revenue in our current facility, we will need additional manufacturing capabilities beyond our current resources if our pipeline continues to mature.

This transaction has allowed us to acquire a state-of-the-art facility around one-fifth the cost of constructing a plant from scratch. It also diversified our manufacturing width, and offers an attractive business climate. The plant will be occupied in a phased transition, with a substantial manufacturing activities being tied to the result of the ongoing phase 3 clinical trial for GALNS, which Hank will elaborate on a little later.

Turning to 2011 guidance, we have raised our expectations for Naglazyme and revised our (unintelligible). This results in high expectations for total revenues for 2011. We have also increased the lower end of the guidance range for R&D expense and lowered our expectations for amortizations and contingent consideration expenses. This resulted in improvement in our expectations for GAAP net income, with slightly lower expectations for non-GAAP EBITDA.

Now I would like to turn the call over to Jeff Cooper,who will review the financial results in more details for the second quarter of 2011.

Thanks, J.J. I will start by reviewing product revenues for the second 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 $60.3 million for the second quarter of 2011, an increase of 27.5% as compared to $47.3 million in the second quarter 2010. Changes in foreign currency rates net of hedges had a positive $1.1 million impact in the second quarter of 2011.

Net sales of Aldurazyme by Genzyme were $44.5 million for the second quarter of 2011, as compared to net sales of $43.7 million for the second quarter of 2010. Foreign currency exchange rates caused an increase of total Aldurazyme sales of $3.1 million for the second quarter of 2011.

Net product revenue BioMarin related to Aldurazyme was $17.3 million for the second quarter of 2011, compared to net product revenue to BioMarin of $17.5 million for the second quarter of 2010. During the second quarter of 2011, there was no net impact from inventory transfer revenue, compared to a negative $0.2 million impact in the second quarter of 2010.

Net product revenue for Kuvan of $20.8 million second quarter 2011 increased 16.6% as compared to $24.7 million in the second quarter of 2010. Finally, net product revenue for Firdapse was $3.2 million for the second quarter of 2011, as compared to $1.1 million in second 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 3 months ended June 30, 2011. Aldurazyme gross margins were 75% during the second quarter of 2011. Kuvan gross margin were 85% in the second quarter, which reflects a royalty payable on net sales of about 10%. And finally, gross margins for Firdapse were 84% for the 3 months ended June 30, 2011, which includes an 8% royalty on net sales.

Research and development expenses increased by $17.3 million to $52.9 million in the second quarter 2011, from $35.6 million in the second quarter of 2010. The higher spending was driven by clinical activities for the GALNS Phase 3 trial, the PEG-PAL phase 2 trial, the Phase 1/2 trial for VMN-701, and pre-clinical development for BMN -111.

Selling, general and administrative expenses increased by $3.6 million, to $40.9 million second quarter 2011 from $37.3 million in the second quarter of 2010. This was largely due to increased spending for Naglazyme, Kuvan and Firdapse, as well as stock-based compensation expense.

The second quarter of 2011 we recorded a net credit to non-cash intangible asset amortization and contingent consideration expense of $3.3 million. This results from quarterly changes to the fair value of our contingent consideration liabilities related to acquisitions and resulted in an adjustment for our accrued liability in Q2 2011.

Now I'll review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the second quarter of 2011 was $5.1 million, or $0.05 per diluted share, compared to a net loss of $0.5 million, or $0.01 per diluted share, in the second quarter of 2010. Non-GAAP adjusted EBITDA for the second quarter of 2011 was $13.9 million, or $0.12 per diluted share, compared to non-GAAP adjusted EBITDA of $17.5 million, or $0.15 per diluted share, for the second quarter of 2010.

From a cash perspective, we ended the second quarter of 2011 with $412.1 million of cash and short and long-term investments, up from $394 million at the end of the first quarter of 2011. Including the impact the acquisition of the Shambally plant in Ireland, we expect to remain cash flow breakeven to slightly positive during the full year of 2011.

With regard to 2011 guidance, we now expect total revenues in the range of $436 million to $455 million, from a previous range of $422 million to $452 million. We now expect Naglazyme net product revenue in the range of $225 million to $240 million, from a previous range of $211 million to $225million.

We continue to expect Aldurazyme net product revenue to BioMarin in the range of $79 million to $83 million, Kuvan net product revenue in the range of 112 million to $120 million, and have reduced our expectations for Firdapse net product revenue to a range of $13 million to $15 million, from a previous range of $14 million to $18 million.

As for our expense guidance, we continue to expect cost of sales in a range of 18% to 20% of total revenue, and SG&A expense in a range of $164 million to $174 million. We have increased the bottom end of our expectations for R&D expense to a range of $200 million to $205 million, from a previous range of $195 million to $205 million.

The breakdown of the expected R&D spend is approximately 50% on clinical programs, 20% on commercial, 10% on discovery, and the remaining 20% of stock comp's, non-allocated and other expenses.

So, the bottom line, we now expect an improved GAAP net loss in the range of $43 million to $33 million, from a previous range of a loss of $52 million to $42 million. A substantial portion of the reduced GAAP net loss guidance for 2011 is driven by a reduced non-cash net contingent consideration cost related to acquisitions that I addressed earlier.

I should also note that we expect operational spending in the second half of the year to grow, particularly for our development programs as we increase enrollment in the ongoing clinical trials. For 2011, we now expect non-GAAP adjusted EBITDA in the range of $49 million to $59 million, from a previous range of $51 million to $61 million.

Non-GAAP adjusted EBITDA excludes depreciation and amortization, contingent consideration expense, interest income and expense, income taxes, stock compensation expense, and material nonrecurring items.

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

Thanks, Jeff.

We are very pleased with the performance of our commercial portfolio in the first half of 2011. Naglazyme continues to do well, with particularly strong contributions from the Middle East, Latin America and Russia.

We continue to find and start additional patients in markets like the US and Western Europe, as well. Quarter to quarter sales were subject to significant fluctuations, due to timing of very large orders by government entities.

Kuvan posted its strongest quarter since launch, with almost 1,000,000 tablets to dispensed, a 9.1% increase over last quarter, and a 16.2% increase over Q2 2010. The North American team has made some progress in addressing patient adherence and has had some success in getting previously discontinued patients back on therapy.

Development of the home fee monitor has experienced some delay, due to the need for additional work to improve strip sensitivity. While the strip and meter function generally as hoped for, sensitivity at the lower end of the concentrations to be calculated need some improvement.

Improving sensitivity in that range will require additional work being done on the strip, which will delay availability. Our best estimate is approximately a 1-year delay, although it is possible that things could proceed more rapidly. If any hardware changes prove to be necessary, however, the delay could push out to 18 months. We will keep you posted on our progress with this program.

Significant progress has been made on the PKU-016 study and that study is increasing clinician awareness of the neuro-cognitive challenges faced by some PKU patients, which is extremely helpful. Additionally, we anticipate the results from the investigator-sponsored trial of Kuvan and autism will be presented at a child development conference in October.

Firdapse's efforts continue in the EU, and we've shown good progress in France and in Spain. Germany and the UK continue to present obstacles, due to ongoing use of compounded 3/4 DAP.

Pricing negotiations are underway in several additional countries, and we hope to see contributions from those markets before the end of the year. Rollout of the Phase 3 Firdapse study into several important EU centers should also increase awareness and comfort with Firdapse.

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

Thanks, Steve.

As J.J. noted earlier, the successful execution of our pipeline is a top priority for the Company, and we have made significant progress in advancing our research and development programs during the quarter. Starting with GALNS for MPS4A, the pivotal Phase 3 trial is progressing well and we expect enrollment to increase further as additional sites open. We continue to expect to report top line results in the second half of 2012 and to file by either the end of 2012 or beginning of 2013.

With regard to the Phase 1/2 extension study, as detailed in a press release issued earlier today, the ongoing study suggests GALNS sustains improvements in endurance and respiratory function for at least 2 years. Recall that in the original Phase 1/2 study, patients were dosed at 0.1 mg per kilogram for 12 weeks, and then moved up to 1.0 mg per kilogram for 12 weeks, and then 2.0 mg per kilogram for 12 weeks.

Thereafter, these patients were dosed at 1 mg per kilogram for an additional 36 to 48 weeks. And then these patients were brought back to a dose of 2 mg per kilo. We can now provide a preliminary update on the findings of these extension studies, including information on patients treated for 24 additional weeks with 2 mg per kilo, the dose that we are using in our Phase 3 pivotal trial.

Taken together, patients have been treated for approximately 2 years and their treatment continues in an ongoing extension study. Measures of 6 minute walk distance, 3 minute stair climb, and pulmonary function all generally improved and sustained for at least 2 years.

For the group of patients whose baseline 6 minute walk distance was less than 325 meters, that is the patient population that will be enrolled in the Phase 3 trial, mean walk distance remains consistently improved for the entire period of observation.

Specifically, 24 weeks after resuming 2 mg per kilogram per week dosing in the MOR100 extension study, the means 6 minute walk distance was 38 meters. This is roughly equivalent to that observed after the first 24 weeks of the original phase 1/2 trial, MOR002. The ongoing Phase 3 study, as I mentioned, is using mean improvement in 6 minute walk distance in patients with baseline walk distance less than 325 meters as a primary endpoint.

6 minute walk distance improvements were greater in the subgroups of patients with less than 325 meters. However, variability of this test increases with longer-term follow-up, likely as a result of issues related to the progressive nature of Morquio syndrome.

Several measures to reduce variability have already been incorporated in the ongoing Phase 3 trial, and I'd like to delineate those measures that have already been incorporated into the Phase 3 trial. Specifically, we will include a large sample size and this study will be the largest enzyme replacement therapy for a liposomal storage disease conducted to date.

We will focus on selecting patients who are not expected to require surgical corrections of skeletal deformities in the subsequent 24-week period of the study. We will conduct duplicate measures of 6 minute walk tests. The study will be concluded -- the double-blind randomized portion of the study will conclude at 24 weeks, and the extension -- and we will have extensive oversight of the performance walk test according to ATS American Thoracic Society criteria. And finally, we include a placebo in the clinical trial for comparative purposes.

3-minute stair climb and pulmonary function have consistently improved over the entire duration of the study. 24 weeks after returning to 2 mg per kilo, patients can now climb a mean of 13.6 stairs per minute, and forced vital capacity has improved to a mean of 15.9%, compares favorably to 6.9 stairs per minute and 1.5% improvement in FEC reported at the end of the first 24 weeks of the Phase 1/2 trial almost a year ago.

Stair climb and pulmonary function are secondary and tertiary end points, respectively, in the ongoing prospective Phase 3 trial. The data from the extension study to date supports 6 minute walk distances as a primary end point in patients with baseline walk distance of less than 325 meters as an entry criteria in the ongoing Phase 3 GALNS trial, given the large and durable effect of the drug on these measures in the population.

In totality, these observations increase our confidence in the Phase 3 trial design. These results will be submitted for presentation in detail at the world liposomal disease conference in February. We continue to receive encouraging reports on the overall improvements in well-being of patients on GALNS.

I'd like to share a few anecdotes we've heard from treating clinicians. First, we showed a video of a non-ambulatory patient at our research and development day. This was a patient who required assistance in completing simple, everyday tasks prior to enrollment in the GALNS study.

Specifically, this patient was bed-bound, and required physical assistance to transfer from bed to potty, and the patient couldn't even sign his own name. At this point, now nearly 2 years later, the patient can climb 61 stairs in 3 minutes, which is a remarkable change in that patient's mobility and independence in living.

Next, a patient had an 11-week drug holiday, due to travel and logistical complications, and therefore became completely non-ambulatory while off medication. Upon returning to therapy, the patient recovered the ability to complete the 6 minute walk test, and continues to improve toward pre-holiday levels.

Finally, 2 patients who had elective knee surgery during the dose escalation phase of the study remained on study medication while their knee surgeries were conducted. Their surgeries were declared successful, in just over half the time required for recovery in patients not treated with GALNS. Specifically, femoral plate screws were removed from these patients in under half the time usually required -- just about half the time usually required.

Now, these are 3 -- 4 anecdotes in patients treated in the GALNS program, but we continue to hear other evidence of clinical benefits from patients that are encouraging, although not statistically meaningful and anecdotal, they clearly demonstrate an improvement in patient outcomes and give us increased confidence in the GALNS program.

It's also remarkable that improvements in endurance are sustained, in spite of the severe and progressive nature of Morquio syndrome. Patients with Morquio syndrome can miss therapy, for example, due to the need for corrective surgeries. In spite of that, we see patients improving once they return to therapy.

Now turning to PEG-PAL. We are on track to proceed to a Phase 3 trial in the first or second quarter of 2012. First, let's take a step back to evaluate the progression of the Phase 3 -- Phase 2 program to date. We view the PEG-PAL Phase 2 program in 3 segments.

Segment A enrolled 23 patients, with 8 weeks of repeat dosing followed by an up-titration to find a therapeutic level of dosing. Segment B enrolled patients -- 10 patients -- and compared 2 formulations which differed primarily on the level of pegalation and viscosity. The starting doses for segments A and B were relatively low, and the titration was extremely gradual in measure, taking over 6 months for some patients to reached therapeutic level.

The highest dose reached in segments A and B were 2 milligrams per kilo per week, which to date appears safe tolerable, and results in significant FE level drops in the majority of patients. No significant differences in tolerability or efficacy were observed between the PEG formulations of differing levels of pegalation and viscosity.

Taking what we learned from segments A and B of the trial, we proceeded to segment C, which was our ongoing daily dosing evaluation. The goal of this study is to verify the safety of starting patients on daily administration of the drug, recognizing that it would be preferable to administer 1 injection per day than multiple injections once per week.

We started at 0.4 mg per kilo for 5 days a week, the equivalent of the 2 mg per kilo maximum dose achieved in segments A and B. Segment C is expected to enroll 10 or more patients. At this point in the daily dosing study, we believe that we have a good chance of demonstrating a strong efficacy, safety and commercial profile.

PEG-PAL delivered daily results -- PEG-PAL, when delivered daily, initially results in large reductions in FE to below the normal range of 65 micro molar at initial doses as low as 0.1 mg per kilo in all patients treated. There is a common, transient side effect of generalized rash in at least half of the patients that does not persist with continued treatment.

While joint pain has occurred in some patients treated at higher doses in the study, all side effects are transient. All patients have been keen to remain on therapy, as these initial effects subside, and in fact have resumed therapy safely. We anticipate that longer-term FE reductions can be sustained, as has been demonstrated in segment A.

Finally, we anticipate the dosing can be administered in a single daily injection consisting of a volume of under 1 ml, based on the similarity of the lower viscosity material in patients as demonstrated in segment B. We now have patients that have been on PEG-PAL for more than 1 year of therapeutic doses, and all without any significant signs of long-term safety concerns.

Pending the accumulation of more daily dosing data and near-term discussions with the FDA, PEG-PAL will likely progress to Phase 3 in the first or second quarter of 2012. The Phase 3 program will likely include some dose adjustment, as patients move through the period of transient vulnerability to generalized skin reaction.

The therapeutic goal will be the achievement of large and durable reductions in FE, clearly allowing, for at least some patients, resumption of normal food intake. Complete data from these studies will be presented at a possible mini-R&D day in the fourth quarter and a subsequent scientific meeting.

Moving onto Kuvan life cycle development, the randomized placebo controlled 1- week outcome study is ongoing, as Steve mentioned. End points include clinically validated managers of neuro-psychiatric symptoms and, if successful, may support a label amendment. Regarding Firdapse, we initiated a Phase 3 trial in the US in the second quarter. In January, we initiated a Phase 1/2 trial of BMN-701 for late onset Pompe's disease. Trials in open label study to evaluate the safety, pharmacokinetics, pharmacodynamics and clinical activity of BMN-701 administered as an IV infusion every 2 weeks at doses of 5 mg per kilo, 10 mg per kilo and 20 mg per kilo.

We have completed enrollment in the 5 mg per kilo [kawhart], cleared a safety review and have authorization to start enrolling patients at 10 mg per kilo, which we expect to occur this month. We expect to report topline results in the second half of 2012.

We also now have 2 ongoing trials for our PARP inhibitor, BMN-673. In January, we initiated a Phase 1/2 open label trial of once daily, orally administered BMN-673 in patients ages 18 and older with advanced or recurrent solid tumors.

Two weeks ago, we initiated a 2-arm, open label dose escalation Phase 1 trial with hematologic malignancies. The primary objective of these studies is to establish the maximum tolerated dose of daily oral BMN-673 and obtain preliminary efficacy data in an expanded cohort of patients with genetically defined tumors.

We're also advancing BMN-111, the CMP analog for achondroplasia. Animal data for BMN-111 was presented at the international scala dysplasia meeting in June in Australia. Interactions with global health authorities have begun, and we look forward to finalizing our design of the initial Phase 1 studies and progressing as quickly as possible the proof of concept outcomes. We are very excited about this program, and expect to initiate a Phase 1 trial in the first quarter of 2012.

So, as you can see, we have a very full, diversified pipeline, ranging from pre-clinical programs to GALNS in Phase 3 pivotal study. We will keep you updated on our progress of our programs as they advance.

And with that, operator, we would like now to open the call for questions.

(Operator Instructions)

The first question from Mr. Robyn Karnauskas from Deutsche Bank. Please go ahead.

Hello. Thanks for taking my question.

My first question is, you mentioned there is some variability over time with the walk test in GALNS. And there is a difference between the mean and the median results, and you did highlight some possibilities as to why there is a difference. Can you just go into a little bit more depth on why there is a difference between the mean and median, and maybe what percentage of patients might be outliers when you look at the median data points? It does seem like with the median analysis, that the drug efficacy sort of tapers off a bit.

Hello, Robyn. This is Hank. Thanks for the question.

I think the first thing to point out, and it's probably the most important take-home message about this, is that the variability issues that you are asking me about and I will get to, affect the outcome of the walk test at time points after 24 weeks of onset of therapy. That is to say, these are really not relevant to the ongoing pivotal trial. And in fact, these issues related to variability of the walk test had already been identified and a number of steps have already been incorporated into the Phase 3 trial to reduce or minimize the impact of variability. One of the most important messages is that we observe these things, they are more relevant to long-term use of GALNS than they are relevant to the pivotal trial. The second thing is, is that in spite of this variability, there is quite a bit of evidence of substantial improvement in endurance and pulmonary function in patients who are treated for approximately two years and ongoing with GALNS.

But to get now precisely to your point, the underlying reasons for the difference in the mean and the mean, it relates to probably the fact that some patients have inter-current events which are unrelated to the drug. I gave you a couple of examples of that. Two patients requiring -- patients requiring knee surgeries, patients having unplanned drug holidays. And the nature of Morquio syndrome is severe and progressive. And those events will happen, and they will happen increasingly with time on the study. That, by the way, is one of the most important reasons to have a placebo-control in a clinical trial, because we expect those problems to be present in the placebo group, and larger and more severe and longer in duration in placebo-treated patients. So, when patients then recover from those events, they tend to then to bet get back on GALNS and get back to pre-treatment baseline levels and more.

As far as numbers, we are down to relatively small numbers. I think it's approximately 12 patients in the under 325 group -- actually 11 patients, 24 weeks later. Approximately half of those patients have what appear to be relatively large improvements in their 6 minute walk from their pre-treatment baseline level, and a roughly similar number has values that are closer to 0 change from baseline. Again, the emphasis here is that they might've been minus 100 or minus 200 if they weren't on GALNS. And so that's why you see the median closer to a lower number and the mean level is quite high.

Hopefully, that addresses a pretty complex statistical and clinical issue. But I'm sure there will be more questions.

The next question is from Cory Kasimov from JPMorgan. Please go ahead.

Good afternoon. Thanks for taking my question. I actually have two of them for you.

First one is also on GALNS. And I'm just wondering, with Morquio syndrome, how easy is it to exclude patients that would potentially require, what did you call it, surgical correction of skeletal deformities. Is this something that's pretty obvious at the time of enrollment.

And then I have a follow-up on PEG-PAL.

Yes, this is pretty straightforward. These are -- they tend to be electively planned surgeries. And so the question that the clinician goes through with the patient is, how severe is your pain, how dysfunctional are you at present, they discuss with the surgeon the optimal timing for the surgery. An important part of our education and interactions with the clinical trial sites, they haven't had this problem so far in the Phase 3 clinical trial. We haven't had any resistance to this issue in conducting the trial. And given the relatively large size of the pre-identified population, we don't expect this to represent any meaningful negative traction on our ability to execute the Phase 3 trial.

Okay. That's good.

And then on PEG-PAL, you gave us some good color on the ongoing trial. Your previous guidance was to have data from that study available mid- to late summer. Is there any particular reason that's now third or fourth quarter? Is it just the complexity of the data set or is there something else behind that?

I think it's a mixture of a few little things, I think. We want to get more experience before talking to the FDA about getting patients established in that fee efficacy control range, when they have started from the daily dose. We have some of that information in hand, we would like to get a little but more of that information in hand. We would like to get a little bit more information than we currently have about the original Phase 1 type of formulation, lower pegalation, lower viscosity, because that's going to be important to getting the injection volumes down to an appropriate range.

So, I think the third element of this is that again, we've talked about this before, the PKU population is a patient population that is, to a very large extent, sadly lost to medical follow-up. And so getting them to come to participate in early stage clinical trials with a lot of demands on frequent measurements of laboratory tests, et cetera is a bit of a burden and you have to talk patients through that and get them to be willing to participate in a pretty intensive clinical trial.

We thing all of those things go -- our expectation is that we will be able to establish the same fee-lowering pattern, with daily administration as we did with when we started patients on the weekly up titration. We expect the PEG-lite formulation to be tolerable on a long-term basis, with no new immunology side effects. We believe is sufficiently pegalated, that is. And as we get further in clinical development, we will simplify our programs and make the participation of trials more palatable and easier to get patients enrolled in the trial.

And as Hank said during his prepared remarks, we are in a sense giving you some kind of an update right now. As they say, we've been able to initially achieve blood fee reductions in all patients at doses as low as 0.1 mg per kilogram per day, which is very good news because it means that we should be able to, at this point on the market, as a once injection per day product.

And as Hank said, we are leaning, based on the results, the early results, of preparing the two formulations, the highly pegulated versus less pegulated drug, we are leaning towards going back to the low pegulated product, because it has a reduced viscosity as compared to the high pegulated. And consequently could help us further reduce the volume of injection. It's important that we just don't have enough data as once daily, (Inaudible) product. Actually, that is kind of important. We would rather have more data on that before we sit down with the FDA. This is our very complex data. We prefer to present this on a face-to-face meeting, and that's why we are thinking about it, R&D day sometime in Q4 where we can discuss all of this in detail.

The next question is from Ms. Salveen Richter from Collins Stewart. Please go ahead.

Thanks for taking my questions. I have two as well.

In terms of the PEG-PAL study, given that you're seeing significant fee reductions at one injection, do you think that you would need to conduct a study looking at different viscosities prior to starting the Phase 3?

And then, in terms of the GALNS extension study, so you have any early indications that patients are seeing an improvement or deriving any structural benefit here from the drug?

Hello, Salveen.

So we did compare the different formulation viscosity materials in a head-to-head trial that did start weekly. We saw essentially both products were rapidly effective, both products elicited immune response, which requires going to a higher dose. And we didn't see any real important differences. We don't believe that it's absolutely required to -- we don't expect that there'll be a huge difference between the low viscosity and the high viscosity material when started on a daily schedule. But of course, we will have -- we will end up having that data before we go into Phase 3, just to make sure. But we don't see that as being a big risk.

And then, the structural benefits of GALNS. It's probably a little early to tell. I mean, we see some promising signs. I've heard some incredibly encouraging anecdotes from investigators that are probably not ready yet for prime time. The anecdote that I did relay was a little bit subtle, but the idea is that in patients who have knock-knees from Morquio syndrome, which is pretty pronounced problem and can cause quite a bit of knee pain and quite a bit of hip pain and quite a bit of immobility and dysfunction, patients have a screw put into their medial tibial and femoral plateaus. And then to stimulate growth and then the surgeon measures how far the screws are as a guide for whether it's correcting the knock-knees. And it usually takes a year and half or so for those screws to grow apart enough to correct the knock knees. And in the two patients that remain on GALNS who had this procedure done, this happened in almost half the time, that surgical correction effect was achieved. So I think these data are really encouraging that structural improvements will be affected by GALNS, either in combination with surgery or potentially alone. I think that as we get further into treatment with larger number of patients we'll be able to possibly se even more dramatic structural changes in skeletal architecture.

Thank you.

We've heard a rumor that several patients have had to increase the length of their pants --

Thank you. I just want to remind all the participants to ask just one question, as we have a few questions in the queue.

And next question is from Lucy Lu from Citigroup. Please go ahead.

Great. Thank you. Actually, I have just two quick questions on PEG-PAL, if I may.

The first is, with different formulations and pegalation level, just wondering if you need to go back to any pre-clinical testing for these different formulation, and if so, are there any pre-clinical tests that you have to do prior to entering Phase 3 or prior to filing the BLA?

And the second question regarding PEG-PAL is, you have said that about half of the patients develop a transient rash with PEG-PAL. Just wondering if you done any work to characterize the rash, and whether or not you think you need to? Thank you.

We don't believe that we need to do additional pre-clinical tests evaluating the formulations. That's not to say that we haven't already included those steps. And we feel pretty good about the safety profile and pharmacological profile that we have documented in those tests. Obviously, we will know more about that after our next interactions with the FDA. But I think we are ahead of the curve there.

And as far as the rash which develops, really in the majority of patients -- and what we have done to further characterize that, we do now have quite a bit more knowledge about the immunobiology of the rash and a pretty good understanding of why it's transient. And again, this is the kind of thing that would be useful to be able to talk about at this possible mini-R&D day later in the year. The short version is that it appears that the rash, we believe and we have to probably test this a little more fully, that the rash is likely to be related to an IGM to the peg weighting on the molecule. And that that IGM reaction is transient and disappears on continued therapy.

Great. Thank you.

Your next question is from Joseph Schwartz from Leerink. Please go ahead.

Hello. Thanks.

I was wondering when can we expect to your data from the Phase 1/2 study of BMN-701 and Pompe. I think you said second half of 2012? I know you have to go to the FDA between each group, but you're already through the first group, and you only have 30 patients in this trial, so it's seeming a little bit conservative, perhaps. And I'm wondering, is that the case, and do you have the opportunity for any interim analyses? I know it's open label, as well.

We are guiding a little bit conservatively on 701. Let me just take you through it.

We have not started the second cohort. It takes a little bit of time -- I think we have to wait two weeks between the first and second patient, and then have a wait between the second and the third patient. And then we have to wait 12 weeks before we can begin to collect all the safety data for the safety call. And then we have to -- then we can begin to enroll the third cohort of patients. And so we don't expect to get into the 20 mg per kilo group until the end of this year, the beginning of next year. And then again we've got the same -- got to enroll a group of patients over a month or two, and then a 12 week wait before you can enroll the remaining 20 patients at that top dose, provided that top dose is safe.

Having said all of that, it is an open label study, as you say, and if there are pertinent findings earlier and particularly if they are material, we'll obviously provide an update earlier. We have been guiding a little bit conservatively on 701, largely because we believe that at 20 mg per kilogram of 71,we are going to be vastly superior in effectiveness to the available acid glucosidase alpha that's presently on the market for adult-onset Pompe patients. And we want to stay pretty focused on getting that data, because that would be really dramatic if we are able to demonstrate that.

Okay, great. Thanks.

Other than patients who walk less than 325 meters at baseline for GALNS, do you know why there is a wide variance in benefit among MPS4A patients? Why certain patients do better than others, and is there any way to selectively screen these patients in?

I think the most obvious piece of that is that some patients can't even walk at baseline, for example. Their disease is so severe that it just progressed that far that they couldn't walk even if you -- even if you had the most effective drug in the world.

Having said that, I mentioned one of our patients in the Phase 1/2 study wasn't able to walk at baseline and is now ambulating quite well on his knees, and in fact climbing stairs. Just because somebody can't walk doesn't mean they can't benefit. Because walk is the primary endpoint of the study we included -- we also have a lower limit of the walk, meaning you have to walk at least 30 meters, so that we don't have the contamination of the non-ambulatory patients in the study. So that's our means to enrich for improved walk outcome that you just referenced. Those patients also will have -- even low walkers, will have improvements in pulmonary function and respiratory function, and in stair climbing. And we will capture all those benefits in the Phase 3 trial as well.

Thank you.

Thank you. Our next question is from Chris Raymond from Robert Baird and Company. Please go ahead.

Thanks.

Hank, just want to make sure I understand one of the points you made in an earlier question. You mentioned the variability that you saw in these data are not particularly relevant to the Phase 3. Can you explain that a little bit further? As I look at the treatment duration in this table, it looks like it falls within the treatment duration in your Phase 3. So could you explain that.

And also, I don't know if you have these data or this data point, but any estimate from your experience enrolling patients, et cetera, what percent of Morquio patients have baseline 6 minute walk less than 325 meters?

Yes.

So in the table that's in our press release, you'll see the standard deviations and the median values for the walk. For MOR002 week 24, week 36, and then it switches over to week 0 for MOR100. The thing that's important to recognize is, these are all the same patients. So when you start to see much larger standard deviations, like 77 or 82 at week 12 or week 24, that's actually week12 or week 24 of the study called MOR100. It's actually weeks 84 to 96 to 108 of treatment in the study. So these are heavily treatment experienced patients. These are patients who you couldn't ask to hold off on having their elective surgery for two years.

The relevant point to look at for variability is the week 24 MOR002 value, because those are treatment naive patients. Those are patients who were talked to by their physician at the beginning and said, can you hold off on 24 weeks, at least. And there that variability is much lower, and there the mean and the median are much closer together. And that's why I think that the continuing data out to two years isn't as relevant to what's going to happen in the Phase 3 study, which starts with naive patients and only treats them for 24 weeks.

Can you also remind us, the primary end point that measures 6 minute walk, that is mean and median, or both?

It is just a comparison of the mean in treatment-naive patients treated for 24 weeks.

Thanks.

Your second question was how many patients have a walk of less than 25 meters. We believe that's around 75% or so. Based on MorCAP study, our survey study, natural history study.

Thanks.

Thank you. (Operator Instructions)

Next question is from Ian Somaiya from Piper Jaffray. Please go ahead.

Thanks, and congratulations on a good quarter.

I just had a question on PEG-PAL. Definitely an encouraging update that you provided. Just curious if you could share with us your initial thoughts on the Phase 3 design type of patients you plan to enroll and then any sort of thoughts on market opportunity for the drug, relative to Kuvan.

Maybe I will start and then Steve can take over on the commercial opportunity characterization.

But it's a little bit early to talk about the design of Phase 3, except to say we believe that fee lowering as a primary endpoint has been accepted for registration of our product Kuvan, and should be acceptable for registration of PEG-PAL. We believe that the target population that's most appropriate for PEG-PAL are going to be, at a minimum, patients for whom there are no other options available. And we believe that included in that no other options available will be patients who have essentially decided that they are not going to comply with their physician's recommendations to consume only medical formula. So these will be are already essentially taking in very large amounts of phenylalanine in their food. And we believe that the outcome of that study should be designed in such a way as to show that we can get substantial fee reductions into the target range, in spite of the fact that these patient are taking in relatively uncontrolled high amounts of fee in their diet.

As to the dosing strategy, I think that's for a little bit later. Except to say that we recognize that when you start on PEG-PAL, there is an initial response that requires a clearing out, if you will, of the anti-peg IGMs. And once you're past that, dose can get escalated then safely into a zone in which you can sustain reductions in blood fee to really quite dramatic levels.

Hank, I was really hoping you could comment on duration as well, and any potential plans to measure neuro-psychiatric symptoms. I don't know if the trial is going to be long enough to provide that benefit -- to determine that benefit

I missed the very, very first part of your question

The length of the study, and whether you'll be measuring neuro-psychiatric symptoms --

So from ay length perspective, you demonstrate the efficacy effects really quickly. So I don't think that's going to drive the overall length of the program for the NDA. I think what's going to drive that is just a requirement to document the longer-term safety. So I'm sure we'll have some fraction of patients who are treated up to a year in the ultimate submissions.

As far as neuro-psychiatric, we've reviewed the literature on adult PKU pretty extensively. I think there is little doubt that adults have neuro-psychiatric impairments that are tied to elevated blood fees, and that if you can, under study conditions, lower their blood fee you can reduce the morbidity of their neuro-psychiatric condition. Unfortunately that's not practical achieved, except in laboratory studies, because patients won't comply with the severe restrictions in their medical food intake. And that, of course, is why PEG-PAL has the potential to be such an important thing for patients.

What is not clear is what neuro-psychiatric measure to use. That will require quite a bit more time, placebo-controlled studies of a longer-term nature. And so we have not undertaken to identify that yet so far in our Phase 1/2 programs in PEG-PAL, and don't anticipate doing that until after approval.

This is the same pattern of development that we applied for Kuvan as well. Get it on the market for lowering blood fee and then investigate the extended health benefits in a subsequent study.

Steve, did you want to comment on the commercial appeal?

Sure. The only thing I would maybe add to what Hank has said is it's a little bit early to characterize the overall size of the market, but one of the things that I don't think is generally appreciated is that the PEG-PAL development program is really targeting adults. Right now, 65% of the patients on Kuvan are 18 or younger. To some extent, it's not an overlapping group of PKU patients that might be appropriate candidates for the two different approaches.

Thank you. Next question is from Eun Yang. Please go ahead.

Thanks very much. Question on PEG-PAL. Have you seen any neutralizing antibodies in any of the patients that have been treated with the PEG-PAL to date?

Hello, Eun.

It depends on what you mean by neutralizing. We haven't been able to demonstrate -- there may be minor exceptions -- any interference of an antibody with the enzymatic activity of PEG-PAL. What we do see though is a correlation of IgG to PEG-PAL and plasma concentration in fee lowering. That's probably not inhibition of the enzymatic activity, because the enzymatic buried deep within the peg. But it's probably related to the binding of the antibody to PEG-PAL and its clearance in the circulation. And that's why the simple way to deal with that is to go to a higher dose, which is what we have done been able to show that we can do that safely.

Thank you.

Thank you. Next question is from Mr. Ying Huang from Gleacher and Company. Please go ahead.

Hello. This is Ryan in for Ying. Thanks for taking my question.

Just very quickly, related to Naglazyme, what geographic region is most important for growth that you guys are focusing on? Thanks.

I don't think I could characterize one region as most important for growth. We've got a number of areas where we think it's important to continue to grow the franchise. Latin America continues to add substantial numbers of new patients. The Middle East has significant potential that we haven't fully tapped into yet. Same can be said for Turkey. We're currently opening our office in Russia. We have been very pleased to see the contribution of Russia. It is well ahead of schedule, very difficult to determine what the opportunity is there. We don't have good visibility in the patient numbers yet. But clearly, it is a significant opportunity for us. We also have some opportunities in the Asia-Pacific region that, while visibility on patient numbers isn't clear, what is clear is that there are significant numbers in some areas that aren't very well penetrated yet.

We really look at this as a global franchise and are spreading our activities around the world into any areas where we feel there is substantial opportunity for growth.

Great. Thanks a lot.

Next question from Nicholas Bishop from Cowen and Company. Please go ahead.

Just a quick one on Naglazyme. In Q1, we know there was a timing of Brazilian order resulted in a significant quarter-over-quarter increase. I was wondering, what is -- what is driving the quite strong quarter this time around?

And then just quickly, a follow-up on PEG-PAL. The dose titration potential that you mentioned to get through the rash period, about how long would that be, would you imagined? And what kind of monitoring of patients would you need to do in order to achieve that?

Hank, you want me to take the Naglazyme question first?

Sure.

There was nothing particularly unusual about this quarter. If you take a look at last 8 or 9 quarters and trend things out, you'll see it's been relatively steady growth. You see some ups and downs quarter to quarter. Over the long haul, you see, if you put a trend line on that, it's really very steady growth and there is nothing particularly unusual about this quarter. We're continuing to get new patients from both existing and new geographies that we are moving into.

And on the second question, what we see clinically is the rash comes on within about 10 days and it's usually resolved within a week or so. So we are aiming to have that transient period of vulnerability be managed well within a month before those titration up can be accomplished.

Okay. Thank you.

Next question from Shiv Kapoor from Morgan Joseph. Please go ahead.

Thanks for taking my question.

On your PARP inhibitor program, PARP's have a had checkered history in the past. There a lot of competitors ahead of you. How does your drug stack up with competition and what gives you the confidence that you can have a meaningful late competitor?

I think there are couple of really important considerations there. First of all, the most checkered of these so-called PARP inhibitors, probably by the account of both the corporate sponsor of the molecule as well as by National Cancer Institute scientists, isn't actually a PARP inhibitor. May be active in a subgroup of patients and it may have a different mechanism for its activity, but is probably not a PARP inhibitor.

I think that the second consideration is that in general, the idea of targeting therapy to molecularly defined malignancies has been really the exception, not the rule. And although there are a lot of competitors, really they are very few competitors to talk about molecular targeting as their explicit strategy. We've been talking about molecular targeting as our explicit strategy from the beginning.

It is a competitive space, we have to monitor that space, we have to be aggressive. There are no guarantees that our compound will be more effective, more fast than competitors. But I think we do have a sound strategy to find effectiveness as quickly and directly as possible. And if it is there, move the program forward. If it is not there, move on, because there are plenty of other assets in the BioMarin portfolio.

Thank you so much.

Thank you. Next question from Liana Moussatos from Wedbush Securities. Please go ahead.

Thank you. Can you give us a geographic breakdown of Q2 sales for Naglazyme?

Sure. US sales were $8.5 million, EU sales were $20.6 million, and international was $31.2 million.

Thank you.

Last question is from Brian Abrahams from Wells and Fargo. Please go ahead.

Thank you. This is Matthew calling in for Brian.

As it relates to the Morquio extension study, did you collect data related to cardiac function, hearing, quality of life, bio markers related to bone and cartilage, metabolism, which may provide some additional evidence of activity beyond your functional results in the keratin sulfate reductions? If so, when may you present those data?

I'm glad you asked that question.

The easy ones to answer are cardiac function. Yes, we collected that data. Stair climb is probably a great measure of cardio respiratory function above and beyond what a flat walk measures. We see great improvement in stair climbing. As I mentioned, if you just look at year-over-year changes, at week 24 of the MOR002 study, which is their first 24 weeks on therapy, mean improvement stairs climbed per minute, 6.9. Almost a year later, that number goes to 13.6. So the extent to which this measures underlying cardio respiratory performance, we see continued improvement in endurance as manifested by that parameter, probably underlying either cardiac, respiratory or both limitations.

We've also mentioned -- measured some bone markers, some of that is positive. It hasn't been all digested, it needs to be digested and presented to a scientific meeting, but we are encouraged by what we see at the bone biological level. You mentioned things like hearing and vision, and valve disease. And I think it's too early to see -- those don't happen until later in the course of the disease, they are not ubiquitous in the course of the disease. I think it's a little bit early to say if beyond that it is going to have positive effects on those aspects of Morquio syndrome.

And back to (Unintelligible), it's not directly comparable. If I'm not mistaken, the enrollment period is significantly greater than we observe in [Aldurazyme].

Thank you. And when may we see these data? Next year possibly?

The (unintelligible) capacity is in the press release today.

No, just the other issues that Dr. Fuchs mentioned.

I'm not sure that we've picked a specific target just yet for that presentation.

Okay. Thank you.

Yes.

Thank you. There are no further questions. I will hand the conference back to Mr. Bienaime. Please go ahead.

In summary, I think we had a pretty good first half of 2011. We (Inaudible) portfolio both in Q1 and Q2, made good progress on advancing our R&D pipeline, and we're more programs-- than we ever had before. I think we've showed a great deal progress with the GALNS -- and we looking forward to it -- in the upcoming months.

Thank you for your support and for joining us on today's call. Bye.

Thank you, ladies and gentlemen. That concludes your conference call for today. You may now disconnect. Thank you for joining. Have a very good day.