BioMarin Pharmaceutical Inc (BMRN) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the second-quarter 2012 BioMarin conference call. My name is Channel, and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question and answer session.

(Operator Instructions)

As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Eugenia Shen, Investor Relations. Please proceed.

Thank you. On the call today is; JJ Bienaime, BioMarin's CEO; Dan Spiegelman, CFO; 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 program, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q., 10-K and 8-K reports. And now, I would like to turn the call over to JJ, BioMarin's CEO.

Thank you Eugenia, and good afternoon and thank you for joining us on today's call. I have a few introductory comments before we welcome the newest member of our senior management team to the quarterly call, Chief Financial Officer Dan Spiegelman, who will review the financials for the second quarter of 2012. Steve will then provide some more detail on our commercial portfolio and Hank will provide an update on our R&D program before for we open the call for questions.

We are very pleased with the progress we have made today in both our commercial as wells our clinical programs Starting with our commercial portfolio; we generated almost $125 million, recording revenues from BioMarin marketed products, And this, after very strong Q1, fueled by continued growth from Naglazyme and Kuvan. Our core business is strong and continues to grow and support the majority of the developmental costs for our existing R&D Pipeline. Our cash balance was $524.6 million at the end of the first quarter -- I'm sorry, the end of the second quarter, as compared to $288 million at the end of Q1 2012. At the end of May we raised $235 million in net proceeds from a public offering of common stock. The sole, main purpose of this financing was to strengthen our balance sheet after spending $130 million last year from a new manufacturing facility in Ireland, and also from the repurchase Naglazyme royalties, too. We also wanted to raise money at an opportunistic time, especially considering the uncertainty of the global markets.

As we enter the second half of the year, we are meeting several significant clinical section quotes; including the Phase III trial of GALNS; the Phase II trial for PEG-PAL; the Phase I/II trials for BMN-673, our proprietary used for solid tumors; and the Phase I surrounding healthy volunteers for BMN-110 for [equal] Morquio, and also the Phase I/II trial BMN-701 for Pompe disease, now we are anticipating Q1 of next year. Positive results for one or more of these patient-based trials could be transformative for the Company. In particular, GALNS has the ability to quickly bring BioMarin to the next phase of maturity. There is an estimated world-wide population of approximately 3,000 patients, about 3 times the MPS VI market size, and other resources theoretically eligible for treatments, and I'm happy to report that over 1,200 patients have already been identified, which is more than the entire MPS IV market served by Naglazyme.

Kuvan is already seeking world-wide progression infrastructure and is highly leverageable, and adds to that significant revenues and contributes successfully to our bottom line. The key to our progress and the success of this program, due to the feats of GALNS' team in the Phase II extension of study, which Hank will elaborate on a little later, and the robust design of the Phase III trial. The Phase III trials include the enrollment of 170 patients. Selection criteria are; baseline walk distance less that 325 meters, which is similar to the design of the Naglazyme and Aldurazyme clinical trials; and no patients with planed surgical procedure the 24-week duration of the trial. We are also seeking the mean of two singular walk test measurements, at each type one, which we expect to reduce visibility in the primary endpoints based on our experience with Aldurazyme and Naglazyme. Importantly, we have two treatment origins in the study and can achieve statistical significance from a p-value of 0.025 in either one of the treatment arms, or 0.05 in each of the two treatment arms combined.

We are preliminarily encouraged by the tremendous amount of support and encouragement for our patients and physicians [Aunty has forwarded] to me, and by the continuous patient benefits team that keeps to extension of study, including the improvement in growth [fell offits]. Of course, that answers just one of the significant programs we are developing. In PEG-PAL we are wrapping up a Phase II program and we are very encouraged by the progress we have made. PEG-PAL is an important enzyme-substitution therapy that can theoretically treat the entire spectrum of PKU patients, including the most severe patients who most likely do not result in Kuvan today. Patients with therapeutic levels of dosing have responded well, and almost all of them have elected to remain on therapy.

We have had a positive preliminary discussion with the FDA regarding our potential Phase III, and have agreed upon Phe lowering as the primary influence. And especially to circumvent finish, to put leverage around commercial reconstructions for Kuvan. Our timeline for two of our most advanced programs, GALNS and PEG-PAL, both remain on track. We look forward to sharing PEG-PAL results with you during the third quarter, and GALNS results in the fourth. We also making good progress with the BMN-701 for Pompe, BMN-673 more popular for generically defined cancer, BMN-111 for achondroplasia, and BMN-190 for Batten disease. Hank will go into more details on each of these, but I wanted to talk to you about our latest placebo program, BMN-190 for Batten disease.

Our recent meetings with regulatory authorities have been positive -- were very positive and indicate that due to the rare, serious, and quickly progressing nature of the disease, there may be a very abbreviated clinical and regulatory route to approval. We remain set in our investing pipeline and the multiple software role to generate significant value for the company. We are focused on successfully and expeditiously developing our program, which had the opportunity to successfully move to the top 10 in the bio-market. To keep up with the year 2012 be believe we are well positioned for long-term growth, with increasing revenue from our core commercial products that have no visible competition in the short-term and where funding the majority of our R&D expenses with revenues

We have a full pipeline, so manufacturing capabilities, basically $1.5 billion worth of [protein] manufacturing capabilities, and a global commercial infrastructure to support future [port offers] GALNS, if successful, is highly leverageable and would help drive the Company to profitability. Now, I would like to turn the call over to Dan Spiegelman, who will give the financial results for the second quarter of this year.

Thank, JJ. I will start by reviewing product revenues for the second quarter of 2012 and then follow with a more in-depth look on our operating expenses and financial results. Total net product revenue was $123 million for the second quarter of 2012, a 12.2% increase over a total net product revenue of the $109.6 million for the second quarter of 2011. For our lead product, Naglazyme, net product revenue was $62.9 million for the second quarter of 2012, an increase of 4.3% as compared to $60.3 million in second quarter 2011. Changes in foreign currency rates, net hedges and a negative $1 million impact in the second quarter of 2012. We are encouraged by 9% growth in revenue for the first six months as compared to the same period last year, as well as continued steady growth in the number of patients on therapy, and geographic expansion into new regions such as Russia and Asia. Steve will expand on this later in the talk.

Net sales of Aldurazyme by Genzyme were $45.8 million for the second quarter of 2012, an increase compared to net sales of $44.5 million for the second quarter of 2011. Net product revenue to BioMarin related to Aldurazyme was $21.8 million, an increase of 26% compared to net product revenue to BioMarin of $17.3 million for the second quarter of 2011. Net product transfer revenue had a positive $3.4 million impact on net Aldurazyme revenue to BioMarin in the second quarter of 2012, and it is expected to be positive in the second half of 2012 as well. Net product revenue for Kuvan of $34.7 million for the second quarter 2012 increased 20.5% as compared to $28.8 million in the second quarter of 2011. And finally, net product revenue for Firdapse was $3.6 million in this quarter for 2012 as compared to $3.2 million in the same quarter for 2011.

Now we will review gross margins, operating expenses, and other items in more detail. For the three months ended June 30, 2012, gross margins for Naglazyme were 85%, for Aldurazyme 61%, Kuvan was 86%, and Firdapse was 80%. Research and development expenses increased by $24.9 million to $77.8 million in the second quarter of 2012. The largest component of the increase in the quarter was related to GALNS, which totaled $11.8 million of the increase, and was primarily driven by clinical and manufacturing activities, including expanded enrollment for the ancillary studies. We expect our GALNS manufacturing activities will be mostly complete by the end of this month, resulting in lower GALNS manufacturing spends in the second half of the year. This reduction in spend will be partially offset by increased costs associated with ongoing GALNS clinical trials.

Our other clinical trials also contributed to the increased R&D expense for the quarter, including the Phase I/II trial for BMN-701, the pruax -- the Kuvan neurocognitive study, and the Phase I/II trials for BMN-673. Higher R&D expenses also included pre-clinical development expenses as for BMN-190. Selling, general, and administrative expenses increased by $10.5 million to $51.5 million in the second quarter of 2012. Major drivers for the SG&A increase during the second quarter are increased corporate costs associated with infrastructure to support our growing domestic and global expansion in 2012. The increase of SG&A also included $1.2 million related to Naglazyme sales and marketing expenses, and $1.2 million related to pre-commercial GALNS expenses.

Our GAAP net loss for the second quarter of 2012 was $32 million or $0.27 per diluted share, compared to a net loss of $5.1 million or $0.05 per diluted share for the second quarter of 2011. Non- GAAP adjusted EBITDA, which we believe represents the best measure of our operating results, showed a loss of $7.3 million compared to non-GAAP adjusted EBITDA gain of $13.9 million for the second quarter 2011. And finally, from a cash perspective, we ended the quarter with $524.6 million as compared to $288 million at the end of the first quarter of 2012. As JJ mentioned, during the second quarter were raised $235 million of net proceeds from a public offering of common stock.

Turning now to 2012 guidance; we continue to expect full revenues in the range of $475 million and $510 million, and are maintaining our revenue guidance for all of our products, with the exception of Kuvan, where we are increasing our revenue expectation slightly to a range of $130 million to $140 million from a previous range of $126 million to $136 million. As has been previously discussed on these calls, actual quarterly revenues can be heavily impacted by the timing of certain government Naglazyme orders and the recognition of product transfer sales of Aldurazyme, and consequently we encourage you to monitor annual sales as apposed to quarterly sales. As for expense guidance, we continue to expect cost of sales in the range of 17% to 18% of total revenues, and SG&A expense in the range of $195 million to $205 million. We now expect R&D expense in the range of $285 million to $295 million for the full year 2012 as we continue to invest heavily in our advancing pipeline program. Though R&D expense in the first half of 2012 was $151.6 million, our R&D expenses in the second half of 2012, we expect to be in the range of $133.4 million to $143.4 million, a deceleration from the first half. In addition, it's worth noting that a portion of R&D expenses, such as soft compensation, are non-cash expenses, and our cash expenditure guidance is only increasing by $10 million to our current estimate of $40 million $50 million for the full year.

While we are increasing our expectations for spends, we have increased confidence in our key programs and believe that front-end investments to support the development and potential future commercialization of these programs is worthwhile and prudent. Some more details on our R&D; the increased guidance for R&D relates primarily to increased cost estimates for GALNS, and to a lesser extent, our other ongoing clinical programs. There are no new programs included in the numbers, and we have not taken on any new R&D expenditures this year. The increase in GALNS expenses reflect patient- and trial-associated costs; including patient travel to sites; getting drugs in various countries, including large unexpected import fees for clinical supplies; larger than expected enrollment for the ancillary studies. Based on our experience in Naglazyme, we believe these ancillary studies will greatly improve discussion with payers worldwide and may see acceptance and reimbursement of all patient types.

In addition, some BMN-701 manufacturing costs were accelerated into this calendar year. Increased R&D expenses is also include some accounting and forecasting adjustments; for example, our increased stock price during the quarter results in greater stock comp expense for the year, most of which is reflected in R&D. In addition, our guidance has increased, due in part, to the fact that prior estimates had included in assumptions that some clinical program slow down and probability adjustments on the success of ongoing programs would occur. However, we have continued to make great progress on all our programs, and all of the data that we have received this year has resulted in our continued full speed ahead. With reduced likelihood of potential setback for delay in this calendar year, we have eliminated the probability adjustments and delay contingencies and from our guidance. Continued program successes have resulted in increased R&D costs this year.

And finally, please keep in mind that all 20% of our proposed R&D spends is for clinical drug supplies. If GALNS is approved, a portion of the current manufacturing campaign in 2012, approximately $7 million will be dispensed, will support names, patient, and commercial sales. For the bottom line, we expect to come very close to breaking even on our operating basis, as measured by non-GAAP adjusted EBITDA. This will likely be in a plus or minus $5 million range, around breakeven. On a GAAP basis we expect the net loss in the range of $105 million to $115 million. We continue to fund most of our R&D through operations and commercial sales, and as noted, we expect cash usage in the range of $40 million to $50 million. And we expect to end the year with $475 million to $485 million in cash. Now, I would like to turn the call over to Steve, who will provide an update on our commercial programs.

Thanks, Dan. Overall revenues product sales in the second quarter were $123 million. Naglazyme sales were driven by continued progress in geographic expansion and penetration of the existing markets. Newer regions, such as Russia and its neighboring countries, are starting to generate meaningful revenue, and we are still identifying new patients and seeing revenue growth in more established regions such as Latin America, Turkey and the Middle East. While government ordering patterns sometime result in choppy revenue quarter-to-quarter, growth in the number of patients on therapy continues at a steady rate. As always we have eyes to look at annual revenues and guidance, rather than quarter-to-quarter changes to gauge a growth of our Naglazyme franchise.

Kuvan sales are showing an improvement with a 21% growth year over year. A number of factors have contributed to continued strong growth. Those factors include greater prescriber comfort that comes with product experience, as well as an increasingly experienced and effective commercial team supporting the product. We have not completed enrollments of the 200 patients in the PKU-016 study, which is designed to document the neurocognitive improvements seen with Kuvan. The study has increased awareness of the cognitive and psychological issues faced by PKU patients throughout the metabolic community, which has been a positive outcome for the study already. We expect results in the second quarter of 2013, and believe the outcomes of the study will be the key to further accelerating product adoption in the marketplace. Patient mapping efforts for our Morquio program continue; patient confidentiality guidelines vary by country so we are not always able to characterize specific patients. But when we add known patient numbers percentage where we don't have access to details, with those specific patients we do have details for, we are now over 1200 patients identified.

The international MPS meeting was recently held in the Netherlands; that meeting is unique in that it is attended by both physicians and patients. Presentations regarding MPS IVa emphasize that the disease [new patch], beyond just the morbidity affecting cardiovascular and pulmonary function got particularly emphasis. And this increased awareness of the overall impact of the approaching, how serial understanding of how an enzyme replacement therapy to treat the disease can provide meaningful benefits. Patient organization interaction reaffirmed that the basic community is very eager to have GALNS available as quickly as possible. We continue our efforts in building knowledge and relationships in the area, and as Hank and his team move from the product, forward towards registration. To tell you more about that, I will now turn the call over to Hank Fuchs.

Thanks, Steve. As JJ noted earlier, the successful execution of our pipeline remains a top priority for the Company as we look forward to several key clinical milestones later this year. Starting with GALNS for MPS IVa, the last patient in the Phase III trial in due to complete the third quarter and we are on track to report top line results in the fourth quarter, and potentially file the first market authorization application in the first quarter of 2013. GALNS is our absolute highest priority at the Company, and we have allotted every necessary resource with timely analysis of data, release of results in potential filing market authorization applications. As for the ancillary studies; between the pivotal Phase III study and the three ancillary studies, we will evaluate the entire spectrum of MPS IVa patients, and the completed package should help us achieve reimbursement worldwide.

We conducted these types of studies for Naglazyme post-offerable, but we believe conducting these studies now will expedite the reimbursement process and maximize our launch potential. The trial in patients under five years of age, and a cardiopulmonary study are both enrolling, and the study in patients with limited annulation is expected to start enrolling imminently We have conducted an initial analysis of longitudinal data from our registry called MorCAP; 84 patients whose baseline characteristics would have rendered them eligible for inclusion in Phase III have been evaluated nearly 1.5 years after their first assessment. Endurance measures, such as walking and stair-climb approximately 5% per year. Similarly, for metric measures such as standing height, sitting height, and knee height increased, but less than 2% per year. Importantly, these longitudinal anthropometric data confirms early observations of the impact of GALNS on growth in Merquio patients that was first reported on the basis of cross-sectional data.

Was also evaluated data from the extension phase of the Phase I/II study, which began in 2009. There are new safety events in patients for teated up to the three years. Treatment GALNS for up to three years generally sustains improvements in walking, stair climbing and respiratory function. Taken together, these data from our natural history study further define the progressive nature of Merquio Syndrome, and new data from our ongoing extension study suggests that GALNS can achieve and sustain improvements in clinically important domain of patient function.

Turning to PEG-PAL, we expect to announce results in the Phase II study in the current quarter. We are very encouraged that retention in the studies continues at a high rate. This continuation due to adverse events remains a low rate, and virtually all patients who are active in the study and have reached their peak dosing have experienced Phe lowering to the target range of 600umol/L or lower. We have now enrolled an additional 15 patients in part D of our Phase II, whose primary purpose it to characterize the tolerability of initiating therapy on a schedule faster than that used in parts A, approximately 26 weeks, and slower than that used in parts C, immediately. Patients are now being allowed to administer the medication at home, as opposed to requiring visits to the clinic or by a home health provider, and will be treated using fixed doses of PEG-PAL instead of dosing on mix-per-kilo basis imminently.

Additionally, those escalation now being determined on the basis of individual patient tolerability, such that increases in frequency or dose will occur when there are no grade 2 or worse toxicities. As JJ mentioned earlier, what have had positive ongoing discussions with the FDA and agreed on Phe lowering as the primary endpoint for the Phase III study. We look forward to updating you with results of the Phase II program and our plans for a Phase III study later this quarter. As for the Phase I/II trial BMN-701 for late-onset Pompe disease, we expect to complete enrollment of 15 patients in the 20mgs per kilo cohort by early work in August, and to report results for the Phase II study in the first quarter of 2013. While our initial goal -- original goal had been to complete enrollment by the end of June, this was extended to enable to use material manufactured at the commercial scale, 12,000 liters, not due to difficulty identifying patients. We are pleased to have 13 patients enrolled in the 20mg per kilo cohort as of today's call, and with two more scheduled we are confident in having six months of data on 15 patients at the 20mg per kilo dose in Q1 of next year.

In the meantime, we continue to monitor three patients have been treated at 5mgs per kilo, three patients treated at 10mgs per kilo, and one patient treated at 20mgs per kilo who have all completed 24 weeks of therapy. In these patients the BMN-701 appears to reduce urinary tetrasaccharide excretion, suggesting clear to the excess storage product that results from GAA deficiency. The majority of these first seven patients have experienced improvements in walk distance and a respiratory function, even at mostly sub maximal doses. The data obtained from 15 patients treated for 24 weeks at 20mgs per kilo will allow us to compare the proportion of patients whose response to 701 was substantial, as well as to evaluate the grouping response following treatment with 701, in comparison to treating with the approved product Lumizyme.

Moving on to BMN-673 in the Phase I/II open label trial in advanced or recurrent tumor patients, patients have been enrolled in the 1100mcg cohort, which is 11 times the dose where we first observed toxicity. We are still evaluating patients to determine the maximum tolerated dose, which we believe will be at least nine times that of the dose at which we had first observed response. We continue to have great success recruiting patients with a genetically fine mutation responsive to PARP. In fact, of 12 ovarian cancer patients with deleterious BRCA mutations treated with 900mcg per day or lower, our disease control rate is 11 out of 12 patients, or 92%, and our objective response rate is 8 out of 12 patients, or 67%.

We continue to recruit patients in dose escalation phase and continue to expect to report top line results for at least some groups of patients, with genetically defined mutations in the fourth quarter 2012. Based on data from our ongoing dose escalation and study, which suggest that BMN-673 is the most compelling low-dose single-agent PARP inhibitor being investigated. As we saw activity at two magnitudes lower than any other oral PARP inhibitor, we believe it is likely to enter a Phase III trial in the second half of 2013. We are very encouraged by the tremendous amount of interest and the support for our program from the scientific community, the highly competitive landscape for PARP inhibitors, BMN-673 has been singled out by many as the most promising in the field at this time. As for BMN-111, the CNP analog for achondroplasia, we initiated the Phase I trial in healthy volunteers and expect results in the current quarter. If all goes well, we expect to start the Phase II study in patients next year.

Finally, we plan to file the IND for BMN-190 for Batten disease in the first half of 2013. Recent meetings with regulatory authorities have been very encouraging and suggest a possible aggressive clinical and regulatory pass-through approval. Several authorities we have met with support advancement of the program into clinic early next with no further requirements. We have also engaged with key opinion leaders and three centers who collectively care for over 100 patients, and who are very interested in BMN-190. Our preliminary trial design is a dose escalation study with one year of safety and an extension phase. Due to the extremely serious and rapidly advancing nature of this disease, an important advancement in this condition could be recognized within a year, or so, of getting a couple dosing patients treated at a maximal dose. Although still early, this program could advance quickly in the clinic.

We now have seven programs in the clinic, the most ever in the history of the Company. Several key data readouts are expected shortly, most notably results for Phase III physical study and the Phase II PEG-PAL study, both of which could be transformative for the company. In the coming months will also develop a clear path for registration for GALNS and identify our next Phase III program. Collectively our pipeline is advancing and creating sustainable value for long-term growth, and we look forward to keeping you updated on our progress. And with that operator, we would now like to open up the call for questions.

(Operator Instructions)

We do ask that all participants please submit one question. In order to ask another question after your first question, you will have to re-prompt.

(Operator Instructions) And please submit one question.

Mike Yee, RBC Capital Markets.

That was a very strict rule on one question; so, my one question is on 673. I think you said 67% response rate, which is impressive when I look at Phase 1 studies. So, in your next study, how fast can you look at a regulatory path for that? If you look at the ALK drugs, they have very high response rates, but very fast time to market. Can you run just an open-label study, 200 patients, and file on response rate on that type of drug?

This is Hank. Is a little early to talk about what the registration path is going to be, but if you take note of recent precedent and examples involving single-arm studies where [strong] activity is the primary end-point for registration. And for certain of the genetically defined tumors that we are talking about, outcomes of current therapy are extremely poor, and therefore, the opportunity to provide a solution, or an opportunity -- a therapy for unmet need patients, I think, has certainly caught our attention, and I can imagine it would catch a regulator's attention as well. Right now it is a little bit early to commit to a specific registration path.

Salveen Richter, Canaccord.

Just wanted to get some feedback. You've been having discussions with the FDA and EMEA regarding the totality of the GALNS data package that you are filing -- ahead of the filing. What has the feedback been from both bodies? Maybe just framing what you presented to them, and their response and what they would want to see.

I think that the general take-homes there are -- we reminded them that the molecular pathophysiology of Morquio Syndrome is exceedingly, precisely defined; that GALNS is a pharmacologic agent that replaces, with nearly as identically as we can make it, the natural missing human enzyme. They understand and appreciate that it goes where it is supposed to go, that is, into the lysosomal compartment of all tissues that are affected with the disease, including bone tissues. They have indicated, in general, an acceptance that the program that we are conducting is comprehensive, that is to say, there are no stones that are left unturned, or no obvious trials that we omitted to do that we should do. They have seen our analysis plans, they have had an opportunity to provide input into our analysis plans. I think we have everything that we need to be able to connect the unblinding, and interpret the data.

I would say, a final key point of discussion that we have had was around understanding -- being sure we understand the limitations of interpreting a single, primary endpoint in a disease setting [that] affects every cell in your body. In particular, what health authorities are very present with is the idea that in these rare diseases, that effectiveness can sometimes be interpreted entirely on the basis of changes in a single primary endpoint. But sometimes, and more often than not, requires looking at the whole picket -- the whole package of data.

That is why it was so important for them to review our plans for analysis, and make sure that we were not going to miss anything that they would find important, or just positive, in their decision-making. They are quite familiar and facile with reviewing drugs -- new biological agents in this space. And I would remind you that the rule, as proved by the rare exception, is that these products ultimately do get across the finish line with the support data from the registration-enabling trough. So, we are very encouraged by our interactions with health authorities, and I think we have got some good feedback from them about how to present the data when the data are available.

Yaron Werber, Citi.

Thanks for taking my question; it is also a question about GALNS. Give us a little bit of a sense -- the new information you just provided, which is really useful, is from your ongoing natural-history study. You said at one year, on average, patients, cardiopulmonary-wise, are showing a negative 5% essentially deterioration. Is that also including six-minute walk? And can you give us -- what is the baseline that you typically see in these patients? I am trying to get a sense as to what is the magnitude of the deterioration, so, again, we can try to back into what kind of a magnitude you need to show of a benefit in the Phase 3 to structurally hit your 20-[meter] powering in the Phase 3. And if you don't mind, I will sneak in a second extension; of the 1,200 patients identified, what is the ages in that cohort in GALNS?

I will take part A of your question, of your one single question (laughter), and I will turn part B of your one single question over to -- we're having a good time with the one question.

I think it was like five questions in there.

(laughter) I can only remember two of them. The baseline value in the MorCAP is actually fairly -- we previously reported the baseline value. It is fairly similar to what we observed in the Phase 1-2 study in the mid-200s of meter swapped at baseline. And so, about 5% of that is about, in rough numbers, about 10 meters per year of decline. It is actually a little bit lower than 10 meters of decline per year.

Just to remind you that the Phase 3 study was designed -- powered to detect a 40-meter difference between the groups; so, that could be either minus 10 versus plus 30, or it could be 0 versus 40. Either way, that gets to a 40-meter difference.

And Steve, I don't know if you want to answer part B?

Yes, I can't give you details on ages; I know we have ranges from infants and one to two years old, up to patients in their 30s, and more of a few outliers that are actually over the age of 40. Most of the patients, though, are in teens and 20s.

I will give you a further upgrade on Hank's portion then. I would like to answer; the study is powered for 40 meters, but we can show p-value as little as --

24, 25.

24, 25 meters (inaudible).

Chris Raymond, Robert Baird.

I'm intrigued by your commentary on one of the reasons for the R&D guidance increase was the increase in the number of patients in your ancillary studies. Can you maybe give us a sense of where that -- those study -- what that population was? Maybe when you started -- when you initiated them, and where the numbers are now? And how that really makes the total package more robust?

I think the big swinging part of that is what we call the cardiopulmonary study. Steve mentioned during his prepared talk -- his comments, that at the International MPS Society Meeting, there was an increased focus on the non-bone related aspects of Morquio Syndrome. This, by the way, is true for of all of the MPS's; I think it has taken a number of years for the lens to move away from purely just skeletal dysplasia, and to understand better the internal effects of the skeletal -- of the mucopolysaccharidosis. At this year's MPS meeting, there was a lot of talk about cardiorespiratory impairment.

When we finished enrollment in the pivotal trial, there was an enormous amount of demand from patients and physicians to study more patients, number one; and number two, to get an even more detailed understanding of the cardiopulmonary effects of GALNS for the reasons that Steve highlighted. And so, the study that we were planning on doing originally in the later part of the year became a study that, for reasons of interest and demand of patients, got moved up earlier during the year. That was the principal moving ancillary study that contributed to the change in the cost profile of the program.

And again, just to remind you, we enrolled 176 patients in the randomized pivotal trial, not 162 patients. We did that not because we were worried about study power or anything like that, we did it because, frankly, there was just so much demand from clinical trial sites. And you can't really stop a trial on a dime, precisely, with so many patients that are -- their hopes and wishes are tired up in being able to get in the trial. So, for those couple of reasons, we rearranged the schedule of trials. And again, I think it is a reflection of tremendous interest by the patients, both in the outcome of the pivotal program, but also in the cardiopulmonary effects of enzyme-replacement therapy in their disease.

Cory Kasimov, JPMorgan.

It is actually Matt Lowe in for Cory. Just on the Phase 3 GALNS study, could you speak to the ongoing monitoring in the study? And maybe update us on the variability in compliance in the trial that you have seen so far?

I won't give you anything specific other than just to reiterate, because the trial is very much ongoing, and we absolutely have to protect the integrity of the ongoing trial. And there's actually internally quite a system to prevent any, even accidental, unblinding of the clinical trial. What I can tell you is that we set up alert systems around adherence to the protocol, which look at things like -- did every patient have every measure at every time point that they were supposed to have? Did patients get their drug on the time schedule that they were supposed to get their drug? Did patients get the drug infusion over the time period that the protocol required? Did the patients get pre-medicated with appropriate antihistamine-type medications or any (inaudible) medications.

Suffice it to say, that looking very carefully at all of these parameters, which pertain to adherence and variability, no alarm bells have been rung. We're working very closely with the study-steering committee, who looks at derivations of these data, and we're working very closely with the data-monitoring committee who look at derivations of these data, and they also verify that there are no alarm bells or actions to be taken as a result of concerns around study conduct. So, we're very, very encouraged by the course in progress of the study, and look forward to unblinding later in the year.

Joseph Schwartz, Leerink Swann.

The data that you provided from your natural-history study, was that controlled for -- or did you control in any way for surgeries, like you are doing in the ongoing randomized placebo-controlled double-blind study? And the studies that you are doing for reimbursement discussions -- do you have the sense that data from those ancillary studies is required to obtain the type of pricing that you are able to get for drugs like Naglazyme?

I will start with half of it, and then Steve can take over the other half. The 84 patients on whom I just reported, we didn't exclude specifically surgeries; I don't know, off the top of my head, how many patients in that nearly 1.5 years had surgeries during that interval. So, I can't speak to that. The primary finding that I am reporting here is on the longitudinally progressive nature of Morquio disease. We had seen it to be a progressive disease, based on cohort studies, but not on the basis of longitudinal studies. And I think, Steve, you might want to comment on the value of that, incrementally.

The pricing isn't dependent on the supportive studies; they are certainly going to be helpful, in terms of creating a value proposition, but they are independent. The real value, the greatest value at least in support studies is to ensure that we can address the entire spectrum of Morquio patients, and not just the subset of patients who would qualify for our Phase 3 trial, under which we have excluded patients based on walk distance, walking too far, excluded patients who were not able to get out of their wheelchairs and walk at all, and excluded patients under the age of five. Those three supportive studies in total bring us into a situation where we can address all of those different patient groups, hopefully have launch, assuming we get that down by launch, rather than piece-mealing different sections over a period of time.

Phil Nadeau of Cowen and Company.

Thanks for taking my question; it is on the R&D guidance change. Dan, you mentioned several different factors that led to the change. What is unclear to me, which of those are most important? Could you give us, maybe, the top two reasons, quantitatively, why the guidance was changed? And then similarly, I, for one, didn't realize that the guidance you gave us before was risk-adjusted for the different programs. Where are the sensitivities in the current guidance, and if you were to have to take this up in future quarters, can you give us some sense why that would be?

Sure, the primary driver of the increase is increased clinical expenses in the GALNS program; that is the number one driver to fully represent cost, both in the clinic and the manufacturing expenses for the product. There is a portion of the expenses that has had -- maybe the second biggest or the non-cash expense is around stock comp and the like. In terms of our confidence in the R&D expenses for the remainder of the year, we feel pretty good about it. There's always some risk, some additional expenses, in terms of closing out the study, that could pop up, but we feel pretty good about them.

Robyn Karnauskas, Deutsche Bank.

This is [Leethy] on behalf of Robyn. Just wanting to ask about the PARP inhibitor, and can you help us think about what other indications that could possibly, beyond breast might make sense -- any color around some of the considerations around the opportunity would be great.

We've talked a lot about genetically defined tumors, and we've talked a lot about BRCA, and there's BRCA ovarian, BRCA breast. We have identified two additional targets that we want to go after; we haven't named what the specific molecular biology in tumor is for competitive reasons, but tumors three and four on our list, if you will, where BRCA ovarian is tumor one, BRCA breast is tumor two. Tumor three and four also have substantially inherent -- enhanced susceptibility to PARP inhibitors. The molecular basis of that enhanced susceptibility has not worked out as well as it is for BRCA mutations, but it is pretty well worked out. And both of those tumors are -- you would consider to be relatively rare, relatively high unmet need, and relatively opportune, from the point of facile development and registration [pathway].

Tim Lugo, William Blair.

So, I counted three varies regarding the comfort surrounding the GALNS program; I'll ask a 701 question. Can you just give me some more details on the quarter push for data? And now that you have some experience with the 10mg dosing, is that -- if there were something to arise from the 20mg/kg, is the 10mg enough to go forward with?

We are comfortable about the safety at 10mg/kg. We're encouraged by the preliminary efficacy that we have seen at 5 and 10 put together, but we really want to push towards 20. I might have missed the very first part of the push for the quarter of the data; I might have missed the first part of that question.

Just some details as to why we are seeing in Q1 for 2013, not at the R&D day?

So that, as I mentioned in my prepared comments, had to do with wanting to use the full scale material for the expanded cohort. So, we wanted as many patients as we could in the expanded cohort treated at 20mg/kg, to be treated with an identical material, not have scale of manufacturers switch introduced into the complexity of interpreting those data. That material came off the finishing line a little bit later than we thought it would, which necessitated us, instead of completing enrollment in June, we will complete enrollment of those patients in early August.

For us to present the data on 701, we do want to have 24 weeks of full ancillary comparable to the [lot] study from Genzyme. [We see that we will] finish our enrolling in August, there is no way we can have each enough time to analyze and report 24 weeks of data in December.

Ian Somaiya, Piper Jaffray.

I just wanted to follow up on Phil's question. And I actually wanted to follow up on the answer you gave to Phil's question, which was -- you're comfortable in the R&D spending for the next couple of quarters. I was hoping to maybe move a bit further out, look at 2013, 2014, and maybe if you can speak to it from a standpoint of the right size of the Organization. Do you feel you need to expand the R&D to support development of the clinical candidates you have? And just supporting the clinical trials themselves, how should we think about the likely incremental cost for these programs? And are there trials that are wrapping up that we should also keep in mind, in terms of potentially coming off the book?

So, Ian, I would love to give you a crisp answer to it, but the crispest answer is -- it depends on the clinical results of all of the various different studies that we are running, in terms of what will roll out in terms of expenses, in terms of 2013 and 2014. From an infrastructure standpoint, we are in pretty good shape in terms of having the basic capabilities to run these various different studies, and we have [partly] scaled -- we can turn the scale of the Organization and leverage it to complete the work.

Again, I want to reiterate something for this year that Dan said that actually despite the increase in guidance, which is mainly due to stuff we have already spent, we anticipate R&D spend in the second half of the year -- we anticipate it to be lower than the first half of this year. Obviously that doesn't mean that next year will be lower than this year; I would doubt it. But again, I think to reexamine the current plan, at least in the short-term, we have a pretty good infrastructure there. But the spend in '13, '14 will indeed depend a lot on how many progress -- keep moving to the next phase. So, we don't want to start giving guidance for '13 at this time. We generally do that in Q1 of the first part of the year.

Matthew Harrison, UBS.

I thought I would ask a 701 question. Maybe you can give us a little bit more detail about what you mean by consistent with other enzyme-replacement therapies, in terms of the safety profile. Have you see any anaphylactic-type reaction?

We have seen infusion-associated reactions that are rated in severity that's similar to what we see with GALNS or Naglazyme. The important thing about infusion-associated reactions to enzyme-replacement therapy is that they tend to be transient life-long therapies, they cluster in frequency around the 12- to 36-week time point. And as we are seeing with GALNS for example, once the patients enter into that longer-term period, really nothing new comes up. We are earlier in the course of 701's development than we are, for example, with GALNS or Naglazyme. But we're seeing a relatively similar pattern, ie, the nature of them, the frequency of them, and the severity of them is relatively similar to that of our other enzyme products.

Liana Moussatos, Wedbush.

My question is actually -- what is the geographic break-down of Q2 Naglazyme sales? But I just want to congratulate you on the consistent quarter-over-quarter growth for Kuvan, and it has been going on for a long time, so I'm sure that the impact of the neurocognitive outcome study is going to be huge. But my question is about Naglazyme.

Sure. Thanks. Naglazyme US sales were $8.4 million, EU sales were $22 million, and the rest of the international sales were $32.5 million.

Kim Lee, ThinkEquity.

From the input that you've gotten from the FDA, how does the -- and this relates to the GALNS program now -- how does the FDA's input in the analysis plan differ from yours?

First of all, I'm not sure I'm going to go into very specific details about the discussions of an ongoing nature between us and the health authority. As with any scientific experiment, there are always a lot of -- a couple of different ways of looking at things. I would characterize this, as to say, that the data themselves will ultimately settle any of those differences. And the important comments that I made were that, it is not as if new studies came up or new analyses are coming up. It is really more around -- in the event that the limitation for the six-minute walk test in this disease are as six-minute walk tests have been in other enzyme-replacement therapies, how are we going to look at the data to come to a conclusion about the effectiveness of the drug. And there are a variety of different ways of doing that, and they're all -- one is as valid as the other, and it gives us an opportunity to provide a pretty wide-angle lens in the results of our clinical trial. As I said, ultimately, at the end of the day, it is going to be the results of the trial that determine the next step.

Brian Abrahams, Wells Fargo Securities.

Congratulations on all the pipeline progress. A question on 111 -- recognizing that you are still awaiting the full Phase 1 data, just wondering at this point, what is your level of comfort with the homodynamic effect? Are you expecting that you'll be able to move forward with doses analogous to those where you saw long bone improvements in animals? And then, I saw that you started a longitudinal study in children with achondroplasia; just wondering where that potentially fits in with the program? Could that reduce the need for a placebo arm in future studies?

Well, the answer to your first question is a little bit hard to answer in the context of a pure healthy volunteer study because the -- all that tells you is whether there were any side effects, other than cardiovascular, that got in the way. We haven't completed the analysis of the Phase 1 study, so, it would be premature to give you the results of the Phase 1 study, which, as I indicated in my prepared comments, we expect to complete during this quarter. I think the short version of it is that, also as indicated in my prepared comments, that we continue to believe that we will be in a patient study in the first part of next year.

The natural history studies can be phenomenally useful, as you see with GALNS for us, they were helpful for us to design the eligibility of the Phase 3 trial. They are helpful to [the public to] understand how to interpret impacts of the drug and some of the ancillary populations, those younger than five, or those who are more advanced. Our expectation is that they will be similarly useful for the design of the Phase 3 clinical trial, that supports the registration for the achondroplasia program.

To get very [decisively] to your question, can we imagine that natural history studies in achondroplasia could serve to obviate the need of a placebo in a Phase 3 clinical trial? It is possible, and there certainly have been programs where there haven't been a placebo controlled Phase 3 clinical trial to support registration. We're looking into that, we are in discussions about that, so I think it is premature to come to a conclusion about the likelihood that the registry studies could support registration by the -- without a control arm in a Phase 3 study.

Stephen Willey, Stifel Nicolaus.

With respect to the conversations you have had with the FDA regarding Phe reduction as a primary endpoint for PEG-PAL, have there been any discussions around pre-specifying diet liberalization as a secondary endpoint? And then maybe any color you could provide around that variable in patients treated today than in the ongoing Phase 2?

Yes, there have been discussions. I think the step back to take is that PEG-PAL as an injectable is being developed initially, primarily targeting adult patients with (inaudible), and patients who are either non-responsive to, or for who Kuvan is an appropriate therapy. These patients are largely non-compliant with artificial diets that contain reduced levels of blood - or reduced intake of phenylalanine. In fact, there are publications that indicate that once you reach late adolescence/early adulthood, fewer than 20% of patients are on any Phe restriction at all, and the 20% that are on Phe restricted diets consume about 50% of the normal amount of Phe. Which would amount to, maybe, a 10% or 20% reduction in their blood Phe levels from those degrees of Phe restriction.

So, when we presented those facts to the FDA, they said -- what is the point of studying diet liberalization? These people are already taking in advanced and liberal amounts of Phe in their diet, and if you show in those patients that you control their blood Phe, then the product will be indicated to reduce blood phenylalanine. And the implication of that was there would be no reference to a requirement for dietary supplementation, but also further controlled blood Phe.

We have diet records of patients who have been treated in the Phase 1-2 trials so far; they mostly collaborate what I'm indicating to you. The effects of PEG-PAL on blood Phe are quite dramatic, much more than you expect to see in an adult population with [tighted urines to diet], and finally, diet type of [urines to diet] is really not a general matter of the rule for adult patients with PKU. Altogether we are pretty encouraged by the FDA's willingness to have us use blood Phe as a primary endpoint for us to study a population who is largely non-adherent to diet in the first place.

Yaron Werber, Citi.

Just wanted to get -- what is the, it's for Dan, if you can give us -- what is the share count at the end of the quarter? Because all we have now in the press release is the average share count, and it is not fully reflective of the recent offering.

Sure. At the end of the quarter is 123 million shares.

There are no further questions. I would now like to turn the call back over to Mr. Bienaime.

In summary, we are pretty pleased with the performance of our commercial portfolio for the first half of the year. We are very focused on our quickly advancing pipeline, and although we revised guidance for R&D spend, we remain as excited as ever for the key take-away [outs] in the second half of the year, including the two nearest-term opportunities, GALNS and PEG-PAL. Specifically, we maintain a high degree of confidence in the GALNS Phase 3 program, which, if successful, will be transformative for the Company in terms of [doubling] revenues and bringing us to profitability. The last patient is due to complete the study in the next few weeks, and we look forward to updating you with the results of this important study in the fourth quarter. Thank you for your continued support, and for joining us on today's call. And good bye.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have a great day.