BioMarin Pharmaceutical Inc (BMRN) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the BioMarin Pharmaceutical third quarter 2012 financial results. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions following at that time.

(Operator Instructions)

And as a reminder this conference is being recorded. Now I'll turn the conference over to Eugenia Shen of Investor Relations. Please begin.

Thank you. On the call today is JJ Bienaime, BioMarin CEO; Dan Spiegelman, CFO; Hank Fuchs, Chief Medical Officer, and Jeff Ajer, Chief Commercial 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. Now I'd like to turn the call over to JJ Bienaime, 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 Dan reviews the financials for the third quarter of 2012. Then Jeff Ajer, our recently appointing Chief Commercial Officer, will provide more details on our commercial portfolio. And Hank will provide an update on our R&D programs before we open up the call for questions.

We believe the Company is well-positioned as we enter the final quarter of the year. We have a steady growing commercial portfolio with operations in over 40 countries worldwide and a rich product pipeline with multiple dealer lead-outs in the next six months, including key results from the Phase III trial of GALNS approaching in the coming weeks. Starting with our commercial portfolio, we generated over $126 million in quarterly revenues for BioMarin marketed products following a good performance in the first half of the year. Our core business continues to grow and support the majority of the development costs of our R&D pipeline. The pipeline is quickly progressing, and investments in R&D are resulting in clear value generating inflection points.

In the third quarter, we announced the investment of two pipeline programs, PEG-PAL PKU and BMN-111 for Achondroplasia. The decision to move the [tactile] forward as our next Phase III program was driven by evidence of sustained dramatic reduction in [globfee] levels in treated patients in the long-term historical safety profile and the identification of the defined convenient and accelerated [closing measurements]. Of course, the next major milestone for the Company is the results of the [kilo-planet] Phase III trial in November. The successful execution of these programs is the number-one priority of the Company, and we maintain a high degree of confidence in the outcome of these trials. This is based on the robust Phase III study design, sustained [fiscal] benefits in the face of extension studies, and data from the Morquio study which indicates deterioration in endurance measures in untreated Morquio patients. The GALNS program represents a significant opportunity and if successful, is expected to bring bottomline to the next date of maturity and can mean profitability.

Like an initiative that makes to depart from our pipeline, we are also looking forward to important Phase II for the BMN-701 for Pompe Disease and BMN-673, our PARP inhibitor for genetically defined cancers over the next two quarters. We expect that this data will allow us to make Phase III go-on-go decisions on these very high potential programs. We are aware of the importance -- the important balance between investing in the pipeline and achieving profitability and using the best long-term interest of both the company and our shareholders to invest in our R&D programs to ensure continued long-term top-line growth and to reach sustained and substantial profitability. And I would like to turn the call over to Dan Spiegelman, who will review the financial results for the third quarter of 2012.

Thanks, JJ. I will start by reviewing product revenues for the third quarter of 2012 and then follow with a more in-depth look at our operating expenses and financial results. Total net product revenue was $126.3 million for the third quarter of 2012, an 11.9% increase over total net product revenue of $112.9 million for the third quarter of 2011. For our [Aleve] product, Naglazyme, net product revenue was $62.5 million for the third quarter of 2012, an increase of 11.8% compared to the third quarter of 2011. Changes in foreign currency rate, net of hedges, had a negative $0.2 million impact in the third quarter of 2012. We are encouraged by the continued steady growth in the number of patients on therapy, primarily in our establish markets.

Net sales of Aldurazyme by Genzyme was $48.3 million for the third quarter of 2012 compared to net sales of $46.3 million for the third quarter of 2011. Net product revenue to BioMarin related to Aldurazyme was $23.8 million for the third quarter compared to net product revenue of $23 million in the comparable quarter in 2011. Net product transfer revenue had a positive $4.1 million impact on net Aldurazyme revenue to BioMarin in the third quarter of 2012. Net product revenue for Kuvan of $36.4 million for the third quarter of 2012 increased 19.3% as compared to $30.5 million in the third quarter of 2011 as Kuvan continues to grow in adoption. Finally, net product revenue for Firdapse was $3.6 million for the third quarter of 2012, compared to $3.5 million in the prior year.

Now I'll review gross margins, operating expenses, and other items in more detail. For the three months ended September 30, 2012, gross margins were 85% for Naglazyme, 62% for Aldurazyme, 84% for Kuvan, and 82% for Firdapse. Research and development expenses were $66.2 million in the third quarter of 2012, a $7.6 million increase compared to the third quarter of 2011, but an $11.6 million decrease from the second quarter this year. The decline this year in R&D compared to the last quarter was primarily driven by decreased GALNS development expenses due to the reduction in GALNS related manufacturing expenses in the third quarter. R&D expenses related to PEG-PAL and BMN-111 also declined as those studies had been completed and data was released in the third quarter.

Selling, general and administrative expenses were $46.3 million in the third quarter of 2012, a $1.4 million increase from the third quarter of 2011 and a $5.2 million decrease compared to the second quarter of 2012. Major drivers for SG&A decrease during the third quarter compared to the second quarter of 2012 were primarily the result of lower commercial expenses for pre-commercialization of GALNS and commercial expenses for Naglazyme and Kuvan programs. These reductions were due to reduced Q3 activity and are expected to reverse in the fourth quarter. In the third quarter of 2012, we did record a benefit from income taxes in the quarter of $6.4 million, primarily due to tax benefits from orphan drug credits and tax benefits from the incentive -- the exercise of incentive stock options.

Our GAAP net loss for the third quarter was $5.4 million or $0.04 per diluted share compared to a net loss of $17.7 million or $0.16 per diluted share in the third quarter of 2011. Non-GAAP adjusted EBITDA, which we believe represents the best measure of our operating results, showed a gain in the quarter of $11.1 million compared to a non-GAAP adjusted EBITDA gain of $4.3 million for the third quarter of 2011. The reduced GAAP net loss and the increased non-GAAP adjusted EBITDA for the third quarter of this year compared to the comparable quarter in 2011 was primarily due to increased net product revenues, partially offset by a smaller increase in R&D expenses. From a cash perspective, we ended the quarter with $533 million as compared to $525 million at the end of the second quarter of 2012.

Turning to the remaining portion of the 2012 full-year guidance, we are leaving guidance for full-year revenues and operating expenses unchanged. We continue to expect total revenues in the range of $475 million to $510 million and are maintaining our revenue guidance for all of our individual products. As has been previously mentioned, actual quarterly revenues can be heavily impacted by the timing of certain government Naglazyme orders and the recognition of product transfer sales of Aldurazyme. As for our operating expense guidance, we are not making any changes as we continue to expect cost of sales in the range of 17% to 18%, SG&A expense in the range of $195 million to $205 million, and R&D expense in the range of $285 million to $295 million. Please keep in mind that almost 20% of our projected R&D spend in 2012 is for clinical drug supply. If GALNS is approved, a portion of the manufacturing campaign in 2012 or approximately $7 million in expenses will support future named patient and commercial sales.

For the bottom line, we currently expect that the majority of the $6.8 million benefit from income taxes through the first nine months is likely to be maintained for the full-year, and hence, we will change our tax guidance from a breakeven to a $5 million benefit. As a consequence, we now expect a GAAP net loss in the range of $100 million to $110 million reflecting the $5 million tax benefit. However, we still expect non-GAAP adjusted EBITDA, which does not of course include the impact of taxes, in the same plus or minus $5 million range around breakeven. In other words, on an operating basis, we are right around breakeven. Due primarily to additional proceeds from stock option exercises in 2012, we now expect cash usage in the range of $20 million to $30 million from a previous range of $40 million to $50 million and to end the year with $495 million to $505 million in cash and cash equivalents.

Now I would like to turn the call over to Jeff who will provide an update on our commercial programs.

Thanks, Dan. Revenue from total product sales in the third quarter reached $126.3 million, an increase of 12% over the prior year quarter. Naglazyme sales were driven by net patient gains principally in our major established markets. Net product revenue increased approximately 10% in the nine months ended September 30, 2012 over the prior year, which is proportionate to the growth of new patients on therapy. 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 advise you to look at annual revenues and guidance rather than quarter to quarter changes to gauge growth of our Naglazyme franchise.

Kuvan sales maintain a steady level of growth with a 19% increase year-over-year. Factors driving growth include an enhanced PKU case management program with more rigorous control and thus more effective Kuvan response testing, and an increased willingness on the part of clinics to more aggressively treat adult patients. The 200 patients in the PKU-016 study have been enrolled since July, this study is designed to document the neuro-cognitive improvements seen with Kuvan, and we believe the outcomes of the study will be the key to further accelerating product adoption. Results are expected in the second quarter of 2013.

As for our Morquio program, pre-commercialization efforts are already well underway in all regions. We are preparing for a first major approval in the US or EU by the end of 2013, followed by rolling global launches. Over 1200 patients have already been identified. The majority of these patients are treated by geneticists who also treat MPS VI patients. We suspect that there are material numbers of patients also seen by orthopedists and skeletal dysplasia specialists and expect to ramp up patient identification efforts next year pending GALNS Phase III results in November. Now I will turn the call over to Hank Fuchs, who will review the pipeline.

Thanks Jeff. As JJ noted earlier, our commitment to advancing the pipeline is beginning to result in value generating milestones, and the most significant data point this year is quickly approaching. Starting with GALNS for MPS IVA, we maintain a high degree of confidence in the outcome of the Phase III trial. We are track to report topline results in the current quarter and potentially file the first market authorization application in the first quarter next year. GALNS is our absolute highest priority, and we have allocated every necessary resource to the timely analysis of data, release of results and potential filing of market authorization applications.

Between the pivotal Phase III study and the three ancillary studies, we will evaluate the entire spectrum of MPS IVA patients, and the complete data package should facilitate reimbursement worldwide. The trial in patients under five years of age and the cardiopulmonary study are both fully enrolled, and the study in patients with limited angulation is expected to complete enrollment this quarter. We are gratified that 173 of the 176 randomized patients in the Phase III trial elected to continue in the extension protocol. This high degree of adherence to the long-term evaluation of GALNS in Morquio speaks volumes to the severity of Morquio syndrome, the dedication of Morquio patients and the investigative community and their hopes for improved clinical outcomes.

Turning to PEG-PAL, we've decided to move forward with the Phase III program based on evidence of sustained reduction in blood phenylalanine levels in patients, a long-term acceptable safety profile, and the identification of a convenient and accelerated dosing schedule. We expect to have an end of Phase II meeting with the FDA in the first quarter of 2013 and initiate the Phase III trial in the second quarter of 2013. The preliminary study design, pending discussions with the FDA, will include and open label study in naive patients to evaluate safety and blood phe levels and a placebo-controlled randomized controlled study in the Phase II extension study patients to evaluate blood phe levels in psychiatric and executive function end-points. Prior conversation with FDA has established two key elements in the Phase III program. Phe lowering is the primary endpoint, and the enrollment of subjects who are non-compliant with a phe-restricted diet. As for the Phase I-II trial of BMN-701 for late onset Pompe Disease, we've completed enrollment of 16 patient in the 20 milligrams per kilo cohort and remain on track to report 24 [week] results in the first quarter of 2013.

Moving onto BMN-673, over 20 patients have been dosed in dosed in Phase I-II open-label trial for advanced recurrence solid tumors. Ovarian cancer patients with deleterious bracket mutations are responding very well to treatment with BMN-673 with activity at doses two orders of magnitude lower than any other oral PARP inhibitor. This suggests BMN-673 may be the most compelling low-dose single agent PARP inhibitor in development. We are further encouraged by the overwhelming amount of interest and support from the scientific community. We expect to provide an update on this program in the current quarter, and a Phase III trial could start enrolling by the end of 2013.

As for BMN-111, our CNP analog for achondroplasia, we expect to initiate a Phase II study mid- next year. The Phase I studies show that BMN-111 was generally well tolerated, and we have identified a safe starting dose for the treatment in pediatric subjects. The design of the Phase II proof of concept in dose finding study is underway and on track for initiation in mid- 2013. The goal of the program is to assess growth velocity as well as medical complications of achondroplasia, including non-growth endpoints. Multiple regulatory pathways are under current consideration.

Finally, we plan to file an 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 path to approval due to the serious and quickly progressing nature of the disease. Our preliminary trial design is a dose escalation study with a one year safety and an extension phase. 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. In the third quarter, we decided to advance the PEG-PAL and BMN-111 programs for the next stage of development, and several additional key data readouts are expected shortly. Most notably, results for the GALNS Phase III pivotal study are expected in the coming weeks, and a positive could be transformative for the Company. Collectively, our pipeline is advancing and creating sustainable value for long-term growth, and we look forward to keeping you updated on the progress. And with that, Operator, we would now like to open up the call for questions.

(Operator Instructions)

Cory Kasimov, JPMorgan.

Thank you for taking my questions. My question is on the Phase III GALNS study, I know it is a big surprise. I'm curious about the base, the 325 meter baseline cut off and the chances that patients know what that cut off is prior to going into the study. How is it phrased in the informed consent? I know on clinical trials, www.clinicaltrials.gov, it says there is certain eligibility criteria to meet on the baseline six-minute walk, so I guess could you comment on the chances that patients know that and fake their initial walk to get into the study. Thanks.

Hello Corey, thanks. I think -- we try to be circumspect about what the eligibility criteria are to head off any potential wayward adherence to the spirit eligibility, and we monitor that very carefully during the clinical trial. And we are actually very pleased by the adherence to that in the clinical trial. And so I don't think that's going to be a substantial problem for the unblinding.

Okay, thank you, I'll hop back in the queue.

Eun Yang, Barclays.

Hank, just follow-up on the last question. I know you guys have access to blinded trial data at this point, so can you talk about the baseline six-minute walk distance these patients achieved on average, and then, what is the average age of the patients at baseline going into the trial for GALNS? And then also, I have another question on financial, how should we think about the R&D expenses for 2013, now you are concluding the GALNS trial?

Yes, while it is true that the trial has completed enrollment and all patients have completed in the study, I think it's -- I'm going to defer answering questions about the results of the clinical trial, even the baseline results for the clinical trial, until we have an opportunity to fully unblind the clinical trial. Those data are going to be the key data, the unblinded results, and so let's wait. As I said, we expect those results this quarter, so it's not too much longer to wait.

And with respect to R&D expenses, GALNS expenses will reduce next year, but they will still be material as patients -- as we keep all patients on drug until the drug is approved in their country, and we are doing pre-commercial material production. In terms of general R&D expenses, we are not in a place to give guidance yet because we're in the process of going through our budget, but we have already mentioned the likely -- the start of Phase III for PEG-PAL next year. The start of Phase II for BMN-111, and the completion, over the next coming months of the 673 and 701 program, and we will have to see the results on that before knowing what the impact on next year's R&D will be.

Great, thank you.

Salveen Richter, Canaccord Genuity.

Just wondering, post-GALNS data when you meet with the FDA, will you have the three minute stair climb validation study in hand, and which of the ancillary studies will you have or which will be completed at that time point? And then also just wondering on the MorCAP and international registry, could you maybe provide us with a breakdown of US versus ex-US patients? Thanks.

Yes, so, as two the process and timing of future regulatory interactions, we haven't mapped that out. Specifically, I think to some extent, it depends on the unblinded data. The general timing of the availability of the ancillary studies is something we reviewed before, but just to remind you, those studies began enrollment after completion of enrollment in the pivotal Phase III clinical trials. So, at a minimum, they are several months behind the pivotal clinical trial. We will work hard to get as much of the data as is relevant into the registration dossiers, but I think we have said all along that the primary role of the ancillary studies is actually to support product adoption and reimbursement, as opposed to necessarily registration. We believe that the pivotal clinical trial is sufficient to support registration of the product and have had good interactions with health authorities leading up to that. As far as the prevalence of Morquio syndrome in the US, off the top of my head, I would say something like 20% of the worldwide patients are American registry. Jeff, if you want to offer a comment or perspective on the prevalence of Morquio in the US versus the rest of the world?

We can comment on the patients we are aware of, and not on the patients that have yet to be identified, but so far, it looks like something like 15% of identified patients would be coming from North America.

Great, thank you.

Matthew Harrison, UBS.

Good afternoon, thanks for taking the question. Hank, a question for you. Can you remind us in terms of the realtime monitoring data that you have access to, what they are and now that you've been able to get to the end of the study, anything in there that is potentially concerning or not? And then a quick question on Kuvan. Can you give us a little bit more detail on what is driving growth? You've had two pretty good quarters.

So I'll answer the first, and I'll let Jeff answer the Kuvan growth question. In terms of realtime monitoring, the kinds of things that we have gone over give us a great deal of confidence that the study ran the way the study was supposed to run. So we looked at who got enrolled, did they meet not just the letter but the spirit of eligibility? We looked at the variability of the population enrolled, which is so widely variable population, or was there skewing of the enrolled population according to certain key baseline demographics? We looked at adherence to study drug administration, and specifically things like were antihistamines given, was the study drug given in the time the study drug was supposed to be administered? Were the appropriate dose reductions or dose pauses appropriate for safety reasons? We looked at adherence to the diagnostic requirements of the study, particularly three minute stair climb and six minute walk. And again, we were really encouraged by the overall quality of the study. I don't think it could have gone much better from a study conduct perspective. And Jeff, do you want to talk about Kuvan?

Sure, directing the Kuvan growth and amplifying my earlier statements, the growth is really coming from two different directions. The first is the base of patients that are on therapy and how compliant and adherent they are, and second is the rate of growth of new patients coming onto therapy. So, we have programs, including field-based case managers, that have been successful in improving compliance and adherence in our base of patients that are on treatment. These field-based case managers have been also successful aiding clinics and patients to get good tests of Kuvan responsiveness and to address ongoing, then, compliant and adherent behavior on Kuvan. And finally, due to a confluence of factors, our clinics have been more willing to refer new patients in this year, in particular adult patients. So there is a willingness to more aggressively treat adult patients with Kuvan.

Yaron Berber, Citibank.

I have a question if you don't mind on GALNS once again. Give us a little bit of a sense, we're trying -- where are you in the process of getting the data concluded? Is it -- are you waiting for the site at this point to send you the data? Are you guys cleaning up the data? Are you guys about to, and like I said, I'm trying to get a sense for where you are on the process, then I have a follow-up also.

We are exactly where we want to be in the process. We have reported that we expect results in this quarter, I think in some forums we've commented that we expect results before the American Thanksgiving holiday, and so we are exactly where we need to be. The study went really well, the sites did a great job, and so therefore that made our job on the back-end pretty straightforward, so we're right where we went to be.

Okay, and then in terms of the ancillary studies, give us a little bit of a sense, remind us exactly the timing of the release of the data?

We haven't commented on the specific timing of the release of the data from the three ancillary studies. Just to remind everybody, one of the most important ancillary studies is a study in about 15 patients who are under five years of age. That study is fully enrolled. That study is a cousin of a study that we did with Naglazyme, and what we did with Naglazyme is we treated four very young patients after commercial launch. So, that -- the fact that we fully enrolled that study is very encouraging to us in terms of very young patients. We also have the cardio pulmonary study and the limited ambulation studies. I think it is reasonable to think that the data from those studies will be available and made public in a conclusive -- more conclusive fashion in mid '13, but as to the specific details, we haven't given more specific guidance.

And finally on 673, the PARP inhibitor, it looks like the data is going to be phenomenally interesting for BRCA positive -- I mean theoretically, both breast and ovarians, we'll have to see what you are going to give us, but why is it going to take a full year to start the pivotal?

Well, I suppose in the fastest possible mode, we could make a decision sooner to advance to at least a BRCA Phase III clinical trial. As we mentioned on previous calls, we've identified a third and a fourth tumor that we think could be highly responsive to PARP inhibitors, but we've yet to collect data in the expanded cohort on those tumors. And so in the spirit of trying to lead with the most facile, fastest, highest likelihood registration program, we wanted to conclude that cohort expansion data before rushing into the first Phase III clinical trial. We do accept your point that based on what we've seen so far, we are very encouraged by the activity of the 673 compound in BRCA patients.

At the end, this is going to be separate pivotals, right? You're not going to do one pivotal and all comers essentially who fit and show response -- ultimately you're probably going to enrich -- that's why I'm wondering why take that long to start the Phase III?

Well sadly, you are right. The world hasn't come to the point where molecular diagnosis alone is sufficient to initiate a cancer clinical trial, and for that reason, the specific tumor type, we want to make sure we're thoughtful about which tumor it is that we take into a Phase III trial as the first 673 trial.

Okay, great. Thank you.

Joseph Schwartz, Leerink Swann & Company.

Wanted to follow up on your comments about how you are encouraged, based on your monitoring of various aspects of the Phase III GALNS study, and in particular, you mentioned variability. I'm wondering what you've seen there, relative to what went into your powering assumptions?

Yet, so the powering assumption speaks to the anticipated change from baseline, and as we haven't unblinded the study, it would be -- there are no data to speak to in that regard. But I did mention that we can look at variability of the population accrued as baseline, and we are very pleased that the population that enrolled was the population we expected to enroll. I mentioned in response to Eun's question that it is premature to talk about specific concrete baseline data. But as I've mentioned before in our realtime monitoring, we've looked at factors relating to variability of that baseline -- of key baseline characteristics, and we are very satisfied that we enrolled the patient population that we wanted to enroll, not just the letter, but the spirit of the eligibility criteria. That is very important because as was previously alluded to, the interest in a drug for Morquio syndrome is extremely high, and so we didn't want any skewing driven by this interest to enter into the clinical trial. And I think we -- our collaboration with the investigators was extremely successful in making sure that we had the right patients included in the clinical trial to give us the maximum chance to demonstrate a clinically meaningful benefit.

Yes, and you guys have done a lot of these studies and observed what others have done using six minute walk in LSDs. So, do you have a sense of how much of a learning curve there is and how much that can drive a placebo effect in these diseases or this disease?

Yes, I -- the issue of placebo effect has been well addressed from the concluded randomized Phase III clinical trials of other enzyme replacement therapies for other skeletal dysplasias. Just as a reminder, there approved therapies for MPS types I and VI, which BioMarin is the manufacturer in the case of MPS VI, BioMarin is the commercial supplier of around the world, and MPS II. So three approved MPS therapies all used six minute walk distance as the primary endpoint, an essentially negligible impact from baseline to study endpoint from in the placebo group. So, we don't really expect very much positive if any change in the placebo group. On a previous call, I mentioned we'd also looked at the longitudinal untreated natural history of Morquio syndrome, and I had made the comment that we observe that Morquio syndrome is a progressive, inexorably progressive disorder. So if anything, we expect the untreated natural history to be negative. So somewhere between negative and zero is what our expectations for a placebo group is in the Phase III clinical trial.

Thanks.

Tim Lugo, William Blair.

I think the -- I guess going back to the placebo group. I thought the Naglazyme placebo group increased by about 5% from baseline, is that considered negligible?

Well, relative to a 40 something meter improvement in the treatment group, yes, that is relatively low.

Okay, that is fine. And I saw on www.clinicaltrials.gov, you've started an MPS VI and IVa diagnosis study in patients with bilateral hip disease, it looks like a pilot study with only one hospital. Can you -- I guess what are your expectations for diagnosis of new patients in this study? Are you going to expand the study to include more centers? And could we actually see you diagnosing more Naglazyme patients as you launch GALNS?

Tim, let me take that one, this is Jeff. What you are seeing is a -- is actually a screening study, and it is a site-specific screening study. We are looking to see if patients that come in with bilateral hip dysplasia may actually be either Morquio A or MPS VI patients, and that is based over an observation over the last couple of years where we've seen some, in particular, MPS VI patients that were initially diagnosed symptomatically in that way and then were eventually referred into a genetics program for a confirmation of MPS VI and subsequent treatment. What you're really looking at is an outgrowth of disease awareness programs, in this case a screening program.

And if I could say, what is really cool is if we are lucky enough that the GALNS Phase III trial is successful, we will have three of the four MPS drugs on the market, and the result of that for patients will be faster time to accurate diagnosis and initiation of the appropriate form of therapy, because we will have gotten better and better at diagnosing correctly all of the relevant MPS syndromes. So that is pretty excited.

Thanks, I think we are all excited for the results.

Chris Raymond, Robert Baird.

Sorry, but another GALNS question. So -- this actually may be a cart before the horse question. There has been some literature in the last year or so that has highlighted the down regulation of keratan sulfate after growth in Morquio patients. And I'm sorry if I'm showing my ignorance here, the biology of this disease, but given that dynamic, can you talk a little bit about how the physician and maybe even the payor community might view this with respect to long-term, lifelong therapy? Is there some aspect of your ancillary trials for example that address this? Thanks.

Hi Chris, this is Hank. I will start, and then maybe Jeff wants to add in from a commercial perspective. But the keratan sulfate levels, we've actually published on the levels of urinary keratan excretion as a function of age. So for us, this is not something that is particularly new. We've known for a while now that urinary keratan excretion declines with age. And in spite of that, we have observed in our early stage clinical trials that over a fairly wide spectrum of illness severity, that there are meaningful improvements in a variety of parameters, some of which are skeletal and some of which are non-skeletal. So some skeletal-related things could include flat walking, but some non-skeletal things could include the ability to climbs stairs or respiratory function. And so our expectation is that GALNS will be an appropriate therapy for the life of patients who have this enzyme deficiency.

From what have we observed so for perspective in the program, overall, even well beyond skeletal outcomes, we've observed patients who have severe respiratory impairment -- for example, patients who have had severe nocturnal sleep apnea requiring supplemental oxygen, or requiring assisted ventilation have returned to a normal state, not requiring ventilation, not requiring supplemental oxygen. These are not one-off case reports. We've observed patients that are more advanced in disease or older in disease having meaningful improvements in their outcomes with GALNS. So I think that the decline of keratan sulfate doesn't mean the disease went away, and in fact, it may be more a reflection of we don't know exactly all of the things to measure in Morquio syndrome, because clearly there is evidence of benefit that go beyond just reductions in keratan sulfate. Jeff, I don't know if you wanted to add from a --

From a commercial perspective, what we know from our experience is that clinicians and patients pay attention to the different dimensions of benefit from enzyme replacement therapy. I think the clinical benefits, and they could be multidimensional, are the most relevant. The biochemical measures are helpful and are a good guide when they are helpful, but I think the focus will clearly be on clinical benefits.

Great, and is that -- sorry if I'm asking something you've addressed before, but is that one of the primary reasons that you didn't use KS clearance as the primary end point?

No, the primary reason not to use KS is it is a bi-chemical parameter, not a clinical outcome measure, and clinical outcome measures are both more compelling to health authorities and they are more compelling to patients and providers. As Jeff just mentioned, that is what people pay attention to and that is what they are going to make their treatment decisions on the basis of -- do I feel better and do I perceptively feel better? And as we've talked about, we have every reason to believe that that is going to be the outcome of the trial, that patients feel and function better.

Thank you.

Phil Nadeau, Cowen and Company.

As we get closer to the data, I think we are all rolling up our sleeves and looking back at the Phase II results, and two things that have come up over the last couple of weeks in discussion, I was hoping you could readdress again. The first is on the four patients who had better walk distance at baseline. It looks like those patients actually declined once on drug in the Phase II. Can you explain that to us? What happened there? And then second, there was a big divergence between the mean and median results in the extension study. Again, can you remind us what led to that divergence and whether there is a group of responders and a group of non-responders who among the patients who actually remained on drug? Thanks.

Sure, Phil, happy to answer and repeat, and in fact we are all rolling up our sleeves and putting a lot of hard work in on GALNS, so it is quite timely to remind ourselves of the basic assumptions that went into the clinical trial and the basic findings. As for the patients whose baseline walk was greater than 325 meters in the originals -- in the first Phase I-II study, I guess the way I look at it is simply, if you are already good, it is hard to get better. You only have one way to go. Now, I don't think that that means that people whose baseline walk is relatively well preserved won't have a benefit from GALNS -- in fact quite the opposite. I just think that six minute walk test as a primary outcome measure by itself is not the best single measure because their walk is already reasonably preserved and they have no place to go but either flat or down. In fact, that group of patients experienced quite large improvements in their stair climbing ability, and that might tie to improved musculo- skeletal performance and improved cardiac performance. I think these are some of the other benefits besides purely skeletal benefits that we expect to see in Morquio patients. And again, just a simple and trivial reminder is that in the mucopolysaccharidosis, every single cell in your body is deficient in the enzyme. And so while the superficial assessment is that it's primarily a skeletal abnormality, deep inside of every single patient, there is quite a bit more wrong with them, sadly, but to the good, there is quite a bit more that we can fix on the upside in terms of improving outcomes of Morquio syndrome.

Okay, and to follow up on the patients with good six minute walk distance, it wasn't just that those patients didn't improve, if you look at the difference in mean improvement between that group and the trial of the whole, it seems like they actually got quite worse while on drug. So again, was there something funny that happened in that group? Was there patients who went into surgery or what is the explanation for that?

No, the other problem -- not problem, but it was a Phase I-II study, so we didn't put all the detailed six minute walk testing measures in place, and specifically what I'm referring to is the use of the duplicate walk at baseline. And so the first explanation I gave you about no place to go but flat or down, the statistical version of that -- the more complicated version is that there is a regression of the mean bias -- that is, the people at the top are at the top because they tested on a single test at the top. So I think that noise is not germane to the population that is in the pivotal clinical trial.

Your second question was about the divergence of mean and median, and I think a couple of comments there. First of all, to a large extent, that is driven by a few patients at various time points requiring surgery. I mentioned before this is a progressive disease, and if it happens that your two-year visit is 12 weeks after you've had your knee operated on, it's not unexpected that your walk distance is going to be compromised due to your need for knee surgery, and toward that end, what we did was we asked the Phase III investigators to exclude patients who were going to be in imminent need of knee surgery, and we confined the study to a 24 week period so that they could accurately forecast. And we were really pleased with the outcome of that request in the Phase III clinical trial. And so we don't think that the Phase III trial, the randomized double-blind portion of that will be confounded in the way the long-term extension data are confounded. I should also mention though, in spite of the surgeries, what's amazing is stair climbing continued to be sustained and improved. For the majority of patients, their walking remained improved. Respiratory function continued to be improved, urinary KS levels remained low, so we really think this is just an artifact of the surgical procedures and not anything related to GALNS either side effects or lack of efficacy.

Okay and what about responders? Was there a group of responders? Was it consistent across the trial as a whole? What was that variability you found in the Phase II?

You've got to back out the majority of patients -- the vast majority of patients had improvement in all of their parameters, but you've got to back out those events in which you can clearly identify another episode. The one that I'm pointing to is surgery. We also had a patient who got vaccinated just before their six minute walk test, and they had quite a reaction to their vaccine and got sick as a consequence of that. So there can be other reasons that the six minute walk test is noisy, but the one that we pointed to principally has been the surgery. And again for the most part, backing that out, it appears that everyone is a responder.

Okay good. Thanks for taking my question.

Robyn Karnauskas, Deutsche Bank.

I guess two quick things, what are you doing to follow the patients that are enrolled in your registry? And what kind of things can you do to make sure that you are staying in contact with them and their positions so that they can become paying patients? And then the second question I had was what percentage of patients are treated by orthopedists and skeletal specialists? Thanks.

I'll start off by what is going on with the registry from a what are you doing to follow the patient, but then I'll turn it over quickly to Jeff. The MorCAP registry got evolved into a longitudinal registry, and also those patients are eligible to participate in the Phase III -- were eligible to participate in Phase III clinical trials or the cardio-pulmonary trial or the limited ambulation study if they had limited ambulation, or the under five study. So they served as a reservoir for participation in clinical trials where they can enroll from clinical trial material to commercial material, or they have stayed in the longitudinal MorCAP registry, where they continue to contribute untreated natural history data, and maybe with that, Jeff, do you want to take over and talk about commercial prep?

Yes, I think the second part of the question was what percent of Morquio patients are treated by orthopedists and skeletal dysplasia specialists, and if I've got that right, what I would say is, of the 1200 patients are so that we've stated that we are aware of around the world, overwhelmingly, the majority of those patients are resident with our -- BioMarin's base of customers, clinicians, so overwhelmingly, geneticists and metabolic specialists. That said, based on the profile of Morquio, probably substantially all of those patients have been or are under the care of an orthopedist or a skeletal dysplasia specialist at some point. What we think is that there are a material number of Morquio patients that may not be connected to our base of genetics and metabolic specialists, but who may be under the care of an orthopedist or a skeletal dysplasia specialist. So, we have data that suggests that that is the case. That is not enough information to say what percentage of the patients out there are under those physicians' care. Have I got that question about right?

Yes, that is great. Thanks.

Michael Yee, RBC Capital Markets.

Thanks, a question on the dosing in Phase III. I know you're looking at weekly and biweekly. Can you remind us what data, what PK data, what information you have that gave you confidence that you could stretch to biweekly? And then my second question is for JJ if he is still there, when I look at my model going out the next couple of years, I know that you said earlier that you think you can get to profitability, that this would be transforming. Philosophically, isn't it reasonable to get to profitability within a couple of years with GALNS? Do you think that is a reasonable timeline?

I guess I'll start and then well turn it over to JJ if that's okay, JJ. In terms of what gave us the confidence on weekly dosing, it really is a fairly -- it's not PK or PD, it is what we know in vitro about the half life of lysosomal enzymes, they appear to be clear from the lysosome with a halftime of about five to seven days. And we know that you don't need to get 100% correction; in fact you probably only need 5% or 10% correction to effect improvement in the phenotype. And so with that background and also with the motivation that every other week dosing would be both beneficial from a cost of goods perspective as well as favorable from a patient convenience and adherence perspective, that motivated us to include the every other week arm. So we are reasonably confident biologically, but of course, the proof is in the pudding, and if we do prove it, it will be really important for patients. And with that, JJ, do you want to take the second part?

Yes, definitely GALNS is going to move us towards profitability. The question is, how quickly? Because -- and we are very confident that this is a product that will be significantly larger than Naglazyme based on the [PCOC] data in fact that it will be probably between 1.5 and 3 times as many patients. So, they should be a [product north] -- in terms of market opportunity, definitely north of $500 million, which would double the revenues of [ BioMarin] as compared to where we are today, and we are pretty confident that even this could happen. Then on the other side of the equation, we see our R&D spend, and the R&D spend, I think as Hank said, we have seven products advancing in the clinic. So, it is difficult to know exactly when profitability will happen because it depends on what happens in these programs. Do all of them make it to registration, or do some of them fall on the wayside? We have been lucky to win and so far, everything is moving forward.

That is good news in terms of long-term growth creation and shareholder value, and the downside is it increases the R&D spend. And I can tell you already, we don't have -- we haven't finalized our budget, but R&D spend will be larger next year than it is today because of what I just discussed. So, I think GALNS will definitely get this company to profitability, but I would hesitate pinpoint a specific year at this time, because of all the great products like 701, 673, that are moving forward in addition to everything for GALNS. Dan, do you want to add something to that, or Stephen?

No, I think that is a good summary. GALNS will absolutely move us forward, and we're going to have to pace it against the development opportunities we have and we're going to have to see what the data out of those programs show.

And again maybe one more thing to emphasize behind this question is so the issue is not the SG&A spend, the SG&A will increase for GALNS, but nowhere near commensurate with the increasing revenues based on the comments that Jeff just made that the vast majority of these patients are under the care of geneticists that we are already calling on. We actually are going to increase the commercial support a little bit to launch this product, but not very substantially. The key variable is R&D spend, which actually now is not really related to GALNS. We pretty much know what is happening with GALNS, and there might be some [post-marketing] studies, but I don't see it will be very significant considering that we've done a lot -- we've covered a lot of stuff already before registration like with all the ancillary studies, so the question is what are we going to do with all for [commuter] in the future, what are we going to do with 701? Because we are pretty confident that 701 is likely to be a secure product to lean on, so these are good problems to have, but obviously we don't have short-term profitability.

Okay, thank you.

Eun Yang, Jefferies & Company.

A question on GALNS and a follow-up question later. With the GALNS Phase III study, my understanding is that you're going to look at the data by age groups as well. So if GALNS does not show functional benefits in a one age group, then do you think is it possible that its approval could be limited to the age group that they had shown benefits?

Yes, that is always possible, and it's hard to comment in the absence of data on future regulatory interactions, but what I would say is that whereas for regular drugs and much larger populations, that these kinds of questions are even more carefully looked at. In the enzyme replacement therapy field, and the rare disease field, it has not been the regulatory practice to restrict access to the product based on demographics of the patient population or the eligibility criteria in the Phase III trial, and that is for the very simple reason that the burden of proof would be too demanding to establish effectiveness in each of the various groups. Number one, and number two, the expectation based on biology is that the products will help patients over the entire disease spectrum over their entire lives, given the inherited nature of the disease. So I think a reasonable expectation to have is that if the trial is successful, it would lead to relative broad labeling.

Thanks. And then partly --

Based on our experience with Naglazyme and [Aldurazyme] we obviously, at launch, we had never studied such a close spectrum of patients and we have had reimbursement for all the patients basically being treated, so we don't anticipate this to be an issue here.

Thanks. On PARP inhibitors, most of the PARP inhibitors in development today are going after BRCA notated in cancer, but you're also pursuing hematological malignancies. Is there a rationale that PARP inhibitors would work in hemo malignancy?

Yes, there are two pieces of data that led us to launch the hematologic malignancies study. One was the finding of mutations in the ATM gene, a DNA repair gene, and certain hematological malignancies, and the other was the finding that certain myeloid malignancies were especially sensitive to PARP inhibitors in vitro. And I think you've gotten the sense from us that the solid tumor program has gone forward expeditiously and really well, and the hematologic malignancy program, while interesting and provocative scientifically, has not gone at the same pace. So, I'd say at this point, we are probably more interested in the solid tumor programs moving forward, and are still considering whether the hematologic malignancies space is a great space for PARP inhibitors.

Thank you.

Josh Schimmer, Lazard Capital.

Thanks for taking the question. How does the open label extension result in the GALNS compared to the benefit and the facts seen with other enzyme replacement therapies over the same time frame?

Yes, that is a great question. So I think the most fair comparison is to compare the 24 week data from our Phase I-II GALNS program to the pivotal trial results in -- for example, with Aldurazyme and with Naglazyme at the same 24 week time point. And our results from our Phase I-II study with GALNS are as good or better, so I think the placebo-adjusted change from baseline and walk distance was probably in the 20s meter range for Aldurazyme and the 40s meter range for Naglazyme. And for GALNS, we observed in the relevant group of patients the median 42-meter improvement, mean 38 meter improvement, so about a 40-meter improvement change from baseline. One of the things I want to make sure that people don't lose track of is, that 24 week assessment was made after 24 weeks of treatment with 0.1 mix per kilo for half the time and one mg. per kilo for half the time. So we actually observed a 40-meter improvement comparable or better to Aldurazyme and Naglazyme with what we believe are sub-optimal doses. Our hope is that the data are even better for it -- because of the use of an even higher dose. And also that the -- we may have underestimated the treatment effect in the Phase I-II study because as I said previously, we didn't use the duplicate six minute walk test procedure in the Phase I-II study. So two factors that suggest that compared our own history, we could do even better in our GALNS Phase III trial that we did with Aldurazyme or Naglazyme.

Yes, I guess I was thinking beyond 24 weeks for your longer extension follow up for patients who stayed on for over a year or close to two years? How do they perform over that timeframe versus Aldurazyme patients over an equivalent time frame?

Well, it's a little hard to compare because the diseases progress at different rates, and I think Aldurazyme and Naglazyme both continue to go up for a little while before they start to fall off due to the progressive nature of disease. So it's a little hard to line up, and as I said before, the Morquio population is noisy because of these surgeries that keep happening to patients. So, I think the general impression that clinicians have from our extension data is they are very satisfied with the long-term efficacy of GALNS. I think one anecdote is worth a thousand words, and again, these are anecdotes you have to take a little with a grain of salt, but we've actually seen a similar kind of thing with Naglazyme, too. We've had patients that have had interruptions in their therapy, for example after being on therapy for two years, they went out of country on vacation and expected to be back in two weeks and turned out that they took 12 weeks to get back home, and those patients that have those interruptions, therapy experienced quite a bit of deterioration off of therapy and then quite a bit of improvement when they go back on therapy. So I think this gives us even increased measure of confidence in the long-term effectiveness of GALNS. We see a similar pattern in Naglazyme when there are interruptions in therapy that are unplanned. Patients notice that.

Thanks very much.

Liana Moussatos, Wedbush Securities.

Could you tell me the geographic breakdown of Naglazyme sales in Q3?

I can. Naglazyme US $8.4 million, EU was $22.1 million, and international was $32 million.

Thank you very much.

Brian Abrahams, Wells Fargo Securities, LLC.

Now that you are well into the cardio-pulmonary study and have completed enrollment, I was wondering if you could speak a little bit more about how you are better defining the safety profile of GALNS through use of inclusion of a higher dose that in the Phase III, and is there any potential role for this higher dose going forward? Thanks.

Yes, it was a secondary objective of the cardiopulmonary study to explore, in a small number of patients, the impact of a higher dose. I should remind everybody that as a post marketing commitment around Aldurazyme's launch, we looked at alternative doses and regimens including higher dose regimens. And as I mentioned before, a lot of the elements of the GALNS program are similar things that we did both pre- and post-registration for our other enzyme replacement therapies, only in the case of GALNS, because we are more robust company, we did them prior to launch. And dose is just another one of those. The motivation is that we observed about a 50% reduction in keratan sulfate with the treatment of two milligrams per kilo, and the wonder is would you get an even greater reduction with the higher dose because that might point the way towards a future in which all or some patients might benefit even more from a higher dose of GALNS. The strategy that we took was to investigate the dose that we thought was optimally effective and a lower dose prior to launch, and to investigate the dose that we think is effective and potentially a higher dose in a smaller pilot way [parry] launch. And I so I think the idea is to give the commercial team as much information as possible about a range of doses heading into registration and full product adoption.

Thanks very much.

Ian Somaiya, Piper Jaffray & Co.

Just a question on the GALNS Phase III design. Are you able to share the number of patients you have screened to get to your completion of the trial enrollment? What kind of a head rate?

I don't know that of the top of my head, but I will say that we did not have a lot of screen failures. Obviously, there were screen failures for reason of being able to walk too far or not walk far enough or not being able to feel confident about not requiring surgeries in the next 24 weeks. But screen failures weren't really a big part of the problem in the Morquio -- in the Phase III trial.

And one other follow-up was related to parent oversight. How much oversight did they have as they were going through the screening process -- as the kids were going through the screening process and during the follow-up period?

Parent oversight, well, it is a disease of childhood, and so parents are heavily involved in their children's lives at this age, particularly given how compromised they are. If it's in response to a potential concern that there might have been bias or a perverse motivation that entered into the trial as I mentioned again before, it's pretty straightforward to look at whether a person intentionally cribbed it or faked the results of their six minute walk. And we have techniques that we can use to look at that, and we looked at that in realtime all along the way, and we never really rang any alarm bells about that potential. The parents have been doing the parents' job, which is to be supportive, to help the families, to help the whole family function, in some cases relocating country to participate in the Phase III trial. So, we worked real hard with the investigators and patient advocacy groups to get the parents in the right place right place and to avoid any kind of bias entering into the trial.

Thank you so much.

Cory Kasimov, JPMorgan.

Thank you for taking the follow-up, most of them were answered. One question, you mentioned in your prepared remarks that I think there is 173 of 176 patients that elected to continue in the extension protocol. Are all of those patients offered drug at that point for the extension or is randomization maintained?

Yes, Cory, there is a re-randomization of the former placebo patients to receive drug either weekly or every other week. But patients who were on active drug weekly or every other week are maintained on what they were on. But also the blind was maintained. So, you don't know what you are on in the first part while you're in the second part. That is still blinded. What you do know in the second part is that you are getting drug at least every other week if not weekly.

Okay, that is helpful. Thank you.

Yaron Werber, Citigroup.

I wanted to follow up on the last question, just so we understand. So the placebo patients when they cross over at that point -- when they are offered, do they know that they are -- I presume they didn't know that they were on placebo previously, but my question is can you -- do you -- can you actually see the data, or no? From that point onward from the open label extension?

Yes, so I do feel duty bound to inject a go Giants, here. But anyway, everybody was blinded to everything. So, if you were randomized placebo during the double-blind period, you didn't know you were on placebo.

Right.

And when you were re-randomized you don't know -- you know that you're going to get drug every week or every other week, you just don't know whether you're going to get drug every week or every other week, so the blind -- we worked hard to maintain the full blind for the original OO4 study, which was a three armed study and for the follow-on study. The virtue of that is twofold. One is that former placebo -- when we pull all the data together, nobody now knows what they are on, when we pull the data together, we will have an additional 27 patients -- it's actually more than that, but from a design perspective, it was 27 former placebo patients going on drugs weekly or every other week, so that would augment our understanding of the initial impact of therapy and it would increase the sample size of the comparison between weekly and every other week therapy. And then finally, it gives us an unbiased assessment over a year and potentially longer, of the persistence of therapy.

But do you see the data once a patient finishes the six months, is that data -- while the patient is blinded, can you look at the data?

No, we can look at the data, you just can't -- you don't have any idea what the patient was on. So, as we sit here today, no physician, no patient, no drug company knows the outcome at the aggregate or individual patient level.

Yes, I'm just thinking if patients cross over and you suddenly see patients improving dramatically, one would imagine they crossed over from placebo, that's what I'm trying to figure out.

One would imagine.

And follow-up is, we get a lot of questions on this, you guys have never released the plasma keratan sulfate levels. Why is that? You've released the urinary keratin historically, but not plasma, can you give us a sense why that's the case?

I don't know that there's that much to release. So to quickly go over the basic pattern effects. Urinary keratan sulfate levels are elevated about 20 fold compared to non-affected control populations whereas plasma keratan levels are elevated only about twofold. And so the signal to noise ratio in the urinary compartment is much greater than the signal to noise ratio in the plasma compartment. And I think when we talked about the results of the Phase I-II pilot program, we talked about reductions in urinary keratan sulfate levels and the plasma keratan sulfate levels were just uninformative, meaning that there really wasn't that much change, but given that they're not elevated that much, we did not have much expectation for change. This by the way, this pattern of seeing great change in urinary excretion of glycosaminoglycans but not plasma glycosaminoglycans was observed in MPS I and MPS VI, so there is no surprise here. For whatever reason, the plasma pool of accumulated gags is much lower than the urinary excretion pool, and the urinary excretion pool is a more active, reflective, biomarker than the plasma space.

Okay, great. Thank you.

And you can let me speak, then you can finish, the clinicians that are treating these patients on a day-to-day basis, they use urinary KS as a biomarker to track the disease, they don't use plasma markers.

Thank you, this is the portion of today's Q&A. I would like to turn the call over to Mr. Bienaime for any closing remarks.

Well thank you, so in summary we are pleased with the performance of our commercial portfolio and the steady progress of our pipeline. We do maintain a high degree of confidence in the GALNS Phase III program, which, if successful, will be transformative for the company. GALNS can highly leverage our existing commercial infrastructure and has the ability to double revenues and bring us into profitability. Top line results are expected in the next few weeks before Thanksgiving, and we are looking forward to sharing this data with you. Just also to emphasize, this will be followed in Q4 and Q1 of next year by additional data on 673, our PARP inhibitor, and 701, our Pompe enzyme. So, the GALNS data result is not the end of the story, it is the beginning of the story. Like the San Francisco Giants, we are really shooting for the World Series, here. Thank you for your continued support and for joining us on today's call. Goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.