BioMarin Pharmaceutical Inc (BMRN) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the BioMarin Pharmaceutical Inc fourth-quarter and full-year 2012 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Eugenia Shen of Investor Relations. Ma'am, you may begin.

Thank you. On the call today is JJ Bienaime, BioMarin's 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 programs, actions by 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'd like to turn the call over to JJ Bienaime, BioMarin's CEO.

Thank you, Eugenia. Good afternoon and thank you for joining us on today's call. As we wrap up 2012, and set our sights on key 2013 milestones, I would like to share some thoughts of over the past year and what is ahead for BioMarin. At BioMarin our strategy is to develop first-in-class or best-in-class therapies where we can make a big difference in the lives of the small number of patients suffering from rare or ultra-rare diseases. That strategy bore fruit in 2012 and has set us for further growth in 2013 and beyond.

2012 was a milestone year for BioMarin on a number of important fronts. On the commercial side of our business, we reached the $0.5 billion revenue level. And with direct commercial presence in 26 countries and products available in more than 40 markets worldwide, we expect to see revenues from our first-in-class commercial therapies to continue to grow. On the development side, we announced positive results for our Phase III Vimizim study, and we expect to file for approval in the US and EU over the next two months. We also announced positive results from our PEG-PAL Phase II study, and we plan on initiating a Phase III next quarter. Overall, we made continued progress on our rich development pipeline, and as a result we expect to have six programs in the clinic this year, the most ever at BioMarin, and one of the richest pipelines for a Company our size.

As we start 2013, we're excited about the potentially transformative events ahead with a number of key milestones coming up in the next few months. Finally, our Vimizim [BLA] remains on track for later this quarter with the potential approval and product launch before year end in the US. Vimizim could be our largest product to date and should put us on the road to reaching the $1 billion revenue level over the next few years.

Before the end of this quarter, we would also have BMN-701 Phase I-II data, and a program go, no go decision. As Hank will describe more fully, we have recently determined that if the data supports going forward with the first development of 701, we will be able to utilize a new cell line, which is much more productive than the current cell line, and with the new cell line we could initiate a Phase II-III trial, the key component of our pivotal program before the end of this year, almost a full year earlier than we had previous anticipated. Next quarter we would also expect to present data on BMN-673 at ASCO and we could be in a position to start a Phase III study before the end of the year. Finally, before we hit the halfway mark on '13 we expect to start a PEG-PAL Phase III you study.

In addition to developing our existing clinical pipeline, we continue to look for strategic ways to grow the pipeline for our long-term future. We are world leaders in the skeletal dysplasia market with two products already available to patients, and a potential third with the anticipated approval of Vimizim for MPS IV by the end of the year. The recent acquisition of Zacharon Pharmaceutical will further expand our glycobiology expertise and support our lysosomal storage disease drug development efforts. The acquisition also strengthens our preclinical pipeline with two programs in lead optimization, heparan sulfate inhibitors for MPS III, and new ganglioside synthesis inhibitors for gangliosidosis, such as Tay Sachs and Sandhoff. We anticipate being in the clinic with at least one molecule in a couple years.

In addition to our skeletal dysplasia franchise we have expertise in metabolic disease, and we are looking at a potential second product for PKU with PEG-PAL. Earlier this week we announced the outcome of the PKU 016 Kuvan neurocognitive study. It was rewarding to see the study demonstrate a statistically significant improvement on ADHD inattentiveness scale for PKU patients with ADHD symptoms that respond to Kuvan. This important data will help us further better design and execute our PEG-PAL Phase III study and could lead to a further adoption of Kuvan. With the continued growth of Kuvan and the potential further development of PEG-PAL, treating PKU patients will be an important value driver for BioMarin for the years to come.

Earlier today we also announced the licensing of a Factor VIII gene therapy research program for hemophilia A from the University College of London and St. Jude's Children's Research Hospital. Hemophilia A is an attractive target for gene therapy as factor levels in the blood serve as good biomarker. Relatively low levels are required for a clinically meaningful benefit in severe patients, and the current standard of care, intravenous infusions multiple times a week is very burdensome. Importantly, UCL and St. Jude's have already validated this adeno-associated viral gene therapy approach with Factor IX with a proof of concept studying Factor IX for hemophilia B. Gene therapy is emerging as a viable way to treat genetic disorders, and we believe it is a perfect strategic addition to our existing portfolio.

As we wrap up 2012, and launch into 2013, we are proud of the foundation that we have built, and the difference we have made to patients suffering from rare diseases. Beyond product approvals and clinical milestones we have also established a strong manufacturing capability and built a global commercial infrastructure that stands ready to launch Vimizim at the end of the year. You heard me say this before and it is worth repeating, BioMarin is in a transformative phase of its history and we look forward to the year ahead.

Next, Dan will review the financials for the fourth quarter and full year 2012. Then Jeff Ajer will then provide more detail on our commercial portfolio, and Hank will provide an update on our R&D program before we open the call for questions. Now I would like to turn the call over to Dan Spiegelman.

Thanks, JJ. I will start by reviewing product revenues for the full year 2012 and then follow with a more in-depth look at our operating expenses and financial results before turning to guidance for 2013.

Total revenue reached the $0.5 billion milestone in 2012, coming in at $500.7 million, a 13.4% increase over total revenue of $441.4 million for the full year 2011. For our lead product, Naglazyme, net product revenue was $257 million for the full year, a 14.3% increase compared to $224.9 million for 2011. Changes in foreign currency rates net of hedges had a negative $0.9 million impact in 2012. We are encouraged by the continued steady growth in the number of patients on therapy, primarily from established markets.

Net sales of Aldurazyme by Genzyme were $193.1 million for the full year 2012, compared to net sales of $185.2 million for 2011. Net product revenue to BioMarin related to Aldurazyme was $82.2 million for the full year, compared to net product revenue of $82.8 million for the full year 2011. Net product transfer revenue had a positive $1.8 million impact on net Aldurazyme revenue to BioMarin for the full year 2012. Net product revenue for Kuvan of $143.1 million for the full year 2012 represented a 22.5% increase compared to $116.8 million for 2011.

Now I'll review gross margin and operating expenses and other items in more detail. For the year ended December 31, 2012, gross margins were 85% for Naglazyme, 68% for Aldurazyme, and 83% for Kuvan, consistent with prior years. Research and development expenses were $302.2 million for the full year 2012, compared to $214.4 million for 2011. The increase in R&D compared to last year was primarily driven by increased Vimizim clinical trial and manufacturing expenses. R&D expenses also increased due to clinical trial expenses for BMN-701, 673, and preclinical trial expenses for BMN-190.

Selling, general, and administrative expenses were $198.2 million for the full year, a $22.8 million increase from $175.4 million for 2011. Major drivers for the SG&A increase were increased corporate and administrative costs to support the growth in our business and operations internationally. We also incurred higher SG&A expenses for the continued expansion of Naglazyme, Kuvan, as well as some precommercial expenses for Vimizim.

Our GAAP net loss for the full year 2012 was $114.3 million or $0.95 per diluted share, compared to $53.8 million or $0.48 per diluted share for 2011. Non-GAAP adjusted EBITDA showed a loss of $11.6 million for 2012. Non-GAAP adjusted EBITDA excludes certain non-cash operating expenses and net interest and taxes, and represents, in Management's opinion, a good measure of our current period operating results. From a cash perspective, we ended the year with $566.7 million of cash and short and long-term investments.

Turning now to guidance for 2013. We expect to see continued growth in both our Naglazyme and Kuvan franchises, driven by an increase in patients on therapy. We look forward to total revenues in 2013 in the $530 million to $555 million range. In terms of specific forecasts for our major products, we expect total net product revenue for Naglazyme of between $265 million and $285 million.

As we've previously noted, quarterly and to some extent even annual revenues, experience some unpredictable fluctuations due to the timing of government ordering. The timing of these government orders is likely to be the biggest driver of variance within the forecast. For Kuvan, we expect total net product revenues of between $155 million and $170 million. We look forward to communicating the PKU 016 data to doctors and patients, but expect that any change in the label and prescribing information won't be available until late in 2013, and hence, the major impact on sales from the data isn't expected until 2014. For Vimizim, our next major product, we anticipate a potential approval in the US shortly before year end, and consequently we do not expect material revenues from Vimizim in 2013, and have not included any Vimizim revenues in our 2013 guidance.

In terms of operating expenses, 2013 is focused on prosecuting regulatory approval and commercial preparation for Vimizim, as well as making continued progress on our other clinical programs and enhancing our worldwide commercial infrastructure. Consistent with these goals, our guidance for 2013 R&D expenditures is $340 million to $380 million, a slight adjustment to the R&D guidance that we had provided at R&D day. This adjustment reflects the direct license expense and associated program costs for our recently completed hemophilia gene therapy licensing agreement with University College London.

Some additional context on our R&D investment that I'd also like to highlight. First, as mentioned at R&D day, even though we've completed the pivotal Phase III for Vimizim, about 25% of 2013 R&D expense is still for the Vimizim program, as we maintain approximately 250 patients in clinical studies and on drug until we obtain regulatory approval in the countries where these patients live.

Second, we believe it is important that investors consider not only the pretax cost of our development work, but the aftertax cost as well. Because we focus on rare diseases for which we are generally able to obtain orphan drug designation by the FDA, we are able to avail ourselves of orphan drug tax credits offered in the US. These orphan drug tax credits provide dollar for dollar tax credits against income taxes payable, equal to 50% of the qualifying R&D. With most of BioMarin's product candidates having FDA orphan drug designation, these orphan drug credits, plus other research and development credits and the remaining deductibility of our general R&D expenditures means that the aftertax cost to BioMarin of our R&D program is only about 50% of the pretax costs. Consequently, the sum of these tax benefits occur over time. It is worth noting that the net cost over time of our 2013 R&D is $170 million to $190 million, compared to the pretax P&L expense of $340 million to $380 million.

Turning now to SG&A. We anticipate total 2013 SG&A expenses to be between $220 million and $250 million. The increase in SG&A expenses are driven primarily by prelaunch activities associated with Vimizim, as well as continued buildout of our international infrastructure. For 2013, we expect a total GAAP net loss of between $170 million and $195 million. GAAP net loss includes, as I mentioned before, a number of non-cash accounting items such as stock compensation, and depreciation and amortization.

On an operating basis we have suggested that investors consider a non-GAAP financial measure of adjusted EBITDA, which excludes these items and other nonoperating expenses, and will be a loss of $50 million to $75 million. As this is the year prior to the potential launch of what could be our biggest product, we are comfortable with this level of investment.

Turning finally to cash, we started 2013 with over $560 million, and expect to end 2013 with at least $420 million. The potential use of up to $141 million in cash is only partially driven by cash burn from the net loss for the year, which adjusted EBITDA measures at between $50 million to $75 million. The balance includes working capital expenditures for items such as investment in Vimizim inventory, general capital expenditures, and for the first time, roughly $40 million of corporate alternative minimum tax payments. These alternative minimum tax payments are creditable against future ordinary income taxes and effectively represent deposits that are not reflected in the P&L, but are cash outflow during 2013. Now I would like to turn the call over to Jeff who will provide an update on our commercial programs.

Thanks, Dan. Revenues from total product sales in the fourth quarter reached $131 million, an increase of 23.5% over the prior-year quarter. In the fourth quarter of 2012, there were no disruptions to supply or abnormal ordering patterns in territories such as Brazil, where shipments have been pushed out to the first quarter for the past couple of years. Naglazyme sales were driven by net patient gains, principally in our major established markets, and continued high levels of compliance with treatment. Net product revenue increased 14.3% in the year ended December 31, 2012, over the prior year, which is roughly proportionate to the growth of new patients on therapy and continued growth that we think is sustainable. While government order patterns sometimes 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 maintained a steady level of growth, with a 22.5% increase in the full year 2012 as compared to the full year 2011. Factors driving growth include continued growth in demand from new patients starting therapy, and high levels of compliance and persistence. We are encouraged by the results of the PKU 016 study and are exploring how we can use this data to better educate physicians and others in the PKU community about the severity of the disease and the potential benefits of Kuvan.

As for Vimizim launch preparations, we are continuing with our patient identification and patient mapping work, which will be an ongoing effort throughout this year. To better educate the medical community and to prepare the market for the Vimizim launch, we are increasing Morquio A disease awareness and highlighting the serious, multi-systemic nature of the disorder. Finally, in anticipation of a late Q4 2013 approval and launch, we are planning to do some modest hiring later in the year and mainly in the United States. Now, I'll turn the call over to Hank Fuchs who will review the pipeline.

Thanks, Jeff. As JJ noted earlier, our commitment to advance the pipeline is beginning to result in value generating milestones as we look forward to several more important events in the coming year. Starting with Vimizim for MPS IVA we are busy with preparations to submit the first market authorization application by the end of the current quarter. We have met with our Rapporteur and Co-Rapporteur who will process our market authorization applications for the EMA, and we are encouraged by their feedback and believe we have all of the information necessary to file for approval and initiate the approval of the dossier.

In addition, we have met with the Food and Drug Administration and confirmed our submission content. Therefore, we plan to submit first to the FDA by the end of March, and then to the European regulatory authorities in April. The three ancillary studies are ongoing but we do not believe that they will be required for submission or review.

As JJ mentioned earlier this week, we announced the preliminary results from PKU 016 Kuvan neurocognitive study. The study enrolled 206 phenylketonuria patients, approximately half or 118 of whom were found to respond to Kuvan with a reduction in their blood phenylalanine levels. Inattentiveness is a major problem in PKU and nearly one-third of these patients had a medically significant degree of this disorder. The study's predefined analysis population therefore focused on measuring the improvement in Attention Deficit Hyperactivity Disorder Rating Scale, or ADHD-RS, a commonly used tool for the evaluation and approval of medications for patients with ADHD.

In the 38 patients in the study with inattentiveness symptoms who respond to Kuvan with a reduction in Phe levels, Kuvan demonstrated a meaningful trend toward improvement of symptoms compared to placebo as measured by the primary end point of ADHD-RS, though the result was not statistically significant at P of 0.085. The positive trend was driven by a clinically meaningful and statistically significant 0.036 improvement in the inattentiveness domain of the ADHD scale. Improvement in inattentiveness addresses a major concern for PKU patients. The other component of the ADHD scale, hyperactivity and impulsivity, showed a small improvement on Kuvan but it muted the overall statistical significance of the result. The neurocognitive benefit of Kuvan in ADHD patients who respond to Kuvan was corroborated by the Behavior Rating Inventory of Executive Function, or BRIEF, rating scale in children who are rated by their parents.

In addition to the ADHD-RS and BRIEF instruments, other exploratory tests in the PKU 016 study of neuropsychiatric deficit in PKU patients demonstrated a higher level of impairment in PKU patients than in normal population. Further analyses are under way to complete the evaluation of Kuvan on those outcome measures. In total, we are very pleased that the results of the study confirmed our expectation that Kuvan not only lowers blood phenylalanine levels in PKU patients, but it helps their neurocognitive functioning. We are exploring ways to best leverage the key learnings for both Kuvan and PEG-PAL. Our current plan is to discuss the submission of these data with the FDA for possible inclusion in the Kuvan label. These results will also help inform the PEG-PAL Phase III study design and enforce our expectation that PEG-PAL will demonstrate neurocognitive benefits in PKU patients. An abstract will be submitted for the ICIEM and ASHG meetings this fall.

Turning to PEG-PAL, we are on track to start the Phase III study next quarter. We are pleased with the outcome of our recent end of Phase II meeting with the Food and Drug Administration. The FDA indicated the possibility that we could apply for an accelerated approval for PEG-PAL based on demonstrating sustained reduction in blood Phe levels, though they indicated that full approval may require demonstration of neurocognitive improvement. Since we had always planned on studying neurocognitive outcomes, the additional data request from the FDA does not change our planned study design. However, the opportunity for an early accelerated approval is a new element of our planning for this program.

Based on our meetings with the FDA, we're proceeding with our planned two study program consisting of an open label study to evaluate the safety and blood Phe levels in naive patients, and a randomized controlled study of the Phase II extension study patients to evaluate blood Phe levels and psychiatric and executive function endpoints. Depending on the results of interim analyses, we'll either pursue a full approval or an accelerated approval based on Phe lowering alone, contingent upon providing neurocognitve data at a later time.

As for the Phase I-II trial of BMN-701 for the late-onset Pompe's Disease, the program was highlighted at the WORLD Lysosomal Storage Disease meeting in Orlando last week. Dr. Barry Byrne reviewed the patient demographics and baseline characteristics and initial safety data and possible considerations for further development for BMN-701. The 22 patients enrolled in the Phase I-II trial had similar demographics and baseline characteristics as patients enrolled in the Myozyme pivotal LOTS, or Late-Onset Therapy Study, that's been previously published. As for the safety, the infusion associated reactions were expected and consistent with those seen in other enzyme replacement therapies. Hypoglycemia was an expected pharmacologic affect due to the IGF-2 tag, and importantly, all cases were asymptomatic, transient, and ameliorated by dietary intake. Dr. Byrne highlighted the efficacy findings of the LOTS pivotal trial, calling attention to the fact that improvement in the study's primary endpoint six minute walk test was largely driven by a large response in a very small fraction of patients. Moreover, improvement in the other co-primary endpoint, [FEC,] was also quite limited, as were other findings pertaining the respiratory muscle strength.

The decision to continue the development of 701 is multi-factorial as we are aiming for clear superiority over Myozyme. Based on our ongoing collaboration with key opinion leaders, we have set our go, no go clinical criteria. We are looking for either a 15% or greater improvement compared to the Myozyme LOTS data and one of the following key criteria, or a 10% or greater improvement in at least two of these criteria. Mean improvement in six minute walk distance, percentage of super responders in six minute walk, and pulmonary function.

We have also completed a review of our new cell line and have decided that if we proceed with the program we will switch to the new cell line. Based on the work we've done recently, we're now in a position to start a Phase II-III trial, a key component of our pivotal program, with the new cell line in the fourth quarter of 2013, a full year earlier than our original expectations. We remain on track to report the results of the Phase I-II trial and our go, no go decision on the program by the end of the current quarter.

Moving on to BMN-673, an update on the Phase I-II study in solid tumors is expected at the ASCO annual meeting in June, including data on BRCA ovarian and BRCA breast, and enrollment updates on Ewing sarcoma, small cell lung cancer, and other BRCA tumor types. A Phase III trial in advanced or recurrent solid tumors could start enrolling by the end of the year.

As for BMN-111 our CNP analog for Achondroplasia, we expect to initiate Phase II study mid-year. The primary objective of the clinical proof of concept study in pediatric patients will be to evaluate the safety and tolerability of daily subcutaneous injections of BMN-111, administered for six months. Secondary objectives will be assess changes in annualized growth velocity, changes in absolute growth, changes in body proportions, and other exploratory objectives.

We remain on track to file the clinical trial applications for BMN-190 for Batten disease in the current quarter. 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 one year of safety and extension phase. Although still early, this program could advance quickly in a clinic and is expected to begin enrolling mid-year.

Finally, we are very excited by our recent license agreement with University College of London and St. Jude's hospital. We believe that hemophilia A or Factor VIII deficiency is an attractive opportunity because of the burden and costs of [preventative] blood factor replacement therapy for severely affected patients. There is proof of concept published by our new collaborators, demonstrating effective restitution of deficient clotting factor by gene therapy in patients with hemophilia B or Factor IX deficiency, a very similar condition. We believe the license and partnership with these leading investigators puts us on a fast track to select a development candidate this year, initiate and complete IND-enabling toxicology studies next year, and initiate proof of concept studies in humans by the end of 2014.

We also welcome Barrie Carter to our staff as Vice President of [Vector] Biology. Barrie is a leader in the field of gene therapy and inventor on much of the relevant technology enabling this field. Together with our recently concluded acquisition of Zacharon, we're building core technology expertise that will sustain product innovation and serve patients well for years to come. And with that, operator, we would like to now open the call up for questions.

(Operator Instructions)

Matthew Harrison, UBS.

First, Hank, if I could start with 701, so -- and I might have missed part of this. So you said 15% or greater improvement on six minute walk or percent of super responders and 10% on FEV1. Can you just walk through, I think when I've looked at the data before I think some of us might have been thinking you were looking for maybe a higher improvement. Just help us think about what criteria you guys use to set that bar. And I think the other question is when you look at mean six minute walks, if you get a lot of super responders, obviously that moves up compared to lots. How do you think about that interplay as well? Thanks.

Yes. To clarify, the menu is three items. Percent super responders, mean improvement for the population of six minute walk, or respiratory parameters. It's either 15% of one, or 10% of two of the parameters. How did we set that? We had a lot of interactions with opinion leaders, asked them what would represent a clinically significant improvement for their patients, and basically reduced that conversation to a consensus set of numbers that I just recapitulated. And to illustrate for example in the case of Myozyme in the LOTS trial, about 7% of patients were super responders, if we observe 15%, clinicians would view that as clinically significant. Or in the LOTS trial, there was a mean improvement in walking distance of 25 meters, less than 10%, a 15% improvement in baseline would be viewed as clinically significant. So 15% of any one of the parameters or 10% or more of two of the parameters.

Can I just ask a follow-up then? So 15% of let's say super responders is 2.5 patients, so let's call it three. It's a small number from a small subset. How do you -- and I think and you'll remind me but LOTS I think had three super responders as well, obviously bigger denominator. Just how do you get comfortable that that's enough patients that you haven't somehow selected certain patients with certain baseline criteria? Thanks.

Yes, that's a very important question and I think that was one of the focus points of the discussion at the World Lysosomal Storage Disease Symposium. And Dr. Byrne addressed that directly by going through the baseline demographics of our study compared with that, that was published in LOTS, and demonstrated that quantitatively our patient population is substantially similar to the LOTS patient population.

I have to say that if you ask opinion leaders what would be a clinically relevant improvement, they tend to first answer the question with anything over what we've already seen would be clinically relevant. So we've set the bar quite a bit higher than that for the simple purposes of assuring us that when we conduct our Phase III program, we'll end up with outcomes that do demonstrate superiority quantitatively.

Thanks.

Ian Somaiya, Piper Jaffray.

I'm just going to follow up on the BMN-701 questions. Question on the new cell line. Maybe if you could just walk us through what enabled you to accelerate the time lines there? And whether the new cell line allows you to maintain reasonable gross margins while exploring potentially higher doses as you move into a Phase II-III study, the difference relative to LOTS, potentially could be greater.

Yes, so in terms of the acceleration, before we had a lot of data about the new cell line we wanted to be very cautious about what the impact on time was going to be. We've now seen enough of the data to where we think we can map the path to using the new cell line in the clinic. We think we have a good grip on the biochemistry, the animal pharmacology, and the expected toxicology program that would enable entering into that Phase II-III program. And I think today as opposed to before all of these analyses were concluded, we have increased confidence that at the end of this year is a reasonable time to aim for.

As far as doses, the primary driver of switching to the new cell line as we talked about before is the efficiency of manufacturing. We don't have plans to go to higher total doses of protein administered at least in the short term. 20 milligrams per kilo is on an every other week schedule is a pretty large amount of protein dose. We think that, that, with the increased potency of 701 versus Myozyme, that we're going to deliver approximately five times more enzyme to the lysosome, and therefore test and ultimately prove that improved delivery to the lysosome results in improved glycogen clearance and improved strength.

To expand on Hank's response I think you had a question on cost of goods. The anticipated dose with the new cell line will be 20 milligrams per kilogram every other week, so it's the same as what we're anticipating for the old cell line. The productivity of the cell line is apparently right now we estimate between 2.5 and 3 times the productivity of the current cell line, and consequently considering if you just look at the cost of Lumizyme today in adult onset Pompe patients we anticipate that with this current cell line we should be in the usual gross margin profile for enzymes.

If you don't mind me just asking a quick follow-up. Are the parameters you've set for making a go decision on the Phase III program, are those the same ones that your advisors have decided is enough to entice switching away from Myozyme, Lumizyme?

I'll let Hank answer and elaborate. I think we are in the most part it involves with [cure all] key opinion leaders have told us would induce switching [on their part]. Hank?

I think Ian, thanks for that question, I think you really hit on a key issue and that is that having -- if we conclude go, on the basis of a study in naive patients, the next critical question to ask is can you improve patients who are already on Myozyme or Lumizyme. That question is immediately germane to the currently prevalent market of patients.

There as I said, opinion leaders would accept any level of improvement as JJ just re-reflected. Any level of improvement might be difficult to establish, so we set the bar higher than that to assure that when we do a switching study, that it's reasonably likely that we're going to meet a successful outcome. But I think it's at this point worth pausing and saying we haven't analyzed all the data. When we do that, we're going to share that data with you and we'll take you through what our findings are and get more explicit about the basis of our decision.

Okay, thank you so much.

Salveen Richter, Canaccord Genuity.

Thanks for taking my questions. Just another one on Pompe. The hypoglycemia that we saw and the glycogen reductions that were in few of the biopsy patients. How do you expect that to translate into efficacy with six minute walk distance and the other measures?

Well, the hypoglycemia is kind of an expected pharmacologic effect, and I don't know that -- it's an infusion associated event -- and I don't know whether we will or won't be able to correlate that with clinical outcomes. But in terms of glycogen clearance, Dr. Byrne did show the three patients in the study who were at his institution who had pre- and post-701 muscle biopsies and quantitative assessments of glycogen, he showed a small improvement in muscle glycogen in the two patients treated at a low dose, and a very large improvement in muscle glycogen in patients treated at the high dose. What's been seen in pre-clinical studies, Myozyme and 701 is that at 20 milligrams per kilo, Myozyme barely clears any glycogen, and clinically at that same dose, Myozyme has some effect but not a very large effect in patients.

And what we've shown in Pompe knockout mice is that in contrast at 20 mg's per kilo, 701 clears substantially more glycogen from the muscle of a Pompe knockout mouse. And we've now shown in a very small number of patients substantial clearance of glycogen from humans. The next piece of information that we don't yet have but would like to have is did that clearance of glycogen translate into improved clinical outcome. And so if it does translate into improved clinical outcome, we would establish a nice chain of prediction of relative potency and clearance of glycogen in pre-clinical species to glycogen clearance in humans to clinical correlates.

Great. And just a follow-up. I think previously you guided to maybe starting the Phase II-III at the end of 2014 due to manufacturing verification and inventory building, and now it's been moved earlier to the end of 2013. Just wondering if anything -- what changed here to cause you to move this more rapidly?

Well, as I said previously before we had a lot of data on the manufacturing side, we were guiding to be relatively conservative so that we didn't miss that expectations. At this point now we've seen the data on the biochemistry of the produced product, and we have a better understanding of the requirements to produce the product, the biochemistry of the product, the animal pharmacology of the product, a substantial amount of information on the toxicology of the product, and on that basis, we have a pretty good understanding of what it's going to take to get back into the clinic.

The additional thing I'd say is that we're also getting a little bit more clear from our conversations with opinion leaders, as well as from the study of the regulatory landscape about the requirements for registration support. And as I think I've mentioned before, what's clear is that a switching study would be required to support the registration of 701, and a switching study is something that we can start relatively readily, we believe, with the material from the new cell line. So it's putting together all of those pieces with a lot more information in hand today than we had previously that causes us to revise our guidance to the starting time of 701.

Thanks, Hank.

Cory Kasimov, JPMorgan.

It's actually Matt Lowe in for Cory today. I was just wondering, as you get feedback from KOLs, what are your updated thoughts on the pivotal trial design for 673? And then just a second question. Of the Morquio patients you've already identified, I guess how many are there and approximately what percentage of those are living in the US? Thank you.

So in our interactions with opinion leaders on 673, I think there's already substantial acceptance and validation of the activity of PARP inhibitors in advanced refractory metastatic ovarian cancer and there is a tenable regulatory path for the development of a PARP inhibitor in ovarian cancer, and we're really excited about the data that we have. I think at our last update numerically we mentioned that even during the dose escalation phase we have an objective response rate to 673 of 67% and disease control rate of 92%. That's really a pretty fantastic level of activity, even compared to competitors, at a dose by the way that's orders of magnitude lower than competitors.

But we are cautious about jumping into ovarian cancer directly. We're going to be obtaining data on BRCA mutant breast cancer patients as well as Ewing sarcoma, and small cell lung cancer. And these tumors have interesting potential advantages of faster time to market and potentially even higher probability of success. So we believe that it's worthwhile to get additional data before declaring what our Phase III program is before committing specifically to the Phase III program. And it's our expectation that we will be able to make that call and get into Phase III by the end of the year, look for an update at ASCO. And as far as your MPS question, I'll turn that over to Jeff.

We've identified over 1,200 Morquio A patients to date around the world, 20% of which are located in North America and that would be a combination of the United States and Canada.

Okay. That's great. Thank you.

Chris Raymond, Robert Baird.

Just quickly, I know a lot of folks have asked questions on 701. Can you clarify, so Hank, are you saying that a bridging Phase II study is now not necessary? Is that what I'm hearing in terms of having your understanding of the new cell line?

I didn't say that. Hi, Chris, thanks for your question. I didn't say that explicitly but I think that's not an unreasonable inference from my comments. We think we have a pretty good understanding of the biochemistry of the new cell line's manufactured product. Pretty good understanding of its biochemistry, pharmacology, pre-clinical toxicology, and we believe that it's reasonable to expect that we can initiate a Phase II-III switching study by the end of the year. As to exactly what happens between now and the end of the year, I'd say stay tuned. We have certainly further conversations to have with health authorities and opinion leaders just to the design, the exact design of that program.

Great. And then maybe just a quick follow-up on PEG-PAL. We noticed that Merck has opt-in rights as I understand it in Europe, pre-Phase III. There's a pretty significant delta in what they pay in terms of Phase III going forward, if they opt in before or after Phase III starts. Can you sort of talk a little about that process, where things stand and what are the drivers there for making the decision? Is it up to the day you start the Phase III or is there some other mechanism?

Yes. So this is Dan. So their decision point is up until we enroll the first patient, I believe. And the issue for them is that if they opt in before we start the study, they pay 50% of it. If they opt in at the end, presumably they wouldn't opt in, in the middle, they have to reimburse us for 100% of it. Their decision has -- is also impacted by the fact that we can't -- because Kuvan and PEG-PAL have overlapping patient populations, even if they don't opt in, we can't commercialize PEG-PAL outside the United States until they do opt in.

Okay. Thanks. Is there a milestone payment on that decision? Can you remind us?

Yes, I don't recall what it is. It's not substantial.

Great, thank you.

The bigger driver is the reimbursement of the costs.

Thank you.

(Operator Instructions)

Yaron Werber, Citi.

One question, sort of in two parts.

(laughter)

I heard what the operator said. I figured I'll get around it.

(laughter)

It's sort of really two parts. Related to tax rate. So how does the new Irish facility impact your tax rate? And two, can you just remind us for PEG-PAL and Vimizim and 701 and 673, where is the IP residing for these drugs? Is it US or offshore?

Sure. So the Irish facility, when -- for all four of those are -- the IP for all of them is offshore. So we have the potential as long as we're manufacturing them either in the Irish facility or otherwise outside the United States, we have the opportunity to get the lower Irish deferral tax rate of 12.5%.

Thanks.

Brian Abrahams, Wells Fargo Securities.

I'm going to shift gears to GALNS or Vimizim. I was wondering what you guys are seeing in the ongoing extension study with respect to patient retention, and really how similar or different it is to other enzyme replacements in your experience. And I'm curious as to whether there may be any patterns as to who if anyone might be discontinuing. Is it based on age or functional benefits on six minute walk? Thanks.

Retention in the extension studies have been absolutely fantastic. And it's very difficult to compare or to establish patterns in the patients who don't continue to the ones who do continue, because the number who don't continue is astronomically small. And in fact, it has been in the rare cases where there has been some discontinuation has been mostly logistics of patients from overseas who went to a treatment center in another country to participate in the Phase III trial. The main message is retention fantastic.

That's very helpful. When might we expect to see that data and how important will it be from a regulatory perspective? Thanks.

We'll continue to provide health authorities updates on safety through the submission process. And I wouldn't expect there to be a next data cut probably until the end of this year. And as I said, I don't think -- well, we don't have an expectation that those extension data are going to be germane in a major way to health authority deliberations. As I said in my prepared comments, we think we understand what they require for submission, review, and approval, and we have that information.

Great. Thanks again.

Michael Yee, RBC Capital Markets.

Sorry, just to clarify your criteria on 701. Sorry to go back to that. You're looking for a 10% and/or 15% improvement on one or two of the criteria. I assume that's 10% or 15% improvement above the 15% improvement they've already been seeing. For example on six minute walk, the 25 is -- I don't recall what that is, a 15% improvement. You're looking at 25% improvement over baseline? Is that the right way to think about it. How do you assume for a placebo response in any of this stuff given that you're single arm versus their control study?

It's not improvement over the Myozyme, it's improvement over the patient's own pre-treatment baseline. Our expectation in terms of placebo response, excellent question, a question that was actually raised at a scientific meeting. Our expectation is the effect of placebo in these tests will be zero. If you look at the control arm of the Myozyme pivotal trial, the placebo change in six minute walk test over 70 something weeks was minus three meters, and the change in respiratory function was around minus 1% or 2% for FEC, and for the maximum ventilatory pressures was around minus 0.5%. So there is not much of a placebo effect on these tests.

Okay. Thank you.

Ying Huang, Barclays.

Number one, Hank, can you please confirm that the way you define response as the same as the LOTS trial, that is more than 100 meters improvement in six minute walk. And then secondly, I'm actually asking this on behalf of some investors that will send me questions by e-mail. Are these new criteria to define a go and no go decision reflective what you have seen so far from the 10 patients that have already completed dosing in the BMN-701 trial? Thanks.

Yes. So the super responder threshold is a good question. And you have to remember -- first of all, it's not our criteria around what this number is. This just simply comes from an FDA Advisory Committee presentation of the data. What I'd encourage you to do is to look at a comparable time point for decision making, and in the LOTS trial, the LOTS trial went to 70 something weeks. But our trial, our decision point is going to be made at 24 weeks. And if you look at those data, you'll see that there are a few patients like I think 4 out of the 60 who at 24 weeks have a superior response, and there's pretty clear zone between those 4 patients and the rest of the population. I think the threshold there is around 75 meters. One could have an argument about whether it's 75, 73, 71, or 70, or 68, but it's around there.

And as to -- are these decision criteria based on having looked at the data. We've been very careful in working with the opinion leaders to get their unbiased assessment of the go criteria, and so the answer to your e-mail friends is categorically no. These are unbiased assessments of go, no go criteria.

Thank you.

Liana Moussatos, Wedbush Securities.

I just have a quick follow-up on the impact of the Irish 12.5% tax rate. Going forward how much of an impact will that have on a blended tax rate?

Well, it depends on the mix of revenues. If the revenues from Vimizim and the other offshore products represent 50% of our total sales, I think you could look for a blended tax rate in the 25% range. If it represented two-thirds of our sales, you could look at one -- you'd look at a blended rate that looks like closer to 20%, 18%.

Thank you very much.

Kim Lee, Janney Capital.

So just a couple questions on PEG-PAL and Kuvan. What exactly for PEG-PAL was the feedback from the FDA meeting? How is this trial design different from your Phase II, and when do you expect that interim data? And for Kuvan, with the potential label expansion to include ADHD, how much do you think the market could expand? Thanks.

Well, the feedback that we got from the FDA is more or less precisely what we characterized in my prepared comments, that is to say that they -- that while they indicated that they may require some additional neurocognitive data for full approval in adults, they've also indicated that Phe lowering alone could substantiate an accelerated approval.

As to the time line of all that, we are planning to field these trials in the next -- in the coming quarter. But we have not given any kind of guidelines in terms of expectations on enrollment rates or when an application could be made. And I will turn the second part of the call -- the question over to Jeff.

So we're very optimistic about the results from PKU 016. In fact, our clinician, patient, and payer communities have been asking us essentially since the launch of Kuvan to validate what has been noted anecdotally, and that is the clinical improvement in these patients with PKU that are responding to Kuvan. I would also note that data will be presented scientifically later this year in the fall, in a couple of scientific meetings. So the timing of when the clinicians will see this data will be late this year. The impact will probably be felt starting in 2014.

I would also note that Kuvan in terms of its life cycle will have been on the market for a full six years by then. So that's a lead in to say this data will have a positive effect on the sales of Kuvan. It will not shift the demand curve. It is likely to keep the demand curve going in its current positive trajectory, possibly a little higher.

Great. Thanks.

Nicholas Bishop, Cowen & Company.

Just a follow-up on PEG-PAL. The new commentary from the FDA is that Phe lowering alone is not the sort of full approvable endpoints. Seems to be a bit of a change in commentary from what you've mentioned before. I'm wondering just what's different now and what's your level of confidence that you can gain approval on that endpoint alone?

And then secondarily, it seems to me there's some challenge in defining a neurocognitive instrument that will detect a difference certainly in patients without ADHD symptoms at baseline. Just could you explain a little bit what you envision the full trial looking like in terms of endpoints and size?

Yes, that's a good pick-up. And we -- I think you've got it exactly right. The FDA did change their feedback to us. We had met with them a year and-a-half ago on the PEG-PAL program and had confirmed that blood phenylalanine levels would be sufficient to support registration of PEG-PAL in phenylketonuria. And at this meeting they pushed back a little bit from that by saying they may require neurocognitive data. Exactly what drove that is a little hard to put the finger on the pulse of. It's maybe a mixture of wanting to see more information in adults than just adults and children about blood Phes validation as a marker of clinical outcomes in patients. It may just be spacing, FDA raising the bar because now's the time that they can raise the bar. But the nut of that is that they also said that the drug could get approved for blood Phe lowering, albeit it would come with post-marketing commitment in the accelerated approval format.

None of that actually changed our program at all. We were planning to do that all along. I think the other thing that happened over the course of this quarter was we actually demonstrated an improvement in neurocognition, using a pretty garden variety neurocognitive tool, the ADHD-RS scale. So as much as that might have been a setback, it's not only made up for it by the fact that the FDA has offered accelerated approval opportunities, but even better is the fact that we can show with Kuvan an improvement in a standard measure of attention deficit.

Now, the thing that you have to keep in mind about all this is that in the Kuvan patient population, we get about -- we have a fairly mildly affected patient population, blood phenylalanine levels around 800 micro molar at baseline, reduction in blood Phe levels of about 30%, down to about 600. In contrast, PEG-PAL patients start at about 1,300 or almost 50% worse than their Kuvan counterparts, and their blood Phe levels don't go down to 600 as they do with Kuvan. They go down to 400 or lower on average with PEG-PAL. So you have a sicker population with a more effective drug, and an instrument that we now actually piloted and demonstrated to be sensitive to improved neurocognition, so we're feeling pretty good about the opportunity to hit neurocognitive endpoint in our coming PEG-PAL trials. And the FDA has given us a safety net that says if you don't get it at the first whack you can talk to us about accelerated approval. So we're feeling pretty good net about PEG-PAL for PKU.

To add to this, indeed the FDA has changed their mind and we'll have to provide neurocog data to get full approval, but the good news is compared to our previous plans, if we do go for the accelerated review pathway, accelerated approval pathway, we now could potentially file as early as late 2014 and potentially be on the market in late '15, which is earlier than we anticipated.

Okay. Thank you.

Michael Schmidt, Leerink Swann.

I just had one follow-up on 673, the PARP inhibitor. You said you haven't decided yet what indication you will be studying in Phase III. But I guess I assume no matter which cancer it will be, is it fair to assume that there will be some sort of genetic screening or genotyping that's necessary to define the patient population better? And if so, what would the regulatory requirements would be for potential diagnostic to go along with the 673?

Yes, if BRCA, no if Ewing's or small cell. All Ewings and small cell appear to be molecularly sensitive. As far as co-diagnostic requirements, our belief is that the currently available assay to diagnose BRCA is sufficient for certainly running the trials, if not registration. And of course the complete answer to that question isn't complete until we've had -- the full answer to that question isn't complete until we've had more conversations with health authorities about requirements for registration and we're not there yet.

Okay. Great. Thanks.

Chris Raymond, Robert Baird.

Thanks. Sorry, my follow-up was asked and answered. Thanks.

Thank you. At this time I'd like to turn the call back to Management for any further remarks.

This is JJ here. In summary, I think we are very pleased with the steady growth of our commercial portfolio, the advancement of our pipeline, which is resulting in value generation for the Company. We are looking forward to many clinical milestones in the coming years, and with PEG-PAL, BMN-111, and BMN-190 all moving to the next phase of developments. We will have Phase I-II readouts for BMN-701 and 673. And go, no go decisions on whether to proceed to Phase III development for these programs in the next few weeks or months.

We also look forward to possible FDA approval for Vimizim by the end of the year, which will be a transformative event for the Company, with a potential to double our revenues and lead us on a path to achieving substantial and sustained profitability. Thank you for your continued support and for joining us on today's call. Good-bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.