BioMarin Pharmaceutical Inc (BMRN) 2016 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the BioMarin Pharmaceutical Inc. conference call to discuss third-quarter 2016 financial results.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Traci McCarty, Senior Director of Investor Relations at BioMarin. Please go ahead, Traci.

Thank you, operator. On the call today from BioMarin management are JJ Bienaime, Chairman and Chief Executive Officer; Dan Spiegelman, Chief Financial Officer; Hank Fuchs, Chief Medical Officer; Jeff Ajer, Chief Commercial Officer; and Robert Baffi, Executive Vice President of Technical Operations.

To remind you, this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin pharmaceutical Inc. Including expectations regarding BioMarin's financial performance, commercial products and special future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors. And those factors are detailed in BioMarin's filings with the Securities and Exchange Commission [such as] 10-Q, 10-K and 8-K reports.

Now I would like to turn the call over BioMarin's chairman and CEO to JJ Bienaime.

Thank you, Traci. Good afternoon and thank your joining us on today's call. We have made tremendous progress in the first three quarters of 2016 both commercially and across the development pipeline. Year-over-year, total BioMarin revenues was up 34%. We are well on our way to achieving full year, total BioMarin revenues of between $1.1 billion and $1.15 billion this year.

Dan will provide further details on our quarterly financial (inaudible). We achieved a number of our development goals over the last few months including the approval from the UK house authority to extend the investigation of a lower dose of BMN 270 without steroids. Given the dramatic factor (inaudible) special activity and safety already observed in hemophilia A.

Building on the proof-of-concept data released July 27, at the World Hemophilia meeting. This endorsement allows us to maintain our lead with the only gene therapy product in human (inaudible) trials in this indication. The next steps in the program include dosing up to six additional patients in the ongoing study, providing an update on current patients in the Phase 1/2 study in December, and moving forward with initiating our potential [EU] registration enabling Phase 2b study next year.

Even the strategic importance of having our own manufacturing facility and distribution capabilities in its (inaudible) form, in a moment, our Head of Technical Operations, Robert Baffi, will say a few words on how BioMarin is leveraging our know-how and experience, making complex biological products in this rapidly developing field.

Turning to Brineura for the treatment of Batten disease, in the quarter both US and EU regulatory application were filed and validated. The FDA extended the PDUFA action date by three months, April 27, 2017, in order to review a favorable update for the extension data.

Assuming the review process remains on the current timeline, we would expect a potential commercial launch in the US in the second quarter of next year and in Europe we expect a potential of (inaudible) Q3 of next year to be followed by the commercial launch before year end.

With Vosoritide, just lastly, we announced doing the American Study of Human Genetics 2016 meeting in Vancouver. Additional results from our Phase 2 study of a treatment of achondroplasia and plans for the start of Phase 3 by the end of the year.

What was very well tolerated, moved to the lowest applications of 15 micrograms with the first patient treated expected by year-end. While the high does was very well tolerated it was moved to the lowest applications does of 15 micrograms per kilograms cohort with the first patient treated expected by year end.

The (inaudible) will be working during the quarter to provide the [US and EU] additional data on the assays using the [hemophilia] studies and we continue to expect a (inaudible) BLA in the first quarter of next year.

In conclusion, looking back over the last nine months of the year, we have accomplished a remarkable amount, commercially and (inaudible) develop those and regulatory prompts. We reported highly statistical significant results from each of our clinical studies with Pegvaliase, Brineura, Vosoritide and proof of concept results with BMN 270 for gene therapy, hemophilia A.

We have had our regulatory filings accepted by both the US and EU for Brineura, our BMN 270 gene therapy program approved for [continuing] enrollment. And we announced plans from the start of our Phase 3 study with Vosoritide by year end.

Our commercial team is driving record results for the year, 2016, and as you will hear from Jeff in a few minutes, we anticipate sales to keep growing in 2017 as we move toward non-GAAP break even or better next year.

Now, I will turn the call over to Jeff who will review the commercial business in more detail.

Thank you, JJ. We delivered strong sales results and demand generation in the third quarter. And I am very pleased with total net product revenues in the first three quarters of 2016, exceeding the previous year by 23%.

Interpretation of the sales results should take into consideration some significant unevenness in orders that we have experienced, particularly, in Brazil and the Middle East where political and economic instability have had an impact on results. Specifically, recession and political instability in Brazil made business conditions difficult in that key market this year while the attempted military queue in Turkey in July has disrupted our business somewhat in Q3 and into Q4. Therefore, while maintaining full-year guidance of total BioMarin revenues between $1.1 billion to $1.15 billion, we anticipate coming in at the lower end of this range.

With respect to the performance of the brand and starting with Vimizim, net product revenues in the third quarter of Vimizim were $81 million or 25% higher than third-quarter revenue of $65 million last year. Total Vimizim sales in the quarter are down from the record high recorded in the second quarter.

The Vimizim franchise continues to benefit from robust, underlying patient demand and growth of 46% year-over-year. Recall that Q2 results included a significant forward purchases in Brazil and the Middle East which were not repeated in Q3.

We are pleased to share that we added Switzerland as a new customer in the quarter, bringing the number of Vimizim markets to 39 in total. For the remainder of the year, we are maintaining previously provided full year Vimizim guidance of net product revenues between $340 million and $360 million and continue to expect strong growth in revenues into 2017.

Now, moving to Naglazyme, net product revenues were $78 million in the quarter and the underlying base of business, as measured by commercial patients, remains solid. However, the prior year, commercial patient count increased by 10% in Naglazyme's 11th year on the market.

Quarterly volatility continued and the prior-year comparison to Q3 was impacted by a large order to Brazil in Q2 of 2015. The Brazil government has appeared to move away from the large stocking orders that we had seen in prior years with sales to Brazil approximately matching demands resuming in the second quarter of this year.

When looking at year-over-year results, and the year-to-date results, recall that the comparison is impacted by a large order in Brazil in Q2 of last year. Based on strong global demand for Naglazyme, we continue to expect full year revenues to meet our original guidance. However, we believe economic and political conditions in Brazil and Turkey result in Naglazyme full year net product revenues coming in at the low end of previously provided guidance of between $290 million and $320 million. Thinking ahead to 2017, we expect Naglazyme to get back to year-to-year revenue growth.

Now, on to Kuvan, Q3 2016 represents the third quarter of global sales since the acquisition of the PKU franchise in the international markets from Merck Serono and we have delivered strong results. Kuvan net product revenue contributed $91 million to the top line in the quarter an increase of 42% year-over-year. North American sales of $71 million were up approximately 14% over Q3, 2015, and were paced by an increase of 15% in commercial patients, year-over-year.

In the international market, we have successfully navigated through the transition progress and are now receiving orders directly from the majority of top markets worldwide. The combination of strong results in North America, combined with solid updates internationally, gives us confidence in its affirming previously provided full year guidance of between $340 million and $360 million which would be an approximately 45% increase over Kuvan revenues in 2015. Looking forward to 2017, we should see continued growth opportunities through Kuvan both in North America and in the international market.

In closing, the commercial theme delivered strong results in the third quarter of 2016 with total BioMarin revenue 34% higher than the same quarter as last year. I am very pleased with the level of underlying demand we are seeing for both Vimizim and Kuvan worldwide. The transition of Kuvan global markets is now essentially complete and we look forward to focus on achieving increased penetration in these international markets.

For 2017, we look forward to the potential US approval on the launch of Brineura in the first half of the year, followed by the potential approval in Europe in the third quarter and launched thereafter. We will provide details on our commercialization plan as we get closer to those milestones.

Now, I would like to turn the call over to dan to provide more detail on the financial results in the third quarter. Dan?

Thank you, Jeff. Earlier today, we issued a press release summarizing our financial results for the third quarter and I refer you to that release for full details.

Starting with top line results, total revenues for the third quarter were $280 million, a 34% year-over-year increase. Total revenues for the first nine months of 2016 were $817 million and we remain solidly on track to generate between $1.1 billion and $1.15 billion in total revenues for calendar year 2016.

In terms of operating results, R&D expenses for the quarter of $161 million were relatively flat in the third quarter of 2016 compared to $159 million in the third quarter of 2015. R&D expenses in the quarter reflects the spending in the later stages of the recently completed Brineura trial, the la prep for Pegvaliase increased enrollment in our BMN 270 hemophilia A program and initiation of NAGLU for Sanfilippo b.

Third quarter R&D also included program wind down expenses for Kyndrisa and reveglucosidase alpha. With continued expense control, combined determination of the pompe and [DMD] program, we are lowering for year R&D expense guidance to between $650 million and $670 million.

SG&A expenses were $119 million in the third quarter of 2016 compared to $94 million in the third quarter of 2015. The year-over-year increase primarily reflected preparation for the launch of Brineura, the continued expansion of Vimizim commercial footprint as well as increased expenses related to the acquisition of ROW Kuvan rights in support of our global PKU franchise. However, with a slight delays in planned Brineura and Pegvaliase launches, we have delayed some commercial spending and consequently, we are lowering full-year SG&A expense guidance to between $460 million and $480 million.

Turning to bottom line operating results, GAAP net loss in the third quarter was $43 million compared to a GAAP net loss of $91 million in the third quarter of 2015. Given continued cost controls in both R&D and SG&A expenses, coupled with strong top line growth, we are lowering our GAAP, net loss, full-year guidance by $20 million to a loss of between $600 million and $630 million. Recall that our full year GAAP net loss includes a net impairment charge of $380 million recorded in Q2 related to the termination of our DMV program.

We also measure our performance on a non-GAAP basis which is based on EBITDA or GAAP earnings before interest, taxes, depreciation and amortization. And further adjusted to exclude stock-based compensation, contingent consideration and certain other items. We consider this essentially a cash basis measure of our current period operating results.

Our non-GAAP income in the third quarter of 2016 was $3 million compared to non-GAAP loss of $41 million in the third quarter of 2015. Our improving non-GAAP results are reflected of continued strong top line growth in operating expense discipline and as a result, we are lowering our non-GAAP net loss guidance for the full year to a loss of between $10 million and $30 million. Looking forward to 2017, we express improving non-GAAP profitability and look forward to GAAP loss but non-GAAP breakeven or better.

In terms of our balance sheet, we ended the third quarter with cash, cash equivalents and investment of $1.4 billion. During the quarter, we completed an equity offering for net proceeds of $713 million and otherwise saw cash and investments decline in the quarter by $20 million. As Robert will describe more fully in a moment, we are leveraging our strong balance sheets to begin constructing our own gene therapy manufacturing facility that would allow us to move seamlessly to supply commercial demand if BMN 270 is approved.

In closing, BioMarin delivered strong results in the third quarter and the first nine months of 2016, with robust Vimizim and Kuvan sales driving us towards an excess of $1.1 billion in total revenues this year combined with controlled operating expenses all supporting our continued progress towards non-GAAP breakeven or better next year.

Now, I would like to turn the call over to Hank.

Thank you, Dan. Starting with the BMN 270 gene therapy for hemophilia A, in July, at the World Federation of Hemophilia Conference, we shared proof of concept data in the Phase 1/2 study in patients with severe hemophilia A. As announced at that meeting, as of each patients most recent reading at the time, six of seven patients had factor VIII levels above 50% as a percentage calculated based on the number of international units per deciliter of plasma. And the seventh patient was about 10%.

We also announced enough clinically relevant sustained rises in ALT levels or other markers of liver toxicity had been observed and that some patients had been successfully tapered off steroids with no adverse impact on factor (inaudible) expression levels. We look forward to providing an update on these nine patients in December either at ASH or another form that month.

Turning to the most recent update on the BMN 270 program, two weeks ago, we announced the United Kingdom's health authority had improved the continued enrollment of our Phase 1/2 study including some important new protocol amendments. To remind you, we were given the go-ahead to them resume enrollment of up to six additional patients at a new dose of 4e13, or our highest does cohort of 6e13 with no requirement for prophylactic corticosteroids and an increase in the threshold for starting therapeutic corticosteroids.

We are very excited to begin dosing in this ongoing Phase 1/2 study which we expect to start next month. The opportunity to test the new dose 4x10^13 prior to the new start of our potentially registration mailing Phase 2b study next year, will further augmented our thinking what doses or doses to take forward in that trial.

To date, the BMN 270 program has exceeded our expectations on many levels. Most importantly, the life-changing impact on our patients. In most cases, for the first time, these patients are able to safely pursue vigorous physical activity without the burden of weekly recom and factor VIII infusions or the fear of a bleeding event.

We've heard and anecdote from one of our investigators that one of our patients feels as if he won the lottery after being treated with BMN 270. These are transformative results. BioMarin's focus now is to continue the enrollment of the six new patients in the ongoing Phase 1/2 study, design and execute our potentially registration enabling Phase 2b study to start next year and complete the build out of our gene therapy manufacturing plant.

Now, a few words on Brineura for the treatment of children with CLN2 or Batten disease. In the quarter, during FDA's initial review of our BLA, they requested an updated efficacy data cut from the ongoing extension study which we happily provided. After 81 weeks, patients treated with Brineura continue to have motor and language scores representing substantial continuation of these progressions compared to national history.

These data are consistent with the data at 48 weeks submitted with the original biologic's applications and demonstrate durable treatment response now maintained for 81 weeks. After 81 weeks, the primary analysis, which is the responder analysis of patients, due to decline in CLN2 to score over the [part] 48 weeks was less than two points and that remained at 87%, that it resulted in than the original BLA.

Natural history of this disease shows an average of approximately two units of decline over 48 weeks. The untreated patients filed longitudinally. Natural history of the disease shows an average of 2.1 unit decline over 48 weeks and 41 untreated patients filed longitude.

The FDA designated the submission of the major amendment to the application, thus extending the PDUFA action date by three months, to April 27, 2017. The agency advises that they plan to hold an advisory committee meeting at a date to be confirmed per their usual practice of notification in the federal register. Based on the updated PDUFA date, we hope to receive a US approval in that timeframe and subsequent launch in the first half of next year and an EU opinion in the third quarter of next year.

Turning to Pegvaliase, as we said last quarter, health authorities had requested information on the assays used in the study to measure libratory correlates of hypersensitivity type reactions. We provided the FDA with key data and continue to hold communications with the agency in the advance of the BLA filing to ensure timely acceptance of the application and review.

We continue to believe that the dramatic reduction in blood (inaudible) is significant innovation for (inaudible) patients. Particularly those who can not sustain meaningful control using available measures as recommended by the American College of Medical Genetics Guidelines. We look forward to completing the steps toward filing for approval in the first quarter of next year.

Moving on to Vosoritide for achondroplasia. Last week at the American Society of Human Genetics meeting, we shared six-month data from cohort 4 of our Phase 2 study using the 30 microgram per kilogram daily dose. The eight children in cohort 4 have completed six months of daily dosing at 30 microgram per kilogram per day experienced a 46% or 2.1 centimeters per year increased the mean annualized growth velocity from baseline with a p-value of 0.03. These data are comparable to those observed with the lower dose of 15 micrograms per kilo per day, in cohort three.

Based on these data we intend to initiate a one year, randomized, placebo controlled phase 3 study in children with achondroplasia patients whose ages are between 5 and 14 and a subsequent open label extension treatment of that study. Children in this study will have completed minimum six month natural history study to determine their respective baseline growth velocity prior to entering the Phase 3 study. We anticipate the first patient in by the year end.

And finally, a couple of words on BMN 250 for MPS IIIB. We have completed the enrollment of the initial pilot dose cohort and can expect to see gag reduction data in the first quarter of 2017.

That concludes our update on the development pipeline so I would like to turn the call over to Robert Baffi, our Head of Technical Operations to say a few words about our gene therapy manufacturing build up.

Thanks, Hank. As many of you know, BioMarin has a long and successful history of manufacturing and distributing complex biological products. Now available commercially in over 69 markets worldwide.

We operate biological manufacturing facilities in California and Ireland that have been successfully inspected over 30 times by regulatory agencies from the US, EU, Brazil, Turkey, Japan and Canada. Experience and robust manufacturing capabilities are a core competency of BioMarin and one that we are leveraging as we build our own commercial scale gene therapy facility. We believe this is the particularly valuable strategic advantage since third party commercial scale gene therapy manufacturing is not currently available.

The gene therapy facility currently under construction allows us to support the phase 2b study with the 2b commercialized manufacturing process leading to a seamless transition to meet commercial demand once approved. We believe this is the right strategy allowing us to extend our manufacturing expertise to gene therapy and provides maximum scheduling flexibility enabling rapid clinical development. Significantly, this dramatically reduces future regulatory and manufacturing risks compared to utilizing one contract source of clinical material and another for commercial.

Given the complexity of manufacturing and distributing biological products, we believe this important strategic investment and manufacturing will help BioMarin remain in the lead as the only company currently conducting human clinical trials with factor A gene therapy in hemophilia A. BioMarin's knowledge and experience in manufacturing and distribution of complex biological product, provides tremendous benefit for rapid clinical development and the consistent supply of commercial products. Extending this capability to gene therapy production, leverages one of the strongest and often under appreciated assets within BioMarin.

With that, I would like to turn the call back over to the operator to open the call for questions and answers.

(Operator Instructions)

Our first question comes from the line of Cory Kasimov of JPMorgan.

Hi, guys. This is Whitney on for Cory. Thanks for taking the question. First one, on the gene therapy manufacturing facility, can you maybe talk about the timelines and steps to getting that facility up and running and tested and validated? And is that a rate-limiting factor for the Phase 2b start?

Robert?

The facility is under design and construction now. We anticipate the facility being GMP-commissioned by the middle of next year and producing material through the second half of next year, available in the beginning of 2018 for use in clinical studies.

It is not limiting to our commercial studies now, as alluded to. We currently produce product using a contractor and that has supplied us with appropriate supplies and materials for studies anticipated until the facility is operational.

Robert, you might want to explain that the process used by our supplier is the same as the one in our facility.

Yes. We are basically running the identical process at both the contractor and our facility, once constructed. It will bring all of our analytical capabilities to ensure the comparability of that material as we go forward and introduce it into clinical studies.

Got it. Then, are there any updated thoughts on the variability of response you saw with BMN 270? And can you take us through how you got to choosing the dose you are going to move forward with in the ongoing study?

In regard to better understanding the variability of results, we don't have any updates to provide you in that regard. We are certainly looking into that very carefully. I'd just remind that variability in outcome is an actually pretty usual occurrence in drug studies. Not everybody responds the same way.

How we picked the intermediate dose was admittedly based on a relatively small sample size of a single patient treated at 2 x 10^13 vector genome's per kilo. That patient had factor VIII [in] constitution, but only a level of 2%. One could argue that, that 2% level is clinically meaningful, because that patient has had substantially lower bleeding and factor VIII replacement therapy.

Nonetheless, we want to do a little better than that. We don't need to go as high as was achieved in the 6 x 10^13 dose level, so we chose a dose that was in between two and six, which is 4 x 10^13 vector genome's per kilo of body weight.

Great. Thanks for taking the questions.

Our next question comes from the line of Alethia Young, Credit Suisse.

Hey, guys. Thanks for taking my questions. Two. One, can we talk a little bit more about, in Latin America, it sounded like 2017, you should get back on track, but just wanted to understand a little bit more, if it's systemic economic issues that are going on or more something what Alexion saw this year?

Then the second question is on PEG-PAL. Just wondering around, with the FDA, has anything incremental come up in these conversations that you feel like are being newly introduced into the back and forth that you typically have with the agencies? Thanks.

Hi, Alethia. This is Jeff. I'll field the first question about Latin America. In the earnings calls to date this year, we have noted that there is political and economic instability in Latin America, that business conditions are a little bit difficult there because of that, and we've generally guided that we have been navigating through those conditions.

So what has changed? Nothing fundamentally has changed. Our expected results for Naglazyme are weighed down a little bit by what we expect, between now and the end of the year, for Brazil. Some of those economic and political conditions have evolved a little bit this year.

In Brazil, there is a new administration, looks promising. In Argentina, there is a new administration that is doing promising and good work. So, yes, we have an expectation that things should straighten out a little bit going into 2017.

Could you go into Turkey, also? [Cooling Turkey]?

We did mention the disruption to our business from the July failed military coup in Turkey. That country is an important market to BioMarin. Life in Turkey for patients and physicians and the ordering and supply of pharmaceuticals has been disrupted a little bit.

Not fundamentally knocked down, mind you, but disrupted a little bit and enough that it is impacting our results, starting in Q3, extending into Q4. And there again, we are expecting that things will straighten out and essentially get back to normal as we head into 2017.

In regard to the FDA's request for additional, principally, laboratory information, laboratory analyses [and things like that], that is really not uncovering anything substantially new. In fact, in some cases, it's actually the Agency responding to submissions we had previously made several years ago.

As they anticipate the filing happening, they are staging their work, because of resource and timeline constraints, that they have once a file is accepted. So we regard this as fairly routine activities by the Agency, preparatory work to enabling a submission that is able to be reviewed in the appropriate time frame.

Great, thanks.

Our next question comes from the line of Ying Huang of Bank of America.

Hey, good afternoon. Thank you for taking my questions, as well. Just a couple of quick ones from me. First of all, the UK agency lifted the hold for the BMN 270 in hemophilia. Hank, can you tell us a little bit more about the liver enzyme issues, whether that's transient for all patients?

Also, how many patients have been able to now [follow] the oral steroid? And then the second one -- question I have, is -- exactly what are you going to present on [the image of seven-zero-dash]? Then the financial question from me, on the increased gross margin for a few products you recorded, is that sustainable going forward? Thank you.

What I cannot give you is interim update on the status of patients on the study, currently. So I won't be able to answer your questions about the simple course of the LFT elevations or the current status of patients off of steroids. What I can tell you is that we provided the UK the most recent data that we could, and their action to permit us to withhold prophylactic corticosteroids, their willingness to raise the threshold for instituting corticosteroid therapy, their willingness to let us use a dose of 40^13 and a dose of 60^13, if we choose to is all based on their most recent evaluation of the data.

As regards to the next communication, what I said in my prepared remarks was we are guiding to a communication in the December time frame either at ASH or an investor forum nearby. We know there is a lot of interest in issues like steroids and durability of response and status of ALT elevations. So we will provide an update on as much of that as we have current information to be able to share with you.

And regards cost of sales, nothing material was different in the third quarter and we stay on track with our guidance of 18% to 19%.

Great. Thanks.

Our next question comes from the line of Chris Raymond of Raymond James.

Hey, thanks for taking the question. Two, actually. First, on the DMD opportunity or business in drisapersen, JJ, you've talked a little bit publicly about possibly, at least keeping the door open, to maybe go back to the FDA and revisit the application. We have noticed actually that some of the IP prosecution continues. Can you maybe frame for us exactly how we should think about this going forward in terms of -- it looks like there is at least some residual effort going on.

Is this something we should just write off entirely or how do we think about this? Then the second question on Kuvan, I know you guys have only had a few quarters here of experience, but I noticed Q3 was down, sequentially, versus Q2. Is that just the typical EU summer seasonality or was there something else going on? Whatever color you can provide there? Thanks.

Why don't we start with maybe the European Kuvan sales?

Sure. Hi, Chris. This is Jeff. I'll field the Kuvan question. Actually, Kuvan sales that we just reported for the third quarter of were $91 million in total comparing to $90.2 million for the second quarter, so we are flat to slightly up overall in the quarter.

We also gave a little bit of detail on what portion of that was coming from North America versus the newly acquired territory. There was a little bit of mix up in North America, down in the international markets, but nothing substantial there. Overall, we are happy with how the acquisition of the newly acquired territories has gone and we're pretty bullish on the opportunities in those markets now and going forward.

Yes, Jeff, I was just referring to ex-US?

Ex-US revenue in Q2 were $21.9 million and in Q3 were $19.9 million.

It's likely to be, that, indeed, the summer effect, patients and physicians in Europe specifically go on vacation. We actually have seen a little bit of that in the US, too, in the past, so the patient demand is still growing. The dynamics are very good, as expressed by Jeff, and we anticipate continued growth in 2017 for the Kuvan business worldwide.

Yes. Got it.

On the DMD, we are continuing to explore the possibility of in an appeal in the US following the decision of the FDA to [pull drisapersen] so that is ongoing. We have not made a final decision, but that is a possibility. Regarding, yes, there's activity on the patent form.

Starting in Europe, we see the situation has not changed. The Methods of Use patent in Europe for Exon 51 has issued and is enforceable today. There is an appeal procedure that has been initiated by Sarepta a couple of years ago. It's still pending, but our patent in Europe is today issued and enforceable.

Regarding the US, we anticipate -- we had the PTAB decision in September of 2015 on the Method of Use patent that was favorable to BioMarin. Our competitor has filed an appeal. We anticipate a final ruling from the Federal Circuit of Appeals on this PTAB decision related to the Method of Use patent in late 2017 or early 2018. If we are successful in this appeal process, then the Sarepta's product, eteplirsen, we would be infringing as per the Method of Use patent at that time.

Okay. Thank you.

Our next question comes from Salveen Richter of Goldman Sachs.

Thanks for taking my questions. With regard to the BMN 270, can you comment on the sensitivity of your [assays] with regard to determining patients with existing antibodies, and how this may play a role in the variability of outcome that you are seeing?

Then secondly, if you do want to test other doses outside of 4 x 10^13, could you do that in another -- would you test that prior to going to the Phase 2b or in the Phase 2b study? And then with regard to the gene therapy manufacturing facility, what is the CapEx that is going to be associated with that build? Thanks.

Hi, Salveen. In regard to assay sensitivity, you are correct in pointing out that we screen patients who are [AEE5] seropositive out of the study. So the fundamental question is, is it possible there is some mass seropositivity as an explanation of variability in outcome, and I suppose it is theoretically possible. We use a very sensitive assay and we get seroprevalence numbers and in our evaluated cohort that are fairly comparable to what has been published in the literature.

So we think that we have a sufficiently sensitive assay and that, that pre-existing antibody doesn't explain the wide range in therapeutic outcomes. Although we continue to investigate this, as I mentioned before, but have not yet come to any conclusions.

In terms of other doses to investigate, it is a little premature to speculate on what other doses or how we have investigated. The plan is to get this next group of patients enrolled, take about a couple of quarters to get a data readout on that. We believe that, that can be accomplished in a time frame that doesn't derail the start of the pivotal registrations trial, but stay tuned.

This is Dan, on the capital for the new manufacturing facility. We haven't given a specific call out for that one plant, but it will fit within the roughly $150 million annual capital budget that we have for this year and next year.

Thank you.

Our next question comes from the line of John Scotti of Evercore ISI.

Hey, guys. Thanks for taking my question. I have a couple. I also want to ask about manufacturing. I was wondering if you could talk about the advantages and disadvantages of manufacturing AAV with baculovirus versus mammalian cells, such as [qiyas] or HEK-293, in terms of yield, purity, cost, et cetera. And for JJ, I was hoping to get your thoughts on the regulatory environment for biotech right now.

Do you think it will change after the election? And also specifically, do you see BioMarin as an orphan Company as potentially differentiated in biopharma relative to your larger peers, in terms of potential regulatory environment risk? Then finally, briefly, on Kuvan, is it possible to give the current Kuvan penetration in international markets, and if so, how does that compare to current penetration in the US? What is the ceiling? Thank you.

Robert, do you want to talk about the baculo versus the mammalian for 270?

Go ahead, Hank.

Sorry, we're in separate locations, so we weren't able to eyeball each other. We compared material made from a variety of manufacturing systems and we picked the baculo system, because it provided what we thought was the most intrinsic scalability, best cost of goods, greatest activity, and there's regulatory precedent for approval of baculo systems, at least in Europe. As to commenting on a specific [Bacchus], I'll turn it over to Robert, but I'm going to doubt that he is going to answer concrete, specific questions about in-process results.

Yes, certainly, the choice of manufacturing systems has a lot of different variability's that go into that, relative to the productivity, the quality you can get out of that material. So, we looked at -- as Hank alluded to -- those characteristics and chose the baculovirus system as being robust, scalable, and allowing us to get the purity that we desired for the clinical studies. So those combination of factors go into the analysis, and from our field, there is clearly a benefit to being in the baculovirus system and that is why we chose it.

Again, [I said] over many times stated, but we did produce [213] in both baculo and mammalian prepare. There was no difference in potency or any meaningful characteristics, so that is very important. However, as Robert said, [some writing] the scalability is definitely better for baculovirus.

And also the first gene therapy product ever approved [from ready cure] was in the baculovirus system. You had other questions on the regulatory environment. I don't know if you mean regulatory or pricing environment in the US. Maybe Hank will step in here, but I don't see we anticipate any significance change in the pure regulatory approval process in the US post-election. Maybe you may have a different opinion there, but--?

I was referring more to the pricing environment, not the FDA regulatory environment?

The pricing, as we've said before, we've seen basically great results we're seeing in our US business. All the pricing rhetoric so far in the past year or so during the election campaign has had zero impact on our business, on our actual revenues in the US. I would say, when you listen, try to listen carefully to the different candidates, I would say more specifically, Hillary Clinton, considering she is ahead in the polls, that is likely to be elected.

I don't think she has ever communicated that she had an issue with high-value, high-price. But actually she has communicated that she was in favor of a high-value, high-price products. Most of the discussion has been around egregious, unjustified price increases, or repeated price increases without increasing the value. She has an issue with that.

It's somewhat of a bipartisan issue. Some Republicans have issue with that. Indeed, this is not our business model. If there were any regulation policy around limiting the number or the amount of price increases one can implement every year or so, that would have zero impact on our business today, because that is not what we have been doing. The few price increases we have had on our US products has been basically around inflation.

In this respect, back to your last question, we believe we are somewhat differentiated, in this respect, and probably less vulnerable to pricing risks that other big pharma or big biotech or big specialty companies, specifically, the ones dealing in very environments, where there is a big component [managed-tier] component, a big PBM component, and the rebate game. That is not something we are doing whatsoever. In this respect, we believe that we have a lower pricing range. Who had a question?

Kuvan question, patients in international markets. Maybe you can field that?

Hi, John. Jeff, here. Your question was about our ability to measure patients on Kuvan in international markets and deduce what that means about penetration. In fact, we do have a unique ability in the United States to acquire information about patient utilization that we don't generally have in other markets, so our level of visibility is not as precise as it is in the United States in those markets.

However, I would say, as it relates to our expectations about penetration and penetration ceilings, the populations that we are talking about in these ex-US markets and what we know about the epidemiology of PKU, would suggest that in most of these markets, there is plenty of penetration upside left, leads us to be bullish on the opportunities for Kuvan in those markets now and going forward.

Particularly, in Latin America, there is very little penetration, Kuvan business, if any.

And relative to our purchase price, it is all upside. We are generating at $20 million a quarter, internationally, currently. It's basically what we projected when we bought the product the first time. Everything from here would be upside.

Thanks a lot.

Actually, I might add, that actually, when we did the valuation of the deal with the reconstruction of the agreement we had with Merck Serono, the reacquisition of ex-US rights for Kuvan and pegvaliase, we are ahead of our expectations. So definitely, so far, it was a good decision.

Thank you. Our next question comes from the line of Michael Yee of RBC Capital Markets.

Hi, this is Andrew Tsai on for Michael Yee. I just had one quick question. We just wanted to know your thoughts on the non-gene therapy competition. We are thinking about the specific antibody that may have data in Q4. We are just curious what happens if traditional drugs, like this antibody, has more competitive data? Also, how do we think about which patients would use antibodies and which would be using gene therapy? Thanks.

You're referring to the Roche?

ACE910 emicizumab?

Yes, that's correct?

Hemophilia.

That would be a very interesting product for patients, particularly for patients who have inhibitors. Clearly, that is something then that gene therapy would be -- a space that gene therapy would be competitive in, because with gene therapy, what you are going to do is you are going to make factor VIII, so if you have a factor VIII inhibitor, programming your liver to make factor VII is not going to help the fact that you have a factor VIII inhibitor.

That is where emicizumab is really an important medical advance. On that basis, you can imagine that it could work in non-inhibitor patients, and there are registration trials going on for -- that evaluate weekly administration of emicizumab. People speculate that emicizumab could be given less frequently, although those trials haven't been undertaken.

What we hear from clinicians is experiencing a steady-state around-the-clock, one treatment and done for a lot of years is variously preferable to even a relatively infrequent even sub-Q administration of an antibody. But it is a little bit early to tell how that is going to play out since we're rounding the corner of Phase I heading into registration trials. But the biggest excitement for emicizumab in summary is really the inhibitor population, which is not really directly relevant to gene therapy.

Thank you.

Our next question comes from the line of Phil Nadeau of Cowen and Company.

Good afternoon and thanks for taking my questions. A couple of R&D questions, then a commercial. First, Hank, for you, in Phase 3 in achondroplasia, you mentioned that patients have to finish the six months of natural history study before entering the trial.

How many patients have you already enrolled in the natural history study and therefore are attracting? Should we think of this requirement as not a big deal, because you already have a big pool of patients who fit the requirement, or does this truly add six months to the study?

The way I think about it is that the rate of enrollment is more likely to be determined by getting sites activated and contracting than it is by accumulating patients in the national history study. The reason I say the former is -- and we experienced this with Vimizim, as well, that there is a high degree of interest on a worldwide basis with the product when you have worldwide rights.

There is value in having investigators participate in the Phase 3 trial to facilitate health authority review and ultimately facile adoption. The fact that we could maybe go faster in certain countries overall is offset by what our ultimate desired outcome, which is to go as fast as possible once we have a registration and launch to deliver the product to as many patients as quickly as we can around world.

That is the success story for Vimizim. It has run quite nicely. That was a great collaboration between Jeff's team and our team, to make sure clinicians around the world had a good solid experience with the product during the development to facilitate commercialization. We think it is worth taking the extra time to get the drug in the hands of clinicians around the world and we think that is substantially more important than the run-in phase.

But we have started running the natural history, the rate.

Yes.

The natural history study, does that have sites around the world today or do you have to--?

Yes.

It does. Okay. And then second, on gene therapy, what is your sense for how many patients need to be followed for what duration of time to satisfy the regulators of safety of a gene therapy agent for hemophilia? Have you have any sense for that? Have you had any opportunity to talk to regulators about what that patient experience may need to be?

The sense that we have is principally driven off of guidance documents and their considerations for other products that have been in development. You really don't have a good sense of that, not at the beginning or in the middle of the discussions with them about the Phase 3 trial. The registration is half-way, but closer to the end. I'd say, stay tuned for us to be able to represent to you what is going to be required for registration, either under an accelerated pathway or a full approval pathway.

Okay, great. Then one last question on commercial. On the last conference call, when you guys were asked about Brazil and Turkey, if I remember correctly, you said that Brazil orders were picking up during Q3, and then Turkey, you hadn't seen any noticeable change through mid-Q3 because of the coup attempt.

Now we're hearing something different on this call, so I'm wondering, first, was it just a late quarter of effect of those two things? Then second, how much confidence do have in your visibility into 2017? I know you said things should return to normal but what is that based on?

I'll let Jeff give you some more specifics, but when we did the Q2 call, the coup in Turkey had just happened, we had very little ability to evaluate what is happening, so we just had more time [on] Turkey [up front]. Jeff?

Thanks, JJ. Exactly correct. With respect to Brazil, as we have noted, we had this big, very large order in Q2 2015, which essentially served close to 12 months of demand, so as the reorders restarted earlier this year, approximating what we think patient demand is, we saw an order in Q2, we saw an order in Q3. We have been following this process along.

We think, based on what we see, that we are going to be at the lower end of what we expected for the full year, and we are expecting that things will straighten out into 2017, but -- as we've -- sorry -- we are expecting things to straighten out in 2017, but the future is uncertain. Still, the overall impact on Brazil is small. We are retaining our guidance on revenues for all products, and in total, guiding towards the lower end of the range here.

Okay. Thanks for taking my questions.

Our next question comes from Tim Lugo of William Blair.

Thanks for taking the question. Maybe just one for Hank. For the Sanfilippo data in early 2017, can you remind us about the quality of natural history data out there. You mentioned the GAG data, if possible. Will we also get some neurocognitive data from this program, and if it is strong, could this be any basis for an accelerated approval?

The state of natural history data for MPS IIIB, not as strong as the state of natural history data is for CLN2 Batten disease, which is why we have an ongoing natural history study. I don't know, at the lowest dose, whether it is a good idea to have an expectation about observing clinical benefit.

Even with CLN2 where you have a dramatic effect, it took a little while for that dramatic effect to be observed, so I would have tempered expectations. I do think that unlike with CLN2, we do have a measurable surrogate biomarker, or at least biomarker even if it is not a surrogate, and it could be -- one could imagine seeing effects on the biomarker at that Q1 update.

As to whether a single study could support a registration, it's way too early to speculate about that. It is certainly a very bad disease, but whether we can accumulate enough activity data and enough natural history data to satisfy a regulator without doing an additional trial, you have to wait to see what we get that.

But for sure, you've got the key biomarker in the disease, which is a CSF, or cerebrospinal fluid, GAG levels.

Okay. And maybe a broader question for you, JJ. We have not seen much BD from the Company since DMD. Can you update us on your focus for BD, given your broad pipeline, balance sheet, and potentially becoming profitable soon?

Yes, we have no -- in the short-term, we're not looking at any major acquisition. We are, on an ongoing basis, evaluating products, opportunities, or early stage molecules that could be strategically fitting within our portfolio. We just looked our long-range plan of [very recently] and the current pipeline and the current products definitely will allow us to continue double-digit top-line growth until the 2023, 2024 time frame.

Of course, we want to continue to grown beyond 2023, 2024. That means we need new products. We have an active in-house discovery research activities that should become some new molecules, we can put in the [clinic] in the next couple of years, but we always look at the outside and prepare the opportunity and the cost of acquiring another early-stage molecule outside versus with just internal, so that could happen, but I would say the larger position is not in the cards in the short term.

Okay. Thanks for the question and I will update my model through 2023, then. Thanks a lot.

Our next question comes from the line of Geoff Meacham of Barclays.

Hi, guys. This is Evan on for Geoff. Thanks for taking the question. Going to vosoritide, (technical difficulty) looking at that kind of proportionality, what are your time frames for (technical difficulty) develop--?

You are breaking up a little bit. You want to get closer to--?

Sorry, can you hear me now.

Yes.

Perfect. Sorry about that. On the Phase 3 pivotal trial for vosoritide, will you be looking at the impact on proportionality as an endpoint, or is the one-year time frame simply too short of a time period to really see something there? What interaction with regulators have you had regarding the design of this trial and is this an endpoint that they are really on-board with to approve the drug?

You mean the growth velocity?

Exactly?

We will be looking at the proportionality at the endpoint. One year could be too short to see a meaningful difference, drug versus placebo. We just don't know yet. We showed at R&D Day that there was a trend in the right direction, but we also noted that there was no control arm so -- and that proportionality generally improves as those patients age.

So we are not sure how to interpret that, and clearly, the controlled clinical trial will be required to get our first look at what the effect of the drug is on the proportionality at one year. It is not the primary endpoint. The primary endpoint, adjusted growth velocity. We have had enough interaction with health authorities around the world to feel reasonably confident that, that could support the -- as the primary endpoint for registration.

But as you know, health authorities look at all the data collect in clinical trials, including secondary endpoint, exploratory endpoints, and safety data. We don't have enough information yet to know how that is all going to turn out. What we do feel very confident about is that we can safely increase growth velocity to essentially a normal level, where the dosage appears to be well tolerated, and now, we are poised to test that -- actually, to confirm that in a randomized and controlled clinical trial.

And do you -- can you just remind me of the plans to look at the drug in younger patients?

Our studies that we have done so far have been in five- to 14-year-olds, and we plan to study the drug in five- to 14-year-olds for pivotal registration purposes. As with almost every BioMarin skeletal dysplasia program, for sure, we have had an evaluation in the safety and activity of the drug in younger patients.

I would like to point out that with Naglazyme, we did that as a post-approval study in a very small number of individuals. With Vimizim, we did that as a pre-approval study in a larger number of patients. And similarly, we will be working on gathering safety and initial activity data to be available at the time of registration.

We don't believe that this is essential to the registration dossier, but rather, we are doing it early, because we know that clinicians recognize these genetic conditions as having early-onset, and that early intervention is warranted to optimize long-term outcomes. So we intend to provide at least the safety and hopefully some activity data as soon after the registration as possible for these ancillary studies.

And this would go down to patients as young as -- just newborns? Or it would be one, two?

Stay tuned for final design considerations.

Okay. Thanks so much for questions. Appreciate it.

These patients are diagnosed before birth, though. We could theoretically--

Could you go while the mother is pregnant with the child?

(Laughter) it crossed our mind that, that would be the next step.

Okay. Fair enough.

(Operator Instructions)

Our next question comes from the line of Joseph Schwartz of Leerink Partners.

Hi, guys. This [Dae Gon] in for Joe. Thanks for taking the question. I had just a couple of questions on Brineura. Having a attended that Batten disease conference recently, I was just wondering, have you received any additional feedback from either regulators or KOLs about the four domain score that you presented as part of the amendment and how the two additional, the seizure and the vision impairment, might factor into the entire evaluation?

Then the follow-ups, two, actually. Do you have any plans of expanding your EAPs for Brineura? And lastly, what is your current plan for the Brineura sister study that set to enroll five patients? Thanks.

The feedback that we received on motor and language and total score is generally very, very supportive. First of all, let me say, remind again that motor and language disability represent substantial domains of impairment for patients. So when we design the study to have motor and language as a primary endpoint, we clearly asked clinicians and health authorities, if we saw improvements in motor and language and no improvements in vision and seizures, would that constitute a relevant treatment benefit? The answer was definitely yes.

At the same time, having seen preservation of function that in the total score, which implies preservation of function in the motor and language domains, that is only to the better. So the feedback that we have received so far is that the data in total, as well as the agreed-upon primary endpoint for analysis are supportive of the registration applications that we have made.

As regard to EAP and expansion, we presently have an EAP study in the field on a global basis. We're limited in the amount of supply that we can provide the patients on a global basis. We don't imagine being able to evolve that supply constraint ahead of registration for this year, anyway.

Stay tuned in terms of how Robert's team is doing in terms of manufacturing and preparing for launch material and whether there is, in a timely fashion, extra availability for expanded access. The sibling study, as far as I know, is on track. I don't have any other updates to offer on what you call the sister, I called the sibling study.

Just quickly on the EAPs, once the approval comes through, how much, or how long of a duration do you anticipate before actually recognizing the revenues?

That would be relatively fast, similar to what we had with Vimizim. Vimizim was probably six weeks to two months. No, not here?

The issue is how fast can we get patients transitioned from an early access program to commercial supply in what we anticipate to be our first market, the United States. As JJ said, that happens in a matter of four or six weeks when things go right. That would be our--

Your question was will it transition in EAP patient to commercial but when we launch, we will also put some de novo patient on the drug. We are not going to start only with the EAP patient transfer to commercial. We do both (inaudible).

Great. Thanks so much for the color, guys.

Actually, depending how things go with the Europe timing, but also we're planning for a potential early access program in France where one can get a charge for the drug, even before approval. Done that for Vimizib, too.

Great. Thank you.

I'm showing no further questions in the queue at this time. I would like to turn the call back to the CEO, JJ Bienaime.

Thank you. In conclusion, our four pillars of growth remain solidly in place, and include our strong existing commercial business, that we expect will deliver this year over $1.1 billion in revenues. The acceptance of the regulatory filing in the US and EU for Brineura, upcoming regulatory filing with Pegvaliase, continuation of our Phase 1 2 study, exploring a lower dose with the first in human gene therapy products for hemophilia A, and then initiating our potential registration delivering Phase 2b and our Phase 3 study with Vosoritide in achondroplasia.

With these [phase] products, each representing, we believe, potentially $1 billion of revenues in terms of opportunities. We're looking forward to the next few years of BioMarin. Taken together, we expect this strong foundation will drive us towards continued revenue growth and non-GAAP breakeven or better next year. We thank you for your continued support and for joining us on today's call.

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