BioMarin Pharmaceutical Inc (BMRN) 2018 Q3 法說會逐字稿

Welcome to the BioMarin Third Quarter 2018 Financial Results Conference Call. Hosting the conference call today from BioMarin is Traci McCarty, Vice President of Investor Relations. Please go ahead, Traci.

Thank you, Alexis. To remind you, today's call is nonconfidential and contains forward-looking statements about the business prospects of BioMarin Pharmaceutical, including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authority, availability of capital, future actions in the pharmaceutical market and development by competitors. And those factors detailed in BioMarin's filings with the SEC such as 10-Q, 10-Q and 8-K reports.

On the call today from BioMarin management are J.J. Bienaimé, Chairman and Chief Executive Officer; Hank Fuchs, President Worldwide Research & Development; Dan Spiegelman, EVP, Chief Financial Officer; Jeff Ajer, EVP, Chief Commercial Officer; and Robert Baffi, EVP of Technical Operations.

Now I'd like to turn the call over to BioMarin's Chairman and CEO, J.J. Bienaimé.

Thank you, Traci. Good afternoon, and thank you for joining us on today's call. The first 3 quarters of 2018 have been extremely productive and have positioned us for increased top line results, for DQ data results, for potential regulatory filings and a new IND in 2019.

So our commercial team has delivered record revenue in this quarter, with the addition of Palynziq or Palynziq, we expect to continue this trend. $392 million in this third quarter and $1.14 billion in the first 3 quarters of the year are both record top line results. And we remain on track for approximately $1.5 billion in full year revenues this year and $2 billion in 2020.

Starting with U.S. Palynziq launch in July after approval in May, the initial launch during the third quarter went extremely well, and we had 124 reimbursed commercial Palynziq patients at the end of the quarter. We expect to add new patients in Q4 and beyond as PKU clinics drive patient referrals and start at a brisk pace. And we expect between 250 and 300 adult PKU patients to be on reimbursed commercial Palynziq by year-end. We are very pleased with the level of interest in Palynziq since approval in May. And Jeff will walk you -- or us through additional launch details in a moment.

For Palynziq outside of the U.S., we expect a CHMP opinion on our Marketing Authorization Application in Europe in the first half of 2019. And if that opinion is positive, we expect EC commission action followed by the potential launch of Palynziq in the EU in the second half of 2019.

As we look forward, the next important drivers of growth, our late-stage products, valrox for hemophilia A and vosoritide for achondroplasia are both tracking to plan in their Phase III studies. Results from the full 52-week data readouts of vosoritide is targeted in the second half of 2019, and the valrox 6e13 dose in mid-2020, with potential regulatory filings for approval to follow. Moreover, we're excited by the prospect of potentially filing for accelerated approval of valrox in the second half of next year.

Looking beyond our excellent late-stage clinical projects, we plan to leverage our valrox experience to develop other gene therapy products, the next one being phenylketonuria. We plan to provide a deep dive into our gene therapy's capabilities, our extensive preclinical data on our PKU gene therapy products and how we are thinking about the development landscape with this platform at our upcoming R&D Day in New York on November 7, and we look forward to seeing you there.

In conclusion, we are very pleased with our accomplishment to date in 2018. We're excited about our prospect for 2019 and beyond.

I will now turn it over to, Jeff who will share details of the U.S. Palynziq launch as well as update on our other commercial products. Jeff?

Thank you, J.J. Due to some inquiries received from a few of you this morning, I'd like to acknowledge the president's speech today on proposed Medicare and drug pricing plans.

Given the global and innovative scope of our business, we generally maintain a tight pricing corridor across our commercial products. To remind you, revenue from Medicare Part B is less than 1% of our global book of business. We will continue to monitor closely potential changes in policy that might impact BioMarin, but it is too early to say more until additional details are available.

Moving now to the U.S. launch of Palynziq and then do a walk-through third quarter results for our base business. With over 11,000 adult PKU patients in the U.S., 1/3 of them are actively being treated in a PKU clinic. Palynziq represents the largest U.S. patient population of all our approved products. Recall that only 12% of all adult PKU patients in the U.S. are being treated with Kuvan, so we have a tremendous opportunity ahead.

During this launch period, we are focused on a number of key metrics that are lead indicators of future revenue growth. The following were all measured as of the end of the third quarter. First, there were 124 patients receiving reimbursed commercial treatment with Palynziq. Of these, 81 were from the clinical studies and 43 were formerly naive to Palynziq treatment.

In addition, at quarter end, there were an additional 68 naive patients enrolled in our RareConnections system who have signed all authorization forms, then prescribed Palynziq, then REMS enroll and are now waiting for their first injection to be shipped. By year-end, we expect between 250 and 300 adult PKU patients to be on reimbursed commercial Palynziq. Second, at the end of the third quarter, 50 clinics had one or more active Palynziq patients. In addition, there were a total of 76 clinics that had at least 1 health care provider REMS certified. This is a key indicator of an intent to prescribe Palynziq and is complementary to our significant efforts to in-service clinic and provide education on the use of Palynziq.

An encouraging observation in the quarter for the PKU franchise was the enthusiasm that adult Kuvan patients have shown for treatment with Palynziq. A meaningful number of adult Kuvan patients still seek to optimize their outcomes with greater Phe control, when it's been unachievable in the past with Kuvan alone. To date, almost 40% of naive patients' enrollment have constituted active Kuvan patients. Long term and in the context of expected loss of exclusivity for Kuvan in 2 years, this is a very positive dynamic. An important consideration for understanding the Palynziq market is the time it takes from that first injection to driving meaningful revenue.

To simplify, in the early weeks and in some cases months, when a patient is working through the induction/titration phase of treatment, the revenue contribution is fractional, approximately 10% to 20% of maintenance revenue. Once-daily dosing has been achieved, more meaningful revenue contributions of approximately 70% of our expected commercial level of $192,000 per patient per year will be recognized. Once patients are on their maintenance dose, assuming half are on 20 milligrams and half are on 40 milligrams daily, we still project net revenue per patient at the $192,000 per patient per year level.

Given the anticipated conversion of clinical trial patients to reimburse commercial patients and the predicted modest revenue contribution during the initial months of Palynziq treatment for naive patients, we believe Palynziq full year revenue in 2018 will be between $10 million and $14 million.

In summary, we are very pleased with the U.S. Palynziq launch and the progress made to transition clinical trial patients to reimbursed commercial product. Palynziq has been well received by the PKU community, and we believe this is only the beginning of another successful long-term contributor to our growth story.

Now turning to our other commercial products, which drove almost 20% growth year-to-date compared to last year. Starting with Vimizim, which benefited from a large Brazilian Ministry of Health order in the quarter, strong net product revenue growth of 37% in the quarter and 23% year-to-date compared to the same period last year, resulted in record year-to-date revenue for the brand. We continue to experience uneven ordering patterns from certain markets, which has the impact of uneven quarterly revenue patterns. As always, we encourage you to refer to the annual revenue guidance for both Vimizim and Naglazyme, which we reaffirm. Similar market dynamics were in place for Naglazyme in the third quarter and year-to-date with net product revenue increasing 43% and 13%, respectively, compared to the same period last year.

Moving now to Brineura for the treatment of CLN2, which is just in its first fourth full quarter of commercial sales since being approved in the U.S. and EU mid-2017. In the third quarter of 2018, we continued to add new commercial patients resulting in net revenue of $9.9 million. We are making progress against our twin goals of identifying new patients from our disease awareness and diagnostic screening programs and national reimbursement approvals. We are optimistic of slow but steady growth of Brineura going forward and expect that it will develop into a more material revenue contributor.

In closing, the commercial team delivered strong net product revenues in the third quarter of 29% and 23% year-to-date. The launch of Palynziq, our seventh commercial product, is exceeding our expectations in terms of patient and clinician interest, and we are confident we are laying the groundwork for a significant revenue contributor in the coming quarters.

Now I'd like to turn the call over to Dan to provide more details 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, as J.J. and Jeff mentioned, we are pleased to report the total revenues for the first 3 quarters of 2018 were a record $1.14 billion, an increase of 19% year-over-year, driven by strong contributions from all of our marketed products.

Looking beyond 2018 and in keeping with what we have said previously, we expect top line growth over the next couple of years to be around 15%, that 2020 total revenue should be approximately $2 billion from our current products. And we expect to track for that revenue percentage growth goal until the contribution from vosoritide and valrox takes this above that level, hopefully, at the start of next decade.

Moving to operating expenses. R&D expenses increased to $161.4 million in the third quarter of 2018 and $520.9 million year-to-date 2018 compared to $154.1 million and $442.1 million in those respective periods of 2017.

The year-to-date increase in R&D is primarily due to increased valrox production and clinical trials expenses in support of the ongoing Phase III program. Vosoritide clinical expenses, as the Phase III head towards full enrollment in October trends, trails back (sic) [tralesinidase alfa], formerly referred to as BMN 250, I was still hoping it be called production expenses.

Looking forward to Q4, R&D expenses should continue to expand relative to Q3, consistent with the progress of our major clinical programs, while remaining within prior guidance for the full year.

SG&A expenses increased to $148.6 million in the third quarter of 2018 and $440.2 million year-to-date compared to $130.5 million and $394.1 million for the respective periods of 2017.

The increase was primarily due to increased sales and marketing expenses associated with Kuvan, Brineura and Palynziq commercial efforts. The year-to-date increases were primarily driven by Palynziq and Brineura product launch campaign and preliminary valrox commercialization efforts. SG&A expenses for the balance of the year and into early next year will increase slightly over prior quarters, driven by the U.S. Palynziq launch, a potential EU launch, though these expenses are expected to remain within full year guidance for 2018.

Turning to bottom line results. GAAP net loss in the third quarter 2018 was essentially flat compared to the same period last year, $12.6 million in 2018 compared to $12.5 million in the third quarter of 2017. Year-to-date, GAAP net loss in 2018 increased marginally to $73.6 million compared to $65.7 million in 2017.

As you know, we also measure our performance on a non-GAAP basis, which is based on EBITDA and excludes interest taxes, depreciation and amortization and also excludes stock compensation, contingent consideration and certain other specified items.

In Q3 2018 and for the fourth consecutive quarter, we recorded non-GAAP income, which increased to $60.7 million in 2018 compared to $7.8 million in the third quarter of 2017.

Looking ahead to the fourth quarter of 2018, due to receipt in Q3 of a large Brazil MOH order for both Naglazyme and Vimizim, we expect that Q4 revenues will be lower than Q3 revenues, though still within full year guidance. In addition, as noted above, R&D and SG&A expenses will also increase in Q4, but also still within full year guidance.

In total, our GAAP and non-GAAP guidance remains unchanged. In terms of cash, cash equivalents and investments, as of September 30, 2018, we had $1.7 billion as compared to $1.8 billion at the end of 2017. In October of this year, we utilized approximately $375 million to repay the principal on the convertible notes that matured. With this conversion, we also issued 190,220 shares of our common stock and also received back 95,127 shares from capped call counterparties. These shares have subsequently been retired.

In closing, BioMarin delivered a strong quarter and year-to-date results in 2018 with robust contributions from Vimizim and Naglazyme, steady Kuvan net product revenues, controlled operating expenses and our continued progress towards increasing non-GAAP profitability for the full year 2018 compared to 2017.

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

Thanks, Dan. Since J.J. has already provided an overview of development and regulatory accomplishments so far this year and because we have R&D day in November 7, where we'll provide many new updates. I'll just take a minute or 2 to touch on a few items. For Palynziq Europe, the Marketing Authorization Application is under review and tracking the unexpected with a CHMP decision expected on the first half of 2019.

Given the enthusiasm we're seeing for Palynziq in the U.S., we're optimistic that the dramatic Phe lowering demonstrated on our clinical studies will translate well into demand in the ex U.S. regions.

Briefly on valrox, we believe the recent draft FDA guidance for the development of gene therapy products are very supportive of our valrox study design and approval pathway. The recommendation for factor activity -- Factor VIII activity in the normal range to file with the FDA for an accelerated approval, raises the bar for results below that range, and gives us an important competitive advantage. Recent discussions with health authorities increases our confidence in our plans to potentially expedite registration.

In addition to aligning well with U.S. health authorities, we're very encouraged by our ongoing conversations and development planning with European health authorities. And finally to remind you of what to expect at our upcoming R&D Day in November 7 in New York, we look forward to a number of exciting updates from the research group.

In addition to review of all the development products, we plan to provide key updates, including 42 months with vosoritide for children with achondroplasia as well as extensive preclinical data for our PKU gene therapy products. Given the relevance of recent key regulatory advances, we're excited to have one of our talented colleagues from Regulatory Policy and Patient Engagement share insights into how BioMarin leverages policy approaches to get products to treat rare diseases approved. And finally, our Chief Scientific Officer, Lon Cardon, will share his perspective on the future of BioMarin's pipeline and how he thinks about leveraging scientific innovation and genomics to achieve our next stage of growth and beyond. It should be an interesting and informative event. So please try to attend in person or tune in via the webcast. As always, thank you for your continued support, and I'll now open the call to your questions.

(Operator Instructions) And our first question is from Joseph Schwartz from Leerink Partners.

So I know you don't have much Medicare exposure with your current products, but given HHS' new international reference pricing proposal and how that could impact factor replacement therapy in hemophilia, I was wondering if you think this could impact your pricing strategy for valrox by extensions since there could be lower potential cost offset associated with your gene therapy to save the health system spending on factor replacement therapy.

I think -- yes, I mean, I'll start and just gives this comments. As you know, we have not priced Factor VIII, obviously, valrox, because it is not approved yet. So we haven't priced it in the U.S., we haven't priced in Europe. So obviously, this was -- this will be an important consideration if indeed this does happen, but I think we have time and flexibility to come up with the best pricing strategy on both sides of the Atlantic here if indeed this becomes a regulation because there are lots of details here that needs to be covered and also Medicaid already is getting a lot of discounts in the U.S. So I don't know if this is going to make a huge difference for us. And Jeff can you give more details, but our average European price as compared to the U.S. government price is not that different from our -- for our current products.

Yes. Thanks, J.J. Not much to add to that. I think we've got plenty of time to be working out the details. And as it relates to pricing and reimbursement for gene therapy and other advance products, there may be developments within CMS that would facilitate novel reimbursement models, refer you to Seema Verma's recent remarks on the subject.

Okay, great. That's helpful. And then in your recent data update at SSIEM, it looked like some patients on BMN 250 stabilized, but it wasn't like Brineura where all patients did, I think. So do you think that there's any chance that you can get BMN 250 to market on the existing data? What do you think is the most likely regulatory path for BMN 250? And when do you expect to get clarity from regulators?

Joe, so the tralesinidase data was presented at SSIEM demonstrated dramatic reductions in heparan sulfate levels in brain fluids, normalization of liver size in patients who have hepatomegaly and stabilization in Development Quotient and it's something like 5 out of 7 patients. DQ is a tough endpoint. And I think partly in recognition of the challenge of documenting the improvement in cognition in these kinds of diseases, the FDA issued a draft guidance document on the development of therapies for slowly progressive diseases, which we think comes pretty close to checking all the boxes for tralesinidase. So the next step for us would be to have a conversation with Food and Drug Administration about how those guidance documents apply and whether that presents an opportunity to expedite the regulatory path. Suffice it to say, we have a fair amount on our plate right now, so I don't want to commit to a particular time frame around which to report back to you on that conversation.

And your next question is from Salveen Richter with Goldman Sachs.

And so with regard to valrox, it looks like you're pursuing the accelerated approval pathway and apart from the data from the Phase III study, there do seem to be other factors that will play a role in your decision on this approach. And so I was just wondering when it comes to the assay and the discrepancy between the chromogenic and the 1-stage assay, can you help us understand why there appears to be a discrepancy there and the work that you have to do around that for the filing, or in order to pursue a filing. And then secondly, with regard to the continuous data set from the ongoing Phase II study and that profile being attacked -- intact, are you still expecting stabilization there based on remaining circulating versus noncirculating episomal DNA? Just wondering if that thesis is still intact in your mind.

Salveen, so the issue of the assay discrepancy that was raised in the guidance document is, to some extent, a bit more of a general phenomenon in Factor VIII products in that. These kinds of discrepancy have been observed for other products. And what the FDA wants to make sure is that there is no potential for under dosing or overdosing, for that matter, of recombinant replacement products on the basis of a incorrectly interpreted assay result. And so they've asked sponsors of gene therapy products to look into that to the extent that might inform their decisions. And where they're coming from in the context of gene therapy is that the transgene products may be biologically different than the recombinant factor products with which the FDA has a lot more familiarity. So to the point of establishing a Factor VIII level, which is reasonably likely to represent a clinical benefit of bleed reduction, the agency has asked for 2 pieces of information, either resolve or present data, which indicate why you believe that the Factor VIII levels that you're observing are reasonably likely. And the FDA went on further to say that the only value of Factor VIII that they would consider for accelerated approval under these kinds of -- in this context would be Factor VIII levels that achieved the normal range. So I think that's a sort of regulatory context for why it is an important question and how they operationalize it in terms of their guidance document. And for the second part of your question, the more we look at the literature on persistent forms of DNA in vivo, in animals, who have received the transgene, the more convinced we are that the settling phenomena is real, reliable, reproducible and reasonably likely to apply to BMN 270. And of course, out in the -- let's call it the outer years after gene transfer that we will observe clinically relevant and persistent expression. Proof is obviously in the pudding, and we look forward to providing you an update on where things stand in the middle of next year.

And also, I think, we can cover this. The detail to circular conversion, we're going to cover in detail at R&D Day. And also, based on some interaction we've had with regulatory authorities, we don't believe this -- we don't believe that this assay discrepancy is going to be a significant issue for us.

(Operator Instructions) And your next question comes from Chris Raymond with Piper Jaffray.

So maybe just on Palynziq, you guys now 5 months into launching. I know it's still kind of early days but with the 43 treatment-naive patients you've gotten through -- arguably, a decent number these folks have gotten to that sort of critical 8-week so time frame, I think, Hank, could you describe as sort of period when you might run into the biggest chance for anaphylaxis? Can you maybe describe are you running into anything unexpected during that time frame for some of those folks who are filed so long? And have you seen any discontinuations and maybe describe what some of those look like? And then maybe a part two to this question, any Kuvan patients apart of that 43?

So this is Jeff. Great questions, Chris. Let me see if I can cover them. The first thing to note is those numbers that we were quoting were as of the end of September. And so we've got -- going on a another month of practical experience with the launch. The vast majority of reactions that have been reported, adverse events, are injection-site reactions, which were completely expected for Palynziq, we haven't seen other types of adverse events reported, arthralgia or anaphylaxis to date. The caveat on that is -- because of the time it has taken to get new patients through the case management, reimbursement and start process, we don't really have very many patients that have gotten up to that daily dosing with 20 milligrams and beyond, which is the point at which we would expect to start seeing the more serious adverse events beyond just the injection-site reactions. So I think might be a good question to ask for 3 months from now. In terms of Kuvan patients, approaching 40% of our naive patients' enrollments have been active Kuvan patients. So there's a fair amount of active switching going on, which we think is a really positive thing for the PKU franchise, overall, to get those patients, adult patients on the Palynziq and onto a maintenance dosing well ahead of loss of exclusivity.

There was a question on Kuvan discontinuation?

Discontinuation. So far, we haven't seen any discontinuations from naive patients, but again we're just getting started with patients in that induction and titration phase.

And your next question comes from Cory Kasimov with JPMorgan.

This is Carmen, on for Cory. So your guidance for Palynziq for full year '18, you mentioned you're expecting 250 to 300 commercial patients on drug, which implies, if I'm counting this correctly, another 50 or so new patients starts at the low end of the guidance. So that's kind of in line with what you saw in the first quarter of launch. I'm wondering how you're thinking about the pace of new patients start as we get into 2019 compared to this? And what you think will catalyze kind of an uptick in new patient starts.

So let's see. Let's get back to those numbers. We reported that...

124.

124.

She's assuming that the balance of the clinical patients are the first ones in and that's about 70, and therefore, another 50 would get you to kind of 250 at the lowest end of our guidance. So I think that's what she said.

Carmen, is that what your -- how your math worked?

Yes, yes, that's how I calculated it.

And so the question is, is what are we looking for uptick in that rate of new patient going forward into next year?

So it's been -- the rate of new patient enrollment has been picking up throughout the third quarter, and we would expect that to continue as more of our target clinics become active. Recall that we reported that 50 clinics are now active. Recall that at launch, we said that our Tier 1 clinics, 32 of them that are coming out of the clinical trial account for about 50% of adult patients and additional 30 clinics are Tier 2 clinics that account for 35% of adult patients. So as more clinics become active, the rate of enrollment should pick up. Also, what we've experienced is a lot of the clinical trial sites focused their initial efforts, as they should have, in the third quarter in transitioning their clinical trial patients. And with most of those patients now on commercially labeled drug, if not fully reimbursed drug, that should facilitate those clinics start enrolling new patients.

And your next question comes from Robyn Karnauskas with Citi.

This is Kripa, on for Robyn. Given that the interest that you indicated in Kuvan patient to get on to Palynziq. How should we think in terms of conversion of -- switching of Kuvan patients to Palynziq in the long term? Is there a percentage of patients that you expect to convert? Or do you think majority or all of them will convert? Is there any color you can provide for us?

Well, we've stated that it's an explicit objective of ours to have as many Kuvan adult patients converted to Palynziq treatment as possible by the time we lose exclusivity for Kuvan in the United States, and that's expected to be at the end of Q3 2020. The numbers so far of new patient referrals are small. So on that small end, 40% are Kuvan active patients. The numbers are too small and the experience is too early to project what percent next year to expect from Kuvan patients. Overall, a positive dynamic, may have some material effect on Kuvan revenue by late next year, possible.

But I think this is very encouraging that with us probably -- currently, we're not promoting Palynziq to Kuvan patients. We're not trying to actually promote the switch. And actually, we've got a lot of patients that are interested, which if we'd sign, which means that obviously that there is a pretty good chance that by the time of generics hit the U.S. market, we'll have a substantial number of Kuvan patients converted. The good news and something you need to take into account in your model is that even if a Kuvan patient get into a generic, I think you're not entirely lost to Palynziq because we could still later on get them on Palynziq even if they're switched to a generic. So the window is actually a little longer. It's actually pretty long. We don't need to convert all the current Kuvan patients to Palynziq to capture a significant number of these patients. We can do that after the generic hit the market.

Okay, great. And one more quick question. Can you provide any sort of detail on what we can expect to see on the PKU gene therapy program at the R&D Day?

Information about vector design, safety considerations, efficacy considerations, durability considerations, biological marker considerations, dosing and man considerations -- manufacturing considerations. I don't know. Is there anything else, Traci? I don't think we answered your toxicity.

And your next question is with, Martin Auster with Credit Suisse.

I had one about the vosoritide Phase III, I noticed in the press release that trial is continuing to enroll. I want to clarify, have you found all the 110 patients you're looking for into the kind of running 6-months type velocity measured before dosing? Or are you still looking for patients to enter that phase? And if you could maybe update us on when we might expect to see top line data?

Yes, we're still on track for top line data at the end of the year in '19, and that's because close of enrollment is expected to occur imminently. In fact, we are well able to project that, and we're really -- as we have said on our previous call, all we're doing is making sure that the last remaining KOLs that were those slowest site activators have an opportunity to put their patients in. So we expect enrollment close announcements to occur imminently.

Okay. And just on the valrox Phase III, you're continuing to expect to complete that dosing in Q2 of next year and that -- is that the right conclusion we can make and then you enrolled for the running patients by end of this year then, by the end of '18?

Yes, that's the target.

And your next question comes from Ying Huang of Bank of America.

It's Aspen, on for Ying. A couple of quick questions -- quick ones. Can you give us a revenue breakdown ex U.S. and ex EU? And I'm wondering if we're seeing any kind of currency impact there? And then what kind of data can we expect from the 42-month update on the vosoritide? Anything beyond growth velocity?

I'd have to give you a bunch of numbers on that ex U.S. breakdown. I don't have that right in front of me. I can tell you, currency impact net for the year is relative to what we had budgeted and expected is near 0. It's couple of million dollars. And similarly, on a net basis relative to last year's rates taking into account, FX rate changes, it's nearly unchanged. And the U.S., ex U.S. breakdown will be out in the 10-Q tomorrow.

And then the second part of your question to remind you the question about 42 months is really a question about evidence of durability. And let me just remind you about the discussion that the FDA Advisory Committee had about the issue of durability. Durability is a bigger consideration in context in which biology suggests that durability may be a problem. So a couple of things that we'll re-review for you at R&D Day are: What's the preclinical biology that causes us to believe that the effect of vosoritide on achondroplasia joints, growth plates is going to be durable. What's the preclinical biology? We will present some novel biomarker data that speaks to the potential for durability. We'll present you the annualized growth velocity of patients treated out to 42 months with the 2D market it does with the product. And we'll present some ancillary data on, for example, proportionality and safety. I think the main thing to pay attention to that will be new -- at R&D day will be the biomarker data and the actual annualized growth velocity in patients who have been treated through 42 months therapy.

And maybe just one more sort of data point on what you might have been asking. At the U.S., our sales continue to be about 50% in U.S. dollars, the balance obviously in other currencies. And within our other currencies, the Euro represents about 1/3.

That was not in the appendix. Making sure on your comment.

That was the completion of the prior questions.

And your next question is from Ellie Merle with Cantor Fitzgerald.

Just back to sort of gene therapy and durability. You've talked about the importance of the circular DNA and thinking about long-term durability. Just curious what you think sort of the key determinants are in terms of like whether a vector turns into circular DNA or not? And like, I guess long term, do you think there are aspects of how gene therapy products are designed that can make them more or less likely to lead to circular DNA?

That is a question that has been a subject of intense research, but it concluded about 20 years ago. So we're going to -- we can summarize some of that for you at R&D Day to remind you about things like ITRs and how the vectors were packaged and how we assure there aren't pathological truncations with the genome, which could affect circularization. So I'd say, come to R&D Day, and those will be good things to pay attention to.

And your next question is from Paul Matteis with Stifel.

Just one on the Palynziq launch in the U.S., I'm wondering what you're seeing in terms of the bandwidth for an individual position? And how many patients an experienced doctor could get through the titration period at once versus a less experienced physician? How do you think that plays out over the coming quarters? And then just on the European Palynziq process, I'm wondering if you're seeing anything so far through the review and your interactions that would suggest there's any risk of a dis-coordinated result from the FDA's approval.

So maybe I'll take the first question about the Palynziq in the United States, clinic bandwidth and the patient's capacity by experience level. So in the past, and on the launch call, we guided to an expectation what we think that clinics will be handling patients in the induction/trituration phase in small groups or several-ish and speculated that we thought that the clinical trial -- experienced clinicians would probably be able to handle more patients initially than their nonexperienced clinic peers. So empirically what we've seen to date is small number of pretty aggressive clinics that have put forth more than -- more than a few patients, new patient, naive patient referrals, small number. Most of the clinics that have referred naive to treatment patients have referred 1 to several patients so far. We haven't seen a separation in those numbers from the Tier 1 clinical trial experience and Tier 2 clinics. But once the dynamics that may be impacting that is the focus of the clinical trial clinics in the third quarter to manage the transition of their clinical trial patients on to commercial-labeled products and also to support the effort of gaining reimbursement of which will likely -- largely be done in the fourth quarter. So I think we still need a little bit more time to see how that goes. Another interesting dynamic is, most of the clinics that have referred patients have kind of referred one in at a time. There are a small number of clinics that have reported that they want to start patients in groups and manage them through the induction/titration to maintenance phase in groups. So that's another one that we'll be watching. Probably too early to draw full conclusions. Maybe we'll have more color on that next quarter.

And then the European regulatory, I think the biggest difference between the EU regulatory seen and the FDA is just a simple fact that we didn't have the benefit of having a lot of ongoing dialogue and experience with EU regulators during the development phase, simply because of the licensing arrangement that we had at the time that we were in the development. But I think that, that is substantially offset in this case by the fact that the diagnosis of phenylketonuria is a global diagnosis. It's not like there are 2 different PKUs. The management of PKU on a worldwide basis is more similar than it is different. The mainstay of that management would be the reduction of protein intake and the possible use additionally of Kuvan in patients who respond to Kuvan. I think that in Europe, there is a pretty substantial perception of an unmet need, both for the Kuvan nonresponders, but also for the Kuvan-treated patients who have relatively modest delowering but require still restriction on their diet. And I think are very positive thing that's going on our favor in Europe compared to United States is that EU regulators have recognized the problem of restricting protein intake. What Kuvan didn't offer was complete freedom from protein intake and -- restrictions in protein intake, and our Palynziq data demonstrate how powerful it is in reducing Phe even in the face of relatively normal protein intake. Final difference between the U.S. and Europe is that in Europe, they're a little bit more clear about what they call anaphylaxis, and it being tied to IgE particularly, which we documented it for the U.S. submission doesn't -- there's not evidence that points to the hypersensitivity type reactions being needed by IgE. So in spite of that lack of experience and dialogue, we feel pretty good about the prospects and we're expecting a CHMP opinion in second quarter of this year, and just to remind you about the EU process, full approval doesn't actually happen until that opinion is referred to the European Commission for legal authorization, which would then lead to Jeff seem being able to commercialize beginning in the H2 of next year.

And your next question comes from Kennen MacKay with RBC Capital Market.

Maybe just wanted to go back to one of your prior responses. I was wondering a little bit more if you can help us understand how we should be thinking about the negotiated stage rates of Kuvan generic entry. Or is any sort of comps relating to step generization that we should be thinking about there? And then lastly, but still on the PKU market, I guess, pending success from your other gene therapies in the space, I was wondering from your market research, where you saw these fitting in? And if this would overlap more with sort of Kuvan patients or the Palynziq patients?

Go ahead.

Yes, so -- Kennen, let me see if I understand your question. Regarding the loss of exclusivity of Kuvan in the United States, I think you were asking if there was any kind of analogs that would guide expectations for the pace of conversion of branded to generic business. So I guess that's about right?

I thought it was a stage generization from some of the negotiations that you had or some of the settlements that you had come to. I was wondering more if there were any comps around that staging or if it was just unfortunate generic...

The staging of one entry and then other entry 6 months later, which is what we have, is actually I believe sort of the standard in the industry. Because in the generic business, one of the -- a large part of the profit is actually from the generic business comes out to being the first and only generic for 6 months. So that is pretty standard. The thing for which there is lack of benchmark comparison is our sort of highly personalized specialty high-priced medicine. That's where there is a lack. We expect generic erosion. We have lots of efforts in place to attempt to modulate that. But there are not great analogs that you can look to with a high degree of confidence.

Got you. I wasn't sure if there were volume limitations.

Sorry. What was your second question?

No, I appreciate the color. I wasn't sure if from the settlements if there were any sort of volume limitations or anything like that. So I appreciate the color there.

No, there aren't.

But as Dan said, just want to reinforces that, we don't -- although there will be some erosion. I think this is the U.S. issue in, say, 2020 only the U.S. to protect until 2024. So again, we don't believe that the erosion model will be the same as what you see through a generic that someone can buy in a retail pharmacy around the corner. This is a product that's entirely distributed through specialty pharmacies, and we're providing a lot of support to the PKU patients when they receive clinical help. So we believe the erosion will be somewhat lower than your traditional order. But there is no real model available, and we actually are interested in case study for the future.

And your next question is from Gena Wang with Barclays.

So I just have one regarding the valrox accelerated approval. I assume you will be looking for Factor VIII level over 50%. So just wondering how would Phase 1, 2, 3 year longer follow-up data, which likely be first half next year. Would that impact FDA a solid approval decision, specific to say in the case of -- if there is somewhat further declining for the Factor VIII?

Well, the guidance document doesn't get very clear on durability considerations, and our view is that the initial registration is going to be predicated mainly on the Factor VIII levels from the ongoing pivotal trial using the 2D commercialized material. But that support for durable expression of Factor VIII will come from the earlier Phase I, II trial. And from what we can tell from the FDA's guidance document, and I mentioned, the subsequent interactions that we've had with the FDA, the primary decision on approval is going to be based on net benefit and risk in the principal Phase III population that we're using this for registration. So that longer-term data will be coloring, but not essential to the initial decision.

And your next question comes from Vincent Chen with Bernstein.

I'm just taking a step back. I'd like to ask one on your broader strategy with respect to gene therapy. So we've seen a number of other companies really flocking to strike deals in the gene therapy space. And the argument seems obviously that the science of the gene therapy is more or less proven out, the regulatory environment is pretty favorable. So a company that's got a robust gene therapy manufacturing capability and rare disease expertise has been a natural owner for gene therapies able to readily in-license assets, bring the market to quickly build out a broad portfolio. So it seems to me that BioMarin would be really ideally situated for the strategy given your expertise and your established manufacturing platform looks quite impressive. But you've certainly been a bit quieter at least in terms of this closed deal. First, am I thinking about this the right way? And two, I guess, how are you thinking about your strategy in gene therapy, for example, areas of focus, the role of that gene therapy plays in the broader business portfolio and the use of a LNA versus internal developments?

I think you're right.

We are perfectly poised.

We are perfectly poised, and we are looking at -- I mean the reason why we haven't done an AGM because we are ensured of capabilities to come up with candidates. That's one of the reasons. And we are -- we just did that with PKU gene therapy. And also maybe we have a different approach to some of the players whereby we are looking at gene therapy opportunities that have economic viability, and we don't believe going after ultra-orphan diseases is economically viable. She would tell. That's our position though. So doing a lot of deals. Ultra-orphan gene therapy deal is great for press releases. We're not sure if it would be great for the bottom line.

And how do you think about gene...

Sorry.

And how do you think about the attractive indications in gene therapy? Because I do tend to agree that in many ways that gene therapy, science looks great, but in terms of finding truly attractive opportunities that can be a little bit more challenging to find things where you've got this confluence of something that's readily addressable at gene therapy and something where the opportunity is really there. How do you think about finding those?

Well, that you actually now -- in your second question, explains the challenge of finding the right opportunities. We believe there are some and we're exploring some. But in the sense what we are using it is we believe that you need an opportunity that is large enough to have not only a prevalence market, which has existing patients, but this is somewhat significant incident markets that allows your gene therapy product to have long-term economic viability.

And the good news is, we have our R&D Day coming up in a couple of weeks and sort of our long-term thoughts and strategies on how to build the pipeline is part of what we're going to talk about there. So hopefully, we can provide more answers to you at that time.

And needless to say that we are -- because of our emerging manufacturing expertise and capability in gene therapy, we are approached on a regular basis by some gene therapy companies. So it's likely that there could be some deals in the future.

Your next question comes from Tim Lugo with William Blair.

Myles Minter, on for Tim Lugo. Mine just pertains to the ongoing valrox trial in patients that are seropositive for AAV5. I'm just wondering whether you can provide an update on enrollment, any sort of safety concerns that you hopefully aren't saying. And when we can expect top line data. And second part of the question would be in the case that valrox is approved, how is the field sort of looking about potential supplementary label extensions, which I'd imagine putting something on the label like seropositive for AAV 5 would fit in that category?

Yes, so no safety things to report. We don't usually give detailed blow-by-blow enrollment updates. Just to remind you, it's a bit of slow study because it's a safety study. It's the first time anybody has purposely tried to put gene in, knowing that there is a positive antibody titer. So we haven't given guidance to a completion date. And as far as post-approval, supplements it -- a scenario that we were looking at very carefully, and we have some ideas about what the relative order of priority might be. But to some extent, that's going to be informed by our first label and how clinicians and payers are looking at the data that we've gotten and where more data is going to be required to secure reimbursement. And it's still a little early to be mapping out the life cycle play for valrox, and we think about it. But beyond the seropositives, we haven't really taken a concrete and specific action about -- to broaden the initial indication.

And your next question comes from Joseph Thome with Cowen and Company.

Just one on Brineura's launch. You indicated in the prepared remarks that you're kind of going after to aim, getting broad reimbursement and identification of patients. Are either one of these more gating than the other? And when we look at the launch, we assume more of a steady grind up? Or could you guide to more of an inflection in sales. How are you thinking about that?

Probably, it's a combination of both issues. I think we guided from the time of launch that there wasn't kind of a big warehouse prevalent patient population that we could go after. Such as is the case for other lysosomal disorders, including Vimizim for Morquio A when we launched that. So we guided that it was going to be a commercial effort of incidents, not prevalence. The incidents of CLN2 is pretty rare. We estimate 1 in 200,000. So we are putting the pieces out in the field, including disease awareness efforts and targeted screening programs to be able to fit these patients up and we're making progress on that. At the same time, we need to be working through reimbursement processes, that's time consuming. We're utilizing name patients' sales approvals in markets where it's appropriate that's been successful, but time consuming as well. So the combination of those factors are part of -- and rarity of CLN2 is really the picture of the slow revenue ramp. Having said that, we expect, as was noted in the prepared remarks that we'll make slow but steady progress on revenue and Brineura will be a more meaningful revenue contributor going forward.

That concludes the Q&A session. I will now turn the call back over to Mr. J.J. Bienaimé.

Thank you, operator, and thank you all for participating on our call today. So we delivered another strong quarter, growing year-to-date revenues 19% compared to last year, continuing on a path to deliver $1.5 billion in full year revenue this year. With Palynziq now in the U.S. and on track for European Union in the first half of 2019, we believe we can generate approximately $2 billion in revenues in 2020, with the currently commercialized products alone. So we are very pleased with the U.S. launch of Palynziq. And even though it is early days, we expect our decade trust of Kuvan experience that will help us drive significant contributions from Palynziq over the coming quarters. So we look forward to providing a total overview of the pipeline and other relevant topics at R&D Day on November 7. So we hope to see you there, and thank you for your continued support, and goodbye.

This concludes today's conference call.