BioMarin Pharmaceutical Inc (BMRN) 2020 Q2 法說會逐字稿

Welcome to the BioMarin Second Quarter 2020 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, Laurie, and thank you, everyone, for joining us today. To remind you, this nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc., 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 authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K report.

On the call remotely from BioMarin management today are: J.J. Bienaimé, Chairman and Chief Executive Officer; Jeff Ajer, Executive Vice President, Chief Commercial Officer; Robert Baffi, President of Global Manufacturing and Technical Operations; Hank Fuchs, President Worldwide Research and Development; and Brian Mueller, Executive Vice President and Chief Financial Officer.

We hope to keep this call to 1 hour, so we respectively request that you limit yourself to 1 question during the Q&A portion of the call. Thank you for your understanding. I will now turn the call over to our Chairman and CEO, J.J. Bienaimé.

Thank you, Traci. Good afternoon, and thank you all for joining us on today's call. We hope that you and your families have been well during these uncertain times.

For BioMarin, we continue to manage the business in new ways to ensure access to our essential therapies around the world. I want to commend our employees for their extraordinary commitment to our mission of providing innovative treatments to people with rare diseases, which has been especially challenging in the COVID-19 world.

Our second quarter results of $430 million in total revenues or 11% growth over last year is a testament to the importance of our therapies, our diversified product base and far-reaching commercial footprint.

Consistent with our commentary in Q1, we experienced impact from COVID-19 in the second quarter, but hope to return to normal demand patterns by the end of 2020, barring any significant deterioration of the pandemic situation before year-end. We continue to expect to achieve full year revenue and operating expenses guidance, as communicated on our first quarter call.

Moving now to the most anticipated milestones of the year, the advancement of our 2 product candidates under regulatory review, ROCTAVIAN gene therapy for the treatment of severe hemophilia A and vosoritide for the treatment of achondroplasia. In June, we were pleased to share the 4-year ROCTAVIAN data update at the World Federation of Hemophilia's Virtual Summit. Following a onetime infusion of ROCTAVIAN, all study participants, who received the to-be-marketed dose remain off exogenous Factor VIII prophylactic therapy and demonstrated a greater than 90% reduction in bleeding episodes 4 years after treatment. With our PDUFA target action date later in August, we are going to continue our policy not to comment on the status of the review of our BLA. I want to thank you for bearing with us as we look forward to potential FDA approval later this month. Stay tuned.

Moving to vosoritide. Two weeks ago, we submitted the Marketing Authorization Application to the European Medicines Agency for the treatment of children with achondroplasia. I want to thank everyone across the organizations who worked on this application under unusual and difficult circumstances, due to challenges faced by COVID-19. It seems there is nothing that teams can't accomplish. Once the application is validated, we expect the MAA review to begin later this month. We are on track to submit the vosoritide NDA to the FDA later in this quarter. If approved, vosoritide would be the first and only medicine designated for the treatment of achondroplasia, the most common form of dwarfism in the U.S. and in the EU.

These key events, combined with our goal of turning profitable in this year for the first time in the company's history had had us very busy. It is no coincidence that BioMarin is at a significant inflection point in 2020. We have been growing the company for many years, holding our R&D platform, advancing our manufacturing capabilities, expanding our commercial footprint and working with health authorities around the world to develop essential medicines for people with rare diseases.

We have positioned ourselves for substantial success in both the near term and the long term, and we want to thank you for your continued support.

Now I would like to turn the call over to Jeff to discuss the commercial business update. Jeff?

Thank you, J.J. As we discussed results from the second quarter of 2020, I'd like to begin by saying I'm very proud of the team's performance across all regions during this quarter, which has challenged the entire world to think, react and operate differently than ever before. When we provided our Q1 quarter results to you, the COVID-19 situation was still developing, yet we were already focused on assessing and forecasting near- and longer-term impact from what remains today a dynamic and unpredictable situation. These Q2 results are in line with the revised guidance that we provided previously and reflect the strength and resiliency of our business. They are also a testament to the ability of our teams globally to quickly employ mitigation efforts to reduce the impact of COVID-19 as much as possible. Further, these results underscore the recognition worldwide that we are providing essential therapies to patients with high unmet medical needs and the prioritizing access to these products is vital to their long-term outcomes.

As J.J. mentioned, we achieved quarterly total revenues of $430 million and net product revenues marketed by BioMarin of $387 million in the quarter. Year-to-date, total revenues were $932 million, representing an 18% increase over the same period in 2019.

On to specifics in the quarter from a brand perspective, and starting first with Palynziq. We are reporting Q2 revenues of $41 million, a 116% increase, compared to Q2 last year, and year-to-date total revenues of $75 million, a 142% increase from the first half of 2019. As expected, the majority of that revenue came from the U.S. for patients that had already started Palynziq therapy prior to COVID-19. They have been stable on their treatment without any significant increase in discontinuations. The material impact on Palynziq has been to new patient starts. The impact was most pronounced in the months of March and April, with an encouraging uptick in May and early June, followed by a regression that correlated with increasing COVID-19 infections. We're still optimistic about our ability to drive additional business with Palynziq, subject, in part, to the ability of key clinics to operate in the COVID-19 environment.

In Europe, in the second quarter, the same dynamic played out in Germany, where patient starts were slow for Palynziq, as expected. Importantly, despite COVID-19, we completed price negotiations in Germany, which was a significant milestone and an important predicate for ongoing negotiations and other high priority European markets.

Kuvan contributed $123 million in revenue in the second quarter. For year-to-date, revenues of $245 million, which represents 11% growth year-over-year for the first half of the year, again, with most of that growth coming from the United States.

Moving now to our MPS products. As expected, COVID-19 had an impact on both new patient starts as well as continuity of infusions for patients already in therapy. In Europe, COVID-19 impact occurred earlier and impact of the Latin American region occurred later. So the overall impact to the business has been variable by geography and by product. As a result, our response has been problem-solving specific to the relevant local situations. The overall impact of the current business has been modest and is captured in the current guidance. We still have been able to identify and start new patients on therapy, however, the pace of that activity is slower than prior to the pandemic.

Consistent with that dynamic, Vimizim revenues contributed $117 million in the second quarter, a 5% decrease year-over-year, which is attributed to a combination of COVID-19 impact and also order timing that was previously anticipated. Year-to-date revenues of $254 million, which represents modest growth compared to the same period last year, despite the challenges brought about by the global pandemic, demonstrates the essential need for Vimizim to patients.

Turning to Naglazyme. Revenues totaled $81 million in the quarter, an 18% decrease year-over-year and reflective of the same challenges observed with Vimizim. Consistent with Vimizim growth of Naglazyme year-to-date of 6% or $195 million, represents solid underlying demand for the 16-year-old brand.

And finally, Brineura contributed $50 million in net product revenues year-to-date, $26 million of that total added in the second quarter. The brand is maintaining the strong growth trajectory we've seen in the last year. This contribution and growth are driven by strong adherence to therapy throughout the pandemic and strong 25% growth in patients on commercial therapy year-to-date.

Lastly, a few words on launch readiness for ROCTAVIAN. Following potential approval, ROCTAVIAN would be the first and only gene therapy available for people with severe hemophilia A. Our U.S. team is prepared and ready, having pivoted quickly to optimize virtual and digital interactions with health care teams, patient advocacy organizations and payers over the last few months. This has allowed our teams to continue empowering stakeholders with foundational gene therapy education through virtual programming, which has been in high demand. We hope to be speaking with you soon about launch and pricing details following the potential approval of ROCTAVIAN.

With that, I'll thank you for your attention, and now I'll turn the call over to Hank to provide an R&D update. Hank?

Thanks, Jeff. As J.J. mentioned, we'll not be commenting on the status of the review of our ROCTAVIAN BLA, given how close we are to the PDUFA target action date of August 21. Thank you for bearing with us.

In Europe, our Marketing Authorization Application filing remains under accelerated assessment at this time. However, and as we've previously communicated, the review procedure has been extended by at least 3 months due to COVID-19-related delays, however, as is the case and further, as we say, as is the case with most filings that initially receive accelerated assessment. But, we believe, there is a high possibility that our MAA will revert to a standard review procedure from accelerated assessment. Based on these assumptions, we expect the CHMP opinion late in this year or early in next year.

Another key pillar of the ROCTAVIAN program coming soon is our 134-subject, Phase III study's completion. Subjects in this study will have completed 52 weeks of observation by the end of November with data readout anticipated soon thereafter. Given the strength of the ROCTAVIAN annualized bleed rate data observed to date, we're very optimistic that our Phase III results will demonstrate superiority over standard-of-care factor replacement therapies in controlling bleeding episodes, our primary end point. As most of you know, the full 4-year ROCTAVIAN results were shared in June by Professor John Pasi during the World Federation of Hemophilia's Virtual Summit, those demonstrated continued hemostatic efficacy at all factor levels from lowest to highest.

On the investor call following the WFH presentation, our clinicians conveyed increasing confidence in the robust treatment effect observed in many of their patients. Both professors refounded stories from their individual clinical trial subjects who have been living differently since receiving their gene therapy. The clinicians have witnessed firsthand the contrast in the burden of hemophilia between patients solely treated with standard-of-care prophylaxis and opposed gene transfer hemophilia patients. The standard has just been waiting for decades for gene therapy. And this desire has been a driving force for years. We're all eager to offer this as an option for patients.

The 4-year state of data demonstrating dramatic bleed control following treatment of gene therapy versus standard of care, it is difficult to dispute the highly innovative and transformational profile of ROCTAVIAN. Importantly, as we think about the durability potential of commercial ROCTAVIAN dose of 6e13 vector genome per kilo, these 3-year results from our 4-year 4e13 vector per genome -- vector genome per kilo dose provides additional comfort about longer-term outcomes for bleed control at even lower Factor VIII levels. As part of the virtual update, 3 years post infusion with the 4e dose, subjects demonstrated an impact to activity level of 9 IU per deciliters measured by the chromogenic assay. And the result was a cumulative annualized bleed rate of less than 1, representing a 93% reduction in bleeds from baseline at year 3.

Factor VIII usage in the 4e13 cohort was reduced by 96% over 3 years. The takeaway for us is that the slowing decline observed in Factor VIII activity levels with our potential commercial dose of 6e13 may result in bleed control for ROCTAVIAN patients well beyond the years that have been demonstrated to date. It's truly inspirational and a big reason why we are so passionate about the work we are doing for patients with hemophilia A.

Turning now to vosoritide for the treatment of achondroplasia. As J.J. mentioned, we submitted the Marketing Authorization Application to European Health Authorities 2 weeks ago and plan to submit the NDA later this quarter. The submissions include extensive data from our 4 prime development programs, which includes approximately 5 years of Phase II results in 5- to 18-year-old children; comprehensive natural history data; the highly statistically significant placebo-controlled Phase III results; and finally, safety data from the ongoing Phase II study of newborns through 5 years of age. We continue to look forward to publishing and presenting the full data from the Phase III study set later this year, so stay tuned for that update coming soon.

Moving onto BMN 307, our investigational gene therapy for PKU. We're continuing to prepare new sites, and depending on the ongoing impact of COVID-19, we believe, we could begin dosing in the Phase I/II study, named PHEarless, later in the third quarter. We're excited about the prospect of BMN 307 as it represents the potential third PKU treatment option in our PKU franchise and a second gene therapy development program leveraging our learnings and capabilities from ROCTAVIAN.

As we prepare for the potential approvals and launches of ROCTAVIAN and subsequently vosoritide, our earlier-stage pipeline also continues to progress. In July, we began IND-enabling studies for BMN 331 gene therapy for hereditary angioedema. We expect benefit from our experience with ROCTAVIAN and BMN 307 to drive an even more efficient development program with BMN 331. In addition, we're pleased to announce in the second quarter, our preclinical collaboration and license agreement with DiNAQOR, a gene therapy platform company, to develop gene therapies to treat rare genetic cardiomyopathy. These are large opportunities for BioMarin, given the tremendous unmet need in both indications, where we can benefit from our growing expertise in gene therapy development and manufacturing.

Before turning the call over to Brian for the financial update, I would also like to acknowledge our colleagues across the organization for your continued commitment and contributions during these challenging, but no less busy time. The extraordinary efforts undertaken to submit Marketing Applications during the global pandemic is something the team accomplished without missing a beat. I have been impressed by your flexibility and focus that you demonstrated through our progress moving forward under very challenging conditions.

Now I'll turn the call over to our recently appointed and very new, Chief Financial Officer, Brian Mueller. Take it away, Brian.

Thank you, Hank. Please refer to today's press release summarizing our financial results for full details on the second quarter of 2020. As usual, our comprehensive report on the quarter will be available on our upcoming Form 10-Q, which we are planning to file later today.

Starting with revenues, we've observed that the impact of COVID-19 on our commercial business is overall consistent with our expectations back in April. As Jeff mentioned, we experienced a modest top line impact from the COVID-19 pandemic in the second quarter that have continued into the start of the third quarter. We note that much of our business is beginning to stabilize and is on a trajectory toward normalized demand pattern. We considered this level of COVID-19 impact on our business when we revised guidance in April, and we remain committed to the full year 2020 revenues of between $1.85 billion to $1.95 billion.

Moving on to operating expenses. R&D expense for the second quarter was $182 million, slightly lower, compared to R&D expense for the second quarter of 2019, which was mostly due to reduced R&D activity for ROCTAVIAN, given its late-stage of development.

SG&A expense for the second quarter of 2020 was $175 million, which is slightly higher than SG&A expense for the second quarter of 2019. As expected, the year-over-year increase is due to commercial preparation for the launch of ROCTAVIAN and the continued global launch of Palynziq.

Turning to bottom line results. We reported a GAAP net loss of $29 million in the second quarter of 2020, compared to GAAP net loss of $37 million in the second quarter of 2019. The net loss in the second quarter was expected due to the COVID-19 impact on revenue and the overall timing of our quarterly revenue expenses for the year. In this quarter's -- net loss was considered when we provided our 2020 GAAP net income guidance earlier in the year.

With higher revenues and essentially flat SG&A and R&D expenses, non-GAAP income of $57 million in the second quarter of 2020 also grew substantially as compared to Q2 2019. Both of the second quarter 2020 bottom line results keep us on track towards achieving our 2020 goals of full year GAAP net income for the first time in BioMarin's history and considerable growth in non-GAAP income.

With respect to total cash and investments, we ended the second quarter of 2020 with $1.7 billion, compared to $1.2 billion at the end of 2019. The increase in cash in Q2 was related to our May convertible note offering that brought us $535 million of net proceeds, executed primarily to pay down the $375 million of convertible notes, due in October of this year. Beyond the May convertible note issuance and despite the COVID-19 impact on our business, we generated $28 million of positive operating cash flow in the second quarter of 2020. This solid cash position, coupled with BioMarin's business fundamentals, put us in good standing to both manage through the uncertainty related to COVID-19 as well as launch ROCTAVIAN and vosoritide should they be commercially approved.

Finally, I would like to discuss a significant onetime item that we anticipate will impact GAAP net income in the second half of 2020. As I mentioned on the Q1 conference call back in April, we may recognize the tax benefit related to transfers of intangible assets between BioMarin entities. As I mentioned previously, you may have seen similar transactions completed by some of our larger peers over the last year.

Our previous 2020 GAAP net income guidance of between $20 million to $80 million noted that it excluded the potential impacts of these intangible asset transfers. We now expect these transactions to occur in the second half of 2020, which we estimate will result in a onetime noncash income tax benefit of approximately $700 million to $900 million in 2020. Therefore, we have adjusted our full year GAAP net income guidance for this onetime tax benefit and now project that full year 2020 GAAP net income will be between $720 million and $980 million. The range acknowledges that we've not yet completed the intangible asset transfers, and therefore, the final value cannot be determined with certainty. And considering the high-value of the underlying BioMarin product, the amounts are significant. Importantly, we note that our base business performance, excluding this onetime item, remains on track to generate GAAP net income for the full year for the first time in the company's history. Also, as this transaction impacts the income tax line item in our financial statements, we expect to exclude it from our non-GAAP income for which guidance remains unchanged at $260 billion to $310 billion.

In closing, our second quarter results and trends towards normalization in the second half of the year, in addition to the potential approval of ROCTAVIAN, indicate that 2020 should be a transformative year for the company on many levels.

Thank you for your support. And we'll now open the call to your questions.

(Operator Instructions) Your first question is from Joseph Schwartz from SVB Leerink.

I was just wondering if you're planning to employ any special tactics in order to support a successful launch of ROCTAVIAN during a pandemic period. Is there anything based on your wealth of experience launching different products that you think you might want to bring out of your bag of tricks or any new strategies given the new world we're operating in?

Jeff, do you want to answer that question?

Yes, happy to. Thanks, Joe, for the question. And this is going to sound deceptively easy to say, harder to do, in practice. But what we're having to do is to shift from largely, not exclusively, but largely from live interactions to virtual interactions and in the absence of having many more live interactions, and we're increasingly turning to digital assets to help us communicate with different commercial stakeholders. And I might comment that the virtual interactions have gone pretty well with payer groups, in particular. The payers have shifted very nicely to virtual interactions that are not too different in quality from live interactions. We've got a team on the ground, a commercial and sales organization on the ground, that are connecting with patient associations, providing educational opportunities on gene therapy. Those virtual interactions give us an opportunity, in some case, to cast a broader net than we would if we were doing a live programming event.

And there's been enough live interactions with hemophilia treatment centers and their associated infusion center locations that have allowed us to pursue launch and infusion readiness activities for ROCTAVIAN in advance of launch with a smaller, but perfectly adequate number of treatment sites to be ready at or shortly after launch to facilitate a launch.

So that's kind of a summary.

Your next question is from Salveen Richter of Goldman Sachs.

On ROCTAVIAN approval, could you just walk us through the process for a patient to receive the gene therapy outside of the payer process? So basically, how blood test sites have been of excellence and any other factors would come into play?

Yes. So Salveen, we have -- our commercial organizations and medical affairs has been working on actually guiding and helping the patients through the whole process, and Jeff can describe that to you. Jeff?

Yes. Thanks for the question, Salveen. And in fact, a lot of what happens with the patient journey for ROCTAVIAN will be very similar to the kind of patient journey that we've become accustomed to dealing with, with the launch of Brineura and Vimizim, for example. So patients already, fortunately, have a diagnosis, but they need to go through a diagnostic process to check for AAV5 seronegativity. So there's a co-diagnostic in there. But again, relative to our enzyme programs, there's also this diagnostic step that we're adept at facilitating. Education about the therapy, I mentioned in response to Joe's question, I also noted that like we would do with the enzymes, we're focused on having a number of treatment centers that are educated and ready to initiate therapy upon or shortly after launch. So there's that step. And then there's some preparatory step that the patients need to take to get ready for infusion. In parallel with that and probably the biggest rate-limiting step would be going through the reimbursement approval process. And again, this is the stuff that -- we have a team that's been doing this in the United States and are very adept at that. We've been doing this for many, many years.

And then getting the infusion scheduled at an infusion center, it's only 1 infusion, again, not too dissimilar with our experience with the enzymes. And one thing worth noting is there's a significant patient follow-up for 52 weeks following infusion. And again, this looks a lot like the kind of patient support that BioMarin provides for our other enzyme replacement therapies. So there are a lot of really new and innovative aspects about ROCTAVIAN from a commercial perspective and relative to patients' baseline standard of care. There's also a lot of parallels between what we'll need to do with ROCTAVIAN and what we already do with our base business. So we feel like we're leveraging a lot of competencies here. Thank you, Salveen, for the question.

Your next question is from Cory Kasimov of JPMorgan.

I saw that the WFH treatment guidelines for hemophilia A were just updated. And I'm just curious whether this timing poses any potential problem for ROCTAVIAN since it came out pre-approval? Or would you expect them to be updated following potential commercialization?

And on that note, do you have any color in terms of how meaningful guidelines might be on uptake curves for hemophilia A or what we've seen in the past?

I mean, could you be more specific as to what's changed in those guidelines, Cory?

Well, they just came out, there was a -- it was sent around earlier that World Federation Hemophilia updated treatment guidelines. And for it to happen now just in front of the approval, there's commentary on gene therapy, but obviously, nothing specific. And so I didn't know if you interact with them at all or if they update these guidelines somewhat regularly or when new important new products are approved. So just trying to get a better understanding of what the dynamics might be on that front and whether it would be a potential tailwind if they update it on the heels of it? It's kind of irrelevant and the data speak for itself in a setting like this.

Again, I'm not aware that these guidelines are creating any kind of impediment for us. So Hank or Jeff, are you aware of it?

Yes. I can take first comment on this one and see if Hank wants to augment. Thanks for noticing those treatment guidelines, Cory. In fact, treatment guidelines in the world of hemophilia are long-standing. They're very important, and they do get updated periodically. So I don't think it's a problem that those treatment guidelines have updated in advance of an approval of ROCTAVIAN. I might expect that there would be another cycle in a reasonable period of time, perhaps prompted by the availability of gene therapies and approved gene therapy or therapies would be incorporated in those treatment guidelines. In the meantime, I don't think that's an impediment to the launch of ROCTAVIAN. But as Hank stated in his prepared remarks, this community has been waiting for gene therapy for decades. There's a huge amount of interest in ROCTAVIAN and gene therapy, in general. And I think we've got some tailwinds in that regard already and without having new guidelines that actually incorporate gene therapy.

Okay. That's what I assume.

I think the other thing just to add would be -- we've got -- we've dosed 134 patients in the Phase III trial. So we've got a lot of hands-on experience now to share with the community. And we've been in a lot of conversations, medical symposia, et cetera, because there's a great educational opportunity. And as Jeff said, it's almost like a sponge, a dry sponge for the information. So we've been doing a lot of the work that you do in between guideline periods anyway.

And your next question is from Robyn Karnauskas from Trust Securities.

It sounds like you're making a lot of progress getting facilities up and ready for gene therapy. But two questions on that point. So what are your expectations? Do you have any updated thoughts on the eligible patient population? I know you said 400 before, I believe, and you gave some color around that last quarter. Any additional numbers there or thought?

And then on the viral testing for the virus, are there any patients that are getting that done? Or are they possibly getting it done and getting it reimbursed ahead of the launch? Or should we expect that, that will have to take place as you work through the reimbursement process and be another step in the delay?

Yes. Two good questions. I mean, I could answer them, but Jeff is the expert there. And I'll let Jeff answer those questions.

Thanks, J.J. Great questions, Robyn. So just to reiterate, we've modeled what we think is an appropriate eligible patient population at launch of 2,400. It's worth noting that every 6-month CDC numbers that estimate the people with hemophilia in the United States are updated, and they bounce around a little bit. So those numbers could change over time. But base -- and our modeling and estimates would be based on whatever is finally an approved label for ROCTAVIAN. But even if there is some variation around that, 2,400, I think, is a pretty solid number we're sticking with. And that's just a launch. And so a reminder that with life cycle management activities, we would hope over time to broaden that eligible patient population.

And then regarding your comment about the co-diagnostic to test for AAV5 seropositivity, we're waiting for that co-diagnostic to be approved probably temporarily in line with ROCTAVIAN approval. And so to my knowledge, there's not been an opportunity to test for that in advance of the launch.

Hank may have more specifics on that point.

All technically correct what Jeff just said about the companion diagnostic. We're planning that we're going to be approved with the requirement of companion diagnostic. We've been working with CDRH and our laboratory partner to assure the availability of the companion diagnostic at the time of ROCTAVIAN approval. You can't get the companion diagnostic without the companion being approved. So they're hinged together and the agencies or the centers work together to time that. So it's not possible to be testing somebody for the companion diagnostic prior to its approval.

Great. And one follow-up. Any color around the 400? You said you have identified 400 people through family and friends, it's kind of like a hodgepodge number. Has that increased as you've really rolled in with the hospitals and got to know in preparation for this launch? Is that number consistent? Or is it, in general, trending in upward direction or downward direction?

Jeff?

Yes. I think, Robyn, if I heard you correctly, you were inquiring about the number of opt-ins for further information that we've been collecting over time. And yes, the number of opt-ins for further information has been increasing, commensurate with the kind of educational activities that we've been doing on a virtual basis and also commensurate with people accessing our digital assets and opting in for further information. So I don't have specific numbers to share with you today. But it's an encouraging indicator of interest and hopefully, future demand.

(Operator Instructions) And your next question is from Matthew Harrison of Morgan Stanley.

This is Connor, on for Matthew. So just 2 quick from us. How are you guys thinking about pricing for ROCTAVIAN? And could you just comment on what kind of impact generally you expect to see with being able to dose patients due to COVID?

And then just quickly on PKU. What are the steps that you need to complete to start dosing for the PKU gene therapy studies?

I'll start and Jeff can talk about pricing and Hank about the PKU gene therapy trial initiation. I just want to just make one comment regarding the ability to dose patients -- I mean, to treat patients with ROCTAVIAN. In the current environment, in one of the issues and questions we've had, related to that was using steroids with -- potentially with ROCTAVIAN in the COVID environment. As you might know, some of you, there was actually a publication a few weeks ago in the U.K. using steroids for the treatment and the management of COVID-19 patients. And that study actually showed that the steroid has a beneficial effect on COVID-19 management, although I'm not personally recommending you do that. But my point here is that it appears that if anything -- the need or the likely need to use steroids in the early days of treatments of -- with ROCTAVIAN should not be an impediment to using ROCTAVIAN based on this and but -- actually, the fact that steroids are actually recommended -- approved in the U.K. for the management of COVID-19. So with that -- and Jeff, you could answer the pricing question and then Hank can talk about PKU gene therapy. Jeff?

Okay. Thanks, J.J. So relative to pricing, as we have with our other recent launches, we'll disclose pricing when we have the good fortune of having a product launch, which we hope will be soon. So stay tuned for that.

And I'll turn it over to Hank regarding the gene therapy question.

Next steps are for clinical trial sites to finish the paperwork that's involved. We had to revise consents for -- in the COVID pandemic, and so those are going through revisions. And as soon as sites are open and ready for dosing, we'll start -- we project that will be in the third quarter.

And your next question is from Phil Nadeau of Cowen and Company.

Just one question on ROCTAVIAN reimbursement. Jeff, I know, you said during your prepared remarks that you've been able to engage with payers virtually. Can you talk a little bit more about what you've been able to show them? Whether they understand the value of gene therapy in hemophilia? And maybe lastly, what type of reimbursement paradigm is going to predominate? Is there any desire to do alternative reimbursements? Or is it likely to be a onetime upfront fee?

Okay. Thanks for the question, Phil. Yes. Our payer launch actually started in Q4 of last year under a safe harbor provision provided by the FDA for these types of situations. So we have a payer team that is very experienced, same payer team that launched Palynziq in the United States and that launched Brineura in the United States. So good working relationships and access with payers. We were able to put together the standard in the U.S. so-called AMCP dossier, which is the basis upon which all payers evaluate new drugs. We've been able to educate them on data related to our investigational program to date.

We've been able to talk to them about their hemophilia book of business, which has been really positive in the sense that for all payers, their hemophilia book of business is large. It's material. They all want to do something about it. And combined with the high level of interest on the part of payers in gene therapies, in general, and how they're going to fit that into their business model, it's been a really nice combination. We've gotten a lot of access and had a lot of really productive engagements. The whole outcomes-based agreement concept in the United States to date has been limited by government price reporting rules related to Medicaid. And that's kind of limited the options. There's a proposed rule out from CMS that intends to address that. As a proposed rule and the way it's proposed, it's not going to be relevant to our ROCTAVIAN launch. We've been working in the background to try to find a way of having a meaningful outcomes-based agreement that stands behind what we expect to be the performance of ROCTAVIAN and that the payers will find meaningful. We're intending to go out to launch with that. Well, details are confidential at the moment. And we expect that, that would likely result in a onetime recognition of revenue for ROCTAVIAN as opposed to a recognition of revenue streamed over time, for example.

Your next question is from Chris Raymond of Piper Sandler.

This is Ally Bratzel, on for Chris. Another question on ROCTAVIAN and the hemophilia A landscape. We noticed last month, Roche took an impairment on the Spark gene therapy asset on the rationale that Hemlibra has shifted the goalpost for gene therapy efficacy and safety. So just curious to get your thoughts on this based on your interactions with the physician and patient community ahead of launch. Is it your sense that Hemlibra has meaningfully changed patients' willingness to be dosed with ROCTAVIAN or other gene therapy approaches? Or how does that actually come into the patient level decision-making on gene therapy?

Hank, you want to start. I mean, actually, we're not really -- I think there was a question as far as I know, there was a question about a potential impairment to be taken by Roche, but I don't think they have taken an impairment as far as I know. That's just for clarification purposes. And that is related to their acquisition of Spark, which has a somewhat different profile from ROCTAVIAN at this time. So Hank or Jeff, do you want to make some comments or you want me to revise the question here?

Well, one comment would be to -- I'm not familiar with the impairment either, but I would say that the 8011 data at ISTH didn't particularly exceed expectations. I mean it is -- one thing that is interesting about the Spark data is that you can get gene transfer relatively low. You can get hemostatic efficacy and relatively low levels of gene expression. So I think like at 2 years, their data was like half of our data at 2 years. So even if we drift down a little bit of prognosis...

It is at Factor VIII level.

The Factor VIII data, yes. Yes, they had bleeding control at half the Factor VIII levels that we had. And so that prognosis as well of our Factor VIII levels do, in fact, -- should be able to maintain hemostatic efficacy overall. But I don't think that their safety profile -- I think their safety profile and efficacy profile warrants further investigation. And as far as patients' preferences for -- in hemophilia, as I said in my comments, the community has been dreaming about having natural Factor VIII made endogenously for years and years. Hemlibra is a fantastic advancement. It's not for everybody. Patients have breakthrough bleeding. And we think the hemophilia gene therapy is going to be a really solid offering in this community.

Maybe, Jeff, do you want to add anything?

Yes. I would just add that Hemlibra has certainly changed the treatment landscape. It has also broken through the myth that hemophilia patients are unwilling to change therapy. So if that is kind of broken through the barrier of switching, that could also bode well for another big advancement coming to the market, namely ROCTAVIAN, if we're so fortunate with an approval.

And your next question is from Josh Schimmer of Evercore ISI.

Can you discuss your expectations for Kuvan erosion as generic center in the U.S.? What percent on brand do you think you can retain over the mid- and long-term and light??

Jeff, do you want to go over with that?

Josh, thanks for the question. I think just to ground everybody, we have a loss of exclusivity on Kuvan in the United States. Coming on October 1, we've anticipated and prepared for this for a long time. Also to remind and reinforce about 75% of our business in Kuvan is coming from the United States presently. So this is a big event for us. What's unclear, Josh, is how a generic erosion curve applies to a specialty product like Kuvan. There's not very many good analogs to study and the ones that we have, have complicating factors. So it's a little bit difficult to guide to.

And in the background, you know that BioMarin provides a lot of patient support services and reimbursement services to patients. So we've worked really hard to build a value-added relationship that is recognized by all of patients, their providers and also payers. That said, we're expecting a significant erosion of our business. We don't think it will be the immediate catastrophic type of loss of share that you might expect for a retail pharmacy product going generic. And beyond that, I'm afraid we can't offer a lot more specific guidance or at least I can't.

This is right. You covered it, Jeff. This is only impacting the U.S. business. There are no generics. No loss of exclusivity at this time in Europe.

Your next question is from Geoff Meacham of Bank of America.

I know the focus obviously is on U.S. with valrox, ROCTAVIAN launch. I wanted to ask you in Europe, though, what do you need to do in advance of that launch? Maybe just help us with some of the nuances between the U.S. and Europe in terms of how care is delivered for hemophilia? And then just talk about maybe your visibility outside the U.S.?

Jeff, do you want to cover that?

Yes. Thanks, Geoff, and great question. So there are a lot of similarities between how hemophilia is treated in Europe and in the United States. One thing to note is there's a greater concentration of care in centers of excellence in the major European markets. And as we worked with stakeholders in Europe to prepare for an eventual launch, we've been encouraged in the major markets to kind of work with a concentrated set of centers of excellence, which is actually working really well for us because it limits the number of resources that we need to have at launch out in the field working with treatment centers. And then, as you know, the biggest gating factor in Europe is going to be related to navigating price and reimbursement approvals. And as you know, from watching our most recent launches of Palynziq and Brineura, even where there is a high need that's being addressed, those things can take time, particularly, were being slowed down from COVID-19-related issues on that front in Europe. The big upside in Europe, of course, is that there's a bigger patient population. So overall, the patient opportunity in Europe is very large. And even if it takes a little while longer to tap into, if we have -- if we're so fortunate of having a U.S. launch followed by an EU launch, we would expect more rapid uptake in the United States, but a bigger opportunity in terms of number of patients overall from Europe. Thank you, Geoff.

Your next question is from Martin Auster of Crédit Suisse.

This is Mark, on for Marty. So you mentioned earlier that there are -- there may be 2,400 immediately addressable hemophilia A patients in the U.S. at the time of ROCTAVIAN launch. Can you speak to what the process is to expand the label? What those time lines might be? And ultimately, what portion of the population do you think could eventually become eligible for your drug?

We have a whole program here over the next 3 years to expand the addressable population. Hank and Jeff can outline this, if you're interested. But we anticipate a very significant increase in the eligible population over time. Starting right now, the number we're giving you is about 14% of the U.S. population. But -- U.S. hemophilia A population, that's all comers, not just severe patients. I think this could expand to probably 40% or 50% of the population over time.

But Hank, do you want to start or describing what we're planning to do, and Jeff can add some comments.

Sure. The 2 biggest segments to go after immediately in terms of life cycle are patients who have pre-existing immunity to capsid AAV 5. And we actually have an ongoing study, and we're collecting data on the impact of pre-existing immunity on Factor VIII expression and bleed control. So that's ongoing. It's going a little slowly, but it's ongoing. Second major area for investigation would be in patients who have had inhibitors. About 25%, 35% of the hemophilia patient population has inhibitors to Factor VIII. They've been excluded from clinical trials. We've talked about patients with preexisting liver disease. We've talked about starting to dose adolescence. There could be quite a lot of excitement about bringing a drug like ROCTAVIAN to an earlier age population for better preservation of overall health.

Those are just some of the life cycle thoughts, much of which is already underway. And the first thing to do -- the first step to achieve label expansion is to finish the label. So that's where we are.

Jeff, I don't know.

Jeff, do you have anything to add or...

Nothing further to add. That was complete.

So before the next question, just a point of clarification. Actually, we have -- we looked into information regarding Roche's write-offs. It looks like it took a $400 million write-off in the most recent quarter, which is, I guess, less than 10% of the acquisition cost of Spark. And it looks like in their filing, they say the main reasons is a delay in the implementation of the Phase II and Phase III trial because of COVID-19, which is likely to result in lower sales. And we would agree with that.

Next question?

Your next question is from Akash Tewari of Wolfe Research.

So can you walk us through the incentive structure for ROCTAVIAN for doctors, particularly at the 340B level? Will they be getting a percent of the total cost of ROCTAVIAN? And how do you think that those incentives will impact the initial launch for 2020 and beyond?

I mean I can start -- I mean, all -- I mean, the majority of -- our understanding is that the majority of hemophilia treatment centers are 340B hospitals in the U.S. Consequently, indeed, most patients will be treated in 340B hospitals. Generally, 340B hospitals get a 21% or 22% discount for most drugs. We also understand that for -- regarding the Factor VIII and also recently for Hemlibra that discount has been reduced to 17%. So we're likely to start the 21%. We might likely get reduced to 17%. These are payments that are made directly to the treatment centers. I would say, we don't believe there is a disincentive there to use ROCTAVIAN because, right now, let's say, the assuming price for ROCTAVIAN for about 4 years of the value of the current setup of care. So instead of the centers getting those 20% or so discount over 4 years, they can get them entirely from the payments that are made directly to the centers. Anything to add, Jeff?

That was well stated, J.J. Thank you. The only other thing I would add to that is, there may be a perception that these hemophilia treatment centers are concerned about losing revenue streams that are ongoing over time from existing patients receiving factor replacement therapy chronically. Our research indicates that hemophilia treatment centers have a revenues -- 340B revenue stream from only a portion of the patients under their care. And that just kind of amplifies J.J's. comments. We think that, in fact, the 340B margin that these treatment centers would likely be able to take from ROCTAVIAN would be significant and would be a good incentive.

And I would like to turn the call over to J.J. Bienaimé, Chairman and CEO, for closing comments.

Thank you, operator. So now we are over halfway through 2020. I have continued confidence in BioMarin's ability to deliver on the tremendous opportunity for value creation that we have ahead of us. Our underlying fundamentals remain strong, and we are well positioned for achieving our mission. We've built a successful base business. We've transitioned our pipeline to address larger rare indications, and we've laid the foundation for significant profitability with ROCTAVIAN and vosoritide approvals. All of this position BioMarin for substantial accomplishments in both the near term and the long term.

So we are -- we're looking forward to the remainder of 2020. We apologize if we couldn't get to your questions because we limited the Q&A to 1 hour. Please, if you have questions that were not addressed here during the call, please read out -- reach out to Traci McCarty, and we can -- hopefully, we can address your questions.

So thank you all for your continued support and stay safe.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.