NOVATO Oct 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Biomarin Pharmaceutical Inc earnings conference call or presentation Wednesday, October 23, 2019 at 8:30:00pm GMT

* Daniel K. Spiegelman

BioMarin Pharmaceutical Inc. - Executive VP & CFO

* Henry J. Fuchs

BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development

BioMarin Pharmaceutical Inc. - Chairman & CEO

BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer

BioMarin Pharmaceutical Inc. - VP of IR

SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst

* Philip M. Nadeau

William Blair & Company L.L.C., Research Division - Co-Group Head of Biopharma Equity Research

Welcome to the BioMarin's Third Quarter 2019 Financial Results Conference Call. Hosting the conference call today from BioMarin is Traci McCarty, Vice President, Investor relations. Please go ahead, Traci.

Traci McCarty, BioMarin Pharmaceutical Inc. - VP of IR [2]

Thank you, Grace. 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 are detailed in BioMarin's filings with the Securities and Exchange Commission such as 10-Q, 10-K and 8-K reports.

On the call today from BioMarin's management team are J.J. Bienaim, Chairman and Chief Executive Officer; Henry Fuchs, President of Worldwide Research and Development; Dan Spiegelman, Executive Vice President and Chief Financial Officer; Robert Baffi, President of Global Manufacturing and Technical Operations; and Jeff Ajer, Executive Vice President and Chief Commercial Officer. Consistent with the last 2 quarterly calls, we intend to keep this call to 1 hour in length. If we do not get to your question, please send me an e-mail or give me a call and we'll get right back to. Thank you for your understanding. Now I'd like to turn the call over to our Chairman and CEO, J.J. Bienaim.

Jean-Jacques Bienaim, BioMarin Pharmaceutical Inc. - Chairman & CEO [3]

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Thank you, Traci. Good afternoon, and thank you for joining us on today's call. We are proud to share our highest quarterly revenue results to date at BioMarin, a record $461 million in revenues in the third quarter, which represents an 18% growth over the third quarter of last year and demonstrates the increasing strength of our base business. And while we are excited about our next-generation products valrox and vosoritide, we never lose sight of the importance of our existing products to both the people who rely on them to improve their health and to the financial health of our business. In these unpredictable times, this is reassuring that between our strong balance sheet and excellent commercial business, we are not reliant on the financial markets.

As we round out 2019, confidence in our base business combined with R&D expense management, we've also been tightening our both GAAP and non-GAAP guidance to the top of the range for the full year. Our continued commitment to grow our profitability was demonstrated by cash generated in the third quarter, which was just over [$30] million. In addition to our strong base business, the potential returns from our investments in valrox and vosoritide are on the horizon. Approximately 3 years ago, we laid out a 5-year plan for financial success of the business, and we remain on track. We said that R&D expenses as a percentage of revenues would peak and then come down. Over the last 3 years, it has come down from 60% to 43% of revenues and on its way to our long-term goal of 25%, all while preserving a high level of productivity from our R&D engine. Our top line has grown 15% or more year-over-year with a $2 billion revenue target for 2020. And valrox and vosoritide should see growth well beyond that after 2020.

And of course, we have been focusing on the bottom line as well. In 2016, we said that we would be non-GAAP positive starting in 2017. We were non-GAAP positive in 2017, and we have continued to grow each year. Our next target is GAAP profitability, and from here, with the success we anticipate from valrox and vosoritide profit and significantly profitable growth is on the horizon. We are all aware of recent market volatility and the negative impacts it has had on our shareholders in the short term.

However, with a potential business payoff of our strategies in full view, we remain steadfast in our focus to get valrox and vosoritide approved and launched. And with over $1 billion in cash and investments, our 2 potential blockbusters on the horizon and a third already on the market which is Palynziq, we are poised to leverage the R&D, commercial and manufacturing expertise and capabilities established over the last several years.

At the heart of our business and what creates our growth opportunities is our R&D engine. And with that in mind, we look forward to hosting you at our Annual R&D day in New York on November 14, where we will provide updates on our late-stage programs as well as shine a light on the next potential growth drivers beyond valrox and vosoritide. We will also have an interesting lineup of preclinical candidates to share with you. As we can see, the lease programs will be added next to our development pipeline. Please email the IR team for further details, and we hope you will be able to join us. Now I would like to turn the call over to Jeff who will provide more details on the commercial business in the quarter and our expectations for the remainder of the year. Jeff?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [4]

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Thank you, J.J. As J.J. mentioned, the third quarter was record-breaking in terms of revenue for BioMarin driven by a strong revenue quarter for Vimizim and $30 million in revenue growth from our newest brands, Palynziq and Brineura. Globally, BioMarin's commercial brands contributed $428 million, a 19% increase quarter-over-quarter and $1.2 billion year-to-date or 14% year-over-year growth. I will detail the breakdown of individual product contributions, but we'll start with a positive development in Brazil, a major market for our MPS brands. In the third quarter, we recognized the first installment of a 12-month supply agreement with the Brazilian Ministry of Health for both Vimizim and Naglazyme, which combined for a total contribution of $45 million. This new 1-year supply agreement should result in more revenue predictability through Q2 of 2020, although there will still be uneven order patterns quarter-to-quarter. Importantly, under this new arrangement with the Brazilian Ministry of Health, we would expect the majority of the roughly $90 million contract to be applied in 2019.

And now a little more detail on Vimizim globally. Quarterly revenue of $164 million represented the year-over-year increase of 33%. While a large Brazil order was a major factor in the quarter, patient growth of 11% globally also contributed to the increased and will support long-term additional revenue growth. For the full year, we are tightening our guidance to between $540 million and $570 million. For Naglazyme, the revenues driven from Brazil were offset by decreases due to ordering patterns in the EUMEA region, and thus, Q3 revenue totaling $94 million was down 4% versus Q2. Despite the neutralizing effect of both the favorable and unfavorable ordering in this quarter, overall patient growth remained steady, and we expect consistent annual revenue growth will continue. For the full year, we see revenues tightening to between $360 million and $380 million tightening the range.

Turning now to the PKU brands and starting with Palynziq. In the U.S., July marked the 1-year milestone of drug availability post FDA approval and the trajectory of patient referrals and correlating revenues are meeting expectations across all metrics. Q3 revenues of $24 million, essentially all of which came from U.S. sales, were driven by a combination of the growing number of patients, who have now achieved once-daily dosing and new patients initiating therapy. A reminder that it takes, on average, 5 months for a patient referral to get to commercial therapy and then to daily dosing, at which point, that patient is a material revenue driver.

At the end of Q3 in the United States, there were 670 patients on Palynziq commercial therapy, 142 of those patients from clinical studies and 528 patients formally naive to Palynziq. There were an additional 153 enrolled naive patients who have not yet received their first commercial dispense. A total of 823 adult PKU patients therefore either already being treated with commercial Palynziq or well on their way to their first shipment.

Turning our attention now to the EU launch. In May 2019, we announced approval for Palynziq by the EMA, and since that time, have engaged in very active education efforts, preparation of reimbursement dossiers and promotional activities in first-priority markets. I'm happy to share that physicians are treating patients now in Germany, the first EU country to market. Without the benefit of patients transitioning from clinical trial, in combination with the timing required to achieve reimbursement approvals, we expect that it will take time to realize material revenue contributions from Europe. We're very happy with the progress that we've made to date, and we've reaffirmed revenue guidance for Palynziq tightening range.

Shifting now to Kuvan. Global revenues in the third quarter totaled $121 million, representing a 6% increase year-over-year. The majority of this was due to patient growth in the United States and achieved in parallel through changing patient demographics as more adult PKU patients now have the option to treat with Palynziq. We are adjusting up our full year guidance for Kuvan.

Finally, an update on Brineura. Net product revenues were $20 million in Q3 driven by patient uptake in diverse global market across all 4 regions. Our teams continue to focus their efforts on driving early diagnosis and identifying new patients who will benefit from therapy, coupled with unlocking reimbursement in countries around the world. As a result of these efforts, Brineura has exhibited steady growth over time and now is reaching the level of material revenue contributions on a quarterly basis. We expect continued growth going forward and reaffirm our guidance for Brineura.

In conclusion, I'm very pleased with the commercial team's execution and performance in the third quarter of 2019 in all 4 regions and excited to track and report the progress of the launch of Palynziq in EU. For the remainder of the year, with our established commercial base business, we are confident in our ability to achieve full year revenue guidance of approximately $1.7 billion. So thank you. And now I'd like to turn the call over to Hank.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [5]

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Thanks, Jeff, and congratulations to you and your team. Starting with valrox for adults with severe hemophilia A, an exciting new regulatory development has been announced today. We are pleased to share that the European Medicines Agency has recently granted our request for accelerated assessment of valrox. In their assessment report, the European Medicines Agency acknowledged valrox's potential to address the existing unmet need by providing patients with a treatment option that only requires a single intravenous administration and then subsequently is expected to provide steady levels of endogenously produced coagulation factor VIII for a substantial amount of time. This decision is particularly important because it shows that based on the data the EMA has already received, EMA recognizes valrox's potential as a product of major interest for public health and therapeutic innovation. This decision is also important as the accelerated assessment procedure reduces the timeframe for the European Medicine Agency commitment -- Committee for Medicinal Products for Human Use (CHMP) to review our planned marketing authorization application for valrox on track for later this year. Needless to say, we are gratified to accept this recognition of valrox given the impact it could have for patients with severe hemophilia A.

Another positive development we want to share is the news that our Shanbally facility has been successfully inspected by the Irish HPRA for testing and release of gene therapy products. These newly constructed laboratories are part of our overall strategy for meeting worldwide regulatory requirements for product distribution. This added capability prepares us to meet in-country testing requirements for the release of commercial product in the EU region.

We continue to expect to submit marketing applications in both the United States and Europe in this quarter based on recent meetings with the FDA and EMA as we announced earlier in this quarter. These submissions were based on the recently completed Phase III interim analysis and the updated 3-year Phase I/II data of patients treated with valoctocogene roxaparvovec. Enrollment in the generate I Phase III open-label study is expected to complete mid-November, with the 52-week results anticipated in that study at the end of 2020. As we have said previously, although the trial is open-label, we have a data access plan in place, which is designed to significantly mirror a blinded trial. This precludes anyone not directly monitoring the trial to access any emerging data from this study, and we are not updating any of our prior analyses. As for the ongoing Phase II study, we intend to share a 4-year update with a 6e13 dose as well as a 3-year update on a 4e13 dose at the middle of next year at an appropriate medical conference.

Turning to our next late-stage program, vosoritide for children with achondroplasia is finished -- nearing the finish line. Our global multipronged program has been designed to achieve maximum clinical benefit for infants and children with achondroplasia from newborns through growth plate closure. Beginning with the Phase III program, results from the large global study that includes children from ages 5 to 18 are -- the data are expected by the end of the year. Needless to say, we look forward to sharing all these top line results with you at that time. Another key component of our global program in achondroplasia is the Phase II, 0-5 year old study. Given our conviction and the opinion stated at the achon AdCom meeting that the FDA held earlier in the year and last year, treatment with vosoritide started as early as possible may translate into the best results for children with achondroplasia. We're thrilled with the progress of this ongoing study. We have completed enrollment in the first cohort of the study, which includes children from 2 to 5 years of age. The second cohort, which includes children from 6 months of age through 2 years of age, is expected to complete by the year end and the last cohort of the study, which includes newborns through 6 months of age, began earlier enrolling this month. Needless to say, the level of interest from families seeking treatment for their very young children is very consistent with our belief in starting treatment as early as possible. We hope to provide more insight and detail in this program at R&D day.

Turning to BMN 307, our investigational gene therapy for PKU, we are pleased to have received orphan designation for BMN 307 this past Monday from the FDA. As you likely saw in our recent press release, we submitted a clinical trial application, or CTA, with the Medicines and Healthcare Product Regulatory Agency in the United Kingdom, or the HPRA -- sorry, the MHRA for BMN 307. We expect to start enrolling patients with material manufactured with a commercial-ready process to derisk the program to facilitate rapid clinical development in the Phase I/II trial in early 2020, and we are actively preparing regulatory submissions for other countries. We are excited about the prospect of BMN 307 as it represents a potential third PKU treatment option in our PKU franchise and a second gene-therapy development program, leveraging our learnings and capabilities from valrox.

And finally, on pipeline changes. We announced today that we have entered into a licensing agreement with Allievex for Tralesinidase Alfa, formally BMN 250, an investigational enzyme-replacement therapy for the treatment of Sanfilippo Syndrome Type B. As we've stated previously, our focus is shifting to larger indications where we can have an impact with our highly integrated products so we are thrilled to have Allievex now shepherding the continued development of Tralesinidase Alfa. We couldn't be happier for patients and their families as we expect they will benefit tremendously from Allievex's focus on treatments for rare neurogenerative diseases. We look forward to hosting you at our upcoming R&D day on November 14 in New York, where we will showcase our next potential commercial products, namely valrox and vosoritide including some baseline data never shared before. Another highlight will include an updated look at the natural history information, including trends of vosoritide treatment through 54 months as well as evaluation of untreated patients with achondroplasia. With our earlier-stage pipeline, we look forward to sharing a preview of the next potential INDs we are considering for development. We hope you will attend, so please reach out to our IR department should you need more information. Thank you for continued support, and I'll now call -- turn the call over to Dan to review the financial quarters. Dan?

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Daniel K. Spiegelman, BioMarin Pharmaceutical Inc. - Executive VP & CFO [6]

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Thank you Hank. Please refer to today's press release summarizing our financial results for full details on the third quarter. First, with respect to revenues, we reported total revenues in the quarter of $461 million and are on track for full year 2019 revenues of approximately $1.7 billion, being in the expected range of $1.69 billion to $1.72 billion. In addition to tracking towards the middle of the range for full year total product revenues, as J.J. mentioned, we expect both GAAP and non-GAAP results to be at the top end of the ranges due to continued R&D expense management as we continue to improve overall margins. An important item of note for the quarter is the impact of foreign exchange on our financial results. Over the past year, the dollar has strengthened materially against the Euro and the British pound and even more significantly against several of the Latin American currencies. Overall, net of our hedging, full year revenue is projected to be negatively affected by approximately $20 million to $25 million such that our full year revenue would have been at the high end of our guidance instead of the midrange without these negative FX impacts. Thanks to our hedging contracts, which offset more than half of the potential revenue impact from the strengthening dollar and natural expense hedge offsets, full year bottom line forecasted results are not materially impacted this year by exchange rates.

One specific revenue item that Jeff did not discuss was Aldurazyme revenue in the quarter. It increased by $17 million versus 2Q due to delays in that quarter with Sinofi's QA release that has since been resolved. Year-to-date, Aldurazyme is down $44 million due to a onetime (inaudible) of revenue in Q1 2018 though patients on therapy, as reported by Genzyme, continue to grow in 2019 versus 2018.

Moving to operating expenses. Both R&D and SG&A expenses in the third quarter roughly track to previously provided full year guidance. SG&A is expected to come in at the upper end of the range between $670 million and $690 million. SG&A expenses in the third quarter were impacted by the expansion of sales and marketing capabilities as we launched Palynziq in Europe and continue to prepare for valrox and vosoritide approvals and launch.

In the third quarter, R&D expenses reflect the continued enrollment of additional patients in the global Phase III Generate I study, the manufacturing of BMN 307, our PKU gene therapy product, ahead of clinical trials early next year and the children in the 0 to 5-year-old study with vosoritide.

However, despite the progress of these later-stage development programs, with the decision not to pursue development of both BMN 270 for Frie -- 290, I'm sorry, for Friedreich's ataxia and BMN 250, we now expect R&D expense for the full year to be lower than previously guided. For the full year, we now expect R&D expenses of between $710 million and $740 million.

Turning to BioMarin results. GAAP net income in the third quarter was $55 million as compared to a GAAP net loss of $12.6 million in the third quarter of 2018. GAAP net income in the third quarter increased primarily due to a net profit from operations and a benefit from income taxes of approximately $45 million. For the full year, we expect GAAP loss to come in at the low end of our initial guidance range and now expect the loss of between $65 million and $45 million.

As you know, we also measure our performance on a non-GAAP basis, which is based on EBITDA and also excludes stock compensation, contingent consideration and certain other specified items. Our non-GAAP income in the third quarter was $78 million compared to non-GAAP income of $61 million in the third quarter of 2018. We are now narrowing the range of full year non-GAAP income to be between $150 million and $170 million. The use of cash, cash equivalents and investments as of September 30, 2019, we have $1.15 billion as compared to $1.1 billion on June 30, 2019.

And finally, a note on our cash flows for the third quarter. Year-to-date cash used for operational activities totaled just about $9 million, whereas cash generated by operating activities for the third quarter were just over $70 million. GAAP profitability and continued cash flow growth are expected as our revenues increase. Our P&L structure is expected to be similar to our larger biotech peers we aspire to follow.

In closing, BioMarin's current commercial business remains on track to deliver roughly $1.7 billion in revenues this year and close to $2 billion next year, with increasing GAAP and non-GAAP bottom line profitability. Over the next 18 months, we also expect to accelerate into the next phase of higher revenue and growth through potential approvals of valrox and vosoritide, which could lead to approvals and revenue contributions starting before the end of 2020.

Thanks for your support, and I will now open it to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Salveen Richter from Goldman Sachs.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [2]

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So for vosoritide, how should we think about the clinical meaningfulness of the Phase III data? So while you showed about a 2-centimeter a year benefit at the same dose in the Phase II, clearly, there is a range for various stratification measures that adds up here or gets you on a normal growth curve. So if you can give us any clarity there, and I have a follow-up.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [3]

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Salveen, the clinical meaningfulness of just the Phase III study I don't think can be considered in isolation because the Phase III study is a relatively short duration of 1 year, in that, it's placebo-controlled, and that was what we and our investigators agreed was feasible to study and generate high-quality data. I think the way to think about clinical meaningfulness of vosoritide is in terms of cumulative effect over chronic therapy. And to remind you, we reported last year the accumulated benefit of vosoritide through 42 months of chronic therapy in our Phase I/II cohort of 10 patients. This year, we'll be giving you another update on that, which will now carry patients through 54 months of therapy. And as I mentioned in my talking points, we are now in a position to start addressing what the height gain over untreated patients can be expected to be given that we're now coming online with our own contemporaneous natural history study. So all that taken together says the value of the Phase III trial is to prove that vosoritide is effective compared to placebo. But the magnitude of the benefit should be weighed in the context of longer-term therapy.

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Salveen Jaswal Richter, Goldman Sachs Group Inc., Research Division - VP [4]

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That was helpful. And then can you discuss the forward trajectory and dynamics for Kuvan? Do you expect the majority of patients here to transition over to Palynziq prior to IP expiration?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [5]

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Salveen, it is certainly our goal to transition as many adult Kuvan patients to Palynziq as possible before loss of exclusivity in a year, and we are making a lot of progress. 38% of our Palynziq referrals, our naive Palynziq patient referrals, are Kuvan transitions, so making a lot of progress there. It is also true that though there remain a smaller now number of new adult patients that are being referred in for Kuvan treatment, and it is also true, particularly in the United States, that our pediatric population is growing on Kuvan. So the trajectory, I would think, would be similar to what we are reporting year-to-date with patient growth of about 6% tied to continued revenue growth. Our focus, both in Europe and the United States, is overwhelmingly now on adult patients gaining access to, and benefiting from, Palynziq therapy.

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Jean-Jacques Bienaim, BioMarin Pharmaceutical Inc. - Chairman & CEO [6]

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Salveen, I'm sorry, just want to remind you on the line that the loss of exclusivity in Q4 of next year is only in the U.S. In Europe, in ex U.S. we have protection until 2024. I'd also give you one point that maybe it's no different from your traditional generic modeling is that when you've a small molecule, you lose protection of market exclusivity. When you lose a patient to a generic they very rarely come back to the brand, if ever. In our case, what in the case we do starting in Q4 2020, October, November 2020. If we do lose a Kuvan patient to a generic, they are not lost forever to our business in the sense that they can always go to Palynziq down the road, so they are not lost forever.

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Operator [7]

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

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [8]

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One on vosoritide for me also. In the Phase II data, we saw at month 12, just below a 50% increase in annualized growth velocity. Hank, is there any reason why we shouldn't expect that in the Phase III? Are there any notable differences in the patient populations who are enrolled that could change the expected results?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [9]

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Not really, no. We purposely kept the eligibility criteria fairly consistent and also the outcome measures, between the outcome measure and the dose and regimen are the same so we should expect a fairly similar result. Now the one thing that we've pointed out is that we've been doing those calculations compared to the baseline run in. But as you -- as people have pointed out and as you noticed from (inaudible) achondroplasia growth studies, there is a gentle negative slope so at 1 year, there could be some negative placebo effects, such that we underestimated that 1 year the magnitude in treatment benefit of vosoritide. And I think that's going to get to be more and more important as you go out farther and farther in time because those declines will start to add up. And I was suggesting that at the R&D day, we'll have an opportunity to look at those, both of those phenomena, the chemo derived benefit from product treatment as well as contrast that to similar populations of patients who have not been treated with vosoritide.

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [10]

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Got it. Okay. And even though the age 5 to 14 is exactly the same between Phase II and Phase III, do you know whether the people who are actually enrolled have a similar age characteristic? So was the Phase II weighted towards younger patients and Phase III is getting older patients or as far as you know, the ages in the trial are also identical?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [11]

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Edited Transcript of BMRN earnings conference call or presentation 23-Oct-19 8:30pm GMT - Yahoo Finance

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