Good afternoon, ladies and gentlemen, and welcome to the BioMarin Pharmaceutical Incorporated Conference Call to Discuss Fourth Quarter and Full Year 2015 Financial Results. At this time, all participants are in a listen-only mode. Following the prepared comments, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Traci McCarty, Senior Director, of Investor Relations at BioMarin. Please go ahead, Traci..

Thank you, Kylie. Thank you, operator. Today, to remind you, is a non-confidential presentation.

It 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 authorities, availability of capital, future actions in the pharmaceutical market, and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K, and 8-K reports.

On today's call from BioMarin management are JJ Bienaimé, Chairman and Chief Executive Officer; Dan Spiegelman, Chief Financial Officer; Hank Fuchs, Chief Medical Officer; Jeff Ajer, Chief Commercial Officer; and Robert Baffi, Head of Technical Operations.

Now, I'd like to turn the call over to BioMarin's Chairman and Chief Executive Officer, JJ Bienaimé..

Thank you, Traci. Good afternoon and thank you for joining us today. So, BioMarin is entering 2016 from a position of strength based on four pillars of growth. First, we expect that our currently approved products may generate over $1 billion in revenue this year, and we believe can reach $1.5 billion by 2020.

Second, we have two global products cerliponase alfa and pegvaliase with potentially pivotal results later this year and potential launches next year that combined with our existing products may drive revenues to well over $2 billion by 2020.

Third, our best-in-class development portfolio has two additional products, vosoritide for achondroplasia and BMN 270, our gene therapy product for hemophilia A, that represents, each of them, $1 billion-plus market opportunity.

Fourth, we expect to turn the corner towards profitability by each achieving non-GAAP breakeven or better in 2017 and bottom-line growth in the years to follow and is irrespective of what happens with Kyndrisa in Europe. In 2015, we made progress on the number of financial, strategic and therapeutic fronts that set us up for a success in 2016.

We saw strong demand and revenue growth across our commercialized products, delivering 18.8% of growth year-over-year in total BioMarin revenues.

On the strategic front, we completed two transactions that together reduced our future R&D expenses, increased earnings through revenues and provided us with worldwide rights to the PKU franchise that could generate well over $1 billion of revenue in the long term.

The first was the sale of our PARP inhibitor and the second one is the acquisition from Merck Serono of all rights outside the U.S. for Kuvan and pegvaliase, with the exception of Kuvan in Japan.

On the commercial front, Jeff's team did another exceptional job in 2015 with the continued strong global launch of Vimizim, driving total BioMarin revenues to $889.9 million, and we're looking forward to 2016 total revenue that is expected to be between $1.05 billion to $1.1 billion, and Dan and Jeff would provide some more details on the 2016 guidance in a moment.

On the development front, in 2015, we achieved a number of important milestones that will drive significant value in 2016 and beyond. Several clinical trials advanced, including the clinical proof-of-concept for reveglucosidase alfa for late onset Pompe disease.

We also completed enrollment of our Phase 3 pivotal trial for pegvaliase for PKU and are expecting Phase 3 pivotal data next month. With cerliponase alfa in CLN2 disease, we completed enrollment in our Phase 1/2 study, which could potentially be our registration study.

Results from that study will be shared next week as a late breaker at the WORLD lysosomal storage disorder meeting in San Diego.

As background, based on recent market research, we now believe the prevalence of CLN2 in the world is between 1,200 and 1,600 children, with an incidence rate of 100,000 to 200,000, which is between our Vimizim and Naglazyme market numbers for MPS IV and MPS VI, respectively, representing about $500 million global opportunity.

With vosoritide for achondroplasia, last June, we shared a positive six-month Phase 2 data showing a 50% increase in growth velocity at a dose of 15 microgram per kilogram, and patients in that study are now in the extension arm, and we intend to provide a one-year data update at R&D Day in April to see whether the growth velocity increase is maintained for a full year.

Also in 2015, we dosed our first patients with BMN 270 for the treatment of hemophilia A, and we will also provide a program update on this R&D Day. The development that did not go as we had hoped was Kyndrisa in the U.S. for the potential treatment of boys with exon 51 skip amenable Duchenne muscular dystrophy.

We were surprised and disappointed by both the Advisory Committee Meeting, and the complete response letter from the FDA that we received in January. But we remain hopeful that there is a near-term fast-forward for approval in EU and beyond where more than 80% of global patients reside.

We look forward to staying on track with the European Regulatory submission of the Marketing Authorization Application for Kyndrisa. And to the current timeline, we anticipate a CHMP opinion in late Q2, which could lead to a potential approval in Q3.

However, we recognize the regulatory hurdle for approval and are managing the business to be prepared for any outcome, and Hank will provide an update on the Kyndrisa program also in a few minutes. We have previously indicated that with the U.S. approval of Kyndrisa, it could be non-GAAP profitable in 2017.

Based on the continued growth of our core business, the strategic transactions that we implemented in 2015 divesting (6:51) acquiring ex-U.S. rights to Kuvan, and so thanks to continued financial discipline, we intend to manage the business in order to be non-GAAP breakeven or better in 2017 even without a U.S.

approval of Kyndrisa and regardless of the ultimate regulatory outcome in the EU for Kyndrisa. And now Dan will discuss the 2015 quarterly and full year financial results in more detail, as well as provide our financial guidance for 2016.

So, Dan?.

Thanks, JJ. Earlier today, we issued a press release summarizing our financial results for the fourth quarter and full year 2015, and I refer you to that release for full details. I am pleased to report that on a constant currency basis, total BioMarin revenue for the full year 2015 increased by 23.6% compared to 2014 to a level of $926.5 million.

Due to the strengthening of the dollar during 2015, we did experience a $36.6 million reduction in reported revenues net of hedging. Even against these FX headwinds, reported total BioMarin revenue for the year increased 18.8% to $889.9 million.

In 2015, Vimizim continued its excellent launch trajectory generating $228.1 million in net revenues for 2015, the first full year on the market. In addition, revenues grew 58.5% in Q4 compared to the same quarter in 2014 providing a good base for 2016.

Kuvan, in its eighth year since launch in the U.S., generated $239.3 million in net revenues, an increase of 17.9% over the prior year. Growth from the fourth quarter was also strong with a 12.9% increase over the same quarter last year. Naglazyme continued to add patients on therapy and generated over $303 million in net revenues in 2015.

However, uneven ordering from Latin America and foreign exchange headwind contributed to a 9.4% decrease in net revenues compared to the prior year. Nevertheless, we continue to project stable or increasing revenues with Naglazyme in 2016 and beyond. Operating expenses were in line with our expense guidance.

Full year R&D expenses were $634.8 million and SG&A expenses were $402.3 million. Gross capital expenditures for the year were $223.9 million driven by the buildout of the manufacturing facility in Shanbally to support commercial supply of Vimizim, and our San Rafael laboratory and office facility to support ongoing research and development projects.

Non-GAAP net loss of $142.7 million was slightly above the higher end of our guidance due to a licensing fee incurred at the end of 2015 associated with securing freedom to operate for vosoritide in the United States. We reported $171.8 million GAAP net loss, which included several large charges in credits.

First, GAAP net income included a $369.5 million gain on the sale of intangible assets due to the sale of talazoparib to Medivation.

In addition, the FDA complete response letter for Kyndrisa was the primary cause for a $47.9 million credit to contingent consideration expense in the fourth quarter due to the reversal of the liability for the potential $80 million CVR for U.S. FDA approval.

In addition, based on the CRL, in the fourth quarter, we took $198.7 million intangible asset impairment charge to reflect the decline in value of the U.S. Kyndrisa intangible asset. I would now like to turn to 2016 financial guidance. As JJ already indicated, we expect 2016 total BioMarin revenue to be in the range of $1.05 billion to $1.10 billion.

I would note that this 2016 revenue forecast assumes the key currencies remain at the current exchange rate through the year.

In addition, the EU decision regarding Kyndrisa does not materially impact this range due to the fact that even with an EU approval in the second half of the year, we would anticipate only nominal revenues from Kyndrisa in 2016. Jeff will provide more details on our product-by-product revenue guidance in this section.

Turning now to operating expenses. 2016 SG&A expenses are expected to be in the range of $470 million to $490 million.

Roughly half of the increase in SG&A expenses in 2016 compared to 2015 is driven by expansion into additional markets for Vimizim and Kuvan and is directly related to the projected $160 million to $210 million of additional revenues from these products.

The other half of the increase is associated with preparation for potential launch of Kyndrisa in 2016 and cerliponase alfa and pegvaliase in 2017. We would expect to be at the lower end of the 2016 SG&A spending range if Kyndrisa does not receive a positive CHMP opinion and European approval later this year.

In 2016, R&D expenses are projected to be in the range of $680 million to $720 million. In total, roughly two-thirds of total R&D is invested in clinical programs, with the balance invested in supporting our commercial products and, to a lesser extent, pre-clinical and early-stage research.

Looking beyond 2016 with revenues from our programs accelerating and with several of our later-stage clinical programs nearing completion, we expect that R&D in absolute dollar terms will be fairly stable and as a percent of revenues will decrease next year and in the couple of subsequent years beyond that.

Capital expenditures in 2016 are expected to be between $150 million to $175 million, as we complete validation and approval of our Irish manufacturing plant and add to our laboratory office and other manufacturing facilities at our headquarters in California.

In terms of non-GAAP net loss guidance for 2016, we expect that our operating loss will be between $75 million to $100 million, a roughly 30% to 50% improvement over 2015.

In the event Kyndrisa is approved and launched in the U.S., our expectation is that we'd be at the higher end of the SG&A expenses, which would result in being at the higher end of the non-GAAP net loss for 2016. Conversely, we'd expect to be at the better end of the non-GAAP loss range if Kyndrisa is not approved in Europe.

While a narrow non-GAAP loss guidance range accommodates both scenarios regarding an EU approval of Kyndrisa, due to the very different GAAP charges and credits in the two EU approval scenarios, GAAP results will be materially different depending on whether Kyndrisa receives EU approval or not.

The GAAP loss guidance of $400 million to $430 million provided in today's press release is based on the assumption of an EU approval and launch this year.

If Kyndrisa does not receive approval in Europe this year, we would expect credits for the reversal of the CVR liabilities and possible significant intangible asset impairment charges that could materially change the GAAP results from today's guidance.

Looking beyond 2016, we believe that under a wide range of regulatory outcomes for Kyndrisa, cerliponase alfa and pegvaliase, we will be able to manage our business in order to achieve breakeven or better non-GAAP income in 2017.

Moreover, growth in revenues and operating results are expected to accelerate after 2017 with near-term approvals of pegvaliase and cerliponase alfa, respectively. An approval of Kyndrisa in Europe would add particular earnings power in 2018 and beyond. In summary, 2015 produced solid financial results with revenues of $889.9 million.

2016 will be a year of continued revenue growth, particularly for Vimizim and Kuvan, important data results with pegvaliase and cerliponase alfa and potential filings for both, while moving towards non-GAAP breakeven or better in 2017 with growing non-GAAP profits after that.

Now, I'd like to turn the call over to Jeff to provide an update on our commercial products and expectations for 2016.

Jeff?.

Thank you, Dan. We're extremely pleased with the continued global commercial launch of Vimizim and the resulting cumulative sales of $305.4 million since approval in 2014. 2015 saw a steady rise in identified patients, increasing to now over 1,900 compared to approximately 1,650 at year-end 2014.

The number of patients being treated with Vimizim increased 10% quarter-to-quarter in the fourth quarter compared to Q3 2015. We gained access to 13 new markets in 2015 to a total of 33, including Spain, Japan, Turkey, and at year-end the UK.

Patients on commercial therapy more than doubled in 2015 due to a combination of access to new markets and further penetration in market access in 2014.

Despite the impact of foreign exchange, full year Vimizim results were strong, delivering 58.5% growth in Q4 2015 compared to Q4 2014 and 195.1% growth in 2015 compared to full year 2014 when we launched in the U.S. in February and the EU in April, respectively.

Vimizim was impacted less dramatically by foreign exchange in 2015 compared to Naglazyme due to a lower base of sales in 2014 and a much higher volume growth. Recall, a large order from Latin America in the third quarter of 2015 impacted Q4 2015 results, but the quarter-to-quarter comparison was favorable outside of that dynamic.

For 2016, we expect further progress as the global commercialization of Vimizim proceeds. Specifically, we expect increased penetration in established markets and to continue opening new markets each quarter, although not at the pace seen during the initial launch. In summary, the commercial opportunity for Vimizim this year is high.

We expect continued success in year three of the global launch of Vimizim as supported by full year 2016 guidance of between $300 million and $330 million, which is a 38% increase at the midpoint over 2015 full year revenues of $228.1 million. Turning to Kuvan.

In North America in 2015, sales continued to benefit from growth in new patients and continued high levels of adherence. Full year 2015 sales of $239.3 million reflected a 17.9% growth in Kuvan's eighth year on the market. Importantly at year-end 2015, commercial patients on Kuvan increased 15.8% year-over-year.

Additionally, we believe that increased utilization of Kuvan in adolescents and adults is attributable to the combined effect of ACMG PKU treatment guidelines published January 2014, coupled with case management services and patient education provided by BioMarin.

Looking toward our new Kuvan territories in 2016, as a result of our acquisition of worldwide rights with the exception of Japan, the organization's focus has been to transfer marketing authorizations and licenses in each country as we transition taking over order-to-cash activities.

Further bolstering our global strength in the Kuvan market is the recent allowance of an EU patent that provides us exclusivity through 2024. We are very enthusiastic about our future prospects with Kuvan, both in the U.S. and abroad.

The longer expected commercial time horizon in the EU will enable us to maximize our efforts to grow the markets accordingly. For Kuvan in 2016, we expect continued steady growth in the U.S. and the addition of revenue from outside the U.S., resulting in full year guidance of between $320 million to $350 million. Moving on to Naglazyme.

In 2015, continued growth in patients drove increased demand. Patients on commercial therapy increased by 8.7% over the year, and identified patients continued to rise. A strong dollar and large uneven order patterns drove big swings in quarterly sales, and also impacted revenues for full year 2015 compared to 2014.

As a result, sales of $303.1 million for the full year 2015 were 9.4% below prior-year reported revenues. As we observed since Naglazyme was launched 10 years ago, uneven order patterns from the Latin American region continued in 2015.

In addition, of all our products, Naglazyme has the largest exposure to foreign exchange fluctuations, which impacted 2015 full year results. However, it is important to remember that patient growth continues. The base of patients on Naglazyme remains impressively adhering, so the underlying strength of the business is intact.

And finally, a few words on Kyndrisa as it relates to the commercial organization. We are preparing for a potential launch in the EU and international market. As we have said previously, upon an approval, we will leverage our existing global infrastructure while making modest and focused investment to prepare for launch.

Upon a positive CHMP opinion in the second quarter of this year, we could potentially receive approval of Kyndrisa in EU in the second half of the year, whereby we would begin to launch process on a country-by-country basis in that region.

In closing, the commercial team delivered strong results in 2015 growing total BioMarin revenues 18.8% year-over-year to a total of $889.9 million. I'm very pleased with the level of demand we're seeing for Vimizim in the U.S. and other markets since the commercial launch in 2014.

For 2016, the commercial teams will focus on driving market penetration in Vimizim that substantially all marketed regions, as well as ramping up our sales efforts with Kuvan in our now global territories. Now, I will turn the call over to Hank, who will review the pipeline.

Hank?.

Thank, Jeff. As JJ described in his introductory comments on the development front, we have a number of important milestones that could drive significant value in 2016 and beyond. First off is data from our study with cerliponase alfa for the treatment of children with CLN2, a form of Batten disease.

This data will be shared as a late-breaker at the world meeting on March 2; and if supportive, will be the basis of regulatory filings in the U.S. and EU mid-year. BioMarin will have a very large presence at world this year.

We have submitted 19 abstracts, 6 of which have been accepted as platform presentations to sponsored symposia, and a number of other program, specific events, and meetings.

Beyond cerliponase alfa results, another subject of interest at WORLD will be pre-clinical data with BMN-250, our NAGLU IGF2 fusion protein for the treatment of MPS IIIB comparing intravenous to intracerebral ventricular delivery.

In addition, we will have two platform presentations with Vimizim and patients with Morquio syndrome, one on the impact in patients who have limited ambulation and the other on the impact of long-term Vimizim treatment on pulmonary function on patients.

Turning to another significant catalyst expected later this quarter, we anticipate sharing the pivotal results of the pegvaliase study for the treatment of PKU. Pegvaliase has the potential to have an enormous impact on patients with PKU, who are either not amenable to treatment with Kuvan or who want a more potent therapeutic.

Recall that the primary endpoint in this study is Phe lowering and the secondary endpoint is neurocognition.

To remind you, we have seen significant reductions in blood Phe in the Phase 2 and in the 301 feeder studies, so we have a high degree of confidence that we can meet the primary endpoint of this study and demonstrate the appropriate blood Phe lowering.

We believe the study is also powered sufficiently to detect a trend in neurocog improvement, which could support registration based on conversations held to-date with the Food and Drug Administration. We look forward to sharing these results with you later in the quarter and to potentially submitting the BLA later this year.

In April, we plan to have our R&D Day in New York. At that meeting, we plan to provide updates on all of our programs and specifically a one-year data update with vosoritide for achondroplasia and plans for our pivotal study, which we hope to begin at the end of this year.

We also plan to provide an update on our program with our gene therapy product BMN 270 for the treatment of hemophilia A. Recall that we dosed the first patient in late September of last year, and I'm happy to report the patients have now been treated at the third dose level, which is surprisingly 10 times the starting dose.

We're sufficiently encouraged by what we have seen to expand the number of patients treated at this dose level, and we will be providing more details at R&D Day. We also plan to have external speakers who will present their perspectives on our products, all of whom are currently study investigators.

It should be an extremely informative event, and we hope you can attend. Following R&D Day, we anticipate many other important catalysts this year. In the second quarter, we expect to receive a CHMP opinion on Kyndrisa for EU approval.

We recently responded to our Day 120 questions and still remain on our original timeline related to the Marketing Authorization Application process for European Union approval. Based on this and assuming the opinion is positive, we would expect to hear about a potential approval in the European Union in the second half of the year.

We continue to believe that Kyndrisa is valuable and important therapeutic option for patients with Duchenne muscular dystrophy. However, as JJ said, we recognized the regulatory hurdle for approval and are prepared for any outcome.

Turning to other events expected in the second half of the year, assuming the data are supportive, we intend to submit the BLA and MAA filings for cerliponase alfa for the treatment of CLN2. Given the severity of this disease, we hope to move the applications forward as expeditiously as possible.

And in order to address the significant patient demand we are experiencing, we intend to also start the process of making cerliponase alfa available prior to potential regulatory approvals and commercial launch.

Based on our experience with Vimizim, establishing a similar program for expanding use, we expect the process to take several months from the time we submit approval applications. And so with that, operator, we'd like to now open the call up for questions..

Our first question comes from the line of Andrew Peters with UBS. Your line is open..

Hey, guys. Thanks for taking my questions. So, I guess first one on the guidance this year. Didn't hear a lot on the call today around the other exon skipping programs. I know in the past you described kind of your commitment to investment there as dependent on Kyndrisa.

So, how does the R&D guidance factor in, any sort of progress or investment on the other exon skippers, and is that going to be dependent on the EU outcome for exon 51?.

This is Dan. I'll take that and, Hank, you can jump on in. We're in three other exons at the moment with Phase 2s, and it's anticipated that those would certainly be continuing this year. We wouldn't anticipate a significant change in the investment level in 2016. And going forward, it'll be a function, as we've said before, on the Kyndrisa result.

And just to add, the studies that are under way are relatively early stage, relatively small studies..

Okay. Thank you. And then just as it relates to guidance, I may have missed this before, but can you just frame perhaps the impact of FX on constant currency basis for revenue next year? I know you've kind of put it that way in the past.

What would Vimizim in total revenue guidance be on a – if FX hadn't been – you don't expect it to continue to weigh on results..

So we gave the impact in 2015 actual results.

If rates stay where they are today or where they were a couple of days ago when we wrote this, for the remainder of 2016, the FX impact is in the $20 million to $30 million, $40 million range because the euro today is actually pretty close to what's the average rate, maybe even a little higher than the average rate in 2015, to actually get a little euro pickup, and the offset is the reduction due to weakening of, if you will, Third World currencies..

Okay. Great. Thank you..

Our next question comes from the line of Michael Yee with RBC Capital Markets. Your line is open..

Hi. Good afternoon. Thanks for taking the question. This is Judy Liu on for Mike Yee at RBC. Congrats on the quarter and two questions, if I may.

The gene therapy program, I know we'll look at some more data later this year, but could you just help us set up the scenario, like what kind of scenarios are you envisioning for your gene therapy data? And then similar question on your PEG-PAL program, the scenarios there you would envision.

And more specifically, if I recall correctly, you just said on the call that the secondary endpoint is neurocognition, so it's secondary not co-primary. So, this means you don't need to hit on that? Is that correct? Thanks..

Hank is going to answer your questions, or try to..

Okay. So 270 scenarios, this was a first-in-man study. So, key outcome variable is the safety. And it's also a dose-ranging study. And so, we would like to obtain data on the relationship between the administered dose and the amount of Factor VIII that gets produced as a consequence of delivering the transgene.

So, the scenarios range from not safe and no evidence of efficacy over the range of doses to the other end of spectrum, safe, and we can demonstrate a dose response.

And I think the key considerations that we've set in the program all along is what is the shape of that response curve, and can we achieve a meaningful degree of trends of gene expression at doses that are tolerated. Turning to 165, I'm sorry, to PEG-PAL, to pegvaliase, the construction of the analysis is the primary endpoint is blood Phe lowering.

We are massively well-powered to detect the reduction in blood Phe. The first secondary endpoint is improvement in neurocognition as measured by the attention deficit rating scale.

The way the analysis plan is structured is through what's called a hierarchical analysis, wherein if you hit the P-value in the primary endpoint of Phe, then you can test the first secondary endpoint in the hierarchy, neurocognition, without having to take a P-value correction for the fact that you now have multiple endpoints.

And this hierarchical step-down procedure is a fairly standard procedure in statistical testing. And for the reason that I've said before that we're highly powered to demonstrate a benefit on blood Phe, we expect to be testing neurocog with the appropriate statistical interpretation around it.

So, although, neurocog is not formally labeled a co-primary endpoint, the structure of the analysis allows us to be talking with the FDA about a claim to be made if we hit neurocog or achieve a trend in neurocog..

And also, we designed a trial based on some experience we had with a similar neurocog scale with Kuvan, where we – I don't know if you remember, we had a study where we're able to show some improvements in about eight weeks or so of treatment with Kuvan, which is a much less powerful agent in terms of Phe reduction than pegvaliase..

Our next question comes from the line of Ying Huang with Bank of America Merrill Lynch. Your line is open..

Hi. Good afternoon. Thank you for taking my questions.

First of all, maybe, Hank, can you elaborate a little bit on the powering of detection of neurocognitive function benefit in PEG-PAL trial for Phase 3? And then secondly, maybe for Dan, you're assuming you could achieve non-GAAP breakeven or better in 2017, does that imply your operating expenses could probably – kind of like in terms of slowing down the growth of that OpEx in 2017? Lastly, can you guys provide an update on how many more cure patients you have identified so far? Thanks..

I'll start with the last question. We did, Jeff Ajer in the prepared remarks state that we have already identified now over 1,900 patients worldwide..

All right. Thanks, JJ..

Yeah, so..

And powering for the pegvaliase study on neurocog, we haven't given the explicit details, but what I'd say is that we've been in dialogue with the Food and Drug Administration about what they would consider to be a successful outcome and they understand that because of the rarity of the condition and the nature of the tools used to test for improvement in cognition, that the study is powered to detect a trend toward improvement, which they have indicated as in our interactions that would be adequate.

And so, one way to think about this is that if PEG-PAL has roughly the same effect on attention-deficit as drugs used to treat attention-deficit disorders, we will achieve the requisite trend of improvement in attention and inattentiveness in PKU patients. And we're optimistic about achieving that trend for two different reasons.

One is that unlike in attention-deficit disorder syndrome that's not caused by PKU, in the case of phenylketonuria, attention inattentiveness is really driven pretty singularly by the genetic abnormality of inheritance of the defective gene from metabolizing phenylalanine. Said another way, we're addressing the root cause of the disease.

And secondly, we're confident about – we have some confidence about hitting this endpoint because as JJ mentioned, we had done a previous study with Kuvan in which we had demonstrated an improvement in neurocognition. And now, with PEG-PAL, we're using a much more potent drug to improve neurocognition.

So, given the FDA interest in the endpoint, willingness to accept a trend of approval, and based on what similar outcomes have been observed in attention deficit as well as our own observations with Kuvan and PKU, that's given us the confidence about hitting neurocog.

And obviously, it won't be until we unblind that we know for sure whether we did or we didn't. Stay tuned..

Yeah. And this Dan. I'll try to answer your guidance question.

The 2017 guidance reflects the possibility of a pretty wide range of potential revenues in 2017 both – not a very wide range off our core existing approved products, but the potential for Kyndrisa, pegvaliase, Batten disease, and we've developed operating scenarios under pretty much all of the various different combinations of them.

And in the ones where revenue doesn't grow very much, we can manage the operating expenses to that appropriate level to get to non-GAAP breakeven..

Great. Thank you..

Our next question comes from the line of Chris Raymond with Raymond James. Your line is open..

Hey, thanks. Just a couple questions, and first wanted to maybe expand a little bit on PEG-PAL.

So, yeah, I'm detecting a bit of investor confusion sort of commercially with, when thinking about the launch, given that patients have this long, relatively long induction and titration period, just from your experience in the trial, can you maybe talk to your expectations for keeping folks engaged through that titration phase? And specifically, what kind of dropout rate, for example, we might expect and then, how you think they might do once they've emerged from that on the appropriate maintenance dose? Obviously, nothing in the trial, but just how you feel commercially that dynamic might play out? And then the second question is on pricing.

So, just noticing your drug pricing history, it seems like up until last year, you guys had a pattern of small but regular increases for the BioMarin-controlled commercial drugs. And in Vimizim, I don't think you've had an increase since it's been on the market. So just curious, this seems to be, seems to contrast with almost everybody else.

So, is this a change in strategy on your part, or am I reading too much into the timing element here? Thanks..

So, hi, Chris. This is Hank, and I'm going to start. The first thing is I want to kick out a little bit the premise of the statement of the relatively long induction and titration. Even starting patients on Kuvan, they have to go through an initial phase of response testing.

And then as their life adapts to initiation to Kuvan therapy, some further adjustments of dose need to be undertaken. And with PEG-PAL, it's fairly similar, and I think Jeff's team has done a marvelous job of commercializing Kuvan and working through those issues.

In the case of PEG-PAL, more specifically, there is one difference between PEG-PAL and Kuvan and that's that because it's an injection of a non-human protein, there can be a transient initial immune response to the product, which can get manifest as a, think of it as a flu-like syndrome, potentially fever, rash or joint aches.

But that's relatively manageable by the clinicians and the patients. And you just pause a little bit on the rate at which you escalate the dose and we find that about 80% of patients or up to about 80% of patients can achieve Phe lowering with a dose of up to 40 milligrams.

So, the patients are getting through that induction, titration and getting a very large, about 70% reduction in blood phenylalanine levels. And so their motivation, together with the magnitude of the benefit have led to fairly good retention. We're reasonably pleased about the retention.

And in fact, we've also learned a little bit about managing some of the side effects during induction titration, and we've really gotten pretty good at low frequency side effect and low dropout rate during induction, titration.

So I think we've learned a lot and the evidences is going to be revealed when we unblind the study, but we're pleased with what we've accomplished..

And we have patients that have now been on the drug for over five years..

That's great..

And then just turning to the commercial implications, I guess I would start, Chris, by saying that all of BioMarin's drugs require a high degree of patient and clinic engagement and support to facilitate successful continued use of the drugs and the kind of commercial success that we've experienced.

So, we look at pegvaliase and don't see this as a threatening situation, just kind of a new flavor of what we've done successfully with our other commercialized products.

In fact, the Phase 3 clinical trial experience at a large number of PKU clinics in the United States has given us this amazing benefit of clinics that have learned a lot through the Phase 3 period about how to manage patients through induction and titration phase.

We anticipate getting a lot of leverage from that experience when pegvaliase, assuming pegvaliase is approved and turns commercial. We expect that our PKU team, including field-based clinical coordinators, will provide a high level of support in the field with patients and to the clinics to support that induction and titration process.

The one commercial aspect about this that I think is worth noting is because it's a high-touch process, the uptake on pegvaliase will be limited to a small number of patients in each clinic at a time. So, not all adult patients will go on to pegvaliase therapy upon approval; they will gain access to therapy over time.

And so maybe I would ask JJ if you wanted to field the pricing question..

Yeah, I'm not sure I understood exactly the pricing issue, but I would say in general and philosophically, we feel that we price our products when we introduce them at a relatively high level because we believe they deliver a lot of value and innovation.

But our business model has not been in the past and will not be in the future based on aggressive price increases. That's not what we intend to do. So, we have in the past increased the price in the U.S. only by way because price increases are mainly possible in the U.S.

for Kuvan and Naglazyme about the inflation rate, and that's our intent to continue doing that way. And I will pass it over to Jeff regarding the Vimizim price increase history or lack thereof or the plans there..

Yeah. Thanks, JJ. I mean, JJ's guidance has been clear. Price adjustments do not exceed inflation, even in the United States. Annual price increases are not our model. I think we would guide to continue to expect very modest and only periodic increases in prices going forward..

Okay. Thank you, guys..

Our next question comes from the line of Mark Schoenebaum with Evercore. Your line is open..

Hey, guys. Thanks a lot for taking the question. I wanted to address the profitability in 2017. I know you've touched on some of this. I apologize if you end up repeating yourself, but this is a change, at least from my understanding before. It's a really positive change that I think a lot of people are going to pay a lot of attention to.

So I'm just wondering, Dan or JJ, I'm not sure who wants to address this, what changed between December, January and now? What programs have you decided to de-prioritize or did something on the cost side, or did something change in your internal revenue projections, or what has changed before? Because I remember we're asking you this before and you said yeah, look, if Kyndrisa's not approved anywhere, we'll probably push that out.

So I'd be curious to know if you could be at all more specific about that. And then my second question if I may was, there's a, in your hemophilia gene therapy trial, there's a patient blogging about his experiences on Facebook. I was wondering if you guys are aware of that, those posts, and if you had any commentary on their authenticity.

And then finally for Hank, can you help define what a trend is in neurocog? Like has the FDA sort of said the P-value has got to be under 0.01 or just, I don't want to get in a situation where you guys think there's a trend but the FDA doesn't.

Maybe I'll start on or Danny will address it..

Yeah. Sure. Yeah, if you want to do it. Mark, I don't think it's so much a change as it is a clarification and further analysis..

Okay..

I mean through most of last year, the plan that we were most focused on was the Kyndrisa approval and launch in the United States. At JPMorgan and at the back half of the year – the back end of the year when we were asked what our new guidance was, we've said we weren't in a position to give it.

What's changed is – and we never said that we were going to push it out. We just said we weren't in a position to provide new guidance.

And we've taken – we've utilized the time to frankly develop to to the fourth, fifth different sets of scenarios and now have the confidence that we have the ability to turn enough dials and manage the business to both keep the portfolio growing, keep the products appropriately invested and meet that goal.

And I would say we did ratchet the target down a little because before we talked about being non-GAAP profitable in 2017, and our guidance is not accidentally worded to say breakeven or better. Some of the cases, if the product approvals aren't there, will be more at the breakeven end than at the profitable end..

Yeah. I mean and also, since we received the complete response letter, we sharpened our pencils and we realized that there were investments we were planning to make that might, I mean, might not be necessary right away and could be delayed a little bit.

And we did all the scenario analysis that Dan mentioned, we realized that, again, whatever happens to different scenarios, we believe we can manage expenses, so we can break even or better. That was your first question..

Yeah..

The second one was....

Blogger..

Sorry?.

The blogger..

The bloggers..

Yeah..

So, I'll take the second..

Is it you, JJ? Is the blogger actually you?.

Damn, I've been uncovered..

Yeah and for that reason, we're going to protect the identity of the patients who are in clinical trials, and not comment on what amounts to rumors and speculations that are out there in the universe. Suffice to say, as I've said in my prepared remarks, that we've treated patients at a third dose level.

We're sufficiently encouraged by what we've seen that we're expanding the number of patients that are treated at that third dose level. And we look forward to providing you more concrete update about the status of the program at our R&D Day in a couple of months..

Anyway as Hank says, we are encouraged in what we've seen the expanded number of patients is the key comment here, all we can say..

And then, as regard to trend, there hasn't been a concrete agreement as to numerically what the P-value needs to be. Just to step back a little bit and put this back into context, the industry has gone back and forth a little bit on this, but when we first met with them, they said blood Phe alone would be sufficient to support a full approval.

Then, we met with them again about some other facets of the program, and I said, well, blood Phe really should be seen as a surrogate because we have – what they said to us at the time was we approved Kuvan on the basis of blood Phe.

But that was really in children, and we pointed out that actually Kuvan is approved independent of adult versus children.

And then, we brought back it to them on a subsequent meeting some further evidence about the clinical relevance of a blood Phe abnormality in adults and that's the point at which they said to us, we'd really like to fully approve, not conditionally approve this if we could, and we understand your study may be underpowered for demonstrating typical statistical significance of improvement in blood Phe.

And so, a trend could get us there. Now obviously, that's subject to full review. It's also subject to safety considerations. And so that's been the dialogue we've had. We've been led to understand by the FDA that a trend would satisfy approval.

I should also comment, this is the Division of Gastrointestinal Inborn Error Products (sic) [Gastroenterology and Inborn Errors Products]. It's a division that we've worked with fairly closely over the past decade from Aldurazyme, Naglazyme, Kuvan, Vimizim, and we've had a lot of dialogue with them.

So, we're being relatively fulsome in our sharing of that dialogue with you over the years and believe that a strong improvement in blood Phe, together with the trend in neurocog, would support a full approval, and that a strong improvement in blood Phe alone might lead to an action based on Phe as a surrogate endpoint..

Thanks so much, guys..

Yes..

Our next question comes from the line of Cory Kasimov with JPMorgan. Your line is open..

Hey, guys. Thanks for taking the question. So, I had a couple for you on the CLN2 program ahead of your data next week at WORLD. I guess, first of all, can you just try to put into context what type of result here would be clinically meaningful? Obviously, you're looking at a single-arm study.

So, is there any sort of like efficacy threshold that you or clinicians or regulators are looking for in terms of disease stabilization over 12 months? And then on that same topic, on a similar topic, to the extent of the FDA feedbacks you have on this regulatory strategy to file later this year, can you talk about the level of interaction you've had with them on this program, once again given that this is one single-arm study, so your confidence in filing if these results are indeed promising? Thanks..

Yeah. So, we have not communicated the sort of numerical benchmark for efficacy success. We've developed that internally on the basis of our interactions with both the FDA and with the scientific advice working party of the European Medicines Agency.

And the nature of the evidence pertains to how patients' progress on cerliponase compared to their expected natural history. And so, what we'll be principally talking about is the rate of decline in treated patients versus untreated patients.

But you can also imagine that there'll be additional analysis looking at, for example, the proportion of patients who decline as if they were untreated or the proportion of patients who have a decline that is lower than what would have been expected or the proportion of patients even – you can imagine that some patients may not even decline.

That'd be a pretty dramatic outcome if we can halt the progression of the disease. And it is a disease that takes children at a very young age. So, completely arresting their progression might be a pretty dramatic finding.

You'll also be wanting to see other secondary endpoints, and one that I might highlight for you to pay attention to would be radiographic evidence of progressive disease. And there's been some nice natural history data on the rate of progression of Batten's disease in untreated children.

And we have longitudinal X-ray data, MRI data from the trial that will help you interpret the overall data to the treatment benefits..

On average, the loss of gray matter by Batten's kids still premier?.

Yeah. So, a normal child, let's say, so you can take a sagittal section of a brain using an MRI image and you can delineate white matter from gray matter, gray matter being the substance of the brain and the white matter being the synapses and the connections. And normally, children lose about 1% of their cortical gray matter volume per year.

This is a normal physiologic process called pruning. A Batten's child loses about 12% of their cortical gray matter per annum. And so, if minus one is normal and minus 12 is disease, when you look at the results when we present that next week, you can gauge for yourself where in the spectrum of minus 1 versus minus 12 we are.

Now, the second part to your question is pertained to how much interaction, how much confidence. And there, I'd say we had just a lot of interaction and a lot of dialogue about requirements for registration. I think both the European Medicines Agency, some key member states, as well as the U.S.

Food and Drug administration and we have had very, very fulsome dialogues about requirements to support registration. We've been saying that we're encouraged that this trial could form the basis of an application and potentially an approval.

I'll say it's only a week from now thereabout, and hopefully, you'll be there and we can talk about the data and you can make up your own mind as to whether it will support the registration..

Okay. That's really helpful. Thanks, Hank..

Yeah..

Thank you. Our next question comes from the line of Geoff Meacham with Barclays. Your line is open..

Hey, all. This is Evan on for Geoff. It's good to be back on a BioMarin earnings call. Thanks for taking our questions. When looking at BMN 701 what are some of the options that you're considering? In the press release, you had discussed you're going to re-look at some next steps.

What could those be? And also in a different program, what gives you your confidence in the EU for Kyndrisa? I mean, we've had pretty clear FDA decision. What's driving kind of your thoughts in the EU right now? Thanks a lot..

one in a group of completely naïve patients, and one in patients who have been on Myozyme for some length of time. And the most recent data was that in patients who have been treated with Myozyme, BMN 701 improves the maximum inspiratory pressure, maximum expiratory pressure, and six-minute walk distance from their – on Myozyme baseline.

And it's important to remember that these patients were characterized by their physicians as the majority declining. So improvement in a background in which patients are declining, we've taken as a relatively strong signal.

I've said all along that one of the key considerations from a registration pathway point of view is that health authorities have been concerned about the interpretation of single-arm clinical trials.

Now, the flip side to that is that some medications in these types fields, in the enzyme-replacement therapy rare disease world have actually accomplished registration using single-arm, so-called switch trial designs.

We've had some dialogue prior to obtaining these data that I've reflected as they've expressed some concerns and wonderment as to whether a single-arm study could support a full registration, what we haven't had a chance to do yet is to circle back with them and say, now, given these data, do you have – does this alleviate your concerns, do you have concerns, do you have less concerns.

And I'd say stay tuned for further updates on how those conversations progress. Probably the most important thought to leave you with, though, is that opinion leaders are very encouraged and very engaged by these data.

And so we're working very closely with them to discuss restarting the switch study because they're keen to have something that's better than currently available therapy. They perceive currently available therapy as being substantially limited.

Switching to Kyndrisa in the European Union, again here we've had quite a lot of dialogue, and we certainly would say that the U.S. FDA action is on our minds anyway as it pertains to the global outlook for approval.

As JJ said in his primary comments, we were surprised and disappointed by the approach the agency took and its interaction to the advisory community and the result in CR, the complete response letter. The European health authorities have told us that they review independently from the United States.

They have their own independent review mechanism, and we've interacted with them quite substantially around the data and through the process, they asked questions. We refer to those as the day 120 questions. We interact with them, explain the approach that we're going to take to address their questions, and we've gotten some feedback from them.

And it's really that basis of that dialogue that we reflect that we have some degree of cautious measured optimism about the chance for approval. But we're still in the process and I'd say stay tuned for further development. The action date that we're talking about is in the first half of the year.

It's not very far from now, and we'll know at that point a real opinion as opposed to things that we can speculate on..

And when we get that..

Really agile, so we are actively prosecuting this filing, Hank say and we say in the prepared remarks. We do recognize the regulatory hurdles following what's happening in the U.S. So, we prepare for the outcome.

At the same time, there are precedents where the EMA has approved drugs specifically in this field that have not been approved by the FDA as they just issued a second refuse to file letter to (65:02) in Europe. It's been on the market for almost two years now. So that's kind of where we stand..

Okay. Thank you so much for taking the questions..

Thank you. Our next question comes from the line of Phil Nadeau with Cowen & Company. Your line is open..

Good afternoon. Thanks for taking my question. First, one question on sales. Jeff, in your prepared remarks you said that outside of the impact of Brazil, there were other favorable signs on quarter-over-quarter growth.

Could you elaborate on that? What were the encouraging signs that you saw for Vimizim?.

Which product – oh, Vimizim? Yeah. Happy to do that..

So, underlying some of the questions in the quarterly results are very large quarters that take place in Brazil. Those orders are great when we get them and we like them also because there's a certainty that patients stay on therapy and have supply.

But it introduces choppiness in the quarter-to-quarter results that are maybe difficult for you to interpret. We view the underlying business on the basis of starting with numbers of patients on therapy, markets that we're getting into, reimbursement approvals that we're getting, and the adherence of patients on therapy.

So, we have had really impressive, in my view, quarter-to-quarter increases of patients on therapy since we launched Vimizim. In the fourth quarter, I think we said in the press release, we were up 10% in the fourth quarter over the third quarter. If you look at the quarterly sales trend, Q3 of last year broke the trend because of that Brazil order.

And if you even those out, I think Q3 and Q4 are right in line with continuing great quarter-to-quarter growth..

Okay. That's helpful..

And then Jeff said in his prepared remarks, we have now identified over 1,900 patients worldwide, which is the primary way to grow the business in the future, which is worth already over $700 million of business if we get these patients on therapy..

I guess it's worth pointing out, there's been a 30% increase in the number of identified patients with Morquio A in our network since we launched Vimizim just two years ago..

That's helpful. Then, Hank, two for you, first a follow-up on your 701 comments. It sounds like you're saying basically, you're just hoping to get some clarity from the regulatory authorities what's going to support a filing. Is that true? And then second on..

Sorry, Phil, which product are you talking about?.

701..

Okay..

And then second, on the ADHD endpoint in the PEG-PAL Phase 3, I believe that there's an abstract out there that says patients at baseline have a score of 9, which seems like a relatively mild score. I think the scale goes up to 27.

So do these patients have sufficient inattention at baseline to show a benefit?.

Right.

So, with 701, I think the first step is to go through the data that we've obtained and then go through, re-remind ourselves in quite a bit of detail about all the feedback that we've received so far, and then have in our mind's eye a range of possible approaches to address the health authority concerns, and then in the context of the data that we've obtained, to then develop a strategy to go back to them and say, here's how we would propose to address your concerns.

We just got the data relatively recently, so we're in the early stage of that process; and for these global programs, it takes a while to, and the European process in particular is not a fast process. So, I'd say we're just at the beginning of the journey of figuring out how we're going to go at the health authority process.

In the inattentiveness, I should point out that the inattentiveness is the most common cognitive manifestation of phenylketonuria. And at any given point in time, about half of the patients have medically significant inattentiveness and about half do not.

The half that do not, by the way, may develop medically significant inattentiveness a week later, a month later, a year later. And they also have other problems, mood disorders, et cetera.

The primary analysis strategy that we've reached agreement with the FDA about actually looks at the improvement in inattentiveness in substantially inattentive patients.

A little bit of a nuance detail about the analytic strategy, but then given the proportion that I described and what you reported as the baseline level of inattentiveness, you can then kind of back into what the baseline level of inattentiveness is going to be in the inattentive group of patients..

That's very helpful. Thanks for taking my questions..

Thank you. Our next question comes from the line of Salveen Richter with Goldman Sachs. Your line is open..

Hi. This is Tom on for Salveen. Thanks for taking our question. I just had a quick one about BMN 270 in hemophilia A. So you mentioned you're at the third dose, and you're comfortable with what you're seeing so much that you've treated several patients at this dose now.

Just wondering if you're considering moving to a fourth dose; or maybe to ask the question in a different way, under what scenario would you want to move to a fourth dose?.

Yeah. So the protocol was written to have three dose levels, and we have the benefit of collaborating with Dr. Nathwani from University College London, who was the principal investigator who ran the Factor IX hemophilia trials. And Dr.

Nathwani and the UK health authority had come to an understanding that you don't need to treat a large number of patients at a low dose, at a medium dose and a high dose, that that's very inefficient on use of patient resources. And so, patient number one was treated at the starting dose level. Then we were to elevate the dose to patient number two.

Then we could elevate the dose even further for patient number three. We agreed with the health authority that given that we were going that fast in dose escalation, that we would, if we wanted to go to a fourth dose level that we would come and talk to them. We would assemble the safety data and submit an amendment for the protocol.

So, we haven't triggered that process because we are encouraged by what we've seen.

Now, we might still trigger that process, and I think that's going to be driven by a combination of what magnitude of increase in Factor VIII expression can we sustain, how safe is it to sustain it and the proportion of patients can achieve that level of factor expression.

So, when I said that we are encouraged by what we've seen and we've decided to increase the number of patients at that dose, that will help us discern the magnitude of improvement in Factor VIII expression we can achieve and the proportion of patients who achieve that magnitude. Stay tuned, further updates coming at R&D Day in April..

And just to follow up, if I can. So, we're going to have data on the three patients at R&D Day or maybe the five? But one way or another, are we going to get a good read on durability from this first data set? I know the first patient was treated in September, so clearly that one has been on therapy for quite some time.

But what's your kind of sense on durability there?.

Well, people are talking about this being one and done for a lifetime. And so even that September patient in April, you'll have six months of. So some people might say that's not very long in the scheme of a life. On the other hand, from Dr.

Nathwani's data demonstrating stable expression for at least five years and pre-clinical experiments demonstrating lifetime correction in some animal models, we think three, four – the principal effect on – the thing that affects durability really is the liver response to the transgene and that happens early.

And once the expression has stabilized after the liver – if there is a liver response, once the patient has stabilized then after that liver response, it seems to be predictive of a long-term outcome. So, exactly how much of that you'll see at R&D Day will depend on what doses are active and the amount of follow-up that we'll have prior – at R&D Day.

It'll be, to be clear, the beginning of the journey. Very informative, but still the beginning of the journey..

But it would be more than three patients..

Okay. Great. Thanks again for taking the question..

Thank you. Our next question comes from the line of Stephen Willey with Stifel. Your line is open..

Yeah. Thanks for taking the question. Just a quick one on manufacturing actually.

You talked about finishing validation of the Ireland plant later this year, and just wondering how much capacity will be immediately available in 2017, the pace of the product transfer that's going to occur to that facility; and then I guess any color that you might be able to provide around longer term tax benefit, and if there would be any improvement at gross margins.

Thanks..

Is Robert in the phone?.

Yes..

Robert, are you on the phone?.

Yes, I am..

Do you want to take this one?.

Yes. So, we can – in the Shanbally facility in Ireland, we are going through the process qualification manufacturing campaign now that started in the beginning of January. And it's proceeding very well. The campaign will end in the June timeframe. We'll then have to write up the documentation and submit it.

We'll probably have inspections in the first quarter of 2017 and are anticipating approval in the major regions, U.S. and Europe, by mid-2017, and then subsequent filings for around the world. This is similar to what we've done as we've expanded our production in California.

So the capacity in the California facility is more than adequate to bridge us to that approval, and then we will be able to produce product at two different sites of Vimizim, and we are anticipating meeting all the commercial demands as required..

And then, Dan I guess – go ahead, I'm sorry..

Sorry, Stephen, what's your question?.

Yeah. So just curious if there's any expectation around a longer-term tax benefit and if you're willing to provide any kind of color around what that might be..

Yeah. Dan will address that. Yeah..

Yeah. So, the manufacturing in Ireland is an important part of the long-term tax strategy.

We believe that for Vimizim, by utilizing this, we can get deferral such as the tax rate for the profits on Vimizim, and other products that over time we can take offshore should be in the low teens, and we would expect to have a blended long-term tax rate in and around the 20% level..

Okay. That's helpful. Thank you..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Bienaimé for closing remarks..

Thank you, operator. So, in summary, we are entering 2016 we believe from a position of strength based on the four pillars of growth that I outlined at the beginning of the call, and we anticipate our approved products will generate slightly over $1 billion in revenue this year, and we believe we can reach $1.5 billion by 2020 with these products.

We have two global products, cerliponase alfa and pegvaliase, which with panel results later this quarter and potential launches next year, that's combined with our existing products may drive revenue well over $2 billion by 2020.

And third, our best-in-class development portfolio have two additional products vosoritide for achondroplasia and BMN 270 for gene therapy hemophilia A patients that each address $1 billion plus market opportunities.

And as we said also at the beginning of the call, we expected to end the quarter towards profitability by achieving non-GAAP breakeven or better in 2017 and bottom-line growth in the years to follow. We look forward to seeing you at WORLD next week – in the WORLD meeting next week in San Diego and R&D Day in New York in April.

So, thank you for your continued support and for joining us on today's call. Bye..

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