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

Thank you, Grace. Thank you everyone for joining us today. To remind you, this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc.

including expectations regarding BioMarin's financial performance, commercial products, and potential future products in different areas of therapeutic research and development.

Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authority, availability of capital, future actions in the pharmaceutical market, and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission such as 10-Q, 10-K, and 8-K report.

On the call today from BioMarin's management team are J.J.

Bienaimé, Chairman and Chief Executive Officer; Henry Fuchs, President, 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 two quarterly calls, we intend to keep this call to one hour in length. If we do not get your question, please send me an e-mail or give me a call and we’ll get right back to you. Thank you for your understanding. Now, I'd like to turn the call over to our Chairman and CEO, J.J. Bienaimé..

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, it 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 the confidence in our base business, combined with R&D expense management, we felt that in tightening of both GAAP and non-GAAP guidance to the top of their range for the full year. Our continued commitment to growth and 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 vosoritides are on the horizon. Approximately three years ago, we laid out a five-year plan for financial success of the business, and we remain on track. We see that R&D expenses as a percentage of revenues would peak and then come down.

Over the last three years it has come down from 60% to 43% of revenues and on its way to our long-term goal of 25% all the while preserving a high level of productivity from R&D engine. Our top line has grown 15% or more year-over-year with a $2 billion revenue target for 2020.

Either valrox or vosoritides would push the revenue growth with 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 funded. Starting in 2017, we were non-GAAP targeted in 2017 and we have continued to grow each year.

Our next target is GAAP profitability, and from here to the success we anticipate from valrox and vosoritides rapid and significantly profitable growth is on the horizon. We are all aware of recent market volatility and the negative impact it 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 we have over $1 million in cash and investments.

Our two potential blockbusters on the horizon and a third already on the market, Palynziq, we are poised to leverage the R&D, commercial and manufacturing equity expertise and capabilities established over the last several years. At the heart of our business, and what creates our growth opportunity 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 program 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 consider which 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?.

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, Palyzniq 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 will 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 formerly 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 Palyzniq 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 reaffirm revenue guidance for Palyzniq tightening the 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 to changing patient demographics as more adult PKU patients now have the option to treat with Palyzniq. 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 markets across all four 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 four regions, and excited to track and report the progress of the launch of Palyzniq 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..

Thanks, Jeff, and congratulations to you and your team. Starting with valrox for adults with severe hemophilia A, an exciting 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 we want to share is news that our Shanbally facility has been successfully inspected by the Irish HPRA for testing new release of gene therapy products.

These newly constructed laboratories are part of our overall strategy for meeting worldwide regulatory requirements for product distribution. The Santa 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 the EMA as we announced earlier in this quarter.

These submissions will be based on the recently completed Phase 3 interim analysis and the updated three-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 the 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, which 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 finished near the finish line. Another key component of our global program in achondroplasia is the Phase II, 0 to 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 on 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 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 final note on pipeline changes.

We announced today that we've entered into a licensing agreement with Allievex for tralesinidase alfa, formerly 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 innovative 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?.

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 Sanofi's QA release that has since been resolved. Year-to-date, Aldurazyme is down $44 million due to a onetime bolus 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 enrolment 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 for290, 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 a 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 operation 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?.

[Operator Instructions] Your first question comes from the line of Salveen Richter from Goldman Sachs. Your line is open..

Thanks for taking my questions. 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..

Hi, 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..

Thanks. 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?.

Hi, Salveen. I mean it is, it is certainly our goal to transition as many adult Kuvan patients to Palynziq as possible before a loss of exclusivity in a year. And we are making a lot of progress. 38% of our Palynziq referrals are naïve, Palynziq patient referrals are Kuvan transitioned. So making a lot of progress there.

It is also true that there remain a smaller now number of new adult patients that are being referred in for Kuvan treatment and it is also true is 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..

That’s it. Thank you..

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're in small molecule, you lose protection for 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..

Thanks. Thank you..

And your next question comes from the line of Phil Nadeau from Cowen & Company. Your line is open..

Thanks for taking my question. 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?.

Not really, no. We purposely kept the eligibility criteria fairly consistent and obviously 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 [Indiscernible] natural history growth studies, there is a gentle negative slope. So at 1 year, there could be some negative placebo effects, such that we underestimated at 1 year the magnitude of treatment benefit from 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 cummalative type benefit from product treatment as well as contrast that to similar populations of patients who have not been treated with vosoritide..

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?.

As far as I know, there are no major and substantive changes. I think that I mentioned that we're going talk in a little bit more detail about the vosoritide and valrox programs. And this is the kind of question that I think we can address in a little bit more detail at R&D day.

But for today, the headliner is no, we're not aware of any differences that could connote a different result in Phase III than in Phase II..

Perfect.

And then one last housekeeping question on Brazil, I'm sorry, I didn't hear what you said when you talk about proposition that you expect in 2019?.

Yes. No differences other than the inclusion of placebo..

Right, right, okay.

Sorry, I was asking about Brazil, just clarifying question, there was – you mentioned I think $90 million in total and some proposition that was coming in 2019 and I miss what you said about the proposition in 2019 from the Brazilian orders?.

Hi, Phil. So the comment was we expect greater than 50% of that $90 million contract to be fulfilled in 2019 and less than half in 2020 first half..

Perfect. That's helpful. Thanks..

And your next question will come from the line of Cory Kasimov from JPMorgan. Your line is open..

Hey, good afternoon guys. Thanks for taking my question.

I wanted to ask on vosoritide as well, and with the progress you're making in children under the age of 5, when could we expect to maybe see a first cut of data from the initial cohort? And then maybe more importantly, do you think it's possible that you'd be able to submit some of that data as part of your initial application and potentially launch with a label including younger children or is that something we should think of more as a supplemental filing post your initial approval?.

Supplemental signing for efficacy purposes plus initial approval if things go well. Initial application, if anything, will include safety data at most. And as far as timing for completion of analysis of the under 5 study, it's obviously going to depend on finishing enrollment.

And as I said, we're projecting that we'll complete enrollment in the second cohort in the -- by the end of the year, but we're only just now beginning enrollment in the third cohort. So stay tuned for more clarity on timeline of expected enrollment completion..

So you wouldn't show data until get all three cohorts and is that correct?.

Efficacy data I think..

Okay..

We wouldn't be able to -- it’s a blinded study, so the benefit of waiting until the end is to protect the blinding..

Okay, perfect. I will stop there. Thanks for taking the question..

Your next question comes from the Geoff Meacham from Bank of America. Your line is open..

Good afternoon, guys. Thanks so much for the question. I just had a couple on valrox. I know you've been asked quite a bit about the reimbursement model over the past year or so, but just checking to see if that has evolved over time just given the success of Zolgensma, for example, from Novartis.

And in terms of clinical updates on vosoritide, is there a trigger that regulators are looking for in terms of any updates, pipeline updates or clinical updates you're looking for beyond what you've released so far on things like duration of effect or exposure, etcetera?.

Sure. Hi, Geoff. We continue to make progress with valrox reimbursement preparation both in the United States and in Europe. And it is illuminating to see other products beginning to make it to market and to see how the market reacts to some of their programs and pricing including zolgensma.

So I think we saw some reported uptake of zolgensma in the United States with an implied growth to that that was pretty high. That was -- both of those things were encouraging. The price level that we saw with zolgensma was encouraging. There has been a lot of discussion about different price models.

I think by now it's becoming pretty clear that outcomes based agreements unless there is a legislative fix are going to be limited to something like 23% of purchase price without triggering big government price calculation and resulting price problems.

I think it's also clear that the installment payment method that people have been interested in and talks about for a while is going to be problematic in the United States. All of those things are being reinforced in by Marines one-on-one discussions with payers to facilitate a potential launch in the United States. Discussions in Europe continue.

Europe is a substantially different situation with single national payer systems essentially that have more latitude and don't involve government price calculation problems. It's also the fact that that we don't see as much concrete real development reimbursement models yet in any use, so that's a more nascent situation.

J.J, if you want to add anything..

No. Not really..

And your vosoritide question, as far as data triggers for next regulatory interactions and the big one is going to be the pivotal result of the Phase III trial.

The 3 other pillars of the program, the study in children under 5, the long-term extension study that we're going to give 54-month data as well as its comparison to natural history data, those 3 elements are necessary but not sufficient.

Again, the next meaningful milestone to occur in the vosoritide program is going to be the unblinding of the Phase III program at the end of the year..

Thank you..

And your next question comes from the line of Chris Raymond from Piper Jaffray. Your line is open..

Hey, thanks for taking the question. Just a question on Palynziq, and I have a follow-up as well. But first, Palynziq. Just looking at the U.S. patient dynamics, by our math, it looks like there were about 120 or so, maybe 118 naive patients adds in the third quarter.

And then just doing the same math in the second quarter, I think that was about 130, so it looks like there was a sequential decrease. But you also reported an increase in PKU clinics. So and I know this thing tends to see some chop and move around quarter-on-quarter in terms of naive patients adds.

But can you maybe talk about what you're seeing? Are we at a steady state in terms of new patient adds? Or is there any reason to think maybe Q4 adds would be meaningfully different? And again, I have a follow-up..

Yes. Chris, so good observation.

If you look back to the numbers that we've reported at the close of each quarter, we've seen patient growth going from 100 -- a high of 153 new patients on therapy at the end of the first quarter; 137 and 134 patients, respectively, at the end of the fourth quarter last year and the second quarter of this year; and 119 new patients on therapy at the end of the third quarter.

So there is some variability quarter-to-quarter, and it is true that the third quarter was a little less than the previous several quarters. The other thing to note, or the precursor on that, is the level of new patient referrals. And so there is a little bit of variability there, too. But new patient referrals in the third quarter were very strong.

So probably just a little bit of an up on one aspect and a down on another for total patient’s therapy and nothing that I'm concerned about.

In fact, as I noted in my prepared remarks, following all of the different parameters that we watch to see are we having a very successful Palynziq launch, my overall conclusion is this looks like it's pretty much on rails right now without any yellow or red flags to worry about. So we're opening up new clinics.

We're getting new patient referrals across the board from our existing clinics. We're getting reimbursement approvals in around 60 days on average for those patients. They're going on to commercial therapy. They're titrating up to daily dosing and then maintenance dosing. We're not losing large numbers of patients.

There is -- this is just a really solid story. And all of that, by the way, is translating into weekly syringe dispenses from our specialty pharmacy network and translating into increases in revenue, is why at this point I would advise saying, look, follow the increase in revenues, which are pretty steady quarter-to-quarter-to-quarter.

We think that's the best measure to watch..

Thanks for the color. And maybe just a quick one for Hank, BMN 307, so, you filed the CTA first. Is there any gating factor or anything different between -- EMA and the FDA? What's the gating issue in terms of selling the BLA in the U.S., please, thanks..

Yes. It's relatively simple thing. We've got a lot of experience with the MHRA in filing gene therapy applications first in May there. And so we're starting with that MHRA, as I said in my prepared comments, we're preparing submissions in other regions to occur briskly thereafter. So there's nothing unique going on there.

Again, I did want to follow up on a question you asked me the last time, Chris, the 5 versus the 1. In the New England Journal, what we were reporting was related symptomatic hypotensive events, and there was -- there has been only one in the ongoing Phase I/II 4.5-year study..

Thank you..

Moving on, we have Joseph Schwartz from SVB Leerink Your line is open..

Thanks very much. I have a question on vosoritide and then on valrox.

So for vosoritide, I'm wondering if you can expand on something that was asked earlier, and that's how do you expect the cumulative effects of chronic therapy for vosoritide compared to growth hormone, which seems to have a bigger effect upfront that wanes over time but it's still incremental? So when you consider long-term therapy for each treatment option, how much more impactful do you expect the longer-term treatment option to be for vosoritide?.

Hi Joe thanks for the question. Growth hormones in the non-growth hormone deficiency syndromes and a little bit of the growth hormone deficiency -- as well, there is a big effect initially, and then there's a waning of an effect. And we just don't see that with vosoritide, the biologies is very different.

In fact, what we've reported through 42 months last year is every period in which we look at the rate of growth compared to pretreatment baseline, the rate of growth is -- on vosoritide is in excess of what the pretreatment rate of growth was prior to taking vosoritide.

Now we've also said that growth velocity is gently slowing down as you approach adolescence, and as we've said before, also there's -- well, there appear to be evidence of pubertal spurt. So our expectation is that as these children get older, their untreated growth velocity would be decelerating.

And so that's why it's going to become -- and this was what -- why the FDA asked us for this, that in the absence of an ability to doing essentially a 5- or a 10-year placebo-controlled trial, the agency is going to be very keen to see the accumulated height benefit from our long-term treatments contrasted with long-term growth velocity outcomes in untreated patients.

So I think that's going to be the best way to observe the cumulative benefit, which we do expect to be fairly steady over time. And the other thing I want to make sure that everybody is clear about is that in the United States and Europe, growth hormone is not indicated for the treatment of achondroplasia.

So we got to be careful when we talk about growth hormone that we're talking about growth hormone in non-achondroplasia disorders. This growth hormone does not have a favorable benefit/risk as it's deemed by U.S. and EU regulators..

Okay. And then on valrox, I was wondering if you have thoughts on why other gene therapies deliver via AAV5 may not require steroid prophylaxis so much so that patients that are positive for AAV5 antibodies are not being excluded from other sponsors ongoing studies, but valrox expression does seem to be sensitive to this now.

So, and whether steroids are used. I was just wondering if you've been able to determine why that might be..

Well, first of all, let me just remind that although we acknowledge the number of the results at the end of the 23 to 26-week period for Phase I/II study is numerically higher than the result at the end of 23 to 26 weeks of a Phase III study, there's a substantial amount of variability in patient response such that we can't conclusively say that there is a difference in the Phase I/II result and the Phase III result.

And then to further speculate that that's due to steroids as a causal explanation is a hypothesis rather than necessarily a fact. And as to the optimal steroid regimen for use with valrox, as I said a couple of months ago, we and our investigators are intrigued by the results of the interim analysis.

And we are tightening, per the protocol, the use of on-demand steroids. Let's see where that gets to -- us to as a result. We've also talked about potentially doing a prophylactic steroid combination study, but as yet, we haven't initiated that study.

So our plan is to finish the present study as designed, bird in the hand, winner, independent data monitoring committee saying we have positive benefit/risk.

We're very confident that we're going to hit the bleeding outcomes in the Phase III trial, and we're going to put a lot of the details that substantiate these statements up in front of you at R&D Day so you can see why we're so keen to get across the finish line as directly as we could.

As far as what other companies are doing and what read to make from that, it's a little hard to speculate because we don't have the same access to their data.

But the one thing I would say is that in the published information from other companies investigating AAV5 gene therapies and treating patients who are so-called antibody positive, their assay is a transduction inhibition neutralizing the antibody assay, which doesn't necessarily always correlate with pre-existing immunity.

And we have presented some several posters about that in -- at various health authority conferences. So I'd say let's gather more data from -- before we make any conclusions about whether steroids are required, how they're required and what the role of pre-existing immunity, if any, there is in the need for steroid therapy management..

Thanks a lot..

Yep..

And your next question comes from the line of Matthew Harrison from Morgan Stanley. Your line is open..

Hi. This is Kostas on for Matthew. I have a question on BMN 307 and specifically let's assume that your CTA is approved soon.

Can you talk about the starting dose that you are considering and about the efficacy that you're expecting to see with the starting dose? Also can you discuss how quickly would you expect to see the clinical effect, which is the phenylalanine reduction in patients?.

Yes. So based on preclinical studies, we expect to see efficacy and Phe lowering from an active dose within just a few weeks. And as far as starting dose goes, one of the things that is a very strong positive is our collaboration with the MHRA.

The MHRA's belief is that -- in gene therapies that considering the fact that they're essentially one and done, that the starting dose has to be also informed by the prospect of benefit for patients.

And so more specifically, they don't really want to see a lot of patients dosed at inactive doses, which is very different than development of drugs in other indications. As to the actual number of the starting dose, that's not been finalized because we're still in the process of a review with the health authority.

And obviously, we have a point of view about where that should start. But until the CTA is activated, I think it would be premature to talk about what the specifics are..

Thank you very much..

Your next question comes from the line of Eliana Merle from Cantor Fitzgerald. Your line is open..

Hey, guys. Thanks for taking my question and congrats on all the progress. Another one on vosoritide from me.

Just how should we think about the potential usage in other indications beyond achondroplasia and if you have sort of any plans to develop this or study this on other indications? And then second on vosoritide, I know you mentioned sort of collecting the data on the cumulative height benefit.

But just from a payer perspective, given this is not a fatal disease, sort of what other data are you collecting on other comorbidities beyond growth and height that you think will matter to the payers sort of as you think about pricing?.

So with regards to potential use in other indications, we forgot to mention that -- in summarizing our quarter that we posted a Phase II data in the New England Journal of Medicine in early July.

And subsequent to that, there was a letter to the editor written to the authors exactly on this topic, speculating that because of the genetics of growth, that vosoritide may be indicated in other growth disorders.

The genetic data that people are talking about was actually cited by us at our last R&D Day, where we illustrated that there are conditions in which loss of function on either the ligand side or the receptor side or gain of function on the ligand or the receptor side are associated with stature deficiency or stature excess, respectively.

And that suggests that addition of CNP in patients with other mutations that cause statural impairment may also be amenable to vosoritide therapy. At this year's R&D Day, we're going to provide you an update on the progress of our thinking about whether that's a tractable target for new indication development.

And so I'd say come to a theater near you.

As regards information for payers, and Jeff can certainly chime in as well, but we've said all along that generating definitive proportionality data will take longer time than we expect to be able to obtain in the pivotal clinical trial and would really require starting much earlier, at a much earlier point in time.

So we don't expect to see any dramatic changes in proportionality in our favor. And moreover, the functional benefits in short-term studies can be very difficult to come by in the stature deficiency kinds of cases. We're going to measure patient-reported outcomes, such as quality of life by several different measures.

But another big element that payers will be considering, and we've done a lot of work in this area, is to characterize the burden of illness because the burden of illness is not as neatly summarized in the condition of achondroplasia as simply how tall are you and how much deficiency in your stature do you have.

The burden of a condition is measured in lots of different ways.

And so I think the strategy that we've employed in these kinds of contexts previously is to make sure payers really understand what it's like, and that's very important in these rare disease areas because for the most part, payers are not going to be seeing patients with rare diseases on any kind of regular basis.

They will have no reference standard. So want to educate them well about the condition of study and then educate them well about the outcomes that have been demonstrated. And so far, that's been a pretty successful strategy for BioMarin..

And your next question comes from the line of Tim Lugo from William Blair. Your line is open..

Thanks for the question. Another on vosoritide. Going back to the newborn under five-year old trial, the growth velocity is so pronounced between the specialty newborns to 1 year old. Can you talk maybe about the unique safety, efficacy, concerns around these patient population maybe more so than the over five-year olds..

Yes. Well, so the -- we define the study into 3 different age cohorts because we had reason to at least hypothesize that bio distribution of the drug would be different as a function of age, and it turns out that's likely to be true. And so 3 different cohorts that will be evaluated.

By the way, that's a really important consideration and is actually quite an advantage of a short-acting -- relatively short-acting drug in the sense that it doesn't take you months to adjust the dose of vosoritide, if there's a problem. The half-life being what it is, pretty much the next day; you can start a different dose safely.

So that's actually quite an interesting advantage that we have. And interpretation of safety therefore is going to be to what extent -- if there are safety sequelae, can they be addressed with simple dose modification. So when we get to the end of the study, that -- we'll stack up all that information for you.

I would say a [Indiscernible] , we have no real hypotheses about there being incremental differences in safety in this population compared to the older population.

And finally, with regards to efficacy, a critical consideration is that growth velocity is declining quite rapidly over that age period, so it's going to be much more difficult -- it would be much more difficult to compare these patients doing natural history control for that reason.

So that's the reason that we chose to blind this study and randomize to placebo comparison. That will give us a healthy assessment of the treatment effect in this age group...

Interesting. Thank you for the color..

Yes. Your next question comes from the line of Akash Tewari from Wolfe. Your line is open..

Hey thanks for taking me on. So talking to investors, there seems to be a large variation in how the vosoritide data will be perceived, whether you show 1.5, 1.75 or 2, even though I feel like statistically it could totally be in that range.

So what will be the data release procedure for vosoritide? Will we just get a top line average growth velocity number? Or will there kind of be a call and we'll be able to age-match patient populations from Phase II versus Phase III? And in that kind of light, are you targeting an average age of patients similar to what was in Phase II for your Phase III trial? And then maybe on your PKU gene therapy, I think if you look at your competitor homology, at least pre-clinically in mouse models, they weren't able to show Phe normalization until they hit a threshold of about 30 viral genome copies per cell in order to get Phe normalization.

How do you think about the translatability of these like PKU mouse models into humans, specifically on what dose…..

Oh, sorry. Okay..

No, no. All good. All good..

Okay. I see why you said thanks for taking on your questions, and I appreciate the opportunity to address investor variability as opposed to any other kind of variability. So the target population for the Phase III trial should be fairly similar to the Phase II trial. So they should see some opportunity for some comparison.

But again, these are not side-by-side trials, and they're not identical patients that are being randomized between Phase II and Phase III. So interpretation could be difficult. I think the principal point of interpretive emphasis is going to be either met or didn't meet the primary endpoint for statistical set testing.

Because in this condition, as I said before, the -- what it adds up to won't be as neatly understood from just the Phase III data. And so I think the key thing to focus on in that top line result in the first instance is going to be met or didn't meet the primary endpoint. As far as what the contents of the press release are, it's very premature.

I mean we -- I don't even think we have the last patient out of the study yet. And so therefore, we haven't unblinded, and therefore, there's nothing really to talk about just yet. So stay tuned, hang in there. We'll try to give you the salient and pertinent information when we unblind. Just the right amount, not too much..

Yes, Hank, do you want to add something about the other Phase II -- the Phase II trial, the ongoing Phase II trial, under 5 patients that is actually in randomized, controlled trial, sort of explain, look at the design there..

Yes, yes, yes. So that trial, I would say, subject was chopped into 3 cohorts. The 3 cohorts are 2 to 5 years old, 6 months to 2 years old, 0 months to 6 months of age.

Patients were randomized with -- well, actually, each cohort has 3 sentinel subjects, and the purpose of the sentinels are to obtain initial pilot safety data as well as additional PK for the purpose of dose adjustment. There's going to be a -- they are randomized 1-to-1 drug-to-placebo within each of the 3 cohorts.

There are 30 patients in the first cohort that are -- completed the enrollment. There are to be 10 patients -- 20 patients, sorry, 20 patients in the second cohort; 20 patients in the third cohort. Again, randomized 1-to-1. And the comparison is going to be height z-scores, the standard deviation scores, active versus placebo.

Each individual cohort is powered to detect trends, but the study in aggregate is powered to detect an improvement in growth velocity. So a little more information about the design of the 206 trial. You also asked about 307 and translatability. Let me just take a little bit of a step back.

We have an internal saying at BioMarin, mice lie and monkeys don't always tell the truth. And that's actually a reference to the history and -- of gene therapy, in which murine experiments didn't necessarily predict what would happen in primate experiments or what happened in human experiments. As it turns out, AAV5 tends to be relatively predictable.

I don't know that I would say the same thing necessarily for different capsids and particularly novel capsids for which there's hardly any preclinical data.

But I think with AAV5, what we have observed is that the preclinical murine data and the preclinical non-human primate data is actually pretty reflective of what -- if you look at the right time point, it's pretty reflective of what happens in humans.

And that I think gives us a lot confidence that we'll be able to see that relatively rapid result once we get to an active dose. And whether there is really a threshold or it's just a steep dose response curve, stay tuned, and let's see what the data are..

Your next question comes from the line of Paul Matteis from Stifel. Your line is open..

Hi thanks for squeezing me in. This is Nate on for Paul. Just two going back to Palynziq real quick that I hope it didn't take too long to answer. One, I think more than 500 of your 800 patients on Palynziq were previously on Kuvan.

Are there any differences in those underlying violation? What's that?.

People can hear us, but we're having technical difficulties..

Now, can you hear me? You guys still there?.

Operator, we’d like to now conclude the Q&A portion of the call, and let our Chairman and CEO provide closing comments..

So as you know I've heard the coming 18 months will be transformative for the company, which would expect us to drive significant growth beyond our existing commercial business.

Topline growth, continued R&D expense management and cash fee generated by operating activities will continue to increase in parallel with the investments of valrox and vosoritide. Our strategic transition to larger operating indication is now on track with the out licensing of Tralesinidase Alfa and the pursuit of new potential products.

A few of you will hear about all this at R&D Day next month. Taken together, we believe BioMarin is poised for significant commercial expansion over the coming quarters, and we are preparing for success. So thank you for your continued support and we hope to see all of you or most of you in New York next month. Good bye..

Ladies and gentlemen, that concludes today's conference call. Thank you all for joining You may now all disconnect..