Ladies and gentlemen, thank you for standing-by and welcome to the BioMarin Third Quarter 2020 Financial Results Conference Call. Hosting the conference call today is from BioMarin, Traci McCarty, Vice President of Investor Relations. Please go ahead madam..

Traci McCarty:.

Thank you, Traci. Good afternoon and thank you all for joining us on today’s call. We hope you and your families have been well during these uncertain times. It is hard to believe that we around the month nine of the global COVID-19 pandemic. So like many of you we are ready for a reset on a fresh start in 2021.

But, our commitments to providing innovative treatments to people with serious conditions keeps us focused day-to-day. Indeed, BioMarin faced some challenges in the third quarter. And the results have been strengthened conviction in our mission and renewed motivation to achieve it.

The most anticipated milestone of the year, the advancement of ROCTAVIAN gene therapy for the treatment of severe hemophilia, and vosoritide for the treatment of achondroplasia each reached a key inflection point in their progression during the quarter. There were only 10 applications in the U.S.

and Europe was accepted for reviewed by Health Authorities and is in process for potential approval in 2021. With the CHMP opinion is expected in the second half of next year, and the U.S. PDUFA for action date planned for August 20 of next year.

The community of parents with children who have to and want a treatment option are that much closer to accessing the first potential pharmacological therapy for the condition. With this highly innovative products developed, approved and commercialized for a variety of rare conditions over the last two decades.

This is familiar and gratifying territory for BioMarin..

Thank you, JJ. Globally, BioMarin commercial brand contributed $1.24 billion or 8% growth year-to-date in 2020 compared to the first nine months of 2019. Given the challenges posed by the COVID pandemic this year, I'm very pleased with our results and the deep commitment of our commercial and manufacturing teams to our patients around the world..

Thanks Jeff. JJ conveyed it's been an eventful third quarter for BioMarin. But, many of the challenges faced by our R&D organization are part and parcel of the drug development process, augmented by the innovative nature of what we do, never a straight line.

With ROCTAVIAN, we did not expect the complete response letter in August, but we have refocused on productive next steps toward approval. We remain encouraged and committed to ROCTAVIAN based on the continued support from our investigators who report the life changing potential of ROCTAVIAN.

And with the complete one year Phase 3 data from our 134 subjects study, the next inflection point in the program, we like you excitedly await those top line results in early 2021. In the meantime, we continue to make progress and our discussions with health authorities and understanding what it takes to register ROCTAVIAN.

Based on ROCTAVIAN of the Phase 3 study, we're confident hitting the annualized bleeding rate at endpoint at one year. But, we're also mindful of other critical measures, such as factor VIII levels that will be important to determine success beyond the annualized bleed rate.

Assuming the Phase 3 data are supportive, we have a framework for potential timelines subject to ongoing feedback and health authorities. As outlined in August, FDA has indicated a preference for two years of data resulting in a potential late 2022 launch under that scenario.

It is important to note that the completion of a one year Phase 3 study later this month in the end of November and some Phase 3 study participants will have been in this study for up to 18 months, and other still up to two years.

Turning to Europe, the EMA recently requested the complete one year results from the full Phase 3 study cohort of 134 subjects to inform their benefit risk assessment.

As a result, we withdrew our application for accelerated assessment yesterday, and now plan to resubmit the marketing authorization application filing with complete one year results in the second quarter of 2021. Assuming resubmission and 2Q, ‘21, we would anticipate potential approval in early ‘22 should data be supportive.

We look forward to seeing and sharing our primary ROCTAVIAN findings in Phase 3 in early January, and anticipate presenting those results at a scientific venue in 2021.

Turning out to the vosoritide for the treatment of a Contraplegia, we are pleased that our new drug application and marketing authorization applications are under review in the United States and in Europe respectively.

Earlier in the week, we were encouraged to receive the Food and Drug Administration to acceptance of our NDA under standard review with a PDUFA action date of August 20, 2021..

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

Starting with revenues as Jeff noted, we have updated our 2020 product line revenue guidance for the continued impact of COVID-19. Also, I want to remind you that although we did not give specific ROCTAVIAN revenue guidance for 2020, we were planning to launch the product during the third quarter.

Therefore, most of the adjustments to our total 2020 revenue guidance, of which the midpoint was lowered by $60 million, was due to the ROCTAVIAN adjustment. Back to COVID-19, the prologue pandemic and specifically slower new patient starts during 2020 may continue into 2021 and restrict revenue growth of our base business.

As a result, with the other headwinds we are experiencing through the delay in ROCTAVIAN approval and the previously anticipated impact of the U.S. Kuvan generic competition. We expect our total revenues in 2021 to be roughly flat compared to 2020 revenue. Moving on to operating expenses.

One unique expense item driven by the unanticipated ROCTAVIAN approval delay is an $81 million charge to cost of sales during Q3, 2020 related to ROCTAVIAN pre-launch inventory reserves. Cost of sales and gross margins beyond those reserves were in line with expectation.

R&D expense for the third quarter was $147 million, representing our development of vosoritide ROCTAVIAN and our early stage pipeline. Q3, 2020 R&D expense was lower compared R&D expense for the third quarter of 2019, due primarily to lower preclinical manufacturing of BMN 307 and lower ROCTAVIAN R&D given its late stage of development.

SG&A expense for the third quarter of 2020 was $179 million, which is slightly higher than SG&A expense for the third quarter of 2019. Due primarily to the continued global launch of PALYNZIQ in commercial preparations for the launch of ROCTAVIAN.

Due in part to cost containment measures during these uncertain times, we expect that both R&D and SG&A expense for the full year 2020 to be lower than previous estimates. And as we have provided guidance for both of those line items to ranges that are below our prior guidance.

With respect to bottom line result, the especially large tax benefit that we discussed over the course of this year was recorded during the third quarter of 2020, totaling $835 million and drove a significant level of GAAP net income in the quarter and year-to-date 2020.

As a reminder, the tax benefit relates to a transfer of certain intellectual property rights between BioMarin entities, similar transactions reported by some of our larger peer company.

We have adjusted our full year GAAP net income guidance for the tax benefit and the ROCTAVIAN inventory reserves to between $760 million and $820 million, which also reflects a tighter range than provided for an August because the specific amount of the tax benefit is now known.

With respect to non-GAAP income, our lower operating expenses more than offset our lower revenue expectation and was the primary driver for updating full year 2020 non-GAAP income guidance to $280 million to $330 million improved from a previous range of $260 million to $310 million.

Although we regularly use both GAAP and non-GAAP results and expectations internally to assess our operating performance, we believe that providing non-GAAP net income answers the ability to meaningfully compare the company's results from period-to-period and to identify operating trends in our principal business.

As we look ahead to 2021, although we will not provide specific 2021 financial guidance until our typical Q4 earnings call early next year. We do note that while we expect to continue to earn substantial non-GAAP income and positive operating cash flows in 2021, we do expect that will revert to a GAAP net loss in 2021.

Despite the impact of COVID-19 in the ROCTAVIAN delay on our near-term financial outlook. We believe that if we're able to launch ROCTAVIAN inventory tied revenue and profitability growth will resume during 2022 and accelerate in 2023.

Lastly, with respect to cash and investment, we ended the third quarter of 2020 with $1.78 billion of total cash and investment which reflects positive operating cash flows of $86 million and $99 million for the third quarter and nine months of ended September 2020, respectively.

And as expected, we repaid the $375 million of convertible note that mature subsequent to Q3 in mid-October.

In closing, despite the challenges faced in the third quarter due to the impact from COVID-19, and the delay of ROCTAVIAN approval, our base business remain solid, paving the way for substantial non-GAAP income and operating cash flows in 2021. Thank you for your support, and will now open the call to your question.

Operator?.

Yes. Thank you, sir. Your first question comes from the line of Salveen Richter from Goldman Sachs. Your line is open..

Good afternoon. On ROCTAVIAN what provides you confidence that the one year Phase 3 expression data or ABR levels will not differ much from the Phase 1, 2 study. And also what do regulatory agencies really want to see from the one-year data and will be FDA or to your data, and will be FDA except to your data from a partial group? Thank you..

Hi, Salveen. Complex question. I don't know that we predict what the results of the Phase 3 study will be at 52 weeks or 104 weeks, or thereafter given that we started a little bit lower in the Phase 3 than we did in the Phase 1, 2, or so it seems.

And I think it's that variability that makes it difficult to answer the second part of the question, which is, what do they really want other than more patients followed longer.

And so whether the cut that we take, at the beginning of the year for the Europeans will contain enough information to get them to the place where they've seen enough duration, it's going to be discussed with the agency. And we're not in a position to predict the outcome of those discussions, because they await the data.

So I think the data is going to drive our next conversations with agencies. And, we look forward to the data coming in because we think that the gene expression profile for the material that we put into the clinic is going to be very strong data..

Okay..

Thank you so much. Your next question comes from the line of Cory Kasimov from JP Morgan. Your line is open..

Hey, good afternoon, guys. Hank, another one for you on the vosoritide this time, I appreciate the explanation you had with your view and the FDA desire for two year data. So I guess I'm wondering, given some of the apparent differences of opinion, at least at this stage between you and the agency.

Do you see it as a positive or negative that they're not planning to convene an advisory panel at this point?.

Thanks, Cory. I don't know how to interpret it either way. Some had told us that they wish there was an advisory committee on ROCTAVIAN. And I think that there are other forces that are causing the agency to call advisor committees and not call advisor committees.

And so the good news in this regard is that this division has a history of regulating products. Now, we have to make sure people understand that vosoritide is not growth one on, but they do understand stature and how it relates to things like final at all height and functionality and long-term alleviation of morbidity.

And the particular discussion topic is not a new one. It's been around for a lot of years. And so I think we're encouraged that we have a good plan to address it. And that's evidenced by the fact that they've accepted the file for review. .

Okay, thanks. Appreciate it..

Your next question comes from the line of Robyn Karnauskas, SunTrust. Your line is open..

Hi, thanks for taking the question. What a lot of like confusing FDA information this year. And then I just have a couple questions there. So I think on the last call, you said that you would meet with agents, are you going to not meet with them to figure out if you can narrow the package until you get the one-year data? That's my first question.

And then on vosoritide, just why would they put the language in there? I just to me, it felt a little strange. Do you have a sense of why they reminded you they want to your data, or whether or not there's a method in place whereby you can sort of add additional, give them additional data as it comes forth.

Help me understand those two things if you can? Thanks..

So Karnauskas, yes, we have met with the FDA on and without going into the substance of the meeting, the conversations are productive, and the discussions are progressing. And I think the big picture conclusion remains the same, which is that they want more longer data.

And we'll look at the data in January and see how close we come to with them to assuage in their concerns. And on vosoritide, why did they reiterate to your request? Who knows, really, and we'll get into discussion with them about that. But, it seems like, consistent with what they said at the advisory.

To remind you, I think, we started enrollment in the Phase 3 trial at the end of 2016, the advisory committee was in 2018.

So, we were pretty far down the road when the subject was kind of put to the advisory committee discussion, and the advisors had a lot of important information and consideration, which, for the most part resonated with the plan of our program.

And then, and I think that my own personal opinion is that they just reiterate it, because it was a subject of discussion that the advisory committee. Now, we continue to follow the patients in the study.

And to remind you, what's interesting about the study that we did is that the study has a run-in period before patients are randomized, one-to-one received with vosoritide placebo, and then they're followed on placebo for 12 months, or they're followed on the vosoritide for 12 months, at the end of that 12 months, they everybody gets put on vosoritide and continues..

it’s a way:.

Follow up, eventually, you've met with the agency, is there a bar they want for variability? So they give you an exact number or just let's wait and see and then we'll chat again for –.

Yes, but Robyn, there was a part of your question that I didn't -- that I wanted to address it you just remind me about, which is not hard to understand across the board. I think what we see across the board is that the agency has gotten very conservative in the last several months, it's really, they've had progressive leadership in the past.

And oftentimes when the progressive leadership disappears, they retreat to conservative and when stress, they become conservative. And I think now it's a stressful time because of the pandemic and the leadership changes. And so you see that.

Now the good news is that we have good studies in the books, and we have really good interventions, and ultimately, these interventions will convey the benefit that we think they do. If they do that, then these drugs will be approved..

Thanks a lot..

Your next question comes from the line of Chris Raymond from Piper Sandler. Your line is open..

Hi, thanks. Maybe just a broader strategic question. So you guys maybe for JJ, she you guys have kind of held things steady, more or less on the business development front for a while now, and a few of your peers seem to be showing maybe a bit more propensity or maybe even urgency to do deals.

I guess, JJ, just wonder if maybe you could talk in a broader context, how you're approaching that side of the business now versus years past or how you're viewing things in terms of that environment and maybe more specific to BioMarin need? Thanks..

Yes. Well, we have an answer, you obviously deal this year, like, DiNAQOR and there's more to come, and we will continue to do that. Later stage deals are way more expensive and riskier. And also if you require, then more resources into the financial resources, which obviously, we can gather some.

But we still are pretty confident in the approval of ROCTAVIAN and vosoritide. So I would say the need for a significant business deal, I mean business development deal in the short-term, we don't consider it to be very acute.

We’ve said in the past that actually and it before we got a CRM for ROCTAVIAN, as ROCTAVIAN would be launched that it will start generating some significant cash flow, and will allow us then to be able to be more aggressive in the space. But we already have a pretty, we have an expanding pipeline there is more to come there.

And so we don't believe that a large business development deal in the short-term is necessary. Now obviously, if put in a six to nine months from now becomes evident that either ROCTAVIAN will be approved or would be even more delayed or vosoritide, which very much by the way, then obviously, there will be a different situation.

But we’re not there at this time..

Thank you..

Your next question comes from the line of Joseph Schwartz from SVB Leerink. Your line is open..

Hi, I'm Joori Park dialing in for Joe. Thanks for taking our question. My question is on ROCTAVIAN.

I was wondering what you have done to ensure that physicians treating the two-thirds of the remaining patients and generally a buy to the more rigorous on demand steroid regimen? And do you have any insight into whether they will actually abide by it? Do you have like a medical monitoring group to give you confidence that they'll be doing it or are you going to find out when they un-blind the data?.

Thanks for the question. Yes, our medical group is all over this issue. But I have to say that as soon as the interim analysis results were available, investigators pretty quickly realized that they were on the more let's defer the on demand steroids then let's jump on the on demand steroids.

And as we mined some of the additional data and we share this data with you. We recognize that investigators are starting steroids later in the course of the transaction than in the Phase 1 than the earlier study.

And we were also finding that there were breakthrough episodes of recurrent transaminitis and factory reductions in the interim analysis cohort.

And on that basis, we met the investigators where they were already heading, which was to fortify their attention to the details of initiating steroids and the speed at which they taper the corticosteroids and so the monitoring group has been very, very plugged into the investigators reviewing with them as contemporaneously as possible.

Most recently our team measurements and putting the investigators in a position to make quicker decisions about whether there was a need for corticosteroid therapy, initiation or adjustment based on the evolving data.

So we feel really good about the 134 patient’s study, the additional hundred and so patients that were included after the interim analysis from the get go, had quite a lot of oversight of the management of their case, as they went through the initiation transduction and for the months thereafter. So that's another factor.

that in addition to what we've observed so far, in the Phase 1, 2 and in the Phase 3 study at the interim analysis, just to remind you at a great effect on the annualized bleed rate, which is the primary endpoint of the one-year mark of the study, and that's even with that more relaxed form of steroids.

And if tighter attention to the detail of steroids has a positive impact, it'll make our results in 134 even better than what we've seen so far. All the more reason why we look so much forward to the analysis in the early part of the year, because it's going to provide data to address these questions..

Okay, great, thank you. And then, if I could just ask one more question.

When you un-blind your Phase 3 data that's expected in 1Q, ‘21? How does that affect your blinding and powering assumptions where your Phase 2 data should you need it for the FDA?.

The study is governed by an ongoing data. Yes, the study is governed by an ongoing data access plan, and also by statistical analysis plan, one for Europe and one for the United States. And it's customary to have different statistical analysis plans in different regions.

So the data is protected by a data access plan in terms of ongoing access to the data, and analysis are governed by accessible plans one each for Europe and United States..

Okay, great. Thank you..

Our next question comes from the line of Martin Auster from Credit Suisse. Your line is open..

Well, thanks for taking the question. I think most of them have been answered, but maybe a follow up on vosoritide.

And could you remind us what percentage of patients from the vosoritide basically went into the open label? And then I guess you should be kind of getting that that two-year data from the tier’s exposure? From the patients who rolled over that long drugs the first year pretty soon? Is there a specific plan or specific requests to furnish that two-year old data to the FDA and if so, is that kind of -- can you account for that within the kind of current PDUFA data timeframe? Thanks..

Yes, we can accommodate that data request in the current PDUFA timeframe. And now we're still in the early stages of the review and gathering both from Europe and the United States, some initial information requests, and it wouldn't surprise me if the additional data are part of the consideration.

And the proportion of paid -- I don’t remember the first part of the question, Martin, I forgot the first part of your question..

Yes, I just asked what PDUFA data on kind of proportion of patients who rolled over into the early -- on drugs?.

Yes, I think was all the two..

Excellent, thanks. Very, very high present..

Your next question comes from the line of Paul Matteis from Stifel. Your line is open. If you are on mute. Your line is open..

Great, sorry about that. Thanks so much for taking my question. Hey, just one more on vosoritide to that point.

How many patients of two-year data do you think he might have by say, the midpoint of the review? And have you taken any look at some of the long-term data and done any of your own internal analysis first natural history to kind of just get a sense of the corroborate the Phase 1, 2?.

Yes, I think that how many patients are pretty straightforward, because I think we un-blinded that last patient was out of the one-year in November of 2019. So we'll have all hundred -- next patients -- 110 patients of data. Well 110 patients will have had to have their two-year assessments this month.

And so it's pretty fulsome dataset, and it should be available in the course of the review. And how's it going? We haven't actually -- we don't take interim looks at the data on an ongoing basis.

But, based on the long-term data that we've seen, and just what you hear from investigators, we're encouraged that the effect of a vosoritide is not only going to be sustained but sustained in a robust manner..

I mean, that is based on our Phase 2 study, which has now five years of history..

Yes.

And so -- it sounds like what you're saying is that the retention rate from one-year to two-year is very high?.

Yes, I think Martin asked the question earlier, I forgot. I lost track of the question. But yes, I think was like all the two patients rolled over this 95 6% rollover..

Yes, compliance, vosoritide is fantastic..

No, the interest level is fantastic..

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

Definitely and thanks for taking my question. Hank, another question on vosoritide, in your prepared remarks, you mentioned that there were a number of analysis that you've done to show vosoritide it is going to impact adult height. We didn't go into much detail.

Could you discuss those maybe in a bit more detail what data analysis you have to show the FDA to possibly change the minds? And I guess a related question in the past and Orphan disorders, the FDA didn't like natural history and differences versus natural history persuasive.

Why isn't that the case here?.

I missed the balance of your question.

The second part of the question is, why would the natural history be, I forget which side you asked me from unsupported or supported?.

So in the past, it's been supportive, it seems like the FDA in requiring randomized control data doesn't think it's supportive here.

Why is that?.

No, I think well, I think that the natural history data is supported, and I think that that's going to be a key issue of the review is to ensure that it's sufficiently supportive to address the issue of durability. And that was actually quite a bit of focus of the pre NDA meeting that we had with them to convey what we've done.

So in reference to the first half of your question, some of the additional analysis we've done is to verify the natural history data set is representative of the population that was recruited both into the Phase 3 trial and into the Phase 2 trial into the prior Phase 2 trial to document that estimates of growth change over time, were similar in the two populations to conduct both sort of eligibility matching as well as patient level matching, to look longitudinally at the data.

And all of that was reviewed with the agency at the pre NDA meeting. And I think that gave them a lot of confidence about the robustness of the long-term outcome data. Now, you sort of issue point out that the agency does have -- they are finicky about studies in general.

And they're finicky and particularly about studies that are non-randomized to draw comparative conclusions. But a, we have a lot of experience doing this and having drugs registered on the basis of natural history studies.

And b, we've had a lot of interaction with the agency and c, we think we have really robust data set to address the questions of continued benefit. I think for all those reasons that we have a lot of confidence that the package will get there on its own, and as to whether the additional data is even required we maintain the same.

Philip that I cover everything so.

Yes. That was very helpful. Thank you..

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

Hey, guys, thanks for the question. Appreciate it. Just had a few, commercial when you look at the COVID impacts your business I would have thought that logistics would have been figured out by now.

But is it just that cases are accelerating and that's more of a disruption or are there still processes that have yet to be worked out to just ensure compliance? And then, Hank, real quick, it seems like manufacturing is in a major focus by FDA now on cell therapies.

With ROCTAVIAN, can you talk about the extent of your interaction so far? And has that the nature of those discussions changed over time or is it just all about the Phase 3 study? Thank you..

So maybe with the start second question, Greg Guyer, you had talks, can answer the question..

Yes, thank you. So we have also there a lot of discussion during the initial filing of VIROX filing and we've had a lot of experience with questions, many, many questions during the inspection or during the review process. I think what's been good is we've had a good dialogue. We've had a bunch of discussion on comparability.

And at the end of the day, the agency accepted that and we've got no further CMC questions related to those so right now, we're pretty confident in the CMC package that supports ROCTAVIAN. And as Hank was saying earlier, the focus has primarily been on the clinical side..

And also reminder, our ROCTAVIAN manufacturing facility in California, as being approved by the European Medical Agency. So that's also kind of reassuring obviously, the FDA would have different questions, but so far, the questions we got from the FDA, I mean, product on CMC ROCTAVIAN are pretty straightforward.

And before we move I will ask Jeff Ajer answer to your question on the COVID-19 impacts on our base business. Just one thing we'd like to mention also is that back to vosoritide, you have an -- vosoritide manufacturing. It doesn't look like we got any need -- want to talk about that Greg.

Greg Guyer Yes, in the responses we get back from the AMA, they asked some specific questions. But what they did say on inspection side is, due to the great outcome of their ROCTAVIAN inspection of the same facility that we're going to be making vosoritide tied in, they have waived the inspection need for European vosoritide application.

So just some good news that we received yesterday..

Hi, Jeff?.

Yes, with respect to COVID-19 impact on our base business, there's really three different factors. And I'll address each one very briefly. The first is the impact of missed infusions. So the early shock of the COVID-19 situation, closed down clinics, had patients concerned about going into hospitals to take infusions.

And we've used a number of mitigating tactics since the beginning of the pandemic, including facilitating more patients to get home infusion, patients defined infusion sites that are more comfortable for them and closer to their home.

And in many cases, it's just hospital operations, getting back to enough of a normal that they can handle doing weekly infusions. And I would say that by the third quarter, we're not back to baseline where we started the year in terms of compliance. But we've essentially stabilized that part of the business.

And I think that's a sustained stabilization will probably withstand further waves of the virus. The second piece has been the identification, and also start of new patients.

So patients are not as diligently, I would say, pursuing diagnoses and identification for the same reasons, right, they're reluctant to go to hospitals, in some cases, the hospitals are closed or operating with limited capacity, they have other priorities.

So the rate of new patient identification and patient start for our enzyme products has slowed down. And even for PKU, where clinics have identified patients in their clinic. And so patient identification isn't really the issue. Their limited capacity for operations has slowed down the rate of new patients starts for PALYNZIQ.

And then the third piece of it is, particularly in Europe, where the health systems have been really focused on addressing the pandemic, our ability to gain market access in new countries has been slowed. It hasn't stopped, but it's been slowed. And I expect that that trend will continue going forward for a little while. So those three separate pieces.

Thank you..

Thank you. Your next question comes from the line of Kennen MacKay from RBC Capital Markets. Your line is open..

Hi, guys, this is Bikram on for Kennen, thanks so much for taking our questions.

I had one on Kuvan going into Q4, what are your expectations given the two generics they're going to enter the market? And what could you talk about your broader strategy how you're going to protect the franchise and maybe broadly on PKU is -- are you thinking about maybe defending the franchise by pricing discounts or any other strategies that internally you have been discussing moving into 2021 and 2022? Thank you..

Thank you, I'll handle that one. So in a general sense and as I mentioned in the prepared remarks, we have been planning for and expecting a step down in revenues for Kuvan in the United States, but not other markets. So, our focus on Kuvan as a part of the overall PKU franchise in other markets continues.

Inside of the United States, as there are limited tools to work with, to blunt the impact of generic competitors. Now, we are fortunate that there are only two generic entries, and that we are not -- Kuvan is not a retail pharmacy, subject to easy and rapid substitution. So, we've been planning for a step down in revenues.

It's been difficult, frankly, to model exactly what to expect, because there are so few good analogues to look at the guide or expectations.

And we do have some mitigation tactics in place in the United States but we are working on and you'll forgive me if I miss call, I don't go into the details as that could be a competitive intelligence issue for others that might be on the line listening.

Beyond trying to manage that step down and revenues for Kuvan are our biggest strategy, frankly, with PKU is one of offense. So we have a fabulous drug in PALYNZIQ, that is approved.

And we've been promoting very actively in the United States, promoting PALYNZIQ since its launch, essentially, at the expense of promoting Kuvan in the United States, fully 35% of our new patient starts on PALYNZIQ, have come from Kuvan transitions.

So these would be adult patients that are looking for a bigger effect size and the treatment of their PKU. So we expect that trend to continue of Kuvan transitions, the PALYNZIQ, but it's really about penetrating the adult market with PALYNZIQ.

And we are looking forward to potentially a gene therapy in the portfolio over a period of several years, you..

Thank you so much. Super helpful. Thank you..

Your next question comes from the line of Akash Tewari from Wolfe Research. Your line is open. Akash if you're on mute, please un-mute. Your line is now open..

Hi, sorry about that. So, thanks for the question. This one's a bit on the note. But can you walk us through the options that the FDA has at this point on vosoritide and kind of what percent you had data occur in your mind. The first one is the drug gets approved in August as expected.

Number two, the FDA needs two-years of follow-up and maybe you submit that non-randomized data from your Phase 3 at the end of this year, and you could still have an approval maybe by 2021? Or the third option, where the FDA makes you run-in entirely new Phase 3 study that's randomized for two years that could delay the approval by three plus years? How likely is that kind of worst case scenario here? And is there another option here that maybe we're not appreciating? And then, maybe on the financials, can you talk about in a scenario where let's just say VALA doesn't get approved? How much of an ETS vosoritide BioMarin is really over the next few years? How much can your margins in flex on your ERT franchise? And then how what do you think margins will be for vosoritide as it starts to get commercial sale? Thanks a lot..

JJ you’re going to start the first part..

Let me comment on the three options outlined here..

Yes, it’s hard to catch there, everybody's got a little different calibration around percentages.

So I'm always a little reluctant to assign percentages, but I don't think we would have filed if we thought there was a substantial likelihood that we wouldn't be approved to on a PDUFA date, either with the data all by itself or with the supplemental data sets of the ongoing cuts.

And I think, the agency is pretty careful about the timing of those sorts of things. A key difference here, between ROCTAVIAN just to put it in some perspective is that when we had the meeting on ROCTAVIAN, we didn't know what the enrollment rate for the rest of the Phase 3 trial was. And actually it happened pretty quickly.

So that means that the data are right around the corner. In this particular case, the agency knows the timing of the available of the Phase 3 data for vosoritide and they accepted the application. And I think that that conveys that the package of data that we do have is a pretty strong package data.

The thing, I think you left off in the description list of what if they're having trouble getting there on the basis of the one-year data and the two-year longer term follow up in the randomized population. The 206 study is a different age population randomized study definitive endpoint.

And I think that will definitely factor into consideration about what's next. Because if you see a fair amount of benefit in the patients who are under five years old, I think that will carry a lot of weight as to informing a regulatory decision well, before further data and the older population would be required.

I think that's the backstop, the big definite back step?.

I mean, so Brian, you answer the question on the I guess you had a question on gross margin for a loop?.

Yes, I think it was the margin prospect, if there was no ROCTAVIAN approval based on the current basis? So first of all, we do -- thanks for the question. We do plan to continue to have growth from the base business, which is supported by the infrastructure that we have in place today.

And, just a reminder that, on the operation side, we believe that ROCTAVIAN approval is the delay. And we weren't prepared to launch with an SG&A and medical infrastructure here in Q3.

And since we believe it's a delay, it's important to retain that capability for when we do hope to get an approval so that we can have the same successful launch trajectory that we were prepared for just a few weeks ago. So that's the ROCTAVIAN story.

And then, you had asked if there was not the ROCTAVIAN approval, I pointed them to the source height, which with the acceptance of the filings in both the US and Europe, and in August PDUFA date, we'll be hoping to launch the vosoritide in the second half of next year.

So again, that same infrastructure will support margin growth with revenue growth from both the base business and then either or both ROCTAVIAN and vosoritide side. The last thing I say, it was respect to your question on the vosoritide margins.

What we've said is, we do believe that because ROCTAVIAN and vosoritide are different compounds from our legacy based business of these ultra rare Orphan Disease products, and the recombinant enzymes that make up our ERT franchise that that base cost of goods sold will be lower. And so, we've got 20% to 22% cogs on the base business today.

And we would expect to add both ROCTAVIAN and in vosoritide revenues start to get in the mix, that we see our gross margins improved from there down into the team. Although even on our base fitness, I mean, maybe Greg can talk about it, there are a lot of initial result, going to actually reduce our cost of goods..

There's tremendous work underway to try to improve our cost of goods sold for all the ERT brands, as well as even optimize some of our hopefully soon launched brands in terms of next generation processes. So a lot of works going on to continue to improve our margins, in spite of the dynamic nature of a business..

Next question?.

Thank you. Your next question comes from the line of Matthew Harrison from Morgan Stanley. Your line is open..

Hi, Greg. Good evening. Thanks for taking the question. Look, Hank, I guess I want to follow up on one of the things you've already discussed, which is vosoritide and sort of a comments around to your data.

I mean, I want to follow up on one of the comments that you made, which was that it sounds like you think you'll have at least OLE follow up for two-years? I mean, I guess my question is, if the FDA asks you for two-year data, let's just say that's how they come out.

What are the pieces of information that you would provide to them? And how close would that be to sort of fulfilling what they may ask for?.

Yes, so let me just, again, remind you of the structure of 301 patients were run-in on a baseline observational study for at least six months. And it said at least six months number that makes things a little fuzzy in terms of describing things.

Some patients for nine months have run-in data some patients while at 12 months of run-in data from patient about 18 months. So at least six months of run-in data. And then, at that point patients are randomized to placebo or drug. Now, the placebo effect in the trial is pretty small. That was like 0.16 or something like that.

So for practical purposes, the run-in data and the placebo data, we believe can be pooled because they're not meaningfully different from each other. And right there, that creates 18 months of prospective clinical trial grade, definitive measurement of height data.

So the time that patients cross over to drug from their 12 month journey through placebo, they will have been observed for 18 or more months. And the patients who are on vosoritide will have been -- on vosoritide for at least 24 months at that time point.

So you'll have 18 plus months of an untreated arm all perspective, and 24 months on vosoritide arm, all randomized between those two groups to inform the durability of impacts.

So you can imagine that what we can do is we can look at the first month height gain, I'm sorry, the first six months of height gain, the second six months of height gain, the third six months of height gain, and the fourth six months of height gain.

And we can compare that to the first six months of height gain untreated second, six months, third, six months and potentially even longer of height gain not stimulated by the vosoritide.

Given how well the natural history data that we collected, represents what we've observed in our placebo group, and how well it reflects the expectation that there's declining growth velocity.

We think that that combination of package that says, here's our natural history data that we prospectively observed for more than 18 months, that puts with this very large natural history data set that's contemporaneous United States based population multicenter, and it can be used as a reasonable supportive compared.

Now remember, we're not pitching this as pivotal, this is supportive. It's unequivocal that vosoritide improves growth velocity and children with a P value found on teen years. There's not really a question about that.

The question or scratching, how much evidence do we have that the effect is durable? And as I said that, that the pretest likelihood of that was extraordinarily high. And I think the supplemental data, if it's even in part of the story is going to be extremely strong.

And I don't think that there's very much risk that all sudden vosoritide starts slowing down and year two, year three, year four based on what we've seen so far. Hopefully that gives a good details on what we can think about looking at if it even comes up..

Thank you. Your next question comes from the line of Gena Wang of Barclays. Your line is open..

I had some of my questions with. One question on the ROCTAVIAN and again. So we were wondering how likely you can overturn FDA two-year follow up requirement and submit a one-year since if 80% of the patients will likely reach two-year follow-up and when your data reviews this quarter next year.

And then it seems like other competitive programs like Pfizer's gene therapy is also requiring a one-year follow-up.

So I was just wondering if you can provide some color on the likelihood of overturning FDA decision and how confident you are that you can do that?.

Well, I don't know that I would use Pfizer's strategy as a evidence of what's going to be required for the simple reason that we were putting out similar kinds of discussion points prior to our complete response letter. And obviously that didn't turn out to be an accurate that the agreement that the FDA had with us changed.

And so I don't know how one could know that any future agreements wouldn't change. In particular, given the sample size that they're talking about.

So I would put that to the side? It's difficult to answer these questions about how likely I think that there are not as many patients at the one-year data analysis that we'll have two years of follow-up data. Remember, the interim analysis was recorded in May of 2019.

And so it's that population, that's really the leading edge of the study at the two plus years, mark.

So that I think is what's underlying the agency's request for more information now, I don't know, I mean, we could put up the numbers of patients that we have 24 months of follow-up 18 months of follow-up in front of the agency, and it's all going to depend on the strength of evidence.

And as I said before, that they are reluctant and we and to identify an explicit, specific endpoint because it really is a combination of consideration of the ABR, the agency is really hooked on ABR as a primary endpoint.

Of course, we think we're going to be strong in that regard, but also there are concerns for projecting the durability are pretty significant. And I think it bears reminding that they don't have a lot of experience in this space, the two prior gene addition programs that they've approved. You don't measure the gene product directly.

And so this is the first experience they're having with this. And I think it's unfortunate that they decided to ask for more sample size and longer well after the BLA had been submitted in without any warning, but that it is what it is.

And as I said before, even during these conservative times the recipe as always more data and more time and if you have a good drug, more data and more time, things work out. We think we have a good drug..

Does it help..

Thank you. Your next question comes from the line of Mohit Bansal of Citi. Your line is open..

Good evening. This is Keith on for Mohit. Thanks for squeezing us in. Just had a quick question a lot of them have been answered.

But how should we think about your disclosures regarding the upcoming meeting with the FDA regarding VOLROX? Would you be sharing with us when you meet with them? And what was asked and sort of the topics that were discussed? And then I guess separately to what extent do you think the availability of alternative therapies impacted the decision to go with the CRL? Thanks..

Well, as I said we've had our tight meeting with the FDA and we believe that we're making progress. The meeting was well attended by the AMC and they were quite engaged in verbal.

And they provided additional information, which really blows down again to wanting to directly observe the durability of the product using the Phase 3 trial rather than rely on Phase 1, 2 material. It's really more of a different interpretation of the same set of facts than anything else.

And it's a new interpretation of the same set of facts disappointing and surprising, but as I said, we have the definitive study ongoing. And as far as the impact of available alternative therapies, I think there's been a lot of discussion about that.

But one has to remember always that you're measuring the potential for benefit above the current available standard-of-care. Now, if the current condition is completely untreated, then we think about placebos also natural history comparisons. In our case, our comparison is the best available standard-of-care.

Number one on the WFH the World Federation of Hemophilias standard-of-care recommendation option is for recombinant factory replacing therapy delivered prophylactically. And that's the control in our study.

And to remind you, we demonstrated that compared to patients who have quite substantial breakthrough bleeding on recombinant factory replacement therapy, patients who have received the transgene, and now in two separate studies have quite substantial reductions in their bleeding post gene transfer.

And I think it's that kind of observation that will ultimately animate the uptake of a treatment like ROCTAVIAN into the community. As I said before, once the agency feels more comfortable with a higher end and a longer duration of follow-up, and exactly where that point is, as we've talked about is not yet known.

But, the advantages over current therapy are improved bleeding without the requirement for interventions on an ongoing basis bleeding with prophylactic therapy and from the patients and clinicians that we've talked to this is it's transformative..

And well that we the HP trial, the one-year trial is designed as a superiority trial as compared to -- not a non-inferiority, superiority trial. And this is what we anticipate demonstrating in January..

Great, thanks..

Your next question comes from the line Gershell Leland from Oppenheimer. Your line is open..

Hey, thanks for squeezing me in.

Just two quick ones, one you've been talking about, do you get the sense that there's any read through for this for any gene therapies in the future or is this specific? And then two, you talked a little bit about Kuvan, I was wondering if you anticipate that the generic difficulty entering the market during this time? Thanks..

In the read through, there is certainly is a lot of stuff not going on at the Center for Biologics. I guess you can read into that whatever you want to read into that also. My read of all of that is that things are pretty conservative right now at the agency and I think, Dr.

Marks he does a great job and he is very serious guy and very high caliber person has talked about some of the communication challenges they've experienced then and some of the leadership challenges that they experiences are trying to handle an enormous workload on the cell and gene therapy side, I had not mention, the center is handling the COVID vaccine pandemic considerations.

So they're massively overworked. And they're massively challenged, and you're trying to make sure that they're perceived to be trustworthy and conservative and their decisions on behalf of people's health. So I think that's the read through to be had, you can get into some more scientific details about is a product which I mention.

It's the first product where you can measure the transgene effect by itself. And I think whenever that happens, that causes agencies to ask different new questions, and that’s done in a conservative and stressed environment, it just takes a while for the agency to get themselves comfortable with the issues of consideration.

And that's why we maintain confidence that we're going to get there. It's just going to require patience..

Jeff, you want to answer the impact of COVID-19 on D&A..

Yes, happy to. So we're early in this and we will be watching very closely. But we believe that the likely strategy of the generics is one of the traditional substitution at a pharmacy level, with the caveat that we're talking about specialty pharmacies here, and retail pharmacies.

So if the strategy is one of substitution at specialty pharmacy, I don't see much of an impact one way or another of the COVID-19 pandemic, if in fact, the strategy of the generics is something different, perhaps like a branded generic, where they're seeking to get new patients diagnosed with their product, then they could be impacted substantially by the pandemic.

And we don't know for sure which strategy the generic are pursuing. But, I think it's likely that they would be pursuing the first option of a classic substitution at the pharmacy. Thank you..

Thank you, speakers. I am showing no further questions at this time. I would like to turn the conference back to Mr. JJ, Bienaimé, Chairman and CEO. Sir, please go ahead..

Thank you, operator. So conclusion, 2020 is coming to a close. It is important to have perspective on what has been accomplished to this point. As well as the tremendous opportunities that we’ve for BioMarin. It's been an unpredictable year. But the underlying fundamentals of our business are strong. And we are resolute in our mission.

BioMarin employees have demonstrated extraordinary resilience in the space of uncertainty for almost nine months year and counting. And we are confident in our ability to navigate any new challenges that may arise as we forge ahead. So thank you for your continued support and stay safe. Goodbye..

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