BioMarin Pharmaceutical Inc. (BMRN) Earnings Call Transcript & Summary

Great. Well, good morning, everyone. Thanks for joining us. I'm Salveen Richter. I cover the biotechnology sector at Goldman Sachs. It's a good day to have the Chairman and CEO of BioMarin with us, Jean-Jacques Bienaimé.

And with that, J.J., maybe starting the first question. As we enter the new decade, looking back, how has BioMarin evolved as a company? What can we really expect here over the next 10 years?

So good morning, everyone. It's pleasure to be here. Thank you, Salveen, for having us. [ With this ], we've known each other for quite a while. I think you've been following BioMarin almost since I joined the company or a couple of years later. So I joined the company 14.5 years ago. So if you look back, the revenues were around $10 million in 2004, the year before I joined. So we went from $10 million to -- we guided to $1.7 billion this year. So 170x increase in revenues. I cannot guarantee that in the next 10 years. But now stepping back to the past 10 years, we've made significant progress these past 10 years. And the revenues, I think, 2009 revenues were around $320 million, if I'm not mistaken. So we've increased the revenue five to sixfold in the past 10 years. So I'm not going to project that we will increase the revenues five to sixfold in the next 10 years, but probably, I would venture on fourfold, in the $8 billion frame. I would say we are -- our internal goal is, we're shooting for about $5 billion by 2025. That assumes, of course, that valrox and vosoritide are approved. But I think things are looking better and better in this respect. But we really built the foundation of the future growth here because in the past 10 years, now we are active on 70 countries around the world. So we are able to research, develop manufacturer, register and commercialize relatively high-priced products for orphan diseases all over the world. We don't have much presence in China and India, but actually, we are making progress in China, and that's something we're looking at very carefully. So we anticipate that the company is going to get to the next level of growth. And this -- you look at our legacy products, the lysosomal storage disease products, mainly. I mean since they've been launched, they generate over $10 billion revenues cumulatively. We also have a very significant manufacturing footprint, both in terms of the ability to manufacture complex biologics and many of them and deliver them around the world. Now to also having the ability and we talk about our manufacturing gene therapy products, we believe we have the largest operational gene therapy manufacturing facility in the world in terms of the scale in which we manufacture, in terms of the capacity. So these are all the investments we have made. And actually, it has had a bit of a weight on our P&L in the past 3, 4 years because that gene therapy facility, we built it, we are -- we have people in there that have been making product, but no revenues coming out of it. That's about to change because the next step this year, we are preparing to launch valrox, and then to file for vosoritide. So -- which both products are $1 billion-plus products on an annual basis. So it's pretty exciting.

You mentioned gene therapy. And clearly, over the last decade, we've seen significant innovation, and we've seen new modalities enter the market. As you look to the next 10 years, what areas do you think are most right for disruption? And what new modalities could come to the forefront here?

Yes. I mean -- so in terms of modalities, we've been pretty agnostic. Our objective is really to be either/or best-in-class and/or best-in-class or first-in-class. And it is the case for all the products we have on the market today. None of the products we have on the market today have any competition. So we've been true to our words. So obviously, the next we have vosoritide, will be first-in-class, very, very likely, in achondroplasia. And we're going to be first-in-class with valrox in hemophilia A gene therapy, not in hemophilia A treatment, but hemophilia A gene therapy. So now we do -- so we -- valrox is our first gene products. We are about -- we should be entering the clinic very soon with our second gene therapy product for PKU, we can talk about that. And we announced at R&D Day that our third gene therapy project in hereditary angioedema. So gene therapy will have a significant role within BioMarin, but that doesn't mean we're going to only develop gene products on a going-forward business, we will not. We might still develop small molecules, or the modalities or modalities that are adjacent to what we're doing, like maybe we'll get into gene editing. And which will be a combination of business development and in-house research.

How do you decide, I guess, when you're looking at your portfolio of matching the modality, given you have small molecules, you have gene therapy. You could bring in other technologies. So how do you decide how to match the modality with the indication?

It's really -- and we are very product-oriented. So if we see that the way -- I mean, and we only go after diseases where the biology of the disease is very well understood. There are generally genetic disorders, where we have the mutation is showing under [ this ], so they really depend on what you're going after, what makes the most sense. And until very recently, gene therapy didn't have that many applications, that's changing. But we have stuff that's percolating in early research that some of it is gene therapy, some of it is not gene therapy, and that will become apparent over the next year or so.

And you've guided to achieving GAAP profitability in 2020, so congratulations on that.

Thank you.

And how should we think about margins here in both the short and long term? And how is that going to be impacted to upcoming launches?

So we've said, we've guided towards, in the past 3, 4 years, it will be non-GAAP breakeven and then growing non-GAAP, and we've done that. And we'd say, we actually will be GAAP breakeven, we announced that 2020 will be the first year, very likely where we are GAAP breakeven to slightly positive. In terms of our margins, there are no reasons why they should fundamentally be different from big biotech or big biopharma companies with the exception of cost of goods, which -- considering that most of our products so far have been complex purchase, complex biologics, our cost of goods at around 20% is higher than the industry average. And the issue is that if we look at the biotech average, a lot of companies call themself biotech. But if you look at what they're developing and selling, they're actually a small pharma company, with very, very limited cost of goods, 5% or less. And most of our products are really truly complex biologics. So the good news is that with gene therapy and assuming again vosoritide and beyond, move forward, their cost of good is actually going to be lower, like more in the high single digits as compared to a 19%, 20%. So our cost of goods also well -- it will never go, very unlikely in the medium term to go below 10%. It's going to -- should be improving over where it is today, which would be helpful. Actually, that's a very important aspect of BioMarin that is a little different from any other company, is that the bad news in some sense is our cost of goods has been higher than the average. The good news, though, is that our revenue's life cycle is much longer. Because it's so complex, it's difficult to manufacture them. So you don't get the same gross margin, but you get it much longer than any other company. So -- but regarding the rest of our P&L, there is -- once we get to, I don't know, $3 billion plus, there is no reason why it should be substantially different from any big biotech company, and we don't anticipate it to be.

And as you look at business development going forward, how are you thinking about out-licensing versus in-licensing assets?

Yes. I mean we've done some out-licensing in the past 2, 3 years. The reason -- did I lose the microphone here? The reason is that we have decided 3, 4 years ago that our strategy was to move from ultra-orphan disorders, which are the disorders that the company was built on, like 2,000, 3,000, 4,000 patients in the world, to larger orphan indications. And consequently, we kind of decided to move away from the ultra-orphan indications, and that's why we had to do some divestitures of either products in development or products that wouldn't already fit in the portfolio. So that's what -- that's the -- these are the guiding principles of our BD and internal research, and they are really work together. If you look at valrox, we actually in-licensed very early technology from University College of London and to actually be able to put together on gene constructs around hemophilia A very successfully. So we will continue to do very early-stage acquisitions. Now assuming that I'm right, we're going to be at $5 billion in 2025. We're going to start having some more significant resources to do more significant business development. Yes, absolutely. And in the past 3, 4 years, there are a few things we would have liked to get, but we just didn't have the resources to do it. I think that's probably going to change in the next few years. And in this respect, BD will put a more important role than it has in the past.

When we look at your stock at current levels, it's been relatively range bound over the past few years. What do you think investors are missing with regard to the name? And do you think 2020 is the breakout year for BioMarin?

I actually do believe 2020 is a breakout year for BioMarin. Actually, in the past few months or so, the stock has started to creep up. I mean a lot of what happened in the past 4 or 5 years was industry-specific to -- related to headlines about certain pricing and all that, and obviously, being a company that sells relatively expensive products, that hasn't helped us. But I think, indeed, investors, what they are missing, some of them, not all of them, is the dramatic impact that valrox is going to have on our business and some respect vosoritide. I think some of the investors have been lost in the details of some biomarkers data and losing the big picture. I'm not talking about you. But I mean -- but if you just take valrox, I mean, the efficacy of the product is dramatic. And also, we just had a second publication in New and General Medicine, all on the same product, which is very rare, with a 3-year update, which shows brilliant control for 3 years. Without any doubt, we saw a 90% improvement or drop in bidding episodes before we treat them with valrox and 3 years after valrox, 96% reduction in Factor VIII consumption. And also, I think what some investors are missing is that we're not comparing, when we say 96%, we're not comparing ourselves to placebo. We're comparing ourselves to the standard of care. Those patients who are on standard of care treatment, 2 to 3 intravenous infusion of recombinant Factor VIII for weeks. And they still have bleeding episodes and we dramatically reduced it 96%. This is -- this is why we're getting a lot of phone calls from a lot of reps from established hemophilia companies that want to come work for us. If you are a sales rep, do you want to continue selling a product that now is going to have a competitor, that's 96% better than yours? Probably not. So I think a lot of investors have been, again, lost in the details of the biomarker, giving more importance to the biomarker than the critical endpoint, which is bleeding control. I mean in some respect and understanding because you've already tried to figure out how long is the effect going to be and they try to look at the slope of the Factor VIII. If you look how long is that go -- as well we have already showed, it's, I think, at least 3 years, and we're going to have 4 years of data in June of this year. And I would say, it's unlikely that our action be approved before June, but hopefully relatively soon thereafter. So when we launched the product, we will have very likely 4 years of established efficacy for products showing way better -- be in control and reduction in Factor VIII consumption as compared to standard of care. And I would say in terms of the payers, and we can talk about that further later, but then we can say we have already documented that we are worth 4 years of recombinant factor injections, which were severe hemophilia patients, which is our target in the U.S., between $400,000 and $600,000 per year. So we'll have established over a product that has a value already over $2 billion. Now is it going to last 6, 8, 10, 15 years? Nobody knows. We are the only company that's doing the work to actually demonstrate how long it's going to last. So that's why we are very, very excited. That's why there is a lot of enthusiasm from the patient community about the product. We already are active in terms of patient education. We have a website where patients can sign up to receive information on gene therapy and valrox, and we have -- a lot of those patients are already signed up. And that's going to continue to grow between now and the end of the year. So I think some investors are missing how big this product is going to be. And this is a large market. In [ some ] territories, including, again, India -- and excluding India, China and Africa, is a 120,000 patient market, which is of hemophilia A. Severe hemophilia is about 60% of that, so 65,000, 70,000 patients. That's a huge market. I mean if we only charge $2 million per patient, even just in the U.S., and if we treat 2,000 patients, that's $4 billion of revenue which is way, way more than where we are today. And there's been a survey by another small bank in Manhattan. I won't name it, that did a survey recently of 60 U.S. hematologists. So relatively new significant sample, not just one doctor in Manhattan, 60 U.S. hematologists, so very recently. And they ask them, in the next 12 months, which percent of the patients will be switching to gene therapy. They said, for the one that are currently on recombinant Factor VIII, they will switch 34% of these patients, which, by the way, would be a problem for us because we didn't quite have the capacity for that. And then even we asked them how about the one on HEMLIBRA, there are -- on HEMLIBRA, there are -- non-HEMLIBRA patients, when you are 29% [ of them ]. And then 3 months after launch, 45% of their hemophilia A of their recombinant Factor VIII patients will be treated just in 38% of the HEMLIBRA patients will be treated. Even if you cut that in half, that's still pretty significant.

We will get back to valrox. But maybe before that, can you just talk about how vulnerable you are to M&A and what your view is towards it, just given the platforms that you have and the fact that you will be profitable this year?

There have been talks about BioMarin being acquired even before I joined the company. So we -- so if you look at the last 12 months, we are trading at about 9x sales, which is free up there for a company that has over $1 billion of revenues, only Vertex trading above that, as a multiple of sales. But if you say, well, if you look at what we just talked about compared to what valrox is likely to do, what we've talked about vosoritide is likely to do, then you say, well, BioMarin is undervalued. So it's in the eyes of the beholder. So obviously, the company has staying power. And now we are cash flow-neutral, basically. We have a great pipeline, growing revenues, great manufacturing abilities. So we believe the company is the next $60 billion valuation. Actually, you wrote that a year ago. Do you remember?

I'll have to look at my report.

Yes. I can send you a report.

Yes. Given we're in an election year, amidst uncertainty around pricing policy here, how do you protect BioMarin on the forward? And can you help us think about what the bull and bear cases may be here?

Yes. So pricing actually has really been more of an issue for us and biotech, regarding valuation. I mean it's all started since biotech valuations peaked, I think, 5 years ago or so, and it started -- the headlines started seeing negative in terms of valuations and pricing after that favorite Hilary Clinton tweet when she was running for President. And it hasn't quite recovered since, that there has been this static there. What's interesting, though, is that although it has had a negative impact on valuation without any doubt. For us, and I can't talk for all the companies, for us, our businesses in the U.S. has never been as good as it is today, and our prices in the U.S. have never been as high as they are today. So despite all the headlines so far, in fact, the impact of all this has been absolutely 0. And on top of it, a lot of our business, and a higher proportion than most for the company are, obviously -- is actually outside the U.S. and all this more is about U.S. pricing regulation potentially. And it has no impact on our ex-U.S. business. And I'm not saying that there is no pricing pressure, actually there is, which most of it is related to geopolitical issues, tourist issues and that kind of stuff, but has had very limited impact on us so far. Now the other good news is that, if you look at the different initiatives that are being talked about, whether it's H.R. 3 or the stuff coming out from the White House, in terms of potential international reference pricing, all that kind of stuff, we've done some analysis using the basket of countries that potentially would be in any kind of international reference pricing. And our price, you'd be surprised to know that our price to the U.S. government, after the mandatory discounts to Medicare versus, is actually about the same as our average price in this basket of countries in Europe. So we are in a very different situation from big pharma. I mean I saw an analysis from, I think, the congressional business measured RCCB that say that, for -- we only speak from our products, the price ex-U.S. is about 35% of the U.S. price. We are way higher than that. So I don't know if there is going to be any kind of regulation in international pricing -- in reference pricing, but if there were, I think the impact would be [ already there ] for us. And on top of it, our Medicare and Medicare exposure. I mean especially Medicare is pretty small compared to other companies because, unfortunately, until now, most of our patients don't make it to a 65. Although that might change a little bit, obviously, with hemophilia that's a little different. We have some Medicare patients. But all this so far has been noise for us more than anything else.

Okay.

Not helpful noise. But it's been noise. Yes.

And moving over to valrox here and with the potential approval of this drug this year. So when you look at the Roche acquisition of Spark that just closed and additional competitor gene therapy data that's coming out, how do you view this hemophilia landscape evolving? What are the points of differentiation for your drug? And how do you protect its footprint in an increasing crowded space here?

So we are significantly ahead of anybody, whether it's Spark or second with Pfizer. And with this, Spark, with the protracted merger, that's a little longer than anticipated, looks like we lost a little time. And I would say, they haven't given any clinical update for over a year, maybe 15 months. And the last clinical update that they gave was, I would say, not really stellar, in the sense that they are 2 patients that kind of in the emergency room on IV steroids and lost expression of Factor VIII, which is something that never happened to our patients. So -- but they are somewhat behind, that merger didn't help. Sangamo started even further behind. They're trying to catch up. They have shown ASH some relatively decent data. But at the end of the day, we will always have more historical data than any of the other companies. First of all, we've had 2 publications now. Why are we 3 years there, they're nowhere near being able to show that. And then if they continue, and when they're going to have 2 years data, we'll have 5 years data. When they're going to have 3 years data, we'll have 6 years data. So -- and it's -- so it's likely that since we're going to be at least 2.5, 3 years, maybe more ahead of them, we're going to get the early adopters patients. And then the one that are not early adopters, they're probably going to -- the other one are more conservative, they're going to want to see more historical data. Who's going to always have more historical data than anybody else? We will. And that's just on the clinical front. On the -- and I really don't see that much different. I mean they are the ones that need to differentiate themselves from us because we're going to be there ahead of them. And I don't see anything dramatically different in their data so far, especially if you look at bleeding control. And then there is a whole issue of manufacturing, which is very important. And here, we also believe we're way ahead of them. And I know Pfizer is mentioning everywhere that they're spending a lot of money on being doing gene therapy capacity. And they are, okay? But they don't have it right now. That's operational as far as we know. We have an operational manufacturing facility that can manufacture right now on going for more, but at least 4,000 capacity for at least 4,000 patients per year. We can move to 5,000 plus very quickly with minimum investment. We're also manufacturing at 2,000-liter scale. We don't know exactly what -- maybe you do. I don't know what scale [ for ] the manufacturers. I don't know what scale Pfizer is planning to manufacture the Sangamo's product because right now, Sangamo, we understand has been manufacturing, I think, at 200-liter scale. So they -- unless they're a little behind in this respect, too, and I would say, this is very important. I know investment -- I know is -- they've focused 90% of their attention on clinical data, and that's important, of course, and 10% on manufacturing. I, think for gene therapy, they should maybe do a 50-50 because that's very important. So this is where we believe we have an edge.

And you look -- longer term, how are you thinking about optimization and second-generation approaches? Are you looking at gene editing?

So we are starting to look at gene editing. But just staying with gene therapy and gene replacement with gene therapy, I think we showed some information in data at R&D Day that shows that we have identified and developed vectors and gene construct that has less immunogenicity even than what we have revealed with valrox, and the PKU product. And also, we have identified a new family of AAV vectors that is totally different from the AAV vectors that are currently in the clinic or in early development, that have no cross immunogenicity with the existing vectors. Why is that important? Very important because then that means we -- and a few we showed some animal data that we demonstrated that it works, whereby we could re-treat patients that have been treated. We did an experiment with valrox, where we could do it to other gene therapy products. We could re-treat the patients potentially with another gene construct, if indeed after a few years, 5, 10, I don't know, the gene therapy doesn't work anymore in terms of bleeding control. It's likely that we'll be able to come up with a product that can assure re-treatment. And it's fundamental for all sorts of reasons. First of all, I'm going to be a good news for the patients. In general, definitely makes the patient decision to get into gene therapy a little easier because if they make a decision on gene therapy, although many of them seems to do it. But they might say, well, if I don't take the best possible gene therapy product, it doesn't work after 5 or 8 years, I cannot be re-treated, which with gene therapy, it's a huge decision. But if we can convince them, and we have animal data, but I think in the next 2 years, hopefully, we'll have some human data, we can convince them that actually they can be re-treated, is a much easier decision. Why were the first gene therapy products there today? Now why also re-treat very important for us to potentially get into other kind of disorders where it effects mainly children. Take Duchenne muscular dystrophy. The issue with Duchenne, if you treat a young kid with gene therapy, 7 or 8 years old, which you do -- and you have to do it in the sense because otherwise when they get to 13, they're already very impacted by the disorder and in wheelchairs most of that. So you have to treat them early. If you want to treat them only with gene therapy, the problem is that their liver is still growing. So even if you're pretty effective at gene therapy, you transfect the liver. By the time at 7 -- by the time they get 13, half of their liver cells will not be transfected. So it's likely that the efficacy of the gene therapy is going to decline. Now if you can have re-treatment, obviously, it opens up huge opportunity here. Actually the same hemophilia A by the way. Right now, we only treated adults, and we're going to start with adults. But I think really, we're going to try probably to get maybe to 12 years of age. The issue is going below 12 and this liver growth issue. But I think if you can overcome it with biliary treatment, it's a -- it gives you major leverage in terms of new opportunities here.

So as you look to the launch here and the regulatory process, so you've had the EU accept your accelerated application, and you have the submission to the FDA complete. How do you stand on manufacturing readiness as well as launch preparations?

So manufacturing readiness, as I said, we -- so we have already several thousands or definitely over 1,000 treatments already. The current facility for valrox, and as of today, if it's 100% dedicated valrox can manufacture over 4,000 doses of patients per year, by adding some additional equipment in the same facility, with maybe $15 million, $20 million of expense, limited expense, we can get to 5,000 relatively quickly and not too expensively. So we have pretty significant capacity, and we're ready. And we already have some plans, some drawings to build a second facility, which, if we do it, will likely to be in Ireland next to our current protein manufacturing facility. Obviously, we don't want to pull the trigger until we get approval. And with EU, we'll see where things are going. On the commercial front, our commercial team has been very active in the U.S. and Europe already. With -- so lots of BD with managed care, payers, U.S., Europe, established relationship with all our patient organizations, doing a lot of educational gene therapy because it's -- you have to start from scratch, basically, not only with patients, but actually a lot of physicians are not that familiar with it. So we've been very involved there. We have already at the beginning of the sales force. As soon as we -- in Europe, already, we're building up the sales force because now the filing has been accepted. In the U.S., which the deadline for the FDA to tell us whether except the file or not is late February, since we filed in December. As soon as we get that green light from the FDA, we're going to significantly increase the sales force. And I said earlier, we have no issue getting sales reps interested in joining BioMarin instead of the other way around, based on the strength of the data that we have so far. So -- and we've done a lot of managed care interaction in Asia, and the payers, they understand the pharmacoeconomics of the disease. They understand how much hemophilia, severe hemophilia is costing them today. They're very -- it's high on their radar screen. So here, as compared to all the gene therapy products have been launched so far, and there are many of them, we have a very good cost offset story here. I'd say, 4 years of HEMLIBRA is $2.8 million. So if we demonstrate 4 years of efficacy and bleeding control, so this is kind of what the payers have in mind. I don't anticipate a lot of pushback here.

So you've talked about early adopters here. Can you maybe describe what the characteristics of that pool of patients?

That's interesting. That's a question we get a lot. And it's -- even if we look at the profile of the pieces in the Phase III trials, it's not obvious to actually come up with the profile of -- the typical profile of our patients that want gene therapy. I think the average age is around, I think, 27 or 28 in our Phase III. I think that's what I remember. So that's something we're working on. But I would say since we might be limited more by manufacturing capacity than anything else, it's not like we need to do a lot of work there. Also, what I want to highlight is our perspective on the market, though. So we now have treated between the Phase III and the Phase II inclusive, 160 patients. This is way -- which is 10x plus than any of our competitors. And also -- so our Phase III trial is in enrolling 135 patients, but we had demand, we had 300 patients that wanted to be in the trial. 300 patients that without any marketing, without any Phase III data because that was a Phase III, that wanted to receive gene therapy. So my point is that -- and that was just in about a year of "developing the trial". That's not U.S. only, this is kind of U.S. plus other countries. But I would say, it's likely that we will have demand from at least 300, 400, 500 patients in the first full year of sale on the market. And that's a substantial amount of money if you multiply this by the anticipated price of the drug.

And on the physician side, what is meaningful for them to drive adoption?

Is bleeding control. I mean that's -- I mean, it's sustainable bleeding control, which, again, now we have 3 years with Phase II. And actually, the bleeding and we only have in the interim Phase III, this is just 6 months data. That's the way we analyze the data. We have 1 year data before the end of this year, but the bleeding control is also pretty impressive here. And that's really what they're interested in. And the improvements -- related to that, the improvement in the quality life of the patients. And we have shown some quality of life data in some presentations, which is pretty dramatic.

And how are they communicating with you about the durability of the drug in the context of switching back to existing factor therapies or HEMLIBRA, over time?

So I mean, switching back in case that [indiscernible]

In case.

I mean I -- so there's not a lot of data on that. But I would say, one of our competitors -- I'd say, the greatest contribution to the field is to show that actually you can go back there if your patient fails without any problems because Spark again had 2 patients that -- whose factor expression went down to 0, and they -- my understanding is that they went back on the recombinant Factor recently and doing fine. So actually, that's a good question because it's also -- and if you were a hemophilia patient, and you have to say, okay, do I want to be treated with gene therapy? And you tell them, well, if you do gene therapy and if they refuse or doesn't work, I mean, you're stuck. If you tell them if it works only for 5 years, you can go back to what you're doing today. So in 5 years plus, that could be either they go back to what they're doing today, whether it's a recombinant Factor VIII or HEMLIBRA, or hopefully, if we can re-treat them with another gene therapy concert, that doesn't mean crossing immunogenicity with apparent way.

So you talked about pricing earlier here in the replacement cost that kind of -- that exists in the hemophilia setting. So in the context of onetime, potentially curative long-duration therapies here, the debate on how to appropriately price therapies, it's been top of mind, and you've seen Spark, Novartis and Bluebird set very innovative pricing models. What is your thinking regarding these pricing models? And how you might approach that? And then the price itself, given you could, on a cost-offset basis, price it higher than their approved drugs?

Yes. So let's start with the price itself, and then we'll talk about how different payment structures. So in pricing, as I said, by the time we launch, so in June, we'll have 4 years, hopefully very likely, 4 years of demonstrated or being controlled. So depending if you take 4 years of twice a week, 2 to 3 times a week Factor VIII injections or 4 years of HEMLIBRA, you're talking between $2 million and $3 million, basically, of potential cost offset, for severe hemophilia patients. So that's a metric that's there. And obviously, the payers are going to have in the mind. And at launch, we will not be able to tell a payer as well, are you sure it's going to last 10 years? Nobody knows. I would say, after -- when we get to around 5 years, it starts in terms of economics and financials and become, I mean, more and more of a moot point, in the sense that even if we had -- let's say that we had 10 years of data when we launch of this year. So we go to payers -- the tail data -- so we wanted to pay $6 million to $7 million for this drug. That might be a little difficult because then you get into discussions, like, well, but in 10 -- in 5 years, there'll be another product for the customers, plus the price of the hem B. Hem B will probably go down because there are going to be competitors, the price of recombinant factors. So you get into esoteric discussion, I would say. And then there is a secret shock when you get above a certain level. So I would say, it's likely that even if we had way more than 4 years of demonstrated efficacy here of bleeding control, we could charge more than $4 million or $5 million for the drug in -- oh, this is U.S., obviously, Europe will be a little less than that. So it's why the durability questions, as time goes by, becomes less and less important. It's still important for the patients in terms of decision-making of the patient. Like, do I want to get this product if it's only going to last 4 or 5 years? Or do I wait for something better, probably it's not obvious there is something better right now. And I need to go back to re-treatment. So this -- but in terms of the payers, I would say, it's going to be hard to charge more than $3 million or $4 million in the year. So that's the overall cost. Now there is a question, how are you paying for this? Like, you pay everything upfront? You pay over time? I mean you do a pay-for-performance scheme, whereby you're telling, yes, it's going to be $3.5 million, but if it doesn't work, either you don't pay us over time anymore or you stop paying us or we pay you back. So we're open to all of this, but there are practical limitations to what can be done, though. There are legal and regulatory constraints, especially today still in the U.S., in terms of pay-for-performance teams because of this Medicare best price issue which, they're initially getting Congress to exempt gene therapy and so-called curative therapies from that, but it's still not the case today. There's one impediment in the U.S., which is not true, ex-U.S., by the way. And then you have the issue of -- even with our pay-for-performance, if you pay over time, a lot of payers are not organized to kind of buy something and pay over 4 years for it, they're not -- except for medical equipment. That's a different story. But for a drug, they don't know how to do that. And I think they cannot do that, but today, they don't know how to do that. And then the other issue of -- with pay-for-performance is they are not organized to monitor it. Even something as simple as recombinant factor usage. They don't have the personnel to do all the analysis, invoices. So we've had many discussions with the payers. I mean ex-U.S., I think some of this will happen. In the U.S., it's still a bit of a question mark. And we offer -- in all the meetings we've had with payers so far, very often, not always, after we go over all this, you could pay for time, few more years, you can pay for performance. At the end, they say, well, how about you give me a 15% discount. So there's a lot of talk about this pay-for-performance. The reality is not quite there yet. But actually, and it's interesting to see for us what's happening with Zolgensma in this respect. But I think most of it being paid upfront from what I understand, even if they are -- possibly Novartis is open to being paid over time. So we're watching that. But -- and that's, again, the U.S. is somewhat different from the rest of the world. I mean in Europe, there will be, I think, in some countries, pay-for-performance. There will be in some countries too, over time, but not all of them. At the end of the day, we are -- we don't care. They want to be pay upfront, fine. They want to pay over time, fine. They want to pay-for-performance system, fine with us, too.

So moving to vosoritide, and that's your second drug that could enter the market, probably in 2021, I would assume. So you've seen children here return to the normal growth curve. How meaningful is the data set that we saw? What do you say to critics who claim the benefit will only be recognized if you treat patients earlier from the 0- to 5 years of age group? And when will we actually see that data in the earlier equation?

Yes. So we're starting with the current data set, so we only treated -- so I mean, in terms of the Phase II, the initial Phase II and the Phase III trial, was a result we just needed. We only treat patients over 5 years of age. But we have demonstrated even in the over 5 years of age now in our Phase II trial of about in over 4.5 years that around 9 centimeters of additional growth as compared to whether patients -- as compared to match historical control and tempering this historical control. So I would say that the benefits will only be seen under 5. Obviously, we've shown that it's not the case. What we believe is actually the benefit under 5 will be more dramatic because the growth velocity is maximum when you're just born, and it goes down after that. So it's -- you have maximum growth velocity at birth, it goes down dramatically in the first 4, 5 years of age, and then it goes up a little bit around puberty, then back down. So we have now treated several patients under 5. This was from 2 to 5, then 6 months to 2 years. And 2 to 5 is done, 6 months to 2 years is 99% done, and we started treating, we actually already have few patients under 6 months of age. And we believe the efficacy will be -- we hope to show even more dramatic efficacy. So -- and I -- so I go back to the under 5. So back to what we've shown so far, we have -- so 1.5 years, we got 9 centimeters of improvement apparently, around 9. And if you look at what the FDA has approved so far in terms of products for some kind of growth alone of some kind of a short stature deficiency different engagement. The demonstrated -- we looked at -- we did analysis of the regulatory history, and we have approved products, we are demonstrating that if it's as small as 5 to 6 centimeters, eventually. So we already, in the sense, we believe, we passed the hurdle with the 9 centimeters. To be discussed with the FDA. So we basically passed that hurdle. Now regarding the Phase III services, it's a 1-year trial because it's difficult to do in those patients, a very long placebo-controlled trial. This was a placebo-controlled trial, randomized, and we had the mother of all p-values here. So we only reported p less than 0.01, but our p-value was 13 zeros before, 13 zeros. So the strength of the evidence is phenomenal that the product is having some efficacy here. I think it's beyond any doubt, at least in the first year. So at the end of the day, so we're going to have the Phase III with a great p-value. No question about the -- I think the product, we're going to -- the initial Phase II data, actually we'll have 5 years of data pretty soon. We'll submit that to the FDA. I would say, we will have some safety data mainly on the under 5 filing. I think we will start -- we should be able to communicate with you about initial efficacy on the under 5, probably in 2021, first after 2021. But I mean we will not -- hopefully, we don't need that data for approval.

How much of a threat do you see from competitors that are starting their programs or about to start?

Well, I would say, it's difficult to assess because they don't have any patient data. Now our most vocal would-be competitor with a long-acting CNP, which is once a week of continuous injections that are once a day. Every -- in the past over a year now, every quarter he's telling us that he's going to -- they're going to treat their first patient next quarter. It's been going on for 5 quarters now. So he'll be already falling further and further behind us. So basically, today, they are over 5 years behind us. They are where we were over 5 years ago. And the only data they have is animal data and a handful of healthy volunteers that they treated 1 injection. So it's going there. So it's very difficult to assess right here. But I would say, we'd significantly be ahead. And also, essentially how -- what are they trying to improve? We have no safety issue. This hypertension is clearly demonstrating the Phase III trial that's not there. There is no difference between active and placebo, which is clinical hypertension. So potentially, once a week, you would say, it could be, yes, theoretically, it's potentially better than once a day. Although it all depends on what happens when you do the injections once a week. The volume of injection is going to be greater, going to be more painful. So they use pegulation for their loyalty mechanism. So they're going to be giving a lot of plastic to no kids, possibly under 5. They know the regulatory authorities might have a problem with that. Which might be the reason why they have a short time to target. So I don't know. But we are [ overcoming ] that.

And when do you think you could start studies with the same drug in other short stature?

Actually, we're going to start with the next -- the first half this year, for sure. So we showed some data, which actually -- it's a great question, it's very exciting. So this is the first time that we're going to have 1 molecule potentially that's going to -- we have more than 1 indication. Other parts, we have so far in the market, and we have 1 indication. This one, we are going to explore based on increase from some KOLs, like Dr. Dauber at R&D Day, expanding the use of vosoritide, the achondroplasia in dominantly inherited short stature, because there is a great scientific rationale for doing it. Dr. Dauber has shown, where there's animal data that I showed in human that are actually activating the NPRB receptor pathways, which is what vosoritide does, have a significant impact on patients that have specific mutations with idiopathic short stature, and I would say there's a confusion that is, well, we hear it, growth hormone is not reimbursement before and use much in idiopathic short stature. The reason for that is because idiopathic short stature is not a growth hormone problem. It's a NPRB problem. So the growth hormone doesn't really have an impact on those patients. We believe our product is going to have a significant impact on those patients. So we're starting Phase II trial in the first half of this year. And this is, by the way, this would dramatically expand the size of the addressable patient population for vosoritide.

And then when you look at the rest of your pipeline here, what are you most excited about?

After the stuff we have communicated? I'm going to say, so yes, I mean, PKU gene therapy, super excited about that. So we should be able to treat our first patient very soon. I'll give you a little bit of update on that next week. We -- so we've showed in animal that we are basically within 2 weeks, used a very well-established PKU mouse model that we get the CLOs into the mice from super high T levels to normal T levels. We show there is no safety issue. There is no risk for being [ hypocy ]. We're also getting -- we're going to get into patients. First patient treated will be with commercial product at commercial scale. I can assure that none of our competitors are anywhere near being able to do that. So we are very excited about that because despite the availability of Kuvan and now Palynziq. So we have the only 2 products approved for PKU right now. A lot of patients -- outside the clinic, they don't get forward and don't benefit from Kuvan or Palynziq. We believe that the way to get those patients is going to be a very simple intervention like gene therapy, one off and done. So we are very excited about that. Now we are -- I'm pretty excited myself about the ICH gene therapy opportunity, which we announced at R&D Day. He is -- that's one has been challenging because you need a pretty high amount of protein here to generate gene therapy and other companies that have tried to haven't been able to do that. And we've showed that in animal that we can do it. So that is very exciting. And then there's other stuff that I'm excited -- I'm very excited about -- but I'm very excited about Palynziq. It's still scratching the surface. We're going to see a very substantial increase in Palynziq sales in 2020. We're going to give you some guidance on that soon. And then there are a few other projects in preclinical that I'm very excited about, but we have not communicated. But -- so I cannot do that.

Okay. Well, with that, I'll open it up to the audience for any questions. Maybe one last one for me. How are you thinking about the lysosomal storage disease franchise? It seemed like it was ripe for gene therapy to work in this area, except that we haven't seen any real proof-of-concept to date?

Yes, exactly. I think the issue -- and actually, we actually ourself have been doing some work, we have not -- probably excited about it, but we are doing some work in this discussion. So potentially actually better than naglazyme. And I would say the results so far are being pretty disappointing. I think the issue is the dose. I think if one could substantially -- I mean very substantially increase the dose, one might be able to get some significant efficacy with gene therapy. But then the issue is what we'll be facing is [ financial ] toxicity and also potential other toxicity because of the huge volume of vector genomes that we have to deliver the patient. So I would say, in the short term, we really don't see these ideas as a threat to our legacy lysosomal storage disease. I mean in 10 years, who knows. I mean -- we're achieving -- I don't know what could happen. I always say today, most of the trial is done, whether it's ours or some of our competitors have been very disappointing.

Great. Well, with that, thank you very much, J.J.

Thank you. It was lovely seeing you. But...