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

Good morning, and welcome once again to Cowen and Company's 40th Annual Health Care Conference. I'm Phil Nadeau, one of the biotech analyst here at Cowen. It's my pleasure to introduce the next presenting company, that's BioMarin. We have CEO, J.J. Bienaimé here with us today. He's going to give a corporate update with about 8 or 10 slides, and then he and I are going to have a Q&A session following. J.J.? Thank you.

Thank you, Phil. Good morning, everybody. Just want to highlight, as usual, that this presentation will contain forward-looking statements. For details about this, look at our 10-K, 10-Q and 8-K reports. So I think most of you in the room are pretty familiar with the company. But in terms of overall mission of the company, we are entirely focused on rare and serious genetic disorders, most of them life-threatening. And we try to develop drugs and bring to the market products that provide a meaningful benefit to a small patient populations or medium-sized, we kind of moving from ultra-orphans to orphans, but the company was built on ultra-orphan drugs. So we had a great year last year. 2020 is off to a good start. Obviously, the key milestone this year will be the launch of valrox in hemophilia A in the U.S. and Europe, to submit the global marketing applications for review for vosoritide probably in the summer or Q3 of this year, to complete the enrollment of our ongoing Phase II trials in patients under 5 years of age. This year, although it's a study with like 3 different segments, 2 of them are already been completed. We recently provided the guidance for 2020. It's the first time we got to have a profitable year. It was slightly profitable with anticipated GAAP net income between $20 million and $80 million, and we anticipate total revenues around $2 billion. In terms of upcoming R&D projects, we clear -- recently, we got approval from the U.S. and U.K. authorities for starting a human PKU trial in patients for our next gene therapy product, it's BMN 307 for PKU. And the study should treat as screening right now, we just treat our first patient on the end of this month or early next month. So the recent news, 2 days ago was that the FDA did accept our BLA filing under priority review. So they give us a PDUFA date of August 21. They told us, at this time, they're not planning on having any advisory committee. So if approved, this will be the first gene therapy in the U.S. for treating any kind of hemophilia. And also they accepted the compliant diagnostic filing because we are going to need to test the patients for pre-existing antibodies to the vector, which is AAV5 antibody based on pretty thorough analysis of existing data. About 20% of U.S. patients have pre-existing AAV5 antibody, but we were going to need to -- that'll be the last step to qualify the patients to be treated, and we'll be providing those tests. Just to highlight again of the interim Phase III data, which we communicated a few months ago that showed that valrox had a dramatic impact on the bleeding control for these patients. So on the left of the slide, this is -- on the left of the bar in the middle, you have the number of bleeding episodes for these patients when they were on standard of care, which is 2 to 3 weeks intravenous infusion of Factor VIII. They still had significant number of bleeding episodes, as you can see on the slide. And after they've been taken off standard of care, treated with valrox, you see on the right side, very, very few bleeding episodes here. And as you can see, these patients are actually ranked here according to their Factor VIII levels, whether it's based on the chromogenic assay or the one-stage assay. But you can see that even the patients that were not -- didn't have factor levels in the normal levels or mild level, they still had a significant reduction, as you can see on the slide here on the left in their bleeding episodes. And of course, they had a dramatic reduction in their use of Factor VIII injections. So this is pretty impressive data. This was the basis of our filing. In addition to this, earlier this year, we had another New England Journal of Medicine publication of our Phase II trial this time, with a 3-year update. When we looked at how the patients were doing 3 years after treatment with valrox, and this is a high-dose patient, a 6e severity, which is a Phase III dose. You see that's before -- this is -- on the last before they get treated with valrox, while, again, on prophylactic intervenous infusion of Factor VIII standard of care, they have on average, 16 bleeding episodes per year. And at year 1, they went to a median of 0 and a mean of 0.9, actually got better in year 2. And the median number of bleeding episodes is still 0 at year 3, 3 years of treatment and the mean is 0.7, dropping from 16 bleeding episodes per year. So -- and related to that, on the right side of the slide, is their Factor VIII consumptions, the number of injections that they need on average per year. So they went from 138 or so infusions per year to a median of 0. And at year 3, 3 after treatment, a mean of 5 injections per year. So this is pretty dramatic data, and this is why we believe the FDA gave us accelerated review and accepted the filing. So there is -- so we anticipate launching in the second half of this year. There is major interest in the products on hematology's part and patient's part. Actually, we have a program -- we do a lot of educational program on gene therapy concurrently with some National Hemophilia Foundation programs, most of the time. And at the end of the program, the patients have the choice to opt in and give us some information about them that they mean they want to receive more information from BioMarin, on valrox. As of 2 weeks ago, there were 400 of them in the U.S. alone that opted in. I mean they have interest in being treated. Many of them might not be eligible at the end but if it does show of interest, and I think it's going to keep growing over the next few weeks. Also, interestingly enough, we did our Phase III trial in about 130 patients, where we have 300 of them who have signed informed consent and were interested in the trial, in the treatment with gene therapy with valrox. Well, at that time, there was no Phase III data obviously, because they were at the Phase III study, and there was very limited Phase II data. That shows there is some interest. The peers are very interested in the product. We've had many meetings with payers over the past 18 months. Because they understand this patient population very well, they understand how much it cost them. And actually, there's been several publications recently documenting the annual cost of prophylactic Factor VIII in the U.S., about $700,000 a year. And there's a paper recently that came out that estimates of lifetime cost for adult's PKU -- adult's gene therapy, factor -- I would say, adult Factor VIII patients hemophilia is about $38 million for the lifetime of the patient. Our intent is to save money for the health care system. Actually, I've met recently with a payer that actually came to us because they are very convinced of the value of our product and they say they want to meet with us so they can treat as many patients as possible, as quickly as possible, so they can save some money. So that's a good sign. So we're ready for launch. 98% of the commercial team in the U.S. has been hired, and all the sales manager are in place in the major European countries. We have ample commercial inventory. If we launch the product tomorrow, we would be able to treat 500 patients this year, and we have capacity for way more than that. So we built a gene therapy facility. We started building it 3.5 years ago or so in addition to other facilities that you can show on this slide. But that facility is now fully operational, and we communicated recently that actually we now, with this facility alone, can generate up to 10,000 patient treatments per year depending on the mix of products between valrox, the PKU gene therapy and others. But -- so we are absolutely ready in this respect, and we also have major experience manufacturing extremely complex biologics. I think we've been inspected by many, many different regulatory authorities around world, about 80 times in the past 50 years. So this is a brief description of our products today. So we have 6 products on the market, which you can see on the slide, they were -- they allowed us to build the company. But in addition to this, the most recently launched are Brineura and Palynziq, which are doing well. But again, now in addition to valrox, we get now vosoritide also for achondroplasia which is in pre-filing situation. And we are about to start a second indication for vosoritide, by the way, in dominantly inherited short stature, which has a much larger indication than achondroplasia. We should start the trial before the middle of this year. So actually, this will be the first time, potentially that we're going to have a product with multiple indications. All the products we have on the market today only have 1 indication. So again, so valrox we talked about. So PKU gene therapy, about to start a trial. And our next PKU program is -- we announced -- pre-announced is gene therapy for hereditary angioedema. We are starting IND-enabling studies. We should be in a position to file the IND sometime next year. Also, I just want to emphasize that we have a very diversified business. We are a true global company. For a company our size, we sell products in 75 countries around the world. So we anticipate a $2 billion revenue this year. So you see, we're not dependent on only 1 region, so it does -- so we do have geographic, sociopolitical risk, depending on what's happening in different countries in the world. There is also always something going on, but we're not 100% dependent on 1 country or 1 product, which is also a good diversification. And we basically more than doubled the revenues in the past 5 years. So Palynziq, the most recently approved product for PKU, this is our second PKU product. It's $87 million in 2019. We anticipate around $200 million this year, growing very, very fast about -- so I just wanted to emphasize is that this product is only approved for adult PKU patients. If you look at the U.S. and European markets, so that's 30,000 adult PKU patients, and we only treated less than 3,000. Consequently, we're still scratching just the surface, and we have a long way to go and long potential growth for these products. Finally, we just gave guidance for 2020. So again, total BioMarin revenues between $1.95 billion and $2.05 billion. This is the guidance for the firm. So Vimizim is now our first $0.5 billion product. We passed $500 million in revenue last year with Vimizim. Our cost of sales is still high, that's because of the complexity of manufacturing of our products. Although our cost of sales should go down with gene therapy and vosoritide because they're significantly less expensive to manufacture on a per-patient basis than our current products. Our R&D expense is not going up much. Our SG&A is going up because we are preparing the launch of valrox and vosoritide we got much revenues. So I talked about the GAAP net income, first year profitable; and the non-GAAP's very substantial increase in non-GAAP to now $260 million to $310 million. So these are the introductory remarks I have, and I'm going to join Phil for questions.

J.J., thanks for that introduction. I think as we talk to investors, most focus today is on valrox, its approval and launch. Maybe first on the approval. Are there any areas of major disagreement between BioMarin and the agency, whether it's in clinical data, clinical trial design or manufacturing?

Yes. So since we have had breakthrough -- we had breakthrough therapy designation accelerating its filing, prior review, we had a lot of interaction with the FDA over the past few years. And I would say, on the clinical front, as of today, although we're having a substantial discussion going on. On the CMC front, there are some discussions, but we have been incorporating very closely with the FDA over the past 3 years. Actually, even when we design the manufacturing facility, we interacted with them. We've been interacting with them very closely on the development of in-process assay or release assay. So we believe we have a very good relationship with them. And also, maybe one anecdote is that when you go to your pre-BLA or pre-NDA meeting with the FDA, originally, you spent 80% of the time, 80% plus on clinical issues and 10%, 20% on manufacturing. And our meeting this time to pre-BLA, there were no clinical questions. Everything was on the CMC manufacturing section. So our Head of Technical Operations was the star of the meeting, and he was very happy with that.

You mentioned some of the statistics around the pharmacoeconomics of factor replacement therapy and their forward value of function of care could bring. How widely understood is that data among the payers? You mentioned one that you recently met with that clearly understands it, but how widely is that?

I think because this is such a high-ticket item for the peers, the hemophilia A patients cost them a lot of money, that they do spend a lot of time analyzing their spend. So I'm not seeing all of them do a very, very thorough analysis on this, but most of them are pretty aware of the cost of those patients. I mean in addition to the cost of recombinant Factor VIII or HEMLIBRA in the U.S. per year, which is around $700,000 sort out. You see our bleeding episodes and the paper that I was looking out very recently say that average cost in the U.S. to treat a bleeding episode is $50,000 per episode. So -- and all those other payers are pretty familiar with the data, and this is why they're looking forward to the launch of our products, so they can actually save money in addition to improving life -- the cordial life of the patients.

How interested is BioMarin in putting in place alternative payment models? And based on your conversations with payers, how interested are payers in adopting those models?

So we are very interested. We're going to be offering pay upfront, pay overtime, pay for performance or some aspects of this. So the pay for performance in the U.S. is challenging for payers for a couple of reasons. One is that, although they're interested in it, they are not always organized to actually track it and implement it and manage it. And two, they are not really organized to pay -- to commit for payments over time. But then there is an issue with the regulatory issues in the U.S. with the Medicaid's best price which make it a little complex to have outcome-based agreements, not impossible. So we are making some progress in potentially coming with a solution that would allow the payers to be only paying for clinical performance, outcome-based agreements without running a fall of the best price issue, which should create a big problem obviously for us. So -- and ex-U.S. somewhat easier to do that, and I'm sure there would be some outcome-based agreements ex U.S. Although, again, even with single payers, in some countries, they have annual budgets and they're always -- not always willing to commit to several years of liabilities. So they all -- so when you get into the details, is they realize it's a little bit more complex than it looks, even if they are potentially interested in outcome-based agreements. So we will be offering this. But I think the majority of the payers in the U.S. still will pay upfront in recent launch, yes.

Historically, BioMarin's charged basically one price worldwide or a very similar price, U.S., ex-U.S. There's no reason, I think, that would change with gene therapy, is it?

It will change a bit. I think the ex-U.S. price will be lower than the U.S. price. But is that going to be 30% of the U.S. price? No. Like it is for big pharma? No. But it will be a discount compared to U.S. by the reason being that the cost of that analysis in Europe is different in the U.S. because for 2 reasons why: it varies from country to country, but in many countries, they don't -- the percentage of patients that receive prophylactic Factor VIII is lower in the U.S. So the cost -- the factor is lower. And also because Factor VIII, there are some countries that have agreements with Factor VIII manufacturers and suppliers that are lower cost. So the overall treatment -- cost of treating today in Europe is lower than the U.S., but not dramatically lower.

One thing investors are trying to understand is how large is the pool of patients who will be early adopters, how large as the number of patients who will want the first gene therapy as soon as it's available. You put a couple of figures in your presentation. Can you help us size the population?

So the size of the center population, if you look at hemophilia in general in the world, excluding India, China and most of Africa for access reasons today, is 120,000 patients. Then you have to look -- you have -- many of you have seen the waterfall in the meeting. At least initially, the patients are mild to moderate, that might not want gene therapy. So you use about 45% of the patients and they have to be over 18. They have to be free of pre-existing AAV5 antibodies, you will lose another 20%. So of the 120,000 you start with the initial market target would be about 30,000 patients, which is still a lot at their current cost of therapy.

And how many of those do you sense want to jump in and adopt gene therapy frequently...

Anyone, yes. But we know that there's responsive demand. There are lots of patients interested. There -- those patients have been waiting for gene therapy for 20 years, and some of them are tired of waiting and they want to try. And also, at the same time, they know that -- it's not like if they use valrox that their options are gone, like they won't be able to go back to what they are doing today. They absolutely can go back to what they're doing today. So right now, we have 3 years of demonstrated leading control. We're having about 4 years this summer. Actually, some patients have met a formula, even if we gave them 1 year of no infusion, they would take it. As we discussed earlier, someone, they would -- some of them, they wanted to take a well-treated vacation. They cannot do that today. You have to carry all their Factor VIII refrigerated. I'm not saying this is not the way we're going to position the product, where there are some patients that are interested even in limited efficacy in terms of duration. But I believe we have 4 years of efficacy right now. And based on animal data, we believe it's going to be significantly more than 4 years.

There's a number of companies coming behind you with other gene therapy programs. Who do you consider your stiffest competition? Is there anything that you're watching most closely?

I mean it's hard to tell. I mean Spark has not given an update in 18 months almost now. So we don't know what's going on there. Sangamo, Pfizer, they have new updates recently, they are even further behind. And I would say, the factory data looks decent. But again, the payers of the patients, they were already interested in outcomes. And we're always going to have 3 more years of data than they have. So we have shown a mean of 0 bleeds. 3 years after treatment, it's going to be challenging to improve upon that.

Maybe switching to vosoritide. Congratulations on the positive Phase III data. I think you said you can meet with the regulators in the first half of the year to discuss the filing. What questions are to be answered at the meeting?

I mean it's an issue that, I mean, the Europeans, I think, we don't believe there had been issues there. I mean, the U.S., if you were at the outcome last year, many of you always prefer longer studies, more patients, more studies. So -- and they want to make sure that the effect is durable. So the Phase III trial was incredibly effective. The p-value was unbelievable based only on 1 year trial. Also you can see why we like more, but it's difficult to treat -- to do a randomized trial to inject little kids with placebo once a week -- once a day for 2 years. So I think they might be difficult to do that. But we also have now -- we -- the most recent update we given our Phase II trial was 4.5 years, it was not a randomized trial, but it was as compared to matched historical control that shows a clear benefit of the product and the durable benefits of the product. We showed about 9 months -- sorry, 9 centimeters increased or 5, 4.5 years as compared to historical control, which is less than 5 years of treatment. So if we treat the patients almost from birth, from birth to age 15, and if the response is linear, and I think it's conservative because in the early years, we're going to have more of an effect, that would be about 1 foot improvement in height which would dramatically increase the quality of life of these patients.

How motivating will that be for the patients to get on therapy? What proportion of patients actually want to be treated? And how big of a difference in their life would there be?

I mean, I think the vast majority of them. Achondroplastic kids are born, 80% of fully achondroplastic patients are born from normal -- from average stature parents is diagnosed before birth. So showing diagnosis and the genetic system is to the parents. When the baby is not born yet you tell the parents, you're going to have an achondroplastic child. 100% of the patient -- the parents, the first question they ask is, "What can we do about it? Right now? How much?" So I think there's going to be a demand for it. And I think, also based on even -- if you go back to the advisory committee, there was a public docket of comments, and you see so how interested the patients are in being treated. There were the open-mic comments where vast majority of the patients understood the benefits of the product. So -- and then the other issue is time of the essence because every year, the patient is not treated, that patient loses some growth and also is more impacted by the mobility of the disorder. So we're not overly concerned about demand here if we get approved.

And what about the competitive horizon there? There's a couple of earlier-stage programs in development. How do you perceive them as changing the market?

I mean it's hard to tell because the most aggressive competitor only has, so far, data in addition to animal data, which we also have. They have only treated a handful or less than 10, I think, healthy volunteer patients with 1 dose. This is chronic therapy. They have no patient data. I mean we don't -- it doesn't appear that they have treated a patient yet although they've been talking about treating a patient for over 1 year now. So they are falling further and further behind. They are more than 5 years behind us. It's basically the same product in long-acting speculation. So instead of once a day, it could be once a week. But they have -- it's really hard to compare because they don't know -- have any data. And also see, they are 5 years plus behind us. If once a week becomes something that patients want gives us time to as we come up with our own once-a-week product.

Maybe turning to PKU, to start maybe a brief update on the Palynziq launch. How are you feeling about that trajectory? And where that...

I mean in the U.S., we're doing absolutely great. As far as we know, we're going to do around $200 million revenue this year. So it's the fastest launch ever we've ever had. I mean the concerns before launch, my personal concern and a lot of us at BioMarin was because the product is not easy to titrate and get started and you have severe allergic reactions for some patients that although we had that under control in clinical trials, once you get in the real world, in the less controlled environment, some problems would occur. And the good news is that, yes, there were patients with severe allergic reactions. The vast majority of them came back to the drug, and the vast majority of them knew how to manage it because we prepare them to a very tight ramp. So we have to train the centers that treat the patient. We have to treat the patients before we can ship the drug. But the rate of severe allergic reactions is the same or lower than in the clinical trial and the rate of discontinuation is very low. And the patients are writing to us. I receive letters regularly that this is transformative therapy for them. There are different people. They thank us for what we did here. So it's -- just issue is the first 4 to 6 months. It's a complex product to use. There's a lot of indication needed. But once you pass that, also, the reactions are basically gone. So it's doing great, life-changing therapy. We're just starting in Europe. Europe will be slower because it's always slower in Europe because of payers in different countries, but also we didn't do any clinical trials in Europe. So there is no established category of doctors that have hands-on experience with Palynziq, but eventually, it's going to catch up. So I think this is going to be very large. The thing that will limit the top line sales of Palynziq will be PKU gene therapy, which we are preparing.

So speaking of PKU gene therapy, I think you're going to dose the first patient this quarter. What are your goals for that program? And what quality of data do you hope to see?

So our goal is to -- based on animal data, we believe we can normalize the levels, so we can turn these patients from hyper Phe to normal Phe levels, allow them to have a normal diet, normal life. We did that in mice in the new transgenic gold models for PKU, where we took this mice from hyper Phe levels to normal Phe levels within 2 weeks of treatment of gene therapy intervention. Might be longer with patients, but we're going to shoot for normalization. So our first dose is 3 to 13, which is effective in mice. It might not be the dose in human that brings the Phe levels to normal, but we can go higher. We might need to go to 6e13 like valrox. So how long you're going to take to get to the final dose? It depends on how the patients react, but we're going to know a lot more in the next few months.

The last 2 minutes, maybe we can discuss the $2 billion of revenue that you currently have for your base enzyme business. Any changes in reimbursement dynamics or payer pushback?

Not in the U.S. What's interesting is that you get many of the pricing headlines in the U.S., but actually our business in the U.S. is the best ever, and our prices are the best ever. You hear less about payers issues in rest of the world, but there are some, which is mainly related to currency fluctuations, economic conditions, political conditions. So -- and also the fact that in the U.S., you can increase your price still, and we have increased our price by about inflation, we never go above inflation. And ex-U.S., generally, your best price is your launch price. After that, it can only go down. So even if you launch at the same price in U.S. and Europe, after many -- several years, your European price is generally lower because you can increase your U.S. price and also because of currency fluctuations.

For the older businesses like Vimizim and Naglazyme, are you still finding patients? Or is it...

Absolutely. We're still finding patients. It's very amazing. But -- so Naglazyme is -- will be 15-year-old in June of this year. And it's still, in terms of patients, we're still finding patients and growing high single digits. It's pretty incredible. And so that's why -- so our products -- the downside of our business model is that there are -- mainly protein is extremely expensive to manufacturers. So our gross margin is lower than the average biopharma company. The upside is that the life cycle of our product is way longer. The average biopharma product peaks at 9 years after approval. So again, we have 15 years of Naglazyme still growing.

And one last question for me, and that's on M&A and business development. You -- at least if valrox is successful, could have very -- could be very profitable with a lot of cash. How would you put that cash to use, to work?

So we're looking forward to this problem. Hasn't been the case so far. And I would say, yes, I mean, if valrox is approved and does as expected or better, we will go start generating some significant cash flow, which we can use, among other things, for business development opportunities because, although we've seen a lot of things that a few assets in the past couple of years that some of them would like to buy, we just cannot afford it. I think, starting next year, this is about to change.

Great. Well, thanks for the update. Thanks for participating in the conference. We appreciate it very much.

Thanks, Phil.