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

Hi, everyone. Good morning or good afternoon, and welcome to our session with BioMarin. I'm Karen Andersen, and I cover biotech as a health care strategist at Morningstar. So BioMarin, in case you're not familiar, they've built a business with several approved treatments for rare diseases, and they have a growing gene therapy pipeline as well. So we've awarded them a narrow moat rating due to their competitive advantages in their spaces. And we're joined today by Brian Mueller. So Brian has been at BioMarin for close to 18 years, I think, and is currently serving as the firm's Chief Financial Officer. Traci McCarty is also here. She's VP of Investor Relations. So Brian planned a short presentation. And after that, we can follow up with a few questions until we hit our 45-minute mark. Please feel free to submit questions. You can type them into the platform, and I can incorporate them into the discussion with Brian after the slide. So with that, I'll turn it over to Brian.

Hi. Thank you so much, Karen, and hello, everybody. As Karen mentioned, I'm Brian Mueller, Chief Financial Officer for BioMarin. BioMarin is the global leader in rare disease therapeutic discovery, development and commercialization, and I look forward to taking you through a review of our business here today. First, I'll read the safe harbor statement. This nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin, including potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of our development programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and development by competitors as well as those factors detailed in our SEC filings, such as 10-Q, 10-K and 8-K. All right. Our mission is to develop therapeutics that have a real impact for patients who live with serious and life-threatening rare diseases. Our focus is aiming for a meaningful benefit to small and medium-sized patient populations. This differs often from some of the big pharma business models of small impacts in very large patient populations, which we believe brings a higher -- we believe our model brings a higher value proposition. The company has been around a little over 23 years, and over that time, we've developed and commercialized 6 approved products. These are the brands here represented on the middle of the page. And revenue from these rare disease products has enabled BioMarin to expand both the global reach of these products as well as fund research and development for our portfolio of hoped future products, which are represented on the bottom half of the page. It's a blend of early and late-stage development programs, some of which I will take you through the key elements here today. We've got a diversified global business with sales in over 75 countries. As you can see in the chart to the left, we've had steady growth over the years with over $900 million of net revenue reported in the first half of 2020. We're just a few weeks away from reporting our Q3 2020 results. And on the right side of the page, you see the diversification by region and market. This is important because we're not dependent on any single market or territory for our revenue or revenue growth. One of our more recently approved products is Palynziq. As you can see from the chart on the left, this is still growing significantly quarter-over-quarter as we continue to launch the product in both the U.S. and Europe. Palynziq is our second product for phenylketonuria, which we'll spend a bit more time talking about today. Palynziq and Kuvan are the only 2 approved products to treat PKU, which you can see has a total addressable patient population there to the right of 30 patients, including 8,000 patients in the clinic today, of which about 1,900 are on Kuvan. So great opportunity for Palynziq to enter the market. This next slide illustrates the leverage we're able to get from our experience and expertise in the development programs and products that I showed you a moment ago. We can leverage our platform, which is #1 there. This is deep expertise in world-class manufacturing for gene therapies in our plant in Novato that may be able to be used for multiple programs. There's multiple disease opportunities for the same program as we see with vosoritide, which is in development currently for achondroplasia, and we look forward to developing for other indications such as genetic short stature. And then there's one disease multiple programs, for which the example is PKU with Kuvan and Palynziq currently on the market, and BMN 307 now in development. This next slide illustrates the potentially larger market sizes for some of our current development programs. The colored bars represent patient numbers in our commercial territories for adults with phenylketonuria, adults with severe hemophilia A and children with achondroplasia, respectively. Not all the populations will be eligible for treatment with our products at launch depending on various criteria, but we certainly would aspire to addressing as many people as possible through product and label expansions over time. For example, the estimates noted for severe hemophilia A represent adults with the condition. The numbers do not reflect those who may be ineligible due to antibodies to the AAV5 vector, for example. The important takeaway from this slide is that BioMarin has successfully transitioned all of our future commercial opportunities to address these very large patient populations compared to our legacy ultra-orphan products. An example is Vimizim, where, although we believe there are just a few thousand patients in the entire world, is expected to drive over $0.5 billion in revenue this year. Looking a bit deeper at our development portfolio. First, I'll cover Valrox, which is the nickname for valoctocogene roxaparvovec or BMN 270. And the next key step here is a Type A meeting with the FDA. Valrox is a gene therapy in development for severe hemophilia A. And last month, we received a complete response letter from the FDA after reviewing our marketing application. And while we were surprised and disappointed with that action, we do have a -- we're looking forward to the Type A meeting with the FDA to discuss plans and steps towards approval as we remain very committed to this program. We'll also assess if we are able to get alignment between the EMA, the European regulatory authority, and the FDA on harmonizing the data requirements for approval. In Europe, we recently announced that the EMEA has requested 1 year of data from our global Phase III program, which will complete in November of this year. And once gathering and preparing the data, we will aspire to submit that data from the global Phase III in the first half of next year. BioMarin has a great track record of manufacturing complex biologics, mostly in our Northern California and Ireland facilities. More recently, we expanded our capabilities into our wholly owned gene therapy facility also in Northern California, which has the potential to manufacture up to 10,000 doses, depending on the dose and product mix in the plant. We currently make Valrox, BMN 270, in our gene therapy manufacturing facility as well as BMN 307, our PKU gene therapy development candidate. And this is all at the 2,000-liter bioreactor scale. Next, I'll cover vosoritide for achondroplasia. Achondroplasia is the most common form of dwarfism. There's no approved medical therapies on the market. The only treatment available is the sort of medieval limb lengthening surgery where the bones are cut and corrected with inserts. So to have a biologic therapy available to these patients would be very novel. Achondroplasia is caused by mutation in the FGFR3 gene. It's a negative regulator of bone growth, and interestingly, 80% of cases of achondroplasia occur from parents of average stature. And what's also important to understand about achondroplasia is that it's not short stature alone. In addition to short stature, there are serious medical manifestations. This includes foramen magnum compression. The foramen magnum is the hole in the bottom of the skull, where many vital structures pass through. Sleep apnea, bowed legs, permanent swaybacks, spinal stenosis and obesity are all comorbidities of this disease. It's also the most common form of skeletal dysplasia with 22,000 patients in our global commercial territories. So as we mentioned on that earlier slide, this is a larger market opportunity than our historical business. Our approach to develop vosoritide for achondroplasia includes a global 4-pronged program which is powered by a Phase III study that we announced data from last year, from which the primary end point was strongly met. You see the p-value here, and I believe that some folks may be new to biotech here. So a p-value is the measure of probability that the outcome of the study that you've observed was random. And so the lower the p-value, the more statistically significant your result is. So with this very low p-value, we strongly met our primary end point. And this was in 121 achondroplasia patients between the ages of 5 and 18 years old. Because vosoritide treats growth, it's important that you dose patients while the growth plates are still open, which means that it will be indicated for patients likely 18 and under. The next prong is a natural history study where we've been studying patients or we've been gathering data on over 600 patients and matching those patients to the patients in our own studies to draw comparisons. And our Phase II study there, the third prong, has been running for 4.5 years. And as you'll see on the next slide, we've demonstrated significant growth as compared to the natural history study. And then lastly, we've begun a study in patients under 5 years of age because we believe it's important to start therapy very early in life to try to help growth and the other disease manifestations as early as possible in a patient's life. Regarding the long-running Phase II study that I mentioned, last year, we announced 4.5-year data, where we observed a 9-centimeter cumulative additional height gain versus the natural history study. So pretty significant over that period of time. And again, a very low p-value indicating its statistical significance. So in summary, we hope to show that we can achieve sustained growth effects of vosoritide, and we have filed marketing applications with both Europe and the FDA. So we look forward to progressing those marketing applications. Our next gene therapy to enter the clinic is BMN 307. It's a gene therapy for the treatment of phenylketonuria or PKU. I mentioned earlier that we've got the only 2 approved products on the market for PKU. That's Kuvan, a small molecule, a pill or powder; and then Palynziq, which is an injectable biologic. We recently announced that we started dosing in our Phase 201 PHEarless study. This study will test whether a single administration of BMN 307 and PKU is safe and effective. So we're pleased to have started dosing studies. And importantly, we're starting this first study of BMN 307 with commercial scale material that we produced in our gene therapy plant in Novato. So in summary, BioMarin has a strong cash position. We expect to finish 2020 with approximately $1.4 billion of total cash and investments. We expect positive cash flows going forward from our substantial revenues from our base business. On the regulatory front, the next step for ROCTAVIAN in the U.S. is the Type A meeting that I mentioned to both -- to align on the path forward for ROCTAVIAN, and we'll aspire to submit the 1-year Phase III data of BMN 270 with the EMEA in the first half of next year. Vosoritide, the marketing application has been validated in Europe, and we'll be expecting a CHMP opinion on vosoritide late in this year or early next year. Sorry. That's actually -- that may be like sometime next year. And for the NDA, we've submitted back in August with potential acceptance next month. So we'll look forward to progressing these marketing applications. And then in the early pipeline, I mentioned that we commenced the Phase I/II study of BMN 307 for PKU. And we are performing IND-enabling studies for our third gene therapy candidate, which is BMN 331 for hereditary angioedema. So that concludes my prepared remarks. Karen, happy to hand it back to you for any questions.

Yes. Thanks, Brian. That was a great overview. Yes, I've got my own questions and also happy to include any questions from the audience. So like I said, feel free to type those in, and I'll incorporate them as I go. But maybe just starting out kind of bigger picture. I know you've highlighted how BioMarin transitions over the last few years kind of from the ultra-rare disease company to the one that's pursuing larger indications. So I don't know if maybe you could dive a little bit more into that kind of 3-pronged strategy you talked about that's underlying your plans for pipeline expansion and longer-term profit growth. And then kind of in that context, how do you think about your vulnerability of your older products to gene therapy?

Yes. Thanks. It's a great question. So yes. So the slide I presented, which I covered sort of briefly, I refer to that as the triangle of value. So I can speak a little more of that. And again, this comes from our deep expertise of developing, commercializing these complex molecules across a number of rare diseases, both our commercial products and our clinical programs. So in terms of gene therapy as a platform, again, ROCTAVIAN, we hope to get approved. It's in late reviews, and we're expecting the full Phase III data here when that study completes in November of this year. That's going to be 134 patients of data on the 1-year study. But that same manufacturing plant and the overall manufacturing platform is going to enable us to rapidly develop BMN 307 on the technical side. As I mentioned, we started the Phase I/II study with commercial scale material. That means no crossover from clinical material at a CMO to in-house. This is the same material that we would file for approval with if the drug appears to be safe and effective. And again, that same technology, we will leverage for our future gene therapies such as BMN 331 for HAE. And then the -- we spoke a bit about PKU. So that's an area where BioMarin has been the leader in PKU. The only drugs that are approved to treat PKU are our products, Kuvan and Palynziq. But there's still an underserved portion of the market, and yet a third product, potentially with BMN 307 and the gene therapy, will just enhance and help us deliver even more to the PKU community. Just to note that there's some life cycle management in there too because Kuvan is losing its market exclusivity in the U.S. next month. So we're going through a process to try to convert Kuvan patients first to Palynziq, but it will be great to have another potential PKU product available in BMN 307 and gene therapy to help that market as well. Then the third side of the triangle value is multiple indications from the same compound. So for vosoritide, it's currently -- if approved, will be indicated for achondroplasia. But short stature, generally, it can be caused by a number of different gene mutations, some of which may not be as clearly understood as achondroplasia. So we plan to develop vosoritide for other genetic short stature diseases. And that's great leverage because, again, it's the same compound. And to the extent we can get additional indications, it's extracting a lot of value. So that's been the story that's evolved for BioMarin through getting 6 products approved as well as our current development pipeline. And you can see this as leverage for the future as well when we build the early-stage pipeline and how those programs would fit into this leverage triangle. Hopefully, that's helpful.

Yes. That's helpful, Brian. Thanks for that extra clarification on that. So maybe I'll [indiscernible]

Yes, I'll come back. You had a question about competition or for the base business. So yes, so we keep an eye out for potential competitive threats. We've not seen any approvals that would infringe upon our current commercial markets. It takes time to develop approvable products. And especially in indications where a treatment option already exists, there may be a higher bar for approval of new therapies. And for the base business, there's some large barriers to entry there, not just the complex manufacturing of the compounds, but these are small markets that would get even smaller if you had to share them or reduce pricing in a competitive environment. So we think that reduces the competitive risk for our base business in these enzyme replacement therapies. And in terms of gene therapy for the base business and the enzyme replacement therapies, similar issue is gene therapies are very expensive to develop and produce. And for these ultra-rare diseases, especially where there's an effective drug already on the market, it seems like a high barrier for gene therapy competition.

Yes. That does make a lot of sense. We're starting to get some questions, I think, kind of tied to what's been going on recently with your -- the most advanced pipeline programs. You mentioned the hemophilia A gene therapy, Valrox. So obviously, you mentioned the setbacks you've seen in the U.S. and Europe as regulators are asking for more Phase III data before considering approval. Do you think there was a significant change in your product from the Phase II supply to the commercial scale supply for Phase III? Was that a concern from regulators that the Phase II data they saw wasn't really representative of the final product being filed?

Yes. Thanks for the question. So the process changes are a normal part of the drug development process, and we undertake extensive testing to ensure that the product remains consistent throughout the clinical program. And in the case of ROCTAVIAN, we conducted over 40 different tests to measure various aspects of the product, including potency, purity and chemical structure. And based on those tests, there was no significant difference in the Phase III material as compared to the Phase I/II material. And as we noted last year when we announced the Phase III data, there were some differences in the factor levels that were being produced when comparing the 2 trials. But importantly, the clinical benefit, which is measured by the annualized bleed rate, or ABR, observed between the Phase III interim analysis that we did last year and then the Phase I/II study that's ongoing, is highly consistent. The median and mean ABR in the Phase III interim was 0 and 1.5, respectively. And that's compared to the Phase I/II study mean and median ABR or median and mean of 0 and 0.7, respectively. So these results give us confidence in the approvability of ROCTAVIAN, but health authorities want more data to facilitate a decision. And again, although surprised and disappointed with the complete response letter in the U.S., we are just a short period of time away from having a robust data set with 1 year of Phase III data here as the patients exit their 1 year in November. So it will take us some time to arrange and prepare the data. But that's going to be a much more robust data set than the 23 patients that they were looking at in our filing for accelerated approval. So that could have been part of their decision process with being late -- being in the fall here, knowing that the Phase III data with over 100 additional patients was around the corner, just waiting to see that. So we'll look forward to that data and sharing it with both the investment community as well as the regulators.

All right. Great. And then another question from the audience about Valrox, about the timing of the Type A meeting with the FDA and about whether you have confidence that you could harmonize the data requirements for approval.

Yes. It's a great question, and we'll look forward to keeping everyone updated. However, given the recent news and the fact that we're just reengaging with the FDA, we're not going to comment at this point in time until we've got more information.

That's fair. And then also kind of tying in with Valrox and the share price that you've seen recently because of the delays. One question from the audience. I was wondering if you're planning to take advantage of the low valuation today with a significant share repurchase program.

Yes. It's a great question as well. And we are very pleased with our cash position. As I mentioned, we expect to finish this year with approximately $1.4 billion of cash and investments. And that's after repaying almost $400 million of convertible debt that is maturing next month. So -- but in terms of repurchase, our -- we don't have plans to do that at the moment. We plan to keep our cash available to fund the business strategically and operationally.

That makes sense. And then I know that there are several other hemophilia gene therapy programs that are in development led by companies like Roche and Pfizer. So would you expect them to also need full 1- to 2-year data before being approved? Or do you think their technology is somehow different in a way that wouldn't require that same threshold? I know we recently -- and I'm saying this because I know we recently saw the 1-year data from Pfizer that did raise some questions as to whether they're seeing Factor VIII levels start to decline already.

Yes. Again, great question. Thanks. So first of all, we'll have to see what is ultimately required for approval in the U.S. And as we've noted, based on our both Phase III development program and approval filings as well as our ongoing Phase I/II study, we view our lead as significant. So first, we'll have to confirm where the bar is generally or with respect to ROCTAVIAN before we apply it to others. But it is hard to imagine that competitors would be held to a different standard than BioMarin.

That makes sense to me. Okay. And then maybe moving on to one more question I had on Valrox. Kind of thinking longer term about how long Valrox could protect patients from bleeds. I know Factor VIII levels in patients in the mid-stage of the Phase I/II trial, they fall each year, but they still appear protected from bleeds. And so what do you think the bar is really that regulators might be looking at? Would they still approve Valrox if we start to see some of these patients needing to restart prophylaxis therapy at the 5-year mark? I think we're going to have 5-year data and maybe even fix your data by the time you get FDA approval for Valrox. So kind of what's your take on that?

Yes. Thanks. It's an important question. And we believe that what's important, and that's why I addressed your question earlier with looking at the annual bleed rate data, which is -- that is the clinical end point. That's the benefit and the difference compared to the standard of care with prophylactic Factor VIII that patients are experiencing. And we've seen good bleed control at low Factor VIII levels. However, no one yet knows how low the transgene can go and still control bleeding events. We've shown through 4 years with Valrox that the bleeding remains under control. So only time and additional data will provide those answers. Approval would be based on achieving the primary end point in the Phase III study, which is annualized bleed rates following the single dose of ROCTAVIAN. That would be lower than the standard of care prophylaxis. So again, bleeding control is the clinical benefit with ROCTAVIAN even when Factor VIII levels may decrease over time. And again, with the data we have to date, 4 years of bleeding control, the ROCTAVIAN clinical results are robust and have actually improved over time.