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

Good morning, and welcome once again to TD Cowen's 45th Annual Healthcare Conference. I'm Phil Nadeau a biotech analyst here at Cowen, and it's my pleasure to moderate a fireside chat with BioMarin Pharmaceutical. Up here on the stage, we have Alexander Hardy, President and CEO; and Brian Mueller, the Executive Vice President and CFO; and Tracy McCarty from Investor Relations, is also in the room.

Alexander, I'll hand it to you. Can you give a brief state of the company overview, biggest strengths, biggest challenges? And what does BioMarin need to achieve to drive shareholder value over the next 12 to 24 months?

Great. Thank you very much, Phil, and thanks for everybody joining us. So where is BioMarin right now? I've been in the role for just over 12 months now. Last year was a strategic review, where we changed many aspects of the company in terms of the strategic direction, in terms of the structure. We made important pipeline and portfolio decisions. But even at the same time, we were executing. And I think our '24 results I'm very proud of the 18% growth at 28.6% operating margin. We're already starting to make progress on the long-term targets we set out at our Investor Day last year. We're already executing. And I think that's the key message that I want to send at this conference is we're making progress towards those goals that we set out. In terms of your question around greater strengths and what are the challenges of the company. I think the strengths of the company that aren't fully appreciated is the full potential of Voxzogo. There's a lot of focus on achondroplasia. That is just the first indication. We have clinical programs away in -- underway in 5 subsequent indications with much greater potential than achondroplasia. We'll have a 5-year lead of any potential competitor in achondroplasia. We're going to then have years of lead in all these subsequent indications. If you think of the total addressable patient population in these 6 indications in total is 420,000 patients. Achondroplasia is just 24,000 patients. So there's a lot of growth ahead. I think that is one of the big opportunities in skeletal conditions. And then in terms of the other aspect, I think, is underappreciated is the enzyme therapies. This is the history of the company was in enzyme therapies. We have 6 of them. They are, I think, underappreciated in terms of their growth potential. Over the last 3 years, if you look at '24 prior 3 years, growing at an annual rate of around 9%.

CAGR.

Yes, 9% CAGR. And it's part of our long-term financial guidance, we said high single-digit growth and I think that's not fully reflected, certainly not fully reflecting the valuation or the models that people have. I think in terms of the challenges, I mean, clearly, we hear it from investors that they're thinking about competition. And we have this 5-year head start over any potential competitor that may come to market. We have intellectual property, of course, no doubt we may touch on that in our conversation, but we're ready to face competition. We will have such a lead. We will have the indication in infants in achondroplasia. And this is where the guidelines say that patients should be diagnosed and treated as soon as possible after birth. And we're now treating patients within date birth. There'll be years before competitors have that indication. And should they even get that indication, I think competitors that are different mechanisms of action, that burden of safety. This is a no-risk population when you're dealing with infants. Its efficacy, safety and convenience is down the list in terms of priorities from a caregiver and an HCP standpoint. So I think that's probably the thing that we need to do more of is convincing people that we're ready from a competitive standpoint. I'm very confident, whether it's the IP or whether it's our ability to compete in the market, given the advantages we have as being first mover.

Can you discuss your long-term vision for BioMarin. It was partially laid out through the guidance that was given at last year's analyst meeting in terms of the long-term financial targets. Maybe outline those, but then also, what is your long-term strategic goals for the company?

Yes. so I mean, I came to BioMarin. I saw all the potential to create an iconic -- build an iconic biotech company. And as I've been here now a year, I see all of that only with greater clarity. So we have a strategy. It's now very clear and laid out 3 strategic pillars, innovation, growth and value commitment. We are always been around innovation. We're going to continue to disproportionately invest in innovation. And our goal is to, over the next 10 years to expand the number of patients who benefit from our treatments by a factor of 4x. So that's the main thing that I'm driving is for BioMarin to be a premier growth innovation biotech. As we do that, we will aim to deliver significant value to investors. So $4 billion in revenue by '27, 40% operating margin by 2026 and 40% plus thereafter and cash flow generation of $1.25 billion in cash flow in 2027. So these are the elements. That's the strategy. Our goal is to significantly help patients and also create significant value for investors.

What role will business development play in the long-term strategy?

Yes. So when we articulated the strategy last year, we said that there was going to be an increasing role of business development going forward for BioMarin. It was not included in the guidance numbers. So I think that's important to highlight. It's incremental. It will be incremental growth on top of that. Now why is business development an important part of our strategy going forward is because we have this capability, which is pretty unique. It's the ability to research, develop, manufacture and commercialize drugs, rare disease, genetically defined conditioned drugs. And that's a really compelling proposition. Very few companies have, for example, that global footprint which you need when you're dealing with genetically defined conditions, I think we've started to really shed a light on this for people. But if you look at achondroplasia, only 10% of the patients with achondroplasia are in the United States. 68% of them are outside the United States, Canada, Australia and New Zealand. And that also plays out to an even greater degree in the enzyme therapy, the MPS space, in those diseases. So we have a unique capability. We are now because of our profitability, we are now cash flow positive. And we see a lot of interest in companies in terms of partnerships at the product level to take advantage of our capabilities to get drugs approved and commercialize outside the United States. So we didn't rush in to doing business development last year. I wanted to make sure we got the strategy really clear what we really defined what is our sweet spot, what are we really good at? Where do we have an opportunity to win? And I also wanted to build our business development capability. We have a history of doing early research collaborations, but clinical stage collaborations. We want to make sure we've got the capability to identify deals, do good deals. And then most importantly, where many companies go wrong is in terms of integration and actually realizing the value from a deal. And so last year, at the end of last year, we brought in James Sabry who is a recognized leader in the industry in business developments. We now have all the elements, the clear strategy, we have the capability and we have the capacity and we aim to do business development, which is incremental to the business plan we have.

What type of assets would be of interest to you? Would you buy a marketed product? Would it be early stage? What do you think fits best with your current portfolio? And similarly on risk profile? Do you look more at the lower risk into the spectrum, high risk? How do you think about building portfolio externally?

Yes. So the lens we're looking through is defined as such, okay? So it has to be generically defined conditions. That's what we do. That's what we're really good at. It has been consistent with the core 5. So this has served us very well as the core 4, we've added a fifth element. So this is genetic, targeted, accessible, transformational and then commercially competitive. These are the 5 criteria. And then on top of it, ideally, these assets fit within our business unit structure. I haven't touched on that in the comments so far. But with our strategy, the 3 pillars of our strategy, we've actually reorganized the company into 3 business units: enzyme therapy business unit, skeletal conditions business unit and ROCTAVIAN business unit. That allows us to have that focus, that accountability to be able to drive what are actually 3 very, very distinct businesses. So ideally, it will be an asset that fits into those. We're prioritizing product partnerships or product acquisitions, not M&A. And of course, very much with the lens of value creation. This is the advantage that, again, business development is not included in that long-term financial plan and the long-term guidance. So we're doing business development from a position of strength, not from a position of weakness. So therefore, we can be really picky and really focus on things which really initially just drop right into that capability and that framework. So you can imagine us doing things which actually involve minimal incremental investment can take advantage of the infrastructure we already have. So clinical stage, ideally, we'll continue to do research partnerships. We'll just do those at a steady clip. We did one of those last year. We'll continue to do those. But what is new is more clinical stage launching in the next several years.

Perfect. Last week or the week before, you provided 2025 revenue guidance, $3.1 billion to $3.2 billion, that's 9% to 12% growth. Can you talk about the pushes and pulls in that guidance. What could drive upside? What are the risks to it?

Yes. Thanks, Phil. Appreciate the question. So yes, we've been pleased with the revenue growth over the last couple of years and the strong performance in 2024. We remain committed to that $4 billion by 2027, and we believe that this 2025 guidance is an enabler to that. To your point about pushes and pulls, one element that we're observing when you look at '24 into 2025 is the really strong performance in a couple of the enzyme therapies, Aldurazyme which is marketed by Sanofi, Genzyme, grew 40% last year. And our revenue to Sanofi is based on product supply and is less directly tied to end-user demand. Likewise, Naglazyme, one of our enzyme therapies grew 14% last year, which was really strong. I'll share that the underlying dynamics across the entire portfolio for enzyme therapies are that we're growing patients annually, including last year for Naglazyme as an example, in the kind of the mid-single-digit range. That's the baseline type of growth that we've seen. So for Naglazyme to grow 14% last year, that means that there were some ordering dynamics. In our global business, we sell to a number of large single national payers that tend to order perhaps just a couple of times a year. Sometimes you see this at the quarters when we get a couple in a particular quarter, revenue will be high. If we don't get a couple of the larger orders, it can be low. So we can skew the quarters, it's less that dynamic and more just the global order dynamics. So my point is, once you normalize some of those trends in '24 looking into '25 you get to this high single-digit target rate for the enzyme therapies. So we're going to continue to be subject to some level of those global distributor dynamics. We do expect a good portion of our growth in '25 to come in the second half of the year. If you look historically, including last year, Q1 can be a slighter growth quarter. Also important to note is the potential of these business units that Alexander mentioned. We spent the latter part of 2024, reorganizing and implementing these business units. So tactically speaking, getting personnel into their roles has just been through the first couple of months of this year, and we're seeing great progress on the potential in terms of the global knowledge sharing, some of the benefits of the extreme focus and accountability within these focused therapy areas. But it's going to take some time to truly realize the potential of those, whether it be the enzyme therapies or Voxzogo. So the patients that we'll be adding in the first half of the year won't necessarily show up in terms of significant revenue growth until the second half of the year. Those are probably the two largest things to pay attention to.

And maybe one more general question before diving into some of the franchises. In terms of operating margins, your guidance is 32% to 33%, I believe, in 2025, going to 40% over time. It seems like based on our model, that 32% to 33% assumes modest growth in OpEx in 2025. Is that reasonable? And are you able to get that leverage on the business because of the reorganization of the business units? Or what has permitted you to grow revenue while not really increasing expenses at least this year.

Yes, thanks. Great question. And again, the -- we're really pleased with the operating margin performance last year, 28.6% in '24 versus 19.4% in '23. We've got this target of 40% non-GAAP operating margin in 2026, which would be a doubling of that 2023 margin. So when we look ahead through the chapters, if you will, of operating margin in '24, '25, '26, a couple of things I'd point to is, one, we never thought it would be linear and the 2025 plan is on track with the 2026 target. To your point, yes, if you do the math down the P&L, we are growing OpEx, but at a modest level. However, it's really important to note that in 2025, we're realizing most of the impact of last year's transformation, including the restructurings and changes to the operating model. Last year, we spent a lot of time on not just operational efficiency but organizational efficiency, prioritizing our spend in the right places, an enhanced view of the portfolio through our governance process, focused on what is now the core 5 research and development criteria that Alexander mentioned. That led to the discontinuation of 5 early-stage programs next year plus the operational efficiencies, those dollars are being reinvested now in the right high-value tactics. So absolute dollar level growth may be modest, but it's a different type of spend on the right activities. Some of the priorities this year are accelerating the Voxzogo indication expansion. So these 5 additional indications, full systems go there as well as the prioritized early-stage assets. So BMN 333 or long-acting CNP for skeletal conditions. BMN 351 for Duchenne's muscular dystrophy and BMN 349 for alpha-1 antitrypsin deficiency. Those are prioritized, moving those along. Again, all within this cost envelope that's enabling the 40% margin next year. And then likewise, I'd say we're making a number of strategic investments in sales and marketing as well. There were also restructuring elements of our SG&A line item, which then provide the capacity for this incremental investment, whether it be skeletal conditions and maximizing Voxzogo, for example, in the U.S. deeply increasing penetration there. And then within the enzyme therapy is just global tactics.

Perfect. Shifting to Voxzogo, where investors are very keenly focused. Guidance for this year is $900 million, $950 million. That's growth of 22% to 29%. Very healthy growth, but a bit of a deceleration from prior years. Where are we in the Voxzogo launch, which territories are driving growth, which ones are more mature?

Yes. So we're very much on track for what we laid out in terms of the financial guidance of 25% CAGR for Voxzogo over this period to '27. We're very much on track and 25% growth rate is consistent with that. I mean, clearly, as the product gets larger and larger, it's on track to obviously hit the blockbuster status in the next several years. It's a larger base. So that percentage is obviously going to ameliorate, but we're very much still with more growth ahead of us than behind us with Voxzogo. The U.S. market was I think one of the interesting elements as we shared the revenue breakdown for Voxzogo last year, 24% of our revenue came from the United States for Voxzogo. 76%, therefore, is outside the United States. The U.S. -- this is very unlike, right, most biotech and pharma products. This means that the U.S. has a lot more room to grow. It also means that those ex U.S. sales are in that geographic footprint, we talked about and which would therefore be tougher for competitors to penetrate. So our focus in terms of growth for Voxzogo is U.S. and you heard from Brian. We both talked about the business units. You heard from Brian, that we're increasing our level of investments. We just added an additional field force in the United States. We're increasing our marketing spend in the United States, increasing our clinical coordinator resources. This will help us, we think, to even accelerate the growth in the United States. So U.S. is really critical. And then ex U.S., we're still expanding out into that geographic footprint that we have with the enzyme therapies. So last year, we had -- we were in 47 countries. We aim to be in 60 by '27. We still see a lot of potential in terms of penetrating the prevalent population in many of these large U.S. ex-European large markets.

I think investors are very keenly focused on competition, as I'm sure you're aware. What gives you confidence that you can grow in the face of competition -- you can grow the Voxzogo franchise in the face of competition?

Yes. Really, really great question and a very, very important one. So we'll just put the whole intellectual property topic aside, just park it. We didn't include it in our long-term assumptions. We think we're going to be successful competing. The reason why we think we're going to be successful in competing should and if a competitor come is a number of factors. One is the geographic footprint. We've talked about a lot that any competitor has got to have really strong capabilities outside Europe, outside the United States to be successful in achondroplasia. The next area is indication down to birth. Competitors are not going to get that initially. Some competitors are going to, I think, probably have challenges with the safety profile required to have an infant indication. The third point I would say is that caregivers and patients, I should say, HCPs are really motivated actually less by the height benefits of drugs in achondroplasia and more about addressing all the attendant health issues that come -- that can come with achondroplasia. Things like spinal stenosis, foramen magnum compression, the need for surgeries later on in life, cranial facial issues. And we are producing, and it's the benefit of having a 5-year head start and now 6,000 patient years' worth of data, we are producing both a safety database and an efficacy database on the effects on all these other things, which are actually the most important thing with regard to initiating treatment. So I think those are the key points. Anything I missed, Brian?

No.

It seems like the biggest potential benefit of the competitors is convenience, whether it's oral or less frequent injection. How does convenience factor into the treatment decision in achondroplasia in the context of some of those other health issues you talked about as well as long-term safety and efficacy data?

In pediatric rare disease and achondroplasia is no exception here. There is a hierarchy of needs, and it is -- I think it's best described as safety and efficacy and then much further down. If those -- if that is -- if those are satisfied, then it becomes much more about convenience. And when you're dealing then just a further lens down, if you're dealing not just with pediatric rare disease, you're dealing with initiating treatment in infants within days of birth, then safety, this is a 0 risk proposition. It's absolutely critical. So safety becomes even more important. And that is something that -- it's not only the regulators that need to be satisfied, it's going to be the HCPs and the caregivers. And what you see in and I think it will be exactly the same here is I think investors are looking at this as a sort of very binary proposition. And in reality, and if you look at all the analogs, this is just not how it works in these pediatric rare disease state. Patients are doing well, and they do very well on Voxzogo. We have a 95% compliance rate for Voxzogo. What that tells you is that patients and caregivers deal with the daily injection because they're also seeing those benefits. And again, those analogs show that when patients are doing well, and they've incorporated into their routine, there's not a lot of interest for a wholesale switch.

In your opening remarks, you talked about the other indications, the size of the markets as well as the development program. Can you maybe dive into that in a bit more detail? Where is Voxzogo in its development plan in like hyperchondraplasia and the other potential indications and what are the size of those patient populations?

Yes, Absolutely. I mean that's the other element, I think, that investors need to understand. I mean I started off talking about the full potential of Voxzogo and how achondroplasia is just beginning, it's the 5 subsequent indications. As competitors come into if they come into achondroplasia, we'll be launching in hypochondroplasia and will be well underway with those other indications with many times the growth potential of achondroplasia. So the hypochondroplasia is the next indication that we're seeking for Voxzogo. The clinical development has gone extremely well. It's running ahead of our time lines. We'll -- we project the finished recruitment of the pivotal study in the first half of this year. We'll then have data at the beginning of 2026. And we're projecting right now for approval at the beginning of '27. So hypochondroplasia is about 14,000 patients potential, contrast that with 24,000 for achondroplasia, we've actually -- we're going after the most severe phenotypes. That's why the genetic prevalence is about the same, but we're focused on the more severe phenotypes and as we've got the proof-of-concept data from Dauber, we saw AGV or growth levels actually numerically higher than achondroplasia. We think this is highly derisked from a clinical trial and a regulatory standpoint.

And just bringing that back to the competition, Phil, if you think about the lead we have in achondroplasia, the lead we have in these other indications and the fact that these other indications with scientific proof of concept are actually significantly larger than achondroplasia. We believe that provides an avenue for growth even in light of competition.

Yes. So you asked about the other indications. So the next one I would focus on is idiopathic short stature. That is a very large patient population, about 170,000 patient population globally. Growth hormone is already approved in the United States. So these patients are treated. There's an unmet need of sustained growth. We see a waning effect with growth hormone. We're right now in our Phase II, recruiting our Phase II study in idiopathic short stature. We're defining what the right dose is. It's a different disease than achondroplasia and hypochondroplasia. We also, again, have a proof of concept from Dr. Dauber, in the National Children's Hospital. So I think we think that Voxzogo has a role to play. And then we have Noonan's, Turner's and SHOX. This we're doing in a basket style study for 3 indications. We're in Phase II for those indications as well. Estimated launch timing is 2031.

Perfect. Maybe in the last minute, just turning to the earlier stage pipeline, BMN 351 has some proof-of-concept data coming up in the back half of this year. Can you discuss how that molecule is different than the other skipping agents? And what BioMarin would consider proof of concept in the upcoming data releases?

Yes. I mean this is -- this was fun in the fourth quarter to start. I mean, as a biotech company, we are about innovation. Investors starting to ask us a lot about these readouts because we have these 3 readouts this year, proof-of-concept for 351, 333 and then the Phase III data for Palynziq in adolescents. So three important data readouts and proof of concepts and hopefully, growth catalyst for the outgoing years. 351 is really unique in terms of its chemistry, it's skip site. We have -- it's a ASO oligonucleotide. We have a very high bar TPP that we're aiming for this year, which we'll see the data for, which is a 10% effect on full -- nearly full-length dystrophin, which we achieve is going to be significantly better than anybody else has demonstrated. So this has been -- this is something that's come out of our research group. We're really excited about the chemistry. We've already dosed both cohorts for the proof of concept. And we're waiting now for the 26-week data. We're going to share the model prospectively. So people can see what our modeling is because basically, at 26 weeks, you still have not seen the full effect. Probably the full effect is still going to be sort of 52 weeks. So it's a sort of modeled S-curve shape. And again, our goal is double-digit effect on dystrophin. And we think they will be best in class.

Perfect. With that, I think we're out of time. Thank you for an interesting discussion.

Thanks very much, Phil.

Thanks, everybody.