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

Good morning, everyone, and welcome to this good morning. Welcome to Morgan Stanley Global Healthcare Conference. I'm Sean Laaman, Head of the SMid-Cap Biotech Equity Research team here at the firm. Before we commence, for important disclosures, please see Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. For this session, we have the pleasure of hosting BioMarin, our President and CEO, Alexander Hardy and CFO, Brian Mueller, welcome to the both of you. Alex, would you like to make some opening comments? Or do you want to go straight to Q&A?

No, I'd love to make some brief opening comments. First off, thanks very much, everybody, for joining us at this very busy conference and Sean, thanks for hosting. .

Welcome.

Yes, I've been at BioMarin since December 2023. It's been a very busy period, maybe a lot changes to the company to strategy, the structure, the pipeline, the portfolio. I'm very proud of the progress we're seeing. The execution is, I think, has been really, really good quarter after quarter. particularly excited about this last quarter. And why do I say that? I mean, in prior quarters, we've seen strong financial and commercial performance. We saw that this last quarter with 16% revenue growth and leverage many times that to the bottom line. But what was exciting for me after a period of structural change to see the organization across the board performing and executing. So we saw really good important news with regard to our pipeline with 333, which is our long-acting CNP, a very, very important product in our pipeline. We communicated the results that we've seen positive Phase I results. Importantly, why is Phase I results important? Because we were looking to see what levels of free CNP we can achieve with our goal of actually raising the bar from an efficacy standpoint. And we saw those results sooner, and those results are stronger than we even hoped for. And we announced we are moving into a Phase II, Phase III design program. And then in addition, we talk Palynziq in adolescents and making progress there with the new indication we just released the results last week at a meeting actually in Japan. So it's good to see the pipeline. And the last thing sort of the trifecta is business development. And we basically went from start to finish on a deal in 1 quarter. And coming in, that was part of our strategy is to elevate the focus on BD at BioMarin. We needed to have a clear strategy, and we needed to have that capability in place. We've now got it and to have identified a deal and done it in 1 quarter and execute it and now integrated it. And it's a really, really nice deal. This just makes me very proud. I think we're really delivering on what we said we were going to do.

Sure, sure. Thanks for those comments. Maybe just to talk about the macro for a little bit or we're doing this with all that comes in. I'd love to have your view. So with China's rising biotech innovation. How are you thinking about the competitive dynamic? And does it influence your R&D and business development strategy?

Yes. Well, having spent time in China in a prior role, China is a formidable force. And we should be very [indiscernible] as a U.S. R&D enterprise, we should all be very much focused on China. I think it's a very, very important topic. When we look at specifically the space that we're in a genetically defined conditions, we don't see the level of activity or the level of I think the progress there that we see in other therapy areas. I mean, clearly, in oncology, immunology, cardiometabolism sure you're hearing this from other people. And you can see it with the deal flow. In genetically defined conditions or orphan diseases, there's much less activity in China. It's something we're watching. But at the moment, the leadership role is in the United States, and it's our intention at BioMarin to continue to do that, but we're clearly watching what's going on. And we have, particularly from the BD side, very, very vigilant watching certain Chinese companies right now.

Sure, sure. It's our view too. It's rare disease in euros, more or less untouched at the moment at the visible levels at least anyway. So the third question on the macro. So what's been the most impactful -- sorry, second question on the macro. How are you currently leveraging AI or thinking about AI as a disruptive technology?

Yes. So this is, I think, like most companies, this is a big topic in the leadership team and with the Board. I see that AI has potentially transformative potential. At BioMarin, we've been making a lot of changes to fundamentally across the different parts of our business. AI is now something that we're really now focused on. Our strategy is we're kind of a -- we're very realistic. We know where we're starting from. A lot of the big companies have been investing in this very significantly for a number of years. We really want to learn from what's working and what isn't. So our initial phase of our strategy is very much a fast follower strategy until probably now until '27 and then we'll move into an area where we'll have an ambition, particularly I'd say in these genetically defined conditions to be in a leadership position when it comes to leveraging AI. Now that fast follower doesn't mean that we're not doing it. We're doing it across the value chain. So from an R&D perspective, just to give you an example, we're developing right now in hypochondroplasia should be the next indication we hope for our biggest drug, Voxzogo. And there, we've leveraged AI to explain what were previously variance of unknown significance and actually tied then to hypochondroplasia, increasing the prevalent population of the disease. That helped us actually recruit the study even faster. So that's really, really cool. I mean, AI is just really well suited in genetically defined conditions. We're dealing with huge data sets to be able to mine that. So that's from an R&D standpoint. On the regulatory side, we're using AI to draft our first pass regulatory documentation. We're using in manufacturing, in terms of supply chain optimization, predictive maintenance in our plants. And then on the commercial side, another, I think, a really exciting use of AI. I mean a large part of our business model in genetically defined conditions is finding patients. And we're using AI to predict where patients are likely to be in remote geographic areas, we can do hotspot analysis, and the AI can say, you know what, representatives should go to this city, in this town, you've seen these other cases it's highly likely there's going to be another case there, and we can focus our efforts in those areas. So hopefully that gives you an idea of how sort of a mid-tier company is starting to really leverage AI.

Yes. Fantastic. Thank you. And last question on the macro piece. So what's the most impact the most impactful thing to BioMarin on the regulatory side? Is it being MFN, has it been tariffs? Has it been changes at the FDA.

Yes. Well, I mean, if it's okay, Sean, I'll just go through each of them one-by-one. I would say from the FDA side, there's been a lot of very positive commentary in the head of the FDA and [ Carie ] has been doing his listening tours. He's been very particularly pointed out rare diseases is an area where the FDA can lean in and continue to innovate in terms of our regulatory approach. Those are very exciting words. We're excited to see what that translates to. Our interactions in the meantime on a number of different areas has been positive. We've not seen any issues with staffing levels at the FDA up to this moment. Again, it's something we're watching. But we got regulatory alignment with the FDA on the pivotal program for 333, the line in CNP that I talked about in the Phase II, Phase III, that was really, really important to get that clarity. It gave us good alignment and good feedback on the Voxzogo canopy program, which is the 4 subsequent indications, hypochondroplasia and then on the Palynziq adolescents. So, so far, we're seeing good traction from the FDA. On the tariff side, we're all waiting for the 232, the result of the investigation, the 232 investigation. BioMarin's manufacturing footprint for those that don't know is we have a U.S. footprint and the European footprint. So we are in Ireland and the U.S. We're a net exporter from the U.S. So we export bit more than we import and we are quite well positioned and 2/3 of our revenue is ex U.S., 1/3 U.S. If the 15% tariff the EU holds, I think that will be a scenario which will be the lower end of potential impacts for us. And if that was to be implemented tomorrow, we would be pretty confident, right, Brian, with regard to our 2025 guidance. So it's something we're watching. We'll have to see what the Q3 looks like. We have a whole range of mitigations that we could employ depending on how the fact. All right. And then MFN. MFN is of course, is very much in movement right now. I think we're entering into a really critical time to see how the administration approaches this. I think from BioMarin's perspective, again, that ex U.S., U.S. revenue split plays in our favor compared to most companies in the sector. So 2/3 of our revenue is outside the U.S., 1/3 in the United States. Rare diseases and our own experiences, we have much tighter pricing corridors than most companies. I think the thing we're specifically watching is MFN in Medicaid. Again, being in rare diseases, we have very little exposure to Medicare. Medicare is less low single-digit percentage of our population in the U.S. is covered by Medicare. Medicaid is really important for these genetically defined orphan diseases. There's very high levels of disability. The Medicaid is about, 1/3 patients are covered by Medicaid and very concerned if MFN was applied in Medicaid, what it would create in terms of this incentive to invest in developing for rare disease drugs. So we're very active in trying to make sure that MFN doesn't happen. And specifically, MFN in Medicaid would be a setback, I think, for innovation. BioMarin has a number of hedges but we'll just have to navigate as we see fit.

Awesome. Thank you for such candor that was great. On to more specifics on BioMarin...

Coming from an Australian, when somebody says candor. That's good. That's a high bar. Great. Showing you off your game here.

I'm right on it. Don't be fooled by the relaxed nature. Could you talk about the recent Inozyme acquisition and why it was a good acquisition, how long have you been evaluating it? And do you foresee those or when do you foresee those revenues being a meaningful contributor to BioMarin?

We're very excited about the Inozyme acquisition as a new CEO coming in, people are watching your first deal we -- as part of our strategy, we really saw all for BD in the future of BioMarin is being supplementing the internal innovation with, I think, a really compelling proposition to all of our stakeholders. And I would say to investors, we have this geographic footprint in 80 countries. We have this capability set that we believe that assets are worth more in our hands than where they're sitting right now because in many cases, it's rare disease companies undercapitalized, underresourced if they're lucky, 1 or 2 assets that are focused very much on the U.S. But the prevalence of these diseases are generally outside the U.S. and Europe, take achondroplasia, for an example, which is what our drug Voxzogo is indicated for 70%, almost 70%, 68% of patients are outside the United States, Europe, Australia, New Zealand and Canada. I mean, almost 70% of patients. So you need that geographic footprint. And we have that. We built that up over 20 years with our Inozyme therapy business. So when it came in, we started looking at Inozyme. We liked the first indication that they're working on, ENPP1. We think it's a promise with other indications, but they had proof of concept ENPP1 but didn't have the capital to complete the Phase III. We didn't like the value at the time. We waited our time and process was then started. We executed really well in that process and a $270 million for a first-in-disease asset. There were no competitors in development with peak sales potential of $500 million to $600 million for the $270 million in outlay. We're the first readout from the pivotal studies in 2026. So we could potentially have the first approval in 2027. So you can see why I was particularly excited about this deal. It's been well received as well, and we aim to do more.

Okay. Wonderful. In your Q2, you noted that the company plans to provide updates to the $4 billion FY '27 revenue guidance later this year and also the '25 guidance currently does not incorporate IP R&D expense associated with the recently -- with the Inozyme acquisition. Can you provide any more color on those 3.

Yes, John. I'll take that one. We are working through a comprehensive review of all the assumptions at the product level within our portfolio in terms of current 2027 expectations. There's been a lot that's changed, both internally within BioMarin and externally. And we just want to take full account of all those assumptions and work them back to our models. And more importantly, almost the revenue expectation of '27 itself is, we want to provide more clarity and transparency around some of the assumptions, again, at the franchise or product level so that it can be better understood by investors. We appreciate that last year when we talked about that 1 big number, $4 billion in '27, it was an outcome of our full strategic review. We tried to give some clarity with the growth rates at the business unit level, but we don't think it was enough to fully understand how given all the circumstances that are out there, we think we can continue to grow revenue for BioMarin. So we're doing that work, and we'll...

Wonderful, thank you. Maybe to go product specific on Voxzogo .So it's been launched in 51 countries, I think, more recently, up from 49 in 1Q. Where do you stand on near-term country additions and reimbursement wins? And how should we measure progress against your longer-term ambitions?

Yes. So the growth opportunities that we have in front of us for Voxzogo in achondroplasia. I mean clearly, we've got these 5 subsequent indicators that we're working on too. Hypochondroplasia being hopefully the next one. But with achondroplasia, there's really 2 key growth opportunities. that are ahead of us. One is fully penetrating the U.S. market. We've been really devoting additional resources there. It was a slower launch in the rest of the world, but it's the largest single market that we have of that 10% of prevalence. So that is very important. And we've been pleased with the progress we've been making there. But the other part is fully occupying the full global footprint. So in these underpenetrated markets. And we're still -- you mentioned 51 markets now. The most recent launches have not been in small markets. We're still launching in reasonable sized markets and making really good progress. It was one, I think we've got -- I'm not going to mention names and markets because clearly, we want to, from a competitive standpoint, be confidential around that. But in market, I think we got approval last year. We've already achieved a penetration of about 1/3 of the patient. We should be aiming for about 60% by the end of this year. So this is not a small market. And it's really exciting that we're still on the sort of interesting seeing the sort of rare disease dynamics that it's a pretty short ramp to peak, but they start when the country comes online. And we're still filling out that footprint. Again, we're in 80 countries, now 51, aiming for 60 by '27. And that's another large part of the growth. And from a competitive standpoint, that's a real competitive advantage is that geographic footprint because a competitor is going to have to be successful in many, many countries outside the United States and Europe.

Sure, sure. And could you talk...

I was going to say just to add, that shows up in our current revenue profile today. So our Voxzogo revenue guidance for 2025 is $900 million to $930 million, roughly 75% of that revenue is from outside of the U.S. back to the competitor standpoint, we're talking about a competitive space and a smaller fraction of our total Voxzogo revenue and, of course, portfolio revenue.

Sure. And I guess we stand back and look at where the share price is and everyone seems to think it's worth double where it's trading at least on the sell side. And so the overhang seems to be Voxzogo what happens with TransCon CNP. So just to get your agreement on that, if that's what you think that the major overhang is. And then maybe sort of walk us through your competitive positioning of Voxzogo and your early indication on an age-related basis, your geographic spread and maybe why you might not necessarily think there is a material risk to Voxzogo?

Yes. I mean that is the big thing that we hear that's standing in the -- again, we're executing, delivering significant revenue growth and profitability. And we're doing the things we set out to do and said that we were going to do and hitting those marks. But still, the stock price doesn't reflect that. And the big overhang is this Voxzogo thing. I would say that it's 1/3 of our revenue. And if you look at the implied valuation, basically, people are giving us no credit at all for Voxzogo. The Inozyme therapy business is growing what we said it would grow high single digit very, very consistently. And we're just seeing the beginning of the benefits that we move structurally to a business unit structure to allow focus on these different segments, and it was underappreciated internally and externally. When it comes to Voxzogo, 1/3 of our business, that dominates so much of the investor perception. I think there's real reasons to be more confident than the external world is giving us credit for. The first is this geographic footprint where we've already talked about the presence in all these countries where that's where the patients are. That's where our revenue base is 75% is outside the United States. And we've built that over 20 years. We're very, very good at commercializing outside the United States. The other aspect is that achondroplasia in the guidelines say, diagnose and treat children as soon as possible after birth. The majority of children in the United States are actually diagnosed prenatally and often, the decision to treat is made prenatally. We will have for a while, we're the only one that's indicated in infants. Competitors are going to have to produce that data and get regulatory approval. So they will mainly be dealing with the switch market because we will have the incident market will be predominantly in many of these developed highly penetrated markets will be in the younger age group. And switching dynamics in pediatric rare diseases if the patients are doing well, then this is not something that is going to happen across the board. There will be some patients. I think this is misunderstood. We're not saying that no patients will be switched. But we're also not saying, and it's not credible to say that all patients will be switched. Reality is somewhere in between, and that's still a very viable and growing golden conditions franchise for us. And then on top of it, we obviously are bringing 333 forward which we already touched upon. We're aiming there to actually surpass the efficacy of Voxzogo, which so far nobody we're going head-to-head against our own drug in our Phase II, Phase III design. And that will be a reason why patients will be interested and caregivers will be interested in switching patients is for additional growth velocity and most importantly, benefits beyond height. right?

So think about the, I guess, sort of maybe prevention of switches, but the Canopy clinical trial program, maybe you touch on that as something that you think whether investors are focused on or not focused on. Maybe that is a defense strategy, if you like, if you did lose in achondroplasia and try and net that off if that makes sense.

Yes. Yes. I mean just to put this into perspective, so we're developing -- we're already indicating in achondroplasia, we're now indicating -- or pursuing indications in 5 subsequent indications. The total addressable patient population that we're aiming for across all of those 6 indications is 420,000 patients. Achondroplasia is 24,000. So the way I think of this is, I mean, certainly in Achondroplasia, we have got a lot of growth ahead of us still. But Voxzogo, overall, with all of these indications, we have much, much more growth in these indications. And we're aiming to be in those indications and to establish that leadership position well ahead of any competition. It's important to note that some of the other MOAs like FGFR3s will not -- scientifically, there's not a strong hypothesis for them to work in many of those indications. So we should have some white space we'll certainly have time, we believe, to get ourselves established. And those are large patient populations. Those studies are recruiting. As I said, hypochondroplasia is finished recruitment, and we're now waiting for the results and we're recruiting the Phase II studies for those -- for them for subsequent indications.

Got you. And maybe move to a little bit more longer term, but on 333, which is showing extraordinary promise with the data that you released, you talk through getting to the registrational study and sort of looking at sort of longer-term potential launch plans like how far are we potentially thinking?

Yes, yes. So I mean, why do we make such a big deal over Phase I clinical study? I mean, obviously, we wanted to see the safety profile as you would expect in a Phase I, but we are very interested to see the PK data in the healthy volunteers. We have this hypothesis that we would be able to achieve 2x to 3x the free CNP levels that have been hither to shown by other low-acting CNP agents. And that's what we've seen already in that Phase I. We're still going through the dosing cohorts. So we declared success after 3. 2 of them exceeded where our target was, and that was enough for us to go with green light from Phase II, Phase III. You asked then about the approach now for the registrational study. So it's an operationally seamless Phase II, Phase III study. This will take 3 the dosages from the Phase I study into the Phase II study, together with the control arm of Voxzogo. Again, we're aiming for superiority. Will then select 1 of those dosages and move it into the Phase III. We'll carry the sites through, so there will be a minimal delay. As I already mentioned, we already have FDA alignment on the design of the Phase II/III study and the endpoints. And we think that this study will be really compelling from a recruitment standpoint because, again, the control arm is Voxzogo, the standard of care. And we think there'll be a lot of patient and investigator interest in it. The time line is at the moment, we're saying publicly 2030. As you can imagine, after the superiority from an efficacy standpoint, that's the next most important thing for us is speed to get this to patients as quickly as possible to raise the bar really meaningfully from an efficacy standpoint. So we'll give you -- we'll keep you updated. But at the moment, we're saying 2030 was with a lot of ambition to move that up.

Wonderful. Wonderful -- thank you, Alex. On Palynziq, so some strong numbers, 18 to 25, and I believe there's some more data around on adolescents. So potential utilization of that data to further accelerate sales.

Yes. So there's a lot of interest in the overall PKU space. There's a lot of buzz and noise right now. It's an important part of our Inozyme therapy business and our franchise. We've been the leaders in PKU. We've had Kuvan and now we've had Palynziq. We saw -- you mentioned briefly that Palynziq is growing extremely well. So it is -- it's grown in the first half by 21%. And we're really seeing strong patient enrollment in the second quarter. we're confident of its competitive profile. It's really dealing with a very different target patient population than any of the new entrants. So this is for the severe patient has really unsurpassed effect on fee levels. You just saw that adolescent data almost 50% reduction in [ fee ] levels for those analysts and population and an opportunity to significantly improve diet. So quite a few patients that achieve an unrestricted diet, which is obviously -- approaches normal life for these patients. So we really think they're very different segments that any competitors are going to come, and we're pretty confident that Palynziq is going to continue to grow.

Wonderful. And are there any steps getting the supplementary BLA submission in U.S. and EU? And what sort of revenue contribution would you expect from the label inclusion to 12- to 17-year-olds.

Yes. Well, I encourage people to look at that data, as I've already mentioned, was published last week after a meeting in -- or was released last week at a meeting in Japan. This represents about a 10% increase in the patient population, which is meaningful. There is the vast majority of patients, though, in PKU are still untreated. So this is another growth opportunity, but we're still, even without this, we're nowhere near fully penetrated with Palynziq. This will just add to that. And I think it's exciting to have the prospect, the adolescence. Children are generally quite well controlled with diet and parents overseeing that kid. When it comes to adolescence, this is really an important stage to try and get these patients well managed before they're sent off to college and into the world. And now we have the prospect should the drug be approved be able to offer it in this segment. There's a lot of excitement amongst the treatment community and the patient community about this. Well, thank you. And I believe there's a recent approval in the PKU space that changed your view on the competitive dynamic market share assumptions. As I mentioned, I think this will really be a different patient population with the new competitor coming in. I think they can have a very successful launch and Palynziq can continue to grow because really our sources of patients are very, very different. They're more likely to cannibalize Kuvan, which is not a significant product for us as it's already after its loss of exclusivity. So I think that's where they're going to be the majority source of their patients, and we're going to be more focused on the severe segment or sort of taking a step back and looking at the investment case.

So there's I think you mentioned 30% of the revenue is coming from Voxzogo when you've got sort of a balanced portfolio across the rest of the business and for biotech companies sort of cracking profitability and generating cash flow and I think you've talked about setting the business into operating units. But I guess a lot going on in the R&D pipeline, but what's your rethinking from here is invested? Do we think about enough appetite in your current R&D portfolio to suck up cash flows? If you think about the business development opportunities, do you think sort of mid- to longer term formal capital returns? How do you put all those pieces together?

Yes, maybe I'll start and then hand over to Brian. We're focused on long-term sustained high levels of growth on the top line. And we think we've got the ability to do that. The modification of our strategy is internal and external innovation, as I've already covered it. we think that we can deploy capital really effectively to supplement our growth rates as an established player with that geographic footprint and that capability and with the cash flow, we think we can do deals. And those deals we be worth -- those assets will be worth more in our hands. So that's our primary goal with our capital allocation. to have a blend of both internal and external innovation, continue to be an innovation-driven company, but delivering sustained high levels of profitability, which we -- I think we've already demonstrated we can do.

So Yes. Maybe I'll just back to the investment thesis part of the question. We think we're uniquely positioned because we believe we can continue to grow our existing commercial franchise. We also believe we can continue to innovate and invest in research and development, but also increased profitability and operating cash flow. And then as we improve and accumulate cash flow, it becomes a virtuous cycle and then you can just reinvest that back in the business as well through external innovation, which gets the capital allocation in Alexander's noted it well we believe that investing in long-term growth over return to shareholders has the opportunity to create more value for shareholders over the long run. We look at all mechanisms and vehicles for capital allocation, and we discuss it with our board regularly. But even at current price levels, we believe that investing in future revenue growth and thereby profitability and cash flow is the best growth opportunity.

Wonderful. One final question. Is there anything that I didn't ask that I should have?

We didn't go further into the pipeline around 351 or 349. So maybe on another time, we would love to talk about that. Innovation is pretty very much the lifeblood and highly innovative drugs that really make a big difference for these diseases, genetically deploying conditions. That's what we're really excited talking about.

Wonderful. Well, we're out of time but at another time. But thank you, gentlemen, for your time today, it's been great.

All right. Thank you very much. Thank you.

Thank you.