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

Good morning, everyone. I'm Sean Laaman, Head of U.S. SMID-cap biotech Equity Research here at Morgan Stanley, and welcome to our Global Healthcare Conference. Before we begin, I'll make you aware of some important disclosures. For those disclosures, see the 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. I welcome here today, President and CEO, Alexander Hardy; and EVP and CFO, Brian Mueller. Welcome to both of you. Alexander, I believe you wanted to make some introductory remarks before we kick off the formal Q&A part of the session. But thank you for your time today.

Thanks very much, Sean. Thanks very much for having us. Thanks to Morgan Stanley for hosting this. Yes, I just want to say a few things. We mainly want to hear the questions that you have and folks in the room. I'm very, very happy with our execution and how we're delivering over the last several quarters. To be able to perform strongly with the delivery of the business, at the same time, integrate a major acquisition simultaneously is really exciting, and it's a testament to the organization. I think with the Amicus integration, we've added two additional significant growth drivers, further strengthening the growth profile of the business. We're showing that BioMarin is a rare disease company at scale. We've delivered, obviously, efficiency in profit and growth in profit margins. Now with Amicus, that translates to additional cash flow. We have this capability across all of the parts of our enterprise from research, development, manufacturing to commercialization when it comes to rare disease. And we have the balance sheet to act on that. So even as we're integrating Amicus, we also just, obviously announced and closed an additional deal to bring in Alesta, ALE1, into our pipeline. We're really excited about that. So we're going to continue doing these sorts of deals of strengthening our pipeline, all positioned towards growth in the long run, leveraging our capabilities. And it's really an exciting time at BioMarin.

Sure. Great intro. I have a few questions on the Amicus deal. So just the core strategy behind it. Was it taking two assets that you think you could grow a lot more strongly? Is it synergies? Is it dilution of what exposure you think you might have on the changing competitive dynamic in VOXZOGO?

It's really all, but it's mainly the first two. I would say that the diversification of our growth was a sort of secondary benefit. It's not something that we were -- that was not our primary objective. We believe in VOXZOGO's growth with the pending hypochondroplasia approval, should the FDA approve it. We think that that's in good shape, and we're continuing to look at the second quarter, even with a competitor now in the market in the U.S., for a second quarter, we grew at obviously 20% in terms of patient growth. But we really felt that Amicus was both value creating on the top line and on the bottom line. And I think you can see from our second quarter update that we're starting to realize that, projecting a $1.2 billion peak for POM-OPF and $1.4 billion peak for GALAFOLD in our hands. That's more than our geographic -- additional geographic footprint. It's the depth of our capabilities across those geographies. We really like what we saw as we got into the due diligence and the integration planning. And then on top of it, as a rare disease company operating at scale, the synergies on the bottom line, $200 million of non-GAAP expense savings. So it does all of those three things. But I think the very cool thing is particularly on that top line, you don't see that many deals which offer a higher peak and a faster ramp. And I think you can be confident that BioMarin's capabilities, we can realize those additional revenue.

Sure. Yes. And I guess that some of the story that might be missed so far is just what we see on the bottom line and the compounding earnings that are going on in the background. And so just your confidence around achieving those savings from the acquisition? And how much of it is due to overlap? How much is just genuine better operations? And then how does that walk down to -- you've brought forward your leverage targets, like how that translates to balance sheet leverage and maybe being able to flex again on the BD side?

Excellent. I'll start off and hand over to you, Brian. So with regard to the synergies, I think you can feel also very confident around those. I mean, as you know, biotech P&L from an expense standpoint is very much on the head count -- disproportionate head count. And we made very quickly -- I was very impressed with the execution of the organization in terms of the integration planning and then implementation. We very quickly communicated to all Amicus employees, the future employment status. So there are about 505 Amicus employees. We're retaining in the long run about 192 of those. So therefore, those decisions are made, and those savings will be realized. We -- so who are the 192 retained? Obviously, as we talked about, a very important part of this deal thesis is synergistic on the top line. So we wanted to maintain and then add to that growth rate on the revenue line for GALAFOLD and POM-OPF. So we primarily retained the commercial and the medical affairs team, so the customer-facing teams. And in fact, we'll be -- and we are investing even more in driving the growth of GALAFOLD and POM-OPF. The bulk of the savings on the other hand, were on the G&A side, about 70% savings in G&A. And then the remainder was in R&D, where there are duplicate R&D functions. And maybe hand over to Brian for the next part.

Yes. Thanks, Alexander. Thanks for the question, Sean, and thanks for having us. So first, it was very important given the strong strategic rationale for the transaction that we developed an integration plan to fully realize the potential value from the transaction. And Alexander has already touched on some of those revenue and then the OpEx synergies. So to be clear, as Alexander touched on, these are not high-level plans. We're executing in terms of the employees that we'll be retaining or not. Those folks have been notified at the operational level, whether -- process by process and department by department, we've got operational cutover plans. The integration itself will take some time through this year, even into next year because some of the relevant systems and processes that we're cutting over are qualified and regulated, and that takes some time. That's why we point to 2028 as the first full year of realizing all of the synergies because again, most of the synergies will be realized in '27. In terms of '26 here in the third quarter, it's still mostly a full quarter of Amicus operating expenses, but we'll start to realize some of the synergies in the fourth quarter. And then to your point about what it means, so we do believe the deal will be accretive within its first year with substantial accretion beginning next year and then growing when we get to that first full year of synergy realization in 2028. But the level of operating margin accretion, substantial cash flow generation, that's what enabled us to pull forward that deleveraging target by almost a year. When we announced the transaction in December of last year, we said we'd target less than 2.5x leverage within 2 years of the transaction. Now that's middle of next year. That will replenish pre-Amicus deal firepower for BioMarin, which will allow us to continue our cycle of investing in innovation. And then again, EPS, cash flow margin growth from there is substantial.

Sure.

So by the middle of next year then by -- just to be -- put a point on it, by the middle of '27, we'll have the same level of firepower as we had prior to the Amicus acquisition. So the ability to do up to a $5 billion acquisition. So we're continuing -- and we have, obviously, the firepower, we're doing deals right now. So we will continue to do deals. We obviously just did the Alesta deal, bringing ALE1 to our pipeline. So you can see us continuing to do deals even as we delever.

Sure. Sure. I guess when you get to 2028 and you look at the balance sheet position, wherever it may land and the integration is largely complete and given the scale of the business, how would you characterize the balance sheet capacity at that point versus pre-Amicus?

By the time we get to '28, yes, great question. So when we say by middle of next year and getting to this current deleverage target and pre-Amicus deal firepower, that's in the $4 billion to $5 billion range. So I think by the time we get to 2028, with the continued growth in the EBITDA profile, I think it would be another click up from there. So it could be approximately $6 billion.

Sure. Sure. Got you. So it seems that integration progressing well, got a good handle around the cost side and then you put out targets for -- or guidance for POM-OPF and GALAFOLD over the long term. So maybe just to take investors on -- or give investors a bit of granularity around your confidence levels on achieving those GALAFOLD and POM-OPF targets. We've talked a bit about the patient identification I've talked about the geographic expansion. Just some of those elements to give us confidence on the $2.6 billion, I think is the total, yes.

Yes. Total is about $2.6 billion, you're right, by the mid-2030s. So $1.4 billion for GALAFOLD, $1.2 billion for POM-OPF. GALAFOLD represents the single largest absolute opportunity, $1.4 billion. There is -- primarily, we believe, geographic expansion is part of it, but the larger opportunity is increasing the diagnosis rate in Fabry's disease. There's a lot of patients who are not diagnosed, quite a few patients that are diagnosed but not treated. But this is where leveraging our capabilities that we built up over 25 years. We've done this time and time again. This is where these assets and these medicines are worth more in our hands than -- because we have these capabilities, further leveraged by the way, by, obviously, AI and advanced analytics allows you to do a better and better job of finding patients. So that's primarily on the GALAFOLD side. I mean, that being said, about 40% of revenue for GALAFOLD and POM-OPF is in the United States. There's a lot of opportunity to further grow GALAFOLD in the United States. We think by the mid-2030s, we can more than double the number of patients in the United States on GALAFOLD. With POM-OPF, it's primarily more about switching. We think that the evidence and the real-world data coming through with regard to POM-OPF really shows the benefits that POM-OPF can show as efficacy wanes with the other treatments for Pompe disease. So that's primarily a switch market. That's longer and slower, and that's also why the peak is a little lower than GALAFOLD. So we think that these are both realistic long-term objectives that we're aiming for. There are actually scenarios where we can do better than $1.4 billion, $1.2 billion if we can significantly -- if we can start to impact, for example, the top -- very top of the funnel. But we're going to hold that and keep people updated as we go forward about our efforts there. There's nobody better than BioMarin to be able to do that because of our genetics capability, but we don't want to get ahead of ourselves. $1.4 billion, $1.2 billion is, I think, good estimates right now for the peak sales potential.

Great. Maybe just moving on to the competitive dynamic in VOXZOGO. So you reported really strong growth in Q2 and you upgraded guidance, which I think surprised many for the full year, which must say that you've got a good deal of confidence around the evolving competitive dynamic and the launch of competitive products. So just to gauge your confidence around that and what you expect over the long term. And I'll leave it there, and I've got more, but yes.

Yes, I'm sure you do. I'm sure you do. Yes, I mean we're really pleased. I've already mentioned it. We're really pleased with the growth rate that we're seeing with VOXZOGO. As you know, the majority of patient starts that we've already been realizing has been the 0 to 2 population. And this is where we have an indication advantage and a data advantage, which will remain BioMarin's exclusive indication for the next several years. So we're seeing a lot of patient starts there. And with regard to switching, that switching dialogue is very much the way that I thought it would go with caregivers and physicians. This is really a segment of the patient population where the caregiver is interested in convenience. But we're still seeing just tremendous growth, 20% growth in the quarter with VOXZOGO. And now, of course, and I'm sure you're going to touch on this. And now we, of course, have this settlement with Ascendis with a 20% royalty rate in the United States and 18% in Europe, Brazil and South Korea. This means that we're benefiting from TransCon, from their results in potentially adding new patients, patients that perhaps wouldn't have come on VOXZOGO will have that revenue opportunity. And then, of course, we have the pending indication approval with hypochondroplasia, which is not factoring in, obviously, into our '26 outlook. But hopefully, at the beginning of next year, we'll have that additional growth lever for VOXZOGO going forward. So yes, it's exciting to see. It's all but one of our blockbuster potential products that we -- this guidance will mean that we hit $1 billion this year for VOXZOGO. So it will be BioMarin's first blockbuster product.

Sure. And on the hypochondroplasia opportunity, just sort of your commercial prep and your commercial readiness. So if you did see an adverse impact on the achondroplasia portion of the business, if you did see it, just your ability to offset that through the uptake in hypochondroplasia and your thoughts around that?

Well, we think the growth in the achondroplasia market, we're seeing the 0 to 2 growth and our ability to retain patients plus the hypochondroplasia and the growth opportunity there means that VOXZOGO is set to continue to grow through these competitive launches, which is an exciting picture. I mean we're in 55 countries with VOXZOGO. It takes a while for a competitor to be able to match that. Obviously, 5 years head start, additional head start when it comes to the infant population. So the growth continues, and we're excited about that profile.

Sure. And I guess roughly 3/4 of revenue comes from outside the U.S. for VOXZOGO. So do you think differently about the competitive dynamic and how that might unfold in Europe? And do you think it's more challenging for a new entrant in terms of market access in rest of world markets?

I mean market access in the rest of the world, I'm not telling anybody here, any news they don't know, is much more complicated. It's different, but it's more complicated with long lead times in the rest of the world and really require tremendous amounts of local expertise. In an 80-country footprint, as I said, we're in 55 countries with VOXZOGO. That level of local market access expertise, those are BioMarin personnel in the majority of those markets. And we believe that gives us a real competitive advantage. So there's -- I think there's a time lag but there's also an outcome difference that I think BioMarin will have an advantage there.