BioMarin Pharmaceutical Inc. (BMRN) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to Quarter 2 2011 BioMarin Pharmaceutical Income Earning Conference Call. My name is Mauricio, I will be the operator for this conference call. [Operator Instructions] I would like now to turn the conference over to Ms. Eugenia Shen. Please go ahead.

Thank you. On the call today is J.J. Bienaimé, BioMarin's Chief Executive Officer; Jeff Cooper, Chief Financial Officer; Hank Fuchs, Chief Medical Officer; and Steve Aselage, Chief Business Officer. This nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical, including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product program, actions of regulatory authority, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with SEC such as 10-Q, 10-K and 8-K report. I'd now like to turn the call over to J.J., BioMarin's CEO. Jean-Jacques Bienaimé: Thank you, Eugenia, and good afternoon, and thank you, all, for joining us on today's call. I have a few introductory comments before Jeff reviews the financials. And Steve provides some more details of commercial activities. Hank will then provide an update on our ongoing R&D programs before we open the call for questions. We are pleased with the progress we have made in the first half of 2011, starting with our commercial portfolio in the second quarter of 2011, and where the year-over-year increase in BioMarin net product revenue of 21% to $110 million, driven by another strong quarter from Naglazyme. Our cash balance was $412 million at the end of the second quarter, up from $394 million at the end of the first quarter of this year. As for our clinical and preclinical programs, we had been very busy and have made important progress on advancing our pipeline. As per our press release today, we now have data on GALNS Phase II extension, including data on patients treated for approximately 2 years. The GALNS Phase II extension has clearly shows an improvement in long-term patient outcomes and U.S. increased confidence in the GALNS program. Using marketable and improvements in endurance are sustained by the severe and progressive nature of MPS IV, or Maroteaux Syndrome. We continue to see increasing safety and efficacy trends from the Phase II PEG-PAL trial. We're confident in initiating a Phase III trial in the first or second quarter of next year. And as you will hear in a few minutes from Hank, and we anticipate a safe and effective dosing can be administered in a single injection, consisting of a volume under 1 milliliter. In addition, we initiated a Phase III trial for amifampridine phosphate which is keeping them lance in design in phosphate, with NanoVan in the U.S., a Phase I study for the BMNC, in patients with hematological malignancies. Successful execution of our product line remains a top priority for the company. Offsetting it on June, we announced a strategic acquisition of the Shanbally plant in Ireland from Pfizer. While we have proactively signed for a continued growth of our commercial products and pipeline, it currently has the capacity to manufacture biological products for us roughly $1 million in revenue cap current facility. We will need any additional manufacturing capabilities beyond our current resources if our product lines continues to mature. This transaction has allowed us to acquire a state-of-the-art facility about 1/5 of the cost of starting a plant from scratch. It also diversified our manufacturing risk and offered an attractive business plan. The plant will be occupied in a phase transition, with the substantial manufacturing activities being tied to the results of the ongoing Phase III pivotal trial of GALNS. Hank will elaborate on a little later. Turning to 2011 guidance, we have raised our expectations for Naglazyme and revised our range for Firdapse. This results in high expectations for total revenues of 2011. We have also increased the lower end of the guidance range for R&D spend and lowered our expectations for amortizations and strategic consideration expenses. This resulted in an improvement in our expectations from GAAP net income, with slightly lower expectations for non-GAAP adjusted EBITDA. Now I would turn the call over to Jeff Cooper, who will review the financial results in more details for the second quarter of 2011.

Thanks, J.J. I will start by reviewing product revenues for the second quarter of 2011, and then follow with a more in-depth look on our operating expenses and financial results. Beginning with Naglazyme, net product revenue was $50.3 million for the second quarter of 2011, an increase of 27.5% of some period of as compared to $47.3 million in the second quarter of 2010. Changes foreign currency rates net of hedges had a positive $1.1 million impact in the second quarter of 2011. Net sales of Aldurazyme by Genzyme were $44.5 million for the second quarter of 2011 as compared to net sales of $43.7 million for the second quarter of 2010. Foreign currency exchange rates caused an increase of total of Aldurazyme sales of $3.1 million in the second quarter of 2011. Net product revenue BioMarin-related Aldurazyme was $17.3 million for the second quarter of 2011, compared to net product revenue to BioMarin of $17.5 million for the second quarter of 2010. During the second quarter of 2011, there was no net impact from the inventory transfer revenue compared to a negative $0.2 million impact in the second quarter of 2010. Net product revenue for Kuvan of $28.8 million for the second quarter of 2011 increased 16.6% as compared to $24.7 million in the second quarter of 2010. Finally, net product revenue for Firdapse was $3.2 million for the second quarter of 2011, as compared to $1.1 million in the second quarter of 2010. Now I'll review gross margins, operating expenses and other items in more detail. Gross margins for Naglazyme were 83% for the 3 months ended June 30, 2011. Aldurazyme gross margins were 75% during the second quarter of 2011. Kuvan gross margin were 85% in the second quarter, which reflects the royalty payable in net sale of about 10%. And finally, gross margins for Firdapse were 84% for the 3 months ended June 30, 2011, which includes an 8% royalty on net sales. Research and development expenses increased by $17.3 million to $52.9 million in the second quarter of 2011, from $35.6 million in the second quarter of 2010. The higher spending was driven by clinical activities for the GALNS Phase III trial, the PEG-PAL Phase II trial, the Phase I for BMN-701 and preclinical development for BMN-11. Selling, general and administrative expenses increased by $3.6 million or $40.9 million in the second quarter of 2011, from $37.3 million in the second quarter of 2010. This was largely due to increased spending for Naglazyme, Kuvan and Firdapse, as well as stock-based compensation expense. The second quarter of 2011, we recorded a net credit to noncash intangible asset amortization and continued consideration expense of $3.3 million. This results from quarterly changes to the fair value of our contingent consideration liabilities related to acquisitions and resulted in an adjustment for accrued liability in Q2 2011. Now I'll review the GAAP and non-GAAP online results. Our GAAP net loss for the second quarter of 2011 was $5.1 million or $0.05 per diluted share compared to a net loss of $0.5 million or $0.01 per diluted share for the second quarter of 2010. Non-GAAP adjusted EBITDA for the second quarter of 2011 was $13.9 million or $0.12 per diluted share compared to non-GAAP adjusted EBITDA of $17.5 million or $0.15 per diluted share for the second quarter of 2010. From a cash perspective, we ended the second quarter of 2011 with $412.1 million of cash and short- and long-term investments, up from $394 million at the end of the first quarter of 2011. Excluding the impact of the acquisition of the Shanbally plant in Ireland, we expect to remain cash flow breakeven to slightly positive during the full year of 2011. With regard to 2011 guidance, we now expect total revenues in the range of $436 million to $465 million over previous range of $422 million to $452 million. We now expect Naglazyme net product revenue in the range of $225 million to $240 million from a previous range of $211 million to $225 million. We continue to expect Aldurazyme net product revenue to BioMarin in the range of $79 million to $83 million, Kuvan net product revenue in the range of $112 million to $120 million and then reduce our expectation for Firdapse net product revenue to a range of $13 million to $15 million from our previous range of $14 million to $18 million. As for our expense guidance, we continue to expect cost of sales in the range of 18% to 20% of total revenue and SG&A expense in the range of $164 million to $174 million. We have increased the bottom end of our expectations for R&D expense to a range of $200 million to $205 million from our previous range of $195 million to $205 million. The breakdown of expected R&D spend is approximately 50% on clinical program, 20% on commercial, 10% on discovery and the remaining 20% on stock comp, nonallocated and other expenses. For the bottom line, we now expect an improved GAAP net loss in the range of $43 million to $33 million from our previous range of a loss of $52 million to $42 million. A substantial portion of the reduced GAAP net loss guidance for 2011 is driven by reduced noncash net contingent consideration costs related to acquisitions that I addressed earlier. I should also note that we expect operational spending in the second [indiscernible] grow, particularly for our development programs as we increase enrollment in the ongoing clinical trials. For 2011, we now expect non-GAAP adjusted EBITDA in the range of $49 million to $59 million from our previous range of $51 million to $61 million. Non-GAAP adjusted EBITDA excludes depreciation and amortization, contingent consideration expense, interest income and expense, income taxes, stock compensation expense and material nonrecurring items. Now I'd like to turn the call over to Steve Aselage, who will provide an update on our commercial business.

Thanks, Jeff. We are very pleased with the performance of our commercial portfolio in the first half of 2011. Naglazyme continues to do well with particularly strong contributions from Middle East, Latin America and Russia. We continue to find and start additional patients in market like the U.S. and Western Europe as well. Quarter-to-quarter sales are subject to significant fluctuations due to timing of very large orders by government entities. Kuvan posted its strongest quarter since launch with almost 1 million tablets dispensed, a 9.1% increase over the last quarter and a 16.2% increase over Q2 2010. The North American team has made some progress in addressing patient adherence and has had some success in getting previously discontinued patients back on therapy. Development of the home Phe monitor has experienced some delay due to the need for additional work to improve strip sensitivity. While the strip and meter function generally is hoped for, sensitivity at the lower end of the concentrations to be calculated needs some improvement. Improving sensitivity in that range will require additional work being done on the strip, which will delay availability. Our best estimate is approximately a one-year delay, although it is possible that things could proceed more rapidly. If any hardware changes prove to be necessary, however, the delay could push out to 18 months. We will keep you posted on our progress with this program. A significant progress has been made on the PKU-016 study, and that study has increased clinician awareness of the neurocognitive challenges faced by some PKU patients, which is extremely helpful. Additionally, we anticipate the results from the investigator-sponsored trial of Kuvan in autism will be presented at a Child Development Conference in October. Firdapse efforts continue in the EU and we've shown good progress in France and in Spain. Germany and the U.K. continue to present obstacles due to ongoing use of compounded 3 4-DAP. Pricing negotiations are underway in several additional countries, and we hope to see contributions from those markets before the end of the year. Rollout of the Phase III Firdapse study into several important EU centers should also increase awareness and comfort with Firdapse. And now, I would like to turn the call over to Hank, who will provide an update on our R&D pipeline.

Thanks, Steve. As J.J. noted earlier, the successful execution of our pipeline is a top priority for the company, and we have made significant progress in advancing our research and development programs during the quarter. Starting with GALNS for MPS IVA, the pivotal Phase III trial is progressing well and we expect enrollment to increase further as additional sites open. We continue to expect to report top line results in the second half of 2012 and to file by either the end of 2012 or beginning of 2013. With regard to the Phase I/II extension study as detailed in a press release issued earlier today, the ongoing study suggests GALNS sustains improvements and endurance in respiratory function for at least 2 years. Recall that in the original Phase I/II study, patients were dosed at 0.1 milligrams per kilo for 12 weeks, and then moved up to 1.0 milligrams per kilogram for 12 weeks and then 2.0 milligrams per kilogram for 12 weeks. Thereafter, these patients were dosed at 1 milligram per kilo for an additional 36 to 48 weeks. And then these patients were brought back to a dose of 2 milligrams per kilo. We can now provide a preliminary update on the findings of these extension studies, including information on patients treated for 24 additional weeks at 2 milligrams per kilo, the dose that we're using in our Phase III pivotal trial. Taken together, patients have been treated for approximately 2 years and their treatment continues on an ongoing extension study. Measures at 6 minutes walk distance, 3 minutes stair climb and pulmonary function all generally improved and sustained for at least 2 years. For the group of patients whose baseline, 6-minute walk distance was less than 325 meters, that is the patient population that will be enrolled in the Phase III trial, mean walked distance remains consistently improved for the entire period of observation. Specifically, 24 weeks after resuming 2 milligrams per kilo per week dosing in the more 100 extension study, the mean 6-minute walk distance was 38 meters. This is roughly equivalent to that observed after the first 24 weeks of the original Phase I/II trial MOR-002. The ongoing Ph III study, as I mentioned, is using mean improvement in 6-minute walk distance in patients with baseline walk distance less than 325 meters as the primary endpoint. 6-minute walk distance improvements were greater in the subgroups of patients with less than 325 meters. However, variability of this test increases with longer-term follow-up likely as a result of issues related to the progressive nature of Morquio syndrome. Several measures to reduce variability already been incorporated in the ongoing Phase III trial, and I'd like to delineate those measures that have already been incorporated into the Phase III trial. Specifically, we'll include a large sample size, and this study will be the largest enzyme replacement therapy for lysosomal storage disease conducted to-date. We will focus on selecting patients who are not expected to require surgical corrections with skeletal deformities in a subsequent 24-week period of the study. We'll conduct duplicate measures of 6-minute walk tests. The study will be concluded -- the double-blind randomized portion of the study will conclude at 24 weeks. And the extension -- and we will have extensive oversight of the performance walk test according to the ATS grade American Thoracic Society criteria. And finally, we include a placebo in the clinical trial for comparative purposes. Three-minute stair climb and pulmonary function have of consistently improved over the entire duration of the study. 24 weeks after returning to 2 milligrams per kilo, patients can now climb a mean of 13.6 stairs per minute and force vital capacity has improved the mean of 15.9%, compares favorably to 6.9 stairs per minute and 1.5% improvement in FEC reported at the end of the first 24 weeks of the Phase I/II trial almost a year ago. Stair climb and pulmonary function are secondary and tertiary endpoints respectively in the ongoing prospective Phase III trial. The data of the extension study to-date supports 6-minute walk distance as the primary endpoint and patients with baseline walk distance of less than 325 meters as an entry criteria in the ongoing Phase 3 GALNS trial, given the large and durable effect of the drug on these measures in the population. In totality, these observations increase our confidence in the Phase III trial design. These results will be submitted for presentation in detail at the World Lysosomal Storage Disease Conference in February. We continue to receive encouraging reports on the overall improvements in well-being of patients on GALNS. I'd like to share a few anecdotes we've heard from treating clinicians. First, we showed a video of a non-ambulatory patient at our Research and Development Day. This is patient who required assistance in completing simple everyday tasks prior to enrollment in the GALNS study, specifically this patient was bed-bound and required, physical assistance to transfer from bed to wheel to potty and the patient couldn't even sign his own name. At this point now, nearly 2 years later, the patient can climb 61 stairs in 3 minutes, which is a remarkable change in that patient's mobility and independence in living. Next, a patient had an 11-week drug holiday due to travel and logistical complications. And therefore, became completely non-ambulatory while off medication. Upon returning to therapy, the patient recovered the ability to complete the 6-minute walk test and continues to improve toward pre-holiday levels. Finally, 2 patients who had elective knee surgery during the dose escalation phase of the study remained on steady medication while their knee surgeries were conducted. The surgeries were declared successful, and just over half the time required for recovery in patients not treated with GALNS. Specifically, femoral plate screws were removed from these patients in under half the time usually required -- and just about half the time usually required. Now these are 3, 4 anecdotes in patients treated in the GALNS program but we continue to hear other evidence of clinical benefits from patients that are encouraging, although not statistically meaningful and anecdotal, they clearly demonstrate an improvement in patient outcomes and give us increased confidence in the GALNS program. It's also remarkable that improvements in endurance are sustained in spite of severe and progressive nature of Morquio syndrome. Patients with Morquio syndrome can miss therapy for example due to the need for corrective surgeries. In spite of that, we see patients improving once they return to therapy. Now turning to PEG-PAL. We are on track to proceed to a Phase III trial on the first or second quarter of 2012. First, let's take a step back to evaluate the progression of the Phase II program to-date. We view the PEG-PAL Phase II program in 3 segments. Segment A enrolled 23 patients with 8 weeks of repeat dosing followed by an uptitration to find the therapeutic level of dosing. Segment B enrolled 10 patients and compared 2 formulations, which differed primarily on the level of PEGylation and viscosity. We're starting doses for segments A and B were relatively low and the titration was extremely gradual and measured, taking over 6 months for some patients to reach therapeutic level. The highest dose reached in segments A and B were 2 milligrams per kilo per week, which today appears safe, tolerable and results in significant Phe level drops in the majority of patients. No significant differences in tolerability or efficacy were observed between the PEG formulations of differing levels of PEGylation and viscosity. Taking what we learned from segments A and B of the trial, we proceeded to segment C, which is our ongoing daily dosing evaluation. The goal of the study is to verify the safety of starting patients on daily administration of the drug, recognizing that it will be preferable to administer one injection per day than multiple injections once per week. We started at 0.4 milligrams per kilo for 5 days a week, the equivalent of the 2-milligram per kilo maximum dose achieved in segments A and B. Segment C is expected to enroll 10 or more patients. At this point in the daily dosing study, we believe that we have a good chance of demonstrating a strong efficacy, safety and commercial profile. PEG-PAL when delivered daily, initially results in large reductions in Phe, to below the normal range of 65 micromolar at initial doses as low as 0.1 milligrams per kilo in all patients treated. There is a common transient side effect of generalized rash in at least half the patients that does not persist with continued treatment. While joint pain has occurred in some patients treated in higher doses in the study, all side effects were transient. All patients have been keen to remain on therapy as these initial effects subside. And in fact, they would resume safe therapy safely. We anticipate that longer term, fee reductions can be sustained as has been demonstrated in segment A. Finally, we anticipate that dosing can be administered in a single daily injection, consisting of a volume of under 1 milliliter based on the similarity of the lower viscosity material in patients as demonstrated in segment B. We now have patients that have been on PEG-PAL for more than one year of therapeutic doses and all without any significant signs of long-term safety concerns. Pending the accumulation of more daily dosing data and near-term discussions with the FDA, PEG-PAL will likely progress to Phase III in the first or second quarter of 2012. The Phase III program will likely include some dose adjustment as patients move through the period of transient vulnerability to generalized skin reaction. The therapeutic goal of the achievement of large and durable reductions in Phe, clearly allowing for at least some patients resumption of normal food intake. A complete data from these studies will be presented at a possible mini R&D Day in the fourth quarter and the subsequent scientific meeting. Moving on to Kuvan life cycle development. The randomized placebo control 13-week outcome study is ongoing as Steve mentioned. Endpoints include clinically validated measures of neuropsychiatric symptoms, and if successful, may support a label amendment. Regarding Firdapse, we initiated a Phase III trial on the U.S. in the second quarter. In January, we initiated a Phase I/II trial of BMN-701 for late-onset Pompe's disease, trials and open label study to evaluate the safety pharmacokinetics, pharmacodynamics and clinical activity of BMN-701 administered as an IV infusion every 2 weeks. If this is the 5 milligrams per kilo, 10 milligrams per and 20 milligrams per kilo. We have completed enrollment in the 5 milligrams per kilo at cohort, cleared the safety review and have the authorization to start enrolling patients at 10 milligrams per kilo, which we expect to occur this month. We expect to report top line results in the second half of 2012. We also now have 2 ongoing trials for our PARP inhibitor, BMN-673. In January, we initiated a Phase I/II open label trial of once daily, orally administered BMN-673 in patients ages 18 and older with advanced to recurrent solid tumors. Two weeks ago, we initiated a 2-arm open label dose escalation Phase I trial with hemologic malignancies. The primary objective of these studies is to establish the maximum tolerated dose of daily, oral BMN-673 and obtain preliminary efficacy data in an expanded cohort of patients with genetically defined tumors. We're also advancing BMN-111, the CMP analog for achondroplasia, animal data for BMN-111 was presented at the International Scale of Dysplasia Meeting in June in Australia. Interactions with global health authorities have begun, and we look forward to finalizing the design of the initial Phase I studies and progressing as quickly as possible to improve a product concept outcome. We're very excited about this program and expect to initiate a Phase I trial in the first quarter of 2012. So as you can see, we have a very full and diversified pipeline ranging from preclinical programs to GALNS and the Phase III pivotal study. We'll keep you updated on our progress of our programs as they advance. And with that, operator, we'd like now to open the call for questions.

[Operator Instructions] The first question from Ms. Robyn Karnauskas from Deutsche Bank.

I guess my first question is you mentioned there's some variability over time with the walk test and GALNS and there is a difference between the mean and the median results and you did highlight some possibilities as to why there's a difference. Can you just go into a little more depth on why there's a difference between the mean and median? And maybe what percentage of patients might be outliers when you look at the median data points, it does seem like with the median analysis that the drug efficacy sort of tapers off of a bit.

Robyn, this is Hank. I think the first thing to point out and it's probably the most important take-home message about this is that the variabilities issues that you're asking me about and I'll get to affect the outcome of the walk test endpoints after 24 weeks of onset of therapy. That is to say, these are really not relevant to the ongoing pivotal trial. And in fact, these issues related to variability, the walk test had already been identified and a number of steps have already been incorporated into the Phase III trial to reduce or minimize the impact of variability. So, one of the most important messages is that we observe these things. They're more relevant to long-term use of GALNS than they are relevant to the pivotal trial. The second thing is, is that in spite of this variability, there's quite a bit of evidence of substantial improvement in endurance and pulmonary functions in patients who are treated for approximately 2 years and ongoing with GALNS. But to get now precisely to your point, the underlying reasons for the difference in the mean and the mean, it relates to probably the fact that some patients have intercurrent events, which are unrelated to the drug. I gave you a couple of examples of that. Two patients -- patients requiring knee surgeries, patients having unplanned drug holidays. And the nature of the Morquio syndrome is severe and progressive and those events will happen, and they will happen increasingly with time on the study. That, by the way, is one of the most important reasons to have a placebo control in the clinical trial because we expect those problems to be present in the placebo group and larger and more severe and longer in duration in placebo-treated patients. So once patients then recover from those events, they tend to get back on GALNS and get back to pre-driven baseline levels and more. As far as numbers, we're down to relatively small number, so I think it's approximately 12 patients in the under 325 group -- I'm sorry, actually 11 patients, 24 weeks later. Approximately half of those patients have what appear to be relatively large improvements in their 6-minute walk from their pre-treatment baseline level and a roughly similar number has values that are closer to 0 change from baseline. Again, emphasis here is that they might have been minus 100 or minus 200 if they weren't on GALNS. And so that's why you see the median closer to a lower number and the mean level is quite high. Hopefully, that addresses a pretty complex, statistical and clinical issue, but I'm sure there'll be more questions.

Our next question is from Cory Kasimov from JPMorgan. Cory Kasimov - JP Morgan Chase & Co: I actually have 2 of them for you. First one's also on GALNS. And I'm just wondering with Morquio syndrome, how easy is it to exclude patients that would potentially require what you call it surgical correction of skeletal deformities? Is this something that's pretty obvious at the time of enrollment? And then I have a follow-up on that.

Yes, this is pretty straightforward. These are, they tend to be electively planned surgeries and so they question that the clinician goes through with the patient is how severe is your pain, how dysfunctional are you at present. They discuss with the surgeon the optimal timing for the surgery. An important part of our education and interaction through the clinical trial side, we haven't had this problem so far in the Phase III clinical trial. We haven't had any resistance to this issue in conducting the trial, and given the relatively large size of the pre-identified population, we don't expect this to represent any meaningful negative traction on our ability to execute the Phase III trial. Cory Kasimov - JP Morgan Chase & Co: And then on PEG-PAL, you gave us some good color on the ongoing trial. Your previous guidance was to have data from that study available mid- to late-summer. Is there any particular reason that's now third or fourth quarter? Is it just the complexity of the data set or is there something else behind that?

No, I think it's a mixture of a few little things. I think we want to get more experience before talking to the FDA about getting patients established in that Phe efficacy control range when they've started from the daily dose. We have some of that information in hand. We'd like to get a little bit more of that information in hand. We'd like to get a little bit more information than we currently have about the original Phase I type of formulation, lower PEGylation, lower viscosity because that's going to be important to getting the injection volumes down to an appropriate range. So I think the third element of this is that again, we've talked about this before, the PKU population is a patient population that is to a very large extent, lost to the medical follow up. And so getting them to come to participate in early-stage clinical trials with a lot of demands on frequent measurements of laboratory tests et cetera is a bit of a burden. And we have to talk patients through that and get them to be willing to participate in a pretty intensive clinical trial. We think all of those things go and our expectation is that we will be able to establish the same Phe lowering pattern with daily administration as we did with when we started patients on a weekly uptitration. We expect the PEG light formulation to be tolerable on a long-term basis with no new immunology side effects. We believe it's sufficiently PEGylated, that is. And as we get further in clinical development, we'll simplify our programs and make the participation of trials more palatable and easier to get patients enrolled in the trial. Jean-Jacques Bienaimé: And as Hank said during his prepared remarks, we are in a sense giving you some kind of an update right now. They say we've been able to initially achieve blood Phe reductions in all patients at doses that do add for 1 milligram per kilogram. To me this is very good news because it means that we should be able to address part of market with the one injection per day product. And as Hank said, we are leaning based on the yearly results of comparing the 2 formulations, the high PEGylated versus lower, less PEGylated. Look, we're leaning towards being back to the low PEGylated products because it has a reduced viscosity as compared to the ice that they gave us, this consequently could help us further reduce the volume of injection. It's important that we just don't have enough data that once daily is a low type of product. I'd say that's kind of important. We would rather have more data on that before we sit down with the FDA. And then finally, since this are very complex data, we presented on a face-to-face meeting. That's why we're thinking about it, how many days sometimes before, where we could discuss all the team details in front of you.

The next question is from Ms. Salveen Richter from Collins Stewart.

In terms of the PEG-PAL study given that you're seeing significant Phe reductions at one injection, do you think that you'd need to conduct a study looking at different viscosities prior to studying the Phase III? And then in terms of the GALNS extension study do you have any early indications that patients are seeing an improvement or deriving any structural benefit here from the drug.

So we did compare the different formulation viscosity materials in a head-to-head trial. That did start weakly. We saw essentially both products were rapidly effective. Both products are listed in immune response, which requires going to a higher dose, and we didn't see any real important differences. We don't believe that it's absolutely required to -- we don't expect that there will be a huge difference between the low viscosity and the high viscosity material when started on a daily schedule. But of course, we'll have -- we'll end up having that data before we go into Phase III, just to make sure. But we don't see that as being a big risk. Jean-Jacques Bienaimé: And structural benefits.

And in then the structural benefits of GALNS. It's probably a little early to tell. I mean, we see some promising signs. I've heard some incredibly encouraging anecdotes from investigators that are quite not ready yet for primetime. The anecdote that I did relay was a little bit settled but the idea is that in patients who have knocked knees from Morquio syndrome, which is pre-pronounced problem, it can cause quite a bit of knee pain and quite a bit of hip pain and quite a bit of immobility and dysfunction. Patients have a screw put into their medial tubulin and femoral plateaus and then stimulate growth. And then the surgeon measures how far apart the screws are as they guide for whether it's correcting that knocked knees. And usually takes 1.5 years for those screws to grow apart enough to correct the knocked knees. And in the 2 patients that remained on GALNS who had this procedure done, this happened in almost half the time that surgical correction effect was achieved. So I think these data are really encouraging that structural improvements will be affected by GALNS either in combination with surgery or potentially alone. I think as we get further into treatment with larger number of patients, we'll be able to possibly see even more dramatic structural changes in skeletal architecture.

[Operator Instructions] And the next question is from Lucy Lu with Citigroup.

Actually, I just have 2 quick questions on PEG-PAL, if I may. The first is with different formulations on PEGylation level, just wondering if you need to go back to any approved clinical testing for this different formulation. And if so, are there any approved clinical tests that you have to do prior to entering Phase III or prior to following DOA? And then that the second question are regarding PEG-PAL is you have said that about half of the patients develop a trend in rash with PEG-PAL. Just wondering if you've done any work to characterize the rash and whether or not you think you need to.

Yes. So we don't believe that we need to do additional preclinical tests evaluating the formulations. That's not to say that we haven't already concluded those tests. And we feel pretty good about the safety profile and pharmacological profile that we've documented in those tests. Obviously, we'll know more about that after our next interactions with the FDA, but I think we're heard ahead of the curb there. And as far as the rash which develops really in the majority of patients and what we've done to further characterize that, we do now have quite a bit more knowledge about the immunobiology of the rash and a pretty good understanding of why it's transient. And again, this is the kind of thing that would be useful to be able to talk about it at this possible many R&D days later in the year. The short version is, is that it appears that the rash, we believe, and we have to probably test this a little bit more fully that the rash is likely to be related to an IGM to the PEG moiety on the molecule and that IGM reaction is transient and disappears on continued therapy.

Next question is from Joseph Schwartz from Leerink.

I was wondering when can we expect your data from the Phase I/II study of BMN-701 in Pompe. I think you said second half of 2012? And I know you have to go to the FDA between each group, but you're already through the first group and you only have 30 patients in this trial, so it's seeming a little bit conservative perhaps. And I'm wondering, is that the case? And do you have the opportunity for any interim analysis? I know it's open label as well.

Yes, so we're guiding a little bit conservatively on 701. Let me just take you through it. We have not started the second cohort. It'll take a little bit of time. I think we have to wait 2 weeks between the first and second patient and then have a wait between the second and the third patient, and then we have to 12 weeks before we can begin to collect all the safety data for the safety call. And then we have to -- and then we can begin to enroll the third cohort of patients. And so I don't expect to get into the 20 milligram per kilo group until the end of this year and the beginning of next year. And then again, we've got the same -- got to enroll a group of patients over a month or 2. And then a 12-week wait before you can enroll the remaining 20 patients at that top dose, provided that top dose was safe. Having said all of that, having said all of that, it is an open label study, as you say. And if there are pertinent findings earlier, we will -- and in particular, if they are material, well obviously provide an update earlier. We've been guiding a little bit conservatively on 701 largely because we believe that at 20 milligrams per kilo of 701, we're going to be vastly superior in the effectiveness to the available acid glucosidase alpha that's presently in the market for the adult onset Pompe patients. And we must say pretty focused on getting that data because that would be really dramatic if we're able to demonstrate that.

Okay, great. And other than patients who walk less than 325 meters at baseline per GALNS, do you know why there is a wide variance and benefit among MPS IVA patients? Why certain patients do better than others and is there any way to selectively screen these patients in?

Well, I think the most obvious piece of that is that some patients can't even walk at baseline, for example. They're disease is so severe that it just progressed that far that they couldn't walk even if you had the most effective drug in the world. Having said that, I mentioned that one of our patients in the Phase I/II study wasn't able to walk at baseline and is now ambulating quite well on his knees, and in fact, climbing stairs. So, just because somebody can't walk, doesn't mean they can't benefit. Because walk is the primary endpoint of the study we included all -- we also have a lower limit of the walk, meaning you have to walk at least 30 meters so that we don't have, if you will, the contamination of the nonambulatory patient in the study, and so that's our means to enrich for improved lock out, something you just referenced. Those patients also will have even low walkers, well hey I have improvements in pulmonary function and respiratory function and in stair climbing. And we will capture all those benefits in the Phase III trial as well.

Our next question is from Chris Raymond from Robert Baird & Company. Christopher Raymond - Robert W. Baird & Co. Incorporated: Hank, I just want to make sure I understand one of the points you made in an earlier question. You mentioned, I think, that the variability that you saw in these data are not particularly relevant to the Phase III. Can you explain that a little bit further? Because as I look at the treatment duration in this table, it looks like it falls within the treatment duration in your Phase III. So could you explain that? And also, I don't know if you have these data or this data point, but any estimate from your experience enrolling patients, et cetera, what percent of Morquio patients have baseline walking a 6 minute walk, less than 325 meters?

Yes. Okay. So in the table that's in our press release, you'll see the standard deviations in the median values for the walk. For more to week 24, week 36 and then it switches over to week 0 for MOR-100. The thing that's important to recognize is these are all the same patients. So when you start to see much larger standard deviations like 77 or 82 at week 12 or week 24, that's actually week 12 or week 24 of the study called MOR-100. It's actually weeks 84 to 96 to 108 of treatment in the study. So these are heavily treatment experienced patients. These are patients who you couldn't ask to hold off on having their elective surgery for 2 years. The relevant point to look at for variability is the week 24 MOR-002 value because those are treatment naive patients. Those are patients who were talked to by their physician at beginning and said, "Can you hold off on 24 weeks at least?" And there that variability is much lower, and there the mean and the median are much closer together. And that's why I think that the continuing data out to 2 years isn't as relevant to what's going to happen in the Phase III study. It starts with naïve patients and treats them for only 24 weeks. Christopher Raymond - Robert W. Baird & Co. Incorporated: Can you also remind us the primary endpoint that measures 6-minute walk, that is mean and median or both?

It's just a comparison of the mean and treatment naïve patients treated for 24 weeks. Your second is how many patients have a walk of less than 325 meters? We believe that's around 75% or so based on a MOR cap study, our survey study, natural [ph] study.

[Operator Instructions] And next question is from Ian Somaiya from Piper Jaffray.

Just had a question on PEG-PAL, definitely an encouraging update that you provided. Just curious if you could share with us your initial thoughts on the Phase III design type of patients you plan to enroll, and any sort of thoughts on the market opportunity for the drug relative to Kuvan?

Maybe I'll start and then Steve can take over on the commercial opportunity characterization. But it's a little bit early to talk about the design of Phase III except to say and we believe that Phe lowering as a primary endpoint has been accepted for registration of our product, Kuvan, and should be acceptable for registration of PEG-PAL. We believe that the target population that's most appropriate for PEG-PAL are going to be at a minimum, patients for whom there are no other options available. And we believe that included in that, no other options available will be patients who have essentially decided that they're not going to comply with their physician's recommendations to consume only medical formula. So these will be patients who are already essentially taking in a very large amount of phenylalanine in their food. And we believe that the outcome of that study should be designed in such a way as to show that we can get substantial Phe reductions and into the target range in spite of the fact that these patients are taking in relatively uncontrolled high amounts of Phe in their diet. As to the dosing strategy, I think that's for a little bit later, except to say that we recognize that when you start on PEG-PAL, there's an initial response that requires a clearing out, if you will, of the anti-PEG IGMs. And once you're past that, those come and get escalated and safely into a zone in which you can sustain reductions in blood Phe into really quite dramatic levels.

Hank, I was actually hoping you could actually comment on duration as well. And any potential plans to measure psychiatric symptoms? I don't know if the trials are going to be long enough to provide that benefit, to determine that benefit.

I missed the very, very first part of your question.

The length of the study and whether you'll be measuring neuropsychiatric symptoms or the [ph] drug amounts?

Yes, so from a length perspective, you demonstrate the efficacy effects really quickly. So I don't think that's going to drive the overall length of the program for the NDA. I think what's going to drive that is just the requirement to document the longer term safety. And so I'm sure we'll have some fraction of patients who are treated up to a year in the ultimate submissions. As far as neuropsychiatric, we reviewed the literature in adult PKU pretty extensively. I think there's little doubt that adults have neuropsychiatric impairments that are tied to elevated blood Phes. And that if you can, under study conditions, lower their blood Phe, you can lower their -- you can remove, reduce the morbidity of their neuropsychiatric condition. Unfortunately, that's not practically achieved except in laboratory studies because patients won't comply with the severe restrictions in their medical food intake. And that, of course, is why PEG-PAL has potentially such an important thing for patients. What's not clear is what neuropsychiatric measure to use, that will require quite a bit more time, placebo-controlled studies over a longer term nature. So we have not undertaken to identify that yet so far in our Phase I/II programs in PEG-PAL and don't have to do that until after approval. This is the same pattern of development that we applied for Kuvan as well, get it on the market for lowering blood Phe, and then investigate the extent of health benefits in social study. Steve, do you want to comment on commercial appeal?

Sure. The only thing I would maybe add to what Hank has said is that it's a little bit early to characterize the overall size of the market. But one of the things that I don't think is generally appreciated is that the PEG-PAL development program is really targeting adults. Right now, 65% of the patience on Kuvan are 18 or younger. So to some extent it's not an overlapping group for PKU patients that might be appropriate candidates for the 2 different approaches.

And next question is from Eun Yang. Eun Yang - Jefferies & Company, Inc.: Question on PEG-PAL. Have you seen any neutralizing antibodies, any of the patients that have been treated with PEG-PAL to-date?

It depends on what you mean by neutralizing. So we haven't been able to demonstrate in the maybe minor exceptions, any interference of an antibody with the enzymatic activity of PEG-PAL. What we do see though is the correlation of INGG to PEG-PAL and plasma concentration and Phe lowering. And that's probably not inhibition of the enzymatic activity because like I said, the enzyme was so buried deep within the PEG, but it's probably related to the binding of the antibody to PEG-PAL and its clearance in the circulation. And that's why the simple way to deal with that is just go to a higher dose, which is what we've done. And they have been able to show that we can do that safely.

Next question is from Mr. Ying Huang from Gleacher & Company.

This is Ryan, in for Ying. Just very quickly, related to Naglazyme, what geographic region is most important for growth that you guys are focusing on?

I don't think I could characterize one region as most important for growth. We've got a number of areas, where we think it's important to continue to grow the franchise. Latin America continues to as add substantial numbers of new patients. The Middle East has significant potential that we haven't fully tapped into yet. Same can be said for Turkey. We're currently opening hoping our office in Russia. We've been very pleased to see the contribution of Russia. It's well ahead of schedule. Very difficult to determine what the opportunity is there. We don't have good visibility in the patient numbers yet. But clearly, it's a significant opportunity for us. We also have some opportunities in Asia-Pacific region that while visibility on patient numbers isn't clear, what is clear is that there are significant numbers in some areas that aren't very well penetrated yet. So we really look at this as a global franchise and are spreading our activities around the world into any areas where we feel there's substantial opportunity for growth.

Next question from Nicholas Bishop from Cowen and Company.

Just a quick one on Naglazyme. In Q1, we know there was a timing of Brazilian order resulted in significant quarter-over-quarter increase. And I was wondering what's driving quite the strong quarter this time around? And then just quickly a follow-up on PEG-PAL. The dose titration potential that you mentioned to get through the kind of rash period, that along would that be, would you imagine and what kind of monitoring patients would you need to do in order to achieve that?

Hank here, want me to take the Naglazyme question first? I mean there was nothing particularly unusual about this quarter. If you take a look at the last 8 or 9 quarters and trend things out, you'll see it's been relatively steady growth. You see some ups and downs quarter-to-quarter. But over the long-haul, you see, if you put a trend line on that it's really very steady growth and there's nothing particularly unusual about this quarter. We're continuing to get new patients from both existing and new geographies that we're moving into.

And on the second question, what we see clinically is that if the rash comes on within about 10 days and is usually resolved within a week or so, so we're aiming to have that transient period of vulnerability be managed well within a month before those uptitration can be accomplished.

Next question from Shiv Kapoor for Morgan Joseph.

On your PARP inhibitor program. PARP’s a bad shepherd as seen in the past and there are lots of competitors ahead of you guys. How does your growth stack up with competition? And what gives you the confidence that you can have a meaningful late competitor?

I think as a couple of really important consolidations there. First of all, the most checkered of the so-called PARP inhibitors, probably by the account of both the corporate sponsor of the molecule, as well as by National Cancer Institute scientists is actually a Park inhibitor. May be active in the subgroup of patients and it may have a different mechanism force activity, but that's not Park inhibitor. I think the second consideration is that in general, the idea of targeting therapy to molecular defined malignancies has been really the exception, not the rule. And although there are a lot of competitors, really there are very few competitors to talk about, molecular targeting is their explicit strategy. We've been telling you about molecular targeting as our explicit strategy from the beginning. It is a competitive space. We have to monitor that space. We have to be aggressive and there are no guarantees that our compound will be more effective and more fast than competitors. But I think we do have a sound strategy to find effectiveness as quickly and directly as possible. And if it's there, move the program forward. If it's not there, move on because there are plenty of other assets in the BioMarin portfolio.

The next question from Liana Moussatos from Wedbush Securities.

Can you give us the geographic breakdown of Q2 sales for Naglazyme?

Sure. U.S. sales were $8.5 million. EU sales were $20.6 million and international was $31.2 million.

Last question is from Brian Abrahams from Wells Fargo.

This is Matthew calling in for Brian. As it relates to the Morquio extension study, did you collect data related to cardiac function, hearing, quality of life, biomarkers related to bone and cartilage, metabolism which may provide some additional evidence of activity beyond your functional results and the keratan sulfate reductions? And if so, when may you present those data?

Yes. I'm glad you asked that question. So, the easy ones to answer are cardiac function. Yes, we collected that data. Stair climb is probably a great measure of cardiorespiratory function above and beyond what a flat walk measures. We see great improvement in stair climbing. As I mentioned, if you just look at kind of year-over-year changes, at week 24 of the MOR-002 study, which is their first 24 weeks on therapy, mean improvements there is climbed per minute is 6.9. Almost a year later that number goes to 13.6. The extent to which this measure is underlying cardiorespiratory performance, we see continued improvement in endurance as unaffected by that parameter, probably doing the underline either cardiac, respiratory or both limitations. We've also measured some bone markers. Some of that is positive. It hasn't been all digested. It needs to be digested and presented to a scientific meeting, but we're encouraged by what we see at the bone biological level. You mentioned things like hearing and vision and valve disease. And I think it's too early to see if those don't happen later in the course of the years or not ubiquitous in the course of disease. So I think it's a little bit early to say if that's going to have positive effects on those aspects of Morquio Syndrome. Jean-Jacques Bienaimé: And back to the pulmonary function and core capacity, and these are different patient populations and the results, the data, and the improvement is significantly greater than reserving Aldurazyme as our therapy.

And when we may see this data, next year possibly? Jean-Jacques Bienaimé: No, our full capacity is in the press release today.

No, just the other issues that Dr. Fuchs mentioned.

Oh I'm not sure that we've picked a specific target in the presentation.

There are no further questions. I'll hand the conference back to Mr. Bienaimé. Please go ahead, sir. Jean-Jacques Bienaimé: So in summary, I think we had a pretty good first half of 2011. We saw [indiscernible] Q1 and Q2, we are in progress on advancing our R&D pipeline and we have more programs that you think we ever had before. And we have shown good progress for the GALNS and. So we believe we are very well positioned for the second half of the year. And we are looking forward to the clinical model over the coming months. So thank you for your continued support and for joining us on today's call. Bye.

Thank you. Ladies and gentlemen, that concludes your conference call for today, you may now disconnect, thank you for joining and have a very good day.