BioMarin Pharmaceutical Inc. (BMRN) Q3 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the BioMarin Pharmaceutical Third Quarter 2012 Financial Results. [Operator Instructions] And as a reminder, this conference is being recorded. Now I'll turn the conference over the Eugenia Shen of Investor Relations. Please begin.

Thank you. On the call today is J.J. Bienaimé, BioMarin CEO; Dan Spiegelman, CFO; Hank Fuchs, the Chief Medical Officer; and Jeff Ajer, Chief Commercial 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 programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors, and those factors detailed in BioMarin's filings with the Securities and Exchange Commission such as 10-Q, 10-K and 8-K reports. And now I'd like to turn the call over to J.J. Bienaimé, BioMarin CEO.

Thank you, Eugenia, and good afternoon, and thank you for joining us on today's call. I have a few introductory comments before Dan reviews the financials for the third quarter of 2012. Then, Jeff Ajer, our recently appointed Chief Commercial Officer, will provide more details on our commercial portfolio. And Hank will provide an update on our R&D programs before we open the call for questions. I believe the company is well positioned as we enter the final quarter of the year. We have a steadily growing commercial portfolio including operations in over 40 countries worldwide and a rich product pipeline with multiple data relaunch in the next 6 months, including key results from the Phase III trial for GALNS approaching in the coming weeks. Starting with our commercial portfolio, we generated over $126 million in quarterly revenues for BioMarin marketed product, showing a good performance in the first half of the year. Our core business continues to grow and support the majority of the development process of our R&D pipeline. The pipeline is quickly progressing, and investments in R&D are resulting in clear value-generating inflection points. In the third quarter, we announced the investments of 2 pipeline programs, PEG-PAL for PKU and BMN-111 for achondroplasia. The decision to move the PEG-PAL program forward as our next Phase III program was driven by evidence of sustained dramatic reduction in blood Phe levels in treated patients in the long-term historical safety profile and the identification of a defined, convenient and accelerated dosing measurement. Of course, the next major milestone for the company is the readout of the pivotal GALNS Phase III trial in November. The successful execution of this program is the #1 priority of the company, and we'll maintain a high degree of confidence in the outcome of this trial, which is based on the robust Phase III study design, sustained clinical benefits in the Phase II extension study and data from the more MorCAP study, which indicates deterioration in endurance measures in untreated Morquio patients. The GALNS program represents a significant opportunity and if successful, is expected to bring BioMarin to the next stage of maturity and continued profitability. So again initially, the mix had improved from our pipeline. We're also looking forward to report in the Phase II for the BMN-701 for Pompe disease and BMN-673 our PARP inhibitor for genetically defined cancers over the next 2 quarters. We expect that this data will allow us to make Phase III goal and good decisions on these very high potential programs. We are aware of the important balance between investing in the pipeline and achieving profitability and in reaching the best long-term interest of both the company and our shareholders to invest in our R&D programs to ensure continued long-term top line growth and to reach sustained and substantial profitability. Now I would like to turn the call over to Dan Spiegelman, who will review the financial results for the third quarter of 2012.

Thanks, J.J. I will start by reviewing product revenues for the third quarter of 2012 and then follow with a more in-depth look at our operating expenses and financial results. Total net product revenue was $126.3 million for the third quarter of 2012 or 11.9% increase over total net product revenue of $112.9 million for the third quarter of 2011. For our lead product, Naglazyme, net product revenue was $62.5 million for the third quarter of 2012, an increase of 11.8% compared to the third quarter of 2011. Changes in foreign currency rate, net of hedges, had a negative $0.2 million impact in the third quarter of 2012. We are encouraged by the continued steady growth in the number of patients on therapy, primarily in our established markets. Net sales of Aldurazyme by Genzyme was $48.3 million for the third quarter of 2012 compared to net sales of $46.3 million for the third quarter of 2011. Net product revenue to BioMarin related to Aldurazyme was $23.8 million for the third quarter compared to net product revenue of $23 million in the comparable quarter in 2011. Net product transfer revenue had a positive $4.1 million impact on net Aldurazyme revenue to BioMarin in the third quarter of 2012. Net product revenue for Kuvan of $36.4 million for the third quarter of 2012 increased 19.3% as compared to $30.5 million in the third quarter of 2011, as Kuvan continues to grow in adoption. Finally, net product revenue for Firdapse was $3.6 million for the third quarter of 2012 compared to $3.5 million in the prior year. Now I'll review gross margins, operating expenses and other items in more detail. For the 3 months ended September 30, 2012, gross margins were 85% for Naglazyme, 62% for Aldurazyme, 84% for Kuvan and 82% for Firdapse. Research and development expenses were $66.2 million in the third quarter of 2012, a $7.6 million increase compared to the third quarter of 2011 but an $11.6 million decrease from the second quarter of this year. The decline this year in R&D compared to the last quarter was primarily driven by decreased GALNS development expenses due to the reduction in GALN-related manufacturing expenses in the third quarter. R&D expenses related to PEG-PAL and BMN-111 also declined as those studies had been completed and data was released in the third quarter. Selling, general and administrative expenses were $46.3 million in the third quarter of 2012, a $1.4 million increase from the third quarter of 2011 and a $5.2 million decrease compared to the second quarter of 2012. Major drivers for the SG&A decrease during the third quarter compared to the second quarter 2012 were primarily the result of lower commercial expenses for pre-commercialization of GALNS and commercial expenses for Naglazyme and Kuvan program. These reductions were due to reduced Q3 activity and are expected to reverse in the fourth quarter. In the third quarter of 2012, we did record a benefit from income taxes in the quarter at $6.4 million, primarily due to cash benefits from orphan drug credits and tax benefits from the incentives in -- of the exercise of incentive stock options. Our GAAP net loss for the third quarter was $5.4 million or $0.04 per diluted share compared to a net loss of $17.7 million or $0.16 per diluted share in the third quarter of 2011. Non-GAAP adjusted EBITDA, which we believe represents the best measure of our operating results, showed a gain in the quarter of $11.1 million compared to a non-GAAP adjusted EBITDA gain of $4.3 million for the third quarter of 2011. The reduced GAAP net loss and the increased non-GAAP adjusted EBITDA for the third quarter of this year compared to the comparable quarter in 2011 was primarily due to increased net product revenues partially offset by a smaller increase in R&D expenses. From a cash perspective, we ended the quarter with $533 million as compared to $525 million at the end of the second quarter of 2012. Turning to the remaining portion of the 2012 full year guidance. We are leaving guidance for full year revenues and operating expenses unchanged. We continue to expect total revenues in the range of $475 million to $510 million and are maintaining our revenue guidance for all of our individual products. As has been previously mentioned, actual quarterly revenues can be heavily impacted by the timing of certain government Naglazyme orders and the recognition of product transfer sales of Aldurazyme. As for our operating expense guidance, we're not making any changes, as we continue to expect cost of sales in the range of 17% to 18%, SG&A expense in the range of $195 million to $205 million and R&D expense in the range of $285 million to $295 million. Please keep in mind that almost 20% of our projected R&D spend in 2012 is for clinical drug supply. If GALNS is approved, a portion of the manufacturing campaign in 2012 or approximately $7 million in expenses will support future named patient and commercial sales. For the bottom line, we currently expect that the majority of the $6.8 million benefit from income taxes through the first 9 months is likely to be maintained for the full year. And hence, we will change our tax guidance from a breakeven to a $5 million benefit. As a consequence, we now expect a GAAP net loss in the range of $100 million to $110 million, reflecting the $5 million tax benefit. However, we still expect non-GAAP adjusted EBITDA, which does not, of course, include the impacts of taxes in the same plus or minus $5 million range around breakeven. In other words, on an operating basis, we are right around breakeven. Due primarily to additional proceeds from stock option exercises in 2012, we now expect cash usage in the range of $20 million to $30 million from a previous range of $40 million to $50 million and end the year with $495 million to $505 million in cash and cash equivalent. Now I would like to turn the call over to Jeff, who will provide an update on our commercial program.

Thanks, Dan. Revenues from total product sales in the third quarter reached $126.3 million, an increase of 12% over the prior year quarter. Naglazyme sales were driven by net patient gains principally in our major established markets. Net product revenue increased approximately 10% in the 9 months ended September 30, 2012, over the prior year, which is proportionate to the growth of new patients on therapy. While government ordering patterns sometimes result in choppy revenue quarter-to-quarter, growth in the number of patients on therapy continues at a steady rate. As always, we advise you to look at annual revenues and guidance rather than quarter-to-quarter changes to gauge growth of our Naglazyme franchise. Kuvan sales maintained a steady level of growth with a 19% increase year-over-year. Factors driving growth include an enhanced PKU case-management program with more rigorous control and thus, more effective Kuvan response testing, and an increased willingness on the part of clinics to more aggressively treat adult patients. The 200 patients in the PKU-016 study have been enrolled since July. This study is designed to document the neurocognitive improvements seen with Kuvan, and we believe the outcomes of this study will be the key to further accelerating product adoption. Results are expected in the second quarter of 2013. As for our Morquio program, pre-commercialization efforts are already well underway in all regions. We are preparing for our first major approval in the U.S. or EU by the end of 2013 followed by rolling global launches. Over 1,200 patients have already been identified. The majority of these patients are treated by geneticists, who also treats MPS VI patients. We suspect that there are material of numbers of patients also seen by orthopedists and skeletal dysplasia specialists and expect to ramp up patient identification efforts next year, pending GALNS Phase III results in November. Now I will turn the call over to Hank Fuchs, who will review the pipeline.

Thanks, Jeff. As J.J. noted earlier, our commitment to advancing the pipeline is beginning to result in value-generating milestones, and the most significant data point this year is quickly approaching. Starting with GALNS for MPS IVA, we maintain a high degree of confidence in the outcome of the Phase III trial. We are on track to report top line results in the current quarter and potentially file the first market authorization application in the first quarter next year. GALNS is our absolute highest priority, and we have allocated every necessary resource for the timely analysis of data, release of results and potential filing of market authorization applications. Between the pivotal Phase III study and the 3 ancillary studies, we will evaluate the entire spectrum of MPS IVA patients, and the complete data package should facilitate reimbursement worldwide. The trial in patients under 5 years of age and the cardiopulmonary study are both fully enrolled and the study in patients with limited ambulation is expected to complete enrollment this quarter. We are gratified that 173 of the 176 randomized patients in the Phase III trial elected to continue in the extension protocol. This high degree of adherence to the long-term evaluation of GALNS and Morquio speaks volumes to the severity of Morquio syndrome, the dedication of Morquio patients and the investigative community and their hopes for improved clinical outcomes. Turning to PEG-PAL. We've decided to move forward with the Phase III program based on evidence of sustained reduction in blood phenylalanine levels in patients, a long-term acceptable safety profile and the identification of a convenient and accelerated dosing schedule. We expect to have an end of Phase II meeting with the FDA in the first quarter of 2013 and initiate the Phase III trial in the second quarter of 2013. The preliminary study design, pending discussions with the FDA, will include an open label study in naive patients to evaluate safety and blood Phe levels and a placebo-controlled, randomized controlled study in the Phase II extension study patients to evaluate blood Phe levels in psychiatric and executive function endpoints. Prior to our conversation with the FDA, we have established 2 key elements in the Phase III program: Phe lowering is the primary endpoint and the enrollment of subjects who are noncompliant with the Phe-restricted diet. As for the Phase I/II trial of BMN-701 for early-onset Pompe's disease, we've completed enrollment of 16 patients in the 20-milligram per kilo cohort and remain on track to report 24-week results in the first quarter of 2013. Moving onto BMN-673, over 20 patients have been dosed in Phase I/II open label trial for advanced or recurrent solid tumors. Ovarian cancer patients with deleterious BRCA mutations are responding very well to treatment with BMN-673, with activity at doses 2 orders of magnitude lower than any other oral PARP inhibitor. This suggests BMN-673 may be the most compelling low-dose, single-agent PARP inhibitor in development. We are further encouraged by the overwhelming amount of interest and support from the scientific community. We expect to provide an update on this program in the current quarter and a Phase III trial get started and rolling by the of 2013. As for BMN-111, our CNP analog for achondroplasia, we expect to initiate a Phase II study mid next year. The Phase I study showed that BMN-111 was generally well tolerated, and we have identified a safe starting dose for the treatment in pediatric subjects. The design of the Phase II proof-of-concept and dose-finding study is underway and on track for initiation in mid 2013. The goal of the program is to assess growth velocity as well as medical complications of achondroplasia, including non-growth endpoints. Multiple regulatory pathways are under current consideration. Finally, we plan to file an IND for BMN-190 for Batten's disease in the first half of 2013. Recent meetings with regulatory authorities have been very encouraging and suggest in the possible aggressive clinical and regulatory path to approval due to the serious and quickly progressing nature of the disease. Our preliminary trial design is a dose-escalation study, with 1 year of safety and an extension phase. Although still early, this program could advance quickly in the clinic. Now we have 7 programs in the clinic, the most ever in the history of the company. In the third quarter, we decided to advance the PEG-PAL and BMN-111 programs to the next stage of development, and several additional key data readouts are expected shortly. Most notably, results for the GALNS phase III pivotal study are expected in the coming weeks and if positive, could be transformative for the company. Collectively, our pipeline is advancing and creating sustainable value for long-term growth, and we look forward to keeping you updated on our progress. And with that, operator, we would now like to open up the call for questions.

[Operator Instructions] We have a question from Cory Kasimov of JPMorgan. Cory William Kasimov - JP Morgan Chase & Co, Research Division: My question's on the Phase III GALNS study. I know it's a big surprise. I'm curious about the base, the 325-meter baseline cutoff and the chances that patients know what that cutoff is prior to going into the study. How was it phrased in the informed consent? I know like in clinical trials, on clinicaltrials.gov, it says there are certain eligibility criteria to meet on the baseline 6-minute walk. So I guess could you just comment on the chances that patients know that and kind of take their initial walk to get into the study?

Cory, thanks. I think we tried to be circumspect about the eligibility criteria are to head off any potential wayward adherence for this period of eligibility. And we monitored that very carefully during the clinical trial, and we're actually very pleased by the adherence to that in the clinical trial. And so I don't think that's going to be a substantial problem for the unblinding.

Our next question is from Ying Huang of Barclays.

Hank, just follow-up on last question. I know you guys have access to blinded trial data at this point. So can you talk about the baseline 6-minute walk distance these patients achieved on average? And then what's the average age of the patients at baseline going into the trial for GALNS? And then also I have another question on financial. How should we think about the R&D expenses for 2013 now that you're concluding the GALNS trial?

Yes, Ying, while it is true that the trial has completed enrollment and all patients have completed in the study, I think it's -- I'm going to defer answering questions about the results of the clinical trial, even the baseline results for the clinical trial until we have an opportunity to fully unblind the clinical trial. Those data are going to be the key data, the unblinded results. And so let's just wait. As I've said, we expect those results this quarter, so it's not too much longer to wait.

And with respect to R&D expenses, GALNS expenses will reduce next year, but they'll -- they will still be material as patients -- as we keep all patients on drug until the drug is approved in their country and we're doing pre-commercial material production. In terms of general R&D expenses, we're not in a place to give guidance yet because we're in the process of going through our budget. But we have already mentioned the likely start of a Phase III for PEG-PAL next year, the start of a Phase II for BMN-111 and the completion over the next coming months of the 673 and 701 program. And we'll have to see the results on that before knowing what the impact on next year's R&D will be.

Our next question is from Salveen Richter of Canaccord.

I'm just wondering, post-GALNS data, when you meet with the FDA, will you have the 3-minute stair climb validation study in hand? And which of the ancillary studies will you have? Or which will be completed at that time point? And then also just wondering on the MorCAP and international registry. Could you maybe provide us of the breakdown of U.S. versus ex-U.S. patients?

Yes, so as to the process and timing of future regulatory interactions, we haven't mapped that out specifically, and I think to some extent, it depends on the unblinded data. The general timing of the availability of the ancillary studies is something we've reviewed before, but just to remind you, those studies began enrollment after completion of enrollment in the pivotal Phase III clinical trial. So at a minimum, they are several months behind the pivotal clinical trial. We will work hard to get as much of the data as is relevant into the registration dossiers. But I think we've said all along that the primary role of the ancillary studies is actually to support product adoption and reimbursement as opposed to necessarily registration. We believe that the pivotal clinical trial is sufficient to support registration of the product and have had good interactions with health authorities leading up to that. As far as the prevalence of Morquio syndrome in the U.S., off the top of my head, I'd say something like 20% of the worldwide patients are American registry. I don't know, Jeff, if you want to offer a comment or perspective on the prevalence of Morquio in the U.S. versus rest of the world?

Well, we can comment on the patients that we're aware of and not on the patients that have yet to be identified. But so far, it looks like something like 15% of identified patients would be coming from North America.

Our next question is from Matthew Harrison of UBS.

Hank, a question for you. Can you remind us in terms of the real-time monitoring data that you have access to, what they are? And now that you've been able to get to the end of the study, anything in there that is potentially concerning or not? And just a quick question on Kuvan. Can you just give us a little bit more detail on what's driving the growth, you had 2 pretty good quarters?

So I'll answer the question, and I'll let Jeff answer that Kuvan growth question. So in terms of real-time monitoring, the kinds of things that we've gone over give us a great deal of confidence that this study ran the way the study was supposed to run. So we looked at who got enrolled, did they need, not just the letter, but the spirit of eligibility. We looked at the variability of the population enrolled versus a widely variable population, where was the skewing of the enrolled population according to certain key baseline demographics. We looked at adherence to study drug administration, specifically things like were any antihistamines given, was the study drug given in a time the study drug was supposed to be administered, were the appropriate dose reductions or dose pauses appropriate for safety reasons. We looked at adherence through diagnostic requirements of the study, particularly, 3-minute stair climb and 6-minute walk. Then again, we were -- we're really encouraged by the overall quality of the study. I don't think it could have gone much better from a study conduct perspective. And Jeff, do want to talk about Kuvan?

Sure. And addressing the Kuvan growth and amplifying my earlier statements, the growth is really coming from 2 different directions: the first is the base of patients that are on therapy and how compliant and adherent they are; and second is the rate of growth of new patients coming onto therapy. So we have programs, including field-based case managers who have been successful in improving compliance and adherence in our base of patients that are on treatment. These field-based case managers have been also successful aiding clinics and patients to get good test of Kuvan unresponsiveness and to address ongoing, then compliance and adherence behavior on Kuvan. And finally, due to the confluence of factors, our clinics have been more willing to refer new patients in this year, in particular, adult patients. So there is a willingness to more aggressively treat adult patients with Kuvan.

Our next question is from Yaron Werber of Citi.

I have a question also, if you don't mind, just on GALNS once again. I mean, give us a little bit of a sense, just where are you in the process of getting the data concluded? Is it are you waiting for the site at this point to send you the data, is it are you guys cleaning up the data, are you guys about to analyze them? I mean, I'm just trying to get a sense kind of where you are in the process. And then. I have a follow-up also.

We're exactly where we want to be in the process. We reported that we expect results in this quarter. I think in some forums, we've commented that we expect results before the American Thanksgiving holiday. And so we're exactly where we need to be. The study went really well. The sites did a great job. And so therefore, that made our job on the back end pretty straightforward. So we're right where we want to be.

Okay. And then in terms of the ancillary study, I mean, give us a little bit of a sense, just remind us exactly the timing of the release of the data.

We haven't commented on the specific timing of the release of the data from the 3 ancillary studies. Just to remind everybody, one of the most important ancillary studies is the study in about 15 patients who are under 5 years of age. That study is fully enrolled. That study is a cousin of a study that we did with Naglazyme. And what we did with Naglazyme was we treated 4 very young patients after commercial launch. So that the fact that we fully enrolled that study is very encouraging to us in terms of very young patients. We also have the cardiopulmonary study and the limited ambulation studies. I think it's reasonable to think that the data from those studies will be available and made public in a conclusive -- more conclusive fashion in mid '13. But as to the specific details, we haven't given more specific guidance.

And finally, on 673, the PARP inhibitor, I mean, it looks like the data is going to be phenomenally interesting for BRCA-positive -- I mean, theoretically both present events [ph], we'll have to see what you're going to give us. But why is it going to take a full year to start a pivotal?

Well, I suppose in the fastest possible mode, we could make a decision sooner to advance to at least a BRCA Phase III clinical trial. As we've mentioned on previous calls, we've identified a third and a fourth tumor that we think could be highly responsive to PARP inhibitors, but we've yet to collect data in the expanded cohort on those tumors. And so in the spirit of trying to lead with the most facile, fastest, highest likelihood of registration program, we wanted to conclude the cohort expansion data before rushing into the first Phase III clinical trial. We do accept your point that based on what we've seen so far, we're very encouraged by the activity of the 673 compound in BRCA patients.

At the end, this is going to be separate pivotals, right? You're not going to do one pivotal and all commerce essentially to a group who show response. Ultimately, you're probably going to enrich that. That's why I'm wondering why take that long to start the Phase III.

Well, sadly, you're right. The world hasn't come to the point where molecular diagnosis alone is sufficient to initiate a cancer clinical trial. And for that reason, the specific tumor type we want to make sure we're thoughtful about, which tumor it is, so we take into a Phase III trial as the first 673 trial.

The next question is from Joseph Schwartz of Leerink Swann.

I wanted to follow up on your comments about how you are encouraged based on your monitoring of various aspects of the Phase III GALNS study. And in particular, you mentioned variability. I'm wondering what you've seen there relative to what went into your powering assumptions.

Yes, so the powering assumption speaks to the anticipated change from baseline. And as we haven't unblinded the study, it would be -- there are no data to really speak to in that regard. But I did mention that we can look at variability of the population accrued at baseline, and we're very pleased that the population that enrolled was the population that we expected to enroll. I mentioned in response to Eun's question that it's premature to talk about specific, concrete baseline data. But as I've mentioned before in our real-time monitoring, we've looked at factors relating to variability of that baseline -- of those -- of key baseline characteristics. And we're very satisfied that we enrolled the patient population that we wanted to enroll, not just the letter, but the spirit of the eligibility criteria. That's very important because as we sort of previously alluded to, the interest in a drug for Morquio syndrome is extremely high. And so we didn't want any skewing driven by this interest to enter into the clinical trial. And I think we -- our collaboration with the investigators was extremely successful in making sure that we had the right patients included in the clinical trial to give us the maximum chance to demonstrate a clinically meaningful benefit.

Yes. And you guys have done a lot of these studies and observe what others have done using 6-minute walk in LSDs. So do you have a sense of how much of a learning curve there is and how much that can drive a placebo effect in these diseases or this disease?

Yes, the issue of placebo effect, I think, has been well addressed from the concluded randomized Phase III clinical trials of other enzyme replacement therapies for other skeletal dysplasias. Just a reminder, there are approved therapies for MPS types I and VI, which BioMarin is the manufacturer in the case of MPS VI. BioMarin is a commercial supplier around the world in MPS II. So 3 approved MPS therapies all used 6-minute walk distance as the primary endpoint, and essentially negligible change from baseline of the study endpoint from -- in a placebo group. So we don't really expect very much positive, if any change, in the placebo group. On a previous call, I mentioned we'd also looked at the longitudinal untreated natural history of Morquio syndrome, and I had made a comment that we observed that Morquio syndrome is a progressive -- inexorably progressive disorder. So if anything, we expect the untreated natural history to be negative. So somewhere between negative and 0 is what our expectation for a placebo group is in the Phase III clinical trial.

Our next question is from Tim Lugo of William Blair. Tim Lugo - William Blair & Company L.L.C., Research Division: I think the -- I guess going back to the placebo group, I thought the Naglazyme placebo group increased by about 5% from baseline. Is that considered negligible?

Well, relative to a 40%-something meter improvement in the treatment group, yes, that's relatively low. Tim Lugo - William Blair & Company L.L.C., Research Division: Okay, that's fine. And I saw on clinical trials that you started in MPS VI and IVA diagnosis study in patients with bilateral hip disease. It looks like a pilot study with only one hospital. Can you -- I guess what are your expectations for diagnosis of new patients in this study? Are you going to expand the study to include more centers? And could we actually see you diagnosing more Naglazyme patients as you launch GALNS.

Tim, let me take that one. This is Jeff. What you're seeing is actually a screening study, and it's a site-specific screening study. We're looking to see if patients who come in with bilateral hip dysplasia may actually be either Morquio A or MPS VI patients. And that's based on an observation over the last couple of years that we've seen some, in particular, MPS VI patients, that were initially diagnosed symptomatically in that way and then were eventually referred into genetics program for confirmation of MPS VI and subsequent treatment. So what you're really looking at is an outgrowth of disease awareness programs, in this case, a screen program.

And if I could say, what's really cool is that we're lucky enough that the GALNS Phase III trial successful, we'll 3 of the 4 MPS drugs in the market. And the result of that for patients will be faster time to accurate diagnosis and initiation of the appropriate form of therapy because we'll have gotten better and better at diagnosing correctly all of the relevant MPS syndromes, so that's pretty exciting.

Our next question is from Chris Raymond of Robert Baird. Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division: Sorry but another GALNS question. And so -- and this may actually -- maybe a sort of cart before the horse question. But there's been some literature in the last year, so it's highlighted that the down regulation of keratan sulfate after growth in Morquio patients. And I'm sorry if I'm showing my ignorance here of the biology of this disease, but given that dynamic, can you talk a little bit about how the physician and maybe even the payer community might view this with respect to long term, sort of lifelong therapy? Is there some aspect of your ancillary trials, for example, that it addresses?

Chris, this is Hank. I'll start, and then maybe Jeff wants to add in some commercial perspective. But the keratan sulfate levels we've actually published on, the levels of urine keratan excretion is a function of age, so for us, this is not something that's particularly new. We've known for a while now that urinary keratan excretion declines with age. And in spite of that, we've observed in our early-stage clinical trials that over a clearly wide spectrum of illness severity, that there are meaningful improvements in a variety of parameters, some of which are skeletal and some of which are nonskeletal. So some skeletal-related things could include flat walking, but some nonskeletal things could include the ability to climb stairs or respiratory function. And so our expectation is that GALNS will be an appropriate therapy for the life of patients who have this enzyme deficiency. From a -- what have we observed so far, kind of a perspective in the program overall, even well beyond scalable outcomes, we've observed patients who have severe respiratory impairment. For example, patients who've had severe nocturnal sleep apnea requiring supplemental oxygen or requiring assisted ventilation have returned to a normal state, not requiring ventilation, not requiring supplemental oxygen. These are not one-off case reports. We have observed patients that are more advanced in disease or older in disease having meaningful improvements in their outcomes with GALNS. So I think that the declining of keratan sulfate doesn't mean the disease went away. And in fact, it may be more a reflection that we don't know exactly all of the things to measure in Morquio syndrome because clearly, there is evidence of benefit that go beyond just reductions in keratan sulfate. Jeff, I don't know if you want to add from a...

Well, from a commercial perspective, what we know from our experience is that clinicians and patients pay attention to the different dimensions of benefit from enzyme replacement therapy. I think the clinical benefits, and they could be multidimensional or the most relevant, the biochemical measures are helpful and are a good guide when they are helpful. But I think the focus will clearly be on clinical benefits. Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division: Great. And is that -- sorry if I'm asking something you've addressed before, but is that one of the primary reasons, I guess, that you didn't use KS clearance as the primary endpoint?

No, the primary reason not to use KS is it's a biochemical parameter, not a clinical outcome measure. And clinical outcome measures are both more compelling to help authorities, and they are more compelling to patients and providers, as Jeff just mentioned. That's what people pay attention to, and that what they're going to make their treatment decision on the basis of do I feel better? And as I -- do I perceptively feel better? And as we've talked about, we have every reason to believe that that's going to be the outcome of the trial, that patients feel and function better.

Our next question is from of Phil Nadeau of Cowen and Company.

As we get close to the data, I think we're all rolling up our sleeves and looking back at the Phase II results. And 2 things that have come up over the last couple weeks in discussion I was hoping you could readdress again. The first is on the 4 patients who had better walk distance at baseline. It looks like those patients actually declined once on drug in the Phase II. Can you explain that to us what happened there? And then second, there was a big divergence between the mean and median results in the extension study. Again, can you remind us what led to that divergence, and whether there is a group of responders and a group of nonresponders who -- among the patients who actually remained on drug?

Sure, Phil. I'm happy to answer and repeat. And in fact, we're all rolling up our sleeves and putting a lot of hard work in on GALNS. So it's quite timely to remind ourselves of the basic assumptions that went into the clinical trial, the basic findings. As for the patients whose baseline walk was greater than 325 meters and the originals in the first Phase I/II study, I guess the way I look at it is just really simply if you're already good, it's hard to get better. You only have one way to go. Now I don't think that, that means that people whose baseline walk is relatively well preserved won't have a benefit from GALNS. In fact, quite the opposite. I just think that the 6-minute walk test as a primary outcome measure by itself is not the best single measure because their walk is already reasonably preserved, and they have no place to go but either flat or down. In fact, that group of patients experienced quite large improvements in their stair-climbing ability, and that might tie to improved musculoskeletal performance and improved cardiac performance. And I think these are some of the other benefits besides purely skeletal benefits that we expect to see in Morquio patients. And again, just a simple and trivial reminder is that in the mucopolysaccharidosis, every single cell in your body is deficient in the enzyme. And so while the superficial assessment is that it's primarily a skeletal abnormality, deep inside of every single patient, there's quite a bit more wrong with them sadly. But to the good, there's quite a bit more than we can fix on the upside, in terms of improving outcomes of Morquio syndrome.

Okay. And to follow up on the patients with good 6-minute distance, it wasn't just that those patients didn't improve. If you look at the difference in mean improvement between that group and the trial as a whole, it seems like they actually got quite worse while on drug. So again, was there something funny that happened to that group? Was there patients who went into surgery or what's the explanation for that?

Well, the other problem in -- not problem, but it was a Phase I/II study, so we didn't put all the detailed 6-minute walk testing measures in place. And specifically, what I'm referring to is the use of the duplicate walk at baseline. And so the first explanation I gave you about no place to go but flat or down was statistical version of that. The most complicated version is, is that there's a regression. What I mean by it, that is the people at the top -- or they're at the top because they tested on a single test at the top. So I think that noise is not germane to the population that's in the pivotal clinical trial. Your second question was about the divergence of mean and median. And I think there are a couple comments there. First of all, to a large extent, that's driven by a few patients at various time points requiring surgery. I've mentioned before this is a progressive disease. And if it happens that your 2-year visit is 12 weeks after you had your knee operated on, it's not unexpected that your walk distance is going to be compromised due to your need for knee surgery. And toward that end, what we did was we asked the Phase III investigators to exclude patients who are going to be in imminent need of knee surgery. And we confined the study to a 24-week period so that they are -- they could accurately forecast. And we're really pleased with the outcome of that request in the Phase III clinical trial. And so we don't think that the Phase III trial that randomized double-blind portion of it will be confounded in the way the long-term extension data are confounded. I should also mention though, in spite of the surgeries, what's amazing is stair climbing continued to be sustained and improved. For the majority of patients, they're walking remained improved, respiratory functions continued to be improved, urinary KS levels remained low, so we really think this is just an artifact of the surgical procedures and not anything related to GALNS, either side effects or a lack of efficacy.

Okay. And what about responders, was there a group of responders, was it consistent across the trial as a whole? What's kind of the variability you found in the Phase II?

Yes, we had to back out the -- the vast majority of patients had improvement in their -- in all of their parameters. But you got to back out those in advance, in which you can clearly identify another episode. And the one that I'm pointing to is surgeries. We also had a patient who got vaccinated just because their 6-minute walk, just then they had quite a reaction to their vaccine and got sick as a consequence of that. So there can be other reasons that the 6-minute walk test is noisy, but the one that we pointed to principally has been the surgery. And again, for the most part, backing that out, it appears that everyone is a responder.

Our next question is from Robyn Karnauskas of Deutsche Bank.

So I guess 2 quick things. So what are you doing to sort of follow the patients that are enrolled in your registry on -- and what kinds of things can you do to sort make sure that you're to stay in contact with them and their physicians so that they can become paying patients? And since -- and then the second question I had was just what percentage of patients are treated by orthopedics and skeletal specialists?

So maybe I'll start off by what's going on with the registry, from what are we doing in following on the patients, but then I'll turn it over quickly to Jeff. I mean, the MorCAP registry got evolved into a longitudinal registry. And also, those patients are eligible to participate in the Phase III -- were eligible to participate in Phase III clinical trials or the cardiopulmonary trial or the limited ambulation study, if they will have limited ambulation, or the other 5 studies. So they served as a reservoir for participation in clinical trials, where they can enroll from clinical trial material to commercial material, or they have stayed in a longitudinal MorCAP registry, where they continue to contribute untreated natural history data. And maybe with that, Jeff, do you want to take over and talk about commercial prep?

Yes, so I think the second part of the question was what percent of Morquio patients are treated by orthopedics and skeletal dysplasia specialists. And if I've got that right, what I would say is of the 1,200 patients or so that we've stated that we are aware of around the world, overwhelmingly, the majority of those patients are residents with our BioMarin's base of customers, of clinicians, so overwhelmingly, geneticists and metabolic specialists. That said, based on the profile of Morquio, probably substantially all of those patients have or are under the -- have been or are under the care of an orthopedist or a skeletal dysplasia specialist at some point. What we think is that there are a material number of Morquio patients that may not be connected to our base of genetics and metabolic specialists, but who may be under the care of an orthopedist or a skeletal dysplasia specialist. So we have data that suggests that, that is the case, but not enough information to say what percentage of the patients out there are under those physician's care. Have I got that question about right?

Your next question is from Michael Yee of RBC Capital Markets.

A question on the dosing in Phase III. I know you're looking at weekly and biweekly. Can you remind us what data, what PK data, what information you have that gave you confidence that you could stretch the biweekly? And then my second question is for J.J., if he's still there. When I still look at my model going out the next couple of years, I know that you said earlier that you think you can get to profitability that this would be transforming. Philosophically, isn't it reasonable to get to profitability within a couple of years with GALNS? Do you think that's a reasonable timeline?

Well, I guess I'll start, and then I'll turn it over to J.J. If that's okay, J.J.?

Yes.

So in terms of the -- looking for confidence on weekly dosing, it really is a fairly -- it's not PK or PD. It is -- what we know in vitro house, the half-life of lysosomal enzymes, they appear to be clear from the lysosome, with the half-time of about 5 to 7 days. And we know that you don't need to get 100% correction. In fact, you probably only need 5% or 10% correction to affect improvement in the phenotype. And so with that background, and also with the motivation that every other week, dosing would be both beneficial from a cost of goods perspective, as well as favorable from patient convenience and adherence perspective, that motivated us to include the every-other-week arm. So we're reasonably confident biologically, but of course, proof is in the pudding. And if we do prove it, it'll be really important for patients. And with that, J.J., do you want to take the second part?

Yes. I mean definitely, GALNS is going to move us towards profitability. The question is how quickly because -- and we're very confident that this is a product that will be significantly larger than Naglazyme based on the [indiscernible] data on the fact that they are probably between 1.5x and 3x as many patients. So this should be a product north, in terms of the market opportunity, we are definitely north of $500 million, which will double the revenues of BioMarin as compared to where we are today. And we are pretty confident there is a group pause or even this could happen. But on the other side of the equation, obviously, your R&D strength and the R&D spend, think of the strengths that in the 7 products, a little of 7 products advancing in the clinic. And so, it's difficult to know exactly when the profitability will happen because it depends on what happens in this program. Do we -- do all of them make it towards the situation or do some of them fall on the wayside? We'd be lucky we made it so far. Everything is moving forward. Well, that's good news in terms of long term, the creation of shareholder value, while the downside is the increases in R&D spend. And all I can tell you already, well, we don't have -- we haven't finalized our budget, but R&D spend will be larger next year than it is today because of what I just discussed. So I think GALNS would definitely get this company to profitability, but I will hesitate to pinpoint a specific year at this time because of all the great products like 701, 673 that are moving forward in addition to what we're doing to GALNS. I mean, Dan, do you want to add something to that or Stephen or...

No. I think that's a good summary there as GALNS will absolutely move us forward. And we're going to have to pace it against the development opportunities that we have. And we're going have to see what the data out of those programs show.

And again, maybe one more thing to emphasize behind this question is, so the issue is not the SG&A spend. I mean, the SG&A will increase more well from GALNS, but nowhere near commensurate with the increasing revenues? Based on the comments that Jeff just made, that the vast majority of these patients are under in the care of geneticists that we are already calling on? Yes, we are going to have to increase the commercial -- well, come, support a little bit to announce this product, but not very substantially. The key variable is R&D spend, which actually now is not already related to GALNS. We pretty much know what is happening with GALNS. I mean, there might be some personal marketing studies that I don't see it will be very significant considering that we've done a lot -- we've covered a lot of stuff already before the registration like with all the ancillary [ph] studies. So the question is, what are we going to do with PARP inhibitor in the future? And what are we going to do with 701, right? Because we're pretty confident that 701 is -- would likely to be a secure part to Naglazyme. So these are good products to have, but obviously, we don't have the short term profitability.

Our next question is from Eun Yang of Jefferies. Eun K. Yang - Jefferies & Company, Inc., Research Division: A question on GALNS and a follow-up question later. So with the GALNS Phase III study, my understanding is that you are going to look at the data by age groups as well? So if GALNS does not show functional benefits in one age group, then do you think it is possible that its approval could have been limited to the age groups that they had shown benefits?

Yes, that's always possible. And it's hard to comment in the absence of data on future regulatory interactions. What I would say is that whereas for regular drugs and much larger populations that these kinds of questions are even more carefully looked at. In the anti-replacement therapy field and the rare disease field, it has not been a regulatory practice to restrict access of the product based on demographics of the patient population or the eligibility criteria of the Phase III trial. And that's for the very simple reason that the burden of proof would be too demanding to establish effectiveness in each of the various groups, number one. And number two, the expectation based on biology is that products will help patients over the entire disease spectrum over their entire lives, given the inherited nature of the disease. So I think a reasonable expectation to have is that if the trial is successful, it would lead to relative broad labeling. Eun K. Yang - Jefferies & Company, Inc., Research Division: And then PARP inhibitor...

And based on our experience with Naglazyme and Aldurazyme where we, obviously, will have launched. We have never studied such a broad spectrum of patients, and we had reimbursements for all the patients that are being treated. So we don't anticipate this to be an issue here. Eun K. Yang - Jefferies & Company, Inc., Research Division: On PARP inhibitors. So most of PARP inhibitors in development today are going after BRCA, mutated in cancer that you were also pursuing in hematologic malignancies. Is there a rationale that PARP inhibitors will do work in hem malignancies?

Yes. There are 2 pieces of data that led us to launch the hematologic malignancy study. One was the finding of mutations in the ATM gene, the DNA repair gene, and certain other hematologic malignancies. And the other was the finding that certain mild malignancies. We're especially sensitive to PARP inhibitors in vitro. And I think you've gotten the sense from us that the solid tumor program has gone forward expeditiously and really well. And the hematologic malignancy program, while interesting and provocative scientifically, has not gone at the same pace. So I'd say at this point, we're probably more interested in the solid tumor programs moving forward and are still considering whether the hematologic malignancy space is a great space for PARP inhibitors.

The next question is from Josh Schimmer of Lazard Capital.

How does the open label extension result of GALNS compared to the benefit and effects seen with other enzyme replacement therapies over the same timeframe?

No, that's a great question. So I think the most fair comparison is to compare the 24-week data from our Phase I/II GALNS program to the pivotal trial results in, for example, with Aldurazyme and with Naglazyme, that's the same 24-week time point. And our results from our Phase I/II study with GALNS are as good or better. So I think the placebo's adjusted change from baseline and walk distance was probably in the 20s meter range for Aldurazyme, and then a 40s meters range for Naglazyme. And for GALNS, we observed in a relevant group of patients, median the 42-meter improvement means, 38-meter improvement, so about a 40-meter improvement change from baseline. One of the things that I want to make sure that people don't lose track of is that 24-week assessment was made after 24 weeks of treatment with 0.1 migs per kilo for half of the time and 1 mig per kilo for half of the time. So we actually observed the 40-meter improvement comparable or better to Aldurazyme and Naglazyme with what we believe are sub-optimal doses. So our hope is that the data are even better for the -- because of the use of an even higher dose. And also, that we may have underestimated the treatment effect in the Phase I/II study because as I said, previously, we didn't use the duplicate 6-minute walk test procedure in the Phase I/II study. So 2 factors that -- or suggest that compared to our own history, we could do even better in our GALNS Phase III trial than we did with Aldurazyme or Naglazyme.

Yes. And I guess I was thinking kind of beyond 24 weeks for your longer extension follow-ups for patients who stayed on for over 1 year or close to 2 years. How do they perform over that timeframe versus Aldurazyme patients over an equivalent timeframe?

Well, it's a little hard to compare because the diseases progress at different rates. And I think Aldurazyme and Naglazyme both continue to go up for a little while before they started to fall off due to the progressive nature of disease. So it's a little hard to line up. And as I've said before, the Morquio population is noisy because of these surgeries that keep happening to patients. So I think the general impression that clinicians have from our extension data is they're very satisfied with the long-term efficacy of GALNS. I think 1 anecdote is worth a thousand words. I mean again, these are the anecdotes you have to take a little bit as a grain of salt. But we've actually seen a similar kind of thing with Naglazyme II. We've had patients that have had interruptions in their therapy. For example, after being on therapy for 2 years, they went out of country, on vacation and expected to be back in 2 weeks and turned out that they took 12 weeks to get back home. And those patients, the patients that have those interruption in therapy experience quite a bit of deterioration off of therapy, and then quite a bit of an improvement when they go back on therapy. So I think this gives us an even increased measure of confidence in the long-term effectiveness of GALNS. We see a similar pattern actually in Naglazyme when there are interruptions of therapy that are unplanned. Patients notice that.

The next question is from of Liana Moussatos of Wedbush Securities.

Could you tell me the geographic breakdown of Naglazyme sales from Q3?

I can. Naglazyme U.S., $8.4 million. EU was $22.1 million and International was $32 million.

The next question is from Brian Abrahams of Wells Fargo.

For my question, now that you're well into the cardiopulmonary study and have completed enrollment, I was wondering if you could speak a little bit more about how you're better defining the safety profile of GALNS through use of -- inclusion of a higher dose than in the Phase III? And is there any potential role for this higher dose going forward?

Yes. Well, that's -- it was kind of a secondary objective of the cardiopulmonary study to explore in a small number of patients the impact of a higher dose. I should remind everybody that as a post-marketing commitment around Aldurazyme's launch, we looked at alternative doses and regimens, including higher dose regimens. And as I've mentioned before, a lot of the elements of the GALNS program are similar things that we did, both pre- and post-registration for our other enzyme replacement therapies only in the case of GALNS because we're a more robust company with that, did them prior to launch. And dose is just another one of those. The motivation is that we observed about a 50% reduction in keratan sulfate with the treatment of 2 milligrams per kilo. And the wonder is, would you get an even greater reduction with a higher dose because that might point the way towards a future in which all or some patients might benefit even more from a higher dose of GALNS. The strategy that we took was to investigate the dose that we thought was optimally effective and a lower dose prior to launch, and to investigate the dose that we think is effective and potentially a higher dose in a smaller pilot way parry launch. And so, I think the idea is to give the commercial team as much information as possible about a range of doses heading into registration and full product adoption.

Our next question is from Ian Somaya of Piper Jaffray.

Just a question on the GALNS Phase III design. Are you able to share a -- just the number of patients in your screen to get to your completion of a trial enrollment, kind of a head rate?

Yes. I don't know that off the top of my head, but I will say that we did not have a lot of screen failures. Obviously, there were screen failures for a reason for being able to walk too far or not walk far enough or not being able to feel confident about not requiring surgeries in the next 24 weeks. But screen failures weren't really a big part of the problem in the Morquio, in the Phase III trial.

Okay. And one other follow-up was just related to parent oversight. How much oversight do they have as they were going through the screening process, obviously, the kids are going through the screening process and during the follow-up period?

Parent oversight. Well, it is a disease in childhood, and so parents are heavily involved in the children's lives at this age, particularly given how compromised they are. If this was in response to a potential concern that there might have been biased or a perverse motivation that entered into the trial, as I mentioned again before, it's pretty straightforward to look at, whether a person intentionally cribbed it, or faked the results of their 6-minute walk. And we have techniques that we can use to look at that. And we looked at that in realtime all along the way. And we never really rang any alarm bells about that potential. The parents have been doing the parent's job, which is to be supportive, to help the families, to help the whole family function, in some cases, relocating country to participate in the Phase III trial. So we work real hard with the investigators and the patient advocacy groups to get the parents in the right place and to avoid any kind of bias entering into the trial.

Next question is from Cory Kasimov of JPMorgan. Cory William Kasimov - JP Morgan Chase & Co, Research Division: Most of them were answered, but one question. You mentioned in your prepared remarks that I think there's 173 of 176 patients elected to continue in the extension protocol. Are all of those patients offered drug at that point for the extension, or is randomization maintained?

Yes, Cory. There is a re-randomization of the former placebo patients to receive drug, either weekly or every other week. But patients, who were on active drug weekly or every other week are maintained on what they were on. But also, the blind was maintained. So you don't know what you are on in the first part while you're in the second part, that's still blinded. What you do know in the second part is that you're getting drug at least every other week, if not weekly.

Next question is from Yaron Werber of Citi.

I just wanted to follow up on the last question, actually, just so we understand. So the placebo patients, when they cross over, at that point when they were offered, do they know that they were -- I presumed they didn't they were on placebo previously. But my question is, can you -- do you -- can you actually see the data or no from that point onward in the open label extension?

Everybody was blinded to everything. So if you were randomized placebo during the double-blind period, you didn't know you were on placebo. And when you were re-randomized, you don't know. You know that you were going to get drug every week or every other week. You just don't know whether you're going to get drug every week or every other week. So the blind -- we worked hard to maintain the full blind for the original fork study and which is a 3-arm study and for the follow-on study. The virtue of that is twofold. One is that former placebo, when we pull all the data together, nobody now knows what they're on. When we pulled the data together, we'll have an additional 27 patients. It was actually more than that. But from a design perspective, it was 27 former placebo patients going on drug weekly or every other week, so that would augment our understanding of the initial impact of therapy. And that would increase the sample size of the comparison between weekly and every other week therapy. And then finally, it gives us an unbiased assessment over a year and potentially longer of the persistence of therapy.

But do you see the data, once the patient finishes the 6 months, is that data, while the patient is blinded, can you look at the data?

No. Well, we can look at the data, you just can't -- but you don't have any idea what the patient was on. So as we sit here today, no physician, no patient, no drug company knows the outcome at the aggregate or the individual patient level.

Yes, I'm just thinking, if patients cross over and you suddenly see patients improving dramatically, one would imagine they crossed over from placebo. That's what I'm trying to figure out.

One would imagine.

And follow-up is, and we get this, a lot of questions on this, the -- you guys have never released the plasma keratan sulfate levels. Why is that? You've received -- you've released the urinary keratan sulfate historically, but not plasma. Can you give us a sense why that's the case?

Well, I don't know that there's that much to release. I mean, the -- so just quickly go over the basic pattern effects. Urinary keratan sulfate levels are elevated about 20fold compared to non-affected control populations, whereas plasma keratan levels are elevated only about twofold. And so, the signal-to-noise ratio in the urinary compartment is much greater than the signal-to-noise ratio in the plasma compartment. And I think when we talked about the results of the Phase I/II pilot program, we've talked about reductions in urinary keratan sulfate levels and the plasma keratan sulfate levels were just uninformative, meaning that there really wasn't that much change. But given that they're not elevated that much, we didn't have much expectation for change. This, by the way, is pattern of seeing great change in urinary excretion of glycosaminoglycans, but not plasma glycosaminoglycans was observed in MPS I, in MPS VI. So there's no surprise here. For whatever reason, the plasma pool of accumulated gas is much lower than the urinary excretion pool. And the urinary excretion pool is a more active reflective biomarker than the plasma space.

And if I'm not mistaken, in the clinicians that are treating these patients on a day-to-day daily basis, they used urinary KS as a biomarker to track the disease. They don't use plasma KS.

This ends the portion of today's Q&A. I'd like to turn the call over to Mr. Bienaim for any closing remarks.

Well, thank you. So in summary, we are pleased with the performance of our commercial portfolio and the steady progress of our pipeline. We do maintain a high degree of confidence in the GALNS Phase III program which, if successful will be transformative for the company. GALNS can highly leverage our existing commercial infrastructure, and has the ability to double revenue and bring us into profitability. Top line results are expected in the next few weeks before Thanksgiving, and we are looking forward to sharing this data with you. Just also to emphasize that this will be followed in Q4 and Q1 of next year by additional data on 673, our PARP inhibitor and 701, our PARP enzyme. So the GALNS data result is not the end of a story. It's the beginning of a story. So thank you for your continued support and for joining us on today's call. Goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.