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Edited Transcript of BMRN earnings conference call or presentation 25-Apr-19 8:30pm GMT

Q1 2019 Biomarin Pharmaceutical Inc Earnings Call

NOVATO Apr 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Biomarin Pharmaceutical Inc earnings conference call or presentation Thursday, April 25, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Daniel K. Spiegelman

BioMarin Pharmaceutical Inc. - Executive VP & CFO

* Henry J. Fuchs

BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development

* Jean-Jacques Bienaimé

BioMarin Pharmaceutical Inc. - Chairman & CEO

* Jeffrey Robert Ajer

BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer

* Robert A. Baffi

BioMarin Pharmaceutical Inc. - EVP of Technical Operations

* Traci McCarty

BioMarin Pharmaceutical Inc. - VP of IR

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Conference Call Participants

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* Christopher Joseph Raymond

Piper Jaffray Companies, Research Division - MD & Senior Research Analyst

* Cory William Kasimov

JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst

* Eliana Rachel Merle

Cantor Fitzgerald & Co., Research Division - Research Analyst

* Fang-Ke Huang

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Joseph Patrick Schwartz

SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst

* Joshua Elliott Schimmer

Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst

* Kennen B. MacKay

RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research

* Myles Robert Minter

William Blair & Company L.L.C., Research Division - Associate

* Philip M. Nadeau

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Robyn Karnauskas

Citigroup Inc, Research Division - Director and Senior Analyst

* Ying Huang

BofA Merrill Lynch, Research Division - Director in Equity Research

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Presentation

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Operator [1]

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Welcome to the BioMarin First Quarter and Full Year 2018 Financial Results Conference Call.

Hosting the conference call today from BioMarin is Traci McCarty, Vice President of Investor Relations. Please go ahead, Traci.

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Traci McCarty, BioMarin Pharmaceutical Inc. - VP of IR [2]

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Thank you, Mary. To remind you, this nonconfidential presentations contains forward-looking statements about the business prospects of Biomarin Pharmaceutical Inc. including expectations regarding BioMarin's financial performance, its commercial products and potential future products and different areas of therapeutic research and development. Results may differ materially depending on the progress of Biomarin's product programs, 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 the Securities and Exchange Commission such as 10-Q, 10-K and 8-K report.

On the call from BioMarin's management team today are J.J. Bienaimé, Chairman and Chief Executive Officer; Hank Fuchs, President, Worldwide Research and Development; Daniel Spiegelman, Executive Vice President and Chief Financial Officer; Jeff Ajer, Executive Vice President and Chief Commercial Officer; and Robert Baffi, Executive Vice President of Technical Operations.

Please note, based on feedback from our last quarterly call and out of respect for your time, we request that questions not be repetitive during the Q&A portion of the call so we can try to get to everyone. Bear with us as we try to keep the call to an hour in length. If you do not get your question, please send me an e-mail or give me a call and I'll get right back to you. Thank you for your understanding.

Now I'd like to turn the call over to Biomarin's Chairman and CEO, J.J. Bienaimé.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [3]

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Thank you, Traci. Good afternoon, and thank you for joining us today on the call. We are pleased that Biomarin market has brought us to a 15% year-over-year, contributing to solid top line results of $400 million in the first quarter. We begin 2019 with many important product [coming] on the horizon. Beginning with our seventh commercial product, Palynziq for adults with PKU. Palynziq received an early positive CHMP opinion during the first quarter and (inaudible) resulting in positive action from the European Commission in the second quarter of this year, this quarter basically. The pace of the U.S. Palynziq launch continues to be very strong, having grown our commercial base of patients to 414 patients at the end of the first quarter. Recall that we were 252 [qualified] patients at the end of the fourth quarter 2018, that's a 60% increase in Q1 over Q4 of last year. So we are very pleased with the expansion of the U.S. market.

Importantly, (inaudible) continues to progress and even more importantly, our results-seeking patients have been highly motivated to work through the titration phase in order to achieve maintenance dosing and optimal efficacy with Palynziq. Actually, what we're hearing from patients that Palynziq is actually life-changing therapy for them and is changing their life for the better. On the heels of this success, Jeff and his team are preparing for a potential European launch later this year.

Moving now to [viral]. As we said last quarter, we have treated the subset of patients from the Phase III study that would support accelerated approval. We are also on track to complete enrollments of the entire Phase III study for [full] approval in the third quarter this year. Feedback from patients, physicians and payers has been extremely positive based on the potential transformational characteristics of gene therapy treatment for people living with severe hemophilia A. As we advance the valrox program as we get closer to key data readouts and a decision whether or not to pursue a potential accelerated approval pathway, excitement is continuing to build across the hemophilia community and here at BioMarin. I want to acknowledge the truly groundbreaking work that is being accomplished by our teams in R&D, across our clinical organization and in technical operations, who are literally making history in the field of hemophilia and gene therapy. We are really proud to be again at the forefront of developing an emerging therapeutic modality, and we look forward to the next valrox milestones with great anticipation.

Turning briefly to vosoritide. We completed an enrollment of the 52-week treatment arm of the Phase III trial last year, and the results are just around the corner at the end of this year. Hank will provide an update on the global program of vosoritide in a moment. Needless to say, we are very excited to be in the final development stages with vosoritide, which if approved could potentially address the needs of nearly 25,000 children with achondroplasia in our current commercial territories. As we anticipate our potential growth trajectory over the coming 1 to 3 years, vosoritide are -- and valrox are front and center. These opportunities combined represent over 50,000 patients across our commercial footprint. The potential for one or both of these products to transform BioMarin is exciting to contemplate as we near completion of both global development programs.

Turning to the financial outlook today based on current approved products, we are on track to deliver approximately $1.7 billion in revenues this year and $2 billion in 2020 before a potential contribution from valrox or vosoritide.

Now I would like to turn the call over to Hank to provide an update on our development programs. Hank?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [4]

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Thank you, JJ. First for Palynziq Europe, we announced on March 1 that the CHMP adopted a positive opinion for the company's marketing authorization application for Palynziq. Importantly, the CHMP noted in their press release that with continued long-term treatments, patients' psychiatric and cognitive symptoms improved. We look forward to learning the outcome of the European Commission opinions later this quarter and making Palynziq available to European PKU patients shortly after approval. Moving to vosoritide, all of the studies currently underway across our global development program are progressing smoothly. Our most recently opened study with the children, newborn to 5 years of age is enrolling very rapidly, as families have shown a high level of interest in the treatment. Cohort 1, which includes children 24 to 60 months of age, will complete enrolling this year. Cohort 2, which includes patients 6 to 24 months of age, has enrolled and dosed 4 sentinel subjects and will also compete enrolling this year, followed by enrollment of the youngest participants in Cohort 3, children up to 6 months of age. As stated at the FDA advisory committee meeting on achondroplasia last spring, there is strong support for starting treatment early in life may afford the most dramatic benefit for children with achondroplasia. We look forward to keeping you apprised of our progress of our progress, especially as we look towards our Phase III data reader later this year. And we also want to thank the many families who have chosen to participate in our study.

Turning to valrox. As J.J. said, the subset of patients from Phase III studies whose results could support an accelerated approval have all been treated with valrox. In addition, the 3 manufacturing campaigns required for the expedited filing have now completed and are now in the process of being analyzed for inclusion in our CMC package. Ahead of our valrox update over the coming months, I want to reiterate how we intend to communicate new information. As we have said previously, we have a comprehensive data access plan in place which precludes everyone on the BioMarin management team for previewing any valrox data. We all remain completely (inaudible) to valrox data including the Phase II data. We've not seen Phase II valrox data since our 2-year update at the World Federation of Hemophilia the last May. Once we are invited to see the Phase III -- Phase II 3 year data, we will put together a public communication that provides a top line update on Factor VIII levels determined both by the 1 stage and the chromogenic assay, annualized bleed rate and Factor VIII usage at year 3. As we have indicated, we will provide as much granularity as possible in the "top line update" without front running a potential late breaker presentation at ISTH, should we be granted one. The deadline for submitting the late breaker abstract is June 7, so you should expect the top line communication before that time. After that, and assuming we have a late breaker at ISTH, we will provide another Phase II, 3-year public communication that reflects any additional information that is included in the late-breaking presentation that wasn't already communicated. We understand that there is a high level of interest and a very detailed top line update. So we'll do our very best to provide that for you without jeopardizing the integrity of the potential late breaker.

The next meaningful communication regarding valrox will be our decision on whether or not to pursue an accelerated approval pathway in the United States. That decision will be provided before the end of the year and will be based on "checking off" the following components including: number one, a prespecified number or (inaudible) subjects from the subset of the Phase III patients need to achieve at least 40 IU per deciliter at 23 weeks; two, the manufacturing campaigns demonstrating similarity of comparability across all lots including the filing in the CMC filing package; three, data from the Phase II study demonstrating continued safety and durability, but no statistical threshold has been assigned to this component; and four, data that describes the discrepancy between the 1 stage and the chromogenic assays will be supplied as part of the VLA package.

So to summarize, you should expect a top line Phase II, 3-year update by the time of the late breaker ISTH submission deadline, June 7. Should we get a late breaker, you should expect a more granular data update that reflects ISTH presentation on the day it is presented in Australia.

And finally, you should expect to learn of our decision whether or not pursue an accelerated approval path forward by the end of the year based on the components just outlined. We are all very excited about what is to come over the next few weeks, months and quarters. And like you, we look forward to seeing the valrox data when it becomes available.

And finally, turning to other developments in the R&D organization expected later this year. We are in the final stages of preparing the IND filing of our (inaudible) gene therapy products, BMN 307. Recall the preclinical data we shared in January based on experiments conducted with the ENU2 mouse model, which we use for Palynziq, and which is close to the human PKU phenotype. We demonstrated that within 2 weeks, Phe levels were normalized with BMN 307 treatment out to 80 weeks, well beyond the expected lifespan of the untreated ENU2 mouse. We look forward to putting this product into clinic and to leveraging our valrox manufacturing experience to initiate clinical studies with commercial scale material.

In summary, we are extremely pleased with the productivity coming out of the Worldwide Research development organization. We've learned so much over the past years on how to best focus our different programs to enable rapid and effective drug development of BioMarin and anticipate continuing flow of new development candidates from our research organization. As we prepare for the highly anticipated valrox and vosoritide data readouts, my team and I are more inspired than ever to continue our good work for the benefit of patients with rare disorders.

Now I'll turn the call over to Jeff, who will review the commercial business in more detail. Jeff?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [5]

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Thank you, Hank. As we begin 2019, I am very pleased with the team's performance across all brands and all regions. In the first quarter, net product revenue contributions for BioMarin's marketed brands grew 15% year-over-year. Total revenues totaled $400 million in the quarter and included contributions from Aldurazyme and other revenues. Starting with Palynziq, as we move past the initial launch date in the U.S., we are very pleased with the performance and trajectory of this launch. The team is principally focused on managing patients through the continuum from enrollment to first injection, followed by titration, the phase that the majority of patients are still working through.

Notably, we finished Q1 with over 600 enrollments, representing 15% of the in-clinic adult population. So very strong results less than a year since receiving approval in the U.S.

Starting with commercial reimbursed patients. As of the end of the first quarter, we had a total of 414 patients on reimbursed Palynziq. Of those, 136 transitioned from our clinical studies and 278 are formerly naive to Palynziq. At quarter end, there were an additional 140 naïve patients with complete enrollment and pending shipments of their first injection; very nice pipeline of new patients. Our efforts to convert adult patients (inaudible) who might benefit from additional Phe lowering from Palynziq have been quite successful. Fully 37% of new Palynziq enrollments are Kuvan patient conversions. The team is doing a tremendous job leveraging our deep experience and relationships in the PKU community to promote the availability of Palynziq treatment in the U.S. We can now confirm that there were 89 unique clinics of the 125 PKU clinics in the United States that had at least 1 completed enrollment. Considering the time required to titrate a typical naive patient for daily dosing, Q1 results are tracking to plan. Palynziq net product revenues were $12.3 million in the first quarter of 2019. Based on the number of patients that began treatment with Palynziq last year, we expect an increasing number of patients to be achieving maintenance dosing, and those patients will be driving revenues to pick up in the next quarters of 2019.

In summary, we are past the initial launch phase, commercial uptake is going according to plan and we now turn our focus to execution in the U.S. for the remainder of the year.

Turning now to other product revenues in the quarter, starting with Vimizim. Vimizim contributed $125.8 million in the first quarter representing 7% year-over-year growth, benefiting from sales increases across all regions.

Net patient growth was 12% year-over-year. For Naglazyme, revenues totaled $86.9 million. This represented a 16% year-over-year growth for the well-established brand, coupled with 6% patient growth. As with Vimizim, the difference between patients and revenue growth are largely due to order timing.

Next, for Kuvan, we saw an 8% increase in net product revenues. In the United States, as anticipated, we experience a seasonal decline in Q1 due to insurance claim changes as well as Palynziq conversions. Year-over-year net product revenue increased to $106.9 million, keeping the brand on track to achieve fiscal year guidance in 2019.

And finally, Brineura contributed $12.2 million in net product revenues, which was relatively flat over Q4 due to uneven order timer -- order patterns late in Q4. Importantly, Q1 saw growth in diversification in patients with the addition of 4 new markets, bringing the country count to 19.

Net patient growth year-over-year was 79%, suggesting that we are making good progress in our efforts to raise awareness of CLN2. We expect that this steady growth will continue throughout the rest of 2019.

All in all, first quarter results were strong and encouraging, and I'm very pleased with revenue performance on all fronts.

Now I'd like to turn the call over to Dan to review financial results in more detail. Dan?

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Daniel K. Spiegelman, BioMarin Pharmaceutical Inc. - Executive VP & CFO [6]

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Thank you, Jeff. Please see today's press release for full details summarizing our financial results for the first quarter. As Jeff has already reviewed Q1 individual product revenue results, I will cover other items in the first quarter. Consistent with our communicated goals, we anticipate 15% top line growth for full year 2019 based on achieving the midpoint of $1.68 billion to $1.75 billion. This would be solely on currently approved products.

In addition, as J.J. reiterated, 2020 total revenues should grow an additional 15% and be approximately $2 billion, with the expectation that contributions from vosoritide and valrox will take us significantly above that growth rate in the years beyond.

Now turning to quarterly results. First to a revenue item that Jeff did not cover. Aldurazyme revenues for the first quarter of 2019 of $45.3 million were 31% below the Q1 2018 level. This reduction was due entirely to the timing of product shipments to Genzyme. You may recall that under the new GAAP revenue recognition rules that went into place last year, we are now required to recognize our estimate of the full revenue we will receive from Genzyme at the time they accept delivery of the product from us, and not when they sell it to the end user. Significantly, Aldurazyme net product sales reported by Genzyme increased to $75.7 million in the first quarter or up 20% compared to $62.9 million the same quarter in 2018.

Moving to R&D expenses, which have largely stabilized, with Q1 '19 and Q1 '18 levels essentially unchanged at $184 million. And the full year 2019 R&D spending still looking to be less than a 10% increase over 2018, even with the continued progress of our late-stage programs.

On a product level, valrox, which is near full enrollment of its Phase III study and the vosoritide Phase III is fully enrolled, driving increases in expenses in these programs compared to the first quarter of 2018. These expenses were largely offset by reductions in R&D expenses for Brineura and Palynziq following their launch and a reduction in BMN 250 [for trilosinodate] alpha manufacturing expenses. These trends should continue throughout the year, and we remain on track with our full year R&D guidance of $740 million to $780 million.

Sales and marketing expenses in the first quarter of 2009 (sic) [2019] compared to last year, due to the U.S. launch of Palynziq and valrox launch preparation as we look forward a potential accelerated approval halfway decision later this year. However, SG&A expenses of $162 million were essentially flat compared to the prior quarter, Q4 2018. Moreover, while expense levels in sales and marketing will expand slightly throughout the year as we launch Palynziq in Europe and continue to prepare for valrox and vosoritide, full year SG&A guidance of $650 million to $690 million remains intact.

Turning to bottom line operating results. We reported a GAAP net loss of $56.5 million in the first quarter compared to a $44.1 million GAAP net loss in the same quarter of 2018, primarily due to increased SG&A expenses as just outlined, a reduction in the GAAP tax benefit and an increase in contingent consideration expense due to the continued progress of Palynziq and the associated increased probability of certain milestone payments to Merck Serono.

Non-GAAP income $24.8 million in the first quarter was a slight improvement over 2018 non-GAAP income of $21.3 million. For both GAAP and non-GAAP results, our original guidances remain unchanged and we look for a nearly breakeven result of $45 million to $85 million loss on a GAAP basis and non-GAAP income of $130 million to $170 million.

Finally, cash and investments ended Q1 at $1.2 billion. And while working capital timings can have small impacts on actual quarter end cash levels, with our planned GAAP and non-GAAP results, we expect cash balances at the end of the year to be similar to the current level, consistent with our limited cash usage in 2018.

Now I would like to open the call for questions and will ask the operator to open the lines. Please remember that as Traci mentioned at the start of the call, based on your feedback, we plan to wrap up this call by 5:30 p.m. Eastern time. If we end the call and you still have follow-up questions, please feel free to reach out to Traci this afternoon or tomorrow morning. In order to keep to this timeline, we request that you limit yourself to single 1-part question. Operator, please open the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Ying Huang from Bank of America.

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Ying Huang, BofA Merrill Lynch, Research Division - Director in Equity Research [2]

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I'll abide by the 1 question rule. So maybe, Hank, I won't ask about the importance of bleeding rate, because investors have squarely focused on the Factor A level from the 3-year update. So in your discussion with agency and also maybe even payers, how important is the bleeding rate in their consideration?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [3]

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Bleeding rate's pretty darn important to the FDA. For accelerated approval, the basis of approval is about Factor and there are no statistical tests on bleeding. They do want to have evidence to support the notion that achieving Factor levels in the non-hemophilic range are reasonably likely to reduce bleeding, but there's no statistical tests associated with it. Where bleeding rates become really important from a regulatory perspective is in the full approval scenario where, for the U.S. it's the primary endpoint of the ongoing confirmatory clinical trial. So for accelerated approval, they are part of the reasonably likely expectation, no statistical test for full approval, a full statistical test for regulatory decision-making, in the U.S.

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Operator [4]

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Our next question is from the line of Cory Kasimov from JP Morgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [5]

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I'm not surprised when we wanted to ask you about valrox as well. And we as get closer to the 3-year update early this summer, obviously investors are speculating quite a bit on what you might report, what would be good or not so good. But I'm curious, what would you consider a success in terms of Factor VIII levels and ABR? What are you hoping to see to give you that much more confidence in this program, which you already have a lot of confidence in?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [6]

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Cory, so if I were to bifurcate, I would say by far the most important thing out of the 3-year update is the bleeding data. And the 2 reasons for that are: one, that's the clinical morbidity, that's what patients experience, it's what costs the healthcare system a lot of money, going to be what payers care a lot about. That's not to say that they won't care about other things, but for sure they're going to care about bleeding rate data. And so the way I think about that is little to no bleeding in the third year is going to be great. And if there is breakthrough bleeding, we'll have to understand in whom and at what frequency and of what type. And it's a little bit premature to kind of speculate about how to interpret all of that. But one way to think about that is, breakthrough bleeding, if of a relatively innocent type, that is in target joints or in patients who push themselves extremely physically or in patients who, on a particular day have a low Factor activity, that may not be problematic at all. So good outcomes are going to pertain to evidence of sustained reduction in bleeding. As far as Factor activity goes, I don't have -- I don't think we have a specific number in our mind's eye about what we would consider to be great or good. And the reason for that is twofold: first, there's quite a bit of inter- and intra- patient variability in Factor expression. So such that at any given time point, a subsequent time point could look different, up or down. So the variability makes it difficult to be reasonably accurate, reliable, certain about what trajectory might exist in the data. And the second challenge is the assigning a clinical relevance to a number of a Factor VIII level. And as you know, the relationship of transgene Factor VIII and bleeding control hasn't been established. As the first company to follow patients for a long period of time, we're going to be building that database. So for 2 reasons, I can't give you a specific number. So zoom back out and kind of in an amalgam with Ying's question earlier, bleeding, most important thing. Factor levels, have to look at them because people are interested in prognosticating. Going to be very difficult to prognosticate off, and I think that's why you have to go back to how did the bleeding data look, what was its time course, if it happened, so.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [7]

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So to reiterate what Hank said earlier, for full approval, which we will need, by the way, whether or not we get accelerated approval, we need full approval, for full approval, Factor VIII does not enter into the FDA's consideration at all. And second, regarding payers, because we forgot to answer the questions from the previous person. On the payers, the main thing payers want to know is how much money are they going to save with our product. And especially in Factor VIII, that 0 impact on the [money that patients] cost them. What impacts the reimbursement levels are Factor VIII usage, recombinant Factor VIII usage. And this recombinant Factor VIII usage is generally treated directly linked to [annualized bleeding rates], which is the primary endpoint of the full study.

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Operator [8]

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Our next question is from the line of Salveen Richter from Goldman Sachs.

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Unidentified Analyst, [9]

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This is [Marianna] for Salveen. I actually had a follow-up on valrox. And I was wondering, given that we have seen some data from this [running] study out to 8 years, is it reasonable compared to hemophilia A? And would [mechanistic] differences allow the comparison to be made or not?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [10]

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I think it's a great question, and I think the field knowledge about durability of Factor expression in hemophilia after gene therapy is highly informed by Nathwani's 6- and 8-year data. And let me just remind you, he started I think it was in 2011, published an update in '14 and at NASH in December, he presented an 8-year update on low in the mid-dose cohort of his original study and a 6-year update on his high dose study. Factor levels were sustained flat and through 6 and 8 years according to all 3 doses. And more importantly, bleeding was substantially reduced in spite of the fact, by the way, that the high dose cohort only got to 5% Factor [VIII] levels. So the community is really encouraged by that experience of establishing a precedent of durability and an expectation. And I think that although there are substantial numbers of scientific differences between his Factor IX program and our Factor VIII program, I think the essential message is there's evidence in humans with hemophilia, given gene therapy of durable expression for 6 or 8 years. They are a couple of other pieces of evidence which inform expectation, [Unicures] is out now past 2 years, Spark is now passing 2 years in Factor IX and durability looks good in those programs. There's preclinical data in canines with canine hemophilia given the canine transgene about correction for their entire life. So provided that your gene therapy vector is a high-quality product, the expectation in the field is that durable expression will be established after gene transfer.

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Operator [11]

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Our next question is from the line of Chris Raymond from Piper Jaffray.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [12]

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Maybe I'll give Hank a break here and ask a non-valrox question. In -- on Palynziq, maybe Jeff, so you have 414 paying patients, I guess now on therapy and 278 naive, I think you said. Just trying to see if I can get a sense -- if you can give us a sense of where the discontinuation rate has gone? I think in the clinical experience, it was around 11%. And I think, Jeff, you guys mentioned last quarter, you had 7-or-so of the 212 naive patients, had discontinued. So can you give that number now? And is it sort of relatively -- is it a stable rate? Any color would be appreciated.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [13]

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Yes, great question, Chris, and we're watching that closely. I'll caveat my answer by saying that for most patients on commercial Palynziq that are naïve to treatment, it's still relatively early in their course of therapy so things could change. And to put that in context, patients have started mid-Q3, for example, with just being now getting to the point where in the fastest possible titration schedule, they would be reaching 24 weeks of 20 milligrams once per day. So just a little bit of context about that kind of long path of the induction titration schedule. So, so far, the experience has been with discontinuations, that they are materially less than what we experienced in the clinical trial. Consistent with 1 quarter later was the number that I quoted last quarter and no real surprises inside of those discontinuation figures. Some patients discontinuing due to tolerability issues, other patients discontinuing for other reasons. And I will point out that we've got -- we've learned a lot about the use of Palynziq through the clinical trial program, and those learnings really shaped our thinking about how to support the commercial use of Palynziq. So got a number of clinical coordinators out in the field working with U.S. clinics and providing support to their patients to try to ensure that they're following the guidance of their clinics and getting the best possible experience as they adopt to titrate their way up to a maintenance dose.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [14]

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So just to be clear, so when you see materially lower than the 11% number, so is it safe to say you're still in the low single digits?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [15]

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Yes. Consistent with the numbers I quoted last quarter.

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Operator [16]

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

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Philip M. Nadeau, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [17]

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Unfortunately, I'm going to go back to Hank on valrox. Hank, appreciating everything that you said about bleeding rates being the most important, I'm certain that when the top line data -- 3-year data released, people are going to look at the trends and Factor to determine the longevity of the clinical effect. And in particular, people are going to assume that when patients' Factor levels fall below 12%, they're going to become susceptible to bleeds even if they aren't currently. So what do you think of this analysis? Would you dissuade us from doing it? What point should we keep in mind as we interpret the data and try to extrapolate to figure out the longevity of the effect?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [18]

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Oh, boy, don't, would be first instance reaction. Just simply because there's just too many -- it's so subject to multiplicity. Meaning you could construct a regression curve to give you almost any answer you wanted to and you could tell yourself anything you want to about transgene Factor and bleeding. And so I think that people have to remember, we're in year 3 of a 7 patient experience of something that's never been done at industrial in the world. And that's measure the durability of gene transfer and to interpret its surrogate significance in a long-term segment. And I'm keen that we let the data inform our understanding of these relationships rather than speculate about it. So that's my best perspective on advice to give about prognosticating Factor VIII levels into the future and the clinical relevance of those factors.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [19]

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I mean I agree 100% with Hank, I would just also add that actually the data that Hank or (inaudible) predecessors with Factor IX actually contradicts this 12% threshold being the magic threshold. And again, I'm not making this comment because I know it's going to be below 12%, we have no idea, again. But the Factor IX data at 6 years and 8 years where there is still bleeding control as per the presentation from Dr. Nathwani at ASH that December, the Factor IX levels are around 3% to 4% for 6 and 8 years the patients have bleeding control, with chromogenic [assays].

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [20]

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And I might add that I don't know that payers are going to be all that excited about letting patients going back to Factor replacement therapy at $500,000 a year because their Factor level felt to 11.9%, especially if they're not bleeding. So I think we have to suspend our overly keen interest in Factor levels, for the time being, understand that they play a role in the overall picture that's going to be developed, but try to understand the context of where we are right now.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [21]

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And also I want to to point out [finally] because I've heard this comment, like we are pointing back to the (inaudible) at 6 and 8 years, around 3% to 4% not because we believe that this is where we are going to be, but this is because this is the only data available.

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Operator [22]

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Our next question is from the line of Joseph Schwartz from SVB Leerink.

(Operator Instructions)

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Traci McCarty, BioMarin Pharmaceutical Inc. - VP of IR [23]

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Okay. Let's go to the next, operator.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [24]

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Hello, can you guys hear me?

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [25]

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Yes, Joseph.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Analyst [26]

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Not sure what happened there. So recognizing that predictability is such an important attribute for one-time gene therapy and you've had considerable variability, are you doing any work to determine the factors that correspond with patients who respond more or less to their valrox administration?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [27]

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We've done a little bit of work in that area, Joe, on the 7 patients. As you know, there's a little bit of variability in the group that got to transgene expression levels above 40 IU per deciliter in the first year. But there's also the variability of 1 patient who only got to -- who didn't make it into the non-hemophilic range. So we've looked at that 1 patient versus all the 6 -- the other 6 patients, can't identify anything that's significantly different between that 1 patient and the other 6 or 7 patients, 6 patients. We've also looked at a lot of chemistry manufacturing control attributes to see if we can understand if there's a product-related predictor, and we haven't been able to identify product level predictors of patient responsiveness. And I think it's going to take more [time] for us to better understand, if we can at all, factors that determine the magnitude of the initial response. Now what I hope that we'll be talking about by the end of the year is a repeat of what we've already seen in the 201 study, which is in spite of this variability, the vast majority of patients had an awesome response to gene transfer consisting of turning off of bleeding, elimination of target joints, sustained treatment benefit. So we will keep an eye out and try to learn more about predictors of variability in the go forward. But at this point, all we have to go on is, we got a really robust response from our patients.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [28]

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Yes. And I would say although there has been variability in Factor levels, there has been no variability response to bleeding in our control, and even in patients who -- the 1 patients it does have -- had lower Factor VIII levels from the get-go, at year 2 was -- had his bleeding under control and was not becoming [injections]. So the clinical outcome is not variable.

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Operator [29]

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Our next question is from the line of Josh Schimmer from Evercore.

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Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [30]

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Hank, despite all your previous answers to all the prior questions, I'm still going to ask. If it does turn out that the Factor VIII levels continue to decline at 3 years, and there are questions about durability despite your commentary about the challenges interpreting that, do you have a strategy then to consider either redosing or alternative vectors? And then considering the strategic importance of that information, potentially the need to move quickly to consider some alternatives or solutions, why blind yourself to that information?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [31]

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Josh, thanks for the question. Nobody said anything about blinding ourselves to the consideration of potential for redosing. What we've done is blinded Wall Street to our research activities in our redosing program. And part of the reason for that is that it's competitive, obviously. But also part of the reason for that is we're fairly limited and focused in what we're doing in the redosing area, largely because the expectation, as I said, before going in is, is that the clinical benefit of gene transfer will persist. Now I suppose that one could imagine a result of a subsequent clinical trial. I can only look forward to the year 6 update, and we're talking about at that point, somebody actually did lose material [gene] expression. And then it will be relevant to ask the redosing question. But we haven't triggered a major investment in redosing, but it doesn't mean that we're not thinking about it and it doesn't mean we're doing nothing about it. It means that we're doing stuff about it, but it's proprietary.

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Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [32]

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I guess why blind yourself to the data? Because the data may be informative for potential strategies and urgency of those strategies.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [33]

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Josh, you're onto question 2. So all my (inaudible) [pointed out]. But what I would say is we undertook a strategy to manage the conduct of the clinical trial, and we baked into it all of the things that we could think of in terms of why we might want to know the data earlier. And out of all of that came our decision to keep the data at arm's length from us. And the most dispositive element of that decision really is just trial integrity and trying to understand the relationship between Factor activity and unbiased interpretation of bleeding data for a very good discussion with health authorities about a very big decision that was going to be made about the availability -- accelerated availability of the gene therapy product. So as I said before, once we decided to move into the pivotal registration phase, we put all of the data into the data monitoring committee's hands. And if they had significant concerns that suggested we needed to reactivate a -- or increase our activity around redosing, we'd have heard that. And so we made the decision about how to manage the trial and here's where we are. We're sticking with the decision.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [34]

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And just to clarify that what Hank meant about the integrity of the trial is the integrity of the pivotal Phase III trial that's critical here, especially as we are trying to shoot for accelerated approval, the data has to be squeaky clean, and that's what is important. Actually, we are -- as Hank said, we don't want to advertise too much, but we actually are working on the potential redosing strategy, not that much for our own product, but we believe there will be a lot of opportunities to redose patients who fail our competitors' therapies.

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Operator [35]

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Our next question is from the line of Robyn Karnauskas from Citi.

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Robyn Karnauskas, Citigroup Inc, Research Division - Director and Senior Analyst [36]

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Just going back to Palynziq. So given that you have about almost 300 patients that are new on drugs, do you see any changes in the trajectory as you go forward? And then also you mentioned a broad European label. What does that mean for you for the market opportunities for Palynziq in Europe?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [37]

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Great questions, which I heard as 2, but I think we can cover. The trajectory -- I think we can cover them both. The trajectory question first. If you look at the numbers that we reported for -- not on commercial therapy that were previously naïve to Palynziq treatment at the end of Q4, you take the mid-quarter update that we provided just a while ago, you add in the end the Q1 data, what you see is basically a pretty straight line pointed in the same direction, which is up in total. And that would imply that the trajectory is staying pretty stable. And because those patients that we reported at the end of Q4 were largely patient referrals that we got early-ish in Q3, that points to kind of a lot of stability in the uptake of patients. The other number that you can watch and say, hey, that looks pretty stable is the number of patients that are enrolled, but not yet on therapy. So that's a good-looking number, too. It kind of indicates that if we continue doing our job right, the trajectory of patients on therapy should remain about the same as our expectation. The number of patients kind of in queue, that's our pipeline, if that stays steady, that's a good indication that we're getting patients continuing to enroll and getting them steadily onto treatment. So that's good. In terms of the European label, we won't know what that is entirely until we've got an EC approval. But the draft label language that we've seen looks very positive. And I think that will give us, if that holds up, that'll give us a really nice market opportunity in Europe, which is a very large pool of potential patients to deal with. So really excited about that prospect.

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Operator [38]

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Our next question is from the line of Paul Matteis from Stifel.

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Unidentified Analyst, [39]

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This is [Nate] on for Paul. How quickly are patients progressing from rapid enrollment for Palynziq to their first treatment? And has it been gated by the titration protocol anyway?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [40]

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Sorry, just want to make sure I heard your question correctly. Your question was how quickly our patients progressing through enrollment to -- from [REMS] enrollment to initiation of therapies? And is induction titration a barrier to -- is the REMS a barrier to production titration.

Perfect. So, so far, the REMS has not been a barrier to enrollment or to patient starts. It's an added step that we've been really well organized around that and it's not an onerous additional step. The time from enrollment to starting therapy has been pretty steady the last couple of quarters and not inconsistent with our experience with other drugs in the United States including Kuvan, Naglazyme and Vimizim. It's currently running between 2 and 3 months on average with some variability by patient. And then what we know about, so far, what we know about the induction and titration schedule is the label basically defines the fastest path. I don't have anything other than anecdotal reports on that schedule of patients. But anecdotally, what I've heard is pretty consistent, which is a lot of patients, and as we expected, require some slowdown steps along the way. And clinics that are new to using Palynziq are being more conservative than their -- than the clinics that were experienced with Palynziq through the clinical trial. And I just want to reinforce, all according to expectations, no problems or surprises there.

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Operator [41]

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Our next question is from the line of Ellie Merle from Cantor Fitzgerald.

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Eliana Rachel Merle, Cantor Fitzgerald & Co., Research Division - Research Analyst [42]

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So in terms of your gene therapy strategy outside of valrox, just given your clear manufacturing and rare disease expertise, when do think that you might unleash this capability into, say expanding into new programs? And I mean I guess, what are, say, like the gating factors from you having, like 5 gene therapy clinical programs in 2020 versus the 2 that you currently guide for? And I mean is it sort of the preclinical work or vector optimization that's taking time? Or is it more of a strategic choice to just initially prioritize hemophilia and PKU?

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [43]

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So it's more an assessment of the business opportunity of it. We -- of every possible gene therapy product that's compared to other physical candidates that we have in the [physical] pipeline. So because as we have said before, although gene therapy is obviously a very component of BioMarin in the future, at this time, we are not planning on turning into a pure gene therapy company. So there are other compounds that are [candidates] this year after gene therapy (inaudible). But so the [rate limiting] factor is actually a bit more financial than anything else. And -- but it's likely -- so like we have to decide what's going to be our next IND after PKU gene therapy, hopefully next year -- sometime next year. And there are gene therapy candidates and there are non-gene therapy candidates. So we just need to prioritize them depending on what we believe is probably [effective of] success, the competitive levels, the size of the market and all these considerations. So that's kind of what [comes] into consideration here. Do you want to say a few words about the manufacturing component of this, Robert?

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Robert A. Baffi, BioMarin Pharmaceutical Inc. - EVP of Technical Operations [44]

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Yes, certainly, we have substantial capacity to product the gene therapy programs, both for valrox and 307. And as Hank and his team evaluate additional gene therapy candidates, as we propose to put those into the clinic, we can certainly accommodate additional programs with our current capacity.

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Operator [45]

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Our next question is from the line of Timothy Lugo from William Blair.

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Myles Robert Minter, William Blair & Company L.L.C., Research Division - Associate [46]

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This is Myles on for Tim. Just one on the PKU gene therapy. Considering that the strength in public [press releases] for Palynziq cited very positive benefit. I'm wondering whether potential trials from the gene therapy program would actually have to happen with a cognitive endpoint predisposed there? And if Palynziq would be the benchmark that you've been looking [to see at that perimeter].

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [47]

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Clearly, health authorities like controlled clinical trials better than uncontrolled clinical trials. But what I think you could expect is that, if the effect of gene therapy is large and larger than might have otherwise ever been observed in a natural setting, I don't think that there will be a requirement to compare gene therapy to either Palynziq or to Kuvan or to an untreated control room. Now we haven't launched our clinical program yet, as I said in my comments, we're going to file IND later this year. So stay tuned to more explicit and specific descriptions. But from what I know of the regulatory landscape at least so far, while you could certainly get a health authority to say, let's do a controlled clinical trial, let's compare things, I do believe that there's ample reason to believe that patients with their own control study looking for very large effect on blood Phe would support registration. And I'll just remind you that blood Phe have supported registration of Kuvan in the United States, Kuvan in Europe, Palynziq in the United States, will support Palynziq in Europe. So there's no real evidence that anything beyond Phe would be required for an endpoint for regulatory approval.

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Operator [48]

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Our next question is from the line of Kennen MacKay from RBC Capital Markets.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [49]

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Congrats on the quarter. I will give the team a break from valrox and maybe just ask how you're thinking about competition in achondroplasia, both from sort of a mechanistic and clinical standpoint as well as the potential commercial standpoint? And on the commercial side, I mean how should we be thinking about physicians choosing to put patients on theoretically commercial valrox in a couple years versus potential registrational trials of a competitor agent?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [50]

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You said valrox in the middle of -- end of the answer. I think this is all about vosoritide.

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Kennen B. MacKay, RBC Capital Markets, LLC, Research Division - Co-Head of Biotechnology Research [51]

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Sorry, achondroplasia, yes, vosoritide.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [52]

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Yes. Well, so first of all, from a mechanism and competitive point of view, there are a number of competitors taking different approaches to restoring growth and achondroplasia. And without getting into the details of every single one, we like the target specificity of the approach that we're taking. There is a competitor who's thinking a very similar approach to us, but approaching this from the point of view of a long-acting preparation of the product, they have single dose data and no biomarker data, healthy volunteers. So they are years behind us. And so now into the other part of your question, how will fans of (inaudible) go or not go on to sort of try to coordinate their own individual interests and wishes. And depending on their experience with vosoritide, they may be more or less amenable to alternative options from other manufacturers. Now in that time interval, we'll be investigating next-generation products ourselves. And so hopefully -- our expectation is that satisfaction with vosoritide will be relatively high in the first instance, and the only thing that would be moving people off of vosoritide is a much better presentation of the product, and we're working on that.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [53]

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And also, if I may, the window -- the treatment window for this product is limited, because as you know, once the patient's [worth basis] is closed, there is no -- unlikely there's any opportunity for clinical benefit here. So waiting 4 or 5 years for the next miracle product, they would lose about 10 to 15 centimeters of growth.

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Operator [54]

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Our next question is from the line of Edward Nash from SunTrust Robinson Humphrey.

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [55]

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This is Fang-Ke on for Edward Nash. Just going back to the variability topic on hemophilia. So based on all observation comparing hemophilia A and hemophilia B gene therapy trial, we kind of always think that for hemophilia A, that there is more variable compared to hemophilia B. Do you think that observation is correct based on your experience in the field? (inaudible)...

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [56]

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It's so difficult to compare -- sorry, did you have more questions?

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Fang-Ke Huang, SunTrust Robinson Humphrey, Inc., Research Division - Associate [57]

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Yes, just want to follow up. Just if that correction is correct, then secondly, is there any potential reason behind it?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [58]

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Yes. I think it's very difficult to compare across clinical trials, across diseases, across interventions. So I don't know that I'm ready to make a categorical comparison of Factor VIII and Factor IX gene therapy, hemophilia A and hemophilia B, other products and our products. I mean it's still very early days.

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Operator [59]

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This will be the end of the Q&A portion of the call. And I will now hand the call back over to the Chairman and CEO, J.J. Bienaimé, your -- go ahead.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [60]

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Thank you, operator. So as we look forward to the future, we are energized by the prospect of a potential accelerated approval with valrox, the data readouts of our global Phase -- vosoritide Phase III trial at the end of the year and some of our PKU gene therapy products with BMN 307 at the end of the year also, and the continued growth of our current global commercial brands. So BioMarin has never been in a stronger position across the commercial, R&D and manufacturing organizations, and we look forward to great things ahead in the coming quarters. And thank you for your continued support, and goodbye.

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Operator [61]

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This concludes today's conference call. Thank you all for joining. You may now disconnect.