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Edited Transcript of BMRN earnings conference call or presentation 1-Aug-19 8:30pm GMT

Q2 2019 Biomarin Pharmaceutical Inc Earnings Call

NOVATO Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Biomarin Pharmaceutical Inc earnings conference call or presentation Thursday, August 1, 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

* Traci McCarty

BioMarin Pharmaceutical Inc. - VP of IR

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Conference Call Participants

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* Akash Tewari

Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst

* Christopher Joseph Raymond

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

* Cory William Kasimov

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

* Joseph John-Charles Thome

Cowen and Company, LLC, Research Division - VP of Healthcare

* Joseph Patrick Schwartz

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

* Joshua Elliott Schimmer

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

* Martin Douglas Auster

Crédit Suisse AG, Research Division - Research Analyst

* Maryana Ilya Breitman

Goldman Sachs Group Inc., Research Division - Research Analyst

* Matthew Kelsey Harrison

Morgan Stanley, Research Division - Executive Director

* Nathaniel Tower

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

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Presentation

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Operator [1]

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And good afternoon, and welcome to the BioMarin second quarter investor update. My name is Altecia, and I will be facilitating the audio portion of today's interactive broadcast. (Operator Instructions)

At this time, I would now like to turn this show over to Traci, Vice President of Investor Relations.

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

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Thank you, Altecia. Thanks, everyone, for joining us today.

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Chairman and Chief Executive Officer; Hank Fuchs, President of Worldwide Research and Development; Dan Spiegelman, Executive Vice President and Chief Financial Officer; Jeff Ajer, Executive Vice President, Chief Commercial Officer; and Robert Baffi, President of Global Manufacturing and Technical Operations. Based on positive feedback from our last quarterly call, we intend to keep this call to an hour in length. If we do not get to your questions, please send an e-mail or give me a call and we'll get right back to you. Thank you for 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 on today's call. So we delivered another solid quarter and first half results net product revenues for products marketed by BioMarin, which is -- exclude Aldurazyme, were up 9% in the quarter and 12% in the first half of 2019 driven in part by a 21% growth of our PKU franchise, which is a combination of Kuvan and Palynziq. For the remainder of 2019, we are confident in our ability to achieve full year guidance based on the number of very positive dynamics that Jeff will review momentarily.

Beyond the strength of our base business and unparalleled commercial manufacturing capabilities, the potential returns on our investment in valrox and vosoritide are on the horizon. Both products represent very large market opportunities and growth drivers for BioMarin, which we expect will be transformational for the company over the next 18 months. And currently the base business is expected to produce about $1.7 billion in top line results this year, and we are very confident it will be followed by $2 billion in commercial revenues in 2020. These estimates are based on projected growth of our existing commercial and substantial acceleration of Palynziq revenues. In the U.S, enrollment in Palynziq are expected to grow at a steady state, while more and more patients reach maintenance dosing. In Europe, we are beginning our typical country by country launch process that will culminate in meaningful revenues in 2020. Specific to our new product opportunities, we plan to submit marketing applications for valrox in the fourth quarter of this year, with potential approval and launch next year. The valrox opportunity represents the largest market we have entered today, over 30,000 people living with severe NPRA reside within our global footprint. On the heels of the valrox submission, we will forward you the results of our global Phase III study with vosoritide in children with achondroplasia. Vosoritide represents another blockbuster opportunity as it addresses the therapy needs of about 25,000 children with the disorder in our global territories.

As these 2 potential new therapies move through regulatory and possible approval phases, we intend to leverage our manufacturing and commercial capabilities to facilitate rapid and substantial launches. Finally, we look forward to hosting you at our annual R&D Day in New York on November 14, where we will shine a light on the next potential growth drivers beyond valrox and vosoritide. We look forward to sharing details of our next potential gene therapy product, BMN 307, for the treatment of PKU. We will also have an interesting lineup of preclinical candidates to share with you as we consider which programs to proceed to the development pipeline next. So we hope you will join us there. Now I would like to turn the call over to Jeff who will provide more details on this commercial business in the quarter and our expectations for the remainder of the year. Jeff?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [4]

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Thank you, J.J. I'm very pleased with the commercial team's execution in the second quarter and the first half of 2019. Following a brief review of results in the quarter, I will share our outlook for the remainder of the year. Starting with our PKU franchise, we were pleased to see 21% growth year-over-year from a combination of strong Palynziq uptake in the U.S. and continued organic growth of Kuvan. Specifically with Palynziq, we were very pleased with U.S. launch progress in the second quarter. Q2 revenue contributions of $18.8 billion and year-to-date revenues of $31.1 million tracks to plan.

Turning to the key metrics, and starting with commercial reimbursed patients, as of the end of the second quarter, we had a total of 551 U.S. patients on reimbursed Palynziq. Of those, 141 patients transitioned from our clinical studies and 410 are formerly naive to Palynziq, 37% of whom are Kuvan patient conversions.

At quarter end, there were an additional 158 naive patients with complete enrollment and pending shipment of the first injection, representing a consistently strong pipeline quarter-over-quarter.

Taken together, that totals over 700 enrolled Palynziq patients as of the end of the quarter, representing approximately $130 million in annual revenues. This puts us well on track for a $70 million to $100 million full year guidance for Palynziq. In addition to robust space and uptake in the U.S., we are now entering the beginning phases of launch in the EU region, awaiting first orders of Palynziq. We anticipate meaningful revenue contributions from Palynziq in Europe beginning in 2020 as we make progress on the country-by-country reimbursement launch process.

Turning to the other contributor to our PKU franchise, Kuvan. Revenues were $113.3 million in the quarter and $220.2 million for the first half of the year. To remind you of Kuvan, we typically see a seasonal pattern, where first half sales dip as some patients switch insurance coverage early in the year and must navigate through prior authorizations early in the calendar year. For the remainder of the year with Kuvan, we expect to see an increase in second half U.S. revenues, consistent with dynamics previously described. Based on these expectations, we reaffirm full year Kuvan guidance of between $420 million to $460 million.

Turning now to Vimizim, quarterly revenue of $122.7 million was impacted by limited ordering from Brazil that was partially offset by other organic growth. Importantly, patients on therapy at the end of the quarter were approximately 10% higher than a year ago. Naglazyme delivered $98.2 million on revenue for the second quarter, an 8% increase compared to the second quarter last year and 13% over the previous quarter. Notably, patients on therapy for this 14-year-old brand were approximately 8% higher than a year ago, lead in particular by patient growth in Russia, Saudi Arabia and Turkey. For the remainder of the year, we are very confident in the prospects for both Vimizim and Naglazyme, where we expect significant growth over the first half for both brands. In addition to continued organic growth across global markets, significant contributions from the Brazilian Minister of Health support our bullish outlook. Specifically, the Ministry of Health has recently published their intent to purchase approximately $95 million of Naglazyme combined with Vimizim over the next 12 months, the majority of which we anticipate to record in the second half of 2019.

In comparison, we recognized about $13 million of revenue from the Brazil Minister of Health in the first half of the year. Not only does this development provide increased predictability for contributions from Brazil, it bodes well for patients there. Finally moving on to Brineura for the treatment of CLN2, which contributed $14.8 million in the second quarter, we continue to see strong and diversified patient growth, resulting in significant quarter-to-quarter revenue growth, and we expect this growth will continue into the foreseeable future. Moving now to activities related to the potential launch of valrox in 2020, the commercial team is making great strides preparing for entry into this very dynamic marketplace. We have been focused on a few key areas in preparation, including engagement with payers, health care providers and advocacy groups, introducing BioMarin and valrox to the hemophilia community and providing opportunities for stakeholders to learn about gene therapy. We have built out our commercial team to include seasoned industry leadership with direct experience in the hemophilia market. We are excited about the opportunity to launch a new therapy option with the potential to change the way severe hemophilia A is treated. Thank you, and I would now like to turn the call over to Hank.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [5]

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Thank you, Jeff. Following our positive valrox updates in late May, we've met with global health authorities, where we shared 3 years of bleeding control data from the Phase II study and the safety and efficacy results from the planned Phase III interim analysis. As announced on July 8, the outcome of those meetings in the U.S. and Europe support our plans to submit marketing applications to both the U.S. Food and Drug Administration and the European Medicines Agency in the fourth quarter of 2019 for valrox for adults with severe hemophilia A. Both submissions are expected to represent the first time a gene therapy product for any type of hemophilia will be reviewed for marketing authorization by health authorities.

Based on the clinical progress with the 6e13 vector genome per kilo dose, the safety results from the Phase II 201 and Phase III GENEr8-1 studies with the 6e13 dose, and a relatively low interest in the 4e13 dose, we announced today that we will cease development of the 4e13 vector genome per kilo dose of valrox. Our patients want the most efficacious dose, 6e13 vector genomes per kilo dose, so we've made this decision with them in mind. The next update you can expect from the valrox program will be completion of the enrollment in the Phase III GENEr8-1 study in early Q4, followed by submission of our marketing applications to the U.S. and EU health authorities, potentially followed by announcement of the U.S. PDUFA date and validation of the file in the European Union. Now that we will be in regulatory review, you should expect that the next material data readout will be the 52-week annualized bleed results for the 130-patient global Phase III study at the end of 2020 or the early of 2021.

To remind you, the GENEr8-1 study is powered to demonstrate superiority over current standard of care prophylactic therapy. Regarding progress on our late stage program vosoritide for the treatment of achondroplasia, we're nearing the finish line with our global Phase III program and anticipate sharing results from that study at the end of this year, or the beginning of next year. The study has enrolled 110 children divided into 2 randomized groups, 1 placebo group and 1 treatment arm receiving 15 micrograms per kilo of vosoritide per day. To remind you, on the Phase II study, the mean change from baseline, an annualized growth velocity or AGV, for cohorts 3 and 4 at 6 months was approximately 2 centimeters per year. The Phase III trial has been designed under the assumption that at least 1.75 centimeters per year change from baseline, a mean AGV will be observed at 1 year with vosoritide, and that the placebo subjects will have no or slightly negative change in AGV. Under these assumptions, the Phase III 301 trial enrolled a sufficient number of subjects to achieve 90% power to detect statistically difference between the 2 treatment arms for the primary endpoint. Needless to say, we look forward to the pending readout of the Phase III study and to sharing these results with you.

In our most recent study with vosoritide, 0- to 5-year-old patients, enrollment continues to go very well. The first cohort of 2- to 5-year-olds has finished enrolling, so now cohort 2, 6 months to 2 years of age is enrolling. We expect cohort 2 to complete enrollment by years' end, at which time we will begin screening subjects for cohort 3 enrollment, which will include newborns to 6-month-olds. Enthusiasm from families continues to be strong across the vosoritide program based on robust enrollment progress just described. We look forward to providing an update on the vosoritide program as well as the BMN 307 PKU gene therapy at R&D Day, planned for November 14 in New York. And finally, as announced in our press release today, we have chosen to cease development of BMN 290 for the Friedreich's ataxia. After much preclinical research and testing, we have determined that it is in the best interest of our R&D organization to put our resources towards products that have demonstrated a clearer path forward. We take these decisions very seriously, we'll continue to take a disciplined approach when determining which portfolio assets align with our stage of growth and in the best interest of our shareholders and patients. Thank you for your continued support. And I'll now turn the call over to Dan for a review of the financials during the quarter. Dan?

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

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Thanks, Hank. Please refer to today's press release summarizing our financial results for full details of the second quarter. I will highlight a few items in the quarter and full year expectations.

First, with respect to revenues, we reported total product revenues in the quarter of $388 million and remain on track for full year 2019 revenues of between $1.68 billion and $1.75 billion.

We are currently guiding to get to the middle of this range for the full year. One revenue item of note this quarter that Jeff didn't already discuss was Aldurazyme net product revenues, for which we recorded $5.8 million of revenues in the quarter, an unusually low reported number. As discussed earlier in -- last year, under the new revenue recognition rules, Aldurazyme net product revenue is now recognized based on timing of Genzyme acceptance of product shipments from us and is now disconnected from underlying sales of the product by Genzyme. Genzyme previously received, reviewed and accepted product from us at a U.K. location. But as part of their Brexit planning, they relocated the receipt location, resulting in a processing delay last quarter. Approximately $23 million of Aldurazyme revenue that was shipped in the second quarter is now expected to be recognized in the third quarter. Total Aldurazyme revenues reported to us by Genzyme remains strong, with 9% growth in the first 6 months of the year to $136 million from $125 million in the first 6 months last year. And consequently, we continue to expect full year total Aldurazyme revenues recorded by us to be consistent with prior years and in the $100 million to $120 million range.

Another item of note in the quarter is a $15 million milestone payment from Pfizer triggered by the European Medicines Agency approval of Talzenna, formerly talazoparib. The payment is being accounted for as a gain on the sale of an intangible asset in operating expenses. We are also entitled to up to $100 million in additional sales milestones as well as mid-single-digit royalties on sales of Talzenna.

Moving to operating expenses, both R&D and SG&A expenses remain consistent with our initially provided full year guidance. For the second half of the year, we expect R&D expenses to be similar to first half levels as we complete enrollment of additional payments in the global Phase III GENEr8-1 study and the children in the 0- to 5-year-old study with vosoritide. SG&A expenses in the second half of the year are also expected to be largely consistent with the first half, though sales and marketing will expand slightly as we launch Palynziq in Europe and continue to prepare for valrox and vosoritide approvals and launch.

Turning to BioMarin results, GAAP net loss in the second quarter was $37 million as compared to a GAAP net loss of $17 million in the second quarter of 2018. The increase in GAAP net loss year-over-year was due to higher R&D expense with the expansion of all of our late stage clinical programs, and higher marketing and sales expenses into part of the commercial launches of Palynziq and Brineura. We remain on track for a small GAAP loss of between $45 million and $85 million. We also measure our performance on a non-GAAP basis, which is based on EBITDA and excludes interest taxes, depreciation and amortization and also excludes stock compensation, contingent consideration and certain other specific items.

Our non-GAAP income in the second quarter was $17 million compared to non-GAAP income of $20 million in the second quarter of last year. We remain on track for full year non-GAAP income of between $130 million and $170 million, and we are currently tracking to the middle of that range. In terms of cash, cash equivalents and investments, as of June 30, 2019, we have $1.1 billion as compared to $1.2 billion at the end of the prior quarter. In the second quarter, we had an $83 million milestone payment, which we made to Merck for the EU approval of Palynziq.

In closing, BioMarin's current commercial business remains on track to deliver roughly $1.7 billion of revenues this year and $2 billion next year, with increasing non-GAAP bottom line profitability. Over the next 18 months, we also expect to accelerate into the next phase of higher revenue and bottom line growth through potential approvals of valrox and vosoritide, which could lead to approvals and revenue contributions starting before the end of next year. Thanks for your support, and I will now open it to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Cory Kasimov with JPMorgan.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [2]

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Wanted to ask one on vosoritide, and what you anticipate you're going to need to do to get the 0- to 5-year-old patients onto the label? So assuming your pending Phase III in older patients goes well, do you think the Phase II study in younger children will suffice for future supplemental regulatory submission? Or would you need to run Phase III studies for that too? And I just have one commercial follow-up.

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Unidentified Company Representative, [3]

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Cory, it very much depends on the results of the pivotal trial and the data that's available at the time of submission and review. Our game plan is that we have at least safety data from the first couple of cohorts and it's obviously premature to get into labeling discussions. But there's quite a bit of awareness in the genetics community of the importance of starting therapy earlier and previously with our products, the potential label restrictions, if there are any, haven't been really meaningful barriers to product use given the safety of the product in earlier patient populations. So stay tuned.

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Cory William Kasimov, JP Morgan Chase & Co, Research Division - Senior Biotechnology Analyst [4]

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Okay. And then just a quick commercial follow-up, just on the heel of some of these lumpy ordering patterns, which is really nothing new, but your level of confidence going forward that these are -- these will correct, it sounded, based on your prepared remarks like you are very much confident but -- in that you reiterated your guidance. Just making sure there's no other underlying issue behind this lumpiness and things are on track for 2H.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [5]

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Highly confident, Cory. Brazil has been unusually uneven the last couple of years, and in Brazil, when we see publication of intent to purchase in the official gazette, that has always been followed by the start of the purchase process and the purchase, which is how it's begun. So having $95 million in purchases intended to cover demand for the coming 12 months through Q2 of 2020 gives us a high degree of confidence in that figure. Other markets are uneven too, but they tend to kind of balance each other out over time in a way that Brazil just hasn't.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [6]

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(inaudible) the others and that's just a major -- that's the major reason why we're confident because, as Jeff pointed out, we only recognize about $13 million of revenue from them, which -- began with in the first half of the year. But the other one is related to the sales dynamics behind Palynziq, just pointing out that we now have between the patients on commercial Palynziq and the patient's that have completed the enrollment to get started on commercial Palynziq, over 700 patients now. And what happened is that some of them could take 4 to 6 months for most of the patients to get to steady-state maintenance regimen, which is the one that generates some significant revenues, around $200,000 per patient per year. And now we're getting to a stage where a lot of patients that we enrolled in Q4 last year, Q1 of this year, are heading into their steady state and are going to start generating some pretty significant revenues for the balance of year. This is just purely mathematical and mechanical here, but you're going to see a significant increase in Palynziq sales in the second half of this year and also next year of course.

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Operator [7]

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And our next question comes from the line of Salveen Richter from Goldman Sachs.

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Maryana Ilya Breitman, Goldman Sachs Group Inc., Research Division - Research Analyst [8]

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Maryana Breitman for Salveen. I have a question on achondroplasia competitive landscape and where vosoritide fits in.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [9]

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Vosoritide, where it fits in the competitive landscape. The emerging competitive landscape and, I guess, with Phase III data around the corner and I think our next -- nearest competitor has just announced plans to start a Phase II study, 12 patients per arm, dose ranging. So they're just getting started in their efficacy program, having only completed a single-dose healthy volunteer study. Earlier than that, there's a ligand trap program or small molecule program. I think this all highlights the importance of achondroplasia as a therapeutic target, but it also highlights just how far ahead we are of all the competitors, [and they don't see the path] right now.

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Maryana Ilya Breitman, Goldman Sachs Group Inc., Research Division - Research Analyst [10]

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Got it. Are there any plans for different dosing schedules, further drop?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [11]

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We're investigating through the life cycle, and in the present time, we have some product improvements in our mind's eye. The tolerability of the product, compliance with the product is really outstanding, we don't -- we're not really being driven to a better product offering. If anything actually, we think about potential applications of vosoritide for other indications, but obviously, all of this is going to be informed by the results of our Phase II trial at the end of the year, beginning of next year. And that's a really important milestone in whole achondroplasia and growth disorder landscape because this will be the first pivotal trial to complete. And as I said before, we're years and years and years ahead of anybody else.

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Operator [12]

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And your next question comes 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 [13]

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I have a couple of questions. First, I wanted to ask, maybe Hank, on vosoritide. So Hank, I just want to make sure I understand some of the language you guys have had in the past on these hypotension events. I think when you guys first started talking about these events in 2017, you mentioned, I think 5 events out of 23,000 injections. And then, last year, when you were going through that, I think that you were only talking about 1 event. So can you maybe just talk -- were the prior 4 events misclassified? Or was there some other sort of driver behind that?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [14]

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Boy Chris, you got me there on that degree of specificity. And I think one of the most important things is this, whether it's 5 out of 22,000 or 1 out of 22,000, it's actually really low. I think off the top of my head, the difference was -- the difference between recorded and -- between reported hypotensive events and symptomatic hypotensive events, but honestly I'd have to look back into what the 5 and the 1 are -- I don't think we're reporting anything differently, we're not changing on this call any -- there's not any new information about the lack of hypotension with vosoritide except the point to accentuate simply is how rare it is to occur and how much we do not even believe that it's related to vosoritide therapy.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [15]

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Yes. Okay. It is vanishing, it is very, very small. I guess I was curious if maybe they were reclassified as having an orthostatic hypotensive event or there was something like that, but...

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [16]

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No reclassifications unless there's some specific language difference in that with (inaudible).

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [17]

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And then maybe a question for Jeff on Palynziq. I think last quarter, you said the discontinuation rate was closer to the 3%, you guys disclosed in the Q4 call. Can -- is that number still around that same number? Or is it -- have you seen any change in that? And is there any variability, maybe, between clinics that you can tell us about?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [18]

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I don't think we quoted a figure, but we did say it was materially lower than our experience in the clinical trial. We also said it's too early to conclude mission accomplished on that, as I mentioned, because so many patients are early in their course of therapy. But for sure what we have experienced so far is materially less than the rate of discontinuation in the clinical trial.

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

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And to be more specific, in this particular trial, this calculation was around 11%.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [20]

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Yes. I think you said it was closer to the 3%, you gave, than 11%. Yes, I didn't mean to calculated it as 3%, but...

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

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(inaudible) was around 11%. And so far in the commercial, again this is emerging data, it is around 5%.

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [22]

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So -- but definitely you've got more in the (inaudible) trials?

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [23]

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It looks like it is about half.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [24]

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And importantly, I can tell you what the rate of discontinuation due to anaphylaxis was in the last quarter, 0. You hear that?

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Christopher Joseph Raymond, Piper Jaffray Companies, Research Division - MD & Senior Research Analyst [25]

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I heard that. Wrote it down too.

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Operator [26]

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And your next question comes from the line of Martin Auster from Crédit Suisse.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [27]

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I've got a couple on valrox. I guess first, I was interested if you gained any additional insights into the small number of valrox patients that were reported on in the interim analysis that failed to kind of muster an efficacious response? Curious if you've been able to kind of divine anything from blended analysis -- blended analysis of patients undergoing trial or anything like that? And secondly, curious if you've got a sense for your preclinical programs what percent of liver cells get transfused with valrox at the commercial 6e13 dose that you're studying? And also wondering if you have any sense of kind of variability around percentage of liver cells transfused.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [28]

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Additional insights about the low transducers, not so much. Pretty much as reported, but I'd also put the emphasis here on -- the phenomenal reduction in bleeding that occurred in the interim analysis cohort and how important that was in driving our confidence and the health authorities' confidence -- our confidence in driving towards a submission and their -- our confidence in their willingness to accept a submission. And really, those patients were not even very much the subject of discussion. As regards ongoing trial analysis, I think it's really important to pave right now an expectation that we will not be reporting results of the ongoing clinical trial. The next data readout will be the 52-week ABR on the 130 patient prospective primary endpoint Phase III clinical trial that we reported. Everything else is immaterial relative to that.

And then in terms of preclinical studies on percent of transduction and variability of transduction, off the top of my head, with the dose that we used and the promoter that we used, you're getting a much higher proportion of the liver transduced than at lower doses. I want to say the whole liver is transduced. Now whether the whole liver expresses protein, it's a different story. There do appear to be zones in which there is more or less protein expression. So there is some variability of protein expression in the preclinical studies that we recorded, which is not dissimilar -- which is similar to the variability of expression that we observe in human clinical trials. But, taken altogether, and zooming back to the top of valrox, we're really thrilled that we hit the [preset] interim analysis to the tune that would satisfy health authorities for initial submission. And we're really thrilled with the durability of valrox 3 years down and counting, demonstrating both a huge, not just economic value. At this point, the economics of valrox are so self-evident that it's an easy story to tell. What shouldn't get lost here is the value to patients. And we've heard such transforming stories from patients about the impact that this has in their lives. I would be pleased to talk about that all day, every day.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [29]

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And it's so complex that people sometimes they lose the big picture and I just want to remind people that the Phase II and the Phase III trials, we're not comparing gene therapy to no treatment. We were not comparing gene therapy to placebo. We were comparing gene therapy to standard of care treatment. And we showed a dramatic reduction in [bleeding incidents].

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Unidentified Company Representative, [30]

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And the standard of care was withdrawn.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [31]

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It was standard of care, so we took standard of care, withdrew it, get off of it, and this is how we are reporting the results.

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Unidentified Company Representative, [32]

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And the patient's did better.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [33]

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This is somewhat different from other gene therapy products.

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Martin Douglas Auster, Crédit Suisse AG, Research Division - Research Analyst [34]

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One quick follow-up. So the question I was asking about the -- maybe the percent of liver cells in the preclinical model that were transfused that were expressing protein. I both wanted to understand better what you know about what's going on with valrox, but also potential read through for other gene therapy programs you might be using with AAV5, for example, the PKU program. Just to get a sense of how kind of diffuse delivery you're getting transduction and then protein expression. Thanks for the color you provided. If there's anything further from that, that would be great to know too.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [35]

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There's still a lot of learning from valrox to PKU gene therapy program. We'll go into this in a little bit more detail at R&D Day. But the short version is that we won't really know what the effective dose in humans is until we get to human clinical trials. And we know that the amount of liver transduction is influenced by the amount of dosing you give. So a lot of this is TBD.

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Operator [36]

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And our next question comes from the line of Matthew Harrison from Morgan Stanley.

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Matthew Kelsey Harrison, Morgan Stanley, Research Division - Executive Director [37]

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I guess 2 for me. So first, I guess the one question is, on the few patients in the interim analysis for valrox, where you weren't able to report whether or not they hit the 40% threshold or not, do you think you'll report on them? Or when might you report on them? And then the second question is, Jeff, can you just sort of comment for us around how we should think about the rollout of Palynziq in Europe in terms of what contributions we might see this year versus next year? And if there will be any patients transitioning from clinical supply to commercial supply?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [38]

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So on the first question, additional reporting on the 1,600 analysis patients, we're in the process of writing out manuscripts for journal submission and I think that will dictate a lot about what and how it gets reported. And I say stay tuned. As I said, there are not going to be any further data updates until the 52-week data on 130 patients with prospective endpoint of bleeding. So for the most part, the information that is to be had is out there, and I don't expect the publication will meaningfully change what's been in the public domain. We've obviously crawled through the data at the patient by patient level so are the health authorities and provided patient by patient details to the health authorities already. And so far, the conclusions remain as we represented them that the study managed predefined interim analysis are adequate for regulatory filing, engages this tremendous amount of investigator interest and patients interested in participating in the studies and gives us confidence to finish enrollment in the pivotal clinical trial. And as J.J. mentioned just a second ago, gives us a huge amount of confidence that we're going to win when it comes to superiority against prophylactic standard of care when that standard of care is withdrawn. So...

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [39]

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And if you want to satisfy then that there's 2 patients in which "normal satisfactory level" of bleeding.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [40]

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Yes. It's interesting. In general, bleeding was lower with rare exceptions. And actually one of the exceptions was somebody whose Factor VIII levels just -- the connection was a little bit slower in that individual, and their prophylaxis was withdrawn at week 4 and they didn't get satisfactory results into a therapeutic -- hemostatic efficacy range until a few weeks later. And so that's why they had a little bit more bleeding. Actually, it validates the point that J.J. was making about the amazing result when you withdraw standard of care and in spite of that, people stopped bleeding. So the amalgam of the picture both at the individual patient level as well as the total group level is to say, there are profound effects on bleeding in patients who have withdrawn prophylactic therapy. And like I said, that's been driving a lot of the interest at the patient level, the physician level and at the regulatory level.

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Matthew Kelsey Harrison, Morgan Stanley, Research Division - Executive Director [41]

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Okay. And over -- Matthew your question about valrox in Europe.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [42]

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We're not marketing yet in Europe.

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [43]

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Not yet, but I'm anxious. Okay. Palynziq in Europe, and maybe I can do a little compare and contrast. In the United States, we had really a running start. We had a number of our best clinics that were -- experienced in Palynziq through the clinical trials program. We had a material number of patients that we were able to transition pretty rapidly from a maintenance dose in the clinical trial to a commercial maintenance dose which immediately drove revenue. We have the ability to get really rapid reimbursement approvals on a patient-by-patient basis in the United States. And in fact, that's what we've experienced. And then we had what we've described accurately as a slow start for patients when they begin the induction and titration process, roughly a quarter before they begin generating meaningful revenue. And then once they do, the evidence so far is they are pretty compliant and very persistent with therapy. So that has resulted in the quarter-to-quarter step-ups in revenues that I'm just thrilled about and the arithmetic on that, if you follow $12 million to $19 million last quarter into this quarter, that kind of rate continues into the future, and we're getting into big revenue numbers pretty quickly.

In Europe, we've got a different situation. We don't have that running start. We don't have clinical trial patients to transition, we don't have clinics that are experienced with Palynziq, and we have, as you know, pretty slow reimbursement processes to navigate before we can start commercial sales. That said, there's some really positive things going on in Europe that causes me to be really bearish about the prospects starting next year, one of which is there's just a larger adult PKU patient population in Europe, and they are relatively well-managed in centralized centers of care relative to the fragmentation of patients in the United States. So it's why we're guiding to say it will start seeing material revenues in Europe next year. We've got a lot of work to do to get through reimbursement processes, to get sites trained, experience with their first patients, first patients to get through induction and titration before they start generating material revenue. I'd say look for Europe to start showing up materially next year and then being a growth driver for Palynziq really in the following years as we look to tap into that bigger patient population.

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Operator [44]

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And your next question comes from the line of Joseph Schwartz from SVB Leerink.

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Joseph Patrick Schwartz, SVB Leerink LLC, Research Division - MD of Rare Diseases & Senior Research Analyst [45]

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I was wondering if you could update us on your plans to study a higher dose and/or prophylaxis with corticosteroids in order to optimize responsiveness to valrox. Previously, it sounded like you wanted to start this kind of a study before valrox approval but now it seems like you will likely wait until after?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [46]

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Joe, I don't know that we've given any kind of granularity about start times. I think the interest would be to have the data soon available after launch. We think of that as a post approval optimization. But when the study starts, I don't think we've given really clear feedback about it. And I think the other thing about that, as I said, I think it's great that we're getting a head start on product optimization, let's not lose track of product introduction as the next year's key milestone. And I'm walking around at ISTH and bumping into cynics and whatnot, who are talking about, "Wow, what a profound effect this has," and, "Wow, you guys are really out there in terms of the commitment you've made to the manufacturing capability." The fact that we can have certainty about the product going forward, we don't have to worry about are you going to change the recipe, are the results going to change from here on out. Impressive stories about the impact of bleed reduction, the impact of just eliminating factor considerations from people, replacement factor considerations to their lives. It's really -- and what's really a great team to be at and a key a reminder of the big picture about valrox. Patients are having their lives transformed, and we're just as excited as we can be to bring that product to patients. We're always aspiring to do better, sure. But for -- in the first instance, the immediate goal is make the product available as quickly as we can on a global basis.

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Operator [47]

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And our next question comes from the line of Akash Tewari of Wolfe Research.

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Akash Tewari, Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst [48]

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Can you walk us through your statistical assumptions for your Phase III valrox trial in order to show superiority over prophylactic factor therapy? I know HEMLIBRA showed an ABR reduction of about 4.8 to 1.5. And given your Phase III data, do you remain confident you'd be able to hit that? And how important is that kind of commercially? And then on vosoritide, there are about 20% of patients who had antidrug antibodies at the end of the dose finding trial. Did you notice any reduced efficacy in those patients? And was there any correlation between the percent of these ADAs and treatment duration?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [49]

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So on valrox statistical power assumption, say, with 130 subjects overall, has the power to expect a reduction in bleeding, from off the top of my head I want to say 3.5 ABRs to 1.5 ABRs. Both of those numbers are relatively conservative in the following sense. As you correctly pointed out, the HEMLIBRA control arm rate was in the high 4s. And they showed actually, when they presented their HAVEN 3 data, they showed a range of studies that were in the upper 3s, 4s and low 5s, giving us a lot of confidence that 3.5 is actually conservative -- is a resulting conservative estimate than the -- or is a high bar in terms of prophylaxis. And the bleeding rate of 1.5 on valrox is, as you know, out to year 3 -- in our 201 study, the bleed rate was 0.7, it's very low in the first 6 months of treatment in the interim analysis cohort. So I walk away from this with confidence that we have every bit of the 90% power that we plan to have, if not better.

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Akash Tewari, Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst [50]

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And just on the vosoritide.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [51]

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So give me that question again, I was thinking about the answer to the first question when you were asking the second question.

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Akash Tewari, Wolfe Research, LLC - Director of Equity Research & Senior Research Analyst [52]

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Yes. No worries. So just -- we noticed that there were about 20% of patients who had ADAs at the end of the dose finding trial. We just wanted to know if there was any reduced efficacy in the subset of those patients. And was there any correlation between patients who developed these ADAs and overall treatment duration?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [53]

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I'll just -- no correlation between the presence of antidrug antibodies and clinical outcomes. And fairly consistent with what we observed across all our programs, developing antibodies to Vimizim, Naglazyme, Aldurazyme and the dose that you give is higher than the antibody [experience so you have to bring it in]. And it's very difficult to demonstrate clinical significance of the antidrug antibodies because obviously the sole exception to this is the induction severity -- induction reactions to Palynziq, which are antibody-mediated. But in general, with vosoritide -- it's different with vosoritide, no correlation of antidrug antibodies in adverse outcomes.

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Operator [54]

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And your last question comes 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 [55]

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Just a few quick ones on valrox. First, what is the gating step for the BLA filing? Second, do you expect, not just approval, but also commercial launch prior to the Phase III data generation? And then third, how many patients were enrolled in the low-dose cohort? And when do you expect to report results from that study since it is being terminated?

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Unidentified Company Representative, [56]

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Josh, good to hear from you. And I should mention that we're going to organize a little bit of follow up on some vosoritide things for you because we want to make sure you have the most correct information on vosoritide. But to get to your question on BLA, it's mainly a matter of writing our final reports. Believe it or not, in spite of the fact that there are mainly 2 studies going in, they're actually a fair number of reports from preclinical, my shop; Robert's got a ton of reports to write up in terms of validation and PPQ campaign results, stability. So it's just a lot of reports to write and that's what we're busy in the process of. And the agencies are pretty specific about what they want to see in those reports and they want them all stamped, final seal validated, and that undertakes a fair amount of quality control to make sure that the results are accurate, reliable, verifiable, that we're inspection ready, et cetera. So -- and we've been down this road many, many times before and a lot recently. We posted a lot of inspections, GOP inspections, PD inspections, GMP inspections. So we want to make sure those reports or ticked and tied so that the inspectors that come out see what they've seen before, which is nothing. And Jeff, did you want to comment on...?

I think the question was what about commercial launch timing relative to completion of the Phase III and presumably data available.

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [57]

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So it's too early to comment on PDUFA date, but submitting in the fourth quarter kind of implies that if it's a priority review in the U.S, that's sort of in the third quarter, early fourth quarter kind of an application review. The data from the ongoing 301 site will -- the last patient out will be a year from the last patient in because it's 52 weeks. So the last patient in will be, as we said on the call, early fourth quarter, so the last patient out will be in the early fourth quarter of 2020, which is likely to be around or just after the PDUFA date in the U.S. and potentially even the EMEA action date in Europe, depending on process. And the data readout will be after that. So the data will be available from the -- the bleeding data will be available from that portion of the study shortly after initial product launch.

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Joshua Elliott Schimmer, Evercore ISI Institutional Equities, Research Division - Senior MD & Equity Analyst [58]

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Okay. And the number of patients enrolled in the low-dose cohort and time you get data posted?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [59]

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Negligible low and it probably won't even get reported separately except as a formal update to a health authority. No practical consequence at this stage. Nobody is interested in that study at that dose, except for people who can't deliver higher doses.

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Operator [60]

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And our next question comes from the line of Paul Matteis.

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Nathaniel Tower, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [61]

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This is Nate on for Paul. Maybe just one on Palynziq. How -- you mentioned it's taken like a quarter to see meaningful revenue from patients. How variable has that titration protocol been across clinics to get onto maintenance dosing? And then are you seeing any repeat clinics get faster as they gain experience with Palynziq?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [62]

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Great question. The experience to date with a pretty big body of new to treatment patients is that the patients are adhering very closely to the titration schedule in the label. There are some patients that go a little slower than the label step up, which we've anticipated because we know when our guiding clinicians say, look, if you see reactions, slow down, you'll get there eventually. Not very much evidence that patients are going faster. So remarkably close to the label schedule for that.

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Nathaniel Tower, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [63]

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Got it. That's helpful. And maybe quick one on the achondroplasia Phase III. Just -- this is basically some back of the envelope math, it seems like that powering, that 90% powering maybe is conservative. Are you thinking there is going to be a step up in variability just based on the expanded age criteria or something else?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [64]

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Well, our statisticians are like the people at the deli counter. They add a little bit on their side and yes, it is a little conservative because -- the growth rate that we observed in the first year after vosoritide was probably a little bit north of what the target for powering is and the other thing you should understand is that the target for powering, which in my comments I said was 1.75 centimeters, if you actually observe 1.75 centimeters your P value wouldn't be 0.5, it would be .001. So a different thing to talk about is the clinical -- the critical threshold for significance and that's much lower than 1.75. So we have a lot of insurance that our statisticians built in. And intrinsically, there's a lot of insurance from the fact that patients are serving as their own control. We have that run-in period. People might have forgotten about that, but we ran in patients through a prospective observational period so that we compare the individuals change from their own individual baseline ABV to a post treatment and then sum that across all the drug group and compare that to sum across all the placebo group. So the study was built to standards of robust design in -- all ways.

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Operator [65]

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And our next question comes from the line of Joseph Thome from Cowen and Company.

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Joseph John-Charles Thome, Cowen and Company, LLC, Research Division - VP of Healthcare [66]

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The first one on Palynziq. I guess are you seeing patients that are currently on Kuvan that do not want to switch over to Palynziq? And maybe what's the reason behind that? Are they happy with their current therapy or want to see more safety follow-up data or what are you hearing from that? And then second may be more of a broader picture question. What are your thoughts behind additional investment in gene therapy versus other treatment modalities? And maybe how does BD fit into that?

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Jeffrey Robert Ajer, BioMarin Pharmaceutical Inc. - Executive VP & Chief Commercial Officer [67]

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I'll deal with the first question about Kuvan patients and Palynziq. There is substantial data of Kuvan patients transitioning to Palynziq. So fully 37% of our naive patient referrals are active Kuvan patients that are choosing to switch over to Palynziq. And there's another body of patients that have previously trialed and not been successful on Kuvan that are choosing to start Palynziq. So the evidence would be that patients that are in -- adult patients that are in clinic are highly motivated to switch over to Palynziq. What we have not done yet is gone out to survey the market and learned the attitudes and reasons why patients that are on Kuvan have trialed Palynziq are waiting. We'll do that, but I don't have data on that question yet.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [68]

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Let me elaborate on this idea but we don't have the exact answers to your question. Again, I see as we gather more and more experience with Palynziq, it's going to become clearer and clearer how powerful this product is and how much it's transforming the lives of the patients, which actually could even trigger further adult Kuvan patients to switch to Palynziq as more and more experience is gathered. Because again, patients that are -- with 9 months' experience with the drug now on the market, we clearly have very small percent of these contributions, 5% versus 10% in the trial. Most of them unrelated to actually side effects. We have patients that are extremely impressed with the impact of the drug on their [Fe levels] and their quality of life. So I think the product is doing as good or better than anything we anticipated in this respect, and so it looks like it's behind us. We reported over 700 patients already on commercial product or ready to go at the end of June. Obviously since then, we have accrued more patients and this bodes very, very well for the growth of the product in the U.S. and down the road in the rest of the world. And you asked a question on additional PPQ therapy. You want to get started on that?

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Henry J. Fuchs, BioMarin Pharmaceutical Inc. - President of Worldwide Research & Development [69]

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Come to our R&D Day, first of all, and we have our sights set on, if not our next IND, probably our next 2 or 3 INDs. So we're feeling really good about the preclinical pipeline and especially feeling really good about the pivot to medium rare. Big shout out to Lon Cardon, our CSO, and their team have done just a fantastic job putting the pedal to the metal. We look at things all the time in BD. We have done, since we've last spoken, some smaller earlier stage -- we like these earlier stage things like -- things like valrox, for example. Everybody forgets we licensed valrox as a preclinical asset in 2013 with human clinical trials for 2015, started Phase III 2017, will be filing for global approval in 2019. So while we talk about them as early, with the molecular specificity and the BioMarin track record, we can motor through those things. So there are a few early-stage licenses that we're pretty happy about, not, for competitive reasons, ready to talk about. What we will be able to talk about are some gene therapy ideas, some nongene therapy ideas that we have. It's really, really, happy times for early pipeline at BioMarin. Looking forward to sharing more details.

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Operator [70]

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In the interest of staying on schedule, that concludes the Q&A portion of the call. I will now turn the call back over to the BioMarin's Chairman and CEO, J.J. Bienaimé.

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Jean-Jacques Bienaimé, BioMarin Pharmaceutical Inc. - Chairman & CEO [71]

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Thank you, operator, and thank you for participating on our call today. So as you just heard, the coming 18 months will open up many new opportunities for the company, which we expect will drive significant growth beyond our existing commercial business. And as Palynziq expands and accelerates into new markets, we will pursue approvals and launch of valrox followed by the same path forward with vosoritide, should the data be supported. Our manufacturing capabilities give us an important edge across our product pipeline into gene therapy and we intend to leverage our gene therapy plans and expertise to rapidly develop our next gene therapy product, BMN 307 for PKU.

So taken together, BioMarin is a force for significant commercial expansion over the next quarters, and we are preparing for success. Thank you for your continued support, and we hope to see you at R&D Day in November. Goodbye.