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Executives

Dan Spiegelman - Executive Vice President and Chief Financial Officer

Jeff Ajer - Senior Vice President and Chief Commercial Officer

Analysts

Robyn Karnauskas - Deutsche Bank

BioMarin Pharmaceutical Inc. (BMRN) 2013 Deutsche Bank BioFEST Conference Call December 3, 2013 9:35 AM ET

Robyn Karnauskas - Deutsche Bank

Alright, thank you all for joining us. For those of you on the webcast, my name is Robyn Karnauskas. Next we have BioMarin Pharmaceutical and we have not only Dan Spiegelman, the Chief Financial Officer, also Jeff Ajer, the Chief Commercial Officer. So thank you both very much for joining us this morning.

For those of you listening to the webcast, feel free to e-mail me. People have been e-mailing me questions and I'm happy to read them, or if you have a question in the audience, just raise your hand, we'll bring the mike to you. So again, thank you very much.

I guess I'd start off, since we have the Chief Financial Officer, let's talk about profitability. Of what people ask you, it's probably the first question most of the time. So, you have now a potential blockbuster product on your hands. You could have another one with achondroplasia. How do you view spend and are we getting to the point where profitability is a goal?

Dan Spiegelman

Oh, absolutely. I mean it's not the first near term goal, the first near-term goal obviously is to get Vimizim approved and to continue to drive the pipeline of late-stage products that we have. We have talked about – we think Vimizim, as it gets beyond launch, will be the basis on which we can become first breakeven and then profitable and then the products that follow after it give us the opportunity for not only profitability but sustained and growing profitability, and that's why we are in fact driving the pipeline that we are. We could be profitable today but at the expense of future growth.

Robyn Karnauskas - Deutsche Bank

I mean the way we're modeling it, we don't have you turning profitable until you had $1 billion in sales and have consistent sort of expenses on SG&A and R&D. Is there a breakeven point that you can get there, is it $1 billion?

Dan Spiegelman

We haven't given guidance with respect to a specific number.

Robyn Karnauskas - Deutsche Bank

Is my model crazy or…?

Dan Spiegelman

I doubt it. I hope not. I think you're good at what you do.

Robyn Karnauskas - Deutsche Bank

Fair point. I'm just wondering like is there a point where you just still want to keep reinvesting in the business? You will have achondroplasia, there is a lot of interesting pipeline products, and these could be blockbuster products that cost more. So I mean how do you feel about balancing that with heading profitability?

Dan Spiegelman

It's a balance of a deep enough and robust enough pipeline to drive future growth with an appropriate level of sales, revenues and profits for current growth, and we think if we were doing that today, it would be too early, it would be too – the potential growth prospects wouldn't be appropriate. So that's why we're driving the products we are. Vimizim is coming to launch, and as you say achondroplasia and some potential other ones, but in order to do that, we have to invest in the pipeline and that's what's coming right now.

We have talked about how we would expect R&D expenses to be up next year as all those various programs we have move not just from starting Phase 3 programs but actually being in the Phase 3 for all of next year. We would expect with the revenue growth that's coming, that R&D as a percent of revenues would probably peak next year and would start coming down as we drive to an ultimate business model with more sort of normalized R&D as a percent of revenues and then profits from there.

Robyn Karnauskas - Deutsche Bank

As far as what you view as a normal percentage of revenues spend for R&D, what do you view as normal for biotech for you?

Dan Spiegelman

I mean we haven't gotten there yet, so all we can do is look at what's out there in the marketplace and 30%, 40% would be pretty normalized I would expect.

Robyn Karnauskas - Deutsche Bank

Do you see a dollar amount in the $300 million range there and how low can you go as far as...?

Dan Spiegelman

I don't think we're…

Robyn Karnauskas - Deutsche Bank

Okay.

Dan Spiegelman

That will depend on circumstances at the time.

Robyn Karnauskas - Deutsche Bank

Okay, what is your philosophy for the Vimizim launch as far as spending on SG&A upfront and giving it a global launch? I mean how do you view timing of that spend and hiring the sales force?

Dan Spiegelman

So I can let Jeff go into some of the details. So we have talked about that investing in that launch we think is a very important thing for the business, both for the product in the long-term and the long-term prospects for it. So we have guided to a 20% to 25% increase in SG&A over the next couple of years, most of it next year, to allow for the expansion, not only of the promotional efforts but the sales efforts, to be bringing these patients onboard. Jeff, why don't you talk a little bit about what those efforts will be?

Jeff Ajer

Yes, happy to. So, we get a lot of leverage out of the existing commercial infrastructure to launch Vimizim. The two things that we require some growth in spending are driven by, one, additional call points beyond where we're already at. So we have people in most of the right places calling on most of the right physicians but there will be additional call points for Vimizim and we need to have bandwidth for that.

The other piece is that our business model is based on a high patient touch model. So, we don't have the luxury of getting patients started and then forgetting about them. These patients require some care and attention, not only when they get started on therapy but as they continue and stay on therapy, hopefully for years.

Dan Spiegelman

And so that's what we have talked, sort of our goal is commercial expenses as a percent of revenues to be in the 20% range at maturity for the product, not at launch but at maturity.

Robyn Karnauskas - Deutsche Bank

When we think about looking back at Genzyme and your experience launching different LSPs, reimbursement got easier for them with each drug they launched because they had experience, and we have seen recently reimbursement take a lot longer than it used to in Europe. What are your thoughts on reimbursement, getting reimbursement, and do you think it's going to just take a longer time like we have seen with other drugs or do you have a history with Europe where you think that you will be able to leverage that?

Dan Spiegelman

It's a great question. History and experience matters clearly but the reimbursement environment is shifting over time. So I don't think – it's not directly applicable to look at what happened five or three years, seven years ago and say that's repeatable. So, the reimbursement environment has changed. We think that we're well prepared and that we have got a product coming online that is prepared to navigate the reimbursement system. We have people in the right places that know what that reimbursement environment looks like which varies country by country by country. So we are optimistic. At the end of the day, it comes down to the strength of your value proposition. So, yes, there are price levels, those are important. Getting the nod for reimbursement, that's important. It all starts with having a good strong value proposition, we think we've got that behind Vimizim.

Robyn Karnauskas - Deutsche Bank

Okay. So you think it will be quicker or in line with other drugs?

Dan Spiegelman

Our best comparator at BioMarin is our experience with Naglazyme. So that is now eight years old since our first launch. At the time we didn't have the people in markets to be able to drive launch and reimbursement right away. We had to put those assets in place. That took time. So, relative to the Naglazyme commercial experience and uptake around the world, we think that Vimizim should go at an accelerated pace.

Robyn Karnauskas - Deutsche Bank

Okay, do you think you have all the personal relationships intact like normal orphan business is for this product?

Dan Spiegelman

We think that we have got the right people in place with the right relationships. We think that we are prepared and ready to go. But reimbursement – getting the reimbursement decision does take time and it's a different story in every market. So, we think we're well prepared to go out and do that.

Robyn Karnauskas - Deutsche Bank

Okay. And then a question about the panel. Actually I was struck by how – I thought how tough they were, I mean you guys did a great job and there was a lot of data behind it, but as far as orphan, I thought they were a little tougher versus in the past with other orphan diseases, and I was just wondering what your thought in general as far as the environment at the FDA in force and approval, I mean you guys did a lot of work, placebo-controlled trials, natural history, and clearly it seemed like they liked that and they wanted maybe even more as far as patient sub-population or something, what was your take on the panel?

Dan Spiegelman

Yes, I mean I really can't comment on sort of on the FDA's attitude towards orphan drugs in general. We thought that their questioning was appropriate and reasonably balanced, and that the panel thought quite highly, obviously not only of the material that we had, but frankly the breadth of responses from patients. I mean one of the things I think you saw out of all this was that the six-minute walk test is sort of the test that gets used in a lot of these, but it's not a perfect marker and it doesn't encompass everything, and I think both the FDA and the panel appreciated that.

Robyn Karnauskas - Deutsche Bank

Do you think there are some populations that doctors won't choose to treat, I mean there was discussion obviously around a lot of the sub-populations and the data benefited most, but then patient [specified look] (ph) just because that didn't qualify, still had a benefit, where do think…

Dan Spiegelman

I'll let Jeff comment on it as well but we don't see that happening sort of in categories. Doctors are going to make individual decisions for their patients.

Jeff Ajer

Yes, I think it's important that we don't have a restricted label starting off and the Adcom was interesting and instructive and it looked like it would be steering away from restrictions for patient subgroups. Beyond an approval and a label then, there needs to be a compelling reason for physicians and patients to want to start on treatment and for payers to pay for that. So different patients based for example on the severity of their disease or their age may have a different status of their disease and that may drive different goals for treatment.

So, we have been working for the past several years to develop a good and compelling story, both on the disease side and on the therapy side to have a good reason for patients of different subgroups and with different statuses to want to consider and go on therapy.

Robyn Karnauskas - Deutsche Bank

Okay. Any questions in the audience?

Question-and-Answer Session

Robyn Karnauskas - Deutsche Bank

I wanted to talk to achondroplasia, interconnect really big opportunity for you. Can you just remind us the timelines for, you're starting a trial right now, when could we see data from that trial, and then how do you view the right patient population for this drug?

Dan Spiegelman

So to talk to the patient population, we think there's in the neighborhood of 25,000 patients in the United States and Europe with achondroplasia and we think roughly 25% of those will be at the age where they are still growing and that their growth plates haven't closed, and so we think those are potential candidates for – within the prevalent market for achondroplasia as well as obviously the [infants] (ph) market as new patients are born every year, because the place where the drug will work from what we know is in patients where they are still growing.

The next study that we are going to do – the clinical study that we have done so far is the Phase 1 in healthy volunteers. So the next study really is a safety dose finding study in achondroplasia patients. So the primary endpoint of that is safety and the dose but we will also have a proof of concept element on the efficacy side as well where we will look for things like change in growth velocity for patients. That study we expect to start enrolling in the first quarter of next year. And how long it will take to see data will be really a question of how the dosing goes and which doses have efficacy in terms of whether it's the first or a latter dose.

Robyn Karnauskas - Deutsche Bank

As far as patient identifications, you already have patients lined up to participate in that trial, do you think enrolment will go quickly?

Dan Spiegelman

I think they have started to identify patients and we are not particularly concerned about enrolling in this study. Achondroplasia patients are relatively easy to identify, certainly more so than for example Morquio patients.

Robyn Karnauskas - Deutsche Bank

And we think about – the reason why I asked about what the ideal patient population is, because it's deemed that the earlier the better but you can't do trials probably in babies. So how…?

Dan Spiegelman

Right. It's just like with Morquio, right, the study – there is a lot of discussion at the Advisory Committee Meeting of how getting patients on earlier is better but in Morquio, in the basic Phase 3, you had to be five years or older and we are doing subsequent work to show safety in younger patients. So I think you will see exactly the same thing in the achondroplasia program where there will be a minimum age level to start patients for safety reasons and then you'll have to do work and grow it in turn to earlier patients over time.

Robyn Karnauskas - Deutsche Bank

What is a good endpoint for a pivotal trial? I guess prevention of some of the surgeries that these patients go through, is that a possible endpoint?

Dan Spiegelman

I don't know the answer to that. I haven't sat in discussions about what the Phase 3 endpoints would be. I'm sure growth is the most visible obvious measure and growth velocity and those are the endpoints that we are using in the growth hormone studies, and that's one of the easiest sort of comparative marker. But there certainly could be other ones because growth is not the – growth is the most visible issue for the patients but it's not the most important medical issue for the patients. And so, would we be able to do work on other ones? It's an interesting thing. I'm sure we'll look at it in Phase 2 and give thoughts to it in Phase 3.

Robyn Karnauskas - Deutsche Bank

And how do you think about the market opportunity for drug that I guess if you are designing it to stop it at a certain point, I have heard that there could be benefits for giving the drug longer, but I assume that you'd initially be developing it for just during the growth phase, is that how you…?

Dan Spiegelman

That's right, I mean that's how we sort of – that's why we have described some market opportunity the way we did, and I think we'll have to see what the data shows this after. I'm sure if it works in those patients, that there'll be exploration as to whether there are health benefits for older patients as well, but we haven't done that work yet.

Robyn Karnauskas - Deutsche Bank

So you think of this drug when you model it as a drug that people are only on for like a 10 year period of time and how does that affect pricing, and the drug that's usually for LSPs, you're on it for life?

Dan Spiegelman

It's true. The way we have modelled it is through the growth period of their life.

Robyn Karnauskas - Deutsche Bank

Do you price it differently, and you're preventing a lot of surgeries, theoretically you could prevent a lot of surgeries and that could be very costly to payers and you also want to recoup your expense for selling the drug and you're not going to have a lifetime, so does it make a drug potentially more expensive than other LSPs?

Dan Spiegelman

I'm sure we'll take that into account but it's mostly about the value proposition and where it sits in sort of number of patients and the pricing.

Robyn Karnauskas - Deutsche Bank

How many surgeries do patients typically have over their developmental period and how costly are those surgeries?

Dan Spiegelman

Actually I don't know the answer.

Jeff Ajer

I don't think we have done that work yet but clearly achondroplasia comes with a lot of orthopedic procedures. These patients are primarily followed by orthopedists after their bones are diagnosed. So there is potential benefit there. And to your point, I think with payers, it will be an attractive selling point to stay but there is an endpoint where this drug, this window could go on for the last time.

Robyn Karnauskas - Deutsche Bank

As far as I guess – any other questions from the audience – PEG-PAL, so I know the street isn't too excited about PEG-PAL I would say. It sounds like not probably the first question you get, but what is your view on the opportunity and where investors might – what investors might be missing as far as the opportunity for PEG-PAL?

Dan Spiegelman

Yes, so we think – first of all, PEG-PAL is if you will the next opportunity. So if nothing else, it's the most imminent, it's the one where we will have phased – we potentially have pivotal data at the end of next year. PEG-PAL is a very interesting drug that becomes the second drug in our PKU franchise which would exist with both Kuvan and PEG-PAL. Kuvan is a good drug for the patients that it works for, and something like – it works in about 30% to 50% of the patients and those patients achieve roughly 30% reduction in Phe levels.

But those patients, even those patients have to stay on their Phe restricted diet in order to see those sorts of benefits. And the Phase 2 work that we have done, PEG-PAL gets a dramatic in the 70% range reduction at Phe. Everybody that's made it to the maintenance level has gotten their Phe levels well below the target level, and they are able to do that without having to stay on a restricted diet. And in the study we did recently, we were able to show clinically some improvement in neurocognitive endpoints that goes along with the anecdotal stories we get out of PEG-PAL patients.

So we see PEG-PAL actually as a dramatically bigger opportunity than – potentially than Kuvan is, which as you know sort of grew roughly 20% over the first half of the year and continues to grow nicely. So we think PEG-PAL is a very good opportunity for us as acceleration to revenue growth post Vimizim launch.

Robyn Karnauskas - Deutsche Bank

Can you talk to how to think about pricing of PEG-PAL?

Dan Spiegelman

Yes, we have talked about pricing of PEG-PAL would be at a premium to Kuvan on a weight base. It would be a premium even for the same weight patients, but the PEG-PAL patients will be bigger patients because they are generally going to be the adult patients. And so on a per patient basis, PEG-PAL pricing will be, could easily be double just on a weight base alone plus the premium on top of that to Kuvan.

Robyn Karnauskas - Deutsche Bank

Do you see your PARP inhibitor as having blockbuster potential?

Dan Spiegelman

I'm not sure exactly how you describe what…

Robyn Karnauskas - Deutsche Bank

Over $1 billion.

Dan Spiegelman

Yes, so I don't know the – I mean it would – potentially, absolutely, given if we are able to show sort of in a broader range of cancers where there is repair defects beyond metastatic breast, absolutely. People are looking at it in all sorts of things there, absolutely.

Robyn Karnauskas - Deutsche Bank

Then it goes back to the spend question. You've got a lot of products that are going to cost a lot of money to develop and to me it seems like you'll be spending more than $300 million a year significantly to get these blockbuster products to market. So do you have a limit to how much money you give to Hank to spend on this trial?

Dan Spiegelman

Well, we do, I mean it's part of – we absolutely do. I mean there is a lot of stuff, we're going through our budget process right now and our R&D budget is going up next year and it's going to be substantial. There are a number of things that are very interesting to work on that we won't be doing, and one of the areas where we're being sort of paced about is in fact exactly the 673 area. So for right now, we are focused on metastatic breast opportunity and we are looking at a potential [indiscernible] work but there is a host of other opportunities that we are not going to jump on right away, partly because the data and science aren't there yet and partly because to modulate the spending.

Robyn Karnauskas - Deutsche Bank

But that's a competitive space, PARP space is a very competitive space and if you don't spend, you might miss out on another company going forward.

Dan Spiegelman

Well, that is the continuous everyday balance of moving as fast as you can to beat the competition and at the same time create that balance in terms of how much spending there is. So I mean you're just articulating the discussions that go on in our executive board room when we go through that stuff.

Robyn Karnauskas - Deutsche Bank

But you are definitely pacing the spend on…?

Dan Spiegelman

We definitely don't do everything. There are things – we have more positive NPV projects than we think it's appropriate to invest in.

Robyn Karnauskas - Deutsche Bank

Okay. Any other questions from the audience? I guess I'll ask a last one just because I have to. There is a lot of – there's been some reports in the press regarding M&A of BioMarin. Wondering what point of the Company, what – number one, do you think orphan drugs are still attractive to buyers, and then what are the restrictions you place on people coming to you interested in buying the Company?

Dan Spiegelman

I mean there is clearly interest in companies buying orphan drug companies.

Robyn Karnauskas - Deutsche Bank

Are common?

Dan Spiegelman

Somebody just paid $4 billion for one and certainly we see lots of assets out there and there are a number of people that are looking at them. It's become a very active space.

Robyn Karnauskas - Deutsche Bank

So given that a lot of your trials sort of like the cards haven't turned over yet, is it an appropriate time? So you're open?

Dan Spiegelman

That's for others to decide.

Robyn Karnauskas - Deutsche Bank

Okay.

Dan Spiegelman

Yes, absolutely.

Robyn Karnauskas - Deutsche Bank

Alright, thank you very much.

Dan Spiegelman

Okay. Thank you.

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