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BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

Q4 2011 Earnings Call

February 16, 2012 17:00 am ET

Executives

Eugenia Shen - IR

JJ Bienaimè - CEO

Jeff Cooper - SVP & CFO

Hank Fuchs - EVP & CMO

Steve Aselage - EVP & CBO

Analysts

Robyn Karnauskas - Deutsche Bank

Cory Kasimov - JPMorgan

Michael Yee - RBC Capital Markets

Phil Nadeau - Cowen & Company

Tim Lugo - William Blair

Laura Ekas - Collins Stewart

Christ Raymond - Robert W. Baird

Ian Somaiya - Piper Jaffray

Liana Moussatos - Wedbush Securities

Carol Werther - Summer Street

Brian Abrahams - Wells Fargo Securities

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2011 BioMarin Pharmaceutical earnings conference call. My name is Jeremy and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today Ms. Eugenia Shen with Investor Relations. Please proceed.

Eugenia Shen

Thank you. On the call today is JJ Bienaimè, BioMarin’s Chief Executive Officer; Jeff Cooper, Chief Financial Officer; Hank Fuchs, Chief Medical Officer; and Stephen Aselage, Chief Business Officer.

This non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical including expectations regarding Biomarin’s financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarine’s product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin’s filings with the Securities and Exchange Commission such as 10-Q, 10-K and 8-K report. Now I would like to turn the call over to JJ, BioMarin’s CEO.

JJ Bienaimè

Thank you Eugenia. Good afternoon and thank you for joining us on today's call. I have a few introductory comments before Jeff reviews the financials for the fourth quarter and full-year 2011 and then Hank will provide an update on our R&D programs and Steve will then provide more details on our commercial portfolio before we open the call for questions.

So we’re pleased with progress we’ve made in 2011 and are off to a good start in 2012. Turning to our commercial portfolio. In 2011 there was a year-over-year increase in BioMarin product revenues of 18% to $438 million. Our cash flows were $290 million at the end of the year, down from $370 million at the end of the third quarter of 2011. The decline in the cash balance is due to a payment of $81 million for the purchase of the Naglazyme royalty rights from the Adelaide Health Authority in the fourth quarter of last year.

Our R&D pipeline remains our top priority for 2012. We continue to be focused on developing therapies that make a meaningful impact in the life of patients with conditions that are often underserved or ignored. This year we had several major (inaudible) including results from the pivotal Phase 3 trial for GALNS and MPS IV, the Phase 2 trial for PEG-PAL in PKU and the Phase 1/2 trial for BMN-701 for Pompe Disease and Phase 1/2 trial for BMN-673 in solid tumours.

Looking at beyond 2012, we believe that we are well positioned for long-term growth. We have four growing commercial products with no visible competition in the short term. They are funding the majority of our R&D expenses, that we have a cool pipeline including (inaudible) for our next Phase 3 program (inaudible), strong manufacturing capabilities, a global commercial infrastructure to support future product launches and no need to raise money.

We have sufficient funds to get into the market and we expect some in the quarter to achieving sustainable profitability at some time in 2014 if guidance is successful.

Now I would like to turn the call over to Jeff Cooper who will review the financial results for the fourth quarter and the full year of 2011.

Jeff Cooper

Thanks JJ. I will start by reviewing product revenues for the fourth quarter of 2011 and then follow a more in-depth look at our operating expenses and financial results. Beginning with Naglazyme, net product revenue was $48.1 million for the fourth quarter of 2011, an increase of 6.7% as compared to $45.1 million in the fourth quarter of 2010. Changes in foreign currency rates, net of hedges had a negative $1.3 million impact in the fourth quarter of 2011.

Net sales of Aldurazyme by Genzyme were $48.8 million for the fourth quarter of 2011, an increase of 14.8% as compared to net sales of $42.5 million for the fourth quarter of 2010. Foreign currency exchange rate has caused a decrease to total Aldurazyme sales of $600,000 for the fourth quarter of 2011. Net product revenue of BioMarin related to Aldurazyme was $23.8 million for the fourth quarter of 2011 compared to net product revenue of BioMarin of $23.1 million for the fourth quarter of 2010. During the fourth quarter of 2011 there was a positive $2.8 million impact from inventory transfer revenue compared to a positive $5.3 million impact in the fourth quarter of 2010.

Net product revenue for Kuvan of $30.8 million for the fourth quarter of 2011 increased 12.8% as compared to $27.3 million in the fourth quarter of 2010. Finally net product revenue for Firdapse was $3.3 million for the fourth quarter of 2011 as compared to $3 million in the fourth quarter of 2010.

Now I will review gross margins, operating expenses and other items in more detail. For the three months ended December 31st, 2011 gross margins for Naglazyme were 83%, Aldurazyme gross margins were 66%, Kuvan gross margins were 85% and gross margins for Firdapse were 80%.

Research and development expenses increased by $15.7 million to $57.9 million in the fourth quarter of 2011, from $42.2 million in the fourth quarter of 2010. The higher costs in the quarter were driven by increased clinical cost for the GALNS Phase 3 trial due to enrollment in that trial, the Phase 1/2 trial for BMN-701 for Pompe disease, the PEG-PAL Phase 2 trial, preclinical development for BMN-111 and increased stock compensation expense.

Selling, general and administrative expenses increased by $6.4 million to $48.5 million in the fourth quarter of 2011 from $42.1 million in the fourth quarter of 2010. Major drivers for the SG&A increased during the fourth quarter 2011 are increased Naglazyme and Kuvan sales and marketing expenditures, corporate expenditures as well as increased stock compensation expense.

Now, I’ll review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the fourth quarter of 2011 was $26.7 million or $0.23 per diluted share compared to a net loss of $12.2 million or $0.11 per diluted share for the fourth quarter of 2010. Non-GAAP adjusted EBITDA for the fourth quarter of 2011 was a loss of $3 million compared to a non-GAAP adjusted EBITDA of positive $11 million for the fourth quarter of 2010.

From a cash perspective, we ended 2011 with $290 million of cash in short and long-term investments, down from $370 million at the end of the third quarter of 2011. The decline in the cash balance is due to a payment of $81 million for the purchase of the Naglazyme royalties from the Adelaide Health Authority in the fourth quarter of 2011.

For the full-year 2011, we used approximately $113 million in cash. However, when excluding the cash impact of the Naglazyme royalty buyback and the purchase of the Shanbally plant, we generated approximately $17 million in cash during 2011.

Turning to 2012 guidance, we now expect total revenues in the range of $465 million to $510 million. We expect Naglazyme net product revenue in the range of $240 million to $265 million and Aldurazyme net product revenue to BioMarin in the range of $81 million to 87$ million. We expect Kuvan net product revenue in the range of $126 million to $136 million and Firdapse’s net product revenue in the range of $13 million to $17 million.

As for our expense guidance, we expect positive sales in the range of 17% to 18% of total revenue, SG&A expense in the range of $195 million to $205 million and R&D expense in the range of $255 million to $265 million, approximately $45 million of which is for the production of drugs supplied for our clinical studies.

Additionally we are expecting non-cash amortization and consideration expense of approximately $19 million related to progress towards achieving development milestones for our acquired products. The bottom line, we expect the GAAP net loss in the range of $82 million to $92 million and non-GAAP adjusted EBITDA in the range of a positive $15 to $25 million. In 2012, we expect cash usage in the range of $30 million to $40 million and to end the year with $250 million to $260 million in cash, cash equivalents and short and long-term investments. Now I would like to turn the call over to Hank who will provide an update on our R&D pipeline.

Hank Fuchs

Thanks Jeff. As JJ noted earlier, the successful execution of our pipeline remains the top priority for the company. We made significant progress in advancing our R&D programs during 2011 and are looking forward to several key clinical milestones this year. At the World Symposium in San Diego last week, there was total of ten posters and four presentations on Naglazyme, Morquio, Pompe and Batten disease.

While there is not much in terms of new data presented, there was a high level of interest and enthusiasm from the physician community in our ongoing programs. Starting with GALNS for MPS IVA, enrollment for the pivotal Phase 3 trial is accelerating and we expect to cross 160 patients by mid march. We have completed the identification of all patients to be enrolled in the trial. It’s now a matter of weeks before the patients are screened, randomized and dosed.

Due to an overwhelming demand from investigators from all locations in the trial, we will likely keep enrolment open for a few more weeks to accommodate more patients but we are absolutely committed to reporting top line results in the fourth quarter of 2012 and filing the first market authorization application in the first quarter of 2013. We are confident in our robust design of our Phase 2 trial and are encouraged by the Phase 1/2 extensive study results.

Endurance benefits in the six-minute walk test, three-minutes stair climb and product function tests are sustained, urinary KS levels drops are sustained and the safety profile remains consistent with that of that of other enzyme replacement therapies.

Turning to PEG-PAL, as we announced that our R&D day in December of last year, we are launching a part D in the Phase 2 program to find the shortest and safest conduction regimen to an efficacious maintenance dosage. We know that PEG-PAL is extremely important and is generally well tolerated with an attractive long-term safety profile. It has the potential to address patients with the most severe end of the PKU spectrum who need a therapeutic option than most and we believe it is important to take the extra time now to optimize dosing before proceeding to a pivotal Phase 3 trial. We are continually making a go-no-go decision on this program in the third quarter of 2012. We are encouraged by the recent progress we have made and still feel confident that we will be able to identify an optimal dosing regimen by that time.

The Phase 1/2 trial BMN-701 for late onset Pompe’s Disease is progressing on schedule. We have completed enrollment of the five milligram per kilo and the 10 milligram per kilo cohorts and dosed the first 20 milligram per kilo patients in early January. As announced at R&D Day last December the initial results from the first cohort at a quarter of the approved Myozyme dose were encouraging. While we have not completed dosing of the second cohort, we remain encouraged by initial findings in small number of patients treated at half of the approved dose. However since our objective is to maximize efficacy, our goals is to dose approximately 15 20 patients at 20 milligrams per kilograms. We expect to report top line result in the fourth quarter of 2012.

We also have two ongoing trials for our PARP inhibitor BMN-673 a Phase 1/2 to open label trail BMN-673 in patients with advanced of recurrent solid tumors and a two-armed open label dose escalation Phase 1 trial in patients with hematological malignancies. As reported at R&D Day preliminary data from the solid tumor study are encouraging in terms of safety and efficacy.

We expect to report top line results for the solid tumor hematological malignancies studies in the second half of 2012 and first quarter of 2013 respectively. As for BMN-111 CNP for Achondroplasia we initiated the Phase 1 trial on healthy volunteers and expect results by the third quarter. Finally, we plan to file the IND for BMN-190 for Batten disease in the first quarter of 2013.

So in 2012 we will have seven programs in the clinic, the most ever in the history of the company. In the second half of the year we expect key data readouts from several programs including three Phase 2 program which will determine our next Phase 3 program. We’ll keep you update on the progress of our programs as they advance and Now I would like to turn the call over to Steve who’ll provide an update on our commercial programs.

Steve Aselage

Thanks, Hank. Our overall revenues from product sales in 2011 were $438 million. This represented 18% growth over 2010. In Q4 we saw the effect of order timing fluctuations that we talk about on each call. The major order from Brazil did not arrive in time to book in Q4. The first of all those orders issued on the morning of January 3. This has happened in back to back years, which gives you appearance of a concerted attempt in Brazilian to hold orders until the New Year, some thing we’ll take into account as we forecast in 2012.

Naglazyme showed very good 17% growth year-over-year but the delay in Brazil orders caused us to miss the low end of the forecast that we previously revised upward in mid-year. We continue to see positive growth in patient numbers however and continue to have a very positive outlook for continued growth of Naglazyme. We have a Moscow office now open and operating and have expanded our presence in both Turkey and the Middle East, geographies with significant upside opportunity for Naglazyme.

Recently we have seen a great deal of interest in our exposure to Europe, given concerns about the current fiscal problems in that region. When we dig into the health of our European operations, we continue to see a very positive picture. We saw overall growth in Europe of just under 10% in 2011. Our EU operation is also responsible for Africa, Middle East, Turkey and Russia and when we include this entire sphere of operation, revenues were up by approximately 13%.

We also track accounts receivable closely and feel comfortable with our current position. For example, in Italy the pharma industry survey published in Q3 of 2011 showed 262 days as the average industry day sales outstanding. In our situation the average DSO is approximately half of that.

Additionally in Greece we have only two patients on therapy with net exposure of approximately 300,000 Euros. So while the last quarter was challenging for Naglazyme, our core business is strong, continues to grow and we look forward to sustained progress in 2012.

Kuvan also continued to grow with an 18% increase in net product revenue in 2011 over 2010. We have expanded our clinical case manager group and their efforts are making meaningful impact on patient adherence. We have recently completed a pilot clinical trial with the Phe monitor. You may recall that we had previous delay due to issues with accuracy at the low end of the Phe concentration range. Our best efforts have not been able to correct that problem and in fact the inaccuracies extended beyond even the range that we anticipated to be problematic.

It is unfortunate that we have come to the conclusion that the enzyme strip technology that we’ve tried to developed, simply cannot achieve the accuracy that is needed to ensure safe and reliable read outs to PKU patients.

This technology works for blood glucose, with the levels being measured are dramatically higher than the blood Phe levels we’ve attempted to measure. The approach has proven not to be transferable to the home Phe monitor effort.

We’ve now brought this program to a halt. There are other early stage technologies being developed that may be adaptable to a Phe monitor and we will monitor progress on these efforts but at least for now, work on developing the monitor will stop.

We’re very pleased to see that we passed the 100 patient mark for enrollment in PKU-016. The study designed to show neurocognitive improvements with Kuvan. We believe the outcomes of this study will be the key to accelerate product adoption in the market place.

Commercial efforts continue to support Firdapse, with Naglazyme growth in patient mapping for GALNS our priority is moving forward.

And with that operator, we would like to now open the call up for questions.

Question-And-Answer-Session

Operator

(Operator Instructions) Our first question comes from the line of Robyn Karnauskas with Deutsche Bank. Please proceed.

Robyn Karnauskas - Deutsche Bank

Hi guys, thanks for taking my question. Just two quick ones. Number one, in R&D Day, you mentioned that you were doing checks to make sure that the six-minute-walk test in the GALNS study are occurring across all sites in a consistent way. I was just trying to get an update as far as what you’re seeing there?

Second question, given that now that you’ve enrolled more patients in the Pompe program, do you have any better sense as to what data you need to see to progress on your own in to Phase 3, like what kind of do you need to see solid six-minute walk improvement that looks better than Myozyme walk. Could we see improvements over Myozyme, a cross trials for a full final capacity.

Hank Fuchs

Hi Robyn, this is Hank. As far as the ongoing monitoring of the study and as I reported on the R&D Day, we can look at a lot of parameters while preserving the integrity of the trial in real time to make sure that we are effective in minimizing variability and optimizing compliance. And we look at these data on a fairly regular basis and our most recent regular look at this indicated to us that we continue to operate in a very comfortable zone in terms of study quality. So as the enrollment has increased in rate, investigators are doing a great job in keeping up with the demands of performing a high quality study. As regards performance of the Phase 3 GALNS trial, if anything I am encouraged even relative to R&D day.

As far as Pompe, the basis for progressing with the completed clinical trial that was reported in the New England Journal of Medicine, as you know the co-primary endpoints of that study were walking and biocapacity and it is little premature to speculate on what the exact criteria might be, but certainly we will use the information from that trial on a historical basis to evaluate our data with the 701 and just to remind you the goal of the 701 program is to determine whether 701 represents a meaningful important advance in the treatment of Pompe’s disease because we believe the Pompe’s market is terribly underserved.

JJ Bienaimè

Robyn its JJ; let me add a couple of things. You know the clinical issues is obviously your fundamental here; as you in our protein development and in commercialization world, manufacturing is very important and because there maybe some people might not have understood why is it; if we have like the current Phase II data late this year why do we wait until the second half of next year to start the Phase III and most of it has to do with the fact that we are scaling up the manufacturing process, because we want to ease them as the Phase III study with the scaled up commercial process and that takes a little while.

When we acquired ZyStor and we acquired the product manufacturing subcontractor was manufacturing 701 with 1,400 liter scale. We now moved to the 12,000 liter scale, it’s a big jump so that process is to be fine-tuned. We are making great progress; and so we have identified a new cell line that is potentially two and a half times as productive as the current cell line, so we might look into a (inaudible) cell line, we didn't do all this between now and the middle of next year so as to able to initiate potentially the Phase III in the second half of next year. Next question?

Operator

And our next question comes from Cory Kasimov with JPMorgan.

Cory Kasimov - JPMorgan

First on GALNS, its good to see the accrual in the Phase III trial accelerate as much as it has, do you think that’s now exceeding expectations simply because sites are coming on faster than you thought or you are finding additional patients you didn't know were out there before?

Hank Fuchs

Hi Cory, It’s a little hard to sort that out; I think the main thing that I had from our meetings with investigators at the World Conference last week, its just how enthusiastic physicians and patients participate in the clinical trial. And that sort of coming through very strongly in terms of physicians aggressively scheduling screen visits, patients being willing to travel the clinical trial sites in or out of their school work if necessary. So that’s the main thing I think that comes through and in interacting with the sites.

Cory Kasimov - JPMorgan

And then on Kuvan, correct me if I am wrong, but I thought the outcome study was initially expected to report out in the second half of this year and if that’s the case what’s the cause for the spilt to mid 2013?

Steve Aselage

No, I don’t think that we had maybe we misunderstand something, I think we talked about enrollment completing at the end of this year and then data being the early part of next year.

JJ Bienaimè

Yeah, I don’t think recently we have communicated and will be taken out this year, but as Steve said and you can elaborate further Hank, we are half way done into the enrollment and rather I would say about 200 patients. We brought 200 patients more accelerating the enrollment. It was a little slow start as usual, but we’re getting some enthusiasm about enrollment right now. And we should be done enrolling by the end of this year and basically six month to end point so that’s why we talking about mid ’13 results.

Operator

Our next question comes form Michael Yee with RBC Capital Markets. Please proceed.

Michael Yee - RBC Capital Markets

Hi, thanks two questions; one upon GALNS, the first question is I mean you just mentioned that you are looking at the integrity of the studies; safe to say when you are looking at besides from six minute walk and you’re looking at those periodically on a blended basis? And then second question is on 701; obviously you continue the dose escalate I understand, you want to have the data on 20 milligrams, is there a chance that we can get either extension 5 milligram data and also why not just tell us 10 milligram data, I assume there may be a dose response. So may be we can get that data?

Hank Fuchs

So in regard to your first question, we have a pretty complicated system setup that’s intended to protect the integrity of the trial. So I don’t really want to get into the details of who is looking at what, but suffice to say, the lights are green in regard to the progress of the GALNS clinical trial. And we have a study stream committee and a study data monitoring committee to work really hard to protect the integrity of the ongoing products so that only people who need to have access to the appropriate information have that access.

As far as the Pompe study goes, as I mentioned in my prepared remarks, we are encouraged. The main message here is that we really think the most useful data to get are going to be the data from 15 to 20 patients treated at the same equivalent dose as the marketed product and we are really encouraging people to wait until the end of the year to have those data to interpret the findings of the study.

Operator

And our next question comes from Phil Nadeau with Cowen & Company. Please proceed.

Phil Nadeau - Cowen & Company

Just a couple on 2012 guidance, first on the SG&A line, there is a reasonable healthy increase in SG&A going from 2011 to 2012 despite the fact that you are not marching any new products. Can you talk about what’s driving that increase and is there any chance for expense savings on that line?

Jeff Cooper

I can address that. Basically the increase in the SG&A is occurring due to you know, we’re still spending additional funds on Naglazyme with the global expansion, but we’re also beginning to spend more money on market research and launch planning for GALNS. So we spent very little in 2011. We’re starting to ramp that up to some extent to ensure that we’re ready well in advance of a potential GALNS launch.

There is also some additional cost associated with our new facility in San Rafael that much of the company we’re moving into later this year. There is some additional depreciation cost, non-cash depreciation and higher IT cost that are really driving the increase. It’s really a combination of a number of different things; both on the selling and marketing side, but also on the G&A side as we expand support all of the new products that we’re bringing through.

JJ Bienaimè

Yeah, the fact that we signed the lease for this new facility in San Rafael because we’re running out of space here in Novato; we’re occupying a little eight buildings now. We put everybody together in the buildings that are close to each other. But for the first six months of the year, it will be more it’s actually going to be dual, we’re going to have to pay for basically, almost two headquarters because we’re going to have pay for the lease for the San Rafael facility that we are building up to accommodate our people and we have to pay for the lease for the current facility in Novato; that’s one thing. And although I say, that increased, that’s kind of paying increase; we don’t that a quick look at the companies with more or less, you know, see the revenues drop and look at Onyx Pharmaceuticals, they have this last year run rate of $200 million in G&A. So they spend more than we did last year and they have issued guidance for this year so we’ll see and our spend last year with (inaudible) report either so. And we have aligned with companies at similar stages of development and revenues.

Phil Nadeau - Cowen & Company

And as we think about the trend line in SG&A going forward, is it safe to assume that the growth in SG&A is going to decelerate or do you imagine a consistent growth in SG&A expense similar to what is going on from 2011 to 2012?

Jeff Cooper

I think the percentage increase in growth should moderate overtime obviously with the exception of a product launch and we should have a sort of a one-time incremental growth in spend. But you know the absolute amount could possibly increase but the percentage growth should be less and as our revenues grow particularly for GALNS the SG&A as a percent of sales will surely go down.

Phil Nadeau - Cowen & Company

And on the Naglazyme line, it looks like the sales that you are going to a little bit lower of what we are expecting. Can you talk about the growth drivers for 2012 and may be if any have moderated in recent quarters versus maybe where you saw it before?

Hank Fuchs

They really haven’t moderated the shortfall in Q4 as I said was specifically the result of timing fluctuations. We use Brazil as a example of lot, because it tend to order very large quantities through their federal ministry of health and those order timing you know aren’t particularly predictable and with headquarters where they have been disproportionately high headquarters where they have been disproportionately low; Q4 was very disproportionately low as I mentioned that order was held that came in literally the morning of January 3rd. So they obviously wanted to put that expenditure into the following year.

We see basic solid underlying growth really across the board. We are still seeing high single digit growth in Europe which is reasonably well penetrated. We actually had a very good in North America last year double digit growth there. We anticipate high single digit growth there for the foreseeable future and significant growth in some of the areas that we are establishing operations or have established operations, but haven’t penetrated nearly as deeply as we know we can and those areas would include North Africa, the Middle East, Turkey, Russia and we still think there's significant upside in Latin America as well. We are heading some resources in Asia this year. I am currently out with our partners doing training with our business partners in Asia right now. We think we've got upside there, so our core business is good, it’s going to continue to grow and you are going to continue to see some significant fluctuations on a quarter-to-quarter basis.

Operator

Our next question comes from Tim Lugo with William Blair.

Tim Lugo - William Blair

Regarding the GALNS enrolment ramp, was this from a specific geography and are you seeing kind of key EU countries enroll more patients rather than others? I know that you now have less size than you originally planned. So can you kind of just rectify the two?

Hank Fuchs

It’s not coming from any particular geography, it’s in across the board. Every site is really pulling out the stops and putting a lot, expressing a lot of interest to put patients in the trial. As we mentioned we do, we have had some delays with some health authorities that are not necessarily specific to our product, well they are specific to our products. So we will end up with fewer number of overall sites in the program than what we had originally planned we think. Even saying physician investigators are working very hard with the regional health authorities to make sure that everything is being done to include their sites in the trial, but the main thing is that the enthusiasm for participation as a physician investigator as well as at the patient level is just extraordinarily high.

Tim Lugo - William Blair

And will you begin focusing more on patient identification again later on in the year?

Steve Aselage

We are continuing to focus on patient identification as Jeff mentioned, some of the additional spend on the sales side is related to market research. We are doing a lot of that market researches related to patient mapping. We are active, we’re continuing to add patients into our database and Hank and his group can obviously tap into that data base. So the target centers with significant numbers of patients if they need to although right now looks like they have got more patients than they need.

Tim Lugo - William Blair

Okay, one last question. Should we expect a strong Naglazyme quarter in Q1 due to the Brazilian order and then maybe lumpiness throughout the year?

Steve Aselage

I think a good Q1 is a fair expectation.

Operator

Our next question comes from Salveen Richter with Collins Stewart. Please proceed.

Laura Ekas - Collins Stewart

Hi, good afternoon it’s Laura Ekas on behalf of Salveen. Just wanted to ask a question about Firdapse, just curious about what’s happening with the trends in the EU, I know your fiscal year 2012 guidance suggests not very much year-over-year growth and then also what your plans are for the US given sort of slower than expected sales in the EU?

Steve Aselage

I can comment on the EU and then maybe I could turn it back to JJ for the US plans. I mean what we’ve seen in the EU is some difficulty in moving compounded product out of utilization. And we’ve seen some greater dispersion of patients, the diagnosis is done in a relatively small number of centers, but then the patients tend to go back to their hometown neurologist for a follow-up therapy. We haven’t been willing to put the numbers, the size of the headcount required to follow up on all those patients. It’s simply a situation were the amount of resources that would take to drive the business substantially exceeds the amount of business that would be available from that effort.

So we have tried to be conservative with our spending over there and we are taking what business we can. We are supporting development of some of the scientific data that supports Firdapse. We are continuing to work with pricing authorities to try to get compounded drug moved out. But I think we are trying to be realistic with our forecast, we have struggled getting any type of real traction where we see significant growth and unless we get some fundamental changes in the market place and breakthroughs on the payer side, it is going to be difficult for us to show really substantial growth. And when we look at opportunity with Firdapse relative to opportunity with Naglazyme or the future opportunity with GALNS, it’s hard to throw resources at Firdapse that can be better utilized elsewhere.

Laura Ekas - Collins Stewart

Sure.

JJ Bienaimè

Yeah and regarding the US, we believe that there is a larger opportunity. I mean despite the difficulties we are facing in Europe, there is a larger opportunity in the US because we believe and we know that the FDA is much more stringent than different countries in Europe in going after compounding pharmacies. In the US I think we have said in the past two years or so that we intend to partner the product and it is not that much related to the opportunity which we believe is still pretty strong.

It’s more related to the fact that we would need to build a cell for calling on the neurologists which we are not calling on right now and that would be the only product we would have to call on those docs for and I don’t think it will be cost effective again doing ourself. We are actually are in advanced late stage negotiations in terms of partnering Firdapse in the US.

Operator

Our next question comes from Christ Raymond with Robert W. Baird. Please proceed.

Christ Raymond - Robert W. Baird

Thanks for taking the question. I know this was actually already asked but I guess I didn’t really understand the answer and it’s on BMN-701 and so, I think you guys indicated the next data set will be after all the patients, 15 to 20 patients that you have at the 20 mg per kg dose. But it is an open label study and you’ve been fairly liberal in the past about giving us sort of real-time updates. What is the logic to essentially go silent until we get the full data?

JJ Bienaimè

Well, I'm sorry. When we had R&D day, so when we did R&D Day, we wanted to give a full updates on where we are at that time for the product and all the products. At that time, we had basically a six-month data for (inaudible). Actually as of today we don’t have six months data on to know to treat that many patients. And don’t believe it is good management to give data patient by patient. We don’t want to commit to that and as Hank said, actually we’re probably going to have another R&D Day here. And that will be a good opportunity to provide you with an update of the data that we include long term 5 mg, (inaudible) data and whatever number of patients we have on the 20 milligram at that time.

Christ Raymond - Robert W. Baird

Okay. So, we might get something before the full data.

JJ Bienaimè

Well, the R&D Day is probably going to be late in the year. So, it probably will be in Q4. So, but I don’t want to commit today that we will be giving you some data before Q4 of this year.

Operator

Our next question comes from Ian Somaiya with Piper Jaffray. Please proceed.

Ian Somaiya - Piper Jaffray

Thanks. A question on the pipeline. As you realized success in many of your later stage products, what impact is it having on some of the earlier stage assets? I mean is it raising the bar at all in terms of what you would consider to be successful Phase 2 data to move some of these product or invest in some of these products or given the revenue opportunity is it in effect lowering the bar? Just curious to get your thoughts.

Hank Fuchs

Well, maybe I will start and JJ can add. I’d say we’ve been pretty productive with our R&D profile. I think JJ had hoped that we will be able to do an IND per year over the last several years and we seem to be able to match that and in fact the TBP for BMN 190 for Batten disease coming into a filing an IND in the beginning of next year. We will continue that trend. I think the core basis for progressing assets has been probably and will continue to be the extent to which there is a major unmet need, the extent to which the biology is clear and compelling and the extent to which we can get readouts in a very efficient manner and determine if the product really represents an important medical advance for patients with devastating conditions.

JJ Bienaimé

We had deals like we had as we said that thing earlier that beyond GAVNS which is where we are going to have the data this year, I think that three programs where they take several one with 673 all of them have a pretty good chance to move to Phase 3. And I think in this study we are anticipating for the three molecules this year are positive, a good chance to move forward with one, two or three.

Ian Somaiya - Piper Jaffray

Okay so the criteria hasn’t changed for a go decision on PEG-PAL?

JJ Bienaimè

The criteria for PEG-PAL as you pointed hasn’t been changed. We could be in Phase 3 for PEG-PAL right now. It is not a regulatory issue. We decided to delay the Phase 3, again not for regulatory purposes or commercial purposes and we believe that we didn’t have enough information, also we did not have optimized the induction and dosage escalation regimen and we have a pretty much good understanding as to what the chronic regimen and dose will be but not the induction regimen and we don’t have an induction regimen that is as fast as possible and that minimizes that study effect and maximize the potential commercial value of the product. We are pretty confident we have the product in our hands right now.

Ian Somaiya - Piper Jaffray

Okay. And just question on 701. We can all appreciate wanting to see the 20 mg per kg data just apples to apples comparison with Myozyme and Lumizyme. I mean how should we think about potential for maybe a higher dose. With your manufacturing support evaluation of a higher dose just to further differentiate the product on a clinical basis?

Hank Fuchs

Well, I think on a protein basis there's would be some reluctance to go to a higher dose. Simply because the data from Myozyme is that 40 mg per kilo was not as well tolerated. Now maybe that's less likely with 701 but we think at 20 mg per kilo our potency should be about five times as great as the marketed product and the capacity of individual cells to take GAA is greater with 701. So that really should enable us to test the hypothesis that the limitation and effectiveness of GAA today is inefficient delivery.

JJ Bienaimè

Yes as Hank said, we don’t know what we know today, whether it’s a critical data over the year. We don't believe there is an need to go beyond 20 mg. So its not only a cost of goods issue, we could probably can tolerate more than 20 mg in terms of cost of goods or manufacturing capacity but its more, the 14 [load] issue potentially increase (inaudible) size we had seen when you go beyond the 20 milligram. So if you don’t get Pompe milestones you need to get some more data in terms of (inaudible) from the muscles as Hank said you know we should in fact trying to understand (inaudible) as Myozyme and where they are showing the 20 milligram per kilogram of 701 is actually superior to the (inaudible) in nine to 60 milligram of Myozyme.

Operator

Our next question comes from Liana Moussatos with Wedbush Securities. Please proceed.

Liana Moussatos - Wedbush Securities

Thank you for taking my question. What was the geographic breakdown of Naglazyme sales?

Jeff Cooper

Sure, US was 7.3 million, EU with 21.4 million, international 19.4 million.

Operator

Our next question comes from Carol Werther with Summer Street. Please proceed.

Carol Werther - Summer Street

Thanks for taking my question. I have a couple of questions. I wasn’t sure with the Firdapse discussion. Are you finding to partner it with a partner file in the US or you going still plan to file on the US this year?

JJ Bienaimé

No, we are not going to file in the US this year. The plan would be assuming we have a partnership done this year and the plan would be for the partner to do the filing.

Carol Werther - Summer Street

Okay. And then have you had any price increases on any of our products?

Steve Aselage

Yeah, we plan to take more less cost of living type increase on Naglazyme this year and we don’t announce a date on those, simply to avoid any kind of changes in ordering pattern where accounts might anticipate one.

JJ Bienaimé

Perhaps only in the US.

Steve Aselage

It’s the US but the US pricing also impacts of all Latin America so the US price increased would also carry over into Mexico and South America.

JJ Bienaimè

But not Europe.

Steve Aselage

No. It would have no impact on Europe or Asia.

Carol Werther - Summer Street

And then I just want to ask long-term kind of question, when I look at my model, I am trying to figure out when you will be sustainably profitable, is that linked to GALNS at this point?

JJ Bienaimè

Yes. I mean, I think I detailed in our prepared remarks that it is definitely linked to GALNS. So with typically everything goes well then we would file in the US in Q1 of next year and then launch in late ‘13 or early ‘14. So we believe that by mid ‘14 we would be breakeven and it should be profitable in the second half of ’14. Then we should remain profitable for the foreseeable future on a sustainable basis.

Operator

Our next question comes from Brian Abrahams with Wells Fargo Securities. Please proceed.

Brian Abrahams - Wells Fargo Securities

Another question on 701, just relating to some of your earlier comments, could you walk us through the process of scale up and I recognize that you have mentioned that because end time in life and the guilt tag it might be less potential for variability to affect things. But how complex is it to change cell lines; what needs to be done, how complicated is it to scale up from a process that another company had started and do you need to do any bridging work and well any of the patients at the 20 mg dose towards the end of the study be getting material from the 12,000 liter process? Thanks.

Hank Fuchs

Yes, a lot of questions.

Brian Abrahams - Wells Fargo Securities

Well, its one question with several parts I guess.

JJ Bienaimè

We already have been scaling out when we acquired the part of the company I thought they were using another vendor at 1,400 liter scale. So we are scaling out to the different vendor and that does requires the work if any, we will do some first ones, and then you’re right in the process.

So these are the process that takes you a while, but with this, so we do have to do some kind of bridging work from the previous process and the current one. Actually the existing patients that are treated with 1,400 liter scale, including the first 20 milligram patient. But some of the 20 milligram patients on a going forward basis will be treated with a 12,000 liter scale. But with the current cell line, you guys have lots of questions (inaudible) all of them.

And then, so then we would be doing some work starting this year on potentially again on new cell lines. So we feel pretty confident, there will be new cell lines, and using the new 12,000 liter scale, but we feel pretty confident that by the middle of next year or so we will have all the data that we need to start the Phase 3 trial in the second half of next year with the new cell lines at the 12,000 liter scale.

And the reason why we’re doing all this is because, again, we want to avoid having to do some major bridging studies that like Genzyme had to do when they were doing for Lumizyme after the product had been in pivotal Phase 3. So we want to do the pivotal Phase III, reach the process and the scale that we anticipate to use for commercial.

Operator

And at this time, there are no questions. I would like to hand it back to Mr. Bienaimè.

JJ Bienaimè

Well, thank you again for being with us today. So in summary, we believe we’re off to a strong start this year. We are focused on our clearly advancing pipeline. We are on-track as we got technical results from several programs this year in the second half of the year including again the much discussed pivotal Phase 2 for GALNS. The Phase 2 for PEG-PAL which is also very important and the Phase 1/2 for 701 for Pompe and the Phase 1/2 for 673 in cancer. The success of one or more of these trials will have a very significant impact on the future of the company. So we look forward to keeping you updated on our progress and we’ll have multiple opportunities to meet this year. Thank you for your continued support and for joining us on today’s call. Goodbye.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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