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BioMarin Pharmaceutical (NASDAQ:BMRN)

Q1 2012 Earnings Call

April 26, 2012 5:00 pm ET

Executives

Eugenia Shen -

Jean-Jacques Bienaimé - Chief Executive Officer and Director

Jeffrey H. Cooper - Chief Financial Officer and Senior Vice President

Henry J. Fuchs - Chief Medical Officer and Executive Vice President

Stephen Aselage - Chief Business Officer and Executive Vice President

Analysts

Bryan Huang

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Navdeep Singh - Deutsche Bank AG, Research Division

Salveen J. Richter - Canaccord Genuity, Research Division

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Tim Lugo - William Blair & Company L.L.C., Research Division

Charmaine Chan - RBC Capital Markets, LLC, Research Division

Matthew Harrison - UBS Investment Bank, Research Division

Nicholas Bishop

Liana Moussatos - Wedbush Securities Inc., Research Division

Operator

A very good day to you, ladies and gentlemen, and welcome to your Q1 2012 BioMarin Pharmaceutical Inc. Earnings Conference Call, hosted by Eugenia Shen, Investor Relations, amongst other presenters. My name is Chris, and I'll be your conference coordinator for today. [Operator Instructions] I would just like to remind all party, this conference is being recorded for replay purposes today. Thank you. At this time, I would like to turn the call over to Eugenia to start. Please go ahead.

Eugenia Shen

Thank you. On the call today is J.J. Bienaimé, BioMarin's CEO; Jeff Cooper, CFO; Hank Fuchs, Chief Medical Officer; and Steve Aselage, Chief Business Officer. This nonconfidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceuticals, including expectations regarding BioMarin's financial performance, commercial products and potential future products in different areas of therapeutic research and development. Results may differ materially depending on the progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical market and developments by competitors and those factors detailed in BioMarin's filings with the Securities and Exchange Commission, such as 10-Q, 10-K and 8-K reports.

And now I'd like to turn the call over to J.J., BioMarin's CEO.

Jean-Jacques Bienaimé

Thank you, Eugenia. Good afternoon, and thank you for joining us on today's call. So I have as usual a few introductory comments before Jeff reviews the financials for the first quarter and Hank provides an update on our research and development programs. And then Steve will provide more details on our commercial portfolio before we open the call for questions.

So we are very pleased with the progress we have made in the first quarter, and we believe we're off to a strong start in 2012. Starting with our commercial portfolio, we exceeded $100 million in quarterly revenues for BioMarin marketed products for the first time in Q1 of this year. This was driven by a year-over-year increase in Naglazyme net product revenue of 13%, and that despite a weaker euro than last year and a year-over-year increase in equivalent net product revenues of 20%.

As we have communicated previously in early January, we booked an order from Brazil that was delayed from Q4 2011. But even without this order, Q1 would have been our strongest Naglazyme quarter since March. Jeff will explain. Net product transfer revenue had a negative $6.4 million impact on net Aldurazyme revenue to BioMarin. And despite the negative effect of product transfer revenue, we will receive $18.4 million of royalties in cash from Genzyme for this quarter. And had product transfer revenue been neutral in Q1, total BioMarin revenue would have been $123 million.

Net of Aldurazyme product revenue is expected to be neutral or positive in Q2 and positive in the second half of the year. More importantly, the total number of Aldurazyme treated patients keeps growing with a 9.1% increase in the first quarter of 2012 as compared to the first quarter of 2011.

Also, the number of patients treated with Naglazyme continues to increase steadily during the same period, and we are in a trajectory to reach top sales well above $300 million.

Following this record quarter in both Naglazyme sales and the number of patients treated, we decided to increase the lower end of our Naglazyme guidance -- revenue guidance by $10 million for the whole 2012 year.

Our cash balance were $288 million at the end of the first quarter, down slightly from $290 million at the end of 2011.

Our R&D pipeline remains our top priority for 2012. We are on track for 5 significant clinical readouts by the end of the year, including the Phase III trial for GALNS, the Phase II trial for PEG-PAL, the Phase I/II trial for BMN-701 for Pompe disease, the Phase I/II trial for BMN-673 for solid tumors and the Phase I trials in healthy volunteers for BMN-111 for achondroplasia. Positive results for one or more of these patients-based trials could be transformative for the company.

Our increased R&D spend in the first quarter is linked primarily to clinical manufacturing costs and enrollment of an additional 16 patients in the GALNS Phase III trial as compared to our initial objectives because of the overwhelming enthusiasm for the study in the Morquio community.

Also please keep in mind that almost 20% of our projected R&D spend of $265 million to $275 million in 2012 is totally for direct supply. If Phase III GALNS is approved, approximately $7 million of expenses from the manufacturing campaign in 2012 who would support named patient and commercial sales in the future, so the spend -- some of the spend is actually an investment in working capital. Also despite the expectations for higher R&D spend, our projected net income remains unchanged.

Looking out beyond 2012, we believe we are well positioned for the long-term growth. We have 4 growing commercial products with no visible competition in the short term, funding the majority of our R&D expenses. We have a full pipeline, strong manufacturing capabilities, a global commercial infrastructure to support future product launches and sufficient capital to get GALNS to the market.

Again if this is successful, we expect to turn the corner towards achieving profitability in the second half of 2014, and to maintain profitability from that point forward.

Now I would like to turn the call over to Jeff Cooper, who will review the financial results for the first quarter of 2012.

Jeffrey H. Cooper

Thanks, J.J. I will start by reviewing product revenues for the first quarter of 2012 and then follow with a more in-depth look at our operating expenses and financial results.

Beginning with Naglazyme, net product revenue was $68.6 million for the first quarter of 2012, an increase of 13.2% as compared to $60.6 million in the first quarter of 2011. Changes in foreign currency rates, net of hedges had a negative $0.2 million impact in the first quarter of 2012. If there were no hedges in place, the impact on foreign currency rates would have been a negative $1.2 million in the first quarter of 2012.

Net sales of Aldurazyme by Genzyme were $45.9 million for the first quarter of 2012, an increase of 7.2% as compared to net sales of $42.8 million for the first quarter of 2011.

Net product revenue BioMarin related to Naglazyme was $12 million for the first quarter of 2012 compared to net product revenue to BioMarin of $18.7 million for the first quarter of 2011.

The reduction in net product revenue of BioMarin during the first quarter of 2012 was due to a negative $6.4 million impact from inventory transfer revenue compared to a positive $1.8 million impact in the first quarter of 2011. The negative inventory transfer revenue during the first quarter of 2012 was due to the timing of product shipment to Genzyme.

Net product transfer revenue is expected to be neutral or positive in the second quarter and positive in the second half of 2012 as inventory transfers to Genzyme resume.

Net product revenue for Kuvan of $32 million for the first quarter of 2012 increased 19.9% as compared to $26.7 million in the first quarter of 2011.

Finally, net product revenue for Firdapse was $3.6 million for the first quarter of 2012 as compared to $3.1 million in the first quarter of 2011.

Now I'll review gross margins, operating expenses and other items in more detail. For the 3 months ended March 31, 2012, gross margins for Naglazyme were 86%, Aldurazyme gross margins were 93%, Kuvan gross margins were 82% and gross margins for Firdapse were 82%.

Research and development expenses increased by $28.8 million to $73.8 million in the first quarter of 2012 from $45 million in the first quarter of 2011. The higher cost in the quarter reflected increased GALNS clinical and manufacturing activities. We expect our GALNS manufacturing activity will be mostly complete by July 2012, resulting in lower GALNS development spend in the second half of the year.

R&D expense for the quarter was also driven by the Phase I/II trial for BMN-701 for Pompe disease, the PEG-PAL Phase II trial, preclinical development for BMN-111 and increased stock compensation expense.

Selling, general and administrative expenses increased by $4.2 million to $45.2 million in the first quarter of 2012 from $41 million in the first quarter of 2011. Major drivers for the SG&A increase during the first quarter of 2012 are increased Naglazyme sales and marketing expenses and corporate costs.

Now I'll review the GAAP and non-GAAP bottom line results. Our GAAP net loss for the first quarter of 2012 was $24 million or $0.21 per diluted share compared to a net loss of $4.4 million or $0.04 per diluted share for the first quarter of 2011.

Non-GAAP adjusted EBITDA for the first quarter of 2012 was a loss of $100,000 compared to non-GAAP adjusted EBITDA of positive $17.3 million for the first quarter of 2011.

From a cash perspective, we ended the quarter with $288 million of cash and short-, long-term investments, down slightly from $290 million at the end of 2011.

Turning to 2012 guidance, we now expect total revenues in the range of $475 million to $510 million from a previous range of $465 million to $510 million. We expect Naglazyme net product revenue in the range from $250 million to $265 million from a previous range of $240 million to $265 million. We continue to expect Aldurazyme net product revenue at the bottom end of the range at $81 million to $87 million, Kuvan net product revenue in the range of $126 million to $136 million and Firdapse net product revenue in the range of $13 million to $17 million.

As for expense guidance, we continue to expect cost of sales in the range of 17% to 18% of total revenue, and SG&A expense in the range of $195 million to $205 million. We now expect R&D expense in the range of $255 million to $275 million from a previous range of $255 million to $265 million.

The increase in the R&D guidance range is primarily attributable to the increased GALNS clinical expenses and higher costs of clinical drug supply for BMN-701 for Pompe disease.

The higher GALNS expense is driven by increased numbers of patients in the study and an expansion of our MOR-008 study, in which we aim to document the additional benefits of GALNS, which Hank will elaborate on later.

Approximately $52 million of the $265 million to $275 million for R&D expense in 2012 is for the production of drug supply for our clinical studies.

Additionally, we're expecting noncash amortization and continued consideration expense of approximately $19 million related to progress towards achieving development milestones for our acquired products.

For the bottom line, we expect GAAP net loss in the range of $82 million to $92 million and non-GAAP adjusted EBITDA in the range of positive $15 million 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'd like to turn the call over to Hank, who will provide an update on our R&D pipeline.

Henry J. Fuchs

Thanks, Jeff. As J.J. noted earlier, the successful execution of our pipeline remains the top priority for the company as we look forward to several key clinical milestones later this year.

Starting with GALNS for MPS IVA. Enrollment for the pivotal Phase III trial was completed in early March. Due to an overwhelming level of enthusiasm for the program from the physician and patient community, we enrolled and randomized 176 patients ahead of schedule compared to our target of 162 patients. We are on track to report top line results from the fourth quarter of 2012 and file the first market authorization application on the first quarter of 2013.

We've now turned our attention to enrolling the ancillary studies of which there are 3. As you know, we have started to enroll a clinical trial for patients under 5 years of age. This study is important because it satisfies the European health authority requirements for registration and will document the safety and potential benefits of beginning GALNS therapy early. The trial will enroll several patients who are siblings, either within the study or between this and other studies. Given the historical importance of comparing outcomes in siblings who started treatment early, we're looking forward to continuing to create evidence in the effects of enzyme replacement therapy when begun early.

At the other end of the disease spectrum, we plan to initiate enrollment in patients whose ambulation is limited due to progressive disease. The vast majority of patients with Morquio A Syndrome rely on systems devices for mobility. And in some cases, lose the ability to walk independently. Given prior results in trials, our belief is that we will demonstrate a dramatic improvement in ambulation, strength and well-being as substrate in enzyme function is restored and residual enzyme tested substrate is reduced.

Finally, patient screening has started for our MOR-008 study to more completely document the health benefits of GALNS by evaluating stretch exercise capabilities, sleep and well-being systematically. We are grateful to the investigator community who has pushed us to keep enrolling patients in trials, to study the diverse benefits of GALNS in a patient.

Turning to PEG-PAL, the discontinuation due to adverse events remains at a low rate. The tension in the studies continues at a high rate and virtually all patients who are active in the study have reached therapeutic dosing, who have -- and who have reached therapeutic dosing have experienced feel lowering to the target range of 600 micromoles per liter or lower.

We know that PEG-PAL is extremely potent and is generality well tolerated with an attractive long-term safety profile. We are encouraged by the recent progress we've made and still feel confident that we will be able to identify an optimal dosing regimen by the third quarter of this year to move into Phase III by the first quarter of 2013.

The Phase I/II trial of BMN-701 for Pompe's disease is progressing on schedule. The manufacturing of BMN-701 has been scaled up and we have continued dosing patients in the 20 milligrams per kilo cohort with this new material. We have more than a dozen patients identified for the trial and are on track to report results in the fourth quarter.

Since our goal is to maximize superiority, we would like to have at least 15 patients dosed at 20 milligrams per kilo to have a reasonable basis of comparison against Myozyme. We remain excited about this program, which like other enzyme replacement therapies, could have an abbreviated development time line. As we've communicated previously, although we may make the decision to progress to a Phase III trial for 701 sooner, we do not anticipate starting the trial until Q4 of 2013, as we optimize and scale our process and evaluate whether the Phase II trial will proceed from material from this new cell line.

We also have 2 ongoing trials for our PARP inhibitor, BMN-673. A Phase I/II open label study of BMN-673 in patients with advanced or recurrent solid tumors and a two-arm open label dose escalation Phase I trial in patients with hematologic malignancies.

In the solid tumor study, patients who have been enrolled in the 900 microgram cohort, which is 9x the dose when we first observed the activity, and we are still pushing towards a potentially higher maximally tolerated dose. We are reaching consensus on experts with tumors to target in the expansion phase of the solid tumor study. This consensus is being driven by laboratory evidence to susceptibility to PARP inhibitors and more detailed molecular characterization with the basis of the tumor susceptibility. We expect to report top line results for solid tumor heme malignancy studies in the second half of 2012 and the first quarter of 2013, respectively.

As for BMN-111 CNP analog for achondroplasia completion, we initiated the Phase I trial of healthy volunteers and expect results by the third quarter. If all goes well, we expect to start the Phase II study in patients later this year or early next year.

Finally, we plan to file the IND for BMN-190 for Batten Disease on the first quarter of 2013, and we have scheduled all necessary health authority meetings to support the filing.

There are 7 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 3 Phase II programs, which will determine our next Phase III program. We'll keep you updated on the progress of our programs as they advance.

And now I'd like to turn the call over to Steve, who will provide an update on our commercial programs.

Stephen Aselage

Thank you, Hank. As J.J. noted, overall revenues from product sales in the first quarter were $116 million. This is the first quarter the revenues from BioMarin marketed products surpassed the $100 million mark.

Naglazyme sales were strong this quarter with a 13% increase year-over-year. This revenue level was due to organic growth and was helped by a relatively large order from Latin America that just missed being booked in Q4 of last year. Even without that order, however, Q1 would have been our strongest Naglazyme quarter since launch.

We've been encouraged by growth even more rapid than we expected in Russia, and are ramping up our activities there. We've also seen very encouraging progress in Turkey and the Middle East. Latin America has continued to generate new patients, and we're now seeing meaningful revenues from Mexico.

Overall, patient numbers on therapy continue to grow at a steady rate. We've had no meaningful problems with reimbursement, and the overall situation has made us feel comfortable in raising the lower end of guidance by $10 million for 2012.

Kuvan also had a very strong quarter with 20% growth year-over-year. Q1 is normally our weakest quarter due to the number of patients that have to deal with changes and insurance and co-pays. We've been able to improve how we manage that situation, have also seen steady growth in patient numbers.

Our field-based clinical coordinators have also made a positive difference in patient starts and in adherence. We've enrolled roughly 2/3 of the targeted 200 patients in the PKU-016 study, which is designed to show neuro-cognitive improvements with Kuvan. We expect results in mid-2013, and the outcomes of this study will be the key to accelerating product adoption in the marketplace. That study as well as a number of other recent publications has increased awareness of the issues many PKU patients continue to deal with despite that, and this increasing focus on trying to optimize outcomes for patients has a positive impact on both patient care and on Kuvan.

Commercial efforts to support Firdapse continue, and we've seen some marginal improvement in sales. But Naglazyme growth and patient mapping for GALNS are the priorities moving forward.

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question today comes from the line of Yaron Werber from Citigroup.

Bryan Huang

It's Bryan Huang for Yaron Werber. Just a quick question on the GALNS study. I think you publicly disclosed that the study was powered at 90% to detect 40-meter improvements. And you also said the study has sufficient power to detect a 20-meter improvement. Can you tell us what was the power for 20-meter improvement?

Henry J. Fuchs

The power for detection of a 20-meter improvement is probably more like 20 to 25 is 50%, that's sort of the math. The point of that is that if the trial observes the 20-meter improvement, it will be statistically significant, that will adjust.

Operator

Our next question is from the line of Cory Kasimov from JPMorgan.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

I wanted to also ask on the GALNS study and back at the R&D Day and your Q4 report, you talked a little bit about your ongoing monitoring. And I'm just wondering if you can update us with regard to the variability and compliance in the trial that you've witnessed?

Henry J. Fuchs

All of that monitoring is going great. The monitoring systems are working well, doing exactly what we want them to do, and the clinical trial sites are doing great. I think I said in R&D Day, no alarm bells sounding, and it remains the case today, no alarm bell sounding. So I think all of our advanced training, all of our prep work has delivered in terms of minimizing variability, maximizing adherence to the protocol, the measures, compliance with the medication, inclusion of the right patients, et cetera. So we're really thrilled so far about the progress of the study.

Operator

Our next question is from the line of Robyn Karnauskas from Deutsche Bank.

Navdeep Singh - Deutsche Bank AG, Research Division

It's Navdeep Singh tuning in for Robyn. I had a couple of question. So I think prior to this quarter, the strongest Naglazyme quarter ever seen so far has been roughly about $60 million in sales. Is it safe to say that we shouldn't see quarterly sales drop below this level? And a question maybe for Hank. Can you please update us on the Pompe trial? How many patients have you started on the 20 milligram per kilogram dose? And do you plan to provide any data maybe on some of the lower doses prior to the full results?

Stephen Aselage

I can take the first question first. What we say every quarter is that we see significant fluctuations in ordering patterns. So I would never guarantee that you can't see a quarter below $60 million in the future. But we feel very comfortable with our forecast for this year, in which the low end is $250 million. So we should certainly be averaging over $60 million per quarter for the rest of the year.

Henry J. Fuchs

And as far as Pompe, to answer your second question, which partially includes your first question, first, we don't plan to give any interval updates during the course of the year on the progress of the patients in the study. Our emphasis has been on collecting data from about -- from 15 patients treated at the high dose. We have begun using that high dose material, as I said in my talk, at the 20-milligram per kilo dose level. So we're reasonably confident about regulatory acceptance of that dose, as well as in our ability to use it safely with the caveat that we're really just at the beginning of using it.

Jean-Jacques Bienaimé

For clarification, in terms of timing here. There was a hiatus between the last -- or the first 20-milligram patient and the second one probably because we had to file an IND supplement, amendment to be able to start using the 12,000 liter scale material, which we got clearance for at the beginning of April, which is good news. Because just as a reminder, when we acquired 701 from ZyStor, it was manufactured by a supplier that it was supplying -- that was manufacturing us somewhat for scales, around 1,400 liter scales and we had basically increased that scale tenfold. We still have to do some fine-tuning around that but this is why it took a little while to go -- to start enrolling beyond the first patient at 20-milligram cohorts. But now we are moving forward. And as Hank said, we still have patients in the waiting. And that's why we're simply confident that we will have 15 patients enrolled and some data on 15 patients at 20-milligram by the end of the year.

Operator

Our next question in the queue is from the line of Salveen Richter from Canaccord.

Salveen J. Richter - Canaccord Genuity, Research Division

I'm just wondering how much of the $52 million in R&D expense related to drug supply was expensed in first quarter and then how should we think about the trajectory for the rest of 2012.

Jean-Jacques Bienaimé

Well $52 million is for the year.

Jeffrey H. Cooper

$52 million is for the full year. We haven't really laid out the actual material costs by quarter. But what I can say is that the material costs were heavily weighted in the first half of the year, which is when we have our GALNS campaign and probably about half of that $52 million is related to GALNS. So you'll see a higher percentage in the first and second quarter than you will in the third and fourth quarter.

Salveen J. Richter - Canaccord Genuity, Research Division

Okay. And then just manufacturing, the GALNS manufacturing cost, is that just first quarter specific?

Jeffrey H. Cooper

The GALNS manufacturing cost will occur mostly in the first and second quarter.

Jean-Jacques Bienaimé

That's why the run rate in this quarter is a little higher than it will be for the remaining quarters.

Operator

Our next question is from the line of Chris Raymond from Robert Baird Co.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Just maybe a question for Hank on the GALNS program. I'm just wondering if you could maybe sort of clear up some confusion that we're picking up from folks. You guys have talked a lot about sort of 3 ways to win at the Phase III, and also a lot of description of the 3 ancillary studies that you're running in parallel. I mean I know this is a blinded trial. But is this commentary at all a reflection of your confidence in meeting the 6-minute walk test -- I'm sorry, end point? Or is it maybe just running these studies, et cetera, just sort of your desire to do parallel path, just sort of parallel path to these programs?

Jean-Jacques Bienaimé

So maybe I'll get started on that, and then I'll let Hank elaborate further. Actually the main reason of the additional study is actually building a very robust reimbursement file and maximize reimbursement support for the product around the world at large. I mean, definitely the under 5 is for that because we're not planning on getting the drug only approved for patients under 5. But we want to make sure it's also approved and reimbursed for patients under 5. The non-ambulatory or limited ambulation study, to make sure that also patients that have limited ambulation are covered by peers around the world because -- and obviously if we you use primary end point of walk distance, it is difficult to walk -- to measure walk for patients that are in a wheelchair. So the main gist of it is reimbursement support, including the first study that Hank can elaborate about further. So it could potentially help also for approval, but the key component of it and the key thrust behind those ancillary studies is reimbursement support. Hank?

Henry J. Fuchs

Yes. And in addition, we've talked about the 3 ways to win, and what I'd say about that is the point of all that was to demonstrate that we'd really thought about all the different ways to run the study, to run it really well, to maximize our chance to win. And as I answered earlier, all of that seems like it's working well. And so therefore, we're confident in the pivotal trial. And just the final thing to say is from a medical perspective, I think J.J. talked about the reimbursement value of it, I think clinicians are very keen to understand the patterns of how the drug works and the ancillary populations, and the ancillary studies. I think that helps build their confidence in the product, their understanding about how to use it. As I said on my prepared calls, one of the main things that we'll get out of these ancillary studies is comparisons of outcomes from siblings, which has really validated the need to use enzyme replacement therapy early and throughout life. So altogether, I think the package is a very strong package, and we're very confident about how it's running.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

And so these -- just to clarify, these ancillary studies will be part of the package, correct?

Henry J. Fuchs

Yes, that's part of the package.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

And just a clarification on the Pompe program. J.J. you mentioned a hiatus between the first patient. I think at 20 mg per kg dose. And then I thought I heard you say that you just got approval for the new process for the...

Jean-Jacques Bienaimé

In early April.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Right. Okay, so we should assume then that really you're just getting underway with that 15-dose cohort -- or 15-patient cohort?

Jean-Jacques Bienaimé

Yes. We actually have enrolled already 2 patients now in the 20 mg cohort. But we have, as Hank said I think in his prepared remarks that we have several patients lined up for enrollment that were pre-identified. And that's why we're pretty confident we're going to enroll most of these patients relatively quickly here. In other way, that's good news that the SMC and EMA is going to approve the new process. We're still doing some work on the new process. That's why we're not going to start the Phase III study until the end of next year, but we are definitely making some progress.

Operator

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

Joseph P. Schwartz - Leerink Swann LLC, Research Division

I was wondering, are you enrolling patients, this is relative to BMN-701, are you enrolling Pompe patients in your Phase I to that -- have previously been exposed to Myozyme and Lumizyme? And so are you doing any sort of a test to see what their antibody titers are?

Henry J. Fuchs

We're only enrolling patients who are naive to prior therapy. And we do obviously evaluate their immunogenesis -- the immunogenesis of the products during the course of the trial.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Okay. And do you guys have a hypothesis on how much the antibody generation of those 2 marketed drugs is due to the high protein load versus the severity of the genetic lesion and how much it might be able to avoid due to the IGF tag that might allow better affinity and you might get a better expression to?

Henry J. Fuchs

Well I don't think that the antibody response is related to the protein load. I think the clinical consequences of anaphylactoid reactions have sensitivity reactions as it relate to the protein load. And the reason I say this is because you pretty much observe antibody responses in almost everybody that's treated with enzyme replacement therapy, if you design your assays with enough sensitivity. And so in spite of great efforts to make the foreign versions-- the counter versions look like natural human proteins, the immune system, with time, it can recognize almost everything as foreign. That antibody response is more risk -- more brisk in naive patient -- I'm sorry, in infants, and that is in patients who have essentially no native GAA. That's a big part of why we're doing our study in later onset patients. And the 701, PEG probably won't reduce the antibody formation, but it should -- it can be expected to reduce the immunogenicity because of higher affinity and potentially faster and better uptake.

Operator

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

Tim Lugo - William Blair & Company L.L.C., Research Division

Hank, I believe you talked about validating 3 minutes stair climb with the FDA in the past. Can you kind of give us an update on that?

Henry J. Fuchs

Sure. And the process there is pretty well laid out in written documents. And it's a process of establishing the correlation of that outcome measured, measured in the trial doing a stair climb and patient well-being. And we've done a lot of work, developing patient well-being questionnaire. And that will help us establish the clinical relevance of the change in the stair climbing. And if all things go well, and there is an improvement in stair climbing as we observed with Naglazyme and it's deemed to be clinically relevant by health authorities, that can be included in the package insert and then available for reimbursement consideration and promotional use. And this kind of activity, mobility improved on a flat surface, mobility improved on an inclined are kind of different measures in a -- are about different systems in the body and could be incrementally valuable for product adoption and support.

Jean-Jacques Bienaimé

And if I may add also, as we have talked about we have other products in development that could actually benefit from our evaluating these end points with the FDA and all the regulatory authorities. So right now, it's still under review. We used too the 6-minute end point, but since they walk, then I think if you can introduce the stair walking -- the stair climbing as another potential end point for other products we have in development, that could be useful down the road because, as Hank said, they might be -- stair climbing might be a better measure of our studies of the patient, but yet to be determined.

Tim Lugo - William Blair & Company L.L.C., Research Division

Okay, that makes sense. And can you talk about -- you mentioned some acceleration possibly for Kuvan as a positive outcome trial as, I guess, release in 2013. Can you talk about what kind of acceleration we could see? The product seems to be doing pretty well recently.

Stephen Aselage

The product is doing pretty well recently. I think as clinicians have had more experience with it, they are seeing the benefits. They're more comfortable with putting more and more patients on. But at this point, we're still on a situation where the only real climb we can make is that it helps to lower fee levels, which is important. But being able to translate that lower fee level to say it improves in our cognitive functioning or that it improves psychological well-being gives an added value to the proposition that I think is going to make it a much more attractive option as parents consider whether to put their children on, and as adults consider whether they'd go on themselves. So we think a positive 016 could have a significant positive impact on the ramp up.

Operator

Our next question is from the line of Michael Yee from ARB Capital Markets (sic) [RBC Capital Markets]

Charmaine Chan - RBC Capital Markets, LLC, Research Division

This is Charmaine Chan in behalf of Michael from RBC. My question is with regards to 701, when you say that it's new material that is being dosed, I just want to make sure, is it like just from the scale of from the 12,000 liter or is it using a different cell line that's more productive as well. And secondly, you mentioned that you -- there's a possibility that you could start Phase III slightly earlier. If that's the case, like when would you know and what's the gating factor for that?

Jean-Jacques Bienaimé

Okay. So I'll take the first question. So this material we're using right now on a going forward basis for the ongoing Phase I/II study is just a scale-up material with the existing our original cell line. We are doing some work right now in the next few months to actually potentially select another cell line. because we identified several cell lines that are potentially more productive than this one. But we'll be making the synergies here. There are always some different variables that she enters to, so we're going to probably take the next few months to figure out if we want to introduce a new cell line and if we do, which one and when. So it's still up in the air this time whether the Phase III will be with -- the Phase II will be for sure with the 12,000 liter scale, but whether it would be with the current cell line or new cell line remains to be determined. There are a lot of options. We could start the Phase III with the current cell line, then move to a new cell line that has been done in this space before. During the Phase III -- or actually, wait for the Phase III and move to a new cell line after the Phase III for commercial scale after 1 or 2 years of commercialization. So we're evaluating all that. The good news is that again the 12,000 liter scale is pretty much established. And that's the one we will be using on a going forward basis for an existing study. So it's very unlikely that we will start the Phase III before the end of this year for all the reasons that I just explained. There is no real shortcut to initiate the Phase III factor.

Operator

Our next question is from the line of Matthew Harrison from UBS.

Matthew Harrison - UBS Investment Bank, Research Division

I was wondering if you could talk about Pompe a little bit and how you would view the efficacy readout from the Phase II in the 15 patients in the 20 mg per kg arm? What would you view as a positive readout and what sort of criteria you would use?

Jean-Jacques Bienaimé

Do you want to start, Hank?

Henry J. Fuchs

Sure. First of all, I'd say, maybe a little bit early to talk about specific criteria because we're still in the enrollment phase. And what we've said in general is that the comparative basis with the using of Myozyme historical controlled study -- Myozyme Lumizyme historical controlled study that was published by -- in the late on said Pompe study. And what we've been focusing on is the primary objective of that study was improvements in walk and in vital capacity, breathing ability. And so those parameters can form the basis for that historical comparison. But as to specific numbers, we're still in the process of collecting and evaluating information pertaining to that. So I think that will be a part of the next bit of work that we do.

Jean-Jacques Bienaimé

And again, however, it's very difficult to answer until we have the data. But as Hank said, there's the last 3 years as benchmark. The last study enrolled 60 patients, but in terms of one of the co-primary end points, which was walk distance, I know there were -- out of 60, about 4 or 5 who were responders, so that's less than 10%. So what I'm showing -- will be to look at do we have 20% responders or significantly more than 10%. Actually if you go back to the Lumizyme approval, again based on the FDA analysis, Genzyme missed the walk co-primary end point, the p-value was 0.06 or less than 0.06. They didn't have that much of an improvement in pulmonary function, so they had enough to get p-value below 0.05 on the pulmonary function. So obviously we will be looking at all of those variables and also different ways to measure pulmonary function also, and then look at the weight of the evidence and determine whether it's worth moving into Phase III or not.

Matthew Harrison - UBS Investment Bank, Research Division

And then just a follow-up on the process. Are you dosing all of the patients in the 20-mg cohorts from the 12,000 liter process? Or is it mixed between the original process and the 12,000 liter?

Henry J. Fuchs

The vast majority of patients will be -- have the vast majority of their dosing at -- with the new -- with the scaled-up process.

Matthew Harrison - UBS Investment Bank, Research Division

And so did the first 2 they had -- from before the scale up?

Henry J. Fuchs

No. The first one was before the scale-up. The second one was starting with the scale-up material.

Operator

Our next question is from the line of Nicholas Bishop from Cohen and Company.

Nicholas Bishop

My question is on PEG-PAL. As you look at the evolving data in Part D of your Phase II study, I guess I have 2 questions. One is what's your level of confidence that you'll be able to make a go, no-go decision on the pivotal program in the third quarter of this year? And if you feel confident that you'll be able to make that go decision, what does the go profile look like in terms of initial tolerability and time frame for this?

Henry J. Fuchs

Well, the go criteria, I'd be tackling your second question first, is not entirely based on the Part D study. The Part D study is mostly about tuning the initial regimen. I think a big part of the go criteria is what fraction on patients can we achieve fee lowering, what fraction of patients can we sustain fee lowering. And by the way, we're now almost 3 years out on some of these initial patients, and as I said in my prepared remarks, continuing to see sustained efficacy in virtually everybody that's treated chronically with PEG-PAL. And another part of the go criteria is long-term safety. And as I've said in my prepared remarks, we see nothing new from a safety perspective with an emphasis on long-term safety. So increasingly and the longer that we go, the criteria are influenced very strongly by the long-term observations, especially in the population that's expected to be on therapy chronically long term for their life. As far as the go-criteria from the Part D explicitly, that's again something that we're still in a little bit of internal discussion about what we'd like to see. So it's a little bit premature to talk about that. But maybe a way to think about the Part D study is that it's more around characterizing what to expect and how to get patient started than it is necessarily explicitly coming up with a percent of patients who do or don't have any initial reaction to the product. And the reason I say that is because, again, as we -- the longer we go and the more with -- the longer we go with great efficacy, high degree of retention and those safety events, the lower the burden, the less emphasis needs to be placed on the front end of starting therapy.

Jean-Jacques Bienaimé

So if I may say it another way, the real value of the Part D is to, again, optimize the induction of the regimen and minimize the time of the induction of the regimen. So it's more of a commercial optimization profile study than a regulatory requirement. We probably could have started already a Phase III trial with what we knew. So we see as every week goes by, and as Hank said, as we get more and more long-term efficacy and safety data, the probability that we'll move to Phase III increases. And I would say, where we stand today, it's pretty high.

Operator

Our next question is from the line of Liana Moussatos from Wedbush Securities.

Liana Moussatos - Wedbush Securities Inc., Research Division

Can you give us the geographic breakdown of Naglazyme sales?

Jeffrey H. Cooper

Sure. In the U.S. it was $8.6 million; for the EU, $23.1 million and international $36.9 million.

Operator

We have no further questions at the time. So I'd like to turn the call back to Mr. Bienaimé.

Jean-Jacques Bienaimé

Thank you. So in summary, we believe we are off to a good start for this year. We are focused on our quickly advancing pipeline and we are on track to report many key clinical results from several programs in the second half of the year, including end results from the pivotal Phase III study for GALNS, Phase II study for PEG-PAL, Phase I/II for 701 for Pompe and the Phase I/II for 673 for solid tumor.

So as we said earlier, the success of one or more of these trials probably could have a very significant impact on the future of the company, and we look forward to keeping you updated on our progress. Thank you again for your continued support and for joining us on today's call. Bye.

Operator

Thank you very much. Okay, so ladies and gentlemen, that does now conclude your conference call for today and you may now disconnect your lines. Have a great day. Thank you very much for joining.

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