Biomarin Pharmaceutical Inc Q4 FY2020 Earnings Call

Welcome to the BioMarin Fourth Quarter and Full Year 2020 Financial Results Conference Call. Hosting the conference call today from BioMarin is Traci McCarty, Vice President of Investor Relations. Please go ahead, Traci.

Thank you, Nicola, and thank you everyone for joining us today. To remind you, this non-confidential presentation contains forward-looking statements about the business prospects of BioMarin Pharmaceutical Inc., 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 progress of BioMarin's product programs, actions of regulatory authorities, availability of capital, future actions in the pharmaceutical markets 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. On the call remotely from BioMarin management today are J.J. Bienaime, Chairman and Chief Executive Officer; Jeff Ajer, Executive Vice President and Chief Commercial Officer; Hank Fuchs, President, Worldwide Research and Development; and Brian Mueller, Executive Vice President and Chief Financial Officer. We do hope to keep this call to one hour today, so we respectfully request that you limit yourself to one question during the Q&A portion of the call. Thank you for your understanding. I'll now turn the call over to our Chairman and CEO, J.J. Bienaime.

Thank you, Traci. Good afternoon and thank you for joining us on today's call. We delivered strong results in the fourth quarter and full year 2020, demonstrating our continued operational excellence despite challenges brought about by the global COVID-19 pandemic. Excluding Kuvan contributions, BioMarin revenues grew 13% in 2020 as compared to the full year 2019 revenue. And the company generated $85 million of positive operating cash flows for the full year 2020, underscoring our resilience in a challenging environment and the significant unmet needs our medicines address. Our 2021 guidance does assume that the business environment remains good due to the ongoing effect of the pandemic, but also reflects the underlying global demand for our commercial brands. Excluding Kuvan, again, we present contributions in 2021. We expect 9% growth in BioMarin marketed product revenue based on the midpoint of today's full year 2021 revenue guidance. We also expect continued positive operating cash flows for the full year 2021, both important indicators of the strength of our global brand. And in a moment Jeff will provide more details on these market dynamics. Turning to our late-stage R&D programs and upcoming milestones, we are planning for a number of key events that we expect will drive substantial value over the coming quarters. Beginning with our European regulatory update, first with Vosoritide for the treatment of children with achondroplasia, we are targeting a CHMP opinion this June followed by the European Commission decision in late summer leading to a potential commercial launch in Europe this fall. To highlight the significance of these key regulatory milestones, we anticipate that vosoritide revenues ex-U.S. over the next five years will represent close to 70% of our anticipated global revenues. Vosoritide continues to advance as planned, and we are optimistic that investors will share the same degree of enthusiasm that the first pharmacological treatment to address the underlying genetic cause of achondroplasia has garnered from the patient community. In Europe, with ROCTAVIAN gene therapy for severe hemophilia, we are also tracking the plan as we prepare for the resubmission of our marketing application in the second quarter of this year, next quarter. So assuming we remain on anticipated timelines in Europe, this could potentially lead to a ROCTAVIAN CHMP opinion in the first half of next year with a potential European launch in the third quarter of 2022. As a reminder, we believe that there are three times as many severe hemophilia patients in Europe as compared to North America. In the United States with both vosoritide and ROCTAVIAN, we are focused on providing additional Phase III data to inform FDA's reviews of these highly innovative products. We look forward to providing the FDA with the recently available vosoritide Phase III results that demonstrated sustained growth effects for over two years in children with achondroplasia, further corroborating the vosoritide treatment effect and the long-term durability that will be required for the product total benefit to accrue. In addition, a few patients from Phase I/II RNA or at near final adult height, so that is substantially in excess of that which their Asian gender match peers would have achieved. That is great news for these patients and the patient community. So this shows that vosoritide addresses the underlying cause of achondroplasia. And that has always been our call, so that the patients may benefit in ways that go beyond statural gain. We believe that results to date across our Phase III and Phase II programs are supportive of vosoritide becoming the first pharmacological treatment for this condition. With ROCTAVIAN in the United States, we are planning to engage with the FDA to explore the potential submission of the BLA based on available one-year data package as planned for submission to the EMA, with provision of two-year data during the review period. We recently convened a meeting with an expert advisory council to seek community and expert advice into our overall strategy and regulatory considerations. The council provided us with positive feedback on the data based on the dramatic bleed control demonstrated with ROCTAVIAN treatment. We were pleased with the feedback and insight into the regulatory strategy and the approvability of ROCTAVIAN, and we look forward to further engagement with both the FDA and the EMA. Hank, in a few minutes, will provide more details on the feedback. Moving to our earlier stage pipeline, we have numerous programs advancing this year. Starting with BMN 307 gene therapy for PKU, we are pleased to share that we are moving to the next higher dose in our Phase I/II studies, advancing the third potential treatment modality for our PKU franchise. We are encouraged by the Phe lowering and safety results observed in the first 2e13 dose cohorts in our Phase I/II study, and we are now ready to move the next dose of 2e13, which is similar to the ROCTAVIAN dose. Based on this early data from the 2e13 cohort and our prior steep dose response experience with ROCTAVIAN, we are optimistic that the 6e13 dose will be our optimal dose. We will share the next update on the BMN 307 from the dose confirmation phase of this study once we have selected the dose for registration-enabling study. In addition to BMN 307, we have four other earlier stage programs advancing that span a variety of therapeutic modalities and indications including an oligonucleotide for Duchenne muscular dystrophy, gene therapy products for hereditary angioedema and also hypertrophic cardiomyopathies, respectively, and a small molecule for a subset of chronic renal disease. In conclusion, despite the challenges faced against the backdrop of the global pandemic, demand for BioMarin medicines drove strong results in 2020, and we expect to grow 9% in 2021, again, excluding the contribution from Kuvan, which we see facing generic competition in the U.S. So we look forward to this new year and the goals that lie ahead over the coming quarters. With our foundation of brands constituting a strong base business driving positive operating cash flow, enabling the advancement of our next significant product opportunities with vosoritide and ROCTAVIAN, we are well positioned for substantial growth over the coming quarters, and we anticipate significant revenue growth starting in 2022. After vosoritide and ROCTAVIAN, we look forward toward our earlier-stage pipeline to ensure a steady flow of new product opportunities on the medium and long-term horizon. Hank will share thoughts on these programs in a moment. Finally, I just want to add that we ended 2020 with over $1.3 billion in cash and investments, and we anticipate being operating cash flow positive this year. Thank you for your continued support. I will now turn the call over to Jeff for a discussion of our commercial business.

Thank you, J.J. 2020 presented the world with extraordinary circumstances and challenges, so I am especially pleased with the performance and determination of our commercial teams through the year. Their efforts resulted in the mitigation of impact from both COVID-19 and the loss of exclusivity of Kuvan in the United States. Despite these headwinds, our teams across the globe collectively contributed to 9% year-over-year growth in total revenues for the full year, delivering $1.86 billion. Excluding Kuvan contributions in 2020, our base business grew 13% year-over-year, an impressive result against the backdrop of the pandemic. We saw healthy revenue growth from our smaller newer brands and maintained our mature enzyme replacement therapy business against threats from COVID-19. A notable milestone in the year, Brineura crossed over the $100 million revenue mark, fueled by continued starts and high patient compliance as clinicians recognized the importance of early diagnosis and treatment of CLN2. In 2021, we expect Brineura to continue its growth trajectory and anticipate an approximate 18% increase compared to 2020 at the midpoint of guidance. Looking more specifically at the quarterly results, BioMarin revenues in Q4 totaled $452 million or essentially flat to Q4 2019. I'll take a few moments now to share individual product details specific to the fourth quarter. Focusing first on Palynziq, we're reporting $49.6 million in revenue for the fourth quarter, a 56% increase over the fourth quarter of 2019. For the full year 2020, Palynziq sales totaled $171 million, representing a 97% increase compared to the full year 2019 results. The majority of that growth came from the U.S., where new patient identification starts continued, albeit at an inconsistent pace due to clinic closures from COVID. Throughout the year, we observed PKU clinics impacted, but adapting to dynamic COVID case surges, and despite factors outside of our control, new patient growth continued. We exited the year with approximately 1,000 patients in the U.S. on commercial therapy, an impressive milestone, but only a fraction of the amenable patient population considering the approximate 30,000 PKU adults in our global territories. In Europe, COVID-19 proved particularly disruptive to Palynziq uptake due to clinic closures as well as pricing and reimbursement negotiations that were disrupted as health care systems focused on the COVID-19 pandemic. As we begin 2021, we have an expectation of making progress on both price and reimbursement approvals and patient starts, and that Europe will contribute more materially throughout the year. In its third full calendar year on the market, and even considering the likely continuing impact from COVID, we are expecting a remarkable 35% increase in revenue growth based on the midpoint guidance for Palynziq in 2021, making it the largest expected growth driver in the portfolio. Kuvan, which experienced the loss of exclusivity in the U.S. beginning in October 2020, had total revenues in the quarter of $89 million, an anticipated decrease of 27% compared to Q4 2020 and almost exclusively associated with the impact from the generic competition in the U.S. We expect to continue to experience erosion of the revenues in the United States, although not a catastrophic loss of share, due in part to strategies we have taken to retain market share. Our expectations for erosion of U.S. sales are captured in the full year revenue guidance provided for Kuvan. Turning now to our lysosomal storage disease products, I've commented in prior calls on the successful mitigation tactics quickly employed in the first months of the pandemic to ensure continuity of infusions for enzyme replacement patients. As a result, we exited the year close to baseline patient compliance for all three brands, Vimizim, Naglazyme and Brineura. During 2020, we experienced new patient identification and resulting new patient starts occurring at a slower-than-anticipated pace due to the impact from COVID-19. In spite of that, commercial patient accounts for Naglazyme and Vimizim grew by 5% and 9%, respectively. As mature brands, we are highly penetrated among known MPS VI in more TOA patients, and continued growth for these brands is highly dependent on newly identified patients. The kind of patient growth experienced last year bodes well for continued future growth and demand for both brands. At the midpoint, we expect Naglazyme revenue to decrease by 3% in 2021. That is entirely a result of expected order timing for certain markets, primarily Brazil, relative to actual orders in 2020. At the midpoint, we expect 8% growth in Vimizim revenue in 2021. In 2021, we will continue our launch readiness effort for vosoritide, which we expect to be our largest brand to date, if approved. We are busily preparing for our possible launches in our two largest regions, North America and EMEA, in the second half of the year. With two applications moving forward in parallel, we have two complementary and attractive commercial opportunities ahead. Based on our experience, the U.S. typically presents a large market characterized by rapid payer approvals, rapid patient uptake, and favorable pricing. In a scenario of parallel launches, we expect the U.S. to drive early revenue. Collectively, Europe presents a larger market opportunity based on larger patient populations. As has typically been the case with our European product launches, the pace of revenue uptake is slower initially as individual markets take time to navigate price and reimbursement approvals. Over several years, the larger EU market drives mid- to longer-term revenue growth and, with other international markets, becomes the engine of revenue growth for the long-term. To put this into perspective, the pool of patients in our EMEA operating regions, an important indicator of market potential, is roughly three times the size of that of the United States when considering estimates of achondroplasia patients with open growth plates and severe Hemophilia A patients. Pricing corridors are similar between the U.S. and early new markets in particular. These comments summarize our experience generally with our marketed brands, and it can apply to both vosoritide, ROCTAVIAN, and future pipeline programs. As we get closer to potential approvals for vosoritide, we will look forward to coming back to you with more details on our efforts to prepare for commercial launches, including our pricing strategy. In summary and looking forward, we expect continued growth in our base business with the exception of Kuvan, where further erosion of the base is expected in 2021. Palynziq will be the largest growth driver as a single brand, with stronger sales in the U.S. and material growth from Europe. Vimizim and Brineura will continue on their growth trajectory appropriate to each brand's stage of life cycle, and we will be prepared for a successful launch of vosoritide once approved. Thank you. And now I'd like to turn the call over to Hank.

Thanks, Jeff. Then I, too, would like to congratulate and thank the commercial team for delivering medicines around the world in spite of all this uncertainty, and also congratulate and thank the R&D team for their resilience, commitment, and efforts in a year of high uncertainty in 2020. As J.J. conveyed, we look forward to a number of important regulatory events in 2021 based on strong Phase III results from our vosoritide and ROCTAVIAN programs that we experienced towards the end of last year and the beginning of this year. Accumulating data on durability of our products suggests that meaningful clinical benefits will be maintained, and therefore, we remain optimistic about the potential of these two innovative therapies to be transformative to the people who need them. We were pleased to begin 2021 with positive Phase III ROCTAVIAN results. To remind you, GENEr8-1 is the largest global Phase III study to date for any gene therapy in any indication, having enrolled 134 participants. Compared to before gene therapy, there was an 84% reduction in the annualized bleeding rate from 4.8 while on standard of care prophylactic Factor VIII therapy replacement to 0.8 bleeds per year after receiving ROCTAVIAN. The treatment burden of this condition in terms of mean annualized Factor VIII infusion rate in the rollover population was also substantially reduced by 99% from 136 infusions to 2 infusions per year after treatment with ROCTAVIAN. 80% of the participants were bleed-free starting at week 5 after treatment in the Phase III study, again, despite the withdrawal of prophylactic Factor VIII therapy. The findings of the study were all statistically significant as prospectively specified. Additionally, in 17 patients who had received ROCTAVIAN two or more years prior to the data cutoff, the decline in Factor VIII activity level was observed. However, Factor VIII levels remained in a range to produce meaningful hemostatic efficacy, and the annualized bleeding rate was also very low at less than one bleed per year. In fact, Factor VIII levels at this time point were higher than those observed entering the third year of follow-up after the 4e13 dose was administered to an earlier cohort who also experienced an ABR of less than 1 in that third subsequent year. Therefore, the growing body of evidence supporting the clinical benefit of ROCTAVIAN and its durability for people with severe hemophilia A has been very encouraging and a tremendous gain for the field and the scientific community. As J.J. mentioned, we recently held an expert advisory council meeting with former U.S. and EU regulators from both the FDA and EMA, key statistical experts deeply experienced in both the advisory committee process in the United States and the scientific advice process in Europe, physicians, and patients to gain insight into the best path forward given the accumulating evidence demonstrating dramatic bleed control in patients receiving ROCTAVIAN. Additionally, feedback from patient advisory leaders provided helpful insights into the importance of patients making informed choices and critical aspects to support the decision-making for patients and prescribers. We are very encouraged with the feedback and the path forward for ROCTAVIAN approval based on results observed to date, and assuming favorable outcomes continue, we remain optimistic with the progress made to date and are continuing our dialogue with the Food and Drug Administration in the form of ongoing discussions with CBER, Center for Biologics Evaluation and Research leaders, based on discussions with CBER leadership, and with the review division about the potential path forward. We have more to share with the agency over the coming months as the Phase III program continues to mature with the phase – with the two-year data for all subjects available in late November, which is important feedback from the expert advisory council based on the dramatic bleed control demonstrated across our ROCTAVIAN program. We aspire to dialogue with the agency on potentially submitting a BLA with one-year results that could be supplemented with two-year results during review. This is our current thought process, and actual guidance on next steps will be forthcoming as we continue our dialogue with the FDA over the coming months. We and the agency are intending to be deliberate in the review and take the time necessary to ensure careful examination of risks and benefits, but also to ensure appropriate product label and risk management procedures in the marketplace. In Europe, we're targeting 2Q 2021 for resubmission of the marketing application authorization, pending confirmation of upcoming presubmission meetings. Under this timing, we could potentially receive a CHMP opinion in the first half of 2022. We've been engaging with the European health authority since the one-year data became available. We are encouraged that the application review will be in progress as the two-year data become available and are prepared to share it should that be beneficial to supplement the package. Given procedural considerations, it's likely that ROCTAVIAN will be approved after the second year of data in the Phase III are available. Our hope and intention is to shorten the interval between data availability and regulatory actions as much as possible with the goal of enabling physicians and patients to have an additional therapeutic choice in their armamentarium. As for the ongoing Phase II study, we intend to share a five-year update with the 6e13 dose as well as a four-year update on the 4e13 dose in the middle of this year. The importance of the ROCTAVIAN five-year update and continued durability of bleed control is a key focus, and we hope to see results consistent with what has been observed through year four. Recall that almost all patients remain bleed-free in our prophylactic therapy for four and three years after gene therapy in spite of declining Factor VIII levels among participants. Turning now to vosoritide for the treatment of achondroplasia under review both in the United States and Europe, we are very pleased to share positive two-year results from our Phase III program last December, demonstrating that children maintain an increase in annual growth velocity through the second year of continuous treatment. A first analysis comparing all children randomized and treated with vosoritide for two years, 52 subjects, to all children from the run-in study who were randomized or placebo with an untreated observation period of two years in 38, showed improvement in one-year height change in the treated group relative to the untreated group that was similar in the second year of treatment, 1.79 and as in the first year of treatment, 1.73. The cumulative increase in height gain over the two-year treatment period was 3.52 centimeters compared to untreated children, which is the sum of the first year, 1.73 and the second year at 1.79. An important consideration in growth studies is the status of bone growth as measured radiographically and in comparison to the subjects' chronological age. Some agents promote rapid growth but precipitate early closure of the growth plates, precluding gains from adding up over time. In contrast, measures of bone maturation in patients treated with vosoritide confirm that vosoritide is promoting bone growth while maintaining and not accelerating bone maturity. This bodes well for accumulating treatment gains over time as growth plates are not expected to close prematurely. Turning to vosoritide regulatory timing updates with the MAA under review in Europe, we look forward to a CHMP opinion in June followed by European Commission decision in late summer. If successful, this would enable Jeff's team to launch in Europe in the third quarter of this year. In the United States, we've chosen to provide the two-year Phase III data to the FDA, given the opportunity to convey durability of treatment benefit in a larger number of patients. While this may result in a major amendment pushing the current PDUFA action date out three months to November, we believe it is prudent to make these newly available and encouraging results available regardless of potential delay in approval timing. Also new today, in January, FDA granted vosoritide priority review status based on the pediatric indication addresses and the lack of treatment options currently available. Vosoritide now qualifies for a priority review voucher upon approval, which would be the third PRV granted to BioMarin. Consistent with the FDA's policies on changes to review classification for an ongoing application review, the PDUFA action date remains August 20, 2021. Turning to BMN 307, our investigational gene therapy for PKU, results from the starting dose in the PHEARLESS Phase II study demonstrated meaningful Phe lowering in the first two subjects. The study will progress with a higher dose cohort, a three-fold higher dose 6e13 vested genomes per kilo. We're hopeful that this test will be registration-enabling based on these early data from the 2e13 cohort and our prior steep dose response experience with ROCTAVIAN. We are conducting this study with material manufactured with a commercial-ready process to derisk the program and facilitate rapid clinical development. We are excited about the prospects of BMN 307 as it represents a potential third treatment option in our PKU franchise and our second gene therapy development program. We look forward to sharing results from the dose confirmation phase of the study when we've selected the dose registration-enabling studies. We doubled our early-stage pipeline in 2020 by internal growth and external partnerships, advancing several preclinical programs spanning multiple modalities. With gene therapy beyond our ROCTAVIAN and PKU programs, we're conducting IND-enabling studies with BMN 331 gene therapy for hereditary angioedema. Our collaboration with DiNAQOR on hypertrophic cardiomyopathies, which we announced in May of last year, is progressing well. Together, we and DiNAQOR have achieved properly localized expression and function of myosin-binding protein C3 in cultured human cardiomyocytes and cardiac stem cells derived organoids and in vivo with several lead vectors. We plan to select our candidate vector in 2021 for this program and to commence non-clinical development studies to enable a subsequent IND filing. BMN 351 or DMD 2.0 or oligonucleotide therapy for the treatment of Duchenne muscular dystrophy has demonstrated high levels of protein expression in experimental animals possessing skippable dystrophic mutations and at doses that are promising in regard to safety. BMN 255, our small molecule for chronic renal disease, for which we filed an IND in 2020, is also progressing well. We hope to share more detail on these programs at our R&D date, which are tentatively planned for the second half of the year. The R&D organization is very energized and very busy as we advance a wide range of early and late-stage programs to deliver on our goal of bringing transformative therapies to people with rare conditions. Thank you for your continued support. I will now turn the call over to Brian to review the financials for the quarter.

Thank you, Hank. Please refer to today's press release, summarizing our financial results for full details on the fourth quarter and full year of 2020. Since Jeff touched on many of the top line results from the commercial business, I will primarily focus on bottom line results, operating expenses, and our 2021 guidance. As usual, all results will be available in our upcoming Form 10-K, which we are on track to file over the next couple of days. In terms of the bottom line for the full year 2020, we provided guidance for GAAP net income of between $760 million and $820 million, and have reported a better-than-guidance GAAP net income of $859 million for the year. As a reminder, GAAP net income in 2020 includes the $835 million non-recurring tax benefit recorded in the third quarter of 2020 related to the transfer of certain intellectual property rights between BioMarin entities. Importantly, we observed that BioMarin was able to generate positive GAAP net income for the first time in the company's history, achieving our goal set at the beginning of the year, despite the strains on the business in 2020 and the handful of material non-recurring transactions recognized in 2020. Turning to non-GAAP income, the company delivered $312 million for the full year 2020, within the higher range of our guidance and $40 million in the fourth quarter of 2020, driven by solid top-line results across the commercial portfolio and operating expense controls. Non-GAAP income for the full year 2020 was 87% higher than non-GAAP income for the full year 2019, despite the impacts of COVID-19 and Kuvan's loss of exclusivity in the U.S. since October of 2020. Moving to operating expenses, both R&D and SG&A expenses in the fourth quarter tracked with both recent trends and our 2020 guidance ranges. R&D expenses were slightly lower year-over-year at $157 million and $628 million for the fourth quarter and full year 2020, respectively. In the fourth quarter, R&D expenses primarily reflected our continued development of our late-stage programs, vosoritide and ROCTAVIAN, as well as our early-stage programs in research, including BMN 307, our PKU gene therapy. SG&A expenses for the quarter and full year 2020 were $196 million and $738 million, respectively, and were higher than 2019, reflecting the preparation for the potential commercial launches of vosoritide and ROCTAVIAN. Lastly, for 2020, we finished the year with $1.35 billion of total cash and investments compared to $1.17 billion at the end of 2019. December 2020 balances reflect both the $536 million of net convertible debt proceeds raised earlier in 2020 and the expected $375 million cash outflow upon the maturity of convertible notes in October of 2020. The company generated $85 million of positive operating cash flows for the full year 2020, which is a great indicator for the health of BioMarin's base business, particularly considering the negative impacts of COVID-19 on our revenue. Now moving on to 2021 guidance. Jeff touched on many of the brand dynamics and for total BioMarin top line, we expect 2021 total revenues to be in the range of $1.75 billion to $1.85 billion. Importantly, as discussed last quarter, 2021 total revenues reflect the impact of several headwinds, most notably the impact of the Kuvan generic competition in the U.S. since October of last year and the continued impact of COVID-19 on our commercial business. Our guidance does not assume a rapid recovery and rebound from COVID-19 impact on our revenues, but rather that the conditions and effects on our business will not worsen. For example, our guidance assumes that we will be able to maintain similar levels of patient compliance with our therapy regimens and rates of new patient starts that we experienced during the pandemic in 2020. While our total revenue expectations for 2021 are lower than 2020, we note that our core business, except for Kuvan, is still growing healthily with 9% growth at the midpoint of our guidance range. One comment on Aldurazyme, which is marketed by Sanofi Genzyme, and therefore, we do not provide specific guidance, is that BioMarin Aldurazyme revenues in the fourth quarter of 2020 were low due to the timing of products applied to Sanofi Genzyme. However, based on data provided to us by Sanofi Genzyme, Aldurazyme added 10% more commercial patients during 2020, the product's 17th year on the market, which is a solid indicator that market demand is increasing despite BioMarin Aldurazyme revenue timing. Lastly, on top line, while we remain optimistic that vosoritide and ROCTAVIAN will be approved and launched, we are not expecting significant revenues from either product in 2021. Shifting to bottom line expectations for 2021, we anticipate recognizing a GAAP net loss ranging from $80 million to $130 million. While our GAAP profitability goals are delayed as we continue to develop vosoritide and ROCTAVIAN, we do expect to earn positive non-GAAP income in the range of $170 million to $220 million. This significant amount of non-GAAP net income, plus our expectation to earn positive operating cash flows for the full year 2021, are again indicators of a healthy core business that can both generate approximately $1.8 billion of revenues and develop a high-value late- and early-stage pipeline. In closing, from a financial perspective, 2021 is a year where we plan to hold the line on both our revenues and bottom line due to the continued COVID-19 pandemic uncertainty and the pause in our substantial revenue and profitability growth aspiration. As a reminder, if vosoritide and ROCTAVIAN are approved and launched, the commercial market opportunities for both of those potential products significantly exceed the market sizes of our current products. Therefore, we believe the combination of the positive operating results expected from BioMarin's base business, plus the growth potential from the company's large late-stage opportunities that will leverage the infrastructure of the base business, create a compelling value proposition that is further expanded by our commitment to early-stage innovative rare disease research. Thank you for your support, and we will now open up the call to your questions.

Thank you. Our first question comes from Robyn Karnauskas with Truist Securities. Your line is open.

Hi, guys. This is Kripa on for Robyn. Thank you so much for taking my questions. It looks like you've been engaging with the FDA quite a bit in discussing the pivotal data from ROCTAVIAN. Can you tell us how much of the data the agency has already seen? What additional data do they need to see? And also, based on your commentary during your engagement with the FDA, was there anything that gave you the indication that you will have to submit the two-year data for approval? Thank you so much.

Hi, there. The agency told us that they would expect to see the two-year data in the 134 patients before the product would be approved. And they said that before the one year data were available, and they repeated that after the one year data was available, so in the short amount of time since the one year data became available, they've only been able to see the top line. But their stance really was predicted not to have changed given the one year data. I think the one year data are strong, and they anticipated that they'd be strong, and they have reiterated their preference for making their approval decision based on having seen the two-year data.

Great. And then you talked about the feedback you received from the external counsel. In addition to the feedback being generally positive, was there anything new you learned that you think it could help strengthen your case to get approval on the one year data?

No, yes. I mean, we convene the ad council as a kind of our version of an advisory committee, reasoning that we wanted to hear the worst possible version of our story as told to us by highly critical people. I would say that what we learned is we have a pretty good program; one of our colleagues, who is incredibly disciplined in their reviews, characterized the results as impressively strong. And I think the thing that we learned is that it is really more like it was confirmed that the agency's decisions are more of a qualitative nature, and that they're going to feel more confident about the application when they see the two-year data with the full 134 patients. So we're working very closely with our colleagues to discern the most facile regulatory pathway. At this point, these are largely procedural discussions.

Our next question is from Cory Kasimov with JP Morgan. Your line is open.

Hey, good afternoon, guys. Thanks for taking the question. Hank, you were hard to understand on some of your scripts, so I just want to make sure I got this correct. It sounds like based on that independent expert counsel and preliminary discussions with the agency, that you may resubmit the ROCTAVIAN BLA on one year of data and supplement that during mid-review with the two-year. So, assuming I did hear that correct, when do you expect to finalize this? And is this latest thinking, which sounds like a pseudo acceleration from what we were talking about earlier this year? Is this being driven more by the feedback you got from this outside counsel or more by conversations with the FDA today?

Cory, you heard correctly and it's a little bit of both. I think on one hand, the data package is impressive. On the other hand, people sort of novel therapy and hemophilia patients are deserving of a very careful examination of the data. The part that is a little bit is out of our control. It's just sort of, like I said, a procedural part, which is when do agencies have bandwidth and capacity to take on an additional chunk of data for review. Would they prefer to get started before the two-year data are available, knowing that the two-year data are going to be available for them when they finish? Or do they want to get started after that? And these are discussions that we're having. There are a lot of examples where agencies accept data during review, and there are a lot of examples where the agency just doesn't want to get themselves in a position of accepting the data. Oftentimes, that hasn't had anything to do with whether the data are. It has to do sometimes with other circumstances that the reviewers have. As I mentioned, for example, at the end of last year, with the EMA, their preference for reviewing the additional data was entirely procedural related to staffing levels within the EMA and the rapporteurs. So these are discussions that ordinarily don't get a lot of attention in terms of synchronizing things. I know there's a lot of interest in regulatory actions on ROCTAVIAN. I think that we're encouraged with really good data that turned out the way we expected at the one-year mark. Given what we've seen in our earlier trials, we have a reason to believe that things will turn out positively with the two-year data, and it's a matter of being patient and collaborating with them to assure that the review has given the full attention of reserves.

Okay. And did you say there were ex-regulatory officials on this committee?

Oh yes, very senior, very seasoned, top-of-the-shelf.

Our next question is from Salveen Richter with Goldman Sachs. Your line is open.

Good afternoon. Thanks for taking my questions. Could you just talk about the commercial dynamics playing out with your PKU franchise and how you made the assumption of erosion to Kuvan in your guidance? And what's playing out to offset that with Palynziq?

Jeff, do you want to cover that question?

Yes, J.J., thank you for the question, Salveen. We've provided some guidance on Kuvan erosion and our expectations, and we've caveated this guidance by saying: one, we don't have any enterprise experience with the loss of exclusivity of a product in a major market; and two, there's very few analogs to look to, to guide expectations. We've guided that we think we would experience material, but not catastrophic, loss of share, like you might see in a detail prescription-driven product that goes generic, for example. Indeed, if you look at the drop of revenue in the fourth quarter of last year for Kuvan relative to the fourth quarter of 2019, we were really right on top of our internal expectations. If you then look further at the 2020 revenue, the midpoint of the guidance captures our expectations for the further erosion of that Kuvan business in the United States. Now let's turn to our expectations for Palynziq. Both products are part of the same PKU franchise, and their paths are now relatively disconnected, so our expectations for what happens with Palynziq are not highly tied to what happens with Kuvan now in the marketplace. It is true that we have a solid base of business with Kuvan and a great deal of patient-level knowledge, particularly in the United States. About 30% of our Palynziq patients have transitioned from PKU. So, these would-be patients are not achieving a desired strength of clinical benefit from Kuvan and are thus appropriate for a more powerful agent in Palynziq. We continue to expect that we would be tapping into adults that have not received adequate benefits from Kuvan, but those two products are essentially on different paths at this point.

Thank you.

Our next question is from Phil Nadeau with Cowen & Company. Your line is open.

Good afternoon. Thanks for taking my question. Hank, your comments on procedural benefits on the ROCTAVIAN refiling were intriguing for me. I guess I'm trying to work through in my head what would be more advantageous for BioMarin for the FDA filing early versus following after you have the Phase 2 data? I guess what strikes me is from a BioMarin perspective, if they're going to give you a three-month PDUFA extension when you follow with the two-year data anyway, it doesn't really buy you that much time to file early. But conversely, I guess, for the FDA, maybe it gives them more time to contemplate the full range of data, both the one and two years. How are you thinking about what would be most advantageous to you based on what you think the FDA's needs, questions, and concerns are about the data package?

The thing I focus on is when do we think we're going to finish. Because that's obviously the point in time in which patients have a different choice available for them. You could do the gain theory in both directions, like you just said. The part that we don't know is what's the workload and what are the considerations on their side. How do they see the management of their workload? Our focus is going to be on getting their decision on the one hand and in the most expedient way possible. On the other hand, to ensure that their review is thorough and the considerations for product labeling are appropriate and well understood. I think there's a lot of work that can be done before the two-year data, but they may choose to decide to wait for the two-year data before they get started. So it's a bit of a wait and see in how everybody's looking for certainty about this; we're working hard to deliver it. Our focus is on trying to enable a choice for patients with Hemophilia A.

And just a brief follow-up, will they be definitive on what they prefer when you have your meeting with them? Or when you conclude your conversations, it sounds like they're ongoing now?

I think we will be in a much better position to provide information after we've had a couple more dialogues with them. As to definitive, that's always a hard thing with the FDA, not so sure with respect to the timing. You submit, they file. So, a bit of a stay tuned on the U.S. regulatory status.

Our next question is from Chris Raymond with Piper Sandler. Your line is open.

Thanks. I wanted to probe a little bit more on the PKU commercial dynamic. I heard your comments, Jeff, around how Kuvan and Palynziq are somewhat disconnected. But it seems to me, as you described the Kuvan erosion dynamic, it might be more price-driven than share-driven. So, you would seem to have a bit more control over that conversion dynamic than otherwise. But more importantly, as I see it, it seems like you have a decent sense of any kind of patient warehousing effect that might happen as the effects of the pandemic wane. Can you give a little more color around that, Jeff, in terms of what you're seeing regarding warehousing? Is this even something we should be asking about, as we think about the infection rate and all the other measures and metrics of the pandemic change over time?

Thanks, Chris. Good observations on your part. One might start by saying that without disclosing details that would constitute competitive intelligence for one of our competitors, it is true that our revenue from Kuvan loss of exclusivity is both a price and volume mix. So you're right on that point. In terms of patient warehousing, the rate-limiting step for growth of Palynziq in the United States has always been clinic capacity, and that condition existed before the pandemic hit. When I say clinic capacity, I mean the ability and willingness of clinics to be prescribing Palynziq and inducting patients, either one patient at a time or maybe small multiples of patients at a time. As clinics were closed down last year and continued to operate under reduced capacity this year, it's actually that PKU clinic capacity for dealing with new patients that's the rate-limiting step to growth of our business. To answer what that points to regarding a warehousing effect, certainly, there will be patients that are wanting access to Palynziq and waiting for their clinics to have the capacity or be back in operation to be able to help them get a prescription, induct, titrate, and get to a maintenance phase. We will still be dealing with overall clinic capacity during this year. Hopefully, the pandemic will let up, but one way or another, we're back to the issue of PKU clinic capacity as the rate-limiting step. I'm looking forward to working with clinics in the U.S. and meeting the demand from patients that may be in that warehouse category.

Our next question is from Geoff Meacham with Bank of America. Your line is open.

Hi, guys. Thanks for the question. I wanted to focus a bit on guidance. When I look at other commercial biotechs or pharmas, I didn't hear a lot about the continued COVID impact or headwind for this year. I want to dig into the guidance, not for the whole portfolio, but not just PKU. Is it more the geographic mix? Is it the orphan nature of your business that you're still seeing a COVID impact? I didn't hear from you that there are headwinds on new starts or compliance. Can you help me figure out the delta here? Thank you.

Jeff?

Yes, thanks, Geoff, for the question. We did try to address some of the dynamics of how the pandemic is affecting our business in the guidance. One of the things we said was we're exiting 2020, having at least for now, pretty much solved the patient compliance problems that we experienced early last year. So things could turn around on that front. But right now, we think we have patient compliance under control. The bigger issue we pointed to in the script is the rate of new patient identification and new patient starts. Last year, we did, in fact, have material new patients for Naglazyme, 5% patient growth; Vimizim, 9% patient growth; and Palynziq, you can read that from the revenue growth. But as I described just a moment ago, the rate of new patient starts for Palynziq was severely impacted by COVID-19 last year and will continue to be impacted this year until PKU clinics get back to operating as they did pre-pandemic. Even then, we've got the clinic capacity issue as an overall gating factor. So it's kind of the new business results from patient identification and patient starts for our LSD brands that are affected there. You are right; these dynamics may be unique to BioMarin's enzyme replacement therapy and PKU business globally relative to some of the other companies you're covering.

If I may add, Geoff, regarding specifically Palynziq, the issue here is that, as you might remember, Palynziq revenues really start kicking in four months or so after the initiation of treatment because of the titration period. In the first three to four months or so, the revenues generated per patient are pretty limited. Consequently, since we had the PKU clinics closed for most of 2020, and were just starting to reopen when the second wave hit in the winter starting in November, they closed again. Until January, they're starting to reopen now. We've missed a lot of new patient starts, even in Q4 of last year, impacting the revenue this year. But again, the good news is that with the vaccinations and the pandemic hopefully winding down, those clinics will be able to reopen. That will allow us to accelerate the growth of Palynziq again.

Got you. Okay.

Geoff? Geoff, sorry, this is Brian Mueller. I thought I'd just chime in to clarify. We're trying to clarify that the headwind, the COVID headwind is still there, but the assumption in our guidance is that it won't worsen. Even during 2020, we were able to add new patients, albeit at a slower rate due to the pandemic. We had some disruption in weekly infusion, which we were largely able to recover. We're assuming we're going to be able to maintain the current level in 2021.

Our next question is from Paul Matteis with Stifel. Your line is open.

This is Thor on for Paul. Quick question on HAE, given the evolving competitive landscape, what are you kind of assuming? And what are you expecting to need to hit with the gene therapy to be competitive in that space?

I think one simple way of looking at therapies for which there are conditions with existing therapies is the extent to which those available therapies carry their own burden in the condition. That's clearly the case with hemophilia A, that's clearly the case with PKU. Similarly, in HAE, you can get reasonably low attack rates, but it requires a high degree of compliance, which is not easily maintained. Patients are looking for the opportunity essentially to be attack-free and prophylaxis-free. With ROCTAVIAN, we’ve had in the 134 patients, two have returned to prophylactic Factor VIII replacement therapy as we've seen over the long-term studies for three and four years. Nobody has returned to prophylactic factor therapy, and bleed rates are very low. An HAE population, we would want a meaningful proportion of patients experiencing no attacks and no need for prophylaxis. I think that would represent an important therapeutic advance.

Thanks a lot. It looks like consensus models have operating margins approaching 25% by next year and 42% by 2024. Given the delays in the vosoritide and ROCTAVIAN, do you feel like those figures are hittable organically? Has there been any discussions internally about how to improve the cost structure beyond just COGS, but maybe to R&D and SG&A? Do we know broad strokes what's baked in for 2021 R&D spend for vosoritide and ROCTAVIAN?

Brian, do you want to take this one?

Yes, I can take that, J.J. Thanks for the question. You touched on one of the key elements we view in our value proposition, which is both margin growth and profitability growth with the potential of vosoritide and ROCTAVIAN. While we haven't given long-term guidance, we talked about the larger market potential for both of those potential products and the leverage to your question that we hope to get out of our existing infrastructure. The infrastructure we built, whether it be sales and marketing or R&D support or G&A support that we have in place today to support the $2 billion of revenue and non-GAAP income at a positive level, which you can approximate to operating profits. It's that same infrastructure we plan to use to launch vosoritide and ROCTAVIAN. While there's going to be some incremental investments for both of those products, we expect a lot of those revenues to drop to our profit margin. Additionally, we expect lower cost of goods sold from those two products. While we're not giving specific numbers for the future, that's how you can think about the trajectory on the P&L. On R&D, we do want to increase the investment in R&D. We've got an exciting early-stage pipeline and research engine that we want to continue to fund, but we believe we can do that and increase R&D on an absolute dollar basis while reducing it as a percentage of revenue, thereby increasing profits. On vosoritide and ROCTAVIAN R&D specifically, we don't give specific product-level R&D guidance, but with both of those products still being in registration and requiring a lot of our internal efforts, you'll see this – we disclose historical R&D by program in our 10-K, so you'll see that when we file the K. Expect similar levels of ROCTAVIAN and vosoritide R&D this year. Did that help?

Yes. Thanks so much.

Your next question comes from the line of Kennen MacKay of RBC Capital Markets. Your line is open.

Hi, thanks for taking the question, and congrats on wrapping up 2020 on a strong note. Maybe just another question on Kuvan. I would love to understand a little bit more just what the assumptions are around – built into the guidance around additional generics entering the market. Is that something you have built into the guidance there? If that's the six-month exclusivity period, what is sort of built into guidance there? Thank you.

I'll start, and then maybe Jeff or Brian, you can comment. We only anticipate one additional generic this year because I think there is no other – there is no pure generic that has filed for an IND application in the U.S. So we assume that the second generic will be launching this year, but Jeff or Brian?

Yes. It is our assumption, J.J.

Yes, just very briefly. We're aware and expecting two generic entries. We haven't seen, as J.J. said, a third generic entry, and relative to our expectation that we can retain some meaningful share of Kuvan business in 2021, our modeling suggests that it's exactly when you see a third, fourth, or fifth generic enter the market that it becomes difficult to retain that share. Our assumption right now is two generics; we can retain meaningful share in the U.S.

Next question, please, operator.

Yes, ma'am. Your next question is from Gena Wang of Barclays. Your line is open.

Thank you for taking my questions. Just two very quick regarding the gene therapy. First is ROCTAVIAN. Hank, did I hear you correctly? For EMA approval, they'll likely also see the two-year data? If that's the case, would there be any requirement for approval regarding the two-year data for EMA? The second question is regarding the PKU gene therapy. If I recall correctly, the first dose of the 2e13, what kind of factor or data type from the initial dose made you decide to choose 6e13 as a second dose?

Hi Gena, I'll do the second one first. We used the 2e13 dose as a starting dose based on preclinical studies where we thought there was a decent chance to see some efficacy. We did see some evidence of effectiveness. We pre-planned that dose intervals would proceed in half log, meaning we would go from 2 to 6e13. We're not anywhere close to concerned about the potential for overexpression with phenylalanine hydroxylase as we were considering it for ROCTAVIAN because we've shown that you can't get really sick from a low Phe. The enzyme is such that it shouldn't cause low Phe. So we skipped the 4e step and went to the 6e step as initially planned. Given the steep dose response curve that we observed with ROCTAVIAN and the initial signs of efficacy that we've seen in terms of Phe lowering, plus the relative absence of evidence for liver dysfunction from the transgene, we were encouraged to take that next step at 6e13. Regarding EMA, it's important to understand that these procedures with health authorities take time. When you talk about, well, we have the one-year data and then the two-year data becomes available one year later, for the EMA, that's almost the length of a review cycle. It’s likely that they will need to consider what role those two-year data play in their decision. We have not received anything from the EMA that says anything different than we've represented to you before; we believe that the one-year data are very important to them.

Did you get any feedback regarding the minimum to ABR rate they will be looking for just directionally for two years?

No. But I'll – but what is clear is, even the hard-edge reviewers view our reduction in the annualized bleeding rate from 4.8 to less than 1. These are very low annualized bleeding rates. The issue of the CRL is the ability to project the future trajectory of Factor VIII expression. With two years of data on animal models, we can help to characterize the product label and risk management procedures in the marketplace.

Your next question is from Matthew Harrison of Morgan Stanley. Your line is open.

Hello everyone, this is Kostas on for Matthew. One quick question on vosoritide. Can you provide some color around the launch preparation in Europe, and how are you thinking about pricing?

Jeff, you want to cover that?

Yes, happy to. Europe represents a very large patient opportunity for us over time. It takes a little time to go market-by-market, navigate pricing, reimbursement approvals, and get patients started generating revenues. We expect Europe to be the long-term driver of revenue for vosoritide. Regarding pricing, we have conducted fair pricing research in the U.S. and in Europe. As is typical for our practice, we won't set a price until we've gotten approval, we have a label, that sort of thing. But we think that pricing corridors between our initial European markets, such as France, Germany, Italy, and the United States, will be relatively similar for list pricing in particular. Based on the size of the patient population, we probably won't think about ERP types of pricing, maybe something more similar to Palynziq pricing for vosoritide. As for launch preparations, achondroplasia patients are known shortly after birth. We don't need to go through the disease awareness and screening and patient identification. Those patients are essentially known. An important step we can skip as we need to track down the achondroplasia patients and get them to an appropriate treatment home. That treatment home might be geneticists and genetic clinics that we are already connected with or it might be a new specialty and call point like pediatric endocrinologists, who don't currently know achondroplasia due to the absence of pharmacologic treatment to date.

Very helpful. Thank you.

Your next question comes from Mohit Bansal of Citigroup. Your line is open.

This is James on for Mohit. I just had a question. Since presenting the one year data in early January for ROCTAVIAN, were you able to engage in any discussions with the physicians or payers? I would love to get any feedback or color on feedback there.

Maybe I can start with the physicians. We had a number of different kinds of physicians on our external advisory council that convened like an FDA Adcom. It included those skilled in treating hemophilia A, who voiced the importance of having a treatment option and the importance of both ABR and Factor VIII in considerations for choosing ROCTAVIAN or an alternative therapy. We had very experienced regulatory physicians who have viewed everything under the sun internationally. One of my colleagues mentioned that this is an impressive data package. We look forward to the two-year evidence package holding up. If that's the case, we should be able to provide a choice for patients. Jeff, do you want to speak about payers in response to the one year data?

Yes, happy to. We’re delighted with the way the one year ROCTAVIAN data came out. We have not had a chance to explicitly refresh our payer research with them and we will during the course of this year. What I would say is the one year data were highly consistent with the product profile that we were putting in front of payers, both in the United States and in Europe last year. Upon seeing the one year data, the feedback we’ve gotten from payers to date is probably going to be consistent with the feedback we will get from payers after we step through that one year data.

Appreciate it, guys. Thank you so much.

Your next question is from Liana Moussatos of Wedbush Securities. Your line is open.

Thank you. If 30% of Palynziq patients came from Kuvan, what percent of Kuvan patients are going to Palynziq versus the generic?

Okay. So let me see if I understand the question. You asked what percent of Kuvan patients are moving over to the generic product. I think that's independent of your observation that 30% of Palynziq patients are transitioning from Kuvan. We have that data. That's valuable data that we consider competitive intelligence that we don't want to give to generic competitors. I would guide you to say if you follow the revenue erosion for the quarter and the revenue erosion we've projected for 2021, I commented that the revenue is a mixture of volume and price erosion. You'll have to produce those percentages at your end.

If I may add, Liana, also the other dynamic is that Kuvan is only approved in the U.S. Palynziq is only approved in the U.S. for adults. There are many kids on Kuvan who cannot be switched to Palynziq at this time or until they reach age 18.

Your next question is from Michelle Gilson of Canaccord Genuity. Your line is open.

Hi, thank you for taking my question. I'm just wondering about the PKU gene therapy. You mentioned you're escalating the dose to 6e13. Compared to what you saw in 2e13, what are you looking for to see in that next dose set? And what gives you confidence that 6e is going to be the dose? Also, is there any indication that you're seeing in the data so far that the modified steroid regimen is, I guess, better than what was used when we generate studies?

Yes, it's too early to comment on steroids just yet. The confidence we have in the 6e dose group is based on preclinical data. We observed a steep dose response curve. We're looking for a significant reduction in phenylalanine levels. The dream is a normal diet without treatment requirements. We believe this reduction in the burden of care for PKU represents a substantial improvement.

Your next question is from Tim Lugo of William Blair. Your line is open.

Hi guys. This is John on for Tim. Thanks so much for taking my question. I was just wondering if there's anything the team has been seeing or any comments that you've been hearing from physicians about the entrance of generic Kuvan and how that might influence your expectations for erosion over the near and medium term. Thanks.

Let me – you can cover that, Jeff, but I think we've covered that intensively to the call, but probably, Jeff, do you have anything to add here?

The only thing I'd add here is that we think the generics are essentially a specialty pharmacy substitution type of activity. We don't think that the generics are promoting like in a branded generic fashion to our physicians. One thing we have going in our favor is I think physicians and patients have been sensitive to the ranges of services that BioMarin provides around our drugs, including Kuvan and the value of those services. That's a good thing for us.

And there's no further questions. I would like to turn it back to you, J.J. Bienaime for closing remarks.

Thank you, operator. Despite the business challenges caused by the COVID-19 epidemic last year, the demand for BioMarin's medicine drove some strong results in 2020, and we expect to grow 9% in 2021, excluding contributions from Kuvan. With our strong revenue base driving positive operating cash flows and enabling the advancement of our next significant product opportunities, we are well positioned for substantial growth over the coming quarters. If vosoritide and ROCTAVIAN are approved and launched as we expect, the commercial market opportunities for both products significantly exceed the market sizes of our current products. These large-stage opportunities, combined with our established base business create a compelling value proposition that will enable the continued growth and expansion of our innovative research programs. I want to thank you for your continued support, and stay safe.

Thank you. You may now disconnect.