Biomarin Pharmaceutical Inc Q3 FY2021 Earnings Call

Welcome to BioMarin Third Quarter 2021 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, Grey. 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. Research 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. On the call today from BioMarin management 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. Greg Guyer, Executive Vice President Chief Financial Officer, and Brian Mueller, Executive Vice President, Chief Financial Officer. We hope to keep this call to an hour, so respectfully, request that you limit yourself to one question during the Q&A portion of the call. Thank you so much. I will now turn the call over to BioMarin's Chairman and CEO, J.J. Bienaime.

Thank you, Traci and good afternoon, everyone. Thank you all for joining us today. BioMarin's commercial organization is excited to be launching our seventh commercial product, following the August approval in Europe, of VOXZOGO for the treatment of achondroplasia for children ages 2 years and up. I would say that the level of initial prescription demand for patients seeking a VOXZOGO treatment in Europe has exceeded our expectations. VOXZOGO revenues this year will come from France and Germany, where there were a number of children already on therapy, as well as a number of selected early access countries in Europe, the Middle East, Africa, and also Latin America. As the first and only approved treatment, it targets the underlying cause of achondroplasia and improves growth in children. We are very pleased with early indicators of product demand. In the US we are in late-stage labeling and post-marketing requirements discussions with the FDA. So we remain encouraged about the potential positive FDA PDUFA action outcome in less than a month now. I think the US approval would pave the way for our largest global product launch to date and set the stage for significant revenue growth starting in 2022. Turning to 2021 financials, it is important to understand the dynamics of our global business to appreciate its underlying strength. Despite the impact from anticipated uneven ordering in the first half of the year compared to what is expected in the second half of the year, we are pleased to be improving full-year top and bottom-line guidance. This is despite Kuvan facing generic competition since the First Quarter of last year. We anticipate generating full-year '21 revenues, mostly in line with our 2020 revenues, which illustrates the strength of our base business. This is the result of underlying growth in net product revenues from products marketed by BioMarin, excluding Kuvan and continued expense management. The number of patients treated with Kuvan in therapies has increased this quarter for all our products, excluding Kuvan of course, which has reached record levels. We expect revenues to rebound in the Fourth Quarter as compared to the Third Quarter to end up with a strong finish to 2021. With the addition of VOXZOGO and the anticipated US approval, we expect a significant increase in revenues beginning next year in 2022, leading to sustainable positive GAAP income starting next year. We will provide full-year 2020 guidance as usual during our Fourth Quarter calls next February. Suffice it to say that our strategy to layer on VOXZOGO and potentially ROCTAVIAN to our strong base business, leveraging our global infrastructure and manufacturing capabilities to drive meaningful profitability is rolling out as planned. In support of that plan, cash flows from operating activities increased to nearly $300 million year-to-date, driving the expansion of BioMarin's early-stage pipeline. With six early-stage products on the agenda for our upcoming R&D Day, we expect to initiate clinical trials for multiple new products over the coming years. Harnessing genetic technologies to speed our discovery capabilities has resulted in exponential growth in our preclinical assets. We are very excited to share our progress with you on November 30th. The past 18 months have been challenging for many reasons—the global pandemic, regulatory setbacks, etc. However, we have remained focused on our mission and goals. BioMarin has never been better positioned to achieve the next level of growth, and we plan to capitalize on the many opportunities that are before us. I want to thank our BioMarin colleagues and associates for their continued commitment to developing the essential medicines that help so many. Thank you all for your continued support. We will now turn the call over to Jeff to discuss the commercial business update.

Thank you, J.J. I'm very pleased with the team's performance across all brands and regions during the quarter. Not only are we improving top-line guidance for the year, but we are at the start of launching what may be our biggest brand to date, VOXZOGO. As J.J. already described, the impact of large, unevenly timed orders for our enzyme replacement therapy brands in the first half of the year, as well as the US loss of Kuvan market exclusivity a year ago, was notable in the Third Quarter. Despite these dynamics, we achieved $409 million in total revenues, reflecting solid demand in the Third Quarter and year-over-year growth in net product revenues marketed by BioMarin, excluding Kuvan. Q3 revenues were consistent with our expectations around order timing and the balance between first half and second half revenues communicated previously. Keep in mind, patient demand remains a key indicator to gauge product demand for both Naglazyme and Vimizim—patient numbers increased by more than 10% respectively year-over-year, while children on therapy for Brineura increased by more than 20% year-over-year in the Third Quarter. Moving to Palynziq, where 32% year-over-year growth translated to $61 million in net product revenues in the Third Quarter, reflecting a combination of revenues from more patients achieving maintenance dosing, as well as new patients initiating therapy. This growth was achieved despite continued COVID impact resulting in many PKU clinics operating at partial capacity. Consistent with our commentary last quarter, it is important to note that PKU clinics in the US have not opened up to new patient starts at the rate we anticipated. While we remain optimistic about the growth prospects for Palynziq for the balance of the year, we expect US PKU clinics to increase new patient starts at a slower pace than originally anticipated. The commercial launch of Palynziq in BioMarin's Europe, Middle East, and Africa region continues to progress through individual country-level pricing and reimbursement negotiations. Continuing with the PKU franchise, Kuvan contributed $68 million in revenue in the Third Quarter, reflecting incremental erosion to generics in the US. Revenues decreased by 45% year-over-year, primarily due to the US loss of market exclusivity in October 2020 as anticipated. Moving on to VOXZOGO, our newest commercial opportunity and likely the largest launch to date. We have been very pleased with the level of prescription demand for patients seeking VOXZOGO treatment since receiving European approval in August. A reminder that in Europe, price and reimbursement processes are the primary gates to being able to treat patients and generate revenue, and these processes can be lengthy. Therefore, for revenue purposes, we are focused on the set of markets where we can quickly begin treating patients and generating revenues. These markets include France, Germany, and a number of other markets in which we are pursuing named patient sales. Importantly, we're seeing robust prescription demand already, and we're optimistic about the prospects of being able to convert that demand to patient treatment and revenue. The small revenue recorded from Q3 was from France and the first patients starting treatment. Already in Q4, additional patients have started therapy in France, and we have shipped VOXZOGO to Germany and Switzerland to begin treating patients in these markets. Concurrent with the EMEA launch, our US commercial team is planning for the potential launch at the end of the year, assuming a positive PDUFA action outcome in November. As has been our experience with prior launches in the US, we do have the ability to quickly respond to prescription demand following approval. While US payers are numerous and diverse, we have experience navigating the medical exception process to facilitate early prescription demand while we work through the process to yield payer coverage policies. As with the launch of previous BioMarin brands in the US, this experienced team is in place and prepared for a potential approval. We look forward to providing full-year VOXZOGO guidance for 2022 when we report Fourth Quarter results next February. We would also like to set expectations for quarterly metrics that we will report on for the next six quarters. For the quarter being reported, we will report net VOXZOGO product revenues, active markets with sales, the total number of commercial patients at the end of the quarter, and other color on the progress of the launch that will help you evaluate the commercial status of VOXZOGO and inform your expectations. In conclusion, results in 2021 for our established brands are tracking to expectations for the improved top-line guidance provided today, raising the low end of the total revenue guidance by $30 million, as well as the low end of the ranges for Vimizim, Kuvan, and Palynziq. Demand for our essential medicines in the 75 countries where we do business is robust and growing. The commercial team is energized to be launching our newest, potentially largest product opportunity with VOXZOGO in the EMEA region, and we are eagerly preparing for the potential launch in the U.S. should we receive approval in November. Thank you for your attention, and I will now turn the call over to Hank to provide an R&D update.

Thanks, Jeff. Similarly, the research and development organization echoes your enthusiasm for the European approval of VOXZOGO. Families have been waiting for a long time for a treatment option for their children. We believe the targeted mechanism of VOXZOGO, which promotes endochondral bone growth during the time period when growth plates are open, has a meaningful and potentially lifelong impact on children with achondroplasia. We're so pleased that this important medicine is now available in Europe, and we look forward to hearing real-world treatment experiences as families access VOXZOGO over the coming months and years. The European approval of VOXZOGO for children ages two and up further demonstrates the importance of beginning treatment as early as possible to provide maximum clinical benefit while growth plates are amenable to treatment. We look forward to the readout of our 52-week placebo-controlled study in children newborn through five years of age around the middle of next year as the next potential step toward expanding access to VOXZOGO should those data be supportive. In the U.S., we look forward to the PDUFA target action date of next month. We believe that a robust dossier of data under review provides clear signals of clinical benefits from VOXZOGO treatment. I also want to take the opportunity to thank everyone who contributed to this important milestone on behalf of families seeking a treatment option for achondroplasia. Thank you very much. Briefly on ROCTAVIAN, regulatory milestones are tracking the plan. At the end of November 2021, we'll reach the two-year mark for the Phase III study in the two-year follow-up observation period. We continue to expect resubmission of the US biologic application for ROCTAVIAN in the Second Quarter of 2022 assuming supportive two-year data, followed by an expected six-month review procedure from the U.S. In Europe, with the marketing authorization application validated and under review, we continue to expect a CHMP opinion in the first half of next year, assuming supportive two-year data, which will be shared with the EMA when it is available. We remain confident in ROCTAVIAN's potential to be an important treatment option for those with severe hemophilia A, based on the clinical evidence observed today demonstrating dramatic reductions in bleeding rates, Factor VIII levels, and Factor VIII infusions following treatment. Turning to BMN 307 therapy, gene therapy for Phenylketonuria, following the clinical hold by the Food and Drug Administration, we've now received communication from the agency with guidance on next steps. We are in the process of addressing the agency's request for additional information. So we do not have an update on when the hold might be lifted. The hold on our PKU gene therapy study was based on recently identified safety findings for a non-clinical pharmacology study in immunocompromised mice. The scientists striving to serve patients' needs are committed to understanding these findings. As we've shared previously, and it was corroborated during the FDA panel discussion on AAV safety in September, it remains uncertain and in our view unlikely that these specific findings with BMN 307 will translate to a safety issue with this or other AAV gene therapy treatments. We are working through the process with the FDA and we'll keep you posted as we have relevant updates. Turning to our R&D Day event now planned for November 30th, we look forward to sharing new data and new program updates with you. The R&D organization has hit its stride, melding our own internal discovery capabilities with genetic tools to understand underlying mechanisms of disease in order to develop targeted medicines. We're excited to share these advances with you in greater detail and describe the many assets under development in the earlier stage pipeline. We hope you will all tune in. Thank you so much for your support. I will now turn the call over to Brian to update financial results in the quarter.

Thank you, Hank. Please refer to today's press release summarizing our financial results for full details on the Third Quarter of 2021. As usual, our comprehensive report on the quarter will be available on our upcoming Form 10-Q, which is on track to file over the next few days. As J.J and Jeff mentioned, the previously anticipated order timing in 2021 has created a meaningfully uneven revenue flow between the first and second halves of the year. To illustrate the impact of select individual country order timing on Q3 2021, last quarter Q2 2021, there was approximately $90 million more revenue, excluding Kuvan, from Brazil, Russia, and the Middle East that did not recur in the Third Quarter, substantially accounting for the quarter over prior quarter total revenue fluctuation. Importantly, however, as Jeff mentioned, the key underlying business driver of patient demand continues to increase for all of our products, again excluding Kuvan in the U.S. Based on these timing dynamics, we anticipate emphasizing our full-year guidance as the best metrics to measure our top-line financial performance. To that point, the strong start in the first half of the year drove a previous upward revision of full-year 2021 revenue guidance back in July, including Vimizim and Palynziq, as well as improved GAAP and non-GAAP bottom line guidance. And we're pleased to announce today that we are again improving total revenue guidance, including both Vimizim and Palynziq by raising the lower end of our guidance for full-year 2021. As noted by J.J, despite the impact of full-year Kuvan generic competition in the U.S. and a continued COVID-19 impact on our growth, total revenue for 2021 is expected to be mostly in line with total revenues in 2020, which is better than our expectations at the beginning of this year. Moving to operating expenses, R&D expense for the Third Quarter was $158 million, which was $11 million higher than R&D expense of $147 million for the Third Quarter of 2020, reflecting increases in our early-stage research and development. Based on our R&D expense trends through Q3 '21 and expectations for the Fourth Quarter, we are lowering the range for R&D expense guidance by $10 million for the full year. Next, with respect to SG&A expense, Q3 2021 SG&A totaled $183 million, which was essentially flat compared to the Third Quarter of 2020. We are launching VOXZOGO in the EMEA region and preparing for the launch in the U.S., SG&A expenses in 2021 are weighted toward the Fourth Quarter of the year. Turning to bottom line results, we reported a GAAP net loss of $37 million in the Third Quarter of 2021, compared to GAAP net income of $785 million in the Third Quarter of 2020. Please recall that GAAP net income in the Third Quarter of last year included a large tax benefit totaling $835 million related to the transfer of certain intellectual property rights between BioMarin entities, which drove the significant level of GAAP Net Income last year. Non-GAAP income of $34 million in the Third Quarter of 2021 was lower than non-GAAP income of $99 million in Q3 2020, primarily due to the lower revenues this quarter as a result of the previously discussed timing. We're very pleased with the Company's GAAP and non-GAAP bottom-line performance through the first three quarters of 2021. Based on our expectations for the Fourth Quarter, we have improved full-year GAAP and non-GAAP bottom line guidance. We've reduced the full year 2021 GAAP net loss guidance to between $85 million and $45 million dollars, and increased non-GAAP income guidance to between $215 million to $255 million, representing an increase of $20 million at the midpoint of the range. That substantial level of non-GAAP income helped generate a continued increase in our total cash and investments as we ended the Third Quarter of 2021 with $1.55 billion compared to $1.35 billion at the end of 2020. We set a goal of generating positive operating cash flow in 2021 and the business has delivered nearly $300 million of positive operating cash flows year-to-date. One brief comment is that the previously discussed timing of revenue and expenses in 2021 also impacts our cash flows, which we observe are also weighted to the first half of the year. This solid cash position, coupled with our strong operating performance through the first three quarters of 2021, is a strong foundation from which to look forward to the continued European launch of VOXZOGO to potential US launch at the end of the year, and potentially ROCTAVIAN next year. The progress of our early-stage pipeline that is leveraging the same R&D organization that developed our portfolio of now seven approved products and two large market late-stage programs is an exciting next chapter in BioMarin's potential future growth story. Thank you for your support, and we will now open up the call to your questions.

Thank you, sir. At this time, we will begin our question-and-answer session. Please stand by while we compile the Q&A roster. And speakers, our first question from Cory Kasimov of JP Morgan. You may now ask your question.

Great. Thanks. Good afternoon, guys. Thanks for taking the question. The VOXZOGO label in Europe is obviously pretty broad covering patients as young as two years old. I'm wondering if there's any pushback from either in early access point of view or physician comfort in potentially treating patients under five, and do you have expectations for the FDA label to be equally broad, if approved of course? Thank you.

Jeff, do you want to answer the first part of the question and Hank, the second part?

Yes, happy to. So, one, we're really happy with the open-label, as you described it, including for patients 2 years and up in Europe. We believe that in Europe, the endorsement of the CHMP on safe and effective use for ages 2 years and up is a powerful statement to both payers and prescribers. It's too early for us to provide specific color in Europe, but we're not anticipating pushback from payers or prescribers on 2 to 5-year old patients. And maybe I'll turn it over to Hank for the second part of the question.

Yes. Of course, as you know, there's no direct connection between the FDA and the EMEA and they tend to operate independently. We're really encouraged that the EMEA understood the context of the condition and were scientifically vigorous in their consideration of the label. I'd encourage you to come to our R&D Day where we're going to share some of that information. Obviously, we're hopeful that the FDA will be similarly influenced, but as you know, the FDA is a little bit more conservative. We'll just have to wait to see where it lands.

Okay. Great, thanks, guys.

Speakers, our next question's from Phil Nadeau of Cowen and Company. You may ask your question.

Thanks for taking our question. Another one on VOXZOGO, perhaps one of the more controversial aspects of VOXZOGO is the language that was in the FDA acceptance letter discussing the need for two-year placebo-controlled data. Now that you are in late-stage discussions, could you give us some information or some idea of how the FDA reviewers have dealt with the Advisory Committee's commentary around two-year placebo-controlled data and whether it's safe for us to assume that since we're in discussions, that won't be necessary for approval of VOXZOGO at this time?

Yeah. Thanks Phil for the question. We're really in the middle of this, so I can't really give you too much of the exact dialogue being had. But what I would say is that we've been fairly transparent from the get-go about the FDA's focus. At the time and I continue to say that the agency's focus is on durability, and we've provided them what amounts to a two-year placebo-controlled study. It's a little unorthodox in its design, but it's essentially two years worth of data, and we supplemented that with five years of open-label treatment data in comparison to some pretty good natural history sources. We feel pretty good about the durability of the effect on linear growth. A related question is going to be, is in sort of what does one or two-year growth constitute in terms of substantial evidence of clinical benefit or is that a benefit that is reasonably likely to predict clinical benefit? We'd just say that in that growth field that in the case of growth hormone administration to non-growth hormone deficient disorders, a lot of the language has been around durability. This suggests to us that the FDA is also very concerned about that. I think their decision-making about durability is going to be related to ultimately not the two-year story, but what does this say about what can be expected from this initiative? All of this will come to some form of resolution in the next few weeks, so stay tuned.

Perfect. That's very helpful. Thanks again for taking our question.

And our next question speakers is from Chris Raymond of Piper Sandler. You may ask your question.

Thanks. One, if I could ask maybe a pipeline question on, specifically 307. So Hank, I'm wondering if you can comment on what kind—I know you said you've met with the FDA and you don’t have a sense as to when the clinical hold will be lifted, but can you comment on what additional experiments or analyses the agency has requested? Is this something that could be addressed in the near term or it more like longer-term experiments? Can you also share what you did provide to the FDA when you met with them, just considering this was an issue related only to mice?

I will take the first part of your question, Chris. While Jeff tackles the second part. You know, Chris, we had a meeting with the FDA; we've had correspondence with them. They're busy and it's hard to get meetings with the agency nowadays. It was a pretty tactical conversation because we felt duty-bound to report what we observed. It turned out that we were in a dose evaluation period from the second cohort of patients we discussed. We were transparent with the agency about this preclinical finding as soon as we found it, and as a consequence, they have not seen a lot yet. But what they asked from us is relatively straightforward and can be wrapped up in a package—they were comprehensive in the kinds of things that they asked for, including how this is going to reflect on informed consent and protocol minutes. They have a pretty standardized list of types of questions and considerations. I would put this in a bigger perspective. What I find significant is when the presentation came to integration and oncogenesis, the presentation was divided into what did we know up to 2016 and what do we know from 2017 and beyond. What this illustrates is that the agency subsequently approved Zolgensma and others. They were aware of the preclinical experiments, and on the other hand, they think about that the risk-benefit issue—there's not a risk that has appeared yet, but it's more about how we will communicate risk information to patients. In that context, the challenge for the scientific community is to interpret those findings for a better understanding of whether those findings lead to a risk in humans. We're on the front row for that because we have a lot going on in gene therapy, and we look forward to providing the agency the information it needs to move to start the BMN 307 trial shortly. Now let me pass it to Jeff.

Thanks Hank. I'm still digesting all that you had to say, but with respect to VOXZOGO, and Chris, with the implementation of GDPR privacy regulations in the EU, we don't have the same very specific data about our individual patients that we might historically have had. So, I'm kind of rounding around your question. As we get some data about product usage, we'll be able to make estimates on the average age of patients that we've treated. We don't have enough data yet to provide that. But I might add that the early patients treated are coming from France under an ATU early access program there, which currently has an indication for patients five years and up. So, the early experiences for patients range from around 5 to 10 years old, and we'll keep you posted as we get more data.

Thanks guys.

Speakers, our next question from Salveen Richter of Goldman Sachs. You may ask your question.

Good afternoon. Thanks for taking my question on VOXZOGO again, you talked about the strong demand. Can you just give us some color there of how we should think about not just France, but Germany in the select early access countries in Q4 and how the launch so far has exceeded expectations?

Hi Salveen. Thanks for the question. It's really a pleasure to answer this one and some of the color that I would add here, specifically from Germany, I would characterize as this: in previous launches, we've had patients come in generally one patient at a time, one patient from clinic A, one patient from clinic B. A little while later, another patient from clinic C; maybe sometime later a second patient from clinic A. What we're seeing this time around is—we're still seeing some prescriptions emerge from individual clinics with a patient end of one, but we're also seeing ends of 4, ends of 5 coming straight through at once. We've never encountered this before, and that drives our comment about the strength of prescription demand in part. Additionally, there's been a lot of prescription demand that emerged from named patient sales markets. I mentioned that we have sales to Switzerland, which by the way is not an EMA market. We’ve seen initial prescription demand from markets in the Middle East as J.J. mentioned, and also in Latin America. The combination of quick named patient sales, prescription demand from markets, and clusters of patients is really driving our comment about prescription demand.

However, Salveen, obviously the dollar sales in Q4 are going to be limited compared to the demand that's there because the patients treated have only recently begun treatment. Nonetheless, it bodes well for 2022 and the significant growth in revenues. There's definitely a lot of interest. An interesting anecdote is that we got a note from the Russian Federation government indicating that we are on their list of federal reimbursements for VOXZOGO in Russia, even before we have filed. That's quite an interesting development. Next question.

And speakers, our next question from Akash Tewari of Jefferies. You may now ask your question.

Hey, thanks so much. So one of the VOXZOGO, can you talk a bit about the use of Sentinels for Vosoritide in the 206 study? How are they being used to kind of adjust the dosing for these younger patients? And what did you see from a safety perspective so far in that population? This one's a bit more high-level. The stock's been range-bound for the last two years, despite the fact that you guys are approaching your two largest, most important commercial launches. Is there a point in time where you would more seriously explore strategic avenues to unlock value, particularly if either ROCTAVIAN or VOXZOGO don't get FDA approval as planned? Thanks so much.

I'll start with the first part of your question. The study was put in the field before the phase of trial readout. The comprehensive evidence in safety and efficacy in older children wasn't available at the time of the study. So, in consultation with health authorities, the study was designed to enroll patients in three cohorts by age, I think I've talked maybe I'm having up bringing knelt in terms of the ages six months to two years and then over the age of five. The underlying reason for that was that there were hypotheses about differences in the dose exposure and exposure-response relationships. The idea was to enroll Sentinels to evaluate PK, PD and their safety response to that 50 microgram per kilo dose that we've been using on older children before then opening the rest of the cohort up to randomization to active medication or placebo. In the 2 to 5-year old cohort, we found that the 15 microgram dose was an appropriate dose that gave an appropriate exposure and appropriate PD response, and we will review those data at the R&D Day. We only had a limited amount of efficacy data in those small number of patients because there was no contemporaneous control. What that tells us is that 2 to 5-year old can be safely dosed with the same dose as children who are older than five. Now turning to the children under two, we found a dose exposure relationship such that we had to increase the dose. Off the top of my head, I think we had to do that also for the infants that were enrolled in the study from 0 to 6 months of age. We're actually benefiting from having a relatively short-acting drug; short-acting drugs are easier to adjust and accommodate. From a safety perspective, with the relatively well-described safety profile of VOXZOGO, we haven't really seen much additional in terms of significant clinical adverse responses. So, I feel like we're in pretty good shape understanding the relationship of dose and therapeutic and safety response. You'll get your own dose of that just over a month, I should say. Let me pause there.

I think your second part of your question would be interesting. Clearly, the stock has been range-bound for a couple of years, and I think a recent survey indicated that 50% of investors apparently do not believe that VOXZOGO will be approved in the U.S., which I interpret as good news. If it's approved, the stock should respond significantly. Regarding the timing to unlock value through strategic venues, we should start the conversation again after the PDUFA date for VOXZOGO, which is just about three weeks away, and we might also have the European CHMP opinion in Q2 of next year.

Thank you so much.

Our next question from Gena Wang from Barclays. You may ask your question.

Thank you for taking my questions. So the first is regarding ROCTAVIAN. Just wondering what is the latest FDA interaction regarding ROCTAVIAN filing specifically on durability. And then related question is for the type of anymore data pre-clinical data that FDA is asking for the PKU program or do you expect FDA also asks for similar type of data for ROCTAVIAN?

It's a little complicated, but let's see if I can cut to the chase. In terms of FDA interaction, there really are no new developments regarding resetting or deferring expectations. They want two years worth of data, and in spite of our trying really hard, they still want the two-year data. We've had some lower-level communications in correspondence about things like statistical analysis, which revealed nothing new other than that they want the two-year data. We are interacting with the division and review division and coordinately sympathetic to the process of discussion. Based on what we've seen so far, we believe and we've had experts in to tell us what they think the FDA may not be telling us. Experts have advised that this reads like a situation in which they ask for two-year data. They're going to make a decision based on two-year data, which is good for us and for patients because we're optimistic that hemostatic efficacy will be maintained through two years, as demonstrated in the first 17 patients that were treated in the Phase III clinical trial and now have been followed for an additional second year, as we reported earlier this year. So we are confident that the remaining 100 or so patients will be adequately controlled from Factor VIII expression through the second year. The issue of durability in PKU is a little more difficult for the straightforward reason that in Factor VIII expression you measure the actual transferring credits, while in PKU you measure indirectly the gene therapy product. We will want to see what the pattern of control looks like before committing to a specific answer. But based on pre-clinical data, we have seen maintenance of gene expression, we believe a stronger argument can be made around PKU and durability compared to ROCTAVIAN. Just to recall, because of the immune response and evaluable findings in lower species, people don't typically do long-term studies with AAV. We are in the front row of understanding all of this because we have a lot going on in gene therapy and anticipate providing the agency the info it needs to further our 307 trial shortly.

Sorry, Hank, I wasn't clear. I was referring to the PKU program, whether the FDA was asking for additional preclinical data or do you expect them to ask for similar types of data sets to support safety for the ROCTAVIAN program?

So far they have not been requiring preclinical carcinogenicity studies. I mean, if you look at the Zolgensma label, there are no oncogenicity studies either in prior to submission studies or post-approval studies. We don't expect additional studies to be required from a safety perspective prior to submissions and approvals. But again, those discussions are to be held as well.

Thank you very much.

Our next question from the line of Paul Matteis of Stifel. You may ask your question.

Thanks for taking the questions. Hank, if I heard you correctly when you talked about the issue of two-year placebo-controlled study earlier. It sounded as though you feel like at this point in the review, this is a matter of either full approval or potentially accelerated approval. Did I understand that right? If it is ultimately deemed that business an accelerated approval, how do you think benefit will be confirmed? Do you think you'd need to do a two-year placebo-controlled study as opposed post-marketing requirement?

The approval pathway is specifically the agency’s decision and is a tailwind of consideration decisions. However, I don't want to read too much into anything other than what I was characterizing as a landscape issue, which was that, in the landscape of growth-promoting products from an agency perspective, the FDA has a deeper inquiry into growth velocities. If it were to lead to a scenario in which a confirmatory study would be required, we would hope that the long-term follow-up of patients we've already studied could constitute necessary efficacy investigation, especially since we provided the agency with extensive treatment data on the first patients treated in the open-label study. The agency seemed interested in those treatment patterns, but having just a few patients does not suffice for them. We are hopeful that whether it's a post-approval commitment or a conditional accelerated approval, we could see benefits accumulate as we study the efficacy of VOXZOGO further.

Got it. Thank you.

And speakers, our next question from the line of Geoff Meacham of Bank of America. You may ask your question.

Hey guys. Thanks for the question. I just had a couple. The main one, you guys have talked in the past about how PKU clinics still not fully reopened, just regarding the commercial business. Just wanted to maybe get an update on that. Have you started to see a recovery in Palynziq? That would be kind of helpful and maybe how do you think that's going to play out in 2022? And then a bigger picture for J.J. On the BD side of things, how are you thinking about new opportunities in light of what could potentially be a little more scrutiny on AAV technology? Is there something that you're looking for in terms of asset diversity by indication or technology diversity, or how are you thinking about that going forward? Thank you.

Jeff, do you want to cover the PKU PD, and I can follow up on the BD side?

Absolutely. As noted in our remarks, both this quarter and the previous quarter, what we're seeing is in Europe, but more importantly in the US, PKU clinics are continuing to operate at less than full capacity. In the US there are 125 PKU clinics, and certain ones are operating virtually. There are staffing issues as supporting staff have been reassigned during the pandemic. It’s important to note that those acute needs for children are prioritized, and we've seen that those acute needs for very severe conditions come first. Nevertheless, we’re getting new patient referrals on a steady basis, and while we were optimistic at the beginning of the year about new patient starts, it hasn't quite hit the high levels we anticipated. However, we've been working on tactical solutions to facilitate access to therapy and support new patient starts, so we're optimistic. We want to reset our expectations a bit that while we were optimistic earlier on, we’ve found the capacity in PKU clinics may not increase as quickly as we hoped, but we continue to see overall growth.

Regarding your BD question, that’s a good inquiry. We started as a company focused on protein therapeutics, yet today we explore diverse modalities. Moving forward, we have several protein therapeutics and small molecules. We will continue seeking new opportunities that extend beyond gene therapy. Even with that considered, we remain committed to gene therapy while also diversifying through oligonucleotide strategies and other modalities. We will reveal new programs and updates at our R&D Day, highlighting advancements in our ongoing research, including gene therapy and non-gene therapy programs.

Great.

Speakers, there are no further questions at this time. You may now continue, J.J Bienaime for the closing comments.

Thank you again for joining us today. We hope we convinced you that we are poised for significant growth next year, as just described. That's based on our foundational base business, VOXZOGO's launch in the EMEA region, and an anticipated U.S. launch next month. We also have the ROCTAVIAN gene therapy potentially coming into play later, on top of that, as well as a deep early-stage pipeline that we look forward to sharing with you on November 30th during our virtual R&D Day. We are focused on continuing the strong momentum as we achieve our next important catalysts, including the potential approval of VOXZOGO in the U.S. by the end of next month. Thank you for your attention today, and we look forward to speaking with you again soon.