Earnings Call Transcript - BMRN Q2 2023

Operator, Operator

Thank you for joining BioMarin Second Quarterly Results Conference Call. Hosting today's call from BioMarin is Traci McCarty, Head of Investor Relations at BioMarin. Please go ahead, Traci.

Traci McCarty, Head of Investor Relations

Thank you, Katie, and thank you, everyone for joining us today. To remind you, this nonconfidential 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 the progress of BioMarin's product programs, actions of regulatory authority, 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 from BioMarin's management team today are JJ 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 Technical Officer; Brian Mueller, Executive Vice President and Chief Financial Officer. I will now turn the call over to our BioMarin's Chairman and CEO, JJ Bienaime.

Jean-Jacques Bienaime, Chairman and CEO

Thank you, Traci, and good afternoon, everyone. Thank you for joining us today on this call. We were very pleased with our progress in the second quarter as more families around the world gain access to VOXZOGO and the highly anticipated FDA approval of ROCTAVIAN was received. The achievement of these two milestones are key components of our growth plans, including continued VOXZOGO expansion and ROCTAVIAN launch execution. Record revenues of approximately $1.2 billion in the first half of the year represented 13% year-over-year growth and 16% growth excluding KUVAN. Our commitment to profitability was demonstrated again this quarter and we were pleased to deliver $56 million in GAAP net income as a result of strong product demand. With Q2 total revenues coming in at $595 million, including $113 million in VOXZOGO revenues. We are on a path to achieving our 2023 objectives of double-digit revenue growth and significant operating leverage. This is expected to drive more than 30% growth in bottom line profitability in 2023, as communicated earlier this year. We were very pleased to have received FDA's approval of ROCTAVIAN in the quarter, as we believe the demonstrated clinical benefit of this one-time gene therapy has transformative potential for those living with severe hemophilia A and eligible for treatment. With combined US and European addressable patient population of nearly 6000 patients, we are optimistic that ROCTAVIAN will become the treatment of choice for those seeking an alternative to chronic therapy. The commercial team moved quickly to activate the first phase of launch following FDA's approval and we have been encouraged by the early signals of interest in ROCTAVIAN in the United States. We have also made good progress in Germany and other European countries during the quarter, and Jeff will provide more launch details in a moment. Turning to VOXZOGO, we continue to be impressed by the cadence of uptake worldwide. As a result of continued strong demand, we are raising full year VOXZOGO guidance for the second time this year to between $400 million and $440 million, representing a significant increase from our initial guidance in February of between $330 million and $380 million. Jeff will provide additional detail on our VOXZOGO guidance in a moment. Building on the significant demand for VOXZOGO for the treatment of achondroplasia, we are pleased to announce today plans to begin our pivotal program with VOXZOGO for the treatment of hypochondroplasia. With over seven years of efficacy and safety data from our clinical program and nearly two years of commercial experience in achondroplasia, we view VOXZOGO as highly de-risked and are on the fast track in a potential second new underserved patient population. Hank will provide more details in a moment. But suffice it to say, we are rapidly executing on our expansion plans for VOXZOGO. In summary, we are very pleased with BioMarin's performance in the second quarter and year to date. The global demand for VOXZOGO continues to drive record revenue and margin expansion, supporting our confidence that we will potentially have our first blockbuster product. With ROCTAVIAN, we're excited about the opportunity ahead and remain focused on launch execution both in the United States and Europe. We believe our ability to raise awareness of ROCTAVIAN among patients and physicians in the US through direct outreach to the hemophilia A community will result in meaningful demand over the coming quarters. Thank you for your continued support. I will now turn the call over to Jeff to discuss the commercial business update.

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Thank you, JJ. I'm very pleased with our commercial performance in the second quarter, resulting in $595 million in total revenues and representing 12% growth year-over-year, including KUVAN and 14% growth, excluding KUVAN. Contributions from our enzyme products in the quarter keep us on track to deliver full year 2023 guidance for this franchise, as well as provide significant contributions to BioMarin's full year 2023 total revenues. Turning to VOXZOGO. Today, we increased full year guidance again as new patient penetration continues to exceed our aggressive expectations. As noted in the press release today, we once again raised full year VOXZOGO revenues guidance to between $400 million and $440 million, representing 150% year-over-year growth at the midpoint of guidance. Appreciating that the run rate for the remainder of the year may seem muted based on VOXZOGO revenues of $201 million in the first half of the year, we note that we are managing temporarily tight supply into 2024. We are closely managing new growth, including limiting inventory stocking to ensure that we achieve our main goal, which is to ensure that patients maintain continuity of VOXZOGO. Importantly, while we are focusing on inventory levels and new patient starts, our supply plan provides for hundreds of new patient starts in the second half of this year. We do have ample drug substance on hand which we manufacture at our Novato facility and have sufficient capacity to meet all future demands for achondroplasia and other possible indications. We have secured additional capacity at our Fill/Finish CMO, which is the constrained element of the process. These accelerated steps will ensure that we have ample supply to exceed full year 2024 consensus, currently at $597 million, and support growth beyond 2024. At the end of the second quarter, more than 2000 children with achondroplasia in 36 different markets were being treated with VOXZOGO. Uptake to date represents 12% penetration of indicated patients in BioMarin's commercial footprint, highlighting the significant growth potential remaining. Turning now to ROCTAVIAN. We've been very pleased with US launch progress since receiving FDA approval on June 29th. Following the approval, the team immediately began the outreach campaign educating stakeholders, including patients, hemophilia treatment centers or HTC, and payers on the value of ROCTAVIAN. In the four weeks since approval, we've been pleased with the increasing inflow of patient consent forms, the number of executed or in-process warranty agreements, and the utility of our executed purchasing agreement contract that we expect will facilitate access and uptake of ROCTAVIAN at hemophilia treatment centers across the US. There are many commercial activities ongoing to facilitate access to ROCTAVIAN. We are currently in process of working with the largest, most capable hemophilia treatment centers on-site readiness. On the payer side, our US market access team has been actively engaging with payers to facilitate patient access and the issuance of coverage policies. In advance of coverage policies being issued by payers and once commercial ROCTAVIAN is available in the US, we have the ability to get approval for individual patients through the medical exception process. In summary, in the US we are actively promoting ROCTAVIAN to the hemophilia community and the SalesForce has been activated in all key regions. We expect labeled commercial ROCTAVIAN to be available to ship to pharmacies in August and look forward to updating you on our progress over the coming months. As we stated on our June approval call, we expect it could take from two to five months to complete the steps necessary before treatment with ROCTAVIAN depending on a patient's location, insurer cadence of regularly scheduled visits with the HTCs and completion of eligibility testing. Moving briefly to ROCTAVIAN and updates in Europe, we continue to make good progress. In Germany, new AAV5 antibody tests in Germany continue to come through, resulting in a robust funnel of patients preparing for potential treatment with ROCTAVIAN. While final federal pricing negotiations are ongoing, reimbursement for patients treated with ROCTAVIAN is possible under named patient authorizations through individual insurers. Those sales would be subject to the final price once it has been established. In Italy and France, we are also making good progress. Our application seeking price and reimbursement approvals as well as other launch preparation activities are moving ahead in both countries where we expect negotiations to conclude by Q4 of this year. We continue to be encouraged by early interest in ROCTAVIAN and other markets, including Argentina and Saudi Arabia, where we have the potential to provide access to ROCTAVIAN through named patient authorizations. Taken together, we are pleased with the progress we are seeing in markets outside of the United States. Briefly on full year 2023 ROCTAVIAN guidance, we maintain our current full year 2023 guidance of between $50 million to $150 million, appreciating that we are at the start of launching a truly pioneering therapy which has required significant effort to support novel reimbursement arrangements as well as training for those providing ROCTAVIAN treatment and follow-up. We believe there are a variety of potential outcomes over the next several months. Our confidence in the guidance range is supported by ongoing progress in Europe, requests from patients for CDx testing and treatment, the inflow of patient consent forms and warranties in the US, and feedback from physicians globally, as well as the one-time nature of both ROCTAVIAN treatment and reimbursement. For perspective, the treatment of slightly more than 50 US patients achieved the midpoint of current guidance. So stay tuned over the coming months, as we track global launch progress. In conclusion, at the midpoint of 2023, we are on track to achieve full-year total revenue guides. The unique one-time treatment and reimbursement profile of ROCTAVIAN lends itself to contributing meaningfully during the second half of the year. VOXZOGO continues to exceed expectations, resulting in two guidance increases so far this year, the start of our new pivotal program with VOXZOGO for the treatment of hypochondroplasia opens the possibility of a new indication opportunity for a marketed product. These opportunities are now layered on top of BioMarin's established base business that delivers nearly $2 billion annually and growing. Taken together, we are well positioned to achieve financial growth and profitability goals outlined earlier this year. Thank you for your attention. And I will now turn the call over to Hank to provide an R&D update.

Henry Fuchs, President, Worldwide Research and Development

Thanks, Jeff, and thank you all for joining us today. Echoing JJ and Jeff's enthusiasm for the June 29 Food and Drug Administration approval of ROCTAVIAN, we are extremely gratified that people in the United States living with severe hemophilia A have access to this innovative therapy. Our goal with each of BioMarin's therapeutic interventions is improving health outcomes for people with genetic conditions, and we believe ROCTAVIAN clearly achieves that goal. As we have stated previously, we believe VOXZOGO has the potential to treat a variety of genetic statural conditions, many of which represent significant unmet need. As JJ mentioned, we have solidified our plans to begin with the pivotal program with VOXZOGO for the treatment of hypochondroplasia. We estimate the patient population in hypochondroplasia across BioMarin's global territories to be approximately 15,000 individuals and expect the full spectrum of disease to be elucidated over the course of the study. As a reminder, hypochondroplasia is a genetic skeletal dysplasia characterized by small stature and disproportionately short arms, legs, hands and feet. As Dr. Andrew Dauber, who BioMarin is supporting to run the Phase II study of VOXZOGO in a multitude of genetic statural conditions, has educated us, for decades doctors had only one tool to improve outcomes in patients with skeletal diseases, and it does not work well outside of growth hormone deficiency. As is typical in BioMarin, we look forward to ushering in a new era in improving health outcomes for children with severe impairment and growth now beyond achondroplasia. Following our interactions with the FDA and based on the emerging data set from Dr. Dauber's study, we aligned on a study design to test VOXZOGO in these new indications. Supported by our extensive clinical development program in achondroplasia and the profile of VOXZOGO as a natural regulator of bone growth, we are pleased to be moving directly into a pivotal program in hypochondroplasia. We plan to begin the six-month observation arm of the study later this year, followed by a 52-week randomized, double-blind, placebo-controlled phase of the 80 participant clinical trial. Based on the enthusiasm we have seen with VOXZOGO for the treatment of achondroplasia, we're excited to get started on the first potential treatment option for children with hypochondroplasia. Briefly, on the earlier-stage pipeline, we've been working together on an interesting and informative update across our pipeline programs for our upcoming R&D Day on September 12. This includes our five publicly disclosed product candidates as well as other new updates. The agenda includes BMN 255 for hyperoxaluria in chronic liver disease, BMN 331 gene therapy for hereditary angioedema, BMN 349 for alpha-1 antitrypsin deficiency, BMN 351 for Duchenne muscular dystrophy and BMN 293 for myosin-binding C3 protein deficiency causing hypertrophic cardiomyopathy. Some fireside chats with key opinion leaders or key areas of our therapeutic focus for BioMarin will be an important and interesting part of the R&D Day. We look forward to sharing an update on what's been happening in the earlier-stage pipeline, and we hope that you'll tune in to learn more about our next potential commercial product candidates. Thanks for your support. And I'll now turn the call over to Brian to update financial results in the quarter. Over to you, Brian.

Brian Mueller, Executive Vice President and Chief Financial Officer

Thank you, Hank. Please refer to today's press release summarizing our financial results for full details on the second quarter of 2023. Since JJ and Jeff spoke to our revenue performance for the quarter and future revenue outlook, I'll make just a few more revenue comments, then we'll focus on the remainder of our P&L and other key financial updates this quarter. As usual, all results will be available in our upcoming Form 10-Q, which we are on track to file over the next couple of days. As we have previously noted, we viewed last year as a transformative year for BioMarin, laying the foundation of our growth strategy driven by VOXZOGO, approval of ROCTAVIAN, and double-digit revenue growth, as well as our important milestone of sustainable full-year GAAP profitability in 2022. As we close the first half of 2023, we're pleased to build on that foundation with the approval of ROCTAVIAN in the U.S. and strong first half financial performance that aligns with our long-term objectives of continued revenue growth and P&L leverage. BioMarin's $595 million of total revenue in the second quarter of 2023 is an increase of 12% compared to the second quarter of 2022. Regarding our revenue outlook for the rest of 2023, we continue to anticipate strong double-digit growth of 16%, at the midpoint of our reaffirmed total revenue guidance. As Jeff mentioned earlier, we are pleased with our first half performance of VOXZOGO. Given the first half revenue has come in over $200 million, we felt it appropriate to note that the low end of our prior guidance is no longer in line with our expectations. So with that in mind, we have provided an updated view for the year, raising guidance slightly to $400 million to $440 million. Moving past revenue, Q2 2023 gross margin was 78.5%, which is an improvement of 1.6% as compared to the second quarter of 2022. We are pleased with our gross margin performance over the first half of 2023 as it reflects our fundamental objective to improve this metric through cost efficiencies and favorable product mix. R&D expense in Q2 2023 of $177 million and SG&A expense of $215 million grew 12% and 9% versus Q2 2022, respectively, and in line with our goal to grow expense base slower than revenue. While we expect operating expense growth on a full-year basis to align with that goal, we do anticipate a second-half acceleration of expenses as we continue to progress our R&D pipeline, including the new Phase III study announced today for hypochondroplasia, and investments in the ROCTAVIAN and VOXZOGO launches. On the bottom line, we continue to deliver on our commitment to profitability with $56 million of GAAP net income in Q2 2023 and $105 million of non-GAAP income. This positions us to achieve our stated objective of sustained and growing full-year GAAP profitability going forward. Today, we also updated our 2023 GAAP and non-GAAP income guidance to $165 million to $215 million and $370 million to $420 million, respectively. Similar to our VOXZOGO revenue guidance adjustment, our updated outlook for the bottom line reflects our strong performance in the first half of the year and continued revenue growth expectations in the back half of 2023. At the midpoint, we expect more than 30% of net income growth, which represents meaningful leverage versus revenue and is in line with our financial transformation goal. In closing, we are on track to meet our objectives for 2023 and beyond. The recent approval of ROCTAVIAN in the US, coupled with the strong foundation in place, including the successful VOXZOGO launch, will further enable our ability to drive revenue growth, expand profitability and generate meaningful cash flows over the course of the next several years. Thank you for your attention. And we'll now open up the call to your questions.

Operator, Operator

Thank you. Ladies and gentlemen, we will now proceed to the question-and-answer session. Your first question comes from Akash Tewari from Jefferies. Your line is now open.

Akash Tewari, Analyst

Hey, thanks so much. So just any update on the 300 patients you've previously had interactions with regarding ROCTAVIAN in the US? It sounds like you won't get commercial product into the distribution centers until late August. But I think you've previously mentioned you're going to see some leading indicators in terms of patients who've actually been treated with the companion diagnostic or have actually gone to a treatment center of excellence. So I'd love any update on that number. And then, I guess, number two, on hypochondroplasia data. Can you comment a bit on why the FDA wouldn't require two years of Phase 3 data for VOXZOGO like they did in hyperchondroplasia? And also maybe what timelines would be for Noonan syndrome, right? I think you have about five patients' worth of data right now. Should we expect that you would need about 25 patients' worth of data at the 15-microgram dose in Noonan to be supported for Phase 2 approval there? Thank you.

Jean-Jacques Bienaime, Chairman and CEO

Jeff, do you want to start with the first question and then Hank?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Yes. Hi Akash, I'll start with your first question. It's absolutely the case that we started with the US launch with an estimated 300 qualified patient leads. So these are individuals that had been in touch with BioMarin through either one of our digital properties or an in-person engagement and had opted into further information. As noted on our approval call a month ago, that list of 300 is our top priority for getting back to in different ways, digitally and through our sales force. I can assure you that the team has been processing those leads in the last month and actively. And as you noted, we expect and in fact are seeing small pieces of signals of demand falling into place from responses to those lead engagements to patient consent forms coming in. So things are really encouraging on that front. And maybe with that, I'd turn it over to Hank on hyperchon and Noonan questions.

Henry Fuchs, President, Worldwide Research and Development

Thank you, Jeff, and thank you, Akash, for your question. Regarding the duration of hypochondroplasia compared to achondroplasia, the FDA has shown a strong interest in two years of data. We've agreed with the FDA that a one-year study will suffice for registration. This decision is influenced by their growing confidence in the durability of VOXZOGO in treating disproportionate skeletal dysplasias. Concerning timelines for Noonan syndrome and further development beyond achondroplasia and hypochondroplasia, it makes sense to assume that, since VOXZOGO is similar to a natural bone growth regulator, it could be beneficial for various indications, including Noonan and others. This is reflected in Dr. Dauber's investigator-sponsored trial assessing a range of mutations. He has treated at least three patients with Noonan syndrome for a year, and their growth velocity has remained above their baseline, with good safety data being collected for these patients. We are currently in discussions with health authorities to clarify anticipated eligibility, comparators, endpoints, and study durations. As we complete these study designs, we will share our plans in more detail, similar to what we have done for hypochondroplasia. Your question highlights the promising future potential of VOXZOGO for treating other skeletal abnormalities, given its excellent safety profile and effectiveness as a natural bone growth regulator.

Traci McCarty, Head of Investor Relations

Next question please.

Operator, Operator

Your next question comes from the line of Salveen Richter from Goldman Sachs. Your line is now up.

Salveen Richter, Analyst

Good afternoon. Can you help us to understand the confidence in ROCTAVIAN guidance for the second half in the context of the US and EU dynamics? Thank you.

Jean-Jacques Bienaime, Chairman and CEO

Maybe I'll start and then have Jeff continue. As Jeff mentioned in the prepared remarks, the net price of ROCTAVIAN in the US is nearly $2 million, which means that our guidance midpoint of $100 million would correspond to only 50 US patients. We're also relying on non-US patients. It's important to note that VOXZOGO operates differently from chronic therapies in terms of revenue recognition. For VOXZOGO, if a patient begins treatment on December 1st, the revenue generated this year will be significantly lower compared to if they start on February 1st. However, for ROCTAVIAN, treating a patient on August 30th or December 30th results in the same revenue. So, keep that in mind. With that introduction, Jeff?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Yes. Thanks, JJ. I think that's exactly right. And thanks for the question, Salveen. The other couple of things that I would add are we're now seeing multiple pathways that we expect to open up for ROCTAVIAN revenue. I mentioned progress in all of Germany, Italy, and France, which are priority European markets for price and reimbursement. Remember, I've been quoted on numerous occasions saying that it typically takes 12 to 15 months to get through that process. We're now just a couple of weeks away from 1 year since approval. So we should be getting to the end of the process in some or all of those markets between now and the end of the year, opening up a pathway for treating patients. Also, the named patient markets I've quoted, Saudi Arabia and Argentina, that we've been working diligently but quietly on in the background. And finally, the United States, where we got our approval at the midyear point, takes a couple of months for product availability and for start-up activities. But in the US, our experience has generally been that we can get patients treated pretty quickly after approval. So all of those things add up to channels for being able to treat patients and I think add to the confidence of being in that revenue guidance range.

Salveen Richter, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Geoff Meacham from Bank of America. Your line is now open.

Geoffrey Meacham, Analyst

Hey, guys, thanks for the question. Just had a few. So for ROCTAVIAN in Europe, I know it's been a few months since you tweaked the access strategy in Germany. Are there any metrics you can give us, either activated centers or diagnostic volumes? I just want to get a sense of the progress since you've had a shift in the reimbursement strategy. And then on VOXZOGO, you talked, Hank, about Dr. Dauber's work expanding the indication base. I guess the question is, as you rolled out globally in achondroplasia commercially, have you identified hypochondroplasia patients? I wasn't sure if the new Phase 3 was sort of mechanism-driven or kind of commercially driven. Thank you.

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Hi, Geoff, maybe I'll start with the question about Germany and ROCTAVIAN. As JJ quoted in our approval call, we've actually got a really robust funnel of patients now that are in process for eligibility testing going through the CDx testing process, following eligible patients via CDx, go through liver health testing in minutes, a prescription and reimbursement approvals. As JJ quoted a month ago, approximately 60 patients, I view that as a really healthy patient funnel starting. Recall last fall, we said we estimated about 40 early adopter patients in Germany. So we're at 1.5x that number, and that's before we get through the formal federal price and reimbursement process. Those patients are making progress inside of the funnel. I understand it's frustrating not to see them popping out the other side as treated revenue patients, but I'm confident that they're making progress and that we'll get there, particularly if we can come to an agreement with the federal authorities on price and reimbursement. Maybe I'll turn that over to Hank on the VOXZOGO question.

Henry Fuchs, President, Worldwide Research and Development

Thanks, Jeff. With a lot of the genetic conditions when there is no treatment, there tends to be no diagnosis. And now with achondroplasia gaining so much traction, patients with hypochondroplasia are identifying themselves or families with patients with hypochondroplasia are identifying themselves and getting themselves forwarded to treatment centers for identification, and in the case of Dr. Dauber's study, referral into his study. A lot of that is driven by the phenotypic similarity of achondroplasia and hypochondroplasia, to your point about mechanistic similarity. Our expectation is that this will begin to extend into other skeletal disorders as more clinicians and more families recognize CNP as a natural regulator of bone growth. This is a process that could lead us to many additional indications. As I said in the call, stay tuned for further updates on the regulatory strategy that will enable VOXZOGO to be available for children suffering from other skeletal abnormalities beyond achondroplasia and hypochondroplasia. It's a very exciting time.

Operator, Operator

Your next question comes from the line of Chris Raymond from Piper Sandler. Your line is now open.

Christopher Raymond, Analyst

Thank you. I have a couple of questions. First, regarding the VOXZOGO supply issue, Jeff, could you elaborate a bit? I believe you mentioned that the full year '23 guidance wasn't raised more due to a supply issue at a CMO. Can you clarify what specifically the fill-finish bottleneck is? You mentioned having enough supply to meet the 2024 consensus, but could you provide more details on the timing and the actions planned to avoid being supply-constrained? What is your strategy to resolve this situation? And then for Hank on the pipeline, I noticed from the update on March 31 that there are two patients whose expression trajectory has not yet reached the therapeutic range. Can you explain what factors would influence a decision to proceed or halt this program, or provide any additional insights on that? Thank you.

Jean-Jacques Bienaime, Chairman and CEO

Thanks, Chris. We have Greg Guyer, our Head of Operations here, who's going to answer your VOXZOGO supply question.

Greg Guyer, Executive Vice President, Chief Technical Officer

Yes, Chris, thanks for the question. And just maybe to clarify a little about what Jeff was talking about is that currently, we're able to supply VOXZOGO with many hundreds of patient starts in the second half of this year and have a supply plan that exceeds even the 2024 consensus estimates that he mentioned earlier in FactSet. That said, that supply just remains tight from an inventory perspective. So we thought it was just appropriate to escalate it to this group. My team is doing everything we can to continue to accelerate supply from the CMO, which we use. They're a great partner, they're reliable, dependable, high compliance. So there's no issue. It's just trying to accelerate the supply availability faster than what we had planned. And that's really a tribute to our commercial team for really getting the type of penetration rates much faster than we had expected. So we are working very closely with them to make sure that we can meet that future demand and also deliver on the full potential of VOXZOGO long term.

Jean-Jacques Bienaime, Chairman and CEO

There are no manufacturing issues. We handle the drug substance production in California ourselves, while the fill-finish is done by an external supplier. As you know, increasing volume with outside suppliers requires a significant lead time, which we're currently experiencing because VOXZOGO is performing much better in terms of market penetration than anticipated. This is creating a temporary limitation. However, we expect the situation to improve in 2024, and by the end of 2024 and into 2025 and beyond, we shouldn't encounter any issues. We have nearly unlimited drug substance capacity, which can accommodate significantly higher outputs, potentially reaching beyond $1 billion or even $2 billion. If we achieve success with hypochondroplasia in the future, our capacity could expand even further. The fill-finish bottleneck is a temporary challenge, but as you pointed out, if we hadn't faced it, we would have raised our guidance for 2023 above what we've communicated today. On a positive note, we believe that our plans for next year, combined with our supplier's capabilities in the fill-finish area, will enable us to significantly exceed the current consensus for VOXZOGO in 2024. It should be much easier moving forward. Jeff, would you like to add anything?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

No, all stated. Thank you.

Jean-Jacques Bienaime, Chairman and CEO

Is there any comment, Hank? Yes?

Henry Fuchs, President, Worldwide Research and Development

Yes. We have clear criteria for staffing, and it's important to note this at this stage. One option before meeting those top criteria could be to raise the dose, as AAV5-based therapies generally have a good safety profile. Therefore, we might consider increasing the dose. Additionally, I want to mention that we have gained some new insights regarding the optimization of gene expression in patients receiving gene therapy based on the data we have from ROCTAVIAN. We are collaborating closely with the Data Monitoring Committee and the study investigators to incorporate these insights. If neither of these strategies proves successful, we will obviously reach a stop criteria. However, it remains early for that program. As we continue with dosing and gather more data, we will provide further updates.

Christopher Raymond, Analyst

Thank you.

Operator, Operator

Your next question comes from the line of Robyn Karnauskas from Truist Securities. Your line is now.

Robyn Karnauskas, Analyst

Hi. Thanks. I'll be quick. So I have three questions. First, we heard that compliance is very high in VOXZOGO. Can you elaborate on that? This relates to the competitive landscape and the commitment of interns. Second, there are questions regarding hypochondroplasia. Will you need to conduct as many long-term studies? Any insight on that? Lastly, I have one follow-up. Thank you.

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Maybe start with a question on compliance with VOXZOGO, Robyn. And as you note, it's very high. We are not able to measure that implicitly in all markets. So the one market that we can really dial in on that is the United States. Our experience so far in the United States is very few drop-offs and compliance with the daily dosing, as we measure it, appears to be very high. So, so far, so good on the compliance side. And maybe I'll turn it over to Hank.

Henry Fuchs, President, Worldwide Research and Development

Yes, thanks, Jeff. In regard to the hypochondroplasia question, one study we've interacted with the Food and Drug Administration and have a pretty clear picture of their requirements which would be satisfied with one study. The reason for not requiring longer-term follow-up as regards randomized placebo-controlled period is their growing satisfaction with durability. In fact, maybe to go even a little further, depending on where achondroplasia is at the time of the regulatory action on hypochondroplasia, even further follow-up may no longer be required for hypochondroplasia. So we had a great dialogue with the FDA. So far as there's an excellent safety track record for VOXZOGO in patients with hypochondroplasia with accumulating excellent efficacy data, these sorts of supplemental new drug applications are not necessarily subject to the same demand as the initial dose. We're pretty excited. And you mentioned you had a follow-up question?

Robyn Karnauskas, Analyst

Yes. One follow-up, sorry. So there's so much fixation on when you'll dose patients in Europe. And I was just curious, have you thought about letting us know earlier or during the Analyst Day? There's some expectation on that. So maybe give us clarity on when you might give us timing of that and how much color you would give because there's excitement, but we're yet to see the dosing.

Jean-Jacques Bienaime, Chairman and CEO

Yes. Recently, one of your financial analyst competitors spoke with a German physician who revealed that he is set to treat his first patient either on August 30th or 31st. It seems likely that this will occur. We are also considering the possibility of beginning our first treatments by the end of August. After September, we anticipate starting to gain real traction in patient treatments and revenue generation.

Operator, Operator

Your next question comes from the line of Phil Nadeau from TD Cowen. Your line is now open.

Phil Nadeau, Analyst

Good afternoon. Thanks for taking our questions as well. Couple more on ROCTAVIAN. JJ, during your prepared remarks, you mentioned the consent form received in the US as adding confidence to the guidance. Can you go into a bit more detail on that comment? Is that simply the 300 patients that you knew of as of the time of approval? Or have there been incremental consent forms received over the last month?

Jean-Jacques Bienaime, Chairman and CEO

I'll let Jeff answer that question. I don't want to believe that. We have already received consent forms from 300 patients. They are starting to come in, and maybe Jeff can provide some more details.

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Yes. Thanks for the question, Phil. So these are really independent sets of patients. The 300 patients that we've quoted are qualified leads, meaning we have a lead. We've qualified that lead to be a hemophilia patient, not a sales rep at a competitor company, for example. We're following up with those patients who have opted in for further information. Patient consent forms, on the other hand, are the usual vehicle that we use for all of our programs, including for ROCTAVIAN in the United States, to conduct patient intake into our case management system. Any patient that has come in with a patient consent form has been in touch with our case management system and has opted in for further services, depending on that patient consent form might be coming in from a hemophilia treatment center along with a prescription, or might be coming in independently as patient-directed interest. In that case, we would connect them with the sales rep for follow-up. So it's a mix, but it's really, really good that we have patient consent forms coming into our case management system. That's how it always begins for us with all of our programs, including ROCTAVIAN.

Phil Nadeau, Analyst

Would you care to disclose how many patient consent forms you have?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Not at this time. Thanks for the effort, though.

Phil Nadeau, Analyst

Got it. And then in terms of the centers themselves, what do they need to do in order to make ROCTAVIAN available for a patient? In general, is there a formulary committee that has to accept ROCTAVIAN as a therapy? Any other committees that you have to talk to or get permission from before a center can bring ROCTAVIAN to its patients?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

It's a great and important question regarding site readiness. Unfortunately, there is no simple one-size-fits-all answer. Some hemophilia treatment centers (HTCs) are part of larger health care systems and may utilize their administrative procedures, such as formulary and pharmacy services. In contrast, some HTCs operate independently and manage these processes themselves. Therefore, site readiness varies based on the size and capabilities of the HTC and whether they are connected to a larger health care institution. It's worth noting that the infusion of ROCTAVIAN is a relatively simple step. The more significant issues involve administration, navigating payer interactions, handling a high-value frozen product, checking patient eligibility, counseling interested patients, and providing follow-up care after administration, as discussed during the approval call. There are many small tasks involved, and they can differ for each treatment center, but none of them present major hurdles. Our team is actively addressing these needs.

Phil Nadeau, Analyst

Great. And then last on that follow-up that you just mentioned, how onerous are the liver enzyme and factor monitoring requirements? Is that something that you can make very easy for the patients?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Blood test. Liver function tests are on a panel that probably most of us do once or twice a year. It's a simple blood test. At the same time that that simple blood test is being taken, that blood can be used for factor expression levels.

Jean-Jacques Bienaime, Chairman and CEO

Do the patients do that? Do you want to?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

That's right. So for a lot of patients, it's as simple as going to a very nearby lab testing facility. In the case of patients that don't have convenient access to that, we have programs to assist.

Phil Nadeau, Analyst

Perfect. Thanks for taking our questions.

Operator, Operator

Your next question comes from the line of Joseph Schwartz from Leerink Partners. Your line is now open.

Joseph Schwartz, Analyst

Great. Thanks so much. Our checks in Germany indicate that there is still some uncertainty about how many and which sites will be able to administer ROCTAVIAN there. So I was wondering if you could talk about how this rule-making process works and how you expect it to play out. Is this part of the reimbursement negotiations which you're expected to wrap up in September? Or is this something separate? And then in the U.S., our checks underscore the important contracting with the sites that the initial ordering and longer-term follow-up on patient performance can be done reliably. So I was wondering sort of a follow-on to Phil's question, if you can give us any insight into the extent of contracting that you've been doing with HTCs in the U.S. Thank you.

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Hi, Joe. Let me start with Germany. So you've heard me talk over the last year or even longer about the hub-and-spoke model for treatment the major markets in Europe have been rallying around. That's the hemophilia treatment community in Europe, not BioMarin is a driver behind that. So the notion is that, in Germany, for example, the largest and the most capable hemophilia treatment centers would be hub centers for both screening and testing patients and that there would be smaller, less capable hemophilia treatment centers that would be spoke centers. Those spoke centers would probably do all of the screening and recommending of treatment. The treatment would be done at the hub center and then likely back to the spoke center for a follow-up after treatment. There may, in fact, be a little bit of uncertainty on the entire list of who's the hub and who's the spoke. But from a practical perspective, we're focused on engaging with all of the significant hemophilia treatment centers in Germany. It doesn't really matter very much from a kind of promotional perspective which centers do infusions and which centers refer for infusions on Germany. You mentioned contracting, and I'm not sure exactly what kind of contracting you're talking about. In the United States, there would certainly need to be an agreement reached between a treatment center and a payer on the level of reimbursement for ROCTAVIAN, which might involve a patient-specific contract between a hemophilia treatment center and a payer. We think that that's likely and not a big barrier at all to proceed with the treatment. There might also be contracting between spoke sites, to use the analogy, spoke sites and hub sites in the United States, if there's a desire on the part of a hemophilia treatment center to refer one of their patients to a more capable center or one that's further along in site readiness for treatment of ROCTAVIAN. All of those things are possible. I haven't personally heard that there are any barriers to proceeding due to contracting. If you've got something more specific, stock.

Joseph Schwartz, Analyst

No, that's good.

Jean-Jacques Bienaime, Chairman and CEO

I want to add that all patients in the U.S. will receive ROCTAVIAN at hemophilia treatment centers that qualify for 340B discounts, which are mandated for these centers. Initially, let's estimate this discount to be around 20%, although it might decrease to 17.5%. To simplify, we can use 20%. The average Weighted Average Cost of Capital (WACC) is $3 million per patient, so 20% of that amounts to $600,000 which will benefit the treatment centers for each patient. I thought you might find this information noteworthy.

Operator, Operator

Your next question comes from the line of Paul Matteis from Stifel. Your line is now open.

Paul Matteis, Analyst

Hey, thanks so much for taking my question. On VOXZOGO, Jeff, does the supply issue or capacity issue temporarily impact how you market the drug? How might that impact the way you sort of seek to interact with health care providers and patients if and when the label is expanded before the capacity constraint is fully resolved? And then on ROCTAVIAN just in terms of the timing, the 2- to 5-month timing that you spoke to around approval, I think it took around seven months to dose the first Hemgenix patient. Can you just outline the couple of key reasons in your mind for why you think you can get this done so much faster than CSL did?

Jean-Jacques Bienaime, Chairman and CEO

Yes, that's a good question. I'll begin with VOXZOGO, and then Jeff can add his thoughts. In our prepared remarks, we mentioned that for 2024, we expect to have sufficient supply to exceed the current consensus, which is nearly $600 million. This projection includes the possibility of label expansion for new patients, particularly those under AAV5, if that happens. So, that information is already incorporated. Greg, do you have anything to contribute?

Greg Guyer, Executive Vice President, Chief Technical Officer

No. By the time hypochon arrives, the supply issue will not be a concern—we will have plenty of supply.

Jean-Jacques Bienaime, Chairman and CEO

Yes, we're not going to experience the hypochon condition next year.

Paul Matteis, Analyst

Just meant younger patients, but okay, thanks.

Jean-Jacques Bienaime, Chairman and CEO

Younger patients, but the current consensus is significantly above our guidance of $440 million for this year. We are very comfortable and have enough supply to exceed the current consensus for 2024, regardless of the patient demographics. Jeff, do you want to add anything?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Yes. Let me share a couple of metrics for perspective. By the end of Q1, we reported 1,500 patients receiving treatment globally; by the end of Q2, this number increased to 2,000. This reflects a significant quarter-over-quarter increase. Our supply plan for the remainder of the year allows for hundreds more patients to receive therapy. Internally, we view the overall demand as expected, but it has arrived sooner and is growing faster in the markets we are entering. We are gaining access quickly and seeing rapid uptake in these markets compared to our initial plans. However, we still aim for our patient base to expand, and this does not change our drug launch strategy. We consider this a strong growth trajectory, though we are encountering some limitations in certain areas. In those locations, we are prioritizing the continuity of care for children who have started treatment, ensuring they do not discontinue therapy. Regarding VOXZOGO, on ROCTAVIAN, we are eager to treat patients in the United States as quickly as possible. We have been preparing for this opportunity for several years, and as a new player in hemophilia, we do not have an existing therapy that could compete with our gene therapy treatment. To help ensure a swift launch, we secured a group purchasing organization contract before receiving approval. We are acting as quickly as we can.

Jean-Jacques Bienaime, Chairman and CEO

And the warranty. We've got the warranty. So those are differentiating factors. I can't speak for the other manufacturer. But we're moving as rapidly as possible. I think the steps that we've taken so far would be consistent with that desire to move fast.

Operator, Operator

Your next question comes from the line of Gena Wang from Barclays. Your line is now open.

Gena Wang, Analyst

Thank you for addressing my questions. Following up on Paul's comments and JJ's remarks, I have a couple of inquiries. First, regarding ROCTAVIAN's revenue for 2023, do you anticipate the majority will come from Germany or the U.S.? Additionally, what feedback have you received from U.S. payers about the warranty program you mentioned? How many centers and lives are currently covered under this program? My second question pertains to VOXZOGO in treating hypochondroplasia. For the six-month observation study, what factors will you consider to help define the pivotal study? Also, for a 52-week pivotal study, what are the trial assumptions? Lastly, what insights have you gained from Dr. Dauber's trial?

Jeffrey Ajer, Executive Vice President and Chief Commercial Officer

Maybe I'll start, Gena, and I'll let JJ fill in. Regarding revenue expectations for ROCTAVIAN, part of our confidence in our guidance is based not only on the U.S. approval we received when we set the price for the United States, but also on the fact that almost 12 months after the conditional approval in Europe, we are nearing the time when we expect to complete formal pricing and reimbursement processes in the major markets in Europe. Along with what I have previously mentioned about a rapid start in the United States, the possibility of named patient sales in other markets provides different avenues for patients to receive treatment and contribute to revenue. As for percent coverage and lives, I'm not aware of any coverage policies issued in the United States yet. These policies can take between 1 and 12 months to be issued. I've come across some draft language regarding coverage policies that suggest they will align with either the label or clinical trial inclusion criteria, both of which are acceptable. However, we have not seen those coverage policies start to be issued yet, so I cannot provide information on the percentage of covered lives in the United States. I’ll turn it over to Hank for the questions on Voxzogo and hypochondroplasia.

Henry Fuchs, President, Worldwide Research and Development

Yes, Gena, the six-month prospective run-in study is important to document baseline annualized growth rate prior to randomization into the study. As we talked about before, one of the things that we observed in the growth disorder area is that knowledge of that baseline growth rate is really important to be able to interpret subsequent changes in growth velocity and is important for randomization purposes. The study, as I mentioned, is an 80 participants, which is a little bit smaller than the study of VOXZOGO in achondroplasia, where we are expecting a relatively similar magnitude of effect. Of course, that can be tuned depending on what that baseline AGV run in is for the baseline population. Just to remind you, in the 110-patient study of VOXZOGO in achondroplasia, the P value is 10 to minus 13. So we don't anticipate needing to power the study quite as aggressively as we did in achondroplasia. We are reassured about all of this based on the evolving data that we've seen from Dr. Dauber, as has the FDA been reassured that we can go directly into a Phase III clinical trial. So thanks for the questions.

Gena Wang, Analyst

Thank you.

Operator, Operator

That concludes the Q&A portion of our conference call. We will turn it back to BioMarin's CEO, JJ Bienaime, for closing remarks.

Jean-Jacques Bienaime, Chairman and CEO

Thank you, operator, and thank you all for joining us on the call today. Outstanding execution across our business led to record revenues in the first half of 2023. We reached more children with VOXZOGO around the world as physicians and family start treatment with the only approved medicine starting in the treatment of achondroplasia. We are well on our way to begin treating patients in the US and Europe with ROCTAVIAN over the coming months. For the remainder of 2023, we plan to build on the foundation of growth and profitability achieved in the first half of the year. Thank you for your continued support, and have a good day.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.