Q4 2019 Earnings Call
Ladies and gentlemen, thank you for your patience and please contagious standby today's conference is scheduled to begin momentarily. Thank you for your patience and please can teach standby.
[music].
Good morning, and thank you for standing by welcome to the Horizon Therapeutics, TLC fourth quarter and full year 2019 earnings conference call.
As a reminder, today's conference is being recorded.
I'd now like to introduce must see enough intra senior Vice President Investor Relations.
Thank you Michelle morning, everyone and thank you for joining us on the call with me today or Tim Walbert, Chairman, President and Chief Executive Officer Loose Thomson Group, Vice President clinical development and external circ.
<unk> Executive Vice President Chief Financial Officer become Carney Executive Vice President Chief Commercial officer in any Pasternak Executive Vice President Chief Business Officer.
They will review our 2019 performance and 2020 gotten plays will then provide a review of our R&D programs, followed by Paul will discuss our financial performance after closing remarks, which Tim will then take your question.
As a reminder, during today's call will be making certain forward looking statements, including statements about financial projection.
The strategy unexpected timing impact if you care about.
These statements are subject.
She various risks are described in our filings made with the Securities and Exchange Commission, putting our annual report on form 10-K for the year ended December 31st 2019, and our earnings press release issued this morning.
You are cautioned not to place undue reliance on these forward looking statements and horizon disclaims any obligation to uptick that's taken in addition on todays conference call non-GAAP financial measures will be used these non-GAAP financial measures are reconciled the comparable GAAP financial measures in our earnings press release and other filings from today, they're available on our Investor website.
At Www Dot Horizon Therapeutics Dotcom I'll now turn the call over to Tim.
Great Good painter and good morning, everyone [noise].
[laughter] fourth quarter results capped off another year of tremendous progress for horizon.
Oh do the highlights and then provide more detail or performance.
We achieved record full year net sales of $1.3 billion, driven by 32% restructured group, an adjusted EBITDA of $483 million predicted or significant investment Coca walks preparation.
Getting this investment our underlying business generates strong double digit adjusted EBITDA group for the year.
The parents aren't it's our new biologic for part related disease or <unk> was approved on January 21st nearly two months ahead of the PDUFA date.
Two fold the next day, but in New England Journal Medicine publication of our Phase three trial result.
We've seen incredible level of excitement and demand for deposit in the first month in the market.
For more shortly.
Crystex or uncontrolled gout biologic and other key growth driver we know.
The old from a mirror open label trial that demonstrated a 79% complete response rate when you use it not the truck sales.
This result is roughly doubled to 42% rates seem a bit crystex, there and its phase three program.
It was a third consistent dataset with a complete response rate of 79% we're better.
Based on expectations for continued adoption of Crystex with methotrexate continued growth in new and existing accounts and further penetration referral wintry, we increased our crystex. It's Pete you West net sales estimate for more than $1 billion earlier this year.
Also increased the U.S. and it feels estimate for proposal for the $1 billion.
We significantly improved our capital structure in 2019 paint on $575 million a gross debt.
Extending debt maturities, reducing your annualized net interest expense by more than 40%.
Our strong balance sheet puts us in a great position to require we're in license medicine to expand our development stage pipeline.
And this morning, we issued for your 2020 guidance of $1.4 billion to $1.42 billion, a net sales and $485 million to $500 million were Joseph <unk>.
We'll go through this in more detail.
As we looked at 2021 and beyond we expect to generate significant operating margin expansion driven primarily by the broken <unk> and Crystex huh.
We believe our double digit net sales growth and strong double digit earnings growth target over the 2020 to 2023 timeframe make horizon one of the fastest growing companies in our space.
I'll now provide additional commentary and her team medicines, beginning with the puzzle.
Last year was certainly landmark year for proposal and began with the February release Super Phase three trial results were the primary outcome of 83% or patients achieving a dramatic improvement in <unk> versus 9% for placebo.
We submitted our appeal in July ahead of expectations.
Following a highly successful with the Advisory Committee meeting in December we received early get FDA approval on January 21st.
We're pleased to be the first computer provider, but I do these patients are approved medicine to treat this rare vision threatening Indus figuring disease.
Our launch is off to a strong start the patient and physician feedback we've received exemplifies our bridging that horizon to go through incredibly make health care priority not just the privilege.
Back one point you'd be patient was scheduled for scares business surgery, which is a complex I alignment surgery and were falling or first physician education program. The surgeon decided to peasant would be a better option [noise].
And there are many more stories like that.
It's also momentous state Bruce on February 5th one first propose a patient started treatment less than two weeks after approval.
[noise] <unk> this.
Interest certainly reflects the promise of two person.
It's also due to the significant market education efforts, we started well before approval.
Or 100 person to person team has been in the markets since last July.
A key relationships and educating key stakeholders.
Our strategy <unk>. This focus in four key areas first establish the market structure and simplify the patient journey, which had been long broadly defined it was very frustrating given there were no approved medicine or even standard of care.
I can educate all stakeholders on <unk> into peasant including physicians patients patient advocacy organizations.
So the chair or infusion centers as well as payers.
Third support the launch with our comprehensive high touch patient centric model.
And fourth facilitate access to present by establishing a presence site of care referral network, which is so important to this medicine.
Well still very early in or launch about a month and we've made excellent progress.
Since approval our team is called on over 75% over 1300 top tier positioned accounts.
We now have more than 500 patient enrollment form or perhaps a mid Q, which has far exceeded our expectations at this early beat.
Perhaps are similar to prescriptions or benefit investigations earned an indication of this strong initial demand.
Currently about 10% of the past, we received or from physicians that are not our priority targets, which reflects the significant interest in the broader T.D. community for to pets.
The vast majority of the physician submitting perhaps or actually the plastic surgeons or from ophthalmology subspecialties.
Well this pep number indicates very strong demand conversion remains subject to payer reimbursement dynamics, including up to 60 90 days delay to infusion while we have.
For commercial policy decisions and formularies as well as temporary J code and formulary access across both commercial and.
Government plans.
Like all part B infused medicines, we launched to peasant with the temporary J code. We submitted our application in early February for permanent J code that we expect will go into effect on October 1st.
With this permanent code, we anticipate that Medicare reimbursement process should become much more efficient.
Our payer team is meeting scheduled with nearly.
70% of or compare targets, representing nearly 80% of total lives.
Conversations related to access and coverage have been positive at this point in time.
Our site of care team has made great progress as well since approval date back to be more than 150 infusion centers, including regional and national accounts.
Activated accounts are now ready to administer to pass it provided the payer approves coverage.
Finally, our direct to patient and direct physician media campaigns have been highly successful given the disfiguring envision pretty nature of TV and the fact that two thirds of patients are female. This is a patient population that can be activity to ask her to present themselves.
So we're not surprised that visitors <unk> dot com had been very engaged in fact click through rate to the percentage of people clicking around and then go to our site had been running at more than 20% dramatically higher than the industry standard of 3% to 5%, which underscores exceptionally high interest in to present.
It's been a significant level of social media engagement from physicians patients and even infusion centers across Twitter Facebook and Instagram.
We're very pleased at the committee so enthusiastic about the promise for to pencil.
Based on early success, we've had to date, we continue to feel very confident or more than 1 billion dollar PQ with net sales expectation given the significant unmet need in this market.
Well now.
Briefly cover orphan Rheumatology segment, which represented approximately 75% of our total net sales and increased 14% in the fourth quarter.
Crystex was again, the major driver or performance with fourth quarter net sales, increasing 33% driven by strong biodroga.
We also consider full year growth target of more than 25% ending the year with growth of 32%.
We increased our crystex it Pete you with net sales expectation to more than $1 billion earlier this year expect more than 25% growth again in 2020.
The commercial medical affairs, and clinical teams have done a fantastic job of reinvigorating the brand.
Not many nine year old medicines can lay claim to this type of growth.
Even so only 4% at that 100000 addressable patients the United States used crystex in 2019 being there's substantial opportunity for continued growth.
We see three areas of growth for Crystex continue to expand existing accounts and new accounts, increasing use of crystex with immunomodulators, such as methotrexate, Nick continued acceleration of growth in the different logistics.
Where we were seeing increase uptake of crystex or from the efforts of our dedicated nephrology Salesforce, we put in place last year.
[noise] physicians are using immunomodulators, such as myth methotrexate more frequently as they continue to see evidence that have dramatically increases the crystex a patient response rate.
This includes positive data generated by two axle investigators that demonstrate a complete response rate of 100% an 80% when methotrexate was used with crystex.
In January we added to this body of evidence with the topline results from a mirror open label trial that demonstrated that adding methotrexate to crystex that resulted in a significant 79% complete response rate almost doubling the rate seen in the phase three clinical program.
A separate investigator recently published use of Crystex with multiple immunomodulators, including methotrexate is the <unk>. It's like the sport and also achieved to complete response rate of 100% in those patients.
We've analyzed claims data understand the growth in position use or many men and women on modulators with Crystex huh.
In early 2019, it was running in single digits. We recently reviewed data through October of last year before Amir open label results were public which showed that position use has grown to the low double digits.
For Castex the use of methotrexate, the response rate a significant higher allowing for patients to potentially stay on therapy longer.
This higher likelihood of patient success increases position confident for prescribing perspective to more of the patients and their care.
Moving onto a rare disease medicines demand remained strong driven by improved compliance and that patient growth.
Average shipping patients increased mid single digits across Actimmune ravicti and produces be combined for the quarter.
With expanded indications for purses been Rubik D. Many new patients are younger starting treatment on lower doses, which were typically increase as they grow older.
Our strategy is driven by patient identification diagnosis and ongoing support of patients throughout their treatment journey.
I'll now turn the call over to lives, who will discuss our R&D progress in more detail.
Please let that depends of phase three clinical program and the to Pez Advisory Committee meeting was integrated important in our success with the pads or an early approval.
He is leading our clinical development organization with.
Thank you, Tim and good morning, everyone.
I'm pleased to be with you today to provide an update on our key pipeline programs beginning with the Tessa.
The approval of deposit in January was the combination of a tremendous amount of work. This effort span our organization. They wouldn't have happened without the patients living with high Red eye disease, and the physicians, who partnered with us on the clinical development program I.
I I go Tim's comments about how pleased we are to bring this important new medicine decided I didn't these patients who until now had no other option.
Shortly after approval, but it has a phase three results were published in the New England Journal of Madison.
It's a market the importance of these data, but the results of both types of phase two and phase three were published in a sustained medical journal.
We anticipate sharing additional data this year at key conferences for ophthalmologists ocular plastic surgeons and endocrinologists.
We continue to advance off to get the extension trial of that has a phase three trial.
I think exit design to explore whether patients who lose response off drug after the initial 24 weeks a treatment would benefit from retreatment.
Yeah, well the non responders from the initial 24 weeks the treatment during the phase three trial would benefit from longer treatment.
We expect to report topline results on optic acts early next year.
Now that has is on the market for dilated eye disease were evaluating other indications to maximize the value this medicine for patients.
Blocking the idea is one receptor doesn't they have the potential to positively impact byproduct processes in other diseases.
To further evaluate this potential we're embarking on exploratory trial.
The abuse cutaneous scleroderma, which we anticipate initiating made here [noise].
Diffuse cutaneous scleroderma, a subset of scleroderma is a rare chronic and systemic auto immune disease March by fibrosis, including hardening of the skin and internal organs potentially causing significant organ damage. There roughly 30000 diagnosed patients in the U.S., primarily managed by rheumatology.
But there are no approved treatments for this rare disease.
It was a quarter of important developments for crystex that as well.
We continued our efforts to maximize the benefit the crystex offers patients with uncontrolled gout through our to mirror Immunomodulation trial.
The mere program designed to evaluate whether methotrexate help dampened the immune response to percepta and thereby increase the patient response rate, allowing more patients to complete a full course of therapy.
We have resulted in hand now from the first of these the mere open label trial.
During that 11 14 enrolled patients achieved a complete response.
And Weve submitted these data for presentation at a medical meeting later in the year.
Our 135 patient mirror randomized clinical trial progress during the quarter and we're on track to complete enrollment midyear.
Data are expected in 2021, and if positive we would pursue an update the crystex their prescribing information.
We also to can we also continue to advance pretax our 20 patient open label trial evaluating KRYSTEXXA in kidney transplantations with uncontrolled gout.
Kidney transplant patients have more than a tenfold higher prevalence of gap when compared to the general population.
Chronically elevated levels of serum uric acid can be associated with transplant organ rejection.
We believe this trial will provide helpful data to nephrologists in treating I need patients.
And finally inline with our strategy to maximize the value of our medicine will be initiating an open label trial with crystex to evaluate a significantly shorter infusion duration today. The infusion process takes approximately two hours.
Reducing that time would meaningfully improve convenience for patients, which we believe should also result in greater treatment compliance, we expect image or start to this trial.
We're keenly focused on building our pipeline through M&A in licensing and my team is actively working with our business development colleagues to evaluate additional medicines to add to our pipeline.
With that I'll now turn the call over to Paul.
Thanks laws.
Comments. This morning will primarily focus on our non-GAAP results unless otherwise noted.
Fourth quarter net sales of $363.5 million were driven by 14% growth of our orphan and rheumatology segment.
Net sales for this segment were $269.8 million and operating income was $95.4 million.
This was in line with our expectations and reflects the significant investments that we've been making and the launch of deposits as well as our pipeline.
That's sales for the inflammation segment were $93.7 million and segment operating income was $44 million.
The full year 2019, we generated higher operating income in this segment compared to 2018, despite modestly lower net sales. Our strategy is working we're reinvesting the cash flow generated from this segment into our key growth drivers the pezza and Christopher.
As noted in our press release this morning, beginning with the first quarter of 2020, we're changing the name of the orphan in rheumatology submit to the orphan segment.
And our restructuring our commercial operations to move ratios to the inflammation segment as a share similar call points with the other inflammation medicines.
Therefore, beginning with the first quarter results rails will be reflected in the inflammation segment. In addition, with its launch in the first quarter to position net sales will be included in the orphan segment.
Our non-GAAP fourth quarter gross profit ratio was 90% of net sales.
Non-GAAP operating expenses for the fourth quarter were $187.7 million.
This included non-GAAP R&D expense of $26.5 million, reflecting investments as a as well as our gout pipeline programs.
Non-GAAP EPS DNA expense was $161.1 million, reflecting increased launch preparation expenses for 2000.
Adjusted EBITDA was $139.9 million for the fourth quarter exceeding expectations.
The non-GAAP income tax rate in the fourth quarter was 9%.
Resulting in a 6.7% non-GAAP tax rate for the full year.
On a GAAP basis in the fourth quarter, we recorded a tax benefit of $559.9 million, primarily related to an intercompany transfer <unk> transfer of intercompany intellectual property assets.
Non-GAAP net income was $116.6 million and non-GAAP diluted earnings per share were 56 cents.
The weighted average shares outstanding used to calculate fourth quarter 2019, non-GAAP diluted EPS for 211 million shares.
This higher share count includes the impact of the potential conversion of our $400 million, an exchangeable notes into ordinary shares.
Given our recent share price appreciation. These notes our approach to the point, where we can call them.
Based on our current expectations were required to include the shares from this potential conversion in our fourth quarter and full year 2019, GAAP and non-GAAP diluted EPS calculations.
Despite this impact our non-GAAP fluidity, p. us still exceeded expectations for the fourth quarter and the full year.
Non-GAAP operating cash flow was $192 million in the fourth quarter and $446.4 million for the full year.
As of December 30, Onest cash and cash equivalents were $1.076 billion, giving us significant flexibility to manage our business accommodate our operations and expand our pipeline.
As Tim highlighted we significantly strengthened our capital structure in 2019.
Achieving our objectives to be more closely aligned with profitable R&D focus biopharma peers, which generally have lower leverage levels.
We ended the year in a significantly stronger position with gross debt of $1.418 billion and net debt of $341.7 million.
Our net debt to last 12 months adjusted EBITDA leverage ratio of 0.7 times is about a third of our 2.3 times leverage at the end of 2018.
The rating agencies have recognized us with S&P and Moody's both upgrading our corporate radians to double b minus and be a three respectively.
Moving to our outlook for 2020.
This morning, we provided full year net sales guidance of $1.4 billion to $1.42 billion underscoring our expectation for another year of strong commercial execution, driven by Crystex, the plaza and our other orphan medicines.
For Crystex, we project net sales growth of greater than 25% and 2020.
Based on expectations for continued strong demand for mythology, and accelerating nephrology adoption.
Well, it's a positive as we mentioned on our approval call. We expect 2020 launch year net sales to be in the range of $30 million to $40 million.
This assumes a more gradual and that sales uptake in the first half given the additional time required for the manual approval process associated with a temporary J code and the establishment of a referral infusion network.
We expect the majority of our 2020 sales to occur in the second half of the year.
As the approval process becomes more efficient after the permanent J code takes effect on October Onest.
We expect less than $5 million for promo net sales in our 2020 guide.
Given the expected at risk generic launch.
We expect full year adjusted EBITDA in the range of $485 million to $500 million, reflecting strong net sales performance offset by our launch year investments for deposit and additional investments in our pipeline programs.
Our non-GAAP gross profit ratio is expected to be approximately 90%.
We expect operating expenses the increase in 2020.
Primarily related to a year over year increase in SGN, a for the launch of deposit.
Which has been reflected in our adjusted EBITDA guidance.
We continue to expect our non-GAAP R&D expense.
The percentage of that sales.
To be into mid to high single digits for 2020.
We expect full year non-GAAP net interest expense to be approximately $50 million as result of our capital structure improvements in 2019.
For our income tax rate, we expect the full year non-GAAP tax rate in the high single digits.
As we see every year, we anticipate variability in our non-GAAP tax rate on a quarterly basis.
We estimate that our cash tax rate will be at the low double digits in 2020, decreasing and 2021 and beyond.
As always this projection could change significantly as a result of any acquisitions or divestitures made by the company or any changes in tax laws.
We expect our full year twentytwenty weighted average diluted share count to be in the range of 210 to 212 million shares similar to the fourth quarter of 2019.
And finally, let me touch on the first quarter.
As we discuss every year first quarter net sales are generally the lowest of the year impacted by seasonality as patients experienced changes in their health insurance coverage.
In addition, first quarter operating expenses are also typically the highest of the year and this year, even more so driven by higher to puzzle launch expenses early in the year with the majority of deposits sales in the second half of the.
Therefore, we expect first quarter net sales to be somewhat more than 20% of our full year 2020 that sales inline with prior years.
We expect first quarter adjusted EBITDA to be in the low double digits as a percentage of our full year 2020, adjusted EBITDA also in line with prior years.
With that I'll turn it over to Tim for his concluding remarks. Thank you Paul.
2019 was a year tremendous progress and performance at horizon, Mark by the achievement of several important milestones.
It's also testament to the strong execution of our strategy to maximize our growth drivers and expand our pipeline for sustainable growth.
We generated record net sales of $1.3 billion.
And adjusted EBITDA of $483 million, despite significant investment made in the development in the U.S. launch preparations for comparison.
We also invested in several new R&D programs for Crystex it to maximize the benefit it offers for patients.
To enhance our leadership in uncontrolled gout and.
We recently extended our pipeline with the addition of two new programs.
During 2019, we significantly improved our capital structure and aligned to more closely with our profitable bio pharma peers, reducing gross debt by $575 million, extending our debt maturities and lowering our annualized net interest expense by more than 40%.
Our continued strong execution has generated substantial value for shareholders with a total shareholder return consistently exceeding the NASDAQ biotechnology index over the last one three and five years.
We are entering 2020 in our strongest position ever as a company with your already off to an excellent start we look forward to updating you on our progress throughout this year. Thank you and we'll open it up for questions.
Ladies and gentlemen, this we'd like to ask a question. Please press Star then one.
We'll move yourself in the queue press the pound key.
Our first question comes from Annabel Samimy of Stifel. Your line is open.
Hi, guys.
Thanks for taking my questions and congratulations on.
Great.
So I want to ask you about suppose that clearly it looks like you've got very high demand high early demand for it.
Do you think that there's going to be a big bolus of patients and we're waiting for this drag and then it tapers off.
Any metrics you can share with us forward eyes to see how many.
I guess investigations have done from patients and how difficult is it to bring patients out of the woodworker essentially find these patients.
And then secondly on Crystex, obviously, they're having if you're having had a very good end of year for fourth quarter I'm. Just wondering if there's anything that's one time or what part of it is persistent versus.
If they bullets in the fourth quarter, and then maybe with the increasing use of methotrexate you can tell us what's the average number of files.
Being used now is thank you.
Let's start at the back the vials for patient has not substantially changed as yet.
The fourth quarter, no onetime events that we saw 11% sequential growth over the third quarter. Two we just continued execution of the business and as we get more questions Recompete go into more detail.
With the pads when when you look at the prevalence versus incidents in the active.
CD patient population that we were promoting too.
As the patients have the disease from one to three years you do see.
Overlap from one year to the next allowing for what we expect to be a bolus of patients. We do expect an incident annual population of 15 to 20000, a that where we are more coming to the medicine, but certainly there has been.
Significant interest as evidenced by the patient enrollment or prescriptions have received to date.
Your question about online is been.
The substantial interest I mentioned, just a click through rate of 20%, which has no seven times, what we would typically expect than we've had over 1000 patient enrollment formed downloaded from our website alone.
So highly activated and engage patient population about 20% of our.
Total.
Perhaps have come from outside our target physicians, so there's broad interest from both patients and physicians.
So we're really excited about progress and the key thing for us is evaluating the reimbursement.
Speed to which the manual process for patient.
Flows through and allows for.
Treatment of these patients.
Good Thanks antibody Michelle next question please.
Our next question comes from David Risinger of Morgan Stanley. Your line is open.
Yes.
[laughter] excuse me.
Thanks, very much and a concurrent congrats Tim and Paul on very strong execution.
So my two questions. Our first could you just frame your primary care assumptions, which are factored into your double digit revenue growth target.
For 2020 to 2023.
And then second.
Paul if you could just flag any modeling considerations for the first quarter of 2020, obviously there are always a lot of anomalies and are the primary care segment in the first quarter. So any any specific modeling considerations, we should be a we should be keeping in mind.
Thank you.
Thanks, Dave So when as we look at the.
Inflammation or primary care business. Our goal is to continue to manage the decline of this business.
While driving Pennsaid, 2% and two Lexus, we assume less than 5 million for the year for mobile.
And all of this is reflected in our guidance and to your comment of the 2020 to 2023 time frame.
Back end of that we expect to axis and and rails to.
Become generic so we will continue to manage it in fact, we saw significant increase in the margin from.
The information business 2019, with roughly similar sales. So we continue to execute that business will drive improving margins I think it was 47% operating income margins.
And we see that continuing to be offset by the.
Celebration of Crystex and.
Uptake of has a as move through the launch phase.
Okay, and then with the first quarter as we said earlier with the seasonality of the business and with the ramp up to pass a throughout the year. We expect the first quarter sales in first quarter EBITDA to be the lowest and as we said from a sales standpoint, we think it will be somewhat more than 20% of our full year sales.
In the first quarter and adjusted EBITDA to be low double digits as a percentage of the full year adjusted EBITDA in the first quarter right. Thanks, Dave Michelle next question. Please.
Our next question comes from David Amsellem of Piper Sandler Your line is open.
Thanks, So just a few crystex related questions.
Wanted to get your latest thoughts on the portion of docs or you think are using the product in combination with methotrexate or other immunomodulatory agents.
Also the current mix between Nephrologist and Rheumatologists at this point.
I know you cited gross in the nephrology community.
And then lastly, as the the footprint of the product grows.
As the payer landscape changed in any meaningful way in other words are you seeing any new payer roadblocks. Thanks.
Or on the payer side, we have not seen any increase in.
Or decrease in access or or any substantial road blocks.
Put in place these are refractory patients with uncontrolled gout and we certainly.
Look at it it's an acute treatment for generally between six and nine months of treatment.
So we see high levels of access and and expect that to continue vikram can.
Address the mix and then how methotrexate co used crystex strength.
Yes, thanks, Tim so on the.
Percentage of physicians, using methotrexate or Immunomodulation I think as Tim mentioned in his comments.
We are in the prior year, we had seen about single digits mid single digits and that has grown in this most recent here that's at that low double digits. So we're definitely seeing a trend in the right direction.
As far as the split between Rheumatology Nephrology Nephrology continues to grow there's a significant amount of interest from nephrologist that when we look at benefits investigations in continuing to grow into double digits quarter over quarter.
However, as we've said before it is difficult to pinpoint exactly where.
While sales come from.
In relation to nephrology, just because very often they would refer that patient to rheumatologists and in that case in our data. It appears as though is rheumatologists with the one with the treating physicians so.
A lot of manual work has to be done which.
Boost when we've done that we have gone back and seeing that our interest from nephrology continues to be great. Thanks, David next question. Please.
Our next question comes from Jason Gerberry of Bank of America. Your line is open.
Hi, good morning, and thanks for taking my questions.
First one for me is just wanted to confirm we some of our payer research indicates that.
Payers may not be implementing any sort of generic step through for TEP has that or any severity base thresholds for treatment. So wanted to share, noting im curious if thats consistent with what you guys are seeing and then secondly on the business development from Tim I know you. Historically, you don't want to go down the path of talking about specific areas of focus but.
Given that your operating from a position of strength to share from term share. Your portfolio is it a priority to do a deal in 2020 to bolster your mid stage pipeline. Thanks.
Thanks, Jason So definitely it is a priority, whereas last year or focus was on.
Paying down our gross debt and reducing interest in our leverage ratio and I'll walk through that says a question and Andy can give some color around that after what to pezza like like you mentioned.
No did in your survey.
So far we're seeing.
Generally positive feedback to the first steps in the commercial side or for people to put a draft policies out there that will lead to pnp meetings and ultimately formulary, we have had some.
Hospitals that are willing to move patients with.
Just under 10 patients treated this point in time, so we have seen those patients go through without generic step through most of which would really be steroids.
Importantly, steroids have in the one a double blind controlled trial did not show any benefit and reduced kaposis or to Popeo. So there really is no step through medically that relates to the pezza. We're also not seeing at least early severity based.
Guidelines and I think what do you mean, there is it being restricted to the population that we studied.
In our clinical program.
That is our promotion is focused on those 15 to 20000 patients and I think we're seeing with those patient enrollment forms of population consistent with.
What we expected active patients.
That need imminent treatment with deposit so so far.
There there's been a lot of positive discussions, but as we continue to say the next few months, we'll see the translation of that to formulary approvals are permanent J code on on the Medicare side. So.
I think we're hearing similar to what you're hearing at this point in time.
Right. Thanks.
He hit a highlight a similar to share so Jason is as Tim said, we're very focused right now on expanding our clinical stage development pipeline.
I think we're seeing very good opportunities that are both on strategy for us and actionable in terms of others.
Having upcoming capital events or seeking a partner from a capability or financial perspective. So we are quite active at the moment.
Thanks, Jason Michelle next question please.
Our next question comes from Gary Nachman of BMO capital markets. Your line is open.
Hi, Good morning, first on supplies as you've been creating awareness of T.D. to help better identify these patients do you think you'll get use initially just an active patients or could you guys have you seen inactive patients as well.
And then you know just talk through the different physician groups that you're targeting during the initial launch phase and managing the need for infusion, how that's been progressing and a little bit more on that the sites of care that you had mentioned thank you.
Sure. Thanks, Gary.
As you noted we've seen significant awareness and from all different perspectives here strong.
Demand based on patient enrollment forms and even the downloading of over a thousand.
On the or to present a come website.
As we said in our launched call or approval call. Our focus is on the 15 to 20000 patients who have active disease.
And that's where we generated our evidence and we feel strong about the compelling benefit in those patients.
At this point that's been the predominance of patients that were seeing.
We have.
Not seen a tremendous number of patients that would be classified added inactive small percentage of reenacted patients.
To reactivate the is right Douglas has gone through and the Advisory Committee meeting, but right now it's focused on active patients to your question around our focus from physician standpoint, we're calling on endocrinologists ophthalmologists and not to plastic surgeons.
The patient enrollment forms or prescriptions, we've seen so far have come from Dr. plastic surgeons and other sub specialties like neuro ophthalmologists.
In the ophthalmology space, So we expect Endos too.
Better understand the disease diagnosis early get those patients over to the ophthalmologist or active plastic surgeon.
For treatment and that gets to your last question around sites of care, we had called on and been actively educating about 300 sites of care in the pre launch phase we've already in the first month hundred 50 of these sites of care.
Centers activated and they're ready today to infuse capacity. So that network continues to grow we think we're in this.
We are better place some expected at this point in time, and and really those types of care waiting for that reimbursement process to kick in and I think we're prepared to handle the demand through those sites of care as we expected.
Thanks, Gary Michels question.
Our next question comes from Dana Flanders of Guggenheim. Your line is open.
Hi, Thank you for the questions and congratulations on on the corner I just had two quick ones on the pipeline if I could.
Could you just help us frame the importance of to protect trial I just relative to the broader opportunity nephrology I know you've mentioned nephrology growth is picking up so just curious how how this trial could play into you know a further acceleration in nephrology and then my second quick one on the preclinical gout programs.
Any update that we should expect this year and if we could see any of those move forward. Thanks.
Sure on the preclinical compound see continued to progress through I see enabling.
I am lines, and we have not guided to specific time timeline to move into human trials, but they continue to progress with the protect trial, a maybe victims and talk a little bit about the finding the market and and lose touch upon what we see its potential clinical benefit.
Thanks, Tim so the kidney transplant population that is effective uncontrolled gout is about.
30000 patients, which we believe 10000 of those patients on addressable. This is included in the roughly 50000 patients that we have discussed before these patients as we have discussed have 10 higher rates of go.
And those would go have higher mortality rate. So the the unmet need here, it's very dire most patients are very difficult to treat.
One of the interesting findings has that already on giving us presses post transplant.
Which goes right in line with our Immunomodulation strategy with the KRYSTEXXA.
Lists.
Absolutely so echoing what to say comes that we see these as one of the highest unmet need populations in the nephrology stays in that ACA is what we hear from Nephrologist that protect study was designed to provide data that supports that clinicians can safely and effectively use KRYSTEXXA to manage uncontrolled gout in this patient populations. We think these will be there.
Very helpful data from apologize Thanks, Dana next question. Please.
Our next question comes from Ken Cacciatore of Cowen Your line is open.
Hey, guys. Congratulations on all the progress here just back to tip has a briefly I think it.
We launched call for the approval call you talked about the top 130 clinicians had about 4500 patients and now you're saying about you've reached about 75% of the 1300 treating clinicians. So just as you talk about the 15 to 20000 patients you have obviously a lot of data coming in from your sales.
For so is that kind of eyes on basically you've identified those 15 at 20000 or just as you kind of canvas the landscape and get the feedback from the clinician that just seems like the right number at this point and then on Crystex. So you do have a competitor that is going to be releasing head to head data shortly from select a.
Just any way you can frame that for us as we go into that.
Potential disclosure thank you.
Sure. Thanks, Ken.
First of all on a competitive product.
First of all in all of our guidance, we assume a competitor is in the market and.
We will attain some share so.
We don't have the expect a with any results the habit impact our credit the $1 billion guidance. So.
If you look at.
Their strategy there comparing.
They're medicine with this includes immunomodulator to crystex without immune modulation as you've seen.
We've seen a dramatic increase in the complete response rate with Crystex oppose methotrexate for most commonly used.
Immunomodulator rheumatology with 100% of Rheumatologists using it.
So we feel confident that our strategy will be the best option for patients and.
And that's indicated in the great success, we've had to date.
With that to pass a as you mentioned, we have 1300 targets of.
Our total of 5000, we've called an over 75% 1300, when we look at the population.
Each year, there is 15% 20000 patients would do seem to think we're seeing majority of them with our 5000 targets as you mentioned about 4500 with focus 1300 patients.
So everything is as expected, but importantly, when you look at our digital and direct to consumer efforts, we have seen substantial insys as I mentioned in my remarks, we've had over a thousand patient enrollment forms downloaded from the to present dot com website. So.
Our efforts within the physician targets are hitting.
That incident patients as well is the rollover patients who continue to have active disease, but importantly, our activities will continue to scale on the digital consumer side to ensure that we have patients who are not seen by our target physicians have access and that is what we've seen with them.
About 20% of our patient enrollment forms to date. So very good progress. We think we can hit this audience, so fully with our commercial effort.
Thanks, Ken Michelle next question please.
Our next question comes from David Steinberg of Jefferies. Your line is open.
Yeah. Thanks last you added.
A large team.
In advance of the approval and launch it has.
And Paul I think you pointed to the fact that like Q4 that the the SD eight figures should be roughly how we should think about SGN quarterly basis going forward plus inflation is that still the case. So at 161000 61 million or do you expect to add more folks to the team.
And then secondly, I know.
Ex US you previously indicated that you've had initial discussions with the EU. Both your predecessor company revision and horizon about a pathway.
Approval, but you're going to wait till the approval that further discussions I know, it's only been in months have you had any more discussions in any initial thoughts on a potential rollout in Europe in the coming here. Thanks, Cory Thanks, Dave outside the United States as we mentioned to do it plans and we're finalizing those plans with.
Or external.
Opinion leaders and advisors on on the next step approach with the in May.
Which would be two part looking.
For orphan drug designation and then what is the would be the best plan for a submission as a reminder, biologics for only through centralized procedure through may not.
Offering to regional.
Approach as you kind of small molecules. So we will continue to update as we make progress there.
The other on.
The.
To pass.
I think the.
We do not expect add substantial employees or or headcount to.
The to present team at this point in time.
Now we're focused on 100 person team, we've got to rightsize Salesforce, we can hit the patience it as I mentioned in my prior remarks, and we feel confident that we can drive uptake with that team Paul will speak to the impact of the broader launch expenses and how we expect to see that.
And then David we as I said earlier, we do expect operating expenses the increase in 2020, primarily related to a year over year increase related to the launch of the path.
And I think we said before to that 2020, SDMA will and Opex will annualize at a somewhat higher rate than the fourth quarter.
And as I said earlier to the for the first quarter is are probably our highest year highest quarter of opex expense, along with our lowest sales, which makes the first quarter EBITDA than lower Joe.
No real focused on.
The early approval that we saw with the pass a so we've accelerated our launch expenses launch meeting national sales meeting all these activities earlier than.
We would have expected so expect the launch expenses to focus there with the pairs of sales ramping up primarily in the second half. So that's how based on our guidance were sequencing and led to Paul's guidance for.
20% of the year in revenue and low single digits for the year for the first quarter.
Adjusted EBITDA low double digit double double digit Simon. Thank you. Thanks, and thanks, David Michelle We've had for one more question. Please.
Our next question comes from Greg Savannah.
Of Goldman Sachs. Your line is open.
Great. Thank you off for taking my question I mean this question is really more for for Andy just on BD and all that use as an organization on historically been able to.
Bringing products that have blockbuster potential on a go forward basis is the strategy to fall not one product that similarly has that profile or in the near term.
Focus to maybe add some smaller products at maybe need to consider more like singles doubles and triples. Thanks.
I think thanks for the question Craig I think as we continue to grow as a company.
We obviously want to bring in.
Therapies that.
That have the potential to move the needle financially and of course provide patient benefits. So I don't think we will be proactively seeking what you might consider to be a small product from a commercial for potential perspective.
And then again the only thing I'd add to that is we are focused on clinical stage programs as you think about the timing for when.
Those might generate revenue for us those are those are not necessarily going to be near term.
Real focus was on the 2025.
And beyond with with.
As we went through in our guidance of 20 to 23, we expect strong topline double digit net sales and even stronger double digit EBITDA growth. So we can feel strong near term growth and want to build a pipeline for the long term success of the business. Thanks, Greg.
Thank you Michel that concludes our call. This morning, a replay of this call in webcast will be available and approximately two hours. Thank you for joining us.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating you may now disconnect everyone have a great day.
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