Q1 2020 Earnings Call
[music].
Good morning, and thank you for standing by welcome to the Horizon Therapeutics plc first quarter 2020 earnings conference call.
At this time, all participants' lines are in listen only mode.
The speakers presentation, there will be a question and answer session.
Asked a question during the session will need to press star one of your telephone.
As a reminder, todays conference is being recorded if required and further assistance. Please press star zero.
I'd now like that I would now like to introduce Messina Wintour Senior Vice President of Investor Relations.
Thank you Chris Good morning, everyone and thanks for joining us.
On the call with me today, or Tim Walbert, Chairman, President and Chief Executive Officer, Ms. Thomson Group, Vice President clinical development and external search Paul Hoelscher Executive Vice President Chief Financial Officer that compare Nani Executive Vice President Chief Commercial Officer, and Andy Pasternak, Chief Executive Vice President and Chief strategy Officer.
Is there.
Tim will provide a high level review of our first quarter, including an update Echo 19 Arts and has a launch and guidance.
Lives will then provide a review of our R&D program, followed by Paul who will discuss our financial performance and guidance in more detail.
For closing remarks from Tim will take your question.
As a reminder, during today's call will be making certain forward looking statements, including statements about financing projections, our business strategy and the expected timing impact future events or actual results could differ materially due to a number of factors, including the extent and duration of the effects of that covered 19 pandemic as well as other factors outlined in our latest forms 10-K 10.
Q and an 8-K filed with the Securities and Exchange Commission.
You are cautioned not to place undue reliance on a forward looking statements and horizon disclaims any obligation to update such statements.
In addition on today's 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 for today that are available on our investor website at Www Dot Horizon Therapeutics dotcom.
Ill now turn the call over to Tim.
Thank you Christina and good morning, everyone.
During my remarks, I will discuss the first quarter business performance and the remarkable initial launch will recur Barbara diabetes medicine to present.
However, I would like to start with a few thoughts about the covert 19 pandemic.
It goes without saying that these are unprecedented times or recognize and thanks for health care professionals external research incredible dedication as opposed to effort through this period.
We also put our employees, who are helping patients access and maintain their medicine.
It is good the commitment and support of so many people that we will get through this together.
Our priority horizon has been to safeguard the health safety, and where patients and our employees as will support the communities and which.
Corporate night team has made such an impact.
Our commercial organizational organization inpatient services teams have done a tremendous drop responded doing everything possible to support patients and physicians during this period.
This is a true testament to who we are as a company who is willing to go to incredible ways to make a difference.
We're also supporting our communities, we have donated more than $1.5 million to cope with 19 response efforts and our locations around the world.
With the diversity of our portfolio from the fundamentals of our business attack were strong position as a comfort.
We're strong cash position with $755 million at quarter end.
A modest level debt leverage pulling in numerous improvements we've made for capital structure last year.
This strength and confidence in our futures allowed us to complete three transactions in the last month alone.
Including the addition of big see any to five new pipeline candidate for railroad medic disease.
Two transactions required payment rights related to future to preserve royalties and milestones.
Given that the poses performance this quarter and are significantly raised expectations. We believe the truth Poser rights transactions will pay back quickly.
We have business continuity plans in place across our supply chain to support the ability of our medicine at this time and do not foresee any disruptions in supply from cobot 19 moving forward.
Regarding the impact of corporate 19 on our business while their parents all of our medicines to some degree it differs greatly by medicine, and we've done our best estimate that impacted our updated full year guidance.
Capella has proven very durable in this environment based on the severity of disease and the unmet need for patients that have gone through years with other treatment.
Our rare disease medicines have also been stable given the serious diseases the tree.
We're seeing more been impacted crystex, some that are inflammation medicines as well as cobot 19 has reduced physician visits and stay at home orders have impacted patient comfort levels with accessing their treatment.
As it relates to Crystex, we're seeing deferred demand from cobot nine team and expected to begin to return as health care activity returns, which we have assumed will happen in the second half of this year.
Paul will discuss expected impact from Copaxone team in more detail.
Moving onto the first quarter results, including the launch of to present.
We had an exceptionally strong first quarter with better better than expected performance across all of our business units well exceeding our expectations for net sales and adjusted EBITDA.
First quarter net sales were $356 million a year over year increase of 27% driven by orphan segment net sales growth of 47%.
Adjusted EBITDA was $107 million up 21%.
To president of Fantastic launch quarter significantly outperforming our expectations.
As a result, we're increasing our competitive net sales guidance for the full year to greater than $200 million.
We're also raising our full year net sales guidance to range between 1.4, and $1.45 billion driven by significantly higher to present net sales, which is more than offsetting the estimated impact of cobot 19 on or other medicines.
We have also revised our adjusted EBITDA guidance to range between 450, and $500 million, which reflects the additional commercial investments, we're making support the higher than expected demand for proposal.
Our new suppose R&D programs, we announced this morning, and our recently acquired to compensate candidate Ixia and a two five.
The highlight of the first quarter was extremely successful launch of proposal, which we initiated shortly after receiving FDA approved for January.
Two months before the scheduled the PDUFA action date.
The response to the medicine has been overwhelmingly positive for both patients and physicians with uptake far exceeding expectations.
First quarter net sales for to present were $23.5 million.
To put this into context, our full year initial guidance for suppose was $30 million to $40 million.
Three factors drove compared to outperform.
First the severity of fiber died disease for CPE and if the build sitting painful and vision threatening symptoms is a highly motivating factor for patients to seek out therapy.
Second our pre launch efforts were incredibly successful.
And third the to pose a launch execution has been stellar.
The severity of PD is an important factor contributing to strong uptake.
We refer countless stories from patients about how challenging it is to live with PD and the success they passed with to present.
One came from a woman with rapidly progressing PD.
In the month, leading up the treatment the diseases were had worsened to the point that she was on the verge of having to quit her job through two or double vision and other debilitating symptoms.
Our patient services group immediately reached out to helper accelerator treatment schedule and she was able to start treatment in early April.
But Easter Sunday, she was able to watch TV drive and very importantly, regain her ability to work.
The broad indication we received approval as also allow patients with five chronic disease to also as noted in active disease to be prescribed proposal.
Once such patients with five product that you'd be with diagnosed as legally blind dimona.
Shortly after beginning to posted treatment the rapidly recovered site in the on it and another case of women, whose disease has been five product for more than a year experienced a significant reduction of pump ptosis after taking capacity.
Rich results like these are generating strong interest in proposal for the treatment of by product.
Which was one of the reasons, we're moving quickly into our planned new clinical program in product to EDI, which lives will discuss in more detail shortly.
The execution of our commercial strategy and significant prelaunch investment resulted in approximately 200 patients starting therapy in the first quarter.
We've also generated more than 1500 patient enrollment forms or perhaps.
Year to date.
Perhaps are leading indicator of demand.
As we evaluate our launch metrics, we continue to make great progress.
We continue to see significant use of to cause of by our top tier position targets.
In line with our expectations about 90% of prescribers are up them all just for ocular plastic surgeons.
Patients are well diversified across the country.
Our current payer mix is roughly 50% commercial and 50% government, we expect that mix to shift to more commercial patients over time.
Our site of care team activated more than 500 infusion centers in the first quarter.
Activated sites that those infusion centers that are ready to administer to pezza provided the payer approves coverage.
More than 150 infusion centers administered purposes in the first quarter.
Our reimbursement team has met with payers, representing nearly 90% of covered lives.
Final policies have been published for more than half of those covered lives with favorable policies for more than 70% of those covered lives.
We're therefore seeing favorable access much sooner than we expected.
As it relates to coordinate team after very rapid growth in February and March the growth of our patient enrollment forms with prepares the has slowed.
Our significantly increased guidance to greater than $200 million incorporates that impact.
Accordingly, our guidance this year would have been substantially higher if it weren't for the impact of coated 19.
We have continued to see a similar number of new patient starts in April that we did in March which gives us confidence in our full year guidance and even more confidence in our grid the $1 billion peak us sales.
US net sales expectations.
With respect our biologic medicine for uncontrolled gout, we also delivered better than expected first quarter with net sales of $93 million growing 78% versus 2019.
As we discussed in the past, we see three drivers of growth for Crystex, which all contributed to our performance this quarter.
Expanded uptake in existing accounts and adding new accounts.
Increased use of Crystex with Immunomodulators such as methotrexate.
And continued acceleration of growth.
In the Prologis.
As it relates to Immunomodulation, specifically physicians are using immunomodulators more frequently as they continue to see evidence that dramatic that it from medically increases the crystex a patient response rate.
This includes the 79% response rate data generated by the mere open label trial as well as numerous published case studies with similar or better results.
In fact.
We just learned a positive data generated from the recipe trial, which was an investigator initiated placebo controlled trial evaluating perspective with the immunomodulator microphone of late muscle or map.
This will discuss this further in her remarks.
Based on data like these that continue to be presented and published physician use of the minimum onto leaders with Chris sector has grown to double digit rate.
We expect adoption of the use of immune modulators with respect to to continue and do not believe their use with respect to has been significantly impacted.
Long term by Cobot 19.
In fact based on market Research study, we conducted in March approximately 75% of positions have stated they continued to be interested in using crystex surplus immunomodulation therapy. Despite cobot 19.
As it relates more specifically to the impact of cope with 19 on Crystex. So the vast majority of patients who started therapy prior to the mid March impact of Cobot 19 have maintained that therapy.
However, due to stay at home guidelines that began in mid March. Many first time patients have delayed the start of their infusions. In addition patient visits to physicians have substantially declined.
With Rheumatologists office business declining 50%.
Across the board.
This has resulted in a reduction in new patient generation.
We see this resulting in deferred demand for Crystex up.
We anticipate will begin to returned to pre cope with 19 levels find the return of healthcare activity in the second half of this year.
As we evaluate that deferred demand we've been database of more than 1500 uncontrolled gout patients. We're currently pending treatment crystex.
We are continually engaging with these patients to help them get treated when appropriate for them given their individual and their physician circumstances.
The fundamentals of this market or impact and there's a significant unmet need for the 100000, plus paces were not being treated for the chronic impactful uncontrolled gout.
Unfortunately, the health of these patients will continue to decline as the to further treatment.
We remain highly confident our peak us net sales expectation of more than $1 billion for Chris spectrum.
Demand for a rare disease medicines remained steady driven by first quarter combined average shipping patient year over year growth in the mid single digits for Rubicon.
Mississippi and Actimmune.
In compliance and adherence of improved even more so during this environment.
Ill now turn the call over to list for an update on our R&D programs.
Thank you Kim Ann good morning, everyone.
This quarter was also very productive horizon from an R&D perspective, we received FDA approval for 2000 and presenting the data.
We announced several new R&D program will fall.
Backbone.
Finally, we acquired development stage candidates HCM 18 five.
While we view these development and also provide I think about 19 as it relates to our clinical program.
I'll begin with HC at 85 development stage pipeline candidate, we recently acquired in maturity on transaction.
Dan 85, LPR one antagonists.
We will be exploring indices cutaneous systemic sclerosis.
Which is the type of square garden anything bear clinic.
Great I'll auto immune disease with high unmet need.
In addition to skin thickening. These patients can separate extensive pipeline that causes internal organ damage, including interstitial lung disease kidney disease and bowel disease.
Roughly 30000 patients diagnosed with this type of scleroderma in the United States have nearly managed by Rheumatologists and there are no currently approved treatments for that could be.
Mechanistic rationale and early clinical evidence.
For Alkar wide antagonists.
This includes positive signals observed in an eight week placebo controlled phase two trial of HCM 85, as well as continued improvement in the 16 week open label extension period.
While the results showed evidence potential clinical benefit in patients with scleroderma and timeframe likely Kishore just showed a statistically significant benefit.
We plan to conduct a pharmacokinetic trial this year this for new product formulation.
We also plan to discuss the Registrational program with the FDA later this year.
We expect to initiate a phase TB handle trial in the first half of Twentytwenty line and are excited about the potential of HC any to fight for treating this debilitating disease.
The approval has in January was a combination of that's a great deal of effort and dedication on the part of our whole R&D organization.
It represented only the beginning of our clinical work for medicine.
Our strategy has that it can maximize its long term potential.
As such today, we announced two new to positive development programs luncheon valley like in the pipe Roddick stays at TDD, sometimes referred to unit in active disease.
Said another way to explore the potential for subcutaneous administration.
Hi trial has in psychotic or in active TB, we'll evaluate.
Patient disease is no longer progressive or inflammatory.
Once the pain and inflammation of active with progressive TD supplied.
Laying teaching behind the I become psychotic.
Well the disease is no longer active robotic CGD patients may continue to experience.
The portfolio and all the detail take nine cents, they can impair their quality of life.
Hi, Tim mentioned, we've heard that physicians are using has that in this patient population with positive outcome.
We anticipate initiating a single arm open label trial early next year.
Our other new programs extent is intended to explore the potential for subcutaneous dosing in Japan, which is currently administered by infusion.
Option could provide greater flexibility for patients and condition.
We anticipate initiating a pharmacokinetic Charles to explore this dosing options later this year.
We've decided to delay the start of I'd hesitate exploratory trial in diffuse cutaneous systemic sclerosis to later this year, reflecting the environment and the demand placed on the healthcare system by coated 19.
And finally, we presented new to present data during the first quarter pooled has outpaced team and phase three clinical trial that showed that has significantly reduces prop cases in PD PPD patients regardless of age gender and smoking patio.
Moving to KRYSTEXXA.
Sure as Tim referenced we've recently learned of the data from the recipe trial.
Recipe is an investigator led randomized double blind placebo controlled study tusa preliminary efficacy and safety of administering immunomodulator microsatellite wellfield or no.
Great. Thanks.
32 patients with chronic refractory gout will randomize lead aligned to receive and then now or placebo. In addition to all patients receiving crystex.
The primary efficacy endpoint was the proportion of participants achieving and maintaining serum uric acid target levels below six.
After 12 weeks of told Ministration, all patients continue to increase that alone for an additional 12 week without combination immunotherapy to evaluate the longer term efficacy and safety as a surprise.
Well results are consistent with previously reported open label studies with DEXA methotrexate in which response rates were greater than the rate observed with respect to alone in the phase three program.
That's the add to the growing body of evidence regarding uses Crystex immunomodulation.
We anticipate that the full results in dataset will be released in future investigator generated abstract or publication.
Earlier in the quarter, we now I'll give involve of Amir open label trial, the precursor to the mere randomized clinical trial.
We anticipate sharing the details resolve the open label trial at the upcoming annual European Congress of Rheumatology also known as new longer in early June.
We're also looking forward to additional presentation on the result of independent investigator trial and datasets using methotrexate and then other immunomodulators with coupons.
Enrollment in the near randomized controlled trial, which we initiated in July of last year is going well with approximately 80% of plan patients enrolled to date.
Been relatively minor impact the Troughing cobot 19, and we expect to complete enrollment in the second half of the year with results expected towards the middle of 2021.
Turning to protect our trial evaluating new crystex, saying kidney transplant patients with uncontrolled gout.
Here, we are seeing more of an impact to enrollments in cold in 19, which we believe is due to the at risk nature the patient population.
Therefore expect enrollment in pretax to be completed by the end of this year.
Regarding our previously announced for sex with shorter infusion trial again, we decided to delay the sorry that trial later this year due to covert 19.
In summary, we continue to advance our strategy to maximize the value of our own market medication as well as expand our pipeline, making significant strides in both with Saks during the quarter.
During this time, we also remain diligently focused on the safety health and welfare of everyone involved in our clinical trial program.
With that I'll turn the call as Paul Paul.
Thanks was my comments. This morning will primarily focus on our non-GAAP results unless otherwise noted.
I'll begin with the first quarter and then comment on how we're thinking about the rest of year, including the impact of Cobot 19 on our business.
First quarter net sales were $356 million.
Our orphan segment generated net sales of $245 million a year over year increase of 47%, it's driven by Dapozzo crystex off for victory and Actimmune.
Orphan segment operating income was $54 million, which reflects our significant investment in the commercial launch of deposits.
Net sales for the inflammation segment were $111 million was segment operating income of $52 million.
As we noted previously beginning this quarter rails is now included in this segment.
We continue to reinvest the cash flow generated from this segment into our key growth drivers to plaza and KRYSTEXXA as well as our pipeline.
Our non-GAAP first quarter gross profit ratio was 90% of that sales.
Non-GAAP operating expenses were $214 billion.
This included non-GAAP R&D expense of $21 billion, and non-GAAP SGN expense of $193 million, both inline with our expectations.
First quarter, adjusted EBITDA was $107 million, which significantly exceeded expectations driven by the strong net sales performance across our portfolio.
The non-GAAP income tax rate for the first quarter was 12.8%.
Inline with expectations.
Non-GAAP net income was $83 million and non-GAAP diluted earnings per share were 40 sites.
The weighted average shares outstanding used to calculate first quarter 2020, non-GAAP diluted EPS were 213 million shares.
Moving onto our first quarter cash flow the decrease in operating cash flow versus the prior year was driven by three main factors first we invested in working capital primarily receivables and inventories related to the launch of deposit.
Second receivables increased due to significantly higher gross sales for crystex up versus the prior year.
And finally accrued trade and discounts decrease significantly due to reductions for vimovo related to the generic launch along with lower accruals across other medicines due to the timing of invoices and payments.
As of March 30, Onest cash and cash equivalents were $755 million, giving us significant flexibility to manage our business invested our growing operations expand our pipeline and execute other strategic transactions.
Our net debt to last 12 month adjusted EBITDA leverage ratio is 1.3 times.
In the first quarter, we paid $105 billion in milestone payments to provision and Roche related to the FDA approval of to plaza on $112 million to purchase our new US office campus in Deerfield ally.
Financial strength is a valuable asset during this period and we are benefiting from the actions. We took last year will significantly improve our capital structure.
We reduced our gross debt by $575 billion extended our debt maturities out to the 2026 and 2027 timeframe.
And lowered our annualized net interest expense by more than 40%.
Importantly, we have no maintenance covenants on our debt.
In terms of management and allocating our capital, particularly during this environment our balance sheet is strong.
We are confident in our ability to generate substantial operating cash flow and this confidence was underscored by the three strategic transactions, we completed the last month alone.
Our business development activity remains focused on development stage acquisitions like for his job and we expect to continue to pursue transactions to enhance our future growth prospects.
I'll now turn to our 2020 guidance and provide comments on how we see the rest of the year playing out.
While it is difficult to predict the overall impact of cobot 19, given the uncertainty of the scope and magnitude of the Pandemics, we're providing the best estimates we have at this time, along with some of the assumptions associated with our updated expectations.
We are increasing our full year 2020, net sales guidance range to 1.4 to 1.4 or $5 billion, reflecting the significant increase in our expectation for typical net sales this year to more than $200 million, which more than offset the expected impact of cobot 19 to our other medicines.
We're also updating our adjusted EBITDA range to 4400 $50 million to $500 million, which reflects additional investments behind deposits to support our commercial efforts given the faster than expected uptake as well as to support our new deposit R&D programs, We announced this morning, and our recently acquired development stage.
Said HCM eight two sides.
We have up we have widened both our net sales and adjusted EBITDA guidance ranges, so factor into greater expectations for its a puzzle.
And accommodate for the uncertainty of the impact of cobot by team.
Our updated guidance assumed that healthcare activity starts to return in the second half of this year.
Fourth deposit we anticipate a significant sequential increase in net sales from the first quarter. So the second quarter.
However, we expect the slowing of growth of patient enrollment forms we saw in April two called the 19 to have some impact on full year to publish that sales, which we now project to be more than $200 billion.
This expectation would have been substantially higher without the impact from called the 19.
Given the successful launch and the tremendous uptake we remain more confident than ever in our peak us net sales expectation of deposit of more than $1 billion.
For Crystex, all our first quarter performance significantly exceeded expectations.
With net sales growth of 78%.
However, given the covenant 19 impact on new patient starts we expect a sequential net sales declined for crystex off from the first quarter for the second quarter in the 25% to 30% range.
For the full year, we expect Crystex, a net sales to be in the range of 2019 that sales.
We have a database of roughly 1500 patients currently pending treatment with crystex up and we'll be working to bring them on to therapy.
Given the us and the continued uptake of Immunomodulation that we expect we remain highly confident in our peak us net sales expectation for crystex up of more than $1 billion.
For our rare disease medicines, we anticipate a limited disruption from cobot 19, given how important it as for patients to remain compliance on therapy, which we believe they understand and are motivated to do.
For the full year, we expect net sales growth to be in the low single digits, given the limited opportunity to generate new patients until healthcare activity starts to return, which we anticipate happens in the second half.
For our inflammation medicines.
We have experienced reduced demand related to covert 19 cents mid March, particularly from new prescriptions due to the absence of in person engagement with physicians as well as a reduction in patient visits to their physicians.
We expect this impact to be somewhat offset by the first full engagement of our sales representatives as well as the use of telemedicine by many physicians, which allows them to continue to treat patients and prescriber medicines.
Based on what we're seeing today for the second quarter, we are anticipating a sequential that sales decline of 30% to 40% for our inflammation segment.
We anticipate a relatively quick return to pre KOVA 19 demand levels once health care activity starts to return.
Moving onto our full year expectations for us the income statement. Our non-GAAP gross profit ratio is expected to be approximately 89%, which was modestly lower than our prior 90% expectation.
This is primarily due to the impact of royalties associated with significantly higher net sales expectations for positive this year.
We expect full year 2020 operating expenses to increase modestly versus our other our prior expectations driven by additional Sq nay investments at the Panza will support significantly higher patient demand, including investment required to support patient pull through.
As part of this higher Opex, we also anticipate our R&D expense to increase driven by investments in HCC on a two five and new supplies the R&D programs, but lives discussed.
We now expect our non-GAAP R&D expense as percentage of that sales to be in the high single digits for 2020.
We expect full year non-GAAP net interest expense to be approximately $50 million as a result of the capital structure improvements we made in 2019.
For our tax rate, we continue to expect a full year non-GAAP tax rate in the high single digits as we see every year, we anticipate some variability in our non-GAAP tax rate on a quarterly basis.
Our 2020 cash tax rate is now projected to be in the mid to high single digits lower than our prior estimate of low double digits.
As a result from some benefits arising from the terrorist acts.
We expect our full year 2020 weighted average diluted share count to be in the range of 213 to 215 million shares, which as we said last quarter assumes the potential conversion of our $40 billion of exchangeable notes into ordinary shares.
With that I'll turn it over to Tom for his concluding remarks.
Thanks, Paul.
We are great start to 2020 highlighted by the rapid uptake of compares shortly after its initial approval in January.
Results of our pre launch activities throughout last year and the tremendous execution of the proposed the commercial organization.
Our continued focus on execution drove excellent Chris secular growth and resulted in our acquisitions development stage Kennedy HCM eight to five.
We increase our full year net sales guidance for competitive to more than $200 million, given the significantly higher than expected uptick.
We also increased our total company full year net sales guidance to $1.4 billion to $1.45 billion, reflecting our higher full year net sales have the guidance, which more than offset the impact we expect from corporate 19.
We revised our adjusted EBITDA guidance range to $450 million to $500 million as posted to incorporate these additional investment we're making it the trezza to support the stronger demand we've seen our new suppose R&D programs as well as investment in HCM eight to five.
Our priority in the current coated 19 environment safeguard the health with safety in the welfare of our patience and employees.
And we're working to support our communities in their cobot 19 response efforts and the same time, we're making every effort as the company to help minimize the spread of cobot 19.
And we're working to ensure continued patient access to our medicine.
The fundamentals of our business are strong we have a robust cash position in a strong balance sheet thankfully improvements, we made last year to our capital structure.
We believe we're continuing to continue to be very well positioned for the long term with that ill open it up the questions.
Thanks.
And as a reminder to ask a question when we need to press star one of your telephone and to withdraw your question. Please press the pound key please stand by our composite county roster.
And our first question comes in the line or Jason Gerberry with Bank of America. Your line is now open.
Hey, good morning, Thanks, taking my questions and congrats on the progress.
My question really is around the impact that we're seeing on from cobot onto has so far in sort of what you're thinking about in terms of this this first year launch contribution.
Particularly with private practitioners Im just curious I thought they were pretty meaningful proportion of the prescriber base and at the private practitioners are not the hospital based practitioner might be.
Less likely to be taking appointments and things like that so can you can you give us a sense of the sort of a headwind that you're working through while achieving this sort of result.