Q3 2020 Horizon Therapeutics PLC Earnings Call
Thank you for your patience.
[music].
Good morning, and thank you for standing by and welcome to the Horizon Therapeutics plc third quarter 2020 earnings conference call as.
As a reminder, today's conference is being recorded I would now like to introduce Mussina mentor Senior Vice President of Investor Relations. Please go ahead.
Thank you Sarah good morning, everyone and thank you for joining us.
On the call with me today are Tim Walbert, Chairman, President and Chief Executive Officer, Liz Thompson Group, Vice President clinical development, an external search Paul Hoelscher, Executive Vice President Chief Financial Officer and.
And Andy Pasternak, Executive Vice President Chief Strategy Officer.
Tim will provide a high level overview of the business, our third quarter performance and our full year guidance that we have gotten increased this morning.
Lives will then provide a review of our R&D program, followed by Paul will discuss our financial performance and guidance in more detail.
After closing remarks from Tim will take your questions.
As a reminder, during today's call, we'll be making certain forward looking statements, including statements about financial projections development activities, our business strategy and the expected timing and impact of future events.
Our actual results could differ materially due to a number of factors, including the extending duration of the effects of the COVID-19 pandemic as all the other factors outlined in our latest form 10-K or 10-Q, we filed this morning, and any 8-K filed with the Securities and Exchange Commission.
You are cautioned not to place undue reliance on these forward looking statements and horizon disclaims any obligation to update such statements in.
In addition on todays conference call non-GAAP financial measures will be used these non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and other filings from today that are available on our investor website.
At Www Dot horizon Therapeutics dotcom.
I will now turn the call over to Jim.
Thank you Tina and good morning, everyone.
We delivered record results this quarter driven by the continued out performance of the peasant or biologic medicine launched earlier this year for a third eye disease.
As well as growth in the rest of the orphan segment, including a return to growth for KRYSTEXXA or biologic medicine for uncontrolled gout and our second key growth driver.
We generated third quarter net sales of $636 million up 90% year over year, and adjusted EBITDA of $330 million up 153% year over year.
Given these exceptional results we are increasing our full year 2020, the present net sales guidance to more than $800 million considerable increase from the previous guidance of more than $650 million, we announced last quarter.
Suppose though already in an annual run rate of more than $1 billion in its second full quarter since launch.
Turning out to be one of the most successful rare disease medicine launches ever.
We also announced this morning, a significant expansion of work that's a field based organization.
Further investment in our direct to consumer <unk> awareness campaign [laughter] initiation of our to pass the global expansion can.
Can you just hold mass murder or long term manufacturing supply capacity to support our continued growth expectations.
Given the better than expected performance up to pencil crystex and our work for the disease medicines overall, we're increasing our 2020 total company net sales guidance to $2.12 billion to $2.14 billion, which represents 64% year over year growth at the midpoint.
We're also raising our adjusted EBITDA guidance to $920 million to $940 million, which represents 93% year over year growth [noise] at.
At the midpoint.
The adjusted EBITDA guidance midpoint represents 44% of net sales a seven percentage point increase over last year.
Our margin expansion with significant celebrated full year ahead of schedule based on the very strong launch of comparison, despite the impact to our business, we cope with Nike.
We also continued to advance our clinical development strategy and expanded our pipeline.
With the Fannie to fiber build par one antagonists that we acquired earlier this year, we announced today that we're expanding the clinical program to now include interstitial lung diseases, including the idiopathic pulmonary fibrosis or IPO.
Where progressive lung disease with the median survival rate of less than five years.
We continue to expect there to be instantaneous their tumor trial to start in the first half of 2021.
If successful these diseases, which have significant unmet need we estimate that eat see an eight to five could generate more than $1 billion in peak net sales.
For Crystex <unk>, we continue to focus on improving its complete response rate in rheumatology.
Impacting the patient experience and increasing its use among nephrologist.
Data will be presented from the Crystex a recipe trial at the American College of Rheumatology annual meeting this week, demonstrating an 86% complete response rate.
This is the first randomized placebo controlled trial using crystex opposed immunomodulation and the fourth Immunomodulator study studied with successful results in combination with KRYSTEXXA.
We recently initiated our new Crystex, a trial troops for shorter infusion duration.
Impact the patient experience.
In the interim data was presented from open label Crystex protect trial at the American Society of Nephrology meeting in October that showed Crystex improved the management of uncontrolled gout kidney transplant patients.
With the pets, we continue to progress on our additional clinical programs, including our chronic PD trial, which we anticipate initiating shortly and are keeping it dosing trial, which we recently recently initiated.
We've also made considerable progress on our capital allocation strategy.
We completed a public offering of 13.6 million shares raising approximately $920 million in that process.
We completed the extinguishment of <unk>, all $400 million were exchangeable senior notes.
In less than two years, we reduced our gross debt by almost $1 billion and transformed our balance sheet from a net debt position of $1 billion to net cash position of more than $700 million.
For 30.
Our gross leverage ratio was 1.3 times at September Thirtyth, well below our target of two times.
Our strong balance sheet, we are excellent position to take advantage of future opportunities that meet our disciplined M&A criteria.
Our extraordinary success in the third quarter and year to date is a testament to our incredible ability to execute both commercially and clinically driven by the talented people who make up horizon.
We continued received multiple recognitions as it does work flows.
This includes the Lebanon workplace awards, so far this year, including being selected as one of people magazine's 50 companies that care as one of fortune and great place to works best medium workplaces.
We have worked hard to preserve our company values.
Persevered through a challenging 2020 and listening to our employees understanding their needs and developing solutions that help maintain it trusting transparent culture.
Based on these awards our employees remain highly engaged and dedicated to making a powerful difference in the lives of people and the communities for which we serve.
Today, We also announced the Korean Rosen as our executive Vice President Research and development and Chief Scientific Officer.
When it comes to us with nearly three decades of experience, which includes clinical research at the moment a biologic the building, leaving us successfully launching multiple novel medicines in the United States and globally.
We are very pleased to welcome Chris and we're confident that her ability to build and lead cross functional teams long with the therapeutic area expertise will contribute to solidifying our position as a leading rare disease biotech company.
Moving onto our third quarter results.
And our orphan segment year over year net sales $535 million grew 131% was driven by the strong performance.
The burn returned to growth of KRYSTEXXA and durable growth were rare disease medicines ravicti and persist.
Orphan segment sales now represent nearly 85% of <unk> company net sales underscoring the rapid transformation, we've made to a leading rare disease biotech company.
Third quarter to present net sales of $287 million significantly exceeded expectations.
Our outperformance is driven and driven by the severity of that you'd be leaning to highly motivated patients seeking out there.
The impressive efficacy and safety profile to present.
Our highly successful pre launch efforts and are the main commercial execution.
We're proud of the fact that unless an eight month to peers have made such a dramatic difference in the lives of so many patients.
Ophthalmology continues to be one of the most impacted markets during COVID-19.
As we've discussed since last March and it's impacted our launch and the growth of our patient enrollment forms or past, which are leading indicator of demand.
Well I'm commodities recover from the impact of co bid that we experienced in the second quarter today still only about a third of our sales cars aren't person to to the pandemic.
For for perspective, we're back to roughly 75% in person calls in rheumatology and our inflammation business units.
Our significantly increased guidance more than $800 million. This year continues to incorporate this impact.
Demand would have been substantially higher if it weren't for the impact of COVID-19.
While we're not yet back to we're pretty cobot volumes, we continue to see strong patient starts with more than 2000 patients started on to present third quarter.
We have only scratched the surface of the potential we see for Patterson and its ability to help so many more patients suffering from EBITDA.
That's why we're announcing this morning, our significant expansion effort in multiple areas.
Are you asked infrastructure and marketing activities are long term supply capacity and our efforts to pursue capacity outside the United States.
First with our US expansion our objectives are for people to increase the penetration of depends on among our current prescriber base.
And our rights to drive new prescribers.
And to drive higher awareness of TB and capacity to reduce the time it takes for patients to get diagnosed.
And ultimately treated.
Beginning in the fourth quarter, we are initiating us expansion to roughly double our ophthalmology commercial and field based organization to approximately 200 employees.
As we have discussed this is a mark that requires continued physician education on the importance of treatment strengthening the co management of the disease across key physician specialties, and establishing and reinforcing the treatment path infrastructure and referral network.
In line with that need our field expansion includes our salesforce as well as our field based teams across medical affairs patient services reimbursement services and sites of care.
We're taking the steps sooner than originally anticipated given the significant progress we've made since launch.
Support the continued demand from the 15 to 20000, new acute patients coming into the market each year as well as more the more than 70000 patients have chronic TD for five years or less.
This expanded organizational support growth beyond 2020, we enabling us reach more patients were suffering from this rare and debilitating.
Disease.
In fact, just like we've only trigger a fraction of the TV population to date. We've also only reached a fraction of the total.
Got it thanks.
We penetrated the market quickly driven by highly successful pre launch effort and the launch effort that has driven a core base of prescribers were primarily occupancy surgeons and other octoplus subspecialties selective neural up.
Ophthalmologists.
However, our ability to reach and educate new physicians based on our current commercial infrastructure has been limited by the impact of Cobiz.
To date about 1000 of our physician target the prescribed to pass with roughly 60% ready one or two prescriptions.
By expanding our rates increasing your call frequency through smaller territories and increasing the time spent with each position.
To keep them on PB into PRASM, we intend to drive uptake has among these prescribers and increase the total prescriber base.
We are also significantly increasing our investment in marketing initiatives, including our direct to consumer disease awareness campaign, we initiated last quarter.
Marketing efforts are driving results for example, our to put the dot com patient that has received more than 550000 unique visits with 80% of those happening in the third quarter. Following the initiation of the campaign.
Similarly, our online TV specialist finder that connects the patients with physicians has received 70000 visits about one third of those bids is happening in the third quarter.
We are now expanding our online digital and broadcast the PC BPC presence from select markets to a national campaign will be adding at the present brand awareness component.
We're also targeting graves disease sufferers to raise awareness of the connection between graves NPD and increase the speed to diagnosis and treatment.
Our aim with these expanded marketing efforts to drive more patients to identify TV sooner seek treatment and connect with the TV specialists.
We're working to expand the long term supply capacity for.
Well, we'll be adding a third site in Boulder, Colorado, Colorado with our manufacturing partner Agency biologics.
These expansion initiatives all support our expected near term growth and long term peak us annual net sales for the purpose of more than $3 billion.
In addition, we want patients another part of the world to also be able to benefit from to pets.
We have conducted a preliminary analysis of the TV market opportunity outside the us.
Based on our analysis to date, we project the overall peak annual international opportunity to be greater than $500 million.
Europe is not yet included in this analysis.
What are the key countries, we're pursuing is Japan, where we will be engaging with the Japanese regulatory authorities to discuss potential regulatory pathway for comparison.
We will also be engaged with the Japanese medical community to understand that the patient journey in Japan.
Encouraged by the demonstrated commitment of the Japanese authorities to provide timely access to safe and effective treatment for unmet need and we look forward to our discussion with the key stakeholders there.
Finally, we're investing in our clinical program for capacity to maximize the value. It offers CGD patients.
Including our deposit chronic trial, which we plan to initiate in the coming weeks.
We also continue to expect to see more chronic TV case reports presented at future medical meetings.
At the upcoming American Society of public plastic and reconstructive surgery race Uppers fall symposium the successful chronic CDK study that I discussed last quarter will be presented.
In addition, another case so they will be presented showing the successful you have to use of to present in the treatment of this thyroid or compressive optic neuropathy, which.
Just have severe manifestation of the that can result in permanent vision loss.
We also look forward to presenting additional to present data that lives will discuss in more detail shortly.
Moving on to KRYSTEXXA.
We returned to growth during the quarter sooner than expected, which is especially impressive given the challenges of cope at 19.
Crystex it generated $108 million in net sales, resulting in year over year growth of 9%.
As a result, we increased full year 2020, net sales guidance to low double digits versus our prior expectation of similar net sales to 2019.
So we're continuing to monitor the impact of COVID-19 on Crystex. We're encouraged by trends, we're seeing of patients returning to the physicians offices in recent months and many patients with deferred treatment to start to go back on the exit.
Most important and key to our long term success is the continued execution of our Crystex Immunomodulation strategy.
The 2018 data has been published over well over 100 patients on concomitant treatment with several different immunomodulators.
This represents more patients have studied in our phase III trials using crystex alone.
The data using crystex that with Immunomodulation points. The response rate that is double the response rate observed in our phase three clinical program.
Our most recent internal data suggest that the use of immune modulation with crystex for new patient starts has more than 25%.
Significant increase from the approximately 15% we saw at the end of 2019.
The approach of using Immunomodulation with Crystex that is quickly becoming the preferred treatment options for patients with uncontrolled gout.
Data from the investigator initiated recipe trial will be presented later this week at the American College of Rheumatology annual meeting.
As I mentioned earlier recipes, the first randomized placebo controlled trial to study crystex or with an immunomodulator in this case macoupin late month or two.
The primary endpoint at 12 weeks was achieved with 86% of patients and in the Immunomodulation arm should make complete response compared to 40% of patients in the placebo arm on Crystex alone.
The rest of the result add to the growing body of evidence for the use of the Remodulin with respect for them and we look forward to seeing preliminary six month results from a randomized controlled trial mirror in the first half of next year.
Given a return to growth and the continued increase in the use of Crystex of plus Immunomodulation, we're highly confident or peak USA in your list sales estimate for crystex of more than $1 billion.
Our other rare disease medicines were vik the pieces being actimmune continued generate durable growth during the quarter.
Combine active shipping patients increased mid single digits year over year, we continue to see high rates of compliance and adherence.
I will now turn the call over to Liz for an update on our R&D programs.
Thank you, Tim and good morning, everyone.
Jim mentioned, we've made considerable progress as we continue to advance multiple R&D programs.
Nearly doubled the number of pipeline programs. This year and this is despite the impact.
[music].
Ill start todays update with Hcl 85, our newest pipeline candidate we acquired this oral selective LPR one antagonists earlier this year, we announced our HCM 85 clinical program in diffuse cutaneous systemic sclerosis.
We're excited to announce today that we are expanding the HCM 85 program to include interstitial lung diseases or I'll be starting with idiopathic pulmonary fibrosis or IPO.
Yes, the rare progressive lung disease with an estimated U.S. prevalence of 100000 and high unmet need despite the current available therapy.
Given the potential impact that the L. Paul one mechanism of action may have on fibrosis, we believe the strong rationale to explore further an IPO and potentially other hobbies.
We'll be sharing further information on the trial design as we finalize the trial protocol next year.
We anticipate initiating a phase TB pivotal trial in this indication in mid 2021.
Regarding our systemic sclerosis program facing an 85 should early clinical signals a benefit in this bear chronic autoimmune disease, which has no FDA approved therapies and a high unmet need with an approximately 30000 patient population.
We're working with the FDA and European regulators to finalize the phase two the pivotal trial protocol in the coming months and continue to expect to begin the trial in the first half of 2021.
Moving to Tulsa, and our trial in chronic TD patients.
Clearly TB patients have disease that is no longer a progressive or inflammatory but they may continue to experience tells us the topia pain and other deep eliminating items that can impair their quality of life.
Moving to slide you have one receptor drives lending at the center.
Given the digest, what ours is still present at heightened levels and orbital fibroblasts from chronic TV patient surgical sample. It's a peasant mechanism of action that inhibits rgs went on appears to be relevant in chronic disease.
And while the team has a prescribing information is broad and includes all TD patients. Our objective is to generate data to better inform the physician community who may wish to do is to present in treating their chronic patients.
We expect to initiate a randomized placebo controlled trial in the coming weeks Turkey.
Target enrollment is approximately 40 patients with a two to one ratio with patients receiving infusions of to plaza or placebo. Once every three weeks for a total of eight infusions.
The primary endpoint is the change in pop doses in the study eye from baseline at week 24.
After the initial 24 week treatment period proposes nonresponders may choose to enter an additional 24 week open label treatment period, we expect top line data to be available in early 2022.
In July we were pleased to announce topline results of the optic ex the open label extension trial, the phase III optic trial for to present as well as result of the Arctic 48 week treatment follow up period.
Ill provide further data regarding the dramatic efficacy to penza in patients with longer duration.
Long term durability and the potential for Retreatment.
To briefly summarize the data 18.
89% of Optik placebo patients who participated in the optic Acs achieved.
She is a clinically significant profit has this reduction of two millimeters or greater 24.
These patients had longer disease duration, an average of 12 months compared to six months for patients in the optic trial before.
The 48 week follow up data from optic showed that the majority of deposit responders maintain their response at week 70 June nearly a year off treatment.
Notably on the small number of optics to presentation to relapse. During the 48 week follow up period more than 60% experienced at least a two millimeter reduction in kratos with an additional course of to present enough the gap.
Importantly, there were no new safety concerns in either the 48 week follow up period for Optitex during which patients receive additional to present treatment.
Uh-huh upcoming medical conferences, this fall, including the.
Meeting, we will present additional data on optic and optic 48 week off treatment results as well as data on the impact that depends on less severe TD.
There will also be a case report presented at ESMO on.
On the improvement a deep fiber optic neuropathy as a result of treatment with the pezza.
This guy Lloyd or compressive optic neuropathy does the year manifestation of TDV that can result in permanent vicious.
Yeah. So first of all symposium later in November we include a second discussion on to paradigm in the treatment of decided optic neuropathy.
As well as a presentation on the recent case report published in the American Journal of Ophthalmology on the treatment of patients with chronic pain.
Work is well underway in our two other to test the trials, we have initiated a pharmacokinetic trial to explore the potential for subcutaneous dosing of 2000, and we continue to expect to start our exploratory trial.
Diffuse cutaneous systemic sclerosis later this year.
Moving on now to Crystex sure.
First topline data in the investigator initiated recipe trial will be presented this week at the virtual HCR annual meeting.
The study is the first randomized placebo controlled trial evaluating the effect of co administration of KRYSTEXXA with an immunomodulator to improve the complete response rate of KRYSTEXXA.
Patients were randomized three to one I would think the two week blended of either microsatellite market TLR placebo.
Followed by daily dosing of and then after placebo and biweekly Crystex Mph and grew total of 12 weeks.
After this initial 12 week trial period patients continued on KRYSTEXXA therapy alone for a further 12 weeks.
The primary endpoint is the proportion of patients with serum uric acid less than six milligrams per deciliter at 12 weeks.
86% or 19 out of 22 patients receiving crystex, a co administered with Eminem achievements outcome compared to 40% or four out of 10 patients receiving crystex alone with a P value of 0.01.
After 12 weeks off and then a therapy, but continuing on KRYSTEXXA therapy.
68% or 15 out of 22 patients achieved a complete response.
This compares to 30% or three of 10 patients in the placebo arm.
There are no new safety signals.
We'll be further adding to the clinical data for Immunomodulation with our randomized placebo controlled mirror trial, which is evaluating the efficacy and safety of the concomitant use of KRYSTEXXA with methotrexate.
We have completed enrollment in the trial the largest randomized controlled trial evaluating perspective with immuno modulation of 145 patients in total.
We continue to expect preliminary six month results, including the primary endpoint in the first half of 2021.
The full dataset, including the secondary endpoints available after the trial complete.
In the second half of Twentytwenty one.
Regarding our Crystex, a shorter infusion duration trial, we enrolled the first patient in this open label trial last week.
Well Crystex is currently infuse virtue hour or longer timeframe. The trial is assessing up to three new infusion durations 60 minutes 45 minutes and 30 minutes.
Shorter infusion duration could meaningfully impact the experience and convenience for patients physicians and sites of care.
In the protect trial, we're studying the use of KRYSTEXXA for people, who are living with uncontrolled gout and have undergone a kidney transplant.
Evidence indicates again it is more common and often more severe among those who have undergone kidney transplant with data showing prevalence more than 10 fold higher than non transplant patients.
We were very pleased to announce encouraging interim data at this years American Society of Nephrology kidney week in October.
The delay to crystex its ability to reduce serum uric acid levels in this very sensitive transplant population without compromising kidney function.
To date, we estimated glomerular filtration rate or fr, which is a measurement of kidney function remain stable throughout crystex the treatment.
The data also showed reductions in pain and disability scores.
We continue to expect enrollment to be completed by the end of the year.
In conclusion, it's been a busy quarter for R&D at Horizon, we continue to make significant progress with multiple trials across our portfolio and with that I'll turn the call over to Paul.
Thanks, Lynn and good morning.
My comments. This morning will primarily focus on our non-GAAP results unless otherwise noted.
Third quarter net sales were $636 million a year over year increase of 90 percents.
Our orphan segment generated net sales of $535 million a year over year increase of 131% driven by the strong performance of our key growth drivers to pause and KRYSTEXXA.
Orphan segment operating income was $275 million.
Year over year increase of 245% and representing a margin of 51%.
Net sales for the inflammation segment were $102 million, which segment operating income of $55 million.
We continue to reinvest the cash flow generated from this segment into our key growth drivers to profit and Crystex and.
And our growing pipeline.
Our non-GAAP third quarter gross profit ratio was 87% of net sales.
Non-GAAP operating expenses were $222 million.
This included non-GAAP R&D expense of $28 million and non-GAAP EPS DNA expense of $194 million.
Third quarter, adjusted EBITDA was $330 million, an increase of 153%.
As we expected the non-GAAP tax rate for the third quarter was negative 23%, resulting in a year to date tax rate a 5.5%.
As we've seen in prior years, there can be variability and the tax rate across quarters.
Non-GAAP net income was $392 million and non-GAAP diluted earnings per share were one dollar and 74 cents.
Weighted average shares outstanding used to calculate third quarter 2025, and GAAP diluted EPS was 225 billion shares.
As of September Thirtyth cash and cash equivalents were $1.725 billion.
Which includes the net proceeds of approximately $920 million from our August equity offering of 13.6 million ordinary shares.
Our non-GAAP operating cash flow for the third quarter was $109 million.
Although collection of deposit receivables increased significantly during the quarter. The benefit was offset by investments in deposit inventory and timing of payments for accounts payable and accrued expenses.
We remain confident in our ability to generate considerable operating cash flow, allowing us to pursue acquisitions or licensing of further pipeline assets as a top priority.
Our total principal amount of debt is $1.018 billion with the earliest maturity in 2026.
We've reduced our gross leverage to 1.3 times at September Thirtyth.
So thats again lowered our interest expense as a result of several capital structure improvements made since the beginning of 2019.
This morning, we announced that we are increasing our full year net sales guidance range to $2.12 billion to $2.14 billion from $1.85 billion to $1.9 billion. This.
This reflects our significant outperformance across all business units in the third quarter and increases in our full year 2020, net sales guidance for both to Plaza and Crystex off.
Principles that we are increasing our full year 2020 that sales guidance to more than $800 million compared to the previous guidance of greater than $650 million.
For Crystex, we are increasing our full year 2020, net sales guidance to low double digit growth.
Versus our prior expectation for similar net sales 2019.
We're also increasing our adjusted EBITDA guidance range to $920 million to $940 million from $725 million to $775 million.
At the midpoint adjusted EBITDA is 44% of our net sales, reflecting a further significant acceleration of our margin expansion and a 700 basis point increase over 2019, a full year ahead of schedule.
At the Midpoints, our updated guidance represents year over year growth in net sales of 64% and a near doubling of adjusted EBITDA, which again was accomplished despite the challenges of Carbonite channel.
Moving onto the rest of the income statement, we now expect our non-GAAP gross profit ratio to be approximately 87%.
This is primarily due to the impact of royalties associated with the significantly higher net sales expectations for deposit this year.
We expect full year 2020, non-GAAP operating expenses to increase compared to our prior expectations.
This is driven by additional SGN expense to support that the puzzle launch outperformance.
While we expect R&D spending to be in line with previous guidance on a dollar basis, given our significant increase in net sales guidance. We now expect our non-GAAP R&D expense as a percentage of net sales to be in the mid single digits for 2020.
We continue to expect a full year non-GAAP tax rate in the low double digits.
With our fourth quarter non-GAAP tax rate to be in the high teens to bring the full year rate in line with our expectations.
We continue to expect our 2020 cash tax rate to be in the low to mid single digits.
We continue to expect full year non-GAAP net interest expense to be approximately $45 million.
Given our August equity offering we now expect our fourth quarter weighted average diluted share count to be approximately 235 million shares.
With that I'll turn it over to Tom for his concluding remarks.
Thank you Paul.
The third quarter was another record quarter for horizon, one of significant strategic process progress.
We again increased our full year 2020, net sales and adjusted EBITDA guidance driving robust year over year growth at the midpoint.
Propose that continues generated outstanding results already at a greater than $1 billion annual run rate in just its second full quarter after launch.
Importantly, we are also seeing positive trends with respect to the returns to growth. We now expect low double digit year over year net sales growth.
We made significant progress in our R&D programs, including our two Eighteeneight twofive pivotal phase Twob programs, we intend to initiate next year and on development activities related to our international expansion.
Finally, we're incredibly strong financial position with a cash balance of over $1.7 billion at September Thirtyth.
Following us to execute on our M&A strategy.
We were one of the fastest growing profitable biotech companies among our peers.
With our continued progress and strong execution, we are well positioned to continue to deliver increasing value to our shareholders now and over the coming years with that we'll turn over to questions.
Dana.
Sure go ahead.
Thank you to ask a question you will need to press Star then one on your telephone call.
Well your question. Please press the pound key.
Our first question comes from the line of Ken Cacciatore with Cowen.
Yes.
Thanks, everyone.
Congratulations on all the performance here first question for you, obviously, you've had a lots of physician engagement now since the launch so a little bit more experienced so some interaction with them.
Some of the investors are concerned about the annual kind of replenishment, we talk about 15 to 20000 patients coming in so can you just talk about increased comfort now that you've been able to really interact with the clinical community to how we feel about that 15 to 20000 and then maybe the percent of those patients that are realistically treat.
A bowl annual.
Annually also you talked about coal that having an impact on to pizza and some of US as we step back it's been such a fantastic launch it's hard to believe that cobot, it's actually impacting it. So can you put some magnitude on what the impact is benefit with that 50% more 25% more in terms of enrollment maybe just.
Flush that out and then.
Lastly, just wanted to ask about BD, clearly different balance sheet than a year ago or two years ago. So can you just talk about potential size here, we have access to significant debt if we'd like to is it really changed your thinking on BD. Thank you.
Sure Ken Thanks for the question. The first one around the incident population, we continue to see patients coming into the market 15 to 20000, we see that as the treatable population was which is a subset.
Of the overall incident population coming into the market each year that is the subset of moderate to severe patients.
As we continue to drive our consumer campaign, we're seeing significant engagement that confer confirms that for US 550000 hits to our.
Our website, 80% of them in the third quarter, driven by our consumer activities.
We also have 70000 visits to our TD specialists and so all the different activities that we see continue to.
Reinforce that population we also.
We continue to see the population of chronic patients that 70000 that are seven years or less since diagnosis and continue to see data generated there. So we are confident in the population.
As far as the the question of what would we have been able to do in a non cobot environment.
I think it's reasonable to assume 20% to 25% higher so well over $1 billion in sales would have been achieved this year. If it weren't for COVID-19, we are continuing to drive uptake and that's in spite of not having our pep levels.
Back to the pre cobot.
Levels, we had done and a lot of that was driven both have held steady at pre launch execution.
But certainly had a significant impact.
32% of our visits her line versus about 75% for our rheumatology or prospective business or are you or inflammation business, So which is really driven the increase in our direct to consumer activities. So.
So we think were.
Managing through this situation setting up well in being able to drive people online.
Then generate the ability to get them into physician offices, but it's definitely had an impact.
And the last question was around M&A, and our balance sheet and Andy can address that sure hi, Ken So.
So on the BD front, we continue to be very active.
Looking at opportunities to expand our clinical stage pipeline, obviously, our balance sheet puts us in a good position gives us a lot of flexibility, we're mostly focused on individual asset licensing opportunities such as the Caribbean transaction, which brought us 85, or the revision transaction, which brought us to pass, but we're also considering a bolt on acquisitions.
As as well.
Thanks, Ken There next question please.
Thank you. Our next question comes from the line of Annabel Samimy with Stifel. Your line is now open.
Hi, Thanks for taking my question and congratulations on a good quarter. So a few questions here.
Just wanted.
I wanted to know if there was additional any additional movement of docs using.
As a first beyond the six month treatment period now that you've had some data on the safety in that population in Q in the chronic population given that you're not really limited by the label Bear no.
The way to Tysons performing it doesnt seem like there is any barriers at all to uptick so.
Yes, whether on the payer physician side do you think broadly so just curious about that and on Crystex. What is the average length of treatment now seems like theres sufficient data out there on all types of Immunomodulation and for multiple patient types that physicians can feel comfortable using it and I assume that.
Again, the label doesn't limit it to you.
That physicians can feel comfortable using it in transplant patients as well.
Given that the label doesn't limited and then.
Finally, just quickly on the international expansion why not considering you yet just that a curiosity. Thanks.
Thanks, Annabel appreciate it so on the first question is first treatment beyond six months, we have not heard of.
Any patients being treated beyond six months at this point in time, we continue to see most patients are being treated for the full six months and compliance thing.
Well over 90% and greater than expect expected on the chronic population it continues to be.
In the single digit as a percentage of the total patients treated at.
And.
As you said it is part of our overall.
Broader indication of treatment of Carbonite disease from an exit standpoint, we see very strong access to the acute population and in the chronic population.
Probably mirroring more what a standard biologic would be so prior authorizations data required.
And as we get more and more data from our chronic placebo controlled trial. Another case studies that will continue to.
Enhance the reimbursement in the chronic population.
As far as average treatment with time with Crystex. It is generally between six to nine months and I think thats a more defined by the severity of the patient than by a specific treatment paradigm. So I think thats generally what we're seeing at this point in time and again, we did see as you mentioned it.
Kidney transplant it asked in this year.
First presentations from the safety results another of the protect trial. So there is a lot of interest of Crystex in that transplant population, especially because they're already on background immunomodulators.
So we look to see more data coming there.
Relative to international as we talked about greater than $500 million peak sales opportunity.
Does not include Europe at this point in time.
If you're if we continue to pursue orphan drug designation in continued dialogue around best approaches but.
But we don't have enough information to define.
Hi, good that the pathway or the financial opportunity.
Great. Thanks, a lot of things going about Sarah next question.
Thank you. Our next question comes from the line of David Amsellem with Piper Sandler Your line is now open.
Thanks, So just a couple so wanted to get your latest thoughts on duration of has a therapy are you hearing more severely access patients getting treated we're starting to get treated for more than six months I know that this is early days.
But what can you say about that and the extent to which that could happen down the road second.
Secondly.
You talk about the extent to which the J code taking effect has had an impact on the pace of new patient starts over the last few weeks.
And then lastly.
Just following up.
On your color Tim on the on the payer landscape can you talk about the lag time between physician looking to start to pedal Kathy and ultimately fund.
In insurance companies ultimately lead lives.
Actual.
Usage that would be helpful. Thanks.
Sure David Thanks for the questions.
As far as duration of capacity.
I have not yet heard of any patients going longer than six months and it's something that we monitor on a regular basis. So at this point in time.
We're still seeing all patients.
At that six month end point.
On the J code to say about 75% of.
The available reimbursement, there is and process, 75% of people leverage it.
I don't know that it's changed the pace of new start but it has.
Improved the time to reimbursements.
From a payer landscape it's.
It's an interesting dynamic in.
Ophthalmologist and if you look at the.
Eight.
800 to 1000 occupancy surgeons and neuro up from a one time.
Surge and they typically are cash pay business is they don't have a lot of experience with reimbursement.
So what is normal reimbursement timelines.
Two people trading biologics of 30 to 45 days is seen as is more long too.
Cash pay experienced folks so I think it's more continued education. The timelines are generally in the 30 to 45 days for reimbursement the shorter end for acute patients chronic take.
I have to say more questions and more typical.
Process that you would get for prior offs with the biologic.
But so far the timelines are early in launch already at time, what we see for a mature brand like Crystex great.
Great. Thanks, David next question please.
Thank you.
Our next question comes from the line of Chris Schott with JP Morgan. Your line is now open.
Great. Thanks, so much for the questions. Just just two from me maybe just on to possess sequential growth just any signs you're seeing it all about sales growth slowing or plateauing and I guess I'm thinking about here as you're completing that six month duration of therapy for some of the early adopters should we think about a temporary either slow down or plateauing or growth or with the Patrick.
Run rate still so low you expect for can see fairly steady growth through that transition.
Then my second question was on to Pezza in Japan, and just any sense of what that clinical program could look like I'm trying to get my hands around when.
When we could think about a revenue opportunity for for the ex us markets. Thanks, So much.
Sure Chris Thanks.
Far as a sequential growth we've continued to see.
Good steady growth and expect that to continue I think as I said ophthalmology is more impacted than rheumatology and primary care and a better inflammation and crystex of businesses like that said there are about 75% of those visits are live calls by representatives versus.
Just over 30% for our to Pezza Salesforce.
Thats, where.
Our consumer programs have begun to really make a difference for a rare disease to get 70000 contacts to our RTD specialists finder, and 550000 hits to our website <unk>.
We're going to continue to ramp up our consumer activity, our digital activity and we're seeing that.
Outperform typical PTC benchmark, so I think that.
Along with our expansion smaller territories more ability to get out in front of physicians offices is going to keep us on a steady growth trajectory.
So on the Japan, Andy can address that.
Sure we're still up.
We're in the process of engaging with with the local regulatory authorities determine what the clinical program will look like and as we work through that with them will will inform everyone.
Thanks, Chris.
The next question please.
Okay.
Our next question comes from the line of David Risinger with Morgan Stanley. Your line is now open.
Hi, Thanks, very much and congrats on the very strong performance. So.
I have a few questions first.
I was hoping that you could just discuss the cash flow in the quarter on a little bit more detail. So the adjusted EBITDA was $330 million. The operating cash flow was 109 million. Obviously you have links the payment terms.
But if you could talk about that cash flow in the third quarter and then discuss what.
What we should expect for the fourth quarter from a cash flow standpoint.
And in addition, whether you're able to change any payment terms now that there is a permanent J code as of October 1st.
And then Tim I was hoping that you could just reviewed.
The patients on to pass. So I think you had said 2000 I don't know if that was the ended the quarter.
Do you have a number for the average number of patients during the quarter. If you could just run through that briefly thank you.
Thanks, Dave and I'll answer the last and then turn it over to Paul to talk about cash flow relative to EBITDA and.
J code is and then in terms or going to evolve over time.
Relative to the total patients a year to date through September Thirtyth were at.
Over 2000 patients and we're not getting into specific average patients or things like that during the quarter at this point in time.
So Paul do you want to handle the cash flow questions.
Yes.
So thanks, David on on cash flow for the third quarter.
We did see.
So that's the way higher to public collections, we had in the second quarter, but.
But receivable still grew over $160 million in the quarter because of the deposit sales and the growth in the Crystex and sales in the quarter as we talked about last quarter with the JV with the permanent J code in place we are stepping down our payment terms over time and so we'll see the payment.
It's been down in the fourth quarter and through the first quarter and so as we said last quarter, we expect the kitchen collections of receivables significantly ramp up as we move through the fourth quarter and the first quarter.
And by the time, we get in the second quarter timeframe, we'll start having more normal.
Firms for to pods receivables somewhat of what we have.
For starts in other biologics.
Good thing.
Thanks, Thanks, Dave.
During next question please.
Thank you. Our next question comes from the line of David Steinberg with Jefferies. Your line is now open.
Thanks, very much I have three questions first on the operating margin. It was a really big uptick this quarter over 50% above last quarter and I was just curious as to how sustainable that will be for the next few quarters that perhaps you could talk about the trigger initiatives op margins.
Over the next couple of years secondly.
You you'd originally pointed to a course of to possess some fee.
75% to 80% healing trades is that $200000 of course, and now that you've had your into third quarter sales.
You have indicated that pricing has been tracking north of that but could you update a little more on your latest thinking in terms of as a.
Of course of therapy costs overall.
And then finally back to the payer landscape I'd be sleeping.
Our disease to Plaza has step edits with steroids being the key product there, but I'm just curious about how the how did the outright denials and coverage from any plans and if so we're all those taking care of with.
The patients get products, who patient assistance or did they just NAECA product. Thanks.
Sure Dave.
From a operating margin standpoint, just as a.
Background, we finished last year at about 37%.
And as you said over 50% this quarter, we expect to significantly increase our.
Our spend on Topaz expansion PPC and building.
Building, a working too with the agency biologics on a third facility.
So you know I think we're we're tracking more towards the mid Fortys as we move forward.
And it's a at this point all belt really investing in the long term growth and short term growth of president and Chris DEXA.
As we.
Look at the cost of the treatment course, Theres a number of factors that go in.
And as we looked at it too.
To the biggest factors currently on a favorable.
Endpoint for the average weight, which is probably about three kilograms on average higher than we expected and compliance which is north of 90%.
So currently those are trending much more favorably, but we continue to need to see how that trends over a longer period of time.
And the most important thing is that patients are complying.
Virtually.
With the six month.
Treatment recommendations from their position for an eight total infusion.
Of course, and that's leading to great responses, but the patients.
On a payer landscape basis, yes.
Okay break it into two.
The two subsets of acute and chronic I would say of the on the acute side weve over 90% plan to make decisions.
Over 75% of them have favorable.
Dynamics in place for Penza on the tools side, and we continue to see that flow quite well.
We don't see a lot of situations, where there's significant step edits or things along the lines of steroids that something that most patients already have already had but that is not a significant impact on the chronic side I would say, it's more like what we see for a standard biologic, let crystex or where they.
They want to see.
Follow up and you have to bring in case studies and some of the other information and data that's presented in and that is a more arduous effort than for the standard C. Patients. So we expect that to continue to improve as we generate more data from our chronic placebo controlled trial.
So thanks, David Yeah. Thanks, David Sarah next question. Please.
Thank you. Our next question comes from the line of Gary Goldberg with Bank of America. Your line is now open.
Hi, Thanks, it's Jason Gerberry from DNA.
First can you comment at all on on 2021 outlook. It looks like from your implied fourth quarter guidance youd be annualizing at about $1 billion for and your comments on sequential growth. So so presumably some nice growth off of that annualized number and then my second question is just I'm curious your thoughts on the.
Feasibility of combining to bed has out with Fcr and.
Based approaches do you think that the two modalities are complementary have you explored the feasibility of co administering these agents or is there a risk that the fcr and could clear.
As the antibody from circulation more rapidly than would be desired. Thanks.
Well I'll take the second one first we have not explored that I think there are two key factors to keep in mind.
One we still need to understand the full safety impact of CRM as a monotherapy and third eye disease in and what off target safety.
Issues emerge and secondly.
It is very rare that you have an efficacy level that we've seen with the penta, which is between 83 and 89% of patients.
Having just dramatic improvement in their disease. So we don't see a situation with this level of dramatic efficacy, where it would make sense to add on another therapy, especially one that has off target adverse events.
Relative to.
Our 2021 outlook, we're not providing guidance other than as we have over the last several years, we expect to drive continued.
Strong growth of our business and whether that be crystex back on a strong growth trajectory, we've gotten that returned to growth much faster than expected double digit growth this year and expect that to come.
Turning to accelerate into next year, and and there aren't many medicines that have.
Hit in the second full quarter a billion dollar run rate. So the peasant has significantly outperformed in it I think is set up to help many more patients and continue to grow as we get into 2021. The rest of our business continues to perform well our rare disease that is this is a low to mid single digit.
Business and our.
Maybe you generate strong cash flow. So we feel great about where we are heading into 2021, and we'll give more specifics as we get closer.
Too.
The beginning of year in our fourth quarter call. So thanks, Jason. So next question. Please.
Our next question comes from the line of Dana Flanders with Guggenheim. Your line is now.
Great. Thank you for the questions. My first here is just on.
And some of the international dynamics in Japan being first market you were looking at for has that just.
Curious if you envision your vision looking for partners.
Ex us or is this really an opportunity for you to build out the organization and wondering if thats us might become a bigger focus for you from an M&A standpoint, as well and.
And then secondly, just in R&D question on each DNA to five.
As you thought about the different indications you could go into what led you to choose IP, Jeff as opposed to something like SNC related I'll be first thanks.
So if you look at the.
Eight to five decision, we have looked at broader social lung disease, which encompasses a lot of what we're talking about such as IPO.
And a lot of that's just based on.
Preclinical and other data we've seen from L. part antagonism and fibrotic diseases, and we see is that the optimal opportunity both in diffuse cutaneous scleroderma as well as interstitial lung disease. So we see those as the most attractive opportunities at this point in time.
And relative to Japan Dana.
We look at Japan is a market that we will go ourselves we are completing our analysis in other markets around the world and that will really.
The a market by market decision relative to the financials involved as well as our as well as our interest in building.
A presence in that individual market. So we do look to expand and build our international business with its unique to five were currently pursuing both us and Europe regulatory discussions as wells, including what Japan would would look like from a regulatory standpoint.
So our business moving forward from a drug development standpoint will be internationally focused to pass we'll be moving as we said into international markets and then as we look good.
M&A I don't I don't think our primary target is to do geographic these deals.
However, if were doing development stage deals were certainly look at those the opportunity to also develop them in the international markets. Following on what we're doing with both proposal and its unique to five.
Thanks, Dana and Sarah.
It's already being over the hour we've got time for one more question. Please.
Thank you. Our next question comes from the line of Gary Nachman with BMO capital markets. Your line is now open.
Hi, guys nice quarter and thanks for squeezing me in the increased level of investment behind supplies, though which makes a lot of sense, where do you think that will have the greatest impact and how long would it take for that to materialize, especially given that only about a third of current sales calls or in person with ops those.
So will you go more into endocrinology, how much more aggressive with DTC Levy and then set a chronic TD study did I hear correctly that that it will be randomized placebo controlled why the change from open label and will you need that data to really accelerate use in that patient population or could it happen before then.
Chronic TD. Thanks.
Thanks, Gary So I'll start with that lives within a week.
Some of the data that's already been published relative to case studies has been very helpful from reimbursement Stan standpoint for individual patients.
The reason we expanded it to a chronic study is.
As we look at the long term potential in the chronic population that has become much broader than we originally expected and and we thought it made sense to add a placebo controlled to really enhance the quality of the data and fully understand the opportunity for capacity, there and and we think that will even help more as we.
Look at the chronic population.
Relative to your question around.
Our spend in activities.
We certainly want to continue to work from a consumer digital standpoint of access.
Accelerating time that graves patients.
Who are about half of them could get you do become aware of symptoms and get to the ophthalmologists and potentially being treated sooner.
The short term impact our consumer activities are outperforming benchmarks and are generating strong growth in the whole goal of our consumer strategy in the short term here is to drive patients to find the right specialists and if they find the right specialist that leads to the right treatment for them. So I think the ramp up will be.
Most in our consumer activities.
And from a sales force activity standpoint, if not just sales reps that we're adding we're also adding significant many more patient access managers and reimbursement managers that can really help.
Work through the process with the patients for physician offices.
To make sure. They also get to the right side of care. So it's a broader expansion that we're talking about thanks.
Thanks, Gary.
And Sarah. Thank you. This concludes our call. This morning, a replay of this call and webcast will be available in approximately two hours. Thanks for joining us.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a great day.
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