Q4 2021 Horizon Therapeutics PLC Earnings Call
[music].
Good morning, and thank you for standing by welcome to the Horizon Therapeutics fourth quarter and full year 2021 earnings conference call.
Today's conference call is being recorded.
I'd now like to introduce MS. Tina Ventura, Senior Vice President and Chief Investor Relations Officer.
Thank you Olivia 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 Executive Vice President Research and development, Paul Hoelscher, Executive Vice President Chief Financial Officer.
Andy Pasternak Executive Vice President Chief Strategy Officer, and Erin Cox Executive Vice President Finance, Aaron will be transitioning to CFO after our first quarter call.
Jim will review the business, including our fourth quarter and full year performance Lynn Liz will then review our R&D programs, followed by Paul will discuss our financial performance and guidance in more detail.
After closing remarks from Tim we'll 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 risk factors and other information outlined in our latest forms 10-K, 10-Q, and any eight Ks filed with the Securities and Exchange Commission and our earnings press release, which we issued this morning.
You are cautioned not to place undue reliance on these 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 with the comparable GAAP financial measures in our earnings press release and other filings from today that are.
Are available on our Investor website at Www Dot Horizon Therapeutics dotcom.
I will now turn the call over to Tim.
Thank you Tina.
So toward diseases at.
At the same time, we once again delivered top tier financial performance.
Our full year total net sales of $3 $2 billion increased nearly 50% are for your adjusted EBITDA of $1 $3 increased 33%. We also generated more than $1 billion in operating cash flow.
This morning, we issued our full year 2022 financial guidance, but again represents a very strong growth at the midpoint.
Our full year net sales guidance of $3 $9 billion to $4 billion represents 22% growth.
Our adjusted EBITDA guidance of $1 63 to $1 $7 billion represents 30% growth.
30 basis points of margin expansion.
Importantly, we expect our commercial performance to drive significant margin accretion, which should more than offset the increased investments we continue to make in R&D.
As we look across profitable large cap biotech peers horizon's growth profile is one of the best in the industry.
In 2021, we've made tremendous progress on our strategic goals.
Building, our pipeline maximizing our commercial medicines and expanding globally.
<unk> significantly expanding our pipeline and deepening our R&D scientific expertise.
Our pipeline now includes more than 20 programs with the majority added in 2021.
We work to maximize the molecules in our portfolio, notably we identified four new indications for <unk> still a man that we plan to initiate trials in this year, beginning with alopecia area got a trial next quarter.
We believe that's still a map has the potential to be a true pipeline in a product with a multibillion dollar potential.
Commercially we more than doubled net sales is the.
Second year post launch and increased KRYSTEXXA net sales by nearly 40% remarkable for a 12 year old medicine.
We also repositioned and rebranded and relaunched supposedly in just six months after acquiring it from yellow.
We continue to build our global presence, including the required infrastructure in Europe to support the potential launch of a placement in the second quarter, assuming European Commission approval.
And last week, we announced the first patient enrolled in our clinical trial evaluating <unk> in Japan.
This is the first step in changing the treatment journey for people with TEP outside the U S and puts us on a path for richer International peak to Pennsylvania.
Net sales expectations of more than $500 million.
We also significantly expanded our global supply capacity to meet growing demand. We added a second president drug product manufacturer and acquired new biologic drug product manufacturing facility in Waterford Ireland.
All our efforts are the people of horizon their dedication to executing on our strategy makes a difference in the lives of the patients we serve.
Our employees continue to be highly engaged as evidenced by the 15 workplace Awards, we received in 2021, including ranking as the number one biotech pharmaceutical company. Unfortunately 100 best companies to work for.
We're also company values diversity in equity in 2021, our second study conducted by Ey on confirmed once again that horizon demonstrates gender and ethnicity pay equity.
This was especially meaningful accomplishment as it was achieved while at work first nearly doubled in size.
Moving onto our full fourth quarter and full year results.
The fourth quarter sales were $590 million representing year over year growth of 72%.
Full year net sales were $1 66 billion exceeding our full year expectations.
We achieved this incredibly strong performance. Despite the continued impact of COVID-19, and the government government mandated supply disruption that took them out of the market from the end of 2020 through April of last year.
We executed a strong commercial relaunch falling this disruption resuming patients on therapy quickly converting new patients and driving new patient enrollment forms.
We also initiated a randomized placebo controlled trial in chronic T E D to help drive further uptake in this patient population.
Okay.
As we enter our third year in the market, we continue to drive strong growth and adoption of the peso.
We are focused on the next phase of our commercial strategy and see significant potential to help many more patients benefit from to present.
First we plan to more deeply penetrate our high priority TEP positioned targets for us.
Plus it's surgeons strabismus specialists and neuro ophthalmologists.
Ophthalmologists.
We've done an incredible job to date with only a third of those physicians prescribing to pose it today, we see significant opportunity to build on our success and capture a higher proportion of those physicians and their patients.
We're improving our physician targeting and refining our messaging as we learn more about what resonates best with each specialty.
For example, Proptosis reduction is the main focus for Ikea plastic surgeons, well neuro ophthalmologists focus more of a broader set of signs and symptoms of the teeb, such as diplopia or double vision.
Second we are broadening our reach to general ophthalmologists and endocrinologists in a targeted way.
Chronologist typically treat patients with underlying graves disease in general ophthalmologists treat patients with the underlying symptoms of TEP.
Due to under diagnosis and lack of awareness of T. He would be the majority of their patients do not find a way to pass a prescriber today.
Remember this is a market that just two years ago had no treatment options for patients and therefore, there was no well defined patient journey.
We are educating those physicians and working to improve the patient journey to both accelerate referral process and activate certain physicians is to pay the prescribers.
This is a longer term multiyear strategy that should help thousands of TEP patients benefit from to puzzle.
Third we're continuing our significant investment in DTC, which has proven successful in reaching a broad spectrum of PDP patients.
We're evolving the focus of the campaign to expand the impact of TD symptoms, such as appropriate and have launched a new unbranded awareness campaign as well.
In addition to awareness creation. The main goal of our DTC campaign is to help patients find the teeb treatment specialists.
We've continued to generate strong results in the use of our TEP specialist finder more than doubled from when we launched the branded TV campaign in may of last year.
Our primary commercial focus this year is to further penetrate the Q2 you'd be opportunity.
Additionally, in the fourth quarter of last year, we began to educate physicians on the use of the present and chronic patients.
There are now seven published case series, citing successful experiences with depends on nearly 60 chronic <unk> patients.
We expect the results for renewables randomized controlled clinical trial in chronic patients by year end.
Those trial results and subsequent publication in peer reviewed journals next year could help remove barriers with payers as well as drive clinical conviction for many physicians, who today only prescribed to peso for their acute patients or patients with high inflammation.
We anticipate 2022 will be another year of outstanding growth for capacity, where we estimate full year net sales percentage growth in the mid thirties.
Driving towards our peak global annual net sales estimate of more than $3 $5 billion.
With KRYSTEXXA, we reported fourth quarter net sales of $170 million representing year over year growth of 32% in full year net sales of $566 million.
2021 was a significant year for KRYSTEXXA as we continued to advance our immuno modulation strategy.
Topline data from our mirror randomized controlled trials showed that 71% of patients on KRYSTEXXA plus <unk> modulator methotrexate.
A complete response this was more than 30 percentage point improvement compared to patients on KRYSTEXXA plus placebo.
In January of this year, we submitted a supplemental biologics license application to the U S. F D. A to incorporate the mirror data into the KRYSTEXXA label.
Approval would allow our commercial team to proactively promote KRYSTEXXA plus methotrexate to physicians.
In the meantime, our medical affairs and clinical teams are working to present and publish the mirror trial results and additional analysis from the trial, including new safety data at medical Congresses throughout this year.
Immuno modulation is driving higher clinical conviction among treating physicians use is now approaching 50% of new patients, which is up from more than 30% at the start of 2021.
We continue to expand the prescriber base with significant growth in new prescribers as well as physicians have prescribed KRYSTEXXA in over a year.
That is strong evidence that our immuno modulation strategy is working.
Our nephrology segment has been growing rapidly with perhaps in 2021, nearly doubling compared to 2020.
This reflects the continued growth we're seeing in nephrology prescribers, which increased 75% versus 2020.
We attribute the successful progress to the dedicated nephrology sales team we've put in place last year.
As we look to 2022, we expect another strong year projecting net sales growth of more than 20%.
We're on track to achieve our peak annual net sales estimate of more than $1 billion.
Which is supported by our strategy to redefine KRYSTEXXA plus immuno modulation is the standard of care.
So expanding utilization in our core specialty areas of rheumatology nephrology.
To elevate the urgency to treat uncontrolled gout patients and to invest to improve the patient experience, including our monthly dosing and shorter infusion duration trials.
Moving to a pleasant.
We generated fourth quarter net sales were $26 million.
Approximately $4 million of that was international revenue from our Japanese partner.
Following our acquisition of <unk> and are placing them. We worked quickly to build a team and develop our strategy conduct a full relaunch of the medicine.
Leveraging the patient centric approach, we use for to peso.
KRYSTEXXA and our rare disease medicines.
We put the right infrastructure and team in place with deep neuro immunology experience relationships and market knowledge.
We successfully relaunched a place in the fourth quarter, we're beginning to see results.
This is evidenced by our market Research survey, we conducted earlier this year, where awareness among physicians and patients increased significantly compared to the period before a prelaunch.
In addition, our physician call activity in the first quarter more than doubled from the third indicative of the extended reach of our expanded sales force.
We significantly expanded our peer to peer speaker programs and training to a 30% increase in total prescribers in the fourth quarter compared to the third with more than half of patient enrollment forms coming from new prescribers.
As a result of our efforts, we generate strong quarter over quarter Pep growth in new patient starts.
Internationally, we made substantial progress in 2021 building the infrastructure and capabilities to support the potential launch of implicitly in European issue in Europe . This year, beginning with Germany in the second quarter, assuming European Commission approval.
We are increasingly confident in the prospects for this medicine and are more city and other indications we are pursuing.
Expected another year of very strong growth in 2022, as we progressed towards our peak global EMEA net sales expectations more than $1 billion.
Across all indications for our business.
I'll now turn the call over to list for an update on our progress in R&D.
Thank you, Tim and good morning, everyone.
2021 was a transformational year for R&D and I expect continued progress as we move through 2022.
In 2021, Lee significantly expanded our pipeline through the acquisition of yellow.
<unk>, new internal programs, we announced and the two preclinical programs we added through external collaborations.
We made progress in three new therapeutic areas, including neuro immunology dermatology and respiratory.
We began building out our research organization and discovery engine to drive long term growth, we plan to generate high quality R&D over the coming years through our own internal efforts as well as through partnerships and collaborations.
And we announced our expansion into a new state of the art facility in Maryland to further support the growth of our R&D function and serve as our primary east coast hub.
This morning, I'll update you on the progress of our key programs, starting with <unk> still a mab or HCN seven 734.
That's still amount as the first and only plasmacytoid dendritic cell or PDC, depleter and clinical development.
PDC either found in high concentrations in disease tissues of individuals with certain autoimmune and inflammatory diseases and the activity of these cells can result in significant inflammation and tissue damage.
Our deck still not trial in systemic lupus erythematosus or SLE is underway, we expect to begin clinical trials in four additional indications this year.
First alopecia Areata is an autoimmune disorder characterized by non scarring hair loss, we estimate more than 600000 patients in the U S suffer from this disease of which approximately 40000.
It would be appropriate candidates for biologics.
There are currently no approved therapies and most patients are treated with off label medicines, often with significant side effects and variable efficacy.
We're on track to initiate our phase II open label trial in Alopecia area order in the second quarter and approximately 30 patients with moderate to severe disease.
The primary endpoint of the trial is the percent change from baseline in the Salt score at week 24 volt or the severity of alopecia tool is a commonly used score to measure the level of disease severity and patient.
We plan to initiate our displayed lupus erythematosus or DLA trial by mid year.
<unk> is a <unk> disease. It can be significantly just figuring. It can also result in hair loss.
We expect to initiate our trial in lupus nephritis, and autoimmune inflammatory condition of the kidney in the third quarter and finally, we expect to initiate our trial in dermatomyositis in the fourth quarter.
This is a rare condition that manifest a severe skin rash and debilitating muscle weakness and can affect children in a very severe way.
Moving on to <unk> or HCN 49 'twenty.
This is our CD 40 ligand antagonist designed to block a central pathway involved in many autoimmune and inflammatory diseases Desert, Alabama is currently in phase III trials for Chevron syndrome, rheumatoid arthritis, and kidney transplant rejection.
This year, we expect to phase II trial, Readouts rheumatoid arthritis in the second quarter and kidney transplant rejection by year end.
Our rheumatoid arthritis trial gives us the opportunity to accelerate our learning about does it all of that in a large and reasonably accessible population using well understood clinical endpoints.
C D. Four D. C. D 40 ligand is irrelevant pathway in rheumatoid arthritis, and our initial phase one results suggests that inhibiting this pathway can impact disease.
In this trial, we can expand our understanding of the impact of the mechanism under various dosing regimen, which can also inform our decisions on a potential dosing profile and other indications.
We expect to initiate our desert all about trial and the progressive and rare kidney disease <unk> in the fourth quarter.
Moving to HCN 85, our oral selective <unk> antagonist, which has shown early signs of clinical impact in fibrotic disease.
We recently enrolled our first patients in our two pivotal phase III trials for HCN 85 in diffuse cutaneous systemic sclerosis in November and idiopathic pulmonary fibrosis in January of this year.
<unk> is our anti CD 19, humanized monoclonal antibody indicated for an M O S T a.
Rare and devastating neuro inflammatory autoimmune disease that is <unk>.
Tax the optic nerve final cord and brainstem.
We continue to contribute to the literature regarding the efficacy and safety profile of up listener.
Most recently in February we presented new data at the North American Neuro Ophthalmology Society meeting or nanos.
In addition to the benefit already demonstrated an increasing the time to first attack for patients living with NMFC.
New analysis suggested that treatment with a pill is not also reduced severity of attack.
We continue to advance our phase III trials evaluating a pleasant for myasthenia gravis and <unk> related disease.
Moving now to <unk>.
We're continuing to enroll patients in our phase four randomized placebo controlled trial in chronic thyroid eye disease.
The results of this trial will add to the emerging literature studying <unk> in patients with chronic T D.
Meanwhile, we continue to see additional data and analysis regarding to <unk> and its role in the treatment of T D.
For example in a recently published meta analysis and matching adjusted indirect comparison up to Panther and intravenous methylprednisolone or IV steroids.
So that for IV steroids, only small not clinically relevant changes, we're seeing for Proptosis and diplopia.
This is consistent with what we have known for some time that story steroids are not effective in treating some of the most impactful signs and symptoms of T D.
And the same menu script cross trial comparisons supporting greater improvements on Proptosis, and diplopia with to pezza compared with IV steroids.
We also continue to advance our chip has our subcutaneous administration program, where we are exploring multiple options with a new high concentration formulation.
<unk> under consideration include approaches with and without the halos on technology.
We have completed a phase one single dosing trial in healthy volunteers with our current formulation.
In this trial, we assess the safety Tolerability and pharmacokinetics of two different single sub Q dose is and we were pleased with the response.
Next we're moving to test this formulation in T E D patients and expect to initiate this phase <unk> study mid year.
We expect to begin clinical work with a high concentration formulation later this year.
The results of this work will help define our dosing regimen, which we will then evaluate in a pivotal trial.
And as we announced last week, we initiated our clinical trial in Japan.
The trial was designed based on discussions with the Japanese regulatory authority and Japanese experts in T E D and informed by our experience in the optic phase III trial conducted in the United States and Europe .
The trial will include approximately 50 patients with moderate to severe active T D.
The primary endpoint is a proptosis responder rate at week 24 measured by the percentage of participants with at least a two millimeter reduction in proptosis from baseline in the study eye. We expect results in the second half of 2023.
We've made substantial progress with KRYSTEXXA, improving its efficacy and working to improve its profile for patients.
Tim referenced our mirror trial, where we look forward to sharing additional details from the trial at key medical meetings, such as you are mid year at ACR in the fall.
And we continue to explore ways to improve the KRYSTEXXA profile with our trials evaluating shorter infusion duration and monthly dosing.
Beyond these efforts with KRYSTEXXA, we're investing new approaches that target the underlying cause of gaps such as with our arrowhead and haemus share preclinical programs in.
In summary, we expect another busy and productive year ahead.
I'll now turn the call over to Paul.
Thanks, Liz My comments. This morning will primarily focus on our non-GAAP results unless otherwise noted I will start with our fourth quarter results followed by our financial guidance for 2022.
Fourth quarter net sales were $1 billion representing.
Representing year over year growth of 36% driven by the strong performances of our key growth drivers to pass <unk> and KRYSTEXXA.
This is closed out a record year with full year total net sales of $3 $2 billion, nearly 50% growth compared to 2020.
Our orphan segment generated fourth quarter net sales of $940 million a year over year increase of 50%.
Orphan segment operating income was $421 million.
Net sales for the inflammation segment were $74 million with segment operating income of $33 million.
We continue to focus on maximizing the cash flow generated from this segment to reinvest in our growth drivers in our expanding pipeline.
Our non-GAAP gross profit ratio was 86, 5% in the fourth quarter and 86, 9% for the full year.
Fourth quarter non-GAAP operating expenses were $460 million.
This included non-GAAP R&D expense of $115 million or 11% of net sales.
As we noted in December we no longer exclude upfront and milestone payments related to collaboration and license agreements from our non-GAAP financial measures.
So R&D expense in the fourth quarter includes approximately 36.
$36 million of upfront and milestone payments for.
For the full year, our non-GAAP R&D expense was $373 million, which includes approximately $90 million of upfront and milestone payments.
Our non-GAAP SG&A expense was $345 million in the fourth quarter and $1 $1 billion for the full year.
Fourth quarter, adjusted EBITDA was $416 million or 41% of that sales representing year over year growth of 22%.
Our full year, adjusted EBITDA was $1 $3 billion or approximately 40% of net sales representing growth of 33%.
The non-GAAP tax rate for the fourth quarter was 15, 5%, bringing our full year non-GAAP tax rate to nine 8%.
non-GAAP net income for the fourth quarter was $334 million and non-GAAP diluted earnings per share were $1 41.
Our full year non-GAAP diluted earnings per share were $4 62.
The weighted average shares outstanding used to calculate fourth quarter and full year 2021, non-GAAP diluted EPS were 237 million shares and 236 million shares respectively.
Fourth quarter and full year non-GAAP operating cash flows were $551 million and $1, one 9 billion respectively.
As of December 31, cash and cash equivalents were $1.58 billion.
With the strong cash position and expected future cash flows business development will continue to play a critical role in expanding our pipeline.
The total principal amount of our debt outstanding is $2 6 billion with the earliest maturity in 2026.
As of December 31, our gross debt to last 12 months adjusted EBITDA leverage ratio was two times.
Our net debt was $1 billion, resulting in a net debt to last 12 months adjusted EBITDA leverage ratio of 0.8 times.
Moving on now to our outlook for 2022.
This morning, we provided full year 2022, net sales guidance of $3 $9 billion to $4 billion.
Representing year over year growth of 22% at the midpoint.
It's a puzzle we expect full year 2022, net sales percentage growth in the mid thirties.
For KRYSTEXXA, we expect full year 2022, net sales growth of more than 20%.
We expect full year 2022 gross margin of approximately 87%.
We expect our gross margins to be the highest in the first quarter.
As we progressed through the year, we expect gross margin to decrease as we reach higher percentage tiers on it's a puzzle royalties we pay.
Full year adjusted EBITDA is expected to be $1 63 to one $1 7 billion.
Representing a 42% margin at the midpoint of 230 basis point expansion compared to 2021.
Our adjusted EBITDA guidance reflects that our it reflects our expectations for strong growth in net sales, partially offset by our increased investment in R&D, which we expect to be in the low double digits as a percentage of net sales.
We expect our commercial performance will drive significant margin accretion, which was more than offset this increased investment.
As we think about our 2022 operating expense, we expect a steady increase over the course of the year.
Excluding the R&D related milestone payments from the fourth quarter of 2021, non-GAAP operating expenses were approximately $425 million for 'twenty 'twenty. Two we would expect a modest quarter over quarter increase from there mainly driven by R&D.
We expect our full year non-GAAP net interest expense to be approximately $80 million to $85 million.
We expect our full year non-GAAP tax rate to approach 12%.
As with every year, we anticipate variability in our non-GAAP tax rate on a quarterly basis.
We estimate that our cash tax rate will be in the mid to high single digits.
And as always our tax rates could change significantly as a result of acquisitions or divestitures, we may make or any changes in tax laws.
We expect our full year 2022 weighted average diluted share count to be approximately 238 million shares.
And finally, let me touch on the first quarter.
As we see every year, our first quarter net sales are expected to be the lowest of the year impacted by seasonality as patients experienced copay and deductible resets and other changes in their health care coverage.
We also saw an impact from the COVID-19, Omicron Varian earlier this year.
Due to delays at office visits and scheduled infusions on both deposit and KRYSTEXXA.
We have seen a nice uptick in the trajectory since then and feel good about our full year expectations.
Therefore, we expect a typical stepped out in net sales this year in the mid teens from the fourth quarter of 2021 for the first quarter of 2022.
With that I'll turn the call over to Tim for his concluding remarks. Thank.
Thank you Paul.
2021 was another outstanding year for Horizon with record financial results supported by strong commercial execution as well as accelerated progress on our strategic goals. Most importantly, the expansion of our pipeline.
We expect to initiate several new clinical trials this year two of which have recently started.
As we look to the future we should see combined peak annual net sales potential of approximately $10 billion for our current growth drivers.
<unk>, along with our pipeline candidates.
We expect another stand out your performance.
2022 guidance represents one of the best growth profiles, among our profitable large cap biotech peers.
With more than $1 five billions of billions of dollars of cash we have significant.
Flexibility to support our business development activities to further expand our pipeline.
With that we'll open the call up to questions.
Libya it can begin.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone.
So we're doing a question you may press the pound key please standby, while we compile the Q&A roster.
And our first question coming from the line of Annabel <unk> with Stifel. Your line is open.
Hi, guys. Thanks for taking my question, great close to the year.
So first on Captisol.
Objects, the optic X data wherever it makes I guess big fourth quarter can.
Can you talk to us about what impact that might have had.
So far.
In terms of changing the way physicians are.
Trading or are they more comfortable starting to customize treatment by patients.
Trading longer than the current label regimen for longer administration payments or factory patients.
And how does that factor into the guidance have you included any specific headwind sorry tailwind.
The mid Thirty's rate this year, because I think.
Characterize Mr maintains at a typical year.
Hmm.
So just wanted to get a little bit of color there.
And then one.
Maybe we can.
It looks like.
Sure.
Infrastructure contribution is starting to have a nice impact any metrics that you are going to begin to sugar.
Like Oh.
Or just switches versus new patients like.
Patient enrollment for men and forums.
How do you know what kind of patients are treated and who's trading in the physician types.
Academic versus community just any more color you can provide there. Thanks.
Great Tim perhaps do you want to start with a pleasant and some of the relaunch and then Liz I think antibodies are part of that asked about some of the optic X.
Data that was recently published and our thoughts on that so okay.
Sure so with with a place as we sit in the prepared remarks, we've seen a strong initial start.
Importantly awareness since we've put our sales force in places increased significantly from.
The pre.
For the fourth quarter, so continue to be.
Pleased with the uptake in and where things are tracking so far this year. So we will continue to report that progress in it.
I assume we'll get into how perhaps are progressing from a high level standpoint, and expect to see.
Continued sequential growth throughout the year was opposed to them.
Liz with optic X.
Yeah. So the optic X data were recently published we have shared those previously at medical meetings, and I think youre exactly right that some of the really great findings out of the optic X data are that in patients with even a longer disease duration compared with our original phase III trial, you do see good.
Strong results. So we think this continues to confirm that it has it has a real role in therapy for patients that are beyond the strict criteria that were put in place for the phase III trial consistent with a broad label. We have I think this is good support for this being relevant to a broader swath of patients.
And could you just tell us what percent of the chronic now.
So chronic break now is in the mid teens as a percent of overall to presentations.
We continue to expect.
That to remain as we move through the year and when we looked at the chronic population.
<unk> policies are put in place as we've launched in the acute we're focused on clinical activity score being greater than four.
And then there's certainly fitting for the acute population and as we've looked at our penetration in chronic it's really been focused on those chronic patients with high test scores greater than four and that's why it's so important for us to get the results of our chronic trial towards the end of this year. So that we can really see the benefit in <unk>.
<unk> with low tests.
Enrollment criterias cost less than one they're so low clinical activity scores are high and other symptoms like diplopia.
Paint etcetera, so really looking forward to the results and really pleased with the mid teens percentages overall patients. This year great. Thanks, Annabel. Thank you.
Operator next question.
Our next question coming from the line of Chris Schott with Jpmorgan. Your line is open.
Great. Thanks, so much for the questions just a few more on the peso.
I know you touched on this a little bit during the comments, but just the breadth of prescribing here is there still an opportunity to increase volumes within the core K well community.
Or is the focus more on expanding the breadth of prescribers or increasing referrals from general ophthalmologists into those core Kols I'm, just trying to sense of.
Have you kind of tapped out that initial group and it's now about expanding or is that more traction there.
I guess the second question I had was just on that chronic study reporting out. This year is that a factor in the 2020 guidance or is that correct. So to be more about kind of 2023 and beyond in terms of assuming success the commercial opportunity.
And then maybe just a third one on <unk>.
And just clarifying the quarterly gating comments I think you said mid teens stepped down in sequential sales does that comment apply to <unk> as well just so there's no confusion. Thanks so much.
It does it applies and has been consistent over the last five six years across our medicines.
So it does apply to Chris.
Chronic standpoint, we have a 57 patients of data in the chronic population a lot of them have higher test scores from the investigator initiated trials. So the most important one is getting those results towards the end of this year and our chronic placebo controlled trial in.
The majority of it.
That impact will be in 'twenty, three and beyond as we get that published.
We looked at the peasant prescribers, we have about 8000 total called on targets for it depends on about a third of those are our top priority our high priority targets and when you look at them those of your lots of plastic surgeons in our ophthalmology business specialists.
About a third of those so if you do rough numbers call. It to 'twenty six 'twenty 700 about a third of those are prescribed.
So there's significant opportunity to continue to penetrate that acute business in those high priority targets and get to much broader prescribing in that universe and that's the primary focus of our sales force effort from a chronic standpoint.
We continue to focus and we expect that to maintain in the mid teens.
Thanks, Chris.
Our next question please.
Our next question coming from the line of David <unk> with Piper Sandler Your line is open.
Thanks, So just a couple.
I'll start with the closed out.
So given the growth of that product sequentially I know some of that was ex U S. But.
Yeah.
That being said.
With that in mind or you are you seeing an uptick.
And switching away from Rituximab or you're getting a good chunk of your starts coming from patients on all of their immuno suppressant. So can you just talk to how you're sourcing patients.
And then secondly on deck still a mab.
So let me sort of an overarching question about your thought process regarding casting a wide net for the product in lupus and specifically do you have a read as to where you think you could have the best signal.
Monks SLE lupus nephritis and destroyed it seems it's some kols, we've talked to have somewhat higher enthusiasm about our PDC depleter and destroyed but wanted to get your thoughts there. Thanks.
I'll take the first and then lids can talk about that it's still a mab or PBC depleter.
So as you noted we've had strong sequential growth the first quarter of the relaunch was in in the fourth quarter and we're very pleased with that.
And we continue to see progress as we moved into this year.
From as far as sourcing patients were getting both we're getting.
De novo new patients to treatment with animals.
But also we're getting patients that are primarily switching from rituximab. So I'd say, it's about equal percentage sourcing from both new patients and patients with prior treatment with Rituximab loose.
So with respect to 700 703, four <unk>, which is our our PDC deplete or we're looking at and a number of different indications that exactly as you say with a real focus on lupus and lupus related indications.
As we think about it we think that it's important to have data in SLE and lupus nephritis, given the overlap between those I think that's going to be important in helping physicians make the right choice for their patients. So that's that's part of why we expanded from ethylene to cover lupus nephritis as well.
Pleased to hear that Youre hearing the same kind of enthusiasm that we are about the potential in D. L. Lee and I'll expand that a little bit to say dermatomyositis as well there was a really good mechanistic rationale for there to be impact in these two places where we're pretty enthused about what we might see there and while it's not specifically within the lupus bucket.
I should also note that we are launching our alopecia study. We've got good rationale here. We also are looking at an efficient study design here. So we can get to a quick end and efficient answer about what the possibility is here in alopecia. So overall I think a lot of potential for 773, four and we're we're pretty excited.
To keep updating you all as that progresses. Thanks, David.
Olivia next question please.
Our next question coming from the line of Madhu Kumar with Goldman Sachs. Your line is open.
Yeah. Thanks for taking our questions. So on KRYSTEXXA I guess kind of can you give us some more color on how you think about the supplementary BLA on combining KRYSTEXXA at Camino modulators, and where that kind of approval potentially could have impact.
On the peak sales number itself versus the trajectory towards that peak sales number and then.
On.
On the deposit 'twenty two guidance kind of where do you think about puts and takes them to reimbursement and where there could be kind of like broader uptake among new prescribers you mentioned earlier in the call.
So we're seeing with the peasant and reimbursement.
I expect it to remain.
Typically how it's been and how we see on KRYSTEXXA and other biologics. It's it's hurdles in place as I mentioned in a prior answer around chronic we're doing very well in getting the chronic population that has high task because if you have a crossover for that fits with the acute policies that were put in place.
And lunch. So we continue to expect to be able to drive that business as we move through the year and that's why it's so critical to get the results of the chronic study. So we can begin to roll that and drive that as we move into 2023.
With KRYSTEXXA the subtle supplemental BLA is critical.
I don't see it as the critical thing to hit our our peak sales of greater than 1 billion. We're on track to exceed that with our current business. What I do see is that's what drives upside and I think for the first time give our sales force and commercial organization and the opportunity to actively promote KRYSTEXXA plus immuno modulation.
In this case KRYSTEXXA plus methotrexate based on the results of the mirror trial, so getting that data, including in the label hemp a flexibility to promote.
And if you look at the standard timelines are fourth quarter approval would really set us up for strong growth in 'twenty three and beyond.
Great. Thanks, Madhu Livia next question please.
Our next question coming from the line of Ken Cacciatore with Cowen Your line is open.
Thanks, So much Tim you gave good context around the current to pizza clinician base.
The third or 'twenty 600 can you talk about did they capture or holds 80% of the patient population, 50% can you put some context.
Around the addressable population that they're treating versus the remaining two third that youre going to now try to broaden out into and then also can you talk about the willingness on the acute patient base for clinicians to try earlier, maybe even a head of steroids or is it still steroids needs to be first can you just talk about.
The changing dynamics as they've gotten more comfortable I know in the past.
40 to 50000 patients that may be on steroids first and just wanted to understand is if the <unk>.
Or maybe getting a little bit more aggressive thanks, so much.
Sure. So I'll start with our overall targets are there.
The majority almost all patients.
With active TEP and vast majority of chronic as well are seen by that 8000 targets, we call on them at about half if not greater than the high priority targets, so significant opportunity to drive acute and that two thirds that happened prescribed at this point.
We do not see physicians going to mild or earlier use I think it's good care to start with steroids. That's typically what's done in that acute phase because there is a small number of patients that will spontaneously remittance and they should stay on steroids.
As patients get to monitor so severe and have a number of the other <unk>.
Symptoms like diplopia, and and also proptosis in pain, those become the appropriate patients for treatment with to pencil. So are we.
We are getting significant penetration I would say in the severe population and we continue to printer penetrating that moderate population, but we don't see a more mild patients as ones that should be candidates for to pencil.
Great. Thanks, Ken Livia next question please.
Our next question coming from the line of Jason <unk> with Bank of America. Your line is open.
Hey, good morning, Thanks, guys for taking my question.
Just to add that.
First just on the average annualized pricing I think in the past there's been some commentary that perhaps 28 vials might be the average versus the 23 that was talked about at the time of launch so just wondering.
That's a huge swing factor in our pricing assumption it could push pricing up about 20% to closer to 300 K.
Her patient so figure at this point in the launch you guys might have a better handle on where that's netting out. So I'm wondering if you could comment on that and then with chronic T E D.
In the past you guys had talked about.
A lot of these patients arent actively engaging with their physician they run out of treatment options, probably blow through a few surgeries already so.
Are you track can you track with your DTC efforts are you activating patients with both forms of the disease, both acute and fibrotic forms just sort of curious.
DTC ads.
For the pull through effect that that has thanks.
So first of all thinner P. As we've discussed throughout the last two years that we had seen vials trending.
On average about 28, 90 plus percent compliance lash.
Last year with only 12 months of sales in eight months that certainly didn't help us.
A full clarity of run rate, but that is the current trend that remains in place when we look at our our DTC effort.
Youre exactly correct Jason.
All about engaging them. It really three series of patients that are unbranded or an unbranded campaign TV campaign is focused on patients who have.
T D and half symptoms associated and we're expanding that into symptoms. If you looked at our current.
DTC in television commercials that are out there to focus on diplopia or double vision is a key symptom that patients with hybridize eye disease face and that they should.
Go seek a specialist or find among specialists in their respective areas I'm going to start to parse our branded advertising as focus on driving too depends on and then our third campaign that we rolled out last year was is in the graves population and really identifying those patients early on.
That may have graves in anywhere from 40% to 50% of them make it part of an ICC. So a lot of it is is trying to drive them. All three early patients patients that have active disease or diplopia and.
Hi, clinical activity score is something that both acute and chronic patient types. So that would be going after both of those sets of patients and well patients don't self identify as Cooper chronic.
They're typically responding to symptomology is seen in our advertising so that would indicate they have higher clinical activity going on which would speak across both populations of acute and chronic great.
Great. Thanks, Dave. Thank you next question please.
Our next question coming from the line of Gary Nachman with BMO capital. Your line is open.
Hi, good morning, first onto pads that have you completely gone through the bolus from pent up demand last year with with the Covid issues.
There are still a bit of a backlog.
How is that factored in the 'twenty to 'twenty two guidance and.
And then on KRYSTEXXA, how is penetration been improving and nephrology what can you do to accelerate that will you wait for the updated label to do that in a more meaningful way.
And then just lastly.
With the increasing level of R&D spend to drive the pipeline when will you pivot to driving even more operating leverage so what what's the target for operating margin over the next few years. Thank you.
Sure. So I'll take the first two Paul can address the operating leverage.
With.
As you know.
There were still some disruptive patients in the fourth quarter as we've discussed many times, we don't see that factoring into our guidance in 2022.
As we mentioned in the remarks with KRYSTEXXA, we've seen strong growth in both rheumatology and nephrology and I think.
Growth of patient enrollment forms of 75% and overall patient penetration very strong in the nephrology space, albeit a much smaller.
<unk> penetration at this point in time the label is focused on KRYSTEXXA, plus methotrexate and I would expect to.
That addition into the prescribing information for KRYSTEXXA will have its maximum impact on the rheumatology prescribing audience within nephrology getting the results of the recipe trial that we have with KRYSTEXXA plus Michael finally.
Important because microphanerophyte is more often used by Nephrologists. In addition, our protect trial, which looked at KRYSTEXXA in kidney transplant patients. Most the majority of them on background like a fun later other immune modulators.
And that showed I believe was about a 98, 9% response rate so really the recipe and protect trials, adding further evidence of of immuno modulation with medicines that are typically used by Nephrologists has certainly helped whereas the mirror data with methotrexate is really geared towards the rheumatology.
And that would be significantly.
<unk> impacted as we get that in the label.
Paul do you want to address the leverage.
Sure.
And as we've said I think we believe we can get to kind of a typical rare disease.
Margins of around 50% as we move through the future years.
We'd expect that to kind of increase year over year as we continue to leverage higher sales as we move towards our peak sales opportunities for our different commercial medicines.
However that could be impacted by the acquisitions, we do as we bring additional assets in the pipeline that could impact that year versus year, but we would expect over the next several years, but will grow towards that 50%.
Thanks, Gary next question. Please livia.
Next question coming from the line of <unk> with Jefferies. Your line is open.
Hey, guys can you talk about some of the product characteristics, you're looking to achieve with your Hello sub Q formulation for deposits would you potentially need to administer to sub Q doses in a maintenance setting or could you get around that requirement with a high concentration formulation you mentioned today, and then kind of stepping back.
In terms of.
Long term what proportion of the 70 K chronic TD patients would be addressable over time could we see penetration rates that approach that maybe 80% over the next few years are there certain.
Chronic patients who don't seem to respond well to pay that in your case report. Thank you.
So I'll take that depends on we don't expect 70% to 80% penetration in chronic over the next two years.
As we look at our current.
Three greater than $3 billion guidance that that expects significant penetration in the <unk> population I would say modest penetration in the chronic population and as we get more data as we get the results of the chronic trial placebo controlled chronic trial at the end of the year.
Expect that to drive 23, and beyond but we see the 70000 as being the eligible population.
In the near term, we're getting those that have high test scores over for that fit with existing policies that are in place that were created initially at launch around the acute population and over time, we expect to be able to penetrate.
On that high chance as we get more and more data.
Liz do you want to take that since it's a sub Q program. We are looking at multiple options, including using our new high concentration formulation and approaches that do and do not include <unk>.
The specifics of the dosing regimen that are going to continue to be worked out based on what we find in the clinical work that we're currently undergoing that said I don't envision a situation, where we're going to be looking at multiple injections at any given dosing dosing because that's not really what we're aiming towards here.
Our cash opt.
Operator, we're coming to the top of the hour it looks like we've got time for one more question. Please.
And our last question coming from the line of Michael <unk> with Morgan Stanley . Your line is open.
Hey, guys. Thanks for taking the question just a quick one from me on <unk> in terms of the phase four chronic Ted study.
Maybe you can talk about the pace of enrollment in that study that youre seeing versus your internal expectations. It just seems maybe from some of the commentary on the call that we should be expecting data closer to year end as opposed to.
So that would be sort of later in the initial second half timeframe. Thanks.
I think it's tracking as we expect and just clarifying more specifically when we expect to get the results.
Great. Thanks, Mike and thanks, Olivia that concludes our call. This morning, a replay of this call and webcast will be available in approximately two hours. Thanks for joining.
Well.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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