Q2 2022 Horizon Therapeutics PLC Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Okay.
Good morning, and thank you for standing by welcome to the Horizon Therapeutics plc second quarter 2022 earnings Conference call.
Today's conference call is being recorded.
I would now like to introduce MS. Tina Ventura Senior Vice President and Chief Investor Relations Officer Ms. Ventura. Please go ahead.
Thank you Chris 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.
Cox Executive Vice President Chief Financial Officer, and Andy Pasternak, Executive Vice President Chief Strategy Officer.
Tim will provide a review of the business, including our second quarter performance and our revised full year guidance. Liz will then review our R&D programs, followed by Aron, who will discuss our financial performance and guidance in more detail. After closing remarks from Tim We'll take your questions, we posted to our investor Slide deck. This morning as well.
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 from these forward looking statements 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 the comparable GAAP financial measures in our earnings press release or slide presentation and other filings from today.
That are available on our investor website at Www Dot horizon Therapeutics Dot com with that I will turn the call over to Tim.
Thank you Tina and good morning, everyone.
Before we move into the details of the quarter I want to summarize a few key points today.
Olefins segment generated net sales growth of 13% driven by our strong commercial execution.
We delivered another quarter of outstanding KRYSTEXXA performance up nearly 30% driven by increased uptake or immuno modulation strategy and strong momentum in nephrology.
A relaunch of a placement is also tracking well in a rare disease medicine business delivered another solid quarter.
That is expected to present net sales were impacted by omicron related effects in the second quarter.
Of course, we're disappointed that the person didn't rebound for walnuts grown as fast as we anticipated.
We expect it to positive trends to continue to show the positive progress we saw in the postal Mccrudden recovery.
And that didn't happen.
We have spent a considerable amount of time to understand the reasons for this and identified what we need to do to accelerate growth.
We are now executing on these plans to drive near term results and realize the full potential of the peso.
Which is significant given our estimate to more than 100000 addressable U S patients with thyroid eye disease.
Our revised full year to present net sales guidance. This morning is for growth in the high teens still significant growth off our 2021 net sales of $1 $66 billion.
Yeah.
While the pace of growth to reach peak sales is different given the slower start to this year, we remain highly confident in our global peak annual net sales expectation of more than $3 $5 billion.
We expect to drive at least mid teens growth next year.
We also see upside opportunity to our peak annual net sales expectations from a potential launch in Europe , which I'll touch on later.
With that let me provide additional perspective on <unk> and then move on to the rest of the business.
We launched into an undeveloped and complex market in what turned out to be an unprecedented external environment with both Covid and then assuming government mandated to pass a supply disruption.
The journey since launch it's been anything but typical.
Given by the fact that the peso with its impressive profile has dramatically changed the treatment paradigm for both physicians and patients.
And we've learned a great deal in fact, the first year of our launch we initially expected net sales of approximately $35 million and we ended the year at $820 million.
We achieved this rapid success, because we executed extremely well to prepare the market and drive adoption of depends on when the court prescriber base.
Ocular specialists, such as occupancy surgeons, where TD specialists and note the disease as well.
Regenerative, particularly fast uptake with early adopters and they're highly motivated patients with symptoms of lines, where clinical trial data.
Okay.
We have a clear commercial strategy.
As we shared on our last earnings call has not changed with doctors specialists, we're focused on increasing the breadth as well as the depth of our prescriber base.
Identifying more patients appropriate for capacity.
But the ophthalmologist, we're working to increase the breadth of prescribers, while encouraging those who are not yet comfortable prescribing to diagnose and referred to a T. These specialist.
And with Endocrinologists, our focus is on driving urgency for them to diagnose and refer their patients to TEP specialists as well.
Yes.
So what's changed since we provided our previous full year guidance.
First based on prior trends, we expected a faster pace of growth from ocular specialists as we move from the early adopters and the most motivated patients to a broader set of physicians and patients.
We realize that we under appreciated some of the challenges in further penetrating this segment that it will take more time and effort to accomplish this.
Second we also expect at a faster pace of referrals from ophthalmologists and endocrinologists toward core competitive prescribers.
We now realize that our sales force does not have adequate bandwidth are perfectly dedicate the time required not only to engage with ocular specialists, but also educate physicians about TD to drive key referrals.
This underscores the need to expand our sales force, which I'll touch on shortly.
The timing and impact of wilmar complicated our ability to understand these dynamics more quickly to make these necessary adjustments.
As we discussed in our first quarter call to present growth trends dipped to thermal crown earlier this year.
We expect the expected that to persist into the second quarter with growth accelerating in the second half of the year as the AUM impact waived weight.
However, the recovered in progress as fast as we expected, indicating to us that omicron wasn't the only dynamic impacting the business.
After digging deeper we better understood those dynamics, we made several adjustments and are deploying more resources in a targeted manner to drive short and long term growth of the peso.
Okay.
First we are adapting our commercial focus to these new learnings.
Includes focusing or targeting simplifying our messaging and increasingly accountability of our field organization.
Accordingly, we have recently made several changes to the leadership corporate spreads the commercial and Salesforce organizations.
Second we're spending more time and focus on the reimbursement process, which as we've mentioned previously is burdensome and physicians, especially with surgeons, who are not accustomed to it.
We've changed some of the patient services team operates combining our patient and reimbursement access teams to streamline the process to more effectively support physicians and patients and the patient access journey.
These changes free uptime first salesforce to focus on driving to peso prescriptions.
Third we are spending more time educating physicians as part of the medical management process for their patients.
Unlike most diseases, which are managed by <unk> physician to peso patients are typically co managed by their surgeon and either they are ophthalmologists are the endocrinologists.
We're educating physicians on monitoring requirements and best practice protocols to Peter peer education.
And finally based on recent learnings and findings from our market segmentation work, we realize the importance of expanding our sales force more significantly than we had initially planned.
We're in the process of doing just that we are adding about 60 field based employees.
This gives our sales representatives more time for engagement with ocular specialists and ophthalmologists and endocrinologists.
I will now cover a universe of approximately 12000 total positions.
This broader effort, we will enable them to further educate ophthalmologists and endocrinologists about thyroid eye disease.
Driving urgency to diagnose and were further patients to have to pass a prescriber.
These physician specialties see tens of thousands of potential to present patients, but a much less familiar with TEP the pathology of the disease and the relevance of the <unk> mechanism of action as acute treatment approach.
So currently we believe many patients never make it out of their ophthalmologist or Endocrinologist's office to find the care they need.
And this is why our salesforce expansion and our TPC investments are so critical.
Over time, we expect more and more ophthalmologist to prescribe to pizza.
We recently completed this survey all ophthalmologist, who is awareness of TEP into Perth is very high.
The survey showed over 60% intend to increase their prescribing I'm.
Underscoring the benefits of a larger sales force expansion.
I will conclude my comments on two pads with a brief review of the market.
And just one of the key reasons, we are so confident in the continued growth of the peso.
We recently completed an exhaustive market analysis to better identify the types of TD patients and where they are being where they are being treated.
Confirm that patient symptoms, regardless of the time since diagnosis or what motivates them to seek treatment and drive physicians prescribed to pass up.
This research also confirmed our estimates that there are more than 100000 patients in the U S appropriate for treatment with the peso.
Okay.
We have segmented these patients based on disease severity and clinical activity score or Cas.
We estimate that more than 20000 have high cast with key severity symptoms such as high Proptosis diplopia or both.
And it's also where we have currently the highest penetration at less than 20%.
These patients are more likely to be seen by an ocular specialists. We believe we have the highest penetration in this segment, because it's where we conducted our prelaunch work, where we primarily focus our sales force.
We have shown impressive efficacy in a randomized placebo controlled trials.
We estimate more than 80000 patients. The next segment are also appropriate for comparison.
We have low clinical activity scores with high prep process diplopia.
Or both and we have low single digit penetration of this segment today.
These patients are primarily treated by ophthalmologists are endocrinologists, where as I mentioned before there is relatively low awareness of the disease.
Also we're refocusing our sales force expansion.
Okay.
In addition to our sales and marketing efforts, we are generating additional clinical evidence intended to drive adoption and low caste patients.
Today, most dependent users and high cost patients. So our chronic trial the trial in low caste patients will be important because it will round out the picture of the efficacy of <unk> in all cancer types.
We are already seeing good efficacy from <unk> in this patient population. They are various physician driven case reports.
We expect to release top line data from this randomized placebo controlled trial in the first half of next year.
We also anticipate presenting the data at key medical conferences and publishing it in peer reviewed medical journals beginning in the second half of next year.
As a result, we have the potential for more meaningful uptick in the market from this data beginning in 2024.
Okay.
Our continued significant investment in DTC will amplify all of our actions discussed today in our campaigns continue to generate above average returns.
Beyond the significant opportunity in the U S. We expect our global expansion to contribute meaningfully outside of the U S. Beginning in 2025.
While our current competitive peak annual net sales estimate does not assume a launch in Europe . We are finalizing our assessment of that opportunity and expect to be in a position to provide an update later this year.
We expect this will provide upside toward peak annual net sales expectations for it's a puzzle.
We have learned a great deal over the last two and a half years first and creating the market for capacity then as the market has evolved.
Our track record of commercial execution gives us confidence in building towards the long term.
Growth expectation to help thousands more TD patients with this life changing medicine.
Moving on to KRYSTEXXA second quarter net sales were $168 million.
Representing strong year over year growth of nearly 30%.
This continued strong performance was driven by growing adoption in both rheumatology and nephrology market segments as well as uptake of KRYSTEXXA with immuno modulation, which is now running at more than 50% of new patients.
Following the recent FDA approval of our SPL lay for the co administration of KRYSTEXXA with methotrexate. The team was well prepared to execute the launch.
In less than 24 hours, we launched a new promotional campaign train the field force and launched new websites for both physicians and patients.
We also hosted a live national launch broadcasts which include physician and patient speakers to educate more than 700 physicians across the country.
Since acquiring KRYSTEXXA, we have dramatically transformed the growth trajectory of this life changing treatment for patients with uncontrolled gout.
So our efforts to educate the physician community on the benefits of KRYSTEXXA as well as investing in clinical data show its efficacy and safety.
This approval is a culmination of our efforts.
With the expanded label our commercial team is now promoting the benefits of KRYSTEXXA with methotrexate for the first time.
We expect you expect this to drive higher clinical conviction broadening our reach to more physicians and increasing patient penetration among current trading positions.
In fact, we are already seeing the Sanford physicians, who have never prescribed KRYSTEXXA before we have not prescribed in a long time are changing their opinion.
One physician not prescribed KRYSTEXXA in over a decade since the new date has shifted the way he viewed KRYSTEXXA.
Already had a patient in mind, who would be a good candidate for treatment.
Okay.
Building on the momentum we are seeing in this launch and to leverage current nephrology progress, we're expanding that KRYSTEXXA sales force by approximately 20% over the coming months.
We're driving significant momentum with this medicine, giving us continued confidence in our peak annual net sales expectation of more than $1 billion.
With a prisoner we delivered another strong quarter generating net sales of $39 million, where we doubled our U S sales compared to last year.
We continue to make progress on our relaunch in the United States and are encouraged by the steady and consistent growth in new prescribers and new patient starts.
As part of our global expansion strategy, our commercial launch is now underway in Germany.
We're increasingly confident in the prospects for a pleasant and animal SD.
And we're progressing towards our global peak annual net sales expectation of more than $1 billion across all potential indications I.
I will now turn the call over to Liz.
Thank you, Tim and good morning, everyone.
We continued to make progress on our R&D strategy in the second quarter and advanced our pipeline programs.
With KRYSTEXXA as Tim just mentioned the FDA label expansion was a result of our successful priority review by FDA and was based on the data from our mirror trial.
No. The six month primary endpoint showed a 30 percentage point improvement in the response rate using KRYSTEXXA with methotrexate compared with KRYSTEXXA alone.
New 12 months data from the trial are also now included in the expanded label and also show a nearly 30 percentage point improvement in the KRYSTEXXA with methotrexate arm.
From a safety perspective infusion reactions were meaningfully reduced and the KRYSTEXXA with methotrexate.
Only 4% of patients randomized to receive KRYSTEXXA with methotrexate experienced an infusion reaction compared to 31% in the KRYSTEXXA monotherapy group.
Taken together the data around co administration with methotrexate or significant change to the original label that was used to launch this medicine. The only one for uncontrolled gout 12 years ago.
Moving to tax filling up which is the first and only plasmacytoid dendritic cell depleter and clinical development risk.
Studying <unk> in several indications and made notable progress this quarter.
First we completed enrollment in our phase II trial evaluating <unk> in patients with systemic lupus erythematosus or SLE in the second quarter.
We expect to announce topline results in the second half of 2023.
We also initiated a phase II clinical trial in the second quarter in alopecia, Areata and autoimmune disorder characterized by non scoring hair loss.
This open label trial is expected to enroll approximately 30 patients with moderate to severe disease, and we expect to announce topline data in 2023.
Looking forward, we expect to initiate three additional clinical trials with Blackstone.
First our phase two randomized controlled trial in patients with this good lupus erythematosus or D. L E D.
<unk> is a chronic inflammatory skin condition characterized by lesions.
Second our phase two randomized controlled trial in lupus nephritis are Ellen.
Alan is an autoimmune inflammatory condition of the kidney and it's the most common major organ manifestation of SLE.
Current treatment regimens include intensive immuno suppressive therapy that can be associated with adverse events.
Putting the need for a more specific medicine to address the unmet need in those with proliferative Ellen.
And third our phase III trial in dermatomyositis, and autoimmune inflammatory disorder characterized by rashes that often burn as well as by debilitating muscle weakness.
Moving on to <unk>, our CD 40 ligand antagonist designed to block a central pathway involved in many autoimmune and inflammatory diseases.
We completed enrollment in the phase III trial evaluating <unk> for Sjogren syndrome in the second quarter and we expect results in 2023.
We also announced topline results from our phase two double blind placebo controlled trial of <unk> in rheumatoid arthritis patients demonstrating that the primary endpoint was met in all four dozen Dell about dosing arms and showing that it was well tolerated.
We expect to present the full results at an upcoming medical meeting.
We're also working with regulatory agencies to finalize the details of our trial design for <unk>, a rare kidney disorder.
As for <unk>, we're continuing.
<unk> to enroll patients in our phase <unk> randomized controlled trial in <unk> patients with a low clinical activity score.
Otherwise referred to as our chronic <unk> trial.
With topline data expected in the first half of 2023.
We continue to advance our subcutaneous administration program recently initiating enrollment in a phase one b trial in <unk> patients.
And we continue to progress our work on our high concentration formulation as well.
We also continue to enroll patients in the optic <unk> trial in Japan.
<unk> is our anti CD 19, humanized monoclonal antibody currently indicated for Nm OSD, a rare and devastating neuro inflammatory autoimmune disease that attacks the optic nerve spinal cord and brain stem.
We continue to enroll patients in our myasthenia gravis trial. However, the complex geopolitical situation in the Russian and Ukrainian regions.
Along with the Covid Lockdowns in China has impacted enrollment and site availability.
As a result, we now expect the top line data readout for this trial in 2024.
We continue to work diligently with patients and sites across the impacted regions.
Putting the appropriate measures in place to meet enrollment targets.
Enrollment is also advancing in our IHG for related disease phase III clinical trial.
I will now turn the call over to Aaron.
Thanks. Louis My comments. This morning will primarily focus on our non-GAAP results unless otherwise noted I will review our second quarter results, followed by our revised 2022 financial guidance.
Our orphan segment generated second quarter net sales of $841 million.
Representing year over year growth of 13%.
Our orphan segment operating income was $315 million.
Net sales for the inflammation segment were $35 million and segment operating loss was $7 million, primarily due to the impact of the at risk launch of a generic Penn said, 2% entrant on may six.
As a result of the subsequent market erosion. We are in the process of winding down the inflammation segment, which we expect to conclude by the end of the year.
Our second quarter gross profit ratio was 86% of net sales somewhat below our expectations driven by the inflammation segment.
Second quarter operating expenses were $448 million this.
This included R&D expense of $95 million or 11% of net sales and SG&A expense of $352 million.
Second quarter, adjusted EBITDA was $307 million the.
The tax rate for the second quarter was 11, 7%.
As we have seen in prior years, there can be variability in our tax rate across quarters.
Net income in the quarter was $254 million and diluted earnings per share were $1 seven.
The weighted average shares outstanding used to calculate second quarter 2022 diluted EPS were 236 million shares.
Second quarter operating cash flow was $251 million.
As of June 30, cash and cash equivalents were $1 $89 billion.
Backed by the strong cash position and expected future cash flows we expect business development to continue to play a critical role in expanding our pipeline and diversifying our business.
The total principal amount of our outstanding debt is $2 6 billion.
With the earliest maturity in 2026.
Our gross debt to last 12 months adjusted EBITDA leverage ratio was one six times as of June 30.
Our net leverage ratio was well well under one times.
I will now turn to our revised outlook for 2022, and how we see the rest of the year playing out.
We are revising our full year 2022, net sales guidance to $3 five 3% to $3 6 billion.
Representing year over year growth of 10% at the midpoint.
We now expect to present full year 2022, net sales growth in the high teens with quarter over quarter sequential growth expected over the third and fourth quarters.
For KRYSTEXXA, we continue to expect full year 2022, net sales growth of more than 20%.
For the inflammation segment, we expect net sales of less than $30 million in the second half of the year due to the market erosion caused by the generic Penn said, 2% entrance.
As we wind down the business, we expect our net sales for this segment to be immaterial beginning next year.
We continue to expect full year 2022 gross margin of approximately 87%.
We expect full year adjusted EBITDA to be between one three and $1 $35 billion.
As it relates to operating expenses, we expect third and fourth quarter expenses to be in a similar range as the second quarter.
We expect a modest benefit in the fourth quarter from the wind down of the inflammation business units, which will be mostly offset by the expansions of the <unk> and KRYSTEXXA field forces.
We continue to expect our full year net interest expense to be approximately $85 million to $90 million.
We continue to expect our full year 2022 tax rate to approach 12%.
As with every year, we anticipate variability in our tax rate on a quarterly basis.
We continue to estimate that our 2022 cash tax rate will be in the mid to high single digits.
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 continue to expect our full year 2022 weighted average diluted share count to be approximately 238 million shares.
With that I will turn it over to Tim for his concluding remarks. Thank you Sir.
Thoughts.
With a few thoughts this morning.
We delivered strong growth this quarter with KRYSTEXXA.
And our rare disease medicines as well as the continued advances, we're making with our pipeline.
We're expanding our presence in putting in place the actions, we believe are needed to accelerate growth.
We are revising our growth this year to high teens and expect at least mid teens growth next year.
We would expect the pace of growth is different than our original expectations. We remain highly confident our to peso global peak annual net sales expectations more than $3 5 billion.
Which does not include our potential entry into Europe .
We've also updated full year guidance with the recent and unexpected at risk launch of a generic <unk> 2%.
We'll be winding down the inflammation business by the end of the year and.
It is our legacy business that launched horizon 12 years ago, Andrew which provided the investment to allow our rapid and successful diversification into rare diseases.
Five years ago, the inflammation segment represented roughly 60% of our net sales and as a reminder of how quickly we are executing to transform horizon to the rare disease focused biotech company we are today.
Part of executing our business is recognizing the changes that need to be made in the short term to drive long term growth.
We have demonstrated this strategic agility throughout our history.
We have leveraged our commercial and R&D expertise to breathe new life into underutilized medicines rebuilt.
We've built new markets, we've made some of the highest returning acquisitions in the healthcare sector and we have completely transformed our company in an incredibly short period of time.
As we look ahead the medicines that are driving our future growth are truly remarkable medicine with impressive efficacy.
Significant opportunity for increased penetration and the address important patient needs.
We continued to expand our pipeline to support our future growth and look forward to several key readouts beginning in the first half of next year.
With nearly $2 billion in cash at the end of the quarter were strong position to continue to build and diversify our company through our business development activity and pipeline programs. We remain committed as ever to continue to make a difference in the lives of patients and build long term value for shareholders.
Undertaking and we will now open the call up for questions. Thanks, Tim Chris if you'd like to do that.
Thank you.
To ask a question you will need to press star one one on your phones.
Please standby as we compile the Q&A roster.
Yeah.
Okay.
Our first question will come from Chris Schott of Jpmorgan. Your line is open.
Great. Thanks, so much just just two one on <unk>.
I guess the first one is just how different I guess is the profile of the patient sitting today at the ophthalmologists endocrinologists versus those who are at the ocular specialists I guess are these all of these low caste patients you referred to in the opening remarks, and I guess Im trying get my hands around what is the risk that these patients.
<unk> symptoms, just arent severe enough to motivate the patient to get therapy, even if the physicians are better educated and better aware with some of the promotion efforts of your planning.
And then just maybe my second question is given both upfront is if I look at the guidance on deposit it seems like pretty limited sales growth in the second half of the year versus the first half if I take the midpoint of the guide and Im just trying to understand why we arent expecting a bit more growth in the second half I guess, given the Covid impact you talked about in the first half and then some of these.
Promotion efforts that Youre investing behind is it just not enough time to to see traction with those are just a little bit more color there would be appreciated. Thank you.
Sure Chris and thanks for the question. So first when we look at the.
Approximately 230% of patients of that 100000, plus that are in ophthalmologists and endocrinologists.
Right now we're doing a very effective job through our PTC of activating patients and getting them into those offices. When you look at those patients relative to the two segments, we're talking about high versus low cash.
Not all low caste patients. Many of them are also high caste patients. It's just that they have been sitting and ophthalmologists and endocrinologists offices without us being able to effectively pull through because we haven't had sales reps focused on that broader audience. So the real focus of our sales force expansion is.
Get into their broader 12000 target where 65% of patients it.
It's a mix of high and low caste patients and based on our research and market research and talking to ophthalmologist, who we expect to continue to increase their prescribing.
60% of them said they indicate a significant increase their prescribing. So we feel confident that these efforts.
We will begin to generate the growth we need to your second question, Chris It's a good one.
We expect to complete the expansion here in the third quarter, we have more.
Moved a number of our original ICU or inflammation business Representatives, who have had great long term success into the.
The <unk> team and they will begin training. Shortly so we expect to have training done and they're out in the territories.
Beginning to make an impact as.
As we ended the year and expect that growth to really accelerate as we move into 2023, which is really what guides us to talking about at least mid teen growth in 2023, and then as we get to the end of the year and 'twenty three we expect to get the data from the chronic low cast study which will.
Allow that to really start accelerating in 'twenty four and lead into 25, when we expect to start also seeing the global launches.
Coming to market. So that's how we view things moving forward. Thanks, Chris.
Chris next question please.
Thank you one moment for the next question.
Our next question will come from Ken Cacciatore of Cowen <unk> Company. Your line is open.
Thanks, So much Tim It seems we've moved from Topaz a question of are the patients out there which is always.
Key when you're launching into a new market to now just more logistical and three levels and I don't want to be repetitive, but I just wanted to make sure I have this right and then make sure I understand the focus so.
The first level here is helping to support the current practices I mean in our conversations it does sound as it's very labor intensive on reimbursement and scheduling. So just wanted to understand as we think about investments how much are we upping to kind of support the current high volume practices. It sounds like the second is bringing on new ocular surgeons.
Wonder if you could just flush that out a little bit more of maybe those high volume practices that have been adopted into what degree. This sales force expansion supports them and then you've talked in great detail about digging out from the community ophthalmologists and endocrinologists and that sounds like the biggest point of investment, but could you hit.
On all three and do we have it right is it more now just logistical kind of investment focus as opposed to the patient focus. Thanks. So much.
Thanks, Ken I think you hit on the <unk>.
Number of the key points when we look at our sales force expansion. There are a couple of key aspects to it. In addition to the changes we've made in our patient and reimbursement access team so with with the reps theyre going to have smaller territories.
What what as you heard in my prepared remarks.
You've talked a lot about that combination of trying to sell and also manage the reimbursement process and not having enough time to focus on selling so with our expanded sales force. We will have more time to focus on selling not only in that.
Initial core occupier sick specialist group, but also being able to get into those broader ophthalmologists and endocrinologists offices.
And allow our combined patient access and reimbursement access group. They have a single point of contact with key offices, it's really help pulling those patients through to get their infusions.
So that's the real focus.
Of our broader effort there.
Great. Thanks, Ken next question please.
Okay.
One moment for our next question.
Okay.
Yes.
Our next question will come from David <unk> of Piper Sandler Your line is open.
Okay. Thank you.
So just taking a step back here.
A question for Tim as you look at what has become a fairly heavy lift.
In terms of marketing and promotion of <unk>.
And how that is.
And how the trajectory is playing out does that mean that you are more likely to get more aggressive.
On M&A.
Not just to sort of add to the pipeline, but to bring in another commercial stage asset or assets. So how do you think about that given where <unk> is.
And then secondly, just sort of a backward looking question in hindsight do you think there may have been just a bolus of patients or low hanging fruit if you will.
In the thyroid eye disease setting.
That you work through and now you're in what I guess I would call.
An air pocket in terms of demand.
How should we think about that thank you.
So relative.
Sort of a bolus.
That there were when you look at any launch they're early adopters.
Based on our pre marketing work, we have prepared a number of those key ocular specialists.
To rapidly get patients onto treatment and to Covid. Our DTC efforts, we were able to activate those patients to take action.
We we outperformed extremely well there.
When we look at it David So when you look at the next phase.
Our DTC continues to outperform.
The bottom line is these patients are being sent to broader ophthalmologists and endocrinologists offices, we're not actively there.
So we need to expand get into those offices with the existing ocular specialists. We're now moving into the moderate to late adopters and we need to continue to increase our efforts there continue to.
Drive them into looking at broader sets of Symptomology and taking action when we talk about ophthalmologists and endocrinologists, it's twofold endocrinologists, it's all about driving awareness and getting them to refer to it to pass a writer with ophthalmologists.
Really bifurcated from ophthalmologists willing to prescribe and also ophthalmologists that we need to focus on referring to peso writers. So we really look at it as the next phase of launch.
Think a lot of it as I discussed was masked by what was going on with Covid, then supply shortage Lynn omicron.
But I think we feel really good about the plans we have in place.
Focus with a new sales force.
Because of our patient services organization, and it's now the blocking and tackling and really driving day to day conversion of those patients.
To read through to your second comment first of all we have three key growth drivers and to present KRYSTEXXA in a place that we see over $5 $5 billion.
And potential peak sales with further upside from depends on Europe as well.
We'll get into further detail throughout the.
Rest of this year, so we feel great about those growth drivers as I mentioned KRYSTEXXA plus are tracking extremely well.
Whenever you have a launch it has the blockbuster uptake.
We've talked about.
Getting into billions of dollars.
That changes the slope of the curve and the focus of your business development efforts and maybe Andrew you want to speak to that sure. Thanks, Tim Tim and thanks, David.
So I think it goes without saying that the horizon has had a very successful track record of business development and as Aaron said BD is going to continue to play a pretty critical role in expanding our pipeline and further diversifying our business.
So we remain focused on individual asset in licensing and collaboration deals, but we are certainly also looking at larger transactions and we have the financial flexibility and capacity for such transactions I think in a larger transaction, we'd be seeking a combination of approved medicines in development stage assets to manage risks.
So we wouldn't want to take binary bets at that kind of scale and I think the yellow is a good example of that.
There are some larger opportunities we see right now that makes sense strategically for us.
However, we remain financially disciplined and aligning frankly aligning on deal terms that work for both us and the seller that remains the biggest barrier to getting deals done right now and there are some management teams and boards, who haven't adjusted their expectations relative to where the equity market is currently setting their evaluations. So we're just going to have.
See how that plays out.
But I think the bottom line is we see a lot of opportunities and we expect to be aggressive.
Chris next question please.
One moment for the next question.
Our next question will come from Annabel <unk> of Stifel.
Your line is open.
Hi, Thanks for taking my question.
And just for <unk> I want to clarify.
The bottleneck is not necessarily reimbursement per se, but the support needed to assure the patients through the system.
Obviously this is a product that's growing very rapidly so have there been any new roadblocks that.
The payers have put up given the higher demand.
And then my second question is more of a long term margin impact, obviously youre, putting a lot of.
Support behind Plaza.
And just one too.
Verify that the mid Fourteens margin and possibly 50 operating margin is still a goal that you can obtain.
And I guess along those lines.
Obviously, your DTC with very effective maybe two effective because it brought more patience and the support so is there any thoughts of pulling back some of that back before.
So you can absorb.
Some of the demand and get these patients.
Thanks.
I'll start with the last question, we do not plan on pulling our DTC back at all it's been highly effective at driving both uptake in.
Core oculoplastic specialists, but also in continuing to put patients into those ophthalmologists and endocrinologists offices, where our sales force will be focusing.
From a margin standpoint.
The mid 40 to 50, you mentioned that is certainly continues to be an achievable goal for us.
And as Aaron mentioned in his remarks, we are offsetting that.
That reduced spend and the information business with moving those resources over to <unk> and <unk>.
To a smaller extent to KRYSTEXXA.
When we look at the roadblocks reimbursement or really access so policies and.
Efforts by payers have not changed materially over the last I would say really through the last year plus the roadblocks or not greater you know this is a function of ocular specialists have been the key early adopters that have driven the great uptick we've had not being generally come.
<unk> or even experienced in managing reimbursement. So it's really moving patients as fast as possible through that process and that is part of why we restructured our patient access and reimbursement groups into one. So we can put one point of contract and continue to find efforts to reduce.
The effort, there and as we move into ophthalmologists and endocrinologists. They do have more experience in both managing reimbursement managing medical monitoring of patients.
As well as just the broader process of treating patients. So we feel confident in our ability to continue to drive the business. There. Thanks, Tim Chris next question. Please.
Our next question.
Yes.
Our next question will come from Michael <unk> of Morgan Stanley . Your line is open.
Yeah, Hey, guys. Thanks for taking the question maybe I could just ask one on KRYSTEXXA here seems like Youre still seeing nice growth in <unk>. So maybe you can give a little bit more color on what the key drivers there have been through the through the past quarter here.
And then also.
Now that you have expanded label and you touched on this in your prepared remarks, but.
Maybe you could give a little bit more color on the impact you've seen so far over the past months and then maybe how that could evolve moving forward in the second half. Thanks.
Thanks, a lot for the question.
We've seen great progress I think we've been really impressed by the fact that our our growth or sequential growth and growth metrics in nephrology have caught up to a growth metrics in rheumatology. So.
That team is really outperforming and that's part of where we're going to be expanding to leverage that uptake. Additionally, we are seeing.
Our KRYSTEXXA with methotrexate, another immuno immuno modulators penetration now exceed 50%. So we continue to see entrenchment, there and also the vials per patient continues to increase.
As we move forward. So so that has all contributed to the success in the 30% year over year growth.
We saw in the quarter.
With the expanded label and some of that as I mentioned in my remarks, we've had physicians who've been out of the market for a decade, who were either fearful of.
40% efficacy in 60%.
Werent going to respond and then that brought them to questioning whether they were infusion reactions or other things.
They needed to worry about or they had a bad first experience and those that are kind of dialogues.
That really changed we can go in a lot of folks that I need to see it in the label they need to see the data to get the confidence to get back in and given my early experience and those are the dialogues that are occurring and they've been really promising so far. So I think we're seeing new prescribers come into the market that haven't been there. So as we look at existing and.
New prescribers.
Those are really both both groups are growing extremely well along with the real progress we've made in nephrology. Thanks, Tim Chris next question. Please.
One moment please.
Our next question will come from.
Madhu.
Sorry, Madhu Kumar of Goldman Sachs. Your line is open.
Hey, Thanks for taking our question. This is Rob on for Madhu two quick questions. Here. One just how are you thinking about business development versus deleveraging I know you made some comments about.
The M&A outlook, so far and then on <unk>.
What do you think the potential for the chronic PD readout.
Is to drive further uptake in 2023.
Sure. So we are deleveraged in and I think on a net basis under one.
Phil we're in a great position with the approximately $2 billion on the balance sheet.
To be aggressive in M&A, both for on market assets.
And to fill in the pipeline. So we feel we're in a great place to be aggressive there and really leverage as Andy discussed.
To see movement and willingness to for management teams and boards to recognize the environment that we're in.
With the chronic market that is something that I talked about in a few of the prior questions, but as we look at the key growth drivers and when we look at 'twenty three in the mid teens, that's really going to be driven by expansion into those broader ophthalmologists and endocrinologists office expanding.
Our called on targets to 12000.
Getting that data in the first half of 'twenty three on our chronic low cast study will we expect to be published in the second half and as we head into 2024, we do expect that to be the next leg of growth that will then drive us into our global launches coming from the broader international markets.
Thanks, Tim Chris next question. Please.
Thank you.
One moment.
Our next question will come from Jason <unk> of Bank of America. Your line is open.
Hey, guys. Thanks for taking my questions. So just wanted to confirm for the 2023% deposit growth outlook that does not assume like a positive phase of our chronic <unk> trial outcome and then my second question is your appetite for repurchasing your own stock the stock right now I think is trading in the low $60 in the pre market on the <unk>.
Quarter update so just curious I mean, you could confidence remains strong in your peak sales outlook why not buy back some of your own stock.
Well thanks for the questions what was the first one I think around.
Correct.
We do not expect that to be the key driver in 'twenty three.
At least mid teens growth that we expect is going to be driven by our expansion our focus on the broader targets, where 65% or two thirds of those patients now Sip continued execution of our DTC to really funnel patients in there and begin to.
There is pull them through.
Then the chronic low test study would then feed into.
24 and beyond.
Relative to buying back shares.
Actions with our balance sheet, our history of successfully buying assets like to pass a leg KRYSTEXXA, where we can drive them differentially.
We think it's a our cash is best used.
Two significantly bring on assets that are going to drive our long term value.
Thanks, Tim next question.
Next question. Please yes. Thank you one moment to the next question.
Yes.
Our next question will come from.
<unk> <unk> of Jefferies. Your line is open.
This is Amy.
Awesome.
Would be we would be insurance reauthorization benefit you historically have seen between Q1 to Q2 suggests that deposit base.
Or even lower than expected. Additionally, recently you talked about.
Hum.
Q1, what's happened since then.
And then finally, what gives you confidence.
Reiterate that.
<unk> long term guidance and does that now account for the chronic study reading out positively and a potentially higher penetration and competition. Thanks. So much.
So.
From the.
$3 5 billion or greater than $3 5 billion in peak sales. We are extremely confident again that does not include our expected entry into Europe , So certainly upside there.
As we look at it.
It's a three phased approach that we think are going to drive.
Our approach to those peak sales, it's really driving our expansion, putting additional 60 field force folks out there getting into that broader targets were 65% of the patients are now sitting the.
The chronic trial and penetrating into that audience.
We don't look at the market is acute and chronic anymore based on our understanding of how physicians treat these patients it's really based on a high.
Hi, and low caste patients, who have high proptosis or high diplopia or double vision. So.
So we see our ability to drive there are sufficient to meet or exceed our peak sales expectations and that would carry us into our global launches in 2025.
When we look at the first quarter and insurance.
Reauthorization, we don't feel that.
That have any impact on the second quarter.
Thanks Amy.
Chris next question please.
Yes. Thank you.
One moment for the next question.
Yeah.
Our next question will come from David.
Our killer Wells Fargo. Your line is open.
Great. Good morning, Thanks for taking the questions. Maybe just first can you talk to the level of the peso awareness among the end and the ophthalmologists that are not referring patients right now to ocular specialists is it that they just don't know about it or is it that they don't want to refer patients for treatment and then one pipeline question I guess when can we see the phase two data from.
The sub Q to pass the presentation. Thanks.
Yeah.
As far as the peso awareness among endocrinologists and ophthalmologists it is extremely high.
I think the biggest challenge has been that we're not in those offices were not helping them understand the seriousness of thyroid eye disease.
And the seriousness and getting them treated in the short term with medicine like <unk> and then were to refer them to get treated this is not an issue of lack of willingness to refer it's lack of us being in there to drive that action.
Liz do you want to speak to the second question.
Yeah. So we're making good progress on our sub Q program with chip has a we've gotten through our first very first phase, which was a single dosing. We've just initiated as we announced on today's call.
Dosing in patients with thyroid eye disease.
We will continue to update as we proceed along with these trials and anticipate more information on upcoming calls.
Thanks, Liz and Chris we have time for one more question. Please.
Yes. Thank you.
Yes.
And our last question is telecom from Mr. Gary Nachman of BMO capital markets is Nachman your line is open.
Okay, great. So.
Tim with all your market research just talk about your confidence in a number of these <unk> patients that are out there with 20000 acute and 100000 total.
And with the increased sales force how many of those patients will you be covering if you hit the broader 12000 physicians that you're talking about.
Then on the chronic TD study.
Talk about your confidence with enrollment in that study.
It is designed for success.
And then lastly, just how should we think about operating margins trending over the next few years.
With revenue run rates coming down and now increased spending that you're talking about.
Sure. So from a spend standpoint, we think a lot of that increased spend will be offset by reduced spend in our inflammation segment ill, let Aaron in a second here to take the question on operating margins over time from an enrollment standpoint, we feel that we're well on track to achieve our goal to release data in the first half.
Liz do you want to speak to.
I feel about the trial.
Absolutely we've taken into account a number of learnings that we've had about chronic high road eye disease, or specifically patients with low clinical activity score as we nevertheless have high rates of Proptosis. When we were designing our trial, we feel confident that we've designed this appropriately to show a clinically meaningful outcome.
We do have a lot of data that supports in that direction with all the case reports and case series out there and to reiterate as Tim said, we had a little bit of a slowdown in enrollment.
<unk> picks back up we're very confident in completing enrollment this year and having data in the first half of next year.
So relative to the market size question that you asked.
When you see 100000 patients being covered by those 12000 targets with a third of them being in.
The plastic specialist then two thirds being in the ophthalmology Endocrinology group.
Aaron.
From a margin standpoint, as Tim mentioned over the long term targeting 50% is remains our longer term goal from a from a near term perspective, we expect third quarter and fourth quarter would be similar to the second quarter from an opex standpoint, with modestly higher R&D offset by modestly lower SG&A and then as we look forward to 2020.
Three which will provide guidance on our fourth quarter call. We would anticipate 2023 SG&A to increase modestly versus 2022 with a more meaningful step up in R&D spend given the trial initiations that we've discussed thanks Darren.
And Chris.
That concludes our call. This morning, a replay of this call and webcast will be available in about two hours. Thank you everyone for joining us.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
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