Q3 2022 Horizon Therapeutics PLC Earnings Call

November 2, 2022

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

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 and welcome to the Horizon Therapeutics plc third quarter 2022 earnings Conference call.

As a reminder, today's conference call is being recorded and to ask a question during the Q&A session. Please press star one one on your phone.

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, Erin Cox Executive Vice President and Chief Financial Officer, and Andy Pasternak Executive Vice President Chief Strategy Officer.

Tim will provide a review of the business, including our third quarter performance and full year guidance. Liz will then review our R&D programs, followed by Erin will discuss our financial performance and guidance in more detail.

After closing remarks from Tim we'll take your questions, we posted 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 or 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 with 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.

I will now turn the call over to Tim.

Thank you Tina and good morning, everyone.

Our continued focus on clinical commercial and operational execution drove progress across our portfolio this quarter.

With our pipeline, we completed enrollment in our present chronic low cash <unk> trial, we expect to share top line results in the second quarter of next year.

Also announced positive topline results from our phase II trial evaluating <unk> in patients with Shogun syndrome.

Validation of the value, we're starting to build a pipeline required last year.

Commercially we have made a lot of progress executing on the actions we discussed on our second quarter call to accelerate the growth of comparison in 2023 or our expectation is for at least mid teens growth.

And across the rest of the business we exceeded expectations.

Our launch of KRYSTEXXA with Methotrexate has gone exceptionally well and the team continues to drive strong performance with immuno modulation going for more than 50% to more than 60%.

Generating 21% growth in the quarter, we now expect growth of 25% for the full year.

The relaunch of a plaza continues to progress nicely.

<unk> doubled our U S net sales this quarter.

Our rare disease medicines, which typically would grow in the low single digits, China had strong growth as well.

As a result this morning, we increased our full year net sales and adjusted EBIT guidance.

We also increased our peak annual net sales expectations for both the peso and KRYSTEXXA in aggregate by an additional $1 billion.

We feel very good across the board executing on our strategic goals.

I will now discuss our third quarter performance.

First with the path, it's on track with our expectations and generated third quarter net sales of $491 million.

No most the most important of these actions we are taking to drive deposit growth is the expansion of our <unk> sales force.

The reach of our effort across ophthalmologists and endocrinologists and gives our sales representatives more time to engage with the ocular specialists.

Ophthalmologists and endocrinologists see tens of thousands of potential patients.

But due to limited TD education or lack of understanding of how to best for further TD patients.

Many patients never find the care they need.

So this expansion along with our DTC efforts are critical to helping patients get onto a therapy.

With this expanded salesforce. So we are now targeting 12000 total positions, including a proxy approximately 2000 ocular specialist.

And approximately 10000 ophthalmologists and endocrinologists.

We completed the hiring of this expanded team at the end of the third quarter ending about 60 sales representatives to what was previously about an 80 person sales team.

And so by the end of October the majority of the expanded team have completed their training and we're out in the field starting to build relationships and engage with the broader set of ophthalmologists.

Chronologist.

Many of whom were calling on for the first time.

We've enhanced our physician targeting based on new data sets and information from increased claims capture.

Which gives us even greater confidence we are engaging with the right positions.

While it is still early we've heard positive feedback from the expanded team.

Our sales representatives are getting into physician offices, they have an access before the.

The new physicians, we are calling on are very willing to see us in showing high interest in learning about CEB.

We're very excited about the expanded team has potential to drive additional growth for the present and we expect to see the impact begin next year.

To further support the field team, we recently launched an updated marketing campaign, highlighting the mechanistic rationale for to present in the treatment of Ped.

Our new TV campaign also supports our efforts to drive broader patient and physician awareness.

Both campaigns aimed to highlight the unseen symptoms of ped and created urgency to seek magazine or treatment by discussing the consequences of delaying diagnosis.

Our continued investment in DTC has been effective but encouraging undiagnosed patients to visit at TEP specialist.

In addition, we are continuing to focus on educating physicians by strengthening our advocacy network and driving clinical conviction to Peter peer education.

Facility facilitating discussions on real world experiences and best practices of managing patients is giving physicians increased confidence in the co management of their patients.

Our peer to peer program has more than doubled compared to the second quarter and we expect to continue to increase it moving forward.

We have seen with both KRYSTEXXA and <unk> peer to peer education is one of the most effective way to drive clinical conviction for physicians and this is particularly critical for TEP.

More complex co management approach in those diseases.

Other medicines.

In addition, our patient services and reimbursement team is spending more time and focus on the reimbursement process.

While coverage is favorable overall as we've discussed the process can be burdensome for some physicians, especially for ocular specialists, we're not accustomed to it.

We've enhanced our patient services team operates and we've worked to reduce reimbursement hurdles, but educating physician offices on how to best work through this process.

All of these actions coupled with the very strong momentum coming out of the key fall medical meetings with our target physicians.

US confidence that we're on the right track.

We continue to expect full year, 2022% net sales growth in the high teens, which assumes modest sequential growth in the fourth quarter.

With our expansion efforts beginning to have an impact as we move into next year. We continue to expect to drive net sales growth of at least mid teens in 2023.

As we've discussed over the last several months.

Results also been conducting further analysis on the opportunity for <unk> outside the United States.

Our ex U S peak annual net sales guidance of more than $500 million was primarily focused on Japan.

And other related markets.

Since then we've gone back and looked more closely at the European opportunity as well as reevaluated the international markets, where we intend to launch capacity.

We've confirmed there is a significant unmet need in these markets with incidence and prevalence rates similar to the U S.

Including our updated expectations for output in the U S and now incorporating plans to launch in Europe , we have increased our ex U S peak annual net sales expectations to greater than $1 billion.

Okay.

Our work to wants to present outside the U S is progressing well.

We expect to complete enrollment in our clinical trial in Japan by year end.

Market development and launch preparations are well underway.

In Europe , we expect a regulatory submission to include data from both of our phase III Optima trial.

As well as our chronic little cats.

Trial, which we believe will drive significant uptake for this medicine in Europe .

We expect meaningful contribution from our global expansion beginning in 2025.

We.

Great there are more than 100000 addressable <unk> patients in the U S, where expect peak annual net sales of more than $3 billion.

With our increased expectations outside the U S. We now expect to present global peak annual net sales.

Exceed $4 billion.

KRYSTEXXA was again, a major driver of our third quarter performance with net sales, increasing 21% year over year to $192 million.

This continued momentum was driven by both the rheumatology and nephrology market segments.

Including increased adoption of KRYSTEXXA with immuno modulation, which now exceeds 60%.

Putting this in perspective.

Five years since we launched our immuno modulation strategy and in that time does the early part of this year, we saw immuno modulation use increase from low single digits to more than 50%.

In the few short months since our U S launch.

And FDA approval immuno modulation use increase the greater than 60%.

Our efforts in educating physicians on new profile of KRYSTEXXA with methotrexate are working well.

We're receiving positive feedback from the field that more physicians have confidence in KRYSTEXXA after seeing the mirror data.

In fact, following our immuno modulation relaunch in the third quarter, but half of all KRYSTEXXA patient enrollment forms have been submitted by new prescribers or physicians, who had not prescribed KRYSTEXXA in at least a year.

This is clear evidence of increasing clinical conviction.

Both our rheumatology and nephrology strategies continued to deliver results.

In nephrology momentum has been strong and through the end of the third quarter.

We've had more nephrology prescribers and patients start than we had in the full year of 2021.

This has led to a more than doubling of nephrology patients on therapy as of the third quarter compared to the same time last year.

Yes.

As we mentioned last quarter, we're spending our KRYSTEXXA sales force by approximately 20% to allow for greater reach and continued growth within the nephrology space.

Given the strong momentum with KRYSTEXXA, we raised our full year 2022, net sales growth guidance of approximately 25%.

And our U S peak annual net sales expectations to greater than $1 5 billion.

Moving onto inputs, we delivered another strong quarter generating net sales of $44 million with $41 million in the U S.

This is the second consecutive quarter, we have more than doubled our year over year U S net sales.

A pleasant is another example of how we've taken our underperforming medicine and put it on a strong growth trajectory.

Continue to see steady and consistent growth in new prescribers and new patient starts.

Our team remains focused on disease education, and drove a record number of peer to peer programs in the third quarter.

Increasing activity by more than 50% compared to the second quarter.

We had a strong commercial and medical presence at the fall medical many extra rooms, presenting multiple new data analyses from our phase III trial.

Our launch in Europe is also making good progress.

Increasingly confident in the prospects for placement in animal SD.

We are well on track and progressing towards our global peak annual net sales expectation of more than $1 billion across all potential indications I will now turn the call over to Liz.

Thank you, Tim and good morning, everyone.

The goal of our R&D effort is to bring more medicines to patients in need particularly for patients in particular.

During the third quarter, we announced several important R&D milestones, including positive phase III results from our desert, Alabama trial in Shogun syndrome enrolment completion in our chip has a chronic or low count TD trial, and a new collaboration and option agreement with <unk> bio.

I'll start with <unk>, which is our CD 40 ligand antagonist designed to block a central pathway involved in many autoimmune and inflammatory diseases.

As a reminder, this is one of several development stage biologics that we brought on with our acquisition of <unk> last year.

As Tim referenced the recent positive data from <unk> about provide validation of the value we saw and the yellow pipeline.

That this is the second positive trial readout for this molecule following positive top line results in rheumatoid arthritis patients.

In September we shared top line results in the first of two patient populations. We are studying in our phase III Sjogren syndrome trial.

Jonathan This is a disease that affects 250000 to 350000 patients in the U S across two patient populations.

Patients with moderate to severe systemic disease activity in patients with moderate to severe localized symptoms.

Of the patients with systemic manifestations of the disease, the population for which we shared top line results.

Believe approximately 50000 patients would be appropriate for novel Therapeutics like biologics.

And today no disease modifying medicines are appraised.

<unk> is a debilitating chronic autoimmune disease that impacts exocrine glance, including the salivary and tiered Lance joined us as the most marked symptom and while this could sound trivial join us across various systems in the body can greatly impact the patient's life.

As in the mouth can impact Chilean swallowing and lead to cavities.

Is it can create a sensation of constant readiness and irritation and can lead to corneal ulcers excessive.

<unk> can also impact sexual function in women.

Sjogren is commonly associated with arthritis pain, debilitating fatigue, and can cause kidney impairment neurological dysfunction and in some cases lymphoma.

We were very pleased with the top line results from this trial meeting the primary endpoint with statistical significance in patients with moderate to severe systemic disease activity and achieving more than a six point reduction in the <unk> disease activity score.

As time measures all of the potential areas of systemic disease involvement.

Evaluating the various levels of response on that day, including some high bars and the improvement we saw several important separations between patients on <unk> and patients on placebo.

Other measures such as the number of tender and swollen joints fatigue, dryness and physical function show numerical improvements, suggesting doesn't ela that could impact many aspects of the disease that affect a patient's quality of life.

From a safety perspective, the profile was acceptable and supportive of continued development.

The phase II trial is also evaluating a second population of patients with moderate to severe localized symptoms, which is fully enrolled and continues to progress.

So as far as next steps, we look forward to sharing new data from our Shoguns trial next year.

We'll have the full results for patients with moderate to severe systemic disease activity, including results from patients who initially received placebo and then went on to receive treatment with <unk>.

We'll also have results for patients with moderate to severe localized symptoms.

And we look forward to working with regulatory authorities to design, our phase III clinical program, which we plan to initiate next year.

Moving to <unk> in September we completed enrollment in our phase <unk> randomized placebo controlled trial in thyroid eye disease patients with a low clinical activity score otherwise referred to as our chronic <unk> trial.

Well it depends on how the broad indication for TEP. These data will help define its profile in patients with low clinical activity scores for patients physicians and payors.

We expect a topline data readout from this trial in the second quarter of 2023.

As Tim referenced we had a strong presence at several key medical meetings. This fall each giving us the opportunity to connect with physicians, who diagnose and refer their <unk> patients as well as physicians, who prescribed to pay that.

We presented additional data and analysis regarding to <unk> and its role in the treatment of Ped.

This includes new data at the American Academy of Ophthalmology annual meeting showing that insulin like growth factor one and its related pathways are extensively up regulated throughout all stages of <unk>, including in patients with high and low clinical activity score.

This is important because it supports the relevance of <unk> mechanism of action regardless.

Regardless of cost.

We also presented new data from our real World analysis is to present at the American Thyroid Association annual meeting showing the percentage of patients being prescribed and additional courses to Panther remains low.

We continue to advance our subcutaneous administration program.

Our phase one b trial in TD patients initiated earlier this year and we are on track to begin enrolling our high concentration formulation cohort by the end of the year.

Our optic J clinical trial is progressing well with a lot of interest from our Japanese investigators were pleased with enrollment progress and anticipate completion of enrollment by the end of the year.

Moving beyond <unk>, we also continued to contribute to the literature regarding our other owned market medicines.

For a prisoner this centered around new data analyses from the phase III trial presented at the <unk> Medical conference.

First with the presentation showing that a pleasant effectively deplete CV 19 positive b cells, including plasma glass and plasma cells, which have been found to play a crucial role during an M OSD attack.

A separate analysis highlighted the efficacy of <unk> among patients with fairly common genetic variations that have been associated with somewhat reduced response to other therapies, such as anti CD 20, B cell depleting therapies.

Yes.

As we look to the fourth quarter, we will have several important presentations for KRYSTEXXA.

We recently announced a series of data presentations at the American College of Rheumatology meeting or ACR. Later this month focusing on our continued efforts to advance the understanding and care of uncontrolled gout.

12 month results from the Mirror trial will also be presented for the first time at ACR.

These results showed 60% of patients who received KRYSTEXXA with methotrexate achieved a complete response nearly twice that of those who receive KRYSTEXXA with placebo.

We also have presentations planned for the American Society of Nephrology Conference later this week.

<unk> study in kidney transplant patients showing that KRYSTEXXA with methotrexate did not negatively impact those with diminished kidney function.

And finally, we just announced an important milestone in our collaboration with Q30 to buy out the initiation of the phase II trial in atopic dermatitis patients.

We first announced the collaboration focused on Q32 lead asset AVX 914 in August.

<unk> nine one for the fully human anti IL, seven or add alpha antibody that inhibits the signaling of T. S. L P and IL seven.

This program represents a novel approach to address allergic indications as well as disorders with an imbalance of regulatory T cells to potentially restore healthy immune regulation.

Q32 plans to start a phase II trial in a second autoimmune disease next year.

I will now turn the call over to Aaron.

Before I cover this quarters performance, let me start with a brief comment on capital allocation.

As you are aware, we announced a $500 million share repurchase program in September This program reinforces the confidence we have in both our strategy and our commitment to deliver long term value to our shareholders. Our strong balance sheet and cash generation gives us the flexibility to opportunistically repurchase shares while maintaining ample cash.

Sure prioritizing business development, which remains our top priority.

Date, we have repurchased three 9 million shares for an aggregate value of $250 million.

In addition, as we have noted previously we no longer exclude upfront milestones and other similar payments related to collaborations licenses in asset acquisitions from our non-GAAP financial measures.

Beginning with the third quarter of 2022, we are separating R&D expenses into two categories R&D expenses and a new category for acquired IP, R&D and milestones expenses, which will isolate these amounts that are driven by business development transactions. Prior periods have also been revised to conform with the new classification.

Now I will cover our performance in the third quarter and our updated guidance.

My comments. This morning will primarily focus on our non-GAAP results unless otherwise noted.

Our orphan segment generated third quarter net sales of $905 million with strong contributions across our portfolio.

Our orphan segment operating income was $367 million.

Net sales for the inflammation segment were $21 million in operating loss was $11 million.

We are winding down the inflammation segment following the marketing erosion caused by the generic Penn said, 2% interim.

We expect this wind down to be substantially complete by year end and as a result, we expect to operate and report as a single reporting segment starting in the fourth quarter of this year.

Our third quarter gross profit was 87, 2% of net sales.

Third quarter operating expenses were $470 million.

R&D expenses were $108 million or 11, 7% of net sales.

Acquired IP R&D and milestones expenses were $19 million, primarily related to our collaboration agreement with Q32 bio <unk>.

And SG&A expenses were $343 million.

Third quarter adjusted EBITDA was $335 million, which also included the $19 million of acquired IP R&D and milestones expenses.

The tax rate for the third quarter was six 9% as we have seen in prior years, there can be variability in our tax rate across quarters.

Net income in the third quarter was $293 million.

Third quarter diluted earnings per share or $1 25.

The weighted average shares outstanding used to calculate third quarter 2022 diluted EPS were 235 million shares.

Third quarter operating cash flow was $368 million.

In the last 12 months to September 30th we've generated more than $1 1 billion of operating cash flow.

As of September 30, cash and cash equivalents were $2 3 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 eight times as of September 30, and our net leverage ratio was well under one times.

Turning now to our guidance. This morning, we announced we are increasing our full year 2022, net sales guidance range to $3 $5 nine to $3 61 billion up from $3 five 3% to $3 6 billion representing year over year growth of more than 11% at the midpoint.

We continue to expect to pay the full year 2022, net sales percentage growth in the high teens.

For KRYSTEXXA, we are increasing our full year 2022, net sales growth guidance to approximately 25%.

For our inflammation business, we expect fourth quarter net sales of less than $10 million and net sales next year to be immaterial.

We now expect full year 2022, gross margin to be modestly higher than 87%.

We are increasing our full year adjusted EBITDA guidance range to $1 32 billion to $1 $34 billion.

Up from $1 7 billion to $1 $32 billion.

Both the current and prior guidance ranges for the full year 2022 include acquired IP, R&D and milestones expenses of $53 million.

As it relates to operating expenses, we expect the fourth quarter to be in a similar range as the third quarter, including acquired IP, R&D and milestones expenses, which are expected to be $34 million in the fourth quarter.

We continue to expect our full year net interest expense to be approximately $85 million to $90 million.

We now expect our full year 2022 tax rates to be modestly above 11% versus our prior expectation of approaching 12%.

As with every year, we continue 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 law.

Yes.

We now expect our full year 2022 weighted average diluted share count to be approximately 235 million shares which incorporates a $3 9 million shares repurchased to date.

With that I will turn it over to Tim for his concluding remarks.

In closing our continued focus on execution drove meaningful progress this quarter.

We're taking the actions we discussed last quarter to accelerate the growth in 2023.

And then the rest of our business KRYSTEXXA applicable in our rare disease medicines, all had outstanding performance.

As a result, we have increased our full year 2022, net sales and adjusted EBITDA guidance as well as our KRYSTEXXA for full year 2022 guidance.

In addition, based on the strong momentum, we're seeing with KRYSTEXXA and the further analysis, we've completed onto internationally, we've increased our peak annual net sales expectations for both medicines.

Importantly in our pipeline, we completed enrollment in our chronic low cost <unk> trial and announced positive topline results from our phase II trial evaluating <unk> Delta.

In patients with Sjogren syndrome.

We look forward to several key Readouts next year from our growing pipeline.

<unk> data from our chronic low test trial.

<unk>, Japan <unk>.

This will readout from our <unk> phase III program. So.

The first phase III data readout for that element, which will be in systemic lupus and potentially data from our phase III trial in IGT for related disease.

There's a lot to look forward to over the next 12 months, we remain highly focused on executing on our strategy and I look forward to updating you on.

Further on our next call.

Yes.

Chris we'd now like to open up the call for questions.

Thank you Andrew.

Reminder, to ask a question you will need to press star one one on your phone. Please standby as we compile the Q&A roster.

And one moment, please while first question.

Yeah.

Our first question will come from Chris Schott of Jpmorgan. Your line is open.

Great. Thanks, so much for the questions I just had two here. The first is on <unk> can you just talk about any.

Trends that youre seeing with the drug as we think about kind of leading indicators of some of the revised selling efforts I guess has there been any trend change there to note or is it still just too early to evaluate on that front.

And my second question was on and I'm always going to Mispronounce. This one <unk>.

On the <unk> Phase III program are you just going to be looking at the systemic population or do you plan to also look at some of the patients with localized symptoms as you say I guess sort of thinking about market sizing here, how much larger is that localized symptom population versus I guess, the 50000 or so with systemic disease. Thank you.

Thanks, Chris.

We look at where we are.

First of all for the fourth quarter, we expect modest growth with the.

Our sales force is just getting out there and masks and we're encouraged by what we're seeing in early on we're just looking at measures of activity and their ability to get out and quickly cover and really find their way around and so we're encouraged by what we're seeing so far and.

I think we have based on all the data we're looking at we've got the right people the territories are aligned right and.

We're getting up to the right targets. So I think it's where we would expect it to be at this point in time.

And as we get the final ones to training and get them out.

Rolling into the new year, we expect to start seeing the impact of that flow through.

Andy do you want to take the market size and then when you look at the systemic in the non systemic populations sure hi, Chris So on desert Allopath as Liz mentioned in her remarks.

We estimate about 50000 prevalent patients who would be appropriate for a biologic therapy that are that have a high systemic disease activity.

There was also a very sizable population in the.

That we think are appropriate for biologics as well with severe symptomatic disease. So we do think that that is also a very significant unmet need of course, we need to see the data from that population in our in our trial to two fully decide on our path forward.

Great.

Thanks, so much Chris.

Chris next question please.

Thank you.

Please go to our next question.

Okay.

Our next question shall come from Annabel <unk> of Stifel Nicolaus <unk> Company, Inc. Your line is open.

Hi, Thanks for taking my question I have a couple on <unk>.

So when you think about the 80000 TD patients.

That.

That have more of a look has population where they typically sitting or are they primarily in the ophthalmologists endocrinologists office or are they in the ocular specialist office and where is.

I mean to what extent do they have urgency to trade so I guess how symptomatic.

Patients I'm really asking.

We consider I guess, what's a relaunch in this population how what kind of rapid uptake can we expect or what kind of uptake we expect there.

And then separately aside from those 8000 can you maybe talk about strategies around re treatment.

I think the study said it was about 15% who needed re treatment.

I thought it was a little bit more than that but only 2% right now are going through a treatment. So are you doing anything or are there any efforts there to expand that re treatment population as well is that going to be a source of frustration.

Sure I'll start with re treatment.

Based on the publication.

The abstract that was just published it's less than 5%. So we're not actively.

Focusing on that if you look at the general population of patients who have just gone through surgeries.

See our reactivation rate of their active T be in the low to mid single digit rate. So what we're seeing right now.

Is somewhere in that range. So I think we just have to see how things evolve over time, there, but thats not an area of focus for us.

To your question Annabel around the 80000 feet deep patient base.

Based on analysis Theyre predominantly.

Sitting at the ophthalmologists and endocrinologists and that was the real premise for our expanded sales force.

And we're certainly going to be focusing on them.

We know from these patients as they all have severe disease meeting proptosis.

Proptosis and diplopia.

And those are severe enough where they require treatment. So it's a matter of getting in educating.

Those ophthalmologists and endocrinologists to either refer or treat those patients and just raising that awareness, but certainly when we look at the total 100 pounds and including this 80000 barrel of oil.

We would consider monitor severe and eligible for.

With the peso.

Thanks, Annabel Chris next question please.

Thank you one moment for the next question.

Our next question will come from Madhu Kumar of Goldman Sachs <unk> Company, Inc. Your line is open.

Hey, everyone. Thanks for taking our questions two from US first one is kind of following on Chris question with it depends of the sales force reorganization I guess kind of when do you expect to see kind of a full benefit from this like what kind of time scale makes sense for really seeing that impact of having more feet on the street kind of talking endocrinologists and ophthalmologists.

And then secondly, kind of bigger picture question, we've been hearing more and more about what it could be dilutive impact had been placed and reduction Act for you guys on indication expansion for both approved drugs and pipeline candidates.

Well on the latter I think you've heard a lot of people with the third quarter prints commented on this.

We don't have any specific medicine to comment on that but certainly as you look at pipelines in rare diseases.

The concept of having multiple rare disease indications for a development candidate is certainly something that we have to look at very closely.

And understand them. So it's factoring into how we look at our pipeline, how we look at BD.

Certainly for small molecules, it's something entirely different.

Opposition.

But nothing that factors.

Factors into our changes our guidance with that.

I still remember it <unk>, but certainly as we look forward.

We're all going to have to factor this in.

To get to the first question around the sales force.

Youre hitting on really how we got to our expectations for at least mid teens growth next year. We expect the contribution from that expanded sales force to continue to grow throughout the year.

Those reps get to know their areas and begin to drive toward optimal impact so that's what.

We expect to continue to grow throughout next year and drive our current expectations for 2023. Thanks Madhu.

Chris next question. Please. Thank you one moment please for our next question.

Our next question will come from Jason Colbert.

Bank of America. Your line is open.

Hey, good morning, guys. Thanks for taking my questions.

One has and the managed care environment. Just curious if you can comment on how plans are managing chronic TEP coverage has payment policy shifted more towards only covering within the parameters of the phase III enrollment criteria versus initially I got the sense. It was more of a PAA to label type dynamic.

And so what I'm getting at here is the extent to which a positive trial in chronic <unk> could help.

Alter or change those dynamics and then one just quick one on KRYSTEXXA given combo use is already pretty high I think you said over 60% I am wondering if the change in peak sales more of a reflection of just assumed higher penetration rates versus sort of that dynamic where you get more revenue per patient with the combo, just because patients are more likely to.

You get the full course.

On KRYSTEXXA.

As you noted the launch has gone extremely well and accelerated to over 60%, we expect that rate to continue to grow and as we look towards our peak sales expectations continued high penetration we have small overall penetration of the 100000 population across both Nephrologist and roomba.

Apologist, we're really pleased that the growth in nephrology continues to.

Accelerate and we're growing that sales force by 20% as I noted in my comments so.

It's predominantly around driving further penetration further positions, we noted in the quarter a significant percentage of.

KRYSTEXXA growth in the quarter came from new physicians, who had not written KRYSTEXXA and people who hadn't in over a year. So we're really excited about the long term potential and that's what gave us the confidence from a managed care situation with <unk>.

That remains as we've discussed over the last several years, we have very good overall coverage that.

It was initially focused on what we studied and what drove the approval that was driving around.

Cash and cash levels. So the majority of lives have some level of of a cast of greater than four with some having cash greater than three we have not seen as significant.

Changes in those coverage policies.

At this point in time, when you look at the business we're getting.

We continue to talk about the evolution of treatment of thyroid eye disease. This is not time based and when we look at our penetration of what would be the old way of looking at acute and chronic we're getting acute patients that match up with the clinical program. We did in phase III. We're also getting chronic <unk>.

<unk>, who currently have high.

Both proptosis Android are appropriate and high clinical activity score. So the majority of our business is coming from from acute and chronic patients to use your description.

That have similar criteria to what our phase III program and that is patients who have high clinical activity scores, which reads through to the expectation of our chronic low test study and that is to significantly move the cash requirements within policy payer policies.

To enable significant penetration into that broader population.

Thanks, Jason got it Chris.

Chris next question. Please thank you one moment to the next question.

Yeah.

Our next question will come from Ken Cacciatore of Cowen <unk> Company LLC. Your line is open.

Hey, guys good good progress or good to see it just wondering if we could set a baseline here as we look at the <unk>.

Jim you've talked in the past about those 2000 ocular specialists in ocular surgeons can you give us a sense of the percentage of those that have adopted <unk> maybe.

Maybe talk about the percentage of patients that they cover and then maybe you've had such great success with these early adopters top surgeons that really embraced the product can you give a best explanation why others have been slower to help that kind of remaining groups and what youre doing and what you can do to continue to accelerate it.

And then maybe if you want to get into new ones can you talk about quarterly gains in the quarter clinicians or ocular surgeons that have been added thanks. So much.

Thank you Ken I appreciate the question.

Okay.

Certainly our early adopters and the tremendous benefit risk of peso were the key behind the dramatic launch uptick that we saw with <unk>.

An extra specialists were.

The ones that have adopted early and let Darren and I think that is what led us to accelerating to the exposure to some of the reimbursement challenges that ocular specialists run into so for each respective <unk> specialists. They would run into a situation, where if I have 10 or 20 or 30.

Ah patients on <unk>.

My office staff and my capability to manage.

That reimbursement process.

Hit the wall and Thats a lot about what we've talked about is focusing on single point of contact with her patient services organization and working to educate offices around how to streamline and make that process as smooth as possible. So that's really where our focus is I think as we have talked a.

Less than 20% of.

Of patients or about that 20000 are primarily being seen and treated within their ocular specialists and that is what drove that initial uptake and for us to continue to grow our expanded sales force getting into their broader ophthalmology and endocrinology office of about 10000 expanded audience is.

Really what's required to continue to drive uptake.

Great. Thanks, Ken.

Chris next question please.

One moment for the next question.

The next question will come from David Risinger of SBB Securities LLC. Your line is open.

Thanks, very much and congrats on on all the progress.

So <unk>.

My two questions are number one could you discuss the potential for Japan to obtain orphan drug designation in Europe , including what's required and discuss the breadth of countries that you plan to launch them and second could you provide more color on expected sequential sales growth in the fourth.

<unk>, including the pushes and pulls thank you.

So as we've discussed over the last few quarters, we do not expect orphan drug designation for <unk> in Europe , and that principally led to us going through the process, we've been going through over the last several months and came out today with an expectation we will be going after both acute and chronic market in Europe than we do.

Do not expect orphan drug designation.

Relative to sequential sales growth.

We expect as I noted in my comments is modest growth and as we look into 2023.

At least mid double digit growth and that's going to be driven by a number of our key programs our DTC, our peer to peer program as well as continued.

Effectiveness and penetration of our expanded sales force.

Thank you Dave Thanks, Dave.

Next question. Please thank you.

Our next question.

The next question will come from David Epsilon.

Piper Sandler companies your line is open.

Hey, Thanks, So one on one.

One on <unk>.

Just following up on on the.

On the topic of Europe , what changed.

In the past I think.

It sounded a high level of caution regarding whether you were going to go in there and pricing.

Was was a big part of that so I'm wondering what changed in <unk>.

Specifically, what kind of pricing do you think you can get over there.

On average relative to what you have in the U S. So that's number one and then on days, though Jessica.

Just a question on localized disease versus systemic diseases, there anything mechanistically that days, though.

That would lead you to believe that one subgroup might have a better signal.

And then the other I know, we already have one piece of data, but regarding the localized symptoms.

Based on what we know about the drug.

Do you think youll see a similar signal.

Better or something less.

Maybe help us understand your expectations there. Thank you.

Sure. Thanks, David Nothing has changed with the Panther from last quarter, where we went through that our initial approaches with EMEA and.

Was that we would get orphan drug designation and have.

And the volume opportunity focus around the acute population, which we did not see as being valuable we have subsequently looked at the.

The fact that we have had significant.

Benefit in a number of different investigator initiated trials 50, 51 patients to be specific showing significant benefit of comparison and lower caste patients.

And given that confidence in the broader chronic market, we reevaluated Europe from a total PV ineligible as a patient population, so similar incidence and prevalence and with the broader opportunity.

And a much broader volume opportunity we saw.

The opportunity to go into Europe .

And the biggest differences will be waiting for that chronic data too.

Move forward, so that we have the combined dataset.

So thats, where our plan is focused.

The question for Liz why don't you talk about.

Does that Delta please.

Certainly so if it doesn't allomap as we look at Sjogren syndrome, who we know is that we see before the expression on relevant tissues that are relevant for both the systemic as well as sort of those more localized in Tennessee and salary salivary glands for sure but also places like that joined in the kidney is what youre going to be relevant for that systemic disease.

Appalachian and of course, we have already seen data in the moderate to severe systemic population that suggest benefit there I'll also note that in that trial, we saw numerical improvements on dryness and for patients with the primarily localized symptoms.

This is really they are defining feature. So this helps further support our optimism about the data we may see that see out of that population, but we'll have to wait and see what comes out next year. So overall I think that we have good reason from both a mechanistic point of view as well as the data we've had so far that.

It might be relevant in both populations, but certainly even the systemic population I think is one with significant unmet need and that we would consider to be an attractive market opportunity.

Thanks Liz.

Operator next question please.

Thank you.

Next question.

Our next question.

Next question will come from Gary Nachman of BMO capital markets equity Research. Your line is open.

Okay. Thanks, good morning, so first on surpass the chronic.

A study now that it's fully enrolled when you release that data in the second quarter of next year should we have certain expectations about the magnitude of that as I can see relative to what you showed in the open label studies and if that data is positive to maximize the opportunity will you need to expand the sales force for low CHS or.

Or do you think the additional 60 reps are sufficient.

So that's one and then secondly, just on the Q32 bio deal.

It's interesting to see you exploring atopic derm is that a category you would commercialize on your own since it pretty large category does that show that youre considering larger.

Market and your BD efforts is that a shift at all in your thinking at this point.

With $2 32 that was a planned approach with $2 32.

Andy do you want to speak specifically.

Yes in the Q32 collaboration.

As we've shared <unk> 32 was already embarking on the path of exploring.

This candidate in atopic dermatitis, and we have also agreed with them on another indication to pursue and what we're looking to get out of both of those studies is a signal of efficacy. So we can better understand how to take that forward in a variety of potential autoimmune diseases, we're particularly excited about the mechanism here on IL <unk>.

And we think that we're going to get a meaningful read on one of the axes of that to the atopic dermatitis trial in terms of what we do following that if we like the data and if we exercise. The option then we'll decide based on the data at that point, how we proceed with development.

And with the I'll take the first part and then pass it over to Liz to.

To speak to powering and how we look at the chronic and relative to the initial work we did we.

We do not expect to expand the sales force for based on getting the chronic data that was all built into our analysis of the 100000.

Eligible patient population.

That is not an expectation at this point in time Liz.

Sure. So as we thought about the chronic teeb trial, we wanted to make sure that we really were generating information that was going to be informative from a patient physician and payer perspective, what we've looked at here is putting the trial together in such a way that we were able to show a meaningful improvement.

So that we would be able to demonstrate that patients had meaningfully improved on their proptosis.

And if we had a successful trial, we will have demonstrated that we've got a clinically meaningful improvement in proptosis in this patient population as well as patients with higher clinical activity scores.

Thanks Liz.

Operator time for one more question please.

Thank you.

One moment for our last question.

The last question will come from Akash <unk> of Jefferies LLC. Your line is open.

Hi, This is Amy on for <unk>. Thanks, so much for taking our questions.

So first one on to parse that between taking a price increase at the end of the third quarter and your sales force ramp up can we expect an uptake in uptake in Q4. It seems like your 2022 type of guide implies that you only need flat patient adds from Q3 to Q4 to hit.

And then can you give some color on sales force expansion and how many of the total of 140 <unk> will be ready to go by Q4, how many of these are true sales reps versus reimbursement Sasha.

Then for Bob and you sort of breakdown there and then finally on your low cost Ped study do you know on a blinded basis with baseline Proptosis score could be trending for this is there a risk that if baseline proptosis could be lower we could see a lower net change on proptosis in chronic versus asking thank you so much.

So.

A bunch of questions. So the numbers, we've talked about are our sales reps and don't include.

Other parts of the organization.

For our fourth quarter guidance, we expect modest sequential growth.

And.

Liz do you want to talk about the low tests in baseline entry criteria.

Yeah, I'll just comment that we have constructed this trial to ensure that patients have an adequate amount of data.

Of abnormal baseline proptosis to ensure that we would be able to show a meaningful improvement from there.

Great. Thanks Liz.

And thanks.

Yes, Thanks, Chris that concludes our call. This morning, a replay of this call and webcast will be available in approximately two hours. Thank you conference call.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

Sure.

Yes.

[music].

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Yeah.

Okay.

Yes.

[music].

Thank you.

[music].

Yes.

Okay.

Yes.

[music].

Okay.

Thanks.

Yes.

[music].

Okay.

Sure.

Okay.

Thank you.

Yes.

Sure.

Okay.

[music].

Yes.

[music].

Yes.

Okay.

[music].

Okay.

Yes.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Yes.

[music].

Okay.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Sure.

Yes.

Sure.

Yes.

Okay.

Yes.

Okay.

Sure.

Okay.

Sure.

Okay.

Yes.

Sure.

Yes.

[music].

Okay.

Sure.

Yes.

Okay.

Yes.

[music].

Okay.

Yes.

Okay.

[music].

Yes.

Sure.

Yes.

Yeah.

Okay.

Yes.

Okay.

Sure.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

Good morning, and thank you for standing by welcome to the Horizon Therapeutics plc third quarter 2022 earnings Conference call.

As a reminder, today's conference call is being recorded and to ask a question during the Q&A session. Please press star one one on your phone.

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.

Liz Thompson Executive Vice President Research and development, Erin Cox Executive Vice President and Chief Financial Officer, and Andy Pasternak, Executive Vice President and Chief strategy Officer.

After closing remarks from Tim we'll take your questions, we posted our investor slide deck. This morning as well.

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.

I'll now turn the call over to Tim.

Thank you Tina and good morning, everyone.

Our continued focus on clinical commercial and operational execution drove progress across our portfolio this quarter.

With our pipeline, we completed enrollment in our present chronic low cast to EV trial, we expect to share top line results in the second quarter of next year.

We also announced positive topline results from our phase II trial evaluating <unk> in patients with Shogun syndrome.

Foundation of the value we are starting to build a pipeline we acquired last year.

And across the rest of the business we exceeded expectations.

Our launch of KRYSTEXXA with Methotrexate has gone exceptionally well and the team continues to drive strong performance with immuno modulation going for more than 50% to more than 60%.

Generating 21% growth in the quarter, we now expect growth of 25% for the full year.

The relaunch of a plaza continues to progress nicely.

Jim doubled our U S net sales this quarter.

Our rare disease medicines, which typically would grow in the low single digits, China had strong growth as well.

As a result this morning, we increased our full year net sales and adjusted EBITDA guidance.

We also increased our peak annual net sales expectations for both the peso and KRYSTEXXA in aggregate by an additional $1 billion.

We feel very good across the board executing on our strategic goals.

I will now discuss our third quarter performance.

First with the path, it's on track with our expectations and generated third quarter net sales of $491 million.

No. Most the most important of these actions we are taking to drive deposit growth is expansion of our salesforce.

The reach of our effort across ophthalmologists and endocrinologists and gives our sales representatives more time to engage with ocular specialists.

Ophthalmologists and endocrinologists see tens of thousands of potential patients, but due to limited TD education or lack of understanding of how to best for further TD patients.

Many patients never find the care they need.

So this expansion along with our DTC efforts are critical to helping patients get onto <unk> therapy.

With this expanded sales force we are now targeting 12000 total positions, including a proxy approximately 2000 ocular specialists.

And approximately 10000 ophthalmologists and endocrinologists.

We completed the hiring of this expanded team at the end of the third quarter ending about 60 sales representatives to what was previously about an 80 person sales team.

And so over the end of October the majority of the experienced team completed their training or out in the field starting to build relationships and engage with the broader set of ophthalmologists.

Endocrinologists.

Many of whom were calling on for the first time.

We've enhanced our physician targeting based on new data sets and information from increased claims capture which gives us even greater confidence we are engaging with the right physicians.

While still while it is still early we've heard positive feedback from the expanded team.

Our sales representatives are getting into physician offices, they have an access before.

The new physicians, we are calling on are very willing to see us in showing high interest in learning about CEB.

We're very excited about the expanded teams potential to drive additional growth for the present and we expect to see the impact begin next year.

To further support the field team, we recently launched an updated marketing campaign, highlighting the mechanistic rationale for to present in the treatment of <unk>.

Our new TV campaign also supports our efforts to drive broader patient and physician awareness.

Both campaigns aimed to highlight the unseen symptoms of ped and created urgency to seek exam or treatment by discussing the consequences of delaying diagnosis.

Our continued investment in DTC has been effective but encouraging and diagnose patients to visit at CEB specialist.

In addition, we are continuing to focus on educating physicians by strengthening our advocacy network and driving clinical conviction to Peter peer education.

Facility facilitating discussions on real world experiences and best practices of managing patients is giving physicians increased confidence in the co management of their patients.

Our peer to peer program has more than doubled compared to the second quarter and we expect to continue to increase it moving forward.

Yes, we have seen with both KRYSTEXXA in a plasma peer to peer education is one of the most effective way to drive clinical conviction for physicians and this is particularly critical for TEP.

More complex co management approach and those diseases or other medicines.

In addition, our patient services and reimbursement team is spending more time and focus on the reimbursement process.

While coverage is favorable overall as we've discussed the process can be burdensome for some physicians, especially for auto specialists, we're not accustomed to it.

We've enhanced our patient services team operates and we've worked to reduce reimbursement hurdles, but educating physician offices on how to best work through this process.

All of these actions coupled with a very strong momentum coming out of the key fall medical meetings with our target physicians.

Gives us confidence that we're on the right track.

We continue to expect full year, 2022% net sales growth in the high teens, which assumes modest sequential growth in the fourth quarter.

With our expansion efforts beginning to have an impact as we move into next year. We continue to expect to drive net sales growth of at least mid teens in 2023.

As we've discussed over the last several months.

Our results also been conducting further analysis on the opportunity for <unk> outside the United States.

Our <unk> peak annual net sales guidance of more than $500 million was primarily focused on Japan.

And the other related markets.

Since then we've gone back and looked more closely at the European opportunity as well as reevaluated the international markets, where we intend to launch the peso.

We've confirmed there is a significant unmet need in these markets with incidence and prevalence rates similar to the U S.

Including our updated expectations for output in the U S and now incorporating plans to launch in Europe , we have increased our ex U S peak annual net sales expectations to greater than $1 billion.

Okay.

Our work to wants to present outside the U S is progressing well and we.

To complete enrollment in our clinical trial in Japan by year end.

Market development and launch preparations are well underway in.

In Europe , we expect a regulatory submission to include data from both of our phase III <unk> trial.

As well as our chronic <unk> trial, which we believe will drive significant uptake for this medicine in Europe .

We expect meaningful contribution from our global expansion beginning in 2025.

We estimate there are more than 100000 addressable TV patients in the U S, where expect peak annual net sales of more than $3 billion.

With our increased expectations outside the U S. We now expect to present global peak annual net sales.

<unk> 4 billion.

KRYSTEXXA was again, a major driver of our third quarter performance with net sales, increasing 21% year over year to $192 million.

This continued momentum was driven by both the rheumatology and nephrology market segments, including.

Increase adoption of KRYSTEXXA with immuno modulation, which now exceeds 60%.

Putting this in perspective, it's been five years since we launched our immuno modulation strategy and in that time does early part of this year, we saw immuno modulation use increase from low single digits to more than 50%.

In the few short months since our U S launch.

And FDA approval immuno modulation use increase the greater than 60%.

Our efforts in educating physicians on new profile of KRYSTEXXA with methotrexate are working well.

We're receiving positive feedback from the field that more physicians have the confidence in KRYSTEXXA after seeing the mirror data.

In fact, following our immuno modulation relaunch in the third quarter, but half of all KRYSTEXXA patient enrollment forms have been submitted by new prescribers.

Our physicians, who have not prescribed KRYSTEXXA in at least a year.

This is clear evidence of increasing clinical conviction.

Both our rheumatology and nephrology strategies continue to deliver results.

In nephrology momentum has been strong and through the end of the third quarter. We have had more nephrology prescribers and patients start than we had in the full year of 2021.

This is led to a more than doubling of nephrology patients on therapy as of the third quarter compared to the same time last year.

As we mentioned last quarter, we're expanding our KRYSTEXXA sales force by approximately 20% to allow for greater reach and continued growth within the nephrology space.

Given the strong momentum with KRYSTEXXA, we raised our full year 2022, net sales growth guidance of approximately 25%.

And our U S peak annual net sales expectations to greater than $1 5 billion.

Moving on to <unk>, we delivered another strong quarter generating net sales of $44 million with $41 million in the US This is the second consecutive quarter, we have more than doubled our year over year U S net sales.

The placement is another example of how we've taken our underperforming medicine and put it on a strong growth trajectory.

To see steady and consistent growth in new prescribers and new patient starts.

Our team remains focused on disease education, and drove a record number of peer to peer programs in the third quarter, increasing activity by more than 50% compared to the second quarter.

We had a strong commercial and medical presence at the fall medical meeting extra rooms, presenting multiple new data analyses from our phase III trial.

Our launch in Europe is also making good progress.

<unk> confident in the prospects for replacement in animal SD.

We are well on track and progressing towards our global peak annual net sales expectation of more than $1 billion across all potential indications.

I will now turn the call over to Lewis.

Thank you, Tim and good morning, everyone.

The goal of our R&D effort is to bring more medicines to patients in need particularly for patients in particular.

Communities.

During the third quarter, we announced several important R&D milestones, including positive phase III results from our <unk> trial in Shogun syndrome enrollment completion and has a chronic or low cost TD trial.

The new collaboration and option agreement with <unk>.

I will start with <unk>, which is our CD 40 ligand antagonist designed to block a central pathway involved in many autoimmune and inflammatory diseases.

A reminder, this is one of several development stage biologics that we brought on with our acquisition of <unk> last year.

As Tim referenced the recent positive data from <unk> provide validation of the value we saw in the yellow pipeline. In fact this is the second positive trial readout for this molecule following positive top line results in rheumatoid arthritis patients.

In September we shared top line results from the first of two patient populations. We are studying in our phase III Shogun syndrome trial.

<unk>. This is a disease that affects 250000 to 350000 patients in the U S across two patient populations.

<unk> with moderate to severe systemic disease activity in patients with moderate to severe localized symptoms.

Of the patients with systemic manifestations of the disease, the population for which we shared top line results.

We believe approximately 50000 patients would be appropriate for novel Therapeutics like biologics and today no disease modifying medicines our appraisals.

<unk> is a debilitating chronic autoimmune disease that impacts exocrine glenn's, including the salivary glands.

This is the most mark symptom and while this could sound trivial join us across various systems in the body can greatly impact the patients life Bryan is in the mouth can impact chewing swallowing and lead to cavities.

Is it can create a sensation of constant readiness and irritation and can lead to corneal ulcers.

<unk> can also impact sexual function in women.

Children's is commonly associated with arthritis pain, debilitating fatigue, and can cause kidney impairment neurological dysfunction and in some cases lymphoma.

As dime measures all of the potential areas of systemic disease involvement.

All right and the various levels of response on that day, including some high bars and the improvement we saw several important separations between patients on <unk> and patients on placebo other.

Other measures such as the number of tender and swollen joints fatigue, dryness and physical function show numerical improvements, suggesting does avail of that could impact many aspects of the disease that affect a patients quality of life.

From a safety perspective, the profile was acceptable and supportive of continued development.

The phase III trial is also evaluating a second population of patients with moderate to severe localized symptoms, which is fully enrolled and continues to progress.

So as far as next steps, we look forward to sharing new data from our Chevron's trial next year.

We'll also have results for patients with moderate to severe localized symptoms.

And we look forward to working with regulatory authorities to design, our phase III clinical program, which we plan to initiate next year.

Moving to Japan.

In September we completed enrollment in our phase <unk> randomized placebo controlled trial in thyroid eye disease patients with a low clinical activity score otherwise referred to as our chronic <unk> trial.

Well it depends on how the broad indication for TEP. These data will help define its profile in patients with low clinical activity scores for patients physicians and payors.

We expect a topline data readout from this trial in the second quarter of 2023.

We presented additional data and analysis regarding to <unk> and its role in the treatment of Ped.

This is important because it supports the relevance of <unk> mechanism of action regardless.

Regardless of Caf.

We also presented new data from our real World analysis of <unk> at the American Thyroid Association annual meeting showing the percentage of patients being prescribed and additional courses to Panther remains low.

We continue to advance our subcutaneous administration program.

Phase one b trial in TD patients initiated earlier this year and we are on track to begin enrolling our high concentration formulation cohort by the end of the year.

Our optic to a clinical trial is progressing well with a lot of interest from our Japanese investigators were pleased with enrollment progress and anticipate completion of enrollment by the end of the year.

Moving beyond <unk>, we also continued to contribute to the literature regarding our other owned market medicines.

For a prisoner this centered around new data analysis from the phase III trial presented at the <unk> Medical conference.

A separate analysis highlighted the efficacy of <unk> among patients with fairly common genetic variations that have been associated with sunlight reduce response to other therapies, such as anti CD 20, B cell depleting therapies.

As we look to the fourth quarter, we will have several important presentations for KRYSTEXXA, We recently announced a series of data presentations at the American College of Rheumatology meeting or ACR later this month.

<unk> on our continued effort to advance the understanding and care of uncontrolled gout.

12 month results from the Mirror trial will also be presented for the first time at ACR.

These results showed 60% of patients who received KRYSTEXXA with methotrexate achieved a complete response nearly twice that of those who receive KRYSTEXXA with placebo.

We also have presentations planned for the American Society of Nephrology Conference later this week.

<unk> study in kidney transplant patients showing that KRYSTEXXA with methotrexate did not negatively impact those with diminished kidney function.

And finally, we just announced an important milestone in our collaboration with <unk> the initiation of a phase II trial in atopic dermatitis patients.

We first announced the collaboration focused on Q32, as lead asset AVX 91 four in August.

<unk> four is a fully human anti IL, seven or add alpha antibody that inhibits the signaling at TLLP and IL seven this.

This program represents a novel approach to address allergic indications as well as disorders with an imbalance of regulatory T cells to potentially restore healthy immune regulation.

<unk> 32 plans to start a phase II trial in a second autoimmune disease next year.

I will now turn the call over to Erin.

Before I cover this quarters performance, let me start with a brief comment on capital allocation.

<unk> sure prioritizing business development, which remains our top priority.

Date, we have repurchased three 9 million shares for an aggregate value of $250 million.

Now I will cover our performance in the third quarter and our updated guidance.

My comments. This morning will primarily focus on our non-GAAP results unless otherwise noted.

Our orphan segment generated third quarter net sales of $905 million with strong contributions across our portfolio.

Our orphan segment operating income was $367 million.

Net sales for the inflammation segment were $21 million in operating loss was $11 million.

We are winding down the inflammation segment following the market erosion caused by the generic Penn said, 2% interim.

We expect this wind down to be substantially complete by year end and as a result, we expect to operate and report as a single reporting segment starting in the fourth quarter of this year.

Our third quarter gross profit was 87, 2% of net sales.

Third quarter operating expenses were $470 million.

R&D expenses were $108 million or 11, 7% of net sales.

Acquired IP R&D and milestones expenses were $19 million, primarily related to our collaboration agreement with Q32 bio <unk>.

And SG&A expenses were $343 million.

Third quarter adjusted EBITDA was $335 million, which also included the $19 million of acquired IP R&D and milestones expenses.

The tax rate for the third quarter was six 9% as we have seen in prior years, there can be variability in our tax rate across quarters.

Net income in the third quarter was $293 million.

Third quarter diluted earnings per share or $1 25.

The weighted average shares outstanding used to calculate third quarter 2022 diluted EPS were 235 million shares.

Third quarter operating cash flow was $368 million.

In the last 12 months to September 30, we have generated more than $1 billion of operating cash flow.

As of September 30, cash and cash equivalents were $2 3 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 eight times as of September 30, and our net leverage ratio was well under one times.

Turning now to our guidance. This morning, we announced we are increasing our full year 2022, net sales guidance range to $3 $5 90 to $3 $61 billion.

Up from 353% to $3 6 billion.

Representing year over year growth of more than 11% at the midpoint.

We continue to expect to pay the full year 2022, net sales percentage growth in the high teens.

For KRYSTEXXA, we are increasing our full year 2022, net sales growth guidance to approximately 25%.

For our inflammation business, we expect fourth quarter net sales of less than $10 million and net sales next year to be immaterial.

Yes.

We now expect full year 2022, gross margin to be modestly higher than 87%.

We are increasing our full year adjusted EBITDA guidance range to $1 32 billion to $1 $34 billion.

Up from $1 7 billion to $1 $32 billion.

Both the current and prior guidance ranges for the full year 2022 include acquired IP, R&D and milestones expenses of $53 million.

As it relates to operating expenses, we expect the fourth quarter to be in a similar range as the third quarter, including the acquired IP R&D and milestones expenses, which are expected to be $34 million in the fourth quarter.

We continue to expect our full year net interest expense to be approximately $85 million to $90 million.

Yeah.

We now expect our full year 2022 tax rates to be modestly above 11% versus our prior expectation of approaching 12%.

Loss.

We now expect our full year 2022 weighted average diluted share count to be approximately 235 million shares which incorporates a $3 9 million shares repurchased to date.

With that I will turn it over to Tim for his concluding remarks.

In closing our continued focus on execution drove meaningful progress this quarter.

We're taking the actions we discussed last quarter to accelerate the growth in 2023.

And the rest of our business KRYSTEXXA, a plasma and our rare disease medicines all had outstanding performance.

As a result, we increased our full year 2022, net sales and adjusted EBIT guidance as well as our KRYSTEXXA full year 2022 guidance.

In addition, based on the strong momentum, we're seeing with KRYSTEXXA and the further analysis. We've completed answer internationally, we've increased our peak annual net sales expectations for both medicines.

Importantly in our pipeline, we completed enrollment in our present chronic low cost <unk> trial and announced positive top line results from our phase II trial evaluating <unk> Delta.

And patients with Sjogren syndrome.

We look forward to several key Readouts next year from our growing pipeline.

Data from our chronic low test trial.

Our present trial in Japan.

Additional readouts from our <unk> phase III program.

Our first phase III data readout for that element, which will be in systemic lupus and potentially data from our phase III trial in <unk> related disease.

There's a lot to look forward to over the next 12 months, we remain highly focused on executing on our strategy and I look forward to updating you on.

Further on our next call.

Yes.

Chris we'd now like to open up the call for questions.

Thank you.

Reminder, to ask a question you will need to press star one one on your phone. Please standby as we compile the Q&A roster.

And one moment, please well first question.

Yeah.

Our first question will come from Chris Schott of Jpmorgan. Your line is open.

Great. Thanks, so much for the questions I just had two here. The first is on <unk> can you just talk about any.

And my second question was on and I'm always going to Mispronounce. This one <unk>.

On the short runs phase III program are you just going to be looking at the systemic population or do you plan to also look at some of the patients with localized symptoms.

So theyre thinking about market sizing here, how much larger is that localized symptom population versus I guess, the 50000 or so with systemic disease. Thank you.

Thanks, Chris.

We look at where we are.

First of all for the fourth quarter, we expect modest growth with <unk>.

The sales force is just getting out there and masks and we're encouraged by what we're seeing in an early on we're just looking at measures of activity and their ability to get quick.

Quickly cover and really find their way around and so we're encouraged by what we're seeing so far.

Yeah.

We have been.

Based on all the data we're looking at we've got the right people the territories are aligned right and.

We're getting after the right target. So I think it's where we would expect it to be at this point in time.

And as we get the final ones to training and get them out.

Rolling into the new year, we expect to start seeing the impact of that flow through.

Andy do you want to take the market size and then when you look at the systemic and the non systemic populations sure hi, Chris So on desert Allopath as Liz mentioned in her remarks.

We estimate about 50000 prevalent patients who would be appropriate for a biologic therapy that are that have high systemic disease activity.

There was also a very sizable population in the.

Great.

Thanks, so much Chris.

Chris next question. Please thank.

Thank you.

Please go to our next question.

Okay.

Our next question shall come from Annabel <unk> of Stifel Nicolaus <unk> Company, Inc. Your line is open.

Hi, Thanks for taking my question I have a couple on <unk>.

So when you think about the 80000 TD patients.

That.

That have more of a look has population where they typically sitting or are they primarily in the ophthalmologists endocrinologists office or are they in the ocular space with office and where is.

I mean to what extent do they have urgency to treat so I guess, how symptomatic patients.

Patients I'm really asking.

As we consider I guess with the relaunch in this population.

What kind of rapid uptake can we expect and what kind of uptick we expect there.

And then separately aside from those 8000 can you maybe talk about strategies around re treatment.

I think that.

He said it was about 15% to needed re treatment.

I thought it was a little bit more than that but only 2% right now are going through a treatment. So what are you doing anything or are there any efforts there to expand that re treatment population as well is that going to be a source of breccia. Thanks.

Sure I'll start with re treatment.

Based on the publication, we are the abstract that was just published it's less than 5%. So we're not actively.

Focusing on that if you look at the general population of patients who just gone through surgeries, we see our reactivation rate.

They're active TB in the low to mid single digit rate. So what we're seeing right now.

Is somewhere in that range. So I think we just have to see how things evolve over time, there, but thats not an area of focus for us.

To your question Annabel around the <unk> patient base.

Based on analysis they are predominantly.

Sitting at the ophthalmologists and endocrinologists and that was the real premise for our expanded sales force.

And we're certainly going to be focusing on them.

We know from these patients as they all have severe disease meeting proptosis.

Proptosis and diplopia.

And those are severe enough where they require treatment. So it's a matter of getting in educating those ophthalmologists and endocrinologists.

Does it refer or treat those patients and just raising that awareness, but certainly when we look at the total 100 pounds and including the safety they are all.

What we would consider monitor severe and eligible for treatment with the peso.

Thanks, Annabel Chris next question please.

Thank you one moment for the next question.

Our next question will come from Madhu Kumar of Goldman Sachs <unk> Company, Inc. Your line is open.

Hey, everyone. Thanks for taking our questions two from US first one is kind of following on Chris <unk> question, but depends of Salesforce reorganization I guess kind of when do you expect to see kind of a full benefit from this like what kind of time scale makes sense for really seeing that impact of having more feet on the street kind of talking endocrinologists and ophthalmologists.

And then secondly, kind of bigger picture question, we've been hearing more and more about what it could be dilutive impact of the inflation reduction Act for you guys on indication expansion for both approve drugs and pipeline candidates.

Well on the latter I think you've heard a lot of people with the third quarter prints commenting on this we don't have any specific medicine to comment on that but certainly as we look at pipelines in rare diseases.

The concept of having multiple rare disease indications for a development candidate is certainly something that we have to look at very closely and understand them. So it's factoring into how we look at our pipeline how we look at PD.

Certainly for small molecules.

It's an entirely different prop.

Proposition.

But nothing that.

Factors into our changes our guidance with.

That's still a maverick <unk>, but certainly as we look forward.

We're all going to have to factor. This soon.

To get to the first question around the sales force.

I think youre hitting on.

Really how we got to our expectations for at least mid teens growth next year, we expect the contribution from the expanded sales force to continue to grow throughout the year.

Those reps get to know their areas and begin to drive toward optimal impact so that's what.

We expect to continue to grow throughout next year and drive our current expectations for 2023. Thanks Madhu.

Chris next question. Please. Thank you one moment please for our next question.

Our next question will come from Jason Gilbert of.

Bank of America. Your line is open.

Hey, good morning, guys. Thanks for taking my questions.

One on <unk> and the managed care environment I'm. Just curious if you can comment on how plans are managing chronic TEP coverage has payment policy shifted more towards only covering within the parameters of the phase III enrollment criteria versus initially I got the sense. It was more of a PAA to label type dynamic.

And so what I'm getting at here is the extent to which a positive trial in chronic <unk> could help.

With the combo, just because patients are more likely to get the full course.

On KRYSTEXXA.

<unk>, we're really pleased that the growth in nephrology continues to.

Accelerate and we're growing that sales force by 20% as I noted in my comments so.

It's predominantly around driving further penetration further physicians, we noted in the quarter a significant percentage of.

KRYSTEXXA growth in the quarter came from new physicians, who had not written KRYSTEXXA and people who haven't read it in over a year. So we're really excited about the long term potential and Thats what gave us the confidence from a managed care situation with.

That remains as we've discussed over the last several years, we have very good overall coverage that.

Was initially focused on what we studied and what drove the approval that was driving around.

Cash and cash level. So the majority of lives have some level of of a cast of greater than four with some having cash greater than three we have not seen a significant change in those coverage policies.

At this point in time, when you look at the business we're getting.

We continue to talk about the evolution of treatment of thyroid eye disease. This is not time based and when we look at our penetration of what would be the old way of looking at it.

Chronic we're getting acute patients that match up with the clinical program. We did in phase III. We're also getting chronic patients who currently have high.

Both Proptosis Android and high clinical activity score. So the majority of our business is coming from from acute and chronic patients to use your description.

Have similar criteria to what our phase III program and that is patients who have high clinical activity scores, which reads through to the expectation of our chronic low test study and that is to significantly move the past requirements within policy payer policies.

To enable significant penetration into that broader population thanks, Jason got it.

Chris next question please.

One moment for the next question.

Our next question will come from Ken Cacciatore of Cowen <unk> Company LLC. Your line is open.

Hey, guys good good progress or good to see it just wondering if we could set a baseline here as we look at the peds.

Tim you've talked in the past about those 2000 ocular specialists in ocular surgeons can you give us a sense of the percentage of those that have adopted <unk>.

And then maybe if you want to get into new ones can you talk about quarterly gains in the quarter clinicians or ocular surgeons that have been added thanks. So much.

So thank you Ken.

Great question.

Okay.

Certainly our early adopters and the tremendous benefit risk of book to peso were.

The key behind the dramatic launch uptake that we saw with <unk>.

An extra specialists were.

The ones that have adopted early and let Darren and I think that is what led us to accelerating to the exposure to some of the reimbursement challenges that ocular specialist run into so for each respective <unk> specialists. They would run into a situation, where if I had 10 or 20 or 30.

Patients on <unk>.

My office staff and my capability to manage.

That reimbursement process hit the wall and Thats a lot about what we've talked about is focusing on single point of contact with her patient services organization and working to educate offices around how to streamline and make that process as smooth as possible. So that's really where our focus is I think as we have talked.

Less than 20% of of patients or about that 20000 are primarily being seen and treated within their ocular specialists and that is what drove that initial uptake and for us to continue to grow our expanded sales force getting into that broader ophthalmology and endocrinology.

<unk> office of about 10000 expanded audience is really what's required to continue to drive uptake.

Great. Thanks, Ken.

Chris next question please.

Thank you.

The next question.

The next question will come from David Risinger of SBB Securities LLC. Your line is open.

Thanks, very much and congrats on all the progress.

So.

My two questions are number one could you discuss the potential for <unk> to.

Pain orphan drug designation in Europe , including what's required and discuss the breadth of countries that you plan to launch in <unk>.

And second could you provide more color on expected to pass our sequential.

Sequential sales growth in the fourth quarter, including the pushes and pulls thank you.

So as we've discussed over the last few quarters, we do not expect orphan drug designation for <unk> in Europe , and that principally led to us.

Through the process, we've been going through over the last several months and came out today with an expectation we will be going after both the acute and chronic market in Europe , and we do not expect orphan drug designation.

Relative to sequential sales growth.

We expect as I noted in my comments is modest growth and as we look into 2023, we expect at least mid double digit growth and thats going to be driven.

By a number of our key programs, our DTC, our peer to peer program as well as continued effectiveness and penetration of our expanded sales force. Thank you Dave Thanks, Dave.

Next question. Please thank you.

Our next question.

The next question will come from David <unk>.

Piper Sandler companies your line is open.

Hey, Thanks, So one onto plaza one on <unk>.

Just following up on.

The topic of Europe , what changed.

In the past I think.

It sounded a high level of caution regarding whether you were going to go in there and pricing.

Was was a big part of that so I'm wondering what changed.

Specifically, what kind of pricing do you think you can get over there.

On average relative to what you have in the U S. So that's number one and then on days, though Jessica.

Just a question on localized disease versus systemic diseases that mechanistically that days, though.

That would lead you to believe that one subgroup might have a better signal.

And then the other I know, we already have one piece of data regarding the localized symptoms.

Based on what we know about the drug.

Do you think youll see a similar signal alright.

Better or something less.

Maybe help us understand your expectations there. Thank you.

Sure. Thanks, David Nothing's changed with the Panther from last quarter, where we went through that our initial approaches with EMEA and was that we would get orphan drug designation and have a pricing and a volume opportunity focus around the acute.

<unk>, which we did not see as being valuable.

We have subsequently looked at the.

The fact that we have had significant.

Benefit in a number of different investigator initiated trials are about 50 51 patients to be specific showing significant benefit of <unk> and lower caste patients.

And a much broader volume opportunity we saw.

The opportunity to go into Europe .

And the biggest differences will be waiting for that chronic data too.

Move forward, so that we have the combined dataset.

That's where our plan is focused.

The question for Liz why don't you talk about.

Does the Delta please.

Certainly so for <unk> as we look at Shogun syndrome. So what we know is that we said before the expression on relevant tissues that are relevant for both the systemic as well as sort of those more localized in Tennessee and salary salivary glands for sure but also places like that joined in the kidney is what youre going to be relevant for that systemic disease.

Population and of course, we have already seen data in the moderate to severe.

Stomach population that suggests benefit there.

Also note that in that trial, we saw numerical improvements on dryness and for patients with the primarily localized symptoms dryness as really they are defining feature. So this helps further support our optimism about the data we may see that see out of that population, but we'll have to wait and see what comes out next year.

So overall.

I think that we have good reason from both the mechanistic.

A view as well as the data we've had so far that suggests it might be relevant in both populations, but certainly even the systemic population I think is one with significant unmet need and that we would consider to be an attractive market opportunity.

Thanks Liz.

Next question please.

One moment for our.

Next question.

Our next question our next.

Next question will come from Gary Nachman of BMO capital markets equity Research. Your line is open.

Okay. Thanks, good morning, So first on <unk>.

<unk> studied.

The study now that it's fully enrolled when you release that data in the second quarter of next year should we have certain expectations about the magnitude of that I can see relative to what you showed in the open label studies and if that data is positive to maximize the opportunity will you need to expand the sales force for low CHS or.

Do you think the additional 60 reps are sufficient.

So that's one and then secondly, just on the Q32 bio deal.

It's interesting to see you exploring atopic derm is that a category you would commercialize on your own since it's pretty large category does that show that youre, considering larger markets and your BD efforts is that a shift at all in your thinking at this point.

With $2 32 that was a planned approach with $2 32.

Andrew you want to speak specifically.

Yes in the Q32 collaborations.

As we've shared <unk> 32 was already embarking on the path of exploring.

And we think that we're going to get a meaningful read on one of the axes of that through the atopic dermatitis trial in terms of what we do following that if we like the data and if we exercise. The option then we will decide based on the data at that point, how we proceed with development.

And with depends I'll take the first part and then pass it over to Liz to speak to powering and how we'd look at.

Chronic and relative to the initial work we did we.

We do not expect to expand the sales force.

Sure.

Just on getting the chronic data that was all built into our analysis of the 100000 LG.

Eligible patient population.

That is not an expectation at this point in time Liz.

So that we would be able to demonstrate that patients had meaningfully improved on their proptosis.

Thanks Liz.

Operator time for one more question please.

Thank you.

One moment for our last question.

The last question will come from Akash <unk> of Jefferies LLC. Your line is open.

Hi, This is Amy on for <unk>. Thanks, so much for taking our questions.

So first one onto plaza between taking a price increase at the end of the third quarter and your sales force ramp up can we expect an uptake in uptake in Q4. It seems like your 2022 to put the guide implies that you only need flat patient adds in Q3 to Q4 to hit.

And then can you give some color on sales force expansion and how many of the total of 140 <unk> will be ready to go by Q4, how many of these are true sales reps versus reimbursement Sasha.

Would love any sort of breakdown there and then finally on your low cost <unk> study do you know on a blinded basis baseline proptosis score could be trending for this is there a risk that baseline proptosis could be lower we could see a lower net change on proptosis and chronic versus asking thank you. So much.

So.

A bunch of questions. The numbers, we've talked about are our sales reps and don't include.

Other parts of the organization.

For our fourth quarter guidance, we expect modest sequential growth.

Liz do you want to talk about the low test and baseline entry criteria.

Yeah, I'll just comment that we have constructed this trial to ensure that patients have an adequate amount of data.

Of Abbott normal baseline proptosis to ensure that we would be able to show a meaningful improvement from there.

Great. Thanks Liz.

And thanks.

Yes, Thanks, Chris that concludes our call. This morning, a replay of this call and webcast will be available in approximately two hours. Thank you for your conference call.

This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.

Q3 2022 Horizon Therapeutics PLC Earnings Call

Request a DemoDemo

HZNP

Horizon Pharma

Earnings