Q4 2022 Alkermes Plc Earnings Call
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Greetings and welcome to the Alkermes fourth quarter 2022 financial results Conference call. My name is Rob and I'll be your operator for today's call.
All participant lines will be placed on mute to prevent background noise.
You should require operator assistance during the call. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the call over to Sandra Coombs, Senior Vice President of Investor Relations and corporate Affairs Sandy.
Sandy you may now begin.
Thank you good morning, welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter and year ended December 31, 2022 with me today are Richard Pops, our CEO , Ian Brown, our CFO and Todd Nichols, our Chief commercial officer.
Before we begin I encourage everyone to go to the investors section of Alkermes com to find our press release related financial tables, and reconciliations of the GAAP to non-GAAP financial measures that we'll discuss today, we believe the non-GAAP financial results in conjunction with GAAP results are useful in understanding the ongoing economics of our business our.
Our discussions during this conference call will include forward looking statements actual results could differ materially from these forward looking statements. Please see slide two of the accompanying presentation. Our press release issued this morning, and our most recent annual and quarterly reports filed with the SEC for important risk factors that could cause our actual results to differ materially from those expressed or implied.
The forward looking statements.
We undertake no obligation to update or revise the information provided on this call or in the accompanying presentation. As a result of new information or future results or development. After our prepared remarks, we'll open the call for Q&A and I'll turn the call over to touch great. Thank you and good morning, everyone.
2022 was a breakthrough year for our commercial organization, we achieved record sales and double digit growth compared to the prior year for our portfolio.
Prior Terry products, driven by execution of our focused commercial strategy the.
The year was highlighted by the ongoing launch of Lee ball and its first full year of commercial launch we exceeded expectations and delivered strong results that began to establish slip all these important place in the treatment paradigm.
We've always early launch success underscores the leverage we can realize across our commercial platform, which gives us a distinctive position in the neuroscience space.
We launched the Bobby just over a year ago with a broad differentiated label that includes both schizophrenia and bipolar one disorder in its first full year lowball, we generated net sales of $96 million, which we believe provides a strong foundation for future growth in the fourth quarter Lee ball. These sales were $34.
$9 million up 29% sequentially driven by robust demand total prescriptions in the fourth quarter were approximately 28400, representing growth of approximately 23% quarter over quarter, driven by Alibaba as differentiated product profile and our commercial execution.
This strong demand was due in large part to increased prescriber breadth and use across a broad range of patients at the end of the fourth quarter. Approximately 77600 prescribers have written a prescription for laboratory since its launch which represents an increase of approximately 27% since the end of Q3.
As we have mentioned before driving prescriber breadth continues to be a key priority for us and it provides the foundation for establishing a significant brand presence and awareness in this market.
More than 20000 patients have been treated with laboratory through December prescriptions in the quarter continue to be evenly split between schizophrenia and bipolar one patients.
Approximately 45% of the prescriptions in the fourth quarter were for patients switching from our lands of pain and approximately 55% came from a variety of other branded and generic medications.
This diverse source of business demonstrates that physicians are utilizing the ball before a broad range of patients and not limiting its used to particular patient phenotype.
Our market research a majority of health care provider surveys report a high level of satisfaction with laboratory in schizophrenia, and bipolar one disorder, including its efficacy and perceived their patients are similarly satisfied with labar lobby.
Early persistency data is encouraging and consistent with other branded oral atypical anti psychotics as we anticipated.
In 2023, our focus is three pronged growing prescriber breadth further enhancing the pathway to access for patients and building awareness.
As we have mentioned before we believe direct to consumer advertising will play an important role to further drive patient and caregiver awareness of laboratory.
DTC campaigns have been shown to be highly effective in driving brand growth in many therapeutic areas, including psychiatry.
Starting in effective campaign earlier in our product lifecycle provides an opportunity to capture a greater impact over the life of the product our digital marketing campaign is already underway and we expect to launch the TV component of our DTC program mid year. We believe these strategic investments will drive long term revenue growth for Laval.
<unk>.
From a market access perspective, we are well positioned with laboratory for this stage of the launch overall, the Bobby has been treated similar to other branded agents and Medicare and Medicaid we have a pathway to access for all patients.
On the commercial side, we haven't established a solid foundation in terms of access and we will engage with the commercial payers again. This year now with the advantage of a year's worth of market experience and data in the meantime eligible patients have a pathway to access through our patient co pay assistance programs.
We expect lowball, the 'twenty to 'twenty three net sales in the range of $180 million to $205 million we.
Dissipate gross to net adjustments will remain fairly stable in the high 20% range. During the first half of the year. It may widen in the second half if we determined there is a benefit to enhancing the access profile for the Bobby.
Turning to the <unk> product family net sales in the fourth quarter were $79 $2 million, driven primarily by <unk> growth of approximately 7% year over year on a months of therapy basis.
We are encouraged by the return to growth in the La class in 2022 prescriber breadth of the product family reached an all time high driven by our commercial strategy and the attributes of aerostar. Despite some persistent challenges into class such as ongoing staffing shortages and treatment settings, we expect to continue to grow our prescriber breadth and depth.
In the coming year.
For 2023, we expect aerostar to net sales in the range of $315 million to $345 million. This range reflects current market dynamics and our continued emphasis on ers Dod is differentiated value proposition, including its once every two month dosing option and the aerostat initio initiation regimen both of them.
Which are supported by clinical data from our Alpine study.
Moving to <unk> net sales in the fourth quarter increase of increased approximately 11% year over year to $102 million growth in debit trial sales continue to be driven primarily by the alcohol dependence indication, which accounted for approximately two thirds of the vivid trial business in the quarter for.
For 2023, we expect <unk> net sales in the range of $380 million to $410 million as we continue to advance our strategy to drive growth in the alcohol dependence indication.
<unk> is a complex product in a complex treatment environment, our Anda litigation with Teva is starting today and we remain confident in our position regardless of the outcome of that litigation, we believe that the complexities of this market and the required capabilities that we have established to support <unk> commercialization will prove.
Challenging for potential generic entrants, we remain committed to driving awareness of vivid trials utility and believe it will continue to have an important role to play in the treatment paradigm leap.
Hey, Bobby vivid trial in aerostar represent a strong proprietary product portfolio that will serve as the cornerstone of alkermes topline growth potential as a pure play neuroscience company. Following the planned separation of oncology business. This product portfolio and the operating leverage that we have built into the business provides significant.
<unk> to drive growth and we look forward to updating you on our progress throughout the year with that I will now turn the call over to Ian.
Thank you Jos and Hello, everyone.
So we finished 2022 strong and I'm pleased to report financial results ahead of our expectations for the year driven by the solid performance of our proprietary products and disciplined management of our cost structure.
The launch of Lebow. He was a highlight for the year and represents a significant growth opportunity for the company and the large oral antipsychotic market leveraging our established commercial capabilities.
The strength of available will be lower than two is an important factor in our decision to explore the separation of the oncology business, which we believe will help reveal the underlying growth and profitability of the neuroscience business.
In the next few minutes I'll take you through the details of our 2022 results.
Then turn to our 2023 financial expectations and underlying assumptions, so both the neuroscience and oncology businesses.
And then finish with our updated long term profitability targets.
So starting with our 2022 financial performance.
We generated total revenues of 111 billion driven primarily by our proprietary product portfolio, which grew 24% year over year and now represents approximately 70% of total revenue.
This growth reflects strong results from our first full year of the commercial launch of <unk> as well as double digit growth for each of <unk> and <unk>.
From a bottom line perspective, we recorded GAAP net loss of $158 3 million.
<unk> to $48 $2 million in the prior year.
non-GAAP net income of $57 $9 million for the year compared to $129 1 million.
In 2021.
Recall that the 2021 results included 12 months of U S. J&J royalties, while 2022 results only included one month.
Full year of these U S royalties would have yielded approximately $200 million of.
That incremental revenue.
Now turning to vitro in 2022, we recorded net sales of $379 5 million up 10% year over year, driven primarily by growth in the alcohol dependence indication.
In the fourth quarter <unk> achieved net sales of $102 million.
Reflecting 6% growth sequentially and 11% growth year over year.
Inventory levels were relatively stable in comparison to the end of the third quarter and.
And during the quarter, we recorded gross to net favorability of approximately $6 million.
Primarily related to Medicaid prior period credits from certain states and lower Medicaid billings coming in than originally estimated.
Yes.
Moving onto the <unk> product family.
For the year <unk> net sales increased 10% to $302 1 million.
Primarily driven by underlying demand.
For the fourth quarter <unk> net sales was $79 2 million.
Up 5% sequentially and up 1% year over year.
Gross to net adjustments was stable at 54, 6% and inventory in the channel increased slightly.
<unk> net sales for the first full year of its launch with $96 million.
For the fourth quarter net sales were $34 $9 million.
Up 29% sequentially driven by continued strong underlying demand growth.
During the quarter inventory levels increased as expected in line with demand growth.
And gross to net adjustments in Q4 were relatively stable at approximately 25%, primarily reflecting the continuation of less restrictive initial commercial payer coverage.
Moving on to our manufacturing and royalty business.
The year, we recorded manufacturing and royalty revenues of $332 million.
Compared to $541 8 million in the prior year.
We saw solid growth solid growth of <unk>, which was up 32% year over year contributing $115 $5 million of royalty and manufacturing revenues and that compares to $87 4 million in the prior year.
Royalties from sales of the long acting and Vega products were $115 7 million.
Compared to $303 $1 million in 2021.
The decrease was driven primarily by Janssen partial termination of the agreement related to royalties on sales of the long acting and Vega products in the United States.
Arbitration proceedings related to this matter or ongoing and last month, we announced that the tribunal issued an interim award finding at Janssen may not continue to sell the products developed under the agreement without paying royalties pursuant to the <unk>.
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Ladies and gentlemen, thank you for standing by Sandy Please continue.
Okay, sorry about that I think we had a couple of technical issues, but we're back now so I'll pick up again, when I was talking about the manufacturing and royalty business.
So for the year, we recorded manufacturing and royalty revenues of $332 million compared to $541 $8 million in the prior year.
We saw solid growth at <unk>, which was up 32% year over year, contributing $115 $5 million of royalty and manufacturing revenues.
Paired to $87 4 million in the prior year.
Royalties from sales of the long acting and Vega products were $115 7 million compared.
Compared to $303 1 million in 2021.
The decrease was driven primarily by Janssen partial termination of the agreement related to royalties on sales of the long acting and Vega products in the United States.
Arbitration proceedings related to this matter or ongoing and last month, we announced that the tribunal issued an interim award finding the Janssen may not continue to sell the products developed under the agreement without paying royalties pursuant to the agreement.
We will continue to engage with Janssen and the tribunal in additional proceedings prior to the tribunals issuance of a final award.
Turning now to expenses total operating expenses were $1 billion to $5 billion for the year.
Cost of goods sold for 2022 increased approximately $27 million year over year to $218 1 million, primarily driven by higher volumes of key manufactured products.
R&D expenses for 2022 with $393 $8 million, reflecting focused investments in the <unk> clinical program and our earliest stage neuroscience and oncology development programs, including the initiation of a first in human study of our Orexin two receptor agonist program.
<unk>.
This compared to R&D expenses of $406 5 million in the prior year.
SG&A expenses for 2022 at $605 7 million.
Creased, $44 8 million as compared to the prior year, primarily related to investments in the launch of <unk>.
Turning to our balance sheet alkermes is well positioned from a cash perspective, we ended 2022 with approximately $740 million in cash and total investments.
And with total debt outstanding of approximately $293 million, we had a positive net cash position of approximately $447 million at the end of the year.
I'll shift now to our financial expectations for 2023, and the key underlying assumptions.
So our guidance for the year reflects continued expected growth of our proprietary products.
<unk> focus on disciplined expense management and investment in the strategic priorities that we believe will drive growth and value for shareholders, including.
Continued progress with the launch of <unk> <unk>.
<unk> spent about Rx in two receptor agonist program in clinical studies.
Separation of the oncology business.
The financial guidance, we are providing today reflects the combined neuroscience and oncology business for the full year as we were toward the planned separation, which we currently expect to complete in the second half of the year.
As the year and our work progresses precise timing of the planned separation will come more clearly into focus.
Following discussion of the combined business guidance I'll outline the oncology and separation related spend embedded within these expectations.
Our financial expectations for the year also reflects our current assumption that we will continue to see what to receive royalty revenues related to sales of the long acting and Vega products outside the U S. Through the end of May 2023, and this is due to the three months notice period Janssen would be required to provide.
In order to terminate the agreement in these markets.
We will continue to exclude from our guidance any potential royalty revenue related to sales of the long acting and Vega products in the U S is arbitration proceedings with Janssen related to these royalty payments are ongoing.
I want to underscore that removing these johnson cash flows from our guidance on profitability targets is for planning purposes, only and does not in any way reflect our belief in the strength of our legal position in this matter.
This approach also has the benefits of providing a clear picture of the strength of the underlying business driven by our proprietary products and <unk> and the operating leverage that we've engineered into the business.
I'll now walk through the highlights of our 2023 financial expectations and our full expectations were outlined in the press release and the 8-K issued this morning.
So for the topline we expect total revenues to be in the range of $1, one $3 billion to $125 billion.
For our proprietary products I'll start with labov.
We currently expect <unk> net sales in the range of $180 million to $205 million for 'twenty two 2023.
This range reflects our current expectation of continued demand growth.
And the gross to net adjustments will remain fairly stable during the first half of the year and then could widen in the second half if we enter into any additional commercial contracts.
So vishal, we expect net sales in the range of $380 million to $410 million.
And for Arris data, we expect net sales in the range of $315 million to $345 million.
In terms of our operating expenses for 2023 cost of goods sold are expected to increase to a range of $230 million to $250 million.
Primarily driven by increased volumes with key manufactured products.
R&D expenses are expected to be in the range of $370 million to $400 million.
Driven by investments in the potential registration, enabling studies for <unk> as well as the early clinical development for the Orexin program.
Which is expected to yield initial proof of concept data in patients by the end of the year.
Yeah.
SG&A expenses are expected to be in the range of 695% to $725 million.
The year over year increase primarily reflects strategic investments and the planned DTC campaign for <unk> and costs related to the separation of the oncology business.
We expect GAAP net loss to be in the range of $160 million to $200 million and we expect non-GAAP net income to be in the range of zero to $40 million.
As I.
Beyond these financial expectations reflect a full year of the combined neuroscience and oncology business.
Overall at the midpoint of the provided ranges our operating expense line items include approximately $190 million of spend related to advancing the oncology business and cost associated with the planned separation transaction and building the necessary infrastructure to support the oncology.
Business as a standalone publicly traded company.
A more detailed breakdown is available in the slides accompanying the webcast.
This estimate is intended to provide a general illustrative framework for thinking about the various components of the business and may be refined as we progressed through the year.
The planned separation of the oncology assets is expected to enhance the profitability of the remaining neuroscience business.
To reflect this improved financial profile today, we announced updated long term profitability targets.
The new targets reflect a one year acceleration of our previously provided targets and specifically increasing our non-GAAP net income margin targets to 25% in 2024 and 30% in 2025.
And increasing our EBITDA margin targets to 20% in 2024 and 25% in 2025.
For clarity these improved profitability targets continue to ensure assumed the removal of all worldwide royalty revenues related to sales of the long acting and Vega products as well as the successful and timely completion of the planned separation in 2023.
So taking a step back we believe separating the oncology business has many operational virtues and will also significantly enhance the financial profile of the resulting neuroscience company, which we expect will emerge with a growing top line.
Simplified capital allocation decision, making.
A streamlined cost structure and expanding margins.
The updated and accelerated profitability targets provided today are a reflection of our commitment to driving growth and long term profitability and we look forward to updating you on our progress as we forge ahead.
And with that I'll hand, the call over to rich.
That's great Ian Thank you.
So before talking about what lies ahead in 2023 I want to note the significance of 2022 as a turning point for the execution of our strategy at alkermes with the strong launch of <unk> on top of double digit revenue growth for in vitro in aerostar, our neuroscience business is evolving as we planned.
Our R&D investments are also showing promise with nimble lucan enrolling in registration, enabling studies in oncology and our Orexin two receptor agonist entering and progressing in the clinic and from a financial standpoint, we continued our sharp focus on operational efficiency disciplined expense management and driving profitability, we manage the business with.
These elements in mind commercial execution R&D productivity financial discipline, all were evident in 2022.
2023 is going to be an important year, one in which we build on the accomplishments of last year and establish a new trajectory for the company.
We're focused on three key operational areas. They are driving the ongoing launch of <unk>.
Advancing our Orexin program in narcolepsy, and other sleep disorders and executing on the planned separation of our oncology business we.
We believe each of these priorities can drive significant value for our shareholders. So I'll spend a little time on each of them starting with evolving.
The strong traction of the <unk> launch in 2022 gives us confidence in its potential as the first year of launch progressed health care providers have noted evolving differentiated weight profile in comparison to olanzapine in their own practices. Looking ahead, we believe long <unk> long term potential in this market will be grounded in its proven.
<unk> efficacy, which is rooted in the established efficacy of Olanzapine and demonstrated in our pivotal clinical trials, along with real world patient and healthcare provider experiences.
So as you heard from Todd we have a clear focus in 'twenty three driving the breadth of prescriber base.
Further enhancing the access profile and building awareness among patients caregivers and health care providers.
Major brands in this category build steadily over time, and we believe the <unk> DTC campaign will play a significant role in driving growth growth trajectory. In this disease area that is characterized by millions of patients and frequent changes and medications.
We're excited about the opportunity Nabavi represents as a new treatment option for patients, but also for its potential to drive growth at alkermes.
The second priority is to advance our 2680, our Orexin two receptor agonist program in narcolepsy and other sleep disorders.
This program represents an exciting opportunity neuroscience, given both the strong biological relevance relevance of the orexin pathway to narcolepsy and the significant potential market opportunity for.
From a scientific standpoint, there's a strong linkage between the orexin pathway in the disease the challenges one of molecular design.
We've leveraged our chemistry capabilities and pharmacokinetic expertise to develop highly potent small molecule orexin agonist designed to capture the performance of the endogenous natural neuropeptide and affecting wakefulness in cataplexy.
<unk> C is an essential component for efficacy and safety, but it is not enough on its own it must be coupled with CNS penetration with a pharmacokinetic profile that promote wakefulness during the day and sleep at night.
Based on our preclinical and modeling work, we believe it out to 2680 can embody the attributes that convenient once daily dose.
We started the first in human study for 26 80 in the fourth quarter of last year and we're moving quickly we have now dosed several cohorts in the single ascending dose study and we are well into dose levels that our modeling indicates should be therapeutically relevant in narcolepsy, thus far the safety and Tolerability profile in healthy volunteers has been good and consistent with what we observed.
In preclinical studies.
We've been collecting EEG data following single doses in healthy volunteers and are encouraged to see early signals of target engagement.
We've cleared sufficient dose levels in the single ascending dose study to trigger the initiation of the multiple ascending dose study and expect to begin enrolling subjects in the coming weeks.
This study design involves daily dosing about 2680 for 10 days.
We also plan to initiate a phase <unk> proof of concept study to evaluate traditional clinical efficacy endpoints such as maintenance of wakefulness in narcolepsy type one narcolepsy type two and idiopathic hypersomnia.
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Telecom, France with Arizona.
Okay apologies Harrington.
Telecom issues today, so I'll pick up where I left off I was talking about the.
The study is underway, our narcolepsy program and I was making the point that as we launch the phase <unk> proof of concept study that will actually begin looking at the traditional clinical efficacy endpoints.
And the most important ones probably maintenance of wakefulness, which you move we're going to test in patients with narcolepsy type one narcolepsy type two and idiopathic hypersomnia as well as in sleep deprived healthy volunteers. So taken together. These studies are designed to generate preliminary proof of concept data by the end of the year.
So with a strong biological rationale and significant medical and economic potential. We believe that this program offers an opportunity to create considerable shareholder value.
So we will continue to focus on careful execution, while carefully and expeditiously advancing the program and we look forward to sharing our progress with you throughout the year.
Finally, our third priority for the year is to complete the separation of the oncology business.
We believe the separation if we completed we will unlock value and position both the oncology business and the remaining neuroscience business for growth and success as we simplify the investment thesis and capital allocation decision, making for each business.
The oncology side of the business has a compelling stand alone investment thesis anchored by the potential of NIM nimble Lucan, our novel Investigational engineered IL two variant that is a potential first in class cancer immunotherapy.
The IL two pathway offer significant potential in oncology number look and is the most advanced IL two variant in development and is distinguished by the data generated in the clinic showing antitumor activity of single agent monotherapy and in combination with checkpoint inhibitors.
Our current development efforts are focused on potential registration, enabling studies in two difficult to treat tumor types artistry six is evaluating them to look at it as monotherapy and mucosal melanoma and artistry seven is evaluating nimble Luca <unk> in combination with <unk> in platinum resistant ovarian cancer. These are ongoing blinded studies and we will continue with.
The ruling both this year.
In addition, the new post separation oncology company would have a pipeline of other preclinical immunotherapy programs are engineered tumor targeted IL 12, an engineered IL 18, both of which have been advancing in preclinical development and represent attractive oncology targets.
With a late stage asset with the potential to be a first in class medicine preclinical pipeline assets and clear developmental milestones. We believe the separation of the oncology business represents a compelling potential opportunity for oncology focused investors.
So I'll give you a quick update on the status of the plan separation, while we continue to evaluate a range of options for the separation of the oncology business spinning the oncology business into an independent publicly traded company is our planning scenario.
We have a knowledgeable team leading the separation efforts as well as an engaged board providing oversight at his deep experience and expertise in separations and other transactions.
Tremendous amount of work underway related to tax planning SEC and corporate governance matters public company listing requirements and organizational structure in terms of leadership for the post separation oncology company the recruiting process for the CEO and other leadership positions is well underway and we're pleased with the level of interest and the caliber of the candidates coming through the process.
Across the work streams, we are making progress and expect to complete the proposed separation in the second half of 'twenty three subject to customary closing conditions, including final approval from the board of directors.
Following the planned separation, we expect alkermes to become a profitable pure play neuroscience company.
Alkermes will continue to build on our heritage of innovation and excellence in this therapeutic space with a focus on significant unmet needs within neuroscience.
With a strong pipeline.
Topline growth I'm, sorry, driven by the growth of our proprietary products, our specialized commercial infrastructure in neuropsychiatry and addiction and proven drug development capabilities. The Standalone neuroscience business represents a significant opportunity to capture operating leverage drive growth and profitability and advanced potential new medicines for neurology neurological.
So I'll finish there with a clear path forward for all as all aspects of the business. We entered 2023 with significant operational momentum and we're well positioned to create value for our shareholders. So with that I'll turn it back to Sandy hopefully, we don't drop the line again and we can run the Q&A.
Alright, Thanks, Rich brand will open the call for Q&A now.
Thank you Sandy.
At this time, we'll be conducting a question and answer session.
If you'd like to ask a question. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
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And so they're using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
We may address questions from as many participants as possible. We ask you. Please limit yourself to one question.
One moment please poll for questions. Thank you.
Yes.
Our first question today comes from the line of David <unk> with Piper Sandler. Please proceed with your question.
Hey, Thanks, So I just wanted to drill down on.
The longer term margin targets can you talk about the balance between.
SG&A and R&D spend on the neuro side.
Business and I guess, what im trying to better understand is.
How are you thinking about R&D.
R&D in the context of what seems like a pretty lean infrastructure with just the orexin.
In the clinic and should we assume that there's going to be considerable considerably more.
Promotional investment and LIBOR all they not just this year, but continued further investment and growth in SG&A as a result.
And the product just help us frame.
Those.
Puts and takes if you will thank you.
So.
Margin targets.
A combination of two things one you've obviously got revenue growth on the top line and then we're looking to have as much of that incremental revenue flowed down to the bottom line in order for us to be able to hit the targets.
That said so.
We're always going to be a big driver on the top line and to make sure we maximize the opportunity for lithography will be continuing to invest in the DTC campaign.
Next couple of years I think we've got.
Net loss in this first year as we launched a digital camera, we have launched a digital campaign.
Then we launched the TV campaign, so we'll be able to find to maximize the effectiveness of that investment.
And then from an R&D perspective, the model going forward is to have a leaner R&D organization absent the oncology assets, but we also realize we need to invest for the longer term. So we will be doing some work from our early discovery engine and then also looking at potentially in sourcing some programs into the pipe.
Fine as well, but net net overall focus on profitability is a key tenet for us. It has been for the last few years and it will continue to be so into the future.
Okay. Thank you.
Our next question is from the line of Akash jewelry with Jefferies. Please proceed with your question.
Hey, Thanks, so much maybe just a few if I can only or long term guide even with the spin I wasn't getting to your guided net income targets and twenty-five unless I put a lowball number that's close to $500 million am I missing something here or is it fair to say your internal expectations on this product have grown since last year and then on your Orexin program the liver toxicity.
All indicators <unk> seem to show up after a month of dosing with that in mind are you planning in your <unk> trial or in any of the trials that you're going to have this year to dose patients for an extended period of time and how do you feel about de risking safety, particularly around liver toxicity as you enter into a phase <unk> trial.
Okay.
So on the long term profitability targets, what I will say is.
We haven't provided a long term expectation of our peak sales expectation.
And we will now take excited today as I mentioned that the achievement of the profitability targets is really again again driven by growth of all three of our proprietary products.
Yes.
The growth of <unk>, as well, which will be a key flowed through to the parcel volume for us.
And then obviously as I mentioned previously.
<unk> revenue flowing down to the bottom line in order to achieve the targets that we set out today.
And as rich maybe I'll take the erection question.
Our view is is that the toxicity seen from other compounds in our lives.
Largely idiosyncratic to those particular structures rather than orexin, two agonism per se, but to the question. The objective in this year is to establish that proof of concept target engagement affecting the architecture of the sleep wake cycle and establishing dose because the best way to interrogate the longer term toxicity potential is by Intel.
We're getting the appropriate dose now know that the design feature going into the into the program, which was to maximize or optimize around potency potency in and of itself being.
A really clear design objected to minimize the potential for off target drug induced liver injury, but you'll never fully answer to that question until you get longer exposures as you indicate at the relevant doses in the patient population of interest.
Thank you. The next question is from the line of Omar <unk> with Evercore ISI. Please proceed with your questions.
Hey, guys. Thanks for taking my question first maybe perhaps on Labelle. The I appreciate all the color on the launch metrics something I've been thinking about is the number of prescriptions per prescriber appears to be fairly stable and I would've thought that over time, there's more prescriptions per prescriber, just given the refill the new ads.
I'm just trying to understand if the T. Rx growth really is being driven more by the new prescribers are signing on.
Would appreciate any color on that and secondly, rich could you clarify.
On the on.
The <unk> trial, but is it the sad cohorts that you've seen data on or are you also seeing the part to Mad and also if you could speak to how many formulations are in the trial and if Theres a notable difference between these formulations for the Orexin. Thank you.
Yeah.
Yes, I'll start off with.
Kind of the dynamics, we're seeing where the prescriber base for <unk>.
We're really encouraged by what we're seeing overall its consistent breadth of prescribing on a month over month and quarter over quarter basis.
Your question is right overall, the breadth of prescribing right now with the depth of prescribing is relatively stable.
But that's actually an encouraging sign because our prescriber breadth continues to grow so we actually see a lot of expansion right now coming from new prescribers as we bring new prescribers onboard.
Launched today, we're encouraged at approximately 7400 prescribers have written a product and.
Our aspiration is that going to continue to grow.
And secondly over the next couple of quarters as we continue to advance the launch and as Ian said earlier as we light up the DTC component of our of our campaign at midyear this year.
Rich just to echo what type of thing.
Our experience is when physicians try in the body they.
They like it so.
Driving breadth as is in our view operationally and the central prerequisite driving depth. So I think I'd say that we're excited about the way the breadth is maturing I had a hunch you'd ask a question with the erection.
What I'd say is that the data we're seeing right now is from the sad cohorts. So the single ascending dose and this is incredibly informative first phase.
The development program, because we're learning about Tolerability, obviously at ascending doses, we're seeing PK and how that PK tracks back to our modeling which is appears to be quite high fidelity. At this point. We're also from purely translational medicine point of view looking at quantitative EEG in healthy volunteers non sleep device pricing following a single dose.
And that's where we're just beginning now to see evidence that that is consistent with the idea of target engagements, where we're excited about that the mad cohorts, we'll write off very soon now without the ethics approval and operational.
Go on the Mad so that should start up in the next in the next few weeks followed by the <unk>, which we'll be looking at in patients.
Thank you. Thanks Rod next question.
Next question is coming from the line of Chris <unk> with Goldman Sachs. Please proceed with your question.
Great. Thank you very much two questions. One you talked about perhaps enhancing the access profile for mid year, and how that might impact the gross to net trajectory could you just elaborate a little bit further about what youll base that thinking on <unk> and then in terms of the Orexin agonist there didn't you.
At this point I know, we're still very early in clinical development talk about what you see as potentially the opportunity from a competitive positioning standpoint of how to differentiate I've heard a lot of potency in your vocabulary is that really the emphasis ultimately what kind of profile do you sorry.
Sort of a spike.
Yes, I'll start off with the market access.
Question.
As we said in the prepared remarks, our expectation is that gross to net is going to be relatively stable over the first half of the year and it could evolve in the second half of the year, where we are in constant contact with with commercial payers right now in discussions with them and I think the really the way to think about this is that market access coverage in the cat.
The board is not stagnant it will continue to evolve over time and this is really this is a market that is really categorized by navigating step throughs PAA medical exceptions, and all the work that we've done with Hcp's and as category tells us that they are well versed in this area and they can actually manage the dining.
<unk>. So we talked a lot about just providing a pathway to access that's going to be a combination a mixture of contracting plus all of the programs. We have to support patient access from evolving right. Now we believe we're really well positioned to vast majority of patients have a pathway to access.
Being good utilization across all of our mat market access programs, our PVA programs, our co pay programs and we are having these ongoing discussions with payers. So right now if we determined that we need to enhance the position, we'll do so and we'll look at that in the second half of the year, but that that wouldn't happen without really a strategic investment.
Our strategically looking to see if we do need to enhance that position.
And then Chris on the on the erection Sotheby's I'm glad you asked the question because potency is a feature but it's not necessarily about the benefit. So what is the benefit of potency. So the way we see these different compounds evolving in the clinic.
Theres a number of different options.
Optimization parameters in this design of this molecule.
My long standing belief has been that these molecules are all going to be quite different I don't think theyre all going to be the same even if as stipulated if they engage the receptor they might have the same effect on the sleep wake cycle that could be very very different along several parameters number one is safety.
We've already seen drug induced liver injury from one one construct with the <unk>.
May or may not be recapitulated in others number two is the on target toxicity or AE that you'd be focused on our cardiovascular changes blood pressure and heart rate and we think these these may be different not just because of the potency, but also because of PK and PK is also entirely relevant with respect to another point this could differentiate.
<unk>, which is on the presence or absence of insomnia, if your wave form.
Is two extended and you don't allow people to return back to baseline before it's time, we go to bed or if it if it's two brief and they don't have an extended period of wakefulness, So theres a number of different.
I must say from the very beginning of this program we've been seeking using the animal work and other modeling work to try to optimize 2682 to two two week.
Sensitive to each of these different parameters.
Thank you.
Our next question is from the line of Paul <unk> with Stifel. Please proceed with your questions.
Thanks, So much for taking my questions I wanted to ask another question about the profitability targets congrats on pulling those in.
More specifically, how much is that Poland, driven by the oncology span.
Are there any other kind of factors either additional cost discipline are again changing revenue expectations that are embedded in that and then just on the Orexin POC data later this year could you just share a little bit more granularity on what we should expect like how many patients on drug placebo.
Things that duration of treatment things like that that I think will help us understand how derisking. These data are thank you.
Okay, Paul ill take the profitability question so.
The spin off the oncology assets, obviously that brings down the R&D spend quite.
Quite significantly.
Roundabouts if you look at the little table, we provided within the slides is about $145 million at the midpoint of ongoing oncology Costa would come out of the P&L.
At the same time as you see what we're doing in 2023 investing in the.
Continued launch of <unk> all of you with the DTC campaign. This year, we're going to have a full year of digital and potentially half a year of TV. So you could see some incremental investments within.
For DTC that within the sales and marketing line.
But again.
Obviously to hit these revised targets is really going to be predicated on revenue growth on the top line with flow down to the bottom line. So that's really that continued focus on cost management is really going to help us in achieving our profitability targets one year earlier than we previously anticipated.
And Paul I switched the sequencing of the of the 2023 clinical work with with our action is is very deliberate and I mentioned before.
SaaS progressing into the Mad as you cleared doses, particularly as you start getting into where we modeled would be therapeutically relevant concentrations Mad provides 10 days of exposure. It gives us PK on us on a steady state basis, as well as tolerable Tolerability and safety with additional EEG information you move into the <unk>. The <unk> will be circa 40 to 50 patients I would say.
With with representation across <unk> and <unk>.
<unk> hypersomnia as well as sleep deprived individuals so youll get a sampling across each of those different phenotypes or disease categories, which should be enough to see whether you are having effect on the architecture of sleep against the primary endpoint and one carries about for registration, which is this maintenance of wakefulness test, which is a fairly reliable.
Marker for the activity of these drugs in this indication.
Okay, Thanks, but what about at yearend rich just for like how much data.
150 basis.
Well, the only reason I'm going to be a little bit soft on that is because we we clear ethics approval each different stage and so depending on the timing of the ethics approval and then the subsequent enrollment to healthy volunteers, we have a pretty good idea on because they are healthy volunteers in phase one site, but as we start moving into <unk> IH and that so we'll give you a little bit.
But I expect and we are planning cases to have information at least the empty ones.
This year. So we will see we will update we'll go as fast as we can obviously, but we'll see as we push for.
Move through these various logistical hurdles.
Okay understood. Thanks, so much.
Youre welcome.
Our next question I didn't answer I did answer a piece of <unk> question, which was about formulations and theirs.
One formulations in the clinic.
Thank you different doses one formulation.
The next question is from the line of we are with Mizuho. Please proceed with your question.
Hey, guys. Thanks for taking my question.
Yes. My first question is you know the the guidance.
It has started the year and it seems.
Wide, just wondering what would it take to sort of narrow it.
And secondly.
Could you provide us with some color on the gross to net assumption for the ritual and Arris daughter in the guidance I might've missed it.
<unk>.
So I'll take the last one first.
<unk> gross to net.
We expect that fiscal year 'twenty two ended with a 50% gross to net we originally thought it was going to be around 52%, but we did see some may think of ability on the Medicaid side of the business as we went through the year. So we don't anticipate necessarily seeing that favorability come through in 2000.
'twenty three so I'd anticipate that you'd see an increase in the gross to net back up towards that 52% level and then the gross to net for Arista has been remarkably stable I would say over the last couple of years. So you would expect that kind of level of gross to net to continue into the future.
Sure.
And then your general question around wide guidance.
As you say, it's early in the year. So there's lots of puts and takes as we go through the year that could impact the business.
We've done our best.
The message I was trying to put those together.
We could go down line by line of everything we have time to do that but looking at Vishal. For example, the growth in alcohol dependence and then see what happens on the opioid side of the business Arista is very much dependent upon market growth and we have certain assumptions built in that market growth could be different to what we are anticipating evolve is still in the launch.
As we've got a lot going on with regard to the ball of the in the DTC campaign. For example, so just a few examples of some of the things certainly on the revenue side and obviously as we go through the year, what we typically David we try and narrow those ranges down as we.
Sort of experienced things throughout the year.
Thank you.
Our next question is from the line of Jason <unk> with Bank of America. Please.
Please proceed with your question.
Hey, guys. Thanks for taking my questions.
Wanted to.
Ask the question about the ballgame payer mix and gross to nets, specifically it seems like your gross to nets are pretty low and so it seems like youre not really contracted as much on the commercial side, but yet youre not expecting sort of the volatility we see typically in like year. One two for drugs that are heavily commercially insured. So I'm just wondering if you can kind of.
Speak to that the payer mix broadly between the two indications that you have there and then just a quick.
Follow up question just on the debit <unk> patent case I think it's one single patent dispute. So I'm wondering if you're expecting a pretty quick turnaround time on a ruling from the judge there. Thanks.
Yes.
Yes.
Yes, I'll start off with the payer mix as well it's a good observation right now overall, what we're seeing with what we saw last year, we saw in the fourth quarter and we didn't see as much exposure.
With our overall gross to net and the rebates that we had to pay.
We launched when we launched the product we put a number of programs in place.
Program, our co pay program and we're actually seeing really good utilization for example, north of about 70% of all of our prior authorizations are approved which is very consistent with the branded category.
I think also what we're seeing is youre seeing were seeing the real leverage in the dual indications schizophrenia and bipolar schizophrenia. The mix typically in the schizophrenia patients as a as a higher mix within Medicare Medicaid within bipolar you actually see a higher mix of commercial and Medicaid and we're getting a healthy mix of both of those right now overall as <unk>.
<unk> settles out we believe that <unk> will be very consistent with the category, which is basically about a third for commercial and third for Medicaid and a third floor for Medicare.
And on the on the Endo litigation, while Youre correct. There is a single patent. There is there is a series of arguments underneath that patents that are fairly nuanced and will be will be discussed during the trial. So I won't speculate.
How fast or slow the judge rules, we'll work our assumption is that there'll be some type of decision and the Q2 timeframe.
Got it thanks.
Welcome.
Our next question comes from the line of Jessica Fye with Jpmorgan. Please proceed with your question.
Hey, guys. Good morning, Thanks for taking my questions.
When we think about the guidance for 2023, SG&A up around $100 million at the midpoint year over year.
I.
Imagine much of this is BTC for la <unk>, but can you quantify that.
And.
How should we think about the annualized DTC costs for <unk> as we think ahead to 2024 for example.
And then.
Taking with laboratory, but on gross to nets I want to make sure I understand what's embedded as it relates to your lowball the sales guidance for 2003.
Thank you mentioned high <unk> in the first half and that that May widen.
Pending on if you do additional contracting.
And so what's baked into the revenue guide in terms of widening in the back half if anything or would that be upside to sales guidance. If you opt to not go that route.
Okay, Jessica Thanks for the questions I'll take a go at those so for 2023 within SG&A.
Youll see thats about $75 million $80 million of incremental sales and marketing spend and the majority of that is focused on the DTC campaign.
So that would be for a full year of digital and half a year of TV.
So if you think about further years out 24 and 25, if there was a full year of both television and digital then yes, it would be an increase in SG&A proportionately.
Also within the G&A and I did mention in its illustrates a little bit in the slide that we have in the tables a lot of a one time type of separation costs associated with separating out the oncology business are included within the SG&A line.
So there's about $45 million of costs in total between building out the infrastructure for the stand alone entity and those one time costs.
So thats looks like G&A is increasing by more than eight world, obviously with the neuroscience business on a standalone basis, those costs will no longer be part of the business.
And then from a gross to net perspective from evolving as Todd mentioned <unk> for the first half of the year.
And then the net sales range. We gave today of 180 to 205 really encapsulates a range of gross to net possibilities that we could see in the second half so we're not being specific today.
It will become more into lives as we enter into any potential negotiations and we will be able to provide more detail as we go through the year.
Great. Thank you.
Thank you.
Our next question is from the line of Marc Goodman with SVP. Please proceed with your question.
Good morning, Rich could you talk about what's going on behind the scenes with trying to build a deeper pipeline on the CNS side do you think in a year from now there'll be.
More products, there and I guess the questions partly.
Aggressive youre going to be on the BD side, and then also what's happening in discovery I know you don't want to disclose anything but maybe you could just talk about it if something will be disclosed over the next year or so.
Yeah morning, Marc it's probably too early to make a call on that other than when you think about the neuroscience company spun it's going to have a orexin moving aggressively in the clinic, but the pipeline the iron.
Behind that we have not given you guys have any visibility into in part because some of it as you indicated not ready, but also because we will need to populate it with some additional candidates.
So the.
The R&D and profitability guidance.
Ian has mentioned accommodates the idea of expanding the pipeline.
But not in a in a dramatic fashion I mean, we're not going to go out on a spending spree because were managing business. It does profitability targets, but as the revenue line grows if we maintain on a ratio basis.
R&D line.
In line with with what.
Our peer companies would do it accommodates expansion of R&D and of course, the major Todd was what happens with the Orexin program and if that continues to roll.
That's going to become a really important feature of the pipeline.
Well I guess, what I'm getting at is that.
BD side, it's really up to you right I suppose how aggressive you want to be so I guess I'm just curious how aggressive what does it look like out there.
We know what has happened to the biotech sector over the past couple of years. It just seems like a good time.
For you to be building up the pipeline taking advantage of those opportunities.
Yes, I think that I think that Youre right I think that there is there is.
We went through a period of time, there really wasn't much out there that we were attracted in now I think the group is active now but that happens on such an episodic basis when the stars align and you find something that.
Meets the criteria from a scientific market as well as intellectual property perspective, so it's hard to it's hard to give you guys any guidance on the timing and sequencing of that other than to know that it's a priority.
Okay. Thanks.
Our next question is from the line of Douglas Tsao with H C. Wainwright. Please proceed with your question.
I'm showing no further questions.
Sorry about that.
Thanks for taking the questions.
Just as a follow up on the ball and the comment in terms of the gross to net just curious if you can just walk through how you're thinking about the decision whether to contract more in the second half of the year that would need to.
A bit of expansion the gross to net and what you wouldn't necessarily get for that from an access standpoint.
Yes, absolutely.
So we are watching this very closely overall.
We look at it a couple of different ways, we are actually looking at <unk>.
<unk> and the contribution from each of the channels and we actually see a healthy portion of prescriptions.
As I said earlier in my prepared remarks on bipolar and schizophrenia. We also you also see a healthy amount of prescriptions that are flowing through with commercial with Medicaid and Medicare. So we're watching that really closely.
And those are discussions that that debt. We also then have with with commercial payers. One of decision points that was then we're thinking about is as our access profile right now support the aspiration that we have.
And if we need to enhance it in any way and those are discussions that we had last year will continue to have those this year, we think that the Bob is very well positioned right now with end market access because we are seeing a prescription flow through we do a fair amount of market research with providers as well and overall in this category. They think in general that most of the branded agents had a similar pro.
File Theres always step edits prior authorizations medical exceptions, so that goes into our decision point as well too, but overall right now we think we're really well positioned.
Okay, great. Thank you very much.
Thank you.
Our final question is from the line of Brandon Folkes with Cantor Fitzgerald. Please proceed with your question.
Hi, Thanks for taking my question I, just want to come back to the neuroscience.
<unk> spend.
Unlike ball with just given the breadth of prescribing is driving growth currently how do you think about your head counts infrastructure on the commercial operations in 2023, and maybe embedded in those $24 25 profitability targets. Thank you.
Yes, I think we.
We've built the infrastructure initially rebuilding for Vishal, let me, we're able to start leveraging it with IRS data.
We now have three products that are supported by the commercial infrastructure.
I think the infrastructure that we have today is going to support growth for all three products into the future without us needing to spend additional money I think the incremental investments on the SG&A side are outstanding on the sales and marketing side are really going to be around this DTC campaign. Both in this year and in the next couple of years.
But as I said the idea between the DTC campaign is to grow or move that revenue line up so.
Assuming we receive that we will continue to invest in DCC.
But we're going to learn a lot as we get into the program and we will be able to adjust that investment as we deem appropriate.
Alright, Thank you very much.
Thank you thanks Brandon.
Please go ahead sandy.
Alright, thanks, everyone for joining us on the call today apologies for the technical difficulties and bearing with us.
Well I'll be available all day.
Thank you.
This will conclude today's conference you may disconnect. Your lines at this time. Thank you for your participation.