Q2 2023 Alkermes PLC Earnings Call
Now for all web and didn't even know I'll ask Dan if you adjust.
Yes.
We don't know.
700.
Greetings and welcome to the Alkermes second quarter 2023 earnings financial results Conference call. My name is Mariana and I'll be your operator for today's call. All participant lines will be placed on mute to prevent background noise. If 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 you may begin.
Thank you good morning, welcome to the Alkermes plc conference call to discuss our financial results and business update for the quarter ended June 32023 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 Dot com.
To find our press release related financial tables, and reconciliation of the GAAP to non-GAAP financial measures that we'll discuss today, we believe the non-GAAP financial results in conjunction with the GAAP results are useful in understanding the ongoing economics of our business.
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.
<unk> to differ materially from those expressed or implied in 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 Ian.
Great. Thank you Sandy and Hello, everyone.
Our second quarter results reflect strong execution across our business highlighted by the 21% year over year growth of our three proprietary commercial products.
And reinstatement of the long acting and Vega royalties in the U S. Following our success in the arbitration with Janssen, which concluded during the quarter.
This clear resolution further enhances our financial strength and is complemented by our progress in separating the oncology business, our ongoing emphasis on operating efficiency and our commitment to profitability as reflected in our 2024 and 2025 profitability targets.
Before reviewing the underlying business results for the quarter I'll walk through the impact of the final award from the Janssen arbitration as it relates to our second quarter financial results as there are a number of important elements.
First we recorded $197 $1 million of back royalties and associated interest related to 2022 as revenue in the quarter.
Of this $195 $4 million related to the long acting and Vega products and $1 $7 million to Cabot Hoover.
This revenue is reflected in our GAAP results. However, it is excluded from our Q2 non-GAAP net income.
Second we recorded $51 $3 million of incremental royalty revenue related to Q1 2023.
Of which $52 million related to the long acting and Vega products and $1 $1 million to cabin Hoover.
In total we have received $248 $4 million of back royalties and interest from Janssen and they're used in these proceeds are reflected in our cash position at the end of the second quarter.
And last we recorded $76 $9 million of royalties on Q2 worldwide net sales of these products of which $75 $7 million related to the long acting and Vega products and $1 $3 million related to <unk>.
Royalty revenues related to Q1 and Q2 of 2023 are reflected in both our GAAP and non-GAAP net income in the second quarter.
All told we recognized $325 $3 million of royalties and interest in the second quarter related to these products.
All of which was included in GAAP net income, while a $128 $3 million related to 2023 net sales was included in non-GAAP net income.
So now turning to our full Q2 financial results.
For the second quarter, we recorded total revenues of $617 4 million, which included robust performance across our proprietary product portfolio, which grew 21% year over year.
Starting with vitro net sales in the quarter were $102 $1 million, reflecting 6% growth year over year, driven primarily by growth in the alcohol dependence indication.
Inventory in the channel was stable and gross to net deductions within normal ranges for the quarter.
For the full year, we continue to expect Vishal net sales in the range of $380 million to $410 million with demand expected to be fairly stable over each of the next two quarters.
Moving on to the outer startup product family so.
So the quarter Arris started net sales increased 10% year over year to $82 $4 million, driven primarily by higher underlying demand.
Inventory in the channel was stable and gross to net deductions were within normal ranges for the quarter and for the full year. We continue to expect a restart of net sales in the range of $315 million to $345 million.
La bogie net sales for the quarter were $47 million up 24% sequentially.
Underlying prescription growth was 16% and during the quarter inventory in the channel rebounded to normal levels following relatively lower levels at the end of the first quarter.
Gross to net adjustments in Q2 with approximately 26%, reflecting a continuation of our disciplined contracting strategy in the commercial space.
We currently expect that gross to net adjustments will remain fairly stable for the remainder of 2023.
For the full year, we expect let Bobby net sales will be toward the higher end of our previously provided guidance range of $180 million to $205 million.
Moving on to our manufacturing and royalty business. In addition to the Janssen royalties I've already discussed the company recorded revenues from <unk> of $32 $3 million compared to $26 2 million in the same period in the prior year.
Turning to expenses total operating expenses were $378 2 million for the second quarter compared to $310 $7 million in the same period in the prior year.
R&D expenses for the second quarter were $108 million compared.
Compared to $92 $9 million for the same period in the prior year, reflecting acceleration in recruitment of the ongoing <unk> clinical studies.
Advancement of our out 26, 80, Orexin two receptor agonist program into phase, one b and ongoing labov lifecycle management studies.
SG&A expenses increased to $205 3 million from $150 4 million for the same period in the prior year the.
The increase was largely driven by a $28 million investment in the lebow, the direct to consumer campaign, including the start of the TV component in May.
As well as certain expenses related to the separation of the oncology business.
Looking ahead, we currently expect DTC related expenses to be lower in each of the next two quarters.
Our top line results combined with our continued focus on disciplined operating expense management resulted in a GAAP net income of $237 1 million and non-GAAP net income of $94 $3 million for the quarter, which as I mentioned excludes the jensen back royalties and.
<unk> interest of $197 $1 million related to 2022.
Turning to our balance sheet, where you are in a strong financial position as we ended the second quarter with $907 $2 million in cash and total investments with total debt outstanding of $292 million.
This positions us well to appropriately capitalize mural oncology upon separation, which we continue to expect will be on the order of $200 million to $300 million.
Today, we are reiterating our financial expectations for 2023 that we previously raised on June 6th following the successful outcome in the Jensen arbitration.
As a reminder, our financial expectations reflect the combined neuroscience and oncology business for the full year.
We remain on track to complete the separation in the second half of the year.
So in conclusion as we enter the second half of the year, we are well positioned financially to execute on our strategic priorities.
Drive the launch of Lowball, the advanced the <unk> 26, 80 clinical program and complete the separation of the oncology business.
We'll continue to focus on driving strong performance and momentum across the business to create long term value for our shareholders. So with that I'll hand, the call over to Todd.
Thank you Ian and good morning, everyone I am pleased to share that we delivered solid growth across our proprietary commercial portfolio again in the second quarter.
With 21% year over year growth our sales performance during the quarter was driven by strong execution.
Our commercial organization.
We're particularly pleased with continued uptake of LIBOR IV and the oral antipsychotic market.
So let's start there during the quarter lowball, the net sales were $47 million.
Prescriptions grew 16% sequentially to approximately 38300 <unk> for the second quarter.
Importantly growth of new to brand prescriptions accelerated sequentially as well.
As we outlined.
Outlined earlier this year our strategy for Lee ball in 2023 is focused on three key initiatives grow prescriber breadth.
Optimize our access profile and build awareness for Lee Bobby.
During the quarter prescriber breadth grew by 1800 prescribers to approximately 11150 health care providers.
Who have written a prescription since launch.
In a recent market research healthcare provider Sightedly Bobby's efficacy weight gain profile in patient outcomes as key drivers for their increased prescribing, which is encouraging feedback as we think about brand awareness and potential future prescribing patterns.
Leave all the persistency continued to be in line with other branded oral atypical anti psychotics and better than generic olanzapine as we expected.
Market access continues to play an important role for <unk> like all brands in this space and Medicare and Medicaid. We currently have a pathway to access for all patients on the commercial side. We are pleased with how our commercial access strategy is playing out.
We made deliberate decisions to focus on maximizing net revenues and limit commercial contracting at this stage of the launch.
From a net sales perspective, we believe that maintaining a higher average selling price in the commercial channel outweighs any access limitations, we have encountered as a result, thus far.
Going forward, we will continue to evaluate our contracting strategy in the commercial space balancing volume growth and the profitability of each unit with that said, we expect leap. All these commercial access profile to remain fairly stable for at least the remainder of 2023.
Our DTC campaign will be a key factor in driving awareness and maximizing the opportunity fully balls in the long term.
The TV component of our DTC program launched during the first week of May and is focused on bipolar one disorder. The campaign is designed to drive high levels of awareness amongst patients caregivers and health care providers, we will pulse our investments in broadcast advertising based on expected ROI with greater investment in AD placement.
Broadcast television viewership is highest in the spring finale in fall Premier seasons.
While it will take some time to see the full impact leading indicators on the effectiveness of the DTC campaign have been encouraging.
We will continue we continue to believe will Bob is on a strong growth trajectory and look forward to sharing our progress with you.
Turning to the ARISTOTLE product family net sales in the second quarter grew 10% year over year to $82 $4 million driven primarily by <unk> growth of approximately five 4% on a months of therapy basis.
We were encouraged to see continued sequential growth in aerostat and new to brand prescriptions.
Which we believe was driven by strong share of voice in the long acting atypical market. We expect this market will continue to be dynamic and our team will continue to focus on highlighting aerostat as differentiated value proposition.
Including its once every two month dosing option and the aerostat initio initiation regimen, both of which are supported by clinical data from our Alpine study.
Turning to <unk> net sales in the second quarter increased approximately 6% year over year to $102 1 million.
The alcohol dependence indication continue to be an important driver of growth and accounted for approximately two thirds of the vitol volume.
Importantly against the backdrop of continued growth in the alcohol dependence treatment market prescriber breadth per visit trial has continued to expand within the alcohol dependence indication, which has driven new patient starts over recent quarters. We also continue to see signs of stabilization for the opioid dependent side of the business, particularly within our top five.
Volume States.
As a reminder, this trial and our vivid trial patent litigation with Teva took place in February and we continue to expect a decision in the second half of this year, we remain confident in the strength of our case, however, regardless of the outcome of this litigation we continue to believe that the nature of the product and the complexities and dynamics of the market and.
Which it is commercialized make typical generic erosion unlikely.
Overall, we continue to be pleased with the performance of our commercial product portfolio and the strong execution of our commercial strategy by our team. We look forward to updating you on our progress as we move through the second half of 2023.
And with that I'll hand, the call over to rich.
That's great. Thank you Todd.
In the second quarter was important we had a number of critical accomplishments that were central to our plan for the year strong commercial performance success in the Janssen arbitration and reinstatement of the associated royalties.
<unk> is a phase <unk> study for <unk> 2006 to eight and advancement of enrollment in oncology studies progress toward the planned separation of the oncology business and the successful re election of our directors at our annual.
Shareholder meetings.
So now as we enter the second half of the year, we expect a number of important domains within the business to come more sharply into focus the value of the commercial portfolio, including the <unk> initial resolution of the <unk> litigation clinical proof of concept data for <unk> 2680 in narcolepsy and completion of the separation of oncology business.
Each of these elements represents an important opportunity to drive value.
So taking each in turn first the value of our commercial portfolio and the commercial organization that we've built.
As you've heard from Todd and in our commercial organization has continued to generate robust growth for our proprietary products driven by an intense focus on execution of our commercial strategy.
Now in its second year of launch the bulb has continued to review with potential in the large oral atypical market.
At the start of the broadcast DTC campaign during the quarter was a significant milestone DTC is an essential component for every big brand in this market and we expect DTC to be important driver of awareness and uptake of leap <unk> building on the strong momentum we've established.
Our <unk> strategy is designed to maximize net revenue growth and profitability over the long term and demonstrate the operating leverage we've engineered into the business. We're confident in our strategy. So our focus will continue to be on execution.
Next on <unk>, we expect initial resolution of the visual and litigation in the fall I say initial because either party may choose to appeal. The decision whichever way it goes which would introduce a new cycle of legal interaction for this reason, we would not expect changes in our go to market strategy for vivid drilling either 2023 or 2024.
With that said as Todd noted, we're confident in the innovation embodied individual and would not expect typical generic erosion in this market.
<unk> role as an important treatment option for opioid and alcohol dependence and we will be a key product in our portfolio for the foreseeable future.
So turning to our 2680, our Orexin two receptor agonist program.
Program is designed to generate key data early in its clinical development and we are moving quickly.
Based on the progress we made earlier this year the single and multiple ascending dose parts of the phase one study in the second quarter, we initiated a phase <unk> proof of concept study in patients.
This proof of concept studies evaluating established clinical efficacy endpoints, including EG based maintenance of wakefulness test in patients with narcolepsy type one narcolepsy type two and idiopathic hypersomnia.
In a crossover design subjects will act as their own control and received single doses of multiple dose levels as well as placebo with a washout period in between.
With a small number of subjects per cohort. We believe this approach will allow us to efficiently assess initial dose response and inform dose ranges for potential future clinical studies.
Enrollment in the narcolepsy type one patients is on track and we continue to expect initial data from the <unk> study later this year and we'll look forward to sharing this data with the scientific and Investor communities.
In the meantime, while we enroll the <unk> study, we are preparing our phase II clinical development program. So we'll be ready to advance it as quickly as appropriate.
I'll finish with the separation of the neuro oncology business neuro oncology will be a new independent public company. We are on track with our original timeline to complete the separation in the second half of the year has made important progress as we approach. The final stages of this process, most notably we announced the appointment of Dr. Caroline low as the Chief Exec.
Officer designate of neuro oncology.
Doctor load joined Us in June as a strategic adviser and she'll transition to CEO of neuro oncology upon completion of the separation.
Dr. <unk> deep knowledge of the oncology field extensive leadership experience and strong track record of execution and strategic business development makes her uniquely qualified to lead neuro oncology when it begins its journey as a standalone company.
Now with Caroline in place, we're building out the independent members of the <unk> Board and other senior members of the Mirror leadership team I am pleased with the caliber of the candidates that are coming through this process.
The separation will provide shareholders and investors with an independent and more direct opportunity to realize value from the oncology investments that we've made it will also reveal the value of our neuroscience business.
Following the separation alkermes will become a pure play profitable and growing neuroscience company.
With a strong top line driven by the growth of our proprietary products, including <unk>, which is still early in its launch.
<unk> specialized commercial infrastructure proven drug development capabilities, and an important pipeline opportunity and Alex 2680, we see significant opportunity to unlock value in the near future.
The coming months will be an inflection point in the evolution of the company and we look forward to sharing our progress with you so with that I'll turn it back to sandy to manage the Q&A.
Thanks, Maria we can start the Q&A polling for Ya.
Okay. Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
I ask that all analysts limit themselves to one question a follow up to allow everyone time for question.
Participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Our first question comes from Chris Shaw Tani with Goldman Sachs. Please proceed with your question.
Thank you good morning, two questions. If I may 1st on the <unk> programs I think we are all anticipating in the investment community. The data that'll come by year end I think you've highlighted and team. One is data that we would see from the sale of <unk>. During the first quarter call you did reference the importance of that.
Different segments, a potential need for different levels of potency and also we know that you have expertise where it probably.
As test tool compounds that are also available so how should we be thinking about the phase III program that you alluded to being able to prepare to into what would you need to see it.
In terms of thinking about whether you would possibly take additional doses do more work for the other segments of Mg to NIH.
Or bring other compounds into the clinic and then the second question would be on profitability.
<unk> highlighted that particularly regardless of the outcome I think nicole the level of intensity and support would be the same in 'twenty three 'twenty four and you've talked about how the commercial complexities.
Complexity is make it so it won't be a typical generic erosion curve, but regardless of the timing it seems as if they've ever trial at some point may have an entrant should we think that the.
Opioid segment is more protected in the alcohol is the one that's more vulnerable and should we think that your level of spending in support would decrease when theres, a competitive entrant that potentially could get a discount.
Hey, Chris It's rich I'll try both of those and I'll ask <unk> to chime in if I need to first one the orexin first of all just to be clear the distinction to empty one NTT and IH. It won't be one based on potency. The potency is inherent in the compounding and and so far the work in the clinic suggests that we're happy with where we're seeing the potency.
The difference maybe in dose and that actually informed the design of the <unk> study, whereas I mentioned each patient is serving as their own control and were escalating doses in single dose format using the maintenance of wakefulness test and placebo to give us basically a small dose response curve for each patient and in that way by start.
Within Q1s, we anchor the base potency of the compound and then we have a way to then as we move into <unk>, where we'll beginning dosing in the <unk> with the expectation that we'll have to go a bit higher in antitumor <unk> and perhaps in the IHS as well so that's where the N Q1 cohort is an anchoring cohort and that's well underway and so by the end of the year.
<unk> I expect to have patient exposures in <unk> at a minimum perhaps IH as well how those get assembled into presentation at world sleep or other scientific knees is still to be determined but were advancing as many of those cohorts as fast as we can in order to inform in phase. Two then establishment of those dosing.
The ranges that we use for the dude.
Differential diagnosis.
I hope that makes sense does that make sense.
Yes, no thats helpful. In terms of thing about phase two okay.
On the profitability of <unk> I think it's.
Probably the most constructive way to think about it is.
It depends on how somebody came into the market and someone came into the market with the pure generic strategy I E trying to two contracted at lower rates, we see the business. The way it's distributed now across Medicare Medicaid and commercial we really see the major opportunity to do that would be in the commercial space, which is only about 20% of the business I also don't think there'll be.
Smart thing to do because the market is growing and the price point is relatively good so our expectation our hope would be that if someone came in at more like a branded generic.
I'm sorry, it more like a biosimilar at a high price allows the marketing team to grow we would maintain our promotional intensity I mean, obviously, we pay attention to the profitability of the brand.
But I think the distinction is not between opioid and alcohol, it's more between commercial versus government business and so we see that the opportunity for entry.
Is is more in the commercial space with that said the market is so new and alcohol.
And it's growing so rapidly the logic for a new entrant into the market given how hard it is to get into this market would be to come in and continue to grow the market Todd.
Absolutely let me, let me just add onto that which is well yeah. Chris We made I made the statement in my prepared in our prepared remarks that it's not typical.
Brand generic erosion the way to think about this is typically with small molecules switches in a small molecule switch you typically see rapid price erosion and then you also see a focus on point of sale switches. The typically what happened to a retail pharmacy as well. We don't believe you would see any type of rapid price erosion here and the way that.
The fulfillment of the vivid trial business works is that retail pharmacy is very small it's less than 20% overall.
Highlight opioid versus alcohol dependence and to Rich's point as well this actually makes it even more complex to commercialize the product because those segments actually operate independent and separately. We are really pleased with what with our strategy over the last couple of years to drive alcohol dependent in fact, we have approximate 11000.
Hcp's now that have written a prescription for vishal and alcohol dependence and we're seeing about a 5% year over year growth with that secondly, we are seeing about a 9% demand growth right now for alcohol dependence. So we believe that there's still a lot of runway for <unk> within that within that channel.
To Richard's comment as well too we have complex manufacturing.
The fulfillment channels are complex also the settings of care complex and Theres not one setting that actually dominates the market. So anyone coming into the market would have to have a deep understanding of how to commercialize and we believe we are well positioned to continue to drive ever trial and also defend if a competitor came into the market.
Thanks, that's helpful thinking that the durability of that asset potentially long term appreciate it.
Yeah.
Our next question comes from David <unk> with Piper Sandler. Please proceed with your question.
Thanks, So on Lai ballsy.
Understanding what you said on commercial payer contracting.
I wanted to ask about the long term picture.
One of your peers.
That distributes.
Kept lighter.
Has talked about more commercial exposure and more contracting and obviously that product has.
It has a label in bipolar different label, but nonetheless in the bipolar setting. So I guess the question is what is it about like Bobby that's different where you feel like you don't have to contract more aggressively and longer term.
Does that change as youre getting more and more exposure.
So the bipolar population and you're activating more patients. So this is really not a 'twenty 'twenty answer your question, but sort of longer term and that's number one and then number two just to be clear on the trial to the extent there is an early generic entrants does that put your profitability targets your long term profitability targets at risk.
And what is the extent to which you can manage the cost structure too.
<unk> continues to maintain those profitability targets to the extent there is an early entrant.
Bearing in mind, everything you've said, but just wanted to drill down on profitability in case that did come to pass. Thank you.
Yeah. So I'll start first with with laboratory you know I would say the way. We think about this is we've learned a lot over the last seven years, specifically with <unk>. We've been in this space serious mental illness for a long time, and so we really understand the dynamics.
Happening in health systems, the payer environment and with HCP is and one of the things. We've learned over time is that you have to be very thoughtful on how you balance volume and profitability. Once you started offering rebates, especially in the commercial space you can't retract as those rebates and so we watch that very carefully.
We also stay very close to our HCP is and our prescribers in Hep's and prescribers are are very astute.
Astute at being able to navigate hurdles that are in the space.
So right now we believe this is a manageable dynamic so and I also want to make sure that we clarified that we do have commercial contracts right. Now we do have some commercial contracts, we look at each commercial contract independently and our focus right now is really making sure that we're maximizing profitability and net revenue for the long time, we do believe the <unk>.
<unk> will continue to evolve so our focus our strategy long term would be to do additional commercial contracts, but at least for the remainder of this year, we think our growth in our commercial profile will remain stable.
Thanks, Todd and then on the profitability question.
No we intend to manage the business to achieve the profitability targets that we have out there for 24 and 25 I think as you heard there's a lot of dynamics that are going to play out certainly with the.
With the vivid trial space, which really too early to speculate on how things are going to work out, but we're going to continue to assess the situation with the goal of maximizing profitability from the franchise them and be able to hit those profitability targets.
Thank you.
Our next question comes from Paul Matisse with Stifel Stifel. Please proceed with your question.
A couple on the Orexin program can you talk about just what you've seen in your sad Mad work as it relates to Tolerability is there anything discernible that drives a maximum tolerated dose for your lead compound and then as we think.
The data coming up in Q1, and then also the wakefulness test in other populations like NTT IH, how do you think about the predictive validity of that test onto a registrational study in each indication as you extrapolate that things like cataplexy attacks CGI or other endpoints that are relevant in different populations.
Yes.
Good morning, Paul Yes, we haven't we haven't hit at MTV, yet in the in the sad and Mad which is encouraging in fact.
Based on the way. The protocol was designed we moved off of the sad to move into the med and wouldn't be without hitting the MPD will go back and re interrogate that to make sure. We can establish if possible.
A.
Maximum tolerated dose, which is which is quite encouraging as you well know there are certain what you expect on target.
Adverse events that you would be looking for that.
Our view is that it looks like the wakefulness component of Orexin two receptor agonism can be decoupled from some of these other side effects. So thats encouraging.
<unk>.
The.
The validity and as you know the approvable endpoint in Registrational studies.
EG guided maintenance away from this stuff.
But there are others sleep scores as you know qualitative bureaus as well.
Measurements of cataplexy that are useful in Q1 in particular, where cataplexy is a hallmark feature not so and NTT too. So I think that the anchor the most particular for US. We view is the maintenance of way from this test, which is which is again not just maintenance.
The maintenance of weakness at Ulta <unk> driven.
And then we will be collecting these other endpoints in our in our phase II study and then as we as we lineup for the pivotal study, we will prioritize the primary and secondary endpoints in consultation with FDA and because there are a number of players in this field. There is a certain consensus is building around the way to best assay.
Perceive these drugs to patients.
And do you still think rich that this compound is <unk>.
Likely to address all of those populations because I think you've spoken previously about the concept of needing to potentially dose higher outside of Q1.
Yes, I think that the as I mentioned to Chris earlier.
I think to answer that question will be driven by the potency and in tier one if you are a highly.
Potent compound and in Q1, you have the ability then to escalate without as much fear.
Even if you had to go five to 10 fold higher it's not clear yet in the whole field, how much higher one needs to go into too I think the expectation is that whereas in tier one is clearly a deficiency of orexin producing neurons and so you have an absence of the orexin peptides entirely in Q2 and I H.
That differential diagnosis is somewhat fuzzy, but also there may be a continuum or distribution of orexin tone in the brain. So for certain patients you might need a certain amount and for another patient mining more or less.
So our hope and our expectation I'd say right now is that for many patients outside of N. T. One you may titrate to attitude to effect.
That's the flexibility by potency and allows you to move across a range of doses would be really attractive clinical feature and that's where we're figuring out right now in the clinic.
Makes sense, thanks, very much youre welcome.
Yeah.
Our next question comes from Ross <unk> with Evercore ISI. Please proceed with your question.
Hi, guys. Thanks for taking my question I, just wanted to revisit the long term guidance 'twenty 'twenty four for a quick second maybe putting the vitriol aside for a second and.
And keeping in mind, obviously that J&J royalties are not part of the 'twenty 'twenty four guidance would you agree that the business needs to attract north of consensus to make the 20% EBITDA to revenue guidance that you have out there for next year.
And again it could track north either on a libel the or you do more of a cost cut I'm just I'm just curious how youre thinking about the key levers to get to those numbers because I'm sure you've thought about it at length.
Yeah, I think as we think about the long term profitability targets, obviously that they're focused on revenue growth of the topline and then continued focus on disciplined expense management. So it's really a combination of those two.
Levers within the business.
We reiterated the guidance when we went out with the J&J news in the June timeframe.
And we will talk about them at some point in the future.
Okay.
Our next question comes from <unk> with Mizuho Securities. Please proceed with your question.
Hey, guys. Thanks for taking my question so.
Rich I think you mentioned that you could be presenting something at world sleep and so that's.
A few months away could you just sort of give us maybe.
Sure.
Just some color on what we should expect to see them.
Kind of data, we expect to see there.
And I guess secondly.
On SG&A.
I guess, if you take out the 28 million one time or.
This quarter it would be something like 177 have you sort of flatline at its peak.
Thank you.
You will spend more than.
Your the high end of your guidance.
Should we expect SG&A to come down in the second half.
Yes.
Good morning World sleep.
Is in October and what we're trying to do is enroll as much of the <unk> cohort as possible as well as get into the <unk> twos as well, we'll see how far along we get as we go as we take those cohorts and compile the data and put it together for a scientific presentation that.
We'll also be coupled with data from the sad and the Mad study. So we will hope to give a pretty comprehensive view of what we've learned in the clinic. So far this year.
Ian you want to take the SG&A, Yeah, and then on the SG&A side of things I think there's really two components to that on the sales and marketing side as you talked about we had the investment initial investments in DTC.
On the TV component side of things talk talked about us pulsing that investment as we go through the remainder of the year.
Typically the summer months are a little bit slower from a TV perspective, so we'd expect the DTC spend to come down and then potentially rebounded in the fourth quarter.
As we get into the finale season, assuming the writer inactive striker doesn't impact that and then on the G&A side of things we had a pretty busy Q2, if you think about it.
With the J&J arbitration, the Teva litigation the annual shareholder meeting so at a certain level of spend in Q2 that.
That we don't expect to occur recur in the second half and then lastly, we also are incurring some spend on the separation of the oncology business.
We wouldn't necessarily expect to run at the same level through the year. So there were a few factors in the second quarter, which we don't anticipate necessarily a running through the <unk> in a similar way through the rest of the year.
Thank you.
Our next question comes from Marc Goodman with Leerink Partners. Please proceed with your question.
Yes on the DTC can you just give us a sense of how youre measuring returns and what you've seen so far as far as return on that investment and how much money are you planning on spending on the DTC program for the full year. Thank you.
Yes, absolutely Mark.
I'll take that it's early with our DTC investment we started our digital component of the DTC investment at the beginning of the year and we're really pleased to launch the tip. The TV component in May right now a lot of our metrics our qualitative in nature. So we don't believe that we're seeing any.
Type of inflection on our DTC campaign, we believe that the ROI will play out really over the over the next six to 12 months.
The metrics that will really watching right now our awareness levels, which are building. We are watching our website traffic will watching search engine traffic. We're watching overall the number of people that we're able to reach their TRP levels and theyre very consistent with our expectations and the trends are very encouraging as well.
In terms of the overall investment as we've talked about previously we think the DTC investment on an annual basis for this year will be in the range of about $70 million to $75 million and there will be taking a look at what that investment will look like in 'twenty four and beyond later this year.
Thanks.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from Jason <unk> with Bank of America. Please proceed with your question.
Hey, guys. Thanks, so much for taking my question.
I just wanted to come back to the 2024 net margin guide of 25%.
Mindful that youre waiting to February to address this but just trying to get conceptually.
And understanding here because it seems like perhaps two thirds of the net profit step up can be achieved through kind of net product sales if theyre all kind of operating leverage.
And the R&D cuts with Merrell, but.
It would seem like you need to take a healthy cut SG&A in and there's a lot of talk about paulson investment in DTC. So wondering how much that discretionary SG&A could.
Could be a lever in 2024 to get to that net margin guidance and then just as my follow up we're getting some questions. Just is getting this orexin data at the World Sleep Medical meeting in October a priority for you guys. Thanks.
So on the profitability targets again, we will be providing detailed 2020 for guidance on our yearend earnings call in February .
To answer all those questions more specifically.
But you know, we're anticipating continued growth with the proprietary products vivid trial, our startup and especially the bovey.
And especially the bulb is driven by the DTC investment that we've talked about we continue to expect growth in humanity.
And then on the expense side of things as we said, we very much focus on operating efficiencies that will continue.
And we have the ability to flex some of the spend within the P&L such as DTC as you alluded to and as Todd said.
We're gonna be assessing both the return on investments and the level of investment on DTC as we go forward, but there'd be a lot more detail to follow on that on the February year to earnings call.
Got it and.
And Jason with respect to <unk>, we expect to present data we will see.
Okay.
Okay.
That would be the MQ, one phase one data at world sleep.
Excuse me.
Yes, I expect to have.
But at least the first cohorts of the <unk> one complete.
Got it great. Thanks, guys.
Okay.
Our next question comes from Douglas Tsao with H C. Wainwright. Please proceed with your question.
Okay.
Doug are you there.
Alright maryanne okay.
And it appears we don't have any more questions now so I'm going to turn the floor back over to you Sandy for closing comments.
Thank you everyone for joining us on the call today, please don't hesitate to reach out if there any follow up questions. We can be helpful. With thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.