Horizon Therapeutics PLC (HZNP) 2018 Q2 法說會逐字稿

Good morning, and thank you for standing by. Welcome to the Horizon Pharma plc's Second Quarter 2018 Earnings Conference Call. As a reminder, today's conference call is being recorded.

I would now like to introduce Ms. Tina Ventura, Senior Vice President of Investor Relations.

Thank you, Glenda. Good morning, everyone, and thank you for joining us.

On the call with me today are Tim Walbert, Chairman, President and Chief Executive Officer; Paul Hoelscher, Executive Vice President, Chief Financial Officer; Shao-Lee Lin, Executive Vice President, Head of Research & Development and Chief Scientific Officer; Bob Carey, Executive Vice President, Chief Business Officer; and Vikram Karnani, Executive Vice President, Chief Commercial Officer.

Tim will provide a high-level review of the second quarter and an update on the business, and Paul will provide additional detail on our financial performance and guidance. Shao-Lee will discuss the clinical development programs for our rare disease medicines. And after closing remarks from Tim, we'll take your questions.

As a reminder, during today's call, we will be making certain forward-looking statements, including statements about financial projections, our business strategy and the expected timing and impact of future events. These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2017, subsequent quarterly reports on Form 10-Q and our earnings press release, which was issued this morning.

You are cautioned not to place undue reliance on these forward-looking statements, and Horizon disclaims any obligation to update such statements.

In addition, on today's conference call, non-GAAP financial measures will be used. These non-GAAP financial measures are reconciled with comparable GAAP financial measures in our earnings press release and other filings from today that are available on our investor website at www.horizonpharma.com.

I will now turn the call over to Tim.

Thank you, Tina, and good morning, everyone.

Today, we reported strong second quarter results and increased our adjusted EBITDA guidance range. Our strategic growth segment, the orphan and rheumatology business, delivered impressive performance, and we're making good progress towards our goal to become a leading rare disease medicines company with a robust development pipeline. The strong performance and momentum we are generating in the business are the result of the execution of our strategy over the last 3 years to rapidly diversify our business and focus on rare and rheumatic diseases.

Let me provide a few highlights for the quarter. Our orphan and rheumatology segment achieved record net sales of $202 million. This increased 20% year-over-year, excluding the second quarter 2017 net sales in EMEA of PROCYSBI and QUINSAIR, which we divested in June last year. The orphan and rheumatology segment represents 2/3 of our total company net sales.

Our biologic for uncontrolled gout, KRYSTEXXA, was the company's key growth driver. Net sales increased 53% year-over-year, driven by nearly 60% vial growth. The second quarter year-over-year net sales and vial growth rates accelerated compared to first quarter 2018, which is a direct result of our increased investment. We remain highly confident in our ability to meet our expectation of more than 65% year-over-year growth in 2018.

In R&D, we have continued to make progress on several fronts. Our teprotumumab Phase III trial has reached its target enrollment of 76 patients, well ahead of schedule. Given the new time line, we are accelerating prelaunch activities and associated commercial investments.

We announced today that we'll present 72-week data from the Phase II teprotumumab trial at the American Thyroid Association meeting in October. This will be the first time data is presented on the durability of response of teprotumumab after discontinuation of treatment.

And we are planning on initiating a new company-sponsored immunomodulation study with KRYSTEXXA to continue exploring a broader clinical profile of the medicine. Titled MIRROR, this trial will evaluate if the KRYSTEXXA patient response rate is improved with the addition of methotrexate to KRYSTEXXA therapy. Along with the 2 ongoing investigator-initiated trials, RECIPE and TRIPLE, with the addition of MIRROR, there will be 3 studies underway to assess 3 of the most commonly used immunomodulators. Shao-Lee will discuss these developments in more detail in her remarks.

Finally, beginning this quarter, we have implemented a new operating structure that aligns our business into 2 segments. This allows us to improve our operating and resource allocation decisions with our long-term strategic goals in mind. This new operating structure is the next step in the strategic direction we set in motion several years ago to rapidly diversify the company and become a leader in rare diseases. As we have discussed, last year we began the next phase of our strategy, which is to build a pipeline of clinically differentiated medicines. Teprotumumab is our flagship pipeline candidate, and we are actively looking for additional assets for our pipeline.

Our expanded R&D leadership team, with their depth and breadth of scientific and clinical expertise, is partnering with our business development team to evaluate development-stage opportunities.

Moving to our second quarter results, this morning we reported net sales of approximately $303 million and adjusted EBITDA of approximately $117 million. We continue to expect full year 2018 net sales to range between $1.17 billion and $1.2 billion. We have increased our adjusted EBITDA guidance to range between $400 million and $420 million versus the prior range of $390 million to $415 million.

Growth in our orphan and rheumatology segment was driven by KRYSTEXXA, RAVICTI and PROCYSBI. KRYSTEXXA net sales were approximately $59 million, increased 53%, driven by continued strong year-over-year vial growth. Our most recent commercial expansion, which went into effect at the beginning of this year, has doubled our team and increased our promotional efforts to further penetrate rheumatology and initiate marketing to nephrology. Both therapeutic areas are key to our growth and success and collectively represent 100,000 patients with uncontrolled gout.

The investments we're making are working, and we continue to see accelerating momentum in the business. This is evidenced by 30% sequential increase in KRYSTEXXA vial sold from the first quarter.

In nephrology, we continue to see progress with benefits investigations increasing more than 40% versus the first quarter. Unlike rheumatology, where we have been executing a relaunch and re-education effort, nephrology is an untapped market where we see significant long-term opportunity.

Gout is a systemic disease, where, in addition to joints, it affects the organs, including the kidney. 50% of the clinical trial patients in our Phase III KRYSTEXXA program had chronic kidney disease. And unlike other gout medicines, KRYSTEXXA's mechanism of action is highly efficient in excreting uric acid from the kidney and can be used in patients with chronic kidney disease. These messages are resonating very well with nephrologists.

We expect vial growth to continue to accelerate in the second half of this year, driven by increased demand from both rheumatology and nephrology, and this strong growth rate is on track to meet our guidance with full year KRYSTEXXA net sales growth of more than 65%.

Our other growth drivers, RAVICTI and PROCYSBI, generated net sales growth in the second quarter of 21% and 15%, respectively. This excludes the impact of second quarter 2017 EMEA net sales of PROCYSBI, which we divested in June of 2017. Both RAVICTI and PROCYSBI are seeing continued year-over-year growth in average shipping patients. They are benefiting from updates to their labeled indications, which have continued to increase physician confidence in the clinical profile when treating younger treatment-naïve patients with these medicines. Continued conversion from older-generation therapies, as well as the addition of treatment-naïve patients, contributed to the year-over-year patient growth for both medicines.

We continue to see tremendous opportunity for our near-term growth drivers, which is what has driven the focused investments we are making this year. We're investing in KRYSTEXXA to support our expanded commercial team, accelerate growth and find ways to make the medicine available to more patients. We're accelerating our investment in teprotumumab to complete the Phase III clinical trial program and now prepare for its potential U.S. commercial launch. And we're investing in our pipeline to drive its expansion.

We have proven that our investments are working, exemplified by our transformation of KRYSTEXXA's net sales growth in 2 short years. Our goal is to generate strong and growing long-term returns for Horizon Pharma and our shareholders, and we are on the path to achieve it.

I will now turn it over to Paul.

Thanks, Tim. My comments this morning will primarily focus on our non-GAAP results unless otherwise noted.

Effective this quarter, we are reporting net sales and operating income for our 2 segments. Corporate costs are allocated to each segment. In our earnings release, we have provided net sales and operating income for each segment for the first and second quarters of 2018 and each quarter of 2017 and the information is also posted to our website.

Second quarter net sales of $302.8 million were driven by continued strong growth of orphan and rheumatology. This segment's net sales of $201.7 million represented 66.6% of our total company net sales and increased 17.2% year-over-year, driven by KRYSTEXXA, RAVICTI and PROCYSBI, and 20.4% after excluding the 2017 EMEA net sales of PROCYSBI and QUINSAIR.

Operating income for orphan and rheumatology was $70.6 million, representing an operating margin of 35%, in line with our expectations. As we have discussed previously, we are investing significantly in KRYSTEXXA this year to accelerate the growth of the medicine. We would anticipate accretion to the margin profile of this segment over time as our investments drive higher net sales.

Net sales for the primary care segment were $101.1 million. Operating income was $45.9 million, representing an operating margin of 45%, also in line with our expectations.

Through the first half of this year, the orphan and rheumatology segment represents approximately 75% of total operating income. This is tracking in line with our expectations that orphan and rheumatology should represent approximately 2/3 of our total operating income this year.

Returning to our company -- our total company results, our non-GAAP gross profit ratio was 90.2% of net sales. Total non-GAAP operating expenses were $156.6 million. This included non-GAAP R&D expense of $20.2 million, reflecting our investment in teprotumumab, as well as our rheumatology pipeline programs and investigator-initiated trials.

Non-GAAP SG&A expense was $136.4 million, primarily driven by commercial investments in KRYSTEXXA. Adjusted EBITDA was $116.8 million for the second quarter.

Non-GAAP income tax expense for the second quarter was $11 million. Non-GAAP net income and non-GAAP diluted earnings per share in the second quarter of 2018 were $80.5 million and $0.48, respectively. The weighted average shares outstanding used to calculate second quarter 2018 non-GAAP diluted EPS were 169.4 million shares. And non-GAAP operating cash flow was $75.2 million.

As of June 30, cash and cash equivalents were $710.2 million, net of a $23.5 million debt repayment made in June. The total principal amount of our debt outstanding was $1.993 billion. Net debt was $1.283 billion, and our net debt to last 12-month adjusted EBITDA leverage ratio was 3.6x. Using the midpoint of our full year guidance range, the ratio would be 3.1x.

Moving now to our outlook for 2018. We expect full year 2018 net sales to be in a range of $1.170 billion to $1.200 billion and full year 2018 adjusted EBITDA in the range of $400 million to $420 million.

We continue to expect full year net sales growth for orphan and rheumatology to be more than 20%. This projection includes our expectation for full year KRYSTEXXA net sales growth of more than 65% and continued strong growth from our key orphan medicines, RAVICTI and PROCYSBI.

For the primary care segment, we continue to expect full year net sales to exceed $350 million.

Regarding our guidance for other line items, our non-GAAP gross profit ratio is projected to range between 89% and 90%. With regards to operating expenses, we expect non-GAAP R&D as a percentage of net sales to be in the mid-to-high single digits for the full year, driven by our Phase III teprotumumab clinical program and related work, as well as by our rheumatology development programs, which now also include our new immunomodulation study with methotrexate.

Based on timing of R&D projects this year as well as the acceleration of our teprotumumab clinical and regulatory time line, we anticipate that our R&D spend to be meaningfully higher in the third and fourth quarters this year as compared to the second quarter.

We continue to anticipate a year-over-year increase in non-GAAP SG&A expense -- spending, primarily reflecting the full year impact of our KRYSTEXXA investment, as well as the initial commercial investment spend for the launch of teprotumumab. Based on these investments, as we look at the second half of this year, we would expect SG&A expense to be in a similar range to the first half.

Full year non-GAAP net interest expense, which is net of interest income, is expected to be at the lower end of the $105 million to $110 million range. We are projecting our full year non-GAAP tax rate to be in the high single digits. As we have stated previously, our tax rate projections could change as a result of any acquisitions or divestitures made by the company. We expect our full year 2018 weighted average diluted share count to be between 168 million and 172 million shares.

I'll turn the call over now to Shao-Lee.

Thank you, Paul. And good morning, everyone. We continue to make progress this quarter in R&D, where we are working both to maximize the benefit of our existing medicines such as KRYSTEXXA, as well as to build a clinically differentiated pipeline. This includes our late-stage biologic candidate teprotumumab and our next-generation gout programs, as well as active evaluation of opportunities to add to our pipeline. With the additions to our R&D leadership team this year, we have a strong and diverse team, and I am pleased to update you on our progress to date.

First, on teprotumumab, our fully human monoclonal antibody IGF-1 receptor inhibitor in the development for the treatment of thyroid eye disease or TED. We are making great progress with the Phase III trial. As you heard from Tim, the trial has reached its target enrollment of 76 patients. The remaining few subjects in screening will be allowed to randomize over the next several weeks.

As way of background, TED is one of more than 7,000 rare diseases that exist today and one without an FDA-approved therapy. In patients with TED, IGF-1 receptor is over-expressed on orbital tissues and resulting -- and this results in local inflammation, orbital fibroblast proliferation, as well as tissue expansion. This in turn can lead to proptosis or bulging of the eye and diplopia or double vision. Patients experience difficulty closing or blinking their eyes, which can cause sleep disruption and often lead to painful ulcerations. And in some cases, pressure from the bulging of the back of the eye and pressure on the optic nerve can result in blindness.

We are working to educate the medical community about TED and the potential role for teprotumumab in modifying this disease. To that end, we are pleased that the 72-week data from the Phase II trial will be presented at the American Thyroid Association, or ATA, meeting in October in Washington, D.C. ATA is one of the largest major medical meetings for thyroid clinicians, investigators and healthcare professionals and is an important audience for this disease.

To put the 72-week data into context, recall that the Phase II trial had a primary endpoint measured at week 24. This was reduction in proptosis or bulging of the eye and reduction in the clinical activity score, a composite for pain, redness and swelling that reflects ongoing inflammation. 69% of patients on teprotumumab versus 20% of those on placebo achieved the primary endpoint. Patients were followed after discontinuation of drug for another 48 weeks, almost a full year off of study drug and allowing for evaluation of durability of response post treatment. This is the data that will be discussed in the oral presentation at ATA.

The ongoing Phase III trial OPTIC is a confirmatory trial of the Phase II study that was published in The New England Journal of Medicine last May. We are also conducting an open-label extension study, OPTIC-X, that will allow up to an additional 24 weeks of treatment with teprotumumab. The data from OPTIC-X will help to inform us as to whether nonresponders from the initial 24 weeks of treatment during OPTIC would benefit from longer treatment. And if there are patients who lose response off drug after the initial 24 weeks of treatment, whether these patients might benefit from retreatment.

Moving now to rheumatology and KRYSTEXXA. A core component of our clinical strategy for KRYSTEXXA is to maximize its benefit for patients, as it is the only approved treatment for uncontrolled gout. Approximately half of patients who are treated with KRYSTEXXA achieve a complete response. And although this degree of complete response is impressive relative to response rates of biologics for other types of inflammatory arthritis, we are actively re-examining existing data and making a science-based systematic evaluation to determine which approaches might further increase the number of patients who can benefit from KRYSTEXXA and achieve a complete response.

To that end, we are planning on initiating a new trial called MIRROR to continue exploring a broader clinical profile for this medicine. MIRROR will evaluate the impact of adding methotrexate to KRYSTEXXA to improve patient response, and we expect to begin enrollment in the trial in the fourth quarter.

MIRROR complements the 2 ongoing investigator-initiated trials we are supporting, which are TRIPLE and RECIPE. Each of the 3 studies is evaluating a different immunomodulator: azathioprine, mycophenolate and now methotrexate, all well-known agents currently used by rheumatologist, with methotrexate being most commonly used and the one that has largest body of evidence for modulating the immunogenicity of other biologics. Evaluating 3 medicines gives us a number of options for future study.

During the quarter, we also continued to advance the understanding within the medical community of the long-term consequences of inadequate management of gout and the safety and efficacy of KRYSTEXXA. In June, we participated in the 2018 Annual European Congress of Rheumatology, or EULAR, medical meeting, where several abstracts on KRYSTEXXA and gout were presented. This included an epidemiology study that documented a 27% increase in emergency department visits in the U.S. for gout patients between 2006 and 2014. The study results underscore the burden of gout that gout places on patients and the healthcare system and reinforces our belief that there is a sizable and growing uncontrolled gout population that's not being well-managed. The KRYSTEXXA data presented at EULAR demonstrated how elevated serum uric acid levels may have systemic effects across multiple organ systems and the need to manage uncontrolled gout aggressively.

I look forward to sharing more information with you from upcoming medical meetings later this year.

To conclude, we continued to make progress this quarter in R&D, working to maximize the benefit of our existing medicines, such as KRYSTEXXA, as well as to build a clinically differentiated pipeline with the aggressive advancement of development programs, including teprotumumab. We're very pleased with the accelerated progress of the teprotumumab Phase III trial and look forward to the data readout next year. Our R&D leadership team continues to grow, bringing in complementary strengths and capabilities to the organization so that we can continue to expand our pipeline and also the benefit we provide to patients.

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

Thank you, Shao-Lee. The second quarter was another quarter of multiple advancements towards our goal of becoming a leading rare disease company. We delivered strong double-digit growth in our orphan and rheumatology segment, which makes up 2/3 of our company's net sales and generated record quarterly sales. KRYSTEXXA continued to deliver impressive performance, accelerating toward its full year net sales growth target of more than 65%.

We implemented a new operating structure in line with our strategic evolution that enables us to more efficiently focus on the strategic initiatives that are transforming us into a leading rare disease medicine company.

Shao-Lee and her team are making progress in R&D. Target enrollment in our Phase III teprotumumab trial is now complete, well ahead of schedule. 72-week Phase II teprotumumab data is being presented at ATA in October. We're also initiating a new study of KRYSTEXXA to continue to explore our broader clinical profile.

We increased our adjusted EBITDA guidance range, while we continue to invest in our near-term growth drivers KRYSTEXXA and teprotumumab, as well as a number of programs in our pipeline. All of this progress is aimed at driving strong and sustainable long-term growth, as well as generating returns for Horizon and our shareholders.

We'll now open the call up for questions.

(Operator Instructions) And our first question comes from the line of David Amsellem from Piper Jaffray.

So just a couple of questions on KRYSTEXXA. So first, can you talk about the traction that you gained in the nephrology setting? I think you mentioned earlier in the year that to the extent you gain traction, it's going to be something that you're going to see in the back half of the year. Is that still very much the case? And maybe talk about what kind of buy-in you're seeing from that community? So that's number one. And then secondly, I don't know if you can provide this info, but do you have a sense or can disclose the number of patients that have been treated with KRYSTEXXA year-to-date and how that's compared to the number of patients you saw in 2017?

Sure, I'll take the second one. We don't have data on a per patient basis. It's extrapolations, and the best way to represent growth is vial growth, which was up about 60% on a year-over-year basis. Shao-Lee, do you want to address some of the messaging and just overall view in nephrology and then Vikram can take the question talking about the progress we've made sequentially and what we expect throughout the year on in nephrology for KRYSTEXXA.

Yes. So thank you, Tim, and thank you for the question. I think one of the interesting things is that although gout is traditionally a disease state that's treated by rheumatologist. As more data is emerging that gout is really a systemic disease, as Tim had mentioned in his earlier remarks, that really can impact multiple organ systems that is associated with hypertension, diabetes, chronic kidney disease, we find that there is actually high interest in gout and also just in the -- in hyperuricemia and the potential for its impact as a systemic disease on multiple organ systems from nephrologists. And that's really the starting point from where we are thinking about a potential for KRYSTEXXA. In addition, a number of the medications that nephrologists use to treat kidney disease or to treat their patients for hypertension ultimately can result in flares of gout. And also, nephrologists who treat transplant patients, for instance, sometimes have the patients with the most severe -- based on both their medications as well as their chronic renal failure state so.

Yes, and I can take the...

Yes, go ahead.

Vikram?

Yes. So I think just to add on to that, we've made significant progress this year from a commercial execution standpoint. As you know, we expanded the commercial infrastructure about 6 to 9 months ago and that has really started to take effect. We continue to see -- in nephrology, specifically, we continue to see benefit investigations, which are leading indicator of interest. But our intent to prescribe, it's up another 40% in Q2 over Q1, which follows a similar growth of 40% that happened in Q1 over last year Q4. So we're continuing to see that acceleration. More and more of those patients are being introduced to therapy and are seeing the benefits of the medicine. Again, specifically, we opened probably more than 300 accounts just this year alone in the first half of 2018 and same-store vial growth, and this is something we should talk about more and more as we go forward is increasing. So we're seeing that within the same accounts, we're seeing 30% year-over-year growth in first half of '18 versus the first half of '17, which is significantly higher than the low- to mid-20s that we were seeing first half of '17 versus '16. So all in all, we're seeing tremendous progress made by the team. The commercial efforts are having the desired results and the impact, and we expect to continue to accelerate that in the second half of this year.

And your next question comes from the line of David Steinberg from Jefferies.

Couple of questions. First, on KRYSTEXXA, Selecta very recently said they're preparing for head-to-head study of SEL-212 versus your product for uricase therapy. And they're trying to demonstrate superiority with data. I was just curious, could you remind us the difference between the 2 compounds and does this aggressive approach concern you and if so why not? And then secondly, on the business development front, you've obviously been a serial acquirer. Haven't done much recently. Could you just update us on your current thinking? Should we expect something in the next 6 to 9 months? And are assets of private companies in particular still priced too high for your liking?

Shao-Lee, you want to take the question on Selecta?

Yes. So the question was fundamentally what is the difference between the molecules. And so KRYSTEXXA is a PEGylated uricase, similar to -- sorry, so Selecta is a PEGylated uricase, similar to KRYSTEXXA. And with the addition of rapamycin as a tolerizing or immunomodulator agent. So fundamentally, that's the difference in terms of the actual molecules themselves. I think in terms of a head-to-head study, we understand that, that's -- those are their announced plans as well. I think that from a -- couple of things to remember from a label perspective, ultimately, we'd anticipate that it would take a couple of head-to-head studies to demonstrate this. I think fundamentally, it's also really important that we're comparing apples-to-apples. So I've mentioned the differences in terms of the molecules themselves, and perhaps probably what would be more appropriate comparisons would be a Selecta plus a KRYSTEXXA and immunomodulator, which are the studies that we've articulated that were both involved in with TRIPLE and RECIPE as well as kicking off with MIRROR. All that having been said, I think the most important thing is that we think that there is a growing need and a growing number of individuals out there with uncontrolled gout and that our original sort of modeling, if you will, about whether or not there's opportunity here in the market ultimately to treat gout is significant and that we've included the potential for other entrants and that doesn't impact our sense of the trajectory for KRYSTEXXA.

And on the business development question, our thinking has evolved over time, primarily as a result of Shao-Lee and her team joining at the beginning of the year. We've focused in very intently on building out the development stage portfolio. And we're seeing good opportunities. It's hard to predict when transactions will close or we can consummate them. We're seeing good opportunities. We're in the marketplace, attempting to try and bring transactions to fruition, but it's hard to predict exactly when that's going to happen. You mentioned valuation as being a possible concern, and we're watching the marketplace as others. Those companies with life science, we're seeing at very interesting valuations at this point. We continue to though see opportunities that fit within our value and quality parameters, and we're hopeful that we can be able to transact on those as we've laid out in the past to get 1, 2, 3 deals done a year. So just -- we're at a point in time where it's been a little bit of time, but we've made good decisions we believe on how to allocate capital and we're going to continue to pursue the philosophy and approach that we've been pursuing for the last couple years.

And our next question comes from the line of Annabel Samimy from Stifel.

Couple of questions here. First on KRYSTEXXA, so I want to ask about the MIRROR study. Clearly, you started trial with a third immunomodulatory agent. Is the intention essentially to build a wealth of data with all the various different immune-modulating drugs that are being used by rheumatologists right now? Or is it because you're seeing better effect with one versus another or you've gotten feedback from the field? So that's the first question. The second question is on tepro, it looks like clearly it's moving -- enrolling faster than expected. So do you have a better sense on timing of data release? And given that it's moving rapidly, how are you thinking about building out the commercial team here? Are you looking at endocrinology, ophthalmology? And if I can throw a third question in there, how are you thinking of that in light of business development to leverage the platforms that you have?

On the MIRROR trial, along with the other investigator-initiated trials, I think you hit the point there. The reality is rheumatologists, each one has their own preferred immunomodulator with methotrexate being the most used in RA and many other autoimmune conditions. So what we're doing is helping to position KRYSTEXXA in the way that they use immunomodulators in their current practice. And so we're being comprehensive in studying each of the main used and well-understood immunomodulators, which we are doing with these 3 studies and continuing to provide incremental evidence to support an expanded clinical profile for KRYSTEXXA. With teprotumumab, relative to time lines, I'll let Shao-Lee address that. We're enrolling a little more than a complete enrollment a little more than 3 months ahead of time. So we expect that time line to kind of carry through all the various activities in the program. As far as infrastructure, what we did talk about in my remarks is that we are accelerating commercial spend in preparation. We are finalizing our understanding of really what is the patient pathway and the journey they take through both diagnosis and treatment and that does impact endocrinology, it impacts ophthalmologists, oculoplastic surgeons with endocrinologists and the primary care physicians being involved in that early diagnosis. So it will involve in some way endocrinology and ophthalmology. And we're finalizing what is the right infrastructure to go after that audience. And if approved, drive uptake of teprotumumab. So that work is in progress. We're increasing the spend to answer those questions and be best prepared once we get through the clinical program. And Shao-Lee, I don't know if you want to answer anything more specifically on time lines.

Yes. We anticipate data at this juncture in the second quarter of '19.

And Bob, I don't know if you want to talk a little bit more about BD options in relationship to endo, other therapeutic areas?

Well, I think -- I mean, we're balancing spend and R&D as we move forward against the funding needs for expanding the business, and that's always a balance that we're evaluating and we'll continue to do that.

And then we're -- certainly, we're in rheumatology and we're in various different rare disease spaces with our other orphan medicines. But endocrinology, ophthalmology are certainly areas where as we go out and look for incremental development-stage opportunities. Those are now in our list of areas that we're pursuing.

And our next question comes from the line of Dana Flanders from Goldman Sachs.

My first one is just -- can you guys just touch on the margin structure of the 2 businesses you put out today? And specifically, on orphan rheum, I mean, what's the right long-term operating margin you think you can achieve and maybe over what period of time as sales ramp? And then I have a quick follow-up.

Well, first, with margins, it's been tracking as we expected and laid out over our guidance over the last several years. So continuing to move in, in the direction we expected. And if you look at the orphan and rheumatology segment, that is where we have strong margins on the base orphan business and significant investment in KRYSTEXXA, which is what drives the, as we saw in the second quarter, 35% operating margin. And as Paul said in his remarks, we expect, as we move into 2019 and beyond, continued accretion from KRYSTEXXA growth, somewhat offset by investment in the teprotumumab launch, which as it moves through the launch will also begin to accrete. So I think we would expect, over the next several years, to have KRYSTEXXA driving accretion and moving more towards what industry-level margin comps would look like. So it's definitely moving in the right direction and we expect that to accrete moving forward.

Okay, great. And then maybe just on the rest of the orphan portfolio, a nice quarter from really all of your products. But specifically, RAVICTI, maybe you can just touch on the strong growth this quarter and the outlook for RAVICTI heading into the back half and 2019.

Sure. With RAVICTI, we continue to see strong 21% growth in sales and similar growth in average shipping patients. And it really comes down to continued expansion into the treatment-naïve patients that has been driven by our expanded indications into younger populations of children, which has allowed us to get patients on medicine earlier versus going another agents in advance of our indication. So we continue to see the strong effort by the sales force. And we have significant upside opportunity from a market share and penetration standpoint to continue to grow RAVICTI.

And our next question comes from the line of Louise Chen from Cantor Fitzgerald.

I have two. So my first question is on RAVICTI. Just if you could update us with respect to other generic filers outside of Lupin, which I know you settled with such as Par. And is there any positive read-throughs from your recent settlement to outstanding cases? And my second question is back on KRYSTEXXA. On the nephrology opportunity, which is bigger the nephrology or the rheumatology opportunity? And I think you said before that the uncontrolled gout in nephrology is more widely distributed. So how are you working to locate these less-concentrated patients? And where are you with that process?

Sure. So first, with RAVICTI, so we settled with Lupin now to January of 2026. Importantly, this year alone, we've got 5 new RAVICTI patents that will have issued in the last 18 months that extend out till 2030. With Par, we think the settlement with Lupin is a very good first step in our goal to defend the IP. We did recently prevail on Par's appeal of the IPR on our '012 patent. So we're going to move that through litigation process and continue dialogue and continue to expect long patent life with RAVICTI. As far as nephrology versus rheumatology, we see them as similar opportunities, at about 50,000 patients in both rheumatology and nephrology and continued opportunity for a significant share in vial growth.

All right. Thanks, Louise. And just one point of clarification, the settlement is out to July of 2026.

That was July, excuse me.

Instead of January.

And our next question comes from the line of Gary Nachman from BMO Capital Markets.

First, on KRYSTEXXA, when will you have the data from TRIPLE and RECIPE? And now that you have MIRROR that you're going to be starting, are you still planning to update the label with new dosing to improve immunogenicity? And also, just what initiatives have you taken in general to improve overall reimbursement for the product? And then I have one follow-up.

So with TRIPLE and RECIPE, there is an ongoing release of data of those programs and we expect that to continue at the upcoming rheumatology conferences, and MIRROR will certainly fit in. With MIRROR, that's a company-run program versus investigator-initiated program. As far as inclusion in the label, we think the label represents the key aspect for the molecule and that is that you have substantial over 40% -- I think 42% complete response or resolution of tophi, which compared to other autoimmune agents and RA and others is really leading complete response rate. So we think the label reflects the efficacy that needs to be. And from an immunogenicity, the key thing in the label that we see is implementation of stopping rules to ensure that the patients are getting the right treatment and it's managed in the right way. And this data, as published in incremental conferences, should increase education. And we don't see a need or an impact of whether that's in the label or not. The -- what was the third question around?

About reimbursement.

About reimbursement, I think as we've grown, we continue to have prior authorizations for most patients as you would in any other orphan or rheumatology and nephrology medicine. That process hasn't changed as we've grown. Patients are -- these are refractory patients who step through other medicines like allopurinol and febuxostat and with adjunctive diet. So this is something that really hasn't changed over time. And we continue to see moving forward and getting reimbursed at a similar rate, [therefore these] percentages haven't changed in the 20% to 25% range. So we don't see reimbursement as an impediment for our ability to drive this business moving forward.

Okay. And then just one quick follow-up on tepro. Do you know for sure if the Phase III is positive that you wouldn't need another confirmatory Phase III study? And how many sites did you use in the Phase III? And just -- I don't think I heard it before, but when are we going to have the data?

So as we've said in prior calls, the Phase III program is the confirmatory trial of the Phase II Pivotal program. So that is the clinical program agreed upon with FDA. And time lines, as Shao-Lee mentioned, our data would be expected in second quarter.

Second quarter. Yes, why does it take that long if it's...

Patients have to be treated for 6 months based on the gout protocol. So you need the last patient in and out of the trial and then you need to get data.

And that was our last question, I would like to turn the call back over to Tina Ventura for closing remarks.

Great. Thank you, Glenda. That concludes our call this morning. A replay of this call and webcast will be available in approximately 2 hours. Thank you for joining us.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.