Horizon Therapeutics PLC (HZNP) 2018 Q3 法說會逐字稿

Good morning, and thank you for standing by. Welcome to the Horizon Pharma plc Third 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. You may begin.

Thank you, Ashley. 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 and 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 third 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. After closing remarks from Tim, we will 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 the 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.

We delivered another quarter of strong performance, exceeding expectations and increasing our full year adjusted EBIT (sic) [EBITDA] guidance to $420 million to $430 million. Our record quarterly net sales were driven by 25% growth in our orphan and rheumatology segment, including 64% growth in KRYSTEXXA. This segment now represents approximately 70% of our business.

In addition, exciting new data recently presented on our key growth drivers, KRYSTEXXA and teprotumumab, reinforce our high confidence in their ability to potentially improve the lives of uncontrolled gout and thyroid eye disease patients for many years to come.

Let me highlight the significant developments this quarter. With KRYSTEXXA at the American College of Rheumatology Annual Meeting last month, a new 9-patient external case series showed that adding the immunomodulator, methotrexate, to KRYSTEXXA markedly improved patient response with all 9 patients responding. Based on these encouraging new findings, we are advancing our Horizon-sponsored clinical trial, the MIRROR trial, to support its potential for registration.

We estimate peak annual net sales of more than $750 million for KRYSTEXXA, which does not assume any potential upside from our immunomodulation strategy, which has the potential to increase the number of patients responding to KRYSTEXXA as well as the average number of vials used for each patient.

With teprotumumab, our fully human monoclonal antibody IGF-1R inhibitor in Phase III development for thyroid eye disease, new Phase II data was presented recently that reinforced our conviction that this medicine has the potential to be a disease-modifying therapy. These data also showed a durable response almost a full year off treatment for 2 key endpoints, proptosis or eye bulging and diplopia or double vision. We presented the data at 3 major medical meetings that reached endocrinologists, ophthalmologists and oculoplastic surgeons, all important decision-makers in the treatment of thyroid eye disease.

Moving to our third quarter results. We have record net sales for the orphan and rheumatology segment of $220 million, driven by KRYSTEXXA, RAVICTI and PROCYSBI.

KRYSTEXXA net sales for the quarter of $70 million increased 64% driven by continued strong year-over-year vial growth. Following our commercial expansion that went into effect early in the year, we are generating growth in 2 important ways: we're opening new accounts and we're generating growth from existing subscribers. In fact, year-to-date, we have opened more than 450 new accounts, an increase of more than 25% compared to where we ended last year.

In addition, vial growth of our existing prescriber base is also up significantly. The investments we are making are working and we continue to see acceleration in the business. We expect vial growth to continue to accelerate in the fourth quarter and remain highly confident in our ability to meet our expectation of more than 65% year-over-year net sales growth for KRYSTEXXA in 2018.

In addition to ACR, we also attended the American Society of Nephrology meeting where our presence laid a strong foundation for future KRYSTEXXA growth in nephrology. The traffic at our booth far exceeded our expectations, and our educational symposium was standing room only with more than 500 nephrologists attending. We remain excited about the significant untapped opportunity within nephrology.

Our orphan medicines, PROCYSBI and RAVICTI, generated strong net sales growth in the third quarter of 23% and 19%, respectively. Demand remained strong for both PROCYSBI and RAVICTI, driven by patient growth and improved compliance. Both medicines are benefiting from updates to their labeled indications, which have continued to increase physician confidence in the clinical profile when treating younger, treatment-naive patients with these medicines.

We continue to expect the decision from the FDA on the RAVICTI expanded indication for the birth to 2-year patient population by the end of this year, which, if approved, will continue to reinforce the clinical benefits of this medicine.

Continued conversion from older-generation therapies as well as the addition of treatment-naive patients contribute to the year-over-year patient growth for both medicines.

We continue to see tremendous opportunity for our growth drivers, which is what has driven the focused investments we are making this year. We're investing in KRYSTEXXA with our expanded commercial team and we're investing in the teprotumumab clinical and manufacturing program as well as initiatives to prepare for its potential U.S. commercial launch.

Our goal is to deliver innovative therapies to patients and to generate strong returns for Horizon Pharma and our shareholders, and we're well on our 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.

Record third quarter net sales of $325.3 million were driven by continued strong growth of our orphan and rheumatology segments.

Net sales for orphan and rheumatology were $219.9 million, an increase of 25%. And segment operating income was $91.5 million.

As we have discussed previously, we significantly increased our investment in both KRYSTEXXA to accelerate the growth of this medicine over the long term and in the clinical development of teprotumumab. Year-to-date, the orphan and rheumatology segment represents approximately 70% of total company net sales and total segment operating income.

Net sales for the primary care segment were $105.4 million and segment operating income was $58 million.

Our non-GAAP gross profit ratio was 91.2% of net sales.

Non-GAAP operating expenses were $147.1 million. This included non-GAAP R&D expense of $19.1 million, reflecting investment in teprotumumab as well as in our rheumatology pipeline programs and KRYSTEXXA investigator-initiated trials.

Non-GAAP SG&A expense was $128 million, which was somewhat lower than expected due to the timing of some expenses that shifted from the third quarter to the fourth quarter of 2018.

Adjusted EBITDA was $149.9 million for the third quarter.

Non-GAAP income tax expense for the third quarter was $12.6 million.

Non-GAAP net income and non-GAAP diluted earnings per share were $112.6 million and $0.65, respectively.

The weighted average shares outstanding used to calculate third quarter 2018 diluted EPS were 172.5 million shares.

And non-GAAP operating cash flow was $95.6 million.

Our capital structure provides us with flexibility in managing our business. As of September 30, cash and cash equivalents were $807 million. The total principal amount of our debt outstanding was $1.993 billion, and the first maturity in our borrowings is not until 2022.

Net debt was $1.186 billion, and our net debt-to-last 12 months' adjusted EBITDA leverage ratio was 2.9x.

On October 19, we refinanced our senior secured term loans at an interest rate of LIBOR plus 3%, a 25 basis point reduction for the previous interest rate with an additional 25 basis point step-down to LIBOR plus 2.75% if our gross leverage ratio is at or below 3.5x. In fact, since 2016, we have lowered the interest rate on our senior secured term loans by approximately 125 basis points, saving the company approximately $10 million in the interest expense on an annualized basis. We will continue to manage our debt and leverage efficiently as we have in the past.

Moving now to our outlook for 2018. We expect full year 2018 net sales to be in the range of $1.17 billion to $1.2 billion. And full year 2018 adjusted EBITDA in the range of $420 million to $430 million, an increase from our prior guidance range of $400 million to $420 million.

We continue to expect full year net sales growth for our orphan and rheumatology segment 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%.

For operating expenses, we expect non-GAAP R&D as a percentage of 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.

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

We continue to anticipate a year-over-year increase in non-GAAP SG&A spending, primarily reflecting the full year impact of our KRYSTEXXA investment as well as initial commercial investment spend to prepare for the potential launch of teprotumumab.

We are also expecting SG&A expense to be higher in the fourth quarter due to the timing of some expenses that shifted from the third quarter to the fourth quarter of 2018 and as we increase spend in preparation for the potential launch of teprotumumab.

Full year non-GAAP net interest expense, which is net of interest income, is expected to be somewhat lower than our previous guidance range at a range of $100 million to $105 million.

We are projecting full year non-GAAP tax rate to be in the high single digits to low double digits. As we have stated previously, our tax rate projections could change as a result of any acquisitions or divestitures.

And finally, we expect our full year 2018 weighted average diluted share count to be between 168 million and 172 million shares.

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

Thank you, Paul, and good morning, everyone.

It's an exciting time for Horizon Pharma and particularly the R&D organization as we grow our capabilities and advance our programs, both to maximize the benefits of our existing marketed medicines as well as to build a clinically differentiated pipeline. And we've made good progress during the third quarter.

I'll begin today's update with teprotumumab, our fully human monoclonal antibody IGF-1 receptor inhibitor in development for the treatment of thyroid eye disease or TED. TED is one of more than 7,000 rare diseases that exist today where less than 5% have an approved therapy, and TED is one of the many with no approved therapy. The treatments that are nonetheless tried though not approved, do not address the underlying pathogenic mechanism of the disease.

We believe, based on the data demonstrated to date with the Phase II study, that teprotumumab has the potential to be the first approved therapy for TED and is the first to demonstrate disease-modifying potential.

In patients with TED, IGF-1 receptor is over-expressed on orbital tissues resulting in local inflammation, orbital fibroblast proliferation and tissue expansion. This, in turn, can lead to proptosis or bulging of the eye and diplopia or double vision. Patients may experience discomfort simply closing or blinking their eyes, which leads to poor sleep and can result in painful ulcers of the surface of the eye itself. Overall, the morbidity that patients experience from TED can be highly detrimental to activities of daily living such as driving a car or even just walking downstairs. In some instances, pressure from proptosis on the optic nerve can result in blindness.

Teprotumumab Phase II trial demonstrated dramatic results, which were published in The New England Journal of Medicine in May of 2017. After the 24-week treatment period, patients were followed for another 48 weeks, almost a full year off of study drug, allowing for evaluation of durability of response post treatment.

We were pleased to present this new 72-week data for proptosis and diplopia at 3 medical meetings in October, the American Thyroid Association or ATA; the American Society of Ophthalmic, Plastic and Reconstructive Surgery; and the American Academy of Ophthalmology. The data presented at ATA indicated that teprotumumab has a durable proptosis response. At week 24, the end of the treatment period, 71% of patients demonstrated a 2-millimeter or more reduction in proptosis. At week 72, approximately a year off treatment, 53% of teprotumumab patients that responded at week 24 maintained at least 2 millimeters of proptosis reduction. These results support our belief that teprotumumab offers patients a potentially disease-modifying medicine.

Data for diplopia was presented at 2 other conferences in October and also demonstrated a durable response almost a full year off therapy. At the end of the week 24 treatment period, 62% of teprotumumab patients responded with improvement of at least 1 grade in diplopia, which is deemed a clinically meaningful change. At week 72, approximately a year off treatment, 69% of the week 24 responders maintained their response.

We are currently conducting a Phase III confirmatory trial for teprotumumab in TED entitled OPTIC. We expect -- we completed enrollment in early September and expect top line results in the second quarter of 2019. In addition, we are also conducting an open-label extension study, OPTIC X, that will allow up to an additional 24 weeks of teprotumumab treatment. Data from OPTIC-X will help inform us as to whether nonresponders from the initial 24 weeks of treatment during OPTIC would benefit from longer treatments and if patients who lose response off of drug after the initial 24 weeks of treatment would 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, given that it is the only FDA-approved treatment for uncontrolled gout. In the KRYSTEXXA pivotal trials, 42% of patients achieved complete response, maintaining a serum uric acid level of less than 6 milligrams per deciliter over 6 months. While this is impressive, relative to the response rate of biologics used for other types of inflammatory arthritis, we are investigating ways to increase the number of patients who can achieve a complete response with KRYSTEXXA.

We are currently evaluating the effectiveness of concomitant immunomodulator therapy on the response rate of KRYSTEXXA with methotrexate being the most promising and most commonly used immunomodulator by rheumatologists like myself. There is well-documented evidence that the addition of immunomodulators by biological therapies can decrease rates of immunogenicity as the immunomodulators work to reduce the formation of antidrug antibodies.

Three immunomodulator studies are underway: MIRROR, our company-sponsored trial; and TRIPLE and RECIPE, 2 investigator-initiated studies we are supporting. Each trial is evaluating a different immunomodulator, all of which are commonly used by rheumatologists.

MIRROR is evaluating the effect on the response rate of KRYSTEXXA with the administration of methotrexate. As Tim referenced, we were very encouraged by case series presented at ACR last month by 2 external investigators. The goal of the study was to evaluate the administration of methotrexate with KRYSTEXXA to improve the durability of KRYSTEXXA response. The investigators treated 9 sequential patients with uncontrolled gout at 3 separate infusion centers. And as of October 1, 6 patients completed a full 6-month course of KRYSTEXXA treatment with 3 patients continuing to receive additional infusions.

Of the 9 patients followed, all were responders as defined by more than 80% of serum uric acid levels maintained at a goal of less than 6 milligrams per deciliter during the observation period.

Following these promising results, we are adapting our MIRROR trial to support the potential for registration. We had initially intended to review data from the first 15 patients in MIRROR through 6 months and then evaluate adapting the trial for registration. Given the external validation from the case series presented at ACR, we are moving forward earlier than planned to adapt the study and schedule a meeting with the FDA to discuss the potential for registration.

In parallel, we will continue to enroll and follow patients in MIRROR. We anticipate initiation of the adapted study protocol in the second quarter of next year.

In addition, we are continuing to progress our next generation of preclinical programs for uncontrolled gout with the aim to support and sustain the company's market leadership for years to come.

I look forward to future updates with you on our continued progress.

And with that, I'll turn it over now to Tim for his concluding remarks.

Thank you, Shao-Lee.

The third quarter was another quarter of significant advancements for the company: record quarterly net sales; record adjusted EBITDA performance, resulting in our guidance raise; and new data on our 2 growth drivers, KRYSTEXXA and teprotumumab, that reinforce our confidence in their long-term peak sales potential.

In summary, we delivered record company net sales driven by 25% growth in our orphan and rheumatology segment, which now make up approximately 70% of our net sales and total segment operating income. KRYSTEXXA continued to deliver impressive performance, accelerating toward its full year net sales growth target of more than 65%.

We continue to advance our R&D programs. Following new data presented at ACR in KRYSTEXXA and methotrexate, we are now adapting our MIRROR clinical trial to support the potential for registration.

We presented new data for teprotumumab that supports the disease-modifying potential and its durability in the clinically important measures to proptosis and diplopia.

Additionally, rapid enrollment of the Phase III confirmatory trial will enable results in the second quarter of 2019.

We increased our adjusted EBITDA guidance range while we continue to significantly invest in our key growth drivers, KRYSTEXXA and teprotumumab.

All of this progress is aimed at delivering innovative therapies to patients and generating sustainable long-term growth for Horizon Pharma and our shareholders.

We'll now open the call up for questions.

(Operator Instructions) And our first question comes from the line of Annabel Samimy with Stifel.

Can you give us a sense, from the conversations that you've had with physicians recently at ACR, whether this small case study series with methotrexate would be sufficient to start driving usage of this immunomodulator with KRYSTEXXA? And you mentioned that your peak does not include increased vial usage per patient. What do you think the magnitude of that impact could be with the average vial usage right now, and what could it be with methotrexate onboard?

So first of all, we aren't able to promote this data, so that is not able to be communicated by our sales force. It was very well received, as you saw, at the ACR meeting. Relative to its impact on the forecast, I think if we are able to complete the MIRROR trial and confirm those results, it would have a significant increase in our potential peak sales. So you have the ability to, as I mentioned in my remarks, to increase the average vials per patient. But importantly, with -- if you more than double the response rate, the ability to drive new patients would significantly increase and we will give further color as we get through the MIRROR trial and get results. But certainly, it's promising, but like any other data, it's got to be confirmed in a clinical -- further clinical trial.

Do you have a sense of what the average vial usage is right now for patients?

It's -- the average is about 6 vials.

So about half the treatment?

Yes.

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

This is Chris Staral on for Dana. First off, can you give us a little more color on the biggest drivers behind the broad beat across a lot of products here? How durable are these drivers? And why do you think ACTIMMUNE may not have potentially benefited as much as some of the other products in your portfolio? And then I have a follow-up after that.

Sure. So I think across the business, RAVICTI and PROCYSBI continue to have new patients added and we see continued improvement in compliance in those populations. Obviously, KRYSTEXXA has continued acceleration with 64% increase year-over-year. Our RAYOS organization continues to drive that business and did $17 million in the quarter and we expect that to continue. So across our businesses and in primary care, we also saw solid execution, maintenance of our revenue and we expect that to continue. So we're very pleased across the business. We think that our orphan and rheumatology segment is poised to continue to grow. Relative to ACTIMMUNE specifically, it has about 75% of the business is on its labeled indications of -- and when you look at that, we continue to add new patients. But the other 25% is undercontrolled and continues to decline over time. So I think on the labeled indications of chronic granulomatous disease and SMO, I think we're seeing good effort by the team to continue penetration and I think somewhat offset by decline in the off-label business that we're not involved in. So overall, we're very pleased with the sequential growth that we've seen in the business as well as the year-over-year growth and expect it to continue.

Great. And then maybe could we get some more details on what exactly is being proposed in MIRROR to allow it to be potentially registrational? And then what use will you have for the patient data that is being generated ahead of these changes? Do we get a peek at those at some point? Or will those be rolled into the post-change data set to increase powering potentially? And then, lastly, can you maybe remind us of what the dosing schedule is for the methotrexate, and why or why not you think it might be an added burden to the patients, particularly in the pretreatment phase?

Right. So the average dose used in the investigators that presented at ACR was the typical RA dose, which is approximately 15 milligrams. And rheumatologists are very comfortable with using methotrexate, and our conversations with rheumatologists would indicate they would not have an issue in continuing to do so. Shao-Lee can speak to the study design at this point.

Yes, thanks for that, Tim. So to support registration, we think that we'll likely require evaluating KRYSTEXXA with or without methotrexate. So that will ultimately be a placebo-controlled study and we'll have conversations with the agency to determine ultimately how best to move forward and be better able to speak to it at that time.

And our next question comes from the line of David Amsellem with Piper Jaffray.

Just a couple of quick ones on KRYSTEXXA. So I may have missed this earlier, but if you can, can you just talk about how much buy-in you're getting from nephrologists? I know it's relatively early in your sales and marketing efforts in that setting, but can you just help us understand how much of the growth is coming from the nephrology setting right now and maybe even talk to what that could be in 2019? And then, secondly, and this has come up in my discussions with rheumatologists, but regarding the combination with immunomodulatory agents, are you planning to run studies in looking at the combination, whether it's azathioprine or whether it's methotrexate or other immunomodulatory agents, specifically in patients with CKD or renal impairment more broadly, as a way to sort of better tease out the relative safety and proper dosing of the immunomodulatory agents in this -- in the context of the KRYSTEXXA combination. So just help us understand what you have planned within that subpopulation.

So first, in nephrology, we continue to see strong growth on a sequential basis and certainly on a year-over-year basis. We don't break out the splits. We expect it to continue to grow. Relative to a combination with methotrexate and subpopulations, Shao-Lee, you want to speak to that?

Yes. So within the context of our clinical trials, we're certainly not excluding patients with chronic kidney disease. And methotrexate, we said, is the most commonly used immunomodulator by rheumatologists. Mycophenolate is actually quite commonly used by nephrologists as well. So we think that we have this covered in terms of the things that the physician groups tend to migrate towards as well as the likelihood that we'll get some of these patients within the context of these trials. That said, I'll remind that within the context of our pivotal studies and part of why we think we have such interest with the nephrologists that 50% of the subjects in those pivotal trials were actually patients with chronic kidney disease. And regardless of the stage of kidney disease that you had, it didn't seem to have any effect on the efficacy. So that's part of it. Maybe, Vikram, do you have any specific comments?

Yes, I think just to provide some color on nephrology, we may have said this earlier, but we saw extremely strong interest during our participation at the American Society of Nephrology meeting just a couple of weeks ago. There was -- it was standing room only in our clinical symposium with more than 500 nephrologists that attended the session. The activity in the commercial booth was tremendous. In fact, we've continued to receive positive feedback from that meeting even now. And as we have spoken before, the benefits investigations, which are our leading indicator for intent to prescribe, continued to grow significantly that were probably growing at about 50% at this point in time year-over-year, which is right in line with where we expected we should be. So all signs in nephrology are very positive. There's -- we're right on track to our expectations.

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

I had a few here. So first question I had was if you could give an update on your next-generation gout products and the market opportunity for these and how it will fit into your franchise if they are approved? And then the second question is just on sales for KRYSTEXXA in 2019. I know you probably won't give guidance here, but qualitatively how should we think about it? Do you think this product will grow on an absolute value basis year-over-year? And the last question I had was something that we get asked about a lot, which is competition for the KRYSTEXXA product for products that are in development, potential head-to-head trials and some data that came out recently. Just curious if you have any thoughts on any of these things.

Sure. I'll start with the back end, relative to competition. When we developed our peak sales estimate of $750 million, not only did we not include the benefit of the MIRROR trial and its potential, we did assume that at least 1 competitor would come on market. So we don't see that as having any impact on our ability to achieve our peak sales. Relative to 2019 with KRYSTEXXA, we're not giving specific guidance. There have been some changes with 340B reimbursement and that impacts a percentage of KRYSTEXXA sales. Despite that impact from the implementation of that rule potentially, we do expect double-digit growth from KRYSTEXXA in 2019 at the minimum.

Shao-Lee, do you want to address the next-gen program?

Yes, thanks, Louise, for asking that question. So recall that our next-generation programs just more broadly are really designed to fix the same problems that we're trying to address with immunomodulators with KRYSTEXXA itself, which is the immunogenicity of the PEGylated uricase. And so we have 2 next-generation programs, both of them are evaluating optimized uricase sequences to minimize the immunogenicity to patients as well as different technologies to shield the immune system from the foreign protein or uricase itself, one is an optimized PEGylation, that's HZN-003, and the other is a new technology called PASylation, that's an amino acid sequence being developed to determine whether or not it can also prolong half-life as well as shield from immunogenicity. Both of these are also being developed as subcu formulations, which we think will add patient convenience once they become available, and both programs are progressing nicely at this juncture. Recall that they're preclinical and so we anticipate that we'll have additional updates for you in the future.

And our next question comes from the line of Ken Cacciatore with Cowen and Company.

Just a question on business development. You called it out in the press release, I'm just not remembering if you have in the past. I know it's a big part of the strategy, but wondering if you could just update us on what you're seeing out there, valuation seems to have changed. And then maybe how you're approaching business development with the hopeful success of tepro, and I just knocked on my forehead that it's going to continue to go well here. Is it allowing you to look earlier into BD earlier-stage assets? Are you still thinking of later-stage assets? With the evolution of the company, how is the evolution of your BD?

Robert?

Sure. Thanks, Ken. No, Ken, we continue to see a range of opportunities and assets that are of interest to us. You mentioned valuation. Obviously, we're watching the market closely and it impacts our own internal analyses. But in the face of what's been an attractive market for biotech stocks, we're still seeing some opportunities that we think are actionable at values that are attractive. Regarding our approach with the assumed success of tepro and whether that allows us to go earlier or whether we're going to go later, we've refocused our efforts pretty significantly into development-stage programs as a result of the addition of Shao-Lee and the world-class group of research and development talent that she's recruited to work with her. And as a result of that, what we're able to do is interrogate opportunities at a different level than we have been able to in the past. So in areas that we find ourselves having a franchise, it's possible that we could go earlier as we did with HZN-003 where we went preclinical in gout, that made sense to us because of our ability to really understand that marketplace and the technology behind it. However, I think as a rule of thumb, we're going to look for proof of concept data in humans for the programs that we go after, which is what we have with tepro. It's probably more the model than the model that you see with HZN-003.

And our next question comes from the line of Irina Koffler with Mizuho.

I had just 2. You guys are doing some work in the transplant setting for KRYSTEXXA, as in that you're exploring that population of patients in terms of having a lot of gout. And just wondering if you would need to conduct any additional clinical work on KRYSTEXXA in that patient population if you choose to promote it there later? And then the second question is also KRYSTEXXA-related. Was there any stocking in the quarter or any onetime gross-to-net adjustments like we've been seeing from other companies reporting earnings this quarter?

Paul, do you want to take that?

I mean, our inventory levels across our business, including KRYSTEXXA, our inventory levels remain less than a month, which is consistent with where we've been in the past.

And then on transplant, I don't know, Shao-Lee, if you want to -- I don't think we have any clinical data at this point in time.

No, we don't have any clinical data at this point in time. There's certainly a lot of interest within the context of both nephrologists in general as well as probably specifically the transplant community because of the high degree of gout that's seen in the transplant setting, especially we know that a lot of transplant medications ultimately can even lead to worsening of secretion of uric acid and therefore potential for gout flares. One of the attractive things about KRYSTEXXA to nephrologists is simply the mechanism of action of the uricase. Ultimately, it turns something that is difficult to excrete by the kidney to something that is completely water-soluble and easily excreted in the urine. So I think that -- at this juncture, you could watch to continue to see how that area will evolve. We're seeing a lot of enthusiasm from nephrologists as a whole also because of the evolving story about gout as a systemic disease or even hyperuricemia as a systemic disease. Ultimately, the crystal deposits can happen in any organ system. Whether it's the chicken or the egg in the kidney in terms of leading to chronic kidney disease, I think it's still an open question where there's a lot of academic interests from the nephrologist. And I think the bottom line is that body of data continues to grow. We've seen a couple of med analyses in the last couple of years with regards to impact of hyperuricemia on all-cause mortality as well as cardiovascular-specific deaths. And even a protective effect if you treat hyperuricemia within the context of that setting and then evaluations in these med analyses. So I think it's an evolving field and there's going to be more to come.

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

On teprotumumab, if the Phase III data are positive, will the initial indication that you go after be just for the result of the 24-week primary endpoint? Or will you also look for maintenance claim out of 48 or 72 weeks given some of the data that we've seen out there? And then just from a commercial standpoint, how many additional reps would you bring onboard to promote this product? Just tell us how you're thinking about building out that commercial capability.

Sure. We will submit with the data from our pivotal Phase II and Phase III programs, assuming success, and that is for treatment of thyroid eye disease based on the primary outcome of 24 weeks. The OPTIC X trial we'll monitor and submit that on a subsequent basis. As far as number of reps, we're in the process of, as I mentioned in my remarks, around determining the critical role of endocrinologists, ophthalmologists, oculoplastic surgeons and really finalizing and working through our plans to determine what is the best commercial strategy. So once we get through data and move forward, we'll begin fully understanding and communicating our commercial strategy.

Okay. And if I could just get a very quick follow-up on KRYSTEXXA, you said you expect to grow double digits next year even with the 340B change. I just want to confirm that it's still about 20%, 25% of sales that would probably go close to 0. Just give us an update on that exposure.

Correct.

And our next question comes from the line of David Risinger with Morgan Stanley.

So congrats on the news on the movement forward for MIRROR. It sounds pretty compelling that you'll be able to potentially file that. Could you just provide a little bit more color on your level of conviction that you can do so and what the timing of filing might be? And then, Paul, just 2 financial questions. First, and I missed part of the call, I don't know if you had any accrual reversals, and if so, if you could quantify them for primary care. And then with respect to KRYSTEXXA, if you could just explain the sales growth being a little bit below the volume growth. I think your figures were sales up around 65% and vials up 75%.

I'll maybe take the first one on vial growth. We see our gross-to-net in the high 20s and we expect that to maintain through the fourth quarter and that will certainly change as we see implementation of 340B. And maybe, Paul, do you want to address the primary care question and then we'll go to Shao-Lee on...

Yes, there's nothing specific in the quarter on accruals one way or the other impacting the sales.

Yes, and so with regards to confidence level in the methotrexate plus KRYSTEXXA data and then potential for filing, I think that as we stated in our comments earlier, we're very encouraged by these data. As I mentioned, these were 9 sequential patients that were evaluated in these centers. And if you -- if these are sort of nonrandomly selected, if you will, you can calculate that the likelihood that this is a random event to get 9 sequential patients to be responders is less than 5%. So this is the reason for our significant confidence in the results that we've seen. And therefore, our move to adapt our KRYSTEXXA MIRROR study early. As I said, ultimately, we think that this will -- the potential for registration will require KRYSTEXXA, plus or minus methotrexate, so placebo-controlled trial. But we'll have conversations with the FDA and we're planning for those now, that will better inform ultimately what that design will be and what the requirements will be to enable that label update.

And once we have that information, we'll be able to better project time lines or we'll communicate them at that point.

I think one of the important points there is that methotrexate and KRYSTEXXA are both available now. Methotrexate is most commonly used by rheumatologists. And so ultimately with the external data that's been put out there, it's up to the physicians and the patients at this point to decide if this is meaningful to them.

And that looks to be our last call this morning. So thank you so much for joining us this morning. A replay of this call and webcast will be available in approximately 2 hours. And thank you so much.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.