Horizon Therapeutics PLC (HZNP) 2021 Q1 法說會逐字稿

Good morning, and thank you for standing by, and welcome to Horizon Therapeutics plc First Quarter 2021 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, Justin. 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; Liz Thompson, Executive Vice President, Research and Development; and Andy Pasternak, Executive Vice President, Chief Strategy Officer.

Tim will provide a review of the business, including our first quarter performance. Liz will then provide a review of our R&D programs, followed by Paul, who will discuss our financial performance and guidance in more detail. After closing remarks from Tim, we'll take your questions.

As a reminder, during today's call, we'll be making certain forward-looking statements, including statements about financial projections, development activities, our business strategy, and the expected timing and impact of future events. Our actual results could differ materially due to a number of factors, including the risk factors and other information outlined in our latest forms 10-K, 10-Q, and any 8-Ks filed with the Securities and Exchange Commission, and our earnings press release, which we issued this morning. You are cautioned not to place undue reliance on these forward-looking statements, and Horizon disclaims any obligation to update such statements.

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

I will now turn the call over to Tim.

Thank you, Tina, and good morning, everyone. The first quarter is a one with multiple achievements for Horizon. First, we completed the acquisition of Viela Bio, advancing our position as a high-growth biotech by adding a deep, mid-stage biologics pipeline, expanding our R&D capabilities, particularly in early-stage research, and diversifying our portfolio with the on-market rare disease biologic UPLIZNA. We now have a total of 22 development programs in our pipeline, including 8 trials scheduled to start this year.

We initiated the relaunch of TEPEZZA in mid-April after receiving FDA approval in March for the increased scale manufacturing process for TEPEZZA. This followed a temporary supply disruption that began last December, which was a result of the U.S. government-mandated COVID-19 vaccine orders. We're advancing our global expansion strategy with today's announcement of our plan to build out our European infrastructure to launch UPLIZNA in Europe, if approved. We anticipate approval in the first quarter of 2022.

Our geographic expansion strategy includes introducing TEPEZZA in Japan as well as other markets, establishing a platform for the future launch of additional medicines outside the U.S., and we made significant progress here as well.

We generated strong growth from our orphan disease medicines: KRYSTEXXA, RAVICTI, PROCYSBI and ACTIMMUNE. We also received multiple best workplace awards since the start of this year, including #1 ranking on Fortune's Best Places in Biopharma 2021; and the #3 ranking, the highest ranked biopharma company, on the prestigious Fortune's Top 100 Places to Work list, attribute to the strong engagement of our employees, an important factor in hiring and retaining talent in the highly competitive biotech sector.

Starting with Viela, which brought us 4 candidates and 9 development programs, and considerably expanded our pipeline across all phases of clinical development, and is strategically aligned with our therapeutic areas of focus. Viela's R&D team enhances our ability to innovate with its broad experience in biologics, its strong early-stage research and translational capabilities, and its deep scientific knowledge of autoimmune and severe inflammatory diseases. Finally, the acquisition diversifies our on-market medicine portfolio with the addition of UPLIZNA, an infused biologic medicine indicated for the rare disease, neuromyelitis optica spectrum disorder, or NMOSD.

We've been impressed by the talent and expertise that Viela team brings to Horizon. Since completing the acquisition in mid-March, our teams have been working together to successfully integrate the 2 companies. And this morning, we finalized and rolled out our fully integrated organization.

We're advancing and refining our strategy for the Viela development portfolio to maximize its potential. Our near-term commercial priority is to successfully relaunch UPLIZNA for NMOSD in the U.S. and prepare for the potential launch in Europe.

UPLIZNA was approved by the FDA in June of last year as the first and only B-cell depleter for the treatment of adult patients with NMOSD. This is a severe, rare, relapsing neuroinflammatory autoimmune disease that attacks the optic nerve, spinal cord and the brainstem. Manifestations of the disease include loss of vision, paralysis and also respiratory failure. B cells play a critical role in the pathogenesis of NMOSD, and B-cell depletion is a mechanistic approach preferred by physicians.

Because UPLIZNA was launched during the pandemic and with relatively minimal resources, we are planning a full relaunch of the medicine, including expanding the size of the commercial organization. We're applying key learnings from the successful strategies we used to launch TEPEZZA and relaunch KRYSTEXXA. A key component of that strategy is to invest in the marketing and field-based teams to ensure optimal support for UPLIZNA. We're well on our way in our relaunch preparations and expect the results of our efforts to accelerate as we move throughout the second half of this year.

Our next steps for UPLIZNA include: adding sales representatives to maximize the opportunity in NMOSD; adding and applying our comprehensive patient services, site of care and payer support teams to optimize patient pull-through, which, as we know from TEPEZZA and KRYSTEXXA, is critical to the success of rare disease infused medicines. We're also leveraging our extensive TEPEZZA site of care network to support physicians referring their patients to infusion centers, which is a particular challenge for UPLIZNA in its early launch.

We're also investing in medical and scientific engagement to establish scientific leadership in NMOSD. This includes conducting further analysis of UPLIZNA clinical programs to expand the understanding of its differentiation as well as continuing to build a base of compelling real-world evidence supporting the use of UPLIZNA.

Important new data were recently presented at 2 key medical meetings, which Liz will discuss in more detail. This type of clinical analysis is core to our medical affairs and clinical strategy at Horizon to engage, educate and collaborate with the treating community. KRYSTEXXA is an example of how we have successfully executed this strategy.

Keys to our commercial strategy are ensuring that physicians are aware of the benefits of UPLIZNA and how it is differentiated from other on-market medicines. For example, we've seen multiple opportunities to differentiate UPLIZNA from rituximab, an off-label treatment that has been used to treat NMOSD, given the lack of an approved medicine for this devastating disease. One important distinction is that UPLIZNA is a humanized monoclonal antibody targeting a CD19 receptor, while rituximab is a chimeric molecule targeting CD20 receptor, which does not deplete plasma cells or plasmablasts.

In NMOSD, autoantibodies are secreted by plasmablasts and plasma cells, and UPLIZNA depletes these pathogenic cells. Additionally, UPLIZNA has shown a relatively low rate of antidrug antibodies and infusion reactions, with recent data also confirming its long-term efficacy. Other benefits of prescribing UPLIZNA are resonating with physicians, including its convenience, favorable safety profile and well-understood mechanism of action.

Moving to TEPEZZA. TEPEZZA is the only approved medicine for the treatment of thyroid eye disease, which is a serious, progressive and vision-threatening rare autoimmune disease. As you're aware, we were in a temporary supply disruption with TEPEZZA throughout the first quarter, with no supply since the end of December. This was due to U.S. government-mandated COVID-19 vaccine orders and our third-party drug product manufacturer, Catalent. This is very challenging for TEPEZZA patients and treating physicians, and certainly for our business. We understand how critical it was to accelerate COVID-19 vaccine production to save lives and hopefully end this pandemic.

Fortunately, we had already begun a process early last year to increase the scale with which we could fill and finish vials at Catalent. This increased scale allowed us to manufacture many more vials with each manufacturing round. This new manufacturing change required FDA approval, and we submitted a prior approval supplement in January to the FDA. We're pleased to announce that the FDA approval of that supplement in March, and we also announced resupplying of TEPEZZA in mid-April.

While this has certainly been a very difficult situation for TED patients, who had to stop TEPEZZA in the middle of their treatment and continue to live with the debilitating effects of TED, we appreciate the incredible commitment from the FDA, HHS, the White House and Catalent to work with us to expedite FDA approval and resupply TEPEZZA for patients as quickly as possible. In addition to obtaining approval for the new increased scale production of Catalent, we continue to make progress on our strategy to expand supply capacity, which includes adding a second drug product manufacturer by the end of this year.

TEPEZZA has been available for about 2 weeks now, and we're extremely pleased with the progress we've seen. Patients are eager to resume or start therapy, and physicians are reengaging with their patients to help them get on treatment. The feedback has been overwhelmingly positive so far. As we've seen since on launch, TED patients have built strong communities on various social channels and many have posted about how deeply thankful they are to resume treatment again. TEPEZZA is making a huge difference in their lives.

We now have 2 types of patients who are starting on TEPEZZA: disrupted patients who are on therapy but had to stop treatment due to the supply shortage; and new patients who are starting TEPEZZA for the first time.

With disrupted patients, we are making a great progress early in the relaunch. To date, about half of disrupted patients have already scheduled their infusions. Based on physician and patient research we conducted during the supply shortage, we expect the vast majority of disrupted patients to resume therapy. While we're only 2 weeks in, we're seeing evidence that this is happening as we expected. The remaining disrupted patients continue to move through the process to get their treatment scheduled. The reverification and scheduling process can take up to a few months depending on the patient, their physician and their insurance provider. We plan for this, and our patient services team continues to do an incredible job communicating with each TEPEZZA patient throughout their journey. We're very encouraged with the progress we've seen in the first few weeks.

Regarding new patients, as I mentioned on our last earning call at the end of February, despite the supply disruption, we continued to promote TEPEZZA and saw a continued strong growth of patient enrollment forms, or PEFs. We completed the expansion of our TEPEZZA commercial and field-based organization in the fourth quarter last year. We've included the addition of sales representatives, patient access liaisons, regional reimbursement liaisons, site of care managers and medical liaisons. This expanded team continued to drive demand for new patients during the disruption, communicating frequently with their customers.

Since our resupply announcement at the end of March, we've seen an acceleration in that PEF growth. An impressive number of new prescribers are prescribing TEPEZZA each week. In fact, since our last update at the end of February, the total number of PEFs has increased significantly, and we had an all-time high for total monthly PEFs in April. We've already seen a good number of new patients whose PEFs were generated in the fourth and first quarter of this year schedule their first infusion.

While the accumulation of disrupted patients resuming treatments, along with the new PEFs generated in the fourth and first quarters, we have a unique dynamic occurring as we relaunch TEPEZZA. This will result in an unusual quarterly net sales progression, with the third quarter expected to be TEPEZZA's highest net sales quarter of this year, as we work through treating disrupted patients and adding the new accumulated patients.

As we have said, we are significantly increasing our investment in TEPEZZA this year, including in the first quarter, to drive awareness of TED and TEPEZZA, targeting not only TED patients, but also those with Graves' disease to raise awareness of the connection between Graves' and TED and to increase the speed to diagnosis and treatment. Our unbranded direct-to-consumer television campaign last year was highly successful, as evidenced by the fact that patients continue to search for TED specialists on the TED and TEPEZZA websites during the temporary supply disruption.

On Monday, in addition to resuming our unbranded television campaign, we also launched our first branded TEPEZZA television campaign, which we expect to drive even broader reach and awareness for TED and TEPEZZA, motivating patients to seek treatment more quickly. We expect the new DTC campaigns, which are national campaigns and will run through the rest of the year, to drive increased uptake of TEPEZZA as we progress towards our 2021 TEPEZZA net sales guidance of more than $1.275 billion. We're highly confident in the growth prospects for TEPEZZA and continue to expect peak annual global net sales of more than $3.5 billion.

On the clinical development front, we expect to begin enrollment in our trial in chronic TED patients midyear. In the meantime, we continue to see positive data published by physicians who have used TEPEZZA in treating their chronic TED patients as well as presentation of case studies at medical meetings. We continue to expect more data to emerge throughout this year.

With KRYSTEXXA, we reported first quarter net sales of $107 million, an increase of 14% versus the prior year, despite the ongoing challenges associated with COVID-19. We're encouraged by recent increase we've seen in patient visits to rheumatologists as well as the highest number of in-person calls by our sales team since the onset of the pandemic.

Key to the long-term success of KRYSTEXXA is our immunomodulation strategy. We continue to see increased use of KRYSTEXXA with immunomodulators, as physicians become increasingly aware of the significantly higher response rate for KRYSTEXXA plus immunomodulation compared to KRYSTEXXA alone. Between 35% and 40% of new patients are now using KRYSTEXXA plus immunomodulation. We attribute this to higher levels of clinical conviction for KRYSTEXXA among physicians who co-prescribed immunomodulators.

Our strategy for KRYSTEXXA is working, and it supports our expectation for strong growth again this year, with full year 2021 net sales guidance of more than $500 million. It also supports our peak U.S. sales estimate of more than $1 billion.

Our rare disease medicines, RAVICTI, PROCYSBI and ACTIMMUNE, all generated strong growth in the first quarter, driven by durable active shipping patient growth and continued high rates of compliance and adherence.

I will now turn the call over to Liz.

Thank you, Tim, and good morning, everyone.

The first quarter was a landmark quarter for the R&D organization as we completed the acquisition of Viela and began integrating the 2 organizations. I've been impressed with the talent across the Viela team and their deep commitment to science and patients. Our pipeline now has significant breadth and depth. As Tim mentioned, we have 22 programs spanning the development life cycle from preclinical to post-marketing trials, with 7 in Phase II, 2 in Phase III and 6 in Phase IV.

Given this increase in scope on this call and future calls, I'll focus on key programs and those with important new information. I'll start with UPLIZNA, our anti-CD19 humanized monoclonal antibody that depletes B cells. It was approved by the FDA last year and is the first and only B-cell depleter for the treatment of adult patients with anti-aquaporin-4 antibody-positive NMOSD. As Tim referenced, B-cell depletion is a mechanistic approach that neurologists are very familiar with in treating the disease.

One of our priorities for UPLIZNA is to continue to build a robust body of evidence supporting its important role in NMOSD. We were very pleased to have data from 4 scientific abstracts presented in February at the Americas Committee for Treatment and Research of Multiple Sclerosis 2021 Forum. One analysis highlighted the safety and efficacy of UPLIZNA in NMOSD patients with previous rituximab exposure, with the data suggesting that UPLIZNA may benefit patients previously treated with rituximab, including those who had experienced relapses. Of the 7 patients who qualified as rituximab failures, none had an attack after treatment with UPLIZNA during the study period.

We also presented data at the American Academy of Neurology Annual Meeting in April, including new end-of-study data from the open-label extension period of the pivotal Phase III trial in NMOSD patients. UPLIZNA was generally well-tolerated for at least 4 years, and long-term UPLIZNA treatment provided a sustained reduction in NMOSD attack risk from baseline.

Finally, a new analysis of UPLIZNA Phase III data was published in the May issue of Neurology Neuroimmunology & Neuroinflammation, indicating that UPLIZNA reduces the risk of worsening disability in patients with NMOSD. As this is a progressive disease in which each attack causes further damage and disability, these data could be meaningful to the physician community.

We're also evaluating UPLIZNA in 2 Phase III programs, including myasthenia gravis, or MG, and IgG4-related disease. MG is a chronic, rare, autoimmune neuromuscular disorder that affects the voluntary muscles of the body, especially those that control the eyes, mouth, throat and limbs. IgG4-related disease refers to a group of disorders marked by tumor-like swelling and fibrosis of affected organs, such as the pancreas, salivary glands and kidneys. Enrollment in these trials is ongoing.

Moving on to HZN-825, our oral selective LPAR1 antagonist, that has shown early signs of clinical impact in fibrotic disease. Diffuse cutaneous systemic sclerosis is a rare, chronic, progressive autoimmune disease that often causes internal organ damage and has a high mortality rate. Given no FDA approved treatments for patients today, this disease presents a significant unmet medical need. We remain on track to enroll the first patient in our pivotal Phase IIb diffuse cutaneous systemic sclerosis trial in the second quarter of 2021.

Our second pivotal Phase IIb HZN-825 trial is in idiopathic pulmonary fibrosis, or IPF, the most common interstitial lung disease. IPF is a rare progressive lung disease, with a median survival of less than 5 years. While current treatments may slow the disease progression, they do not stabilize the disease. There's a significant unmet need for a comprehensive treatment that addresses the inflammation and fibrosis that drive IPF. Treatment -- target enrollment for the trial is approximately 360 patients. And the primary endpoint will be the change in forced vital capacity, or FVC, after 52 weeks. FVC, an objective endpoint that measures lung capacity, is used to assess the progression of lung disease and the effectiveness of treatment. Enrollment, which we expect to begin in mid-2021, is expected to take approximately 2 years, and with a 1-year endpoint, we expect data in 2024.

Moving to HZN-4920. This is a CD40 ligand antagonist that blocks T-cell interaction with CD40-expressing B cells, thereby disrupting the overactivation of the CD40 ligand co-stimulatory pathway. HZN-4920 is currently in Phase II development for indications that address immune overactivation, including Sjögren’s syndrome, a chronic systemic autoimmune condition that impacts exocrine glands, including the salivary and tear glands as well as ongoing studies in rheumatoid arthritis and kidney transplant rejection.

HZN-7734 is a human monoclonal antibody that binds to a cell surface receptor on plasmacytoid dendritic cells, or PDCs, called ILT7, thereby causing PDC depletion. PDC depletion may interrupt the cycle of inflammation that causes tissue damage in diseases, such as lupus and other autoimmune conditions.

For HZN-7734, we're on track to enroll our first patient in our systemic lupus erythematosus, or SLE, Phase II trial midyear. We expect to enroll approximately 195 participants. The primary endpoint of the trial will be to evaluate the effect of HZN-7734 compared with placebo in reducing SLE disease activity using BICLA. BICLA is a commonly used index that measures lupus outcomes. We expect data to be available in 2023.

A Phase I trial was successfully conducted in cutaneous lupus erythematosus, or CLE, with results presented as a late-breaking abstract at the American College of Rheumatology Medical Meeting at the end of last year. In this trial, patients treated with HZN-7734 saw a clinically significant reduction in CLASI-A, a clinical measure of cutaneous lupus lesions, which is also a secondary endpoint in our Phase II trial.

Moving to TEPEZZA. We expect our placebo-controlled trial in chronic TED patients to begin midyear. Given that the TEPEZZA indication covers the broad TED patient population, the objective of the trial is to generate clinical data to better inform payers and physicians about the use of TEPEZZA in chronic TED patients. Target enrollment is approximately 40 patients who've had chronic TED for 5 years or less, randomized in the 2 to 1 ratio. The primary endpoint is the change in proptosis in the study eye from baseline at week 24. We expect top line data to be available in mid-2022.

In our TEPEZZA subcutaneous administration program, we recently completed dosing in our Phase I pharmacokinetic trial, which includes an initial evaluation of the Halozyme ENHANZE drug delivery technology for a subcutaneous formulation of TEPEZZA. Follow-up for these patients is ongoing. Once we've collected follow-up information and analyzed the data, we'll work with the FDA to define the data package, including additional clinical work required for approval. We also continued to advance our clinical program for TEPEZZA in Japan, having completed initial positive discussions with Japan's Pharmaceuticals and Medical Devices Agency.

For KRYSTEXXA, we continued to advance our 5 R&D programs which aim to maximize the value of the medicine in 3 ways: increasing the complete response rate; benefiting more patients with uncontrolled gout; and improving the patient experience. Each trial is progressing well. We continue to expect readout from our MIRROR placebo-controlled trial in the fourth quarter of 2021. Beyond MIRROR, we and others continue to contribute to the published literature regarding use of KRYSTEXXA with immunomodulation. Data were recently published in arthritis and rheumatology from RECIPE, the first randomized controlled clinical trial using KRYSTEXXA with an immunomodulator, in this case, mycophenolate mofetil. Finally, in March, we enrolled the first patient in our trial, evaluating a monthly dosing regimen of KRYSTEXXA.

I look forward to updating you on our continued progress. And I'll turn the call over to Paul.

Thanks, Liz. My comments this morning will primarily focus on our non-GAAP results unless otherwise noted. We are very pleased with our overall performance in the quarter, given the significant impact of the temporary TEPEZZA supply disruption.

First quarter net sales were $342 million. Our Orphan segment generated net sales of $258 million, a year-over-year increase of 5%, driven by strong performance of KRYSTEXXA, RAVICTI, PROCYSBI and ACTIMMUNE. Net sales for the Inflammation segment were $85 million, and segment operating income was $43 million. We continue to reinvest the cash flow generated from this segment into our growth drivers and our expanding pipeline.

Our non-GAAP first quarter gross profit ratio was 91% of net sales. Non-GAAP operating expenses were $268 million. This included non-GAAP R&D expense of $49 million and non-GAAP SG&A expense of $219 million, both in line with our expectations. First quarter adjusted EBITDA was $46 million.

Non-GAAP income tax expense for the first quarter was $26 million. We were impacted by an unusually high non-GAAP tax rate in the quarter. As we've seen in prior years, there can be variability in our tax rate across quarters. We expect the second, third and fourth quarter tax rates to offset the first quarter, to bring the full year tax rate in line with our expectations of low double-digits.

Non-GAAP net income in the quarter was $7 million and non-GAAP diluted earnings per share were $0.03. The weighted average shares outstanding used to calculate first quarter 2021 non-GAAP diluted EPS were 234 million shares. First quarter non-GAAP operating cash flow was $63 million.

As of March 31, cash and cash equivalents were $812 million, giving us significant flexibility to invest in our growing operations, including additional pipeline indications following the acquisition of Viela as well as allowing us to further expand our pipeline and execute other strategic transactions. The total principal amount of our debt is $2.6 billion, with the earliest maturity in 2026. Our gross debt to last 12 months adjusted EBITDA leverage ratio is 2.8x as of March 31.

Turning now to our full year 2021 guidance. We're updating our full year 2021 guidance to incorporate the impact of the acquired Viela business. We expect full year net sales in the range of $2.75 billion to $2.85 billion and adjusted EBITDA in the range of $1.02 billion to $1.06 billion.

For TEPEZZA, we continue to expect full year 2021 net sales of greater than $1.275 billion, representing year-over-year growth of more than 50%. As Tim mentioned, given the unique dynamic of both disrupted patients resuming treatment, at the same time, new patients are starting therapy, we expect an unusual quarterly net sales progression, with the third quarter expected to be the highest net sales quarter of the year.

For KRYSTEXXA, we continue to expect net sales of more than $500 million for the year, representing strong year-over-year growth of more than 20%.

We continue to expect our non-GAAP gross profit ratio for the full year to be between 86% and 87%. Our updated expectations for adjusted EBITDA reflect a significant increase in R&D expense. Incorporating the legacy Viela programs, our investments in HZN-825 and our TEPEZZA and KRYSTEXXA clinical programs, we expect 2021 R&D expense to be more than triple the amount of our 2020 R&D spend.

Following the issuance of additional debt to fund the Viela acquisition, we now expect non-GAAP net interest expense for the full year to be approximately $75 million. We continue to expect full year non-GAAP tax rate to be in the low double-digits. We estimate that our cash tax rate will be in the high single-digits in 2021. And as always, our tax rates could change significantly as a result of any acquisitions or divestitures we may make or any changes in tax laws. We now expect our full year 2021 weighted average diluted share count to be approximately 235 million shares.

With that, I'll turn it over to Tim for his concluding remarks.

Thank you, Paul. We're very pleased with the performance that we had in the first quarter, given the continued challenges from COVID-19 and the impact from the short-term TEPEZZA supply situation. We generated strong results from KRYSTEXXA and our other rare disease medicines. We completed the acquisition of Viela, which accelerates our strategy to build and expand our pipeline for long-term sustainable growth. We now have 22 programs in development, 8 of which are beginning this year. We advanced our global expansion strategy with preparations for the potential launch of UPLIZNA in Europe for NMOSD, and progress with our clinical program for TEPEZZA in Japan continued.

We're very pleased as a result of the collaboration with the FDA, HHS, the White House and Catalent, that we're able to relaunch TEPEZZA in April, making it impossible for many patients with TED to once again get access to the medicine, the only one approved for treatment of this debilitating disease. We're also very pleased with the progress in the relaunch just 2 weeks in, with both disrupted and new patients driving early uptake. We remain focused on driving continued progress, and believe we are well positioned to deliver increasing value to our shareholders this year and in the years ahead.

We'll now open the call up for questions.

(Operator Instructions) And our first question comes from David Amsellem from Piper Sandler.

Just a couple of quick ones. So in terms of the cadence for TEPEZZA, you talked about 3Q, if I'm not mistaken, being the high watermark for the year. So I'm just sort of wondering, with the growth in patient enrollment forms and with just overall demand growing, why wouldn't 4Q be the high watermark? Is it just a sort of clearing of the backlog, if you will, that results in 3Q being the high watermark for the year? Just help us understand the thought process more deeply.

And then secondly, on UPLIZNA, I'm interested in how you're thinking about the pace of switching away from conventional immunosuppressants like azathioprine? And how you're thinking about the extent of switching away from rituximab over time?

Sure. You're spot on, David, with your commentary around TEPEZZA gating. So we had patients -- accumulating PEFs in the fourth quarter that didn't get treated and also the first quarter. And then you add that to the significant number of disrupted patients. So you essentially have 2 quarters of PEFs as well as a significant number of disrupted patients all sequencing on where they would be treated, for the most part, in the second and third quarters, with only half a month of April.

So when you look at initial dosing being less vials, you add that all up, and that drives a significant bolus that will clear through in the third quarter. So that is what's driving the commentary that we did around TEPEZZA. And certainly, as we continue to drive new PEFs, we'll be well positioned to drive ongoing growth from that point on.

Relative to UPLIZNA, we think there's a lot of good opportunities for UPLIZNA in the U.S., especially versus rituximab, which is not approved, but which is used extensively in this disease. About half of our patients currently since launch have been rituximab switches. And there's a number of key factors. First of all, for us, we're getting our commercial organization rightsized. There wasn't a significant patient services or site of care organization to ensure that we had not only the right level of access, but the right pull-through and the right place to get these patients treated. So adding those services, which weren't existent in the launch of UPLIZNA, will certainly make a big difference and help us as we drive uptake.

When we talk about the advantages of UPLIZNA versus rituximab, we think they're significant. First of all, UPLIZNA's fully human versus rituximab, which is chimeric, which we have seen less infusion reactions, less antidrug antibodies. These can all impact tolerability and long-term efficacy. We've had recent data presented, which confirms that long-term efficacy. And with the humanized antibodies, there's lower risk for inducing immune responses in humans. So we certainly see that as an advantage.

And also, with CD19 as our target, we see UPLIZNA hitting a broad array of B cells versus rituximab, which potentially could lead to more effectiveness. So you add to the fact that rituximab is not promoted, it's off-label, and there's not patient support, so co-pay support for commercial patients and just overall helping patients understand the disease, the best treatment and where to get treated.

So we think there's a lot of opportunities for us as we scale the commercial organization, but really establish the right level of messaging on switching from rituximab, and ultimately, long term becoming a first-line treatment.

And our next question comes from Chris Schott from JPMorgan.

Just a couple for me on TEPEZZA and just a follow-up on UPLINZA. On the quarterly gating, can you just give us a little bit more color of how you're thinking of the balance as we think about sales between 2Q, 3Q, 4Q? I'm just trying to get my hands around how 3Q weighted these results will be?

And then the second is on the new kind of patient start side of things. I know you mentioned, you had all-time high in terms of patient enrollment forms in April. Can you just quantify where we stand now in terms of how many of these forms you're seeing per month versus the run rate we're seeing last year? I'm just tying to get a sense of just like how much of an uptick you've seen overall.

And then the final question was just on UPLINZA with the relaunch. Just any latest thinking about how you're thinking about peak sales for the product? And then -- and NMOSD, sorry, as we just think about the resources you're putting behind the product and sales force, et cetera.

Sure. Thanks, Chris. Our thoughts around UPLIZNA are, as a molecule, we see it as a billion dollar opportunity. We haven't broken that down by indication. But we continue to feel confident, even more confident, the more we dig into the opportunity in NMOSD to drive significant uptake and achieve that objective.

Relative to total number PEFs, we're not getting into specific numbers on a monthly basis, other than -- as we were working through last year and the impact of COVID, one of the things that we had talked about is that we had never achieved the level of PEFs that we saw in the first few months of launch. And so to be able to have a record high level of PEFs in April really talks about significant demand in new patients and also about the fact that we see some opening from a COVID perspective. So definitely gives us confidence that we're in a great place to continue to drive uptake and achieve our objectives.

Our next question comes from Annabel Samimy from Stifel.

You have so many programs now I don't even know where to start. I'll ask one on TEPEZZA and one on UPLINZA. So on TEPEZZA, in terms of the patients you're seeing, so 50% are patients who had stopped and restarted, and the others are new patients. Of those new patients, are you starting to see more chronic use or PEFs for chronic use, given that you're not limited in label and there's been increasing data on the success of TEPEZZA in chronic use?

And then on UPLIZNA, I guess I'm curious about the myasthenia gravis development program. How do you think about B-cell depletion in light of, I guess, what you would call a deep development program with FcRn and complement inhibitors? And where does B-cell depletion sit in?

Sure. I'll take the first and let Liz take the second. So relative to the chronic population before sort of the temporary supply issue, we saw high single digit as a percent of overall treated patients. And obviously, we're 2 weeks in, so as far as treated patients, we don't have that breakout.

As far as the PEFs generated in the fourth and first quarter, we didn't see anything -- I mean we don't have perfect data to understand this, but we didn't see anything that significantly changes our thought process there. But we have to see, as we get weeks and months in, how that changes over time. There's been a lot of publications in the fourth quarter, and we'll see more over this year. So as more data gets out, that will certainly help raise awareness and also improving the speed to reimbursement. So I think it's too early to really comment on how that's tracking in the relaunch phase.

Liz?

Yes. So turning to the question on myasthenia gravis and UPLIZNA, and specifically in the context of the FcRns. So what a B-cell depleter is going to be doing in this disease state is somewhat different from how an FcRn is going to approach it. In one case, you're taking out the cells that are producing the autoantibodies; and in the other, you're sort of systematically having to clear them out. This has some implications that are already showing up. There's much more frequent dosing that's going to be required with an FcRn, for example.

There also is a suggestion that maybe in the MuSK population, the FcRns aren't as helpful as historically B-cell depletion has been seen to be. And we're going to be looking at that very robustly in our myasthenia gravis program. So overall, we see some real potential for differentiation. Clearly, of course, what's going to matter is how our trial actually reads out at the end of the day.

And our next question comes from Jason Gerberry from Bank of America.

Just a broader question, kind of looking beyond this year and some of the noise with the new starts, the disrupted patients. I'm just trying to think about where this market for TEPEZZA ultimately goes and the impact of a lot of your marketing efforts. So it seems like with like the early adopters, these physicians, when we survey them sort of where they're prescribing versus their peak levels, they aren't that different, but they are indicating that referrals are going up. And you guys have indicated that like 60% of the market was only prescribing 1 or 2 scripts.

So just trying to think about the efforts, the DTC campaign that was talked about, what drives the next leg of growth to get more out of the prescriber base overall? Is it really hitting that other 60% of prescribers, activating them? Is it driving more referrals to that kind of early adopter cohort? Just trying to understand sort of what drives sort of the next leg of growth in the TEPEZZA story.

Thanks, Jason. Well, all of it. One doesn't work without another. You can't have a strong DTC campaign without the right pull-through. So I think all of it in concert and at an increased level with our expanded commercial organization, with a significant increase in DTC, should work in concert to drive continued uptake. So we're seeing it as a result of our DTC. With December being the first national month last year, we saw a significant increase in the people requesting to find a TED specialist. So a great sign there with the ramp-up of our national campaigns we then stopped in the first quarter. So that kicked up on Monday again and also the TEPEZZA branded DTC. So all of these efforts are going to be critical to driving both short- and long-term success.

40% of Graves' patients ultimately get thyroid eye disease. So being able to accelerate, one, their understanding that thyroid eye disease is a consequence of Graves, a potential consequence; and knowing that there's options to treat it, will accelerate them through to ultimately getting treated for thyroid eye disease and potentially getting TEPEZZA. So I think all of these from getting Graves' patients accelerated to getting active patients with thyroid eye disease treated, and ultimately, leveraging our increased commercial effort are all going to be critical in driving our short- and long-term success.

And our next question comes from David Risinger from Morgan Stanley.

This is Melina Santoro, on for Dave Risinger. We have a few questions about the TEPEZZA inactive trial. So first, how confident are you in the statistical success with such a small end of less than 40? Second, could you please frame the treatment population? I know it's an inactive with clinical activity score below 1. But is it moderate-to-severe patients technically because proptosis is greater than 3? And third, what number and percent of inactive patients in the real world does the enrollment criteria represent in any given year?

Sure. So I'll take the last. As we said, for patients who have 8 years or less, they're really between 3 and 8 years because the first 2 years, they're inactive disease. On average, that's about 70,000 patients, and this trial represents that population. Liz can speak to the first part if she likes.

Yes. Absolutely. So as you can imagine, we thought very carefully about how to design the study to give appropriate insight into the effect of TEPEZZA in this patient population. It is a patient population that's more consistent with moderate to severe on the basis of looking to have significant levels of proptosis. And part of that is just simply our primary endpoint here is proptosis. And we do want to make sure these patients have enough of that particular symptom that we'll be able to see a benefit.

When you look at the overall sample size, we did think about this carefully as well and looked at what would be necessary based on some conservative assumptions of the variability of response in this patient population as well as making sure that we would be adequately powered to see a 2-millimeter change. So overall, we feel confident in the design of our study.

And our next question comes from Ken Cacciatore from Cowen and Company.

Tim, just want to bring you back to some of the metrics around TEPEZZA. Just doing some of the back of the envelope, and I know none of this is perfect, it seems as if you would have at least 4,000 patients maybe more in enrollment and going through the process. So if we do math on full treatment for some -- for these patients, it would seem as if you're already at the guidance level. And I know you're talking about around a rough number on guidance.

But can you help us understand, maybe with accumulation of patients starting and continuing to go through the year, is it just more of a logistical issue? You want to see how we get these many patients through the system kind of cleanly before you maybe readdress guidance? Or any more kind of commentary you can give us around that?

Sure. So not really sure where the 4,000 came from. That's not consistent with our numbers. But we're 2 weeks in here. And we've certainly seen great response so far from physicians and patients. Half of them have already either gotten or scheduled their infusion, so tracking where we expected things. And as far as guidance for the year, we're not going to change based on 2 weeks of data. We'll continue to execute. And we'll know a lot more as we complete the second quarter and report that out in early August.

Okay. And also just -- I'm just going to follow-up and ask on any progress with maybe the European Regulatory authorities or should we just kind of focus on other regions as you've been pointing to?

So yes, so our focus right now is on Asia, Japan, and Latin America and other markets, Middle East, where we see opportunity for TEPEZZA. And as we've said, we see that is greater than $500 million opportunity. We're in constant dialogue with the PDMA (sic) [PMDA] in Japan, making progress there. So we continue to expect a significant opportunity outside the U.S. Within Europe, we continue to look for avenues to obtain Orphan Drug Designation. That would be what's required to move to next step. So until we're able to obtain Orphan Drug Designation, we won't be moving forward in Europe.

And our next question comes from Akash Tewari from Wolfe.

So a few on TEPEZZA. Starting off, just on average, how many infusions do patients who had to kind of pause treatment during the supply disruption have remaining for TEPEZZA? And are you seeing any rates of kind of prescription abandonment?

And then looking more broad term on TEPEZZA, we've seen from your Phase III study, although the proptosis response kind of plateaus around week 18, some of the other endpoints continue to go out. Have you considered longer dosing cycles past 8 doses for certain types of patients, let's say, chronic patients that could help with the durability of effect?

And then lastly, we noticed you recently filed a method-of-use patent on redosing patients with TEPEZZA. Can you talk about the puts and takes about getting the redosing language on your label, either through getting the OPTIC-X data on your label and given that Orange Book patented versus running a separate redosing trial down the line?

Sure. So on average about -- the average patient that was disrupted was about halfway through their dosing, on average. So if you look at that, that will be about 4. We are seeing that -- if you look at through the 12-week period to the 24-week period, we saw continued improvement in patients across a number of different metrics in the trial, from quality of life to a number of other metrics. So we -- the data shows that a full 6 months or 8 doses is required to benefit these patients. We are not pursuing longer dosing of patients at this point in time.

Relative to retreatment, we did in our OPTIC-X trial, look at retreatment and it showed effectiveness in that population. That is not included in our forecast. And we don't have current plans to add that to the label as it is currently covered from the standpoint that patients are for the treatment of thyroid eye disease. So we believe that would be covered in our current label, and that becomes a reimbursement discussion with individual plans.

We haven't -- again, we haven't had treatment for 3 months, so we really haven't seen any number of retreated patients that would give us any evidence to that point. So I guess we'll see over time if there is retreatment of some patients what that looks like, but we don't see a development or regulatory strategy there at this point in time.

So just to answer the following -- the question on the patent. We have filed patents on broader indications and opportunities based on our clinical trial results. So that's a pretty standard practice.

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

It sounds like you'll have enough TEPEZZA supply to meet all the demand from the backlog. Is that just from that one manufacturing slot at Catalent? Or will you need to get another slot of Catalent before year-end before you get that second manufacturer in place? I just want to make sure that there won't be supply issues again going forward.

And then just talk about the infrastructure you're building in Europe? And besides UPLIZNA, what else from your portfolio could you funnel there? Or would you be in-licensing more products for Europe potentially?

Sure. In Europe, we're going to have a pan-European infrastructure consistent with what other rare disease companies do typically. So limited infrastructure to be able to launch a rare disease medicine. And certainly, as we look at ongoing business development activities, we would look at global licensing where the medicines can feed into our U.S., Europe and other infrastructure that we will build.

Relative to TEPEZZA supply, one lot does not supply a long-term period. What we've said is, on average, it's about a month or so with each run that's made. We continue to manufacture -- we've continued to manufacture TEPEZZA since last year. And we expect continued manufacturing with Catalent. And that will be able to manage and satisfy the expected uptake and beyond for TEPEZZA. We also make -- have made progress to getting our second manufacturer online by the end of the year. So we are confident in our ability to supply the market at this point in time.

And our next question comes from David Steinberg from Jefferies.

I have 3 questions. The first is, historically, with the number of Orphan Drug launches, there are often a lot more patients that are found over time. So the time to peak sales is relative, and the number of patients is higher than initially thought. And I was just curious, now the drug has been out for market -- in the market for a year, and there's more patient awareness and doctors now have a therapy that works. Have you relooked at some of your assumptions behind the patient -- the eligible patient pool? I know there was not a lot of literature out there when you launched. But any changes in your thoughts on the patient pool?

And then on that subject, you had 3 or 4 months of learnings where there were not patients on drug and you could look into other things. And I was just curious, any learnings, the treatment of side effects, to make a better patient experience when there were side effects, any thoughts on optimizing dosing?

And then the second question is on business development. You obviously have a lot going on. I think you said 22 development programs. Is there an appetite for further BD? And what sort of things are you looking for?

And then the final question is just on reimbursement. Your launch took a lot of stakeholders by surprising, including the payers. As I understand it, most of the payments have gone through, but there have been some rejections. And I was just curious to that end, roughly what percent of the patients are on compassionate use who were denied therapy?

Sure. I'll start at the end. I'm not sure exactly, but we have a nominal level. At this point, I don't know if we really have anyone on compassionate use. We're just relaunching. There may be a few. But we do not see a material level of patients on compassionate use at this point in time.

Reimbursement, as we've discussed over the last year, has been better than expected. And the patients are moving through the process. On the chronic side, there's generally more discussion. It takes a little bit more time as we provide more data into those plans. But overall reimbursement has not been a significant hurdle. It's in line with a rare disease medicine, and we continue to expect that to work effectively.

I think the other question around dosing side effects, nothing changed. This is a treatment therapy, and we don't see any evidence to change that. Adverse events are similar to what we've seen in the clinical program, and we continue to make sure we collect new adverse events. But in all of our safety updates, that's been consistent with our studies and our label.

As far as time to peak sales and the patient population, our guidance remains the same. We see about 70,000 patients in the chronic population, as we've discussed. We continue to feel confident in the 15,000 to 20,000 incident new patients coming into the market with acute thyroid eye disease. And we continue to see strong support that those numbers are accurate.

I think, over time, as we expand our DTC programs, as I've discussed, and we look to accelerate the education of Graves' patients around the impact of eye disease, we may learn more, but it's too early to see if there's a significant change in that.

And lastly, on business development, we continue to aggressively pursue other potential transactions in line with our therapeutic areas, and we expect to be aggressive there to add further development-stage medicines.

And our last question comes from Dana Flanders from Guggenheim.

I just had 2 quick questions. Just first on TEPEZZA and the chronic study. Wondering if you have any sense if the efficacy of TEPEZZA wanes at all kind of the longer the patient has had chronic disease. So would you expect better efficacy in patients with disease for 3 years instead of 8? And can -- was that a consideration at all for the study and design?

And then just my second quick one. On KRYSTEXXA, given the uptake and success you've had with immunomodulation use, wondering if you could give us an update on the kind of average net vials per patient just where you stand currently?

Sure, Dana. So that's about 7 to 8 right now on average vials per patient. With KRYSTEXXA, we have seen that increase over the last year plus as a percentage of patients taking KRYSTEXXA plus immunomodulation has increased to about 35% to 40% now.

When we look at the chronic population and looking at patients who are 3 years past diagnosis versus 8, we've seen patients out to 24 years past diagnosis have very good success in being treated with TEPEZZA. So in that broad spectrum of 3 to 24 years and hearing feedback from physicians, we're not seeing any differences relative to time past the acute phase.

Great. Thanks, Dana. And thank you, Justin. This concludes our call this morning. A replay of this call and webcast will be available in approximately 2 hours. Thanks for joining us.

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