HZNP (2020 - Q4)

Good morning, and thank you for standing by. Welcome to the Horizon Therapeutics Fourth Quarter and Full Year 2020 Earnings Conference Call. As a reminder, today's conference is being recorded. I would now like to introduce Ms. Tina Ventura, Senior Vice President of Investor Relations. Tina Ven

Thank you, Hershella. Good morning everyone and thank you for joining us. On the call with me today are Tim Walbert, Chairman, President and Chief Executive Officer; Karin Rosen, Executive Vice President, Research and Development and Chief Scientific Officer; Paul Hoelscher, Executive Vice President, Chief Financial Officer; Liz Thompson, Group Vice President, Clinical Development and External Search; and Andy Pasternak, Executive Vice President, Chief Strategy Officer. Tim will provide a high-level review of the business, our 2020 performance and 2021 guidance. Karin will then provide a review of our R&D program, 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, 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 extent and duration of the effects of the COVID-19 pandemic as well as other factors outlined in our annual report on Form 10-K for year ended December 31, 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 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. Our fourth quarter capped off an exceptional year for Horizon. We achieved record, full-year total company net sales of $2.2 billion, representing year-over-year growth of 69%. This was driven by our successful launch of launch of Tepezza for thyroid eye disease, achieving $820 million in the first year on the market, as well as continued double-digit growth of KRYSTEXXA, our biologic for uncontrolled gout. Tepezza and KRYSTEXXA finished the year strong both growing double digits in the fourth quarter versus the third quarter. We also achieved record full year adjusted EBITDA of approximately $1 billion, which increased more than 100% compared to 2019. Our 2020 adjusted EBITDA margin was 45.4% more than 800 basis point increase compared to 2019, which drove a full year ahead of our previous plans. This morning, we issued full year 2021 guidance that again represents strong double-digit year-over-year growth. Our full year net sales guidance of $3.8 billion to $2.8 billion represents 25% growth at the midpoint. Our adjusted EBITDA guidance of $1.14 billion to $1.18 billion represents 16% growth at the midpoint, and includes significant investment in driving Tepezza uptake and our pipeline. We are roughly doubling our R&D spend compared to 2020 and initiating six new trials independent of the Viela acquisition. Additional milestones achieved in 2020 include, the acquisition of Curzion Pharmaceuticals, giving us HZN-825, our LPAR1 antagonist that is expected to enter two Phase 2b pivotal trials this year. We now have 14 programs total in our pipeline. We also advanced our KRYSTEXXA immunomodulation strategy, where we continue to see an increase in the use of KRYSTEXXA plus an immunomodulator, now up more than 35% of new patient starts. This list was strong second half and fourth quarter KRYSTEXXA net sales growth and we finished the year up nearly 20% despite the impact of COVID-19. And we significantly strengthened our balance sheet ending the year with more than $2 billion in cash, which is more than double the principal amount of our outstanding debt. This provided us with significant flexibility to pursue business development opportunities, and position as well on part of Viela Bio for total transaction value of $2.6 billion in net of Viela’s cash. The acquisition of Viela accelerates our strategy to build a robust development-stage pipeline to drive long-term value in four ways. First, it has a deep, mid-stage, biologic pipeline, with four candidates currently in nine development programs. Each of these molecules target central pathways that are implicated in a wide range of autoimmune diseases, providing many avenues for potential growth. We currently have a strong-arm market portfolio of medicines with high growth potential, and the Viela pipeline will position us well to drive growth in the second half of the decade. Second, it expands the capabilities of our current strong R&D team, particularly early-stage research and translational capabilities, as well as deep scientific knowledge in autoimmune and severe inflammatory diseases. These capabilities will allow us to continuously innovate beyond what is included in our combined pipeline today. Third, Viela allows us to continue to pursue our global expansion strategy that we've initiated with Tepezza and HZN-825. And finally, Viela further 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. It is a humanized monoclonal antibody with a well-understood mechanism of action, high efficacy levels, and a favorable dosing schedule as well as a safety and tolerability profile. As a leader in commercializing rare disease medicines, we see many additional opportunities to add value from a commercial perspective. This includes generating, conveying additional evidence that reinforces the value of Uplizna, as well as building the necessary infrastructure to support a favorable physician and patient experience, while ensuring the right sites of care available to treat patients. Examples of successful approaches we have used both with KRYSTEXXA and Tepezza. We built a strong strategic fit with our portfolio and our therapeutic areas of focus, including ophthalmology, rheumatology, and nephrology. We also believe three currently approved clinical stage VLA candidates, which include Uplizna, VIB 4920, VIB 7734, each represent more than $1 billion annual net sales opportunity. We're on track to close the acquisition by the end of the first quarter. Then moving on to our fourth quarter results. Tepezza fourth quarter net sales was $344 million, representing sequential quarter-over-quarter growth of 20%. With full year net sales of $820 million. If we had not had the supply disruption at the end of the quarter, and had a normalized level of inventory in the channel, we estimate that sequential growth would have been well over 30%. The Tepezza launch truly exceeded all expectations and has turned out to be one of the best remedies medicine launches in history. As we announced last quarter, based on the potential we see for Tepezza, and its ability to help many more patients suffering from thyroid eye disease, we are further advancing Tepezza to support continued long-term growth. This includes our U.S. infrastructure and marketing initiatives, supply capacity and global expansion. In the fourth quarter, we doubled the commercial and field-based organization which includes new sales representatives, patient access liaisons, regional reimbursement liaison, site care managers, and medical liaisons. They all have completed training and are in the field educating physicians on the importance of TE based treatment, strengthen the co-management of the disease across key physician specialties, and establishing and reinforcing the treatment path, infrastructure and referral network. Our salesforce has continued to drive demand for new patients during supply disruption. Current total pending patient enrollment forms or PEFs, a leading indicator of demand, exceed the total number of patients who were on therapy in the fourth quarter. We continue to see strong clinical conviction from Tepezza prescribers, which drove uptake Tepezza among our roughly 1000, top tier, high volume physician targets and TED specialists. We see significant opportunity for continued growth, given annual incident population TED patients of 15,000 to 20,000 as well as the prevalent population of 70,000 us patients who've had chronic TED for five years or less. The expansion of our commercial infrastructure has also served us well during the supply disruption, as our Tepezza team has been able to provide valuable support to physicians, patients, sites of care and payors, keeping them updated and helping them navigate through this disruption and be prepared for relaunch. I’ll now give an update on Tepezza supply. We've been investing in our long-term manufacturing supply capacity since the acquisition of Tepezza and have continued our efforts since it was approved. The fact that they were able to meet the significant higher demand for the launch of 23 times our initial guidance is a testament to our comprehensive supply strategy and our talented team. Our strategy included increasing both drug substance manufacturing through our partner AGC Biologics and drug product manufacturing or finishing of multiple vials with our drug product manufacture catalysts. Following approval, we begin efforts to increase the scale of each drug product manufacturing line. This effort proved particularly important in December when the U.S. Government mandated COVID-19 vaccine production at Catalent dramatically restricted capacity for the production of Tepezza. We've announced supply since the end of December and have continued to make good progress towards bringing Tepezza back to market. We submitted a prior approval supplement to the FDA for this new manufacturing process. With the supplied produced to date plus the manufacturing capacity currently planned at Catalent, we expect to be able to serve existing patients and new patients, allowing us to relaunch Tepezza following FDA approval. We continue to have good dialogue with the FDA, including answering several series of questions from them. We are hopeful that the agency approves the supplement on an expedited basis. We continue to estimate the disruption could last through the first quarter. We also remain on track to receive FDA approval to start producing Tepezza supply from our second drug product manufacturer by the end of this year. We're looking forward to being able to, again Tepezza competitive patients who have no other options available to them to treat their TEB, a highly debilitating and life-threatening rare disease. With our expanded commercial organization, and improving COVID-19 environment, return of Tepezza supply and lack of any other proved option for TEB patients, we remain highly confident on Tepezza’s long-term potential peak annual net sales target of more than $3.5 billion globally. With KRYSTEXXA, we reported record full year net sales of $460 million representing, year-over-year growth of 19%. We significantly exceeded the guidance we provided at the onset of the pandemic, a testament to the efforts of the KRYSTEXXA commercial organization and our immunomodulation strategy. This strategy is key to the long-term success of KRYSTEXXA, a body of evidence has been building that demonstrates response rate of KRYSTEXXA plus immunomodulation is significantly higher than the response rate seen with KRYSTEXXA alone. This data is resonating with physicians with more than 35% of new patients now starting KRYSTEXXA plus immunomodulation. It's quickly becoming the preferred treatment option for patients with uncontrolled gout driven by the data published today, that shows an approximate doubling of the patient response rate using KRYSTEXXA plus immunomodulation, versus KRYSTEXXA alone. This was demonstrated in the first randomized controlled trial to study KRYSTEXXA plus an immunomodulator. In this trial is called RECIPE, patients on KRYSTEXXA plus the immunomodulator mycophenolate mofetil achieved an 86% response rate at the 12-week primary endpoint. Our MIRROR randomized controlled trial is a 12-month trial evaluating the efficacy and safety of the use of KRYSTEXXA plus methotrexate. The trial complete enrollment in August of 2020. And we remain blinded to the results of the trial to date. The primary endpoint is at six months, and secondary endpoints go out through 12 months. As we've discussed in the past, we had planned to approach the FDA to potentially submit the six-month results for inclusion in the KRYSTEXXA prescribing information. In our ongoing dialogue with the FDA, the agency recently informed us that they want the trial to continue unblinded through the full 12-month period, without unblinding at six months, given that patients could be in a KRYSTEXXA plus methotrexate for a longer period of time in clinical practice. We therefore expect the primary and secondary endpoint results, along with key safety information to be available in the fourth quarter of 2021. We expect to submit the data to the FDA for potential inclusion in the KRYSTEXXA prescribing information in the first quarter of 2022. Our strategy for KRYSTEXXA is working. It exemplifies our expectation for strong growth again this year. We're well on track to achieve our paid U.S. sales, annual net sales estimates of more than $1 billion. A rare disease medicines RAVICTI, PROCYSBI and ACTIMMUNE had an impressively year and finished 2020 with total growth of approximately 11% compared to 2019. We continue to see strong combined active shipping patients and high rates of compliance and adherence. In addition to the acquisition of Viela, which represents a significant transformation of our R&D organization, we also continue to advance our other clinical programs. With Tepezza, we partner with Halozyme to develop a subcutaneous formulation of Tepezza which may offer additional flexibility and convenience for patients. With HZN-825 we have finalized the protocol for our diffuse cutaneous derma trial, and we're on track to start this trial in the first half of this year. We're also pursuing interstitial lung disease, starting with idiopathic pulmonary fibrosis or IPF, as a potential indication for HZN-825. If we're successful in development of HZN-825 for these indications, we estimate that HZN-825 could generate more than $1 billion in peak annual net sales globally. With KRYSTEXXA, we recently announced two new trials, the monthly dosing and the retreatment trials. We now have five trials to maximize the value of KRYSTEXXA. Finally, I want to note that our success this year is a testament to our talented employees. We continue to receive multiple recognitions as a best workplace, 13 total in 2020, reflecting the high level engagement of our employees. In addition, we are taking steps to foster inclusion and combat racism. We donated $500,000 to community organizations that are addressing racial inequality and racism and $1 million to scholarships for students. We’ve also instituted diversity and inclusion efforts within Horizon to further advance inclusion, diversity, equity and allyship at all levels of the organization. Our progress in 2020 underscores our position as one of the fastest growing biotech companies with top tier growth profile. And we remain focused on continuing to drive significant value for our shareholders, patients and all of our stakeholders moving forward. And we'll now turn the call over to Karin for an update on our R&D programs.

Thank you, Tim, and good morning, everyone. I will start with a summary of the Viela pipeline and then move to our Horizon programs. The Viela acquisition will add a portfolio of novel medicine candidates ranging from Phase 1 to Phase 3. Viela’s first commercially available medicine, UPLIZNA, an anti CD19 humanized monoclonal antibody obtained FDA approval for the treatment of NMOSD last June. Viela is also pursuing three additional indications for the medicine. An ongoing Phase 3 trials in myasthenia gravis or MG, which is a chronic, rare autoimmune neuromuscular disease that affects voluntary muscles, especially those that control the eyes, mouth, throat, and limbs. An ongoing Phase 3 trial in IgG4‐related disease, a group of disorders marked by tumor-like swelling and fibrosis of affected organs, such as the pancreas, salivary glands and kidneys. And finally, a Phase 2 proof-of-concept trial in kidney transplant, desensitization, which is currently paused due to COVID-19. VIB4920 is a CD40 ligand antagonist and is being studied by Viela in three potential indications. An ongoing Phase 2b trial in Sjögren’s syndrome, a chronic systemic autoimmune condition that impacts exocrine glands including the salivary and tear glands. Sjögren’s syndrome is the second most common rheumatic disease after rheumatoid arthritis. A Phase 2 trial in active rheumatoid arthritis patients on a small Phase 2 proof-of-concept study in kidney transplant rejection. VIB7734 is a human monoclonal antibody that has the potential to become a novel treatment for autoimmune diseases in which plasmacytoid dendritic cells or pDCs, overproduce interferons and other types of cytokines and chemokines. In systemic lupus erythematosus or SLE, Viela recently decided to move into a Phase 2 trial after demonstrating encouraging results from their Phase 1b cutaneous lupus erythematosus trial. VIB7734 is also in Phase 1 development for COVID‐19‐related acute lung injury. And finally, VIB1116 is a monoclonal antibody that is expected to move into Phase 1 development in mid‐2021 for autoimmune diseases, and we look forward to exploring the potential of this candidate. The Viela acquisition will also add a talented team, skilled in the development of medicines that treat autoimmune and inflammatory diseases with important early research and translational capabilities that will position us for growth now and in the future. We intend to explore the full potential of Viela’s pipeline to leverage our combined capabilities to maximize the potential of these molecules. Moving on now to discuss HZN‐825, our oral selective LPAR 1 antagonist that has shown early signs of clinical impact in fibrotic diseases. LPAR signaling has been implicated in fibrosis and inflammation and preclinical and clinical evidence support the anti-fibrotic potential of LPAR antagonists across organ systems, including both lung and skin. We are on track to initiate our first pivotal Phase 2b trial in HZN‐825 in diffuse cutaneous systemic sclerosis in the first half of this year. Diffuse cutaneous systemic sclerosis is a rare chronic progressive autoimmune disease that often causes internal organ damage and has a high mortality rate. Given, there are no FDA approved treatments for patients today, diffuse cutaneous systemic sclerosis presents a significant unmet medical need. Current treatments provide symptomatic relief, but nothing actually slows disease progression. A more comprehensive treatment is needed to address the inflammation and fibrosis that drive this progressive disease and its high mortality rate. We expect to enroll approximately 300 patients who will be randomized in a 1:1:1 ratio to receive HZN‐825, 300 milligrams once daily, HZN‐825, 300 milligrams twice daily or placebo for 52 weeks. The primary endpoint of the trial will be changing forced vital capacity or FVC after 52 weeks. This is an objective endpoint that measure of lung capacity. And it's used to assess the progression of lung disease and the effectiveness of the treatment. Key secondary endpoints include the Health Assessment Questionnaire Disability Index or HAQ, Modified Rodnan skin score and ACR-CRISS. We expect enrollment to take approximately two years and with a one year endpoint, we expect data to be available in 2024. Mid this year we expect to start a second pivotal Phase 2b trial with HZN-825 in idiopathic pulmonary fibrosis, which is the most common interstitial lung disease. SSc will be the primary endpoint here as well. Moving to TEPEZZA and our placebo controlled trial in chronic TED. The aim of this trial is to generate clinical data to better inform payers and physicians who use TEPEZZA to treat their chronic patients. We expect this trial to begin in the second quarter assuming TEPEZZA supply normalizes. Until data are available from our chronic TED trial, case reports can help inform physicians who may wish to use TEPEZZA in treating their chronic TED patients. Case reports of approximately 30 TED patients with chronic disease represented at the virtual Fall Symposium of the American Society of Ophthalmic Plastic and Reconstructive Surgery or ASOPRS in November last year. And other forms that served chronic TED patients benefited after treatment with TEPEZZA. Also this week, a poster was included in the North American Neuro-Ophthalmology Society or NANOS 2021 Annual Meeting of a patient with longstanding TED who underwent decompression surgery to treat her TED. Five months later, the patient experienced worsening diplopia and proptosis, averse to second decompression surgery the patient began TEPEZZA therapy. Upon completion of her treatment, she had significant reduction in her proptosis of between five and six millimeters on her lid retraction subsiding substantially. We're also working on additional administration options for TEPEZZA. And in November, we partnered with Halozyme to begin work to develop a subcutaneous formulation which may offer additional flexibility and convenience for patients. This year, we'll be starting our early clinical work on TEPEZZA with Halozyme technology initially to understand the pharmacokinetics bioavailability, tolerability and dosing regimen. We will work with the regulatory agencies to agree on the fully required data package, which we anticipate will include a confirmatory trial to demonstrate safety and efficacy of TEPEZZA co-formulated with Halozyme PH20 molecules per subcutaneous delivery. For KRYSTEXXA, we currently have five R&D programs aiming to maximize its value in three ways, increasing the response rates, benefiting more patients with uncontrolled gout and improving the patient experience. As Tim mentioned, we expect the readout from the MIRROR placebo-controlled trial in the fourth quarter of 2021. The PROTECT trial, which is starting the use of KRYSTEXXA for people who are living with uncontrolled gout and have undergone a kidney transplant is not fully enrolled. We have already presented, encouraging interim data for this trial and are on track for final results by the end of this year. We're progressing with our trial evaluating impact of administering KRYSTEXXA over shorter infusion duration. We are also track to initiate our newest KRYSTEXXA pipeline trials, monthly dosing, and re-treatment in the first half of 2021. The goal of the monthly dosing trial is to explore whether that dosing regimen can provide similar outcome as the current dosing schedule, while the KRYSTEXXA retreatment trial will evaluate whether patients can benefit from KRYSTEXXA plus methotrexate after developing an immune response to KRYSTEXXA when taken alone. In conclusion, it's a transformational time for R&D at Horizon. We look forward to integrating the Viela R&D organization once the transaction closes as well as developing the extensive experience of our combined team to pursue the full potential, although the development stage candidates and on market medicines. With that, I will turn the call over to Paul.

Thanks, Karin. My comments this morning will primarily focus on our non-GAAP results, unless otherwise noted. I will start with our fourth quarter results followed by our 2021 financial guidance. Fourth quarter net sales were $745 million, a year-over-year increase of 105% and a record for the company. Our orphan segment generated net sales of $628 million, an increase of 151% year-over-year representing nearly 85% of our total company net sales. The growth was driven by the exceptional TEPEZZA launch with fourth quarter TEPEZZA net sales of $344 million, along with strong growth for KRYSTEXXA with record quarterly net sales of $129 million representing quarterly sequential growth of 19%. Our fourth quarter operating margin for the orphan segment was 48%, a year-over-year increase of 1,500 basis points. Net sales for the inflammation segment were $117 million with segment operating income of $67 million. So net sales in this segment declined by 8% for full year 2020. Inflammation segment operating income was roughly flat, evidence of the successful execution of our strategy to maximize profitability in this segment. We continue to reinvest the resulting cash flow of this segment into our growth drivers and expanding pipeline. Our fourth quarter non-GAAP gross profit ratio was 87% of net sales. Non-GAAP operating expenses for the fourth quarter were $279 million. This included non-GAAP R&D expense of $38 million and non-GAAP SG&A expense of $241 million, reflecting our increased investments in TEPEZZA. Adjusted EBITDA was $371 million for the fourth quarter significantly exceeding expectations. The non-GAAP income tax rate in the fourth quarter was 17.1% resulted in the 9.9% non-GAAP tax rate for the full year. Non-GAAP net income was $298 million and non-GAAP diluted earnings per share were $1.28. The weighted average shares outstanding used to calculate fourth quarter non-GAAP diluted EPS were 233 million shares. Non-GAAP operating cash flow was $411 million benefiting from the collection of significant TEPEZZA receivables in the fourth quarter. As of December 31, our cash and cash equivalents were $2.08 billion. And the total principal amount of our debt outstanding was $1.018 billion. We plan to fund the Viela acquisition with $1.3 billion of new debt plus available cash on hand. The Hart-Scott Rodino waiting period expired yesterday in line with our expectations to complete the acquisition by the end of the first quarter. As Tim noted, the total value of the transaction is $2.67 billion, none of Viela’s cash and cash equivalents. Based on this, our pro forma gross leverage ratio is expected to be about 2.6 times. We expect our gross leverage ratio to be near our target of two times by the end of 2021. We significantly strengthened our capital structure over the last two years. And we were very pleased that S&P recently recognized our efforts, upgrading our company rating to double B. Our rating they affirmed following our announcement of the Viela acquisition. Moving to our outlook for 2021. Our 2021 guidance excludes the impact from the operations of Viela, which we currently estimate will reduce our adjusted EBITDA by approximately $140 million. Our guidance also assumes FDA approval of the increased scale drug product manufacturing process of TEPEZZA and the successful completion of future committed manufacturing slots for TEPEZZA. This morning, we provided full year 2021 net sales guidance of $2.7 billion to $2.8 billion, representing year-over-year growth of 25% at the midpoint. For TEPEZZA, we expect full year 2021 net sales of greater than $1.275 billion, which continues to assume that the supply disruption could last through the first quarter. For KRYSTEXXA, we project net sales of more than $500 million representing continued strong growth. We expect full year 2021 adjusted EBITDA of between $1.14 billion and $1.18 billion representing growth of 16% at the midpoint. This reflects our expectations for strong growth in our net sales partially offset by the roughly doubling of our R&D dollar spend compared to last year, as well as the investments we recently made to expand TEPEZZA commercial organization and marketing initiatives. We expect our non-GAAP gross profit ratio for the full year to be between 86% and 87%. Non-GAAP net interest expense is expected to be approximately $45 million, which does not include the interest on the new debt to be issued to fund Viela acquisition. We expect the full year of non-GAAP tax rate to be in the low double digits. As with every year, we anticipate variability in our non-GAAP tax rate on a quarterly basis. We estimate that our cash tax rate will be in the low to mid single digits in 2021. And as always, our tax rates could change significantly as a result of any acquisitions or divestitures made by the company or any changes in tax laws. We expect our full year 2020 weighted average diluted share count to be in the range of 232 million to 234 million shares. Let me now touch on the first quarter. As we discuss every year, first quarter net sales are generally the lowest of the year impacted by seasonality as patients experience changes in their health insurance coverage. Therefore, we expect the typical sequential step-down for our medicines. Additionally, operating expenses will increase as we approach mid year as additional marketing efforts for TEPEZZA continue to increase and our two phase 2b trials in HZN-825 began. And finally, we expect the operating cash flow to increase significantly year-over-year, although as usual, we expect first quarter cash flow to be the lowest of the year. With that, I'll turn the call over to Tim for concluding remarks.

Thanks, Paul. 2020 was the breakthrough year for Horizon with TEPEZZA launch far exceeding expectations and resolving one of the best rare disease medicine launches ever. We generated record net sales of $2.2 billion and adjusted EBITDA of approximately $1 billion driven by tremendous success of TEPEZZA, as well as by strong growth of KRYSTEXXA and our rare disease medicines. We continue to execute on our strategy to maximize the value of TEPEZZA and KRYSTEXXA and expand our pipeline. Viela transaction is a great example. This acquisition represents a significant step forward in our transformation to an innovative driven high-growth biotech company. And it gives us tremendous potential to help more patients, their caregivers and physicians by bringing to market medicines that truly serve unmet needs. We've made remarkable progress as a company transforming Horizon in just a few short years. And just the last two years alone, our market cap has increased six-fold to approximately $20 billion today. Horizon is one of the fastest growing biotech companies with a top tier growth profile, and we expect the Viela acquisition to build on the value we provide patients and to drive long-term value for our shareholders. I will now open the call up for questions.

Hershella, go ahead, please.

[Operator Instructions] Your first question comes from Annabel Samimy with Stifel.

Hi guys. Thanks for taking my question, and great year.

Hi, Annabel.

I understand that you're not providing guidance based on the Viela acquisition. And right now, it doesn't include the $140 million. But as you approach the closing, aside from your patient hub and reimbursement team, do you have any better sense of how much your sales infrastructure you can leverage to UPLIZNA? And does that also help you get into the neuro ophthalmologist's office to start targeting them for TEPEZZA? So in other words, how should we think about SG&A? We already realized that R&D is doubling for that reason. So maybe you can give us a little bit of, I guess, directional color there. And just one quick question on TEPEZZA, we've all seen that the Defense Act has increased – has had a significant increase in the demand for vaccines and the production of vaccines, has that derailed anything with regard to your plans with Catalent? Thanks.

Sure. I'll start with TEPEZZA. We are in daily contact with Catalent as you would expect. And based on that regular dialogue, we feel confident that we'll be able to continue to manufacture [indiscernible] that are planned to the second quarter. And once we get the initial submission approved by FDA, that we'll be able to meet the demand for existing or patients that have stopped treatment as well as new patients. So we continue to feel confident that based on discussions and where things are right now that we can continue to manufacture product and get this through. I think importantly, it's been discussed publicly that a high-speed line will be coming on in April for Catalent that can significantly increase the ramp up of vaccine manufacturing at Catalent. And that will take a significant relief off of the line that we're working on. So we do continue to feel that there's a good plan moving forward. Relative to the commercial infrastructure, certainly things that have added tremendous value with KRYSTEXXA and TEPEZZA we have over 1,300 sites of care that for TEPEZZA that have been certified and 650 of them actually infused TEPEZZA last year. So being able to leverage that resources is critical for TEPEZZA, and it's also going to be important that other groups like patient access, managers and reimbursement support folks are added into the fold [ph] here. And as you mentioned, neuro-ophthalmic surgeons and physicians in general is an overlap. And that's something that we've certainly seen opportunity to leverage when we commented on the $140 million that is net of our expected increase investment in the commercialization of UPLIZNA as well as the R&D spend expected for Viela for this year.

Great. Thanks, Annabel. Hershella, next question, please.

Your next question comes from Jason Gerberry with Bank of America.

Hey, guys. Good morning. Thanks for taking my questions. I guess two for me. Just can you guys comment at all, how patient enrollment forms have been evolving during the period of shortage? Some of our texts indicated that physicians were still planning to work through their enrollment forms, so that they weren't kind of inundated once the supply became available. So just kind of curious if you can comment at all on the patient enrollment form trends. And then my second question, just on HZN-825 just in lieu of competitor, Galapagos’ drug, which works through a similar mechanism being discontinued, have some safety concerns, now a second drug that's been stopped due to some safety concerns. How does that alter your thinking regarding the viability of HZN-825 realizing that the diffuse cutaneous has a different end market, but they discontinued that program as well. So just kind of curious your thoughts on that? Thanks.

Sure, Jason. I'll answer the TEPEZZA question then hand over to Liz to answer the HZN-825 question. Enrollment continues to go well as I mentioned in my remarks. We have more patient – enrollment forms in the Q than total patients treated in the fourth quarter. So the team continues to execute as I already also mentioned, we've completed the hiring and doubling of the commercial organization and field based organization. So that's a patient access managers across the board are having regular dialogue with physicians and patients and our salesforce continues to execute and drive patient enrollment form. So that continues to go well. It's definitely moving in the right direction. I think we'll be ready to relaunch successfully once we get FDA approval. Liz, do you want to take the HZN-825 question?

Yes. Thanks, Tim. So, your question was how the Galapagos results change our thinking about HZN-825, and now I'll note a couple of things about the Galapagos results first, which is that they discontinued both for underwhelming efficacy. And those are their words, as well as a dose dependent safety signal that seems to be driven by IPF exacerbation. And this plays a little bit into our thinking in a couple of ways. Overall, this doesn't – how we think about the opportunity for HZN-825. We don't know whether this is molecule specific or mechanism specific. But even if it is mechanisms specific, blocking autotaxin and blocking LPAR1 are different. Autotaxin is upstream of LPAR by blocking the generation of LPA. It's actually affecting all different downstream pathways rather than specifically LPAR1 blockade. Theoretically, this can play out in safety effects. And I'll say that there is some evidence already that LPAR1 blockade is efficacious in IPF. And that clearly wasn't the case with the Galapagos molecule, or at least not at the level they would have wanted. So overall, we continue to be very enthused about HZN-825 prospects and don't think that this meaningfully changes that. We will of course watch this space very carefully.

Thanks, Liz. Hershella, next question, please.

Your next question comes from David Amsellem with Piper Sandler.

Thanks. So just on KRYSTEXXA, and I apologize if I missed this. Can you talk about how we should think about the extent to which we're going to see a patient backlog here as the pandemic eases, bearing in mind that this is generally a high risk population. So that's number one. And then secondly, on UPLIZNA and you may have talked about this, but I just wanted to get a sense of, is there anything that you think in a general sense that you need to do differently from Viela in terms of the commercial rollout and commercial support of the product? Thanks.

Sure. Thanks, David. With UPLIZNA, I think they've done a really good job since the launch in July and of the challenges with immunocompromised patients that made it pretty difficult to launch in [indiscernible]. There are some areas that we can just bring added resources, such as patient access managers, reimbursement specialists, and importantly sites of care to ensure that these patients can be find the right place to be infused and find that access. So I think adding incremental resources will definitely make a difference here. I think as we continue to move out of COVID-19 more vaccines occur, that's going to make it even easier to get patients these difficult patients onto treatment. And some of that applies as well to your comment on KRYSTEXXA where certainly immunocompromised patients are ones that rheumatologists are concerned about. I think there was a kind of a combination effect where we had great commercial execution in the third and fourth quarters with KRYSTEXXA and the conviction among physicians that greater than 35% that are using immunomodulation lead to faster conversion times. So that meant that from the time they identified a patient to the time of their first infusion that was accelerated versus what we had seen in the broader population. And I think that offset some of the challenges that were driven by COVID-19 and immunocompromised patients with that second wave of being less able or willing to go into rheumatologist’s offices, less overall visits and more close rheumatology offices. So that generally causes about a 60 to 90-day delay with that impact. So I think that will continue into the first quarter. We also have the reset that comes from patients having to get reverified that we typically see that seasonal impact in the first quarter. But as we look through the full year, I think our immunomodulation strategy really sets us up as you can see in our guidance of over $500 million. We expect strong well over 20% growth. And I think as we get sequentially through quarters this year, we're going to see strong increased penetration of our immunomodulation strategy and continued great growth and set up for a path to that $1 billion in peak sales.

Thanks, David. Hershella, next question, please.

Your next question comes from Ken Cacciatore with the Cowen and Company.

Good morning, guys, and congratulations. Just trying to understand a little bit better, the underlying to piece of demand trends, just wondering as you get these enrollment forms or as you're actively treating these patients, can you give us a sense of how many of the patients or percentage of the patients are active versus chronic? And then within the chronic population, can you just talk about to the degree in which they are typically in care or out of care? So are you advertising to bring these chronic patients in and how are you reaching them? And then second question would be besides the immuno event, unless you want to comment on immune events data. Can you just talk about this a piece of competitive landscape, and also vis-à-vis the improvements you're making into piece or seeking to make with the SC formulation, are you changing doses or things that you're trying to do to continue to move the ball forward? Thank you so much.

Sure. So when it comes to acute versus chronic, the chronic is let's say, high single digits as a percentage of overall patients. Relative to overall, as I mentioned, we're seeing strong continued enrollment or patient enrollment forms being submitted. So I think that's up for a strong or kind of bolus and populations that can roll on to TEPEZZA treatment both those existing patients, but also generating those new patients. So we feel that we're in a good place. I think your question of how do we reach those chronic patients? A lot of it is generated by about 30 patients through various different abstracts that have been presented in the fall and also moving forward in key congresses this year. And that's generating a lot of interest in the prescribing community who treat patients with thyroid eye disease. And that's what ultimately has been generated interest in the chronic population. So, we would expect that to continue. Relative to the competitive landscape, certainly what we've seen with Immunovant is some off target adverse events that really haven’t been well understood whether it's related to albumin levels or something specific with the more ubiquitous FCRA mechanism on thyroid eye disease. So we just don't have a good sense of that and it seems like they don't either. So with other competitive landscape, I think, from a intellectual property standpoint, we feel confident that we've got a good pathway in place. And overall, we think we are well positioned to achieve greater than $3.5 billion in peak sales.

Okay, thanks Tim. Operator next question, please.

Your next question comes from Chris Schott with JPMorgan.

Hey, this is a Kareena [ph] on for Chris. Thank you for taking our questions. And the first is can you talk about the gating of Tepezza sales in 2021 reflected in your guidance? Are you anticipating a fairly rapid recovery in revenues once you relaunch, or will it take a few months to kind of get to more normalized sales levels? And then the second one is can you update us on ex-U.S. opportunities for the product in terms of any discussions you've had with regulators, specifically Japan and Europe, but any other geographies as well, that you're looking at? Thank you.

Sure. Thanks for the question. As we look at getting, certainly, there's some potential for revenue in the first quarter, but the amount of timing of that revenue between Q1 and Q2 is still TBD, based on FDA approval. But that doesn't impact our full year guidance, just the timing between those quarters. As we look at the build to the year, as I mentioned, we've got more patient enrollment forms and patients treated in the fourth quarter. So, we felt confident that we'll be able to get back at significant growth and get patients back on treatment. And we feel confident that we'll be able to achieve our objectives this year. We don't have a full sense of whether that's going to be wait forever to get going or weeks, but we feel confident that as we get to the year, we'll meet our expectations.

And then the final question, I think, was around Tepezza international.

Yes, so from a geographic perspective, we continue to match out regulatory pathways and various ex-U.S. markets, have continued dialogue with regulators, and upcoming meetings with regulators in areas such as Japan. And as we map out those clinical programs or regulatory pathways, we'll continue to communicate those.

Thank you, Kareena [ph]. Let’s have our next question please.

Your next question comes from David Steinberg with Jefferies.

Thanks. I have a few questions. First, I was just curious how patients who come into therapy but then had to get off therapy will be handled? In some cases, it could be two or three months in between a dose. And I know the company has tight connections with both the patients and the doctors. And so, for example, if a patient had gotten two courses of therapy and then went off, would they have to restart and start with course number one, or just go back and start with course number three, even though it's two or three months later? And then from that point of view, do you have any sense it may be too early to tell whether if they have to start all over again, whether the course of the therapy would be fully reimbursed? And then regarding your acquisition of Viela, just curious, on the manufacturing side, I know that AstraZeneca is manufacturing the products once that transaction closes, will you stick with HZN, or would you go third-party or move in house? And then finally, I know, Tim, you mentioned several times that the paths are greater than the actual number of patients who are on therapy in Q4. Could you give us some more granularity on that? Could you actually tell us how many paths you have in the queue? Or how many patients reps in Tepezza in Q4. Thanks.

Sure, Dave. So not going to get into specific numbers on paths or patients, but as we can tell, we had a strong fourth quarter. So, I think that sets us up well, for relaunch. Relative to I’ll just kind of work backwards Dave, so with the Viela manufacturing, Uplizna has been manufactured by AstraZeneca, it’s underway and it’s out there. And there is some of years of supply of Uplizna. So, we will evaluate that situation after close and determine what the plans are that the development stage medicines have already been transferred to other contract manufacturers. So we don't see any risk or issues there. Getting to the question around what will happen with patients, I think, you start with from a safety standpoint, you don't have significant – this is a less immunogenic molecule than if you look at a KRYSTEXXA, rituximab that there would be significant anti-drug antibodies upon renegotiation and challenges here. You've got a medicine that is pretty low immunogenicity involved, and that shouldn't create significant safety concerns. But this is all really at a physician discretion level. They are going to make the best decision for their patients. What we're hearing from physicians is they're going to get patients back on treatment and finish their expected course of medicine. If there are particular instances where a patient if you use your example of took two treatments and the physician want them to get eight more, that’s what they likely require us to have to go back through reimbursement and get recertified for that patient. All steps were expected to help with that process. So we think it's all manageable, but for the most part, we've heard physicians will pick up where they left off.

Thanks, David. Let’s move to our next question, please.

Your next question comes from David Risinger with Morgan Stanley.

Yes, thanks very much. Hi, Tim and team.

Hi, David.

Congrats on the tremendous progress. My question is on inactive TED, or I guess, what you're describing is chronic. So, some thought leaders have expressed a lot of enthusiasm about the efficacy of Tepezza in chronic patients. Could you discuss publications on its efficacy in these patients and potential future Tepezza adoption in this group? Thank you.

Sure David. Thanks for the comments. Certainly, we see the chronic thyroid disease population as an important one. As I mentioned, the prevalent population of patients who are five years past, the active phase is about 70,000 patients. So, we certainly see a real opportunity there. And I think there's been about 30 patients that have been studied and published in various different abstracts at congresses. And what we're seeing there, and what we're hearing also from physicians is similar levels of dramatic efficacy that we saw in the Phase 3 active population. So, I think there's a lot of confidence that Tepezza will work well there. And certainly, we’re labelled to be reimbursed in those patients given it's indicated. Liz, I don't know if you want to speak to this specific level of efficacy or anything to add there?

Yes, I guess I just echo what Tim just said in that, we've seen consistent reports across something like 30 patients in various case series and case reports, suggesting that across the board, we're seeing clinically meaningful improvement in prostatitis, which is the objective endpoint, that was the endpoint in our Phase 3 and Phase 2 clinical trials. So we're pretty encouraged about how this is going to look in this body of evidence just continues to grow, including with what, I think, you heard in Karin's remarks which was the most recent publication at Nano’s, which has something like a five to six-millimeter improvement in prostatitis. So, overall, it appears that there is a consistent body of literature supporting meaningful results in this patient population.

Thanks Liz. Thanks Dave.

Great, thank you.

It looks like we've got time for one more question, please.

Okay, your final question comes from Gary Nachman with BMO Capital Markets.

Okay, thanks. Good morning. A couple more on Tepezza. First, where's the net price right now? And how will that be trending in 2021? Just the pushes and pulls on that. And then once you start the Phase 4 study in chronic, how long to get the data on that to provide to the payers? So, any changes in how you're thinking about the protocol? And will that be a quick process for the payers to reimburse? And then just one on VD, the Viela deal is just about to close. But any additional capacity for VD after that deal closes? How far would you stretch the balance sheet? Thank you.

So I'll start with the VD, we continue to look at potential new development stage licensing and acquisition more in the range of what we do with Curzion and buying Tepezza more structured deals. So that's the kind of licencing and acquisitions that we're pursuing right now. So we continue to, with our strong cash flow generation, as Paul said, our rapid delivering, we think we're well positioned to use that cash flow generation to continue to expand our pipeline. Relative to the net price with Tepezza, nothing has changed, as far as we know, obviously, patients aren’t being treated right now. So it's hard to read any trends. We’ll like to see what that looks like, once patients start getting back on regular treatment. And as far as the Phase 4, the chronic TED study, our plans right now are to start that in the second quarter. And I think with Tina, we expect that by year end, is that the early next year?

Yes, early next year.

Early next year is a good data from that.

Yes.

And we do think that that will certainly help with payers in getting additional or really speeding the time to reimbursement in the chronic population.

Thank you.

Thanks, Gary.

Okay, thank you.

So, thanks, Hershella. That concludes our call this morning. A replay of this call and webcast will be available in approximately two hours. Thanks for joining us.

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