HZNP (2021 - Q2)

Good morning and thank you for standing by. Welcome to the Horizon Therapeutics Plc Second Quarter 2021 Earnings Conference Call. I would now like to introduce Ms. Tina Ventura, Senior Vice President of Investor Relations. Tina Ven

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 second 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 will take your questions. As a reminder, during today’s call, we will 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. We delivered fantastic results this quarter with strong performance across the business, which sets us up for continued momentum in the second half of the year. The TEPEZZA relaunch has outperformed our expectations driven by rapid patient starts, strong new patient demand and increasing prescriber base. KRYSTEXXA generated year-over-year growth of 73%, driven by continued acceleration in the use of KRYSTEXXA plus immunomodulation, which is now at more than 40%, with growth driven by both rheumatologists and nephrologists. RAVICTI and PROCYSBI each delivered strong double-digit growth as well. In total, our net sales increased 80% and adjusted EBITDA increased 92%, underscoring our position as one of the fastest growing biotech companies. As a result of our outperformance, we have significantly increased our guidance for full year TEPEZZA net sales, full year total company net sales and full year adjusted EBITDA. Full year TEPEZZA net sales guidance is now more than $1.55 billion, representing more than 89% growth year-over-year. Our increased full year net sales and adjusted EBITDA guidance ranges represents strong year-over-year growth at the midpoints, up 40% and 28% respectively. I will now discuss key second quarter and recent achievements. We continue to significantly expand our portfolio and pipeline and a new early-stage next-generation gout program for collaboration with Arrowhead as well as we initiated 3 new clinical trials. We continue to support our on-market medicines with many new data presentations and publications. This includes two new publications in June by independent physicians on the successful use of TEPEZZA in patients with chronic thyroid eye disease, or TED. There are now 6 publications with a total of more than 50 chronic TED patients in multiple case reports. In addition, we presented new data highlighting the efficacy, safety and differentiated benefits of UPLIZNA. We are awarded four new best workplace recognitions with a number of awards for the year now at 7. This is continued evidence that our performance and employee-focused culture is a key factor in our industry leading growth. We acquired the new biologic drug product manufacturing facility in Waterford, Ireland. This is key to supporting the continued growth of TEPEZZA, KRYSTEXXA and UPLIZNA as well as our development stage biologics and represents an important step in our evolution as a leading biotech company. We continued our global expansion as we advance launch preparations in support of potential approval for UPLIZNA in Europe and progress with clinical trial preparation for TEPEZZA in Japan. We also announced we will be hosting a virtual R&D Day for investors and analysts on September 29 to discuss our pipeline and new programs planned, which significantly expanded this year with the acquisition of the Viela Bio in March. Looking at second quarter results, TEPEZZA’s second quarter net sales were $453 million, with impressive year-over-year growth of 173%. The strong performance of the TEPEZZA relaunch was the result of excellent execution by the TEPEZZA team to resume treating patients impacted by the government-mandated first quarter supply disruption. We converted new patients added during the disruption and drove new patient enrollment forms successfully. The strong relaunch demonstrates the continued ability of our commercial team to execute. We are able to rapidly restart existing patients on therapy once we resume supply of TEPEZZA. As we discussed last quarter, two groups of patients were involved. First, patients were on therapy when the supply disruption began or disrupted patients; and second, new patients enrolled during or prior to the disruption, who had to wait until after supply resumed in April to start taking TEPEZZA. The second group of patients added based on our continued promotional efforts during the fourth and first quarters of this year. As expected, the vast majority of disruptive patients resumed therapy in the second quarter. New patients with PEF generated prior to or during the disruption also started TEPEZZA very rapidly. The rapid access to therapy for both these new patients and the disruptive patients was driven by the execution of our field-based teams, who continue to remain in constant communications with physicians, patients inside of care throughout the first quarter. We are very pleased to see the strong growth of PEFs during the disruption, a trend that continued post-relaunch. We attribute this continued strong growth in the patient’s demand due to the fact that our new and existing prescriber base continues to increase. We are also seeing increased conviction from these prescribers, with two-thirds of them running more PEFs in the first half of 2021 than in the second half of 2020. Finally, given the rapid relaunch, we have accelerated and significantly increased our investment in direct-to-consumer marketing initiatives with very positive results, notably from our branded and unbranded television campaigns, which have been increasing awareness about TED and TEPEZZA. Our goal for these national campaigns is to increase awareness of TEPEZZA and accelerate the speed to diagnosis and treatment. We are enthusiastic about the prospects for TEPEZZA to help more patients address the serious, debilitating and sight-threatening aspects of TED. Given the second quarter’s better-than-expected results and continued strong new patient growth, we increased our full year TEPEZZA net sales guidance to more than $1.55 billion, which is near doubling of net sales in our second year of launch. As we discussed last quarter, our guidance continues to assume that the third quarter is the highest net sales quarter in 2021. This is a function of disruptive patients completing treatment, patients with PEFs generated in the fourth and first quarter starting treatment after the April resupply and new patients starting treatment in the third quarter. The outperformance of the relaunch positions us for strong year-over-year growth of more than 50% in the fourth quarter this year driven by continued strong PEF generation after the April relaunch. TEPEZZA is one of the most successful rare disease medicine launches ever. There is still tremendous upside opportunity and we are focused on driving greater penetration both in the acute patient population as well as the untapped chronic opportunity. We remain well on track for our peak global net sales estimate of more than $3.5 billion. With KRYSTEXXA, we delivered outstanding results for the quarter, generating record net sales of $130 million, with year-over-year growth of 73%. A key driver of this quarter’s strong growth was the increasing adoption of KRYSTEXXA plus immunomodulation, the core part of our strategy to maximize the value of KRYSTEXXA and enable more patients with uncontrolled gout to benefit from the medicine. Use of KRYSTEXXA plus immunomodulation for new patients is now more than 40%, which we attribute to the greater clinical conviction of physicians who use KRYSTEXXA plus immunomodulation. We look forward to the results of the MIRROR randomized controlled trial in the fourth quarter of this year, which is evaluating KRYSTEXXA plus methotrexate versus KRYSTEXXA alone. Our strong execution is driving growth in KRYSTEXXA-prescribing physicians, both rheumatologists and nephrologists. For nephrology, in particular, we created a dedicated nephrology sales team early this year and they have already driven more prescribing nephrologists in the first half of this year versus all of 2020. In addition, our messaging and the safety and efficacy of KRYSTEXXA is resonating with nephrologists, which has been reinforced by the positive interim results from our PROTECT trial for kidney transplant patients who have uncontrolled gout. We are encouraged by what we are seeing in nephrology with significant upside opportunity ahead. As a result of our execution, KRYSTEXXA PEFs and new patient starts, both increased by strong double-digits in the second quarter, which sets us up well for the second half of the year. With UPLIZNA, our humanized monoclonal antibody B-cell depleter, we generated second quarter net sales of $14.5 million. UPLIZNA is indicated for the treatment of NMOSD, a severe, rare, relapsing neuroinflammatory autoimmune disease that attacks the optic nerve, spinal cord and the brain stem. The timing of approval almost the height of the pandemic last year proved to be very challenging for Viela Bio. We are planning and executing a relaunch of the medicine over the second half of this year leveraging the patient-centric approach we use for both TEPEZZA and KRYSTEXXA. Commercially, we are focused on rebuilding and expanding the sales team and establishing a robust commercial structure to support the complex aspects of the UPLIZNA patient journey. We made good progress on this in the second quarter and expect to complete the commercial expansion by the end of the third quarter. We are also leveraging support services we built for TEPEZZA. For example, as with TED specialists, many NMOSD specialists do not have infusion capabilities. We are leveraging our extensive TEPEZZA site of care network to support patient referral to infusion centers, which was a gap in the initial UPLIZNA launch. On the clinical side, we are investing in medical and scientific engagement to develop our scientific leadership position in NMOSD. This includes conducting further analysis of the UPLIZNA clinical programs to expand understanding by the prescribing community of its differentiation as well as continuing to build a base of compelling real-world evidence supporting the use of UPLIZNA. In addition to presenting new data at several key medical meetings, which Liz will touch on, we have been actively reaching out to key NMOSD opinion leaders, who welcomed our entry into the market and expressed enthusiasm for the differentiated approach UPLIZNA offers in treating NMOSD. It takes time to establish infrastructure and educate stakeholders about a new medicine. In fact, we began our market preparation for TEPEZZA more than 6 months before we launched it. With UPLIZNA, we are off to a good start and expect to see the benefits of our new commercial organization and investments as we exit the year. I will now turn the call over to Liz.

Thank you, Tim and good morning everyone. The second quarter of 2021 marked another quarter of progress in R&D, where we continue to focus on expanding our pipeline. We have 22 programs spanning the development lifecycle from preclinical to post-marketing trials, which this quarter includes the addition of a new preclinical next-generation uncontrolled gout program through our collaboration with Arrowhead. Today, I will focus on the progress we have made on our key programs. In September, we will be doing deeper dive into our key programs at our Investor R&D Day, which will incorporate our evaluation of the Viela programs we acquired in March, along with new programs planned as well as our portfolio and overall R&D strategy. A highlight of our recent progress is our global collaboration and license agreement announced in June with Arrowhead for ARO-XDH a discovery stage, investigational, RNA interference or RNAi therapeutic being developed as a potential treatment for people with uncontrolled gout. RNAi is a natural cellular mechanism that uses a gene’s own sequence to essentially turn that gene off, silencing gene expression and regulating the production of proteins. ARO-XDH leverages this natural pathway of gene silencing, which in this case can then be used to silence the XDH gene in the liver. XDH is the primary source of uric acid and represents a clinically validated target. As the leader in gout, we are uniquely positioned to successfully develop and commercialize the candidate that comes out of this program. There remains a significant unmet need in treatment of uncontrolled gout. Roughly one-third of the 9 million gout patients in the U.S. are treated with oral urate-lowering therapies, but a meaningful portion of these patients do not respond sufficiently to treatment and therefore continue to experience painful and debilitating gout symptoms. We expect to enter the clinic with ARO-XDH within the next 2 years. Moving to HZN-7734, in June, we initiated our Phase 2 trial for the treatment of systemic lupus erythematosis, or SLE. HZN-7734 is a plasmacytoid dendritic cell, or PDC depleter, an anti-ILT7 fully human monoclonal antibody with a differentiated mechanism of action. In healthy individuals, PDCs are present in low numbers, driving an appropriate immune response to fight infection. In individuals with certain autoimmune diseases, PDCs are found in high concentrations in disease tissues resulting in significant inflammation and tissue damage that are the hallmarks of autoimmune disease. Our SLE trial is evaluating HZN-7734 in the treatment of people with moderate-to-severe forms of SLE and we expect to enroll approximately 195 participants. The primary endpoint of the trial is the effect of HZN-7734 compared with placebo in reducing SLE disease activity using BICLA, a commonly used index that measures lupus outcomes. We anticipate results in 2023. In addition, at the end of May, our work on this mechanism was published in the Journal of Science Translational Medicine, showing that PDC depletion may interrupt the cycle of inflammation that causes tissue damage in diseases such as lupus and other autoimmune and inflammatory conditions. 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 2 development for indications that involve immune overactivation. One such indication is Sjögren’s syndrome, a chronic, systemic, autoimmune condition that impacts exocrine glands. Patient enrollment in this trial continues. Our other two HZN-4920 trials in rheumatoid arthritis and kidney transplant rejections are ongoing. In June, we presented results of an observational follow-up of the Phase 1b study conducted in patients with active rheumatoid arthritis. The purpose of this assessment was to estimate the duration of clinical improvement in trial subjects beyond the 3-month safety follow-up period following the last administered dose of HZN-4920. While the interpretation of the study is limited, and duration of benefit could not be defined in these studies, these early data suggests a possible longer-term benefit of HZN-4920. Of those patients with long-term follow-up, most remain better than baseline for more than 2 years after the last administered dose. HZN-825, our oral selective LPAR1 antagonist has shown early signs of clinical impact in fibrotic disease. We have two development programs for HZN-825, one in diffuse cutaneous systemic sclerosis and one in idiopathic pulmonary fibrosis, or IPF. The sclerosis trial is screening now, with enrollment for both trials expected to begin in the third quarter. Moving to TEPEZZA, we continue to see information accumulated in the literature about the successful use of TEPEZZA in chronic TED. At this point, there are six published patient case reports or case series that detail successful treatment with TEPEZZA in 52 patients with chronic TED, which is compared to the 41 acute TED patients treated with TEPEZZA in the Phase 3 clinical trial. We’re also progressing with our Phase 4 placebo-controlled trial, evaluating TEPEZZA for use in patients with chronic thyroid eye disease. In this trial, we will be looking at chronic TED patients who are 3 to 8 years post their TED diagnosis. As a reminder, TEPEZZA has a broad indication for all TED patients and physicians can and do prescribe TEPEZZA for chronic patients today. The objective of our chronic trial is to generate clinical data to better inform payors and physicians about the performance of TEPEZZA in chronic patients. Based on continued discussions with our principal investigators, we’ve decided to increase the target enrollment to approximately 60 patients to increase the robustness of the trial. We expect enrollment to begin in the coming weeks and anticipate data readout in the second half of 2022. We continue to advance our TEPEZZA subcutaneous administration program, which could potentially offer additional flexibility for patients by shortening the administration time and time spent with healthcare practitioners. We hope to have initial discussions with the FDA later this year around our plans for bringing a subcutaneous version of TEPEZZA to the market. Regarding our clinical program for TEPEZZA in Japan, we’re on track to submit our trial design to the pharmaceuticals and medical devices agencies later this year. For UPLIZNA, our anti-CD19 humanized monoclonal antibody B-cell depleter, enrollment continues in our two Phase 3 randomized controlled trials, one evaluating UPLIZNA in myasthenia gravis, or MG, and the other in 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. For the NMOSD indication, we aim to maximize UPLIZNA for patients by educating physicians and the medical community about its benefits, a key component of our UPLIZNA relaunch. One of our priorities is to continue to build a robust body of evidence supporting the efficacy and safety of UPLIZNA in NMOSD. We’ve participated in numerous medical meetings this year and continue to highlight key UPLIZNA clinical data in medical journals. These presentations and publications highlight three key findings. First, the analysis of long-term data from the UPLIZNA Phase 3 NMOSD trials showing that UPLIZNA provided sustained reduction of NMOSD attacks for 87% of UPLIZNA patients for up to 4 years. Second, additional data demonstrate that UPLIZNA improved disability outcomes regardless of baseline status, attack history or disease duration. A third set of data showed that patients on UPLIZNA with prior rituximab exposure experienced a meaningful reduction in NMOSD attack. Regarding KRYSTEXXA, in the second quarter, we initiated our trial evaluating the concomitant use of KRYSTEXXA plus methotrexate for people with uncontrolled gout who did not achieve a complete response when previously treated with KRYSTEXXA alone. We continue to advance five clinical trials to increase the benefits and convenience of this medicine for patients. So to recap our upcoming milestones, we currently expect our TEPEZZA chronic TED trial to begin enrollment in the coming weeks, and we expect to begin enrollment in our two HZN-825 trials in the third quarter. We expect top line data for both our KRYSTEXXA MIRROR randomized controlled trial and PROTECT trial by the end of the year and TEPEZZA chronic data in the second half of next year. In 2023, we expect data from our UPLIZNA trials in myasthenia gravis and IgG4-related disease, our HZN-7734 SLE trial and our HZN-4920 trial in Sjögren’s syndrome. I look forward to providing additional details on our key pipeline programs during our R&D Day in September as well as updating you on our continued progress on our next earnings call. I’ll now turn the call over to Paul.

Thanks, Liz. My comments this morning will primarily focus on our non-GAAP results, unless otherwise noted. Second quarter net sales were $833 million, representing year-over-year growth of 80%. Our significant outperformance this quarter was driven by the successful relaunch of TEPEZZA and the continued strong growth of KRYSTEXXA as well as our other rare disease medicines. Our orphan segment generated net sales of $747 million, a year-over-year increase of 97%. Orphan segment operating income was $321 million. Net sales for the inflammation segment were $86 million, and segment operating income was $47 million. We continue to focus on maximizing the cash flow generated from this segment to reinvest in our growth drivers and our expanding pipeline. Our non-GAAP second quarter gross profit ratio was 88% of net sales. Non-GAAP operating expenses were $362 million. This included non-GAAP R&D expense of $81 million, or 10% of sales, and non-GAAP SG&A expense of $281 million. Second quarter adjusted EBITDA was $367 million, representing year-over-year growth of 92%. The non-GAAP income tax benefit for the second quarter was $36 million. As we have seen in prior years, there can be variability in our tax rate across quarters. We expect the tax rate in the second half of the year to be in the mid-teens, which offsets the low tax rate in the first half, and brings our full year tax rate in line with our projected low double-digit rate. Non-GAAP net income in the quarter was $381 million, and non-GAAP diluted earnings per share were $1.62. The weighted average shares outstanding used to calculate second quarter 2021 non-GAAP diluted EPS were 235 million shares. Second quarter non-GAAP operating cash flow was $147 million. As of June 30, cash and cash equivalents were $812 million, giving us significant flexibility to invest in our growing operations. This includes additional strategic transactions to further expand our pipeline. The total principal amount of our outstanding debt is $2.6 billion, with the earliest maturity in 2026. As of June 30, our gross debt to last 12 months adjusted EBITDA leverage ratio is 2.3x, which is an improvement from the March 31 ratio of 2.8x. We still expect to be at our gross leverage target of 2x by year-end 2021. Turning now to our guidance, this morning, we announced that we are increasing our full year 2021 net sales guidance range to $3.025 billion to $3.125 billion from $2.75 billion to $2.85 billion. This reflects an increase in our full year TEPEZZA net sales guidance to more than $1.55 billion, representing year-over-year growth of more than 89%. As Tim noted, we expect the third quarter to be TEPEZZA’s highest net sales quarter of 2021, and we expect year-over-year net sales growth of more than 50% for TEPEZZA in the fourth quarter. With 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 are also increasing our adjusted EBITDA guidance range to $1.26 billion to $1.3 billion from $1.02 billion to $1.06 billion. We continue to expect our non-GAAP gross profit ratio for the full year to be between 86% and 87%. We expect 2021 R&D expense to be in the low double digits as a percent of sales. We expect non-GAAP net interest expense for the full year to be approximately $75 million. We continue to expect a full year non-GAAP tax rate in the low double digits. We estimate that our cash tax rate will be in the high single digits in 2021. 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 continue to expect 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 continue to execute on our strategy to expand our pipeline for future growth and maximize our key on-market medicines. We get a next-generation gout program to our pipeline with the Arrowhead program, and we initiated three new clinical programs. We generated record financial results, driven by TEPEZZA, KRYSTEXXA and our other rare disease medicines, where we see continued strong underlying demand. As a result, we increased our guidance for full year TEPEZZA net sales, total company net sales and adjusted EBITDA. Two weeks ago, we rang the opening bell at NASDAQ, celebrating the 10th anniversary of our initial public offering. We have accomplished so much since then when we just had two on-market medicines. Today, we are a leading high-growth, profitable biotech, with a market cap of more than $20 billion, a portfolio of rare disease medicines that make a difference for thousands of patients and a robust pipeline of 22 programs spanning the development life cycle and a path for much future growth to come. It speaks to the value of having the right strategy, remain focused on executing and having an excellent team of people driving it. We look forward to reporting on our progress again next quarter, and we will now open the call up for questions.

Thank you, Tim. Justin, if you could please go ahead?

Thank you. And our first question comes from Annabel Samimy from Stifel. Your line is now open.

Hi, all. Congratulations on a great quarter as usual. So this seems kind of silly to ask because TEPEZZA has exceeded so tremendously. But could you provide a little bit more granularity around the acute versus chronic penetration? We’re starting to hear a little bit from the field that they are seeing more pushback on the chronic population as far as reimbursement is concerned. So I just wanted to understand what you’re doing there as far as supporting that group and what the penetration is there? And then on UPLIZNA, you had quite a bit of data presentations at several conferences now. What are you hearing as far as reception from community physicians now versus academics is still being pretty comfortable with KRYSTEXXA? Thanks.

Sure. I’ll address the first, and Liz can touch on a peso the data. Relative to acute versus chronic, I think things continue to move well, same general framework of high-single-digits in the chronic population. When we look at time from that original PEF generation to patients getting treated, it’s definitely faster in the acute population. So that has not changed. The chronic does take a little more time, and there is more data requested and that’s where, if you look at what Liz reviewed, we have 52 patients now that have been studied across a series of case studies versus 41 patients that we had in our Phase 3 program. So we’re generating significant data. That data certainly helps as we get requests from the reimbursement process. So we continue to expect the chronic to take longer, but those patients are getting through and it remains high-single-digits as a percentage of the overall population. One note on UPLIZNA, we are continuing to, first of all, complete the expansion. So we’re – we’ve been reworking our sales and overall field team. We’re going through that expansion process, and we expect to be done here in the third quarter. We are hearing – there is a lot of rituximab patients being switched to biosimilars. That doesn’t open up the opportunity for physicians to have a dialogue and consider other options for patients. But we continue to have good initial discussions and Liz can speak to some of the data and what we’re hearing there.

Yes. So certainly, building the profile of a drug is a process, and it takes time and it takes data. But some of the information we’ve been able to share recently are the kinds of pieces of information that do seem to be resonating with physicians. Data is suggesting that there is long-term efficacy that you can see, a high proportion of patients who are going to attack free for up to 4 years. Data showing that there is an impact on disability. And importantly, with respect to rituximab showing that patients who have had prior exposure to rituximab are able to do well on UPLIZNA, and that includes those patients who had attacks while they were on rituximab. So again, it’s a process, it’s a conversation, but we do think we’re generating and sharing the kind of data that is going to be meaningful for physicians.

Thanks, Annabel. Justin, next question, please?

And thank you. And our next question comes from David Schott from JPMorgan. Your line is now open.

Hi, I think, it’s Chris Schott at JPMorgan. Just a couple of quick ones for me, I guess, first, on the implied fourth quarter sales for TEPEZZA, I think that’s north of a $2 billion annualized number. I’m trying to get a sense, is that a good run rate to think about for underlying demand? Or is there still some of the restart business occurring in that fourth quarter number? I’m just trying to get a better sense of how to think about 2022 and beyond and kind of how we’re exiting the year? And then the second question was just a little bit more color on the ramp that you’re seeing in terms of the breadth of the physicians prescribing. I think you talked last year about how you were seeing some kind of rapid adopters who are having a lot of us spend a lot of physicians or maybe like one or two patients on. I think, today, you mentioned kind of seeing broader physician adoption of the drug. Just interested just any of the dynamics that you’re seeing with TEPEZZA on that front? Thanks so much.

Sure, Chris. Thanks. With the primary target, which is oculoplastic surgeons, we continue to see greater penetration. We’re seeing strong increased penetration of periophthalmic surgeons, and we’re beginning to see some increase in both ophthalmologists or general ophthalmologists and, to a smaller extent, the endocrinology community. So still a focused prescriber base. We have about 6,000 targets, and we continue to see more prescribers and more prescriptions per prescriber. So across the metrics that we look at, we are seeing very positive trends. And if you look at the quarter, we not only converted those disrupted patients, but the team did a great job of converting those patients that were on hold from the fourth quarter and first quarter into patients being treated. And that’s what’s going to drive both the – really through the third quarter of growth. And the underlying growth that we are driving now is really what’s going to set up that fourth quarter year-over-year growth that you commented on and relative to the $2 billion run rate. So, we certainly think that’s reasonable.

Thanks, Chris. Justin, next question please.

Thank you. And our next question comes from David Amsellem from Piper Sandler. Your line is now open.

Thanks. So, just a couple. First on KRYSTEXXA, regarding the specialist mix, I think you had talked about nephrology being an opportunity. So, can you talk about what kind of traction you are getting in that community? And just in general, are you noticing deeper penetration there, not just in nephrology, but also in rheumatology? And then secondly, can you just talk broadly about business development. Obviously, with the Ellevio, that’s a transformative transaction. And then you had a more recent transaction for an earlier stage product in gout. But can you talk about your priorities? How big can you go or are you willing to go going forward or should we think about your priorities being more bolt-on assets to bolster the pipeline, just wanted to get your thinking there? Thank you.

Sure, David. Thanks. On BD, we continue to look at research and development based medicines and those type of bolt-on acquisitions like we did with Arrowhead and Curzion for HZN-825. So, that is the primary focus of our business development efforts. Like we did with Viela, if an opportunity presents itself that strategically is well aligned as Viela was, we will certainly look at that. That was something that with our balance sheet and our access to the debt capital markets it was very easy for us to integrate that in. So, we won’t rule out larger transactions, but our focus is certainly on what we have been doing with deals like Arrowhead and Curzion. So, we expect to see more acquisitions or licensing transactions like that. To your question around KRYSTEXXA, we are really pleased with the uptake as we refocused in nephrology with a dedicated sales force beginning in the early part of this year. And as I mentioned in my remarks, we have seen more prescribers in the first half of this year versus all of 2020. So, certainly seeing acceleration based on that focus and up to half of patients with chronic kidney disease can have chronic uncontrolled gout. So, the patients are there. It’s just raising that awareness and making them attuned to the fact that KRYSTEXXA can make a difference in those patients. So, we are definitely seeing accelerating prescriptions. One of the things that if you look at the fact that we are over 40% of KRYSTEXXA plus immunomodulation right now, is that – it’s an opportunity to go back to physicians early in the launch phase before we acquired KRYSTEXXA that didn’t have a good experience. And we are looking at our retreatment trial, but we are also seeing physicians proactively say, what, with immunomodulation, that is a reason to believe I can restart prescribing KRYSTEXXA to a number of these patients. So, we are seeing reinvigoration of rheumatologists that haven’t written in the recent term. So, all of that is contributing to the strong growth we saw in the quarter, and we expect throughout the rest of this year.

Thanks, David. Justin, next question please?

Thank you. And our next question comes from Ken Cacciatore from Cowen. Your line is now open.

Congratulations team on the performance. Tim, I wanted to ask about the advertising. It’s really interesting to see obviously, advertising on TV. And I am guessing this is as much implications of raising awareness for clinicians as it does for patients. So, just wondering as we are deeper into the launch. Are you seeing any signs of earlier diagnosis kind of broader clinician base that’s looking at the disorder, maybe now earlier treatment. So, as we think about the 15,000 to 20,000 patients that you have cited kind of on an annual basis. Is there any movement there given that the – that you are advertising? And then obviously, nice commentary around demand, but just more specific around the enrollment forms that we are seeing that nice steady kind of month-over-month increase. And then lastly, on UPLIZNA, really great clinician feedback, I know you have talked about the size of this product before. As you work through and continue to invest behind it, it does look like this could be $1 billion and above product opportunity just in the lead indication. Any more kind of commentary as you guys have dug in a little bit deeper and invest behind it, thoughts on peak and just the primary indications? Thank you.

Sure. With UPLIZNA, we see it as a $1 billion opportunity across all indications with NMOSD and myasthenia gravis as well as IgG4-related diseases. So certainly, we are off to a good start, had some good growth in the quarter, but certainly need to complete our expansion here over the third quarter. And we expect to see the kind of growth that we are used to seeing from our business as we exit the year. So, I feel really good about how it’s starting to set up, the type of people that we are adding to that organization. From a DTC perspective and overall promotion, one of the things that we knew early on is patients can get misdiagnosed frequently with TEPEZZA or kind of get lost in the endocrinologists or in the ophthalmologists office. So, we knew we had to not only drive the primary effort with our sales force with oculoplastic surgeons and neuro-ophthalmic surgeons, but we had to activate patients, and that’s about that earlier diagnosis and ultimately getting to the right specialist. So, our DTC effort is about getting physicians – or getting patients to seek a specialist and get appropriate treatment. So, it’s not about earlier in the course of the disease. It’s really about getting to that 15,000 to 20,000 continuing to increase penetration and all the metrics we look at our DTC, whether that’s the unbranded focus on treating and understanding TED and getting the right specialists involved, both that and the TEPEZZA branded advertising are outperforming typical benchmarks and continue to generate strong growth in our specialist finder hits and patients seeking to get the right treatment. So, all of that is performing extremely well. And in the quarter and throughout the rest of the year, we are going to continue to increase our investment in DTC because we see it as a strong growth driver for TEPEZZA.

Great. Thanks, Ken. Justin, next question please?

Thank you. And our next question comes from Jason Gerberry from Bank of America. Your line is now open.

Good morning. Thanks for taking my questions. So, my question was on the Nature Eye Publication regarding tepro in chronic TED. And your thoughts how that impacts your thinking for the soon to be initiated Phase 4 study and the representativeness of those patients and what you saw in terms of variability patient-to-patient in terms of the level of response. And then secondarily to that, is this data that you can start to leverage in the field chronic TED is not off-label, so I imagine it’s something that is certainly permissible for physicians to use tepro in that setting, and we did see a lot of momentum for KRYSTEXXA-methotrexate as investigator data started to accrue. So, just sort of wondering how this data – emergence of data could be a tailwind for the tepro franchise? Thanks.

Thanks, Jason. With – I think you hit it accurately in your commentary in that we have got 52 patients across a series of case studies that are chronic patients compared to the 41 we had in our whole Phase 3 program treated with TEPEZZA. So that data, it is within our label to discuss that. So, we see a lot of interest like we did with KRYSTEXXA and the early case series that generated a lot of interest in the community. So, that’s all good data. It’s especially helpful in the reimbursement and appeal process that typically patients go through in getting treated for chronic thyroid eye disease. So, all of that are positive trends. Liz, do you want to speak to the nature of publication?

Yes, absolutely. It’s been interest and exciting, frankly, to watch the literature that’s accumulated over the last year or so around in TEPEZZA in Chronic Thyroid Eye Disease, including the Nature Eye Publication. What we see generally speaking across these is good results in a variety of chronic TED patients. And that is important because it is a heterogeneous population. So, that’s been very reassuring. To your point, while we do see good, strong responses, we do see variability. And so, we have taken that into account as well as discussions with our principal investigators when we made the decision to increase the size of the trial to account for the possibility of larger variability, but overall, we are really heartened by what we are seeing in that publication and just across the literature generally in chronic TED.

Thanks, Jason. Justin, next question please?

Thank you. And our next question comes from Gary Nachman from BMO Capital Markets. Your line is now open.

Hi, good morning. First, on the strong recovery for TEPEZZA, did you have to expand the infusion network at all to meet the increased demand, is that where it needs to be? And are you still working on home infusion and talk more about how you will leverage that with UPLIZNA on that re-launch like you talked about earlier? And then on UPLIZNA, with the re-launch and NMOSD, are you satisfied where reimbursement is right now or does that need some improvement before the end of the year? And could you potentially see some off-label use where B-cell depleters might be used, maybe even in MG or IgG4 even before having that data available? Thank you.

Sure. Thanks, Gary. From a site of care standpoint, I believe we have over 1,000 site of care institutions within the network that are currently involved in infusing TEPEZZA. So, there is not – there has not been a bottleneck there at all, and we don’t see that as a rate limiter. Home infusion is generally driven by payers and something that we don’t have a lot of control around at this point in time. So, we are seeing it here and there. But that’s going to evolve over time as different payer dynamics evolve. Relative to reimbursement on UPLIZNA, we are not seeing that as a rate limiter. The biggest aspect is getting our promotional activities and our broad field-based organization in place. So, what’s going to drive that is us getting the type of organization in place that we believe is needed to drive the uptake in NMOSD. I have not heard of any use outside of NMOSD. And we don’t see that as a near-term driver. It’s really about getting the expansion and our field-based organization done by the end of the third quarter and getting back to just executing and driving that differentiation that our – a lot of our recent clinical data has continued to show as a positive for UPLIZNA.

Thanks Gary. Justin, next question please?

Thank you. And our next question comes from Navann Ty from Citi. Your line is now open.

Hi, good morning. Thanks for taking my questions. Can you help us with the evolution of TEPEZZA in Q2 during the quarter? And did the May TV campaign have early benefits on patient enrollment forms. And then on chronic TED, could you comment in terms of proptosis reduction? And do you think payers are becoming aware of those case studies? Thank you.

As far as the awareness of the case studies, that is going to continue to increase over time. I think the awareness on the chronic TED is around the typical prior authorization process and the appeal process that patients go through, where that data is then provided upon request. So, that is definitely part of the process. Relative to TEPEZZA in the second quarter, the vast majority of the disrupted patients were treated or reinitiated treatment, on average, they were about halfway through their infusions. And we also were able to rapidly convert the patients who we weren’t able to start – who were generated – where PEFs were generated in the fourth quarter and in the first quarter, and we saw great progress there.

Thanks Navan. Justin, we have got time for one more question, please.

Thank you. And our last question comes from David Steinberg from Jefferies. Your line is now open.

Thanks. Good morning. My first question relates to operating margins. It looks like you posted a very strong quarter other factors in terms of the margins in mid-40s. I know that this is intended to be an investment year. Any thoughts on where op margins could go over time? Could they reach the 50% level? Secondly, another follow-up on your DTC ads, I know Tim, you mentioned they have been very productive. One of the KOLs we talked you said early in the launch, about a third of the patients who came in you had a piece of paper that said TEPEZZA and because of word of mouth. And I am just curious – and you just said had a couple of patients who came in and saw the ads, and he has given them a prescription. Just curious, I know it’s a soft metric. But what percent of the patients do you think are coming in and requesting a script simply because they saw the TV ads? And finally, ex-U.S., I know you have highlighted the peak sales from the Asian opportunity and you are adding infrastructure in the EU. Any update on obtaining orphan exclusivity in Europe in the coming months? Thanks.

Sure. Thanks, David. I appreciate it. With the DTC looking at – we don’t have a metric on percentage of patients. We are qualitatively hearing that patients are responding. And the key thing there is really about driving patients to a specialist finder, so they can find someone who is versed and regularly treats Thyroid Eye Disease. And we are seeing very good progress there in visits to the specialist finder. Qualitatively, we are hearing some of the same stories that you are. So, don’t have a specific number there. From an ex-U.S. standpoint, with TEPEZZA in international markets outside Europe, we continue to prepare, as Liz talked about, getting progress on the protocol for TEPEZZA in Japan. We continue to ramp up our pre-launch efforts for UPLIZNA in Europe. We don’t have an update on orphan drug designation for TEPEZZA in Europe at this point in time.

And on margins?

And on margins, Paul?

Yes, David. So, you are right. We expect margins this year in the low-40s when you look at our guidance, at the midpoint of the EBITDA and sales guidance. And we expect to continue the margin expansion next year, ‘22 and beyond as – we absorbed Viela and all these R&D programs, and we really drive KRYSTEXXA, TEPEZZA towards their peak sales. And we would expect to get to rare disease like margins for the company, which we have said is near that 50% mark.

Thank you, David. And thank you, Justin. That concludes our call this morning. A replay of this call and webcast will be available in approximately 2 hours. Appreciate you joining us.

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