Earnings Call Transcript - BCRX Q2 2025

Operator, Operator

Good day, and welcome to the BioCryst Second Quarter 2025 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to John Bluth. Please go ahead.

John D. Bluth, Corporate Update Speaker

Thank you very much. Good morning, and welcome to BioCryst's Second Quarter 2025 Corporate Update and Financial Results Conference Call. Today's press release and accompanying slides are available on our website. Participating with me today are CEO, Jon Stonehouse; President and Chief Commercial Officer, Charlie Gayer; Chief R&D Officer, Dr. Helen Thackray; Chief Medical Officer, Dr. Donald Fong; and our new Chief Financial Officer, Babar Ghias. Following our remarks, we will answer your questions. Today's conference call will contain forward-looking statements, including those statements regarding future results, unaudited and forward-looking financial information as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied in this presentation. You should not place undue reliance on these forward-looking statements. For additional information, including a detailed discussion of our risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on our website. In addition, today's conference call includes non-GAAP financial measures. For a reconciliation of these non-GAAP measures against the most directly comparable GAAP financial measure, please refer to the earnings press release posted in the Press Releases section of our Investor Relations website at www.biocryst.com. I'd now like to turn the call over to Jon Stonehouse.

Jon P. Stonehouse, CEO

Thanks, John. Q2 was another outstanding quarter of performance for BioCryst. For ORLADEYO, it was the best quarter since approval, both from a revenue and underlying new patient demand perspective. To be in the fifth year of the launch and growing so sustainably quarter after quarter is a result of great execution by the team and continued growing confidence in the product. The commercial team at BioCryst has learned so much in the marketplace and made adjustments along the way that has kept this growth sustainable. Our recipe for success has been combining talented, motivated people, data and insights to very acutely understand the market and our customers and focused execution. We show up differently than our competition. I know this as I saw it recently at the U.S. HAE Patient Summit, a gathering of over 1,000 patients and their families and many leading KOLs. They shared with me and other members of our team the growing confidence they have in our product. Many made the effort to seek us out and describe how ORLADEYO has changed their lives. This underscores when the product works for a patient, it works very well, and the number of patients experiencing both efficacy and convenience continues to grow steadily. There is little doubt that we are on a path to $1 billion at peak and market leadership with ORLADEYO. But to create even greater value, we need to do it again with another product. It's clear that we must source our pipeline through both internal research and business development. Our Netherton syndrome and DME pipeline programs remain on track to have some data by the end of the year. We also signed a definitive agreement to sell our European business to Neopharmed Gentili or NG, and we are working hard to complete all the necessary steps to close the deal in early October. This deal puts us in such a strong financial position, enabling us to pay off our term debt while generating an increasing operating profit margin. We believe it puts us on a path to generate more and more cash flow and that we will remain on this path through the rest of the decade and beyond. Pipeline progress and financial flexibility enable us to continue to advance our pipeline while looking for assets from other rare disease companies. We have built an outstanding commercial capability at BioCryst, and we plan to leverage it over time by bringing multiple products to the market to create greater and greater value. Before I turn the call over to Charlie, I want to say how excited I am to see the company move to the next stage of growth, call it BioCryst 2.0. Charlie has built one of the most successful rare disease commercial engines ever, and now we are able to leverage this engine to become the consolidator of rare disease assets. We have built a great reputation through a track record of success, and now we have the financial strength to execute this strategy. So it's time to change the leadership to execute the strategy and take the company to the next phase. After an extensive succession planning process assessing both internal and external candidates, it's great to have our Board unanimously choose Charlie as our next CEO. I've seen Charlie grow as a leader for almost a decade now, and he has earned the job as the next CEO, and he is ready to lead the company. I look forward to working with Charlie and the team in these remaining months to make this a smooth transition into the new year. With that, I will turn it over to Charlie.

Charles K. Gayer, President and Chief Commercial Officer

Thank you, Jon. It's an incredible honor to be chosen to lead this company, and it is not lost on me that I would not be in this position nor would BioCryst have reached this exciting point without your leadership. And thanks to all our colleagues who work so hard every day to bring transformative therapies like ORLADEYO to patients. You are making a big difference, and we are just getting started. And what a start it has been for ORLADEYO. We are halfway through year 5 since launch, and ORLADEYO continues to build momentum that is reaching a new level. The second quarter was the best ever for the U.S. with new patient prescriptions up over 10% above the first quarter of the launch in 2021 and over 15% above Q1 this year. ORLADEYO revenue greatly exceeded our expectations, over $22 million above Q1 and 45% growth year-over-year, and it did so for several reasons. The spike in new patient demand, further efficiency in getting paid shipments, lower discontinuations during the first half of 2025 compared to last year, gross to net improvements, and strong international results all contributed in roughly equal parts to generate the overperformance. Each of these factors was a direct result of our team's continued focus on execution. With this strong second quarter, we are confident that we will reach the upper half of our revenue guidance of $580 million to $600 million for the full year, even after removing fourth quarter European revenue after closing the sale of our European business, which we anticipate in early October. We expect to provide more detailed guidance on the go-forward BioCryst business at our third quarter earnings call in November. The spike in demand was only one component of the surge in revenue in Q2, but the prescription trend bodes particularly well for long-term growth. We saw an uptick in new U.S. prescribers with 69 compared to 59 in Q1, and existing prescribers continue to prescribe ORLADEYO to more of their patients. A big factor in the jump is the confidence physicians gain when they see our large volume of real-world evidence. For example, we recently released data showing that a large cohort of HAE patients with normal C1 inhibitor experienced substantial reduction in attack rates after starting ORLADEYO. This analysis of over 350 patients tracked for up to 18 months is helping physicians offer new hope for a segment of the HAE community that has struggled to get effective care for years. There was a lot of excitement at the recent HAEA Summit because diagnosis and treatment of HAE with normal C1 inhibitor was a major part of the agenda as presenters described new consensus guidelines that were created in partnership with the patient community. U.S. payers reimburse ORLADEYO for normal C1 at a rate about 10% less than for type 1 and 2 patients, but our evidence generation and the expert consensus statements are helping to close that gap. Strong and consistent demand from type 1 and 2 patients, the increasing demand from patients with normal C1 inhibitor and the future pediatric demand from the anticipated FDA approval of ORLADEYO granules in December set us up to continue revenue growth momentum into 2026 and beyond. I'll turn it back to Jon in his role as acting CFO for the second quarter to review the financials.

Jon P. Stonehouse, CEO and Acting CFO

Thank you, Charlie. To make such positive and significant strides commercially while advancing our pipeline during the quarter is great to see. To be able to achieve all of that while continuing to improve our already strong financial position makes it even better. So let me walk you through the financials. While you can find the detailed second quarter financials in today's press release, I'd like to draw your attention to a few items. Total revenue for the quarter came in at $163.4 million, $156.8 million of which came from ORLADEYO. Of that ORLADEYO revenue, $140.3 million or almost 90% was generated in the U.S. For ORLADEYO revenue, that represents 45% growth in quarterly revenue over the same quarter last year. Non-GAAP operating expenses, excluding stock-based comp and deal-related costs were $106.4 million for the second quarter of 2025, up from $87.4 million in Q2 of 2024. Based on the investments we've made in the past, we've started to see strong operating leverage in our business. As you would expect, some of this increase was driven by continued investment in our R&D programs and details on expense drivers can be found in our press release. Non-GAAP operating profit for the quarter, excluding stock comp and deal-related costs, was $57 million, and our non-GAAP net income for the quarter was $32.3 million, resulting in a non-GAAP EPS of $0.15. We generated $45 million of cash in the second quarter before any debt prepayment. Based on the continued strength in our cash position, we paid down $75 million in principal from our term loan in April and an additional $50 million in July. This reduces the balance of our term debt to $199 million, and our intent is to pay it off in full upon closing the sale of the European business in early October. The cumulative effect of these prepayments enables approximately $90 million of net interest savings over the life of the loan. Our accelerating cash flow generation enables us to reach an expected $700 million in cash by 2027. However, we don't plan to sit on the cash, but to actively deploy it into value-creating opportunities. This strong financial performance alone represents great progress for the company. But to pair it with the commercial team firing on all cylinders and the great progress that we have made advancing our pipeline, it's even more remarkable. This was a great quarter to conclude my brief stint as acting CFO, and I'm delighted to welcome Babar Ghias to the team as our new CFO. Babar's extensive deal-making and operational experience in addition to his previous roles as CFO at rare disease companies are exactly what we need at this time as we look to deploy capital and accelerate our path to sustainable growth and increasing value. I've been impressed with how quickly he's gotten up to speed and integrated with the team. The growing financial strength of the business and the inorganic opportunities available present exciting prospects for BioCryst 2.0. With that, I will turn it over to Babar.

Babar Ghias, Chief Financial Officer

Thank you, Jon. To have achieved such a strong quarter and great progress in the last few months during your tenure as interim CFO is a testament to the amazing finance team that we have here at BioCryst. Their positive attitude and desire to make this company better have been evident to me immediately, and I'm excited to work with them. I am honored to be joining the BioCryst team at such a pivotal point for the company. The continued strength of ORLADEYO and the recently announced European business sale creates several value-enhancing options for BioCryst. It enables us to streamline our operating structure upon completion, improving our overall profit margins. Our plan to pay down our outstanding debt will further boost earnings from future interest expense savings. And most importantly, our strong cash flow profile, combined with an unlevered balance sheet going forward, provides us the ability to deploy capital in building sustainable shareholder value, whether it's in-licensing pipeline programs, product or company acquisitions, or even return of capital to shareholders in the future. This next journey of BioCryst is going to be a very exciting one, and it's great to be here. Operator, we'll now open the call for Q&A.

Operator, Operator

Our first question comes from Jessica Fye with JPMorgan.

Unidentified Analyst, Analyst

This is Jess on for Jon. Congratulations to Jon on your upcoming retirement, and to Charlie and Babar on the new roles. I have two quick questions. First, of the 45% year-over-year ORLADEYO net revenue growth, how much was due to volume and how much was a result of a better paid rate or net price? Secondly, you mentioned an improved discontinuation rate for the first half of '25 compared to the first half of '24. What numbers are you observing there, and what do you believe is driving that? Should we expect this trend to continue, and why?

Charles K. Gayer, President and Chief Commercial Officer

Yes. So for the growth in Q2, as I said in my prepared comments, it was a mix of everything from volume. There was some gross to net improvement. We were also just more efficient in squeezing out more paid shipments during the quarter. So it was a big mix of everything. But what I'm really excited about is the fact that the demand was so high because that's what's going to drive the long-term growth. And it was better than ever. And sorry, the second part of the question, can you repeat that part?

Unidentified Analyst, Analyst

The second question or the second part of the first question?

Charles K. Gayer, President and Chief Commercial Officer

Sorry, the second question.

Unidentified Analyst, Analyst

Yes. So you mentioned an improved discontinuation rate for the first half of '25. What numbers are driving that there? And do you expect to continue that?

Charles K. Gayer, President and Chief Commercial Officer

So what we've seen over the last several years, and it's true in the first half of this year as well, is that the 1-year discontinuation rate has been rock solid. So 60% of patients who start make it to a year. That really hasn't shifted. Where I think we've seen a little bit of an improvement is our patient base grows, the overall discontinuation rate is trending slightly down because patients who make it to a year, they're doing really well, and they stay on therapy. And so it's exactly what you want to see, and I would expect to see this kind of same solid discontinuation or retention rate going forward.

Operator, Operator

Our next question comes from Laura Chico with Wedbush Securities.

Laura Kathryn Chico, Analyst

Congratulations to John, Charlie, and Babar. I have a question regarding your comments on discontinuation rates. Could you share some insights on the persistency rates in relation to other injectable prophylactic regimens? I understand there may not be direct head-to-head studies, but I would appreciate any comments on real-world data that help contextualize the persistency you are seeing with ORLADEYO compared to injectable products.

Charles K. Gayer, President and Chief Commercial Officer

Yes. Thanks, Laura. We actually put out some data at a recent conference. I think it was last fall at the college meeting. We looked at health care claims data for both ORLADEYO for TAKHZYRO and HAEGARDA and looked at patients starting any of those 3 products and looked at the 1-year persistence rate. And the 1-year rate is statistically identical for all of them, around 60%. Numerically, actually, ORLADEYO was a little bit better than the other 2. And so I think what that shows to us is no single HAE therapy is perfect for every patient. And we know that about 70% of patients would prefer to treat with an oral prophylactic product. So it shows that ORLADEYO has got the profile that patients want and performs really well in the real world.

Operator, Operator

Our next question comes from Steve Seedhouse with Cantor.

Steven James Seedhouse, Analyst

Congratulations, Jon, Charlie, Babar, really everyone on the quarter as well. Two questions. First, any early indications of how the June and July approvals in HAE, so garadacimab and Ekterly are affecting ORLADEYO demand over the past month? And also, any additional color you can provide on the pediatric PDUFA delay just to give us comfort there.

Charles K. Gayer, President and Chief Commercial Officer

Sure. On the new approvals, we just had by a substantial margin the most new patient prescriptions ever. So what it shows is physicians aren't waiting for any of these new products, which is exactly what our long-term market research has shown. ORLADEYO is the most differentiated prophylactic in the market, and I expect our demand to continue.

Jon P. Stonehouse, CEO

Yes. I think it's important, too, to remember that we've told you patients don't see their doctor much more than once or twice a year. So if they were going to have that conversation, they would have it set up, and we're not seeing that. So I think that's at least an early good sign for us. Do you want to take the pediatric?

Helen M. Thackray, Chief R&D Officer

Yes. And the question on the pediatric and the PDUFA date. So the FDA upon receiving some final reports and some responses that we gave them decided that they needed a little more time to review. So that's a major amendment to the NDA, and that leads us to the PDUFA date of December 12. So we're on track for that.

Jon P. Stonehouse, CEO

Yes. And we knew when we submitted the original filing that we had these reports that we had to get in. If we had waited for those, we would have virtually the same PDUFA date. So we thought we would take a shot at that. And we're excited. The key is we're going to get approval this year, and we're excited about that. So...

Operator, Operator

Our next question is from Tazeen Ahmad with Bank of America.

Tazeen Ahmad, Analyst

Congrats on a great quarter once again. I just wanted to maybe get a little bit of color on what you think your penetration rate is into the addressable market today? And where are you seeing most of your use? Is it more from doctors who've tried ORLADEYO, like the results and keep prescribing it? Or are you seeing an acceleration of new doctors coming on board to write scripts for the first time?

Jon P. Stonehouse, CEO

Charlie, you might want to talk too about pace because I think that's an important piece that people might not understand.

Charles K. Gayer, President and Chief Commercial Officer

Yes. Tazeen, from a penetration rate perspective, we've noted before at the end of 2024, about 3,000 patients had already tried ORLADEYO, roughly half of those are still on therapy. And recall that we've also put out data that there are about 11,000 diagnosed patients in the market. So we still have a lot of upside growth remaining. As far as health care providers, I was really thrilled that we had 69 new prescribers in Q2 this late in the launch. It shows that we keep finding and convincing more doctors. And the overall split of prescriptions tends to still be about 50-50 with about half of them being from Tier 1 physicians, the top 600 roughly that treat half the patients in the market. And then the other half comes from the wider base of other physicians who have just a few patients. And what we're seeing overall, and Jon mentioned this in his comments, I alluded to this as well, is there's just more confidence amongst physicians in the long-term data that they're seeing the data that we present to them and then also what they experience themselves. And so they're really thinking about ORLADEYO very differently than they were a few years ago, and they have confidence in putting switching patients, which is still roughly 50% of the patients. They're confident in putting acute-only patients having them come over to prophylactics, start with ORLADEYO. And then patients naive to therapy as well. When they start on a prophylactic, ORLADEYO is the natural place. So we're capturing all the segments.

Jon P. Stonehouse, CEO

Charlie spent a bit of time in his prepared remarks talking about normal C1 patients, and that is a real opportunity for us, a place that historically physicians have not had great success in either diagnosing or treating. And we've generated data, meaningful data, 350 patients worth of real-world evidence showing pretty amazing reductions in baseline attack rates on ORLADEYO with these patients. So those are examples of areas that the team just keeps scouring and finding, and that's why you keep seeing this sustainable growth.

Tazeen Ahmad, Analyst

Are you expecting the stickiness we've discussed in previous calls to persist as you add new patients? How reliable do you think they'll be in maintaining their therapy if new oral competitors enter the market?

Charles K. Gayer, President and Chief Commercial Officer

Sure. No, I think extremely sticky. You either do great on ORLADEYO and you stay on or you don't and you move off. So I don't think patients are not waiting for some hypothetical future oral product. They'll switch today. They've got a lot of good injectable options. If they don't get what they need from ORLADEYO, they'll switch. And so I think the patients that stay are very sticky.

Jon P. Stonehouse, CEO

Yes. And the last thing I'd say is what would be better than a once-a-day highly effective drug, right? Like what behind us is coming that is better. There really isn't a profile that's better. So we expect it to be very sticky, as Charlie said.

Operator, Operator

Our next question is from Gena Wang with Barclays.

Huidong Wang, Analyst

Congratulations on a strong quarter. Charlie and the team, could you provide additional details on the launch metrics for the reimbursement product rate in the second quarter? I believe it was at 84% last quarter. Also, can you confirm if the retention rate remains consistent at 60%? Any other metrics regarding the patient segment would be appreciated. My second question concerns the timeline for the two pipeline assets. I know you mentioned that they are expected by year-end 2025; could you share any further insights on patient enrollment and data expectations? Lastly, I wanted to quickly ask, Jon, it's been great working with you. What is the reason for the timing of your transition to the next chapter of your life?

Jon P. Stonehouse, CEO

Great. Charlie, do you want to take the first one?

Charles K. Gayer, President and Chief Commercial Officer

Sure, Gena. Regarding the launch metrics, I noted in my prepared remarks that part of our strong performance this quarter came from a higher number of paid shipments from our patient population than we've typically seen. This contributed to our overall success. The paid rate is following the trend I predicted last quarter, peaking around the April-May period after the reauthorization season. For the remainder of the year, the paid rate is primarily influenced by new patients, which means we expect it to decrease slightly over the course of the year, potentially by one to two percent by year-end, and we're currently on that path. We are optimistic about our position moving forward. Next year, we anticipate recovering and potentially increasing the reimbursement rate to a new high. As for retention, as I mentioned previously, it has been quite strong, with a one-year retention rate consistently around 60% for the past three years. This consistency is largely because patients either thrive and continue with us or transition to other products.

Helen M. Thackray, Chief R&D Officer

And then with regard to the pipeline question, so we have 2 programs in the pipeline, both in the clinic that we're progressing with data anticipated by the end of the year. They're both progressing well on track for Netherton syndrome, our program is 17725, for which data this year will be both on exposure, the penetration of the drug in the skin and on potential efficacy endpoints, including itching and healing of the skin. So we anticipate having initial data for that drug for those endpoints by the end of the year. For avoralstat this is a trial in patients where one dose will give sustained exposure. We expect to have exposure over months. And so what we'll be looking for is how patients do once they've had that single dose. This is treating for DME. So we'll be looking for effect on the retina and the potential for reducing the swelling in the retina. And as I said, its exposure over months, but we'll be looking at 4 weeks, 8 weeks, 12 weeks in. So that initial data will be coming this year, too.

Jon P. Stonehouse, CEO

Great. And then in terms of timing for me, Gena, thank you, by the way. It's been great working with you as well. It's time. I don't know how else to say it. I turned 65 this year. I've been in the company. It will be nearly 19 years when I leave. The company is in great shape. The Board and I have been working on this succession for over a couple of years, and Charlie is a great choice. So it all just kind of lined up, and it's just perfect timing. So that's my answer.

Operator, Operator

Our next question is from Stacy Ku with TD Cowen.

Stacy Ku, Analyst

Congratulations to Jon and Charlie on the announcements. You both have accomplished remarkable things with the BioCryst team. I have a few questions. First, regarding the on-demand launch of oral Ekterly, could you elaborate on how you're approaching this? We previously believed it would be beneficial for your team. Can you help us understand if the sales force can regain share with patients who switched back to injectables with ORLADEYO? Is this a relatively easy opportunity? Additionally, how are payers planning to manage this situation? We’ve received some questions from investors about that. Second, I'd like to clarify something regarding the paid shipments in Q2. Are there any implications for the quarterly figures, as we’ve seen this concern arise with other companies? I want to ensure there won’t be any changes to the usual quarterly rhythm. Lastly, congratulations on the FDA's IND approval for Netherton. While we await data, could you remind us of the current competitive landscape and what insights you're gaining from this?

Charles K. Gayer, President and Chief Commercial Officer

Thank you, Stacy. Regarding Ekterly, we believe patients are quite enthusiastic. The prospect of having an all-oral combination treatment, where they can take an oral prophylactic and manage occasional breakthrough attacks with an oral treatment, enhances convenience and helps patients feel less burdened by their HAE condition. We observed this enthusiasm at the HAE Summit last month. We see potential benefits in attracting new patients to ORLADEYO and in improving patient retention, especially for those using an oral on-demand treatment. From our discussions with a significant number of patients and physicians, it’s clear that prophylaxis remains the cornerstone of the therapy they seek, particularly oral prophylaxis. Regarding paid shipments in Q2, there’s nothing unusual to report, and the improvements we’re experiencing are purely due to our team’s execution. For the remainder of the year, I anticipate a similar quarterly pattern to last year, where revenue growth may slow compared to Q2 as we move past the reauthorization season. I expect Q3 and Q4 growth to follow the new patient demand trends we’re seeing.

Jon P. Stonehouse, CEO

And then with regard to the competitive landscape, I mean, it's always hard to say stuff with any certainty. But Daiichi, we haven't heard anything from their program in almost 2 years. And so that's probably not a good sign. And we've heard that for business reasons, they've terminated. We don't know if that's true or not; we've heard that. And then BI had a program that I think they out-licensed or sold to a company. Usually, you don't sell an asset if you have a lot of value and confidence in an asset. So we could be the first therapy, which would be amazing because I think we were third or fourth even when we were first looking at this. But this is a place where the unmet need is huge, right? So we're really excited about it and eager to get the data to have a sense of dose and is it getting to the skin and is it having an effect. So stay tuned.

Operator, Operator

Our next question comes from Brian Abrahams with RBC Capital Markets.

Brian Corey Abrahams, Analyst

Jon, congrats on all your career achievements, and congratulations as well to Charlie and Babar on your new and upcoming roles. Two bigger picture questions for me. I guess, first, for most favored nation policy, how do you guys model that playing out and potentially affecting you guys, if at all, particularly with European pricing that's no longer going to be under your control? Maybe remind us of your overall Medicaid exposure. And then secondly, you talked a lot on the earlier call on deployment of capital. And I'm just I'm curious how you're viewing the market for buyers here, how competitive it is, the types of opportunities that you might be interested in, in terms of stage and segment and your optimal timelines for executing on that?

Jon P. Stonehouse, CEO

Sure. So Charlie, do you want to take the first one and Babar will take the second.

Charles K. Gayer, President and Chief Commercial Officer

So Brian, as far as MFN, obviously, like others, we're watching this, but I don't think we've seen anything specific that would apply to us. And so we'll just keep executing and watching that space. Medicaid for us is a relatively small segment. It actually is sort of between 10% and 15% of our patients. So we'll just watch. But right now, we don't see an immediate impact.

Babar Ghias, Chief Financial Officer

Brian, the current market conditions are very favorable for buyers, especially those who don't need to raise more capital. As you've heard, we are in a strong position with sustainable cash flow. To provide more details, we are actively exploring opportunities in the rare disease sector and aim to consolidate rare disease assets that address significant unmet needs, leveraging our operational capabilities. Our early pipeline looks promising, and we plan to enhance our portfolio with additional late-stage assets that are post-proof of concept, nearing commercialization, or already commercialized. I anticipate that the upcoming months will be quite dynamic for us, with several developments on the horizon.

Jon P. Stonehouse, CEO

Yes. And Brian, you know firsthand that companies are really struggling to find capital to fund their operations, whether it's clinical development or launching a product. So it's just a tough spot for people to be in and an opportunity for us.

Brian Corey Abrahams, Analyst

Congrats on the strong quarter that put you in that position.

Operator, Operator

Our next question comes from John Wolleben with Citizens.

Jonathan Patrick Wolleben, Analyst

Sharing our congrats to Jon and Charlie as well. I was hoping you guys could talk a little bit about the typical second half push and pulls with like about $290 million in first half revenue. Not much has to go right for you guys to hit that lower end of your guidance. So wondering if you think kind of all the positive dynamics here in 2Q are going to continue or just a little bit about what you see typically second half and what you're seeing so far this year.

Charles K. Gayer, President and Chief Commercial Officer

Sure, Jon. Second half, as I've said, tends to be driven by new patients coming in. And it takes a little bit longer to get a new patient or the new patient population to the same paid rate as our overall population. And so therefore, number one, the overall paid rate tends to go down, will probably go down 1 percentage point or 2 in the second half. We don't have the opportunity to bring a big bolus of patients from new prescription or from long-term free product over to paid the way that we do in the first quarter into early the second quarter. And so we expect those same dynamics for the second part of this year. And all signs show that our demand is going to continue to be really strong.

Jon P. Stonehouse, CEO

And the last thing that I'd say in terms of the dynamics is remember that the fourth quarter, we will not have European revenue. And we've guided you to what the trailing 12 months was in terms of the revenue that was being generated when we announced the deal. So you can add a little bit of extra for the fourth quarter because it's usually a little bit higher. But that will give you some sense of what to deduct out of the fourth quarter revenue.

Charles K. Gayer, President and Chief Commercial Officer

Yes. And Jon, you may have heard me say, but I did say in my comments, I expect us to be in the upper half of our $580 million to $600 million after subtracting European revenues in Q4.

Operator, Operator

The next question comes from Serge Belanger with Needham & Company.

Serge D. Belanger, Analyst

Congrats on another strong quarter. Charlie, you mentioned a couple of factors behind the strength of ORLADEYO this quarter. You did mention an improvement in gross to net. So just curious if it's still within that prior 15% to 20% range. And you also mentioned you hit a new high watermark in new patient adds. How does that compare to 2024 levels when I believe you added about 300 patients for the year? And then lastly, just given the overall expansion of the prescriber base and the strong patient add, is there a case here to add on to the current sales force to take advantage of the strength?

Charles K. Gayer, President and Chief Commercial Officer

Sure. Thanks, Serge. As far as gross to net, yes, we've been really efficient this year. And some of that is just the mix with Medicare patients getting up to a higher paid rate as we talked about last quarter, and there's a bunch of other factors as the team manages it. So I think we're in the lower portion. We're still in the 15% to 20%, but closer to 15% off of net price. And then as far as new patient adds compared to 2024, at the end of Q1, I did mention Q1 was a really good quarter this year, and it was last year was the best year we had since the first year of launch. Q1 was just a little bit better than the best quarter of last year. And then Q2 this year blew away Q1. So we're doing really well on the new patient adds. And then as far as the prescriber base and do we need more reps? No, we don't. We have a fantastic team out there. They are able to cover the population. They're able to expand the number of prescribers quarter after quarter. And actually, if we added more people, it would decrease our efficiency and probably just tick off our customers. So we're not going to do that. And one thing that's been great is we've been growing our revenue, but our actual direct commercial spends are hardly going up at all. And that's because we've got the right data, the right message, the right team and they're executing in a phenomenal way.

Jon P. Stonehouse, CEO

And kind of back to what Babar was saying about leveraging the existing infrastructure that we have. We have made investments in patient services and more data to be smarter about where we might find more physicians. But that we can use for any product in the future. And it's not direct salespeople that you have to add. So that's why we're so convinced that putting more products into this well-oiled commercial machine is going to create greater and greater value.

Operator, Operator

Our next question comes from Maury Raycroft with Jefferies.

Unidentified Analyst, Analyst

This is Amy, on for Maury. Congrats on the quarter. We have 2 questions on the pipeline programs, Netherton and DME. For the Netherton, what is your latest thoughts on the pivotal trial design and the regulatory timeline for this indication? Is there a defined pathway for accelerated approval either from precedents or clear KOL or FDA feedback? And for the DME program, like what would the outcomes from the Phase III study contribute to the design of Phase II or even the pivotal? And for the retinal swelling reduction results that we are expecting to see at the end of this year, what is the bar that we need to beat here?

Jon P. Stonehouse, CEO

Okay. So Helen, do you want to take the first one? Don, take the second one?

Helen M. Thackray, Chief R&D Officer

Yes. The pivotal trial for Netherton syndrome is quite significant because it addresses an unmet medical need for a serious disease. It doesn’t require extensive evidence or a large number of patients to show that the drug could be beneficial. We anticipate that 17725 will have a substantial effect as it is a powerful drug with high affinity, designed to replace the missing enzyme function. The pivotal trial will assess effects that matter to patients, focusing on approvable endpoints like changes in skin condition and patient experiences with itching, which are relatively easy to measure. We will evaluate these aspects in our current and pivotal trials, and it is possible that we could have a quick path to pivotal and then to registration and submission to the FDA. However, the timeline for this is uncertain as it depends on discussions with the FDA and their agreement on endpoints and the proposed pathway. We believe this program may allow for a smaller data set and a more straightforward route to registration.

Jon P. Stonehouse, CEO

I think to the fact that, that competition question that came up earlier, if we're first, we may be able to go really fast depending on what kind of treatment effect we have. So we'll see. And then, Don, let me set up the DME and then you can hit the specifics. So just to remind you, what we're trying to do is get a sense of do we have activity and do we have some sense of dose? And does kallikrein, plasma kallikrein play a role in DME as an alternative pathway to VEGF? Those are all questions we're hoping to answer with a small investment in a Phase I study with a single dose in a handful of patients roughly. From there, we would make the next investment, which would be a proof-of-concept study and then ultimately to get approval. But if we're able to prove that kallikrein plays an alternative role, and we have a drug that actually affects that, it's off to the races for us. But I'll let Don describe what we hope to see towards the end of this year.

Donald S. Fong, Chief Medical Officer

Yes. Thank you, Jon. I think that is correct. The kallikrein pathway is an independent pathway of the VEGF pathway. We just presented some preclinical evidence at the American Society of Retina Surgeons this last weekend, and there was a lot of excitement about a new pathway for our product. In answer to your specific question of what the pivotal study would look like, the path for approval of drugs for DME is best corrected visual acuity. So we will be looking for similarity or noninferiority to existing anti-VEGF products. In our Phase II design, we will be looking specifically at change in central subfield thickness that will give us indication that the avoralstat product is effective at reducing central subfield thickness and macular edema.

Operator, Operator

We have no further questions at this time. I would now like to turn the conference back over to Jon Stonehouse for any closing remarks.

Jon P. Stonehouse, CEO

Yes, I don't think there's a whole lot more to say when you have a quarter like we did, where you have growing revenue, profit, great cash flow, the start of great cash flow and strong underlying demand continuing to increase. It doesn't get any better than that. And we're going to continue to execute and looking forward to how the rest of the year unfolds. So thank you for your interest. Have a great day.

Operator, Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.