Earnings Call Transcript - BCRX Q1 2023

Operator, Operator

Good morning and welcome to the BioCryst Q1 2023 Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference to John Bluth at BioCryst. Please go ahead. Thank you very much. Good morning and welcome to BioCryst's first-quarter 2023 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; CFO, Anthony Doyle; Chief Commercial Officer, Charlie Gayer; and Chief R&D Officer, Dr. Helen Thackray. Following our remarks, we will answer your questions. Before we begin, please note that 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. I’d now like to turn the call over to Jon Stonehouse.

Jon Stonehouse, CEO

Thanks, John. The launch of ORLADEYO remains very strong now entering the third year. Charlie will share the details, and when you hear the total number of patients on therapy and the growth rates of adding new patients both year-over-year and quarter-over-quarter, you should understand why we remain very confident in our guidance of no less than $320 million this year and $1 billion at peak. The large base of patients on therapy and the consistent number of new patient starts each quarter reflect a steady upward trajectory. And this is just the beginning, as there are so many more patients yet to try ORLADEYO. We have a once-a-day therapy in an injectable marketplace. It makes sense that more and more patients want to try it. Many see great benefit and tell us it has changed their lives. Beyond this, we will continue to invest in ORLADEYO R&D to reach more patients and create even greater value. We will do this by adding more countries around the world where patients gain access to ORLADEYO and by expanding the label, like we are doing with the pediatric program. We will also continue to invest wisely and find the ORLADEYO through our pipeline and discovery efforts. Our goal is to find another rare disease target, where we're able to bring a best-in-class medicine to patients, while balancing the risk inherent in drug development. Lastly, we have improved our already strong financial position by the recent refinancing. This was hard to do in the current environment, but Anthony and his team got us better terms in our debt and pushed the repayment out to a time where we should be much closer to peak sales. This dramatically reduces our dependence on the capital markets and allows us to focus on executing our plan by growing ORLADEYO and finding another molecule where we can repeat the ORLADEYO success. That will lead to adding real value today and even more value in the future for patients and shareholders. Now I'll turn the call over to Anthony.

Anthony Doyle, CFO

Thanks, Jon. Q1 was a great quarter for ORLADEYO with revenue of $18.7 million, a 38% increase compared to Q1 of last year. Additionally, for us to see the kind of underlying patient growth that Jon mentioned and to overcome the reauthorization headwinds with revenue just slightly below the prior quarter gives us a lot of confidence as we move forward to what we believe will be a strong Q2 and onwards to our full-year goal of no less than $320 million. You can find our detailed first-quarter financials in today’s earnings press release, and I’d like to call your attention to a few items. Total revenue for the quarter came in at $68.8 million, $68.4 million of which came from ORLADEYO, putting our trailing 12-month revenue at over $270 million. We expect Q2 revenue to be strong, and we should see our 2023 quarterly rhythm play out similarly to the prior year. We are making a change to our approach to revenue segmentation. Moving forward, we will segment our revenue into ORLADEYO and non-ORLADEYO revenue. For ORLADEYO revenue, we will be segmenting into U.S. and ex-U.S. To that end, of the $68.4 million of global ORLADEYO revenue, $60.8 million came from U.S. sales, with the remaining $7.6 million coming from ex-U.S. This ex-U.S. revenue represents approximately 11% of global sales for the quarter. And while this percentage for ex-U.S. is higher in Q1 than we expect for the remaining quarters of the year due to gross to net headwinds in Q1 for the U.S., we do expect ex-U.S. revenues for 2023 to come in at or above 10% of the global total. Operating expenses not including noncash stock compensation for the quarter were approximately $83 million. This is a decrease of $7 million from Q1 of 2022 and down $27 million compared to Q4 of '22. Most of which is in the R&D area due to reduced clinical investment following the termination and ongoing closeout of the 9930 program. We reiterate our full-year OpEx guidance at $375 million, flat to prior year as we continue to invest in maximizing the ORLADEYO launch globally and continuing to invest in R&D. For R&D, we are investing mainly in three key areas: continuing to develop ORLADEYO by identifying opportunities to expand the label such as the pediatric trial, while also continuing to invest in real-world evidence generation. Our oral Factor D program 10013 continues to move forward to determine if we can get to a safe and effective dose with a potential once-daily best-in-class profile. Lastly, we continue to invest in our discovery and early development capabilities with the goal of developing differentiated treatments for selected rare diseases. Cash at the end of the first quarter was at $403 million. Following the debt refinance deal that we closed last month with Pharmakon, net proceeds of that deal bring pro forma cash up to $429 million. I think it's helpful to add some extra color around that deal and process. It was a very competitive process with more interested parties than any deal that we have done before. The strength of our execution throughout the launch of ORLADEYO to date and the belief in our plans to get to a $1 billion at peak was the main driver for that interest. It was great to secure such a strong deal and a lender of the caliber of Pharmakon. This deal helped us to achieve a number of goals that we had set out in advance of the process. Firstly, and for me, most importantly, it enabled us to delay the bullet payment from 2025 to 2028, at which point we will be much closer to ORLADEYO sales. Next, in a very tough environment, we were able to secure a significantly reduced margin spread on the loan to much more competitive rates. Then we were able to pay interest in kind for 50% of the interest for the first six quarters, which preserves cash as that option had expired in our prior agreement with Athyrium. We also have the ability to draw an additional $150 million up to September of 2024. These funds are committed, and the decision to draw them or not is ours. We will only draw the funds if we can generate value by doing so, but access to it gives us additional flexibility and continued optionality. Lastly, it significantly reduces our reliance on the capital equity markets. This is our third refinancing or third financing event in a row not to be centered around equity. At current prices, the equity markets do not reflect what we believe to be the true value for a company with a product on its way to a $1 billion in peak sales, a discovery and development engine capable of bringing additional drugs to market behind it, and a strong balance sheet. And so being able to use non-equity instruments is the best option for us. With this refinancing, growing ORLADEYO revenues, and our continued disciplined approach to capital allocation, all moving us closer to profitability, we have the financial strength to allow us to unlock greater value for the company and for our shareholders. I will pass it over to Helen.

Helen Thackray, Chief R&D Officer

Thanks, Anthony. The ORLADEYO launch is succeeding because we have delivered to patients a best-in-class oral once-daily medicine that is differentiated in the marketplace. We are making R&D investments both to reach more patients with ORLADEYO and to deliver our next best-in-class molecule to the market. This is the standard we have set with ORLADEYO and our goal is to develop and commercialize more highly differentiated products for the treatment of rare disease. As we've shared before, we are studying the use of ORLADEYO in children with HAE under the age of 12. We have initiated dosing in the pediatric registration trial. In fact, we've had tremendous support and excitement for this pediatric program in the medical and patient communities. Enrollment is off to an excellent start in the initial dose groups and we are pleased to be on our way to building the data set for the evaluation of ORLADEYO in children under 12 with HAE. In complement mediated disease, our once-daily oral Factor D inhibitor BCX10013 has an opportunity to be our next differentiated best-in-class molecule. While this program is still early and therefore has risks, if we succeed, it would bring a unique therapy with substantial benefit to patients. Also, in the complement system, we are investigating both single target and combined target approaches to address diseases mediated by any of the pathways, the classical, lectin alternative, and terminal pathways of complement. This includes our oral C2 inhibitor program currently in lead optimization. As we look, we're investing so we can deliver additional best-in-class medicines in the future for targets within the complement system as well as for other select rare diseases outside the complement system. Our approach is to bring multiple candidates and programs forward through discovery, spreading risk across an early pipeline with a variety of target modes of therapy and diseases. We are focusing our efforts where we believe our structural biology-based discovery capability provides an advantage so we can do what we do best, develop potent, selective, and bioavailable molecules against difficult targets. We look forward to sharing more detail on these additional programs at an R&D Day later this year or early next year. In the meantime, we continue to make disciplined investments in the compounds we believe can offer best-in-class differentiation, just as we have done with ORLADEYO. Now I'll turn the call over to Charlie.

Charlie Gayer, Chief Commercial Officer

Thanks, Helen. The trajectory of the launch continued in Q1, keeping us on track for no less than $320 million in revenue this year. I'll provide more specific patient metrics today than I will in most updates, because ORLADEYO has reached a significant milestone. We recently surpassed 1,000 patients on active therapy in the U.S. after just over 2 years on the market. The number of U.S. patients taking ORLADEYO at the end of Q1 was up 46% over the same point in 2022 and up over 8% since the end of Q4. There's even more opportunity in front of us because most of the 7,500 U.S. patients have not yet tried ORLADEYO. The strong and steady growth that we're seeing gives us confidence that the majority of those remaining patients will try ORLADEYO by the time we reach peak sales. Continued customer demand also supports our confidence. Our U.S. team got off to a great start this year, with new prescriptions in Q1 up 20% year-over-year. We generally expect new starts in the first quarter to be softer because there's so much focus on payer reauthorizations. But Q1 starts were greater than three of the four quarters in 2022. Prescribing was again balanced across all deciles, with about 50% of new starts coming from the top 500 physicians, and patient retention remained consistent. We retained 60% of patients through their first year on treatment and lose very few patients after that. What this means is that we add many more patients than we lose each quarter. And we see this consistent growth pattern continuing for years to come. As expected, revenue was down slightly from Q4 because many patients moved temporarily to free product during Q1 reauthorizations. Commercial patient co-payment assistance and Medicare donut hole obligations are always larger in the first quarter of the year. I've commented before that the percentage of patients on free product, particularly long-term with our patient assistance program, crept up in the second half of 2022. We're starting to reverse this trend through increased focus on high-quality prior authorization and appeal submissions. We exceeded our Q1 goal for moving commercially insured patients who had been on long-term free product over to paid therapy. As you've seen, we are reporting ex-U.S. revenues for the first time. The great majority of these sales in Q1 were from Europe, where our initial launches are progressing well as physicians continue to move toward modern prophylaxis as the standard of care for patients with HAE. Once ORLADEYO gains access in international markets, we are seeing steady consistent growth in patients on therapy, similar to the pattern in the U.S. We expect international markets will drive slightly over 10% of sales this year. This early growth gives us confidence that ex-U.S. markets will account for about 20% of peak revenue. Based on the strong demand and consistent growth we are seeing in the U.S. and globally, we remain confident that peak revenue for ORLADEYO will reach $1 billion. Now, operator, we will be happy to open up for Q&A.

Operator, Operator

Our first question will come from Chris Raymond with Piper Sandler. You may now go ahead.

Allison Bratzel, Analyst

Hi. Good morning, guys. This is Ally Bratzel on for Chris. Thanks for taking our questions. So first, just on the pipeline. Apologies if I missed this in the prepared remarks, but just what is the current status on the BCX10013 program? I think the latest update was chronic toxicology work is underway and should complete this year. But just curious if you had any other visibility on timelines or next steps towards the clinic?

Jon Stonehouse, CEO

Helen, do you want to take that?

Helen Thackray, Chief R&D Officer

Yes, sure. Thanks for the question. There's not much to update at the moment. We are preparing to initiate a trial in patients with PNH and that's just as the ability to dose once-daily. So we are currently working through the regulatory process, and we'll have more on this later in the year.

Allison Bratzel, Analyst

Great. And then I think you had discussed the opportunity for ORLADEYO in pediatric patients. Could you just remind us on the development path there? And just how should we think about the pace of enrollment and potential timeline to sNDA filing? I think clinic trials, what's the primary completion date for that trial in mid '25. But just curious if that's accurate or what your expectations are there?

Helen Thackray, Chief R&D Officer

Our pediatric trial is currently enrolling, and we are seeing strong interest and enthusiasm from both patients and investigators. However, it is too early to predict the enrollment rate or the timeline for the trial. We will provide updates as it progresses.

Jon Stonehouse, CEO

This is a really important unmet need. Think about it: kids and the therapy they need. We have a formulation of granules that can be sprinkled on yogurt or applesauce, and both patients and their parents are really excited about this program, as are we.

Allison Bratzel, Analyst

Great. Well, thanks for taking my questions.

Jon Stonehouse, CEO

Welcome.

Jessica Fye, Analyst

Hey, good morning. This is Jay for Jess. So we have a couple of questions. First, is there any update on the percentage of patients on free drug in Q1 that you can provide to us? And how should we think about the percentage of free drug patients for the remainder of the year? And then secondly, is there anything regarding the reauthorization process you can share with us? For example, does the reauthorization process require the same or similar lab test that required for the start forms? And then lastly, regarding your full-year guidance, does it imply a substantial step up in terms of revenues for Q2 and beyond? And can you expand or can you kind of elaborate on your conviction over there? Thank you.

Jon Stonehouse, CEO

Charlie, you can ...

Charlie Gayer, Chief Commercial Officer

Hi, Jay. Yes, I will begin with the first two questions and have Anthony address the third one. Regarding the percentage of free drug, I mentioned in our last update that we were approaching 30% of patients on free drug. We believe that, in the long term, we can reduce this to the lower 20s and eventually into the teens. In the first quarter, as noted in my prepared remarks, we are making good progress in transitioning commercially insured patients who have been on long-term free product to paid therapy. Currently, just over 30% of our total patients are on free drug. This is partly due to an unexpected challenge this quarter, as external charities that assist Medicare patients with their drug copayments for medications like ORLADEYO ran low on funding. As a result, some patients who would typically be able to afford their copayment could not do so. Consequently, we decided to enroll these patients in our patient assistance program, which is something we can manage. This means they will continue to receive free product for the remainder of the year but are doing well on ORLADEYO. We expect that in 2024, we will be able to transition many of these patients back to paid therapy. So right now, while just over 30% of patients are on free drug, we anticipate that this percentage will decrease throughout the year as our team effectively supports the shift to paid therapy.

Jon Stonehouse, CEO

Yes, Charlie, just to add, I mean this was a real crisis in the first quarter for these patients because you can imagine a senior citizen and all of a sudden, they don't have access to medicine anymore. And so with our free drug program, we were able to step in very quickly and take care of a good number of patients. We even got some switches as a result of that. But this is an investment by our company because, as many of you know, with the Inflation Reduction Act, the co-pays are capped, Charlie help me again, 3,200 or something like that next year and then $2,000, I think, in 2025.

Charlie Gayer, Chief Commercial Officer

That’s right.

Jon Stonehouse, CEO

And so we believe that we're going to get these patients back to paid. In fact, Medicare are some of our best paid patients in the population of paid patients. So it was a move that we thought was a smart one for patients and a good one for our business long-term.

Anthony Doyle, CFO

So Jay had this Medicare issue not been there, we would be under 30% of patients on co-pay or free product at this point. Your second question on just the re-auth process, yes, there's nothing new there. It's just the standard reauthorization for patients. Sometimes this means confirming lab tests, sometimes it's just reviewing clinical history, but it's standard stuff, nothing new there. It always is a time-consuming process. So that's why across our overall patient base, a lot of patients stepped back to free product temporarily while we were helping them through that process.

Jon Stonehouse, CEO

And Charlie, because we had a bigger base, we had more people switch to Quick Start as a result of that in the first quarter.

Charlie Gayer, Chief Commercial Officer

That's right. And it was a busy quarter overall. So the impact of free product definitely depressed Q1 revenue. And so maybe, Anthony, turning over to the pace?

Anthony Doyle, CFO

Yes. I think, Jay, you used 2022 as a surrogate for how we'd expect the curve to play out. So there will be a step-up in revenue in Q2 and then in Q3 and Q4, I would expect revenue to continue to increase. So I wouldn't just take the remaining year divided by three. I think the step-up in Q2 will be a healthy step up and then Q3 and Q4, you'll see steady growth from there on out.

Jon Stonehouse, CEO

And our conviction is that the reauthorization process is going well and that these patients will transition to being paid in the second quarter. That's why we're very optimistic about the $320 million.

John Wolleben, Analyst

Hey. Thanks for all the color and congrats on the progress. A couple for me. Very helpful to have the number of patients on ORLADEYO today. Wondering if you could tell us what number of patients have started ORLADEYO in total? And then also, as we are looking throughout the year with the step up in SG&A spending, where do you think that additional investment needs to go to continue the growth you're seeing today?

Charlie Gayer, Chief Commercial Officer

Sorry, Jon, I missed the last. Can you repeat the last part of your question?

John Wolleben, Analyst

Yes. If you guys are spending additional SG&A this year to maintain the growth, where are you investing that capital?

Charlie Gayer, Chief Commercial Officer

Okay. We haven't disclosed the latest number, but in the fourth quarter of last year, we mentioned that we had over 1,500 prescriptions at the College of Allergy Meeting in November. Currently, with about 1,000 patients, this aligns with our previous discussions. We have retained 60% of patients year on therapy, and very few drop off after that, which explains our consistent growth quarter after quarter. Regarding SG&A, we have made some investments for ORLADEYO commercial efforts this year, including expanding our U.S. field team to cover new territories and enhance market access and patient services. This aims to improve our efficiency and reach with customers, and we may consider similar incremental investments in the future. Additionally, we are working on expanding into our Wave 2 countries like Italy and Spain in Europe, and we will continue to pursue such international investments.

Jon Stonehouse, CEO

Before we go to Anthony, Charlie, you said in your comments that, and one of the biggest challenges we have is switching patients from long-term free drug to paid and you said that we exceeded the progress of our goal for the quarter. Can you just talk about that's an investment that we made. Can you talk a little bit about what you're seeing and why you're confident?

Charlie Gayer, Chief Commercial Officer

Yes. So the main thing that I've talked about in this is just focusing on really making sure that healthcare practices and the patients provide all the information that the insurance companies want. And so as we've expanded our market access and patient services team, that's allowing us to put a greater focus on educating our customers and making sure that all that information is collected and then helping them in the case of writing the right prior authorization or appeals letters and making the proper case to the insurance companies, we've got the team there ready to help with that process. And so that is the investments we've made there in the people is directly correlated to the improvement that we're seeing in moving people from free product to paid product, and we expect to keep getting better as the year goes on.

Jon Stonehouse, CEO

Okay.

Anthony Doyle, CFO

Yes, I think the only thing I'd add to Charlie's comment is increase in investment that we'll see in the SG&A side will be incremental, right? It will be mostly driven by the areas Charlie talked about and international growth. The step high increase that we have between Q3 and Q4 of last year, predominantly driven by the larger investment that Charlie's team made here in the U.S. But at the moment, I think it's just going to be incremental as to anything of kind of major significance like that.

Jon Wolleben, Analyst

Got it. Very helpful. And one more for Anthony, if I may. Are you guys taking the option to pay that 50% of the interest on the Pharmakon facility?

Anthony Doyle, CFO

I'd say at the moment, it's highly likely. We did take advantage of it while we had it for the 8 quarters with Athyrium. It's something that we do have to select on a per quarter basis. But I think given what it does for us in terms of cash preservation as we have the opportunity to see that net cash utilization kind of start to converge between revenue and OpEx, I think it's safe to assume that at least in the short-term, yes, we would likely take advantage of it.

Jon Wolleben, Analyst

Great. Thanks again, guys.

Operator, Operator

Our next question will come from Tazeen Ahmad of Bank of America. You may now go ahead.

Tazeen Ahmad, Analyst

Hi. Good morning. Thanks for taking my question. Just wanted to have a little bit more color maybe, Jon, about your long-term view of ORLADEYO sales. We've talked about that target of achieving about $1 billion in peak. What's your assessment, I guess, from where you stand today? You had a great initial launch from here on in, what do you really need to achieve in order to get to that target? Is it a matter of just having a lot of patients on drug like going through? Or is it also leading to have a certain amount of compliance and a certain dropout rate in order to achieve that target? Thanks.

Jon Stonehouse, CEO

Yes. I think on the discontinuation piece, I'm getting really comfortable that the pattern and the rate have stabilized. So just to remind you the pattern, 50% of the people that discontinue, discontinue in the first few months. If you make it out to a year, we've got you. The discontinuation rate after that is really, really low and drops from 3 months to 6 months and 6 months to 12. That has not changed now, Charlie, for what, almost a year, maybe even more now. So I think we feel very comfortable with that. So then it's about adding more patients. And I think a really important point is that we crossed this 1,000 patient threshold of patients on therapy and that we grew from last year almost 50%, which is remarkable in a couple of years of launch. The consistency of new patient adds quarter-after-quarter is just unbelievable. So there is no slowing down. There’s no low hanging fruit here. This is out in the marketplace. It’s a very competitive market, but we have an oral drug where everything else is injectable. So it's a steady upward trajectory. The one problem we had was free drug to paid and we are seeing that change with the changes that Charlie made in the team. Very confident in our ability to get to the $1 billion. We think this is a fantastic molecule for patients and therapy for patients. So when you have that, your chances of doing well is high.

Operator, Operator

Our next question will come from Stacy Ku with Cowen. You may now go ahead.

Stacy Ku, Analyst

Hi. Thanks for taking our questions. We did have a few. So first, you've kind of discussed the stabilization, but can you clarify where exactly you see the retention for ORLADEYO beyond 12 months? Is it very close to that 60%? Are you willing to provide some more details there? We are just hoping to get a sense of how sticky these patients might be for ORLADEYO, very long-term since they can kind of be toggled on and off that free drug program. So that's the first question. The second question is your guidance for Q2, is that you expect to see a step up. Will it be similar quarter-over-quarter in terms of the percentage growth from last year, which would imply Q2 could be closer or even exceed that consensus number around $80 million? So curious to get your thoughts there. And then the last question. Helen, it sounds like the timing for any pipeline update is going to be around year end or early 2024. Is that correct? And if you could are you planning on having any discussions with the FDA around the nonclinical toxicology signings for 10013? And if so, what are the major factors that you'd like to have covered, higher doses, duration treatment? Any additional color would be appreciated. Thank you.

Jon Stonehouse, CEO

Yes. I want to emphasize an important point: if you've been on our drug for a year, the dropout rate after a year is not 60%; it is actually around 1% or 2%. That’s why I say that if we can keep you for a year, we are likely to retain you, and our user base continues to grow. It's essential for everyone to remember this.

Charlie Gayer, Chief Commercial Officer

Yes. Jon, I was going to make the same point and then just kind of add that you can do the math with the numbers we gave you today, we are at about 1,000 patients, we grew 46%. What we are adding consistently on a 12-month basis because of the demand and that really stable retention is we are adding 300 plus patients every 12 months. We are still in the early stages of growing demand in this market. We have a lot of confidence based on the demand and the retention that we are going to keep the same pace of growth towards the $1 billion.

Anthony Doyle, CFO

Yes. In terms of Q2, we are not going to give specific guidance. We've talked about how we looked at last year. Bear in mind, last year, there were some different dynamics, right? We were still in the last throes of figuring out the contracting on the PBMs and the insurers and getting all of that in. I think in terms of last year, also, Charlie talked about the significant growth that we have seen. So with the base significantly higher now than it was at that point in time. I wouldn't assume that the percentage will be as high as it was last year. What I will say is what I said in the remarks, we expect for Q2 to be a step up, and we do expect Q3 and Q4 to grow on top of what we'll see in Q2, or within the confines of meeting or exceeding the $320 million guidance for the year.

Jon Stonehouse, CEO

And then Helen on timing.

Helen Thackray, Chief R&D Officer

Stacy, thanks for the question. So on R&D Day and an update on the pipeline, we think we'll be talking about something late in the year or early next year. We'll certainly have more color on what's going on in the discovery part of our pipeline then. In terms of 10013 and any discussions, so we are always in discussions with regulators around the program that it's coming in from the program with this nonclinical program and study that's ongoing. So for that, we need to complete the study to understand what we would conclude from it. The focus at the moment in our regulatory process and discussions is going through the regulatory process to start the PNH study. So we have what we need for this in terms of the data set to get started, but that's the focus of where we are looking at for our regulatory interactions with the goal of moving into patients to assess if this drug can be safe and effective with once-daily dosing.

Stacy Ku, Analyst

Thank you very much.

Jon Stonehouse, CEO

You’re welcome.

Justin Kim, Analyst

Hi. Good morning. Thanks for taking the questions. Maybe just on the $320 million guidance. In terms of reaching at least that number, how much of the assumptions rely on conversion of patients who are on free drug beyond sort of the seasonality of Q1 to Q2?

Charlie Gayer, Chief Commercial Officer

Yes, there is some of that included in our assumptions, but the main factor is the organic growth in our patient base. This involves ongoing demand and steady gradual improvements. We typically make the most significant advancements in getting patients into paid therapy in the first quarter through the re-authorizations, after which we anticipate making incremental gains over the coming years. We expect the proportion of paid patients to decrease into the 20s as the year goes on. However, the key aspect remains the influx of new patients and the continuous growth of that foundation that Jon mentioned.

Justin Kim, Analyst

Okay. And could you provide any color on the background of these new patient adds, whether they are switch patients, prophylaxis-naive or coming from community versus epidemic, low prescriber, low volume versus high volume prescribers?

Charlie Gayer, Chief Commercial Officer

It's great to see the consistency. We're still getting about 50% of the patients from prophylaxis switches and the other 50% mainly from acute cases. Half of the prescriptions are coming from the top 500 doctors, who treat about half of the patients in the market. The rest comes from smaller HAE treaters, who may have only one to three patients in their practice. Our team is effectively reaching both segments, especially with our team increases this year. We've observed this pattern over the last couple of years and expect it to continue going forward.

Jon Stonehouse, CEO

Yes. And I think another piece that's really important that we haven't fully tapped into is the patient word of mouth spread, and Charlie said this a bunch of times before, but the patient summit that takes place in the U.S. every 2 years hasn't taken place since 2019 due to COVID and occurs in July, and we are really excited. This will be the first time we actually have a booth with the product that's on the market. It's just a great place where patients are talking to each other and an opportunity for that word of mouth to spread. So we are looking forward to that.

Justin Kim, Analyst

Okay, great. Maybe just a final one. As you think about breaking out the ex-U.S. numbers, I'm sort of curious, should we expect the ex-U.S. sort of growth rate to outpace on a percentage basis the U.S.? And so I'm just wondering whether we might see that line item reach sort of the peak potential for U.S.?

Charlie Gayer, Chief Commercial Officer

Yes. No. So I think for kind of an indefinite period of time, more of our growth is still going to come from the U.S. It's the bigger market. But ex-U.S. is a little above. As Anthony said, it's about 11% now. We expect it to be just a little over 10% for the year. At peak, it will get to 20%, but it's going to evolve more slowly because it's all about launching in new markets, getting market access and building in those markets. But what we are seeing in the places we've launched in Europe, in particular, is the same kind of steady growth. Once we are launched, we are adding more patients and growing steadily just as we are doing in the U.S. But U.S. is going to dominate in both pace and sales for the next few years.

Jon Stonehouse, CEO

Yes. It takes 3 to 4 patients outside the U.S. to equal the value of one patient inside the U.S. For instance, we haven't yet entered Spain, Italy, Benelux, or Portugal, but we plan to start launching in those countries next year. The rollout is just slower. Nevertheless, we are confident that we will reach 20% at peak. We are pleased with Europe’s performance, even though it doesn't contribute significantly to the business yet; it remains important.

Justin Kim, Analyst

Okay, great. Thanks so much for taking the questions.

Jon Stonehouse, CEO

You’re welcome.

Serge Belanger, Analyst

Hi, good morning. A couple of questions, I guess, for Charlie. First one, was the impact of patients on free drug in the first quarter larger than it was in 2022? Just trying to reconcile the difference between the 38% year-over-year increase in sales. I think you had a 46% increase in the number of patients on drug and a 5% price increase starting in January. And then secondly, it looks like you had a stronger level new patient starts in the first quarter of '23 at 20%. Is that a significant uptick from prior quarters in 2022? And do you think that's sustainable for the rest of the year?

Charlie Gayer, Chief Commercial Officer

Sure. Thanks, Serge. So on your first question in the free product in the quarter, yes, the overall impact of free product was greater this first quarter than in 2022, even considering the relative size of the patient bases. That was for two reasons. One is as our base was bigger, and the reauthorization process is always a complicated and time-consuming process. On average, patients were on free drug just a little bit longer as we were doing the reauthorization. The second factor is what I mentioned earlier around the Medicare patients not being able to afford their copayments and not having as much access to outside help doing so. You put those two things together, if the Medicare had not happened, our revenue growth would have been comparable to the patient growth at about 46%. The price increase, we expect the net for the price increase. We took a 5% price increase at the start of the year. We expect to, over the course of the year, to net out at about a 4% improvement in ASP. That just doesn't all show up in Q1. As for the new starts, yes, we were really pleased to have the 20% growth over last year in Q1 because, as I mentioned, this re-auth process keeps everyone, particularly the healthcare providers, busy. The fact that they prescribed that much in Q1 is a great sign. I don't think it necessarily means we are going to be 20% up for the rest of the year, but we will do our best to try that. But with many new members of the team as we went through our expansions, I'm just really pleased with how the team is doing and how well they started in Q1.

Serge Belanger, Analyst

And just one last one on the pediatric ongoing pediatric clinical trial. So is the goal here to expand ORLADEYO's IP with this pediatric label expansion, or is it really just an additional market opportunity for ORLADEYO?

Jon Stonehouse, CEO

Yes. I mean we have incredibly long IP. So the pediatric piece is not critical to that in our opinion. I mean, this is a high unmet need. When you think about kids 6, 7 years old, having to get injections for their therapy, instead, you can sprinkle something on an oral sprinkles on yogurt or applesauce. It's just a much easier option. I mean going way back when he and I would attend these patient summits, we had parents just asking when the pediatric formulation is coming. So there's a pent-up demand there. It's not a huge market, but it's a patient for life, right? We think it's an important segment of the market to serve. But this was really all about high unmet need and serving that high unmet need.

Operator, Operator

Our next question will come from Liisa Bayko with Evercore ISI. You may now go ahead.

Liisa Bayko, Analyst

Hi, there. Thanks for fitting me in. Aside from the free drug, can you clarify what the gross to net was for the rest of the drugs excluding the free one?

Anthony Doyle, CFO

Yes. Hi. So, in Q1 is always going to be the highest from a growth perspective as it relates to the reimbursed part of it. We've previously guided to 15% to 20% for the year. I would say that Q1 is right at the top end of that range, and then we continue to get better as we move through the year to get towards that 15% to 20%. But again, driven by reauthorizations, co-pay assistance, a lot of the things that by the time you hit the end of Q1, you're starting to normalize, and they'll have a minimal effect in Q2 and then as you go through the year even less again.

Liisa Bayko, Analyst

Okay. That's helpful. Why will these patients be receiving free drugs for the rest of the year due to the Medicare issue you're facing? I'm trying to understand what changes are taking place.

Jon Stonehouse, CEO

Give her some sense of the co-pay now versus co-pay in the future.

Anthony Doyle, CFO

So based on the way Medicare Part D is right now for a rare disease product like ORLADEYO, depending on the person's plan, their copayment responsibility for the year is going to be north of $10,000 off in north of $20,000. For a senior citizen, that very few can actually afford to pay that out of pocket. So these outside charities help them afford this because we, as manufacturers by law, are not allowed to do that. When the Inflation Reduction Act rolls in, part of it recognizes this challenge for patients. Next year, the maximum that a Part D patient will pay is around $3,200 across all the drugs that they take, not just individual drugs. Then in 2025, that number is capped at $2,000. What it means is the overall copayment burden goes down, which means more patients will be able to afford out of pocket. It may also mean that these outside charities will be able to help more patients because the average assistance that they provide will be much lower. That's why we are optimistic and we are very much supporters of that part of the IRA.

Liisa Bayko, Analyst

Okay. And so why then would that Medicare piece, why will they be on free drug for the rest of this year? Because won't they kick in above?

Charlie Gayer, Chief Commercial Officer

That's just by law that once we put a patient on long-term patient assistance, for the rest of the calendar year, we have to keep them on it. It's all part of kind of the complicated rules around government insurance.

Liisa Bayko, Analyst

That's helpful. And then just more broadly, what percentage of the 7,500 patients are now on prophylaxis? Like what does your market research tell you?

Anthony Doyle, CFO

North of 70% in the U.S. and we still see that growing to 80%, maybe even 90% over time.

Jon Stonehouse, CEO

Yes. One of the reasons for that is you've got three companies now promoting it as each new entrant of injectable prophy comes out, you're going to have more companies. We think that will go to 80% or even higher when everybody is talking about why would you put somebody on prophylactic therapy.

Liisa Bayko, Analyst

Okay. Any inventory changes for the quarter?

Charlie Gayer, Chief Commercial Officer

No, inventory is not a concern for us due to the sole source pharmacy. Every patient shipment is a direct flash sale to patients, so we don't have an inventory issue.

Anthony Doyle, CFO

We have strong coverage from an inventory perspective, both throughout the channel and with dual supply to ensure we have plenty of supply.

Liisa Bayko, Analyst

Okay. And what kind of compliance are you seeing these days? What's the general rate?

Charlie Gayer, Chief Commercial Officer

Yes. Overall compliance remains strong. It's 90% plus. It's going to be some smaller percentage of patients that struggle a little bit more. But with some of the team expansions that I described, part of their job too on the patient services side will be to help identify patients who are having compliance challenges and help educate them and make sure that they do their best to take one pill once a day. But overall, we see compliance very high, 90% plus.

Liisa Bayko, Analyst

Okay, great. And then just one point of clarification on the PNH study. Are you clear to start Phase II in PNH? Or you're just kind of having a conversation with FDA now? What's exactly the stand?

Jon Stonehouse, CEO

So again, we are looking at countries where the benefit-risk, where patients don't have access to other therapies. The U.S. has plenty of other therapies for patients to have access to. We are looking outside the U.S. and we're working through the process. We can't give you more of an update than that. Our goal is to start a study, and we will announce that when we do and if we do, but at this point, I can't give you an update.

Liisa Bayko, Analyst

Thank you.

Charlie Gayer, Chief Commercial Officer

And Helen, could you please clarify again why we are prioritizing PNH?

Helen Thackray, Chief R&D Officer

We are pursuing PNH as the fastest path to be able to assess the drug to understand if we have a safe and effective drug that can achieve once-daily dosing. That's an opportunity to do that first before we then move into the renal diseases.

Liisa Bayko, Analyst

Right. Okay. Thank you.

Jon Stonehouse, CEO

You’re welcome.

Brian Abrahams, Analyst

Hi. Good morning. Thanks so much for taking my questions. Two for me. First off, as you've been able to gather more and more longitudinal data here, anything you can take from the learnings around this really high retention rate after patients are through a year and apply it to potentially reducing the dropout rate within that initial year? And then secondly, it sounds like the newer patients being added are quite consistent in terms of the switchers versus naive and where they're coming from with regards to prescribers. But I guess I'm curious, those who are starting ORLADEYO at this point in the launch, is there anything different about them versus those who started earlier just in terms of region, insurance coverage, time on existing therapy that might make it more or less challenged going through the free drug process on to paid drug or more or less likely for them to stay on therapy longer term? Thanks.

Charlie Gayer, Chief Commercial Officer

Sure. Good questions, Brian. First on the long-term data, yes, we collect a lot of data. The main takeaway, which isn't really surprising in HAE, is that it's about patient confidence and physician confidence. Fortunately, patients have many more therapies today than they did a decade ago. They want to be assured that when they gain access to these therapies, the drug is truly effective for them. Switching can trigger HAE attacks and can be stressful. It's crucial to set expectations about how the drug works, including potential side effects or breakthrough attacks, which are normal. It is important to give it a period of time, about 3 to 6 months, to determine if the drug is effective. This message is a significant part of our promotional and educational efforts, and we need to keep emphasizing it. Over time, we are seeing improvements and stabilization in our retention rate.

Jon Stonehouse, CEO

Yes, and I would just add, Charlie. You asked the question, Brian, why is the retention rate so high after a year? Because they're doing great, right. I mean they're taking one capsule once a day. It's controlling their disease and they're tolerating it really well. It's almost the ideal therapy, right. So that's why.

Charlie Gayer, Chief Commercial Officer

We are learning from our data that patients who are doing well with low attack rates and rarely experience breakthrough attacks on other injectable therapies have similar outcomes when they switch to ORLADEYO. It’s important for patients and physicians to understand this as part of the education process. Regarding the types of patients, the mix of those switching has remained similar, and there hasn’t been any change in getting patients to insurance. The most significant difference is that as we delve deeper into the market, some patients have adopted a wait-and-see approach while on other therapies. We need to continue our efforts in education and sharing data. As Jon mentioned, word of mouth is crucial. The main challenge is convincing someone who is doing well on another product to consider switching. We are making progress, but we have not reached everyone yet. Over time, we will persuade them, and that is contributing to the steady growth of this product.

Justin Kim, Analyst

Great. Thank you.

Operator, Operator

This concludes our question-and-answer session as well as the conference. Thank you for attending today's presentation. You may now disconnect.