Earnings Call Transcript - BCRX Q3 2023

Operator, Operator

Good morning and welcome to the BioCryst Pharmaceuticals Third Quarter 2023 Earnings Call. Please note, this event is being recorded. I would now like to turn the conference to Mr. John Bluth at BioCryst. Please go ahead.

John Bluth, Vice President

Thank you, Maria. Good morning and welcome to BioCryst's third 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 Data & Insights Officer Jinky Rosselli. Following our remarks, we will answer your questions. As a reminder, tomorrow at 1:00 p.m. Eastern Time, we will be hosting an R&D Day where we plan to describe our drug discovery process and introduce additional therapies from our pipeline. So today we'll focus on ORLADEYO and tomorrow we'll take a deep dive and answer your questions on our pipeline programs. 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. In addition, today's conference call includes non-GAAP, pro-forma 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 release section of our Investor Relations website at biocryst.com. Now, I’d like to turn the call over to Jon Stonehouse.

Jon Stonehouse, CEO

Thanks, John. Third quarter ORLADEYO revenue of $85.7 million was another strong quarter of performance and gives us a high degree of confidence we will achieve our goal of no less than $320 million for the year and remain on track for $1 billion at peak. This growing revenue, along with the discipline around our capital allocation, puts us in a very strong financial position heading into the end of the year. Since we have more time today to discuss ORLADEYO, we’ll go deeper into what we see in the market and how we see the market changing over time. As John mentioned, you will also hear from another member of the team today. Jinky has been with BioCryst for over eight years. Jinky’s title is Chief Data & Insights Officer, but to simply explain her role, Jinky gathers data and insights across the company and in the marketplace to help us understand the truth of what's really going on, not to look for data supporting what we hope to be true; this is a very important distinction. She will share the data and insights she and her team have gathered around the AJE market in ORLADEYO, both today and what we see that will impact the future. We hope this will help you understand what we see and why we remain confident in our current growth trajectory and the path to peak revenue of $1 billion. Now, I'll turn it over to Charlie to talk about the quarter’s performance.

Charlie Gayer, Chief Commercial Officer

Thanks, Jon. Patient growth in the third quarter continued at the consistent pace we have described before. The net growth in U.S. patients benefiting from ORLADEYO in Q3 was nearly identical to what we saw in each of the first two quarters this year and our global growth continued to gain strength. As Jon noted upfront, we are excited to describe our expanding pipeline and its future promise tomorrow. Today we are excited to describe the future we see for ORLADEYO. With Q3 revenues of $85.7 million and the consistent patient dynamics we are seeing, we repeat our guidance of no less than $320 million this year and are as confident as ever that ORLADEYO is on a path to $1 billion in peak global revenue. I'm going to describe the pattern of growth that we have seen and show you how we believe this pattern will translate to that peak. Jinky will describe in more depth how we validate these forecasts. As a side note, I first worked with Jinky at another company starting in 2007. She is the main reason I joined BioCryst right behind her in 2015. I joined not only because I enjoy working with her and her team, but because they do objective, insightful, patient-focused work that I believe tells the truth about the future for ORLADEYO as closely as could ever be predicted. Let's look at the data. We included two slides in our earnings decks that describe ORLADEYO growth. The first, Slide 4 shows the monthly pattern of U.S. patient prescriptions and patient discontinuations graphed on the same Y-axis. You can see that months bump up and down over the last eight quarters, but the range is tight. New starts to date have been well above discontinuations. We have good months, great months, just okay months leading to trend lines of start forms and discontinuations over the past two years that are essentially flat. That means the growth of net patients on therapy remains very linear. Net patients are on the secondary Y-axis. We have not shown the numbers on the chart but we crossed 1,000 U.S. patients on ORLADEYO in early May and are well above that point now. This U.S. patient growth, combined with reimbursement dynamics, shipping days, and other factors create variable revenue patterns you can see on the right slide of Slide 4. Q1 tends to be down because of reauthorization. Q2 jumps up after reauthorization is complete, and Q3 and Q4 tend to go up more gradually. However, the long-term revenue trend follows the patient growth trends. So where is ORLADEYO heading? Slide 5 shows you what we expect based on what we see today. I'll walk you through some simple numbers that are representative of our data and our view. I've simplified and approximated the numbers but precision is not important because the long-term view does not change. We expect to end 2023 with roughly 1,050 patients who have reached a state of either paid therapy or long-term free product or PAP. We also have a population of newly prescribed patients on short-term quick start free product at any given time. And when you include them, the proportion of patients on paid product is just under 70%. I'm going to exclude the Quick Start patients because the coverage for them is still pending. That leaves us with a paid patient ratio of about 73%, which is what I will use for this analysis. The 1,050 year-end patient base multiplied through a compliance rate of just over 90% and a gross to net reduction of 15% to 20% off last list price on paid patients get to an annualized rate of about $310 million per year. Our patient growth history plus forecasting methods that Jinky will describe, give us confidence we will average around 200 net patient additions per year through 2028. We have averaged a bit above that rate for the past two years and I've shown you the consistency. Growth could be more some years, less other years, but we expect to add 1,000 net patients by the end of 2028 which adds up to an additional $295 million in annualized revenue. By the end of 2028, we are looking at a minimum of just over $600 million annualized U.S. revenue without any other changes. But we also expect the 73% paid ratio to grow to 85% based on the work we are doing and the trends we are seeing. Most of that percentage improvement plus the revenue growth impact will not happen in 2024. The percentage growth will accrue over the next 3 to 4 years. With over 2,000 patients, that improvement would be worth at least $100 million per year by 2029, making steady-state U.S. revenue around $700 million per year. Now assume a very modest average annual price increase through early 2029, and you can see how U.S. revenues are likely to reach $800 million or more in 2029. The early trends we see outside the U.S. give us confidence that ORLADEYO will reach around $200 million in the rest of the world, completing the path to $1 billion in global revenue around the turn of the decade. The results that we have seen in the past we are on are not surprising to us. ORLADEYO is a highly differentiated product that HAE patients wanted back in 2020 and they continue to want today. Jinky will tell you more about how we use robust insights on patients and health care providers to predict where ORLADEYO is heading. Jinky, welcome to today's earnings call.

Jinky Rosselli, Chief Data & Insights Officer

Thanks, Charlie. We truly believe that robust and thoughtful methods are critical in providing an understanding of not only the drivers of demand for ORLADEYO but a complete unbiased reflection of the overall HAE market. Charlie mentioned in past calls, our quarterly market studies showing consistent strong demand for ORLADEYO. These quarterly studies serve as a robust and generalizable example of AK prescribers and HAE patients. A key question we asked consistently in these studies is potential prescribing over the next 12 months. We feel this question is a good metric to keep informed of on-demand and shifts in that demand. Latest studies show that HAE physicians anticipate prescribing ORLADEYO to about 25% of their patients in the next 12 months. New data on future prescribing of ORLADEYO have been consistently studied over time, reinforcing our assumptions that demand remains strong. We do recognize that the HAE market is competitive and is likely to get more competitive. Our market nature shows that products with a strong value proposition are sticky, meaning prescribers and patients are loyal. Across our volumes and research over the years, HAE patients have consistently expressed how grateful they are for every new therapy available to them which is totally understandable given HAE is a rare disease with historically limited options. These patients have also indicated a high level of satisfaction with their treatments. When our quantitative data pre-launch show this level of satisfaction, I admit, I did have a moment of panic. In past market-type studies, when customers are highly satisfied, the implication is that there are no remaining unmet needs. But digging further into the research on these highly satisfied HAE patients, we're offering the promise of an oral therapy. Over 50% were willing to switch from their existing prophylactic therapy to ORLADEYO. Patients' willingness to switch to ORLADEYO signals that there are still unmet needs, namely controlling their attacks as no treatment is perfect and treatment burdens associated with their current injectables. The core insight here is that these patients are expert consumers and will, therefore, always indicate high levels of satisfaction. Simply put, these HAE patients are seeking freedom and an improved quality of life. As we continue to mine our actual ORLADEYO data and study our sources of business, we do see this intent stated in research proving out in our population. The top 3 reasons our actual patients have stated as reasons to switch to ORLADEYO include wanting to reduce the number of attacks, wanting to reduce the severity of attacks, and wanting to reduce the burden of current treatment. Their motivation for switching is wanting more. The reason for staying on therapy based on research with current patients is essentially the same: best frequent and severe attacks in addition to the convenience of an oral therapy which reduces the treatment burden. Assumptions for our forecast rely heavily on insights from market studies, our conduit work and ultimately, a simulation model. Collectively, these approaches helped us quantify demand, uptake, not only for ORLADEYO but also the impact of the competition. Unlike traditional mass-market products, rare disease markets really have no prescription data to build forecasting on. Hence, we supplement and collect as much data as possible through primary methods to fill these gaps. In our most recently completed conjoint study, our sample included 175 HAE treaters and 100 HAE patients. We asked the holders to allocate brand preference in terms of current use and the potential future use including the competition in their choice sets. We then analyze these preference data and incorporate them into market models driven by Monte Carlo simulation. Our simulation models can provide the most probable estimated patient numbers, market shares, and ramp to peak for ORLADEYO. Monte Carlo simulations allow us to run hundreds of iterations in the simulator and the models continue to reinforce confidence in reaching 2,000 patients at peak in the U.S. even with competition entering the market. In the near term, the model confirmed by actuals has shown strong uptake during the holiday period with a source of business coming from protein-naive and protein switches. In the outer years to peak, assuming a conservative scenario that all investigational products reach the market, our research consistently shows that new injectable products will take share mainly from current injectables by claiming the convenience of fewer treatment injections. Despite that, our model sees Tavio remaining as the leading injectable product because less frequent injections are an incremental benefit that will not be sufficient to drive many patients to switch. Switching from an injectable to oral, however, offers a much more dramatic benefit to many patients. Our model anticipates that ORLADEYO will likely be insulated from these new injectable entrants. Likewise, our research and model anticipates minimal switching away from ORLADEYO to any new oral because any new product is unlikely to offer a meaningful benefit over what they already experience with ORLADEYO. Similar to how TAXYRA remains sticky as a market-leading injectable in the outer years, our research and data show that ORLADEYO will be equally sticky as a market-leading oral. We strongly believe in the continuous optimization of our forecasting methods. Post-launch, our models have evolved with additional levels of sophistication, including actual data like patient adds, discontinuation, overall patients on therapy, and other market dynamics that could affect near-term revenue performance. We have found historically that our models correlate strongly with actuals and have reliably predicted early day numbers and corresponding revenues. Forecasting year 1 of launch is always difficult. But a year prior to the launch of ORLADEYO, our model showed U.S. revenues approaching $100 million, and our actual year 1 revenues came in at $122 million. Beyond forecasting, our team also studies these data in-depth to help better understand the needs of our patients, our physicians, and points to opportunities for optimization of our patient services in real-time. With availability data on a granular level, coupled with robust market insights, our team can proactively partner with the commercial teams with a full story of ORLADEYO. Our commercial teams are always ready to act on the truth from these data, ready with strategies and solutions to address any findings. Quantitative evidence direct from our customers forms the basis of all our assumptions. Full market context, including the competition, is always incorporated into our thinking, having a strong commercial team ready to act on the data is also key. Because we anchor in all these variables collectively, we have a strong level of confidence in our views of future ORLADEYO performance and our path to $1 billion. Anthony, I'll turn it over to you.

Anthony Doyle, CFO

Thanks, Jinky. With Q3 ordinary revenue rising to $85.7 million, we are well positioned to achieve our 2023 guidance of no less than $320 million. Longer term, Charlie and Jinky outlined the growth factors that we expect in the coming years, giving us great confidence in getting to $1 billion in peak revenue. I would like to detail third 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 was $86.7 million, $85.7 million of which came from ORLADEYO, putting ORLADEYO trailing 12-month revenue at approximately $306 million. Of the $85.7 million of global ORLADEYO revenue, 75.3% came from U.S. sales, with the remaining $10.4 million coming from ex-U.S. Operating expenses, not including non-cash stock compensation for the quarter were approximately $85.9 million. We are maintaining our full-year guidance for operating expenses to $365 million to $375 million based on current trending and as we continue to be disciplined in our approach to capital allocation. Cash at the end of the third quarter was $399.2 million and net cash utilization for the quarter was approximately $16 million. One of the areas that investors and analysts have been asking for additional information related to debt and royalties. So let me go into a little bit more detail on that. Looking high level at our balance sheet, total long-term debt is listed at approximately $833 million. However, only around $300 million is this traditional debt, and the remainder relates to future royalty obligations. Earlier this year, we refinanced our term loan with Pharmacon. This $300 million is traditional debt with traditional characteristics, a 5-year term, interest-only payments during the loan period, like financial covenants and an Apollo payment due in 2028. Separately, between 2020 and 2021, we secured an aggregate of $425 million for royalty financing from Royalty Pharma and other investors. For this instrument, we forecast future revenue and based on future royalties payable, which we then use to calculate an effective interest rate. On a quarterly basis, we accrue interest expenses related to this effective interest rate on the P&L, while between periods, the balance sheet movement is the delta between the interest expense accrued and the actual royalties paid. The amount currently on the balance for this is $533 million, meaning we have accrued more interest expense than we've actually had in royalties. Out of the future point, these balances should decrease as revenues increase and as royalties payable should, at that point, be higher than interest expense. Under GAAP reporting, this is considered to be a debt instrument. However, this is not traditional debt. These payments are based entirely on securing ORLADEYO revenue, i.e., no revenue means no royalties. Additionally, there's no recourse. The balances are not callable and there is no bullet payment. Hopefully, this additional detail helps. We look forward to sharing more exciting information on our pipeline with you at the R&D Day tomorrow and I hope you can join us then.

Operator, Operator

The first question is from Tazeen Ahmad of Bank of America.

Tazeen Ahmad, Analyst

Thank you for the detailed analysis on the market's evolution. In my conversations with investors, I often get inquiries about the advantages of ORLADEYO compared to the launch ramp rate. Given your strong confidence in reaching $1 billion by the end of the decade, what do you believe needs to happen to accelerate the launch and enhance the uptake compared to your current position? I also have a follow-up question.

Jon Stonehouse, CEO

Charlie, do you want to take that?

Charlie Gayer, Chief Commercial Officer

Sure. So, first of all, we're really happy with the ramp rate and the consistent ramp rate and where it's headed. So we're always looking for ways to make it go a little bit faster. And we've talked about patient activation before. That's definitely one. We don't see any one thing that can be done that's going to meaningfully bend it up. But we plan to keep executing really consistently. And we're going to get there. I think when you look at the ramp rate of 200 patient additions per year, that is very realistic and very achievable over the next 5 years. So we're happy to keep it just at the ramp where it's at.

Jon Stonehouse, CEO

Yes. One the other thing I’d add to Tazeen is remember that there's a lot of competition and patients are very satisfied with their therapy. When we talk to patients, they'll tell us, 'Oh, my god, I'm going to save my life, has changed my life,' and they feel that way about the injectable therapy. So that stickiness just takes time to break and get people to understand that they could do better with an oral. But then, on the flip side, that's going to work to our advantage when other competitors come out. So I think the ramp rate is, considering the competition in a rare disease, is phenomenal.

Tazeen Ahmad, Analyst

Okay. And then as a follow-up, when you talk about the 2,000 patients of your target, what type of a discontinuation rate is assumed in that? Are those 2,000 patients taking the drug continually or 2,000 patients that will touch the drug?

Jon Stonehouse, CEO

And Charlie will talk about the pattern as well.

Charlie Gayer, Chief Commercial Officer

Yes. Yes. No, absolutely. So first of all, the pattern that we've described before has been it's still the same. The slide I showed today demonstrates that. So when a patient starts on ORLADEYO, 60% of those patients make it through the first year. And then we see very little discontinuation after that. There's always a little bit but those are the sticky patients really once they make it to a year. And so once we get to the 2,000, we see a base of about 2,000 patients being sick and staying on ORLADEYO. And then, as we've talked about before, we have patent protection out to 2039. So it's a long ramp to potentially peak sales of $1 billion with those 2,000 patients. And that's just in the U.S.; the same dynamics will apply in other markets.

Jon Stonehouse, CEO

Yes. So you should think that by the time we get to the 2,000, we mean they've been on for at least a year or much longer; you’re going to lose a percentage or two each year, but you're going to get that back.

Operator, Operator

The next question is from Stacy Ku of TD Cowen.

Stacy Ku, Analyst

Congratulations on the progress and we really appreciate the detailed analysis of ORLADEYO. So first, we have a question. Could you further elaborate on your expectations for consistent linear growth? Specifically, how are you thinking about 2024? What are your thoughts on $410 million roughly for consensus? That's the first question. And then one more on this year. So do you have any updated thoughts on your guidance of at least $320 million? If there is any potential for outperformance, what factors do you expect could drive better sales? Is it ex-U.S.? Any kind of detailed thoughts around this year would be appreciated.

Jon Stonehouse, CEO

Yes, we don't comment on consensus and we haven't guided yet for next year, but I do think Charlie made some comments in his prepared remarks that should set expectations, so I'll let him talk.

Charlie Gayer, Chief Commercial Officer

Yes. I think for next year and for the next 5 years, as we expect about 200 patient adds, it could be a little more, some years a little less. It won’t be exact year every year but with consistent growth, it's going to be pretty close. And on the $320 million, we're very confident in the $320. We've been saying for multiple quarters now put $320 in your model, and I think we'd say do the same right now.

Jon Stonehouse, CEO

I think the challenge with next year is the cap to paid that we're not completely sure how the IRA is going to impact the care patients. There's still infrastructure that Charlie is putting in place and executing on where he's making great progress on the front end of making sure Quick Start gets to pay on a higher frequency, but we still have those long-term path folks that we've got to get switched over to paid. So I think it was a $100 million, Charlie, that you said over the next 5 years will benefit from those switches.

Charlie Gayer, Chief Commercial Officer

$100 million would come in 2029 after we move the paid ratio to 85%.

Jon Stonehouse, CEO

So you shouldn't expect much progress on that next year is the point I'm trying to make.

Stacy Ku, Analyst

Okay. And then on ex-U.S., what are you thinking there? You've given some guidance around the breakdown, but it looks like there's some nice sales there. So any comments on that would be appreciated.

Charlie Gayer, Chief Commercial Officer

Yes. I mean, ex-U.S. is going really well. We continue to get market access wins. We continue to launch in new markets. We continue to grow in the first line of markets where we're at. As we've commented before, the price is lower. So it's a volume game. It's longer term. But everything that we see ex-U.S. tells us it will contribute that additional $200 million by about the turn of the decade.

Anthony Doyle, CFO

Like Charlie said about the link between patient growth and then revenue similar in ex-U.S., there will be some puts and takes. There will be some peaks and troughs for these quarters that are bigger quarters that are smaller, depending on which row we’re selling into. But overall, the trend continues to be really strong.

Operator, Operator

Next question is from Maurice Raycroft of Jefferies.

Unidentified Analyst, Analyst

This is Yaw for Maurice. Congrats on a successful quarter. Our first question is about the percentage of patients on the free drug program, which declined from 34% in Q1 at its peak to around 30% by the end of Q2. Can you provide more insight on what you observed in Q3? Additionally, what do you anticipate that figure will be by the end of the year?

Jon Stonehouse, CEO

Charlie?

Charlie Gayer, Chief Commercial Officer

Yes, that's a good question. We were at 30% at the end of Q2, and I mentioned in the prepared remarks that we're now a little over 30% in Q3. There are a couple of factors that influenced this in Q3. Fluctuations are expected as we work towards our long-term goal of 85% paid. In Q3, we observed some Medicaid patients temporarily switching to free products as the COVID relief funding ended. Additionally, it's re-enrollment season for insurance companies, leading some patients to move to free products while changing plans. Another factor affecting the percentage of free products is that we're improving our processes for obtaining payments, which means we're taking a bit more time to achieve better outcomes. When new patients enroll, we're keeping them on the Quick Start program longer to build a comprehensive case for the insurers, ultimately improving the paid percentage. We're seeing positive results, with over 80% of our commercial segment patients, which is about 60% of the total, now on paid therapy. This trend gives us confidence that we'll reach 85% in the long term. Regarding the year-end outlook, I'm hesitant to make predictions; our focus is on long-term progress. As Jon mentioned, we don't anticipate significant changes in 2024, but we expect the percentage to start improving in 2025, 2026, and 2027, when we'll begin to see noticeable changes.

Unidentified Analyst, Analyst

Got it. That makes sense. I guess a quick follow-up on the third quarter sales. Are you now seeing more patients coming from protein-naive patients or converted patients in the U.S.? Should we assume maybe more of a revenue growth ex-U.S. is from prophylactic patients?

Charlie Gayer, Chief Commercial Officer

So in the U.S., the trends are really the same. It's roughly a 50-50 split between patients coming over from prophylactic therapy or protein-naive patients least most recently. It's not exactly the same every quarter, but it's been really consistent over time. Ex-U.S., yes, we get a lot more patients who are protein-naive because the prophylactic market in general has trailed the U.S.; ex-U.S. but that's starting to change. We get some switches from other prophylactic therapies ex-U.S., but most of it is people coming on to prophylaxis for the first time now that they can do it with a targeted oral therapy.

Operator, Operator

The next question is from Brian Abrahams of RBC Capital Markets.

Unidentified Analyst, Analyst

Everyone, this is Naveen for Ryan. Congrats on the quarter. We really appreciate some of the color that you gave around some of the sales trajectory that you expect for the coming years. On that, I just wanted to ask Slide 4, some of the data that you had regarding net patient growth and also some of the discontinuations. It seems that perhaps some of the discontinuations are leveling off or perhaps maybe changing dynamics. Could you maybe speak to whether you are seeing improvements in the retention rate and whether that's affected by your kind of push to better educate patients? And then I have a quick follow-up as well.

Charlie Gayer, Chief Commercial Officer

Sure. No. So good analysis of the data. Yes, I think we have seen improvement certainly from what we experienced very early on in the launch. It is exactly that. It's setting expectations. We do that all the way through everything that we can do with healthcare providers to make sure they talk to their patients. When our patient services teams talk to patients, they set expectations. We think that has really paid off. The market is getting very familiar now with ORLADEYO. Physicians and other healthcare providers know the drug, have confidence in it. Patients now know a lot more and they have confidence in it. In a condition like HAE, where stress can cause attacks, having confidence in your therapy is important. So we think that's all part of the pattern settling out, and we're very confident in this pattern going forward.

Unidentified Analyst, Analyst

So, and kind of like a follow-up to that, can you also speak a little bit to the trial progress for ORLADEYO in pediatric patients with the sprinkle formulation? Is there perhaps anything you could tell us about what those retention metrics might look like within the pediatric patients so far? And if any differences in the GI toxicity that you might be seeing in this population?

Charlie Gayer, Chief Commercial Officer

So the trial enrollment is going well. I'll defer other questions to tomorrow. In our R&D Day, we will be addressing that amongst our other programs. But what I'll say is the trial is going well and there's a huge need; there's a need for an oral therapy across the market, as you can imagine. In pediatrics, no parent or caregiver likes to inject their child, and their child likes to be injected. With HAE, fortunately, a lot of the kids don't become symptomatic until puberty; but about 4 in 10 patients actually have their first symptoms by age 5. There's a huge need to have an oral therapy that can prevent attacks so that these kids can live a normal life. That's what we're shooting for, and we think we're optimistic we're going to have a great product to do that.

Jon Stonehouse, CEO

A really good indicator of you've got something of real need for patients is when your enrollment goes really well, and enrollment is going really well in this trial.

Operator, Operator

The next question is from Jon Wolleben of JMP.

Unidentified Analyst, Analyst

This is Catherine on for Jon. I just have a quick question about just what's been working well in the ex-U.S. launch of ORLADEYO. I know you've kind of mentioned gaining ground with reimbursement dynamics. But any other color you could provide?

Charlie Gayer, Chief Commercial Officer

I think, sure, a couple of things. I'll touch on the reimbursement first because that ex-U.S. is critical for patients to be able to get their therapy. For example in the United Kingdom, where ORLADEYO is covered, NICE approved ORLADEYO for patients with 2 HAE attacks or more per month. While other modern prophylaxis therapies like Exondys were limited to patients with 2 attacks a week or more, which is a very small segment of the market. Our team has been able to leverage that and really help patients access ORLADEYO. The other factor is just what I mentioned in one of the earlier questions, which is until a few years ago, very few modern prophylaxis treatments were available outside of the U.S. The patient community, the physician communities in these different markets were just not used to using prophylaxis. Now they have access to those drugs. It’s changing how they view treatment and everyone is aligning around the global guidelines which state that modern prophylaxis therapy should be considered for all patients.

Jon Stonehouse, CEO

I think one other thing is, like the U.S., Charlie and the European team have done a great job of building a really experienced team that hit the ground running and data access. There are some challenges in Europe; they work closely with Jinky’s team, and just like in the U.S., when they see a challenge, they adapt and adjust. It's been really impressive to watch the European team.

Unidentified Analyst, Analyst

And then I just have one more question about the asset opportunity. I know that you're going to save the developmental pipeline for tomorrow, but just you can comment on that.

Charlie Gayer, Chief Commercial Officer

Sure. Just to add a small piece to what I said earlier. The pediatric market in the U.S., I think we've said this before, we think there are probably in the neighborhood of 500 patients who are symptomatic with HAE. Not all of those will need prophylaxis right away. But the real key with where HAE therapy has evolved is that now there are options available. Experts really see patients growing up in a very different environment than even 10 years ago. Kids today can grow up, they can get control of their attacks, and they can do all normal school activities. The goal is to be completely normal, and that just hasn't happened with previous generations. The availability of prophylaxis for the pediatric population, and soon an oral prophylactic product, is what's really going to change the lives of these kids and their families, frankly.

Jon Stonehouse, CEO

I can remember and this isn't that long ago, 10 years ago, when you talked to young women that had HAE, and they weren't even sure if they wanted to have children. Now you can live with HAE at a very young age and manage your HAE. So we're so excited about this formulation. Bill Sharon and I have been engaged with patient meetings for a decade, with mothers that are saying go faster, and it's really exciting that we're on the cusp of getting that.

Operator, Operator

The next question is from Liisa Bayko with Evercore ISI.

Liisa Bayko, Analyst

Sorry about that. I just want to follow up on an earlier question regarding the linear growth of 200 patients per year. What kind of underlies your confidence that you can continue growing at that rate? How many patients would have cycled through by I guess, 2029? Would all patients have touched ORLADEYO at some point? Are there benchmarks you can point to? Is that pretty typical to see just continued new patient adds at a consistent level from like launch? It seems like at the early launch period, you might have a different trajectory. So that's why I was just curious about the kind of 200 patients being added per year.

Jon Stonehouse, CEO

Charlie is going to answer the first part but I want Jinky to dive in as well because she's got insight into the future as well.

Charlie Gayer, Chief Commercial Officer

Yes. And Liisa, we realized that the ORLADEYO launch is not like your classic rare disease launch of the past. It's a crowded market. And I may steal some of Jinky's thunder but she said it; these patients are sticky. This is a slower-moving but consistently moving launch. I think Jinky, can you comment on again, reiterate how we use the data to provide insights?

Jinky Rosselli, Chief Data & Insights Officer

Yes. I mean, we triangulate, right, because it's imperfect in every way in terms of the rare disease market and data availability. We take the market insights and the research that we do, all the methods that I described in the remarks and basically model that out. Our physicians and our patients are telling us the demand is still there; they're still saying that they want more. The minute that changes, that landscape changes, we're all going to know about it because we consistently call every quarter. The demand and the numbers that Charlie is using in this model are our numbers. Essentially, we're triangulating based on what the market is telling us and then marrying it with the actual ORLADEYO ramp within our database to give us that confidence.

Charlie Gayer, Chief Commercial Officer

I'll come back to one other point which is to address your question, Liisa, about are all patients going to cycle through. Ultimately, that is our goal. If every patient cycles through ORLADEYO, we'll come back and talk to you about how this has changed. It's more than $1 billion. We don't need every patient to go through to get to $1 billion. On a monthly basis, any given month, 5% to 10% of the patients with new forms are actually patients who dropped off at some point in the past and are coming back. So there is that component. But if we reach 4,000, 5,000 patients in the U.S., we will easily get steady-state sticky patients by 2029.

Liisa Bayko, Analyst

Okay, great. And then just a question on the pediatric. How many pediatrics would be eligible for your calculation?

Charlie Gayer, Chief Commercial Officer

So we think the number in the U.S. market, the number of kids could be in the 500 patient range who could be eligible for prophylaxis. That doesn't mean 500 will be on ORLADEYO or any other prophylaxis, but the pediatric side of the market is one that is still going to evolve because it's only been in the last few years that prophylaxis has even been available. It's all injectable right now. We think that our views on that could change but we think 500 patients is a pretty decent estimate right now.

Jon Stonehouse, CEO

And Liisa, one other thing I'd add, it's hard to quantify but I think we've seen this; the adolescent population is the halo effect that happens in families. Remember, it's a hereditary disease and what we see is when adolescents have done really well in a family, all of a sudden, the mother or the father who has HAE is like, well, maybe I should try that. I think the same thing is going to happen with pediatric patients.

Liisa Bayko, Analyst

Okay. And then just a quick question on the expense side. It looks like you're kind of higher towards the end of this year and the fourth quarter for your guidance. Is that how we should sort of think about the run rate going forward into next year? Maybe you could just provide some color on the kind of the expense trajectory into the fourth and beyond.

Anthony Doyle, CFO

Yes. We've given a revised range based on what we see. What we will share with everybody tomorrow at the R&D Day will provide some additional flavor specifically around R&D expenditure. But I think we're well positioned to see growth in revenue. We will see some additional growth in operating expenses. But we are always going to be very thoughtful around capital expenditure and making sure that we invest in things we think will create value. We will give some more additional details tomorrow.

Jon Stonehouse, CEO

I would add to that, that when you combine growing revenue with discipline around capital allocation, you're getting a lot closer to a situation where your cash needs for the company are self-sufficient. We're getting there. Tomorrow, we're really excited about what we're going to share with you. But another really important piece is having clear go-no-go decisions and being disciplined about the policies we've set, and when we continue to invest or when we stop. We've got a track record of that, and we'll continue that.

Operator, Operator

The next question is from Serge Belanger of Needham and Company.

Serge Belanger, Analyst

Appreciate the additional detail on ORLADEYO trends. I guess 2 for Charlie. We saw the percentage of patients on free product creep up late in the year last year. Just curious what you're seeing on that front. And then I think earlier this year, there was an issue with the lack of funding for co-payment support programs that led you to start the year with a higher base of patients on free product. As we get closer to 2024, is that an issue that could replicate itself?

Charlie Gayer, Chief Commercial Officer

Sure. Thanks, Serge. First, on the percentage creeping up at the end of last year, as I made a couple of comments on an earlier question, it's re-enrollment season right now, and so there are some patients who are switching around plans. Things did creep up a little in Q4. I don't know what will happen in Q3 but it's not likely to get better. I'd point you to what I said earlier, which is this is a long multiyear game in terms of how we see this improvement in paid happening. But it's probably not going to get better in Q4 but we have confidence in the long term. As far as the co-payment assistance in Medicare from earlier this year, that issue is still ongoing. It's been going on all year. We don't know what's going to happen next year. Also, the IRA starts to kick in next year. So that's going to lead to some different dynamics. I would assume similar dynamics, but we don't know at this point. We'll just have to wait and see how the early part of next year plays out outside of our control.

Jon Stonehouse, CEO

Yes. I think the realistic way of looking at it is we're going to plan for a conservative case; there are going to be headwinds next year. That's why we're saying don't expect a lot of progress on free to paid next year.

Serge Belanger, Analyst

Okay. And then on your path to $800 million in U.S. revenues in 2029, what assumptions do you make for the competitive landscape during that timeframe?

Jon Stonehouse, CEO

I think let's have Jinky answer this one because she's got the best insight into this, and some of the comments you made are really important to reinforce.

Jinky Rosselli, Chief Data & Insights Officer

Yes. So we talk about the modeling, right and sort of how we do the research, the quantitative work with our base of patients and physicians. We share the profile of the competitive landscape. For each competitor coming into the space, we present them with the opportunity to allocate patients to those competitors. Charlie is using assumptions that are all built out of those simulations, right, or the preference shares which are then pushed into the simulator. The simulator then gives you a sense of where ORLADEYO is going to land within the competitive context. All the competitive dynamics are built into the assumptions.

Jon Stonehouse, CEO

Yes. So just a couple of other things to stress that you might not have caught. There's probably not going to be anything incremental, but we're being really conservative. We're not seeing everybody get into the market. The other thing that she emphasized was injectables are going to take from injectables, and orals aren't going to take away from ORLADEYO because there's not an incremental benefit if you're controlled on therapy or existing therapies.

Jinky Rosselli, Chief Data & Insights Officer

The expected benefits are not seen as meaningful enough to warrant a switch.

Jon Stonehouse, CEO

So while we're factoring it in, the impact to ORLADEYO is minimal.

Operator, Operator

The next question is from Gina Wang with Barclays.

Unidentified Analyst, Analyst

This is Harshita on for Gina. I had a couple of quick ones on ORLADEYO. And then one on Factor D; I guess I'll ask the Factor D one first. Are you going to give an update tomorrow? If so, I'll defer the questions tomorrow on Factor D. If not, I was wondering if you could give a quick update on that program today.

Jon Stonehouse, CEO

We're going to save that for tomorrow.

Unidentified Analyst, Analyst

Okay, perfect. So on ORLADEYO, I think one metric you haven't talked about yet is the new prescription starts. How did it perform this quarter compared to future expectations? Do you still anticipate that 50% of new prescriptions will come from Tier 1? I just wanted some clarification on that.

Charlie Gayer, Chief Commercial Officer

Yes. No, you're right. I did not talk about the physician source. It's really consistent with what it's always been. We're getting about half from the Tier 1 that covers about half the market and half from everyone else. Our team has done a fantastic job of really reaching far; we're doing a great job of moving the big prescribers, and some of that is hard work that is gradual progress, as Jon, Jinky, and I have been describing. But then also seeking out patients in even a practice that might have 1 patient; they are there. For a small team, they've covered a lot of ground and do it really efficiently.

Operator, Operator

The next question is from Brian Abrahams of RBC Capital Markets.

Unidentified Analyst, Analyst

This is Naveen for Ryan. Congrats on the quarter. We really appreciate some of the color that you gave around some of the sales trajectory that you expect for the coming years. On that, I just wanted to ask Slide 4, some of the data that you had regarding net patient growth and also some of the discontinuations. It seems that perhaps some of the discontinuations are leveling off or perhaps maybe changing dynamics. Could you maybe speak to whether you are seeing improvements in the retention rate and whether that's affected by your kind of push to better educate patients? And then I have a quick follow-up as well.

Charlie Gayer, Chief Commercial Officer

Sure. No. So good analysis of the data. Yes, I think we have seen it improve certainly from what we experienced very early on in the launch. It is exactly that. It's setting expectations. We do that all the way through everything that we can do with healthcare providers to make sure they talk to their patients. When our patient services teams talk to patients, they set expectations. We think that has really paid off. The market is getting very familiar now with ORLADEYO. Physicians and other healthcare providers know the drug, have confidence in it. Patients now know a lot more and they have confidence in it. In a condition like HAE, where stress can cause attacks, having confidence in your therapy is important. So we think that's all part of the pattern settling out, and we're very confident in this pattern going forward.

Unidentified Analyst, Analyst

So and kind of like a follow-up to that, can you also speak a little bit to the trial progress for ORLADEYO in pediatric patients with the sprinkle formulation? And is there perhaps anything you could tell us about what those retention metrics might look like within the pediatric patients so far? And if any differences in the GI toxicity that you might be seeing in this population?

Charlie Gayer, Chief Commercial Officer

So the trial enrollment is going well. I'll defer other questions to tomorrow. In our R&D Day, we will be addressing that amongst our other programs. But what I'll say is the trial is going well, and there's a huge need; there’s a need for an oral therapy across the market, as you can imagine. In pediatrics, no parent or caregiver likes to inject their child, and their child likes to be injected. With HAE, fortunately, a lot of the kids don't become symptomatic until puberty, but about 4 in 10 patients actually have their first symptoms by age 5. There’s a huge need to have an oral therapy that can prevent attacks so that these kids can live a normal life. We are optimistic we're going to have a great product to do that.

Jon Stonehouse, CEO

A really good indicator of you've got something of real need for patients is when your enrollment goes really well, and enrollment is going really well in this trial.

Operator, Operator

The next question is from Jon Wolleben of JMP.

Unidentified Analyst, Analyst

Charlie Gayer, Chief Commercial Officer

Sure. A couple of things. I'll touch on the reimbursement first because that ex-U.S. is critical for patients to be able to get their therapy. For example in the United Kingdom, where ORLADEYO is covered, NICE approved ORLADEYO for patients with 2 HAE attacks or more per month. Other modern prophylactic therapies, like Exondys, were limited to patients with 2 attacks a week or more, which is a very small segment of the market. Our team has been able to leverage that and really help patients access ORLADEYO. The other factor is just what I mentioned in one of the earlier questions, which is until a few years ago, very few modern prophylaxis treatments were available outside of the U.S. The patient community, the physician communities in these different markets were just not used to using prophylaxis. Now they have access to those drugs. It’s changing how they view treatment, and everyone is aligning around the global guidelines which state that one of the modern prophylactic therapies should be considered for all patients.

Jon Stonehouse, CEO

I think one other thing is, like the U.S., Charlie and the European team have done a great job of building a really experienced team that hit the ground running and learn data access. There are some challenges in Europe, and they work closely with Jinky’s team. Just like in the U.S., when they see a challenge, they adapt and adjust. It's been really impressive to watch the European team.

Unidentified Analyst, Analyst

And then I just have one more question about the asset opportunity. I know that you're going to save the developmental pipeline for tomorrow, but just you can comment on that.

Charlie Gayer, Chief Commercial Officer

Jon Stonehouse, CEO

I can remember, and this isn't that long ago, 10 years ago, when you talked to young women that had HAE, they weren't even sure if they wanted to have children. Now you can live with HAE at a very young age and manage your HAE. So we're so excited about this formulation. Bill, Sharon, and I have been engaged with patient meetings for a decade with mothers who are saying go faster, and it's really exciting that we're on the cusp of getting that.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jon Stonehouse for any closing remarks.

Jon Stonehouse, CEO

Yes. Thank you. Today, it was all about ORLADEYO and our goal to give you better insight into what we see both today in the marketplace and the trends that we see in and then also how we see the market shaping up in the future. So hopefully, you found that very helpful. Tomorrow is all about the pipeline. And as Charlie said, it's about how we're expanding the pipeline and also how we're discovering first-in-class and best-in-class molecules and then how we'll be very careful and have clear no-go decisions around capital allocation. So please tune in. We're really looking forward to talking to you tomorrow.

Operator, Operator

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