Earnings Call Transcript - MDGL Q2 2024

Operator, Operator

Good day, and thank you for standing by. Welcome to the Madrigal Pharmaceuticals Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to introduce Ms. Tina Ventura, Chief Investor Relations Officer. Please go ahead.

Tina Ventura, Chief Investor Relations Officer

Thank you, Malala. Good morning, everyone, and thank you for joining us to discuss Madrigal's second quarter 2024 earnings. We issued a press release this morning and have a slide deck that accompanies this webcast, which will post on the Investor Relations section of our website right after the call. On the call with me today is Bill Sibold, Chief Executive Officer; and Mardi Dier, Chief Financial Officer. They'll provide prepared remarks, and then we'll take your questions. Our goal is to keep today's call to about 45 minutes. Please note on Slide 2, we will be making certain forward-looking statements today. We refer you to our SEC filings for a discussion of risks that may cause actual results to differ from the forward-looking statements. And with that, I will now turn the call over to Bill on Slide 3.

Bill Sibold, Chief Executive Officer

Well, thanks, Tina. Good morning, and thanks for joining. I'll cover three topics on our call this morning. First, an update on the Rezdiffra launch, where we are off to a strong start this quarter. Our key metrics are also showing strength and are consistent with market research reflecting high physician awareness and intent to prescribe. Second, our progress wiring system, where we are 4 months into what we expect to be about a 12-month process. This is our number one priority. As with other first-in-disease launches, we are driving a change in clinical practice and physician behavior and developing processes for efficient patient and prescription flow. Our goal is to establish a strong foundation to support peak sales. And third, our strategy to maximize the long-term value of Rezdiffra. In addition to the untapped opportunity in the U.S., we announced today that we plan to directly launch Rezdiffra in Europe following an EMA decision expected next year. Let's start with the launch on Slide 4. As discussed in our first quarter call, we are providing second quarter metrics on three key areas: demand, including patient numbers, payer coverage and prescriber uptake. We generated $14.6 million in net sales in the second quarter and exited the quarter with more than 2,000 patients on Rezdiffra. In addition to driving demand, we have put a lot of focus on the time it takes to fill a prescription with the physician community, patient support, specialty pharmacies and payers. Our field team is focused on patient selection with prescribers. Our patient support team and the specialty pharmacies in our limited distribution network are driving efficient prescription processing and payers are executing on medical exceptions more efficiently because they recognize the unmet need. As a result, patients are moving more quickly through the reimbursement process. We have previously discussed our expectation for a time to fill to improve from about 60 days at launch to about 30 days or less at 6 months. Because of our efforts, time to fill was running faster in the second quarter compared to those initial expectations. We're also very encouraged by the progress we've made with payers. They understand the significant unmet need in NASH, which is the number one driver of liver transplants for women in the United States. They also recognize the clinical benefits of Rezdiffra for F2/F3 patients and that noninvasive tests or NITs, not biopsies, are standard of care. Last quarter coverage was at 30% of commercial lives. As of June 30, more than 50% of commercial lives now have coverage in place for Rezdiffra with over 95% of covered lives accepting NITs and not requiring biopsies. We are well on our way to achieving our goal of 80% of commercial lives covered by year-end. As far as government payers, as of July 1, Medicaid coverage was in place across all 50 states. Similar to what we've seen with commercial coverage, virtually all accept NITs and do not require biopsies. For Medicare, we are on track for full coverage beginning January 1 of next year based on the annual review process for new medications. Currently, Medicare patients are accessing Rezdiffra via the medical exception process with prior authorization requirements consistent with our label. We are pleased with the progress we have made with the 6,000 top hepatologists and gastroenterologists that we are targeting, who are caring for the vast majority of the 315,000 diagnosed F2/F3 patients. In the second quarter, approximately 20% of our top targets wrote a Rezdiffra prescription, which is aligned with the penetration level often seen in launches of blockbuster medicines. As you'd expect, early in launch, we've seen hepatologists adopting more quickly due to their expertise with the disease and NITs. Gastroenterology practices can take a bit longer given that NASH isn't their primary disease area, and they need to think through practice dynamics for patients. Across the board, each physician is at a different stage of activation, and we continue to steadily add prescribers. Our top targets are writing more than 75% of prescriptions, giving us conviction that we're targeting the right physicians with their efforts. Significant opportunity remains to expand new prescribers and shift initial prescribers to more frequent prescribers. To do this well, we need to continue to successfully wire the system as noted on Slide 5. We're in the early stages of what we expect to be about a 12-month process to substantially accomplish that goal. Just like other disease states with first-time treatments, we are working to change physician behavior and help build a pathway to efficiently process Rezdiffra prescriptions at physicians' offices. We've made great progress; we are steadily adding patients and prescribers, but it's early in the launch and there's still a lot of work to do. For physicians, it's about educating them on the risks of NASH and activating them to write a prescription. The risks are real and they are urgent. For example, our health economic study of an Optum claims database highlights alarming rates of progression to adverse liver-related outcomes. Of 19,000 NASH patients without cirrhosis at baseline, approximately 17% progressed to decompensated cirrhosis within 3 years. In addition to disease state and Rezdiffra education, we are also helping physicians identify the appropriate patients for Rezdiffra using NITs as well as using the recently published U.S. expert panel recommendations and EASL guidelines. For the office staff, it's about helping practices create a pathway to process patients and prescriptions to handle the future volume we anticipate. This can require additional staff to manage patients and navigate the evolving reimbursement process. For payers, we continue to have productive dialogue on the costs of NASH, the clinical benefits of Rezdiffra and noninvasive testing of patients. That has been paying off with favorable risk coverage. And for patients, we're continuing to educate them on NASH and Rezdiffra while helping them navigate through the complexities of the healthcare system to support their treatment journey. So we're absolutely doing the work, physician-by-physician, practice-by-practice, payer-by-payer and patient-by-patient. This is a tailored approach that requires discipline, repetition and time. As accounts become wired, the pull-through process becomes smoother, and it's easier to send more prescriptions through. We're still in the early stages, but we are confident that we're building the foundation needed to create a blockbuster medicine. The optimism of our U.S. launch drives our decision to directly commercialize Rezdiffra in Europe, as noted on Slide 6. We have been evaluating our Europe strategy following the submission of our marketing application earlier this year. We expect an EMA decision midyear next year, which would make Rezdiffra the first NASH treatment available in Europe. Our decision to commercialize Rezdiffra in Europe allows us to preserve the full value of the asset, maintain strategic flexibility and create a platform for future growth. Europe is an attractive opportunity for several reasons. The NASH patient population in Europe is significant; NASH is driving a marked increase in the prevalence of hepatocellular carcinoma in Europe. From 2016 to 2030, cases of NASH-related HCC are expected to increase by more than 100%. We've established Rezdiffra as a potentially foundational therapy in NASH through our Maestro NASH Phase III clinical trial. We have 125 trial sites in Europe. We formed strong relationships with the NASH European community through our clinical development program and on-the-ground presence with our European medical affairs team. And Rezdiffra has been favorably positioned as first-line therapy for moderate to advanced NASH consistent with F2/F3 fibrosis in the EASL clinical practice guidelines. This was despite it not being approved yet in Europe. The guidelines also note that Rezdiffra is the only disease-specific agent in NASH with positive results from a registrational Phase III clinical trial. We are starting to build the infrastructure now to commercialize Rezdiffra in Europe in 2025. Another key aspect of our life cycle management strategy is expanding the use of Rezdiffra to patients with compensated cirrhosis as seen on Slide 7. There is an even higher urgency to treat patients with cirrhosis because they are at a 42 times higher risk for liver-related mortality. Our Maestro NASH outcomes trial evaluates Rezdiffra in this patient population. It's an event-driven trial that noninvasively measures progression to liver decompensation events in patients with compensated NASH cirrhosis. An indication in this patient population has the potential to double our opportunity. Let me conclude by summarizing our progress on Slide 8. We have the enviable position of being first to market in NASH, giving us a strong and sustainable competitive advantage. We are fully leveraging this opportunity, positioning ourselves for long-term leadership in the U.S. and now globally with our expected launch in Europe. We have a highly desirable product profile. It's an effective once-daily, well-tolerated pill. It's a liver-directed medicine that has demonstrated the ability to halt or improve liver conditions in 91% of patients out to three years. And we've resourced the launch to match the opportunity in front of us, starting with an expert team that's launched dozens of blockbuster medicines. While we're still early in the launch, we're making good progress on many metrics. Net sales of $14.6 million, more than 2,000 patients on the drug, more than 50% of commercial lives covered, virtually all accept NITs and do not require biopsies in line with what we have communicated. Approximately 20% of our top targets have prescribed with significant room for growth. Recently published EASL guidelines in U.S. expert panel recommendations endorse Rezdiffra as a first-line therapy for F2/F3 NASH. We have more work to do to change clinical practice to educate and activate physicians and to help them create efficient care pathways for patients. We are steadily adding patients and prescribers and tracking right in line with what we would expect at this point in the launch. As we look forward, we are well on our way to building a blockbuster medicine with patient expansion as we execute on the untapped opportunity in F2/F3 NASH, indication expansion as we look forward to data from our outcomes trial in cirrhosis patients and geographic expansion as we plan to launch Rezdiffra in Europe next year. Before I turn the call over to Mardi, let me briefly reflect on the progress we've made as a company. I've been in my role for 11 months, and what we've accomplished is pretty incredible. I'm very proud of this team. The FDA accepted the Rezdiffra filing, we received priority review, and no AdCom was required. We very quickly built an expert team at the leadership level and the commercial level, including a full field team ready to support the launch on day 1. We built sufficient supply. We received approval with a best-case label, importantly with no biopsy requirement. The team was out promoting Rezdiffra within weeks of approval, and we shipped the product in less than a month. We have been building strong physician relationships. We've seen favorable Rezdiffra guidelines published. Payer coverage is favorable, and virtually all plans do not require a biopsy. So we are executing on everything that we said we would. We're making progress. It's early, and there's still more work to do. As we look forward, we are about a third of the way through our plans to wire the system to build a strong foundation to support our aspiration for peak sales. We have the right strategy in place to do that, and we're even more confident in the significant potential of Rezdiffra. So with that, Mardi?

Mardi Dier, Chief Financial Officer

Yes. Thank you, Bill. The press release we issued earlier today contains our full financial results, so I will provide a few highlights as noted on Slide 9 for the second quarter of 2024. U.S. net product sales for the quarter were $14.6 million, comprised of demand and inventory. For the quarter, it was mostly demand. We expect inventory to run between 2 to 4 weeks for Rezdiffra as is typical for a specialty medicine. Gross to net was favorable to our expectations for the quarter as our co-pay assistance was lower than anticipated for this particular quarter. As we've said, we expect gross to net to be choppy quarter-to-quarter, particularly this early in the launch. R&D expenses for the second quarter 2024 were $71.1 million compared to $68.6 million in the second quarter of 2023. We continue to anticipate a relatively steady level of R&D expenses for the rest of the year. SG&A were $105.4 million, up from $17.8 million for the second quarter of 2023. This year-over-year increase is as expected. As we discussed last quarter, it is due to the scale-up of our commercial operations following the March approval of Rezdiffra. With the announcement of our intent to launch Rezdiffra in Europe, we expect a modest increase related to our infrastructure build in 2024 and more so in 2025. Moving to our balance sheet. The balance of our cash, cash equivalents, restricted cash, and marketable securities as of June 30, 2024, stood at $1.1 billion, which is slightly higher than what we reported last quarter due to the closing of the green shoe from our March public offering and proceeds from option exercises. With our strong cash position, we are well resourced to support a successful multiyear launch of Rezdiffra. I'll now turn the call back over to Tina.

Tina Ventura, Chief Investor Relations Officer

Thanks, Mardi. We will now open the call for questions. We would like to limit questions to 1 as we're trying to get through as many questions as possible today. Malala, if you could open the call.

Operator, Operator

Our first question comes from Thomas Smith with Leerink Partners. Please go ahead.

Thomas Smith, Analyst

Congratulations on a strong launch quarter. I appreciate all the detail provided in the prepared remarks. Could you elaborate and perhaps quantify how much of the $14.6 million in net revenues is attributed to actual patient demand and prescriptions versus initial inventory and stocking?

Bill Sibold, Chief Executive Officer

Great, Tom. Thanks. Mardi?

Mardi Dier, Chief Financial Officer

Yes. Great. Tom, great question. How we're going to characterize the demand versus inventory and the $14.6 million in net sales is that it's mostly demand for this quarter. So we're really pleased how our team performed cross-functionally and had a nice result for the quarter. However, we just want to reiterate that the typical days on hand for inventory moving forward is 2 to 4 weeks, as we've seen with most specialty medicines. We also want to reiterate that we're at the beginning stages of our launch, right? We're about a third of the way through what we think we need to wire the system. So we just want everyone to be careful not to get ahead of ourselves as we look forward to the next quarter. And I'll just make one other point that Bill made very clearly that looking forward, we had nice progress into our launch quarter, and that we'll steadily add both patients and prescribers as we move forward.

Operator, Operator

Our next question comes from Andrea Tan with Goldman Sachs. Please go ahead.

Andrea Tan, Analyst

Maybe just given the focus on the launch cadence here. I just wondering if you're able to provide an update on patient numbers exiting July. I know you have over 2,000 as of the end of the quarter. And then what proportion are on paid drug?

Bill Sibold, Chief Executive Officer

Thanks for the question, Andrea. Look, we're not going to talk about month-to-month progression. I think the way we've characterized it is that we're steadily adding patients and prescribers. And that was certainly what we continue to see through July. As it relates to free drug, there was very little this quarter. As we look towards the future, though, we expect that there'll be some more free drug as we have more patients utilizing the various services that we provide.

Operator, Operator

Our next question comes from Akash Tewari with Jefferies. Please go ahead.

Unidentified Analyst, Analyst

This is Amy on for Akash. So there is an inflection implied by consensus on Rezdiffra revenues next year. Do you feel like there will be a significant acceleration on launch trajectory next year? Once access is properly in line? Or is your base case that launch will be more gradual? And then if I could just sneak in one more. Of the less than 5% plans that require a biopsy, can you give us a sense of the plans what they are in the covered lives, are these mostly Medicare?

Bill Sibold, Chief Executive Officer

What we are discussing is commercial covered lives, not Medicare, but Medicare will start in January. To clarify, the more than 50% refers to commercial covered lives. Regarding the uptake, we've been clear from the start that we need to wire the system, which takes time when launching a product in a community that has never had anything similar before, even in off-label use. We estimate this will take about 12 months, and we're currently about a third of the way through this process. As we progress through Q4 of this year, keep in mind that Q1 of next year typically brings about a reset. This is why we mentioned a 12-month timeline extending through Q1 of 2025. By that time, we expect to have our reimbursement in place, along with trained physician practices that will be more comfortable writing prescriptions and facilitating patient transitions. That's when we anticipate seeing more patients navigate through practices, both in terms of identification and the overall process.

Operator, Operator

Our next question comes from the line of Andy Chan with Wolfe Research. Please go ahead.

Andy Chen, Analyst

So if you can remind me based on your market research among the 315,000 patients, what percent of them are GLP-1 experienced. I'm thinking about a very hypothetical scenario where payers require GLP-1 step. I know that's not the case right now, but please entertain me for a moment. What fraction of these patients would basically bypass the requirement right off the bat?

Bill Sibold, Chief Executive Officer

Patient experience, Andy? Or do you say physicians have experience with GLP-1s.

Andy Chen, Analyst

A patient experience like pay in the past; they have used it, yes.

Bill Sibold, Chief Executive Officer

Yes. We're observing that more patients are being exposed to GLP-1s according to feedback from practices. For instance, in our clinical trial, 14% of patients were on GLP-1, though this was at the diabetes dose. It's clear that exposure to GLP-1s is increasing. The key question remains when these patients were exposed, whether it was a month ago, six months ago, or twelve months ago, and whether they are still using it. Due to discontinuation rates, each of these scenarios is possible. Our data indicates that some patients are currently using GLP-1 alongside other treatments, but it is still early to gather comprehensive information. As for payers, we have not encountered any instances where step-through requirements for GLP-1 are being enforced.

Operator, Operator

Our next question comes from Eliana Merle with UBS. Please go ahead.

Eliana Merle, Analyst

You mentioned that you were seeing faster uptake with hepatologists versus gastroenterologists. Can you just give us a little bit more color on the latest trends that you're seeing with the gastros now versus at the start of the launch? And if you're seeing an uptick in prescribing from the gastroenterology segment.

Bill Sibold, Chief Executive Officer

Yes, Eli, thanks for the question. So I mean, look, it makes sense that hepatologists are going to get off to a little bit faster start, right? They have been treating the disease, and that's something that they know very well. They're very familiar with the liver. And so we did see the hepatologists get started a little quicker. Now the gastroenterologist, there's a lot more of them than hepatologists. And they're working through their practice dynamics as well. As you know, there's a pretty high focus on scoping in gastroenterology. So it's how do they make room in their practice or how will they process a patient using oftentimes a lot of ACPs, and they are at different stages of how do they actually process a patient through? Great interest in doing so, but there's just a practical matter that you're running a practice and you now have to start to make room for that. And that's what we're spending time doing is working with them. Now there's a lot of gastroenterologists that are writing. We talked about 20% of our target list, and the majority of that target list is gastroenterologists because there's just not that many hepatologists in the country. So we expect that gastroenterologists are going to be a key prescriber in this because there's so many, and that's where the bulk of the patients sit. And just as we expected, hepatology is a little bit ahead, but gastroenterology is making progress and as we said from the beginning, we're steadily adding new prescribers and steadily adding patients.

Operator, Operator

Our next question comes from Yasmeen Rahimi from Piper Sandler. Please go ahead.

Yasmeen Rahimi, Analyst

Team, congrats, really on a solid quarter and all the great work. I guess you commented now that you're thinking about for 2025 into expansion into Europe as well as into cirrhotic patients. Could you maybe think about is your plans in Europe to really do this on your own and build a commercial sales force? Or are you still between now and end of the year potentially entertaining a partnership that could allow them to commercialize and you could focus on the U.S.? So I would love sort of for you to maybe think about how we should be thinking about that just because it's its own caveats involved in Europe. So would love being out like are you fully committed? Do you want to partner? What are your thoughts there?

Bill Sibold, Chief Executive Officer

Thank you for the question. I want to clarify that we are fully committed to commercializing on our own in Europe. I have successfully commercialized multiple products in Europe, in fact, every product I have managed has been launched globally. Our team is experienced and well-prepared for this. We have built the right team to ensure effective execution, and we will apply the same approach in Europe. Our focus will be targeted, probably starting with Germany. We've learned a lot from our experiences in Europe, and there is significant excitement for the drug. Looking back a year ago, there were doubts about whether Rezdiffra would be approved in the U.S. due to past failures, which led many physicians to wait for approval before taking action. In contrast, in Europe, there seems to be more certainty because they see the U.S. approval as a strong indicator for their own. At EASL, we observed that stakeholders in Europe had organized effectively and established guidelines prior to approval, positioning Rezdiffra as a priority. We believe that Europe and the 125 trial sites we have there are experienced and enthusiastic about Rezdiffra. However, we will maintain a disciplined approach to our launch in Europe, and we will keep you updated as we progress throughout the year.

Operator, Operator

Our next question comes from Liisa Bayko with Evercore ISI. Please go ahead.

Liisa Bayko, Analyst

I wonder if you could give us a view on patient start forms at the end of the quarter. And then also just a little more color on gross to net. I know you said it would be a little choppy, maybe a sense of what it was and where you ultimately want to get to?

Bill Sibold, Chief Executive Officer

Liisa, thank you very much for the question. Let me start just with the patient start forms. We're not giving any update on patient start forms. We are just providing the patients that were on drug at the end of the quarter. That to say, though, that there are clearly, we're seeing steady additions to patients. And as I said, prescribers throughout the quarter and since the quarter. Maybe from a gross to net perspective, Mardi, I'll have you.

Mardi Dier, Chief Financial Officer

Yes, absolutely. Thanks, Liisa, for the question. So our second quarter, or first quarter of launch gross to net was favorable versus our expectations, but it's all within the realm of what would be typical for a specialty product. We want to be clear about that. Sort of the biggest swing factor for us right now is the co-pay assistance program that we've set up to make sure that we can get and help our patients get on drug as efficiently as possible. We saw less use of our co-pay assistance program this quarter. But going forward, we expect that to grow a little bit. So that was sort of the essence of gross to net; it could be choppy, and then, of course, as you get into the first quarter, you have other issues with gross to net and IRA, et cetera. But that was the main driver for this quarter.

Operator, Operator

Our next question comes from Ritu Baral with TD Cowen. Please go ahead.

Ritu Baral, Analyst

I wanted to ask a little more about the prior authorization requirements that you're encountering for the plans that have established coverage. Our survey work and key opinion leader research suggest that there is a significant amount of MRE imaging and possibly MRI-PDFF diagnostic imaging needed. Can you discuss access and what actions you are taking to facilitate access to those imaging technologies for diagnosis? Is this aligned with the prior authorization and diagnostic requirements you are observing in your finalized plans?

Bill Sibold, Chief Executive Officer

We are not experiencing any problems with access to the non-invasive tests. In fact, we are quite satisfied with the requirements we see, which primarily include imaging and blood tests for various assessments like the imaging fiber scan, MRE, and MRI-PDFF, along with ELF and FIB-4 from blood tests. The access for physicians to these different technologies is quite good, although it's not perfect and not everyone has access to everything. We are still in the early stages, and I believe it will take several years for non-invasive tests to sort themselves out. There isn't a consensus among physicians about which combinations to use, and new technologies are also emerging. It may take a while before we have clearer information on the best combinations and sequences for various physicians. Overall, we feel confident about our position. Previously, there was significant concern regarding whether biopsies would be required, but that has not proven to be the case, with less than 5% actually needing them. The challenge practices face now is that they must stage patients while also deciding to treat them with Rezdiffra, which is a shift from their historical approach of simply staging and watching. This change involves adopting a new behavior where the staging and treatment decision become more integrated. Over time, as practices gain familiarity with this process, it should become easier for them to implement. That adjustment period is what we need to navigate to reach a steady state.

Operator, Operator

Our next question comes from David Lebowitz with Citi. Please go ahead.

David Lebowitz, Analyst

You had indicated the time to fill was coming in faster than the original expectations of starting at 60 days and eventually dropping to 30 days. Are we to assume that it's in between 30 to 60 days? Has this point actually already reached 30 days or potentially is exceeding 30 days?

Bill Sibold, Chief Executive Officer

David, thank you for the question. And maybe just a little bit of context first, is as we were out starting to launch, one of the real directions to the field was to help practices with patient selection. And that was a very conscious effort. The reason being is we've been clear from the beginning, saying that we want only F2/F3 patients, and that's been a partnership with the payers too, letting them know that we're not trying to expand on either side until we have data. And I think this is a testament to the team doing a really great job in that the practices chose the right patients so that their experience in gaining access, even if it was a temporary policy in place, it actually moved quicker. I think it's also an acknowledgment that the payers see the unmet need, and they don't want to deny a patient that really needs the drug either to get this. They know what happens when a patient crosses the line to cirrhosis. It's just not good. So I think that explains why there has been that acceleration, if you will. It was kind of deliberate to make sure we have the right patient and also that the practices wanted to make sure that they only had so many resources in time. They didn't want to get stuck having to fight back and forth. So they chose the right patients as well. Now as we scale this back up and you start putting more volume through, probably the quality of the prescription comes in, that can begin to drift a little bit, so you may not be able to move quite as fast. All we've said in the time is that we're directionally closer to 30 than to 60, 60 days.

Operator, Operator

Our next question comes from Ed Arce with H.C. Wainwright. Please go ahead.

Ed Arce, Analyst

Congrats on this quarter. Just wanted to ask about the COGS $0.6 million initially, I would think for the first few quarters, you’re just working off of prior inventory. When would you expect COGS to normalize? And if you can discuss the rate there? And also on the payers that require a biopsy commercially, could you identify which one of those are and what pressure you think might exist over time for that to change?

Bill Sibold, Chief Executive Officer

Ed, thank you very much. I don't have the list in front of me of the payers, and we're not going to give specifics to the plans, especially when we're still in a pretty dynamic phase right now. We still have some more work to do. Look, I think that any of the payers that have required a biopsy are beginning to hear that from prescribers and in a lot of cases, from patients and advocacy. In a day and age where there are good NITs that allow for the appropriate diagnosis and staging, it's just not necessary to subject somebody to a biopsy, which has its own set of complications. So we would expect over time that those discussions will take place. And we're hopeful that those plans will come around. But remember, we always said that there'd be outliers, and just as we said, there are some outliers out there that are requiring biopsies. So we'll keep working at it. We don't want any patient to be subject to it, and that is what will drive our engagement with all the payers to make sure that patients are well treated and have an option to have noninvasive tests. On the COGS question, I'll turn that over to Mardi?

Mardi Dier, Chief Financial Officer

Yes, thank you for the question, Ed. You are correct that COGS is quite low because we are reducing the current inventory. We don't expect COGS to return to normal for about 1.5 to 2 years, depending on the demand on the top line. Additionally, we have a small single-digit royalty to Roche that affects COGS. It's also important to remember that we are a small molecule medicine, so COGS for Rezdiffra will remain low.

Operator, Operator

Our next question comes from Jay Olson with Oppenheimer. Please go ahead.

Jay Olson, Analyst

Congrats on the launch progress. Of your 2,000 patients, can you comment on approximate proportions of F2 versus F3, and are you seeing any off-label use in F4s? And then since Bill has the benefit of leveraging his DUPIXENT launch experience, can you comment on the strategy and timing of communicating directly with patients and how important is the direct-to-patient strategy with NASH, where patients may not be symptomatic compared to other more symptomatic diseases?

Bill Sibold, Chief Executive Officer

Thank you for the question, Jay. Regarding the distribution of F2 and F3, it's fairly balanced. If you ask physicians, they'd likely prefer to start with an F3 for the patient’s benefit. However, they have to make decisions based on the patients they see each day and their specific needs, including what the non-invasive tests indicate. We actually observe a good balance between the two. As for off-label use, I don’t have specific insights. We have clearly communicated to physicians about the appropriate and inappropriate candidates for Rezdiffra, emphasizing that we lack data to support off-label use, especially in cases like cirrhosis, which isn’t covered in our label. Hence, we can't genuinely assess its prevalence in that regard. Generally, I've not heard it mentioned widely; clinicians seem to focus on the right patients. This focus is likely a factor in the improved time to fill prescriptions. Regarding patient education, we've been actively engaging patients, but our more direct outreach efforts are just about to launch. This is crucial for a disease that is often not well understood or recognized, yet has serious implications, being the leading cause of liver transplants for women in the U.S. It’s a staggering statistic. We believe it's essential to educate patients, especially the 315,000 already diagnosed, to ensure they understand their condition and can activate their treatment options, which is vital for improving access to Rezdiffra and enhancing efforts to treat NASH. These initiatives are already in progress and are set to ramp up soon, providing patients with valuable information about the disease and our treatment.

Operator, Operator

Our next question comes from Prakhar Agrawal with Cantor. Please go ahead.

Prakhar Agrawal, Analyst

Congrats on the quarter and the launch. I have just one. What are you hearing on what payers and physicians will require to track response for Rezdiffra at 12 months and beyond for reauthorization? Specifically, will patients on Rezdiffra be reauthorized or only patients who show some improvement on all invasives?

Bill Sibold, Chief Executive Officer

We understand that there is typically a reauthorization period of about 12 months for specialty products. This period can vary, but as you mentioned, it generally leads to either stabilization or improvement. We are still approximately 9 to 10 months away from the first patient undergoing that process. Current policies seem reasonable, but we have time to discuss any concerns with payers before that period. Recent expert recommendations from clinical gastroenterology and hepatology highlight three key stages: identifying a patient, assessing their progress after several months, and reviewing efficacy at the 12-month mark. We agree that a 12-month evaluation of efficacy is appropriate. It's important to note that the FDA indicated in their press release that seeing effects at 52 weeks was considered early, given the challenges associated with fibrosis. Overall, we feel confident with the current policies and the expert recommendations presented.

Operator, Operator

Our next question comes from Jon Wolleben with Citizens JMP. Please go ahead.

Jon Wolleben, Analyst

Just one. Bill, you mentioned peak sales a couple of times in your prepared remarks. I'm wondering how you're thinking internally what the peak opportunity is for Rezdiffra, especially now when you're thinking about full economics in Europe?

Bill Sibold, Chief Executive Officer

Jon, that's a fantastic question. I appreciate you highlighting that. Currently, I'm not in a position to disclose our estimate of peak sales, but I can tell you about the market dynamics. In the U.S. alone, we estimate there are approximately 315,000 patients. As we explore the penetration of our product in this specialty category, we believe it resembles a specialty-like market. When discussing NASH overall, we are looking at billions in potential. We believe our product has a durable profile. Based on the data presented at EASL, we consider ourselves unmatched by others, especially since none of the competitors offer pills. When talking to patients, particularly this demographic, they often have multiple medications to manage. Adding another injectable treatment is a significant challenge, especially since some of those alternatives may cause discomfort and require long-term adherence. We are still assessing the total market opportunity in Europe, particularly from an F4 standpoint, which expands our prospects. I recognize this is a lengthy response without giving you exact figures, but regardless of the specifics, we see this as a substantial specialty category. We believe we are currently in a leading position and will maintain that advantage for the foreseeable future due to our product profile and the extensive data we continue to collect. We're confident we will stay far ahead of our competitors.

Tina Ventura, Chief Investor Relations Officer

Thanks, John. And thank you all for your time today and your interest. This now concludes our call. A replay of this webcast will be available on our website in about 2 hours. Thank you so much for joining us.

Operator, Operator

Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.