Global Blood Therapeutics, Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Feb 2022

[Operator:]

Greetings, and welcome to the Global Blood Therapeutics' Fourth Quarter and Full Year 2021 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the prepared remarks. As a reminder, this conference is being recorded. I would now like to turn the call over to Steven Immergut. Please go ahead.

[Steven Immergut:]

Thank you, and welcome to GBT's conference call to discuss the company's financial results for the fourth quarter and full year 2021 and to provide a business update. I'm Steven Immergut, Head of Communications and Investor Relations. With me today on the call are, Dr. Ted Love, our President and CEO; Jeff Farrow, Chief Financial Officer; David Johnson, or DJ, Chief Commercial Officer; and Dr. Kim Smith-Whitley, Executive Vice President and Head of R&D. During today’s call, Ted will provide an update on our progress in Q4 and the full year; Jeff will review our financial results; DJ will give an update on the Oxbryta launch; Kim will discuss our pipeline; and then Ted will give a few closing remarks before we open the line for questions. Earlier this afternoon, we issued a press release announcing GBT's financial results and business progress for the fourth quarter and full year ended December 31, 2021. Before we begin, I would like to remind you that certain statements we make on this call that are not historical facts may be forward-looking statements that are subject to risks and uncertainties. Information concerning factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements are contained in our SEC filings, including, but not limited to our most recent annual report on Form 10-K, as well as in today's press release. Copies of our SEC filings and press releases can be obtained from the Investors Page of our company website at gbt.com. The forward-looking statements made on this call are only as of the time they are made, and you should not place undue reliance on such statements. Future events or simply the passage of time may cause our beliefs to change and we disclaim any obligation to update any forward-looking statements other than as required by law. I'll now turn the call over to Ted.

[Ted Love:]

Thank you, Steven, and good afternoon, everyone. 2021 was a year of significant advancement and growth for GBT as we made progress on our goal to transform the lives of patients with sickle cell disease. More health care providers and patients are aware of Oxbryta and using it to address the root cause of this terrible disease. And in December, our broad label got even broader. It now covers patients as young as 4 years old. Outside the U.S., we advanced our regulatory efforts and launch preparations in Europe, while gaining valuable experience through our Early Access program. And we are very pleased with the progress on our robust late-stage pipeline. Going forward, our focus is on driving Oxbryta adoption, advancing our pipeline and supporting the patient community. The fundamentals of Oxbryta are strong. Every quarter since launch, we have grown the net number of patients on therapy. Physician and patient feedback continues to be very positive. And we continue to have broad payer coverage. Our key initiatives can increase adoption include executing on our pediatric launch, continuing to invest in our DTC campaign and developing more real well evidence of clinical benefit. And in the European Union, we just received full marketing authorization for Oxbryta, making it the first and only therapy approved to treat the hemolytic anemia of sickle cell disease. This is an exciting and long-awaited milestone for patients, physicians, the sickle cell community and GBT. We will now work towards launching in Germany, beginning reimbursement discussions in France and educating health care providers across Europe. In the U.K., we have submitted for marketing authorization and anticipated potential approval by mid-year. Importantly for the U.K., Oxbryta was granted EAMS designation, which provides two key advantages. First, patients that meet the eligibility criteria can gain early pre-license access to Oxbryta. Second, medicines under EAMS that received marketing authorization by the MHRA as well as a positive assessment by NICE benefit from accelerated NHS England commissioning. While we work through the process in the EU and U.K., we are working to build momentum with early access programs with patients enrolled in France, the U.K and Germany, markets where the majority of sickle cell patients live. Our strategy continues to address sickle cell through various therapeutic approaches. And we believe our R&D program is the most comprehensive in the industry. We are focused on aggressively advancing the development of inclacumab and GBT601, both of which remain on track. And our research team is exploring additional therapeutic topic -- targets in SCD and other red blood cell disorders. GBT's mission and commitment to underserved communities is stronger than ever. We've talked a lot about COVID-19 and its outsized impact on the sickle cell disease patient humanity. In 2021, we established the GBT Foundation, which extends our corporate giving in areas of critical need and strategic importance. We have and will continue to expand our investment in the SCD community and overall health equity. We will continue to meet patients where they are to support their overall health and wellbeing. We expect that our initiatives will gradually contribute to new prescription rules over 2022. We're also hopeful that the COVID-19 environment will improve. We've recently seen encouraging trends in new prescriptions as cases began to drop. We are hopeful that these trends will continue and our team is working extremely hard on all the factors that are within our control. Longer term, we remain optimistic for the future, given the tremendous unmet need in this disease, and the compelling clinical data on Oxbryta and our pipeline. With that, I will turn the call over to Jeff to review our fourth quarter and 2021 results.

[Jeff Farrow:]

Thank you, Ted. Total net revenue from sales of Oxbryta was $56.1 million for the fourth quarter of 2021. Fourth quarter revenue increased by approximately 415 million or 36% year-over-year. 2021 revenue was $194.7 million, an increase of approximately $71 million or 57% year-over-year. On a sequential basis, fourth quarter revenue increased by 8% from the third quarter. This sequential growth was primarily driven by the continued increase in the net number of patients on Oxbryta, including demand from existing and new patients and slightly higher inventory purchases by distributors. On an absolute basis, levels of inventory increased, reflecting the growing patient base. Days of inventory on hand in the fourth quarter was approximately 4 days higher than the third quarter, representing about $2 million in revenue. Gross to net was approximately 16%, around a 1.5% increase from the third quarter, primarily related to higher Medicaid accruals in the current quarter. Now turning to expenses. Cost of sales for the fourth quarter was $1 million and for the full year was $3 million, compared with $1 million and $2 million for the fourth quarter and full year 2020, respectively. Cost of sales for the fourth quarter was consistent on a gross margin basis year-over-year. Cost of sales was low in both years, as the majority of the manufacturing costs related to Oxbryta sales were incurred prior to FDA approval, and thus were recorded as an R&D expense. R&D expense for the fourth quarter of 2021 was $59 million and for the full year was $212 million, compared with $41 million and $155 million for the same periods and 2020, respectively. The increase in R&D expense in the fourth quarter was primarily due to higher costs related to our two inclacumab Phase 3 studies, which included the $5.3 million clinical milestone payment triggered by enrollment in our Phase 3 studies, as well as the advancement of our preclinical Oxbryta and GBT601 programs. SG&A for the fourth quarter was $79 million, and for the full year was $267 million, compared with $59 million and $211 million for the same periods in 2020, respectively. The increase in SG&A expense in the fourth quarter was primarily due to increased employee-related costs, including non-cash stock compensation, and expenses supporting the commercialization of Oxbryta, including the rollout of new materials, our direct-to-consumer advertising and readiness activities related to our launch for younger children. Other factors driving this increase were our measured expansion into Europe and the initiation of multiple investigator-sponsored studies. Net loss for the fourth quarter was $88 million, and for the full year was $303 million, compared to $62 million and $248 million for the same periods in 2020, respectively. Basic and diluted net loss per share for the fourth quarter was $1.36 per share and for the full year was $4.81 per share, compared with $1 per share and $4.04 per share for the same period in 2020, respectively. We ended 2021 with cash, cash equivalents and marketable securities of $735 million, compared with $561 million at the end of 2020. This includes the addition of approximately $384 million during the fourth quarter net proceeds from financing activities. Next, I'll walk you through some of the dynamics to think about when modeling revenue for 2022. If the pandemic begins to subside, we anticipate higher growth in Oxbryta and new prescriptions for the 12 and older population in the second half of the year. While we're excited about the launch for younger children, we expect the new prescriptions and revenue growth will be gradual until the majority of patients have coverage, which we anticipate by mid-year. The label expansion represents approximately 16,000 incremental patients for total address -- for a total addressable population of greater than 100,000 in the U.S. Following EU approval, we are now focused on access and reimbursement, particularly in the U.K., France and Germany where the majority of patients are located. This will take time. We expect revenue from Europe will be de minimis in 2022, with growth ramping up in 2023. Now for 2022 expenses. For cost of sales, we anticipate that we will utilize the remainder of our fully expensed inventory in the second half of the year and we'll see an incremental step up in expense in the fourth quarter. For SG&A and R&D expenses, we expect higher than incremental growth in 2022 as compared to 2021. For SG&A, the increase year-over-year will be driven by continued investment in the commercialization of Oxbryta, including our launch for younger children, our measure expansion into Europe and support for further investigator studies. For R&D, the increase year-over-year will be driven primarily by our clinical studies for inclacumab, as well as continued investment in Oxbryta studies in GBT601. We anticipate that both SG&A and R&D expenses will be more heavily weighted to the second half of the year. Specific to the first quarter of 2022, we anticipate revenues in the range of $54 million to $56 million, driven primarily by the impact of Omicron and inventory dynamics. Inventory levels are anticipated to decrease as distributors work down the inventory built up from Q4, similar to our experience in the first quarter of 2021. And gross to net is expected to increase incrementally from Q4 driven primarily by higher copay assistance and greater 340B utilization. Importantly, in Q1, we've seen improvement in demand trends that we anticipate will drive revenue growth in Q2, and the remainder of the year. In summary, we've delivered strong revenue growth in 2021, and have several catalysts to drive revenue growth in 2022. In addition, we continue to be well-positioned with a strong balance sheet, allowing us to make key investments in future growth. And with that, I will now turn the call over to DJ.

[David Johnson:]

Thank you, Jeff, and good afternoon, everyone. I will provide an update on three key metrics that will give you further insight into our progress. These metrics are

[Kim Smith-Whitley:]

Thank you, DJ, and good afternoon, everyone. On today's call, I will provide an update on our key real world evidence studies for Oxbryta, our efforts to expand its geographic reach and our pipeline. Following GBT's strong ASH in December, our medical science liaison has been proactively sharing the updated analysis of Symfony Claims data covering more than 3,100 sickle cell disease patients, ages 12 and older, which was just published. Interim data from the retro registry and the durability of response and safety data for the long-term use of Oxbryta from the open-label extension of the Phase 3 HOPE study. For my perspective, as a clinician, this data is extremely impressive. It is not surprising to hear the impact that this data is having based on the market research that DJ summarized. And we are excited to continue delivering on this front with our ongoing and planned studies. For the retro registry, the data set now includes 230 patients submitted from 9 U.S sites. The data collection period closed at the end of 2021 and we are now working to analyze the data and plan to submit the results for presentation at medical meetings this year. The prospect registry is currently enrolling patients with a goal of including 1,000 patients from 40 sites, and we anticipate the first results from this 5-year study will be available in late 2022. Of note, the prospect registry has been updated to collect data from patients in the 4 to 11 age group. And again, from a clinician perspective, I want to reiterate my excitement that Oxbryta is now available to younger patients. I also heard directly from many of my pediatric hematologist colleagues across the country, letting me know how thrilled they were to have a new treatment option. I believe early intervention is critical for our patients. And this is an important step towards the goal of making sickle cell disease, a well-managed condition. This month we initiated two randomized double-blind placebo-controlled multicenter trials, studying Oxbryta's treatment effect on neurocognitive function in pediatric and adolescent patients and cerebral blood flow in adult and adolescent patients. We believe these studies will further add to the evidence supporting the safety and clinical benefits that Oxbryta can provide. Before I get to the pipeline, I want to quickly touch on our regulatory approval in the European Union. This is an important step in our global expansion plan as we take steps towards the opportunity to reach more than 350,000 sickle cell disease patients around the world over the next several years. As we make progress against this goal, we will continue to explore strategies to bring Oxbryta and future therapies to patients in limited resource geographies, such as Africa and India. Now let's turn to the pipeline. For Inclacumab, our P-selectin inhibitor for reduction of VOCs, we are enrolling patients in our two Phase 3 studies, collectively named THRIVE. One is evaluating the reduction of VOCs over a 48-week treatment period based on Inclacumab's potential for quarterly dosing. We believe this would be a meaningful improvement for patients compared to monthly dosing and aligns well with a typical sickle cell disease practice schedule of quarterly check in. The other Phase 3 study is evaluating the 90-day VOC readmission rates following an initial VOC hospitalization, which tragically occurs in around 50% of patients. This study and opportunity are unique to Inclacumab, further supporting its best-in-class potential. Turning to GBT601, our next generation hemoglobin polymerization inhibitor that we believe has potential to be a best-in-class therapy. We presented compelling proof-of-concept data at ASH as follows. Doses were well tolerated with no safety signals detected. Our target of greater than 30% mean hemoglobin occupancy was achieved with a 100-milligram daily dose. We saw corresponding improvements in hematological parameters and we saw improved red blood cell health as demonstrated by oxygen scan data. We are extremely pleased with these results, particularly regarding GBT601's increased potency. Because of this increased potency, some have raised theoretical concern about impaired oxygen offloading to tissues. On the contrary, the totality of clinical and real-world data suggests improved oxygen delivery with Oxbryta and GBT601. Specifically, GBT601 is more potent than Oxbryta with regards to its anti-polymerization activity and much lower dose requirement, but it's not more potent with regard to oxygen affinity. At the Annual EHA meeting in June, we aim to share more data on these points, including, for example, sickle cell disease patient EPO levels from the GBT601 Phase 1 study. We also aim to share new preclinical data that we believe further supports its safety and efficacy profile. We are on track to initiate a GBT601 Phase 2 study by mid-2022. This study will evaluate daily dose levels intended to achieve higher average hemoglobin occupancy than we saw with the 100-milligram daily dose and our Phase 1 study, and we also plan to dose over a longer period of time. We believe this will lead to higher average occupancy and hemoglobin increases, and importantly, consistently improve the red blood cell health of patients to resemble that of a sickle cell trait individual. We believe this has potential to provide a functional cure in a once-daily pill. Our goal is to present new sickle cell disease patient data from the planned Phase 2 study by end of year. I am so proud of the progress we're making not only expanding access to Oxbryta, but also meaningfully advancing the pipeline. I will now turn it back over to Ted.

[Ted Love:]

Thank you, Kim. In closing, GBT continues its leadership in sickle cell disease and is well-positioned for long-term success. We are entering a period with multiple new growth opportunities for Oxbryta, both in the U.S and internationally. We have a robust pipeline, which we are working aggressively to advance, and we remain laser focused our mission to help patients with sickle cell disease not only by discovering, developing and providing access to new medicines, but also through a variety of initiatives to support the broader SCD community. On this note, we want to bring awareness to an initiative we are working on with GBT's SCD Health Equity Council. We are collaborating to advocate for federal legislation to address the unmet needs of patients by significantly increasing the funding and support for treatment, research and education. The centerpiece would be more federal funding, specifically for SCD treatment centers to improve access to care for patients. I want to thank the Health Equity Council members for their dedication and support to this issue. With that, we will now open the call for questions.

[Operator:]

Thank you. Our first question is from Gregory Renza with RBC Capital Markets. Please proceed with your question.

[Gregory Renza:]

Hey, good afternoon, Ted and team. Thank you for the update today. And thanks for taking my question. Ted, maybe just starting with some of those market dynamics that DJ and Jeff alluded to. I'm just curious if you could comment a little bit further on what you mentioned at the top, which some of the things you can control versus those which you cannot control. Certainly, with Omicron peaking and maybe now on that declining trend, what are your thoughts on some of those recent trends that you've seen as really exemplifying how the early 2022 can look when it comes to return to interactions and also generating this new patient starts?

[Ted Love:]

Hi, Greg, and thanks for the question. Well, I mean, a couple of things that obviously we can control is our messaging. The materials that we're making available for our MSLs, for our representatives, our training and educational materials, those are things -- our DTC campaign. So those are things that we are controlling. And I think we're utilizing very effectively. One of the things we can't control, obviously, is the COVID infections, how they are impacting physicians being moved sometimes completely out of sickle cell care. The rate of decline of patients actually making visits to center, and some of those things as we noted, have been getting better. But obviously, those are things that we have no control over. But again, we're pleased to see that with COVID cases declining, we think those things are showing early signs of improving, and we think will continue to improve.

[Gregory Renza:]

Great. Thank you very much, Ted.

[Operator:]

Thank you. Our next question is from Mark Breidenbach with Oppenheimer. Please proceed with your question.

[Mark Breidenbach:]

Hey, guys, congrats on the quarter and thanks for taking the question. I'm just wondering if you have plans to break out the pediatric launch metrics separately from the adult launch data, or if the numbers are going to be pulled going forward? And also, I guess I'm wondering if there's any potential to see a differentiated or maybe even improved safety profile for the dispersible formulation of Oxbryta relative to the non-dispersible pills. Given that I think it's only really been assessed for PK/PD equivalents and healthy volunteers so far. Thanks for taking the question.

[Ted Love:]

Okay. Mark, thanks for the call. Good to hear your voice. First, with regard to breaking out pediatrics versus adults, we do not plan to break them out. We would break them out if there was a difference, for example, in price that would help you in some way. But we think it's better that we stay on the total enrollment number as a global indicator of product demand and not break it out by age group with respect to the tolerability profile. Now, the tolerability profile of Oxbryta has always been quite good as I've mentioned many times. About the only real signal that we see are occasional rashes, which I don't think we'd expect to be any different as the formulation changes. That's probably a reaction to the actual chemical ingredient itself. The other thing that we've seen is about a 10% increase in diarrhea, or loose stools, which is self-resolving over placebo. And would that be better? It's probably pretty hard to pick up, something going from 10% to 5%. But maybe over time, we would see sometime. I think the bigger issue with kids and Kim can certainly comment on this is kids often don't like taking medicines. And that's something that we're aware of anyone who makes therapies for children is aware of that. And so there does need to be education efforts around getting kids comfortable and happy taking a medicine. Thank you.

[Operator:]

Mark, are you still there?

[Mark Breidenbach:]

Yes, yes. Thank you.

[Ted Love:]

Thanks, Mark.

[Operator:]

Thank you. Our next question is from Raju Prasad with William and Blair. Please proceed with your question.

[Raju Prasad:]

Thanks for taking the question. Just wanted to talk a little bit more, give little more color on the metrics that you provided on kind of new prescriptions and where you see the incremental increases. You mentioned 800 new prescriptions in the fourth quarter and potentially an incremental increase. And then the COVID kind of headwinds kind of going away in the back half of the quarters. Just wanted to see if there's any extra color that you could say. Is there any messaging that's working well with physicians, or is it kind of just COVID subsiding, that's causing kind of these incremental increase as well as kind of the new prescriptions in the fourth quarter? Thanks.

[Ted Love:]

Yes, I think there are a couple of things we can speak to. One is I think Kim might pick up on some of the real-world data, and what you've been hearing. And maybe DJ, you could elaborate a little bit more on some of the late numbers that you've been seeing and why you think they are moving in the direction?

[Kim Smith-Whitley:]

Yes, I think that one of the things that is really obvious to us is that we're still seeing impacts from the COVID-19 pandemic. We know that Omicron surging towards the end of the year or the beginning of the year had an incredible impact on the sickle cell population, with infections in the first part of the year being so frequent that they outnumbered those for the entire calendar year previously in the pediatric population. So, I think that, as Ted mentioned, with staff in the sickle cell community having to be repurposed to go to other areas. So having staff shortages, having impacts on the ability to do in-person and having to switch to telehealth, really greatly impacted. And I'm hoping that will come out of this as Omicron continues to subside.

[Ted Love:]

And maybe Kim, you could mention the reaction to the real-world data that you've been hearing.

[Kim Smith-Whitley:]

Yes, I think that the real-world evidence is really resonating with the pediatric and the adult sickle cell community. We know that we had really impressive data at ASH with our Symphony's claims data that showed we had decrease in pain, all cause hospitalizations decrease in medication use such as opioids and chelation therapy as well as a decrease in transfusion. I think that alongside some of the compelling evidence for protecting the kidneys, and mouse models and most recently published in humans, also is resonating with the sickle cell community.

[David Johnson:]

And I'll just add a couple of things. Q4 was kind of bookend by the two surges. The beginning of Q4 had the Delta surge, the end of Q4 started in the Omicron surge. And then we had the two holidays as well. So that all kind of took its toll in Q4. Now, the Omicron surge really haven't really shown its impact until the beginning of Q1, we had the highest infection rates in the country in December and January, and the highest hospitalization rates in January. So, it did have some impact in Q1. That said, the reason we have optimism about this quarter and this year is it's all the totality of tactics we've rolled out, that we spoke about. We now have a track record with the DTC campaign and seeing the impact with that. We have the CoverMyMeds program that we started last year, and we're seeing good metrics on that. And then of course, we have the pediatric launch, that it's on its way, now it's early, but it's on its way and we're already seeing prescriptions written and coverage and that sort of thing. So, all of those things give us confidence in the demand picture going forward. And you have to take into account things like inventory at the end of the year when you think about revenues in Q1, but from a demand perspective that's why we have some confidence as Omicron has started to go down and these other programs have started to kick in. It's looking good from that perspective.

[Raju Prasad:]

Great. Thank you.

[Operator:]

Thank you. Our next question is from Alethia Young with Cantor Fitzgerald. Please proceed with your question.

[Alethia Young:]

Hey, guys, thanks for Taking my questions. Congrats on the progress. I wanted to ask a little bit about Europe. Obviously, probably the core countries Germany and United Kingdom, can you just talk a little bit about like the market dynamics there? I mean, I'm assuming the prevalence maybe a little lower, but how do you think about the cadence in those particular early-stage countries versus what you saw in the United States? Thanks.

[Ted Love:]

Hi, Alethia. It's good to hear your voice. /So, as you know, Alethia, the first country that you typically launched in Germany is because, like the U.S., you have pre-pricing available in Germany for the first year. So, Germany will be the first country that we launch in, given the approval. We don't have a specific date yet, but we are obviously working feverishly to make that happen. The other two countries and the countries where the majority of sickle cell patients reside, as you know, are France and the U.K. And in those two countries, after the regulatory approval, you have to get pricing approval, and that process can take typically anywhere from 6 to 12 months. So, it really won't be until 2023 that we began to get revenue from the two geographies with the vast majority of the sickle cell patients.

[Alethia Young:]

Is there anything in particular about like countries and like the cadence and how they're treated that would affect the Oxbryta launch?

[Ted Love:]

I defer to DJ. Anything you want to add to that?

[David Johnson:]

No, I mean, there's nuances in every market. I mean, the good news, it's very similar to the U.S in terms of -- it's a very concentrated group of patients. The 17 states make up the majority of patients in the U.S., while in France, and in the U.K., they're centralized in certain cities like Paris and London in particular. So that does help our footprint, which we've already established in those key markets to be very concentrated and focused in terms of our educational efforts, which is -- which are underway currently.

[Alethia Young:]

Thanks so much.

[Operator:]

Thank you. Our next question is from Akash Tewari with Jefferies. Please proceed with your question.

[Akash Tewari:]

Hey, guys. So, look, this is more of a holistic question. But any color on why you didn't guide for Oxbryta in 2022, or perhaps give mid to long-term guidance for this product? COVID cases are back to pre-Omicron levels and several companies have guided in 2022, while pointing out that if COVID returns, then their guidance is moot. So curious why the company didn't take that approach today. And I guess maybe on the pipeline, if we were to longitudinally follow the hemoglobin levels for the patients treated on 601 at ASH, did we see any signs of hemoglobin levels continuing to increase even after 2 weeks on the drug. And is there any possibility that for 601, the hemoglobin data could get better over time? And if so, when would we be getting any updated 601 data on that original proof-of-concept trial that we showed that was presented at ASH? Thank you.

[Ted Love:]

So, maybe I will ask Jeff to take the guidance questions. And Kim, you will take on the 601 questions.

[Jeff Farrow:]

Sure. Hi, Akash. We did actually consider at this call about potentially giving some guidance, but reflecting on history with COVID, there was just too much uncertainty. I don't think people were anticipating Delta happening and the fall of last year, and certainly Omicron wasn't on the cards looking back in January. But that doesn't preclude us from potentially doing something in the following quarter. If we do think that we are on a clear pathway, there is the potential that we could give say, 9 months worth of guidance for year-end for both OpEx as well as revenue. So that's not off the cards in the near-term and it's, frankly, our preference is to be able to do something like that.

[Kim Smith-Whitley:]

Hi, Akash. And then for the proof-of-concept data, I was just going to start with the Phase 1. We would theoretically say that you may see improvements in hemoglobin over time, that's going to require doing longer period of follow-up on 601, hopefully, in our Phase 2 study. But theoretically, you may see increases over time. I want to say that we hope to have incremental data available at EHA, maybe some EPO levels on that initial cohort. And then later in the year, hoping to have more information -- new information on individuals with sickle cell disease.

[Akash Tewari:]

Thanks so much.

[Operator:]

Thank you. Our next question is from Danielle Brill with Raymond James. Please proceed with your question.

[Danielle Brill:]

Hi, guys. Good afternoon. Thanks so much for the question. I guess, I'm just wondering if you could maybe quantify a bit more NRx expectations for 1Q. I know you said incremental, but can you give us a sense of range? And then how many NRx have you gotten for pediatric so far? And was there any contribution from those -- from peds in 4Q? Thank you.

[Ted Love:]

Hi, Danielle. This is Ted. Good to hear your voice. I will defer to DJ to elaborate, but I suspect the reason he said incremental is that he wanted to have some latitude and not be too specific. And I think with regard to breaking the numbers out, it's been the plan Danielle to just report a single number, and that reflects overall demand and not break it out by age Group. But DJ, please feel free to add.

[David Johnson:]

Yes. I mean this may be unsatisfying. It's just early days, right? So, we're just at the beginning of this launch. The metrics we do have in hand that are promising that we talked about in the script, which are the awareness of the new dosage form is very, very high with our target audience, specifically the pediatric hematologists. So, they've been anticipating and are now well aware of the approval in rapid time. So, we did that survey just 2 -- 3 weeks into launch in January. So, we feel really good about that. We are getting enrollments mostly really starting in January. No appreciative enrollments would be expected in because we got approval right before the holidays there. And we had -- to be honest, we needed some time to get it into the channel into the pharmacy. So really starting in January is when we started to see the enrollment. And we will be looking at those over time. Everything is going according to plan is what I could say at this point.

[Danielle Brill:]

Thanks. Thanks, DJ.

[Operator:]

Thank you. Our next question is from Paul Choi with Goldman Sachs. Please proceed with your question.

[Paul Choi:]

Hi. Good afternoon, everyone and thanks for taking our questions. I wanted to revisit the Q1 guidance for a moment here and the range that you provided. And just given what seems like a positive exit -- exiting commentary here coming out of Q4 and midway through Q1. Is the range here, which seems conservative to me, primarily reflecting the COVID headwinds that you spoke to about in January? Or are there additional factors that you would call out, such as you mentioned 340B as being part of the mix that you expect to abate over the course of Q1. And then how are you thinking about the contribution from those factors over the course -- over the remainder of '22? Thank you very much.

[Jeff Farrow:]

Yes. Hi, Paul. This is Jeff. We do think these dynamics are somewhat unique to Q1. We did see last year, if you remember, some impact also related to the inventory buildup. We saw that and anticipate that again here for Q1. The other aspect is the gross to net, which you mentioned. The co-pays reset, we typically see a higher co-pay assistance which reduces our -- or increases our gross to net. That should subside in the subsequent quarters, but we will start to see over time to probably around the 25% gross to net probably by middle of next year, but it should spike a little bit in the first quarter. The other aspect is the early impact of Omicron in the first part of the quarter here. We have seen that sort of taper down in the second quarter, and we certainly hope that we are through this sort of continual variants that come around here. And if that's the case, we would expect growth. We do think it's probably going to build up more in the second half of the year. just typically, what happens is these patients come in for a wellness visit and then perhaps on the second visit, these patients get offered Oxbryta over some other therapy for sickle cell. So that's why we are guiding to the second part. The other aspect of seeing an increase in the second half of the year is we expect really robust coverage on the pediatric side by the middle of the year. So that would also add to further growth in the second half of the year.

[Paul Choi:]

Great. Thanks for the additional details, Jeff. I will hop back in queue.

[Operator:]

Thank you. Our next question is from Jason Gerberry with Bank of America. Please proceed with your question.

[Jason Gerberry:]

Hey, guys. Thanks for taking my questions. Just following up on the Phase 2 plan for 601, curious if there's any latest thoughts as it pertains to trial design. I’m not sure if the sort of slight time line shift was -- is there any FDA interaction? Are you thinking about this as a Phase 2/Phase 3 or more of a midsized dose-ranging Phase 2 with the placebo arm? And just a point of clarification on what we will get at EHA. My understanding is those patients that were dosed 3 weeks post their washout period, that was the extent of getting 601 treatment, not extended treatment. So, when you give us the EPO data for those patients, will it only be sort of for the post 3-week washout period of treatment, just curious. Thanks.

[Ted Love:]

Kim, do you want to take that?

[Kim Smith-Whitley:]

Sure. Hi, Jason. I'm going to start with the latter part of your question about the EPO levels. And I think that we will have -- remember 2 phases from the MAD 1 and MAD 2. So, we should have some indication for greater than 2 to 3 weeks because for the MAD 1 part of the study, we had a longer treatment period. So, I do anticipate that we will have EPO levels reflecting longer than 3 weeks on 601. For the plans for the further development of 601, remember that we still have to finalize the protocol. We are working on a very thoughtful yet comprehensive protocol and that we need to set up a meeting with FDA in order to present our plans. Once we have those two things accomplished, I think that we can anticipate steady initiation midyear this year in 2022. I think that when you think about what our goals are, we continue to be very thoughtful because we’ve the potential of getting to a good therapeutic level of hemoglobin occupancy on a relatively low dose in a single once-daily pill.

[Jason Gerberry:]

Okay.

[Operator:]

Thank you. Our next question is from Joon Lee with Truist Securities. Please proceed with your question.

[Joon Lee:]

Hi. Thanks for taking our questions and for the update. Can you talk a little bit about the Phase 3b trial you initiated this month looking at the neurocognitive improvement? What's the objective of this study given you already have real-world data from the Symphony Health supporting clinical benefit profile? And also, the steady duration of 12 weeks, how feasible do you think it is to see a positive improvement in such a short period of time? And what is the powering assumption of this? Thank you.

[Kim Smith-Whitley:]

Hey, Joon. Thank you for those thoughtful questions. That study is an 8 to 18-year-olds, and it's specifically focusing on executive functioning through the NIH toolkit. I agree that 12 weeks is a short period of time. But as you know, for executive functioning, that’s more than enough time to be able to see an improvement. This goes along the lines of what we see in real world with Oxbryta use with an improvement and overall well-being pretty shortly after initiation of Oxbryta. So, the goal is to really look at Delta and executive functioning over that 12-week period, but in a group -- a young group of children and adolescents where we know that we’ve seen changes in executive function and other studies prior.

[Operator:]

Joon, are you there?

[Joon Lee:]

Yes, yes. Thank you so much.

[Operator:]

Thank you. Our next question is from Ritu Baral with Cowen. Please proceed with your question.

[Ritu Baral:]

Hi, guys. Good afternoon. Thanks for taking the question. I wanted to just follow-up on the NRxs for the next quarter. You guys mentioned that you expect incremental -- an incremental increase in Q1 and hopefully more in Q2. Should we -- is it reasonable to expect that the NRxs should be back to approaching about the 1,000 level that you guys had seen last year and the year before, especially for Q1. And then -- what do you think will happen with compliance and dropout rates going forward as physician interactions increase, both from the sales force and patients and clinician interactions. Do you think that you could also see reductions in dropouts more a better take, so to speak, of all the programs that you have to improve compliance and persistence? Thanks.

[Ted Love:]

DJ, do you want to take that? Hi, Ritu.

[David Johnson:]

Sure.

[Ritu Baral:]

Hi.

[David Johnson:]

Yes, Ritu, we -- yes, it's early and we don’t have any data to report here on Q1 yet. We are just signaling that we did see Omicron spike and then go down in Q1. So, while it had an impact on the beginning of January, as you might expect, we don’t think that’s going to be a long lived throughout the quarter. So that gives us some optimism because we have all these other things as tailwinds helping us namely the pediatric approval as well as these programs becoming much more mature and having an impact as well. Things like the DTC campaign, for example, we are seeing big spikes in patients seeking education on our websites, on our social media campaigns and that sort of thing. So, all of these things are pointing in the right direction if we can just get past these Omicron spikes. So, we're optimistic because the spike is over or coming down. So that gives you an idea of why we think we can certainly do better than Q4. Q4 also has the headwind of the two holidays. So that’s another reason why we might expect demand to be higher in Q1 as well. In terms of adherence rates, yes, we look at that very closely as a chronic therapy, that’s something we are always going to focus on and always going to work on we’ve seen it stabilize. Q4 was no different than what we’ve reported before, which is a stabilization, consistent with the analogs within a range that we think is common, but we are not satisfied. So -- we do think some of the new programs will have an impact over time. We are really excited about our ability to do proactive communications, outbound and inbound communications via text, the e-mail through our SP partnerships and GBT Source Solutions our access navigators in the field, being able to proactively reach out directly to patients in certain situations and walk them through the support process. All of these things were initiated last year, we think they will have an impact on adherence going forward.

[Ritu Baral:]

Got it. And if I could squeeze one last in. You mentioned some denials in pediatric -- in pediatric coverage and some negative prior , administrative in nature. Could you just elaborate on that? Thanks.

[David Johnson:]

Sure. Yes, this is just around the kind of the part and parcel with launching a new product. We had similar things happen when we -- in our first launch 2 years ago, and that is in the very beginning until the payers formally add it to formulary, they oftentimes will reject the first prescription that comes in because it's not in their system yet. And they require a follow-up either an appeals process, a secondary prior authorization as well as education from our strategic account team, which we are very actively engaged with the payers right now. So, we are getting them paid for oftentimes through a denial process and an appeals process, but that’s what you would expect in the early days. It does take us some time to get around and get all the meetings on the books for them to have a formal formulary decision. We expect that to go smoothly by the way. And that’s why we are optimistic we can do even better than we did last time.

[Ritu Baral:]

Got it. Thanks for taking the questions.

[Operator:]

Our next question is from Yanan Zhu with Wells Fargo Securities. Please proceed with your question.

[Yanan Zhu:]

Thanks for all the update and thanks for taking our questions. We just have a question on 601. So, I think -- so I was wondering in terms of trial design, it sounds like you're still working on it. Would you contemplate a comparator arm with Oxbryta? And also, can please correct me if I heard this wrong, I thought you said data from this Phase 2 study can be expected by year-end -- initial data by year-end. If I heard that correctly, what kind of follow-up with those data be? And what are some of the major end points? I know hemoglobin level is probably one, but what other metrics are you -- will you be looking at to analyze the potential for the drug? Thanks.

[Kim Smith-Whitley:]

Thank you for that question. I think that comparator arm with Oxbryta is an interesting thought. However, we really were planning on really looking at the mechanism of action and the potency of one of our sickle hemoglobin polymerization inhibitor. So, I wanted to really focus on 601 here as we continue to gather real-world evidence on Oxbryta. I think that your questions regarding the Phase 2 data are spot on. We are really looking to provide new information on individuals with sickle cell disease receiving 601 for a longer period of time. This will include, of course, the usual hemoglobin occupancy, the hematological parameters, but of course, hoping to get some early signals on other clinical endpoints. If 601 does what we want it to do, we should be able to provide hemoglobin modification to higher levels more consistently using a lower dose. And this gives us the opportunity to really consider clinical end points, including pain and other things that have been signals that we’ve detected in our real-world evidence.

[Yanan Zhu:]

Great. Thanks for the color. Appreciate it.

[Operator:]

Thank you. Our next question is from Yatin Suneja with Guggenheim Partners. Please proceed with your question.

[Yatin Suneja:]

Just a couple of questions for me. Can you just talk about how are you guys thinking about breakeven or achieving profitability? When can it be achieved, or what level of sales it can be achieved? Can you also talk about the optimal capital structure? I mean, I think you have close to $600 million in debt now. So just thinking about the capital requirements in the future. And then finally, if you can comment on the EU dynamic. You mentioned de minimis contribution in 2022. What does that mean? Is it like $1 million, $5 million, $15 million? Can you just comment there? Thanks.

[Ted Love:]

Hi, Yatin. We will ask Jeff to take that, all three.

[Jeff Farrow:]

Hey, Yatin. Yes, we ended the year with about $735 million in cash and cash equivalents, which I think puts us in a good place. We haven’t given any specific guidance on time to break even or revenue thresholds at this point. I think we really need to see how the pandemic plays out here. Obviously, revenues can have a big impact on that. But what we can say is that our balance sheet is it's sufficient to meet our goals here and these are long-term goals of launching in Europe, also making sure we have enough capital to complete the two Phase 3 inclacumab studies and into registration as well as 601 moving that into pivotal studies and seeing a data read out there. So, in totality, we think that our balance sheet is sufficient for us to be able to achieve those. And I think down the road, we look to be in a position to provide more guidance both on top line revenues as well as expected time to profitability.

[Operator:]

Yatin, does that answer your question?

[Yatin Suneja:]

Yes. Thank you.

[Operator:]

Thank you. Our next question is from Tessa Romero with J.P. Morgan. Please proceed with your question.

[Tessa Romero:]

Hey, thanks guys so much for taking the question. I think DJ gave an updated total prescriber number in his remarks. What are your expectations for growing the prescriber base for Oxbryta this year? And how do you think further penetration of existing prescribers versus adding new prescribers might play out in the year ahead? Thanks so much.

[Ted Love:]

Yes. Tessa, thanks for the question. You're right. We announced that we're closing in on 2,000 unique prescribers throughout the U.S. We call on about 4,500 in our target list. So, as you can imagine, we still have a significant amount of prescribers to continue to educate and get started on Oxbryta. So, we have growth potential there. The penetration of the patients within the prescribers, our highest decile physicians with the most patients, they have an even higher rate of adoption. Almost 60% of them have written a prescription for Oxbryta. So, the ones that are most experienced certainly have the most experience with Oxbryta as well, and that makes sense. That’s where we spend a lot of our time with those physicians. But now we are calling on primary care doctors, nurse practitioners that also care for patients as well to grow Oxbryta going forward. We do think Oxbryta's new indication in pediatric down to 4 years old, does create a new opportunity. We added about 200 new prescribers to our target list that were not on there before. So that’s just another group of physicians to get introduced Oxbryta throughout this year.

[Tessa Romero:]

Okay, great. Thanks so much for taking our question.

[Operator:]

Thank you. Our final question is from Ben Burnett with Stifel. Please proceed with your question.

[Benjamin Burnett:]

Hey. Thank you very much. I have a question around 601 and inflammation. Kim, I appreciate the comments in the prepared remarks around some of the oxygen release points. But I guess inflammation is another thing that comes up. And I would just ask, based on what you’ve seen so far with 601 and also Oxbryta, can you just talk about the time frame that you might expect inflammation to resolve with the drug such as 601?

[Kim Smith-Whitley:]

Thanks for the question, Ben. I think this is really an opportunity for us to think about this more. And what we’ve seen in real-world evidence and long-term follow-up is as Oxbryta improves the red cell help by its primary mechanism with hemoglobin modification, we really see over time that pain episodes start to decrease. And as you know, a lot of what stimulates pain is that steady state inflammation in individuals living with sickle cell. So, I theorized that what may be happening over time is that because Oxbryta is acting upstream on the root cause, it takes a little while for those downstream hemolysis-related inflammatory endpoints to start to change. And so, I believe that this will be further explored in Oxbryta studies either the externally sponsored or some of our internal studies and we are definitely planning on looking at this parameter with 601.

[Ted Love:]

Yes. And I would just say -- just add, if you look at the actual HOPE VLC data, you begin to see the curves begin to separate after probably about 4 to 6 weeks and they continue to separate over the period of treatment. So, I think that it does take some time, as Kim said, and that’s something that we will obviously be looking at with 601.

[Benjamin Burnett:]

Okay. I appreciate the color. Thank you.

[Operator:]

Thank you. Dr. Love, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

[Ted Love:]

Well, thank you, and I would like to thank everyone for joining our call today. We continue to hope that you all stay safe and healthy and we want to extend a welcome to you to reach out if you have any additional questions.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.