Sarepta Therapeutics, Inc. (SRPT) Q2 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Sarepta Therapeutics Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Latter, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder this conference is being recorded. I would now like to hand the floor over to Ian Estepan Executive Director of Corporate Affairs. Please go ahead, sir.

Thank you, Karen, and thank you all for joining today’s call. Earlier today we released our financial results for the second quarter of 2017. The press release is available on our website at www.sarepta.com, and our earnings 8-K was filed earlier this afternoon. Joining me on the call today are Doug Ingram, Ed Kay, Sandy Mahatme and Bo Cumbo. After our formal remarks, we will open up the call for Q&A. I’d like to note that during this call, we’ll be making a number of forward-looking statements. Please take a moment to review our slide on the webcast, which contains our forward-looking statements. These forward-looking statements involve risks and uncertainties, many of which are beyond Sarepta Therapeutics control. Actual results could materially differ from these forward-looking statements as any and such risks can materially and adversely affect the business, results of operations and the trading price of Sarepta Therapeutics common stock. For a detailed description of applicable risks and uncertainties, we encourage you to review the company’s most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K, filed with the Securities and Exchange Commission, as well as the company’s other SEC filings. We plan to file the 10-Q for the second quarter of 2017 by the SEC required filing deadline in August. The company does not undertake any obligation to publicly update its forward-looking statements, including any financial projections provided today based on subsequent events or circumstances. And with that, let me turn the call over to Ed to provide an overview of our recent progress. Ed?

Thank you, Ian. Good afternoon, everyone. We appreciate you joining us for Sarepta Therapeutics second quarter 2017 financial results and the corporate update call. Before we begin our formal remarks, I would like to introduce Doug Ingram, Sarepta Therapeutics’ new President and Chief Executive Officer. The Board of Directors searched for CEO, who can help transform Sarepta into a leading global biotechnology company. As a member of the executive search committee, I’m confident that we have selected the right leader in Doug to build upon our success and to drive value for the company going forward. I look forward to working with Doug as he leads Sarepta through the next phase of development, doing my part to support a seamless transition and continuing to serve as a member of the Board of Directors. With that, I would like to turn the call over to Doug. Doug?

Thanks, Ed. Before I comment, I would like to take a moment to thank, Ed, on behalf of Sarepta and on behalf of its Board. We would not be in a position to announce what I believe a very positive result today without Ed’s tireless commitment to Sarepta and to providing hope to children with DMD and their families. So with that, good afternoon, and I’m very excited to have my first earnings call, as you know, as the new CEO of Sarepta. I’m particularly excited to join Sarepta at this compelling strategic inflection point. As our collection of recent announcements show, we have clearly established ourselves as the leader in DMD with a continuing successful U.S. launch of EXONDYS 51, a first of its kind therapy, a deep pipeline of candidates to treat patients with DMD, and ongoing execution of our strategic vision upon which we are building a global biopharmaceutical company, dedicated to improving the lives of those suffering from rare neuromuscular disorders. As we announced yesterday, we have secured a worldwide settlement with BioMarin, resolving our intellectual property disputes on favorable terms. This settlement and license grants us broad global freedom to operate for our Exon skipping compounds. It gives us access to two patent estates. It permits us to confidently execute our worldwide strategic plans, and it allows us to focus our time and our resources not on legal issues and legal disputes, but rather on launching our therapies worldwide and continuing to develop our deep pipeline to best serve patients around the world. To that very point, following the resolution of the patent dispute, this morning, we announced the launch of our Managed Access Program through which eligible patients in certain countries outside of the United States gain access to eteplirsen through their physician. A Managed Access Program or MAP provides access to medicines to named patients at the request of their physicians before those medicines are commercially available. This program is available for patients with DMD who are amenable to exon 51 skipping and who also meet other predefined eligible – eligibility criteria. We will execute our MAP in a measured way to ensure a smooth and successful roll out of the program. We plan to expand the program to include more countries over time, and we anticipate that it will begin to generate modest revenue late in Q4 2017. Bo will provide additional details about our MAP later on this call. Finally, coming back to the United States. Our launch of EXONDYS 51 continues to progress extremely well. As you have seen from our earnings release, second quarter net revenue for EXONDYS 51 was approximately $35 million, significantly above analyst expectations. As physicians gain experience with EXONDYS 51, we anticipate continued progress over the remainder of the year. Accordingly, as you’ve seen on the release, we are once again raising our guidance for the full-year from our prior guidance of exceeding $95 million to our updated guidance range of $125 million to $130 million. Sandy will provide additional color on our financial performance in a moment. Now, the great work that has been accomplished in this quarter has set a foundation on which we – which our strategic plan can with operational excellence be aggressively built. Our goals are ambitious. We intend to extend our global leadership in DMD and we intend to become a substantial global leader in rare neuromuscular disorders. Towards that goal, I and the rest of my colleagues at Sarepta are fully committed to supporting the success of EXONDYS 51 across the globe and rapidly advancing our clinical pipeline, and in particular the potential for our next-generation PPMO platform about which I’m very excited. Although, we have made tremendous progress this quarter, we recognize as a group that the development of our pipeline with urgency is critical, because we are well aware as you are, there are many patients still waiting for treatment options. With that, I’d like to turn the call back to Ed for a clinical and regulatory update. Ed?

Thanks, Doug. Continuing with Doug’s theme of global expansion, I will now provide an update on our marketing authorization application, the MAA that’s currently being reviewed by the European Medicines Agency. On our last quarterly conference call, we reported that we received initial feedback from the agency on our application and have requested a six-month clock stop. During this time, we’ve been collecting additional data from existing studies completing additional analysis to support the application and remain on track to provide the results of the required ADME study to the agency. As previously reported, we anticipate that the review of the application by the CHMP should be complete by the first-half of 2018. We’ve also been in discussions with the FDA on two clinical post-marketing commitments. The first, a high-dose study of EXONDYS 51, and the second a high-dose two-year placebo-controlled study for patients amenable to skipping Exon 45 and 53. These discussions have resulted in the Agency releasing us from conducting the Exon 45, 53 study. We are continuing to have discussions on the EXONDYS 51 study. We remain in compliance with the agency and will provide an update when we finalize protocol for the EXONDYS 51 study. Turning to the clinical development programs, we believe many of the remaining catalysts for the year will involve our clinical pipeline. As Doug alluded to in his opening remarks, we’re excited about the potential for our next-generation PPMO class of chemistry that we are developing. As a reminder, PPMO is a specifically designed cell penetrating peptide added on to the PMO backbone with the goal of increasing tissue penetration, which leads to greater exon skipping efficiency and dystrophin production and could result in a better efficiency and less frequent dosing for patients. We have previously presented data in the MDX mouse model that revealed that a single dose of PPMO produces 10 to 30-fold more dystrophin protein than a single dose of PMO in skeletal and cardiac muscle respectively. I would now like to focus your attention on the PMO exon skipping platform. We are currently analyzing dystrophin samples from our 4053-101 study, a European Phase II study for patients with DMD who are amenable to skipping exon 53. The analysis will include pre and post-treatment biopsies at week 48. We will be measuring exon skipping and dystrophin production via RT-PCR, immunofluorescence signal intensity, present dystrophin positive fibers, and finally western blot. We believe this comprehensive approach will allow us to accurately measure the quantity and the location of the dystrophin produced by our exon skipping agents. We plan on presenting the results of the study at an upcoming medical meeting or scientific conference in the fourth quarter. I will conclude the clinical pipeline overview by reviewing the ESSENCE study. ESSENCE is a global randomized, double-blind, placebo-controlled study evaluating patients amenable to skipping exon 45 and 53, which make up an additional 16% of boys with DMD. In May, the FDA allowed the use of indwelling central venous access devices in the ESSENCE study, which I believe will help with long-term compliance. The first patient at a European site was screened last quarter and we are continuing to actively open new sites in this region. We plan to complete enrollment in our ESSENCE study by year-end 2017. We continue to develop the most comprehensive approach to treating DMD by investing in external partnerships. When evaluating potential partnerships, we believe that it’s critical from a development standpoint to find novel approaches that treat the underlying cause of the disease and to be first in the clinic. We’re pleased that both of our gene therapy programs partnered with Nationwide Children’s Hospital meet these criteria. Jerry Mendell and Dr. Louise Rodino-Klapac are co-inventors of the micro dystrophin program. In preclinical studies, systemic delivery of the concert resulted in high levels of gene expression in skeletal and most importantly, cardiac muscle. The program will enter the clinic as a Phase I/IIa trial in the fall, it will be conducted at Nationwide Children’s Hospital. More information about this study will become available over the coming months. Sarepta and PPMD are co-founding the early development of this program. Upon obtaining Phase I results, Sarepta will have the exclusive option to enter into a global commercial development license. Sarepta also has an exclusive license agreement with Nationwide Children’s Hospital for Galgt2 gene therapy, which was developed by researcher, Paul Martin. The program explores the potential surrogate gene therapy approach to treat DMD. This approach targets the dystroglycan complex to preserve muscle function. Galgt2 has the potential to treat patients of all ages, disease severity and to address several types of muscular dystrophies. Kevin Flanigan is the Principal Investigator leading the clinical trial, which is expected to begin this fall. Our collaboration with Summit Therapeutics focuses on utrophin modulation. This technology has the potential to help all patients with DMD. PhaseOut DMD is a Phase II proof-of-concept clinical trial of the utrophin modulator, ezutromid. Summit recently announced enroll that enrollment is complete and that the 24-week data from the study are expected in the first quarter of 2018, and the 48-week data are expected in the third quarter of 2018. Lastly, in June, we signed a collaboration with Genethon, a nonprofit research and development organization dedicated to the development of biotherapies for orphan genetic diseases from research to clinical validation. Genethon employs one of the largest research and clinical groups in the world, working to advance rare disease therapies and is affiliated with Europe’s largest TCMP vector manufacturing facility. Under the terms of the research collaboration, Sarepta and Genethon will jointly develop treatments for DMD. Genethon’s micro-dystrophin gene therapy approach, which can target the majority of patients with DMD has demonstrated robust gene expression in a large animal model. Genethon will be responsible for the early development work and Sarepta has the option to co-develop the program, which includes exclusive U.S. commercial rights. Our mission is to treat as many patients with DMD as possible, and I believe we have made a significant advancement towards the goal – for this goal in the second quarter. We remain on track to have potentially seven candidates in the clinic by year-end. Now, I’d like to turn the call over to Sandy for an update on our financials for the second quarter of 2017. Sandy?

Thanks, Ed. Good afternoon, everyone. We’re pleased to report that based on continued progress with the launch, we have generated net revenues of $35 million of EXONDYS 51 sales in the second quarter of 2017. During the last week of the quarter, we observed a change in the ordering patterns likely due to the 4th of July holiday that pulled forward approximately $2 million of revenue from the third quarter into the second quarter. Based on the commercial trends during the quarter, we have more comfort in the launch curve. As a result, we are raising our net revenue guidance for the year to a range of $125 million to $130 million. Our guidance only includes sales generated in the U.S. and does not include any potential sales from our Managed Access Program overseas. We expect to start generating a small amount of revenue from this program late in the fourth quarter. We are quite pleased with how the launch is progressing our Q2 achievements and believe that we’re well positioned for future growth. Now moving to the financials. This afternoon’s press release provided details for the second quarter 2017 in both an adjusted or a non-GAAP basis, as well as a GAAP basis. The press release is available on the SEC and company website. The non-GAAP results we will discuss on this call provide a more accurate picture of ongoing operations and the impact of operations on our cash balance and they exclude restructuring and stock compensation expenses. Please refer to our press release for a full reconciliation of GAAP and non-GAAP. In the second quarter of 2017, we reported an adjusted our non-GAAP net loss of $25.3 million, or $0.46 per share compared to non-GAAP net loss of $54.8 million, or $1.19 per share in the second quarter of 2016. The decrease is due to product sales of EXONDYS 51, lower manufacturing expenses due to the capitalization of inventory upon the approval of EXONDYS 51, offset by increased professional services, primarily due to increased legal fees and commercial initiatives. Revenue for the second quarter of 2017 was $35 million. No revenue was recognized in the second quarter of 2016. Adjusted non-GAAP research and development expenses were $34.6 million for the second quarter of 2017, compared to $41.4 million in the second quarter of 2016, a decrease of $6.8 million. The decrease is due to lower manufacturing expenses due to the capitalization of inventory upon the approval of EXONDYS 51, offset in part by increased patient enrollment in our ongoing clinical trials and through preclinical expenses the ramp-up of preclinical studies in PPMO and other follow-on exons. Adjusted non-GAAP selling, general and administrative expenses were $25.4 million for the second quarter of 2017, compared to $13.2 million in the second quarter of 2016, an increase of $12.2 million due to increased professional services, legal fees, commercial initiatives, compensation and other personnel expenses. Turning to our quarter-over-quarter cash spend. We spent $89.5 million in the second quarter. Docking out the one-time milestone payment of Summit Therapeutics, the cash spend for the second quarter was $67.5 million compared to the first quarter cash spend of $63.4 million. We had approximately $301.7 million in cash, cash equivalents, restricted cash and investments at the end of the second quarter. In addition, we have prepaid approximately $23.7 million towards the 2017 and 2018 manufacturing expenses. Yesterday, we announced an expanded and extended credit facility with MidCap Financial. national. This provides us access to an additional source of funding and carries a low cost of capital. We are committed to maintaining a strong balance sheet in the near and long-term as we continue to invest in R&D, manufacturing and global expansion. To conclude, I would like to spend a moment discussing our cost of goods sold, or COGS, as it relates to the BioMarin patent settlement agreement. As a reminder, we indicated that we will be selling low cost products that have been previously expensed through the first quarter of 2018. Once this low cost period is over, we anticipate that our COGS as a percentage of revenue will be in the low teens. A potential royalty was already factored into this prior guidance. Therefore, our guidance in COGS remains unchanged after the BioMarin deal. We’re pleased with the way the business is trending and we are very well positioned going into the second-half of next – second-half of this year. With that, I’d like to turn the call over to Bo for a commercial update.

Thank you, Sandy. Good afternoon, everyone. We remain confident in our ability to execute a successful launch for EXONDYS 51, as evidenced by the strength of the second quarter earnings and our updated net revenue guidance for the first full-year of launch. Our assumptions of the market size have not changed since launch. The team has done a good job ensuring physicians understand the importance of identifying and starting their patients on EXONDYS 51. This has resulted in increased market penetration, a continued flow of start forms and new patients adds every week. We expect this trend to continue as prescribers around the country identify additional patients through genetic testing and search their medical records in the clinic. Patient demographics have remained fairly consistent throughout the launch. The mix of patients on commercial and Medicaid plans remained approximately 60-40. We do not expect drastic changes in the mix of patients going forward. The average age of patients currently on therapy has held steady between 14 and 15 years of age, which indicates both ambulatory and non-ambulatory patients are obtaining access to EXONDYS 51. However, we have seen a large percentage increase in start forms from the first quarter of the year for the zero to four and five to nine age groups, respectively, followed by the 10 to 14 age group, which could predict the average age of patients on therapy trending down over time. From a compliance and persistence perspective, we have previously reported that approximately 40% to 50% of patients opted to have ports placed prior to their first infusion. Based on discussion with physicians, we expect this trend to continue. Although port placements initially slowdown the time to first infusion, we believe this leads to a better experience for the patient and better long-term compliance. Although we are still relatively early in the launch, we are seeing high compliance rates and minimal discontinuations at this point in time. From a managed care standpoint, reauthorizations are a standard part of the reimbursement process and we have not observed that major impact on persistence rates to-date. We believe our operational preparedness has supported this successful launch. Since approval, we’ve had over 4,500 healthcare provider interactions and over 280 institutional in services for outpatient clinics. While 100% of Tier 1 centers and 96% of Tier 2 centers have submitted start forms, we continue to see an increase in the number of new prescribers from our Tier 3 sites. At the end of the second quarter, more than 150 physicians have submitted the start form for EXONDYS 51. We believe that the increase in market penetration will contribute to the overall success of the U.S. launch. From a national account perspective, we had discussions with plans that represent greater than 260 million commercial and Medicaid covered lives. 77% of these accounts have requested additional medical discussions, and we continue to make progress with payers across the country. We believe payers have a much better understanding of the disease. The number of patients eligible for treatment under their plan and the patients who would most likely benefit from EXONDYS 51. We have previously highlighted that educating physicians, healthcare providers and DMD families about the importance of genetic testing would be critical for a successful launch. As discussed briefly before, we are continuing to see an increased rate of genetic testing and an urgency in many accounts to identify and test any patient who does not have one. As a result of this genetic testing, a greater number of physicians now know which patients have mutations that are amenable to skipping Exon 51. The deco Duchenne partnership with PPMD and Emory continues to see an increase in genetic testing, with more than 650 total applications submitted from approximately 250 providers since the beginning of the program. Our combined websites of sarepta.com, duchenne.com and exondys51.com have generated over 38,000 visits since launch. Duchenne.com, our unbranded disease education website for patients has generated over 18,000 visits in which greater than 1,300 Exon dilution tool searches were performed since December 2016. We have also had hundreds of genetic mutation worksheets downloaded as well. All of these efforts have led to newly diagnosed patients nationwide. We feel our educational efforts will continue to lead the way and increase genetic testing diagnosis and treatment, which will support the launch for the remainder of the year. We also believe these efforts will support enrollment in our – in all of our ongoing and future clinical trials. One of our goals is to maximize the number of patients who can access EXONDYS 51 globally. And as Doug mentioned earlier, the settlement of our patent litigation with BioMarin has given us freedom to operate for our Exon skipping compounds. Our managed access program launched today initially in select countries within Europe, North America and South America for certain patients, where EXONDYS 51 is not currently approved. We plan to expand the program to include more countries over the next few months. We continue to build out our European footprint. As previously reported, we have hired our GM of Europe and now have started interviewing country managers for select country clusters throughout Europe. And we’ve also secured our country manager in Canada. We’re in the process of selecting our Latin America GM and distribution partners, and have already selected partners in Israel, Saudi Arabia, Kuwait, Dubai and other countries in the Middle East. We will begin to launch access programs in these territories over the next few months. To recap, the commercial team has been focused and successful at continuing to obtain Exon 51 eligible start forms, supporting broad access for patients, retaining patients on therapy, increasing genetic testing and diagnosis through education, and building a global infrastructure to bring EXONDYS 51 to additional countries leveraging the U.S. FDA approval. To conclude, this is an exciting time for us at Sarepta. We have made progress on multiple fronts, have additional visibility into the launch of EXONDYS 51 and most importantly look forward to serving DMD patients around the world. And with that, I’ll turn the call back over to Ed for closing remarks.

Thanks, Bo. To conclude, I’d like to offer a few personal remarks. I’m very proud to have witness Sarepta’s transportation – transformation over the past several years. We have built a robust clinical pipeline, struck several strategically important partnerships that serve to strengthen our leadership position in DMD, listen to patients, educated payers, engaged key opinion leaders and physicians in constructive and science-based dialogue, expanded our footprint beyond United States, and most importantly, forever change the landscape not only for DMD therapies, but for all rare diseases. It’s been my privilege and honor to serve this company alongside some of the righteous minds and most dedicated people in our industry. It’s been one of the joys in my professional life to be a part of the DMD community. I look forward to continuing to be an active member of this community and do my part to continue to change progression of the disease. And with that, operator, please open up the call for questions.

Thank you. [Operator Instructions] And our first question for today comes from the line of Alethia Young with Credit Suisse.

Hey, guys, thanks for taking my question. Sorry, I might break your rule.

What a surprise, Alethia.

Sorry. Well, congrats on the launch. It looks like it’s going very well. But one, I just want to get some of Doug’s impressions like around kind of what enticed you to join Sarepta, maybe talk from the commercial scientific potential? And then just what are your impressions of the company so far? And I have one more.

Okay, thanks for that question. I’m really actually excited to answer it. There’s a number of specific reasons that I got excited to come to Sarepta and to lead the sunny confines of Newport Beach California to what I understand to be a place of some inclement weather in the next couple of months. The first issue is that, look, the mission that Sarepta has serving a population that until recently had very little hope excited me tremendously. This is a perfect place to do something significant for people. The second thing is that I had the opportunity to talk to the entire Board, to all senior management now to the employees and to a person. This is a group of human beings committed to that mission and committed passionately, which tells me that we’re going to be very successful. And then let’s look at the company itself. There may be biotech or pharma company that has as much opportunity as Sarepta that I don’t know which one that would be and I’ve looked around. There is a unique opportunity at Sarepta to play an enormous part in the lives of these children, and then to be a significant player in rare diseases. First and foremost, we have EXONDYS 51, the first of its kind therapy helping patients in the United States and eventually helping patients around the world. And we have an extraordinary pipeline. I won’t go into all of the details, but just look alone at the PPMO, we’re already making a big difference in patients lives, and I think PPMO, if successful, has an opportunity to be a real life altering therapy for people suffering from DMD. And so based on all of that, if you ask me what my impression of Sarepta is, it’s a company with a ton of opportunity that is among the most undervalued and underappreciated companies for the pipeline and opportunity that it has and that alone was the reason that I was excited to come here. And I think we have a real opportunity to make a big difference in people’s lives and build a really big company at the same time.

Great. And then maybe just one for Bo. I know you talked about the prescriber base in Tier 3. I think last quarter you said, it had grown like –was up 30%. Maybe can you give us the similar comparable number this quarter, and what’s the biggest challenge in this group from here?

Yes, actually at JPMorgan, the conference, it was greater than 100. In the last quarter, it was greater than 130, and then this quarter it’s greater than 150. Quarter-over-quarter, we’re seeing growth, and it’s really coming from our focus at first. At the very beginning of the launch was the low-hanging fruit Tier 1, Tier 2, which made up at that time 75% to 80% of the business that was known. We’ve seen a really substantial growth in Tier 3 centers. And across now all Tier 1, Tier 2, Tier 3 centers, 93% of all the centers have actually submitted a start form. So we’re very excited. These Tier 3 centers are really doing a great job of –when we’re talking about the genetic testing, they’re really doing a great job of going through their charts. They’re doing a lot of the searches on the duchenne.com, on the genetic testing tool, and finding patients left and right and we’re very excited.

Great, thanks. And congrats.

Thank you. And our next question comes from the line Brian Skorney with Robert Baird.

Hey, good afternoon, guys. Thanks for taking my question. We’ve got a couple too. I guess to start, maybe you can just walk us through the rationale for the settlement with BioMarin, particularly in the U.S.? I think some of us were surprise given the suit that you would settle for a royalty with BioMarin in the U.S? And then just some thoughts on the MAP announcement and maybe just give us some context in terms of how many patients you think you’ll be able to access through here? How much you’ll be able to charge? Will this be something or just that manufacturing cost, or if you can actually turn gross profit on this? And then in terms of the Exon 53 biopsy protocol for the western blot, I was wondering, is there a difference in that protocol and the protocol that was used for the eteplirsen analysis for the NDA? And if there are any differences, what impact would you anticipate those differences having on the results? Thanks.

Okay, thanks a lot for that. I will touch on the BioMarin license and settlement and then I’ll pass it over to Bo for the MAP and then Ed can touch on the last question for you. So, I have the luxury of being new to this company to be somewhat immodest for a moment about this license, because I believe that the license and the settlement with BioMarin, which we must understand is a global transaction and a global agreement is of extraordinary strategic importance to this company. And I actually think, frankly, it’s kudos and brilliance to those who’ve negotiated it, and there’s a number of reasons for that. First, as we’ve said before, this global transaction gives the broad freedom to operate across the globe and gives us access to two patented states to bolster the intellectual property that we already had. That means, that in addition to allowing us to confidently pursue our global plans, it also means that it removes uncertainty and allows us to focus. So rather than spending our time and our energy litigating over issues, we actually get access to a patented states. It’s very valuable to us, allows us to confidently develop new therapies and new sequences without compromising ourselves and allows us to focus our time on patients, our pipeline and our EXONDYS 51. So from my perspective, this global settlement and license is a perfect platform for us to pursue our strategy going forward. And, of course, remember this is a exclusive license for us. So we don’t just get access, we get exclusive access to the patented states. So with that, Bo.

Yes, Brian, this is Bo. Yes, for the MAP, it’s probably launched, I should say, 13 countries, it’s going to be wave one. We do plan on adding to these countries over time. We also launched distributor partnerships in Israel and the Middle East, and that’s going to take a couple of months. We don’t expect a lot of revenue in 2017, it will be some revenue coming in late 2017, because it does take a couple of months for the physicians trying to identify patients. And then, as you know, secure funding and the pricing is confidential. It’s – we just provided to the healthcare provider post submission, once they have requested access for individual patients.

And finally, Brian, just in regards to the dystrophin analysis, yes, they are very different. And I think we spend a great deal of time really trying to develop these assays. I think the first aspect is the immunohistochemistry. So now it’s a completely automated system. We’ve worked with the CRO, the flagship based in Colorado. We’ve taken really four different neuropathologist input into how to develop the algorithm. It reads this automatically. We have whole flight scanners, which reads up to about 6,000 fibers. It’s very reproducible, there’s no potential for operator error or bias. w: So I think, we don’t expect obviously that the numbers will necessarily change as far as the value is. But I think what we’ll have is really the potential to have a very reliable reproducible system that I think will probably accurately reflect the amount of dystrophin that’s there.

Great. Thanks so much, guys.

Thanks.

Thank you. And our next question comes from the line of Ritu Baral with Cowen and Company.

Hi, guys, thanks for taking the question. Congratulations on the quarter. I mean, the number that you guys put up obviously opens a lot of questions as to where all the growth is coming from? Can you talk to any sort of shifting demographics in your patient base other than share patient numbers. I mean, you mentioned that the average age is similar to – from 2Q to 1Q. But have you seen average weight shift at all? Is the coverage public to private, has that shifted you mentioned 60 to 40, but I didn’t know if that was just the overall population or your actual commercial payments? And you did mention shifts in the start forms. But as you look at your second quarter patients versus your first quarter patients. What sort of demographic shifts have you seen? And then a quick follow-up on Ed. Can you speak a little bit about your role going forward in the clinical strategy or overall strategy at the company?

Yes, Ritu, thanks for the question. First of all on the demographics. No actually the demographics that held pretty steady I mean, the agents held pretty steady the way they held steady, really it’s just about conversions. We’ve had a lot of success and we feel good about where we’re going in the future. And it’s really about that. We – as I mentioned, we have seen a large percentage increase in the younger age groups come in. And so maybe the demographics will change over time, but currently it was really just about execution.

.: He in addition to transitioning, which we’re doing right now, Ed will remain an advisor to me personally for sometime to come and will be an advisor to us on our clinical development programs as well, including things like our gene therapy program, our European filing, unit transitioning with KOLs and the like. So there is – there will be a continuing support for the company consistent with the commitment that that Ed has had to this area for sometime.

Yes, I think that covers that, Doug.

Great. Thanks for taking the questions.

Thank you.

Thank you. And our next question comes from the line of Anupam Rama with JPMorgan.

Hey, guys, thanks for taking the question. As you guys are working with payers, have any trends emerged on how payers are monitoring clinical benefit with EXONDYS 51? Thanks.

For monitoring clinical benefit from EXONDYS 51, I have not heard of any trends. I know that some of the plans are reaching out to physicians. That’s been ongoing since launch and talking to the local experts and getting feedback. And I think that that’s a very positive thing, because the physicians have firsthand knowledge. They are treating these patients. They’re also hearing the anecdotal reports from the families about how the children are getting better, or sleeping better at night. And this is being conveyed back to the managed care plans as they reach out to the KOL. So as far as the plans go, I haven’t heard anything, but I know that they’re actively speaking with key opinion leaders that are treating.

Yes, and I think a lot of what is occurring is that, they’re becoming educated about DMD and there hasn’t been any specific test that they’ve required. And I think, again, it’s really trying to get the impression of the treating physicians is what they’re using is whether or not the drug is having some effect.

Thank you. Our next question comes from the line of Chad Messer with Needham & Company.

Great. Thanks and let me add my congratulations on the strong quarter. Clearly, we’re getting – we’re seeing an acceleration in the number of patients that are getting on therapy, which is fantastic. And second, that acceleration was so strong in second quarter, it’s kind of leading me to a question about the new guidance that you bumped up. In the past, you’ve always given a lower bound guidance. This is actually a range and a pretty tight range, and it looks like you’d have to decelerate some of this accelerated patients coming on therapy. Just wondering other than the $2 million that you mentioned sort of got pulled forward in the third quarter. Is there any other sort of trends in the way this curve is going that would indicate that or might perhaps just coming to an incorrect conclusion?

Look, this is Doug. The trends are positive obviously, and that’s why we’ve raised our guidance and we’ve raised the bottom of our guidance by $30 million. I will say that we are having a very successful launch, but we’re still in the middle of the launch. And one of the things we don’t want to do is get out ahead of our skis and disappoint people. So certainly, we want to be thoughtful, and frankly, modest in the way we look at things and nevertheless. We’re in a position, where we feel confident that we can provide a range of guidance and raise the guidance substantially over the last quarter’s guidance.

Okay, thanks. And then maybe just as we look to Europe and in bringing the EXONDYS to patients over there, I guess, initially with the MAP, but then hopefully sometime next year approval and roll out. Are there any lessons from what you’ve been going through in the U.S. that are kind of transferable to what you have to get done out there where it just reimbursement environment so different that perhaps there aren’t? And then maybe more related, but more specifically, what do we know about the state of genetic testing overseas versus the U.S.?

Yes, from a genetic testing standpoint, actually there’s more genetic testing done in Europe than there was in the United States. We are still taking every precaution to make sure that everything that we’ve learned in the United States that we provide to our colleagues and Europe to ensure that, genetic testing is already being talked about and thought about, so we can get ahead of it from that standpoint.

Yes. And so and I think maybe what we’ve learned certainly from the U.S., it really comes down to – it’s all about clinical data. And what we are really working very hard for is to try to get as much clinical data as possible to provide to all the regulatory authorities and the payers. So that is an emphasis that is going to continue, that’s necessary for the U.S., but it’s also going to be very necessary for Europe.

Okay, thanks, and congratulations, again.

Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Hartaj Singh with Oppenheimer.

Yes, hi, everyone. Can you hear me?

Yes.

Yes.

Thank you. Thanks for the question, really good quarter and congrats Ed to you and also Doug. Just be great to be seeing the story going forward. Just had a quick question, as you’re bringing your PPMO candidate to – into the clinic, what are the conversations with regulators, your IND? You’ve already gone through the PMO process. How has the conversations changed? I assume probably they’re different maybe for the better. Just how those conversations changed? And then what are the sort of – generally if you can give some idea of these seven candidates that we could be seeing in the clinic next year? Thank you.

Sure. So I think, obviously, we’re very excited about the peptide-based PMO chemistry, or PPMO. It is a new molecular entity. And so, I think, obviously, the full cost package has been developed and will be presented to the agency. We’ll be submitting the IND in the early fall, and we’re committed to having these discussions. So it’s a little preliminary too, because they haven’t seen the IND package, so we’ll see what the agency has to say. I think one of the things, of course, that we hope that they will appreciate is the potential to have a really a more potent compound for the patients perspective to be able to dose less frequently gives a huge advantage. But I think we’ll have more to talk about later when we’ve really heard back from the agency when they review the entire document. So I think what we’re looking at as far as the number of drugs, obviously, we have EXONDYS 51 that is currently in clinical development, but approved in the United States, 43 and 53 is advancing very quickly. In ESSENCE, we will have our PPMO, in the clinic, we will have two gene therapy programs in the clinic. So, and obviously we have our collaborations with our external companies with Summit and which is certainly in the clinic right now. So I think we have the potential for a lot of activity from a clinical development program that we’re excited about. It gives us many shots on goal, and it approaches not only from dystrophin restoration, but from other areas. So I think it’s a pretty – for a small company, it’s a pretty aggressive pipeline, and we’re committed to make sure that we get this done.

Great, and excellent. Thank you so much.

Thank you. And our next question comes from the line of Matthew Epler with RBC Capital Markets.

Hi, thanks for taking the question and congrats on the quarter. So I wondered if you could talk a little bit about how soon you could potentially launch in Europe, following approval of EXONDYS 51 and specifically about how the MAP program may lay the groundwork for a commercial launch? And then separately, if the MAP would have any impact on the FDA required post-marketing requirements?

Yes, from a reimbursement standpoint what’s post approval in Europe, every country acts a little bit differently from a health technology assessment standpoint looking at reimbursement, so they can for paid drug. And you can go back and look at all the other launches. Some of the assessments take 12 to 15 months post EMA approval before reimbursement has had depending on the country. But the MAP program is extremely important, because it actually gives the providers the opportunity to find additional patients, early pre-approval, pre EMA approval and get access to the drug, get used to the drug, see the benefits of the drug. This really – these programs while wonderful for the patient to get early access, it really gives a lot of the providers confidence and understanding how to prescribe it. So when the drug does get reimbursed through the health technology assessment groups, then you have – you typically have a much faster launch and it’s great. From a – and we also have distributors in Latin America, as well as the Middle East that are currently active as well, and this is going to be ongoing. So we should have patients in South America, as well as the Middle East and Israel having the opportunity to access drug early as well.

Yes, I can just comment on the one part of your question in regards to with the MAP interfere at all with any required postmarketing studies. And obviously, we know that we’re – our marketing application in Europe is really focused on a conditional approval, so we would have a Phase III study that would be a requirement. We’re very cognizant as we open up our MAP into what some of those potential requirements would be. So I think we’re very confident that we will be able to do a study and make sure that we meet all the requirements of the EMA and FDA, while still being able to provide access to many patients in Europe and elsewhere.

Okay, great. Thanks, guys.

Thank you. And our next question comes from the line of Christopher Marai with Nomura/Instinet.

Hi, congrats Doug on the progress and both as well. Great launch. Wanted to just touch base on the worldwide rights for EXONDYS under the agreement, does that cover Japan as well? I know PMO had some potentially some protections over there? And then secondarily, maybe could you potentially talk about the renal toxicity with the PPMO plus. Is that something you think you can overcome with potentially less frequent dosing? And then just finally, on the gene therapy programs. When you run into the clinic with these, could you perhaps comment on the manufacturing process, how far along you would be there? Obviously, there may be some capacity constraints just to get that level of doses you need in some of these patients? And I was wondering if you have all that prepared at the front-end rather than changing midway? Thank you.

I’ll let Ed talk about the other two issues. But on the licensing, the answer is yes on Japan, yes.

Including the PPMO technology?

Yes.

Great.

Yes. So, Chris, in regards to the PPMO, I just want to remind you is that, we’ve changed the peptide. So if you recall going back to 2011, when we saw with the B peptide, we saw the renal toxicity in the nonhuman primates. One of the things that have been done really over the last five years that the team here at Sarepta in the chemistry and biology group have done is to reconfigure really the peptide. And part of that was done to make sure that we have the cell penetration, but we were able to get a much larger therapeutic window. So I think based on what we’re seeing in the animal work, and obviously we don’t have all of the preclinical toxicology in the nonhuman primate. But that will be available by the end of the summer. We have a much larger therapeutic window than what we saw before. And I think, you’re right by the – having the ability, we’re estimating that we could probably give this once a month instead of weekly, that should also give the potential to get better renal clearance and reduce any potential toxicity. So until we are obviously dosing humans and we understand what the – really the toxicological profile will be. We don’t want to know for sure. But based on the animal work, we feel that we have a very good therapeutic window that should – we should be able to get good dosing. And certainly, the dose will be less even then we expect to that we’re giving now, and instead of weekly, it’ll be monthly. So we think it’s a very reasonable opportunity to avoid toxicity. In regards to the gene therapy, I think you bring up a very good point. We will be dosing at a level of two times at the end of 2014 back to genome product. That is a large dose. Obviously, the group at Nationwide Children’s Hospital has been able to produce enough material for the clinical programs and we’re confident that we’ll be able to do the kind of the pogroms. We are in active discussions about commercialization for developing a commercial manufacturing system. So we’re in active discussions by that. But obviously, it’s a little early to make a huge investment in commercialization of gene therapy until we know what the clinical results are. But we have a number of commercial manufacturing organizations that have a lot of experience in producing vector and those discussions are ongoing.

Okay, great Thanks. Congrats on the quarter.

Thanks.

Thank you. And our next question comes from the line of Joseph Schwartz with Leerink Partners. Please go ahead.

Hi, guys. This is Dae Gon dialing in for Joe, and let me add my congratulations to a successful quarter. Just a couple for me. So just tagging on the question earlier from Ritu. Bo, could you comment on what is the current conversion rates between the start form number and to the reimbursement patient? Also secondly, what proportion of patients are relying on port? I think you said 40% to 50%. But how long of a delay is there between installing the port to getting the first drug administration? And lastly, for the MAP piece going forward, what kind of a pricing are you assuming? I know, it’s not really going to be recognized until later in 4Q, but just wanted to get your thoughts on it? Thank you.

Yes, I’ll start with the last question on the pricing. The pricing is actually is confidential through the Clinigen program. When the physician actually request access, the physician gets the price quoted. And so really from a pricing standpoint, we’re not – we won’t get into the discussion on the pricing. From a port standpoint, you’re correct. You’re 40% to 50%. And that’s held pretty steady. It actually surprised us at the very beginning of the launch, but now it’s really been – it’s been very good for the children from a health benefit standpoint of not having to get infused every week with needles and arms. And then from a compliance standpoint, it’s helped a great deal with the compliance. It’s been holding steady 40%, 50%, most of the patients do get that port prior. It takes about a month, so does this delay, but forward to six weeks, some are much quicker, but on average, it’s about four to six weeks, that tends to be the delay.

Yes, and Bo, I think it’s fair to say that based on – and certainly based on my experience and other diseases, once a site has identified a surgeon that is comfortable putting the ports in typically that delay goes down significantly, because they have a system in place, they know to contact. So even though it’s about a month now, it certainly could go down in the future.

Yes, and from a conversion standpoint, I mean, the conversions increased pretty dramatically. It’s almost double the rate from Q2 to Q1. And that’s really from the start forms that came into the system, it’s mainly, because we’ve been working very closely with managed care plans. They’ve been putting their policies in place. And a lot of those policies started take shape in Q1 and in the early part of Q2, and those patients that were waiting started converting.

Thank you. And our next question comes from the line of Matthew Harrison with Morgan Stanley.

Hello, this is Dave Lebowitz for Matthew Harrison. I had a question on prescribing patterns. You had mentioned earlier that start forms for going forward were gearing towards younger patients for four and under and then subsequently after that the next oldest group. And I’m just curious as to how the trends might be shifting and the older patients, the 14 and over patients, sorry, 15 and over patients from first quarter to second quarter to third?

Yes, the trends across the Board have gone up. When I was talking about the percentages, I was talking about the highest percentage increase, which has been seen in zero to four then five to nine then 10 to 14, but across the Board in every age group, it’s gone up.

Sure, sure. And has there been any, I guess, shifting over towards to insurance and payers? Has there been any shift in their approach towards evaluating patients for reimbursement, or is it mostly still being done on a case-by-case basis?

Mostly case-by-case, and like I said, the insurance plans do reach out and even the Medicaids, they reach out to the providers, the KOLs at a great deal. And so – but it’s mainly case-by-case.

Great. Thanks, guys, on the questions.

Thank you. And our next question comes from the line of Tim Lugo with William Blair.

Hi, guys, this is Ashiq Mubarack on for Tim. Thanks for taking my question and congrats on the quarter. Just quickly, can you guys maybe share your thoughts on Europe and the potential launch for EXONDYS 51 there? Could we see potential penetration or ramp rates compared with the U.S. there, or is it possible that might be even faster on a country-by-country basis, given the larger percentage of genotype patients and manage access program. And then just quickly on the timing of the royalty to BioMarin. Is that more or less immediate or any thoughts there. Thank you.

As far as Europe and I’ll pass it over to Doug. But as far as Europe, it’s too early to tell from an uptick standpoint on how it’s going to play out. But we will provide more color on that. But I mean it’s definitely going to be a positive scenario if we get an approval, and Europe is actually going to be a larger opportunity overall with ambulatory and non-ambulatory really comes down to reimbursement, it’s too early to tell what it’s going to be and the reimbursement is a country-by-country basis. So it’s not – so it depends on how long it takes each country to get on Board. So it’s a little hard to make that comparison to the U.S., where basically it’s a large group in one country. And I think it’s a much more diverse reimbursement strategy. I agree, yes.

Yes. And in terms of the royalties they do start immediately as a matter of fact about $2.8 million of royalties relate to the prior three quarters. So we’re really talking about the balance $32 million here. What is worth mentioning though is that offset $35 million upfront payment for royalties, most of that gets written off as a one timer, because it was either settlement or it’s actually a bit of a two EU royalties. So it’s really the remaining $8 million out of the total of $35 million that gets amortized over $8 million, up over eight years or so. And as a result, the burn that we get from a financial perspective on an ongoing basis is de minims.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Liisa Bayko with JMP Securities.

Hi, thanks for taking my question. Can you tell us what the COGS are without the royalties. And then just also wondering what the number of patients that have tried the drug so far our gross to net adjustments and compliance rates?

Yes, so we haven’t announced the gross to net at this point. It’s too early unless we have a trends. and when once we have the trends into control, we would be able to give some guidance on gross to net is probably early next year. In terms of the royalties, in terms of the COGS, as we had announced earlier, the COGS are somewhere between 0% to 2%. We expect to go have those low COGS going into some point between April to maybe year of next year. Obviously, there’s a 5% royalty on U.S. sales that would start picking in now. And as a result, we’ll have low COGS going forward. And that will continue into, as I said, some point into Q1 or Q2 of next year, and thereafter, it will be in the low teens.

From a compliance rate, Lisa, the compliance rates are very high, and we feel pretty good about where they’re at right now. They were higher – much higher than we anticipated prelaunch. And we believe that’s really going back to the ports, while the ports – there’s 40% to 50% to the full port and then other kids get ports as well. And then home infusion, going to home infusion helps compliance as well. So all of these factors have really pushed up the compliance rates.

Okay. So the low teens includes the royalty?

The low teens includes the royalties. Liisa also was [Multiple Speakers]

This is something what it will be without the royalty, just the way understand 8% or something, I guess?

Yes, it’s 5% for U.S. and 8% for EU. What’s worth repeating though Liisa is from your modeling perspective, most of those royalties are written off as a one timer. So from model not much really changes. We only have $8 million that’s going to be allocated and amortized over eight – over the subsequent eight years from now through 2024, 2025, that will hit the models. Beyond that most of those royalties are just a cash burn.

I’m not following. So the royalties don’t come out are not the part of COGS, I think or part of those $35 million upfront?

Well, they’re part of the $35 million upfront. But most of that upfront is amortized. Most of that upfront is written off and only $8 million gets amortized over the remaining eight years.

Well, I understand.

On a go-forward basis, the model doesn’t change, because the prior guidance included anticipated royalties that’s utilized price on the interest.

So the low teens includes 8% on Europe and 5% in the U.S.?

That’s correct.

That’s right.

And so, I guess without if you had taken out those royalties, can you give us a sense of whatever the underlying royalties – the underlying COGS there?

It would be in the low single digits – low to mid single digits. There’s a few moving parts as well, because remember a lot of the inventory was written off some of the inventory, for example, subunits lasted for very long time to 2019 or so.

Okay.

So it’s really – it’s difficult to come up with an exact number, but you could assume mid to low single-digits.

Okay. And then just last question was, if you could give us some sense of how many boys have gotten under therapy at this point, it would be great? Thanks.

Yes, at this point, we would never guide it on that. We’re just focused on the revenue, the revenues are the best indicator of the launch.

Okay.

Thank you. And our next question comes from the line of Steve Brozak with WBB Securities.

Hey, good afternoon and congrats. Obviously, this is a remarkably strong quarter, and it reflects on how well the ground game is going with payers. Can you give us any kind of insight, given as the EXONDYS study start to wrap up? How this would dovetail with going forward with the payers on the end of study and data that you presented them, because obviously you’ve got a good working relationship and any color you can give on that would be terrific? Thank you.

Yes, I can start, and this is Ed, and Bo can comment. I think, we’re clearly committed to gathering data especially in other populations that were treated outside of our primary study. And we’re collecting data, for instance, on respiratory data and cardiac data on the non-ambulatory and we are working on this for the remainder of the year. So that’s the kind of clinical information that we’re going to be supplying to the payers and we continue to do that really throughout this year. And want to make sure that we really increase the quality of the dossier and the number of patients and that includes both younger and older patients. So we have more and more information and we’re gradually gathering that data base.

Yes, and I think it’s just going to continue to give confidence to not only to payers, but the clinicians that the data is published and presented at our conferences. And we have, as Ed has mentioned, we have so many ongoing studies and data cuts that data should be continuing to flow over the next couple of years, and it’s going to continue to help with access and reimbursement.

Great. Well, again, I don’t know how to say, you guys could do any better. So I look forward to hearing about in the future. Thank you.

Thank you.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back over to Doug Ingram for any closing comments.

Okay. Well, thank you everyone for joining today’s call and obviously I’m going to look forward to meeting many of you in the coming months and also look forward to coming back and updating you on progress for the remainder of this year and into next year. I’ll once again say that, I’m very excited to join Sarepta. I think you can all see why now. It is a rare opportunity to have such an opportunity to make such an important difference in patient’s lives. So thank you all very much. Have a good evening and look forward to meeting you in the near future.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program, and you may now disconnect. Everyone have a great day.