Idorsia Ltd

SIX:IDIA

Earnings Call Transcript 2022-Q4

[Operator]

Good day, and thank you for standing by. Welcome to Idorsia, Full Year 2022 Financial Results Webcast. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Andrew Weiss. Please go ahead.

[Andrew Weiss, Head of IR]

Thank you, Hyde. Good morning, good afternoon everyone and welcome to our webcast to discuss the full year publication of your results. The press release went out this morning at 7:00 a.m. Central European Time. With me on this call are our CEO, Jean-Paul Clozel; our CFO, André Muller; and our Chief Commercial Officer, Simon Jose.

Next slide, please. Just to reminder you, we will be making forward-looking statements in this call. So please be attentive to the disclaimer. You therefore have been adequately warned about the risks and benefits of owning Idorsia's stock. Next slide please.

So let's kick it off. Jean-Paul, the mic is yours.

[Jean-Paul Clozel, Chief Executive Officer]

So, yesterday we have seen that we have informed the market that the REACT study did not meet the primary end point and of course we are very disappointed and very sad I have to say. But it should really hide the achievement – next side – that happened in 2022, which provide momentum for 2023. Next slide.

A lot has been achieved in 2022. First, QUVIVIQ was approved in the U S., PIVLAZ was approved in Japan, and launched in Japan. QUVIVIQ was launched in the U S., QUVIVIQ was approved in Europe, and we got the result of aprocitentan showing a very significant blood pressure reduction.

And then we got the results of Daridorexant in insomnia in Japan, and QUVIVIQ at the end of the year was launched in Germany and Italy, and cenerimod mode Phase III in the lucerastat was initiated. And finally, just before the end of the year aprocitentan was filed for U S. the NDA, aprocitentan was filed in the U.S.

So, Simon is going to describe our commercial plan and the launch of our first two products. Next slide.

[Simon Jose, Chief Commercial Officer]

Thank you, Jean-Paul, and good morning and good afternoon everyone. 2022 was indeed a transformative year. We obviously launched our first two products and I believe we built a very strong foundation for future growth, and obviously today I’m pleased to be able to share with you the positive momentum by saying about the launches of QUVIVIQ in the U.S. and Europe, and of course PIVLAZ in Japan.

Next slide please. So I'll start with QUVIVIQ, which as you all know it was launched in the U.S. in May and in the first two European markets in November as Jean-Paul said in Italy and Germany. In 2022, net sales totaled CHF 6.5 million. Obviously, as I've mentioned before, net sales in the U.S. don't reflect demand or prescriptions dispensed. To enable early patient access to QUVIVIQ, we continue to offer our strong copay program, including a free first 30-day prescription, and of course demonstrating demand is critical to support our ongoing negotiations to expand payer coverage, and I'll provide an update on our progress there in a few minutes. Next slide please.

So turning now to the prescription volume for QUVIVIQ in the U.S., you've seen this slide in prior earnings calls showing the TRx volume by strength on the left. And the split by retail dispenses, which you see reported by IQVIA and those dispensed by VitaCare, our pharmacy services provider on the right. And obviously, we've updated these last three months since you saw this chart in October for the Q3 call.

I'm pleased to be able to share that TRx volume continues to grow with almost 15,000 prescriptions dispensed in December, despite the usual dampening impact of the holidays, which is as you can see, was the case of VitaCare who were closed for the public holidays during the Christmas to New Year period. And we continue to be pleased at the 70/30 split of the 50 milligram and the 25 milligram strengths as you can see being maintained. Next slide please.

You can also see the same positive trajectory in QUVIVIQ Writers, which continued to grow month-over-month, and although we continue to expect to see our Writer base growing as we move into 2023, our clear focus is now going to be on increasing the number of prescriptions from each Writer, turning the current breadth of prescribing into greater depth of use.

And on the right hand side you see the split by prescriptions with 65% of prescriptions now coming from Primary Care Physicians and 21% coming from Psychiatrists and this is broadly in line with the structure of the insomnia market. Next slide, please.

Encouragingly, we continue to see the source of business for QUVIVIQ coming from either new patients or were switched from the older, widely used sleep medicines such as Z Drugs, Benzos and Trazodone. Only a small number of patients on QUVIVIQ are coming from the other DORA’s; around 6% of switches and only 3.5% of all patients. This is critically important to us, as to achieve our long term goals we need to dramatically grow the DORA class, in addition of course to making QUVIVIQ the leading DORA. Next slide please.

And here's the effect on prescriptions. You can see that QUVIVIQ volume has essentially been addictive to that of Belsomra and Dayvigo, expanding the DORA class as a whole. And naturally, QUVIVIQ is taking share within the class as it grows. The chart on the right shows that after just eight months on the market QUVIVIQ has achieved 41% share of the DORA class in NBRx, surpassing Dayvigo and in quarter four the approach is Belsomra, and during that same period, the DORA class has grown 67%. Next slide please.

Taking a closer look now at how our NBRx’s are tracking in recent weeks, you can see here that QUVIVIQ is now neck-and-neck with Belsomra, and we expect to become the leading DORA in NBRx's any week, now that we are through the holidays and payer coverage is increasingly.

Of course, refills and continuing prescriptions are just as important as acquiring new patients, arguably more so in the long run. The chart on the right shows the continued growth and acceleration in CBRx or continuing prescriptions, indicative of the patient satisfaction with QUVIVIQ we generally hear in the markets. The NBRx performance versus Belsomra is particularly impressive when you consider that Belsomra generates over 50% of its prescriptions from Medicare Part D, where QUVIVIQ is yet to be covered. Next slide, please.

So although it's clear we would have passed Belsomra NBRx’s in the commercial segment, we actually can't get NBRx by channel, so I can't show you that and construct a graph to sub-prove it. But we are able to do this with TRx’s and as you can see here, in the commercial segment only where we can compete equally, QUVIVIQ has bypassed Dayvigo TRx share and is on a trajectory that will pass Belsomra in the next few months. This is probably the most appropriate head-to-head comparison of performance, where we continue to expand our excess and before we have Part D coverage. Next slide, please.

And of course speaking of coverage, I'm pleased that we have made some real progress in the beginning of this year. As many of you will now know, QUVIVIQ was added to the Express Scripts National Preferred Formulary from January 15, gaining parity access with the other DORA’s in their approximately 22 million lives covered, representing about 13% of the commercial market. Now there a further 30 million lives, about another 19% of the commercial segment in the downstream plans that can now take the ESI rate that we've agreed with them.

We're also on formula in the TRICARE, which covers 9 million U.S. military service members and their families, another further 5.4% of the commercial segment. So as you can imagine, we are now actively pulling this expanded coverage through via the sales team and other promotional activities, and of course we're in discussion with all the ESI downstream accounts to secure coverage there, too, and we continue to have active discussions with the other commercial payers and the Par D plans.

Next slide please. So I want to just conclude the U.S. by briefly touching on our branded direct consumer advertising featuring QUVIVIQ patient ambassadors Lindsey Vonn and Taye Diggs. These initiatives have demonstrated a very significant increase in all our key metrics, including traffic to QUVIVIQ.com, where we now have exceeded 1.7 million visitors, paid and organic search, copay card downloads and utilization and ultimately doctor conversations and QUVIVIQ NBRx and continuing scripts.

Next slide, please. In looking beyond the U.S. QUVIVIQ is on track to become a global brand. In November last year we achieved our first European launches in Germany and Italy, and I'll speak more about our progress there in a moment. We've also completed our Phase 3 study in Japan and are preparing to file the marketing authorization application in the second half of this year with our local partner, Mochida. We also announced the licensing agreement with Simcere in November 2022 to develop and commercialize daridorexant in the Chinese market.

Next slide, please. Now in Europe, QUVIVIQ is the first and only DORA available to patients, and I really see great potential here given the high unmet need and dissatisfaction with existing treatments in the region. In Germany, we launched QUVIVIQ in Mid-November, and as I'll show you in a minute, it's got off to a great start.

As I have mentioned before, in the German market there is a full week prescription limitation for all hypnotic and sedating agents known as Anlage III. The G-BA issued a draft resolution last year to exempt QUVIVIQ from Anlage III, which if approved would mean QUVIVIQ would be the only sleep medicine reimbursed for long term use in Germany for adults.

We also launched in Italy last November into the private market and some of the products there are not reimbursed. At launch, prescribing of QUVIVIQ is limited to specialists. It's not uncommon for that to be the case with new CNS products and the feedback to date has been extremely positive.

And launch preparations are underway in Switzerland with launch planned in mid-23 in the private market. This is where our reimbursement dossier is under review. And in the U.K. we plan to launch in the second half of this year following final NICE guidance. We submitted our dossier to NICE last summer and we'll have an advisory committee in March. And lastly, launch preparations are also underway in Spain and France. Next slide, please.

So I turned to Germany briefly. Whilst its early days, QUVIVIQ has got off to a strong start in Germany. This chart shows the weekly sales units from wholesalers to pharmacists and you can see the very positive momentum in the initial weeks post launch, which has continued now after the debt during the holiday period. There were a significant number of German sites in the pivotal trial programs of QUVIVIQ and we're seeing a great deal of interest among the German medical experts and GPs in the new mechanism of action and differentiated efficacy and safety profile of the product.

Next slide please. And here we see the initial uptake in Italy. This weekly data is projected by IQVIA from the panel of pharmacies around 20% across Italy, so we should treat it with some caution. Nevertheless, we see a positive initial trajectory, especially when considering that we are launching in a private pay market, with specialist prescribing only at this stage.

We recently had a launch event with key opinion leaders who showed a lot of excitement about the product and shared their positive initial experience with QUVIVIQ, and I look forward to sharing more progress in Europe over the next months. Next slide, please.

So just to finish up with, turning to PIVLAZ in Japan. We launched PIVLAZ in April last year, to prevent vasospasm following an aneurysmal subarachnoid hemorrhage. This has a two into three times higher incidents in Japan than we have in the western markets.

Next slide please. And again, you've seen this chart, and it's now been updated with the end of the year numbers. We continue to see very positive trajectory since launch. We generated net sales of CHF 44 million since April against the currency headwind I hasten to add, with over 95% of target hospital accounts ordering.

Medical experts and neurosurgeons are supporting the inclusion of PIVLAZ in aSAH treatment protocols. And at the end of last year, in December, approximately 25% of aSAH patients received PIVLAZ based on the incidence of aSAH in Japan and we expect adoption to continue to grow this year.

So in summary, I think 2022 was a transformative year, where we put our commercial plans into action, and we launched our first two products. QUVIVIQ is building momentum with very positive feedback from physicians and patients alike. In the U.S., we expect this momentum to increase and start translating into net sales as we expand payer access.

And in Europe, although it’s early days, QUVIVIQ is off to a strong start in Germany and Italy, and we're preparing for additional launches later this year. I’m confident the strong foundation we've built in 2022 sets us up for a year of strong growth and additional launches in 2023.

And thank you for your attention. I will now hand over to Andrew.

[Andrew Weiss, Head of IR]

Thank you, Simon. To our next slide please. And let's go directly to a Slide 23 and how the U.S. GAAP net result came about.

I would like to start with CHF 757 million non-GAAP operating loss of 2022. You may recall that we have not changed the guidance from the full year result 2021. So in February ‘22, we see Q3 results published in October 2022, maintaining net operating, non-GAAP operating results of minus CHF 785 million. So you see actually a difference of CHF 28 million and this CHF 28 million is actually the contract revenue on Simcere CHF 30 million upfront. So what I want to emphasize here is that, yes, clearly sales well lower than expected, but it also means that we closely monitor our OpEx to remain committed to this guides.

We're now coming with a few comments on net revenues. CHF 97 million on top left consists in CHF 50 million sales as Simon said, PIVLAZ in Japan, CHF 44 million that’s impacted by FX rate with weakening of Japanese yen and roughly CHF 6 million with daridorexant or in U.S. accounting for CHF 5.5 million and then Germany for almost CHF 1 million.

On the contractor revenue, so we see a remaining CHF 47 million. As Jean said, Simcere accounted for CHF 28 million. We had CHF 2 million from Ponvory, revenue sharing from Janssen. CHF 3 million from Neurocrine with an extension of research collaboration and CHF 14 million deferred contract revenues from the previous collaboration, including J&J regarding our [inaudible] patent.

So with this, into the next slide we’ll comment on the non-GAAP operating expenses of CHF 854 million, but there are DNA and there are sub-base compensation in line with the previous years at respectively CHF 20 million and CHF 26 million. So leading to a U.S. GAAP operating results of minus CHF 803 million and below that its – you see this CHF 25 million, which is mainly interests around CHF 16 million. That's a couple of 2.1, 25% paid on the 600 million convertible bonds, so for approximately CHF 12.2 million, coupled with 200 million convertible bonds, so 0.75 for 1.5 million and you may recall I explained it in a Q3 results sales and leaseback transaction is according to the U.S. GAAP treatment, treating as a debt, and to the extent we have also relating funding cost of CHF 1.6 million.

On top of the interest of CHF 16 million, you have also a tax of CHF 8 million. CHF 2.5 million with full impacts on the upfront from Simcere. We had also CHF 4 million of foreign taxes, mainly in Japan and the U.S. given our tax organization with our commercial affiliates being what we call limited risk distributors, and we have CHF 1.5 million deferred tax. So this leads us to U.S. GAAP net results of minus CHF 828 million.

Let's move to see our next slide, 24. Speaking of non-GAAP operating expenses here. Cost of sale is mainly consisting on the right sector, we pay on the Clazosentan so its CHF 4 million real cost of goods and is really a low on sales, so for the remaining 2 million it's more distribution and warehousing.

As you can see, a research with CHF 117 million is almost flat or I would say flat since you take into account CPI. And you see that development is slightly below last year at CHF 240 million. In CHF 240 million, you have roughly CHF 100 million, which are functional expenses, which will fix the cost base of our development organization; clinical, but also pharmaceutical and chemistry. And so remainder, so approximately CHF 140 million, so that’s really see a study cost.

Here we have three main drivers. First, Selatogrel. You know well we are enrolling with SOS-AMI, and to this extent we have spent more, significantly more than in 2021 with CHF 41 million for Selatogrel. CHF 28 million in clinical is remaining in order to get this autoinjector in connection with mainly [inaudible].

The other main driver are Daridorexant and Cenerimod. So Cenerimod, we are now, as you've seen, we have finished Phase II. This was main Phase 2b we are starting Phase 3 this was main driver for the expenses, study expenses around CHF 26 million. And the other big driver is Daridorexant we’re still CHF 26 million, not so much in a global clinical and which is around CHF 8 million, notably with the initiation of the pediatric, but also we see a Japanese trial, and a sample set, and now we got see our results, Japanese pivotal trial, accounted for CHF 9 million and that’s our share, because Mochida our partner, took also 50% of the local development costs.

Well these are your main drivers. As you can imagine, Aprocitentan comes to an end, Clazosentan will, also will come to end, especially moving forward in 2023 and lucerastat still spending, because we have an open label extensions. But these amounts are relatively small compared to Selatogrel, Cenerimod and Daridorexant.

On SG&A, so CHF 492 million. The main cost is really driven by a commercial, with marketing and selling expenses, around CHF 400 million of which a significant amount is spending in the U.S. around CHF 300 million.

And Simon explain you that here we need to have a sales force detailing PCP’s. We need also – now you’ve seen the impact of DTC, digital and TV ads. So we're – this was a significant effort not fully reflected in the net sales, but we need first to grow our demand and continue on this positive trajectory to convert a demand to volumes into net sales, now that we get commercial coverage and soon hopefully as a Simon said, also but if its 2024 with Medicare Part D.

With this we end up with CHF 854 million non-GAAP operating expenses. So a significant jump compared to a 2021, mainly driven by the launch activities in the U.S., and current preparation in Europe and Canada and also we see a launch in Japan.

Next slide, please. Cash flow, so you recall that we started here with a stronger balance sheet CHF 1,188 billon, liquidity. As I said, the non-GAAP operating results of CHF 757 million we just explained it. CapEx around CHF 27 million. Significant working capital requirements with CHF 65 million, with an inventory built, notably with registered starting material for the like fund, but also a significant increase in trade receivables.

Of course, we saw Japan sales. You have roughly 100 days of sales outstanding, but also with the U.S. because of the U.S. sales funnel. You know we sell to the wholesaler at watch or gross, or net or gross selling price, and we get a 60 day payment term, which is wholesaler, but all gross to net. So all the rebates are at our paid at 15 days. So of course, this generates, because we have demand, because gross sales are going up, we have with this higher working capital refunds.

Sale and leaseback, this was already in Q3, 162 million, and the other items are actually what we already mentioned below EBIT interest expense, tax expense and a small adjustment to our reconciled with non-GAAP operating results. So by the end of December 2022, we end up with a liquidity of CHF 466 million.

Next slide please. Here you see the structure of this liquidity by year end 2022. CHF 336 million in the right chart in Swiss Franc and $116 million in U.S., because that's a natural hedging, notably accounting for the sales, the OpEx, notably with U.S. commercial organization.

Next slide please. I will finish with the financial guidance for 2023. You see here, net revenue of CHF 230 million, operating expenses of CHF 880 million, these are non-GAAP measures, leading to a non-GAAP EBIT of CHF 650 million. As last year we can be reassured that we are committed to manage this EBIT target at CHF 650 million.

If you take U.S. GAAP you see delta between the operating expense of CHF 65 million, which is mainly driven by stock base compensation, with a significant increase. The reason for it is that we, in order to preserve our cache, 70% of next year or 2023 bonus to employees, across the organization will be paid in shares, account for roughly 20 million. And if you look, if you had time to read the Governance Report, you've seen that we launched in 2022 a plan called Ambition 2027, with granting to most employees an incentive plan, split evenly between restricted share units and performance share units that will have some metrics in ’25, ’26 and ‘27. But you still have to account next year or see a full year impact in the U. S GAAP of this ambition of 2027. New initiatives to retain the employees at Idorsia.

And lastly, we are growing in terms of organization, so you can have also a higher impact of the organization in 2023 compared to the previous years. With this, we believe that U.S. GAAP operating loss would be around $735 million.

Next slide, please. You may have seen already, this profitability, a target which we issued at the JP Morgan Health Care Conference. We remain committed to reach sustainable profitability in 2025 with global revenue above $1 billion, and here again, we only account what we know, i.e., the first of two visits. The sale of PIVLAZ in Japan only and [inaudible] and so we are entitled to with Janssen regarding our position there.

With this, I hand over to Jean-Paul.

[Jean-Paul Clozel, Chief Executive Officer]

Thank you, Andre. So you have seen that – next slide, we are continuing to advance our pipeline and you have heard about – next slide, PIVLAZ and unfortunately it’s a react, but also the Japan commercial success to be big, which is basically to an end of the clinical development plan, and the opposite end times which is fine.

We are going to during the year have a discussion with regulatory authorities for the lucerastat and we are in the Phase III recruiting for selatogrel and cenerimod. I will concentrate on these Phase III products.

We have many of the products coming in Phase I and II. Most of them, we are looking for partners because they come to areas where we are not focused and we are in discussion for several of this product with potential partners.

Next slide. So last year we announced the results of aprocitentan and I really like to show this data, which are really very impressive. You see how the two doses of aprocitentan could decrease the pressure and maintain the blood pressure reduction during the year, which during eight months which was asked to be done by the FDA and whereas withdrawal shows the real effect of the drug, because it's really after clinic treatment. It's at the end of the treatment that you see how the blood pressure is maintained under aprocitentan comes back with placebo.

Next slide. If we looked at ambulatory blood pressure, where there is a much lower placebo effect, because it's a much more precise, it’s done at home, there is no influence of the white-coat effect, and you see that especially during the night there is a very significant effect of aprocitentan, and you must not forget that these patients were basically Twittered at least by three [inaudible] medication, but more than 60% where it was four medications and some patients were under five or six aprocitentan drug.

Next slide. So aprocitentan has been filed with the FDA and the PEDUFA date is in December this year, and young said we’ll be responsible for commercialization of this product, so that's rare.

Next time. Selatogrel is really a very innovative product. It's a very short active and fast active, because it's also given subcutaneously with an auto injector. It's a [inaudible] which can be given by the patients him selves. We can auto administrators. And this should change the approach of the myocardial inflation – next slide – because today, patients with such a pen, with rescue pen need to call the emergency unit, the ambulance and it takes an average three to four hours before the patient is treated. Here, just a few minutes after the pain the patient has been trained to inject himself, then call the emergency unit, and then you save three or four hours of progression of the myocardial infarction and we know that these are the essential errors which are going to define, and this in our mind is the future of this patient.

Next side, we have also started the case study which is a study of cenerimod in lupus, with one dose, two which has been defined by the Phase II and show the really very significant and meaningful improvement of disease activity with an effect which increases time and which has been very well characterized, especially which has been shown to be much higher. The treatment effect is much higher in patients with a high IFN-1 gene signature.

And of course, we could define the safety and the good safety profile of cenerimod at this dose and this has allowed us to start the Phase III program – next slide – where the OPUS program, which consists of two tries of each 420 patients, 210 in placebo, 210 in cenerimod. We have agreed for the design of this study with the FDA. Next slide.

So as I have described, we are continuing to build the momentum in 2023 and we are going to have a higher and broader coverage in the U.S. This is a priority for us, for QUVIVIQ. The aprocitentan has been submitted already in Europe, and we are waiting for the QUVIVIQ regulatory decisions for QUVIVIQ in Canada and as mentioned, lucerastat is going to be discussed with regulatory authorities and QUVIVIQ will be launched in Switzerland and UK and the NDA of QUVIVIQ will be submitted in Japan at the end of the year, and we’ll have also the decision for opposite end time at the end of the year. So I hope I have described the really very eventful, I think 2023 which we will have. Thank you very much.

[Andrew Weiss, Head of IR]

Thank you, Jean-Paul. With that we have come to the end of our prepared remarks and are ready to take your questions. First, a few housekeeping rules please. May you refer your questions to one only and then jump back into the queue. Operator, please populate the lines.

[Operator]

Thank you. [Operator Instructions] Please stand by while we compile the Q&A roster. We will take our first question, and the question comes from the line of James Gordon from J P Morgan. Please go ahead, your line is open.

[James Gordon, JP Morgan]

Hello! James Gordon from JP Morgan, thanks for taking the question. One question, which would be a funding. So what near term options are you weighing? Are you potentially considering an equity raise and then to tide you over until late in the year, or are you still optimistic that we could see a partial divestment on our current economics.

And if the latter, what is the trigger that is needed to get it over the line? Why you have to wait for apro to be approved or the filing accepted. Maybe but a discreet in the classification of a question, which is there was talk about higher stock option expense. Does that explain why there’s a bigger difference between core and reported OpEx this year? Should we assume there’s something like a $40 million step-up in option expense?

[Jean-Paul Clozel, Chief Executive Officer]

Thanks James for that. Those are actually two questions. Thank you for squeezing that in, all right.

[André Muller, Chief Financial Officer]

I follow your rule Andrew, so I’ll only take the second question, which is easier. No, the first question on the funding. Well first, we have always been a transparent, but we're not funded at breakeven. With the guidance we gave at $650 million compared to $466 million cash by the end of 2022, obviously we need to raise cash and relatively in the next few – in the short term, next few months.

We are looking at several possibilities to a fancier company. Non-equity dilutive; we may now prefer the option. I will not tell you where we are in the discussions with the potential right monetization investments. Jean-Paul also alluded to a discussion on the potential out licensing deals. It will feed off, your two main avenues for non-equity dilutive funding. But saying it's a preferred option does not include – exclude, sorry, equity dilutive, and here it would be equity because I think that the convertible bond would be highly unlikely in the current market condition. So we're – at the end we really want to remain nimble and will remain pragmatic to enter the business continuity at Idosia.

Your second question regarding the overseas stock base compensation, the impact this year, it is valid for 2023 what I described you. So the impact this year is really limited and the rules were [inaudible], except for the executive team are paid in cash, so we're set it for 2022. But for 2023, as I said we changed the rules, where 70% of the abundance across the organization will be paid in shares and again there is fight for talent, especially in Switzerland, but also in CIUS [ph] and this is expense we believe that retaining people, we see some mission 2027. Again, looking at the government's report will help us. But that's not the cash, that's only P&L impact, and that's why we have it as a reconciliation item between non-GAAP and the U.S. GAAP.

[Jean-Paul Clozel, Chief Executive Officer]

Thank you, Andrew. Next question, please.

[Operator]

Thank you. We will take our next question. And the question comes from the line of Harry Sephton from Credit Suisse. Please go ahead, your line is opening.

[Harry Sephton, Credit Suisse]

Brilliant! Thank you for taking my question. So it's on net pricing for QUVIVIQ. Based on the report itself and scripts for Belsomra, it has a net price of about $150 a month. Is that a good benchmark that we can use for QUVIVIQ given your reimbursement negotiation to BSI. And what proportion of employers have currently opted in for QUVIVIQ coverage. Thank you.

[Jean-Paul Clozel, Chief Executive Officer]

Thank you, Harry. Simon, I think that one is for you.

[Mathieu Simon]

So Harry, yes we're not going to give net price guidance. I mean clearly right now we have a lot of drug given away free because of vitaCare as we generate demand and generate coverage. But I will say of course that we priced QUVIVIQ at a premium at the WACC level because of the premium profile that we believe the drug has, and it's important for us to continue to try to sort of flow that down as we go through the various difference of rebate discussions and net conversations that we have.

Right now, it's difficult to give you an exact number on coverage in the commercial space, because obviously you've got a number of downstream plans that we're working through. We have a number, already in. Because I think I've mentioned to you before, when you launch usually and that was something in the order of 20% open coverage for plans that either are not that well controlled or where they give you sort of a conditional access whilst you are negotiating.

But I think our broad estimate right now is that we're probably somewhere in the sort of mid-40s in terms of commercial coverage, and that we would expect to start to move it up into the 50s as we start to bring through the downstreams I referenced with ASI, when we were getting to sort of quarter two.

[Jean-Paul Clozel, Chief Executive Officer]

Thank you, Simon. Thank you, Harry. Operator, next question please.

[Operator]

Thank you. We will take our next question. Our next question comes from the line of Rosie Turner from Jefferies. Please go ahead your line is open.

[Rosie Turner, Jefferies]

Hi, and thank you for taking my question and I'll jump back in the queue after this one. But yes, so just when you service that long term extension study, did I hear just towards the end of the call that that is being discussed with authorities. I think we saw on the FDA website, it's been extended out further. So is there something going on there? Is it something that could kind of – we should potentially be thinking about adding back into numbers? Thank you.

[Andrew Weiss, Head of IR]

Thank you, Rosie. Jean-Paul, do you want to comment on.

[Jean-Paul Clozel, Chief Executive Officer]

No, I think we have been waiting really to get two years data on the renal effect of lucerastat, which are in my mind quite impressive. We have also measured subgroup, some very specific subgroup of patients. I do not want to give competitive information, so. But you know, we need to discuss with both Europe and U.S. in order to really see where we can go. It's very clear that the drug is active, but this is a regulatory issue.

[Andrew Weiss, Head of IR]

Thank you, Jean-Paul. Just very quickly, Rosie. So yes, that observation is correct. The open-label extension was extended from 48 months out to six years, given that the first patients were actually reaching that four year mark.

[Rosie Turner, Jefferies]

Perfect. Thank you.

[Andrew Weiss, Head of IR]

Thank you Rosie. Operator, next question.

[Operator]

Thank you. We will take our next question. Our next question comes from the line of Thibault Boutherin from Morgan Stanley. Please go ahead, your line is open.

[Thibault Boutherin, Morgan Stanley]

Yes, thank you for taking my questions. So on QUVIVIQ sales expectations for this year, when we look at your guidance, it looks like you're expecting roughly CHF 100 million for QUVIVIQ globally. So if you could just help us understand the split that you expect broadly between U.S. and ex-U.S?

And then second, I mean follow-up on this in the U.S. dynamics for QUVIVIQ. Right now there are some highs and you are raising around $80 million a year in the U.S. So if you could help us understand the dynamics for QUVIVIQ in the U.S. in terms of, I guess one side is prescription growth, the other side is transition to paying prescriptions? So if you could help us how we should – how you're kind of thinking about this for the year, and basically does this mean that the vast majority of sales for QUVIVIQ this year should be kind of back-end loaded towards the end of the year? Thank you very much.

[André Muller, Chief Financial Officer]

I can take the most part. Thibault I would like to help you, but I'm not sure we will be able to do or trust for the latter, for your second question. Yes, it's more skewed to the end of the year because here, as Simon said, we believe that it will drive higher volumes, week after week and that we see a pace and coverage. These volumes will convert into net sales. So yes, clearly there is a higher amount in Q4 and in Q3 compared to Q2 of Q1, that's one.

On the other side, having a breakdown of net revenue, i.e., sales and contract revenue, the only thing I can tell you is that in the contract revenue, we do not speculate on new out-licensing deals, and we have a few above since the year, but it's like M&A. You need to be too, so we have not factored here any additional contract revenue.

So, you can reasonably expect that it's mainly driven CHF 230 million, mainly driven by sales, PIVLAZ you have seen a trajectory quarter-over-quarter. So PIVLAZ has a significant amount, but the biggest one is QUVIVIQ in the U.S.

[Andrew Weiss, Head of IR]

Okay. Thank you, Andre. Before handing over to Simon to give some clarifying points on how his views are on Belsomra, we're not guiding on product specific. The consensus right now that resides on our website calls for CHF 110 million of QUVIVIQ sales and CHF 95 PIVLAZ sales and I feel comfortable with those numbers being out there in current consensus. Simon, do you want to make some comments on the Belsomra and where that stands right now in terms of its numbers and how did that compare?

[Simon Jose, Chief Commercial Officer]

Yes. I mean, I think as I showed in the presentation, we're close to being through on NBRxs, I think we'll be on TRXs in the next few months. So, we'll be in a position where we're driving more volume in Belsomra in the next few months, I'm sure.

And then as André said, it's really now about putting the payer coverage through to convert that volume into net sales. I mean I think really you end up with several benefits of payer coverage. You end up obviously converting free scripts to paid scripts and that generates net sales. But it also removes the NDC block that are in place when payers are blocking you, and that allows currently written scripts to start to move.

And also we know from our research that the lack of coverage is certainly a disincentive for doctors to write more. So I think that obviously with our sales force activity, and now that we've got the coverage, we will expect to see demand grow as a result of this. I think that the payer access for sure has a net sales benefit obviously, but it also plays an important role in demand generation as well, and I think we would expect both of those things to collectively play through the next year, and as André said, that we'll build over time, which means that we're more back end loaded than front end.

[Thibault Boutherin, Morgan Stanley]

That's very clear. Thank you very much. Just on the second part quickly. So from your answer, we can infer that the vast majority of QUVIVIQ sales you're expecting having to be in the U.S. in 2023.

[Simon Jose, Chief Commercial Officer]

Yeah, U.S. accounting, the majority… [Cross Talk]

[André Muller, Chief Financial Officer]

I would not quote how much vast means, but the majority is U.S. clearly.

[Thibault Boutherin, Morgan Stanley]

Okay. Thank you very much.

[Andrew Weiss, Head of IR]

Thanks, Thibault,. Operator, next question.

[Operator]

Thank you. [Operator Instructions]. And we will take our next question. The question comes from the line of Rajan Sharma from Goldman Sachs. Please go ahead, your line is open.

[Rajan Sharma, Goldman Sachs]

Hi! Thanks for the question. Just had one on PIVLAZ. So I think you talked about penetration at 25% in December, which looks flat compared to November as you updated in January. So, can you just talk about how you see penetration evolving from here given that you're at 95% of target accounts? Thanks.

[Simon Jose, Chief Commercial Officer]

Yes, sure. I mean, I think I've said in previous calls that we absolutely expected a pretty rapid ramp and then it's going to start to - that curve is going to start to slow down. I mean I think you often see that with specialty drugs, but we're certainly seeing it with PIVLAZ, because what we've seen is the trial sites and the investigators jump in very quickly, which is what's given us this sort of rather rapid uptake as we've seen in the first sort of eight to nine months. And I think you'll now start to see that the increase will be more modest each time we come through quarter-on-quarter.

So I expect it to grow. I just don't - we shouldn't expect to sort off – I think I said this at Q3, we shouldn't expect it to linier. We're going to be at 100% market share by the summary if we go on at that rate. So we really are expecting to continue to see growth, but I think it'll become now more modest as we move into the rest of the market and people who have less exponents with the drug and will perhaps move a little bit more slowly than the investigation.

[Andrew Weiss, Head of IR]

Thank you, Simon. Operator do we still have questions.

[Operator]

Yes we do. One moment please. Please standby. Apologies for the delay, one moment, please. And your question comes from the line of Sushila Hernandez [ph]. Please ask your question.

[Unidentified Analyst]

Hello! Thank you for taking my question. I just have a question on your early-stage pipeline. You already briefly touched upon it. What is your strategy here? And what is your priority here? Thank you.

[Andrew Weiss, Head of IR]

Jean-Paul. What is our strategy here on the early stage pipeline?

[Jean-Paul Clozel, Chief Executive Officer]

The early-stage pipeline, we have discovered you know. We have profited of many projects, which really has come to breakthrough and we are really focusing only on specialty products, you know very, very – because these are our choice.

We now have that, the possibility to do research on a very selective topic. So first is specialty products, very limited orphan drugs and high medical need, most first in class, sometimes best-in-class, but I would say, nearly 90% first in class and with very significant breakthrough.

But as you know, these are compounds in Phase 1, in Phase 2, and there is always not 100% sure that they will make it to the end and this is why we look for partners like we have done with Neurocrine where you know, these are - working with our SMT channel because they are rally CNS, very specialized company, and we try to do the same for many of these early projects.

We will keep the development for maybe one or two, but most of these products should be partner.

[Andrew Weiss, Head of IR]

Thank you, Jean-Paul. Take care Sushila. Operator, do we have more questions.

[Operator]

Thank you. One moment please. We will take our next question. And the question comes from the line of Jo Walton from Credit Suisse. Please ask your question.

[Jo Walton, Credit Suisse]

I just wonder if you could tell us a little bit more about your response to the ReACT study. When you'll make a final decision, how long it should take, and is there any write-off at all if you decide not to take the product outside of Japan? And please just confirm the, you will be taking that data to Japan to the regulators, but presumably, you are confident that there will be no change in the trajectory of PIVLAZ adoption in Japan post the ex-U.S. - sorry, the ex-Japan data?

[André Muller, Chief Financial Officer]

Yes, it is true. This is, as I mentioned, different doses, different conditions, different administration mode. So, I think this is really a very different story. Of course, we are analyzing the data, but with a negative primary end point, you can assume that we will not file neither in Europe or U.S. I think it's better now to really concentrate on Japan and concentrate on other projects. That's unfortunately the end of Clazosentan for U.S. and Europe.

[Andrew Weiss, Head of IR]

And are there any kind of financial consequences, André?

[André Muller, Chief Financial Officer]

No, no financial consequences. As I said, we only plan for what we know. So to this extent, I was not planning anything regarding REACT filing in U.S. or Europe or additional costs in connection with the prelaunch activities. So no change in the guidance that we gave and because there's no impact of beyond the ongoing commercial execution in Japan.

[Andrew Weiss, Head of IR]

Okay. Thank you, André. We have come to the top of the hour. Operator, do we still have any question in the roster.

[Operator]

There are no further questions.

[Andrew Weiss, Head of IR]

Okay. Well, thank you very much, Heidi. So, we've come to the end of our webcast. Thank you very much for your ongoing support of Idorsia. Operator, please close the lines.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect.