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Horizon Therapeutics PLC (NASDAQ:HZNP)
Q2 2020 Earnings Call
Aug 5, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and thank you for standing by. Welcome to the Horizon Therapeutics plc Second Quarter 2020 Earnings Conference Call. As a reminder, today's conference call is being recorded.

I would now like to introduce Ms. Tina Ventura, Senior Vice President of Investor Relations.

Tina Ventura -- Senior Vice President, Investor Relations

Thank you, Sarah. Good morning, everyone, and thank you for joining us. On the call with me today are Tim Walbert, Chairman, President and Chief Executive Officer; Liz Thompson, Group Vice President, Clinical Development and External Search; Paul Hoelscher, Executive Vice President, Chief Financial Officer; Vikram Karnani, Executive Vice President and President International; Andy Pasternak, Executive Vice President, Chief Strategy Officer.

Tim will provide a high-level review of the business, our second quarter performance and our full year guidance that we increased this morning. Liz will then provide a review of our R&D programs, followed by Paul, who will discuss our financial performance and guidance in more detail. After closing remarks from Tim, we'll take your questions.

As a reminder, during today's call, we'll be making certain forward-looking statements, including statements about financial projections, our business strategy and the expected timing and impact of future events. Our actual results could differ materially due to a number of factors, including the extent and duration of the effects of COVID-19 as well as other factors outlined in our latest forms 10-K, 10-Q and any 8-Ks filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance on these forward-looking statements, and Horizon disclaims any obligation to update such statements.

In addition, on today's conference call, all non-GAAP financial measures will be used. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings press release and other filings from today that are available on our Investor website at www.horizontherapeutics.com.

I will now turn the call over to Tim.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thank you, Tina, and good morning, everyone. We delivered fantastic results this quarter, driven by the continued outperformance of TEPEZZA, our medicine we launched earlier this year for Thyroid Eye Disease or TED.

We continue to hear from our stakeholders that TEPEZZA is meeting a significant and critical need for so many patients who've gone years without any FDA-approved options to treat this painful and vision-threatening, rare autoimmune disease.

Based on the significant TEPEZZA demand, we are increasing our full year 2020 TEPEZZA net sales guidance to more than $650 million, a substantial increase in the guidance of more than $200 million we announced last quarter. Additionally, based on the faster uptick we are seeing for the medicine as well as its broad indication, we're raising our TEPEZZA peak U.S. annual net sales estimate to more than $3 billion.

Driven by TEPEZZA, we're also increasing our 2020 total company net sales guidance by more than 30% to $1.85 billion to $1.9 billion. We're also raising our adjusted EBITDA guidance by approximately 60% to $725 million to $775 million. For perspective, our updated 2020 guidance is now in line with what sell-side analysts expect for net sales and adjusted EBITDA next year in 2021.

We're now realizing margin expansion of full year ahead of schedule. The midpoint of our adjusted EBITDA guidance represents 40% of net sales, a full three percentage point increase versus last year. We expect continued margin expansion over the next several years, driven by the continued growth of TEPEZZA and KRYSTEXXA. Our success is a testament to the value of our unique biopharma model where the cash flow we have generated from our legacy business allowed us to significantly invest first in the relaunch of KRYSTEXXA, and the success of KRYSTEXXA has allowed us to optimally invest in the launch of TEPEZZA.

The continued strong performance of both KRYSTEXXA and TEPEZZA will provide us with the cash to build our clinical development pipeline to generate growth in the years ahead.

Importantly, we recently achieved several key clinical development milestones. We announced new top line TEPEZZA data, underscoring its efficacy in longer disease duration, its long-term durability and potential for retreatment. We accelerated the start of our TEPEZZA trial in chronic or inactive TED to year-end 2020.

We reached target enrollment in our MIRROR KRYSTEXXA immunomodulation randomized controlled trial, with top line data expected in the first half of next year. And we presented new KRYSTEXXA immunomodulation data at EULAR, reinforcing the much higher response rate that has been observed when KRYSTEXXA is used with an immunomodulation agent compared to KRYSTEXXA alone.

We also continue to execute on our capital allocation strategy, completing the extinguishment of all $400 million of our exchangeable senior notes this week.

Our efforts since the beginning of 2019 have now reduced our gross debt by approximately $1 billion. At the same time, we've maintained a strong cash balance to transact on pipeline assets in rare diseases and our therapeutic areas of focus.

Our acquisition during the second quarter of HZN-825, a development stage candidate for scleroderma, an example of our business development strategy at work.

I will now recap our second quarter results. In our orphan segment, year-over-year sales growth of 87% was driven by TEPEZZA as well as continued growth of our other rare disease medicines. Our orphan segment net sales now represent more than 80% of our total company net sales, underscoring the rapid transformation we have made to a rare disease biopharma company.

TEPEZZA is turning out to be one of the most successful rare disease medicines launches ever. Second quarter net sales of $166 million significantly exceeded expectations.

As we noted last quarter, three factors are driving this outperformance. First, the severity of TED and its painful, progressive vision-threatening symptoms is a highly motivating factor for patients to seek out therapy, particularly when the medicine generated an impressive 83% response rate in its clinical program and is generally well tolerated.

Second, the prelaunch efforts we began in early 2019 have been highly successful in developing the market, educating key stakeholders on TED in TEPEZZA and establishing and simplifying the TED patient journey. We are seeing strong awareness among treating physicians and strong support from efficacy as well as patient groups.

And third, our outstanding commercial execution, which has driven faster-than-expected uptick of TEPEZZA in the market. In fact, market research we conducted in June demonstrates that our prelaunch efforts and commercial execution have led to high awareness and favorable perception of TEPEZZA among our target physicians. Awareness of TEPEZZA is now at more than 90%, up from about 60% in May of last year. In addition, approximately 95% of target physicians have a favorable perception of TEPEZZA.

At this point, less than 50% of our target physicians have prescribed TEPEZZA to-date, highlighting the significant growth opportunity we have moving forward. Additionally, about half of the physicians, who have not yet prescribed TEPEZZA but plan to, have delayed prescribing due to COVID-19. This underscores -- despite our dramatic success -- the impact that COVID-19 has had on the launch.

Despite the fact that ophthalmologists have been among the most impacted physician specialties during COVID-19, TEPEZZA demand continues to grow. Our field team quickly adapted to this new environment and is successfully engaging with key physicians, both in-person and virtually. We are pleased that we have seen minimal disruptions to patients who have started therapy. And as we discussed last quarter, after very rapid growth in February and March, new patient enrollment forms or pass slowed in April-May due to COVID 19.

PEFs are a leading indicator of demand. Beginning in late May, however, we started to see a rebound in PEF volume, which gives us confidence in the uptake of TEPEZZA this year and moving forward. We saw continued strong patient growth with more than 1,000 patients on TEPEZZA at June 30. We continue to see a positive overall access environment, which is underscored by the number of patients already on therapy. Payers understand the value of TEPEZZA, and policies are now in place for 90% of covered lives with favorable policies for approximately 75% of those covered lives.

We have also received our permanent J-Code in July, which will go into effect on October 1. It will help streamline the reimbursement process for many payers.

As expected, our payer mix is continuing to shift more to commercial patients, which now represent more than half of the patients on TEPEZZA. We also continue to see that TED patients are highly motivated to seek treatment.

Based on these learnings, we have initiated a direct-to-consumer campaign to drive TED awareness and encourage patients to go to their doctors' office to seek treatment for their TED. And to learn more about the TED experience from patients, advocacy organizations and physicians, we're learning that TEPEZZA is actually changing the way physicians think about this disease. It is disrupting long-held notions of treating TED that have been placed since the 1950s.

As we have discussed before, until TEPEZZA, surgery was generally the only option for treating patients in the fibrotic phase or what we are now calling the chronic phase of TED. Physicians are beginning to use TEPEZZA in these chronic patients rather than opting for surgery or using TEPEZZA first with the goal to reduce the complexity or number of surgeries for their patients.

The stories that we hear from patients continue to make us extremely proud. One patient was suffering from chronic TED for four years and prior to TEPEZZA, tried steroids, radiation and decompression surgery without relieving any pressure or eye pain. The ongoing pain would frequently come and go and worsen when she moved her eyes. Shortly at the beginning treatment with TEPEZZA, she finally had relief from those years of pain.

In June, we also saw the first of what we hope for many published case reports detailing the success of TEPEZZA in treating chronic TED. Dr. Bobby Korn from UCSD, San Diego, published a case report describing the ongoing results of one of his chronic TED patients treated with TEPEZZA and was published in the American Journal of Ophthalmology. After three infusions, his patient achieved a six-millimeter reduction in proptosis or eye bulging in both eyes. Results like these are generating strong interest in TEPEZZA for the treatment of chronic TED, which is one reason we accelerated the initiation of our chronic trial to year-end.

We estimate the addressable chronic TED patient population to be approximately 70,000 patients based on an estimate of TED patients or between three and eight years of diagnosis. We anticipate uptake of TEPEZZA in both the chronic and active or acute patient population to drive our more than $3 billion peak U.S. annual net sales estimate, an increase from our most recent estimate of greater than $1 billion.

With KRYSTEXXA, we generated net sales of $75 million, in line with our expectations for the quarter. We're on-track for our full year 2020 expectations of achieving similar net sales of KRYSTEXXA as 2019 and expect a return to growth in 2021.

We continue to see rheumatologists being one of the specialties most impacted by COVID-19, as rheumatology patients tend to be immunocompromised and more at risk, and many of them have been hesitant to leave their homes to visit their physicians. We're encouraged to see some patients beginning to return to the physician offices.

Moving forward, while we continue to monitor the impact of COVID-19, at this point, we remain confident in our guidance. Our current focus with KRYSTEXXA encompasses three areas. First, working through with the patients in our deferred demand funnel; second, generating new patient demand with both rheumatologists and nephrologists; and finally, educating physicians on the potential benefits of KRYSTEXXA plus immunomodulation.

Our KRYSTEXXA immunomodulation strategy continues to be of high interest to treating physicians, particularly following the multiple data presentations at the European League Against Rheumatism Congress or EULAR in June. Liz will discuss the KRYSTEXXA immunomodulation data in more detail shortly.

But to summarize, the response rates using KRYSTEXXA with several different immunomodulators range between 70% and 100%. As we noted last quarter, our market research showed that 75% of physicians using KRYSTEXXA remain interested in immunomodulation despite COVID-19.

We're also conducting a randomized controlled trial called MIRROR, extending KRYSTEXXA with methotrexate, and we reached target enrollment in July. We look forward to sharing top line data in the first half of next year.

There continues to be a significant unmet need for the more than 100,000 patients who are not being treated for the chronic and painful uncontrolled gout. We remain highly confident in our peak U.S. annual net sales estimate for KRYSTEXXA of more than $1 billion.

With our rare disease medicines, we generated durable growth again this quarter. Combined, active shipping patients increased mid-single digits year-over-year, and we continue to see high rates of compliance and adherence.

In April, we launched PROCYSBI delayed-release oral granules in packet after receiving FDA approval in February. We developed this new dosage form based on feedback from the cystinosis community. The granules help improve the PROCYSBI experience for patients by overcoming pill burden or swallowing challenges, two factors that have been known to impact patient adherence to the medicine. We have seen patients who are off therapy from six months to as long as six years have restarted treatment with PROCYSBI.

I will now turn the call over to Liz for an update on our R&D program. Liz?

Elizabeth H.Z. Thompson -- Group Vice President, Clinical Development and External Search

Thank you, Tim, and good morning, everyone. We made continued progress in the second quarter with our R&D program. Last week, we announced top line results from the TEPEZZA OPTIC-X extension trial and the OPTIC 48-week off-treatment follow-up period.

Regarding KRYSTEXXA, we reached target enrollment in our MIRROR immunomodulation trial and are now in greater than 50% enrollment in our PROTECT trial in kidney transplant patients.

We also progressed our other TEPEZZA and KRYSTEXXA trials, including our TEPEZZA trial in chronic TED, our TEPEZZA subcutaneous administration program, our TEPEZZA exploratory trial in the subset of scleroderma and our KRYSTEXXA shorter infusion duration trial. Each trial is evaluating ways to further maximize the value of these medicines for patients. And we remain on-track to initiate a Phase IIb study with HZN-825 in a subset of scleroderma early in 2021.

Let me begin with the new top line TEPEZZA data we shared last week. Our Phase III clinical program had three components: OPTIC's initial 24-week placebo-controlled period; a 48-week off-treatment follow-up period; and an open-label extension trial called OPTIC-X.

We announced last week top line results of OPTIC-X as well as results of the 48-week off-treatment follow-up period from OPTIC. The results provide further data regarding the dramatic efficacy of TEPEZZA in patients with longer disease duration, its longer-term durability and the potential for retreatment. We discussed this in detail on an investor call last Friday with Dr. Ray Douglas, the primary investigator of the OPTIC and OPTIC-X trials.

To summarize the data, all the OPTIC placebo patients who participated in OPTIC-X, who were treated with their first course of TEPEZZA, 89% achieved a clinically significant proptosis reduction of two-millimeters or greater by week 24. This compares to the 83% response rate demonstrated in the Phase III OPTIC trial. Importantly, patients in OPTIC-X had longer disease duration, an average of 12 months compared to six months for patients in the OPTIC trial.

Only five patients did not achieve a proptosis response after a full course of TEPEZZA in OPTIC, reflecting the strong initial treatment results. Of these, we were impressed that two patients achieved a reduction in proptosis of two-millimeters or greater after a second course of TEPEZZA in OPTIC-X.

Moving to durability. The 48-week follow-up period showed that the majority of OPTIC TEPEZZA responder maintains their response at week 72, nearly a year of treatment. And notably, of a small number of OPTIC TEPEZZA patients who relapsed during the 48-week follow-up period, more than 60% experienced at least a two-millimeter reduction in proptosis with an additional course of TEPEZZA in OPTIC-X.

Importantly, there were no new safety concerns in either the 48-week follow-up period or in OPTIC-X, during which patients received additional TEPEZZA treatment. We look forward to presenting additional detailed data for both studies at future medical meetings.

Continuing with TEPEZZA. We've previously talked about our planned study in patients who are beyond the active or acute phase of TED. Before I discuss further, however, it is worth taking a moment to reflect on what Tim mentioned earlier. Specifically, the ways of the introduction of TEPEZZA is changing understanding of TED and also the terminology used to describe it.

The terminology used to date to describe the phases of TED -- active and inactive -- evolve largely based on the treatments that have been available historically. The focus in the active phase was on alleviating signs and symptoms of inflammation because there were no medications to treat proptosis and diplopia. The focus in the inactive phase was using surgical intervention to reduce proptosis, which is only done in the inactive phase, when the chance of inducing an inflammatory flare-up was low.

However, even after the active stage, many patients continue to present with many of the same symptoms, still well above normal levels, that can have a debilitating impact on the patient's quality of life. After discussions with TED key opinion leaders, there's growing consensus that it's more appropriate to describe the phase characterized by changing signs and symptoms at the acute stage of the disease and the period after which the symptoms are no longer noticeably changing, but still persist as the chronic stage of the disease. We will, therefore, be using these descriptors going forward.

TEPEZZA works by specifically targeting and blocking the IGF-1 receptor to reduce muscle and fat tissue behind the eye to improve proptosis and diplopia. IGF-1R is still present at heightened levels in orbital fibroblast achieved from surgical samples in patients in the chronic phase of the disease. And in fact, IGF-1R inhibition appears to impact multiple aspects that drive disease in the acute phase and continue to be relevant in the chronic phase.

Evidence is building that supports the use of TEPEZZA in chronic TED. While the TEPEZZA prescribing information is broad and intended for all patients with TED, the objective of our TEPEZZA trial in chronic TED that could generate data in this specific population to better inform physicians who may wish to use the medicine with their patients. We're planning to begin the study in this population by year-end. We expect to focus on the types of symptoms persistent in the chronic TED population, such as proptosis, diplopia and pain, and on patients who have had at least a year without all these signs or progressions in the inflammation.

Work is well under way on our two other TEPEZZA trials. We continue to expect to start both the exploratory trial in diffuse cutaneous systemic sclerosis and the pharmacokinetic trial to explore the potential for subcutaneous dosing of TEPEZZA later this year.

Moving to KRYSTEXXA, where we continue to make great progress in our efforts to maximize the benefit that KRYSTEXXA can offer to patients with uncontrolled gout.

First, we presented multiple studies and datasets on the use of KRYSTEXXA with immunomodulators at the EULAR meeting in June. The KRYSTEXXA Phase III program, which evaluated KRYSTEXXA alone, demonstrated a 42% response rate. While impressive in this patient population, significant opportunity exists to improve the number of complete responders and the duration of response. So, the goal with immunomodulation is to help dampen the immune response to KRYSTEXXA, and thereby increase the patient response rate, allowing more patients to complete a full course of therapy. And the datasets presented at EULAR are promising, with reported response rates of 70% and above. Most data were with methotrexate. One was our MIRROR open-label trial, the precursor to our ongoing near randomized controlled trial, where 11 of 14 or 79% of patients demonstrated a complete response, nearly double the 42% response rate in the KRYSTEXXA Phase III trial.

While methotrexate is the gold standard immunomodulator, particularly for rheumatologists, it's important that physicians have the flexibility to select from a range of options as individual patient circumstances could make different immunomodulators more appropriate. And so, in addition to the expanding data on methotrexate, we were very pleased to see presentations of data at EULAR on other immunomodulators used with KRYSTEXXA, all with positive results that appear consistent with the results reported to-date using methotrexate.

One was a case series in 10 patients using leflunomide, which demonstrated a 70% response rate when used concomitantly with KRYSTEXXA. And last quarter, we mentioned the RECIPE trial, assessing mycophenolate mofetil or MMF, which showed positive results, consistent with previously reported open-label studies with KRYSTEXXA and methotrexate.

These data add to the increasing body of clinical and real-world evidence, supporting the immunomodulation approach with KRYSTEXXA. And it's notable that the total number of patients in published studies of immunomodulation now approximates the number of KRYSTEXXA patients in the Phase III trial.

We'll be further adding to the clinical data for immunomodulation with our randomized placebo-controlled MIRROR trial, evaluating the efficacy and safety of the concomitant use of KRYSTEXXA with methotrexate to increase the response rate of KRYSTEXXA.

In July, we reached target enrollment of 135 patients for this trial with a final number who will randomize in the trial likely to slightly exceed the initial target. We expect top line results in the first half of 2021.

Regarding our other KRYSTEXXA trials, we are now at greater than 50% enrollment in PROTECT, our trial evaluating the use of KRYSTEXXA in kidney transplant patients with uncontrolled gout. We also remain on-track to initiate our KRYSTEXXA shorter-infusion duration trial in the second half of this year.

Finally, I will discuss HZN-825, our newest pipeline candidate. HZN-825 is an oral selective LPAR1 antagonist with early clinical signals of benefit in diffuse cutaneous systemic sclerosis, a rare chronic autoimmune disease with no FDA-approved therapies and a high unmet need. This is a rare disease with an approximately 30,000 patient population. The disease is marked by fibrosis or skin thickening and have high morbidity and mortality rates. The current treatment approaches are focused on providing organ-specific or weaker symptoms, while also attempting to slow disease progression.

Positive signals were observed with HZN-825 in an eight-week placebo-controlled Phase IIa study, as well as continued improvement noted in the 16-week open-label extension period. However, the time frame was too short to show statistically significant clinical benefit and suggest that longer duration of treatment may demonstrate meaningful benefit in this patient population.

We're working with the FDA to finalize the Phase IIb pivotal trial protocol. We would expect the trial design to be one-year in duration with ACR KRYS as an important endpoint, and we'll also focus on individual components of ACR KRYS. We plan to begin the trial in the first half of 2021.

In summary, we've made substantial strides through the second quarter to maximize the value of our medicines and bring our pipeline forward.

And with that, I'll now turn the call over to Paul.

Paul W. Hoelscher -- Executive Vice President, Chief Financial Officer

Thanks, Liz. My comments this morning will primarily focus on our non-GAAP results, unless otherwise noted. Second quarter net sales were $463 million and adjusted EBITDA was $191 million or 41% of net sales, significantly exceeding expectations and driven by our strong net sales performance.

Our orphan segment generated net sales of $375 million, a year-over-year increase of 87%, driven by the strong performance of TEPEZZA and RAVICTI. Orphan segment operating income was $152 million, representing a margin of 40%.

Net sales for the inflammation segment were $84 million with segment operating income of $38 million. We continue to reinvest the cash flow generated from this segment into our key growth drivers, TEPEZZA and KRYSTEXXA and our pipeline.

Our non-GAAP second quarter gross profit ratio was 88% of net sales. Non-GAAP operating expenses were $220 million. This included GAAP R&D expense of $28 million and non-GAAP SG&A expense of $192 million. Non-GAAP income tax expense for the second quarter was $94 million.

We were impacted by an unusually high non-GAAP tax rate in the quarter. As we've seen in prior years, there can be variability in the tax rate across quarters. And we expect the third and fourth quarter tax rate to offset the second quarter rates to bring the full year in line with our expectations of low double digits.

Non-GAAP net income was $84 million, and non-GAAP diluted earnings per share were $0.40. Weighted average shares outstanding used to calculate second quarter 2020 non-GAAP diluted EPS was 215 million shares.

As of June 30, cash and cash equivalents were $718 million, which is impressive as it reflects the investments of $157 million we made in the second quarter to acquire Curzion and certain TEPEZZA milestones and royalties. Our non-GAAP operating cash flow for the second quarter was $100 million, which reflects less than $20 million in cash receipts to-date from TEPEZZA sales.

As an infused medicine and because we expect the delays in reimbursement during the launch, we provided TEPEZZA customers with extended terms that will begin to decline following the expected implementation of our permanent J-Code on October 1. We anticipate an increase in operating cash flow generation in the second half of 2020 and, in particular, the fourth quarter, as collections of TEPEZZA receivables increase significantly.

At June 30, our net debt to last 12-month adjusted EBITDA leverage ratio was 0.9 times. As of August 3, all $400 million of our 2.5% exchangeable notes through 2022 were fully extinguished through exchanges for ordinary shares or cash redemption, marking further improvements to our balance sheet and capital structure.

The total principal amount of our debt today is $1.018 billion, with the earliest maturity in 2026. We've lowered our interest expense as a result of several capital structure improvement efforts made since the beginning of 2019, and there are no maintenance covenants on our debt.

Our balance sheet is strong. We are confident in our ability to generate operating cash flow, allowing us to pursue further pipeline assets as a top priority.

This morning, we announced that we are increasing the full year 2020 net sales guidance range to $1.85 billion to $1.9 billion from $1.4 billion to $1.45 billion, reflecting an increase in the full year 2020 TEPEZZA net sales guidance to more than $650 million, following its exceptional performance.

We are also increasing our adjusted EBITDA guidance range to $725 million to $775 million from $450 million to $500 million. At the midpoints, adjusted EBITDA would be 40% of net sales and would reflect an acceleration of our margin expansion a full year ahead of plans. Our updated guidance represents year-over-year growth in net sales and adjusted EBITDA of 44% and 55%, respectively, at the midpoint.

Our 2020 guidance reflects our best estimates of the impact of COVID-19 and assumes we will continue to see some level of rolling shutdowns across the United States. We continue to expect KRYSTEXXA full year 2020 net sales to be in the range of 2019 net sales.

For our rare disease business unit, we continue to expect limited disruption from COVID-19 and full year net sales growth in the low- to- mid-single digits. For our inflammation segment, we expect both third and fourth quarter net sales to be in a similar range as the second quarter.

Moving on to our full year expectations for the rest of the income statement. Our non-GAAP gross profit ratio is now expected to be between 87% and 88%. This is primarily due to the impact of royalties associated with significantly higher net sales expectations for TEPEZZA this year. We expect full year 2020 non-GAAP operating expenses to increase compared to our prior expectations. This is driven by additional SG&A expense to support our increased net sales expectations and continued investment in our R&D programs.

While we expect R&D spending to be higher in dollars than previous estimates, given our significant increase in net sales guidance, we now expect our non-GAAP R&D expense as a percentage of net sales to be in the mid- to- high-single digits for 2020. Following the extinguishment of our 2.5% exchangeable notes, we now expect full year non-GAAP net interest expense to be approximately $45 million.

For our tax rate, we now expect a full year non-GAAP tax rate in the low double digits. As I mentioned earlier and as we have seen before, we are seeing some variability in our non-GAAP tax rate on a quarterly basis. We anticipate a tax benefit, resulting in a negative non-GAAP tax rate in the second half of the year to bring the full year rate in line with our expectations. Our 2020 cash tax rate is now projected to be in the low- to- mid-single digits.

Given our recent share price appreciation and its effect on the calculation of the weighted average diluted share count under the treasury stock method, we now expect our third and fourth quarter weighted average diluted share count to be approximately 220 million shares.

With that, I'll turn it over to Tim for his concluding remarks.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thank you, Paul. The second quarter was one of significant growth, demonstrating our strong ability to execute. We substantially increased our full year 2020 net sales and adjusted EBITDA guidance, which represents an acceleration of our margin expansion plans a full year ahead of schedule.

TEPEZZA continues to generate outstanding results, on-track to be one of the most successful rare disease medicine launches ever. Given the strong performance, we increased our peak U.S. annual net sales estimate to more than $3 billion.

Finally, we continue to improve our capital structure, further reducing our gross debt following extinguishment of our exchangeable senior notes, while also maintaining a strong cash balance despite investments made during the quarter.

Today, Horizon is emerging as one of the fastest-growing biopharma companies among our peers with an industry-leading growth profile on both the top and bottom line. We believe this is deserving of a higher multiple, and we are well positioned to continue to deliver increasing value to our shareholders now and over the years ahead.

With that, we'll open it up for questions. Tina?

Tina Ventura -- Senior Vice President, Investor Relations

Sarah, go ahead.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of David Amsellem with Piper Sandler. Your line is now open. Thanks. And very impressive results. A few questions on TEPEZZA. So, I'm interested in the kind of fibrotic or chronic patients who have been getting the drug. Is there a duration of fibrosis range that predominates? Is there also evidence that patients with longer-standing fibrosis, say, more than five years, are benefiting from treatment? Interested in what you're hearing from the field. Even though it's still early -- and then a question on -- and then just real quick on duration of treatment, I know it's early days, but what are you hearing about physician intentions to treat for longer than six months in particularly severely active patients?

Tim Walbert -- Chairman, President and Chief Executive Officer

Great. Thanks, David. Appreciate the questions. As far as duration of treatment, we have not heard of any patients going longer than six months at this point in time. It's still early in launch, but we have not heard that feedback as yet. And looking at the chronic patient, in our estimate of 70,000 patients, we're estimating patients who've been diagnosed three to eight years, and that's the predominance of what we've heard from the treating community. We have heard stories of patients with over 10 years of diagnosis. And across this population, we have heard basically similar results to what we saw in the Phase III program. So we haven't seen differences between three, five, seven, eight or even 10 years at this point. Again, it's a small population. And as Liz mentioned, we're going to start our chronic trial by year-end to get more data there. But so far, it's being used. It's being reimbursed, and we're hearing good results from those physicians who are using it. But it's certainly something we're going to learn a lot more of as we get more months and quarters into the launch.

Tina Ventura -- Senior Vice President, Investor Relations

Great. Thanks David. Sarah, next question please.

Operator

Thank you. Our next question comes from the line of Annabel Samimy with Stifel. Your line is now open. Hi, all. Thanks for taking my question, and congratulations on this launch. So I had a question about the trajectory. So it's undeniably incredible. Can you explain now what this trajectory might look like? Meaning, when you get to the point where you've treated and "cured" most patients and they start dropping out of the prevalence, so you can see a cap to your estimates? Or do you expect to try to start exploring some kind of maintenance protocol? And then, I guess, in the same but different regard, given the strong IGF-R [Phonetic] inhibition, is there any expectation to accelerate, so that's exploration in scleroderma, or TEPEZZA beyond exploration phase? Thanks.

Tim Walbert -- Chairman, President and Chief Executive Officer

Sure. Thanks Annabel. Appreciate it. Yes, we're seeing amazing uptake, and the vast majority of that's been in the acute population. But as I mentioned in the last answer, we are seeing a number of patients benefit who've had chronic disease. Just to give a little recap on the market size and what the annual prevalent population and incident population is, we expect 15,000 to 20,000 new patients with thyroid eye disease each year. So, that will be refreshing each year. And typically, these acute patients have one to three years of active disease. So anyone who's not treated in one year can roll into the next year. So you're going to wind up with a population in excess of 20,000 each year coming into the market.

Looking at the chronic population, that is 70,000 patients. So, as anyone who is not treated in the first three years that rolls in will continue to enrich the chronic population. But if we see significant penetration, we would expect that 70,000 population to continue to decline. So, same continued incident population coming into the market each year, 15,000 to 20,000 plus. And the chronic, it really depends on how fast we penetrate that population. So, thanks Annabel.

Tina Ventura -- Senior Vice President, Investor Relations

Next question please, Sarah.

Operator

Thank you. Our next question comes from the line of Jason Gerberry with Bank of America. Your line is now open. Hey, good morning, and also I'll echo my congrats on the updates here. So my question is just on the TEPEZZA peak outlook. Could you give us a sense of the split in that number, active versus inactive? I just want to get a sense that if the open-label inactive study does produce favorable data, to what extent there could be upside to the $3 billion peak number. And then, just on the -- I have another question. Just when I look at the patient number that you talked about versus your sales, the sort of revenue capture per patient, it seems high. And so, I'm wondering -- your previously disclosed gross to net assumptions or vials per patient assumptions, both seem conservative. So I'm curious if you're seeing upside on either of those parameters? Thank you.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thanks Jason. First, from -- on the vials per patient and compliance. I think all the parameters that we look at with TEPEZZA have been performing or actually coming in better than expected. We haven't had enough patients go through the full course of treatment to have a true estimate of vials per patient. We are seeing slightly higher weights. So we may wind up with a little more vials per patient. We just don't have enough data to confirm that yet, Jason. Compliance has been remarkably good at this point in time. But again, we have to see once we get larger numbers of patients getting through the full course to determine what that -- if there's a long-term increase in the essentially ANRP per patient.

Relative to your first question around the overall forecast, that includes both acute and chronic patients. We're not breaking it out between the two. But ultimately, it's looking at the $3 billion. It's really the pace to that $3 billion that I think where there's upside. Traditionally, people look at 5 years plus. So if I look at that number, it's more the pace to that $3 billion. And then again, we just have to see what that data looks like as we continue to get more treatment in the chronic population.

Tina Ventura -- Senior Vice President, Investor Relations

Thanks Jason. Sarah, next question please.

Operator

Thank you. Our next question comes from the line of Ken Cacciatore with Cowen and Company. Your line is now open. Hey, guys. Congratulations on the launch.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thanks Ken.

Operator

Just a question, if you have a sense of actually active versus chronic in treatment now? And then, in terms of the chronic patient, as you learn more about where they may be, do you get a sense that they're still seeing clinicians? Or is there a level of frustration and they fall out of the treatment paradigm so that your advertising could help stir them up and get them out? Just what you're learning about where those patients go. And then lastly, how does BD change with the success that you're having? Just wondering if there's any change in the way you focus if you think of later-stage assets. Or are we're going to stick with what's got us here and still looking for the earlier stage assets? Thank you.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thanks Ken. Appreciate the questions. On the BD, our strategy remains the same. We're looking at mid-to-late stage development-stage opportunities in rare diseases and also our therapeutic areas where we have a presence such as rheumatology and nephrology, endocrinology and ophthalmology. So we continue to march down. There's a number of assets on a regular basis that we're reviewing. And like we did with HZN-825 and the Curzion deal, we're looking for bolt-on development-stage assets to build for the long-term growth of the Company.

As far as the chronic patients, I think it's a mix. Some of them do fall out of the system. A lot of them are being seen by their ophthalmologists and/or endocrinologists for their underling Graves' disease. But what we're seeing is, these patients have significant pain and continuing suffering, which they seek treatment for. So we are finding -- most of them are being seen by their physicians. And when you look at our digital advertising as well as our direct-to-consumer activities, we found just -- we ran a pilot early on with much better-than-expected results, where patients are really taking action, and we're hearing feedback from physicians directly that patients are coming in asking about new treatments for TED. So we expect to continue to accelerate both our digital and direct-to-consumer activities to really educate these patients to, one, diagnose if you're earlier in the course of disease and urgently treat to avoid surgery and other debilitating or disfiguring impacts, and if you've had long-standing disease, that there's still a potential option, so you need to see a physician and seek that out. So we see our promotional effort as being able to get at both of those groups and hopefully continue to accelerate treatment. So, thank you.

Tina Ventura -- Senior Vice President, Investor Relations

Thanks Ken. Sarah, next question please.

Operator

Our next question comes from the line of Gary Nachman with BMO Capital Markets. Your line is now open. Hi, good morning. My congrats as well on the great progress on TEPEZZA. Good morning, Gary. So how big will that open-label study in chronic patients be that's starting later this year? And when could we see data on it since it's open-label, so it might trickle out potentially over the course of next year? And then, just talk about the infusion network and how that's been growing. It seems there's been no issues for administration for these patients. You're doing a really good job with that. And also comment on home infusion, if you've been able to even start thinking about that in the COVID environment and how that might play out and help you down the road. Thanks.

Tim Walbert -- Chairman, President and Chief Executive Officer

Sure. Thanks Gary. On home infusion, we have a single-digit percentage of patients who are being treated. In certain areas, we're seeing more of it than others, but it is a viable option. And we are seeing some physicians utilize it with their patients. And we'd expect, over time, as more and more comfort is gained by both physicians and patients that, that will expand.

With our infusion network, we have done a lot of work in advance of launch. And subsequent, I believe we probably have over 1,000 infusion centers that are actively certified and involved in TEPEZZA in one way or another. And that network has continued to be able to see patients. Especially when there's challenges with some close, we can quickly find alternative places for them to be infused. So we have a separate organization on the commercial side that has done a great job of managing that interface between the infusion center and the patient and making sure that they get to a place where they can both start and complete their infusions.

Relative to the chronic trial, I think we've guided to 25 or north of 25 patient population. As far as timing, I don't know specific timing, but I would think that it -- you're talking about six months of treatment and time to enroll. So you can probably add up from there. I think it is important when you look at how the ophthalmology community has typically worked. Abstracts in the American -- or case series or case studies in the American Journal of Ophthalmology like Dr. Bobby Korn from UCSD published, are -- we're hearing a lot of those are being submitted, and we expect to see over the coming months and into the spring conferences next year, where physicians are having a lot of individual success with chronic patients. They're publishing that. So we think there'll be a lot of data out in the community that continues to show strong efficacy in that population. And as we finalize the chronic trial, we'll give more information on the timing of that.

Tina Ventura -- Senior Vice President, Investor Relations

Thanks Gary.

Operator

Okay. Thanks Tim.

Tina Ventura -- Senior Vice President, Investor Relations

Sarah, next question.

Operator

Thank you. Our next question comes from the line of David Risinger with Morgan Stanley. Your line is now open. Yes, thanks very much, and Tim, let me add my...

Tim Walbert -- Chairman, President and Chief Executive Officer

Hi, Dave.

Operator

Hi, Tim. Let me add my congrats as well. Great to see the phenomenal performance. So I have two questions. The first one kind of follows on a prior question. But could you provide a little more perspective on the recent prescribing of Teva -- sorry, of TEPEZZA beyond the moderate-to-severe patients studied in Phase III, including to what degree physicians may be prescribing it in mild active TED and also inactive TED? And then second, is the lack of a permanent J-Code constraining current physician prescribing of TEPEZZA? Or is it simply a cash flow issue for Horizon to extend the payment terms temporarily?

Tim Walbert -- Chairman, President and Chief Executive Officer

Sure. Thanks Dave, and it's the latter. As Paul went through in his remarks, we did provide, as is typical -- or customary in launches, extended term. So we have a significantly high receivables balance. Paul, when I'm done can remind of what that is. We haven't seen a significant impact from the J-Code at this point in time, given the broader reimbursement and access that we've had with 90% of plans covering TEPEZZA and over 75% of them being with favorable access.

To get to your question, and then Paul, you can jump in on the receivables with TEPEZZA in the different populations, in the acute population that we studied, which is really the moderate-to-severe active population, that is the vast majority of patients that have been treated. When you look at the chronic population, I would say that is mid-to-high single-digits at this point in time. We don't have great data on that, but we are seeing a number of patients being treated who fall into that chronic, which is the disease diagnosed between three and eight years. As far as the mild population that we are -- we have not studied in that population. We are not marketing to that population. So I don't have any awareness of any use in the mild population at this point in time.

Paul, do you want to address his first question around the cash flow and when that will come in?

Paul W. Hoelscher -- Executive Vice President, Chief Financial Officer

Yeah. And as we mentioned on the call, we collected less than $20 million of TEPEZZA receivables in the second quarter. And it's because we had -- we expected that the physicians and customers would have a delay in getting reimbursement. And so, we did provide them extended terms as part of the launch. We expect those -- those terms are automatically dialed in to go back to normal level starting when we get our permanent J-Code on October 1. And so, as a result, as we look at the second half, we expect significantly higher cash flow generation. Especially in the fourth quarter, we should see the collection of TEPEZZA receivables really ramp up.

Operator

Thank you.

Tina Ventura -- Senior Vice President, Investor Relations

Sarah, next question please.

Operator

Our next question comes from the line of David Steinberg with Jefferies. Your line is now open. Thanks, and good morning. And very impressive execution, particularly during the pandemic. So I have three questions. The first one, just building on a prior question, you mentioned all metrics are improving, including pricing. I know the last -- the initial guidance you gave was $200,000 per course. I know that -- and that was based on the active population. And I think in your clinical studies, the average patient had a weight of 74.5 kilograms. In talking to a lot of the specialists, they mentioned that the fibrotic patients weigh a lot more. Do you have any sense of what the average weight would be for a fibrotic patient? Therefore, how many more vials you might use in them? Secondly, in the last month in talking to some of the specialists, they indicate each of them had a few patients who got step edits, but they also said that didn't make a lot of sense because the product they would attempt to use before TEPEZZA would be steroids, which have been shown 100% of the time not to work. But I was wondering, are you seeing a lot of step edit show up? And if you are, will that extend the adjudication process with the patients? Then the follow-up question is, I know your updated guidance is solely based on US sales from $1 billion plus to $3 billion plus. I just wanted to see if you could give us an update on the European opportunity. I know in Europe, orphan pricing has generally been similar to US pricing. And so, could you comment on what is the patient population roughly in Europe versus the US? And secondly, I think you said that you would go to Europe if you thought you could get orphan status, and I was wondering what -- where your discussions are on that. Thanks.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thanks Dave. When we look at TEPEZZA outside the US, we're doing our valuation beyond Europe as well. Within Europe, I think you said it well, we are continuing to pursue orphan drug designation and continuing dialogue and plan to include both US and international in our post-marketing commitment study. So we expect to have continued dialogue. And over the coming months, we will communicate plans to potentially go into some other markets with TEPEZZA.

From the standpoint of your question around reimbursement access step edits, for all rare disease medicines, you're typically going to have step edits. They're always going to check to make sure you have steroids. It's just pretty standard course here in the US. So we are seeing a number of physicians have their patients get that first step edit, have you taken steroids and looking at how long you've had the disease. That's one of the important things that Liz talked about in the OPTIC-X trial is that we showed patients with an average disease duration of 12 months have an 89% response rate or improvement in -- of greater than 2-millimeter in proptosis versus a six-month average in our Phase III. So with more data, we think we'll continue to make that process more timely. Those step edits are -- probably has been expected. And for the most part, we're seeing patients cycle through and get to their medicine because of the value that physicians are seeing for that in their patients.

And then finally, relative to your first question, Dave, around the net price per patient, we did guide to about $200,000 at launch. As I said earlier, we're seeing better compliance. We are seeing some increase in average vials per patient, but we just don't have enough patients that have had the full course of treatment to see that that's going to be higher. We're seeing average weights that go between 75 kilograms and 78 kilograms. I don't know that we're seeing a lot of data that shows the chronic population is much greater than the acute population. But that's something, as we get more data, we'll understand better and then communicate back out. So, thank you very much for your questions, Dave.

Tina Ventura -- Senior Vice President, Investor Relations

Thanks Dave. And Sarah, next question please.

Operator

Our next question comes from the line of Dana Flanders with Guggenheim. Your line is now open. Great. Thank you very much for the questions, and let me just add my congratulations on the quarter and just a fantastic launch. So my first is, Tim, you are just a full year ahead on margin expansion, which is quite impressive. Can you talk about just how you think about the margin profile evolving going forward? I know you are investing in R&D and mentioned the DTC campaign, but it just looks like 2021 could just be a very big year for margin expansion, given the growth you're seeing in TEPEZZA. And then just a quick follow-up and following up on a previous answer you provided. Can you provide just any more details on the interesting investigator-sponsored trials in chronic TED that are out there? Are there any ones worth highlighting that we should keep our eyes on? Thank you.

Tim Walbert -- Chairman, President and Chief Executive Officer

Thanks a lot, Dana. As far as margin expansion, yes, we're about a year ahead of our expectations. And as we see continued acceleration of TEPEZZA, we expect those margins to continue to increase, and you saw in our results adjusted EBITDA growing much faster than net sales. So we expect that margin accretion to continue. Some of that will be offset partially to continue to increase our investment as we do incremental development-stage deals. But net of R&D and increased R&D investment in transacted development-stage medicines, we expect to continue to see margin expansion into 2021 and beyond.

Relative to the investigator-sponsored studies, the one we've seen published is from Dr. Bobby Korn, and he has been on a number of calls discussing that. We know there's a number of folks that have submitted results of individual patients. We have heard stories of patients out beyond 10 years getting dramatic benefit as well. So we expect to see, in the fall conferences and into the spring conferences, more of that data. We don't have -- as they submit that directly, we don't get the opportunity to see that before it's published. So we have heard that some of that's coming. We just don't have them in our hands at this point.

Tina Ventura -- Senior Vice President, Investor Relations

Great. Thanks Dana. Sarah, I think we have time for one last question, please.

Operator

Thank you. Our next question comes from the line of Graig Suvannavejh with Goldman Sachs. Your line is now open. Yeah. Thanks for taking my question. I will add my congrats as well. Just curious on TEPEZZA and the great growth you're seeing there, can you comment just on current inventory levels and what you -- whether you think inventory levels are in line with what you'd be expecting on a go-forward basis? Thanks.

Tim Walbert -- Chairman, President and Chief Executive Officer

Sure, Graig. Thanks for the question. Inventory levels are generally low, less than one month at this point in time.

Tina Ventura -- Senior Vice President, Investor Relations

Great. And thanks Sarah. Thanks, everybody, for the question. That concludes our call this morning. A replay of this call and webcast will be available in approximately two hours. Thank you so much for joining us.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Tina Ventura -- Senior Vice President, Investor Relations

Tim Walbert -- Chairman, President and Chief Executive Officer

Elizabeth H.Z. Thompson -- Group Vice President, Clinical Development and External Search

Paul W. Hoelscher -- Executive Vice President, Chief Financial Officer

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