Madrigal Pharmaceuticals, Inc.

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

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

Well, thanks, Tina. Good morning, and thanks for joining. I'll cover three topics on our call this morning. First, an update on the ResDifera launch, where we are off to a strong start this quarter. Our key metrics are also showing strength and are consistent with market research, reflecting high physician awareness and intent to prescribe. Second, our progress wiring the system, where we are four months into what we expect to be about a 12-month process. This is our number one priority. As with other first in disease launches, we are driving a change in clinical practice and physician behavior and developing processes for efficient patient and prescription flow. Our goal is to establish a strong foundation to support peak sales. And third, our strategy to maximize the long-term value of ResDifera. In addition to the untapped opportunity in the U.S., we announced today that we plan to directly launch ResDiffer in Europe following an EMA decision expected next year. Let's start with the launch on slide four. As discussed in our first quarter call, we are providing second quarter metrics on three key areas, demand, including patient numbers, payer coverage, and prescriber uptake. We generated $14.6 million in net sales in the second quarter, and exited the quarter with more than 2,000 patients on ResDifera. In addition to driving demand, we have put a lot of focus on the time it takes to fill a prescription. With the physician community, magical patient support, specialty pharmacies, and payers, our field team is focused on patient selection with prescribers. Our patient support team and the specialty pharmacies in our limited distribution network are driving efficient prescription processing. And payers are executing on medical exceptions more efficiently because they recognize the unmet need. As a result, patients are moving more quickly through the reimbursement process. We have previously discussed our expectation for time to fill to improve from about 60 days at launch to about 30 days or less at six months. Because of our efforts, time to fill was running faster in the second quarter compared to those initial expectations. We're also very encouraged by the progress we've made with payers. They understand the significant unmet need in NASH, which is the number one driver of liver transplants for women in the United States. They also recognize the clinical benefits of ResDifera for F2, F3 patients, and that non-invasive tests or NITs, not biopsies, are standard of care. Last quarter coverage was at 30% of commercial lives. As of June 30th, more than 50% of commercial lives now have coverage in place for ResDifera, with over 95% of ResDifera-covered lives accepting NITs and not requiring biopsies. We are well on our way to achieving our goal of 80% of commercial lives covered by year-end. As far as government payers, as of July 1st, Medicaid coverage was in place across all 50 states. Similar to what we've seen with commercial coverage, virtually all accept NITs and do not require biopsies. For Medicare, we are on track for full coverage beginning January 1st of next year based on the annual review process for new medications. Currently, Medicare patients are accessing ResDipro via the medical exception process with prior authorization requirements consistent with our label. We are pleased with the progress we have made with the 6,000 top hepatologists and gastroenterologists that we are targeting, who are caring for the vast majority of the 315,000 diagnosed F2, F3 patients. In the second quarter, approximately 20% of our top targets wrote a ResDiffer prescription, which is aligned with the penetration level often seen in launches of blockbuster medicines. As you'd expect, early in launch, we've seen hepatologists adopting more quickly due to their expertise with the disease and NITs. Gastroenterology practices can take a bit longer given that NASH isn't their primary disease area and they need to think through practice dynamics for patients. Across the board, each physician is at a different stage of activation and we continue to steadily add prescribers. Our top targets are writing more than 75% of prescriptions. giving us conviction that we're targeting the right physicians with our efforts. Significant opportunity remains to expand new prescribers and shift initial prescribers to more frequent prescribers. To do this well, we need to continue to successfully wire the system, as noted on slide five. We're in the early stages of what we expect to be about a 12-month process to substantially accomplish that goal. Just like other disease states with first-time treatments, We are working to change physician behavior and help build a pathway to efficiently process resgifer prescriptions at physicians' offices. We've made great progress. We are steadily adding patients and prescribers, but it's early in the launch and there's still a lot of work to do. For physicians, it's about educating on the risks of NASH and activating them to write a prescription. The risks are real and they are urgent. For example, Our health economics study of an Optum claims database highlights alarming rates of progression to adverse liver-related outcomes. Of 19,000 NASH patients without cirrhosis at baseline, approximately 17% progressed to decompensated cirrhosis within three years. In addition to disease state and res differa education, we are also helping physicians identify the appropriate patients for res differa using NITs as well as using the recently published U.S. expert panel recommendations and easel guidelines. For the office staff, it's about helping practices create a pathway to process patients and prescriptions to handle the future volume we anticipate. This can require additional staff to manage patients and navigate the evolving reimbursement process. For payers, we continue to have productive dialogue on the costs of NASH, the clinical benefits of ResDifera, and non-invasive testing of patients. That's been paying off with favorable ResDifera coverage. And for patients, we're continuing to educate them on NASH and ResDifera while helping them navigate through the complexities of the healthcare system to support their treatment journey. So we're absolutely doing the work, physician by physician, practice by practice, payer by payer, and patient by patient. This is a tailored approach that requires discipline, repetition, and time. As accounts become wired, the pull-through process becomes smoother, and it's easier to send more prescriptions through. We're still in the early stages, but we are confident that we're building the foundation needed to create a blockbuster medicine. The optimism of our U.S. launch drives our decision to directly commercialize RIS-DIFRA in Europe, as noted on slide six. We have been evaluating our Europe strategy following the submission of our marketing application earlier this year. We expect an EMA decision mid-year next year, which would make ResDifera the first NASH treatment available in Europe. Our decision to commercialize ResDifera in Europe allows us to preserve the full value of the asset, maintain strategic flexibility, and create a platform for future growth. Europe is an attractive opportunity for several reasons. The NASH patient population in Europe is significant, NASH is driving a marked increase in the prevalence of hepatocellular carcinoma in Europe. From 2016 to 2030, cases of NASH-related HCC are expected to increase by more than 100%. We've established ResDifera as a potentially foundational therapy in NASH through our Maestro NASH Phase III clinical trial. We have 125 trial sites in Europe. We formed strong relationships with the NASH European community through our clinical development program and on-the-ground presence with our European medical affairs team. And ResDiffer has been favorably positioned as first-line therapy for moderate to advanced NASH, consistent with F2-F3 fibrosis in the easel clinical practice guidelines. This was despite it not being approved yet in Europe. The guidelines also note that ResDifera is the only disease-specific agent in NASH with positive results from a registrational Phase III clinical trial. We are starting to build the infrastructure now to commercialize ResDifera in Europe in 2025. Another key aspect of our lifecycle management strategy is expanding the use of ResDifera to patients with compensated cirrhosis, as seen on slide 7. There is an even higher urgency to treat patients with cirrhosis because they are at a 42 times higher risk for liver-related mortality. Our Maestro NASH Outcomes Trial evaluates where it differs in this patient population. It's an event-driven trial that non-invasively measures progression to liver decompensation events in patients with compensated NASH cirrhosis. An indication in this patient population has the potential to double our opportunity. Let me conclude by summarizing our progress on slide 8. We have the enviable position of being first to market in NASH, giving us a strong and sustainable competitive advantage. We are fully leveraging this opportunity, positioning ourselves for long-term leadership in the U.S. and now globally with our expected launch in Europe. We have a highly desirable product profile. It's an effective once-daily, well-tolerated pill. It's a liver-directed medicine that has demonstrated the ability to halt or improve liver stiffness in 91% of patients out to three years. And we've resourced the launch to match the opportunity in front of us, starting with an expert team that's launched dozens of blockbuster medicines. While we're still early in the launch, we're making good progress on many metrics. Net sales of $14.6 million, more than 2,000 patients on drugs, more than 50% of commercial lives covered, Virtually all accept NITs and do not require biopsies in line with what we have communicated. Approximately 20% of our top targets have prescribed with significant room for growth. Recently published EASL guidelines and U.S. expert panel recommendations endorse ResDiffer as a first-line therapy for F2F3 NASH. We have more work to do to change clinical practice to educate and activate physicians and to help them create efficient care pathways for patients. We are steadily adding patients and prescribers and tracking right in line with what we would expect at this point in the launch. As we look forward, we are well on our way to building a blockbuster medicine with patient expansion as we execute on the untapped opportunity in F2, F3 NASH, indication expansion as we look forward to data from our outcomes trial in cirrhosis patients, and geographic expansion as we plan to launch ResDiffer in Europe next year. Before I turn the call over to Marty, let me briefly reflect on the progress we've made as a company. I've been in my role 11 months, and what we've accomplished is pretty incredible. I'm very proud of this team. The FDA accepted the ResDefra filing. We received priority review. No adcom was required. We very quickly built an expert team at the leadership level and the commercial level, including a full field team ready to support the launch on day one. We built sufficient supply. We received approval with a best case label, importantly with no biopsy requirement. The team was out promoting ResDiffer within weeks of approval and we shipped product in less than a month. We have been building strong physician relationships. We've seen favorable ResDiffer guidelines published. Payer coverage is favorable in virtually all plans not requiring a biopsy. So we are executing on everything that we said we would. We're making progress. It's early and there's still more work to do. As we look forward, we are about a third of the way through our plans to wire the system to build a strong foundation to support our aspiration for peak sales. We have the right strategy in place to do that, and we're even more confident in the significant potential of ResDifera. So with that, Marty?

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

Great.

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

We will now open the lines for questions and answers. To open your line, please press Tar 1, and you will be added to the queue on the call. Our first question comes from Thomas Smith with Learink Partners. Please go ahead.

Hey, guys. Good morning. Thanks for taking the questions, and congrats on the nice launch quarter. I was just wondering if you could, I appreciate all the color in the prepared remarks, just wondering if you could just elaborate and maybe quantify a little bit more within that 14.6 million of net revenues, how much of that is due to underlying patient demand and prescriptions being filled versus how much of that was related to initial inventory and stocking? Thanks.

Great, Tom. Thanks. Marty?

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

Great. Thanks, Tom. Luella, next question, please.

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

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

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

Great. Thanks, Andrea. Luella, next question, please.

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

Hey, this is Amy on for a cost. Thanks so much for taking our question. So there is an inflection implied by consensus on risk defer revenues next year. Do you feel like there will be a significant acceleration on launch trajectory next year once access is properly in line or is your base case that launch will be more gradual? And then if I could just sneak in one more of the less than 5% plans that require a biopsy, can you give us a sense of the plans what they are and the covered lives. Are these mostly Medicare? Thanks so much.

Sorry, with the last one, what we are talking about was commercial covered lives, not Medicare, but I guess Medicare we will have come online in January. So just to be clear, the greater than 50% is commercial covered lives. So those were the stats around it. Regarding the uptake, look, I think what we've been really clear about from the beginning is that we have to wire the system and that it takes time when you're launching a first-in-disease product in a community that's never had anything to use, including anything that they went to really in an off-label capacity. And we've said that that is about a 12-month process. We're about a third of the way through that for now. Now, as we have, we move through Q4 of this year. Remember, then you get into Q1 of next year, and there's always the reset in Q1. So that's what we've talked about, the 12 months through Q1 of 25. And by the end of that time, we'll have our reimbursement we feel in place. We will have physician practices that have been trained and just much more comfortable with writing a prescription and pulling it through. So that's when we expect to see that more patients will be able to move through practices, both from a identification and just ease of ushering them through the whole process.

Great. And wonderful. Thanks, Amy. Next question, please.

Our next question comes from the line of Andy Chen with Wolf Research. Please go ahead.

Thank you for taking the question, and congratulations on the quarter. So if you can remind me, based on your market research among the 350,000 patients, what percent of them are GLP-1 experienced? I'm thinking about a very hypothetical scenario where payers require GLP-1 SEP. I know that's not the case right now, but please entertain me for a moment. What fraction of these patients would basically bypass that requirement right off the bat? Thank you.

Patient experience, Andy, or did you say physicians have experience with GLP-1s? Oh, a patient experience, like in the past they have used it, yeah. Yeah, look, we're seeing, we're hearing from practices that there's more patients that have been exposed at some point with GLP-1. As you know, even in our clinical trial, we had 14% of patients that were on GLP-1s. Now, that was on the diabetes dose, I'll remind you. However, we're certainly hearing that more patients are being exposed to GLP-1s. The question always is, is when were they exposed? Was it one month ago, six months ago, or 12 months ago? Are they still on? And as you know, with the discontinuation rates, it could be yes to any of those answers. So what we're seeing from our own data is that there are some patients that are concomitantly on a GLP-1, but it's still pretty early, and it's tough to get some of that information right now. Regarding payers, we haven't seen anyone requiring a step through a GLP-1.

Good. Thanks, Bill. Thank you. Luella, next question, please.

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

Hey, guys. Thanks for taking the question, and congrats on the progress. You mentioned that you were seeing faster uptake with hepatologists versus gastroenterologists. Can you just give us a little bit more color on the latest trends that you're seeing with the gastros now versus at the start of the launch, and if you're seeing an uptake in prescribing from the gastroenterologist segment? Thanks.

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

Great. Thanks, Ellie, for the question. Luella, next question, please.

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

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

Yes, thanks very much for the question. Let me provide the clarification. We're fully committed to commercializing on our own in Europe. We, first of all, I've commercialized multiple products in Europe. In fact, every product I've commercialized has been globally commercialized. we have a team that has done that as well. So we feel like we're in an extremely well-positioned to do so. Now, what's the ingredients to doing that? What we did here with the whole leadership team is we built the right team and put them in place so that they could execute to do what they know what to do. That's the same thing that we're going to be doing in Europe. We will be very focused, targeted in the way that we launch You know, likely starting point is Germany. And, you know, one of the things that we've learned, or several of the things that we've learned if I look at Europe, and a lot of it's coming off of our experience being there at EASL as well, you know, there's real excitement in Europe for the drug. And I would say if I look back a year ago, though I wasn't here exactly a year ago, but a year before approval in Europe versus the U.S., You know, in the U.S., because there had been so many failures before, there was this question, will ResDiffra get approved? And a lot of the physicians didn't take action until post-approval. And when they said that they weren't going to take action, they really meant it. You know, they were waiting until the product was approved. Europe, there is, I would say, greater certainty for them because they believe that the U.S. approval is a good prognosticator for approval in Europe. And at EASL, we certainly heard that people were taking steps. We saw that leadership in Europe got very well organized and had the easel guidelines out well in advance of approval, and despite not even being approved, put ResDifera in the lead position there. So, you know, we think that Europe, as well as the 125 trial sites that we've had there, is quite experienced with, knows ResDifera, is excited about it. But, you know, we are going to be very disciplined in the way that we approach Europe. And we'll be able to give you a little bit more updates on it as we progress throughout the year to tell you exactly how we're going about that launch.

Good. Thanks, Yaz. Good question. Next question, please, Isabella.

Our next question comes from Lisa Baco with Evercore ISI. Please go ahead.

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

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

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

Our next question comes from Ritu Baral with T.D. Cohen. Please go ahead.

Good morning, guys. Thanks for taking the question. I wanted to ask a little bit more about the prior auths that you're seeing for the plans that have established coverage. Our own survey work and KOL work indicates there's a lot of MRE imaging and maybe MRI PDSF diagnostic imaging required. Can you talk about access and what you guys are doing to assist access to those imaging technologies for diagnosis? And is that consistent with the prior authorization requirements, diagnostic requirements that you guys are seeing in your finalized plans? Thanks.

Well, thank you very much for the question, Ritu. You know, we are not seeing access to any of the NITs as being problematic. In fact, you know, we're actually really happy with what we're seeing as requirements. Most of them include imaging, yes, but blood tests as well for the imaging fiber scan, MRE, MRI, PDFF. And then we also have ELF and FIB4 from a blood test perspective. So, you know, it does vary, but there hasn't been anything that's been concerning, I would say. And as we map out the access that physicians have to these various technologies, they have very good access. Now, is it perfect? Does everyone have access to everything? No. But, you know, we're at the very beginning here, and as I said earlier, as it relates to NITs, I think it's going to be a three-year process for NITs to sort themselves out. There isn't complete alignment in the physician community about which combos to use. There's new technologies that people are thinking about as well. So I think it's going to take a few years before there is just real well, there may never be alignment, but I think that there's going to be better information to say what are the combinations and sequencing that are going to be best for various physicians. So we think we're in a really good place. As you recall, the big concern out there was are biopsies going to be required, and that just has not been the case. We talked about less than 5%, and now going back to this wiring the system, The challenge for practices is where historically they just had to stage somebody and watch them wait. Now they have to actually stage somebody as they're deciding to treat with ResDifera. And it's one thing to do it for staging. It's another thing when you start thinking about the implementation of... a pathway which leads to the prescription of risdifera. And that is kind of the muscle memory we talk about where practices are getting used to that. The more they do it, the easier it is so that it becomes more of a behavior change rather than a curiosity or going and trying to find a high-priority patient. And that's what takes the time here to get us to that steady state.

Good. Thanks, Ritu. Luella, next question, please.

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

Thank you very much for taking my question. You'd indicated the time to fill was coming in faster than the original expectations of starting at 60 days and eventually dropping to 30 days. Are we to assume that it's in between 30 to 60 days this point and it actually already reached 30 days or potentially is exceeding 30 days?

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

Good.

60 days, that is. Thank you for taking my question.

Thanks, David. Luella, next question, please.

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

Hi, good morning, and thanks for taking my questions, and congrats on this quarter. Just wanted to ask about the COGS, 0.6 million. Initially, I would think for the first few quarters, you're just working off of prior inventory. When would you expect COGS to normalize, and if you can discuss the rate there? And also, on the payers that require a biopsy,

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

Yeah. Thanks for the question, Ed. You are right. COGS is quite low because we are burning off what we have set up in inventory. currently, and we don't think COGS will normalize for another, for about a year and a half to two years from this point, really depending on the demand on the top line, of course. One thing I would note that is, you know, we have a small single-digit royalty to Roche, which also flows through COGS, so that is a component. But I'll remind you, we're a small molecule medicine, so COGS for resifera is going to be quite low. Great.

Thanks so much, Ed. Next question, Luella?

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

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

Jay, thanks for the question. On the split of F2 and F3, it's pretty even. I think if you were to ask physicians who would they rather start with, they'd prioritize a patient and say, we'd probably want to put an F3 on first. But the reality is you can't control who's coming into your office that day. So they make a decision based upon how does that patient feel, what does the NIT show, et cetera. So we see a balance actually between the two. Regarding off-label, don't have any real insight into that. We've been very clear with physicians who is appropriate and who is not appropriate for ResDifera, and make sure that they understand that we just don't have the data to support, and obviously it's not in our label, so we would never ask for it or talk about a patient with cirrhosis. So we have no way of really knowing. Certainly I haven't heard it as being a broadly known I think people are really focused on the right patients, and I think that's why, again, we saw a little bit better time to fill and so forth. Regarding the direct patient or the patient education, so we've been educating patients already, but our efforts through more of a direct reach-out, DTC perspective, et cetera, you know, those are just about to get started. And I think that it is really important. It's really important when you have a disease that is not well understood, a disease that is not well recognized by many, but a disease that has very serious consequences. As I said, number one cause for liver transplants for women in the United States, staggering statistic. We believe that patients have to be educated, and we believe by activating the patients that are already diagnosed, and let me be crystal clear on that, our efforts are going to be directed towards the 315,000 patients that are already diagnosed. Having them educated and activated will be important for, I'd say, the field to better be able to treat NASH and for patients to be able to get access to resiferase. So those efforts are kind of ongoing, but they're really starting in the near future. And we expect those to be helpful and certainly provide a source for patients to learn more about the disease and learn more about the product.

Thanks, Jay. Luella, next question, please.

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

Hi, good morning and congrats on the quarter and the launch. I just want, what are you hearing on what payers and physicians will require to track response for res deferra at 12 months and beyond for reauthorization? Specifically, will stable patients on res deferra will be reauthorized or only patients who show some improvement on non-invasive? Thank you.

Yeah, Prakash, thank you very much for the question. You know, yeah, we are hearing that there are kind of a reauthorization period at around 12 months. And that's typical, right? For specialty products, you have a reauthorization at that point. It varies, but as you said, it's either, you know, stabilization or improvement. You know, we're still nine months away from the first patient actually going through that or so, 10 months, eight months, whatever it is in that range. And, you know, that's something the policies are where they are today as well. We think that they're reasonable. But if there's any that aren't, you know, we have between now and that period of time to continue to talk to the payers about them. What we're seeing, for instance, with the expert recommendations that recently came out in clinical gastroenterology and hepatology, they talked about kind of three stages. They talked about identifying a patient, taking a look in after several months as to what measure what's happening with the patient and then at 12 months looking at efficacy. And we think that's right. We think that a 12-month look at efficacy is the right time. Because you have to remember, with fibrosis, and the FDA said this in their press release as well, that to have seen an effect that we did at 52 weeks was really early, they thought, because fibrosis is such a you know, a significant hurdle to overcome. So, you know, we think that we're very comfortable right now with what the policies say, and we're comfortable with the expert recommendations that have been put forth as well.

Great. Thanks for the question. It's 8.45. We're at the mark, so we have time for one more question, Luella.

Our next question comes from John Wallaban with Citizens JMP. Please go ahead.

Hey, thanks for squeezing me in. Just one. Bill, you mentioned kind of the past peak sales a couple times in your prepared remarks. I'm wondering how you're thinking internally what the peak opportunities for ISDEFRA, especially now when you're thinking about full economics in Europe.

Thanks. John, it's a great question. Thanks for that. Thanks for calling me out on that. And I'm not going to tell you what we think peak is right now, other than, you know, look, I think you look at the market dynamics. We said just U.S. alone, there's about 315,000 patients. Any way you start to look at, you know, where this ends up penetrating to, and it's a specialty category, this becomes a specialty-like category. I mean, NASH overall, we're talking about billions. And as the product that has, I think, a durable profile when we look at any information that's presented at easel you know we don't think anyone is even as good as us and none of them are pills and you know i'll tell you you ask patients especially these patients they have a lot of other stuff that they have to take a pill is a lot easier at than you're going to add another injectable to my regimen and some of them don't make you feel that great either and you still got to stay on something for a long time Now, we haven't, you know, we're still working on what the total opportunity is from a EU perspective and then clearly from an F4 perspective that opens things up. So I know that's a lot of talking without giving you the number that you want, but look, I think any way you look at it, this is a big specialty category and we think that we are in the lead position now. We think that we will be in the lead position for a long time because of not only the product profile, but the comprehensive data set that we've generated and we're continuing to generate, we are going to be a long way ahead of anyone who's even next to us.

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

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