Gena Wang: Yeah. So, I think you lay out very clearly like Medicaid 23.1%, 17.1% discount when you recognize, but there is another layer, say, outcome-based. Do you proactively book or pre-book, say, like you assume maybe 90% success or 10% will be failure, were you proactively putting that 10% discount on top of say 23.1% and 17.1% when you recognize the revenue?
Chris Krawtschuk: Yeah. So, I’ll start here, and of course, Tom and I will complement this. I think it’s a mutual question. So, what we do is we look at how the patients will flow through a particular channel, which rebate they qualify for. And then, we make estimates based on that. I think Tom threw out an estimate earlier on how many patients would, in market research, on his, what I’ll call, professional expertise, estimates the number of patients that will come through the outcomes-based rebate or would qualify for an outcomes-based rebate. So, you then whittle down the population in that regard. And then, what we do is we evaluate the patient coming through that outcomes-based agreement, the duration of time that patient enters in and kind of hits a particular marker, and then we constrain the revenue associated with that particular patient’s rebate.
In that case, each quarter, we will then look at that outcomes-based agreement rebate in that patient and we’ll follow that patient through using not only the clinical trial information, as it’s informed our outcomes-based agreement, but actually the patient’s health, et cetera. So, it’s a very collective effort that we look at and make estimates on that outcomes-based agreement. We will never be in a situation where we recognize revenue ahead. We will — for conservative purposes, we will constrain the revenue. And then what we’ll do is we’ll release the revenue when that particular endpoint is met.
Tom Klima: And maybe — hi, Gena, this is Tom. Maybe just add to that, for ZYNTEGLO, keep in mind that based on claims data, historically, about 70% to 75% of patients are covered through commercial insurance and the remainder covered through Medicaid. So, even in the states where we announced this morning that we have an outcomes-based agreement, we would still expect the majority of the patients to be covered through commercial payers.
Gena Wang: Thank you.
Operator: Thank you. Our next question or comment comes from the line of Mani Foroohar from Leerink. Your line is now open.
Mani Foroohar: Hoping you guys can help provide a little bit of quantitative clarity around operating leverage. So, presuming that the approval comes through as expected and presuming that we see the linear growth that we’re expecting as well, so we’ve got a couple different products launching, growing, compounding linearly, how should we think about potential improvement in the gross margin profile? Should we expect gross margin to be relatively flat until there’s some prescribed level of absolute scale? And if that’s true, how should we think about that scale? Is it proportion of the market? Is it absolute number of patients? Is there some threshold in terms of absolute amount of revenue which you think that the operating leverage starts to kick in and margins improves? How do you think about that?
Andrew Obenshain: Yeah. So, Mani, I’m going to answer that qualitatively, then hand it to Chris. So, we’re not going to give you how many patients do we need or anything like that to go profitable, but the — or to get to a — to maintain as a robust positive gross margin. But sickle cell is different from beta-thalassemia and SKYSONA in two ways. Number one is, the patient numbers are higher. So, you’re starting at a higher base, with more QTCs, just — it’s going to start at higher base right away and grow from there. So, linear growth takes off from a different start point, number one. Number two, we switch vectors, so we have a much more efficient vector production system for lovo-cel, which will mean that lovo-cel has a significantly better gross margin than ZYNTEGLO or SKYSONA, which are relatively rare indications and, therefore, didn’t require that vector change.
So, there’s two things working in favor of lovo-cel for improving markets. So that really is what’s going to be driving it. Chris, did you want to add anything to that?
Chris Krawtschuk: The other things I’ll add there are the operating leverage that we see in the business. Certainly, we have a level of fixed costs in the business and those fixed costs are commensurate with our ability to continue to reserve our capacity and pace our capacity commensurate with our sales. And then, the improvement in our margin is really driven by volume and manufacturing production yields. And those two things will really drive our company from the margins that you see today to effectively the margins that we believe are attainable, which are a minimum of 70%.
Mani Foroohar: Okay…
Operator: Thank you…
Mani Foroohar: Okay. A quick follow-up. I know we talked about the scaling in terms of gross margin, and I understand why you guys are answering that qualitatively. Let’s move down to income statement a little bit. How should we think about potential expansion on the SG&A line as lovo-cel grows over time? Do we expect a fairly stable scale of the sales force in the U.S.? Should we expect the sales force to expand reasonably linearly in a step function, should opportunities expand by number of QTCs? Like, how should we be modeling that?
Chris Krawtschuk: I think Tom has historically described in other forums and discussions that setting up QTCs is relatively low cost, really principally focused on time and time commitment. That SG&A, to answer your question, spot on, will grow linearly at the pace of revenue. And we continue to kind of look at that. We believe our infrastructure — our commercial infrastructure is pretty well set up to achieve the opportunities that we have in front of us and that was part of what Tom and Andrew described as leveraging our 18-month head start, and that’s what we’ve invested in. So, you should see SG&A pace with sales, and we’ll continue to make investments in that regard, but they will pace with revenue.
Andrew Obenshain: So, I would just add it will increase as revenue increases, but not necessarily the same percentage, because we do have a lot of good leverage. There’s a rare disease market. We’re going after very targeted transplant centers. So, the infrastructure that we need to build, most of it has already been built, and it — we’ll be adding to it to supplement it versus actually adding wholesale cost.
