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Executives

Bob De Vaere - Executive Vice President and CFO

Tim Walbert - Chairman, President and CEO

Todd Smith - Executive Vice President and CCO

Analysts

Liisa Bayko - JMP Securities

Annabel Samimy - Stifel

Charles Duncan - Piper Jaffray

Horizon Pharma, Inc. (HZNP) Q4 2012 Results Earnings Call March 18, 2013 8:00 AM ET

Operator

Good morning, ladies and gentlemen. And welcome to the Horizon Pharma Inc. Fourth Quarter 2012 Earnings Call. At this time all participants are in a listen-only mode. (Operator Instructions)

As a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to your host, Mr. Bob De Vaere, Executive Vice President and Chief Financial Officer. Please go ahead, sir.

Bob De Vaere

Thank you. Good morning. And welcome to Horizon Pharma’s fourth quarter and year end earnings call. This morning we issued a press release that provides the details of the company’s financial results for the fourth quarter and year ended December 31, 2012, as well as an update on DUEXIS and RAYOS, and other recent business highlights. This press release is available on our website at www.horizonpharma.com.

Leading the call today will be Tim Walbert, Chairman, President and Chief Executive Officer of Horizon Pharma, who will provide a corporate update. Todd Smith, Executive Vice President and Chief Commercial Officer will provide an overview on the commercial launches of DUEXIS and RAYOS. And I will provide an overview of the financial highlights from the fourth quarter and year ended 2012 before turning the call back over to Tim for closing remarks.

As a reminder, during today’s call we will be making certain forward-looking statements. These statements may include statements regarding our financial outlook, our sales and marketing plans, potential growth of our business and plans to enter into future commercial agreement.

These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.

These risks are described in our filings made with the Securities and Exchange Commission including our annual report on Form 10-K for the year ended December 31, 2012. You are cautioned not to place undue reliance on these forward-looking statements and Horizon disclaims any obligations to update such statements.

Further, we may also discuss non-GAAP financial measures during this call to help you understand our underlying business performance. The GAAP reconciliations are provided in the press release which has been posted on our corporate website.

I will now turn the call over to Tim.

Tim Walbert

Thanks, Bob, and thank you to everyone for joining us on the call today. 2012 was a transformational year for Horizon as we became a fully integrated commercial company based on two product launches in the United States.

We completed the year with $104 million in cash and cash equivalents which we expect will fund our operations through 2013. This provides us a strong foundation towards our objective of building a profitable business with long-term sustainable growth.

We began 2013 with substantial momentum and we remained encourage by the performance of DUEXIS and by the opportunity that RAYOS presents for the company. Let me first update on DUEXIS.

December 2012 marked the one-year anniversary of the launch of DUEXIS, which demonstrate the strong momentum that as we exited 2012. DUEXIS demand net sales, which was sales net of one-time pick up related to a change in the timing of revenue recognition for the fourth quarter were $4.6 million, a 76% increase versus the third quarter of 2012.

Total DUEXIS net revenue for the fourth quarter was $6 million which includes the one-time gain of $1.4 million in net revenue due to the change in timing of revenue recognition.

According to monthly data from Source Healthcare Analytics, total prescriptions in the fourth quarter of 2012 were over 39,000, an increase of approximately 56% versus the third quarter of 2012.

New prescription data for DUEXIS in the fourth quarter of 2012 were also robust and increased 57% in the fourth quarter of 2012 versus the third quarter of 2012. This momentum has continued into the beginning of 2013 with cumulative January and February new and total prescriptions for DUEXIS at 23,412 and 29,797, respectively, according to monthly data from Source Healthcare Analytics, which shows increases of over 10% in both those NRxs and TRxs over the cumulative total for this November and December of 2012.

Source Healthcare Analytics also reported TRx Dollars increased approximately 17% in the first two months of 2013 versus the last two months of the fourth quarter of 2012.

As you’re aware, we underwent a planned expansion of our sales force in the third quarter of 2012 from 80 sales representatives to approximately 150 sales representatives. We also completed the co-promotion agreement with Mallinckrodt, the pharmaceutical business with Covidien, which began promoting DUEXIS late in the third quarter. Together we are now covering a total 50% of the NSAID prescription market.

While our primarily focus for DUEXIS remains in the United States, where we believe the vast majority of the global NSAID market opportunity exist, we are nonetheless pleased that our March 7, 2013, we're notified by the United Kingdom Medicines and Healthcare products Regulatory Agency that DUEXIS was granted a marketing authorization in the United Kingdom.

This approval is the first step toward gaining broad approval across Europe. We will continue to seek a potential partner or partners in the U.K. and other EU member states where DUEXIS maybe approved.

Further, as continuation of our strategy to expand the accessibility of DUEXIS world-wide, in June 2012 we announced our first out-license of DUEXIS outside the United States with Grunenthal for the commercialization of DUEXIS in Latin America.

Now, I would like to provide an update on RAYOS. In November 2012, the initial U.S. launch of RAYOS occurred during the ACR or American College of Rheumatology meeting with limited number of sales representative focused on key rheumatologist to prepare for the full primary care and rheumatology launch in late January 2013, where we fully launched RAYOS with our 150 person sales force, so the majority of these U.S. rheumatologist and targeted primary care physicians.

Cumulative prescribers of RAYOS through February 2013 were 275. Todd will give you some more perspective on early feedback from both physicians and patients on the RAYOS launch.

As a reminder in late 2012 RAYOS was approved by the U.S. FDA for broad range of indications. Our promotional focus for RAYOS is focused on IL-6 mediated diseases such as rheumatoid arthritis and polymyalgia rheumatica or PMR both of which are primarily treated by U.S rheumatologist.

Additionally two RAYOS abstracts were presented during the ACR meeting late last year, data presented by Dr. Rieke Alten, Chief of Internal Medicine Division in Berlin concluded that based on data from our pivotal CAPRA- 2 trial, RAYOS help treat RA patient's inflammation, as well as significant improvement in patients RA symptoms and specifically the fatigue that most patients with RA suffer from.

Second abstract from the CAPRA-2 study presented by Dr. Frank Buttgereit demonstrated that morning stiffness duration, morning stiffness severity and pain intensity upon awakening correlated significantly with the disease activity score and helped assessment questionnaire disability index keen measures in rheumatology in all treatment group analyses.

In addition, patients who met the efficacy criteria of ACR20, DAS28 and the HAQ Disability Index response criteria had a greater relative reduction in morning stiffness than patients who did not meet these criteria. Most importantly, more patients treated with RAYOS met these response criteria than those in the controlled group.

Outside the U.S. RAYOS is known as LODOTRA and is now approved in 20 countries. In Europe it is marketed through our distribution partner Mundipharma which also has commercial rights in certain Asian and Latin American countries.

Today, we reported year end 2012 net revenue of $8.2 million for LODOTRA. It is important to remember that LODOTRA Europe revenues are not linear and do not represent sales to the market, but rather sales through a distribution partner Mundipharma and therefore, LODOTRA Europe numbers can vary significantly from quarter-to-quarter as we satisfy the delivery request from our partner.

Additionally, I would like to highlight development previously announced regarding our intellectually property stake for DUEXIS and RAYOS. In September 2012 -- in February 2013, we announced important expansion of the DUEXIS patent stake with three additional notices of allowance from the USPTO. In addition, our collaborator SkyePharma on RAYOS received the notice of allowance from the USPTO expanding the patent stake for RAYOS.

On March 13, 2013, we received the Paragraph IV Patent Certification from Alvogen Pine Brook advising that they had filed an ANDA with the FDA for generic version of RAYOS. As I have stated many times this is an expected action in today’s marketplace we are prepared to vigorously defend our intellectual property both on RAYOS and DUEXIS.

Alvogen has not advised us as to the time you said that FDA’s review of filing and we believe their Paragraph IV Certification maybe defective because the FDA has not yet excepted the ANDA prior to them sending us the certification.

We do initiate the patent infringement suit to defend RAYOS patent identified in the Paragraph IV notice within 45 days after the FDA received that notice, the FDA is presented from improving the ANDA so the earlier 30 months for decision on the infringement case similar to what we see with DUEXIS.

At this point, I will turn the call over to Todd who will discuss our commercial highlights for the quarter.

Todd Smith

Thank you, Tim, and good morning to everyone, and thank you as well for joining us today. Let me start by saying that we are pleased with the early results following the expansion of our sales force they continue to execute in accelerating the DUEXIS launch and also focus on the initial launch of RAYOS.

As Tim mentioned, we continue to see acceleration coming out of the fourth quarter of DUEXIS growth with cumulative January and February new and total prescription growth, according to the monthly data from Source Healthcare Analytics of 10% each over the last two months of the fourth quarter of 2012.

Source Healthcare Analytics also reported that the TRx Dollars increased 17% in the first two months of 2013 versus the two month -- last two months of the fourth quarter of 2012, additionally through February -- the end of February 2013 we have seen approximately 124,000 total prescriptions for DUEXIS since the launch was approximately 30,000 of those scripts coming in the first two months of 2013. Through February 2013 there were also approximately 11,700 cumulative DUEXIS prescribers.

In addition to all of that, we also have recent market research that shows that approximately 85% of our commercial claims are being approved for DUEXIS with the company providing cost-effective access to patients through our co-pay assistance program.

We also are continuing our program with local and regional specialty pharmacies that allows DUEXIS to be shipped directly to the patient, thereby ensuring that patients receive the prescriptions for doctors and attendant. We mentioned in our last quarter update, a practice among some pharmacies in the U.S. of switching patient’s prescriptions to a generic or over the counter brands.

This is a concern because patients are not receiving the prescribed medications that the physician intended them to get. This has affected many drugs and our sales representatives are continuing to work closely with physicians and their staff to make them aware of this practice and ensure that patients receive the prescribed medication. So while we continue to see this practice occurring, we are receiving positive feedback from the pilot programs we have initiated in several of our territories to ensure that patients have access to DUEXIS.

Due to the success of these initial trials of the strategy, we continue to expand this program to additional territories with the goal of all sales territories, including this program by mid year, additionally because DUEXIS is for mostly sensitive. We believe our continuing success is due in part to hiring sales representatives with successful part of business-to-business experience as part of the profile.

As this profile changes, resulted in a promotional effort that focuses on selling through the entire office staff responsible for a patient receiving a prescription, rather than just selling solely to the physician or prescriber. Once the prescription is written, our representatives are focused on ensuring the office staff understands the benefits of DUEXIS and why they need to make sure patients get the prescription that the doctor wanted them to receive and prescribe for them.

So now, I’d like to update you as well on the early launch progress of RAYOS. As Tim mentioned earlier in the call, we held our full launch, RAYOS launch meeting in late January. Our messaging leverages the key benefits of RAYOS, which is the treatment of symptoms, rheumatoid arthritis and polymyalgia rheumatica, which were at their worst in the morning.

94% of patients on RA therapy continued to complain of morning symptoms with rheumatoid arthritis. Our strategies in physician RAYOS is an accretive RA therapy that reduces patient’s pain stiffness in the morning and provides the significant improvements in quality of life.

Since the launch of RAYOS, approximately 275 rheumatologists have written over 1,000 RAYOS prescription with encouraging feedback from both the physicians and their patients. Also from a managed care standpoint, we’ve already had over 1,000 clinical presentations to managed care with positive early feedback. We are seeing similar coverage of RAYOS as we have with DUEXIS among commercial payers. And like DUEXIS, we provide a means for cost-effective patient access through RAYOS co-pay buy down program. Our focus is on commercial lives and ensuring access via tier 3.

With that, I will now turn the call over to Bob. Thank you.

Bob De Vaere

Thanks, Todd. For the fourth quarter ended December 31, 2012, gross and net sales were $8.2 million and $6.7 million respectively, compared to $3.5 million in both gross and net sales in the fourth quarter of 2011.

DUEXIS gross sales were $7.1 million and net sales were $6.0 million after deducting trade discounts and allowances of $0.5 million and co-pay assistance costs of $0.6 million, and represented 80 % of gross sales and 90% of net sales during the quarter ended December 31, 2012.

I want to remind everyone during the fourth quarter, the company changed from recognizing revenue upon product being dispensed through patient prescriptions to recognizing revenue when product is sold into the wholesale and pharmacy channel, resulted in a one-time increase to DUEXIS revenue of $1.8 million gross and $1.4 million net.

RAYOS gross sales in the fourth quarter, following its December U.S. launch were $0.8 million and net sales were $0.4 after deductions for discounts and allowances of $0.3 million and for co-pay assistance costs of $0.1 million.

LODOTRA gross and net sales in the fourth quarter of 2012 were $0.3 million, compared to gross and net sales of $3.4 million in the fourth quarter of 2011. And as Tim mentioned earlier, I want to remind everyone that we’ve recognized a significant portion of LODOTRA sales at the time of delivery to our distribution partner, Mundipharma and those deliveries are not linear or related to end markets sales in terms of timing. The $3.1 million decrease in LODOTRA gross and net during the fourth quarter of 2012 was primarily attributable to these timing differences of product deliveries to our partner and to a reduction in deferred revenues recognized.

Research and development expenses increased $0.9 million, from $3.8 million during the three months ended December 31, 2011, to $4.7 million during the three months ended December 31, 2012. The increase in research and development expenses in the fourth quarter of 2012 was primarily associated with a $0.4 million increase in salaries and benefits expense related to additional staffing of the company’s medical affairs group, along with increases in consulting fees and contract manufacturing expense.

Sales and marketing expenses increased $2.2 million, from $12.9 million during the three months ended December 31, 2011, to $15.1 million during the three months ended December 31, 2012. The increase in expense was primarily attributable to expanded sales and promotional efforts one year post DUEXIS’ launch and initial launch activities for RAYOS, which contributed to a $2.6 million increase in salaries and benefits expense associated with additional staffing of the company’s sales and marketing functions, partially offset by a $1 million reduction in consulting expenses and outside service costs.

General and administrative expenses increased $0.6 million, from $4.4 million during the three months ended December 31, 2011, to $5 million during the three months ended December 31, 2012. The increase in general and administrative expenses was primarily due to a $0.3 million increase in salaries and benefits expense associated with additional finance and administrative personnel, as the company continues to built out its corporate infrastructure and a $0.3 million increase in legal costs, primarily associated with intellectual property related matters.

Interest expense increased $2.6 million, from $0.8 million during the three months ended December 31, 2011, to $3.4 million during the three months ended December 31, 2012, primarily as a result of incremental interest expense associated with higher borrowing balances under our $60 million senior secured loan, compared to an outstanding notes payable balance of $19.4 million in the prior period.

During the three months ended December 31, 2011, the company recorded an intangible impairment charge of $69.6 million to write down the value of its indefinite-lived in-process research and development or IPR&D asset to its fair value, with no corresponding IPR&D impairment charge in the three months ended December 31, 2012.

Income tax benefit decreased $13.8 million, from $14.1 million during the three months ended December 31, 2011, to $0.3 million during the three months ended December 31, 2012. The decrease in income tax benefit was primarily attributable to the company’s IPR&D asset impairment charge of $69.6 million recorded during the fourth quarter of 2011, which reduced the company’s deferred income tax liability and increased its income tax benefit.

Net loss for the quarter ended December 31, 2012, was $24.3 million, or $0.40 per share based on 61,574,187 weighted average shares outstanding, compared to a loss of $76.7 million, or $3.92 per share based on 19,568,131 weighted average shares outstanding, in the quarter ended December 31, 2011.

Non-GAAP net loss for the quarter ended December 31, 2012, was $20.9 million, or $0.34 per share, compared to a non-GAAP net loss of $19 million, or $0.97 per share, in the fourth quarter of 2011. We provide these non-GAAP financial measures, which we believe can enhance an overall understanding of Horizon’s financial performance when considered together with GAAP figures. Please refer to the section of today’s press release titled, "Note Regarding Use of Non-GAAP Financial Measures," for a full discussion on this subject.

For the full year ended December 31, 2012, gross and net sales were $23 million and $19.6 million respectively, compared to $6.9 million in gross and net sales in the prior year. DUEXIS gross sales were $13.2 million and net sales were $11 million after deducting trade discounts and allowances of $0.9 million and co-pay assistance costs of $1.3 million, and represented 58% of gross sales and 57% of net sales during the year ended December 31, 2012.

LODOTRA gross sales were $9 million and net sales were $8.2 million after deducting trade discounts and allowances of $0.8 million during the year ended December 31, 2012, compared to gross and net sales of $6.8 million during the year ended December 31, 2011. The increase in LODOTRA sales was primarily attributable to higher product shipments during 2012 to the company’s distribution partner, Mundipharma.

RAYOS gross sales following its U.S. launch in December 2012 was $0.8 million and net sales were $0.4 million after deductions for trade discounts and allowances and for co-pay assistance costs.

Research and development expenses increased $1.5 million, from $15.3 million during the year ended December 31, 2011, to $16.8 million during the year ended December 31, 2012. The increase in research and development expenses was primarily associated with a $3.4 million increase in salaries and benefits expense as a result of additional staffing of the company’s regulatory and medical affairs group, which was partially offset by reductions in regulatory submission fees, and clinical trial expenses of $1.8 million.

Sales and marketing expenses increased $29.2 million from $20.3 million during the year ended December 31, 2011, to $49.5 million during the year ended December 31, 2012. The increase in sales and marketing expenses was primarily attributable to salaries and related expenses for a full year for the company’s initial field sales reps with initial 80 field sales reps hired during the second half of 2011, incremental salaries and related expenses with growing the company’s field sales organization to approximately 150 sales reps during the course of 2012, salaries and related expenses associated with increased staffing for the related sales support function, and marketing expenses to launch and commercialize DUEXIS and RAYOS in the U.S.

As a result of these factors, during the year ended December 31, 2012, sales and marketing personnel related costs increased $17.5 million and marketing costs for DUEXIS and RAYOS increased approximately $9 million compared with the year ended December 31, 2011.

General and administrative expenses increased $4.4 million from $15 million during the 2011 to $19.4 million during the 2012. The increase in general and administrative expenses was primarily due to $2.2 million in additional salaries and related benefits expense associated with incremental finance and administrative staff, added during the second half of 2011 and 2012. $1 million in higher legal fees associated with intellectual property and regulatory related matters and $1.1 million in higher facilities and information technology infrastructure expenses.

Interest expense increased $8.2 million from $6.3 million during the year ended December 31, 2011 to $14.5 million during the year ended December 31, 2012. The increase in interest expense was primarily attributable to higher borrowing balances and deferred financing and debt discounts under the company’s Senior Secured Loan compared to the prior year and higher debt extinguishment costs.

During the year ended December 31, 2012, the company recorded a $2.5 million charge related to the extinguishment of its prior debt facilities, compared to a $1.9 million charge during the year ended December 31, 2011.

Income tax benefit decreased $9.5 million, from $14.7 million during the 2011, to $5.2 million during 2012. The income tax benefit during the year ended December 31, 2012, was primarily associated with the reclassification of our IPR&D asset to develop technology following the July 26, 2012, FDA approval of RAYOS, resulting in a one-time income tax benefit of $4.3 million.

The income tax benefit during the year ended December 31, 2011, was primarily attributable to our IPR&D intangible asset impairment charge of $69.6 million, which reduced our deferred income tax positions and increased our income tax benefit.

Net loss for the year ended December 31, 2012, was $87.8 million, or $2.26 per share based on 38,871,000 weighted average shares outstanding, compared to a net loss of $113.3 million, or $12.56 per share based on 9,014,000 weighted average shares outstanding, during the year ended December 31, 2011.

Non-GAAP net loss for the year ended December 31, 2012 was $76 million, or $1.96 per share, compared to non-GAAP net loss of $48.5 million, or $5.38 per share, during the year ended December 31, 2011.

Tim mentioned earlier cash balance at the end of December 31, 2012 was $104.1 million, which we have stated will take us through 2013 and into 2014.

Now, I would like to turn the call back over to Tim for some closing comments.

Tim Walbert

Thank you, Bob. In 2012, we’ve made significant progress in accelerating DUEXIS prescriptions with significant fourth quarter growth due to our sales force expansion. We’re also pleased with the early feedback from the launch of RAYOS. In addition, we ended 2012 with a significant cash balance to fund our operations through 2013.

We started 2013 with a clear focus on continuing to accelerate the growth of DUEXIS and successfully launch RAYOS. Additionally, we’re actively seeking opportunities to co-promote, acquire and/or in-license additional products.

We believe we are poised to leverage our strengths in commercialization expertise and expand to additional opportunities. Our objective continues to be to build a broad, profitable, specialty pharmaceutical company.

Thank you for joining us today. And at this time, we will open up the call for question and answers. Thank you.

Question-And-Answer Session

Operator

(Operator Instructions) Our first question comes from Liisa Bayko of JMP Securities. Please go ahead.

Liisa Bayko - JMP Securities

Hi. Good morning. Congratulations on the quarter and thanks for taking the question.

Tim Walbert

Good morning Liisa.

Liisa Bayko - JMP Securities

I want to ask about you talked about the rate of switch and sort of experimentation you’ve been doing with your program. What reduction or change in rate of switch to a different kind of regimen. Have you been able to see with this program versus where it was prior in those territories where you’ve rolled out the program?

Tim Walbert

Thanks Liisa. So we have rolled out and done a pilot about 10 territories in the fourth quarter of 2012. And in those specific territories, we saw 61% increase in their prescribing. It was so -- that gave us a lot of confidence to continue to expand the program to significantly more territories in the entire sales force by mid this year.

Currently, we have about 25 territories over the first two months that we have added. Our plan is to have all territories of being mindful to handle the scale of continued increase in prescribers and number of physicians.

So we’ve been very pleased that we’ve been able to -- any physicians using this program to provide both reimbursement support as well as to ship the product directly to the patients that we’ve accelerated the prescriptions there. And therefore minimize the ability for the pharmacist to switch.

We have specifically measured the -- and don’t have the data that would allow us to see whether that rate, let say, change from 30% to 20%. But just by nature of seeing acceleration above the background rate of our performance acceleration, we believe that it’s showing good success.

That coupled with the fact that the type of representative that we focus on hiring our folks with significant business to business experience who really understand the need to sell the entire office staff and make sure not only the physicians are educated on the benefits of DUEXIS but similarly the key office staff. Then interact with pharmacies and more importantly with patients and can clearly articulate the benefits of DUEXIS and the reason the physicians chose to prescribe it for that particular patient.

Liisa Bayko - JMP Securities

Thanks for the color, Tim. Question on your relationship with Mallinckrodt, just wanted to have a sense of how the sales effort there are starting to impact your acceleration. How much contribution is coming from that and what’s anticipated in the future? Thanks.

Tim Walbert

The question related to Mallinckrodt, the pharmaceutical business, Covidien in the co-promotion. In the fourth quarter, over 90% of the prescriptions generated, that came from our sales force, we did not see significant contribution from Mallinckrodt in the fourth quarter. We are looking forward and Mallinckrodt had a significant presence of DUEXIS (inaudible) in January.

So we are looking forward to some acceleration. But our focus is on driving the DUEXIS business with our 150 sales representatives that we see continued acceleration from our sales force.

Liisa Bayko - JMP Securities

Thank you.

Operator

Our next question comes from Annabel Samimy of Stifel. Please go ahead.

Annabel Samimy - Stifel

Hi Tim and Todd. Can you hear me?

Tim Walbert

Yeah. Hi, Annabel.

Annabel Samimy - Stifel

Hi. Great. So just to follow on this whole question on the efforts you're making around reducing the pharmacy switches. Can you just give us a little bit more detail on the specialty pharmacies that you set up, when this will set up and how exactly it works in terms of getting these patients, the prescriptions and what processes that they are going through these specialty pharmacies as opposed to going to -- as the pharmacies?

Tim Walbert

Sure, Annabel. So the question there regarding, the process and the plan that we’ve implemented with specialty pharmacies in the United States. And the primary action is that once a physician prescribes DUEXIS, the office staff is educated to pick that patient prescription and fax it directly to our specialty pharmacy, who then goes through the process to help understand the reimbursement and provide that feedback to the office staff.

So that they can more efficiently ensure the patient get reimbursement, gets a co-pay via a mechanism where we reduced that patients that they are able to afford. And we’ve seen over 80% of our prescriptions to patients have an average co-pay of under $23. So once that process is complete, the product is then shipped directly to the patient. And relative to how and when it was rolled out, we rolled it out in the beginning of the fourth quarter and increased over the quarter to about 10 sales territories of the 150 we had at the time.

We’ve now expanded it to about 25 territories over the first eight weeks of this year. And our hope is to get it to all sales territories by mid this year.

Annabel Samimy - Stifel

And how many prescriptions actually flow through this method?

Tim Walbert

I don’t have that specific number at this point in time. It’s not broken out by Wolters Kluwer.

Annabel Samimy - Stifel

Okay. So in the territories that have this, is it something that’s just a natural practice. Now, they go, they get the prescription for the physicians and it goes right through the pharmacy or is it…

Tim Walbert

What we’ve found in the physicians that utilize the program is that it’s quite efficient and it minimizes some of the work that our offices has to complete. So for the offices that have signed up and are working directly with our specialty pharmacy, they found it to and reduce some of the administrative effort on their parts and typically in those offices, the majority of patients are going through the program.

Annabel Samimy - Stifel

Okay. Is this a novel program or is this something that’s typically done to address this type of pharmacy switching?

Tim Walbert

We’re not -- I view this as a program that offers value to physicians versus patients versus just being a pharmacy switch program. It’s really about enhancing the overall value of DUEXIS and what we bring to the physician’s office. One of the things we know that makes it difficult for physicians to focus on branded product is the -- not knowing which plan and where the product is in territory and what the co-pays are.

So what we are able to do is use this program to efficiently support physician’s offices. So that’s the real focus of the program. And we’re going to really plan on accelerating that throughout this year.

Annabel Samimy - Stifel

Is it something that applies to RAYOS as well?

Tim Walbert

It is not initially with RAYOS. Our expectation is again that as we accelerate to this year that we will begin adding RAYOS to this program as well.

Annabel Samimy - Stifel

Okay. and then if I could switch tax a little bit on Mallinckrodt sales, it’s seems that they’ve probably been distracted. I’m not sure what’s going on. They’ve the product for quite some time. It doesn’t seem that Mallinckrodt is, I guess, picking up traction in their level of responsibility of the market of DUEXIS. Is there anything that they’ve done or they are doing this year to sort of alter that or they had any sales force meeting to redirect their sales to DUEXIS or to some of their new in-license products that they have?

Tim Walbert

Sure. So the question related to Mallinckrodt and your point is accurate. In the fourth quarter, they did not contribute to the growth of DUEXIS that was driven by 150 sales representatives driving that 56% in total prescription and 76% growth in revenue.

We are pleased that in January, at the same time we’re having our national launch meeting for RAYOS. They also held their national meeting and really put a strong focus on acceleration of DUEXIS. And we have had very good interaction with Mallinckrodt. And we expect to see them continue to drive their percentage of DUEXIS.

But importantly, it is a performance-based contract. We’re not paying them for their efforts. And we do have several periods built in where they have to meet minimum revenue or minimum prescription targets where we will hold them accountable and make the right decision for our business.

Annabel Samimy - Stifel

Okay. If I could just switch tax one more time, you have I guess about $103 million in cash and a couple of products that are just launching. Is there any -- are there any plans to add to that bag on built to leverage the new incentive sales force and are you -- isn’t that cash just for launch or are you thinking about some business development opportunities this year?

Tim Walbert

So two-fold question and yeah, my overall belief is that there are a lot of one and some times two product companies in the specialty pharmaceutical space. And I do believe that increasing the number of products against our infrastructure is the right strategy moving forward and that’s one that we continue to look for.

Relative to our cash use, our are use is to drive the acceleration of DUEXIS and launch of RAYOS. From a business development perspective, we do not plan on using our cash to go out and buy products but to use other mechanisms to access those products into our companies.

Annabel Samimy - Stifel

Okay. Great. Thank you.

Tim Walbert

Welcome.

Operator

(Operator instruction) Our next question comes from Charles Duncan of Piper Jaffray. Pleased go ahead.

Charles Duncan - Piper Jaffray

Hi guys. Nice job in the quarter. Thanks for taking my question.

Tim Walbert

Hi Charles.

Charles Duncan - Piper Jaffray

I’ve a good question, Tim. I wanted to drill down a little bit more in terms of DUEXIS and demand there. Can you give us a sense for the trend in the prescribing docs and then penetration within a practice. Are you driving broader prescribing and deeper penetration at this point?

Tim Walbert

Yeah. It’s a very good question, Charles. And one of the things that we measure is not only there are different things in number of prescribers, but it’s really what amount of our business is coming from a doctor and we defined the doctors that patients who prescribe five or more DUEXIS per week.

When we looked at the first quarter of 2012, 11% of our fees came from doctors and in fourth quarter that increase to about 23.3%. So we are not only seeing this acceleration in prescriptions, but clear acceleration of doctors and that really is what allow us to have more efficiencies to make doctors have prescribed.

Charles Duncan - Piper Jaffray

That’s a good trend. So in terms of the sales force, do you feel that you are at the right size for the current suite of products and would you expand the sales force in 2013 with or without the new products?

Tim Walbert

We have no plans to expand the sales force at this point in time. We believe the 150 are critical mass we needed that allows us along with Covidien over 50% of the prescriptions were directed over 90% to rheumatology prescriptions that make us the market for RAYOS. Basically, we have adequately added and our focus in adding products, which leverage the existing commercial infrastructures.

Charles Duncan - Piper Jaffray

Okay. And then one housekeeping question. As we take a look at our model, in terms of the size of a prescription for DUEXIS, is it -- it that about $72 per prescript and --

Tim Walbert

That is correct.

Charles Duncan - Piper Jaffray

Okay. Thanks. And the retail pricing is about $172 per script?

Tim Walbert

At this point in time, we have taken several price increases to become more competitive with the market. Our growth index in the fourth quarter was actually 20% and our WACC per month for DUEXIS was right now at $502, with the growth of approximately 20%, as seen in the fourth quarter.

Charles Duncan - Piper Jaffray

Okay. That would be helpful for RAY. And in term of pricing increases, were any taken in the fourth quarter and do you anticipate any in the near-term?

Tim Walbert

None were taking in the fourth quarter. We did increase the price to WACC of absolute dollars over the last several weeks.

Charles Duncan - Piper Jaffray

Good deal. Thanks, Tim. Nice quarter.

Tim Walbert

Thanks, Charles.

Operator

I’m showing no further question at this time. I’d like to turn the conference back over to Mr. Tim Walbert, Chairman, President and CEO for any closing remarks.

Tim Walbert

Well. Again, thank you, everyone for joining us. We’re pleased with the fourth quarter, especially the strong acceleration with DUEXIS and also pleased with the early feedback we’ve seen in the launch of RAYOS. I appreciate everyone taking the time today and have a great day.

Operator

Ladies and gentlemen, this does conclude today’s conference. You may all disconnect and have a wonderful day.

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