Questcor Pharmaceuticals' CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.30.13 | About: Mallinckrodt PLC (MNK)

Questcor Pharmaceuticals, Inc. (QCOR) Q1 2013 Earnings Call April 30, 2013 4:30 PM ET

Executives

Doug Sherk – Investor Relations

Don M. Bailey – President and Chief Executive Officer

Steve Cartt – Chief Operating Officer

David Young – Chief Scientific Officer

Michael H. Mulroy – Senior Vice President, Chief Financial Officer, General Counsel and Corporate Secretary

Analysts

Steve Byrne – Bank of America Merrill Lynch

Josh E. Schimmer – Lazard Capital Markets LLC

David Amsellem – Piper Jaffray

David Maris – BMO Capital Markets

Mario Corso – Mizuho Securities USA, Inc.

Biren Amin – Jefferies & Co.

Yale Jen – ROTH Capital Partners LLC

Tim Chiang – CRT Capital Group

Patrick Glenn – Primarius Capital LLC

Operator

Good day, ladies and gentlemen, and welcome to the Questcor Pharmaceuticals, Incorporated First Quarter 2013 Earnings Conference Call. At this time, all participants are in listen-mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this call maybe recorded.

I would now like to introduce your host for today’s conference, Doug Sherk. You may begin.

Doug Sherk

Thank you, operator, and good afternoon, everyone. Thank you for joining us today for the Questcor Pharmaceuticals conference call to discuss the first quarter 2013 financial results. This afternoon after the market closed, Questcor issued its earnings release, which is posted on the company’s website at www.questcor.com.

Today’s call is also being broadcast live via webcast, which is available at the Questcor website. A slide presentation will accompany today’s remarks by management. To access both the webcast and the presentation slides, go to the Questcor’s website, click the Investor Relations link, and then click on Events & Presentations.

For those of you listening to today’s call via telephone, you can review the accompanying presentation slides on the webcast, as I’ve just reviewed. Just make sure you choose the “no audio/slides only” option. There will be a taped replay of this call, which will be available approximately one hour after the call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of today’s call.

Before we get started, I’d like to remind you that during the course of this conference call, the company will make projections and forward-looking statements regarding future events. We encourage you to review the company’s past and future filings with the SEC, including without limitation the company’s Forms 10-Q and 10-K, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements. These factors include Questcor’s reliance on Acthar for substantially all of its net sales and profits, its ability to receive strong levels of reimbursement from third-party payers, and risks associated with Questcor’s R&D program.

The company’s 10-Q for the first quarter is planned to be filed with the SEC later this week. The company will also make comments about the level of net sales in the therapeutic areas in which Acthar is used to treat patients. Please note that the commentary regarding this subject is based on internal company estimates and these estimates could turn out to be incorrect.

During the question-and-answer session today, please keep your questions to two, and then re-queue for any additional questions. With that, I’d like to turn the call over to Don Bailey, President and Chief Executive Officer of Questcor.

Don M. Bailey

Thanks, Doug. Good afternoon, everyone. With me today are Steve Cartt, our Chief Operating Officer; Dr. David Young, our Chief Scientific Officer; and Mike Mulroy, our Chief Financial Officer and General Counsel. They will each make prepared remarks, then I will wrap things up and we’ll take your questions.

As we indicated on our fourth quarter earnings call in late February, we anticipated our first quarter would be a transition quarter based on what we believe are one-time events and operational initiatives occurring in the quarter. These items are presented in the press release issued today and I’ll discuss them shortly.

In addition, MS prescriptions were soft in the quarter compared to the prior quarter, while no one item was as significant together, they calls our results to be below our expectations. That said vial shipments and new paid prescriptions in late March and throughout April appear to indicate that positive as our sales momentum has returned since we talked to you nine weeks ago. We believe this may underscore the [processional] nature of the first quarter.

Further, this may help investors separate the pace of prescription writing and the mix of therapeutic areas that scripts are written for from the pace of vial shipments. Prescriptions represent ultimate end demand for Acthar, but net sales come from vial shipments, often these do not align with each other in one quarter.

We also encourage that prescription writing activity has been quite strong in April, this is especially true for MS. We shipped 4,830 vials of Acthar in the quarter, while this represents over 17% growth compared to the first quarter of 2012, it is down sequentially.

In April, we shipped 2,550 vials, which is a record number of vial shipped in a single-month and appears to indicate a return to prior business levels. First quarter net sales were $135.1 million, including a $126.8 million of Acthar sales and $8.4 million of revenue from BioVectra. Net sales were up 41% compared to the first quarter of 2012 and down 16% sequentially.

Let me briefly discuss the event that contributed to the results reviewed for this quarter. As we discussed on the last earnings call in February, we made operational changes in the first quarter related to reimbursement support and Medicaid. We believe that these changes combined with distributed purchases that occurred late in the fourth quarter of 2012 and softer MS demand that we discussed on the fourth quarter call impacted vial purchasing in the first quarter.

While our financial results for the quarter are disappointing, we believe that they stand from these factors just discussed and are not fully reflective of our fundamental business and underlying demand for Acthar. Thus far in Q2, we are experiencing record levels of new renal prescriptions, new pill prescriptions as well as vial shipments. These results continue a trend which started in March. However, as we have stated before, we recommend that investors consider our results over several quarters as results in shorter time frames can vary.

As Steve will discuss, prescriptions written and prescriptions filled for MS had rebounded in April to prior levels. Prescriptions from rheumatologists are increasing as well. In addition, we are making good progress with our science efforts. We look forward to initiating a Phase II study of Acthar for the treatment of ALS, also known as Lou Gehrig's disease and we currently expect to see new data on Acthar and other disease states during the course of the year. David will discuss these in more detail after Steve’s report.

Finally, as I noted, our results this quarter reflect the integration of BioVectra into our business and we welcome our new colleagues in Canada. BioVectra, our specialty contract manufacturer is experiencing business growth as a result of favorable developments with their current customers. This could lead to further increases in BioVectra’s revenues later this year.

Let me turn the call over to the rest of the team to provide more detail on our results and activities. I’ll get back on at the end to providing update on our outlook. Steve?

Steve Cartt

Thanks, Don and good afternoon, everyone. I’ll provide a review of first quarter results for our key markets of nephrology, MS relapse, rheumatology, and infantile spasms. In the first quarter, we generated $127 million in Acthar net sales, an increase of 32% over the same period last year, but down sequentially.

Following softness in MS during the first quarter, prescriptions for Acthar in MS during April have returned to levels seen in the second half of last year. Nephrotic syndrome and rheumatology prescriptions both showed growth in the first quarter compared to the prior year quarter as well as sequentially.

As a reminder, we just recently launched a significant rheumatology commercial effort in February expanding our rheumatology sales force from 12 to 55 reps and we have recently began to see the early results from this expanded efforts.

Overall, we believe that solid demand for Acthar continues across all of our markets and the prescription trends and vial shipments we have seen in April including those in MS while only one month are encouraging.

Let me provide further details on what we are seeing in each of our businesses. Starting with nephrology, our largest market we had between 385 and 395 new paid Acthar prescriptions in nephrology during the first quarter, up about 56% over the same period last year. We believe that about 7 to 8 vials per prescription are the average usage, which means that nephrology currently represents roughly half of Acthar business.

Prescriptions for the product syndrome reached record levels in the first quarter. We believe this growth is due to nephrologists recognizing the needs for additional treatment options in the product syndrome patients, particularly those who have already tried first line therapy or even second or third line therapy and are in need of another FDA approved treatment alternatives.

As a reminder, the product syndrome could also lead to loss of kidney function and ultimately end-stage renal disease, which requires a kidney transplant or much more commonly lifelong renal dialysis.

Moving on to our Neurology business, there were between 1,015 and 1,025 Acthar prescriptions in MS during the quarter, roughly flat compared to the same period last year, but down about 17% from the fourth quarter. And about 1.5 vials per prescription, MS currently represents about one quarter of Acthar business.

MS prescriptions appeared to be particularly soft in January and February, but they began to tick back up in March and grew further throughout April. Importantly, and despite the various first quarter transition issues noted earlier on the call, we believe that insurance reimbursement for Acthar remains favorable, but is prescribed for on-label indications such as MS relapse for patients in need of an additional FDA approved treatment alternative.

Turning now to our newest market, rheumatology. As you may recall, we formed a small pilot with 10 rheumatology sales reps early in the third quarter of 2012. Based on encouraging initial results, we decided late in the third quarter to expand the small sales team to 55 reps. And during the course of the fourth quarter and up until February 2013, we hired and trained these new reps and their managers, so that they were all able to begin calling on doctors by early February, doctors in turn wrote around 140 to 150 new paid prescriptions for Acthar in on-label rheumatology indications during the first quarter, up substantially from the fourth quarter.

While it’s early and we are only just getting started with a significant effort in this new market, these numbers are quite encouraging, and we believe that they illustrates a long-term potential for Acthar in rheumatology. Also, we believe that we are seeing an average of around 5 vials per prescription, which are usually just the anticipation for over roughly a three-month period.

And up to this time, we have not seen anything unusual with respect to insurance coverage for Acthar in these indications. In fact, the processing in prescriptions looks very similar to what nephrology look like early on in that effort. Our newly expanded team of 55 reps that’s been out educating rheumatologists at Acthar and its availability for the treatment of dermatomyositis, polymyositis, and certain other rheumatology indication for which Acthar is FDA approved.

Our first quarter results in rheumatology demonstrate the progress that this newest Acthar sales force has already made. the growth in Acthar prescribing rheumatology is also continued into the second quarter as well, and we currently anticipate this ramp up to continue, as rheumatology quickly becoming the third largest contributor to Acthar business. As a reminder, because of its very broad immune-modulating mechanism of action, Acthar has the potential to help patients suffering from any of the serious rheumatology related disorders addressed by the FDA approved indications specified on the Acthar label.

Rheumatologists tell us that they are employing Acthar typically as a short-term treatment in patients who’ve had a worsening of disease symptom despite being treated with standard medications. The prescribing rheumatologists indicate that their usual goal in employing Acthar treatment is to help get symptoms back under control, so that the patient can continue on their chronic medications. There appears to be a significant number of such patients in DM/PM and lupus for example, but even in RA, we’ve tried standard medical therapies for their condition and our need of an additional FDA approved treatment alternative.

We are still in the very early days in this new field and it’s possible that we may see the use of Acthar by rheumatologists evolve over time as they gain more experience with it in their practices. Overall, we are very encouraged by our early performance and the support of new market for Acthar, and believe Acthar usage, and its FDA approved rheumatology indications will continue to grow during the remainder of 2013 and into 2014.

Lastly, I will comment briefly on infantile spasms. Acthar prescriptions for IS in the first quarter of 2013 were stable and within historical norms. We continue to be fully committed to providing rapid access to Acthar for this vulnerable patient population and also to a support of both independent research and educational efforts related to IS. Looking at all our commercial activities, the value of the Acthar diversification we have established across multiple on-label therapeutic areas over the last few years is clearly evident. For example, while IS represented most of our sales several years ago, it is now only the third largest contributor and may soon (inaudible).

Conversely, the far newer Acthar markets in nephrology and rheumatology are growing and we believe can continue to deliver year-over-year growth for an extended period. Finally, the MS relapse market, which had been our major growth driver for the last few years, showed softness during the quarter, but lately has reversed that trend.

My final comments will be on the reimbursement front. Based on our experience which claims processing activity, we believe that the overall reimbursement environment for Acthar continues to remain favorable. As you know, Acthar prescriptions are handled on a case-by-case basis with a vast majority of cases under going significant review by the payer for appropriateness.

I’ll now turn the call over to Dr. David Young, our Chief Scientific Officer, who will bring you up to date on our scientific efforts and company sponsored clinical programs. David?

David Young

Thanks, Steve. Good afternoon everybody. I’m pleased to provide with you an update on our R&D efforts. I will focus my comments today largely on our company’s sponsored research program. Overall, there are tremendous amount of work being done on Acthar with roughly 70 companies sponsored and investigator initiated studies under way were recently completed. The company sponsored research includes both non-clinical and clinical studies, which has and will help us to better understand the peptide composition, the mechanism of action and the role of Acthar and the treatment of various medical interpretations.

Let me begin with a non-clinical research and then move into the clinical trials. Our non-clinical research continues to add to the body of evidence of Acthar’s uniqueness. Beyond the effects seen by steroids, we have found that Acthar modulates the immune and inflammatory processes and can directly affect cells. We have seen this occur in multiple in vitro studies and in MS, lupus and nephrology animal models. We hope to present and publish some of these results over the next 12 months.

In addition, we continued to expand our basic knowledge of Acthar by investigating its composition and studying the differences between Acthar and individual synthetic melanocortin peptides.

Understanding Acthar’s mechanism of action continues to play an import role as we better define Acthar’s potential utility in both on-label indications and new indications. For example, in disease stage such as Idiopathic Membranous Nephropathy, systemic lupus erythematosus and diabetic nephropathy, all of which have clinical programs underway.

It is our current belief that Acthar is impacting patients through the melanocortin system, which has numerous receptors usually located on organs and on immune cells throughout the body. Acthar seems to stimulate the melanocortin system affecting important biological processes in the body in a very positive way. Let me update you on the company sponsored clinical studies underway. Our diabetic nephropathy Phase II proof-of-concept study, which is a randomized placebo control trial, continues to actively screen and then enroll patients.

Approximately 30% of the patients are now enrolled and we should be able to complete enrollment by the first half of 2014. Our idiopathic membranous nephropathy Phase IV study is also ongoing. As a reminder patients enrolled in this study are refractory which we define is either non-responsive to current standards of therapy or as having relapsed after partial remission under standard therapy because it is an on-label study, the availability of a prescription of Acthar in these hard to treat patients has made screening and enrollment changing, but we have taken steps to hopefully enhance the enrollment rate into study. We have a phase IV randomized placebo-controlled trial underway looking persistently active lupus.

This study was initiated last quarter. As a remainder, conventional treatments for lupus include corticosteroids, immunosuppressive medications. However, there is a need for alternative therapeutic options, particularly in lupus patients who may not be adequately controlled with or who are intolerant to traditional therapies.

Half of the sites got underway this quarter and the first patient has been enrolled in the study, we expect to have top line data in 2014 and the study completes in 2015.

Of note, one our small perspective open-label investigator initiated study is evaluating Acthar for the treatment of patients with lupus exacerbation rather than patients with persistently active disease of lupus. And an investigator has completed enrollment for this study, and he has indicated to us that the study should be completed by the end of the second quarter

Based on our expanding understanding of Acthar’s biologicsal activity, we are also evaluating the potential for Acthar and other indication not currently on Acthar label.

In addition to that there is a nephropathy that I just discussed. We are evaluating Acthar in patients with ALS or Lou Gehrig’s disease. We are finalizing study protocol gone through the IND process submitted a request for orphan designation and FDA has accepted the plan to our first clinical trial (inaudible) patient screening will begin during the second quarter and several sites that have already been qualified and have begun the process to get these site up and running. Q1 ratio will be over nine-month period.

Besides the lupus investigated initiated study I mentioned before, we are also providing grants to support many other investigator-initiated clinical studies in the areas of neurology, nephrology and rheumatology. As you can see, we have a lot of non-clinical and clinical research underway and we look forward to keeping you posted on the progress of these programs as the year evolves.

Now, Mike Mulroy, our CFO will discuss financial highlights. Mike?

Michael H. Mulroy

Thanks, David, and good afternoon everyone. Net sales for the first quarter were $135.1 million, which included a $126.8 million of Acthar sales and $8.4 million of revenue from BioVectra. As noted earlier on the call, we are disappointed with our results in the quarter. While Don described, the primary factors impacting the first quarter, I would like to put the net sales figure in perspective. As a reminder, our net sales are driven primarily by the number of vials we sell to our distributor and some of the first quarter initiatives that we’ve outlined could have influenced channel inventories and ordering patterns, which we don’t directly control.

That said, Q1 is our third largest vial shipment quarter on record. the second quarter is off to a great start. As demonstrated by our receiving orders for and shipping 2,550 vials to our distributor in April. This represents more than 50% of the number of vials shipped in the first quarter. It is of course, premature for to call it Q2. but again, it is off to a great start.

In the first quarter of 2013, our sales reserve rate, which primarily relates to Medicaid was 7.3% of our gross revenues of $145.7 million or $10.6 million. This percentage of decline from prior periods as a reduced Medicaid rebate went into effect in the first quarter. We continue to see growth in OpEx with first quarter reflecting the addition of the newly expanded rheumatology field force, a substantial increase in R&D investment and the inclusion of BioVectra’s operating expenses. Our operating margin was a respectable 43%, down from the level we have seen in prior periods reflecting our lower top line and the build out of our operation to support a larger business.

Our operating margin also reflected the addition of BioVectra, which as a specialty contract manufacturer has lower operating margins in our base business. We expect to continue to grow our R&D effort in other important programs, and should see OpEx grow by $5 million to $10 million in the second quarter over the level in Q1. This resulted in operating income in the first quarter of $58.3 million, compared to $57.3 million for the first quarter of 2012.

Turning to the bottom line, non-GAAP earnings per share for the quarter were $0.76 diluted based on $60.3 million diluted shares outstanding, up from $0.61 in year ago period. Operating cash flow during the first quarter was $41.5 million, driven primarily by net income of $39.1 million in the quarter. Return on equity was 87.4% for the first quarter. We paid the upfront consideration of approximately $50 million for BioVectra and did not repurchase any shares in the quarter. As a reminder, our regular quarterly dividend of approximately $11.8 million was accelerated into 2012 and we are in the process of paying today our Q2 dividends of $0.25 per share. Finally, while we now provide earnings guidance, I thought it might be interesting to investors to hear a little bit about one of the methods we used to align executive compensation with company performance.

In early 2011, executives received performance equity grants that vested only if net sales in 2011 improved by more than 40% over the prior year. After that goal was met, the Board provided a new performance grant for 2012 that was subject to net sales growing by over 80%. This goal was also met. For 2013, our Board of Directors switched to operating income as the key metric for performance equity grants for executives. Vesting of this year’s grants will depend on the level of operating growth – operating income growth, excuse me, with no vesting at growth rates below approximately 50% and full vesting occurring only if operating income grows by more than 100% using 2012’s operating income of $296 million as the base line.

Now, I’ll turn the call back to Don for summary and some comments on our outlook. Don?

Don M. Bailey

Thanks, Mike. So to summarize, the first quarter was transitional, but the second quarter is off to a record start. We believe the demand for Acthar based on prescriptions being paid can continue to increase. So far in the second quarter of 2013, we are seeing a return to prior sales levels based on prescriptions written, prescriptions filled, and vial shift, and reimbursement remains favorable.

As we said on our fourth quarter call, 2013 will be a year to improve certain operational aspects of the business, including the initiatives that we’ve implement in the first quarter. We believe that these changes will produce long-term benefits for our business in all areas, where we focus our efforts; neurology, specifically MS relapses, nephrology, rheumatology and infantile spasms.

As Dave has referenced, the growing level of research on Acthar continues to expand and we are pleased to get the ALS study underway. These studies together with the continued work on Acthar’s mechanism of action, independent investigator studies, and case reports from practicing physicians continue to build the body of evidence that Acthar maybe an appropriate option could help and benefit many more patients with inflammatory and autoimmune disorders. Ashley, we can now open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Steve Byrne of Bank of America. Your line is open.

Steve Byrne – Bank of America Merrill Lynch

Hi. I want to make sure I understand how the Medicaid rebate change affected the channel inventory levels? So you had noted at the end of the first quarter that your distributor had taken an order, so you had an increase in inventory there that was a headwind in the first quarter, but you also have a channel inventory draw down at specialty pharmacies because of this having to work off the inventory under the old Medicaid code?

Don M. Baile

So, yeah, let me try to explain this. It’s all confusing, so we have the inventory at least at 2 points in the channel. We have the inventory for distributor which is one location and we have inventory – Acthar recited inventory at various specialty pharmacies, which maybe up to 60, 70, 80 locations. And in addition there is some Acthar hospitals. So the first part of your question was the inventory at the distributor, and yes, it appeared to us to be higher than normal inventory with our distributor at the end of the year, last year. While we did not have complete visibility into the inventory at the pharmacies like we do at the distributor, it appeared to us that the inventory at the specialty pharmacies had decreased during the quarter and looks like now it’s being replenished during April. Even though prescriptions are showing in April, vials are even stronger.

so it appeared that they were drawing down the old inventories related to the old Medicaid rebate codes and did not really draw up or increase the inventories for the new Acthar – not the new Acthar, but the Acthar related to the new Medicaid codes until – later on in the quarter and into Q2. So that’s our best estimate, that’s there was some inventory over each so to speak to the distributor, and some inventory draw down during the quarter at the specialty pharmacies.

Steve Byrne – Bank of America Merrill Lynch

And so, even though you don’t have access into the specialty pharmacy channels, do you suspect that may have been a greater impact in the quarter than your distributor inventory issue?

Unidentified Company Representative

It’s a really good question, Steve. And we try to quantify it and we’re unable to. Our best estimate, and this is truly just an estimate is that a slightly larger than the inventory impact from the distributor. But we just don’t know for sure, because we don’t have the information of the inventory levels at the end of Q4 and at the end of Q1, which what we would need to determine that all we would need to determine there. We just have don’t have those numbers.

Steve Byrne – Bank of America Merrill Lynch

Okay. And so the benefit from the Medicaid rebate adjustments, was that modest in the first quarter, because that doesn’t really occur until that inventory gets restocked under the new code.

Don M. Bailey

That well, that’s partially correct, so the – we hit the benefit of new Medicaid rebate percentage for all the vials shipped under the new system, which is basically all the vials shipped in the quarter. So we actually got – we got most of the benefit from the – most of this 4,800, actually all the 4,800 vials shipped in the quarter were new code vials. So they all got the benefit of the, all those that will end up in Medicaid, will get the new Medicaid rebate.

Steve Byrne – Bank of America Merrill Lynch

Okay, so…

Don M. Bailey

The main thing going forward is that the Medicaid rebate is now, and we are not getting the benefiting of it.

Steve Byrne – Bank of America Merrill Lynch

Okay, and just…

Operator

Thank you. Our next question is from Josh Schimmer, Lazard Capital. Your line is open

Josh E. Schimmer – Lazard Capital Markets LLC

Hi. Thanks for taking my questions, can you discuss the trends in the quarter into April in terms of the reimbursement turnaround time that you are seeing at the new center? And if you could also discuss the gross margins and what we should expect on that line going forward?

Don M. Bailey

Okay, we’ll all take a crack at (inaudible) ask Mike to talk about gross margin, so reimbursement timeframe and turnaround times extended a little bit in Q1 as we were transitioning our reimbursement support groups, and we think that had maybe (inaudible) 5% to 7% effect in the quarter. So that would be the impact and we would expect that that would diminish overtime. Mike, do you want to talk about gross margin?

Michael H. Mulroy

Yeah, just on the gross margin point, as a reminder, we acquired our specialty contract manufacture for Acthar early in the quarter. As a contract manufacturer, they now share the same margin profile as Questcor, and so, you’ll see our gross margin decline in the quarter really on a waiting from the buyback results being baked in. I would expect us to be ongoing, I could see some improvement over time, but I don’t think in the near-term we’ll see a return to 94%, 95% gross margins.

Steve Cartt

Hey, Josh, one quick update. When I say 5% to 7%, I meant 5% to 7% of sales – of net sales, so the impact in the quarter as it impacted net sales in the neighborhood of 5% to 7%.

Josh E. Schimmer – Lazard Capital Markets LLC

Has that started to trend better yet or is it still a (inaudible) impact?

Michael H. Mulroy

Well, it’s improving slightly, but it’s not where we want to be and that way we will be eventually so but this is a slow process, so we’ll get there. And over a six-month period that we dropped at 2% of sales, so it becomes a material really in long scheme of things and in the short time period it’s magnified.

Josh E. Schimmer – Lazard Capital Markets LLC

Okay. Thank you.

Operator

Thank you. Our next question is from David Amsellem of Piper Jaffray. Your line is open.

David Amsellem – Piper Jaffray

Thanks. Here are my few questions. Just firstly MS setting, given the lack of new clinical outcomes data or trial data and what’s your level of confidence that you could see sustained growth in volumes longer-term in MS? And then secondly, I think you had mentioned previously a registry in the DM/PM setting, so the question there is, when is the earliest we can expect to see outcomes data for patients in that setting? Thank you.

Don M. Bailey

Okay. Well, let me give a little bit of quicker review on MS and Steve can provide some additional color and answer the question on the registry. So we indicated that in the second quarter, which in April, MS has rebounded and in – and we’re actually, if we stay at this pace, we will – we’ll have a record number of MS prescriptions written and close to a record number of them likely might even have a record closed. So we think MS has rebounded to the – and is up potentially back on a growth profile. So let me – let Steve give you a little bit more color on that. He can talk about the registry.

Steve Cartt

Yeah, I think one thing to point out is, MS is probably a bit more sensitive to longer turnaround time. So I think we saw the results, it was urgent care. I think we saw the result of that to some extent in Q1.

But in terms of long-term growth potential and the need for additional outcomes data, we have had fairly recent days, a lot of interest expressed by researchers on new study concepts. We’re evaluating some study ideas in the MS relapse area. So I think you should stay tuned on some of the things that we are evaluating there maybe funding some additional studies, independent studies going forward.

In terms of the DMPM registry, that’s in place, I probably wouldn’t expect to see, here the numbers in DMPM are relatively small overall and not everybody gets their patients into registry. We’re trying to work with the investigators and get more of that going, but I wouldn’t expect to see any outcomes data from that relatively new registry until 2014.

Operator

Thank you. Our next question is from David Maris of BMO. Your line is open.

David Maris – BMO Capital Markets

Hi, a few questions. First, why were there no share purchases during the quarter? And then secondly, you brought up the compensation targets for the coming year or at least some the metrics that you’re using, maybe if you could address this past year stock didn’t do so well after doing tremendously well earlier, but compensation for the executive team went up pretty dramatically. What’s the thinking behind 2012 bonuses and compensation because someone might say that what you’re seeing today are the first quarter results where kind of buying in to the fourth quarter, so maybe the first quarter is just a reflection of trying to get in as much as we could for the fourth quarter?

Don M. Bailey

Okay. I am not sure I understand that. So first of all, we can’t really comment on the share repurchases very much, I mean, we only would have had the potential first quarter is already the most difficult quarter to share purchase because we don’t report fourth quarter until late in the first quarter and then we’re getting close to being close to the first quarter. So we hardly ever have any share repurchases in the first quarter. Our compensation targets are determined by our Board of Directors and they related to operating income, it’s not common for short-term incentives to relate to stock price or long-term incentives to of course because our biggest part of our compensation is equity related. So I think that I’m not sure (inaudible).

Operator

Thank you. Our next question is from Mario Corso of Mizuho USA. Your line is open.

Mario Corso – Mizuho Securities USA, Inc.

Good evening. Thanks for taking my questions. In terms of vial ship versus our excess, it looks to me like in Q1, the RX numbers you talk about would have generated vials about 20% higher in what you ended up shipping. Is that the kind of delta you are looking at as well? And then on the MS side of things, do you have any sense of whether the policy data that was presented at ANA is generating interest and not just in that setting, which is the overall in terms of differentiating Acthar from prednisone and I am wondering if you are seeing any kind of new riders on that basis at all? Thank you.

Don M. Bailey

Okay. So as far as the vials to – the strip to vials disconnect, that’s basically what we’ve been talking about in the call, it certainly has puzzled us. And I think in my answer to Steve Byrne, we were addressing a substantial part of that, there does appear to be a disconnect, I’m not sure 20%, that’s as much I’ve done the math on, so I can’t talk to 20%, but that certainly could be in that range. It probably is in that range, actually, we are doing quick marks here. So while speak so, yeah, there certainly was a disconnect and by one way to look at it is if you take the vials that were delivered late in the fourth quarter and the first four months of 2013, and you add all those together, you pretty much get the same run rate as you would get for Q4, if you took those right files out.

So what it really means is the vials haven’t actually changed over a seven-month, the vial levels haven’t changed over a seven-month period, they’ve just got time, they’ve just kind of around because of the timing due to inventory. As far as the MS (inaudible) study, so I think what you’re referring to is a study done at USC by Dr. Berkovich and others which showed that Acthar in combination with another drug did better than steroids combined with that same other drug in reducing relapses. And that study was published and presented to AAN.

I doubt that we would see any specific impact from that in our selling effort because that study is also able and really relates to activity for maintenance for them and as not for observations. But Steve, would you have any further insight on that?

Steve Cartt

Yeah Don, let me just say that figure was entrants generated from that but it’s more interest in it further. That was really an initial exploratory study. And Mario, the studies in MS are typically in the two year range. That was really only a one year study, it will fairly small. So it generated interest in studying that the subject further. There are doctors that use IV, steroids as pulse therapy either once a month or quarterly. And so the doctors are thanking those who are possible that Acthar could provide some benefits in that setting as well.

Obviously, not at all ladies indication which really don’t promote it. But it is area that we might consider studying further.

Operator

Thank you. Our next question is from (inaudible). Your line is open.

Unidentified Analyst

Hi guys. Thanks for taking my question. Look at some of the number you put of for April, is there anything over this very strong numbers returning to trend. Did you say, is there anything sort of in the quarter that made it look a little, probably a little stronger whereas the first quarter is a little weak, somewhere it gets moved around, any stock in the quarter to mention or any price increases in the quarter, then it’s the case for price increases coming up.

Unidentified Company Representative

Phil, it’s a really good question. There is undoubtedly some positive inventory impact since it was a negative inventory impact in Q1. We would expect that. But the number of actual prescriptions written on a run rate that is more than 10% higher than any prior quarter in our best quarter. And that’s both on what we call in the door returns or shipped – prescriptions that are filled, and whether you violate them the therapeutic area or not. I mean no matter how you’ve cut it, the actual underlying demand clearly is up in April quite a bit and now on top of that, there could be some inventories. So they’re just probably combined to create an unusually good month.

Unidentified Analyst

Anyway, my second question, any updates on – you discussed in the past, trying to get something on the orange books and patterns sort of around that. Are there any updates on them?

Unidentified Company Representative

Steve, you want to comment on that?

Unidentified Company Representative

Yes, Jim. I mean that’s something we’re constantly looking at. it’s hard to predict a future in terms of, could we eventually find opportunities for new intellectual properties, there’s less. Lifts an orange book at this point. There’s no new patents being issued on Acthar, but it’s certainly an area of interest for us for the long-term.

Unidentified Company Representative

One thing, we’d like to comment is that a lot of investors equate IT and patents, especially the pharmaceutical industry, because by far, our patents are most predominate form of IP. However, trade secrets are also very important and in many ways trade secrets are superior to patents, because trade secrets don’t have a cliff. And we believe that Acthar has some important trade secrets like other – another drug dealer and have same category with the Botox and Premarin. So there is not very many drugs that can rely on trade secrets, but when you can that may be superior to patents. Ashley?

Operator

Thank you. Our next question is from Biren Amin of Jefferies. Your line is open.

Biren Amin – Jefferies & Co.

Yeah, thanks guys for taking my questions. I guess the first off on MS strength that you are seeing in March and April. Just trying to understand if you are seeing the strength from existing prescribers or is it from new prescribers and also have you changed any of your marketing strategies in the recent months to account for this strength and I will forward some additional questions thanks.

Don M. Bailey

Steve, can you provide some insight, I’m not sure we have time to address that analysis, but do you have any sense on those?

Steve Cartt

Yeah, sure. Obviously, January and February was quite sluggish and prescriptions began to move back up in March and April has been strong for sure. But it’s really a combination of existing prescribers and new prescribers with a slowdown for a couple of months and January and February. We actually got out and spoken to a number of prescribers. We saw a decrease in that period and they didn’t even recognize that they had decreased prescribing and attributed two more to the seasonal factors. We do know there were some doctors that during this period were we had longer turnaround times particularly in MS that some of them may have held off on prescribing or delayed prescribing Acthar may went to some other therapies for that period of time, and we’ve heard a couple of comments about that. So there maybe a little bit of that’s going on as well. But now in terms of promotional efforts, they are pretty much on track with what we’ve been doing and we’re pleased to see to this renewed prescribing activity in March and April for sure.

Operator

Thank you (Operator Instructions) Our next question is form Yale Jen of ROTH Capital. Your line is open.

Yale Jen – ROTH Capital Partners LLC

Yeah, just a two quick questions, first is a little bit follow up on the April trends in terms of MS and is the – the vial shipped about 2500, does that reflect some of these trends which was compared to earlier month (inaudible) best indicator but is there anything being seen from that?

Don M. Bailey

So April was a record vial month and certainly the strength in MS already immediately translated into strength in vials because MS prescriptions are filed immediately whereas rheumatology and nephrotic syndrome strips are filled over time, over three to six month period. So that definitely would have impacted. Do you have another question, Yale?

Yale Jen – ROTH Capital Partners LLC

Just quickly in terms of – could you guys give a little bit guidance in terms of BioVectra revenues we have the first quarter, would that be approximately maybe for the full years or we can see some growth or how should I think about that part of the equation?

Don M. Bailey

Well, we do expect BioVectra sales to increase over the quarter. They have a little bit more visibility than we do with Acthar because of many of – much of their business is operated on for contracts. So we would expect to see certainly in the second half of the year to see their sales to grow somewhat.

Yale Jen – ROTH Capital Partners LLC

Okay, great. Thanks, Don.

Operator

Thank you. Our next question is from Tim Chiang of CRT Capital. Your line is open.

Tim Chiang – CRT Capital Group

Hi, thanks. Don, could you just answer one question I had which is, is there any change in the usage of vials for the different treatment indications since the end of last year?

Don M. Bailey

We’re not aware of any, so it’s something we look at. But generally speaking, it’s – we can only look at our retro speculations, nephrotic syndrome is a six-month usage prescription. If we look at it today, we have to look at prescriptions at the end of six months ago.

So when we do some math to see to try to map to the current vial shipments, those numbers seem to still hold up as best we can tell. But it’s – there is no way to tell what’s if the prescriptions were written in December, for example, we’re going to have a six-month on average, they can still, for nephrotic syndrome, they can still average 8 vials, there is no way to know that until we get it further up in time.

So the best of our knowledge, nothing has changed materially, but and the numbers we’ve given out in the past and the key pattern is presentation are truly our best estimates. We’re not steppingstone, but we don’t see every prescription and we don’t see all the information from the pharmacy.

Tim Chiang – CRT Capital Group

Okay. Maybe just one follow-up, I know last quarter, you talked about the revamping of the reinvestment and could you talk a little bit about the progress of that in the first quarter?

Don M. Bailey

Sure, just a little bit. So the idea there is to try to improve our support for doctors who are writing prescriptions and interfacing with insurance companies and we have modified our team and expanded our team and in the first quarter, they were many new people involved in our process and they are moving up the learning curve. So we expect that process to continue and those improvements to continue overtime and as the year moves on, we should see improvement in the reimbursement turnaround times.

Operator

Thank you. Our next final…

Don M. Bailey

Ashley, go ahead, Ashley.

Operator

And our final question is from Patrick Glenn of Primarius Capital. Your line is open.

Patrick Glenn – Primarius Capital LLC

Hi, guys. Thanks for taking my call. I just have two quick questions. The first one is do you have anything planned currently as far as investor conferences? And then the second one is Don, you’ve been at, I think at this for about 6 years. Can you give us a little comparison in terms of your visibility now in terms of the company’s market opportunities versus what you had previously and then what it looks like as far as your key initiatives going forward, please?

Don M. Bailey

Sure, Patrick. So first of all, as far as IR conferences, we have – we will be at the [B&A] Conference in the middle of May and I guess that’s in two weeks and then we’ll be at the Goldman Sachs Conference later in May, it’s in June, so in the second quarter, we’re already in the second quarter. So we have those two conferences this quarter. And it is interesting that 6 years have kind of flown by. We’re seeing the Questcor transition to and Acthar to transition into a very useful drug helping lots of people with MS, people with nephrotic syndrome and now and certainly we’ve always been able to help the families with the tragic situation if they’re having the day, which was but now we have this new rheumatology indication instead of indications and we still expect to save nephrology grow, we expect to see MS potentially grow at lower, we’re going t at the MS business for five years now. so it's surprising us, it’s selling out a little bit. But in the rheumatology, we think we have a number of different indications as like each one of those indications has a potential to be as big as MS or nephrotic syndrome.

so we’re very excited about the growth of Acthar within those indications. And further, we’re getting more excited about the time of our scientific efforts and where that may lead in our ability to better understand how Acthar works in the body. As David said, it’s recording systems seems to affect biological processes in a positive way and that can lead to other indications on the label. It can lead to, eventually to new drugs. We’re looking around for some technology that could accelerate those processes or other trying to attain other assets that would be comparable and compatible with Acthar and maybe involve the in line of core system. So we look forward to reporting on the progress of the continued growth of Acthar and our scientific efforts. And Operator?

Operator

I’m not showing any further questions in the queue.

Don M. Bailey

Well, thanks everybody for attending, and we will talk to you again in three months.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. This conference is available on replay till April 30, 2013 at 11:30 p.m. Eastern to May 7, 2013 11:59 p.m. Eastern. Please call 800-585-8367 or 855-859-2056 or 404-537-3406 and enter conference code 34200996 to access the replay. You may all disconnect. Everyone have a great day.

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