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Vivus, Inc. (NASDAQ:VVUS)

Q1 2013 Earnings Conference Call

May 7, 2013 08:30 AM ET

Executives

Leland F. Wilson - CEO

Timothy E. Morris - SVP, Finance and Global Corporate Development and CFO

Peter Y. Tam - President

Michael P. Miller - SVP and Chief Commercial Officer

Barbara Troupin - VP, Scientific Communication & Risk Management

Analysts

Charles Duncan - Piper Jaffray

Matt Lowe - JPMorgan

Simos Simeonidis - Cowen & Company

Irene Lau - Leerink Swann

Lee Kalowski - Credit Suisse

Alan Carr - Needham & Company

Steve Byrne - Bank of America

Michael Tong - Wells Fargo Securities

Jason Butler - JMP Securities

Eric Roberts - Caxton Advantage

Jonathan Aschoff - Brean Capital

Operator

Good day, ladies and gentlemen, and welcome to the VIVUS First Quarter 2013 Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions) As a reminder, this call may be recorded.

I’d now like to introduce your host for today’s conference, Tim Morris, Chief Financial Officer. You may begin.

Timothy E. Morris

Thank you, Ashley. Before we get started, I’d like to remind you that during the course of this conference call, VIVUS will make certain statements that are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of forward-looking words such as anticipate, believe, forecast, estimate, expect, intend, likely, may, potential, plan, predict, opportunity and should among others.

These forward-looking statements are based on VIVUS’s current expectations, and actual results could differ materially. There are a number of factors that could cause actual events to differ materially from those indicated by such forward-looking statements. VIVUS does not undertake an obligation to update or revise any forward-looking statements. Investors should read the risk factors set forth in the VIVUS Form 10-K for the year ended December 31, 2012, and as amended on Form 10-K filed April 30, 2013 and periodic reports filed with the Securities and Exchange Commission.

I’ll now turn the call over to Mr. Leland Wilson, CEO of VIVUS.

Leland F. Wilson

Good morning and welcome to our first quarter 2013 conference call. In addition to Tim, joining me today will be Peter Tam, our President; Mike Miller, Chief Commercial Officer; and Dr. Barbara Troupin, Vice President, Scientific Communications and Risk Management.

During the period from launch up to the REMS modification, we made significant progress in implementing our early stage commercial strategy. During this period, we focused our efforts on educating physicians and gaining coverage for Qsymia. As of March 31st we’ve made nearly 90,000 calls on 25,000 targeted healthcare providers and since launch we’ve trained more than 300 physician speakers.

We have conducted approximately 800 peer-to-peer programs for more than 9300 participating attendee physicians. We also have conducted continuing medical education programs for over 13,000 healthcare providers. Also during this period we’ve gained acceptance of Qsymia by thought leaders and established a benchmark with these thought leaders. Script rates for endocrinologists are now more than doubled and growing at a faster rate than those of our other called on physicians. Considering that endocrinologists rarely wrote prescriptions for weight loss meds prior to Qsymia launch and that AACE has now published treatment algorithms that include weight loss medications, significant progress has been made in establishing endocrinologists as thought leaders in the treatment of obesity.

We’ve also increased coverage. Now with ESI and MEDCO Qsymia is available at a Tier 3 level to 34% of all commercial lines in the United States. We’ve been able to meet these goals not only because of the great effort of our team, but also because Qsymia is showing in the marketplace the same exceptional efficacy and tolerability that we seen in our clinical trials.

Going forward, post REMS modification our overall objective is to accelerate the adoption of Qsymia by physicians. To do this, we will continue to grow insurance coverage and drive patient trials by lowering out-of-pocket costs.

We will be – we will improve the access by making Qsymia available in 1,000s of certified retail pharmacies by mid-July. We will continue discussions with major pharma to explore how we can significantly expand the commercialization efforts for Qsymia. And finally, we will begin activating consumers to talk with their doctors about medical weight loss and Qsymia. VIVUS will kick off print and social media campaigns for Qsymia this fall and look to expand our efforts in 2014 as we reach out with the increasing PCP audience.

Since our last call, we’ve had a number of important achievements. Approval of REMS modification to allow expansion of the number and type of distribution outlets for Qsymia to include 1,000s of certified retail pharmacies. It is hard to overstate the importance of this approval. Once implemented, doctors will be able to write a prescription in a familiar way and without the need for faxing and patients will be able to fill the prescriptions at a near by certified retail pharmacy.

In April 2013, we entered into an agreement with MEDCO. This agreement was significantly reduced the out-of-pocket cost for many Qsymia patients and as a major step towards our goal of achieving 50% coverage of commercialized by the end of the year. Staying with Qsymia coverage news, we’d also like to announce that the Veterans Administration now covers Qsymia. Now millions of Veterans can access Qsymia at only $9 per month.

The recently published comprehensive diabetes management treatment algorithm from the American Association of Clinical Endocrinologists for the first time in corporate FDA-approved anti-obesity medications as recommended therapy. These new algorithms will help the adoption of Qsymia into the everyday practice of primary care physicians. These algorithms along with the recent pharmacoeconomic publication from Dr. Kenneth Thorpe demonstrating a net cost savings in the Medicare population with 10% and 15% weight loss will help significantly in our discussions not only with physicians, but also with payers and policy makers.

We’ve begun discussion with large pharmaceutical companies to explore how we can increase efforts with primary care physicians, which we believe is critical to maximizing the value of Qsymia. As we’ve consistently said, the right time to expand this reach would be upon improved access and coverage, which we now have achieved.

As we’ve achieved – as we’ve these conversations we remain open to all auctions that could drive the best value for our shareholders. Switching to SPEDRA, the brand name for STENDRA in Europe we recently received a positive vote from the CHMP. The application is now being referred to the European Commission for approval.

Yesterday we announced that Rich Fante, former President U.S. CEO North America and Regional Vice President America at Astrazeneca has agreed for Advisory Services to the Company. Rich played a major role in establishing Nexium, Crestor and Seroquel as three of the top 10 pharmaceutical brands in the United States. In this role Mr. Fante would advise on the company’s commercial options to access the primary care market and maximize the value of Qsymia.

Lastly I am pleased to announce to the addition of Robert N. Wilson, former Vice Chairman of Johnson & Johnson to our Board of Directors. Rob, brings a wealth of experience in leadership in all aspects of the pharmaceutical industry.

With that I’ll now turn the call over to Mike Miller, who’ll go into a few more details on the Qsymia commercial achievements for the first quarter.

Michael P. Miller

Thanks, Lee. As we reported a couple of weeks ago the Qsymia total prescriptions dispensed in the first quarter were about 59,000. Of these total prescriptions approximately 21,000 were under the free trial offer, which includes the first two weeks of the starting dose at no cost. Please remember the free trial offer is available only once per patient for life time.

The Q1 free trial offers resulted in subsequent paid prescriptions of the recommended dose 72% of the time, which translated to its meeting its objective of initiating successful trial on Qsymia. In March we launched the additional program to lower added pocket cost to patients, Save Now, which provides one month of the recommended dose of Qsymia for $75, approximately 2900 prescriptions had been shipped under the Save Now program in Q1.

We continue to grow the Qsymia patient and prescriber base. As of the end of March we have had over 39000 unique patients that have been dispensed of prescription for Qsymia since launch, with over 23000 of those patients being added in Q1, 2013. Nearly 15000 healthcare providers have prescribed Qsymia since launch representing a 79% growth in the number of prescribers compared to the end of Q4, 2012.

To address the question on persistence, we have analyzed over 9000 new patients that started treatment with Qsymia in September, October or November of 2012. Based on the review of longitudinal patient data that is, individual patient pharmacy claim data continuously followed over time. The average persistence through March on Qsymia treatment is approximately 3.4 months. We will continue to follow and add to these patient cohorts as more recent prescription data becomes available and the sample grows.

In the actions of free offers, discounts or recent managed care wins during these months we’re very pleased with the persistency rate on Qsymia to-date. As Lee mentioned, we’ve signed a rebate agreement with MEDCO. MEDCO covered patients will now have access to Qsymia on the national formulary at Tier 3 with a prior authorization. The copay is expected to be between $50 and $60. The combined entity of ESI or Express Scripts and MEDCO is the largest PBM in the country.

Another very recent win was the Navitus Health Solutions which is a regional PBM in the mid-west also with a Tier 3 placement. As we stated our corporate goals to have more than 50% of the 160 million commercialize in the U.S. covered for Qsymia at Tier 3 or better by year end. Commercialize are defined as self or fully insured by plants or PBMs and do not include government that is Medicare or Medicaid or the uninsured.

With wins like MEDCO and Express Scripts we now have approximately 34% coverage, so we’re well on our way to that goal. Another coverage accomplishment that we recently had was, Qsymia being placed or covered for the 3.5 million veterans in the VA Health System. The coverage is available through Express Scripts and accreta, mail-order pharmacy with only $9 monthly copay. These lives in the VA are not considered commercialized, so would not have impact on our progress to the 50% goal by year end, but it is a very significant coverage win for us.

Last week, AACE held their annual meeting in Phoenix, Arizona and some of you on the phone were available to meet with some practicing endocrinologists that have had extensive clinical experience with Qsymia. As a company and since launch we have focused on the subset of endocrinologists to treat metabolic disease with our sales force with a high reach in high monthly call frequency pattern. Having reached 90% of the audience and calling on them about 1.5 times per month.

As a reminder endocrinologists only account for 7% of all prescribers of Qsymia but are responsible for almost 20% of all Qsymia prescriptions, making them about 2.5 times as productive as other called on specialties. With the REMS modification now approved, we have begun developing our initial DTC campaign to launch in both print and digital media and to activate the consumer. We believe that DTC advertising will generate discussions with and request to providers for Qsymia and is another critical step to building the brand.

For an update on REMS modification and the certified retail pharmacy rollout as well as other feedback from the AACE meeting, I’ll turn the call over to Dr. Barbara Troupin.

Barbara Troupin

Thank you, Mike. As we announced on April 17, the FDA has agreed to the modification of our REMS commitments. The amendment allows Qsymia to be dispensed through certified retail pharmacies. We anticipate that the implementation process will be completed by mid July. The implementation team is focusing on the following. Execution of wholesaler distribution agreements, building the distribution network, building and validating REMS compliant databases enrolling, training and certifying each retail pharmacy location, shipping to wholesale and chain distribution centers, stocking certified retail pharmacies and lastly, announcing availability of Qsymia in certified retail pharmacies and promoting this availability to prescribing doctors and Qsymia patients. The goal is to have thousands of retail pharmacies certified and stocked by mid July, at that time we will make sure that physician’s and patients are made aware of availability and retail. Feedback from physicians and patients has been that the existing mail order delivery network has been a barrier to the adoption of Qsymia. We appreciate the FDA’s approval of the REMS modification in a timely fashion and believe that the availability and certified retail pharmacies by mid July will be welcomed by all as it increases the access to the product and eases the burden of prescribing Qsymia.

Next I would like to report on the activities of the AACE meeting held last week. The algorithms presented represent the first time that the FDA approved medical obesity treatments have been added to diet and exercise. More importantly the algorithms cover not only obesity but comorbid conditions that stem from obesity. AACE has algorithms for the treatment for diabetes, pre-diabetes, CV risk factors, hypertension, dyslipidemia and several other conditions.

Endocrinologists are the though leaders in managing metabolic disease and we believe the primary care physicians, payers and public policy makers who recognize the significance of these algorithms and that this will propel the emergence of this treatment category. We have made excellent progress with Qsymia both with the category and awareness with physicians building core relationships with thought leading endocrinologists and other specialists and establishing obesity as a chronic medical treatment category. The emergence of treatment algorithms from AACE is a demonstration of the recognition by the medical community that obesity management through lifestyle changes along with appropriate use of obesity medications should be considered first line management of patients with obesity related chronic medical conditions. With the challenges around access removed, improvements in coverage and validation among thought leaders, Qsymia is well positioned in the forefront of an evolving clinical paradigm for the treatment of obesity by primary care physicians.

I'll now turn the call over to Tim for financial update.

Timothy E. Morris

Thank you, Barbara. Net product revenues from the sale of Qsymia in the first quarter of 2013 were $4.1 million. For the first quarter of 2013 we report a net loss of $53.6 million or $0.53 per share as compared to a net loss of $18.8 million or $0.20 per share for the first quarter of 2012. The increase in net loss for the first quarter of 2013 as compared to the same period last year is primarily attributed to increased selling, general and administrative expenses of $32.2 million relating to the commercialization activities for Qsymia.

We ended the first quarter with cash, cash equivalents and available-for-sale securities of $150.3 million. On March 25, 2013 we entered into a $110 million financing agreement with Pharmakon. On April 9, 2013 we received net proceeds of $48.9 million from the first drawdown. On a pro forma basis taking into account the amounts received from the Pharmakon transaction, the cash, cash equivalent and available-for-sale securities balance at March 31, 2013 was $199.2 million. At our discretion and subject to the terms and conditions of the Pharmakon agreement, we may also like to receive an additional $60 million at any time prior to the end of 2013.

Now I’ll turn the call to Lee for some closing comments.

Leland F. Wilson

In closing, I’d like to thank VIVUS employees who worked diligently to build the commercial foundation for Qsymia brand. Our success in educating physicians and building brand awareness has been excellent. Our achievements with payers has been significant and we’re well on our way towards reaching our goal of 50% coverage of commercialized by the end of the year. Considering that at launch, there wasn’t any reimbursement for this category, this is significant progress.

I’m particularly proud of the work that has been done with endocrinologists. They’re now clearly the thought leaders in treating obesity and metabolic disease. They have readily adopted Qsymia and the number of prescribers and rate of prescribing among endocrinologists is growing nicely.

Importantly, their society has for the first time recommended medical management of obesity and obesity related comorbidities. With the REMS modification we’re now in a position to offer patients easier and significantly increased access to Qsymia and to also dramatically decrease the burden on prescribing physicians. We are now for the first time also able to begin to build consumer awareness for Qsymia.

And finally, to achieve the full potential of the brand, we’ve begun discussions with large pharmaceutical companies to explore how we can significantly expand commercialization efforts for Qsymia. We believe we’re now well positioned to begin to realize the commercial potential for Qsymia.

Finally, a word about competition, which for this emerging market we think is a good thing. The competitive efforts with disease education, payers and public policy will help grow the category. We are confident that the exceptional efficacy and tolerability of Qsymia will make it the market leader in a potentially very large market.

With that, I will turn the – open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from Charles Duncan of Piper Jaffray. Your line is open.

Charles Duncan - Piper Jaffray

Good morning, guys. Thanks for taking my question and congratulations on the progress in the quarter. So, my first question is regarding the REMS modification. I know Barbara gave some expectations for mid-July, but I’m wondering if you could help us with any incremental goals and then may be year-end goals. It seems like there is a lot to do since the REMS modification, but it would be something that you kind of anticipated, so I’m wondering how you’re going to track progress with that certification of pharmacies?

Barbara Troupin

Right. Thank you, Charles. The process as a whole began once we had final FDA documents. So, that is with the starting point for beginning the activities. Many of those activities, the conversations had started, but you can’t begin until we had final FDA documents, which happened in mid-April and that’s what drives our July rollout date. We will continue to add pharmacies throughout the year, but we will begin as we stated with 1,000s of pharmacies in mid-July.

Charles Duncan - Piper Jaffray

Okay. So before then you don’t anticipate any pharmacies certified?

Barbara Troupin

The rollout will start with 1,000s of certified pharmacies in July.

Charles Duncan - Piper Jaffray

Okay. And then by year-end would you anticipate to be pretty much complete and are you targeting certain regions where you have good insurance coverage so far or what’s your strategy?

Michael P. Miller

Yeah, Charles (technical difficulty). I mean we’re going to be in all the major metropolitan areas will be by year-end, will be both in chain and independent pharmacies, pharmacies we would be able to enroll and for the certification, so we will be a very much open to enrolling any physician which has joined the certification.

Charles Duncan - Piper Jaffray

Okay. And I was at AACE last week and had several conversations with folks who were excited about the guidelines. Can you give us a sense of your view on the timing of adoption of those guidelines and when endocrinologists may able – be able to so to filter out their message to primary care docs?

Barbara Troupin

Right. This is Barbara again. So the AACE [guidelines] were published in endocrine practice in the March-April edition that came out the week before the meeting. Many of the activities during the meeting were also very focused and kept circling back to the new paradigms outlined in the guidelines and AACE is committed to doing a lot of education around their guidelines and furthering their discussions with other organizations as well. VIVUS has been very supportive of those activities in providing unrestricted grants around the education, but that organization is very committed to making those guidelines as prominent as possible amongst clinicians and other audiences.

Charles Duncan - Piper Jaffray

And last question perhaps for Tim regarding the inventory charge, when do you anticipate FDA action on the application for 36 month and then is there any more inventory at risk?

Timothy E. Morris

Yeah, Charles we do expect to have action relatively soon on the 36 months and the inventory, we evaluate that periodically, but we don’t anticipate anything additional at the present time.

Charles Duncan - Piper Jaffray

Okay. Thanks for the added color.

Operator

Thank you. Our next question is from Cory Kasimov of JPMorgan. Your line is open.

Matt Lowe - JPMorgan

Hi there. It’s actually Matt Lowe in for Cory today. Just a couple of quick things. Could you update us on the abandonment rate and updated plans on the CBOT? And then may be just provide some additional thoughts on your plans to add a large pharma like PCP sales force potentially in 2013 versus something like increasing the number of sales reps you have in house? Thank you.

Michael P. Miller

Sure. This is Mike. I will take the abandonment rate first. As you remember in Q4 we with the free trial offer we took the abandonment rate down to about 22%, which we’re very pleased about. We don’t have an update on the abandonment rate for this quarter; however, I would not think it would not have changed very much since all the programs are already in place in terms of free goods and discounts. We are very focused on the persistency rate however and we feel good about that, but we will continue to look at discounts and other offers in any means of lowering out-of-pocket cost for patients.

Leland F. Wilson

Yeah. In terms of the cardiovascular outcomes trial, our plan is to initiate the study later on this year. The study will run approximately four to five years and we will keep you posted as we progress with the study.

Michael P. Miller

And Lee I will take the relationships with large pharma, as we’ve said in the past, once we had the REMS modification that we’d be going back out to major pharma to explore how we can significantly expand the commercialization efforts for Qsymia. These discussions are underway and we'll see where they lead. But I want to emphasize that all commercial options are open at this time.

Matt Lowe - JPMorgan

Okay, thank you.

Operator

Thank you. Our next question is from Simos Simeonidis of Cowen & Company. Your line is open.

Simos Simeonidis - Cowen & Company

Good morning. Thanks for taking the questions. My first questions are mainly financial. I was wondering if Tim can give us a breakdown of the 44 million spent in SG&A and how much of that is the sales force, how much is marketing? And also can you kind of reconcile the $65 million thing that you burned this quarter with – help us work backwards to see – towards the $53 million in that [box]? Thanks.

Timothy E. Morris

Yeah, hi. Simos, Tim here. We haven't provided any additional guidance on the breakdown of SG&A, but expect I think historically in the past we've said that you can use probably an industry standard for the sales reps that are 150 reps at about 200,000 per year. That's probably the only guidance that we've given historically. And then in terms of the amounts, I think your question was on the burn, in broad strokes if you take the $60 million of burn, there's probably 10 million of that that's non-cash, it gets you to about 40 million for operations and then there's probably balance sheet adjustments of about 20 million. So that just kind of puts it in broad strokes.

Simos Simeonidis - Cowen & Company

Thanks. And then you've spoken in the past about roughly a way to think about the discounts, gross to net or about 22%. Can you give us an update on that? And also any thoughts on potentially reducing the amount of R&D and if you can tell us what that 7 million that's spent is, is it a big part of it fixed and it's tough to bring down or is anything that's leftover that you're running? Thank you.

Timothy E. Morris

Yeah, I think the gross to net adjustment will continue to run above 20%. I don't know if we were that specific to 22, but the gross to net will continue to run above 20%. In terms of the R&D, there are two components there. One, there is obviously the personnel, the overhead, which is probably running at about potential a third and then the remainder is some post market requirements we have for both of the compounds right now. And that also includes some of the efforts to get the products approved in additional territories.

Simos Simeonidis - Cowen & Company

A question maybe for Lee or for Mike. It looks like based on the script data that you are gaining more penetration. Obviously, the sales numbers are small but it looks like you are penetrating the marketplace. And it seems to me at least part of it should be due to the discount programs you offered two weeks and then the $75 one. Do you think this is something that should have been in place at the launch?

Michael P. Miller

This is Mike and I'll take that. So, I think that if we look back and saw what we had to do at launch and get these kinds of programs out to the mail order, we fully intended to have those at or near launch. There were a couple of issues around the fact that this was a controlled substance and getting this through many of these pharmacies in terms of free goods was a challenge. We have received the okay to do that and we're pushing ahead.

Simos Simeonidis - Cowen & Company

So you were not able at launch to offer the free discounts?

Michael P. Miller

No, we were not but we were able to about 40 days afterwards.

Simos Simeonidis - Cowen & Company

Okay. And final question, Lee, you spoke about activating consumers on the DTC campaign potentially this fall and in 2014. Can you give us a rough idea what this would cost?

Leland F. Wilson

I don't think we had given guidance on that at this point.

Simos Simeonidis - Cowen & Company

Okay. Thank you for taking the questions.

Operator

Thank you. Our next question is from Marko Kozul of Leerink Swann. Your line is open.

Irene Lau - Leerink Swann

Hi. This is Irene, in for Marko. Thanks for taking the questions. How do you think about for this (indiscernible) and coupon into joining more patients to Qsymia? And can you comment on the progress you are seeing with the conversion rate on free trial to paid prescriptions?

Michael P. Miller

Sure. This is Mike. As I said, the FTOs are the free trial offers in Q1 resulted in a paid prescription for the recommended dose 72% of the time. So that conversion was I think quite positive. Both discounts and free offers and any means of lowering the out-of-pocket costs for patients is important, and let me just go back to reiterate why that is important. Remember, when we launched this product there was no coverage and so patients had to bear the full costs of the drug. And we have certainly made inroads to getting coverage for these patients that lowers their out-of-pocket costs by having co-pays and then we have the other programs in place for cash pay patients.

Irene Lau - Leerink Swann

Thanks a lot. And can you explain to us the progress of continued reimbursement negotiation? Has that trend administration and macro to the Express Scripts and how do you foresee future negotiations will evolve with maybe the treatment algorithm update at the ACAS?

Michael P. Miller

Yes. So as I said, to-date our coverage with commercial lines is 34%. I think we're going a very good direction, again given where we began. And I think that when you look at things such as treatment guidelines or treatment algorithms specifically, that helps us a lot in those discussions. Remember, with payers the first discussion you have with them is around the category. And the more of formalization of the medical category and how to treat it, the better those discussions are set up and then we can get into the discussion about the merits of the product which I think Qsymia shows up very well in.

Irene Lau - Leerink Swann

Thanks very much.

Operator

Thank you. Our next question is from Lee Kalowski of Credit Suisse. Your line is open.

Lee Kalowski - Credit Suisse

Maybe I can start with a question for you, Mike. I believe one thing you had mentioned was that you were seeing a persistence of 3.4 months, is that correct? I guess related to that, what you're calling persistence, is that what we might think about as treatment duration?

Michael P. Miller

Yes. So persistence is defined as the continuation of therapy, meaning that we're tracking patients through a pharmacy claimed mechanism that they are continuing to fill their prescriptions, and we know how many pills are getting each time and we can compute it. And it's regardless of their payment method, so either they're covered or cash doesn't matter.

Lee Kalowski - Credit Suisse

All right, so I guess the question is that is three months about what you might expect, is that – and how am I here to think about getting that number increased?

Michael P. Miller

Yeah, so that's a good question. Let me give some context to it. So first, remember that these were new patient starts in September, October and November. We began the free trial offer in November. So these were patients that were largely cash pay, very much largely cash pay. And we see good persistence with them. If you compare this to other categories and there's probably a pretty good analog which is overactive bladder. Overactive bladder is like obesity in a sense of it was a new category a couple of years ago that involved certainly patients discussing the matter with their physician and a lot of self management going on and actually see very self evident to the patient. The persistence rate for overactive bladder medication is 2.8 months. So considering the fact that we have been on the market a relatively short time and have not had the benefit of coverage and in this particular window not have the benefit of discounts or free offers. I think the 3.4 is a very good persistency given where we are.

Lee Kalowski - Credit Suisse

And is that something that you expect to increase from there. I mean, it still is a fair – I mean, it still seems like it's a fairly short treatment duration relatively speaking?

Michael P. Miller

Well, I’d say that you need to look at other published persistency, and you can look – you can compare it in that sense. And again, we’re only on the market a short time.

Lee Kalowski - Credit Suisse

Okay. Okay, and I guess, another question; as I look at the revenue and so the average selling price for the quarter looks like its give or take about $70. In early March the program for additional free prescription is with added, should we think about the ASP coming down somewhat for next quarter?

Timothy E. Morris

Yeah, hi. Lee, this is Tim. I mean, it's – it depends whether you’re going to include those free goods or not free goods, but the 70 number that you have obviously includes the free goods, I think if you take out the free goods, your ASP goes much higher, it's back, it's above a 100. But we will continue on with the free goods program and the saving out for the present time.

Lee Kalowski - Credit Suisse

Okay. And maybe one last question; you had mentioned that, as far reconciling cash and net income and there was some balance sheet adjustments, presumably this is your net working capital investments. Is that something that, as we think about the next couple of quarters through the launch that some of those net working capital investments could come down from where we were this quarter?

Timothy E. Morris

Working capital was really just timing, so it's payments for AP, its changes in AR balances, its accrual balances, and obviously in inventory increases. So, it's a little bit difficult to predict the timing of the working capital.

Lee Kalowski - Credit Suisse

Okay. Thank you guys.

Operator

Thank you. Our next question is from Alan Carr of Needham & Company. Your line is open.

Alan Carr - Needham & Company

I have questions – I got a couple around scripts here. So, of new scripts, I’m wondering what, if you can disclose to us what percentage of those received free drug? Is it the vast majority, all of them or can you give us a sense of what percentage that is?

Leland F. Wilson

Sure. So, there were 59,000 new scripts in the quarter as I had stated. There were 46,000 new scripts. And there were 21,000 FTOs.

Alan Carr - Needham & Company

Okay. And then in terms of; you mentioned that persistence was 3.4 months. I’m wondering if you could tell us a little bit more around that in terms of the shape of that. Is this a bell shaped curve, and I’m wondering, how many of those are still on drug?

Leland F. Wilson

So, the way you look at persistency, is you use a Kaplan–Meier curve, and so what you get is a, a slope to discontinuation. And as I said, we’re tracking three months new starts, and tracking them as we go along and we add new prescription data every month to the analysis. Right now through the end of March the persistency is 3.4.

Alan Carr - Needham & Company

Can you tell us how many are still on the drug versus how many have stopped it?

Leland F. Wilson

I don’t have that data.

Alan Carr - Needham & Company

Okay. And then last – last question, any update on with respect to progress in a legislative front in terms of government payers?

Leland F. Wilson

Government payers, well we gave you the update on the VA. And I would say that, I think, look I think that a lot of goods, patient advocacy groups are doing a lot of good work in the Halls of Congress, and we’ll see what comes. I think, obesity has reached epidemic proportions in this country and clearly work needs to be done. So, we look forward to progress in that front.

Alan Carr - Needham & Company

All right. Thanks very much.

Operator

Thank you. Our next question is from Steve Byrne of Bank of America. Your line is open.

Steve Byrne - Bank of America

This metric that you talked about, Mike, with 34% of covered lives, do I understand that correctly, that that's just private payers?

Michael P. Miller

That is commercial, correct.

Steve Byrne - Bank of America

So if you looked at all eligible patients including those under government payers, what do you think that percentages?

Michael P. Miller

I don't know. I think the typical industry approach as you look at commercial lives is the approach. Unless Medicaid and Medicare is a big proportion of non-commercial lives. As you know, Medicare Part D does not cover obesity medications at present. Medicaid is another matter altogether, again as the uninsured. So we focus on commercial lives as these are the things that we can move.

Steve Byrne - Bank of America

Okay. And Tim, with respect to the cash on hand now expectations for DTC program, what would you say your cash runaway could bring it out to at this point?

Timothy E. Morris

Yeah, we clearly have sufficient cash resources that take us into 2014.

Steve Byrne - Bank of America

And with respect to the Pharmacon debt financing, does that preclude your ability to do another debt or convert financing?

Timothy E. Morris

No.

Steve Byrne - Bank of America

Okay. And with respect to some of your comments, Lee, about your discussions with respect to the big pharma partners, would you characterize these discussions as being a new initiative or renewed given what may have been an obstacle before due to the mail order pharmacy?

Leland F. Wilson

Clearly, we said that the REMS modification was a major barrier to gaining interest from a major pharma. And so with that barrier coming down and I think in addition, progress we're making with payers has opened the door again for I think constructive discussions. So we'll see how they go.

Steve Byrne - Bank of America

Okay, thank you.

Operator

Thank you. Our next question is from Michael Tong of Wells Fargo Securities. Your line is open.

Michael Tong - Wells Fargo Securities

Thanks. Maybe just to add to on the persistence question, you're at a little over three months right now. Where do you think that can go? And from knowing what the product – how the product performs, what's the sort of peak persistence are you thinking at this point?

Michael P. Miller

3.4 can go a lot of different directions. I think as I said, this was in the absence of coverage, in the absence of free trial offers and in the absence of discounts. I think the product has certainly fulfilled its promise in the clinic and we get good feedback. So we look forward to enriching the analysis and we'll report out on persistency. But this is I think a good start.

Michael Tong - Wells Fargo Securities

And then secondly, how do you think about return on investment or any types of metric or payback metric? Just looking at the model, it seems like you spent about 120 million in SG&A in the last three quarters. So far the revenue hasn't really kept up with that. So, at what point do you think the inflection will come and how do you measure your return on investment?

Timothy E. Morris

Hi, Michael. This is Tim. Clearly, we're investing here in a launch, we're investing in a new category and it's a little bit different – it's a little bit difficult to actually this point in time make that calculation. But we all believe in the potential of the drug and we know that the efficacy is there and we obviously believe the investment has been warranted.

Michael Tong - Wells Fargo Securities

Thank you.

Operator

Thank you. Our next question is from Jason Butler of JMP Securities. Your line is open.

Jason Butler - JMP Securities

Hi, thanks for taking the questions. Just want to start with a broad question. Can you maybe talk about how you think about the impact to the adoption curve of expanding the sales effort relative to the REMS modification and in turn your plan initial DTC efforts?

Leland F. Wilson

Well, one of the critical aspects of marketing this product is gaining acceptance by a broad audience of primary care physicians. Obviously for cost reasons, it's not sensible for VIVUS to undertake a broad reach out to primary care physicians. So we are in discussions with large pharmaceutical companies to help with that work.

Jason Butler - JMP Securities

Okay, great. And then just I guess a more specific question for Mike. Can you talk about what your concentration of sales details has been for the endos versus, for example, the high phentermine prescribers?

Michael P. Miller

In terms of concentration of the number of calls?

Jason Butler - JMP Securities

Yes.

Michael P. Miller

I don't have that in front of me, but as I said I think we have about – we have 90% reach to this audience. We're in excess of 1.5 frequency per month. So the effort behind this particular audience is they are a high value target for us.

Jason Butler - JMP Securities

But can you maybe say whether you spend more time focusing on endos versus the other high target physicians that you're already detailing?

Michael P. Miller

Other high value targets are seen with similar reach in frequency. We're trying to – we clearly have our targets segregated by frequency targets, so how many times per month they're seen and endos are a high value target relative to other specialties.

Jason Butler - JMP Securities

Okay, great. Thanks for taking my questions.

Operator

Thank you. Our next question is from Eric Roberts of Caxton Advantage. Your line is open.

Eric Roberts - Caxton Advantage

Hi, guys. My question was actually already answered.

Leland F. Wilson

Thanks. Next question.

Operator

Our next question is from Jonathan Aschoff of Brean Capital. Your line is open.

Jonathan Aschoff - Brean Capital

Yes, thank you. I don't know if you address this. I've been juggling some conference calls, but is there going to be an inventory build at retail pharmacies with the REMS modification and what can we expect there and how will you record revenue? Can you give us some color there?

Timothy E. Morris

Yeah. Hi, Jon, it's Tim. Yeah, there will be some stocking obviously at the wholesaler end at the pharmacy level, however, our revenue recognition policies will not change. We will continue to recognize revenue as the product is dispensed to the patients.

Jonathan Aschoff - Brean Capital

Okay. And I don't know if you've already addressed this, but how have you or how you account for the extremely flat as per the publicly available week-over-week data for April?

Timothy E. Morris

Obviously, we still believe that the third-party reporting services continue to be inaccurate.

Jonathan Aschoff - Brean Capital

I mean would you say that still kind of comfortably within a few percent to that 70%-ish capture rate or you think it's a great fluctuation beyond that.

Leland F. Wilson

We look forward to the time when we're out there with distribution to the wholesalers and so this date will be accurate to IMS and Walters score. So those days are coming rapidly but as we've said in the past, they have not correlated – and you've seen this as well, they have not correlated well with actual data that we present in the past. Now having said that, I would say that because of the kind of draconian distribution system, we've been saddled with right now and the lack of reimbursement and things of this nature that we're working with, the level of scripts is low. And that we think now with the distribution system that allows greater access to patients and certainly reduces the burden on the prescribing physician that that will free us up to allow prescriptions to increase significantly and combine that with our efforts with the consumers through DTC advertising and social media, et cetera. We're very optimistic about the growth of the second phase of VIVUS launch of Qsymia. So we're looking forward to that.

Jonathan Aschoff - Brean Capital

Okay. So you have not given us an April actual script count earlier on the call, right?

Leland F. Wilson

We don't have it yet, that's correct.

Jonathan Aschoff - Brean Capital

Okay. Thanks, guys.

Operator

Thank you. I'm not seeing any further questions in the queue. I'd like to turn the call back over to Leland Wilson for any further remarks.

Leland F. Wilson

Okay. Well, again, thanks everybody for your support. I think you can see that we've made considerable progress over the last quarter and lots of good news and so with that I will close the call. And again, thanks again for your support.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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