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

NPS Pharmaceuticals, Inc. (NPSP) Q1 2013 Earnings Call May 9, 2013 8:30 AM ET

Executives

Susan Mesco – Senior Director, IR
Francois Nader – President and CEO
Eric Pauwels – SVP and Chief Commercial Officer
Luke Beshar – EVP and CFO
Roger Garceau – SVP and Chief Medical Officer

Analysts

Yuan Yang – Jefferies
Salveen Richter – Canaccord
David Friedman – Morgan Stanley
Michael Schmidt – Leerink Swann
Alan Carr – Needham & Company
David Nierengarten – Wedbush Securities
Carol Werther – Summer Street
Matt Palmer – Oppenheimer
Jim Molloy – Janney
Ed Harris – MLV & Company

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 NPS Pharmaceuticals Earnings Conference Call. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I’d now like to turn the call over to Susan M Mesco, Senior Director of Investor Relations. You may proceed.

Susan Mesco

Thank you, Frances, and welcome to our first quarter conference call. Before we start let me remind you that today’s call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC which are available from the SEC or our website for information concerning the risk factors that could affect the company.

Joining me on today’s call are members of our executive management team including Dr. Francois Nader, our President and Chief Executive Officer; Luke Beshar, our Chief Financial Officer; and Eric Pauwels, our Chief Commercial Officer.

I will now turn the call over to Dr. Francois Nader.

Francois Nader

Thank you, Susan. Good morning and thank you, everyone, for joining us on this call. So far 2013 has been marked by two multiple value creating milestones, the successful introduction of Gattex in the US and the re-acquisition of the worldwide rights to Teduglutide and PTH which established NPS as a global commercial player in the orphan space.

I would like to focus my remarks today on our three strategic priorities, number one, the successful execution of the Gattex launch; second, the filing of our BLA for Natpara in hypoparathyroidism and third, the advancement of opportunities to position NPS for long term sustainable growth.

First and foremost I’m happy to report that the US launch of Gattex is off to a strong start. Eric will provide more color in his commercial update shortly, but the top line is that as of Friday, May 3rd, we have received 160 DOS Gattex prescriptions of which 42 patients are already on therapy. This gives us great confidence that we will achieve our objective of 200 to 300 patients on Gattex by the end of the year.

With the respect to reimbursement, our progress to date has been tracking better than expected. So far, every payer we have presented to has indicated that they will cover Gattex including marquee names such as United Health, WellPoint, Aetna and Humana.

On the clinical development side, we were happy to report top-line results from STEPS 2 this morning. As you recall, STEPS 2 was our two-year safety extension study for Gattex in adult patients with short bowel syndrome.

We were pleased to see that nearly 75% of the ADHH patients enrolled completed this two-year study. Gattex profile remained consistent with prior reports, and one in every seven patients on Gattex achieved complete independence from parenteral support. Our team is now preparing the full data set for future presentation and publication. Later this year, we’ll submit this data as a supplement for potential inclusion in our product label.

Now let’s switch to discussing the development of Gattex for its next indication, the Gattex short bowel syndrome. This indication is an important part of our life cycle management strategy for Gattex. The medical importance of this program stretches far beyond the six months of market-exclusivity that it will provide.

There is an extraordinary high and mathematical need for treating children with this life-threatening condition. While parenteral support is a current standard of care, this supportive approach is associated with serious complications, and physicians are seeking new scientific options to minimize and hopefully eliminate the need for parenteral support.

Further, having short bowel syndrome and being hooked on an IV line for the rest of their lives can be traumatizing and socially debilitating for children. And the cost of pediatric short bowel syndrome to the healthcare system is quite significant. Over a five-year period, the total cost of hospital and home care for a child with short bowel syndrome averages $1.6 million.

And during that period children can spend an average of 146 days in the hospital. We recently met with the FDA to discuss our Gattex pediatric program. The meeting was very collaborative and constructive. The agency recognized the high unmet medical need of this indication and the potential benefit that Gattex could offer.

Our next step will be to discuss our proposed pediatric development strategy with EMA with the goal of initiating a global development program. Based on our research of the US market, the pediatric short bowel syndrome is in the ultra orphan category with an estimated preference of 10% to 20% of the adult population.

From a commercial reach perspective the pediatric and adult short bowel syndrome patients are typically treated by many of the same key opinion leaders at the same centers of excellence. Consequently the incremental commercial investments required would be fairly limited. We are in the process of defining the value of the worldwide Gattex pediatric opportunity and will share our results with you at a later stage.

Now turning to Natpara, our lead product for the treatment of adult hypoparathyroidism, we have completed our final human factors use ability and instructions for use testing of the injection pen devise, and we are in the process of incorporating these data in our BLA. We have also made excellent progress towards resolving the film finish manufacturing issue and we are more confident in our ability to submit our BLA in the second half of this year.

We have been working with a number of the world’s experts in protein chemistry and particle characterization to design numbers experiments and work streams. We have advanced diligent strategy and implemented a number of improvements to the Natpara manufacturing and controls processes.

The remainder of our work will result over the next few months and we will update you further on our second quarter call. As reported in today’s release, there will be some very exciting data on hypoparathyroidism presented at this year’s ENDO Conference in June, specifically the results of our 374 patient version of ENDO study, which is known as PARADOX.

This study was conducted in partnership with the Mayo Clinic and the Hypoparathyroidism Association, and it is the largest study of its kind and its orphan indication. To that underscore the physical, emotional, and financial burden of hypoparathyroidism and how misunderstood and underappreciated this condition and its complications are by the medical community.

Now let’s talk about the global expansion of NPS. As you know in March we announced that we regained full worldwide rights to Teduglutide and PTH 1-84. We believe that ownership of worldwide rights and the successful execution of a targeted international expansion are key elements for long term commercial success and value creation in the remedy space.

The transfer of assets for both products is underway across all operational areas including the refinement of the E.U. marketing authorizations of Revestive and Preotact from Takeda to NPS. Regarding our international operations, even though we re-acquired the rights only eight weeks ago we are already pursuing a multi-prong strategy first.

We are advancing a prioritization progress of the European countries to define the launch sequencing of Revestive. We are also initiating the development of core value dossier as a prerequisite to starting the pricing and reimbursement process.

Next we are identifying the key countries and their necessary requirements to begin phase names patient programs for Revestive in countries outside of the European union. For PTH, we are defining the global brand strategy for maximizing the value of this asset. And last, we are launching an in depth analysis of the market potential and regulatory requirements to register both products in Japan.

As our international plan continues to take shape over the next coming months, we will update you further on next quarter’s call. So in closing in a very short period of time 2013 has already been marked by significant progress building for the near and long term growth of NPS. And we believe the best part of the year remains ahead.

I would like now to turn the call over to Eric to share some additional details on the Gattex launch. Eric?

Eric Pauwels

Thank you, Francois, and good morning to those joining us today. As Francois mentioned we are very excited with the progress we are making on the launch. While it remains early days, all metrics are tracking in line with or slightly ahead of our expectations. Our field organization is interacting well with the medical community and prescribers are demonstrating a high level of interest with approximately 300 physicians who are now Rens trained.

As noted in today’s press release, as of last Friday we have received a total of 160 Gattex prescriptions and 42 patients are on therapy. This puts us in a solid position to reach our goal of 200 to 300 patients on Gattex by the end of the year. The prescriptions received to date are consistent with our pre-launch planning, with virtually all coming from centers of excellence and large GI practices. All in all, our field activities and launch data so far continues to support our estimated addressable US population of 3,000 to 5,000 patients.

Reimbursement of Gattex is also going quite well. We have conducted extensive in-person clinical reviews with 34 health plans, representing over 145 million lives. In addition we have met with top PBMs representing several hundred million lives. Today, we have secured prescription approvals by many key national and regional health plans. In addition, a major PBM, along with the Veterans Administration and other government sponsored plans have approved prescriptions.

Another encouraging recent development is the addition of Gattex to formulary for several states’ Blue Cross/Blue Shield programs. For the first patients who are now on Gattex, the time between prescription and approval of reimbursement has been shorter that we expected. While these early data are encouraging we continue to believe that during the initial launch here, the time from prescription to dispense may take 90 to 120 days for many patients.

With respect to co-pays, they have been in line with our expectations and so far have ranged from $0 to $200 per month. Now as a reminder, through NPS Advantage we are committed to minimizing any financial burdens to Gattex patients through our patient assistance programs.

For commercial patients we are offering a co-pay assistance program that limits the out-of-pocket burden to $10.00 per month, and for public patients, NPS Advantage is connecting patients to third party non-profit foundations that provide co-pay assistance.

In summary, as Francois noted, we are really excited with the progress of the Gattex launch. Specifically, market-rich activity and reimbursement have been very encouraging. We attribute this early success to detailed pre-launch planning, comprehensive market research and the high-quality execution that we are seeing from our field force. I look forward to providing you future updates.

With that, I will turn the call over to Luke for his financial report. Luke?

Luke Beshar

Thanks, Eric, and thanks to everyone joining us on this morning’s call. The past few months have been an incredibly exciting time here at NPS. We are completing our transition into a commercial organization and have begun recognizing sales of our first marketed product.

It’s with great personal pleasure that I report today that NPS recorded $654,000 of Gattex net sales for the first quarter of 2013. Given it’s our first commercial quarter of commercial sales I’d like to take a few minutes to get grounded on our revenue recognition method.

We’ve created an efficient limited distribution model for Gattex. Given the way the product is distributed it is appropriate to recognize revenue using the selling accounting method. Under this method we recognize revenue when specialty pharmacy receives the from NPS, tattles passed, there’s a corresponding prescription in hand, and insurance benefits have been confirmed. Our specialty pharmacy distributors have told us that they do not plan to stock Gattex and based on our initial experience, this is the way this is largely playing out.

You will note that during the first quarter we recorded returns reserve of approximately $145,000. This reserve represents inventory held by our specialty distributor, for government entities and will reserve once the product is shipped.

In its initial quarter our gross-to-net was disproportionately high at 31%, largely driven by the aforementioned reserve for Gattex returns. The gross net without the inventory reserve, without the return reserve, was 16% due to fixed costs and payer mix. We will continue to expect that it will normalize in our forecasted range of 10% to 14% as revenue ramps.

Moving to the first quarter royalties, these are $25 million and were largely driven by $22 million of sensitized royalties. This product continues to perform extraordinarily well, increasing by 19% over the same period last year. Under repayment terms of our royalty advance from Amgen on May 15 we will receive a $14 million cash payment and Amgen will withhold the remaining $8 million or $9 million prepaid interest and principle.

We continue to anticipate that we will fully repay the remaining advance of $6 million to $8 million by the third quarter 2015. After this we will receive 100% of our Sensipar royalties through March of 2018 in the US and through the end of 2018 for the rest of the world. With eight quarters of sales growth at 15% or more, and annual sales now exceeding $1 billion run rate, Sensipar continues to provide tremendous financial value to NPS.

We also received a cash royalty from Janssen sales in NUCYNTA, which for the quarter increased by roughly 30% to $800,000.

Moving to the expense side of the P&L, first quarter cost of goods sold was $65,000 and primarily consist of royalties and packaging costs. The product is being used to support the launch of Gattex, was manufactured before approval and therefore expensed to R&D. During the first few years of sales, we expect that this will result in a benefit to our gross margin and that when the pre-approval product is depleting, our gross margin will normalize in a range of 80% of sales.

First quarter R&D expense was $16 million, representing a decline of $4 million from the same quarter last year. The decrease related to a reduction of cost due to the completion of clinical studies, partially offset by increased production costs resolved of the Natpara filtering issue.

For the first quarter, selling, general and administrative expenses were $14 million versus approximately $8 million for the first quarter last year. This increase is attributable to the build out of our commercial team and other activities to support the launch of Gattex.

We continue to maintain a strong financial position and ended the quarter with approximately $90 million in cash and investments with a $14 million payment due next week from Amgen for the first quarter Sensipar royalties. We continue to believe that we sufficiently cap – we have sufficiently capitalized the launch of both Gattex and Natpara. However, consistent with our track record, we’re always proactive in valuing ways to enhance our balance sheet in the manner that is in the best interest of our shareholders.

Now let’s discuss this quarter’s acquisition of the worldwide rights and the assets related to Gattex and Natpara from Takeda. As consideration reached its 6.1 million shares of NPS common stock valued at $50 million. In exchange, we have worldwide commercial rights to both compounds along with all the assets related to the two products including significant unmet inventory and other life cycle management assets.

For purpose of accounting, we value the equities in the spot rate on the date of the transaction and used an independent valuation firm to determine the fair values of the assets, which will capitalize at $16 million in commercial divested inventory, $21 million in commercial Preotact inventory and $18 million of intellectual property related to invested market rights.

Turning to guidance, as Francois and Eric mentioned, we continue to feel good about ending the year with 200 to 300 patients on Gattex with the majority initiating treatment in the latter part of the year. We are reiterating our full year operating expense guidance of $135 to $145 million, which includes non-cash charges such as equity compensation but excludes cost of it sold.

So in closing, we’re off to a terrific start and we are thrilled with the performance of Gattex so far. As additional data becomes available, we will update you on future calls.

With that, that completes our prepared remarks. I’ll turn the call back to the operator to begin the Q&A. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from the line of Yuan Yang from Jefferies. You may proceed.

Yuan Yang – Jefferies

Thanks. So the 42 patients out of 160 Gattex prescription, it’s about 26%. So the question to you is realistically what percent of Gattex prescription do you expect to translate into patients on therapy in general?

Francois Nader

Good morning, Yuan. Then reason for the delta between the prescription and the number of patients on drugs had to do with the time it takes to get the product reimbursed, to ensure the co-pay and to have the product really reach the patient. So far most every patient has been converted from prescription to actually be on drug. So we still can expect that all 160 will be converted. There might be a few here and there that might not, but so far everyone has been.

Yuan Yang – Jefferies

Yes. Sir, you mentioned that you take over 92 to 120 days to convert the prescription to patients, but 42 out of 160 since you launched the drug in February, it seems to me that it is shorter than that. So based on 42 patients on Gattex now, what’s the average time between prescription and patients on therapy?

Francois Nader

I don’t know that I would answer this question, simply because this time has been extremely variable. As we reported when we talked on March 19, we already had patients on drugs back then, a handful but nevertheless. So for these patients the time has been extremely short. I would caution that the speed at which we’re converting might extend over time, so therefore we’re reiterating our guidance that it might take between 90 and 120 days for patients to go from the prescription to the dispensing.

Yuan Yang – Jefferies

Thank you. Quickly, last one is on Natpara. So once you finish the fill-in finish issue, how soon can you file for approval in the US?

Francois Nader

Well, we have been preparing the BLA for some time. So there are certain sections of the BLA that are now completed. We added the user study, so most of the BLA has been completed. Yet, we need to complete the CNC section and wrap it up. So it won’t take long, but nevertheless it’s a process that – I mean it’s an administrative, frankly, process that takes time. With that in mind, as I mentioned earlier, we’re confident that we’re filing the BLA second half of this year.

Yuan Yang – Jefferies

Thank you.

Francois Nader

Thank you, Yuan.

Operator

Your next question will come from the line of Salveen Richter from Canaccord. You may proceed.

Salveen Richter – Canaccord

Thanks for taking my questions, and congrats on a good quarter.

Francois Nader

Thank you, Salveen. Good morning.

Salveen Richter – Canaccord

Good morning. My first question is just on the scripts. If we assume the 72 patient cutoffs initially and then the 160-patient script cutoff and that it takes 3.5 months for them to roughly get reimbursed, we’re kind of at the high end of your guidance.

So I just wanted a little bit of clarity there from you about how to think about that? And also just the trajectory here, you had an initial bolus, but you had about 14.4 patients coming on per week. Now you’re at 12.6. I just want to get a sense of how we should think about that going forward as well?

Francois Nader

The challenge has been of these early data points is the vesco extrapolations. So I would very caution everyone not to extrapolate too quickly. We’ve been now in the launch mode for about three months. So it’s early data point.

All I can say is we’re off to a great start to a very strong start, but for the moment we’re not changing our guidance of 200 to 300 patients that will be on Gattex by the end of the year. Okay? We had an initial bolus which is still totally expected. Again, the 13 months have been very good, but nevertheless we are cautiously optimistic in the trajectory, and I believe that the 200 to 300 patients is our target.

Salveen Richter – Canaccord

Great, Francois. Then if I could just follow up, could you just give us some color on your pair interactions in terms of rejections and appeals? Then just physician feedback on the drug to date?

Francois Nader

Yeah. I will ask Eric maybe to answer the question. Eric?

Eric Pauwels

Yes. In terms PNC back, again we’re one surprised that we’ve generally had very proactive and positive feedback from our pairs. To date we’ve not had any rejection from pairs at all in terms of coverage, which is very good. And it’s contributing to again one of the factors of why we believe some of the early surprises in terms of patients getting onto drug. So we have broad coverage from these pairs and the time to get on therapy has been very, very good

Regarding feedback from physicians, very important about 50% of our prescriptions are coming from these large GI practices and a lot of them are coming from our centers of excellence. And the physicians themselves are responding very well to Gattex. They see it as innovative therapy that addresses a very high need. We’re actually getting in with key physicians who are quite busy and have busy practices – we’re getting a lot of access and good time in front of these physicians. So the response initially has been very, very positive.

Salveen Richter – Canaccord

Thank you.

Francois Nader

Thank you, Salveen.

Operator

And your next question will come from the line of David Friedman from Morgan Stanley. You may proceed.

David Friedman – Morgan Stanley

Hi. Thanks for taking the question. Just two quick ones. One is on re-authorizations and I know in the past you said there was I think at least one sort of qualitative one and I guess I just wanted to see if you had any update there as to whether that’s come up more.

And then the other is just on the prescriptions that are being written I know in the past you’ve mentioned some being written with refills. Maybe if you could just talk a little bit about what type of prescriptions are being written. Are they written with a number of refills? And what is your perception of physicians’ intention in terms of duration?

Eric Pauwels

Sure, David. Great question. Thanks for placing the question. I think, again, on the pair front everything is going according to plan. We anticipated prior authorizations to be in place. The majority of pairs have put in prior authorizations but they’ve not been ours in any way. They’ve been mostly for the label, which is quite broad, and we’ve been able to manage those from an administrative perspective quite well with NPS Advantage.

A very, very small proportion of pairs, less than 10% or so, have actually put in re-authorizations. And it’s really just been a few pairs and they’ve actually left it quite open to the physicians and patients regarding benefit risk. So it’s really more of an administrative process in which they will have put in may six months’ re-authorization, but again, they’ve left a lot of that back to the physician for clinical benefit reasons.

To address your other question regarding physicians and refills, the majority of the prescriptions that we’ve gotten have been either for six months or 12 months, so physicians, when we get the initial prescription in we have opportunities to get at least six to 12 months and we’ll refill.

David Friedman – Morgan Stanley

Great. Thank you.

Operator

And your next question will come from the line of Joseph Schwartz from Leerink Swann. You may proceed.

Michael Schmidt – Leerink Swann

Hi. It’s Michael Schmidt for Joseph this morning. Just had one question on Gattex again. Can you provide some more color on the type of patients that are going on the drug in this initial phase? Are those the more severely affected patients or are those patients that maybe are not on PN four, five days a week.

And secondly, I was wondering if you could provide your thoughts on the rest of broad market opportunity for Gattex. You mentioned you would probably launch in Europe first, but what is the overall market opportunity at the US. Thank you.

Francois Nader

Eric, you want to take the first part of the question. I’ll take the rest.

Eric Pauwels

Thanks for the question. Good question, as well. We’re very pleased to see a pretty broad spectrum of patients that have been initially on for the 160 prescription. And again, we have visibility to them as they go through the NPS Advantage system. About two-thirds of them are female, and it’s like we say, because they’re the ones typically more a very social media savvy and the ones who are on blogs and continue to be actively involved in patient advocacy.

We’re seeing a pretty broad spectrum in terms of age, between 20 and 80-plus years old. So really in terms of severity, I wouldn’t categorize severity. We’re seeing patients who are on lower volumes of PN or higher volumes of PN. So there really isn’t a specific category – more severe or less severe.

There are clearly some of the earlier doctors that were involved in prescribing the drug. There are patients who are reading about this even after the product was looked at by the advisory committee, and FDA approval. Who have done the colonoscopies, who went on drugs very, very quickly. And the anecdotal feedback that we’ve gotten so far has been very positive, and physician response has been very positive so far.

Francois Nader

I’ll take the second part of the question. We guided that Gattex peak sales in the US will exceed $350 million. We do not want to change this guidance until the launch will be well going on, and this is something that we might consider in the future. We are in the process currently of assessing the value of Revestive which is Gattex ex-US.

As a reminder, we re-acquired the rights only eight weeks ago and a lot of work has been done so far. Yes, from a prevalence perspective it seems that we are within more or less the same range as the US so it’s proportionate to the population. But the value of the asset will be very much dependant on the price that we will be able to secure, and the reimbursement we will be able to secure in Europe and ex-Europe.

The other big opportunity for us we believe, is Japan. As I mentioned this requires an in-depth analysis to see what is it that we need to do from a development and regulatory perspective if any, and also assess the market opportunity which as you can imagine is quite significant. So stay tuned. These are peak seas projections that we might update you on in the future. Thanks.

Michael Schmidt – Leerink Swann

Okay. Maybe a quick follow-up on the European market.

Francois Nader

Yes.

Michael Schmidt – Leerink Swann

Is it true that the European market, the treatment of SBS is much more concentrated that in the US with more centers of excellence there, which could lead to potentially a more rapid launch?

Francois Nader

That’s correct. So, just to give you an idea, even though we had only one-third of our clinical sites in Europe, we were able to recruit two-thirds of our patients from Europe. And the main reason, frankly, is number one the fact that you have very sophisticated key opinion leaders in Europe that now that space extremely well. But second also to your point, the treatment of short bowel syndrome is much more concentrated around these centers of excellence in Europe.

So if you take a country like France for example, even though they have 50 million people, you have probably less than 10 centers of excellence that actually attract most of the short bowel syndrome patients. So from a commercial perspective, once we go beyond the hurdle of pricing and reimbursement, it will require a relatively small, actually a very small field organization to reach these key opinion leaders and start generating revenues.

Michael Schmidt – Leerink Swann

Okay. Great. Thank you.

Francois Nader

Thank you.

Operator

Your next question will come from the line of Alan Carr from Needham & Company. You may proceed.

Alan Carr – Needham & Company

Hi. Thanks for taking my questions.

Francois Nader

Good morning, Alan.

Alan Carr – Needham & Company

Good morning. I’m wondering to what extent home and fusion partners and patient advocacy have been? What sort of roll they’ve had? How much they’ve helped in terms of sourcing patients? Then also can you comment on the steps to discontinuation rate? I think you said 74% completed. I wonder if you could comment on that too? Thanks.

Francois Nader

I’ll ask Eric to take the first part, and I’ll ask Roger Garceau to take the question on discontinuation. Eric?

Eric Pauwels

Yeah. I’ll take the question. It’s a good question. One of the key strategies is obviously working with our specialty infusion partners. They’ve been very instrumental in aligning a lot of our resources in terms of patient finding. We clearly – we’re very pleased to see the number of prescriptions initial up-tick coming from a lot of those patients that are in the network of our specialty infusion partners. Three of them have actually been involved, the big ones, have been dispensing the vast majority of the prescriptions.

As you would imagine they have the most patients. They continue to play a very, very important roll not only in terms of patient finding but access to very large institutions and key prescribing physicians in which we may not have had a relationship previously as we built out the field organization. So clearly they’ve played a very instrumental role.

In terms of discontinuation, we haven’t really seen – it’s really early days now, so we have not seen patients that have discontinued onto therapy, so stay tuned on that. There hasn’t been any specific feedback there.

Francois Nader

Roger, would you like to address the Gattex and...

Roger Garceau

Sure. Let me just talk to this. Gattex, the two-year continuation after stats and there’s like three arms in that. So a two-year study to have a 74% completion rate at the end of two years is really outstanding. When we look at the patients to dropped out – those 23 patients – the vast majority were early and were due to adverse event.

And the majority actually of the drop-outs were actually in the groups that were not previously treated with Gattex, which is what actually we would expect, which was really the – when you look at the initiation of therapy with Gattex, this is why the NCS Advantage to other programs is so critical is that the early treatment and the needed hand holding with patients to help walk them through is critical.

Once they’re on it they seem to do much better for the long term. This is me speaking to that 75 check continuation after two years so very high continuation rates out at two years. We were very pleased with that.

Alan Carr – Needham & Company

Okay. Great. Thanks very much.

Francois Nader

Thank you, Alan.

Operator

Your next question will come from the line of David Nierengarten from Wedbush Securities. You may proceed.

David Nierengarten – Wedbush Securities

Hi. Thanks for taking my question. In terms of the Gattex launch, which of course seems to be going quite well, what is the nature I guess of the patients not coming in, in their medical condition? I guess how are your marketing and outreach efforts? Where are the patients coming from? Are they coming from centers of excellence on their annual meeting or have they heard about it through say the Oley Foundation or something like that? And I have another question after that. Thanks.

Francois Nader

Eric.

Eric Pauwels

Yes. So David, thanks. Great question. Clearly we have a number of different initiatives that we’re working with, with patient advocacy. We’re driving a lot of education and specific information about Subscribers to ensure that patients are self identifying.

We’re involved in a number of patient advocacy meetings. We’ll be attending a number of the Oley Foundation meetings and the upcoming meetings here and working with local chapters as well. We’re pleased to see that about 50% of these prescriptions are coming from these centers of excellence and half of them are coming also from large group practices and that’s encouraging too.

That gives us some confidence that the Foundation itself is communicating to patients not only who are involved in more urban areas but also in the community.

In addition to that, as I mentioned about two-thirds of the current prescriptions are females and they’re very involved in social media. They’ve been blogging and discussing the product quite actively via the social media and via patient advocacy. So in many cases they’re the best ambassadors.

David Nierengarten – Wedbush Securities

Thanks for that. And just a quick question on the balance sheet in terms of the inventory, I assume that of course moved from the R&D side to the inventory in terms of Gattex inventory? And may I also think about it from modeling purposes that inventory is going to be drawn down over the next few quarters, as you said the distributors don’t stock it? Thanks.

Eric Pauwels

Yeah, David. A couple things. The inventory, the reason inventory went up in the quarter was because of the deal we did with Takeda and the product that we – that was approved. Obviously we put that on balance sheet and with respect to Preotact and its commercial product so that was put on the balance sheet. So that was 37 million of inventory.

And as I mentioned in my comments that we have a fairly substantial amount of inventory we produce in support or anticipation of the Gattex launch is a two-year lead-time from inception to ready to ship product. So we expect that the pre approval inventory, which is off balance sheet, is enough to support the next couple years of revenue, depending how the ramp goes. Hopefully it’ll be less than that.

And once that bleeds out, you’ll see in the interim, not immediately but in the interim you’ll see us start to do commercial volumes, build commercial volumes in support of the later year’s revenue where you’ll see more traditional margins flowing to the P&L of around 80%.

The inventory that we got from Revestive and Preotact, it is in Europe, and we potentially could use it to support US revenue, but honestly it will largely depend on as we complete the build-out for the international plan and have a better sense in terms of the expected ramp and sequencing of countries, then we’ll have a better sense in terms of what kind of demand we think we’ll need to satisfy in Europe, and then from there clearly the last step will be then to recalibrate our production schedules to sync up with the new worldwide perspective.

David Nierengarten – Wedbush Securities

Great. Thanks for taking my questions.

Francois Nader

Sure.

Operator

And your next question will come from the line of Carol Werther from Summer Street. You may proceed.

Carol Werther – Summer Street

Hi. Thanks for taking my question. Can you remind me what the shelf life is on Gattex?

Roger Garceau

It’s – we have stability of four years, and then when it’s converted to – for API then when it’s converted to – fill-finish it adds another I think three years to shelf life from the day it’s been converted to finished goods. So from the day it’s converted to the final drug product it has three-year shelf life. And we’re actually – we have ongoing stability data, stability tests that may extend that with the benefit of time.

Carol Werther – Summer Street

Okay. Great. And do you know how many centers have started to order Gattex of the ones that you’ve identified?

Eric Pauwels

The product, Carol – the question is the sellers don’t actually order Gattex. We actually ship the product directly to patients. So centers as I mentioned earlier – half the centers of excellence have – we’ve gotten prescriptions from the physicians who are actually involved in the centers of excellence but since this is a self-administered product it’s actually directly shipped to the patient.

Carol Werther – Summer Street

Okay. Thank you. And then I had one other question. When do you think you might start to receive revenues from the European launch?

Francois Nader

It’s frankly too early to say. As I mentioned we’ve reacquired with product – both products about eight weeks ago. As you know the reimbursement process in Europe is quite lengthy. The shortest could six to nine months and the longest could be over two years.

At the same time and in parallel though we are in the process of targeting those countries where we can establish relatively quickly a paid named patient program and start generating revenues. Again I would moderate our expectations because these countries are usually modest in terms of revenues but nevertheless we’re priming the pump there.

Carol Werther – Summer Street

Thank you...

Francois Nader

Sure.

Carol Werther – Summer Street

Go ahead.

Operator

And your next question will come from the line of Boris Peaker from Oppenheimer. You may proceed.

Matt Palmer – Oppenheimer

Good morning. This is Matt Palmer in for Boris. Thank you for taking the questions.

Francois Nader

Sure.

Matt Palmer – Oppenheimer

Thank you. So let’s see. So first off I was wondering if there’s any update on the number of identified SBS patients as part of the addressable patient population? And maybe if there’s not more qualitatively, are your interactions with payers helping to identify more patients? And also are your infusion partners seeing new patients being drawn to them?

Eric Pauwels

Well, Matt, thanks for the question. Good question. I think first of all we feel very, very confident about the 3,000 to 5,000 addressable patients. We clearly have worked with our specialty infusion partners. They continued to confirm the number of patients they have within network and as our area business specialists have completed profiling it’s clear they’re binding patients and they’re also able to qualify and estimate the number of patients we are now with them for the launch.

In addition, we’ve seen a lot of progress with our SBS.com – our therapeutic website. Every month we see a very nice steady increase with regards to unique patients that have opted in and then finally our patient advocacy as I mentioned earlier. We continue to find patients through our patient advocacy, all of these triangulating to the 3,000 to 5,000.

Matt Palmer – Oppenheimer

Okay. Great. Thanks. And then maybe on the PARADOX data. What should we be looking for and what read through should we take away from the presentation in June?

Francois Nader

Well I really don’t want to pre-empt what you will be hearing in June. June is coming up in a few weeks. All I can tell you is, even internally and even though we’ve been associated with hypoparathyroidism for so many years now, I can tell you internally we’re surprised by the burden of illness of this condition on the patients. And we are also even more surprised by the white gap, if you will, between the perception of this burden of illness as expressed by physicians versus the same burden of illness expressed by patients. There’s a white gap.

Now unfortunately this is not unique in conditions where there is not available treatment. I mean, to the effect where some patients do not even know that they have hypoparathyroidism because patients are labeled as, well you have low serum calcium. You have hypoglycemia, so why don’t you take a bit of calcium and you will be doing fine.

Unfortunately they’re not. So it’s really a big milestone study. And eye-opener, and I think this will position hypoparathyroidism as a true unmet medical need. That’s all I can say qualitatively at this place. Stay tuned. We’ll have the results out in a few weeks now.

Matt Palmer – Oppenheimer

Thank you.

Francois Nader

Thank you.

Operator

Your next question will come from the line of Jim Molloy with Janney. You may proceed.

Jim Molloy – Janney

Hey. Thanks for taking my questions. I had a question. I was hoping that a few docs who would like to use this drug before patients get to TPN. Obviously that’s off label and certainly not what you guys are marketing it for. But doctors being what they are, can write it for whatever they want. Have you had any scripts come through off-label, and is a label extension to get the pre-TPN usage something you guys would think of?

Francois Nader

Well we were very pleased with the label that we’ve got after negotiating with the FDA and the label really states, adult short bowel syndrome that are dependent on parental nutrition. That’s all I can comment on your question. Now the prescription is written by the physician, and reimbursed by the payers. So we are not at all in the circuit.

I can tell you that our instructions are extremely clear for a fee organization when it comes to promotion to stick to what the label is. It’s a very good label, and frankly with this label we can address a wide chunk of the adult short bowel syndrome patients who are again dependent on parental nutrition.

Jim Molloy – Janney

Thank you. Can you talk a little bit on the potential timing on the pediatric study for label extension and then maybe of the 300 docs that have taken rems training how many have written a script for Gattex?

Francois Nader

I’ll let Eric answer the rem study and then I’ll take the pediatric.

Eric Pauwels

It’s just under half.

Francois Nader

So half of the physicians who were rems trained actually wrote prescriptions which is actually a very, very good score knowing that these patients see these patients maybe once, twice or three times a year. So that’s a very good score. So regarding the pediatric program, Roger?

Roger Garceau

Yes. Too early to say. We just had a meeting with the FDA, a very good meeting in terms of emergency, a real medical need and the opportunity for Gattex to pay out. We’re going to be in the process, as you know we acquired rights back in Europe and Europe has the pediatric associations planned as far as their approval so we will go back to Europe and see if we can harmonize the two plans so we can have one global plan. That will occur and we’ll tell you a little bit more about that as we get a little bit more color probably in a few months.

Jim Molloy – Janney

All right. I guess so at the end of the day, certainly not a trial that’d be initiated this year, 2014 at the earliest?

Francois Nader

Again you should stay tuned. We’re actively working. There is a huge medical need and we’re ready to go to matter of aligning frankly the European requirements with the update requirement so that would be running one single global program. And that’s our intention.

Jim Molloy – Janney

Great. Thanks for taking my questions.

Francois Nader

Thank you.

Operator

Your next question will come from the line of Ed Harris from MLV & Company. You may proceed.

Ed Harris – MLV & Company

Hi, everyone. Thanks for taking my question.

Francois Nader

Hi, Ed.

Ed Harris – MLV & Company

The launch itself of Gattex has been pretty well covered I think but I just had one additional comment following on the last caller. I realize pediatric is the next part of the life cycle management and it’s still really early days as you’re beginning to plan global submission but I didn’t get the figures early on about the market potential or size. Could you repeat that for me?

Francois Nader

Yeah. Actually the number that we’ve given today is the prevalence based on our market research, the prevalence of the pediatric indication is about 10% to 20% of the adult prevalence. So if you look at the US population, of 3,000 to 5,000 adults, short bowel syndrome again, within our label issue world, you can take 10% to 20% of this number which can give you a good approximation of the target market.

We did not give any additional details for the moment in terms of market potential details or anything of this nature. And we will do – we will be actually doing it for exercise in Europe to better assess the size of the pediatric market along with the size of the adult market as well.

Ed Harris – MLV & Company

Right. Okay. Then just one other, again I think this was briefly covered, but I wanted to get a little bit better sense of the next near term steps in terms of your prioritization of countries in the E.U.? Your sequence of launching? What are some of the criteria that you’re using as you think about the first couple countries to market?

Francois Nader

Yeah. That’s a very good question actually. It’s probably has at least half a dozen criteria that include the size of the market, the prevalence as it is reported from literature or our own market research. It has to do with our expectations in terms of reimbursement and pricing, how quickly we can get reimbursed and how high we can get reimbursed. And then how – so these are really the main factors, if you will.

In addition to this we have also to think even when you get reimbursement in certain countries you can get the reimbursement and it’s good for the whole country. In other countries you have to go province by province, or region by region, or state by state, which makes the process a little bit more difficult. So it’s a balance, if you will, of time, opportunity and execution easiness if you will. I think we will be in a position to give you a little bit more specifics on our August call.

Ed Harris – MLV & Company

Okay, great. Thank you. Congratulations on the early days of the launch.

Francois Nader

Thank you.

Operator

Your next question is a follow-up from the line of Yuan Yang from Jefferies. Please proceed.

Yuan Yang – Jefferies

Thank you for the follow-up. In the updated STEPS 2 data, the percentage of patients achieving independence as you were realize PPN reduction grilled in three days per week has actually increased from your last update. So I guess to what you are expecting to see going forward? So can you give us an update on steps three, how many patients have been enrolled so far?

Roger Garceau

Outlines of step three, step three all the patients are actually rolling out of step three and going into the commercial plan. Step three was simply a bridge in the US for the US, the 12 to 14 patients that would roll over into, hopefully into commercial products. And I believe all 12 of those now are in process of rolling over. Okay?

Yuan Yang – Jefferies

I see. So your last update was six patients enrolled in the step three. So those six patients are now on commercial?

Roger Garceau

Well, we wrote 12. And I think 12 closed on the rolling over. So...

Eric Pauwels

Yeah. Yeah. As well, we got already some STEPS patients that are on drug. And then – that are in the 42. And then as their clinical supplies finish, the remaining – we have prescriptions, and we’ll be processing those too.

Yuan Yang – Jefferies

Oh. Okay. And then in the EU pricing has been quite difficult even for orphan drug as for getting reimbursement. So what’s your pricing range for Gattex?

Francois Nader

Yeah. This is concurrent. So actually, it in negotiation. And we’re – like with every negotiation, you start where – as high as you can and you come down to something that is mutually agreeable between the partners.

I think based on the feedback we have from the payers in the US, Gattex value characterization, if you will, is very solid. And if the payers reaction in the US is of any indication, I quite optimistic that the Europeans will find the same value for Revestive over there. But again – I mean, it’s still early.

And as you know, Europe is 27 plus three so you have a total of 30 countries. And it’s not unusual to have a significant price differential between these countries. And this is part of the process of prioritization where we’re trying to hit first these countries where it would be the easiest to get a solid reimbursement, and it would be used as a reference for the other countries. So you and I think that on the August call will be able to give you a little bit more color on the progress of our European reimbursement process.

Yuan Yang – Jefferies

Thank you.

Francois Nader

Thank you.

Operator

And that was our last question. I’d now like to turn the call back over to Dr. Francois Nader for your closing remarks.

Francois Nader

Well, thank you, everyone, for joining us on today’s call, lot of questions, very exciting times for NPS. And we are really pleased as you can have sense I hope was a strong executive that is gaining momentum every day. We appreciate your time and attention today, and we look forward to updating you on our progress going forward. Have a great day.

Operator

And ladies and gentlemen, this concludes your presentation. You may now disconnect. And have a great day.