Horizon Pharma CEO Discuses Q1 2013 Results - Earnings Call Transcript

| About: Horizon Pharma (HZNP)

Horizon Pharma (NASDAQ:HZNP)

Q1 2013 Earnings Call

May 10, 2013 08:00 AM ET


Bob De Vaere - EVP and CFO

Tim Walbert - Chairman, President and CEO

Todd Smith - EVP and CCO


Annabel Samimy - Stifel

Heather Biana - JMP Securities

Charles Duncan - Piper Jaffray


Good morning, ladies and gentlemen. And welcome to Horizon Pharma Inc. First Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode.

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

Bob De Vaere

Thank you. Good morning. And welcome to Horizon Pharma’s First Quarter earnings call. This morning we issued a press release that provides the details of the company’s financial results for the quarter ended March 31, 2013, as well as an update on DUEXIS and RAYOS, and other recent business highlights. This press release is available on our website at www.horizonpharma.com.

Leading the call today will be Tim Walbert, Chairman, President and Chief Executive Officer of Horizon Pharma, who will provide a corporate update. Todd Smith, Executive Vice President and Chief Commercial Officer will provide an overview on the commercial performance of DUEXIS and launch of RAYOS. And I will provide an overview of the financial highlights from the first quarter ended March 31 before turning the call back over to Tim for closing remarks.

As a reminder, during today’s call we will be making certain forward-looking statements. These statements may include statements regarding our financial outlook in cash runway, our sales and marketing plans, potential growth of our business, projected results of pricing decisions and plan to enter into future commercial agreements.

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

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

During the call, we will also wrote in select to us healthcare analytics data specifically total prescription dollar value data which is provided only for trend purposes. It is not reflective of what the company would or will recorded sales on the U.S. GAAP basis which is based on products sold through our wholesale distributors and not total prescriptions.

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

I will now turn the call over to Tim.

Tim Walbert

Thanks, Bob, and thank you to everyone for joining us on the call today. 2013 began with solid results in the first quarter. Our commercial execution continues as we delivered gross and net sales increases of 70 and 73% respectively versus the fourth quarter of 2012. Excluding the benefit of a one-time change in the timing of DUEXIS revenue reorganization in the fourth quarter of 2012.

During the first three months of 2013 we continued the acceleration in DUEXIS prescriptions and revenues we launched RAYOS and closed the quarter with a strong balance sheet that included approximately 81 million in cash and cash equivalents which we continue to indicate would get us through 2013. we are pleased with DUEXIS continued momentum as growth of prescriptions further accelerated during the first quarter and the number of physicians prescribing DUEXIS increased compared to the fourth quarter of 2012.

Gross and net sales of DUEXIS in the first quarter of 2013 were 6.7 million and 5.3 million respectively which are increases of 29% and 18% respectively versus the fourth quarter of 2012, again excluding a one-time benefit in sales on the fourth quarter of 2012 related to the timing of revenue recognition. Gross sales recorded in accordance with U.S. GAAP were 1.5 million in January, 4.9 million in February and in March we recorded 3.3 million partially reflecting the benefit of a one-time price increase we took on March 15, 2013.

According to monthly data from According to monthly data from Source Healthcare Analytics, total prescriptions of first quarter of 2012 were approximately 46,000 and total prescription dollar value was 8.5 million which reflects the dollar value of prescriptions at the time prescriptions are reported and is not U.S. GAAP measured.

Compared to approximately 39,000 total prescriptions for the fourth quarter of 2012 and total prescription value of $4.9 million this represents an increase of 17% in total prescriptions and increase of 73% in total prescription dollar value. additionally according to weekly data from Source Healthcare Analytics total prescription dollar value for the four week period April 26, 2013 that's actually week ended was 6 million compared to 4.2 million in total prescription dollar value for the four week period ended March 29, 2013 this is an increase of 43%, as mentioned earlier in March 2013 we took a significant price increase in DUEXIS this increase now positions DUEXIS in the range of other branded end sets Source Healthcare Analytics reported gross TRxs dollars by week averaged 564,000 for the six week period prior to the price increase in mid-March and 1.5 million per week in the sixth week per your post increase worth 265% increase in DUEXIS value over that period. With this price increase, we expected a near term impact on prescription as due to a loss of business for cash paying patients and potentially, patients who have high coinsurance levels. We anticipate the growth rate in total prescriptions to normalize as we continue to aggressively promote DUEXIS to key targets and we've already begun to see support in new and total weekly prescriptions.

In fact three of the last four weeks have shown positive growth with DUEXIS weekly prescriptions increasing 5.8% over the last four weeks. Further, our market research continues to show that approximately 85% of commercial claims are being approved for DUEXIS with the company providing cost effective access to patients who are copay assistants program, 80% of our commercial claims for DUEXIS continued to have a patient out of pocket cost of $25 or less.

A key driver DUEXIS growth has been a result of the progress we’re making on a strategic efforts to drive the demand of DUEXIS where we apply a business to business to business sales strategy implementing a cohesive copayment plan and expanding our program with local and regional specialty pharmacies that allows DUEXIS to be shift directly to patients. Todd will provide an update on this strategy later in the call.

Additionally, our sales team is focused on insuring an effecting RAYOS launch which has been well received by both physicians and patients today. While still early in this lunch phase we’re encouraged by the initial uptake of RAYOS by rheumatologist. As a reminder while RAYOS is approved by the FDA for over 80 indications, we’re currently focused on rheumatoid arthritis and polymyalgia rheumatic in the rheumatologist office in with key primary care physicians.

In late January 2013, we fully launched RAYOS through 150% sale force which also details DUEXIS the majority of U.S. rheumatologist and key primary care physicians. As I said while we're early in the launch phase, cumulative prescribers of RAYOS were approximately 372 through March and were approximately 1250 prescriptions of first quarter 2013.

Outside the U.S. RAYOS is known as LODOTRA and is now approved in 25 countries including five countries where LODOTRA was approved in April in Eastern Europe. In Europe, it is marketed through our distribution partner Mundipharma which also has commercial rights in certain Asian and Latin America countries.

Today, we reported first quarter net revenue of $3.6 million for LODOTRA. It is important to remember that LODOTRA European revenues are not linear and do not represent sales to the market, but rather sales through our distribution partner Mundipharma and therefore our numbers for LODOTRA in Europe can significantly vary from quarter-to-quarter as we satisfy the delivery request of our partner.

In February we received our fourth noticeable allowance in the US Patent and Trade market office since October of '11, for DUEXIS, validating the strength of our intellectual property with patent terms currently out to 2028. After issuance Horizon plans to list US patent in the FDA's approved drug products with therapeutic equivalent evaluations at Orangebook. On March 7th 2013, we're also notified by the United Kingdom Medicines and Healthcare Products Regulatory Agency or MHRA that DUEXIS was granted a marketing authorization in the United Kingdom. This approval is the first step towards getting broad approval across Europe. Our strategy continues to be to seek a potential partner or partners in the UK and other EU member states where DUEXIS may be approved. While our permanent focus for DUEXIS remains in the US, where we believe the vast majority of global market opportunity exists, we're none the less pleased with the approval. Now I’ll turn the call over to Todd, who'll discuss our commercial highlights for the quarter.

Todd Smith

Thanks Tim. Good morning everyone and thank you for joining us today. Let me start by echoing what Tim said, we continue to be very pleased with the results we've seen with DUEXIS, we continue to also be pleased with the productivity of our sales forces measured on a prescription per representative basis, especially when compared to other recent (inaudible) and specialty pharma launches. One of the key internal metrics we look at is the number of adopters for DUEXIS and how this progresses over time. As we look at our performance, adopters, and adopters are actually prescribers or physicians who write five or more prescriptions of DUEXIS a week. A good way to evaluate progress in establishing DUEXIS with our key targets. In the last six months we've seen an increase of 63% and adopters from our pre-expansion representatives.

Also we continue to see progress since we implemented a program with local and regional specialty pharmacies that allows DUEXIS to be shipped directly to patients. The pilot programs designed to eliminate barriers that often exist with traditional pharmacy processes, this includes managed care challenges, pharmacy switching and stocking as well as patients walking away from prescriptions due to high copay cost. This program that we have ensures that patients receive DUEXIS as prescribed by their physicians, a continued success of the pilot program gave us confidence to move from the pilot stage in Q4 of last year and allowed us to expand the program to 27 territories across 11 states in the first quarter of this year. We're also on track to incorporate these learnings from the pilot and begin to rollout this program across the country to the remainder of this year.

So additionally because DUEXIS is promotionally sensitive we believe our continuing success is also due in part to hiring sales representatives with successful prior business to business experience. This profile changes continued to result in a promotional effort that focuses on selling to the entire office staff, responsible for patient receiving the prescription rather than just selling solely to a physician. So once the prescription is written our representatives are then focused on educating the office staff so they understand the benefits of DUEXIS and are also prepared to protect the prescription that show the patients receive the medicines their doctor intended.

With that, now I’d like to also move on updating our progress with RAYOS since our full launch meeting in late January. We’re very encouraged by the feedback we’ve received from our sales force. We’re also pleased with the initial response from the rheumatoid arthritis community as we were 371 cumulative prescribers of RAYOS as of the end of the first quarter and 485 cumulative prescribers of RAYOS since launch according to Source Healthcare Analytics data through the end of April.

These physicians have prescribed over 1,400 total prescriptions till date with over 1,200 of those prescriptions coming in the first quarter. Now, approximately 94% of patients on RA therapy including standard prednisone still complain of morning symptoms. Our market research shows, our key messages are resonating with physicians in the rheumatoid arthritis community.

Post launch feedback shows that 71% of patients in our research indicated that they prescribed RAYOS because of the 55% reduction in duration of morning stiffness and over 50% of our prescribers prescribed RAYOS for its unique design which delivered prednisone after a four hour delay thereby allowing patients to conveniently take the RAYOS at bed time.

These messages are consistent with our launch strategy to position RAYOS as a rheumatoid arthritis therapy that allows patients at have less pain and stiffness in the morning and provide a significant improvement in quality of life.

Now from a managed care standpoint we’ve already have had over a 100 clinical presentations in managed care with positive early feedback. We expect similar coverage for RAYOS as we’ve seen with DUEXIS in commercials payers.

We also planned to ensure patients get access to RAYOS by providing a plan to make sure their out of pocket expenses are manageable. Our goals for the majority of patients have an out of pocket cost below $25 per month.

So, we’re pleased with the commercial progress of DUEXIS and though still quite early, we’re very encouraged by the initial launch of RAYOS and we look forward to continued growth of both brands as we continue to receive positive feedback from both our patients and physicians.

So, thanks again for your time. And now I’ll turn it back over to Bob.

Bob De Vaer

Thanks Todd. For the first quarter ended March 31, 2013 gross and net sales were 10.7 million and 9.2 million respectively compared to growth in net sales of 2.9 million and 2.5 million respectively for the first quarter of 2012.

DUEXIS gross sales were 6.7 million and net sales were 5.3 million after deducting trade discounts and allowances of 0.6 million and copay systems cost of 0.8 million. DUEXIS represented 63% of gross sales and 58% of net sales during the first quarter

The increase in DUEXIS sales was primary due to increased product shipments as a result of the company’s extended sales force compared to the first quarter of 2012 as well as the product price increases we have discussed.

RAYOS growth sales and net sales for the first quarter of 2013 were approximately $0.4 million each. LODOTRA growth and net sales in the first quarter of 2013 were $3.6 million and $3.5 respectively compared to growth and net sales of $1.8 million and $1.6 million respectively in the first quarter of 2012.

Research and development expenses decreased $1.9 million from $4.1 million during the three months ended March 31, 2012 to 2.2 million during the three month ended March 31, 2013. The decrease in research and development expenses during the first quarter of this year was primarily associated with the classification of 1.4 million in medical affairs expenses to selling and marketing expenses in addition to 0.6 million reduction in consulting expense.

During the first quarter of this year in connection with the full commercial launch of RAYOS, the company began to classify its medical affairs expenses which consist with expenses related to scientific publications, health outcomes, biostatistics, medical education and information in medical communications as selling marketing expenses in according with U.S. GAAP. Prior to full commercial launch of RAYOS in late January 2013, these medical affairs expenses were classified as part of research and development.

Sales and marketing expenses increased 5.1 million from 11 million during the three months ended March 31, 2012 to 16.1 million during the three months ended March 31, 2013. The increase was primarily attributable to 4 million in higher salaries and benefits expenses due to the increase in staffing of the company’s field sales force, the classification of 1.4 million of medical affairs expenses to selling and marketing expenses during the first quarter of 2013 and a 0.2 million increase in consulting expenses which was partially offset by a 0.5 million decrease in launch-related marketing and commercialization expenses.

General and administrative expenses during the three months ended March 31, 2013 were 5.2 million and remained unchanged compared to the comparable quarter in the prior year. Interest expense decreased 0.9 million from 4.5 million during the three months ended March 31, 2012 to 3.6 million during the three months ended March 31, 2013. The decrease in interest expense was primarily attributable to the absence of debt extinguishment costs on prior debt facilities which was partially offset by higher borrowing balances in the current year.

Income tax benefit increased 0.7 million from 0.2 million during the three months ended March 31, 2012, to 0.9 million during the three months ended March 31, 2013. The increase in income tax benefit during the first quarter of this year was primarily due to reduction in the company’s deferred tax evaluation allowance resulting from a determination that a portion of our deferred tax assets associated with the deferred revenues from milestone payments would be realized in the future years.

Net loss for the quarter ended March 31, 2013 was 22.12 million or $0.36 per share based on 61,939,822 weighted average shares outstanding compared to a net loss of 23.7 million or $0.98 per share based on 24,116,490 weighted average shares outstanding for the quarter ended March 31, 2012.

Non-GAAP net loss for the quarter ended March 31, 2013, was 18.7 million, or $0.30 per share, compared to a non-GAAP net loss of $20.5 million, or $0.85 per share for the first quarter of 2012. You can refer the section of the press release we issued this morning titled regarding the use of non-GAAP financial measures for full discussion on this subject.

The company had cash and cash equivalence of 81.1 million at March 31, 2013.

I will now turn the call back over to Tim for some closing comments.

Tim Walbert

Thank you, Bob. In summary, we’re off to a very strong start in 2013 with a solid first quarter results and significant momentum early in the second quarter especially with DUEXIS revenues. Our near-term strategy continues to focus our efforts and capital resources on driving the commercial performance of DUEXIS and successfully launching RAYOS.

So, early in the commercial life cycle we believe the underlying demand for DUEXIS and RAYOS is significant. Additionally our strategy to create long term shareholder value includes increasing the number of product against our existing commercial infrastructure. We see many one and two product companies in the specialty pharma space all utilizing significant infrastructure to either commercially launch or promote their products.

We believe, we can offer creative solutions for these companies and therefore actively seeking opportunities to co-promote acquire and/or in license additional products into our company that capitalize on our commercial infrastructure. Our objective continues to be to build a profitable specialty pharmaceutical company.

Thank you for joining us today and we’d now like to open up the call to questions.

Question-and-Answer Session


Thank you. (Operator Instructions). Our first question is from Annabel Samimy from Stifel Nicholas. Your line is open.

Annabel Samimy - Stifel

I just want to go back to the pilot program that you had. I missed the early part of the call; if you can give us a few more statistics on exactly the impact that it had and what would it take to roll it out to the different territories that you have in terms of timing and costs?

Bob De Vaere

So, is the question related to our pilot program, we originally piloted it in the fourth quarter with a small number of territories and physicians where we saw about a 35% increase in this run rates for the average physician office during that pilot program. That gave us confidence to expand it in the first quarter; as Todd mentioned too, about 27 territories across 11 states and at this point, we feel confident enough from both the pilot and the results we have seen in the first quarter, so that we are going to expand it to the remaining territories throughout this year and as aggressively as possible to ensure not only the program is successful but we managed the associated scale.

So, we have been very pleased with it and the results are as we expected because its accomplishing several things; one, it's helping the physician office staff from a reimbursement standpoint, from the ability to educate the patients on why and what the risks are from taking end sets subsequent to upper gastrointestinal ulcers and then it gives the patient opportunity to talk to a pharmacist who is there to help educate them why they are prescribed DUEXIS and then you make sure they get the product. So, all in all we have been very pleased and we continue to expand the program.

Annabel Samimy - Stifel

And what's the timing in terms of the expansion and the additional costs?

Bob De Vaere

From an additional cost, we don’t see any material costs incrementally; it's essentially just the costs, shipped the product to patients and we overnight the product and one of the things we have done over the first quarter is instead of just using one specialty pharmacy, we have engaged more local pharmacies which minimizes some of the cost also. From absolute cost standpoint, we don’t see any material impact and we expect over the next quarter or two to completely rolled out across the country.

Annabel Samimy - Stifel

Great and if I can ask another question related to the price increase on DUEXIS. Have you had any difficulty or push back from the payers or how do they try to extract further gross and net discounts from you with regard to that. So you know if you took a 154% increase should we assume a 454% increase or should we assume something a little bit less than that.

Bob De Vaere

So the answer to the first part of the question is no, we have not received one call in the approximately eight weeks since we took the price increase, so we don't anticipate any significant impact from a managed care perspective. From a gross to net, the only impact we see and certainly increase in the gross to net is, we have increased the maximum amount of pockets from a copay buy down for the patient, so prior to the price increase we had a max buy down of about $50 on an individual patient basis, to ensure that we buy that copay down to $20-$25. We've increased that to a 130 so that will slightly increase the gross to net, but overall the majority of the price increase will drop to the bottom line.

Annabel Samimy - Stifel

Okay great and do you feel that I think initially you'd expected some washout of cash pay patients, is that at this point washed out and could we just assume trends from this point forward.

Bob De Vaere

What we originally expected was anywhere from 8-12 weeks of losing 5-6% of our business that was cash and also patients that had significant coinsurance in the 20-30% range. So we expected it for almost three months and we're about seven weeks in, in data and over the last three weeks we have accumulative increase of 5.8%. So we have prescriptions increasing much earlier than I expected, so we expect that trend to continue.


Our next question is from Heather Biana from JMP Securities, your line is open.

Heather Biana - JMP Securities

I just wanted to get a little bit of color on how things are going with Covidien and if they're increasing their efforts on sales of DUEXIS.

Bob De Vaere

With Covidien, we continue to work with them, I think as we said last quarter we're not entirely pleased with the performance at that point in time, with overall the performance being excellent for the quarter. We continue to work with them and I think the communication, the ability of the teams to interact, agree on the messages and drive that to the sale force has definitely improved and we continue to work with them and ultimately long term we expect that performance to continue to improve. We obviously have a number of measures in place to ensure that performance is met and if not then we can take significant measures to take the product back, but at this point in time things continue to progress.


(Operator Instructions). Our next question is from Charles Duncan from Piper Jaffray. Your line is open.

Charles Duncan - Piper Jaffray

Couple of questions regarding DUEXIS, first of all I appreciate Todd all the detail that you provided in terms of numbers and your traction in the market. But I’m really kind of wondering what your goals are for the end of the year, is it to increase adapters or how do you measure your success? Is it doctors, details, scripts or revenues?

Tim Walbert

Very simply, revenues and as I mentioned for the four week period we attending April 26, we saw 43% increase in (inaudible) as measured by Source Healthcare Analytics. The underlying prescriptions over the last three week period had increased 5.8%. Earlier than we expected coming out of the price increase. So the main measure is dollars certainly as Todd measured if you look at our pre-expansion territories there was a 63% increase in doctors among that audiences and as the expansion reps continue to drive success, their increase in doctors and for reminder we measured doctors as physicians who wrote more than five prescriptions in one week.

So, all the measures are important but at the end of the day our goal is significantly to drive revenue and the underlying business is measured on prescriptions and growth in those doctors.

Charles Duncan - Piper Jaffray

And Tim, that’s pretty good trying for April. Can you help us understand that trend in gross to net during that period?

Tim Walbert

We don’t see a significant achieved beyond I think what we reported for the first quarter. If you look at the revenues for the first three months, I think the numbers were 1.5 in February and 3.3 so significant increases in revenues in March.

As I mentioned, we are increasing the copay buy down for those patients have a tier three copay that is well in excess of (inaudible). So, in that case we may see a slight increase in the gross to net and we need a full quarter of revenues to be able to actually report the full price increase, associated revenues and associated growth to net. So that would be the one place we will see the increase, but we need a full quarter to see the data reported out.

Charles Duncan - Piper Jaffray

That make sense to me, pretty noisy data in a month, I am just trying to get a handle on, the month to month increase in revenue is impressive, but how much of it is price versus scripts, so little way additional data to be able figure that out.

Back to Covidien and the previous caller's question, I am kind of wondering what you think is the roadblock, is it simply that they are too busy with their products or do they not understand how to market your product?

Bob De Vaere

I think, Covidien certainly in the Mallinckrodt business which is scheduled to spin out from Covidien as reported, towards the end of June is a very successful business and both from an generic API to the imaging to the proprietary formula and I think they put out guidance over the last week that their business continues to grow.

So certainly there are other quality organization who has continued to execute their business. However, I think as (inaudible) reported yesterday, they are right from promoting two primary products to promoting four primary products in the fourth quarter by adding both (inaudible) products and our product, and I think that, there is just some growing things and as you learn to sell additional products and learn how to position them for the individual representative. That being said, the marketing team and the organization that works with Todd on our side has been very good to work with. They understand their business and the messages are agreed upon, so you know I think both sides are moving in the right direction.

Charles Duncan - Piper Jaffray

So perhaps by the end of the year they will be making an impact.

Bob De Vaere

That’s a long way Lai, we are focused on today and working with the teams, so I will see.

Charles Duncan - Piper Jaffray

Then my last question is regarding kind of your strategic comments towards the end of your prepared comments, suggesting that you may have capacity within your sales organization and maybe looking at other products, but will consider that at least in the future to bring on. Do you have any specific goals for this year along this line?

Bob De Vaere

As far as goals, we continue to look at a number of different assets, products, companies, and we think that certainly we have capacity behind DUEXIS in primary care and to maximize potentially behind DUEXIS and orthopedic surgeons and rheumatologist, or in other targeted therapeutic areas where we can leverage our commercial infrastructure and overall company infrastructure. So we don’t have any specific goals relative to this year or next year. We are aggressively looking and as you know it’s easy to look at a lot of different opportunities and much more challenging to close those up. So progressively looking but we don’t have any specific near term goals.


Thank you, we have no more questions. Thank you, I will now like to turn the call over to Mr. Tim Walbert for closing remarks.

Tim Walbert

Thank you very much operator, and thanks everyone for the questions, taking the time and we are excited by the quarter and most importantly by the – what we saw in the March results significantly accelerating for DUEXIS and that continued further acceleration in April, so, looking forward to the next quarter. Have a great day.


Ladies and gentlemen, this does conclude today’s conference. You may now disconnect. Thank you.

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