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Executives

Robert De Vaere – Executive Vice President and Chief Financial Officer

Timothy P. Walbert – Chairman, President and Chief Executive Officer

Todd Smith – Executive Vice President and Chief Commercial Officer

Analysts

Charles C. Duncan – Piper Jaffray, Inc.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Liisa Bayko – JMP Securities

Difei Yang – R.F. Lafferty & Co., Inc.

Horizon Pharma Inc. (HZNP) Q3 2013 Earnings Conference Call November 8, 2013 8:00 AM ET

Operator

Good morning, ladies and gentlemen and welcome to Horizon Pharma Third 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.

Robert J. De Vaere

Thank you. Good morning and welcome to Horizon Pharma's third quarter earnings call. This morning we issued a press release that provides the details of the Company's financial results for the third quarter ended September 30, 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 CEO of Horizon Pharma, who'll provide a corporate update. Tod Smith, Executive Vice President and Chief Commercial Officer, who 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 third quarter ended September 30, 2013 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 and cash runway, our sales and marketing plans, potential growth of our business in the markets for our products, expectations with respect to future sales discount and allowances and the potential expansion of our prescriptions made easy program.

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 SEC 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 obligation to update such statements. During the call today, we will also discuss non-GAAP financial measures to help you understand our underlying business performance. The GAAP reconciliations are provided in our press release which has been posted on our corporate website.

I’ll now turn the call over to Tim.

Timothy P. Walbert

Thank you Bob and thank you everyone for joining us on the call this morning. As we have been stating for sometime our goal is to position Horizon to achieve strong financial performance from the sales of DUEXIS and RAYOS and to leverage that to evaluate new opportunities to grow our business into a specialty pharmaceutical company that takes advantage of our commercial infrastructure and deep experience in the markets we participate. As we approach the end of 2013, we believe this year has been transformational for the company when they put the company on track for strong 2014.

The acceleration of revenue growth we have seen in the third quarter with both DUEXIS and RAYOS have allowed us to make significant progress in our strategy to leverage our business model and maximize our commercial infrastructure and demonstrates our commitment towards becoming a profitable specialty pharmaceutical company.

During the third quarter of 2013, we made significant progress in executing on our strategy of driving DUEXIS’s sales while continuing to execute on the initial launch of RAYOS.

We delivered third quarter total net sales of $26.2 million, an increase of a 114% versus the second quarter of 2013. We also exited the quarter with approximately $58.7 million in cash and cash equivalent versus $69.3 million at the end of the second quarter. In the third quarter DUEXIS continued to demonstrate momentum with total prescriptions increasing approximately 18% versus the second quarter of 2013 and total net sales of DUEXIS is $23.5 million, an increase of a 122% versus the second quarter of 2013 with current annual net sales at a run rate of greater than $94 million.

As a result from negotiating an amendment to our managed care agreement, we received more favorable 2013 pricing terms than we originally anticipated. That along with the sales channel mix change gave us gross-to-net sales reduction for DUEXIS up 17.6% in the third quarter versus 33% in the second quarter of 2013.

Going forward, we expect gross-to-net sales deductions of DUEXIS to be between 35% to 40%, largely driven by rebates and reductions for certain Governmental and third-party payers, along with our Prescriptions Made Easy and co-pay buy down program, which ensures access to DUEXIS at a reasonable out of pocket costs for patients.

We continue to make significant progress as we execute on driving the value of each DUEXIS prescription. According to Source Healthcare Analytics, sales per prescriptions have increased from 71 in January to over 77 in September 2013. Therefore we've added over $44 in value to each DUEXIS prescription by getting more chronic patients to take DUEXIS for longer periods of time. In addition, refill rates for DUEXIS increased 1.5% in the third quarter of 2013, versus the second quarter of 2013.

Our sales force continues to accelerate a number of physician targets who prescribed DUEXIS as we had a greater than 25% increase in the number of unique prescribers since April and a 41% increase in the unique adaptors who have written more than five prescriptions a week since April as well.

According to the SHA data, each week for the last 12 months, we've averaged adding over 200 new prescribers per week for DUEXIS. In August, we entered the settlement and license agreement with Par Pharmaceutical to result pending patent litigation involving DUEXIS.

Under this agreement we granted for the non exclusive rights to market of generic, anti-flurbiprofen product in the United States under Par's abbreviated new drug application, beginning in January of 2023, or early under certain circumstances. We believe this settlement validates the innovation in breadth of the DUEXIS patent portfolio, which includes six Orange Book listed patents covering DUEXIS.

Turning to RAYOS, net sales in the third quarter were $2 million an increase of over 250% versus the second quarter of 2013. We are encouraged by the feedback and growing acceptance of RAYOS by both rheumatologists and patients. We recently presented data at the America College of Rheumatology meeting that patients of arthritis treated with the RAYOS at bed time had significant and sustained improvement in the morning symptoms for the one-year duration study as compared to group of patients treated with immediate release Premizone given in the waking hours.

The data also showed that patients previously treated for three months with immediate release Premizone who were switched to RAYOS experimented significant improvement in morning symptoms and associated inflammatory markers for the nine months treatment period. Outside the United States, RAYOS named as LODOTRA had net sales on the quarter of $0.7 million that now improved in over 30 countries.

In Europe, LODOTRA is marketed through our distribution partner Mundipharma, which also has commercial rights in certain Asian and Latin American countries. As a reminder, LODOTRA Europe revenues are not linear and do not represent sales for the market, but rather our sales through a distribution partner Mundipharma and Barry from quarter-to-quarter.

I will now turn the call over to Todd, who'll discuss our commercial highlights for the quarter.

Todd Smith

Thank you, Tim. Good morning, everyone, and thank you for joining us today. Let me start by saying, we continue to be very pleased with the momentum being generated by our commercial organization. So according to the monthly data from SHA, total DUEXIS prescriptions for the third quarter of 2013 were 56,673 compared to 48,191 total DUEXIS prescripts for the second quarter of 2013.

This is an increase of 17.6%. Also according to SHA, total DUEXIS pills dispense in the third quarter of 2013 increased 20.3% versus the second quarter as a result of longer initial prescriptions and a 1.5% quarter-over-quarter increase in our refill rate of DUEXIS.

So to-date, almost 20,000 physicians have written prescriptions for DUEXIS, with the majority of scripts being written by primary care physicians, followed by orthopedic surgeons and rheumatologists. We are pleased with the continued productivity of our sales force as measured on our prescriptions per representative basis. Additionally, we have seen from Q2 to Q3 an average increase of 14%, the number of writers on a weekly basis.

The average number of scripts per writer in Q3 also grew by 6% compared to Q2 continuing to increase the value of each DUEXIS prescriber. As previously discussed the key driver of our growth for DUEXIS continues to be our business to business sales strategy where we have focused on attracting sales representatives that have significant previous business to business selling experience.

We've also implemented a comprehensive co-pay plan and expanded our pilot program with local and regional specialty pharmacies, which has allowed DUEXIS to be shipped directly to patients. With all of this 93% of patients receive DUEXIS at a co-pay at $20 or less.

So the program called Prescriptions Made Easy or PME is designed to eliminate barriers that often exist with the traditional pharmacy processes. We are continuing to rollout the program in a controlled manner across the country throughout the rest of 2013 and 2014. Currently, almost 20% of DUEXIS scripts are now going through our PME program. Volume through the program has increased 3X since June and we continue to see new writers utilizing the program on a weekly basis.

The fill rate and refill rate for PME program continues to outperform standard pharmacy rates. And in the third quarter, we added a pharmacy business partner on the West Coast giving us a strong local coverage throughout the U.S. We believe that overtime, as much as 30% to 40% of prescriptions may run through the program. Also in Q3, we rolled this program out to RAYOs prescribers to ensure that patients have access to RAYOS in the same manner.

So now I'd like to update you on the progress of RAYOS. We continue to be very encouraged by the feedback from our rheumatologists and our sales force. According to monthly SHA data, total prescriptions were 2,530 for the third quarter of 2013, it's an increase of 12% compared to 2,241 total scripts for the second quarter. In the third quarter, there were over 330 prescribers of RAYOS that have been over 980 cumulative prescribers of RAYOS since launch.

These physicians have written over 6,200 total prescriptions to-date. We've also had very positive response from our customers when we rolled out our $5 co-pay plan for RAYOS patients at the end of Q3. This is putting us in line with generic prednisone patient cost. We are also seeing over 94% of managed care plans being approved for RAYOS and over 85% of patients are getting RAYOS at the $5 co-pay at pharmacies.

So in summary, we continue to be very pleased with the upward momentum of both script growth and value creation for both DUEXIS and RAYOS in the third quarter, and we look forward to keeping you updated on our progress.

I'll now turn it over to Bob. Thank you.

Robert De Vaere

Thanks, Todd. So the third quarter ended September 30, 2013, growth in net sales were $31.5 million and $26.2 million respectively compared to $7.3 million and $6.5 million in gross and net sales for the third quarter of 2012 and gross and net sales of $17.6 million and $12.3 million in the second quarter of 2013.

DUEXIS gross and net sales during the third quarter of 2013 were $28.5 million and $23.5 million respectively after deducting sales discounts and allowances of $1.1 million and co-pay assistance costs of $3.9 million, compared to DUEXIS gross and net sales of $3.0 million and $2.6 million, respectively, during the third quarter of 2012 and DUEXIS gross and net sales of $15.8 million and $10.5 million in the second quarter of 2013.

The quarter-over-quarter sequential increase in DUEXIS sales during the third quarter of 2013 was primarily the result of the company’s expanded sales force in addition to product price increases implemented during the course of 2013. DUEXIS represented 90% of gross sales and 89% of net sales during the third quarter of 2013. RAYOS gross and net sales were $2.3 million and $2.0 million, respectively, during the third quarter of 2013 after deducting sales discounts and allowances of $0.2 million and co-pay costs of $0.1 million, compared to RAYOS gross and net sales of $0.7 million and $0.6 million in the second quarter of 2013.

And as a reminder, we launched RAYOS in late 2012, so there is no comparative numbers there. LODOTRA gross and net sales during the third quarter of 2013 were approximately $0.7 million each, compared to gross and net sales of $4.3 million and $3.9 million during the third quarter of 2012 and gross and net sales of $1.2 million each in the second quarter of 2013.

The decrease in LODOTRA sales during the three months ended September 30, 2013 compared to the same period in the prior year and compared to the second quarter of this year was the result of lower product shipments for the company's European distribution partner, Mundipharma, and a decline in the recognition of deferred revenues related to product previously shipped and invoiced to Mundipharma at contract minimum prices and where the contractual price adjustment period has passed.

LODOTRA sales for Mundipharma as we’ve indicated occurs at the time the company ships product to Mundipharma based on its estimated requirements and are not linear or tied to Mundipharma’s sales to the market. And therefore you will see fluctuations from quarter-to-quarter.

In the third quarter of 2013, sales discounts and allowances were $5.3 million, compared to $0.8 million during the three months ended September 30, 2012 and $5.4 million in the second quarter of this year. As a percentage of gross product sales , sales discounts and allowances increased to 17% during the three months ended September 30, 2013 compared to a 11% during the three months ended September 30, 2012, but were down compared to the 31% recorded during the second quarter of this year.

The increase in the sales, discounts and allowances in the current quarter versus the prior year was attributable to a significant increase in the product sales during the three months ended September 30, 2013 which results in a corresponding increase in customer discounts and prompt pay allowances.

Additionally, our distribution channel mix during the current quarter resulted in higher government rebates and charge backs than the previous year. Co-pay assistance cost increased $3.7 million during the three months ended September 30, 2013, compared to the comparable quarter in the prior year as a result of a larger number of prescriptions being filled by patients and product price increases implemented during the course of 2013. The increase in product sales discounts and allowances in the current quarter was partially offset by a $2.4 million benefit resulting from the renegotiation of a managed care contract and from sales channel mix. We expect our sales discounts and allowances as a percent of gross product sales to be in the 35% to 40% range in subsequent periods as we will not benefit from the managed care adjustment made in the third quarter of this year.

Net loss for the quarter ended September 30, 2013 was $5.5 million, or $0.08 per share based on 64,645,677 weighted average shares outstanding, compared to a net loss of $17 million, or $0.47 per share based on 35,972,657 weighted average shares outstanding, for the quarter ended September 30, 2012.

On a non-GAAP basis, our net loss for the quarter ended September 30, 2013 was $2.1 million, or $0.03 per share, compared to a non-GAAP net loss of $13.9 million, or $0.39 per share, for the third quarter of 2012. Horizon provides non-GAAP financial measures, which I believe can enhance an overall understanding of its financial performance when considered together with GAAP figures. Refer to the section of our third quarter earnings release entitled "Note Regarding Use of Non-GAAP Financial Measures" for a full discussion on this subject.

The company had cash and cash equivalents of $58.7 million at September 30, 2013. Cowen and Company, the Company's agent, sold 1,182,414 shares of our common stock in July under or at-the-market or ATM facility for gross proceeds of $3.1 million and net proceeds of $3.0 million after deducting $0.1 million in commissions and other issuance costs.

Cowen has not sold shares under the ATM since July and as of September 30, 2013 had sold a cumulative total of 2,448,575 shares of our common stock with gross proceeds to as of $6.2 million. We had $21.2 million of common stock available for future issuance under the ATM as of September 30, 2013 which can potentially supplement or extend our cash runway.

Research and development expenses decreased $1.6 million from $3.8 million during the three months ended September 30, 2012, to $2.2 million during the three months ended September 30, 2013. The decrease in R&D expenses during the third quarter of this year was primarily associated with the classification of $1.2 million in medical affairs expenses to sales and marketing expenses and a $0.3 million reduction in quality control related costs at our Swiss subsidiary.

During the first quarter of 2013, in connection with the full commercial launch of RAYOS, we began to classify our medical affairs expenses, which consist of expenses related to scientific publications, health outcomes, biostatistics, medical education and information, and medical communications, as sales and marketing expenses. Prior to the full commercial launch of RAYOS in late January, medical affairs expenses were classified as part of R&D expense.

Sales and marketing expenses increased $2.7 million from $12.9 million during the three months ended September 30, 2012 to $15.6 million during the three months ended September 30, 2013. This increase in sales and marketing expenses was primarily associated with an increase of $2.9 million in salaries and benefits expense due to the increase in staffing of our field sales force and the inclusion of the $1.2 million of medical affairs expenses in sales and marketing expenses. This was partially offset by a $1.3 million reduction in marketing and commercialization costs as the prior year included substantial launch and prelaunch spending, G&A expenses increased $1.2 million from $4.7 million during the three months ended September 30, 2012 to $5.9 million during the three months ended September 30, 2013.

The increase in G&A was primarily associated with an increase of $0.5 million related to our intellectual property related matters, $0.3 million increase in salaries and benefits expenses associated with higher admin headcount compared to the prior year and a $0.3 million increase in legal and consulting expenses.

Interest expense increased $0.3 million from $3.3 million during the three months ended September 30, 2012 to $3.6 million during the three months ended September 30 of this year. The increase in interest expense was primarily due to a higher discount expenses associated with the September 2012 amendment to our senior secured loan facility, which was partially offset by lower borrowing balances in the third quarter of 2013 as a result of principal debt repayments we've made this year.

During the three months ended September 30, 2013 and 2012, we reported a foreign exchange gain of $1.1 million and $0.6 million respectively. The increase in the foreign exchange gain during the three months ended this year was primarily the result of the impact of strengthening of the Euro against the U.S. dollar on our Swiss subsidiary.

During the quarter ended September 30, 2013, we reported income tax expense of 0.3 million compared to an income tax benefit of $4.5 million during the corresponding period in 2012. The decrease in this benefit was primarily due to a reduction in our deferred tax assets associated with a lower projected pretax operating losses and a one-time tax benefit reported in the prior year.

Jut a reminder; during the third quarter of 2012 the Company reported a one-time tax – income tax benefit of $4.3 million related to a reduction in our deferred tax asset positions resulting from the reclassification of an indefinite-lived in-process research and development asset to a finite-lived intangible asset in connection with the approval of RAYOS. The reclassification of this IPR&D indefinite-lived asset to a finite-lived intangible asset required us to begin amortizing the asset, which resulted in additional income tax benefits due to the Company's deferred tax liability position.

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

Timothy P. Walbert

Thank you, Bob. In summary the past quarter has been a period of continued excellent execution for the Company. As we move forward into year-end, we continued to be focused on driving DUEXIS prescriptions and driving RAYOS, continued driving of the RAYOS launch and prescriptions. I'm extremely pleased with the progress we've made throughout 2013 and I'm excited for even greater success in 2014.

As we move forward into 2014, we're well positioned to drive significant incremental revenue. We will also continue to see new product or company acquisitions that will allow us to further leverage our business model and maximize our commercial infrastructure, creating increased value for our shareholders.

We thank you for your continued interest and support of the Company. We are now happy to open the call for questions.

Question-and-Answer-Session

Operator

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

Charles C. Duncan – Piper Jaffray, Inc.

Hi, thanks for taking my question and congratulations on a very nice quarter.

Timothy P. Walbert

Thanks Charles.

Charles C. Duncan – Piper Jaffray, Inc.

Tim, my first question is regarding kind of your last statement in your prepared remarks in terms of your focus on driving actual growth. I’m kind of wondering if you have some expectations that you can share with us externally in terms of what your goals are, if you look out say over the course to the next 12 months?

Timothy P. Walbert

Well, it's great, as you look at the progress we've made in the quarter and continue to make in driving prescriptions and increasing the value to the company. We're certainly optimistic as we move forward. Our plan is to provide guidance at our fourth quarter call on, how we expect 2014 to play out. But certainly, as we have communicated with continued acceleration, our optimism of great performance in 2014 continues.

Operator

And our next question comes from Annabel Samimy with Stifel. Your line is open.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Hi, thanks for taking my question. Also congratulations on a good quarter. I just want to understand a little bit of the trajectory that we're going to end up seeing with two axis, because there was the one-time benefit that you saw from the managed care change and the 35% to 40% I guess seems a little bit higher than historical. So with the greater target of your prescriptions following under PMA now, which should I think is 30% from the 20% to 25% target that you have before, is this what's driving the growth in the discount and what should we expect going forward, are we going to see a sort of question of that sequentially and that is going to have to grow from there. And what would it have been, had you not, what would the discount has been had you not have that benefit?

Timothy P. Walbert

Thanks, Annabel. So a couple of things, when we look at the quarter, our focus is to continue driving our prescriptions, they are up 18% quarter-over-quarter. The overall pills sold which accounts for the longer prescriptions was up 20% for the quarter. And if you look at the SHA data on a weekly basis for October, we see continued acceleration of the prescription.

So, that's our ultimate goal, in the third quarter or in the second quarter we had 33.1% growth the net of the time we guided to 35% to 40%. So our expectations on a go-forward basis remain the same as we have maximized the value in the price of the product and maintaining where 93% of patients gets DUEXIS for $20 or less. We have seen that increase in gross-to-net and expected to maintain in the 35% to 40% range. We can't comment on the specific amount of the rebate.

But we would have expected the third quarter without the sales channel mix end, without the one time adjustment from the managed care amendment to be similar to what we saw in the second quarter. So as far as continued acceleration relative to this quarter, prescriptions continue to accelerate in October and into November and that's where we're focused on and we expect that to continue.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Okay. And can I just follow-up on the target PME. Are you looking to continue to increase? Okay.

Timothy P. Walbert

Okay, sure. Sorry about that part. So when we reported the second quarter, we had about 8% to 10% of our prescriptions going through the Prescriptions Made Easy program and now we have about 18% to 20%, we expect that to continue to increase. The target is moved up to that 30% to 40% range because the bottom line is the physician see the value of us being able to remove the barriers for their patients to get access to DUEXIS at a reasonable cost. I don’t know that PME has contributed to a improvement in gross to net it’s more of a contributor to a continued acceleration of the prescriptions.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Okay. And just on the cash last quarter you gave us guidance as to about between actually about I guess third quarter next year or late next year, can you just give us an update on how long the cash going to last?

Unidentified Company Representative

Well what we said is that out cash assets into third quarter or longer should the growth trends continue those growth trends have continued, we’re not updating our guidance but if we looked at our cash burn of about $10 million in the quarter and $58 million in cash on the balance sheet, we feel very confident that we got a long runway here.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

And that include the ATM?

Unidentified Company Representative

No it does not include the ATM, we stopped selling on the ATM as Bob mentioned in his remarks in July.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Okay and then one other thing you seem to a bit on a role here with and now starting with rates any thoughts to business development on the coming quarters?

Unidentified Company Representative

We get comment on any specific activities, but our goal is as we’ve said over the last few quarters is that as our performance to DUEXIS and RAYOS to continue to accelerate and move the company towards profitability, we believe we’re putting the company in a position where we can amortize our cost and leverage our commercial infrastructure across broader number of assets, so that continues to be our goal.

Annabel Samimy – Stifel, Nicolaus & Company, Inc.

Okay thank you.

Unidentified Company Representative

Thank you, Annabel.

Operator

Our next question comes from Liisa Bayko with JMP Securities, your line is open.

Liisa Bayko – JMP Securities

I would like to add my congratulation on a great quarter as well.

Unidentified Company Representative

Thanks Liisa.

Liisa Bayko – JMP Securities

First question just strategically any thoughts on expanding the sales force at this point?

Unidentified Company Representative

It is a good question especially as we see the strong quarter-over-quarter growth. At this point in time based on DUEXIS and RAYOS we’re really focused on increasing the prescriptions per representative and we feel comfortable that with the targets that were hitting with our 150 primary care representative that will carry us with both DUEXIS and RAYOS to profitability. So no current plans obviously of strategically things evolve that may justify in incremental sales reps and headcounts but at this point our focus is on maximizing the prescriptions and value for representative.

Liisa Bayko – JMP Securities

Thanks and then just a technical question RAYOS growth from that adjustment is that kind of the run rate we stick back going forward is my last question, thank you?

Unidentified Company Representative

I think RAYOS is still in the early phase of launch, we were very pleased that we have well over 90% coverage from commercial managed care perspective and we continue to ensure that the patients are getting RAYOS to $5 which is a similar out of pocket co-pay to the generics. So it is hard to really guide on RAYOS growth to net, it is too early in the launch to give forward-looking guidance on that. But that over the next quarter or two will begin to settle into a range ultimately as we move forward, we expect RAYOS to approach where we are with DUEXIS.

Operator

(Operator Instructions) Our next question comes from Difei Yang with R.F. Lafferty. Your line is open.

Difei Yang – R.F. Lafferty & Co., Inc.

Hi. Congratulations.

Timothy P. Walbert

Thank you.

Difei Yang – R.F. Lafferty & Co., Inc.

And thanks for taking my question, so a couple. On the gross to net adjustment, which you guided for 35% to 40% on the moving forward basis, would you give us a little bit more color with regards to the breakdown that goes into the calculation?

Timothy P. Walbert

Well, the breakdown is compromised of the discounts as well as the co-pay buy down. Bob, I don’t know if we have broken that out. Do you want to comment any further? I don’t think we give specific percentages of that.

Robert J. De Vaere

We haven’t given any specifics on a forward basis. I mean I can’t tell you that we’ve started – we filed a 10-Q this morning and in there, you’ll see on for the quarter and the comparative period and the year-to-date period, you’ll see the detailed breakdown of gross to net lock down. I mean, it includes things like customer discounts and rebates, the co-pay assistance, the government rebate and chargebacks and product returns and prompt pay allowances.

So those are sort of the main categories. And we have, like I said, given a breakdown on the go-forward numbers, but you can get a pretty good idea of those components in our 10-Q filing this morning.

Difei Yang – R.F. Lafferty & Co., Inc.

Thank you. Thank you for that. Just another follow-up question with regards to price, elasticity of those products. So it seems like the market is less sensitive to price as sell right now and have you – how should we think about with regards to plus the threshold where you did experience more push back from reimbursement standpoint or maybe there isn’t such threshold. How should we think about those things?

Timothy P. Walbert

Our focus is, as we’ve discussed, maximizing the value to the company while ensuring that the patient continues to get both products at a reasonable out of pocket cost. When we look at the price moving forward we focus on rejection rates and when we look at managed care rejection rates, pre our price increases, and that occurred both in March and August, our rejection rate was about 15% by managed care and post the price increase, both price increases, our rejection rate has stayed at about 15%.

We don’t have at this point in time any significant price increases plan. We expect our price increases to be more in the line of industry standards. But at this point it’s been really maximizing the value in the commercial channel where the majority of our prescriptions flow through and ensuring the patients get DUEXIS for $20 or less and RAYOS for $5.

Difei Yang – R.F. Lafferty & Co., Inc.

Thanks. And the additional color is very helpful. Thanks. Congratulations again.

Timothy P. Walbert

Thank you.

Operator

And I’m currently showing no further questions. I will now turn the call back over to Tim Walbert for final remarks.

Timothy P. Walbert

Well, thank you. In summary the past quarter has been a period of just excellent execution and we’re very pleased with the progress we’ve made and look forward to finishing up the year strong and to a very successful 2014. And thank you very much for your time.

Operator

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

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