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NPS Pharmaceuticals, Inc. (NASDAQ:NPSP)

Q4 2013 Earnings Conference Call

February 18, 2014 5:00 PM ET

Executives

Susan Mesco – Senior Director, IR and Corporate Communications

Dr. Francois Nader – President and CEO

Eric Pauwels – SVP and Chief Commercial Officer

Luke Beshar – EVP and CFO

Roger Garceau – EVP and Chief Medical Officer

Analysts

Salveen Richter – Canaccord Genuity

Eun Yang – Jefferies & Company

Geoff Meacham – JPMorgan

Joseph Schwartz – Leerink

Tazeen Ahmad – Bank of America

Alan Carr – Needham & Company

Jim Molloy – Janney

Carol Werther – Summer Street

David Nierengarten – Wedbush Securities

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2013 NPS Pharmaceuticals’ Earnings Conference Call. My name is Denise and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Susan Mesco, Senior Director of Investor Relations and Corporate Communications. Please proceed.

Susan Mesco

Thank you, Denise and welcome to our fourth 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; Eric Pauwels, our Chief Commercial Officer; and Roger Garceau, our Chief Medical Officer.

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

Dr. Francois Nader

Thank you, Susan and good afternoon everyone and thank you again for joining us on today’s call. 2013 was truly transformative for NPS, as we transitioned from a developing stage company to a U.S. commercial organization with the launch of Gattex. And then we became a global company by regaining the international rights of two lead products from Takeda, Revestive, which is the ex-U.S. brand for Gattex and Natpara.

Let me briefly recap some key highlights from the year. We are very proud that the Gattex launch in its first year was one of the most successful ultra-orphan U.S. drug launches. This translated to nearly $32 million in net Gattex sales for 2013 representing the very top end of our guidance, which was revised upwards from our original range of $25 million to $30 million. We also initiated a global registration study to evaluate the potential benefits of Gattex Revestive in pediatric short bowel syndrome. We expect to report top line results later this year or early next.

Natpara, our second orphan product, also made tremendous progress. We filed our BLA, seeking approval for hypoparathyroidism in the U.S. The FDA has accepted our application and we have a PDUFA date of October 24 of this year. This puts us on track for the potential approval of our second orphan product before the end of 2014. And last but not least, we completed a very successful secondary offering of nearly $100 million. All these achievements have created a strong foundation and we are well positioned to deliver key milestones in 2014 and continue our journey to become a premier orphan drug company through the growth of our three global franchises: Gattex Revestive, Natpara and NPSP795, the lead product candidate in our pipeline.

I would like to start with Gattex Revestive and invite Eric Pauwels to provide you with a brief commercial update. Eric?

Eric Pauwels

Thank you, Francois. We believe the success of the U.S. launch reflects the clinical benefits of Gattex, the high unmet medical need in short bowel syndrome and the effectiveness of our commercial team. Physicians have told us that they understand the innovation that Gattex represents to patients as the first and only GLP-2 analog that improves intestinal absorption.

Our commercial team has been successful in securing broad reimbursement coverage as payers continue to recognize the value that Gattex can bring to their constituents. We finished the year with 303 patients on Gattex, which is in line with our upwardly revised guidance of 275 to 325 patients represent roughly 6% to 10% of what we estimated to be the total addressable market in the U.S. We believe this is a remarkable accomplishment within the first 10 months of the launch which we are proud of.

We recently passed the first anniversary of the U.S. launch of Gattex and we remain pleased with compliance and discontinuation trends. Last year the average rate of compliance was approximately 83% and fewer than 10% of patients discontinued therapy despite the fact that Gattex is a daily self-injectable product for chronic disorder. This is a testament to the benefits that Gattex is offering short bowel syndrome patients and the effectiveness of our NPS advantage patient support services. Most importantly day in and day out we continue to hear very heartfelt gratifying stories from the patients who are responding to Gattex and grateful for its availability. Many of these patients have been able to free themselves completely from parental support after being dependent for five, 10, 15 or more years. These stories are the primary reasons why we are in the business we are in to bring products to patients that will help to make a difference in their lives.

Looking ahead we remain focused on building on our 2013 success in the U.S. by finding patients generating new prescriptions and maintaining favorable reimbursement and compliance trends. Our key marketing activities will continue to focus on generating increased brand awareness to our digital platforms, peer to peer programs and patient education. We ended 2013 with 530 prescriptions. We believe we have a strong springboard to achieve our 2014 guidance of $110 million to $120 million in net global sales.

Now, on the international front, we are preparing for the rollout of Revestive in key ex-U.S. markets and we expect to begin to see meaningful sales from these territories in the second half of 2014. To remind you, Revestive is approved in the European Union and we are currently sequencing a launch to eventually reach the 3000 to 6000 eligible patients. We expect that Germany and the UK will be the – will be our first commercial launches given the likelihood of securing our target pricing and reimbursement. In the interim we are making Revestive available to SBS patients through many patient programs in countries like Argentina, Turkey, Canada and Brazil. And we are embarking on regulatory efforts to file Revestive in key markets outside the U.S. and the EU.

Now, Japan represents significant commercial opportunity for Revestive. We will file for orphan drug status with Japan’s Ministry of Health, Labor and Welfare later this year. And we plan to initiate a clinical bridging study in Japanese short bowel syndrome patients as a perquisite for securing proven and for reimbursement. So in summary 2014 is an important year as we focused on building our global operations and identifying new SBS patients. While U.S. sales are currently still the primary growth driver of our business, our accelerating international build out will be a key platform to deliver significant long-term growth at NPS. We look forward to reporting on our future progress.

With that I will turn the call back to Francois.

Dr. Francois Nader

Thank you Eric. Switching gears I would now like to Natpara, our second global brand that we plan to register and commercialize in hypoparathyroidism. As you might know it by now hypoparathyroidism is a rare and highly symptomatic endocrine disorder characterized by insufficient levels of parathyroid hormone. Unfortunately, it is not well-understood by most physicians but its significant burden is felt deeply by patients. The main role of the parathyroid hormone is to regulate serum calcium and phosphate within a very tight range.

The lack of parathyroid hormone often leads to severe hypocalcemia with dramatic consequences on the skeletal, muscular and neurological systems. Because there is no approved treatment current approaches rely on calcium and vitamin D supplementation to boost serum calcium and try to manage the acute symptoms of hypoparathyroidism. However, this approach does the underlying physiology of the missing parathyroid hormone and it is not working well for many patients. Data from our PARADOX burden of illness study and other research clearly show that despite being on calcium and vitamin D, 99% of the patients still have symptoms that persist for most of their waking hours and one-third of patients require emergency room visits and/or hospital admissions.

In addition, hypoparathyroidism is associated with significant comorbidities. For example, 50% of patients had basal ganglia calcifications, which puts them at risk of Parkinson’s disease. Patients are also at the four times greater risk of seizures and 50% of the patients have skeletal issues and experience morphometric fractures. In addition, one-third of the patients are on medications for depression and/or anxiety. We believe Natpara will be a significant advance in hypoparathyroidism as we are replacing the endogenous parathyroid hormone with an exact 84-amino acid replica.

The market opportunity for Natpara is substantial. We estimate there are 180,000 patients suffering from hypoparathyroidism worldwide, of whom about 40% or 70,000 are uncontrolled and highly symptomatic. These will be the patients we will target initially, which in in the U.S. is over 20,000 patients. Our Biologics License Application, or BLA for Natpara in hypoparathyroidism is currently undergoing FDA review and we are actively preparing for an ASCO meeting later this year. We will also be filing for approval in Europe and other countries in 2014. On the commercial side, we are advancing a number of key pre-launch activities, including additional pricing and payer studies. Based on our market research to-date, which included public and private payers, we are confident that Natpara will be covered within the range of comparable orphan drugs.

The next topic, I would like to discuss today is the pipeline we are building for our long-term growth. Our lead clinical candidate is NPSP795, a small molecule that we are developing for the treatment of autosomal dominant hypocalcemia, or ADH. This ultra-rare lifelong genetic disorder is caused by mutations of the calcium sensing receptor, which plays a major role in calcium homeostasis. Patients with ADH continuously excrete calcium in the urine, because the receptor always senses that the serum calcium is too high. ADH can present immediately post-birth with severe hypocalcemia, which can cause life threatening neonatal complications, such as cardiac arrhythmias, seizures or laryngeal spasms. In adults, ADH is typically characterized by hypocalcemia with low concentration of PPH and high levels of urine calcium. Clinically, there is a significant increased risk for renal complications, including renal stones, nephrocalcinosis and impaired renal function. There is no approved treatment for ADH. Supportive approaches can involve carefully adjusting hypocalcemia with oral calcium and active vitamin D, but these efforts are usually not effective and can worsen the condition by increasing calcium urine excretion and therefore renal complications.

795 is an antagonist of the calcium sensing receptor, so specifically targeting the defective receptor. We expect to launch a Phase 2a proof-of-concept study of 795 around the middle of this year. We will give more details on the design as well as timelines once the study is initiated. In parallel, we are actively pursuing in-licensing opportunities through business development. We are targeting first-in-class or best-in-class products to treat rare diseases. We would also look at enhancing our product offering with companion diagnostics we are partnering.

So, in summary, we are building a premier global orphan drug business with near-term and long-term strategic growth drivers. These include first the maximization of our short bowel syndrome global franchise with the continued commercial success of Gattex in the U.S. and the active execution of our international strategy to launch Revestive. Second, we are working with FDA to secure approval of Natpara in the U.S. with an October 24 PDUFA date and we will be filing for approvals in a number of ex-U.S. countries. And third, we are advancing our pipeline by initiating the Phase 2a study of NPSP795 in ADH in the middle of this year and pursuing new opportunities through business development.

With that, I will turn the call over to Luke to report on our financial results.

Luke Beshar

Thanks, Francois and again welcome to all joining us this afternoon. From a financial perspective, 2013 was also a phenomenal year, in fact, the best in the history. We are thrilled with our net Gattex sales of $15 million in the fourth quarter and $32 million for the year, which is at the very high-end of our guidance. Our gross to net sales adjustments were also at the favorable end of our guidance, coming in at approximately 8% for both the quarter and the year, primarily due to positive trends and the cost associated with patient assistance programs.

Sensipar royalties were significant contributors to this year’s financial results, with more than $36 million in royalties for the fourth quarter and a $113 million for the full year. Full year royalties grew an astounding 26% due to the growth in Sensipar sales and the benefit of certain non-recurring favorable adjustments. Of particular note is that Sensipar sales grew 15% in 2013 and for the first time broke the $1 billion mark. I do want to briefly remind you that we previously received an advance from Amgen of certain of the Sensipar royalties.

Under the repayment terms of this advance, Amgen holds back $8 million per quarter for interest and principal, with the excess being paid to NPS. So, we received a $23 million net cash payment from Amgen on February 15 for fourth quarter Sensipar royalties. And we continue to anticipate the remaining advance of $54 million will be fully repaid by the end of the third quarter of next year. After this, we will receive 100% of our U.S. Sensipar royalties through March 2018 and through the end of 2018 for the rest of world. We also received about $700,000 of cash payments for royalties earned in the quarter and approximately $3 million for the full year of Ortho-McNeil’s sales of Nucynta.

Moving to expenses, where I will start with cost of sales, which is approximately 13% of Gattex sales for the quarter and 11% for the year. As previously discussed, our current cost of sales consist primarily of royalties and packaging costs, because the inventory supporting the launch was produced prior to approval and therefore expensed to R&D. We expect this inventory to support U.S. demand into 2015 after which the pre-approved U.S. inventory is depleted. We expect our cost of sales for Gattex to normalize around 20%.

Research and development expenses declined from the year prior with the fourth quarter coming in at $20 million and the full year at $85 million due to reductions in clinical development activities in 2013. SG&A expenses increased to $22 million for the quarter and $68 million for the year due to activities to support U.S. launch of Gattex and to a lesser extent, cost associated with the international expansion. The end result was fourth quarter net income of $8 million or $0.07 a share and for the full year net loss of $14 million or $0.14 a share. We were proud to be in a strong financial position. We ended the quarter with $180 million in cash versus $178 million at the end of the third quarter, $101 million at the end of 2012. This capital and our growing revenues provide us with a strong financial base to fully support our global development and commercial activities for Gattex, Natpara and 795.

Moving to guidance. In 2014, as we previously reported, we expect $110 million to $120 million in net global sales of Gattex Revestive. We continue to anticipate a long-term rate of 70% to 80% for compliance and 20% to 30% for discontinuations. Our operating expenses, excluding cost of sales and share-based compensation, we continue to expect to come in within the range of $180 million to $200 million for the year, with key drivers of these expenses, including our global expansion, pre-launch Natpara production and secondary supply chain sources, the build-out of our commercial infrastructure and other pre-clinical activities for Natpara, clinical activities to support our pediatric SBS and ADH programs, and regulatory initiatives to support the approval of Natpara in the U.S. and other key countries.

So, to summarize the financial update, we are thrilled with the first year performance of Gattex in the U.S. and expect our global SBS franchise to deliver significant top line growth in 2014 and for years thereafter. We are excited about Natpara’s prospects. It’s a very meaningful driver for sales in 2015 and well beyond. Our financial outlook is the strongest in our history. And we have the leadership and the foundation in place to advance additional opportunities to achieve our vision of becoming the world’s premier orphan drug business.

At this time, I will turn the call back over to our operator, Denise to begin the Q&A session. Denise?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Salveen Richter with Canaccord. Please proceed.

Salveen Richter – Canaccord Genuity

Thanks for taking my questions. Just a couple. I was wondering if you could comment on what you expect to be discussed at the Natpara panel coming up there this year? And then with regards to Gattex, how big are the named patient markets when we look at Argentina, Turkey, Canada and Brazil? And in terms of fiscal year ‘14 OpEx guidance, could you maybe just breakdown what R&D and SG&A are in terms of the OpEx? Thanks.

Dr. Francois Nader

Hey, Salveen, these are three questions. So I will ask Roger Garceau to address the first one, which is Natpara AdCom, Roger?

Roger Garceau

We have received in our letter from the FDA, they accept our letter and we will have an AdCom. There is no indication of what the topic is. Generally, the AdComs are always about a risk-benefit basis. For now we have not had any specific idea into what those are at the moment. So, at this point, we are just in dialog with questions.

Dr. Francois Nader

I will ask Eric maybe to address the named patient programs.

Eric Pauwels

Yes, Salveen. We are not guiding right now to you what percentage of named patient actually represents, but what we do know is that the key markets in ultra-orphan include Turkey, Brazil, Argentina, Canada, they all have mechanisms by which we can actually work through. We have prescriptions from at least five countries right now we are working through. And we anticipate named patient sales to begin this quarter.

Dr. Francois Nader

And Luke will address the OpEx question.

Luke Beshar

Yes. Salveen, could you repeat the question? There was – I want to make sure I address it specifically.

Salveen Richter – Canaccord Genuity

Sure. Just wondering with your OpEx guidance for this year, if you could break it down into what it is for SG&A and R&D?

Luke Beshar

We don’t give that visibility. We just got it in total. So, we are really not in a position to guide by line item.

Salveen Richter – Canaccord Genuity

Okay, thank you.

Dr. Francois Nader

Thank you, Salveen.

Operator

Our next question comes from Eun Yang with Jefferies. Please proceed.

Eun Yang – Jefferies & Company

Well, thank you. In terms of your Japanese bridging study, is it going to be beginning by this year as well?

Dr. Francois Nader

We are starting discussions with the Japanese authorities. So, our tentative plan would be hopefully to have those discussions this year. And if possible, we would like to start it, but again it’s going to depend on discussions we have with the Japanese PDMA.

Eun Yang – Jefferies & Company

Okay. And then one quick question on discontinuation rate, you guys have been saying that discontinuation rate on Gattex will be eventually 20% to 30%. At the latest update that you gave us in early December, it was still less than 10%. So, can you comment on current discontinuation rate and when would you expect it to hit 20% to 30% discontinuation rate?

Dr. Francois Nader

Eric?

Eric Pauwels

So, we have guided to a 20% to 30% discontinuation rate longer term. First of all, patients and physicians are largely pleased with this drug. And what we do know is, initially we have had very favorable discontinuation rates. Right now, there is approximately 90% of the patients that are continuing on Gattex therapy. But we also know that as the product is being marketed and over time that those rates will fall. And the reason to discontinuation could be on a variety of different things. It can be adverse events, it can be a number of different things by which the patients can ultimately and the physician can ultimately make the decision not to continue with Gattex. So we see that over time as going down during the course of the year and next year.

Dr. Francois Nader

Eun, Did we address your question – questions?

Eun Yang – Jefferies & Company

Sorry it was on the mute. And do you have any expectation what the discontinuation rate would be by end of this year?

Luke Beshar

We are not as specifically we can’t provide that kind of guidance. Although I can say we are pleased so far with the results, but we are guiding to the 20% to 30%.

Eun Yang – Jefferies & Company

Thank you.

Operator

Our next question come Geoff Meacham with Jeffries – excuse me with JPMorgan. Please proceed.

Geoff Meacham – JPMorgan

Good Afternoon guys. Thanks for taking my question.

Dr. Francois Nader

Sure.

Geoff Meacham – JPMorgan

So this quarter, you guys turned profitable, so I wanted to get a sense where our profitability was and your priorities when you look on one hand at biz dev and OPEX versus becoming sustainably profitable? And then I have one follow-up.

Luke Beshar

Well this is Luke, I will talk about (indiscernible) we will continue to be strategic in balancing our profitability and investment in long-term growth, while remaining focused on profitability as a very significant and major long-term goal. Given this year’s guidance and taking our base business into consideration, we anticipate being very close to breakeven or profitability in 2014 but we are really not guiding on that. As you know long-term, again, we are committed and we will generate profit, our focus right now is putting building blocks in place to ensure to that NPS continues to grow both top and bottom line and ultimately shareholder value for years and years to come. So beyond that, it will largely depend on how the business development activities play out and the timing of that and the development activities and how that overlays with the – the building of the existing business and what – now that ramp kind of overlaying where those two trajectories overlap and don’t.

Geoff Meacham – JPMorgan

Got you. Okay.

Dr. Francois Nader

Did make sense?

Geoff Meacham – JPMorgan

No, it does. It does. For Gattex, I know you guys aren’t going to give patient numbers anymore, but maybe can you talk about some of the trends at year end when you look at new starts or the pace of reimbursement versus the start of the year, just curious if there were any sort of logistical issues with respect to getting reimbursement towards the beginning of the year with sign-up, things like that?

Eric Pauwels

Can I comment? Yes, those are a couple questions. This is Eric and I will address those. So with regards to the metrics I mean we are very pleased with the way 2013 finished and that I can say that we are very confident that we are going to generate the demand in 2014, to achieve the revenue guidance that Luke had mentioned. Now, with the real – with respect to these real high prescriptions perceptions and metrics we are not going to be giving that going forward. But with regards to your question around payers, there have been no major surprises at this point in time. We have been able to manage a number of issues with regards to specific patients and their changed insurance carriers and managed it through the calendar year, so at this point in time no real surprises. We have been able to manage it through till the course of the calendar year change.

Geoff Meacham – JPMorgan

Got you. Okay. That’s helpful. Thanks.

Eric Pauwels

Thanks.

Dr. Francois Nader

Thank you.

Operator

Our next question comes from Joseph Schwartz with Leerink. Please proceed.

Joseph Schwartz – Leerink

Hi. Thanks very much. I was wondering if you can talk about the business development priorities that you have at NPS. And are you thinking about purely assets in the gastroenterology and endocrinology space, or could other areas complement the organization. And then I also noticed that you had mentioned you would contemplate interesting companion diagnostics to strengthen the business. So what are your thoughts there?

Dr. Francois Nader

So, Joe, strategically we have anchored the company in the rare disease business. So that’s from our core business independent from the therapeutic area. Needless to say that if we find assets in GI or endocrinology that will be our preferred choice, but the more important metric or characteristic we are pursuing are products that will be either first-in-class or best-in-class for conditions, where there is a true unmet medical need and where products could really saves lives and reduce healthcare costs. Pretty much agnostic as to how we get there and the reasons being that we are not bound by therapeutic area, we are not bound by a class form we are not bound by a manufacturing facility that really limits our ability to search for the right product. On the flip side of this equation, I think we have proven that we know how to develop an orphan drug. We know how to take it through the regulatory process and we know how to launch it. So frankly, the inbounds are there. Our challenge is to be selective and find the right structure that will fit our organization.

Joseph Schwartz – Leerink

Okay, great. And then maybe one for Luke, given you have turned profitable and we expect you to generate significant cash flow over the longer term and you have an international headquarters established in Dublin, Ireland, how should we think about taxes longer term?

Dr. Francois Nader

Sure. Joe, the way we think about taxes is U.S. taxes will be even probably at 40% load for both Natpara and Gattex. For Revestive and Natpara ex-US, those will all be running through our Dublin international headquarters and therefore should drive along about 12.5% effective tax rate on non-U.S. profitability.

Joseph Schwartz – Leerink

Okay, great. Thanks.

Dr. Francois Nader

Thank you, Joe.

Operator

Our next question comes from David Friedman with Morgan Stanley. Please proceed.

Unidentified Analyst

Hi, this is (indiscernible) in for Dave. Thanks for taking the question. Just a quick one on Gattex, I was wondering if you could provide some more granular details around the timing for Gattex reimbursement in Europe?

Dr. Francois Nader

Eric?

Eric Pauwels

Sure. So as you know, Gattex, it’s actually Revestive and we are following a very sequenced approach in terms of pricing and reimbursement. We will be sequencing in the first half of this year, Germany, UK and then the Nordic countries, specifically Denmark. And we will be filing the AMNOG dossier within this quarter in Germany and we will be working through the process to ensure that NHS England recognizes and can reimburse Revestive centrally in the first half of this year. We are doing this for a very strategic reason. We want to make sure we keep the price of Revestive in Europe at a very tight and narrow band. And we want to make sure that as Europe references themselves, they see the countries – these countries initially are the ones who are actually reimbursing the product at those levels.

Unidentified Analyst

Thank you.

Dr. Francois Nader

You are welcome.

Operator

Our next question comes from Tazeen Ahmad with Bank of America. Please proceed.

Tazeen Ahmad – Bank of America

Hi, guys. Thanks for taking my questions. Just a few here. The first one on Natpara, can you talk about where you are on commercial manufacturing? Is your facility one that has produced supply for approved products before? And as far as Natpara is concerned, would you need to – would that facility need to be inspected by the FDA prior to approval? And second question is on your ex-U.S. launch for Revestive, maybe can you talk to us about – for the U.S. Gattex launch, you have done a good job of pre-identifying a number of patients, have you been able to do the same in the ex-U.S. territories? And can you just give us an update on how many people you have on the ground in Europe right now?

Dr. Francois Nader

Okay. I will have Luke answer the first question. Eric will take the second one so Natpara manufacturing.

Luke Beshar

Sure, that was quite a long (indiscernible). So the manufacturing that services our supply line are the API drug product, drug substance manufacturer, the raw API and this will finish both other approved products in the U.S. They are European-based manufacturers, whether they are subject to a PAI preapproval inspection, they are subject to one. It will be an FDA decision whether they choose to actually do a preapproval inspection at that facility. My understanding is by choosing that analysis is a prior regulatory experience and the prior results. After PAIs, we have got our own assessment of those facilities readiness and are confident they are ready for a PAI should the FDA opt that it’s appropriate to.

Dr. Francois Nader

Eric?

Eric Pauwels

Hi, Tazeen. So, we can’t do all the same things in Europe in terms of patient identification, because of privacy laws, but we are certainly working to do a lot of profiling with key centers of excellence. We have worked with those centers who have been involved in clinical studies. We have run a number of advisory boards. And we have been able to work with consultants to map where these centers are and give us a broad estimate of the number of patients. We have also done some research and looked at previous research conducted by our old partners to look at, estimate to where these patients exist. So, we generally have a pretty good idea that I mentioned earlier, there is very high concentration in these patients that are in urban areas within Europe. To your question about infrastructure, so we have people in Dublin, we have people in London and we have consultants that are working, where we are looking to establish during the course of this year, do a footprint of approximately 10 to 12 countries, where we have direct employees that will be involved selling Revestive.

Tazeen Ahmad – Bank of America

Okay, thanks.

Operator

Our next question comes from Alan Carr with Needham & Company. Please proceed.

Alan Carr – Needham & Company

Hi, thanks for taking my questions.

Dr. Francois Nader

Hey Alan.

Alan Carr – Needham & Company

So, one of them is can you comment on compliance? It looks like it’s – if you – I think I heard you right the average was down to 83%. So I am wondering if you are reaching the expected target range there in the long-term for compliance? And then two other short ones, one of them is timing of filing in Europe, is it – are you aiming for the first half or the second half? And then also can you comment on the scale and nature of that recurring or non-recurring Sensipar item? Thanks.

Dr. Francois Nader

Let’s start with Eric first related to your compliance question.

Eric Pauwels

Yes, hi Alan. Right now, there is no major surprises. I think right now we know that like any other drug that’s chronic, that’s daily, an injectable product, we expected compliance rates to such a drop over time, even level off. Right now, the 83% that we have has exceeded our internal projections, but we have guided long-term to 70% to 80% and this is based now on the time that we had, which is almost about 10, 11 months in the market. And what we have seen from the clinical trials. So really for us, there is no major surprises to-date. And I think if you look at it, it’s along the spectrum. We know that people are going to miss drug and SBS is a very complicated disease, which in some cases patients have to manage through AE and they sometimes have hospitalized, but this is the nature of the disease. So, right now we haven’t seen anything that has really surprised us at all.

Alan Carr – Needham & Company

But, does it look like it’s – since the average for the year, if I heard you right, was 83%, it sounds like you are in that 70% to 80% range. And I am wondering if it is starting to level off at this point?

Eric Pauwels

We are not seeing that it’s right now. We are very still above that and stay tuned as we will be watching it very closely over time.

Alan Carr – Needham & Company

Okay, thanks. And then the other two?

Dr. Francois Nader

Yes, I will answer the Natpara filing in Europe. Alan, we are not guiding on specific quarter or months. I can tell you that we are actively working on the filing. And at the same time as you can imagine we are pretty busy preparing for the AdCom here in the U.S. and answering FDA questions. So all this is proceeding as planned and in sequence. So that’s your second question right?

Alan Carr – Needham & Company

And the last one was on Sensipar, that nonrecurring, if you could comment?

Dr. Francois Nader

Nonrecurring Sensipar, Luke?

Luke Beshar

Yes. We are not in a position, I can’t comment on it publicly. We are under our CDA with Amgen. So, all I can say is that there was a non-recurring favorable adjustment that was reported in 2013 and we were the beneficiary. And I can’t comment on that further other than it is non-recurring.

Alan Carr – Needham & Company

Okay, thanks very much.

Dr. Francois Nader

Thank you, Alan.

Operator

Our next question comes from Jim Molloy with Janney. Please proceed.

Jim Molloy – Janney

(indiscernible) the estimate of the size of pediatric patient, and I’m looking at some numbers it seemed to show some fairly substantial kids presenting with SBS each year. I know you guys are being conservative, obviously, but can you talk about the size of that market and why is it such a small number?

Dr. Francois Nader

Well, the estimates that we have are around 10% to 20%, we tend to think that it is probably around 10% rather than 20%. And frankly, only time will say. What I can tell you is since the initiation of that short bowel syndrome program, the biggest proponents of this program were pediatric gastroenterologists, because they see first and the dramatic impact of short bowel syndrome on kids. So, they were very, very supportive. Now, it is difficult really to give you a more specific number, given the low absolute number of these patients, but I can tell you that – there is a very significant unmet medical need and we are really anxious to complete the pediatric program and to have the pediatric gastroenterologist have access to Gattex for their patients.

Jim Molloy – Janney

And then, can you talk a little bit, I know the fourth quarter, as you guys guided in the third quarter, was seasonally weak. And have you seen that seasonality start to edge off or have sort of the first couple months of the year of pretty bad weather around the country, has that impacted any prescribing trends?

Dr. Francois Nader

Well, we’re pleased how we ended the year and we certainly did have to go to the major holiday season and we know that. But we didn’t see little bit of a slowdown in the prescription at the end of the year, which was probably attributable to patients and physicians not getting together and potentially some of the weather. We didn’t see a major slowdown in terms of patient dispensers. The weather, yes, the weather is the weather and here in New Jersey it isn’t helping anything, but what we do know is we have got a small deal for us, they are dependent on traveling, they got to get out to see some of these doctors and they have large geographies. So, yes, it has affected a little bit of the productivity in some cases, in seeing physicians. And we’ve also had a couple of anecdotal reports about patients not getting to their doctors. They were not able to schedule some of the nurses or even shipments. But we remain confident that we are going to be able to get through this winter and achieve, of course, our full year revenue guidance that Luke mentioned.

Jim Molloy – Janney

One last question, got a two-part. Can you talk a little bit about sort of relationship with the five big home infusion providers and how that’s going on trying to gather in more patients and then maybe touch on – you had mentioned last call, I think there’s only one reimburser in the middle of the country, you had mentioned that had kind of put a final stop on reimbursing for patients trying to get this drug. How is that situation and how is the reimbursement in general?

Luke Beshar

We will start with the denials. We only have – still, we have that one original provider that we are working through and we’re going to sort of appeals and we’ve got a lot of support from a number of constituents, including advocacy. So I think we will end up resolving that we haven’t seen any when denials to-date. With regard to your question regarding SIPs, or specialty infusion partners, the relationship is going well. There is lot of consolidation in the industry so, we are having to it, a lot of people buying each other and then getting larger. In some ways, that is helping us. In other ways we have to manage through the reorganization. But overall, we sit down with them on a quarterly basis. We review the business and if we feel that we have to increase the network or decrease it we ensure that we provide that feedback so, so far, so good with our providers.

Jim Molloy – Janney

Great. Thank you for taking the questions.

Luke Beshar

Thank you.

Operator

Our next question comes from Carol Werther with Summer Street. Please proceed.

Carol Werther – Summer Street

Thank you. Do you have any sense of the mix of patients that you have treated already with Gattex, whether it’s more GI or cancer and if that has any impact on the compliance and the discontinuation? Thank you.

Dr. Francois Nader

Yes, that’s a good question. So, let’s see how could I tackle it? So, we don’t have a first-hand knowledge frankly of the diagnosis that led these patients to become short bowel syndrome and therefore be eligible for the Gattex. As you know, there are probably have a dozen different etiologies that could and we don’t have access or knowledge of the basic etiology. This will change in the future when we’ll initiate our registry, which is a voluntary registry. But then we can have more comprehensive clinical history and clinical description if you will of these patients. The registry will be a global one, will be here in U.S. and in Europe or in the last phase is now of getting organized with the registry and hopefully we can initiate it soon and this over the long run will be a major source of very interesting long-term safety and potentially effectiveness data and epidemiological data because we will also include patients who are not on Gattex short bowel syndrome who are not on Gattex.

Carol Werther – Summer Street

Okay. Thank you. And just one on Natpara; I assume that you are manufacturing now and stockpiling. Ultimately, do you think you are going to have the same – what do you think the cost of goods sold is going to be after you get through that inventory build?

Dr. Francois Nader

Well, you will have the same phenomena. Your point is correct in that in the beginning, our cost of sales will be nil, we don’t have – it will essentially just be packaging costs hence more or less, we don’t have the royalty that we do with Gattex. Once that inventory is burned and we don’t know how long that will be because, obviously, we need to get the final approval data and we’ll see how much inventory we built in the interim, but once that burns off, I think you could expect the gross margins of that product to be in the 80% to 90% range.

Carol Werther – Summer Street

Okay, thank you very much.

Dr. Francois Nader

Thank you, Carol.

Operator

Our next question comes from Graig Suvannavejh with MLV & Company. Please proceed.

Unidentified Analyst

This is Mike (Tuse) calling on behalf of Graig. Thanks for taking my call and congrats on the quarter. I have a question about your 795 program, specifically about this ADH indication. What do you guys view as the market opportunity in this particular indication? What’s the patient population in the U.S., ex-U.S.? Thanks.

Dr. Francois Nader

Well, it’s a very good question. I don’t have an answer for you yet. What we know is it is relatively small market, so you could consider with as an ultra-orphan product. We are in the process of quantifying the market size and the market potential as we progress. I can tell you that we’ll give you a little bit more color once we launch the Phase IIA proof of concept study by midyear because it will be – I believe our communication will be a mix between a study design, timelines and market potential. But, for the moment, consider it in the ultra-orphan segment if you will so, probably less than Gattex.

Unidentified Analyst

Okay. Thank you very much.

Operator

Our next question comes from David Nierengarten with Wedbush Securities. Please proceed.

David Nierengarten – Wedbush Securities

Thanks for taking the question. I noticed you said that you expected the pricing of Natpara to be in line with other orphan drugs. I know you are not going to tell me the pricing, but would you, yes, I can always try, but I usually fail. But could you tell us maybe the population of that you are thinking, that you are basing that pricing on or your orphan pricing range? Are you looking at the full 80,000 of hypoparathyroid patients or again, the most severe? How are you thinking about that? Thanks.

Eric Pauwels

David, this is Eric. So, our pricing strategy, you are right. So, we won’t to be guiding to pricing. I think a lot of that is going to depend on our final label tool, not just the addressable population. That said we have done a lot of payer research and we’ve conducted a number of differentials not only in U.S. and internationally. So, we are pretty confident we are going to get not only the price, but the reimbursement that is required, that is comparable to other orphan drug ranges. Now, to the U.S., I think we’ve estimated there is approximately 53,000 patients overall that are addressable at the time of launch. And, of that 40% of these patients are what we deem uncontrolled. They have multiples symptoms and despite high doses of calcium and vitamin D are not controlled and really have a very, very poor quality of life. These are the ones that are going to seek treatment and be very active. So that 20,000 patient is really where we are going to be targeting in our launch year as we think that’s the highest unmet need and we will be able to address that with a very proactive group of patients.

David Nierengarten – Wedbush Securities

I am sorry. I didn’t quite hear that was 20,000?

Eric Pauwels

Yes, yes. That’s 20,000 that are uncontrolled.

David Nierengarten – Wedbush Securities

That’s great.

Eric Pauwels

In the U.S.

Dr. Francois Nader

And the number that we referenced earlier and actually its 180,000 patients worldwide, out of whom 70,000 are uncontrolled worldwide.

David Nierengarten – Wedbush Securities

Okay, great. Thank you.

Dr. Francois Nader

Sure.

Operator

We have no further question. I would now like to turn the call back over to Dr. Nader for closing remarks. Please proceed.

Dr. Francois Nader

Thank you, Denise and thank you everyone for your very interesting and pertinent questions this afternoon. In closing, we are very pleased with the significant progress we made in 2013. And we look forward to continuing to build our business in 2014 and beyond. The prospects of Gattex and Revestive as you heard this evening continued to extremely promising. We have also on track for the potential approval of Natpara in the U.S. before the end of the year. And we are focused as everyone said it on the call tonight on new long-term growth opportunities frankly to become one of the world’s premier orphan drug companies. We certainly appreciate your time and interest and we look forward to providing you with future updates. Have a great evening.

Operator

This concludes today’s call. You may now disconnect. Have a great day.

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