Questcor Pharmaceuticals' CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.25.14 | About: Mallinckrodt PLC (MNK)

Questcor Pharmaceuticals Inc (QCOR) Q4 2013 Results Earnings Conference Call February 25, 2014 4:30 PM ET


Doug Sherk - Investor Relations

Don Bailey - President, Chief Executive Officer, Director

Steve Cartt - Chief Operating Officer

David Young - Chief Scientific Officer

Raj Asarpota - Chief Financial Officer, Senior Vice President

Eldon Mayer - Senior Vice President, Commercial Operations

Mike Mulroy - Executive Vice President - Strategic Affairs, General Counsel


Steve Byrne - Bank of America

Mario Corso - Mizuho USA

Rajeev Kumar - Goldman Sachs

Trevor Davis - Piper Jaffray

Tim Chiang - CRT Capital

Jim Molloy - Janney


Good day, ladies and gentlemen. Welcome to the Questcor Pharmaceuticals Fourth Quarter and Full Year 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Doug Sherk of EVC Group. You may begin.

Doug Sherk

Thank you, operator, and good afternoon everyone. Thank you for joining us today for Questcor Pharmaceuticals' conference call to discuss the financial results for the fourth quarter and full year of 2013. This afternoon after the market closed, Questcor issued its earnings release, which is posted on the company's website at

Today's call is also being broadcast live via webcast, which is available at the Questcor website. A slide presentation will accompany today's remarks by management. To access both, the webcast and the presentation slides, go to the Questcor website, click the Investor Relations link and then click on Events & Presentations.

For those of you listening to today's call via telephone, you can view the accompanying presentation slides on the webcast, as I have just reviewed. Just make sure to choose no audio slides only option. There will be a taped replay of this call which will be available approximately one hour after the call's conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of today's call.

Before we get started, we would like to remind you that during the course of this conference call the company will make projections and forward-looking statements regarding future events. We encourage you to review the company's past and future filings with the SEC, including without limitation the company's Forms 10-K and 10-Q, which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

These factors include Questcor's reliance on Acthar for substantially all of its net sales and profits, its ability to receive strong levels of reimbursement from third-party payers and risks associated with Questcor's R&D program.

The company will also make statements relating to non-GAAP financial measures, including non-GAAP earnings per share. Investors should refer to the Regulation G non-GAAP reconciliation table included as part of the company's earnings release issued today.

The company will also make comments about the level of net sales in the therapeutic areas in which Acthar reviews and treats patients. Please note that the commentary regarding this subject is also based on general company estimates and these estimates could turn out to be incorrect. During the question-and-answer session today, please keep your questions to two and then re-queue for any additional questions.

Finally, consistent with Questcor's previously announced policy, the company will not respond to questions about its stock repurchase trading window or blackout policy, potential or pending government investigations or merger and acquisitions matters.

With that I would like turn the call over to Don Bailey, President and Chief Executive Officer of Questcor.

Don Bailey

Thanks, Doug. Good afternoon, everyone. With me today are Steve Cartt, our Chief Operating Officer, Dr. David Young, our Chief Scientific Officer and Mike Mulroy, our Executive Vice President, Strategic Affairs and General Counsel and former Chief Financial Officer and our new Chief Financial Officer, Raj Asarpota, who joined us from Life Technologies Corporation, which was recently acquired by Thermo Fisher for approximately $13.6 billion.

At Life, Raj was responsible for providing finance leadership, for corporate strategy and M&A, financial planning and analysis and supply chain productivity. Raj joining Questcor effective February 17. He is looking forward to helping the company in this next phase of growth and international expansion and to meeting investors and analysts over coming months. Steve, David and Raj will make prepared remarks, then I will provide some concluding remarks about our future and our priorities and then we will take some questions.

Questcor finished an excellent 2013 with a strong fourth quarter. For the full year, sales growth momentum continued as Acthar demand grew about 3% year-over-year. We saw expanded prescribing of Acthar in multiple therapeutic areas including rheumatology, neurology and nephrology. In particular, our increased focus on educating rheumatologists about Acthar and its FDA approved rheumatology related indications was a primary driver of our strong performance.

For the full year of 2013, we shipped 28,112 vials of Acthar, up 36% compared to 20,741 vials in 2012. Full-year 2013 net sales were $798.9 million, up 57% from 2012. On a non-GAAP basis 2013 net sales were $810.4 million, up 59% from 2012. Our excellent operating leverage led to fully taxed adjusted non-GAAP EPS $5.48 per share for the full year 2013.

During the fourth quarter of 2013, we shipped 8,100 vials of Acthar, up 20% compared to 6,330 vials in the year ago quarter. Fourth quarter net sales were $242.9 million moving up close to $1 billion in sales on an annualized basis. Q4 sales were up 51% from $160.5 million in the fourth quarter of 2012. Non-GAAP EPS were $1.67 per share in the fourth quarter of 2013.

In a few minutes, Steve will provide more detail on our commercial results and activities including progress on our new pilot commercialization effort for respiratory manifestations of symptomatic sarcoidosis, a potentially serious, difficult to treat disorder already on the FDA approved package insert for Acthar. We also made substantial progress in 2013 on multiple fronts to establish a strong foundation for our future growth. Importantly, the body of scientific evidence for Acthar continues to build from investments in multiple company-sponsored clinical trials and from ongoing support for independent investigator initiated studies.

Our two company-sponsored Phase 2 trials in ALS and acute respiratory distress syndrome are underway, with patient enrollment now complete in the ALS study. In addition, a significant focus of our R&D effort is on developing a deeper understanding of melanocortin biology, which could significantly influence our long term R&D strategy. In addition, we continue to support academic research programs.

These efforts help us to better understand how Acthar works in various diseases and medical conditions. We anticipate that additional papers and publications regarding research from academic scientists will current 2014, as they have in prior years, so we did not control the timing or content of these items. Over 1,000 patients are our plan to be treated with Acthar for the company-sponsored and investigator initiated trials.

Later on the call, David will review all of our clinical trials and our additional progress on the scientific front. In 2013, we also began to diversifying and globalizing our business by acquiring contract manufacturer BioVectra and in-licensing's Synacthen from Novartis.

In addition to investing in our current business in a potential development opportunities for both, Acthar and Synacthen, returning capital to shareholders is also our top priority. Over the past year, we returned over $100 million to shareholders through dividend payouts, which repeat increased twice during 2013 and through share repurchases.

As we turn to 2014, our highest priorities are to continue our commercial momentum while we also work to further build the body of scientific evidence for Acthar and pursue Synacthen development.

In addition, we have begun to actively explore various strategic alternatives, especially focused on the use of our extensive free cash flow. Management is working closely with the board to newly formed strategic advisory committee. Our goal is to further enhance our continued growth and build additional value for shareholders, patients, employees and healthcare community.

Now, I would like to pass the call to Steve to provide more details on our commercial progress.

Steve Cartt

Thanks, Don, and good afternoon everyone. I will be reviewing the fourth quarter results for our key markets and I will also comment briefly at our early observations related to the pilot sales effort in pulmonology that we began recently.

Fourth quarter was solid with prescription trends reflecting continued strong demand and favorable insurance coverage for Acthar across all of our markets. There are approximately 2,450 to 2,500 new paid prescriptions for Acthar during the quarter, about 30% more than the year ago fourth quarter. This was about the same level to third quarter of 2013, which is an extremely strong quarter with the mix of prescriptions continued to evolve. This evolution was largely due to further growth in rheumatology, where we continue to see increased prescribing of Acthar in the on-label indications dermatomyositis, polymyositis, rheumatoid arthritis and lupus.

There were total of 540 to 550 new paid Acthar prescriptions for these rheumatology related indications during the fourth quarter of about 20% from the third quarter. Rheumatology prescriptions now for nearly 30% of total Acthar business after only our third full quarter of promotion to rheumatologists, we estimate that net sales from rheumatology prescriptions reached an annualized run rate of around $250 million during the fourth quarter. Notably, during the quarter, we saw significantly more paid prescriptions for lupus and rheumatoid arthritis combined than prescriptions for DMPM.

We believe this illustrates the fact that there are many rheumatologists who recognize the need for additional treatment alternatives in patients suffering from these often debilitating autoimmune diseases. Coupled with the positive feedback that we hear from rheumatologists regarding the results of Acthar treatment and considering the large size of these patient population, this bodes well for Acthar's long-term potential in rheumatology.

Based on our own internal analysis, we are seeing an average of four to five vials for course of therapy in rheumatology. These vials are usually dispensed to patients over a three-month period or so, but in some cases rheumatologists appear to be maintaining patients on Acthar for longer than this. We are working to better understand vial usage patterns in the Acthar rheumatology indications, and given that the market is still new for us, we expect to understand vial usage patterns much better over the next several quarters.

Importantly, like in our other approved indications, insurance coverage for Acthar in our rheumatology-related indications has been favorable. Overall we are very encouraged by our early performance in this important new market and believe Acthar prescribing by rheumatologists will continue to increase.

Moving on to our nephrology business. There were 390 to 400 new paid prescriptions for NS in the quarter, up about 5% year-over-year. Nephrologists continue to recognize the need for additional treatment options in nephrotic syndrome patients, typically those who have already tried first line therapy or even second or third line therapy and are in need of another FDA approved treatment alternative. Acthar penetration in nephrology is still relatively low at about 10%. So we anticipate continued growth in this market but this growth will likely continue to be fairly moderate going forward.

The continued flow of Acthar case study reports and clinical data should help support continued growth. We believe that the average patient with nephrotic syndrome uses around 7 to 8 vials over the course of therapy with vials dispensed over several months. Nephrology continues to be our largest market and NS prescriptions currently account for about a third of Acthar net sales. As a reminder, nephrotic syndrome that is not well-controlled can often lead to end-stage renal disease which requires lifelong renal dialysis or a kidney transplant.

Turning to our neurology business. Through the fourth quarter, there were 1,345 to 1,355 new paid prescriptions for the treatment of MS relapses, up about 9% year-over-year and down slightly from the record levels in the third quarter of 2013. We saw the same pattern in MS prescriptions in the fourth quarter of 2012 as well. From time to time we hear comments from doctors about MS flares being less frequent in the winter months. So perhaps this pattern in Acthar MS prescriptions is due to seasonality in the occurrence of MS flares. On average we believe, that there are about 1.5 vials dispensed per Acthar prescription for MS relapses. MS prescriptions currently represent over 25% of our Acthar business.

Turning infantile spasms. New paid prescriptions for IS in the fourth quarter totaled 180 to 185, an increase of 3% year-over-year with about 20% decrease from the record IS prescription levels seen in the third quarter of 2013. As we had mentioned on previous calls there are significant quarter to quarter variability in paid IS prescriptions due to fluctuations in the incidence of this very rare and devastating disorder. As a reminder, typical course of therapy for IS roughly 3.5 to 4.5 vials over the course of 2 to 4 weeks. We continue to be fully committed to providing rapid access to Acthar for this vulnerable patient population and also to supporting continued research and educational efforts related to IS patient care.

As shown in slide seven, the Acthar business has become quite diversified while growing significantly over the last several years. MS, NS and rheumatology are each significant and growing contributors to the Acthar revenue stream. In future quarters, we could conceivably be able to add a fourth area of growth to this picture and I will now briefly comment on our latest exploratory selling effort in pulmonology.

The initial pilot sales team of six reps is now fully in place and initial selling efforts are underway. We began to make introductory calls and are beginning to now educate pulmonologists about Acthar and its availability for the treatment of respiratory manifestations of symptomatic sarcoidosis, which is an orphan inflammatory disease with high unmet medical need for which Acthar is FDA approved. We have begun to see very early and encouraging results from this new pulmonology selling effort and in recent weeks prescriptions for sarcoidosis patients have already begun to come in and get filled. Over the next few months, we would have undoubtedly learned a lot from this effort depending on further feedback regarding physician interest level and patient response to treatment, we can decide if an expanded sales effort to pulmonologists is warranted as 2014 progresses.

Turning now to our international activities related to Synacthen. We continue to work very closely with Novartis to ensure a smooth transfer of data and information in support of Questcor taking over responsibility for the product in each of international markets where we acquired rights. We are also in active discussions with potential distribution partners, and during the second quarter, we expect to begin the process of taking over Synacthen marketing authorizations from Novartis for the first ex-U.S. Questcor markets. We anticipate that in total the process of transferring Synacthen marketing authorizations to Questcor in all of our markets will take about 15 to 18 months.

Finally, I will comment briefly we have been seeing with Acthar prescriptions so far this quarter. January was relatively soft as was last year, which was likely due to MS seasonal factors and typical annual insurance plan reenrollment for patients. This tend to temporarily drag out prescription processing in terms of the need for new insurance benefit confirmations, prior authorizations and alike, but we understand from our specialty pharmacy network that this is a relatively common annual phenomenon in the specialty sector.

Recently however, prescriptions appeared to be bouncing back. While the prescription numbers are certainly significantly higher so far this year than what we saw in the first quarter of 2013, we are seeing a general type of pattern similar to what we have seen before.

I will now turn the call over to Dr. David Young, our Chief Scientific Officer, who will bring you up-to-date on our scientific efforts and company sponsored clinical programs. David?

David Young

Thank you. Good afternoon everybody. I am pleased to provide you with an update on our R&D effort. Overall, Acthar research continues to expand to the company sponsored investigator initiated study. As we have done on prior calls, I will focus my comments on our R&D company sponsored research programs.

As a reminder, the objective of the company sponsored research are to, one, better understand the difference and potential therapeutic benefit of various melanocortin peptide. Two, better understand the benefit of Acthar on devastating medical conditions for which patients need another treatment option. Three, build on the body of evidence surrounding the efficacy and safety of Acthar for on-label indications. Four, develop the evidence to demonstrate the clinical benefits of Acthar and Synacthen in new indications.

On the melanocortin peptide non-clinical research efforts continue to grow and the results have provided us with a better understanding of Acthar's potential role in the treatment of our neurology, nephrology, rheumatology and if you mentioned more recently pulmonary indications.

As we study the effects of Acthar, synthetic melanocortin peptide such as tetracosactide, which is the active peptide in Synacthen study steroids on various cells and animal models of human disease we continue to find that the biological properties of Acthar are different than the synthetic melanocortin and steroids adding to the body of evidence that Acthar is unique and different than steroids or synthetic.

Let me update you on our company-sponsored clinical studies related to the on-label Acthar indication. Our Idiopathic Membranous Nephropathy Phase 4 study is ongoing. As a reminder, this is a randomized placebo-controlled trial enrolling treatment refractory patients which we define as patients nonresponsive to other therapy or as having relapsed after partial remission on other therapy.

Both, our screening rate and enrollment rate have increased with the last modification of the protocol. The study was still enrolling slower than we like. Thus, we identified other way to increase the screening and enrollment rate. Our first initiative has been for Questcor staff to take over the management of and interaction with each clinical study sites.

We just completed the transfer of the last night, we have already seen that the sites are more engaged than when do interacting with the CRO. Other initiative to increase screening and enrollment rates are also being evaluated at this time. We have a second Phase 4 randomized placebo-controlled trial underway, looking at since persistently active lupus erythematosus or SLE.

The first patient was randomizing into the study in January 2013. Although conventional treatment for SLE usually includes corticosteroids and other treatment, there is a need for alternative therapeutic options particularly in those lupus patients who are unable to control their symptoms. This study is progressing and our staff have begun to directly interact with the sites although we have not takeover complete management of the site as we have Membranous Nephropathy study.

Hopefully, in the near-future, we will be able to better predict when the study should fully enrolled. Besides these two Phase 4 trials, we are planning to run at least one additional Phase 4 unlabelled randomized controlled trial. At this time, we are not disclosing which indication we will be investigating, but it should start during the second half of the year.

Based on our knowledge of Acthar's biological activity, we are also evaluating through company-sponsored IND trials, Acthar's efficacy and safety in other indications not currently on label. Similar to SLE membranous nephropathy, we have modified our approach for our diabetic nephropathy Phase 2 proof of concept randomized placebo-controlled trial. Instead of leaving the site interaction so it's a CRO, we have begun to directly interact with the site. This interaction has reengaged with a number of sites and increased our screening rate. Hopefully in the near future, we will also be able to better predict when this study should be fully enrolled.

As Don mentioned, our Phase 2 study of Acthar in patients with ALS or Lou Gehrig's disease has completed enrollment. This is a randomized open label eight-week safety tolerability study that will help us assess appropriate dosing and endpoints for a future study. Patients who successfully conclude the initial eight-week trial have the option to participate in a 28 week open label extension on Acthar with a three-week taper and one-week follow-up period. All of the sites are managed by Questcor staff and we expect to have a result of this study by the end of the year which will be critical to determine if we should continue development and if we do, what the potential clinical trial design would be for our discussions with the FDA.

For our Phase 2 IND study in acute respiratory distress syndrome or ARDS, we have begun to qualify sites. Just to remind you of that expectations, we will be enrolling approximately 210 patients in a four week randomized placebo controlled efficacy and safety trial in patients with moderate-to-severe ARDS. The study is designed to look at several dosing regimens of Acthar with the primary endpoint being the number of ventilator free days during the 28 day treatment period. This will be an extremely difficult study to enroll given these are critically ill patients with multiple medical problems in intensive acre units. ARDS is a devastating condition with a high mortality rate. It can come on quickly and aggressively and in moderate-to-severe cases the lack of oxygen in the blood can lead to organ failure and death in 25% to over 40% of the patients.

As for Synacthen, our other melanocortin peptide product, we are still in the early phase of U.S. development. We are working on transferring the manufacturing process and analytical techniques to meet FDA standards as well as designing the preclinical pharmacology toxicology programs. We hope to begin some of our preclinical research over the next few months. The level of company-sponsored non-clinical and clinical research continues to expand as we systematically build the body of evidence for Acthar and Synacthen as well as gain a deeper understanding of melanocortin biology. We look forward to keeping you posted on the progress of these programs and share new programs in the near future.

Now Raj Asarpota, our new CFO will discuss our financial highlights. Raj?

Raj Asarpota

Thanks, David. Good afternoon, everyone. Please note that I will reference various non-GAAP financial measures in my remarks. In our earnings release that went out just after market close today, we provided a reconciliation table and that table is also provided in the slides accompanying this call. Investors are encouraged to refer to the table.

Total net sales for the fourth quarter was $242.9 million, up 51% from $160.5 million in the fourth quarter of 2012. The increase was driven by the expanded use of Acthar in multiple therapeutic areas, as Steve previously discussed. BioVectra, our specialty manufacturing subsidiary that we acquired in January 2013 had net sales of $12.6 million in the fourth quarter of 2013 as compared to $9.1 million in the third quarter of 2013, a sequential growth of 38%.

We continue to see planned growth in OpEx with the fourth quarter reflecting the addition of the newly expanded rheumatology sales force, a substantial increase in R&D investment and the inclusion of BioVectra's operating expenses. R&D investment in the fourth quarter increased 62% to $19.6 million as compared to $12.1 million for the year ago period. As David just reviewed, we expect to continue to grow our R&D effort and other important programs and expect to see our total OpEx grow by approximately 10% over the level in the fourth quarter of 2013 to $94 million in the fourth quarter of 2014. For the fourth quarter, operating income was at $136.3 million, up 44% compared to $94.8 million for the fourth quarter of 2012.

Turning to the bottom line, GAAP earnings per share for the quarter were $1.44 diluted based on $62.3 million diluted shares outstanding, up 40% from a $1.03 in the year ago period.

Non-GAAP earnings per share for the quarter were $1.67 diluted, up 53% from a $1.09 in the year ago period. While we have made important investments in 2013 in both, BioVectra and Synacthen, our balance sheet remains very strong.

As of February 21st, we had $379 million in cash, cash equivalents and short-term investments, which included $75 million in restricted cash. Operating cash flow during the fourth quarter was $106 million, driven primarily by net income of $90 million in the quarter. Return on equity was 91% in the fourth quarter.

During the fourth quarter of 2013, we used $53.1 million in cash to repurchase 960,000 shares of our common stock in open market transactions at an average price of $55.26 per common share.

We announced since February 14, 2014 that our Board of Directors declared a quarterly cash dividend of $0.30 per share were $1.20 per share on an annual basis. The dividend will be paid on or about April 25, 2014 to the shareholders of record at the close of business on April 18, 2014.

Now, I will turn the call back to Don for summary and some comments on our future prospects. Don?

Don Bailey

Thanks, Raj. To summarize, the fourth quarter was another strong quarter, driven by our expanded commercial effort and continued positive momentum in the business.

As Slide 16 shows, Acthar sales have grown dramatically over seven times in fact over the last three years, while maintaining solid operating margins, superb achievement for any business.

Turning to Slide 17, investors can see the progression of net sales by quarter over this three-year period. While past performance is no guarantee of future results, in many ways, we are more excited about our future prospects than these past achievements. Let me explain why by putting our current situation and opportunities in perspective.

These remarks fall within the balance of forward-looking statements and should be considered along with the risk discussed in our SEC filings. We believe we continue to have a strong platform for growth. We remain focused on increasing the penetration of the current markets we are in. That includes nephrotic syndrome, MS, rheumatology and pulmonology.

We are currently sponsoring investigator initiated studies in optic neuritis and will consider expanding our commercial efforts into additional on-label indications of ophthalmology and dermatology at the appropriate time.

As David discussed, we are also developing new indications for Acthar and with Synacthen we are looking to develop additional melanocortin therapeutics. We also believe, there is an untapped international market not just for Synacthen, but for Acthar as well.

Once we better understand the international markets through Synacthen, we will if there might be an opportunity for Acthar, so lots going on and great opportunities in front of us.

As Raj highlighted, we are generating a significant amount of free cash flow, so establishing priorities and putting that to work will be part of our strategy as we look to continue to returning value to our shareholders.

Operator, we can now open up the call for questions.

Question-and-Answer Session


Certainly. (Operator Instructions) Our first question comes line of Steve Byrne with Bank of America. You may proceed with your question.

Steve Byrne - Bank of America

Steve, you were talking about first quarter trends, you said January was a little bit soft and sounds like February was up strong. If I look at IMS script trends, February was up maybe 30% over fourth quarter levels. Is that the level of change that you are seeing?

Steve Cartt

Well, it's hard to comment on IMS data. It has shown variable correlation with our actual script numbers over time, but we don't know exactly how they go about the calculations to projector their numbers. So it's really hard to comment on that. This will kind of a pattern is pretty typical. We saw a fairly dramatic version of it last year and a less dramatic version this year. But it is sort a pattern we see and the things going into that are MS seasonality. At least that's what we hear from doctors. It tends to be a little slower in the deep winter months. There's always January reenrollment activities where patients may have changed plans but regardless, especially pharmacies need to confirm they still have coverage and if there is a PA needed, et cetera. So you see a bit of a slowdown generally during January in terms of processing. So it has an effect of pushing some of scripts in the February. So we are seeing things overall begin to bounce back in February. MS, that's again a fairly typical pattern but once again it's tough to comment on IMS because with a drug like this, the volumes are so small and their numbers are projected, we don't know exactly how they go about projecting them. So it's really hard to comment much on that.

Don Bailey

Hi, this is Don. I would like to add just a little bit. So last year, Q1 was down pretty significantly from the prior Q4 '12 before Q1 '13. This year, Steve, if we take account of January and first half of February and we roughly double that, sales are running, numerous prescriptions are running below Q4. Not as significantly as last year, so we would expect the quarter so far, based on half a quarter, is running ahead of last year's Q1 but it's down from Q4 of '13. Just to be clear.

Steve Byrne - Bank of America

But if you continued at the pace you are at in the first half of February, it could be up sequentially. Is that fair?

Don Bailey

I don't have that information. I would rather not speculate on that. Last year we had a big pick up in March. So if that happens, that's possible but I won't start to speculate about it.

Steve Byrne - Bank of America

Okay, and just a question on the 3,000 physicians you said had written a script for Acthar in 2013. How would you say that breaks down by specialty? Is it roughly in line how your sales force splits?

Don Bailey

It roughly is. I would say there is almost an equal number of neurologists and nephrologists writing a little over 1,000 each and then the rest are spread out through the other indications. Pretty wide dispersed and there is no real concentrations amongst the doctors are geographies.


Thank you. Our next question comes from line of Mario Corso with Mizuho USA. You may proceed.

Mario Corso - Mizuho USA

Good evening. Thanks for taking my questions. A couple of things I wanted to ask about. On the pulmonology effort, when you talked about seeing some really Rx's, are we talking a few or a handful? Are we getting into the tens? Are we seeing a week by week acceleration there? I am wondering how you think about where sarcoidosis or pulmonology can be relative to where NS and rheumatology were a few months in? Whether you are seeing more similarities and differences?

Don Bailey

Let me answer that one and once I get started, and let Steve answer the question.

Mario Corso - Mizuho USA


Don Bailey

I will answer how's the run rate, but Steve can talk about the potential. We are still in the ring a bell time period, we call it. So every time there was a prescriptions filled we run around and ring a bell and say that's great. So we are getting one every couple of days. So I would say your handful is probably more of the right for us.

I think we had about 30 last year, so one every other week and now we are seeing a little bit more frequency. That's definitely result of just having - these really get out on the street for calling on doctors for a very short period of time, but let me let Steve comment on the potential.

Steve Cartt

I will just reiterate what Don said. It's still very, very early, but now our reps have been of out for months now and they are clearly seeing interest from doctors. There is definitely a need there for the treatment alternatives and we are seeing prescriptions come in.

It's kind of too early to quantify those. It's just relatively small number, but it feels of similar to some of our markets that we entered very early on during the pilot phases. It doesn't feel different than that.

Clearly, there is an interest for new drug, new potential tool for the doctors and so far we are encouraged by what we seeing. If they weren't writing prescriptions - marketing coverage then that would be a different story, but still very early, but we are seeing the right type of early signals in the pilot effort like this.

Mario Corso - Mizuho USA

Great. Then the second piece of my question sticking with commercial aspect, is there anything specific for new you would highlight that's being done this year to move along the penetration in MS or NS or rheumatology, whether it's been specific marketing technique or sales force alignments expansion.

Don Bailey

Yes. We are constantly tinkering around the edges is what we do and there's experiments being run all the time. I don't think there's anything unusual in that regard. Steve, you want to provide any color or is just too low-level detail there?

Steve Cartt

Let me comment on the nephrotic syndrome. That's an area where we are working with doctors to try to get them to incorporate Acthar earlier in the treatment sequence. We are also working with them to begin using it and at least have them consider using it in other types of nephrotic syndrome.

It's been primarily used in idiopathic membranous nephropathy that we have been seeing more usage in things like FSGS even IgA nephropathy, so I think as doctors begin to incorporated it earlier that can help increase sales as well as they expand some of these areas, offer lupus nephritis into that mix as well, but I actually have Senior VP of Commercial Ops Eldon Mayer, here.

Eldon, may have some thoughts on some of the strategies we are taking to continue growing sales in 2014.

Eldon Mayer

I would just add in addition to what Steve said that, over time we do expect to have more data, whether it would be preclinical or clinical data and that will certainly help. However in the meantime, we will be focusing on some of the basics, continue to do them, do them better and even more where it's appropriate such just basic education with doctors about Acthar. How it works and what the potential benefits are to specific patient groups, which we think we still have a lot of opportunity to do that and there was a need for that.

Additionally a great deal of education, particularly with the neurology, with the MS audience and the patient communities about relapse awareness, which has never been done. We are the first company to do that as well as the need for basic for other treatment options such as Acthar.

Additionally, engaging with other audiences which are very important in the indication and treatment of MS, such as a nurse and patient assistance, so these are areas we haven't progressed in as much, on the path, we will continue to do that by again some things I mentioned before and by applying additional resources there, as well as engaging with care - there are a number of things that we are feeling that we think will help with the efforts.

Doug Sherk



Thank you. Our question comes from line of Gary Nachman with Goldman Sachs. You may proceed with your question.

Rajeev Kumar - Goldman Sachs

Hi, this is Rajeev Kumar, sitting in for Gary. Thanks for taking the question. I was just wondering if you guys had any update on the co-pay reimbursement? If you are still using the CBF of if you guys are looking for any alternatives? And I had another follow-up after that.

Steve Cartt

We put out some information on that topic in an 8-K. We suggest people to look at that for some detail. But the purpose of co-pay programs are to help financially challenged patients in lower income brackets, so not surprisingly for higher price therapeutic like Acthar and there's dozens and dozens drugs like this. Various safety networks have bought that through nonprofits around the country. There's many of them. So it's relatively common to use those. So we support those programs and we continue to provide support to people making co-pay assistance. We decided not to discuss the specifics of any particular charity that we operate or provide funds to.

Rajeev Kumar - Goldman Sachs

Okay, and I had just one quick question on the base business. In terms of the rheumatology, maybe you could dig a little deeper into what exactly is driving most of that growth and how sustainable you think that is? And also what do you guys need to see in order to add more reps there? Thanks.

Don Bailey

Okay, I will let Steve answer that but basically there is a large number of patients in the therapeutic areas where Acthar is approved and while in some cases there is a fair number of the drugs available. So finding patients who aren't not responding or need help. So Steve, you want to provide any expansion to that?

Steve Cartt

Sure rheumatology for us, is fair amount different than some of the other areas that we have launched into, in that we have multiple indications. Its kid of a combination of orphan diseases like DM and PM combined with much larger conditions like lupus or RA which is quite large, about 1.3 million patients. In each of these areas we are targeting a subsets of DMPM, we are targeting probably about 20,000 to 25,000 target patients. In RA, we are targeting very, very small fraction of the 1.3 million patients. Of course, there are a number of drugs approved and actively used there. So a lot of treatment options but each of these offices seem to have a group of patients with a sort of run through those treatments alternatives looking for something else. So we end up, in RA, which could be a significant growth driver for us in RA. We got a small fraction but that works out to be somewhere in the 70,000 to 80,000 patient range, we think, is the target population for Acthar. So I view RA as a future potential growth driver. Lupus as well. Lupus is a little bit different than RA or DMPM. It's not really technically orphan condition, but it is much smaller than RA at about 250,000 estimated patients in U.S. while lupus, unlike RA has very few treatment options available. They use a lot of steroids. Of course there is one other approved drug on the market that's used somewhat there, but these patients have a lot of health issues affecting a number of different organ systems. It could be quite debilitating. And yet they have very few treatment options. So that population there are very in need of something, almost anything new, that they can put into their armamentarium. So each of these, you can lump them together as rheumatology, each of these indications has its own set of characteristics and we think there's significant growth potential, particularly in RA and lupus going forward.

Don Bailey

So just to summarize for all of our on label indications, there is probably more patients in rheumatology that are in the target areas for Acthar than all the other indications put together.

Doug Sherk

Operator, we are ready for the next question.


Thank you. Our next question comes from line of David Amsellem with Piper Jaffray. You may proceed.

Trevor Davis - Piper Jaffray

Thanks for taking the question. This is Trevor Davis, on for David. So just staying on rheumatology, just quickly. I don't know if I missed this in your prepared remarks but you kind of walked through all the different indications that you are targeting at, but so far to-date what specific disease areas are you seeing the most used and if you could provide any breakdown of these there that would be helpful.

Then also just a second question, switching gears to business development, in thinking about potentially diversifying the top line, obviously sales force is focused on a number of specialties, so on that note, what specialties are the most attractive to you in terms of adding new product, more products and what is the extent to which you are focused on orphan disease assets in your [efforts]. Thanks?

Don Bailey

As far as rheumatology, just to we have a fair amount of activity in polymyositis, dermatomyositis and rheumatoid arthritis and in lupus. Rheumatoid arthritis is the fastest-growing area. These three aren't equal, but RA and polymyositis are roughly equal and twice as big as lupus, but all three have the potential. We don't see the growth every single month and we don't expect to see growth in all of them every quarter, but certainly year-over-year we expect to see and so while we see some growth in all three of those.

As far as business developments, we are just really getting started in that area. We haven't specifically identified any one therapeutic area. We think that we have our core competencies in developing specialty commercial teams and so that would be attractive to find something that allows us to take advantage of core competency, but we are really just been started, so I don't have a specific answer for you.

Trevor Davis - Piper Jaffray



Thank you. Our next question in the queue comes from line of Tim Chiang with CRT Capital. You may proceed with the question.

Tim Chiang - CRT Capital

Hi. Thanks. Don, you highlighted a lot of detail about these trials that you are running. Is there any sort of target you might be able to provide in terms of what the cost will be to run these trials for this year?

Don Bailey

Let's see. Actually, I don't have that information. We probably find that for you. We would expect these R&D expense to go up again this year on imagine the neighborhood of 50% or more, but that's just probably even exceed 100 million for R&D.

Now R&D for us also includes not just our trials. That includes our entire medical affairs team and even some elements main attraction, so when you look at our R&D expense you have to take into account those things the two R&D part of what you would classically R&D is probably two-thirds of that.

Tim Chiang - CRT Capital

Maybe just one follow-up, it seems like rheumatology prescriptions have ramped very nicely, especially going almost little over 100 prescriptions a quarter. Do you think you will need to run a rheumatoid arthritis study, a Phase 4 study at all to continue this type of trend or not?

Don Bailey

We will definitely try to build a wide evidence around rheumatology. We haven't made any specific decisions about that. There are some physician sponsored studies that we have funded or will fund, so there is quite a bit of activity going on there. That's more likely to produce something before we could put together a Phase 4 trial, so we find that you while Phase 4 would be the best to get there - take a little bit longer and sometimes these other studies are very helpful in the mean time.

Tim Chiang - CRT Capital

Okay, and maybe just one last question. David, you mentioned some of the progress you are making on the enrollment side. Would any of them progress translate into getting results sooner than maybe some of your our expectations at all for any of these trials?

David Young

Tim, right now we are in the process of switching things over, and so it's kind of early to say what's going to happen. I can tell you right now that we seem to be able to control things better. We seem to keep the sites more engaged and investigators and research coordinators engaged. So that's all positive but what the end result will be in terms of speed of enrollment, I am just not really ready to speculate on that right now because we just started switching things over.


Thank you. Our last question comes from line of Jim Molloy with Janney. You may proceed with your question.

Jim Molloy - Janney

Hi, guys. Thanks. I was just wondering if there is in any update on the timing, you put an update on the Synacthen acquisition. When do you guys expect an execution of the close and it will be in on the books? And then just any updates on the strategic review beyond what you said in the prepared remarks? What's the best option in your opinion for that review to produce?

Don Bailey

Well, Steve did cover that a little bit in his prepared remarks. So maybe you can repeat that, Steve for Synacthen and then I will ask Mike Mulroy, who is head of strategic affairs, to just a little bit of color on the plan in that area?

Steve Cartt

Sure. Hi, Jim. So just to kind of refresh everybody's memory, there's two components of the Synacthen deal. One, was the U.S. and that deal closed already. The other part is the international portion and we expect to have that closed in the second quarter. During the quarter, we are going to begin to transition all these markets where there is a wide range of international markets for where Acthar is sold. Everywhere from Canada and the U.K. to places like Iran and Ivory Coast. So its quite an interesting combination of countries. But we will start transitioning the first markets from Novartis to Questcor during Q2. That's going to take probably 15 months or so. We have a team in place that's located in Dublin, Ireland now and they are working very closely with Novartis to make sure that happens on time. So that's the update there.

Mike Mulroy

So, Jim, how are you? It's Mike Mulroy here. I guess I would say, in response to your question and the question earlier, that while it is early, I agree with that, but that just more broadly, we are going to be a little careful in providing too much in terms of specifics as this process unfolds as it relates to specific candidates or therapeutic areas of direction. I will say we have been watching events in the space and we are quite intrigued by all the energy going on in the field. We have it working with our committee and will continue that program to investigate ways to diversify the revenue stream and we continue to deliver value to our shareholders, patients and the healthcare community generally.

Jim Molloy - Janney

Then just finally, any price increases in the quarter?

Don Bailey

Yes, we took a small price increase sometime in mid January of 5%.

Jim Molloy - Janney

Great. Thank you guys for taking the questions.

Don Bailey

All right. Thanks everybody for attending today and we will talk to you again either on the phone during the next couple of months or we will talk to you at the quarter report at the end of April. Operator?


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