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Raptor Pharmaceutical Corp. (NASDAQ:RPTP)

Q1 2014 Results Earnings Conference Call

May 08, 2014, 04:30 PM ET

Executives

Georgia Erbez - CFO

Christopher M. Starr - CEO and Co-founder

Julie Anne Smith - EVP, Strategy and COO

Analysts

Joseph Schwartz - Leerink Partners

Kimberly Lee - Janney Capital

Ritu Baral - Canaccord Genuity

Liisa Bayko - JMP Securities

Operator

Welcome to the Raptor Pharmaceuticals First Quarter 2014 Financial Results Conference Call. At this time all participants are in listen-only mode. Following managements prepared remarks we will hold a brief question-and-answer session. As a reminder this conference is being recorded today May 8, 2014. I would now like to turn the call over to Georgia Erbez, Chief Financial Officer. Please go ahead.

Georgia Erbez

Thank you Denise and welcome to today’s conference call to discuss Raptor’s first quarter 2014 financial results and an update on our business.

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 on our website for information concerning the risk factors that could affect the company.

Joining me on today’s call are members of our management team, including; Dr. Chris Starr, Chief Executive Officer; and Julie Anne Smith, Chief Operating Officer.

Earlier today Raptor issued a press release announcing our financial results for the first quarter of 2014 which has been posted on our website at www.raptorpharma.com. Our 10-Q for the year ended March 31, 2014 was filed with the SEC today May 8th. A replay of this call will be available for the next two weeks on the Investor Relations section of our website.

Today’s presentation will begin with an overview of recent highlights by Chris followed by Julie with an update on where we are with the PROCYSBI launch in the U.S. and Europe. I will then go over the details of our financial results. After management’s prepared remarks we will open the call to Q&A.

With that I will now turn the call over to Chris Starr.

Christopher M. Starr

Thank you, Georgia. Thank you all for joining us today. The first three months of 2014 was another period of impressive progress for Raptor, both on our commercial efforts and in growing our clinical development pipeline. In the first quarter of 2014 PROCYSBI achieved net sales of $12.1 million which represents 20% revenue growth compared to the last quarter of 2013 all from U.S. sales. We are also pleased to announce today that PROCYSBI has been launched in Germany, our first European country. And Julie will provide additional details on our launch and European commercial activities later in the call.

In addition to our commercial progress in cystinosis we continue to publish important clinical data establishing the long term benefits of extended PROCYSBI treatment in cystinosis. The Journal of Pediatrics has recently accepted for publication PROCYSBI treatment extension data through 24 months where significant improvements were maintained in white blood cells, cystine depletion, maintenance of kidney function and quality of life.

In January our Phase IIb clinical trial to evaluate safety and efficacy of RP103 as a treatment for non-alcoholic fatty liver disease in children exceeded its enrollment target with a total of 169 patients enrolled. We expect to report data from this study conducted under CRADA and run in collaboration with the MIH approximately this time next year.

During the first quarter of this year we were pleased to announce positive 18 months results for ongoing Phase II/III clinical trial of RP103 and the treatment of Huntington’s disease. The clinical investigators are currently preparing the data from the study for publication. We already have orphan designation for RP103 in Huntington’s disease in the U.S. and now combined with our clinical data an application for orphan designation has been submitted to the EMA.

We plan to discuss the trial data with FDA in July and EMA this summer and seek guidance from them to define the next steps for the potential approval of RP103 for Huntington’s disease in U.S. and EU.

At this point I’d like to turn the call over to Julie to provide update on our PROCYSBI launch activities and operations. Julie?

Julie Anne Smith

Thanks Chris. We continue to be very pleased with the pace of our U.S. PROCYSBI uptake in the third full quarter of launch. We saw 20% quarterly growth in the number of patients who have received PROCYSBI growing from 165 at the end of 2013 to 199 at the end of the first quarter of 2014. This resulted in a quarterly growth of 20% in net sales of $12.1 million.

Approximately 10% of revenues were from new prescriptions while 90% came from resale. Over 90% of PROCYSBI patients have made it through insurance reimbursement process successfully requiring less than 2% of our patients to utilize the patient assistance program.

Based on net revenue from this quarter each patient generated annualized revenue of $265,000 which was higher than our initial expectations. This figure includes adjustment for compliance, discontinuation, patient assistance and standard gross to net expenses. We expect the per patient annualized revenue to normalize to an average of $250,000 by the end of 2014 as more patients with government insurance received PROCYSBI and doses are titrated to a stable maintenance level.

Having completed our third full quarter of the U.S. launch and based on the steady growth pace of new prescriptions and patient starts we anticipate similar quarterly growth rates for the remainder of 2014. We continue to believe we are on track for 2014 revenue target of $55 million to $65 million in net sales.

We’re delighted to announce that we’ve launched in Germany. One of the key gating items for our European launch was delivering European label product to our European product detail and releasing that product under local regulations. I’m pleased to say that we begin shipping product from our depot just seven days after the first prescription was received.

Not that the European medicine agencies granted orphan designation for PROCYSBI last year recognizing a significant benefit over existing therapy. We have seen good early demand for PROCYSBI since the drug became available in early April at an average annual per patient ex-factory list of 144,000 euros which is approximately $200,000 U.S. with 30 day payment terms. This price is net of compulsory government discount at the average expected per patient dip.

We don’t expect any retail pharmacy stocking of PROCYSBI so revenue numbers from Europe will reflect actual patients demand and consumption. PROCYSBI is exempt from the [inaudible] process. So were able to submit our price to the -- and physicians began prescribing thereafter. We have received initial payments at our stated price and resale orders.

The German team was fully staffed and onboard as of April 1st and they have done an excellent job at preparing the market. At the German Pediatric Nephrology meeting earlier this year we had an opportunity to study over 300 pediatric nephrologists and thus far the German team has identified physicians who treat over 100 patients.

In order to improve the structure of care and deliver added value to all cystinosis stakeholders in Germany we worked with physicians to create an integrated healthcare concept system. This will allow physicians, hospitals, [inaudible] and Raptor to become sustainable partners in an approach to diagnostic and treatment standards of care for cystinosis. We are going to concentrate on solid execution of the German launch before moving on to other markets in Europe. Market access plans are in place for each priority market and we will begin methodically building the infrastructure and executing as planned as quickly as possible.

In addition we have contacted by physicians in markets outside the European Union where PROCYSBI is being requested on named patient basis. Worldwide demand for PROCYSBI is building and we are looking at ways to meet those patients demand including establishing revenue generating early access programs. Globally we are continuing to partner with and learn a deal about nephropathic cystinosis.

Chris mentioned in important new data set that will published in a Journal of Pediatric. These data will be filed with regulatory agencies and may serve as the bases for label claim extension. These data will also add support to ongoing reimbursement discussions.

In the U.S. as we treat more adult patients we are learning that patients who have dealing with cystinosis are exceeding medically fragile. We are aware of patients who died while awaiting their first PROCYSBI prescription in 2013 before we begin shipping product. Despite the clinical severity of their disease patients and physicians both recognize the urgent need to maintain therapeutic levels of Cysteamine consistently to deplete Cysteamine on an acute basis as demonstrated by their willingness to prescribe and take PROCYSBI despite the advance stage of their disease.

Consistent Cysteamine depletion can prevent or delay some of the downstream consequences beyond kidney failure as the disease attacks other organs and systems. Importantly we can now take the lessons learnt in the U.S. about cystinosis, dose titration and GUT administration and share those with our European colleagues who are in the earliest days of launch.

I would like to recognize the work accomplished by our technical operations team who oversee the production, release and distribution of PROCYSBI. This year from April 2014 we manufactured more PROCYSBI than we did in all of 2013. This growing manufacturing company is necessary as we ramp production and expand capacity for our growing PROCYSBI market and in anticipation of demand from new indication.

In closing, I continue to be very pleased with the performance of the commercial team for continue demand for PROCYSBI and the initial demand we are seeing in other parts of the world.

With that I will now turn the call back to Georgia for discussion of our financial results.

Georgia Erbez

Thanks Julie. For the three months ended March 31st, 2013 Raptor recognized $21.1 million in PROCYSBI net product sales. This number compares favorably with Street consensus estimates for the first quarter net revenue as reported by Baxter and Yahoo! of $11.8 million. Growth to net adjustments include distributed discounts and allowance for returns and relates including those paid to Medicare and Medicaid in the U.S.. Our cost of sales for the first quarter was $1.3 million or 11% of net revenue cost of goods sold included expenses such as cost of commercial product sold, manufacturing and supply chain cost product shipping and handling expenses amortization of product approval milestone payments and royalties to San Diego.

Research and development expenses include cost related to clinical trial such as CRO and side expenses manufacturing of clinical drug supply and clinical personal. R&D also includes regulatory certainly quality activities and medical affairs and pharmaco-vigilance related to medical support of our global operations. Additionally R&D includes expense related to our research and pre-clinical activities include our cystinosis genetic screening program.

R&D expenses for the first quarter of 2014 were $9.5 million versus $8.4 million for the first quarter of 2013. The increase in the current year over prior period was primarily due to salaries and benefits from medical, clinical regulatory personnel, pre-clinical studies and clinical trials.

Selling, general and administrative expenses include all expenses related to commercial operations, encompassing sales and marketing activities, distribution and reimbursement support, market analytics and salaries and expenses related to commercial and operational personal as well as finance, legal accounting and other general and administrative expenses. SG&A expenses were $12.1 million for the first quarter of 2014 compared to $7.9 million for the period a year ago.

The increase in the current year was primarily due to additional sales and marketing cost for the commercialization of PROCYSBI in the U.S. The establishment of a commercial infrastructure in additional commercial activities associated with the introduction of PROCYSBI in Europe, staffing expenses and non-cash stock option expense. Interest expense for the first quarter of 2014 was $3 million compared to $0.7 million in the first quarter of 2013.

The increase in interest expense in the first quarter of 2013 over the prior period was due to that $50 million debt facility the company entered into with healthcare royalty partners in December 2012. I’d like to pause here and give you a few tips on how to calculate the interest expense associated with this debt, as there appears to be some confusion in the public demand on this topic.

Our interest payments have two components a fixed interest payment and a variable royalty payment. First the base fixed annual interest rate is 10.75% on the entire $50 million. This component remains constant and is evenly distributed from quarter to quarter. The second component is a variable tiered royalty based on net sales, it is calculated as 1,200 4% on the first $25 million in net sales in a calendar year followed by a 6% royalty on the second of $25 million of net sales.

Finally any net sales over 50 million and any calendar year are subject to a 2% royalty. And as you are updating your models please keep in mind that as net revenues increase this variable component of the interest expense will change. Also when we go from one calendar year to the next the calculation on net sale start over again.

All interest and royalty payments associated with this debt are combined and appear in the interest section of our income statement. The net loss for the first quarter of 2014 was $14.9 million or $0.24 per share compared to a loss of $15.9 million or $0.30 per share in the first quarter of 2013. This loss per share reflects a full and complete quarterly interest expense payment related to our debt instrument.

On a non-GAAP basis excluding non-cash common stock warrant expense and stock-based compensation expense net loss for the first quarter was $13.2 million or $0.20 per share. This compares to Non-GAAP results for the first quarter of 2013 of a loss of $14.2 million and $0.26 per share. Raptor provides Non-GAAP financial measures which I believe can enhance an overall understanding of its financial performance when considered together with GAAP figures. Please refer to today’s financial press release for a full discussion on this topic.

Cash and cash equivalents as of March 31, 2014 were $68.1 million compared to $83.1 million as of December 31, 2013. Our cash burn in the first quarter reflect certain one-time non-operational expenses related to inventory build and capital expenditures that as at this time we do not anticipate repeating in future quarters.

Our forecast for this year based on our current assumptions remains unchanged from the guidance we issued in March. We anticipate net sales from PROCYSBI in the range of $55 million to $65 million for 2014. We expect our cash operating expenses to be in the range of $80 million to $90 million in 2014. As a reminder this operating expense forecast does not include expenses related to cost of goods sold. Our current cash and cash equivalents remain sufficient to fund operations at least through the first half of 2015.

With that I’ll hand the call back to Chris.

Christopher M. Starr

Thanks Georgia and thanks Julie for providing an update on our commercial operations and financial performance. I am very excited about Raptor’s prospects for near term growth as we look to expand our PROCYSBI sales in the U.S. and globally and increase investor visibility on our late stage development pipeline. In tough market conditions it's great to have a reliable performer and PROCYSBI is fulfilling its promise of establishing a strong growing revenue base upon which we can advance our clinical development pipeline into exciting large market indications.

We now have positive clinical data for RP103 and two exciting clinical indications beyond cystinosis in both Huntington disease and inflammatory liver disease. We hope to make significant progress this summer in working with regulators of both the FDA and EMA to take maximum advantage of the promising results from the Huntington study as we move forward toward our potential approvals. Our NAFLD trial is progressing well and with a growing appreciation for the critical need of effective therapy to treat this chronic metabolic disease in children and adults. We are eagerly anticipating reporting our results around this time next year.

We are screening patients and should begin patient enrollment in our Leigh Syndrome trial this month our next new clinical program for RP103. Following the successful launch of PROCYSBI in the U.S. and the launch in Europe underway Raptor’s positioned for strong revenue growth in the near term and now with positive clinical results in both Huntington and inflammatory liver disease we are in a great position for achieving sustainable growth in the future.

With that we look forward to taking your questions. Operator may we have the first question please.

Question-and-Answer Session

Operator

Certainly. We will now begin the question-and-answer session. (Operator Instructions). And our first question will come from Joseph Schwartz of Leerink Partners. Please go ahead. Mr. Schwartz your line is open. Your line may be on mute.

Joseph Schwartz - Leerink Partners

Thanks very much. Yes so congratulations on all the progress. I was wondering if maybe we could start with some more color on your plans in Huntington’s disease. And is that your IND do you go to the FDA now or have you requested a meeting yet to see what the next steps might be for that program?

Christopher M. Starr

Yeah thanks Jose, it's Chris. We plan on meeting with FDA this summer. I can’t really go into detail as you might appreciate it's a process that generally the company holds pretty confidential. But we do have plans to meet with them this summer, also with the EMA this summer as well. So they are aware of the program and we are hoping to make great progress with them.

Joseph Schwartz - Leerink Partners

Okay. And then can you tell us some more about the Leigh Syndrome the trial design and how long it might take for us to learn of the outcome of that study?

Christopher M. Starr

Yeah well as you know I mean this program is and we are focusing really on Leigh patients but it also includes other mitochondrial patients. So the screening process is needed to be done with quite a lot of care. We are dealing with the couple of clinics now on screening patients there is a lot of interest we have a number patients lined up. As I mentioned in my comments we haven’t started treating any patients yet, we anticipating beginning that soon.

It is an open label study so we will be following patients as they progress and we will be looking at the first cohort of about a dozen patients sometimes the end of the year depending on obviously how quickly we can roll all the patients. So we anticipate let’s just be conservative here and say that it's early next year we might have initial data to share. But it is an open label study so we are going to be watching those patients carefully.

Joseph Schwartz - Leerink Partners

Okay. Very interesting thanks for taking my questions.

Operator

The next question will come from Kim Lee of Janney Capital. Please go ahead.

Kimberly Lee - Janney Capital

Good afternoon thanks for taking the question. Can you give us a sense as to when you may imply sort of label extension in pediatrics given your day will be published soon and then I have another question after that.

Christopher M. Starr

Yeah we anticipate being able to file all the data required for label extension into the less than six range this year. So that potentially could be based on FDA timeline sometime next year we might be able to get action on that.

Kimberly Lee - Janney Capital

Great, thanks. And then as far as the PROCYSBI launch goes, how many how many physicians are writing scripts in Germany right now? And can you remind us how many patients do you expect to target in Germany and how many doctors you plan to target? Thanks.

Julie Anne Smith

Hi, Kim, it's Julie. We are really in the earlier days of the launch in Germany and so we are not going provide a lot of detail, patient level, physician level detail on the German forecast. I will say that like in the United States that German nephropathic cystinosis market is a consolidated market and we can target the pediatric nephrologists and adult nephrologists with a relatively small commercial organization and that's what we are doing.

Kimberly Lee - Janney Capital

Okay. And just clarify your revenue guidance for this year does include global sales. Is that correct?

Christopher M. Starr

Yes, that's correct.

Kimberly Lee - Janney Capital

Great, thanks for the clarity.

Operator

The next question will come from Ritu Baral of Canaccord. Please go ahead.

Ritu Baral - Canaccord Genuity

Hi, guys. Thanks for taking the questions. Can you guys talk as to how you came to your German price, what sort of conversations and consultants you used and what sort of factors fed into that and also how we should think about what constitutes success in Germany, when -- what do you consider as a consolidated launch at which point you would consider moving to a next country?

Julie Anne Smith

Hi, Ritu it's Julie again. We approached pricing in Germany in much the same way as we did in the U.S. and that is very carefully looking at all of the factors including severity of cystinosis. And the clinical added value that we have been able to demonstrate with PROCYSBI for the treatment of nephropathic cystinosis and just a reminder that that was publically acknowledged in Europe when EMA granted us the orphan exclusivity grant. And we believe that PROCYSBI's reflects its value.

Then you asked a little bit about the process we used to get there, we have consulted with a number of highly experienced pricing strategists, people that are well familiar with a lot of orphan and ultra-orphan pricing models and markets and they also understand their construction of value proposition arguments with the in-country pricing and reimbursement personnel. So you know I think we talk to a lot of not only consultants but we also worked with the stakeholders and that included payers and treaters of cystinosis to arrive at the price.

Ritu Baral - Canaccord Genuity

Got it and are there going to be any countries in Europe where you wouldn't be exempt from a health technology assessment?

Julie Anne Smith

So I think what I would say is that pricing and reimbursement process as you know is very specific to each country and so due to the construction of the German healthcare system you know we were exempt from the [analog] process. That will not be true in some other countries when it comes to healthcare technology assessments and so that's why we are working on successfully launching in Germany and building our organization expertise around holding these discussion with regulators.

Ritu Baral - Canaccord Genuity

Got it. And then last part of my first question what for you constitutes as successful sort of consolidated launch before you move on country wise?

Julie Anne Smith

You know one of the factors that we really pay attention to is the strength of our partnership with the cystinosis community and so I think we'll consider a successful launch when we are treating patients and/or working with physicians to make sure that treatment is optimized, that diagnostic acuity is increasing and as we build the clinical experience we’ll have growing confidence in our ability to move on to the next market.

Ritu Baral - Canaccord Genuity

Great. And just last follow up question, moving to the U.S. for a second, any notable you either step that is or rejection by payers or coverage

Julie Anne Smith

We continue to have really good reimbursement success with the PROCYSBI in the United States. We noted in the call that only 2% patients have gone to the patient's assistance program, we have 90% of commercial patients already approve to commercial pair. So it continues to be inactive dialog with these payers and it's something that we’re investing a lot of field different into but as we noted the patients are sick. Physicians get it PROCYSBI medically necessary and eventually we can get generally even the toughest plans to understand the point of you.

Ritu Baral - Canaccord Genuity

Great, thanks for taking the questions guys.

Julie Anne Smith

Thanks Ritu.

Operator

(Operator Instructions). The next question will come from Liisa Bayko of JMP Securities. Please go ahead.

Liisa Bayko - JMP Securities

Hi guys and thanks for taking my questions and congratulations on the successful quarter. I wanted to just better understand the pricing in Germany is that sort of a steady state price once you get kind of – one of 250,000 in the U.S. once you get different patient mix in there or is that the starting price?

Julie Anne Smith

Liisa I want to make sure I understand your question, this is Julie. When you are talking about starting price, are you talking about for a typical patient or are you asking a weighted average price.

Liisa Bayko - JMP Securities

Yeah, the weighted average, so right now for example the price is changing a little bit as we get to sort of the steady state level in the U.S. because of the different patient mix and some sort of more adult patients now in that mixable shift and the price will come down. So the price Germany is it reflective of the price today given that maybe the profile of patient will be different or is that kind of what the pricing ultimately be?

Julie Anne Smith

It’s a great question and thank you for asking. In Germany the price that we announced is based on anticipated patient distribution in terms of age and dose and I think that we learned a lot about to go to – and where patients eventually settle as in terms of the maintenance level. So we applied those learning to that number already and whether that number changes overtime it is may change, there may be additional factors that come into place but it’s unlike the U.S. where initially in 2013 we didn’t have government rebase and discount.

And now starting with the mandatory Medicaid coverage January 1st of this year we do have a growing segment of patients that are there getting their reimbursement through the government paid insurance. So that’s the factor which has cause the average per patient annual revenue in the U.S. to come down a bit, that’s I should say the largest factor.

In Germany there compulsory discounts that are required upfront and that’s already reflected in the 144,000 euro figure that we quoted.

Liisa Bayko - JMP Securities

Okay, great. That’s really helpful. And then just remind me what the average price is right now I think you said it earlier and I missed it actually.

Julie Anne Smith

Based on the revenue from this quarter and then on the annualized basis we’re seeing the average revenue per patient at $265,000 and we do expect that to normalized down to $250,000 by the end of the year.

Liisa Bayko - JMP Securities

Okay, great. And then just finally sort of what countries are next in line. I know you can’t be too specific but is there any general guidance you can give on one they might come on board just for planning purposes in our modeling. Thank you so much.

Julie Anne Smith

Yeah, that’s another great question. As I mentioned on the call we're going to really make sure that we have a solid launch in Germany and have our feet steadily under us and build our organization expertise to moving to whole other lot of countries. Having said that there are some country markets that are more alike Germany than others and a few that I might call out would be some of the Nordic countries and some of the countries like Austria and those are midsize markets but they tend to be much more alike Germany than some of the other markets in Europe.

Liisa Bayko - JMP Securities

Thank you.

Operator

And at this time this will conclude our question-and-answer session. I will turn the call back to you Dr. Starr for your closing remarks.

Christopher M. Starr

Great. Thank you everyone for attending the call. We look forward to updating you on continues progress next quarter. If you have any further questions or any additional information please feel free to contact myself of Georgia. Have a very pleasant evening.

Operator

Thank you. Ladies and gentlemen, the conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.

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