NPS Pharmaceuticals' (NPSP) CEO Francois Nader on Q1 2014 Results - Earnings Call Transcript

May.10.14 | About: NPS Pharmaceuticals, (NPSP)

NPS Pharmaceuticals, Inc. (NASDAQ:NPSP)

Q1 2014 Earnings Conference Call

May 8, 2014 8:30 AM ET

Executives

Susan Mesco – Executive Director-Investor Relations

Francois Nader – President and Chief Executive Officer

Luke M. Beshar – Executive Vice President and Chief Financial Officer

Eric Pauwels – Senior Vice President and President-NPS Pharma International

Roger J. Garceau – Executive Vice President and Chief Medical Officer

Paul Firuta – President-US Commercial Operations

Analysts

Geoffrey C. Meacham - JPMorgan Securities LLC

Navdeep Singh – Goldman Sachs & Co.

David Friedman – Morgan Stanley & Co. LLC

Alan Carr – Needham & Co. LLC

Boris Peaker – Oppenheimer & Co., Inc.

David M. Nierengarten – Wedbush Securities, Inc.

Carol Werther – Summer Street Research Partners

Paul A. Matteis – Leerink Partners LLC

Graig Suvannavejh – MLV & Co. LLC

Eun K. Yang – Jefferies LLC

Navdeep Singh – Goldman Sachs & Co.

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2014 Pharma Earnings Conference Call. My name is Pereta and I will be your operator for today. At this time, all participants are in listen-only-mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And now I would like to turn the call over to Susan Mesco, Executive Director Investor Relations. Please proceed, ma’am.

Susan Mesco

Thank you, Pereta and welcome to our first 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 that may cause actual results to differ from the results discussed in forward-looking statements. 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, President, NPS Pharma International; Roger Garceau, Chief Medical Officer and Paul Firuta, President, US Commercial Operations.

Francois Nader

Thank you, Susan, and good morning everyone. Thank you for joining us on today’s call. 2014 continues to be an important growth year for NPS Pharma as we are focusing on our four strategic priorities: first, the continued growth of Gattex in the U.S.; second, securing the U.S. approval of Natpara; third, expanding our international business; and fourth, advancing our pipeline to drive long-term success.

I will start with Gattex in the U.S. February marked the first anniversary of the U.S. introduction of Gattex. We are very proud that the launch of Gattex has been one of the most successful ultra-orphan drug launches to date.

Last year we penetrated 6% to 10% of the estimated addressable market and delivered sales of $32 million. I am confident that we have built a great foundation for the continuing success of our Short Bowel Syndrome franchise in 2014. We achieved first quarter sales of approximately $18 million, representing sequential growth of 17%.

Physician interest in Gattex remains very high with new prescriptions in March and April higher than fourth quarter monthly averages. We are also seeing an expanding base of prescriber from GI physicians to surgeons, and we are investing in this important growth opportunity by expanding our reach to more potential prescribers in more territories.

And we are getting anecdotal feedback with stories of patients on Gattex freeing themselves from parental nutrition, while significantly decreasing the frequency of its use after being dependent for many years. All this of course is very gratifying to us as we believe we are making a real difference to patients. This being said, we faced some unique challenges early on in the year, resulting in sales that were slower than expected in January and February. It happens for two main reasons. First, delays in new dispenses along with their subsequent refills partially due to the severe winter weather.

The impact on patients and physicians included delays in scheduling and performing the tests and procedures that are recommended prior to starting Gattex. It also affected the coordination of nursing visits for new patient starts. These challenges were also compounded by the fact that given their small number, our sales representatives have to cover large geographies and suspended travel took them out of the field on all too many occasions.

The second reason has to do with an increase in discontinuations. In the first quarter we saw a small uptick in our discontinuation rate, which we anticipated would take place over time. As you may recall, last year we reported less than 10% of patients had discontinued therapy, which was better than we had expected given that Gattex is a self-injectable product for the chronic condition. Importantly though we are pleased that the current trends continue to be well below our anticipated long-term discontinuation range of 20% to 30%.

Despite the bounce back in March and April, it is unlikely that this will compensate for the first quarter shortfall. Therefore, we are revising our full year guidance for 2014 to a range $100 million to $110 million from our prior guidance of $110 million to $120 million. However, this revision has to be put in perspective recognizing that the 2014 outlook represents 200% year-over-year growth, which would be a tremendous second year for any product launch.

As we remain very bullish on the long-term outlook for Gattex, we decided to invest in maximizing the full market potential for Gattex by deploying the following new commercial initiatives. First, we have added more firepower to the U.S. Commercial leadership team. We are very happy to welcome Paul Firuta to NSP Pharma. Paul joined us in March to lead our U.S. Commercial Operations.

He is a seasoned commercial executive with extensive experience launching and commercializing biologics. Most recently Paul led the ViroPharma’s commercial operations for the Americas where he directed the launch of Cinryze, one of the most successful orphan drug launches to date in the U.S. With both the appointments, Eric Pauwels, who has led the successful launch for Gattex in the U.S., will now focus on growing our international business.

Our second initiative is that after our first year of commercial experience we are also learning that Gattex is promotionally sensitive and we will be capitalizing on this opportunity by adding 11 new representatives to our sales organization. One of the reasons for this expansion is that while GI specialists remain our primary focus, we have seen a meaningful percentage of prescriptions coming from colorectal surgeons and our surgical specialists. Consequently, our expanded field-based team would allow us to begin calling on these new targets.

In addition, we are significantly increasing awareness of Short Bowel Syndrome through programs like patient and physician education, peer-to-peer targeting and outreach through patient advocacy to make sure we are educating physicians and patients on Short Bowel Syndrome and Gattex in the U.S.

Now let me turn to Natpara, our second strategic priority which is securing the U.S. approval of Natpara. As you know, our U.S. BLA is currently under FDA review and our PDUFA action date is October 24. FDA is actively engaged and our interactions with the agency are ongoing. During our mid-cycle discussion FDA confirmed they intent to review Natpara at an Advisory Committee Meeting, which is tentatively scheduled for July 24.

As we did successfully with Gattex, we are working with distinguished outside experts including former FDA reviewers and panel members to prepare for the outcome. Our European strategy for Natpara, which will be the brand name for Natpara in Europe, is proceeding according to plan and we expect to file the NAA this year.

As you know, patients with hyperparathyroidism face a significant burden of disease given the multitude of physical, cognitive, and emotional systems associated with this disorder. And when approved, Natpara would provide hyperparathyroidism in patients with the first exact replica replacement therapy to treat their condition.

We have geared up our pre-launch activities to lay the groundwork for the successful introduction of Natpara in the U.S. Our pre-launch activities focus on education and generating awareness on the burden of hypoparathyroidism through three key strategies. First, educating patients, so far we have generated significant awareness through our unbranded Web site hypoparathyroidismanswers.com, where patients can register and opt in to receive information and updates on hypoparathyroidism. We have also created a very large online community for hypoparathyroidism.

Second, educating physicians. We’re in the process of profiling centers of excellence and prioritizing our targeted endocrinologists in the U.S. We will also began a disease awareness campaign with physicians.

And third, profiling the condition. Our long-term natural history registry Paradigm, which launched in the second half of last year, will be a key tool to help us characterize the burden of hypoparathyroidism and its long-term risks.

We have been very active preparing for a successful launch. Our team is making excellent progress and we look forward to making this important treatment available to hypoparathyroidism patients as quickly as possible. We’ve continue to provide more and more details as we get closure to the launch.

Our third strategic corporate therapy I would like to cover today is our international expansion, and at this time I would like to invite Eric Pauwels to provide you with a brief update. Eric?

Eric Pauwels

Thank you, Francois and good morning to all joining today’s call. The international expansion of our orphan disease franchise continue to advance. We have made important progress since we last we spoke. Our international management team is now largely in place as well as the local and regional management physicians.

We are very pleased with the caliber and experience of the individuals who joined us as many came to NPS Pharma from the leadership roles at highly viewed biopharmaceutical companies with specific expertise in successfully launching orphan products.

Based on our expectation for securing our target pricing and reimbursement we expect that our international roll out will start with our first commercial launch in Germany followed by the U.K. and then Nordic countries. As Germany is a key reference for international pricing, we have decided to take advantage of the new long-term data that speaks to real life post marketing experience such as parenteral support medium data from U.S. centers of excellence to strengthen our (indiscernible) investigation.

For this reason, we decided to slightly delay our German filings from mid-year to the fall to leverage stronger robust and value proposition that supports similar pricing quarter.

We are also making good progress in the UK working with KOLs and centers of excellence. In parallel, we continue to build Short Bowel Syndrome awareness in international markets. We had conducted meetings with leading SBS experts in Europe, Japan, and Latin America. These initiatives are generating significant interest in our efforts.

As you know Japan represents a key orphan drug market opportunity outside the U.S. Recently Japan’s Ministry of Health, Labor, and Welfare selected Gattex as one of 10 high priority drugs for an unmet medical need. This is critical step in locating a positive regulatory pathway. We also preparing to file for orphan drug status in Japan later this year and we have scheduled a meeting this summer with Japan’s pharmaceutical and medical device agency to discuss our regulatory path.

So to summarize, we are making terrific progress with our international build out, which is a top organizational priority, and we remained highly confident that the foundation we are putting in place will deliver significant growth in 2015 and for many years beyond.

With that I’ll turn the call over back to Francois.

Francois Nader

Thank you, Eric. The four strategic corporate priorities covered today is the pipeline we are building to drive our long-term growth. Our team reached an important milestone this quarter with the filing of an IND for NPSP795 in autosomal dominant hypocalcemia. We are on target to initiate our Phase 2a proof-of-concept study by Nadir.

As a reminder ADH is a lifelong genetic disorder that is caused by mutations of the calcium-sensing receptor, which plays a major role in calcium-homeostasis. Patients with ADH continue to excrete calcium in their urine because their receptor always senses that there serum calcium is too high. ADH can prevent immediately post birth with severe hypocalcemia, which can cause life threatening neonatal complications such as; target arrhythmias, seizures, or laryngeal spasms.

In adults, ADH is typically characterized by hypocalcemia with low concentrations of PTH and high levels of urine calcium. Clinically there is a significant increase risk for renal complications including nephrocalcinosis and impaired renal function. There is no approved treatment for ADH and NPSP792 is antagonist of calcium-sensing receptor and could be first treatment specifically targeting the mutation.

We are also expanding our Short bowel syndrome franchise with our pediatric clinical program. Gattex could answer a significant unmet medical need for children with Short Bowel Syndrome given the comorbidities and daily living challenges associated with life long parenteral support along with a significant healthcare burden to society.

Our global study of Gattex in pediatric Short Bowel Syndrome is progressing and have completed enrollment of the first cohort.

So in summary, we are focused on achieving our vision of becoming the world’s premier orphan drug business. We are very confident in the growth prospects of Gattex investors, we are actively building our international presence. We are preparing for the launch of our second orphan product Natpara and behind these programs we are advancing our clinical pipeline to drive long-term success

With that, I’ll turn the call to Luke for his financial reports. Luke?

Luke M. Beshar

Thanks, Francois and again good morning. From a financial perspective, NPS Pharma continues to be in terrific shape. Despite some weather related challenges we achieved approximately $18 million in sale of the Gattex and we feel very good about delivering our revised full year guidance of $100 million to $110 million of net global sales for Gattex or Revestive.

Our Sensipar royalties are an important driver in the first quarter bringing in more than $23 million of revenue. To remind you, under the repayment terms of our royalty advance from Amgen. On May 15, we’ll receive a $15 million cash payment, in the Amgen we withhold the remaining $8 million to repay interest and principal. We continue to anticipate that we will fully repay the remaining advance of $48 million by the end of the third quarter of next year.

Get to that we will receive 100% of our Sensipar royalties through March 28 in the U.S. and through the end of 2018 for the rest of the world. With annual sales of Sensipar now exceeding $1 billion our revenues from Sensipar provides some tremendous financial flexibility for NPS for the coming years. We also receive a cash royalty from Janssen sales for NUCYNTA, which for the quarter was approximately $600,000.

Moving to the expense side of the P&L, cost of sale were $2 million, roughly 11% of sales consisting primarily of royalties and packaging costs. As you may recall, the product currently being used to support the introduction of Gattex was manufactured (indiscernible) and therefore expense to R&D. During the first few years of sales, this will result in the benefit to our gross margin. And while the pre-approval product is consumed we expect the gross margin on Gattex to normalize to approximately 80%.

First quarter research and development expenses was $21 million representing an increase of approximately $5 million from the same quarter last year. The primary driver of these brands was a credit in 2013 from the close out of certain clinical trials, and to a lesser extend an increase in regulatory activities in Natpara in 2014.

For the first quarter, SG&A expenses were $25 million versus approximately $14 million last year. This increase is attributable to the activities to support the launch of Gattex, pre-launch initiatives for Natpara and the build up of our international business. We continue to maintain a strong financial position and ended the quarter with approximately $176 million in cash, which leaves us very well capitalized to globally commercialize both Gattex and Natpara and to advance new pipeline of opportunities for growth.

So to summarize the first quarter financial results, we’re confident in the growth prospects for Gattex and Revestive for 2014 and well beyond. We believe that Natpara will be the second significant major sales driver for NPS Pharma, and our team is focused on advancing the regulatory process for this drug. We have a number of key pipeline initiatives in place to deliver growth beyond Gattex and Natpara, including our development programs for Gattex in pediatric SBS and 795 in ADH.

And finally we enjoy the financial strength to allow us to execute on these initiatives.

That concludes this morning’s prepared remarks. At this time I would like turn the call back over to our operator to begin the Q&A session. Operator, you take it from here please.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Geoff Meacham from JPMorgan. Please proceed.

Geoffrey C. Meacham - JPMorgan Securities LLC

Good morning, Francois. Thanks for taking the question.

Francois Nader

Good morning, Geoff.

Geoffrey C. Meacham - JPMorgan Securities LLC

Just a few on Gattex demands. Any metrics you can give us about the March, April rebound and how that compares to either 4Q or early 1Q. And then, the second question would be just trying to reconcile the guidance change. Was it purely 1Q or were there changes to your assumptions for this year for discontinuations, or new scripts, or things like that? Thanks.

Francois Nader

Thank you, Geoff. Well, it is the situation despite a slow start in January and February, we saw a rebound in March and April. The rebound could be characterized in three or four different ways. The first is we’ve seen a rebound in prescriptions and we’ve seen also an increase in dispenses. We also saw a nice shortening of the time to dispense, and an improvement in our cure rate. So when we look at our internal metrics, we are confident that we are rebounding, and the potential of Gattex is still very much there, so much so that we have decided to invest in the franchise. As I said it a minute ago, we are increasing our sales organization, we are increasing our outreach awareness marketing activities.

So, we believe in the strength of the Gattex franchise and frankly the feedback that we are getting from the field is very encouraging. So we had a limp at the beginning of the year and off we go. And we’ll compensate and continue building our franchise. The challenge though is when dealing with small numbers. The unfortunate, if you will, January and February, we will have to carry those forward. And every patient that did not start in January, actually they start in March or April we already lost three or four months. So that is the situation. But overall we are confident, we are very optimistic and we are investing accordingly.

Geoffrey C. Meacham - JPMorgan Securities LLC

And just on the guidance change?

Francois Nader

Well, the guidance again. I mean original guidance was $110 million to $120 million related to $100 million to $110 million, and we are a company if we adopt a conservative approach or a realistic approach. Some of the loss of revenues that we incurred in January and February will be difficult to compensate for in the balance of the year, if we can do better than that we’ll do it, but we prefer one more time to Under-Promise and Over-Deliver.

Geoffrey C. Meacham - JPMorgan Securities LLC

Okay, thank you.

Francois Nader

Thank you.

Operator

Thank you. The next question comes from the line of Navdeep Singh from Goldman Sachs. Please proceed.

Navdeep Singh – Goldman Sachs & Co.

Thanks for taking my questions. So, based on other biotech earnings, I haven’t heard weather to be a major impact on other drugs, whether it be orphan drugs, or cancer drugs, or what have you during the quarter. Is there anything in the mix or in the channels where weather would impact Gattex disproportionately versus other drugs? And then I have a couple of follow-ups? Thanks.

Francois Nader

Yes, I mean the two reasons after doing a very thorough forensic work as to what happened January, February. It could be, one, weather, and second, discontinuation. Remember that Gattex is, is an interesting drug because when physicians prescribe then patients have to undergo a colonoscopy. They have to under go blood work and then the drug is dispensed and we follow very quickly with a visit from a nurse to initiate the treatment. So in many ways it’s labor intensive. There are many steps in between versus other drugs where it is simply a prescription and they go to the pharmacy and get their product. That is slightly different.

From this perspective, frankly all these elements have to happen in sequence. Short Bowel Syndrome is a chronic condition and it’s not a life threatening condition, so with any other chronic conditions frankly patients can be defer their visit, they can defer starting on Gattex, they can defer doing the tests in between. That’s where we saw the impact on the weather.

The other aspect which is very practical for us is given the fact that we have 25 sales reps out there, they travel a lot and they raise quite a significant foot shoe time. And given the conditions they were not able to do their job, they were out of the field for way too many days. So this is why we decided to increase the sales force, among other things to limit if you will, the geography and basically extend the market to other specialties. So each drug is different Nav, and this is the context of Gattex.

Navdeep Singh – Goldman Sachs & Co.

Thanks for that. We are calculating there were about 61 business days in March. Do you know how many of those business days were impacted due to the weather? And then do you see anything else in the rest of this year that would cause you to lower guidance again?

Francois Nader

Yes, I mean probably every referring to January and February in terms of number of days. I don’t think we will quantify the days in and out. That is way too complicated. As I said, we are quite optimistic for the balance of the year and more importantly, actually, for the franchise. The feedback that we are getting from patients and physicians are very encouraging. The feedback that we are getting from payers is very encouraging, as well. This is why despite the fact that we have reduced the guidance by 8% or 9% we’re continuing to invest in growing Gattex and growing its potential.

Navdeep Singh – Goldman Sachs & Co.

Okay, and then my final question is on EU. Do have any sense of how EU authorities, I guess in Germany are viewing the profile of Gattex and the need of Gattex? Is Germany pushing back in any way? And how much of your guidance is from EU?

Francois Nader

I answer the second part of your question and Eric will answer the first part. Our projected revenues from ex-U.S. in 2014 is very small. We did not quantify it, but the vast majority of our revenues in 2014 is coming from the U.S., and Eric could you address the Germany question?

Eric Pauwels

Yes. We haven’t actually submitted the AMNOG dossier. We are actually in the process of strengthening the value proposition by including new real world data, as well as strengthening some of the long-term data that we have. So we haven’t had any direct push back, what we done is a very thorough landscape analysis of AMNOG dossiers that have actually been filed and the ones that have been successful to really shore up the gap. We anticipate that we would file with AMNOG in the fall and that process is when the launch would actually begin.

Navdeep Singh – Goldman Sachs & Co.

Okay, thanks for all the color.

Operator

Thank you. Your next question comes from the line of David Friedman from Morgan Stanley.

David Friedman – Morgan Stanley & Co. LLC

Hi, thanks for taking my question. I was wondering, if you could just talk a little bit about the discontinuations. And in terms of the discontinuations in the first quarter, what was just kind of characteristic with these people that had no benefit or a sub-maximal benefit and they just didn’t find it to be worth it? Can you comment at all on what you are seeing in terms of discontinuations in you know March, April and early May versus what you might have seen in January and February? Thanks.

Francois Nader

Yes. Thank you, David. The reasons for the discontinuation is really all of the above. Discontinuations can happen traditionally because of adverse events, whether it’s abdominal dissension, abdominal pain, and nausea vomiting discontinuations usually happen early in the process when patients are on Gattex on month two or three.

What we learned from our clinical experience which is confirmed now by our really hands on feel experience, it looks like that over time adverse events tend to diminish. For many of these patients it becomes a non-issue. Some of the discontinuations are coming from adverse events.

Other are coming from the fact that there are patients who do not like needles, so they try it and frankly it doesn’t work for them. We have a number of patients who discontinue because they haven’t seen good enough effect and others who might have discontinued because they have seen a weaning.

And last, but certainly not least, and probably an important underlying cause of discontinuation is the fact that we are dealing with sick patients. These patients tend go to the hospital from time to time, and it is not unusual for Gattex to be discontinued when patients are hospitalized.

But also remember that Short Bowel is a condition of the condition and is not unusual at all when patients have a flare. If they are Crohn’s patients they stop Gattex. If they have any issues with atherosclerosis they stop Gattex. So it is a wide variety of reasons. Given the small number, it was very difficult for us to pin point a specific trend or key leading cause, if you will, in January and February. Remember though that we had a number of patients that were put on Gattex actually in the last quarter, whether it is related or not, we do not know.

Now the silver lining in all this is the fact that the discontinuations were 10% last year. We project that it will eventually level at 20% to 30%. We’re not there yet, we’re getting there, but we are certainly not in the 20% to 30% range yet, which we are much, much lower than that, so we are and again, I mean it is a process and because of the small numbers a small variation here and there makes a difference. This is probably what happened in January and February.

David Friedman – Morgan Stanley & Co. LLC

Thank you.

Operator

Thank you. Your next question comes from the line of Tazeen Ahmad from Bank of America Merrill Lynch. Please proceed.

Unidentified Analyst

Hi, this is [Sara] (ph) on for Tazeem. Thanks for taking my question. So you mentioned a smaller contribution from ex-U.S. in 2014. Was any portion of the $18 million this quarter ex-U.S. and then does your guidance revision account for any potential concerns, given the timing change with Germany. And I guess you still have expectations for meaningful sales in the second half of the year?

Luke M. Beshar

Yes, Sara this is Luke Beshar. The answer to first question is, there is real revenues in the first quarter attributable to ex-U.S. activities, and our full year guidance does reflect the delay that we invoked on the German filing for the reasons that Eric articulated. So that is all fully baked into the revised guidance.

Unidentified Analyst

Okay, and then what kind of price discounts are you expecting ex-U.S.?

Luke M. Beshar

Well, we have not publicly speaking or guiding on that. But what we have said and we continue to believe and continue see is that we expect ex-US so least in the initial countries that we launch, to net pricing to be in the very narrow band to U.S. pricing.

Unidentified Analyst

Okay, and then, on just the U.S. market, when do you expect the new reps to become productive? I guess when will they be fully in the field?

Francois Nader

Sara, I’ll ask Paul to answer this question. Paul?

Paul Firuta

We are in the process of hiring the field force now. We expect them to be fully on-board in July, but not really effective for probably 90 to 120 days need to become familiar with their territory there and be trained. So we we’ll see modest impact for in the fourth quarter this year from the new sales force.

Unidentified Analyst

Okay, thank you. And then do you plan to expand your alliances with the home infusion providers? I believe you originally had five. Do you rely on them to gain market share, or was that just in the initial launch?

Francois Nader

So we still have five partners in the home infusion business. We’re monitoring whether or not we will eventually need to increase the number. These partners have delivered and we are very pleased with the relationship we have established with them, both distributors and have local clinical support. But Paul and the rest of team will continue to monitor and if we need to increase the number we will I don’t see an imminent need, but as you know as the market shifts, we will adapt accordingly.

Unidentified Analyst

Okay, great thank you.

Operator

Thank you for your question. Your next question comes from the line of Alan Carr, Needham & Company. Please proceed.

Alan Carr – Needham & Co. LLC

Hey, Good morning. Thanks for taking my questions.

Francois Nader

Good morning Alan

Alan Carr – Needham & Co. LLC

Good morning. Can you give us a sense of whether or not you had a greater impact on new starts or on refills in January and February and also, can you also characterize how many patients have gotten the script but never filled it for whatever reason? And then also lastly your thoughts on the number of SBS patients in the U.S., has that changed? Thanks.

Francois Nader

The first question has to do with whether we are seeing more dispensers and more prescriptions. Actually it is both, that’s the good news. We have seen an uptick of prescriptions, which is exactly what we predicted given the fact that our field team are doing what they need to do, so we have more prescriptions.

Alan Carr – Needham & Co. LLC

Actually, let me clarify that. The weather, I guess, was one of your primary factors there in January and February, if that has a year-over-year impact on starts or on refills?

Francois Nader

It has a different impact probably on prescriptions, because it was probably more difficult for our team to be in the field. But also, it had an impact on the starts because as I said, starting Gattex requires a certain number of steps, many of them could not be practically done given the conditions. So it’s a little of both. In regard to the number of patients, total number of patients, we do not have any indication today that the 3000 to 5000 patients in the U.S. fragments number has changed. We are still tracking to the same numbers and things have not changed in this respect.

Alan Carr – Needham & Co. LLC

The middle question there was about how do you have – how many patients get a script, but never fill it? And has that changed over time?

Francois Nader

We cannot give you a number. What I can tell you is that it is just a reminder that Short Bowel Syndrome is a chronic condition and a reminder that Gattex is an injectable. So if you combine these two factors, we can expect that a number of prescriptions will not be filled. In particular situation of Short Bowel Syndrome, again as a reminder, these are sick patients.

So it is not unusual unfortunately for these patients to be hospitalized for whatever reason either related to Short Bowel or to their original condition. And if they are hospitalized, they will not start Gattex until they are stable again, which with certain patience could take weeks or months. So again, without quantifying if you will, the discontinuation rate, we had any situation where we have to take these discontinuations into consideration. And this is why we guided that the discontinuation rate would be indeed 10% to 20% range eventually. I’m sorry (indiscernible) I misspoke here.

Alan Carr – Needham & Co. LLC

Okay. Thanks, very much.

Operator

Thank you, your next question comes from the line of Boris Peaker from Oppenheimer. Please go ahead.

Boris Peaker – Oppenheimer & Co., Inc.

Good morning. Can you remind us again what the incentives are for the home infusion provider partners for Gattex?

Francois Nader

Sure, Eric?

Eric Pauwels

The general incentives are centered around in trade discount, and of course providing fees for clinical services. But most importantly incentives for home infusion providers allow them to actually dispense product to outside of their network and identify new patients, So one of the key things apart from trade discounts, and clinical services, and data collection is really understanding the broader market, which two thirds of it is actually quite fragmented. And for them grabbing new patients is that something interested in.

Boris Peaker – Oppenheimer & Co

What is the dollar amount, and I’m curious if that is something that you could increase to potentially get a little more traction with these home infusion providers.

Francois Nader

We don’t really guide the actual dollar amount, because it actually varies. It varies per patient. If you think about the amount of PN, it varies and the services that they provide. But the amount off of a $300,000 plus product insurance in terms of the trade discounts in clinical services is still quite interesting for them. And as I mentioned earlier one of the most interesting proposition is that they can provide full-service product portfolio both PN and Gattex. They are providing that service and marketing that to new patients and physicians that is obviously their interest is accruing new patients in the long term.

Boris Peaker – Oppenheimer & Co

Do you think raising that trade discount for them, you think that would provide more motivation to get their benefit or not? Or do you think that is there?

Francois Nader

We don’t, we don’t really know that at this time. We are always discussing with our partners how and what we can do to optimize incentives and to ensure there is fair and appropriate incentivization to this. But we really haven’t had any feedback on now.

Boris Peaker – Oppenheimer & Co

My last question is on the discontinuation rate. Could you just remind us exactly how is that defined? And does every patient get the script for the same duration of treatment? Or if not, then how do you factor that in?

Francois Nader

So let me answer the second question first. The answer is no. What we have seen, given our one year experience is prescriptions can vary from a few months to a year. What we have seen though is most prescriptions are for at least six months; many of them are for one year. And this is very relevant to the condition and very relevant to how Gattex works. So we are very pleased with the duration of treatment that the prescription actually gives.

On the discontinuation rate, we have internal metrics to judge discontinuation. It also varies. The challenge to the discontinuation has to do with individuals who discontinue, stop the treatment and then come back. Whether they were in the hospital or encounter a medical conditions or they stop Gatter and they come back. We have our internal metrics to gauge discontinuation and we tend to look at each patient separately. So we have the rule, that we look at each patient separately. This is why we can actually track these discontinuation in a very specific way and ongoing life.

Boris Peaker – Oppenheimer & Co

Have you changed the definition of discontinuation rate now versus maybe six months ago, or has it been the same throughout?

Francois Nader

Yes. The answer is not really. It is really more developing. There are two prisms that we look through when we evaluating discontinuations. One is, do we have a confirmation from the doctor and/or the patient, for whatever reason the decision has been taken to discontinue the drug, in which case then it is clear that patient is considered discontinued. It gets a little bit more complicated when because with the passage of time we have particular patients that don’t refill. We will then follow up with those patients and sometimes we hear back on them, sometimes we don’t.

So we evolve the rule over time where, given the passage of time in certain periods of timing, if there are no refills, then we will unilaterally invoke that this patient is probably discontinued. The sales force will continue to call on him or her and if there is a restart, then so be it. And then we don’t have that is new start we have that’s a restart. So it’s really more, it’s little bit of an art as much as it is a science. But that’s really two different approaches that we apply in the sequential way to come to that determination. Hopefully that helps answer that question.

Boris Peaker – Oppenheimer & Co

Great. Thank you very much for taking my questions.

Operator

Thank you. Your next question comes from David Nierengarten of Wedbush Securities. Please proceed.

David M. Nierengarten – Wedbush Securities, Inc.

Hi, thanks for taking the question. I have a couple left that haven’t been asked yet. First off, I just wanted to check on if there’s been any increase or any change in payer attitude, or pushback, or delays. And the second question would be, I wanted to ask you a little bit about the dynamics of the surgeon market and how are these surgeons thinking about prescribing it? Is it more of a temporary or how are they thinking about it as a temporary treatment to get a patient over a surgery, or is it a long-term treatment that is more like we think about it?

Francois Nader

Good questions David. Paul will answer the first one. I’ll take the second one. Paul?

Paul Firuta

Yes, David, we closely monitor the payer environment and I’m happy to say that we’re pleased with how the payers are covering Gattex, and we haven’t seen any significant changes in their approvals or coverage for Gattex.

Francois Nader

As this relates to the surgeons, it varies. Actually, each surgeon is different and each patient is different and we have a label that we encourage physicians to stick to. Basically the label says that Gattex is indicated for patients, adult Short Bowel Syndrome patients who are dependent on parental nutrition. And the judgment of the word dependent is left to the physician, and frankly, it’s the interaction between the physician and the patient. We heard from physicians that there could benefits in starting Gattex as soon as a patient is deemed dependent.

And therefore, early treatment will avoid or will accelerate, if you will the opportunity or possibility of (indiscernible) but also we have seen surgeons who have started Gattex have been stable on parental nutrition for many, many, many years, because, frankly Gattex could potentially reduce the dependency on parental nutrition and got potentially leading them off. So it’s very early. We have launched this product under a year ago and we are learning about these prescription patterns. I know that we will learn more now that we have expanded or we are expanding rather our sales organization, and we can have more interactions with the surgeons rather than anecdotal interactions as it has been the case so far.

David M. Nierengarten – Wedbush Securities, Inc.

I was going to ask that if there was an increase in your marketing efforts to these surgeons.

Francois Nader

Yes, absolutely. And frankly there were little that we could do with the current sales force because they are fully deployed against gastroenterologists. They certainly did not miss an opportunity to talk to surgeons as the opportunity arises. With the increase now adding 10 sales reps and a Regional Business Director, this will give us a little bit more bandwidth to do that in a more systematic way.

David M. Nierengarten – Wedbush Securities, Inc.

All right. Thank you.

Francois Nader

Thank you.

Operator

Thank you for your question. Your question comes from line of Carol Werther from Summer Street. Please proceed.

Carol Werther – Summer Street Research Partners

Thanks for taking my question. So I am just trying to understand, when do you expect European sales to hit the P&L?

Francois Nader

Carol, well, we expect to have a nil amount. So we had just a smidgen in first quarter. We’ll have just about that in the second quarter. We expect that it will have – not be meaningful to full year 2014 revenues. However, come the fourth quarter, we expect it will start to get material to the quarter and that will position us quite well as we enter 2015.

Carol Werther – Summer Street Research Partners

All right, great. And then just on not para, are there other data presentations we should be expecting this year before we get to the panel meeting?

Francois Nader

I don’t believe so. However, we’ll be presenting the one year raise update, okay, which is interesting data point, but frankly the team is very busy interacting with the agency and working on the BLA.

Carol Werther – Summer Street Research Partners

I understand. Thanks so much.

Francois Nader

Thank you.

Operator

Thank you. Your question comes from line of Joe Schwartz from Leerink. Please proceed.

Paul A. Matteis – Leerink Partners LLC

Thanks very much. This is Paul on for Joe. I have a question first on the Natpara panel and the nature of your preparations. You know you talk about emotional and cognitive symptoms as the main issues afflicting hypoparathyroidism patients, but the primary endpoint of Natpara’s pivotal trial focus on calcium and vitamin D. So I’m just wondering in your presentation how you are kind of planning on bridging that gap and putting the Natpara data into perspective. And then I have a follow-up. Thanks.

Francois Nader

Okay. Good question. Roger?

Roger J. Garceau

The attitude of the file design was the replacement design. So the goal was, again, you have to get what current-therapy is. Current-therapy is calcium active vitamin D, which only treats symptoms and serum calcium, and is associated with lots of bad things, when you look at renal problems, when you look at what soft tissue calcification, et cetera. So you have a treatment that can treat the serum calcium levels and can treat potentially some symptoms, but not all. And the reason why it can’t treat it well is that they push the serum calcium off – you’ve got problems with kidneys, et cetera. So physicians are kind of caught in between.

With Natpara, it actually replaces the hormone. So, what you see in Natpara, we can effectively maintain some calcium. We have reasonable symptom controls and we have positive effects on all the parameters in the PK. So the study has lots of other things and the whole portfolio of what we have shows that Natpara, again, it is identical to that PK patient has the physiological effects that you need to see would with PTH.

Now, for the emotional cognitive things we do have some quality of life data and we have qualitative in our trial, not significant versus placebo. But again we optimized all the patients in the trial and Dr. Bilezikian has just published his data for quality of life and that is also incorporated into that as well. But the focus really is that this is PTH in its full extent. This is not just supplement replacement. We are not simply maintaining serum calcium. We are replacing the hormone.

Paul A. Matteis – Leerink Partners LLC

Okay, thanks. That’s helpful. And then on reimbursement for Gattex, can you give us any more detail on the data you are providing Germany? Like how many patients, how long they have been treated, and how many centers you are working with on that preparation?

Francois Nader

Eric?

Eric Pauwels

Yes, first of all, we’re seeing a lot of the analysis that’s been done with the long-term study and that’s extremely important to present that according to GBA standards. But very importantly we come across some new real world data and that real world data will support the value proposition according to PN reduction, and if anything we’re strengthening the winning rates.

As you can appreciate the data is from centers of excellence in the U.S. and so it’s still confidential, and they will be presented to the authorities in a confidential manner. But we believe pushing this out to fall will really strengthen the value proposition because Germany is so critically important. Getting the price right you have to put your best foot forward, getting the price right with the strongest dossier is our goal.

Paul A. Matteis – Leerink Partners LLC

Okay, great. That’s helpful. Thanks. Just one more on your sales infrastructure. Now that you are expanding your team in the U.S., for your U.S. Gattex team, how long do you think the current amount of reps will last you in a sense that when do you think you might next have to build out your team again? Or is this now you’re thinking that is the optimal size for your launch over the long-term? Thanks.

Paul Firuta

This is Paul. We are taking a step approach to this. We will expand with this 11 folks in the field. We’ll monitor their impact on our business. We’ll enhance our targeting efforts. And as we see the returns on this and the impact that they can make, we’ll make a decision at that point where to continue to expand or if we’re in the optimal level. So, more information to come as we get experience from the team in the field.

Paul A. Matteis – Leerink Partners LLC

Okay. Thanks very much.

Francois Nader

Thank you.

Operator

Thank you. Your next question comes from Graig Suvannavejh from MLV. Please proceed.

Graig Suvannavejh – MLV & Co. LLC

I just have one question and it relates to Germany and the process for gaining reimbursement. My understanding just following some other companies is that sometimes it’s a very drawn out process given the high number of plans that need to be negotiated with. So, could you perhaps just give us a sense of how you see German reimbursement evolving, and how long you think it will take before you get to a critical mass with Gattex in Germany?

Paul Firuta

Yes, sure, Greg. From a process perspective, when we filed the AMNOG dossier, our period of free pricing actually begins. We filed smart tax and the AMNOG dossier. That process begins and typically it’s about a six-month process. Within the first three to four months, it will come back. GBA provide an additional benefit assessment. We will be able to launch and create revenue at that moment in time.

Depending on the rating of the initial benefit subsequent to that we would have discussions with rebates, confidential rebates with them, which we’d anticipate next year.

But overall the process were orphaned, especially for high cost orphans, would allow a special process, in which physicians get access the drug. I won’t pronounce it in German. So it’s a little bit long word, but essentially the process begins reimbursement when we launch.

Graig Suvannavejh – MLV & Co. LLC

Okay, great. I appreciate. Thank you very much.

Paul Firuta

Sure.

Operator

Thank you. Your next question comes from Eun Yang from Jefferies. Please proceed.

Eun K. Yang – Jefferies LLC

Thank you. So January and February was slow because of the weather, but as the weather improved, did you see uptick with scripts in March and April?

Roger J. Garceau

Yes, we did.

Eun K. Yang – Jefferies LLC

Okay. So just in line with your expectations?

Roger J. Garceau

The answer is yes. Actually, I mean, just to collaborate a little bit more, we’re back to the levels we were in Q4 and growing.

Eun K. Yang – Jefferies LLC

Okay. And then, given that Gattex supply chain discussions haven’t been delayed. Do you think that more likely they will be the case with Natpara?

Roger J. Garceau

I’m sorry. I could not hear you. Could you repeat the question, Eun? I have difficulties hearing you here.

Eun K. Yang – Jefferies LLC

Yes. Given that the Gattex pricing discussion in Europe hasn’t been delayed, do you think there would be a similar case with Natpara?

Roger J. Garceau

Yes, the pricing in Europe actually – those two processes are independent as I understand correctly your question. Again, we had difficulties hearing you. So the process in Europe for Natpara starts with finding the market authorization, which were going this year. As soon as the market authorization is filed and hopefully Natpara will be approved, we’ll be initiating the reimbursement process.

The good news, though, is having down through the Gattex process once we would not only have the team in place to do with in a more efficient way, but we would have gained also the experience of Gattex that we can apply to Natpara. Every product is different and we are or have started actually building the value dossier for Natpara and we’ll continue to enhance this dossier as we gain long-term data related to safety and efficacy. So, work in progress. The two processes are independent, but will certainly leverage our field organization and our knowledge with Natpara.

Eun K. Yang – Jefferies LLC

Okay. Thank you. My last question is, you increased Gattex pricing by 7% beginning of the year. Have you seen some positive impact from pricing increase in the first quarter?

Roger J. Garceau

The impact was – depends on different impact. We haven’t seen any impact on payers or reimbursement or any payer pushed back frankly at all, which speaks to the fact that payers are grasping the fact that Gattex offers value to their system and to their patients. And we haven’t tried or seen any push back at all. So that’s probably the only answer I can give.

Eun K. Yang – Jefferies LLC

I’m sorry. My question was the impact on your first quarter U.S. sales?

Roger J. Garceau

Eun, the first quarter does reflect the 7.4% price increase. That was good in fact early January.

Eun K. Yang – Jefferies LLC

Thank you.

Roger J. Garceau

And it’s, as Francois said, it was put in effect in January 2 or January 4 and it was universally accepted by the payers.

Eun K. Yang – Jefferies LLC

Thank you.

Roger J. Garceau

Thank you.

Francois Nader

Thank you.

Operator

And your last question comes from Navdeep Singh, Goldman Sachs. Please proceed.

Navdeep Singh – Goldman Sachs & Co.

Hey, guys. Thanks for taking my follow-up. I’m wondering if the encouraging trends you’re seeing in Q2 are just because of a bolus effect from patients that wanted to go on to the drug in Q1. So how confident are you that you can maintain and grow off the early Q2 trends?

Roger J. Garceau

The Q2 trends we’re seeing are from prescriptions that we are getting in March and April. So we’re confident that the business is strong and that we’re seeing these prescriptions coming from March and April and then with reduced turnaround times in our operations, we’re seeing those patients starting the effects a little bit sooner. So we do feel confident in the business later from March and April.

Navdeep Singh – Goldman Sachs & Co.

Okay. Thanks.

Francois Nader

Thank you.

Operator

Thank you for your question. I would now like to turn the call over to Dr. Nader for closing remarks.

Francois Nader

Well, thank you and thanks again for your questions this morning, very pertinent and interesting questions. I hope that our team here was able to answer most of your questions, if not all of them. But in closing we are really very pleased with the significant progress we are making to drive significant growth in 2014 and beyond. And, again, our ambition is to become one of the world’s premier orphan drug companies as we’re off to a great start. We appreciate your time and interest and we look forward to providing you with future updates. Have a great day.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!