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Insys Therapeutics Inc (NASDAQ:INSY)

Q1 2014 Results Earnings Conference Call

May 13, 2014, 11:00 pm ET

Executives

Lisa Wilson - Investor Relations, President, In-Site Communications, Inc.

Mike Babich - President, Chief Executive Officer, Director

Darryl Baker - Chief Financial Officer

Analysts

Jason Butler - JMP Securities

Michael Faerm - Wells Fargo

Robert Sussman - Bentley Capital

Rohit Vanjani - Oppenheimer

Operator

Good morning and welcome to the Insys Therapeutics' first quarter financial results conference call. This call is being recorded.

I would like to turn the call over to Lisa Wilson, Investor Relations for Insys Therapeutics. Please go ahead.

Lisa Wilson - Investor Relations, President, In-Site Communications, Inc.

Thank you, Diana. Good morning, everyone, and welcome to the Insys Therapeutics' first quarter 2014 earnings conference call. With me today on today's call are Mike Babich, Chief Executive Officer and Darryl Baker, Chief Financial Officer of Insys.

This morning the company issued a press release detailing financial results for the three months ended March 31, 2014. This can be accessed through the Investor Relations section of the Insys' website at insysrx.com, and you can also access the webcast of the call from there.

Before we get started, I would like to remind everyone that any statements made on today's conference call that express a belief, expectation, projection, forecast, anticipation or intent regarding future events and the company's future performance may be considered forward-looking statements as defined by the Private Securities Litigation Reform Act. These forward looking statements are based on information available to Insys management as of today and involve risks and uncertainties including those noted in this morning's press release and Insys' routine filing with the SEC.

Such forward looking statements are not guarantees of future performance. Actual results may differ materially from those projected in the forward-looking statement. Insys specifically disclaims any intent or obligation to update these forward-looking statements except as required by law.

A telephone replay of the call will be available shortly after completion through Monday, May 20. You will find the dial information in today's press release. The archived webcast will be available for one-year on the company's website at insysrx.com. For the benefit of those who may be listening to the replay or archived webcast, this call was held and recorded on May 13, 2014. Since then Insys may have made announcements related to these topics discussed, so please reference the company's most recent press releases and SEC filings.

With that, I would like to turn the call over to Mike Babich. Please go ahead.

Mike Babich

Thank you, Lisa, and good morning, everyone. Thank you for joining us today. We are very pleased to report our fifth consecutive quarter of topline growth. Sales of our Subsys fentanyl sublingual spray continued to increase contributing to record net revenues of $41.6 million in the first quarter of 2014. This represents a 276% growth as compared to $11.1 million during the first quarter of 2013. Our net income for the quarter was $7.7 million versus $143,000 for the same period in 2013. Adjusted EPS increased to $0.41 per diluted share compared to adjusted EPS of $0.12 for the first quarter of 2013.

During the first quarter, we also completed a three-for-two stock split through a stock dividend. Total shares outstanding increased from approximately 22.8 million to 34.2 million shares. This action increased the liquidity of Insys' stock and reflects our confidence in the company's strength and long-term growth opportunities.

I am going to discuss our current business and opportunities for future growth in greater detail after Darryl Baker, our Chief Financial Officer reviews the financial results. Daryl?

Daryl Baker

Thanks, Mike. Total net revenue for the first quarter of 2014 was $41.6 million, which was an increase of 276% as compared to $11.1 million for the first quarter of 2013. Our primary revenue driver continues to be Subsys which contributed $40.7 million in net revenue during the first quarter of 2014. This represents a 319% increase from Subsys revenue of $9.7 million in the prior year quarter and a 3.8% increase from $39.2 million in Subsys revenue in Q4 of 2013. Our repeat patient use continues to increase steadily as well.

As a reminder, during the fourth quarter of 2013 we changed the timing of revenue recognition on sales of Subsys to record revenue at the time of product delivery to the wholesale pharmaceutical distributor as opposed to the fulfillment of patient prescriptions. This change in timing of revenue recognition is customary after gaining experience for a period of time after the launch of the new product. This change impacted our Q1 2014 revenue as we are now subjected to the wholesaler ordering patterns and channel inventory fluctuations.

Demand for Subsys as reflected in prescriptions written continues to show growth. According to IMS data, prescriptions of Subsys increased by more than 15% in Q1 2014, compared to Q4 2013. We expect the growth in Subsys prescriptions during Q1 2014 will have a positive impact on our Q2 2014 revenue.

Gross margin increased to 89% for the first quarter of 2014 compared 84% for the first quarter of 2013. The improvement in gross margin is primarily attributable to the increase in Subsys revenue, which accounted for 98% of total revenue in Q1 of 2014 compared to 88% for Q1 of 2013.

Sales and marketing expense was $11.6 million during the first quarter of 2014 compared to $4.4 million for the first quarter of 2013. The increase was due primarily to sales compensation expense and incremental product marketing expense associated with the increase in sales of Subsys. As of March 31, 2014 we had 168 full-time sales and marketing personnel compared to 70 a year ago.

R&D expense was $4 million for the first quarter of 2014 as compared to $1.7 million in the first quarter of 2013. The $2.3 million increase was due primarily to our ongoing product pipeline development investment in 2014.

General and administrative expense was $8.6 million in Q1 2014 compared to $2.4 million in the first quarter of 2013. This increase was primarily the result of legal cost related to ongoing litigation and investigative matters, additional administrative infrastructure to support the growth of the business and higher corporate cost related to operating as a public company.

Operating margin for the first quarter of 2014 was 30%, up substantially from 7% in the first quarter of 2013.

We recognized a $5 million tax expense for the three months ended March 31, 2014, reflecting an effective corporate tax rate of 39.6%. No tax expense was recognized during the three months ended March 30, 2013 due to the effects of previously recorded valuation allowances on our net deferred tax assets. We expect to be a full tax paying entity going forward with an estimated effective tax rate between 35% to 40%.

Net income for the first quarter of 2014 was $7.7 million and diluted earnings per share was $0.21. This compares to net income of $143,000 and diluted earnings per share of $0.01 for the first quarter of 2013.

Adjusted net income per diluted share for the first quarter of 2014 was $0.41 compared to adjusted net income per diluted share of $0.12 for the first quarter of 2013.

On March 31, 2014, Insys had $7.2 million in cash, restricted cash, cash equivalents and short and long-term investments. As Mike mentioned, during the first quarter, we completed a three-for-two stock split through a stock dividend meaning that shareholders received one additional share our common stock for each two shares they held at the close of business on the record date. The new shares were distributed on March 28, 2014 increasing our total shares outstanding from approximately 22.8 million to 34.2 million shares.

We continue to have no debt and $96.1 million in stockholders equity on our balance sheet as of the close of the first quarter of 2014.

With that, I will turn the call back over to Mike. Mike?

Mike Babich

Thanks, Darryl. As I mentioned earlier, the first quarter of 2014 was our fifth consecutive quarter of topline growth and increased profitability. We see three key of our success long-term. These are continued execution of our Subsys strategy, progress on our dronabinol oral solution NDA filed later this year and developing a deep R&D pipeline led by our pharmaceutical cannabinoids and sublingual spray technology. I will talk about each of them in greater detail during this call, starting with continued success of execution of our Subsys strategy.

To-date, the Insys team has exceeded expectations in this area. As the only company focused on the sublingual spray market, we continue to penetrate the market and drive growth. Subsys is our proprietary, single use product that delivers an opioid analgesic for transmucosal absorption underneath the tongue. It has two key features that are important to the growing number of opioid tolerant cancer patients for whom Subsys is prescribed to alleviate breakthrough pain.

First, it provides rapid five-minute onset of action. This is the most rapid onset of action of any of the transmucosal immediate release fentanyl or TIRF products in this class.

Second, patients can administer Subsys in less than one minute. Both of these features offer significant advantages over currently marketed products. In addition, Subsys is available in the widest range of doses, seven doses ranging from 100 to 1,600 micrograms. Currently the only other product in this class, Actiq, offers the 1,200 and 1,500 microgram doses. Subsys has already captured over 36% share of the TIRF market and as of March 2014, it was the most prescribed TIRF product in this class, even overtaking the generic Actiq product.

Third-party market data for TIRF prescriptions continue to show double-digit percentage increase in Subsys prescriptions.

As Daryl mentioned, according to IMS data, prescriptions of Subsys increased by more than 15% in Q1 2014 compared to Q4 2013. We have a strong footing with payors and which we continue to build. We have greater than 95% commercial coverage, including Tier 3 coverage under nearly all major commercial plans.

In addition, Subsys is the only branded TIRF product on the UnitedHealthcare Formulary. Our promise to patients is that they will receive Subsys until their managed care provider approves it.

With the successful launch of Subsys, we have proven that it is possible to take a generic market and convert it back into a branded market if the product has the clinical benefits. Fewer than 120 physicians write 30% of the TIRF prescriptions. Of those, over 81% have written a Subsys prescription. The Subsys penetration within that group increased 28% from April 2013 to March 2014, giving us an overall 52% penetration amongst these high prescribing physicians.

There is evidence that other TIRF products continue to lose ground to us. Actiq has seen its market share drop by more than 50% from 72% to 35% since Subsys was launched in April 2012. We have continued now to take up Fentora market share as well. Subsys holds 37% market share of the entire class as of March 2014. We believe that our market share will continue to grow.

We continue to expand our U.S. based sales and marketing teams. Their focus is on promoting Subsys to supportive care and high prescribing physicians, enroll them in the TIRF-REMS program. We anticipate additional sales force hires this year so we can continue to execute our sales and marketing strategy.

We are also confident that our strong IP position will allow Subsys to remain a market-leading product. Our two orange book listed patents extend through 2030 and the barriers to entry for a generic competitor to Subsys are extremely high. Not only would a generic need to replicate the Subsys PK profile, they would need to mimic our spray delivery device without infringing upon our patents. Consequently, we believe Subsys will be able to grow and maintain its leading market position for the long-term.

I would now like to turn our attention to the second component of our growth strategy, our NDA filing for the dronabinol oral solution product later this year. This is our proprietary orally administrative liquid formulation of the synthetic cannabinoid dronabinol. Based on the data generated in the clinical trials, we believe that the oral solution offers a more reliable absorption profile, lacks variability and more flexible dosing compared to Marinol, which is the current dronabinol product on the market. Assuming FDA approval, we will be uniquely positioned to penetrate and potentially expand this market.

Our initial focus will be to convert the existing Marinol market by targeting current prescribers. Currently approximately 8,000 doctors account for 75% of Marinol scripts. When you look at the call plan, the majority of writers for this are oncologist, pain physicians and infectious disease doctors, the majority of which are currently covered by our sales force right now in the pain and oncology arena.

Therefore, we believe leveraging our own internal sales force will provide us with better access to prescribers and afford us better control over future sales and cost. We have completed the clinical dossier for this product during the fourth quarter 2013, and the abuse study required by the DEA is progressing. We remain on track to submit an NDA by the second half of 2014.

Our third key business driver is the development of strong product pipeline, leveraging our pharmaceutical CBD capabilities and sublingual spray technology. Our research and development efforts are moving forward in areas where we believe we offer substantial advantages versus our competitors. We have a robust pipeline of products in these areas with approximately 30 different molecules identified for development in the spray technology.

As I mentioned earlier, we are on track to file the NDA for the dronabinol oral solution as well. We recently announced plans to advance our pharmaceutical CBD program for the treatment of epilepsy in children and adults. In pediatrics, we will focus on the Lennox-Gastaut Syndrome and Dravet Syndrome, which are rare and severe forms of childhood onset epilepsy and for which we will seek orphan drug status. We have engaged a large CRO to provide development and regulatory services related and we also hired Mark Davis as our Senior Clinical Director to oversee this program.

Concurrently, we are evaluating the use of pharmaceutical cannabinoids in the treatment of peripheral neuropathy in Taxol treated patients, addiction to cocaine, heroin and opioids and glioblastoma. Our pharmaceutical cannabinoids are synthetically produced and over 99% pure Cannabidiol. We believe pharmaceutical cannabinoids offer a validated and controlled synthetic CBD alternative to plant based options.

We manufacture our pharmaceutical Cannabidiol in our Austin, Texas manufacturing facility. We believe that we are the only company in the U.S. producing in large quantities and have that capability. We are building a second facility to accommodate anticipation in production demand for our dronabinol oral solution and pharmaceutical CBD product candidates, if approved by the FDA.

I would like to turn our attention now to the R&D efforts related to our proprietary spray technology, which is suitable for many different molecules in our target markets. We are developing multiple preclinical products using known molecules under the 505(b)(2) pathway, which we believe will enable us to bring to market innovative products that meet unserved or underserved patient needs.

Our first candidates for the new spray technology, include Buprenorphine, a semi-synthetic opioid to treat moderate and acute chronic pain. In addition, we also developing a combination of Buprenorphine and Naloxone, which is an opioid antagonist to treat addiction and our additional IND filing that we have committed to for this year is utilizing the Ondansetron product, which is a serotonin5-HT3 receptor antagonist used mainly as an antiemetic to treat nausea and vomiting following chemotherapy. Based on proof of concept studies, we are on target to file INDs for these three product candidates in the second half of 2014.

During the first quarter of 2014, we initiated preclinical work on three additional sublingual spray candidates. These are Sildenafil, which is the active ingredient in Viagra, Diclofenac, a non-steroidal anti-inflammatory drug or NSAID used to reduce inflammation and as an analgesic reducing pain and Ketorolac, another NSAID used for short-term management of moderate to moderately severe pain requiring analgesia at the opioid level. We have also furthered our R&D in our work for Subsys focusing on label expansion.

In Q1 2014, we announced that the FDA approved an IND studying Subsys to evaluate in a preprocedural setting. The study enrolls opioid naïve and tolerant patients undergoing interventional procedures. The objective is to determine if Subsys can be used in place of intramuscular or intravenous administration of fentanyl for this patient population. We plan to initiate additional study this year for Subsys in areas that can further expand the market for this product.

One potential market is the treatment of Dyspnea, which is incidental shortness of breath. Our plans is to meet with the FDA to review trial design for a low dose fentanyl to aid with labored breathing.

Other opportunities for Subsys include used in preventing pain in procedures conducted in the office setting, managing pain in the emergency room settings, in both general ER and oncology patients and managing pain in burn patients and for pediatric use in control settings. The opportunities are vast and we believe that our track record of success with Subsys will position us very well to target these expanded markets.

As I have just described the potential markets for products, molecules and proprietary spray delivery system are expensive. Building a pipeline to tap into these additional markets is a cornerstone of our long-term strategy and a key focus on our efforts today. We believe that investment in research and development is a clinical driver of our long-term business success. So during the first quarter of 2014, we expanded our R&D team. We anticipate further increases in full-time R&D employees as we continue to focus on our preclinical and clinical programs. We are committed to remaining profitable and continuing to build shareholder value by focusing on an ongoing execution of our Subsys strategy, advancing our dronabinol oral solution with an NDA filing later this year and developing a robust R&D pipeline to capitalize on our pharmaceutical CBD and sublingual spray technology candidates.

With that, we would like to thank you for your time and open the call for questions. Operator, please go ahead with the instructions.

Question-and-Answer Session

Operator

(Operator Instructions). We will hear first from Jason Butler from JMP Securities.

Jason Butler - JMP Securities

Hi, guys. Thanks for taking the questions, and congrats on a great quarter. First, just on the wholesaler change, as you discussed. I just want to make sure I am thinking about this the right way. Are you saying that you saw wholesaler inventory drawdowns in 1Q? If so, have they reversed in the second quarter?

Mike Babich

Sure, Jason. Thank you, this is Mike. We see no abnormal inventory levels at all since the launch of the product but obviously since this is a thin class of prescribers and a niche product, there will be variability in the wholesaler levels. So our main concern as a company is to continue to grow demand which I think we demonstrated very well with the script growth that we saw in Q1 2014. Therefore if the demand is there, eventually the wholesaler sales will be there as well, and that's why we have the confidence to state that we anticipate revenue to be north of $52 million in the second quarter.

Jason Butler - JMP Securities

Okay. Great. Is the quarterly guidance something you plan on continuing to give in the future?

Mike Babich

Obviously, I believe as we hear business more evolve in a way that it is more predictable, I believe this will be something that we will look to guide whenever we have the visibility for a quarter.

Jason Butler - JMP Securities

Okay. Great. Then on gross margin. Daryl, you gave good color why the margin improved versus the first quarter of 2013 which the change from dronabinol but could you talk about the improvement you saw from 4Q to 1Q? You saw about 1.5% improvement there. Is the new level something you think is sustainable?

Daryl Baker

Yes. Thanks, Jason. What we saw, the growth to net breakdown improve just slightly in Q1 of 2014. We netted 77.7% of gross Subsys revenue in Q1. That compared to 76.7% in Q4 of 2013. So we have a full percentage improvement there. I think that that improvement was primarily driven by the change in accounting that we went through in Q4. As to the sustainability of that level, as we continue to expand working with managed care, another forms of reimbursement, it's likely that our gross to nets will slightly decline as we move through year but the gross margin in terms of overall we expect that to be relatively consistent as we move throughout the year.

Jason Butler - JMP Securities

Okay. Great. Then just last question. Mike, can you just talk about the recent debate around the physician in Michigan? Can you tell us exactly what you know about the criminal complaint and exactly what emphasis, involvement or relevance to Insys the complaint has?

Mike Babich

Sure, absolutely, Jason. I appreciate you bringing that up. First off, Insys' involvement in terms of anything related to Medicare fraud that is alleged from this physician is zero. We have had, if you see the court affidavit, the Medicare fraud is related to the reimbursement of procedures. Subsys is mentioned in there as the doctor was a prescriber of Subsys but in no way, shape or form was there any allegations against Insys, any of its employees or affiliates related to the fraud itself.

Jason Butler - JMP Securities

Okay. That's great. Thanks for taking the questions. I will jump back in the queue.

Mike Babich

Thanks, Jason.

Operator

We will hear next from Michael Faerm with Wells Fargo.

Michael Faerm - Wells Fargo

Good morning. Thanks for taking the questions. My first question is regarding Subsys revenues in the first quarter. Sequential prescription growth in the fourth quarter was 15%, sequential revenue growth was about 4%. If you could provide any color on why the discrepancy, that will be helpful. Thanks.

Mike Babich

Thanks, Mike. This is Mike. Obviously it was related to our change in accounting system that we saw there and the demand that we saw the script percentage does not, obviously was a disparity between what we saw from our demand perspective versus wholesaler sales and obviously we can't control what the wholesalers purchase during a certain quarter, but we obviously see that the confidence in Q2, in terms of wholesaler purchasing is exceeding where we were in Q1 at this point and that gave us the confidence to state that Q2 revenue will be greater than $52 million. So that's the explanation for why the delta is there and again, we remain focused on creating demand because at some point the wholesaler sales will always catch-up to demand. So our focus is to continue to expand and increase our market share and the script trends.

Michael Faerm - Wells Fargo

Just a follow-up to that. It sounded from the answer to the prior question that there was not any inventory drawdown in the quarter. Could you just clarify in dollar terms how much impact on sales there was from inventory movements, if any? Also if could you just clarify that the gross to net was actually better this quarter? I guess what I am getting at, if there was no inventory drawdown and the gross to net improved, I am not sure I am understanding why revenue growth was lower than prescription growth? Thanks.

Mike Babich

Sure. Mike, I will take the first part and Daryl will address the gross to net portion. Again, we have looked at our inventory levels since the launch of the product and they have always been in a certainly range and that range continues to be met both in Q4 and Q1. Obviously with the size of Subsys and the thin nature of the product being in a niche market, the various wholesaler levels differ based on the four main wholesalers that we use out there as well. So we saw no inventory levels in Q4 or Q1 that showed a disparity to prior what we saw it was in for two years on the market.

I will let Daryl address the gross to net portion.

Daryl Baker

Right. Thanks, Mike. Also to add color to the quarter-over-quarter change, Mike you recall that in Q4 of 2013, we booked a $1.5 million one-time cumulative. So if you back that out of the -- to really get an apples to apples comparison, you need to back that out of the Q4 number. So on an apples to apples basis, the sequential growth was 8% in Q1 compared to Q4. Also again to the gross to net, we did see some improvement slightly in Q1 of 2014, compared to Q4 of 2013. Again that was also primarily just related to the change in accounting that happened in Q4 of 2013.

Michael Faerm - Wells Fargo

Okay. Thanks. Just had another question regarding, well just related to the Michigan investigation. Can you give us a sense of what just overall use of Subsys, do you have any sense from your REMS, tracking or other records, what is the overall levels of use are for the labeled indication versus other uses?

Mike Babich

Sure. Mike, this is Mike. We do not have any data on that. However as a reminder, our sales, marketing strategy, the REMS was put in place prior to the launch of our product. So Insys calls on these REMS enrolled doctors and all the reports of writing habits and patients who are on the TIRF products gets reported back to the REMS program, which is administered by McKesson Health and those get reported back to the FDA. So companies do not have clarity around the usage of the product. However, all the information for each patient that needs a doctor does go back to the REMS program, which is run by the FDA and that gets reported back to the FDA on a quarterly basis.

Michael Faerm - Wells Fargo

Okay and regarding prescriber concentration, you mentioned, I think it was 118 physicians write the top 30% of prescription and your release yesterday mentioned, no prescriber is more than 5%. Just to give us a better picture of concentration at the top, can you quantify the prescription concentration of the top say five prescribers each?

Mike Babich

Sure, Mike, absolutely, and the data that I will use is what's available with WK Data. Approximately have two physicians that write about 30% of the overall product. The next from doctors, for example, write between 1.2% and about 3% of the overall product. So there is some concentration at the top. But more importantly, as we have continued to expand our sales force and commercial infrastructure, the impact that one single physician had in 2013 or 2012, for example, is a lot more diluted now in 2014. So we continue to see with the wider base of writers, that the percentage of these physicians go down as we grow overtime.

Michael Faerm - Wells Fargo

Those figures you just cited were for 2014? The data (inaudible) you gave?

Mike Babich

Yes.

Michael Faerm - Wells Fargo

Thank you.

Operator

(Operator Instructions). We will hear next from Robert Sussman with Bentley Capital.

Robert Sussman - Bentley Capital

A few questions for you. Can I assume from what you just said about 2014 that the doctor in Michigan is no more than 2% of your 2014 scripts?

Mike Babich

Good morning Robert. This is Mike. The doctor that's mentioned there was one of the two doctors who write approximately 3% of prescription in 2014.

Robert Sussman - Bentley Capital

Okay. Second of all, what's the company doing to ensure that your sales force does not market for off label use? That there is no abuses on the part of your sales force versus rogue doctors like the Michigan doctor?

Mike Babich

Sure, absolutely. First off, again to restate, our program, our sales and marketing infrastructure is focused in on REMS enrolled doctors. I have specifically spent many years before the commercial working with the other companies in this class and the FDA to develop this robust REMS program that ensures that physicians and patients and the pharmacies, everyone in the continuum of this product understands the risks and abuse and diversion of fentanyl TIRF products. As well, from a sales force perspective, our intense training classes that we have for our sales reps ensure that they fully comply with all the REMS programs that are out there. So we remain committed to ensure that not only our sales force, but the company as a whole, is enforcing the REMS program that's out there and continue to call on only doctors that are in the REMS program itself.

Robert Sussman - Bentley Capital

Do you see any evidence that there could be other doctors doing the same thing as the doctor in Michigan based upon outsized concentration or orders from one particular doctor?

Mike Babich

Robert, no, we do not believe that's the case, again but I do want to stress that the physician in question is accused of Medicare fraud. He is owed his right to a fair justice system. Fortunately, Subsys was not involved in the Medicare fraud either.

Robert Sussman - Bentley Capital

Okay. Just a few last questions. Can you talk about how far you have gotten with the Viagra molecule? How for you have taken it? When you might file and IND and beyond that, when you m get this through the FDA, whether you would take it through the FDA on your own and then if you did, would you market this product on your own or would you likely license it to one of the drug, either Pfizer or Lily?

Mike Babich

Sure. Robert, we have not given an IND timeline for the Sildenafil product, as of yet. But we have put it through our R&D efforts internally and have found formulations that we believe will be ready to go into Phase 1 once we complete the meeting with the agency and once we have that meeting with the agency, we will update the market in terms of, it's premature to say whether we will sell that on our own or not. We obviously believe that this is a specific molecule that lends itself well to a potential more immediate onset of action or convenience and so we remain committed to taking this product to the next level.

Robert Sussman - Bentley Capital

One last thing on that, if you would, because it's such a big market. What would be the advantage of your product versus the existing products on the market, the Viagra? What would be the delivery, time benefit and any other benefits that you might have?

Mike Babich

It's too early to tell until we do clinical trials. It's hard to speculate what it may be. I think if you look at our overall portfolio of sprays and when you look at Subsys compared to other products on the market, we believe that our sublingual spray technology potentially does get the molecule into the bloodstream quicker, but it is too early to commit to what the advantages may be. Obviously we think that all of our molecules that we are developing, if they are able to produce a greater onset of action or better blood levels, that would be the key in what we look for with all of our sprays.

Robert Sussman - Bentley Capital

Okay. Thank you very much.

Operator

We will take our next question from Rohit Vanjani from Oppenheimer.

Rohit Vanjani - Oppenheimer

Hi, guys. Thanks for taking the questions. I had a couple of additional question on the Michigan doctor. You said he maybe accounted for 3% in 2014. Did that include Medicare and the commercial? I think that the court document cited Medicare prescription, but is the 3% combined total?

Mike Babich

Yes. All those figures I quoted earlier, are accumulative for both Medicare and commercial for all the physicians in terms of market share.

Rohit Vanjani - Oppenheimer

And then, do you know what he accounted for in 2013?

Mike Babich

Sure. When you look back at the affidavit, we spent some time obviously going through the data and he was approximately in the area of about 20% of all Medicare business in 2013. If you look at the WK Data that's available, you can see that his prescription trends for Subsys started to decline in the second half of 2013 and continued to decline into the first and second quarter of 2014 as well. Therefore we are confident that no specific doctor can have a material impact on our revenue moving forward.

Rohit Vanjani - Oppenheimer

Okay, but it greatly reduced his impact going forward for 2014?

Mike Babich

Absolutely.

Rohit Vanjani - Oppenheimer

And that $52 million that you have for 2Q, that accounts for him being out of the run rate?

Mike Babich

Absolutely.

Rohit Vanjani - Oppenheimer

Okay. So what do you think about the government targeting other Subsys physicians? I think the worry is that physicians will think that it is too burdensome, but in reading the court docs, the particular physician bills are nerve conduction studies, but he didn't do them, needle electromyographies, but he didn't do them. So what's your take on that? A broader look versus the one bad apple story?

Mike Babich

No, I think this is a case of Medicare fraud and as a reminder, if there is no Medicare, it is impossible for physicians to commit Medicare fraud and Subsys is distributed through the normal wholesaler change. A patient has to get a prescription, take it to their REMS enrolled pharmacies, et cetera. In terms of the overall class, I do not think that physicians will say, okay, I am not going to use Subsys anymore, but I am going to use another TIRF product. As a reminder, this is a class of drugs that have been under scrutiny for a number of years back when there was market from a unit percentage was a lot larger back in 2005 and 2006. The overall number of units in this class of drugs has been cut in half from 2060 to 2013 and we have finally started to see some growth in the second half of this year into Q1 of the overall class. So I do not believe that there is any risk from a Subsys perspective. I do, however, believe that opioids in general will continue to remain looked at by the agency, including this class. That's something that we will monitor, but in terms of Subsys, I believe that people would not choose to stop writing Subsys and go to another TIRF product.

Rohit Vanjani - Oppenheimer

Okay. Great, and then do you have a breakdown or anything of prescriptions written by pain docs, oncologists and other? Is it still the case? I think I remember stats of 85% of the prescriptions were written by pain docs, 10% by oncologist and 5% by other. Is that still the case? And then someone like Dr. Awerbuch would be in that other category?

Mike Babich

I don't have the WK Data. I would point everyone towards WK and IMS to break that down. I believe that's a fair representation of who is writing the product, and as clearly stated by us numerous times that we continue to only call on REMS enrolled doctors. Our strategy from day one was to go out to the Actiq and Fentora writers, when we launched the product. We believe that we had a better clinical product and we were calling on physicians that were REMS enrolled and using the prior products. It was merely a switch strategy that we put in place showing the clinical benefits of Subsys versus Actiq, which is where we did all of our clinical studies. So we remain committed to calling on these REMS enrolled physicians.

Rohit Vanjani - Oppenheimer

Okay, and then my last question. Do you know what the revenue would have been for the quarter had you had your old accounting policy where you were recognizing on a prescription?

Mike Babich

No, we can't comment on that but I would point you to the script growth that we saw because we used to provide revenue on demand sales. Obviously, demand was better in Q1 than it was in Q4 but we can't give out what that demand revenue would have been.

Rohit Vanjani - Oppenheimer

Okay. All right. Thanks for taking the questions. I appreciate it.

Mike Babich

Thanks, Rohit.

Operator

This will conclude our question-and-answer session. I would like to turn the call back to Mike Babich for closing remarks.

Mike Babich

Great. Thank you everyone for joining in our Q1 quarterly call. We look forward to speaking to you in the near future. Thank you.

Operator

This does conclude today's conference. We thank you for your participation.

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Source: Insys Therapeutics' (INSY) CEO Mike Babich on Q1 2014 Results - Earnings Call Transcript
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