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Executives

Doug Sherk – IR, EVC Group

Don Bailey – President and CEO

Steve Cartt – EVP & CBO

Kristi Engelke – Principal Accounting Officer

Kirsten Faraday [ph] – Director of Business Analytics and Evaluation

Eldon Mayer – VP of Commercial Operations

Stephanie MacGregor [ph]

Analysts

John Newman – Oppenheimer

Yale Jen – Maxim Group

Tim Chiang – CRT Capital

Adam Peck [ph] – Portland Funds [ph]

Jeff Paley – Crimson Biomedical Consulting

Questcor Pharmaceuticals, Inc. (QCOR) Q3 2010 Earnings Conference Call October 28, 2010 4:30 PM ET

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Questcor 3Q ‘10 financial results conference call.

(Operator Instructions) Today’s conference is being recorded October 28, 2010.

I would now like to turn the conference over to our host, Doug Sherk. Please go ahead.

Doug Sherk

Thank you, operator, and good afternoon, everyone. Thank you for joining us today on the Questcor Pharmaceuticals’ third quarter 2010 earnings conference call.

This afternoon at market close, Questcor issued its third quarter earnings release. The release is posted on the company’s website at www.questcor.com. In addition, we’ve arranged for a taped replay of this call which will be available approximately one hour after the call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of the call. The call is being broadcast live and an archive replay will also be available. To access the webcast, go to Questcor’s website at www.questcor.com.

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

With that, let me turn the call over to Don Bailey, President, Chief Executive Officer of Questcor Pharmaceuticals.

Don Bailey

Thanks, Doug, and good afternoon, everyone.

With me today are Steve Cartt, our Executive Vice President and Chief Business Officer; Dave Medeiros, Senior Vice President of our Pharmaceutical Operations; Dr. David Young, our Chief Scientific Officer and local hero; [Kirsten Faraday], our Director of Business Analytics and Evaluation, that is she’s our Medicaid expert; Kristi Engelke, our Corporate Controller and Principal Accounting Officer; and Eldon Mayer, our VP of Commercial Operations.

This afternoon we will review Questcor’s highlights for the third quarter of 2010 and discuss recent business developments. I will make some summary comments about the quarter, Steve will provide some color regarding sales, and our new finance team, Kristi and [Kirsten], will discuss the financials and Medicaid division. Then we will open up the call to your questions.

Today we have a unique setup for this conference call. We are conducting this conference call from or national sales meeting where we are providing our newly-expanded sales teams the final training and information they need to start calling on physicians this coming Monday. Our entire commercial team of over 100 people, including our Acthar specialists, sales managers and our marketing personnel, is in the room right now with us. Fortunately it’s a very big room. Basically we have almost 90% of the company’s employees together on this call.

Questcor generated solid financial and operating results during the third quarter of 2010. These results reflect the continued execution of our straightforward growth strategy for Acthar and the very successful efforts of our commercial team. Net sales in the third quarter 2010 set another quarterly record at $31.3 million and we shipped 1,890 Acthar vials during this quarter. In addition, we generated net income of 11.5 million or 18 cents per share.

Our top line growth is being driven by the increase in MS net sales. Scripts were up 129% year-over-year and 6% sequentially. We believe that net sales in the MS market are now well over 50% of total Acthar net sales and at an annual run rate approaching $70 million a year in net sales. We are looking forward to further revenue increases as a result of the efforts of our newly-expanded sales force.

Turning to IS, Acthar net sales for IS in the third quarter 2010 continued to be within historic levels. With FDA approval of the IS indication on October 15th, we are quickly launching commercial efforts in this therapeutic area. With the FDA approval we will now be able to effectively defend our existing business in IS and expect to generate modest increases in IS prescriptions over time.

In conjunction with the approval, the Acthar label went through a very detailed review and assessment at the FDA. And as a result, it was fully updated and modernized. This newly-developed label now contains 19 indications including the treatment of MS exacerbations, infantile spasms and nephrotic syndrome. These of course are three strategically important indications.

It’s very important to note that as part of the detailed review of the Acthar label, the FDA reconfirmed the treatment of MS exacerbations as an approved Acthar indication and the treatment of MS as two approved indications for Acthar. These reconfirmations should really help our sales and marketing efforts.

The new label also includes a number of other intriguing indications for which the FDA determined that there was adequate evidence or scientific rationale for Acthar efficacy. These include important and potentially valuable indications such as rheumatoid arthritis, lupus and optic neuritis. We plan to investigate the possibility for the use of Acthar in these investigations – in these indications.

Importantly, the FDA did not require any post-approval commitments from Questcor for any of the indications on the revamped label. Our only post-approval commitment is related to the distribution and assessment of the new Acthar medication guide which is specific to IS.

Moving on to nephrology, we have now confirmed that the new data on Acthar has been accepted for presentation on November 20th at the American Society of Nephrology Annual Meeting in Denver. The related abstracts are available on ASN’s website www.asn-online.com. The data includes the very first assessment of Acthar treatment in nephrotic syndrome and in diabetic nephropathy. Both are serious kidney disorders having few therapeutic alternatives and significant unmet medical need. We believe that these initial evaluations of Acthar in nephrotic patients may potentially help the nation’s 7,000 nephrologists better understand how Acthar might begin to fulfill a helpful therapeutic role with their patients.

Now I would like to turn the call over to Steve Cartt who will discuss our commercial activities in more depth. Steve?

Steve Cartt

Thanks, Don.

Our promotional efforts with neurologists continued to grow Acthar prescriptions during the third quarter of 2010. Specifically, Acthar prescriptions to MS were up 129% during the third quarter over the year-ago period. Importantly, we continue to see expansion in the number of total Acthar prescribers and in the number of repeat prescribers and patients during the quarter.

A major focus of our commercial management team during the third quarter is the previously announced expansion of our Acthar sales force, from 38 to 77 representatives. We initially focused on recruiting our new sales managers who in turn then recruited and hired our new sales reps. We also promoted several of our top-performing reps to sales manager positions.

Our commercial team was extremely selective during the hiring process, being acutely aware that the quality of personnel we hire will directly fuel our success as a company for the foreseeable future. As of early October, all the hiring was complete with extensive training taking place over the last several weeks, culminating in our national sales meeting this week. We are very pleased with the caliber and experience of the personnel we have been able to attract to Questcor. Our newly-expanded sales team will begin making calls next week on both neurologists and child neurologists to grow both MS and IS prescriptions.

Not only has our sales expansion given us significantly more selling capabilities, it has also allowed us to structure a geographically much smaller and more efficient sales territory which should lead to greater productivity for our sales people with each of them spending more of their time selling to doctors and less time driving or even flying to the doctors’ offices. We’ll now be able to call on significantly more neurologists and with a higher frequency. Based on previous experience, this high frequency of calls is critical for impacting a neurologist’s prescribing behavior.

It is important to note that our sales reps have spent most of their time so far in the fourth quarter undergoing training rather than selling, and in most cases they’re now in sales territories that had been significantly reconfigured. So the fourth quarter to some extent will be a transition quarter. In addition, with the expansion and the IS launch, our expenses will be higher in the fourth quarter than the third quarter, and this may impact earnings in this quarter.

However, we believe that investing some of our resources in broader sales coverage and increased call frequency will accelerate the growth of MS prescriptions beginning in early 2011. We also expect to begin seeing modest growth in the IS prescription volume over time as a result of our launch next week of the new Acthar IS indication which the FDA approved on October 15th. We should build upon the relatively stable range of IS usage we have seen historically for Acthar.

During the third quarter of 2010, we sold a total of 92 paid non-Medicaid commercial prescriptions for Acthar in IS. This is barely consistent with previous quarters despite the expansion of Medicaid rebates resulting from the Healthcare Reform legislation earlier in the year.

Now I’ll take a moment to discuss our progress in nephrology. As Don noted, the nephrotic syndrome was reconfirmed by the FDA as an Acthar indication on the recently modernized Acthar label. In addition, as we discussed on the last earnings call, in the second quarter we initiated a very limited pilot selling effort with five of our existing MS reps [diverting] about 20% of their selling time to nephrology calls. We saw that the small pilot effort generated 4 paid prescriptions in the second quarter and 8 in the third quarter.

Given these early results and considering the high value of each nephrotic syndrome prescription, we have now decided to more aggressively explore this market. To do so without distracting our main sales force from their critically important MS selling activities and IS launch efforts, we have decided to create a handful of dedicated experienced sales representatives who will sell Acthar exclusively to nephrologists on a full-time basis. Over the next two or three quarters, this dedicated nephrology selling effort will help us finalize our commercial strategies and selling plans for this important new Acthar market.

As Don mentioned, at next month’s American Society of Nephrology Annual Meeting, new clinical and preclinical data related to Acthar in the treatment of kidney disease is scheduled to be presented. These presentations will include the very first modern assessments of Acthar in nephrotic syndrome, supporting our plans for an expanded commercial effort in the nephrology market in 2011.

So let’s summarize. We’ve had another strong quarter for Acthar and MS and we’re seeing some encouraging repeat prescriber and repeat patient trends. A major commercial expansion is now complete and our full sales force will begin making both MS and IS sales calls on Monday. The IS business remained stable in the third quarter and we’ll launch our full commercial effort in this indication on Monday as well. Nephrology efforts are progressing and we began hiring a small new group of dedicated reps to accelerate our exploration and understanding of this new market. Finally, the first Acthar data set related to the treatment of kidney disease will be presented in November at the American Society of Nephrology Annual Meeting.

With that, let me turn the call over to Kristi.

Kristi Engelke

Thanks, Steve.

As Don mentioned, net sales were a record 31.3 million with a gross profit margin of 93% for the third quarter of 2010. Operating expenses for the third quarter of 2010 totaled 12.2 million, resulting in net income for the same period of 11.5 million which represents 37% of net sales and 18 cents per diluted common share. Our effective tax rate for the nine months ended September 30 of 2010, 34%.

In addition, we continue to strengthen our balance sheet as demonstrated by our cash balances, including short-term investments of approximately 114 million at October 25th, 2010.

During the third quarter, because of our pending sNDA for IS, we were not able to purchase any shares under our share repurchase program. To date we have used approximately $67 million to repurchase 14 million common and preferred shares during the last 2-1/2 years. We continue to have 5.1 million shares authorized for repurchase under the revised common share repurchase program. At September 30, 2010 we had approximately 62.2 million shares outstanding.

Now I’ll turn it over to [Kirsten] who’ll provide a short summary of our Medicaid provision.

[Kirsten Faraday]

Thanks, Kristi.

We break our Medicaid analysis into two parts, fee-for-service Medicaid and Medicaid managed care. For the fee-for-service prescriptions, we developed our Medicaid rebate reserve provision to an extensive state by state analysis of historic Medicaid rebate sales and prescription activity. We track prescriptions that are potentially Medicaid rebate eligible through the payment of [inaudible]. Because of complex eligibility issues, it’s not possible to positively identify each prescription, but we have developed a predictive model for using prescription data based on 12 historical quarters.

We believe that we are able to identify over three quarters of fee-for-service prescriptions. This detailed analytical approach has been used for a year now and has proven to be accurate in its predictive ability. Based on the Q2 billing activity, we believe that the Q2 provision was adequate.

Managed care Medicaid prescription became rebate eligible on March 23, 2010 as a part of Healthcare Reform. These prescriptions are currently more difficult to track, but we have used national enrollment statistics by age group to estimate our liability for this group of prescriptions. Our reserve for this group is 2.3 million in Q2 and 3.2 million in Q3. Very few managed care rebate bills have come through yet, so we’re building a significant provision for this potential liability.

At September 30, 2010, the company’s total sales reserve liability was 22.1 million to account for Medicaid rebate eligible and other government rebate eligible programs such as [Stryker].

Don Bailey

Thanks, [Kirsten].

As you can see from our results and plans, we remain focused on consistent execution against our simple strategic plan.

Sales teams, please tell the investors what our strategic plan is.

Sales Team

Sell more Acthar.

Don Bailey

Right. Sell more Acthar.

I think you can see that our employees understand what is needed to increase shareholder value, and they are all shareholders. We have completed the expansion of our Acthar sales force and expect our significantly enhanced selling efforts to drive further MS sales gains. With the FDA approval in hand, we will launch a modest commercial effort aimed at building awareness in the child neurology community regarding the need for early diagnosis of IS and for rapid and appropriate treatment with Acthar.

Finally, with the expected new clinical data on Acthar treatment in nephrotic syndrome and the creation of a small dedicated sales team to educate the market about the use of Acthar in this condition and educate us about how to sell Acthar to nephrologists, we look forward to finalizing our commercial strategies and selling plans for this important Acthar market.

Now we are ready for questions. We have asked one – two sales reps and one sales manager to join us on the stage in case any investor has a question that would be appropriate for the sales team to answer. One of the sales reps has been with us for quite a while and the other sales rep is new to the company.

Operator, you may now open the call for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions)

And our first question comes from the line of John Newman with Oppenheimer. Please go ahead.

John Newman – Oppenheimer

Hi, guys, thanks for taking the question. Question for Don. Don, I just wondered if you could give us a sense as to the number of additional reps that you plan on bringing onboard for the MS opportunity specifically. And then overall, when would you expect to have your full sales effort in place in nephrotic syndrome? And also, is there a possibility of a journal publication coming out of the ASN meeting? Thanks.

Don Bailey

Sure, John. So we have actually hired our first sales representative for nephrotic syndrome already and he’s here today. He lost the tug-of-war contest with the [sales] groups, too bad. But we are planning on hiring probably three or four more during the month of November and December. And so probably by Q1 we’ll have a pretty good feedback on how that’s going. So I wouldn’t expect a whole lot in this quarter from that effort, but in Q1 it’ll be interesting to see what happens.

As far as the paper, I think I’ll let Steve Cartt answer the question about the possibility of a paper coming out of ASN.

Steve Cartt

Yes, John. So there are a number of abstracts that are going to be presented at ASN next month and we expect that there’ll be at least peer-reviewed publication based on those abstracts. We expect to see something sometime in the first quarter in terms of a journal publication. And that would really be a springboard for this enhanced pilot effort that we’re conducting. It will give those reps something to use where it’s actually Acthar data for the first time.

John Newman – Oppenheimer

And maybe just one quick follow-up, then I’ll jump back in the queue. What type of sales effort in terms of percentages sales time do you plan do you plan on devoting to infantile spasm. So we know that the drug has been used there for some time and it’s almost the standard of therapy. But what type of effort do you plan on extending to that opportunity?

Steve Cartt

Yes, there are about 1,200 child neurologists and we also have about 4,600 target MS specialists. We expect to begin making calls next week on all 1,200 of the child neurologists, but it’s going to be fairly soon, where we can begin parrying some of that back. There are obviously some – already some big advocates of Acthar who use it first line in every case. We don’t need to spend too much time making calls on them. But there are other doctors, maybe 30% of the audience, that we really need to hunker down with and spend a lot of time with over the next few quarters.

So initially it’s going to be maybe 20%, but I think that that’s going to probably decline by the end of 2011. We’ll be able to focus our time on the doctors who we really need to change their behavior.

John Newman – Oppenheimer

Okay, great. Thanks.

Operator

Thank you. Our next question comes from the line of Yale Jen with Maxim. Please go ahead with your question.

Yale Jen – Maxim Group

Thank you, guys, for taking my question and congratulations on the very good quarter.

Don Bailey

Thanks, Yale.

Yale Jen – Maxim Group

Just a few questions. And the first one, could you give us a rough breakdown in terms of the revenue based on different indications? I know MS is over 50%, but could you give a little bit more granularity to IS and others overall, how we see this numbers here?

Don Bailey

Sure, Yale, I’ll be happy to do that. Now our estimates here are a little rough because we don’t see every prescription and we can’t trace every vial. But our approximate estimate is that MS is now 55%, IS is now under 40%, so in the high 30s, and then nephrology and other are each about 3% or 4%.

Yale Jen – Maxim Group

Okay, so 3% to 4%. Okay, great.

And the second question is that, for the MS [new hire force] – first of all, how many percentage of physicians, when you’re talking to physicians, has prescribed Acthar for their MS patients? In other words, what are the remaining – what’s the size of the remaining – so the prospect you’re looking for from your new – the sales force to address?

Don Bailey

Good question, Yale. I’ll ask Eldon Mayer, our Vice President of Commercial Operations to answer that.

Eldon Mayer

Hi, Yale.

Yale Jen – Maxim Group

Hi, how are you?

Eldon Mayer

Hi. We are following – with our extended sales force, we’ll be calling on about 4,600 MS prescribers. Of those, we have roughly 325 physicians who have prescribed Acthar as measured by one prescription over the past six months. So we have about 7% of prescribers, 7% to 8%. So I think there’s plenty of room for growth there.

Yale Jen – Maxim Group

And one of – and so I remember – correct me if – but there’s about maybe 20% to 30% of the physician – pediatric neurologists that has not prescribed Acthar for their IS patients, and those are maybe in the primary target?

Don Bailey

Actually, Yale, it’s probably closer to 50% have prescribed in the last year. So it’s 50% that haven’t. So that would be our primary target.

Yale Jen – Maxim Group

Okay. And the last but not least is in terms of the MS, I know you were – be heading into the ASN meetings, and would that be a full force of marketing and education effort? And if that’s the case, would you – is there any sort of color you can share on that aspect?

Don Bailey

Yes, I’ll let Steve give you a good full rundown on that.

Steve Cartt

Yale, so we’ll have a presence at the meeting next month at ASN. We’ll have a commercial booth, we’ll have our usual medical affairs booth. We’re having a dinner program for about 40 of the top experts in nephrology during the week. And then on Saturday there will be the presentations on Acthar. There’s been a variety of studies and some of the data coming will be presented on that Saturday.

So that’s really kind of the extent of what we’re doing. We’re stepping out clearly over last year. But I think 2011 is going to be a much bigger year on the nephrology side for us.

Don Bailey

And, Yale, one of those abstracts was accepted for podium presentation patients, so that’s good. And the 40 KOLs who are attending our dinner compares to only 20 last year. So it’s a pretty big increase. We’re starting to fill the [inaudible].

Yale Jen – Maxim Group

Okay. And just the last one, the abstract to be published, will that be the clinical one or the preclinical one?

Steve Cartt

For the publication in the peer review journal?

Yale Jen – Maxim Group

Right.

Steve Cartt

Yes, we’re looking at that. That will be one of the clinical papers.

Yale Jen – Maxim Group

Okay, great. Okay, thanks. I will come back to the queue.

Don Bailey

Yale, that’s based on the [inaudible].

Yale Jen – Maxim Group

Okay, great. Thanks a lot, I appreciate it.

Operator

Thank you. Our next question is a follow-up from the line of John Newman with Oppenheimer. Please go ahead with your question.

John Newman – Oppenheimer

Hi, thanks for taking the follow-up. I just wondered, maybe a question for Don and potentially also for the sales force, could you tell us a little bit about just the way that doctors currently treat nephrotic syndrome as of now? I know that there are a couple of other things that they’re using. But I just wondered if you could talk about how they think about efficacy and sort of how Acthar has compared. We’ve reviewed the abstract and it looks like a very interesting comparison. But just curious as to what you’re seeing in the marketplace in terms of how the doctors approach trying to help these patients right now. Thanks.

Steve Cartt

Yes, John, this is Steve. I’ll take that one.

So in cases of – let’s look at membranous nephropathy, that’s the main patient type that was in the abstract that’s to be presented next month. So that’s one of the more important forms in nephrotic syndrome. Those patients are typically treated with things like cyclosporine, IV steroids, other cytotoxic drugs, Rituxan sometimes, [CellCept], things like that. So it’s kind of a mixture. There’s really no standard of care. Some doctors have used what’s called the Ponticelli regimen which is a combination of drugs for years. So that’s actually beginning to fall out of favor a bit. So it’s really kind of a drug cocktail approach which really tells you there’s no one drug that’s standing out.

Where we’re seeing our usage now of Acthar is typically in patients who failed two or three of those different treatment approaches, because we’re a new drug, there’s no data on it yet, and we hope to accelerate usage further up the spectrum so that maybe we can become the drug where we’re used after the first treatment failure or maybe eventually, down the road, as first line.

So a lot of work to do before we get to that point. But it’s used more in the refractory cases right now.

John Newman – Oppenheimer

Okay, great. And maybe a question for Don. Don, what would be sort of your long-term plan in terms of the sales effort in nephrotic syndrome? Would you sort of scale as is needed appropriately? So if you’re seeing an encouraging uptake, would you think about adding more reps or would you think about possibly having some of your reps devote more of their time to nephrotic syndrome?

Don Bailey

That’s an excellent question, John. And I think that we’ve had very good success in growing the MS sales by incrementally growing the MS sales force. And we did that based on data we received, obviously, in the form of sales increases. So it was a fairly straightforward decision to be making.

Nephrotic syndrome is a little different in that we don’t have a history as a company of selling to nephrologists. So, this small dedicated team effort, as much as anything, it’s going to help us find out the similarities and the differences between selling to nephrologists and to our current selling to neurologists. I think we need that information to really give an answer to your question insofar as – as far as whether it’s a dedicated sales force or if an Acthar specialist will sell to all three. There’s pros and cons to both just sitting here at the starting date. So we’ll let that information flow back to us.

And then second, as far as timing of when we would grow it, that will just follow the MS model. There’s always a push and pull between ripping the band-aid and growing fast and growing more moderately and reducing the risk, and the disruption – it’s a big disruption when we had these massive increases in sales force.

John Newman – Oppenheimer

Okay, great. And then just one last question, what has the sales message been like over time for use of the drug in MS? We’ve heard from a couple of physicians that they actually use the product, that they like it. But it seems like there’s a thought in the marketplace that Acthar is a steroid when it seems like in reality it’s not. And so I’m just wondering, how has the message in MS flares kind of matured over time and what are the things you might do to kind of tweak it going forward?

Don Bailey

John, I’m glad you asked that question. And I’m going to ask Stephanie MacGregor [ph], our Acthar specialist in Florida to answer that question. She’s been doing this for a while so she should have a good answer.

John Newman – Oppenheimer

Okay.

Don Bailey

No pressure.

Stephanie MacGregor

Thanks for your question.

With my experience, I’ve been with the company for 6-1/2 years, and the MS thought leaders that are out in the community are actually becoming more and more receptive to our message and growing Acthar business, that there are very certain patient types that we’re targeting.

Our marketing team has been amazing with coming up with a wonderful targeted message for us to go out. We have amazing tools in our bag that we can [detail] our physicians and act as a resource for them as well. They do see that there are benefits for certain patients that don’t tolerate steroids as far as recovering from an acute exacerbation. And I’m personally seeing [inaudible] physicians I would say very frequently, hopefully every day. But they are very receptive to our message. They do see a need in the market, they do see that their patients benefit from Acthar, and I know they’re excited now with the expansion of our sales force that we have out here and all the years of experience collectively that we have, so we can really take Acthar to the next level in MS. It’s a very exciting [time of course for us].

John Newman – Oppenheimer

Great. Thanks.

Operator

Thank you. Our next question comes from the line of Tim Chiang with CRT Capital. Please go ahead.

Tim Chiang – CRT Capital

Hi, Don.

Don Bailey

Hi, Tim.

Tim Chiang – CRT Capital

Hey. Sort of when we did some details on how many – how much penetration you can get with 77 reps, I mean you sort of highlighted about 4,600 MS specialists, and I guess you – I mean I guess if I divide the number of doctors you’ve penetrated, that’s 325 doctors. Each rep basically hits about 8 to 9 physicians. I mean is that basically the same multiple I should use with 77 reps?

Steve Cartt

Let’s see. Did you understand that question clearly? You want to try it, Eldon?

Eldon Mayer

Sure. I had some difficulty hearing the audio question but I think the question was, please correct me, about the penetration that we think we might be able to achieve and how we can grow given the relatively small number of prescribers, is that correct?

Tim Chiang – CRT Capital

Yes.

Eldon Mayer

Okay. So we have had at the end of last year we expanded to 38 from 30 specialists and we have really, because of the size of the territories and Steve alluded to this as well, we’ve been limited in the number of physicians that we can effectively call on, especially with respect to frequency. And one thing we’ve learned is we really need to identify good targets and then focus on them. So we have really only been able to call on about a thousand physicians frequently. So given that and the small number of representatives we’ve had and the short period of time, I think we’re – we’ve had some pretty good achievement there. And by the way, the 325 physicians who’ve written prescriptions that had been shipped and paid. We had more who’ve written prescriptions that were received but didn’t – weren’t shipped and paid. It maybe have been Medicaid or denied or whatever.

So I think given this sales force and the factors that were mentioned by Steve, we can be more focused and spend more time selling and less time driving, I think we can really grow our prescriber base and grow our sales fairly well.

Don Bailey

And the number of calls per day I would think they’ll be able to go up, and the frequency that you can call a doctor will be much greater [inaudible].

Tim Chiang – CRT Capital

Okay. I mean I guess, is there a target in terms of what sort of penetration you can achieve within let’s say a year with the larger sales force?

Don Bailey

Yes, our general target is lots more. [inaudible] number. I don’t think we really want to share that number with you.

Tim Chiang – CRT Capital

Okay.

Don Bailey

We have specific goals, but as you know, we generally don’t provide guidance in the projections.

Eldon Mayer

I would only add that we’ve been – we’ve shown consistent month-in, month-out, quarter-in, quarter-out growth in our prescribing base.

Tim Chiang – CRT Capital

Okay –

Don Bailey

Number of prescribers, number of multiple prescribers, and number of prescribers who are willing to be in our [inaudible] have all gone up consistently.

Tim Chiang – CRT Capital

Okay, great. I just had one follow-up. And, Don, you sort of mentioned early on in the call that you do plan on investigating some of these other approved indications, potentially doing additional clinical trial work. When should we expect significant trials to start in some of these other approved indications?

Don Bailey

Well, I would say almost immediately we’ll start to see – we’ll start to invest in some trials in nephrotic syndrome, and we have some of those being designed right now. These will be company-sponsored trials. So we’ll be talking more about that probably on our year-end call in February.

So, past that, we haven’t made any firm decisions. We need to do some explorations. We’re in the process of trying to expand our ability to do that exploration both from a commercial point of view and a clinical research point of view. We’re in the process of hiring, expanding our team in both those areas.

Tim Chiang – CRT Capital

Okay. And maybe just one last question if I may. It’s really more a financial question. Your operating expenses [inaudible] run over 12 million and I think, Steve, you might have mentioned that that number probably will be going out. I mean, is there any way you could give us a range in terms of what it might get to in the fourth quarter?

Don Bailey

Sure, I’ll give you a rough idea. So just to put the 12 million in perspective, probably on average the sales force came in average about September 1st, roughly. So we would expect – and we expect that total cost to be – the incremental cost to be in the neighborhood of $12 million or $3 million a quarter. So in Q3 we probably only had 1 million associated with the expansion. So I would say a delta of 2 right there.

Then all of the other expenses probably will be going up in the fourth quarter as well related to, well, we have the expense associated with being organized and trained, that’s a pretty significant expense. So it’s probably going to be up a fair amount from the third quarter. We view this as an excellent investment. And while we don’t expect that payoff in the fourth quarter, of course we certainly – it would be helpful to get payoff in Q1, Q2.

Tim Chiang – CRT Capital

Okay, great. Well, thanks a lot, Don.

Operator

Thank you. (Operator Instructions)

And our next question is a follow-up question from the line of Yale Jen with Maxim. Please go ahead.

Yale Jen – Maxim Group

Hi, thanks for taking the follow-up question. I think it probably has been answered but I just want to confirm. One of the two abstracts will be presented this November was for the diabetic neuropathy, and as far as I have checked the label, this is not in there for the nephrotic syndrome. So, going forward, would that be one of the indications the company may spend effort, try to do a clinical study in order to get approval for, or any, yes, comments on that regard.

Don Bailey

Yes, good point, Yale. What’s on label is idiopathic nephrotic syndrome which the main form of that is membranous nephropathy or FSGS, those two. And then [leukonephrosis]. Is that right? Lupus nephritis. Lupus nephritis is on label, so that’s why we show those two.

So diabetic nephropathy is not on label, but one of the two studies being presented or abstracts being presented at the ASN deals with diabetic nephropathy, and the early signals with [inaudible] looks pretty good. So we are in the process of determining what the next step should be. So that’s on the drawing table, really not ready to talk about how big or extent that that might be a win, but again we’ll give you a good update here in a couple of months [inaudible].

Yale Jen – Maxim Group

Okay, great. Thanks a lot, I appreciate it.

Operator

Thank you. Our next question is a follow-up from the line of John Newman with Oppenheimer. Please go ahead.

John Newman – Oppenheimer

Hi, thanks for taking the question. Just on the financials, it seemed like the net margin was quite high this quarter, which is encouraging. I’m just wondering, on a go forward basis, should we expect to see our net margin in sort of that 37% to 40% range, or is it something that just over time might settle back down a bit? I’m just curious as to how to think about that. Thanks.

Don Bailey

Well, we’d love to see the operating margins stay at 54% net margin than the mid to high 30s. It all depends on how good our sales force is. So everybody in this room, I think you can do it. We’ll meet those margins going forward.

Obviously our expenses are expected to go up. Certainly we’ve done the math and those margins have every potential to be kept going forward which would be excellent. But we certainly can’t make a projection like that, John. It’s impossible to know exactly. But we’re very focused on providing cash, free cash flow and profits, as you know, that’s important to us, it’s important to investors, as well as to invest properly to build shareholder value in the future. So we’re constantly making that trade-off.

John Newman – Oppenheimer

And in terms of the cash that you have on the balance sheet, it appears like you’re generating cash every quarter. Are there any other things that you’ve thought about doing with the cash in terms of returning it to shareholders? I noticed you have the buyback program. But just curious if there’s any other considerations that you thought about.

Don Bailey

Sure. Well, our first priority always goes to investing in the business, that so far we’ve been able to invest in [inaudible] control of cash. So our second priority has been the shareholder buyback program – share buyback program. You don’t buy back shareholders. Share buyback program. And we’ve done what we could there. We’ve been locked out for a year now, so it’s a been a little frustrating. We did explore the possibility of a special dividend, but we put that aside for now, it’s just too complicated to try to do before the end of the year. So that’s about the range of things that have been discussed.

John Newman – Oppenheimer

Great. Thanks.

Operator

Thank you. Our next question is from Adam Peck [ph] with Portland Funds [ph]. Please go ahead.

Adam Peck – Portland Funds

Good afternoon, thanks for taking the question. Don, historically Q1 has been the weakest and Q3 the strongest. Would you expect that might fall by the wayside with the growth in MS and NS?

Don Bailey

[Adam], yes. But we don’t really see any historic pattern. I think that that’s more just coincidental. There’s nothing that we can see particularly that’s really seasonal-like in our business. Anybody –

Adam Peck – Portland Funds

Great.

Don Bailey

[Because I don’t get such agreement] at the table, so.

Adam Peck – Portland Funds

And is 77 still the target for yearend or would those additional three to four NS be incremental?

Don Bailey

Well, the 77 is the number of Acthar specialists who will be pursuing MS and infantile spasms. So the nephrotic syndrome handful of reps will be additional. And that’s all the planning for this year.

Adam Peck – Portland Funds

Okay. And what would be the breakdown between IS and MS?

Don Bailey

Steve answered that question earlier, and it’s roughly 80/20.

Adam Peck – Portland Funds

Okay.

Don Bailey

Eighty percent MS. Each rep will be selling to both neurologist and nephrologist – I’m sorry, neurologist and child neurologist.

Adam Peck – Portland Funds

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Jeff Paley with Crimson Biomedical Consulting. Please go ahead.

Jeff Paley – Crimson Biomedical Consulting

Hey, Don, great quarter.

Don Bailey

Thank you.

Jeff Paley – Crimson Biomedical Consulting

Question specifically about the nephrotic syndrome application. So it’s obviously a good problem to have, if there’s such an enormous market, is just going to be how to price the drug ultimately. So that’s – Part A of the question is, how would you consider pricing the drug? Medicare is not going to want to spend $50 billion or $20 billion covering the drug for the entire diabetic nephropathy population. I guess part two of that question would be, would you therefore design clinical studies to change the dose such that you can sort of use an alternate dose and therefore price accordingly for the separate markets.

And then I guess the third question on the same topic would be, as the lack of a label approval for nephrotic syndrome, as Yale Jen pointed out, prevent or limit reimbursement, if physicians who are KOLs want to go ahead and use the drug in the diabetic nephropathy population.

Sorry for the triple-kick question.

Don Bailey

That’s okay, that’s okay. We’ll see if we can remember all of it.

So the first one was pricing. Pricing is actually a fairly easy decision to make, Jeff. If by lowering price we increase total sales [inaudible] otherwise we can’t lower the price. I think that depends on the [inaudible]. If we break into diabetic nephropathy in a real way where there’s 24 million people with diabetes, 4 million of them have some form of kidney issue and a lot of them have significant kidney issues, obviously your numbers are probably in the right ballpark, we probably would have to do something.

As far as dose size, we certainly are looking at any and every business strategy that I think every pharmaceutical company looks at to address these sorts of issues, and past that I don’t really want to comment.

And as far as reimbursement on diabetic nephropathy, I’m not sure we have an opinion on that yet. It’s just a little bit too early. We certainly had good success in the past with reimbursement of off-label usage of Acthar, so. And we will do the work as the market – if the response with Acthar is positive in treating diabetic nephropathy, we will do the clinical work and try to get it on label.

Jeff Paley – Crimson Biomedical Consulting

Great. Thank you.

Operator

Thank you. And I show no further questions in the queue at this time. I would like to turn the conference back to management for closing remarks.

Don Bailey

Well, thank you, operator. And thanks, all the investors for attending and all of our sales force for attending. We would like to remind everybody that next week we will be presenting at the Oppenheimer conference in New York, on Wednesday. And in three weeks we will be presenting at the Maxim conference also in New York, on Thursday, the 18th.

Thank you and we’ll talk to you next quarter.

Operator

Ladies and gentlemen, this concludes the Questcor 3Q ‘10 financial results conference call.

If you would like to listen to a replay of today’s conference, please dial 1-800-406-7325 or 1303-590-3030 and then do the access code of 4378038.

Thank you for your participation. You may now disconnect.

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