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Acorda Therapeutics, (NASDAQ:ACOR)

Q3 2010 Earnings Call

November 1, 2010 08:00 am ET

Executives

Dr. Ron Cohen – President and Chief Executive Officer

David Lawrence – Chief Financial Officer

Lauren Sabella – Executive Vice President, Commercial Operations

Tierney Saccavino – Senior Vice President, Corporate Communications

Analysts

Michael Yee – RBC

Joel Sendek – Lazard Capital

Yaron Werber – Citi

Geoff Meacham – JPMorgan

David Amsellem – Piper Jaffray

Chris Raymond – Robert Baird

Phil Nadeau – Cowen and Company

Mark Schoenebaum -- ISI Group

Operator

Welcome to Acorda Therapeutics Third Quarter 2010 Financial Results Conference Call. (Operator instructions). Please be advised that this call is being taped at the company’s request. I’d now like to introduce your host for today’s call, Ms. Tierney Saccavino, Senior Vice President of Corporate Communications at Acorda Therapeutics. Please go ahead.

Tierney Saccavino

Good morning, everyone, and welcome. With me today are Dr. Ron Cohen, our President and Chief Executive Officer; and David Lawrence, our Chief Financial Officer and Lauren Sabella, our Executive Vice President of Commercial Operations.

Before we begin, let me remind you that this presentation includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts regarding management’s expectations, beliefs, goals, plans, or prospects should be considered forward-looking.

These statements other than statements of historical fact regarding management’s expectations, beliefs, goals, plans, or prospects will be considered forward looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including Acorda Therapeutics’ ability to successfully market and sell Ampyra in the United States and to successfully market Zanaflex Capsules. Third party payers, including government agencies may not reimburse for the use of Ampyra at acceptable rates, or at all, and may impose restrictive pre-authorization requirements that limit or block prescriptions.

The risk of unfavorable results from future studies of Ampyra, the occurrence of adverse safety events with our product, delays in obtaining or failure to obtain regulatory approval of Ampyra outside the United States, and our dependence on our collaboration partner Biogen Idec in connection therewith, competition, failure to protect Acorda Therapeutics’ intellectual property or to defend against the intellectual property claims of others, the ability to obtain additional financing to support of Acorda Therapeutics’ operations and unfavorable results from our preclinical programs.

These and other risks are described in greater detail in Acorda Therapeutics’ filings with the Securities and Exchange Commission. Acorda Therapeutics may not actually achieve the goals or plans described in these forward-looking statements and investors should not place undue reliance on these statements. Forward looking statements made in the presentation are made only as of the date hereof, and Acorda Therapeutics disclaims any intent or obligation to update any forward-looking statements as a result of developments occurring after the date of this presentation.

Now I will turn over the call to our CEO, Ron Cohen.

Ron Cohen

Thanks, Tierney. Welcome everyone. This morning we reported our Q3 2010 financial results. We continue to be pleased with the progress of the Ampyra launch. Today Lauren will provide an update on our Ampyra and Zanaflex businesses, following which Dave will review financials for the quarter. I’ll then provide an update on our corporate growth strategy, and will then open the call for your questions. Please note, we’re aiming to provide as much data and color as we can during the launch of Ampyra, to assist investors in understanding key metrics, however, we may not continue to provide updates on all of this information as the launch progresses. Lauren?

Lauren Sabella

Thank you, Ron. Hello everyone. We’re very pleased with Ampyra sales for the quarter, which total $52.6 million. As of September 30th , approximately 6300 physicians have written at least one prescription for Ampyra. Importantly, almost 90% of physicians in our top five (inaudible) have written at least one prescription. This is a significant penetration only seven months after commercial availability. Based on data from this yield, we have expanded our initial into 5500 target physicians to approximately 10,000 targets. Through the end of Q3 we were in the initial phase of the Ampyra launch. The uptake of Ampyra was very rapid, driven by higher than expected pent up demand. We are now building on the base we have established. I will provide some additional detail in the following slides.

As we acknowledged, the initial influx of prescription requests was so great we were not able to process requests as quickly as they were coming in. We resolved that issue by increasing staff at Ampyra patient support services and streamlining our processes, so that by midsummer we had caught up in terms of initial processing of requests. However, it took us through early September to actually fill the qualifying prescriptions. Therefore, total prescriptions through that timeframe reflected a combination of current demand, and work down of the backlog.

To put this in perspective, as of the end of April, the Street’s consensus for full year 2010 Ampyra sales was $73 million, and we’ve already booked over $85 million in sales through September 30th . Looking ahead, we expect that the number of new patients starting on Ampyra will no longer be augmented by the backlog, and there may be some lag as we build on the current phase of demand. Therefore, Q4 sales may be lower than Q3.

This slide reflects the data collected from our specialty pharmacies year to date on new patients to therapy and total prescriptions. Please note that these numbers are approximate. Prescriptions were significantly impacted by the large backlog of prescription requests that were submitted earlier in the year, many of which were not filled until Q3. This backlog was eliminated by early September.

We are defining new patients to therapy as unique patients who fill their first Ampyra prescription. These patients are counted once in our system, and are not recaptured as a new RX, when a new physical prescription is written for this continuing patient. Please note, an exception could be when a patient switches health plans. By contrast, other external data sources that report new RXs often include any new prescription written, whether it is for a unique patient or a refill from an existing patient.

Through September 30th, approximately 31,000 unique patients have received Ampyra. This is approximately 8% of the MS population in the United States. As we are still early in the launch, our refill data is limited. We’ve analyzed a cohort of patients, for whom we have clean data, and who have received an initial one month prescription. This cohort represents approximately half of the patients who have received Ampyra. The rate of first refill in this group is approximately 67%. We do not yet have enough data to report refill rates beyond this first refill.

As expected, our patient base includes both patients using and not using DMTs, as well as patients with all four types of MS. As of September 30, 2010, specialty pharmacies were holding, on average, two weeks of supply. All of the special pharmacies in our network are contractually obligated to hold one month of inventory or less. During the initial launch phase of a new pharmaceutical, the key goal with respect to health care professionals is to change prescribing behaviors by persuading as many physicians as possible to prescribe the product for appropriate patients.

Through the first seven months of launch, approximately 6300 physicians, including almost 90% of our initial top target physicians have prescribed Ampyra at least once. we believe this is a great start. Our objective during the next phase of the launch is to extend our reach to a large set of physicians, and to work with those physicians who have already prescribed the product to identify additional patients who may benefit from Ampyra.

We are executing across the programs you see listed on this slide. For example, we are emphasizing physician to physician programs, in which trained MS experts speak to other MS treating physicians. We are conducting these programs in a variety of ways, to make it as simple as possible for busy physicians to participate. We’ve received positive feedback from many participants in these programs.

Our first priority at launch was to educate physicians about Ampyra, before beginning our consumer outreach. This helps ensure the physician’s prepared to respond appropriate to patient inquiries about Ampyra. Since many prescribers now have experience with Ampyra, we are increasing our programs to educate MS patients about the brand. These programs are being conducted live through web programs and tele-conferences to reach as many people with MS and their caregivers as possible.

This slide highlights the need for addressing walking impairment in MS. Walking impairment is a pervasive problem for people with MS. In a 2008 Harris poll, 64% of people with MS reported walking impairment. Of particular interest, new data presented at the 2010 (inaudible) Conference found that 28% of patients have walking impairment just two years following diagnosis. This is an important finding, because many physicians may assume that patients, early in the course of their disease, are not affected by walking impairment. These data clearly show that they are affected, and provide a further opportunity to educate people with MS and their physicians to discuss walking issues early on.

We continue to see improvement in managed care access and coverage this quarter with approximately 75% of commercially covered lines having either limited or no prior authorization for Ampyra. Our managed market team continues to meet with plans that have more restrictive PAs, or have not yet formally reviewed Ampyra, to further educate them about the unique benefits of Ampyra for their patients.

We were pleased that United Healthcare, the largest managed care organization in the United States, announced in October the inclusion of Ampyra on their preferred drug list in the second tier. While we are pleased with coverage to date, the landscape continues to evolve, and as plans review Ampyra or reassess drugs on their formulary list, we may see changes in the future.

I will now discuss our Zanaflex performance in Q3. Total shipments of Zanaflex tablets and capsules in Q3 were $14.6 million. Gross sales in Q2 were $13.6 million. As per our previous guidance, we expect sales of Zanaflex capsules to decline in 2010 over 2009. Our litigation against Apotex continues to move through the court system, but the court has not yet scheduled a trial date. Now, I’ll turn the call over to Dave.

David Lawrence

Thanks, Lauren. For Q3, ended September 30, 2010, the company reported net income of $12.4 million, or $0.32 per basic EPN, and $0.31 per diluted EPN, compared to a net loss of $19.4 million, or $0.51 per basic and diluted EPS for the same quarter in 2009. Gross sales for Q3 were $66.2 million, comprising $52.6 million in Ampyra sales, and $13.6 million in Zanaflex capsules and tablet sales. Discounts and allowance for Q3 ended September 30, 2010 were $4.9million. $2.8 million were attributable to Ampyra sales, and $2.1 million were attributable to Zanaflex sales.

For the nine months ended September 30, 2010, discounts and allowances were $9.8 million. $5 million were attributable to Ampyra, and $4.8 million were attributable to Zanaflex sales. Discounts and allowances include cash discounts, Ampyra product return estimates, chargebacks, and rebates, data and service fees, and copay mitigation.

Total operating expenses, which includes cost of sales for the quarter ended September 30, 2010 were $50.4 million, compared to $34.2 million for the same quarter in 2009. Cost of sales were $11.7 million for Q3 2010, which included inventory costs related to recognized revenue, royalty costs, intangible asset amortization, and freight and stability costs. Research and development expenses were $8 million for Q3 2010, which included costs related to Ampyra long term extension studies, and development of the company’s pre-clinical products.

Due to the delay in production of GGF through clinical study medication, and the subsequent delay in the start of the phase one trial, originally targeted for mid 2010, we expect that R&D expenses for 2010 will slightly decrease over R&D expenses incurred in 2009. Sales general administrative expenses for the quarter ended September 30, 2010 were $30.7 million, and included expenses related to our Ampyra launch activities.

SG&A expenses decreased in Q3, as compared to Q2, but we expect that SG&A expenses for 2010 will be substantially higher than in 2009. We closed Q3 2010 with cash, cash equivalents, and short term investment of $245.8 million. I’ll now turn the call over to Ron.

Ron Cohen

Thanks, Dave. Looking ahead, we’re focusing on three initiatives to drive Acorda’s future growth. Maximizing Ampyra’s potential, advancing our current pipeline, and acquiring additional products. With regard to Ampyra, Lauren has already discussed our current programs for maximizing the commercial opportunity; we’re also working to grow the Ampyra franchise through IP extensions, new formulations, and new indications. We previously announced that we had filed for Hatch-Waxman patent life extension. If granted, this could potentially extend the life of our 2013 patent through July of 2018.

In addition, we’re preparing to respond to the non-final rejection letters we received on US Patent applications that we filed in 2004 and ’05. We’re pleased that in October 2010, the EU Patent office published a notice of grant of a patent that covers composition for use and other use claims directed to sustained release aminopyridine. The 2005 US application corresponds to this EU patent. Please note, however, that the EU patent system differs from the US, and the EU results should not be taken as indicative of the outcome of the US patent application.

We’re also working on development of a once daily formulation, and we’re funding additional studies to assess potential new indications for Ampyra, both in MS and other disease states. I’ll now update you on development of our preclinical pipeline, which is advancing toward the clinic. Our monoclonal antibodies for remyelination in demyelinating diseases such as MS or rHIgm22 is currently being scaled up for clinical trial manufacturing.

We’re also developing an assay that will be needed for filing an IMD. We’re also continuing our work on chondroitinase, an enzyme that has shown promise in enhancing CNS plasticity and recovery of function in animal models of brain and spinal cord injuries. I want to focus, in particular, on our neuregulin portfolio, and specifically glial growth factor 2, GGF2, our most advance pre-clinical compound.

Acorda has a large patent portfolio on neuregulin proteins, and GGF2 is the lead molecule to emerge from that program. Neuregulins are highly protective and promote repair of cells in both the nervous system and the heart. Published papers of animal studies have shown efficacy in MS models, stroke, heart failure, and cardiac toxicity after chemotherapy.

We filed an IMD for treatment of heart failure earlier this year, and experienced a delay due to manufacturing issues and filling of the vials. These issues have now been resolved and we are now complete preparation for the phase one clinical trial in patients with heart failure.

Pre-clinical stroke data on GGF2 was published in Neural Pharmacology in Q3. Data from two studies showed that GGF2 promoted functional recovery from a stroke, even when treatment was initiated up to seven days after the event. An accompanying editorial highlighted the unique promise of these data, given GGF2s long window of opportunity for treatment after a stroke.

As we’ve stated previously, we’re also seeking to acquire additional products to expand our pipeline. We’re focusing on neurology products that can benefit from Acorda’s expertise in identifying, developing, and commercializing products in this space. We’re interested in both clinical and commercial stage products. With respect to the clinical stage, we’re focusing primarily on phase two neurology products, while we’re open to assessing compounds at other stages as well, we believe that Acorda’s expertise and capabilities are most likely to enhance the value of product at this stage and to provide the most favorable return on investment. In addition, we’re assessing opportunities for products in our space that may be commercialized sometime in 2012.

We want our sales force to remain focused on Ampyra through 2011, to maximize the launch. With that, we come to the close of our formal comments, and we’ll open the call to your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions.) Your first question comes from the line of Michael Yee with RBC Capital. Please proceed.

Michael Yee – RBC

Hey, thanks, Ron. A couple of questions. The first is just trying to figure out the difference here between the refill rates and I guess the impact of I guess you said 20% of people are subject to restrictions. Do you think that if you tried to break down the difference between people actually not responders versus people who are just subject to restrictions, how do you think about what you think is hurting here, in this quarter, and going into next quarter? And then second question is just trying to figure out the timing and impact of your targeting the 10,000 physicians. When do you think we should see that impact, and do you think you have the right sales force? Thanks.

Ron Cohen

Okay, well in terms of hurting, we don’t think of it as hurting. We think of it as having just gone through a significantly above expectations pent up demand, which carried through into Q3, and we’re now coming down the backside of that, so we’re building on a base of demand from there. There’s no way for us to parse out how much of an issue that 20% of covered lines that have more restrictive PAs is, versus anything else out there. It’s really a global picture, and we’re addressing the issues out there on all fronts.

So in terms of educating patients, education physicians, we do have programs in place, both at APSS and with an internal group to actually help physician’s practices understand the pre-authorizations that they have in their practice, understand what the breakdown is, and which patients they need to focus on, and also just to help them in general thing through how they can best expedite the process on behalf of their patients, which the vast, vast majority of these physicians want to do, in our experience. They want to do the best thing for their patients.

So with respect to the expanded list, that expanded call list is based on feedback from the market place, and the analysis we’ve done about who is actually prescribing. In any launch, you start out with a list based on comparables that you think you’ve got, on metrics; but of course, when you’ve got a first in class drug, that takes you so far, and then you have to adjust your list based on actual practice in the marketplace. So we’ve done that, and we anticipated that that would be the case, so the sales force is still right size for even that expanded call list of 10,000.

Michael Yee – RBC

Okay, thank.

Operator:

And your next question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.

Joel Sendek – Lazard Capital

Hi, thanks a lot, and I really love all the detail. It gives us a lot to think about. I have two questions. This first is, with regard to your 4Q commentary, are you seeing anything in October that – it all colors that commentary you made that the sales might be down, or is it just a natural result of the back sale that you described?

Ron Cohen

We’re not commenting on October, or any specific month following Q3, but what I can tell you is our comment on Q4 versus Q3 is a function of our understanding of what we saw in the first three quarters, which is this huge bolus that came in, and the fact that Q3 numbers were augmented by leftover or carried over prescriptions that hadn’t been filled in Q1, Q2, and were then filled from that initial bolus in Q3. So we’re looking at that and thinking that now we’re on the back end of that and we’re no longer augmenting, conservatively, we may see a lower number in Q4.

Joel Sendek – Lazard Capital

Okay, so you’re specifically saying that’s conservative. Okay.

Ron Cohen

Joel, I’m specifically saying that our guidance is that Q4 may be less than Q3 sales, based on the analysis that I just described.

Joel Sendek – Lazard Capital

Understood, okay. and then I have a question about the operating margins as well. Right now, I calculate it’s about 20, 21%. I’m wondering if that’s sustainable or if that’s also a reflection of the backlog, and not having to – I’ll just leave the question there. Is that a number that we can project, at all?

David Lawrence

Yeah, Joel, this is Dave. We’re just – the guidance we’ve provided for 2010 is all we’re doing at this point. Earlier in the year we guided that SG&A expenses would be substantially higher, and given the delays we’ve had with the GGF2 manufacturing, R&D expenses are expected to be slightly less than they were last year. So at this point, that’s as far as we’re going with guidance.

Joel Sendek – Lazard Capital

Okay, that’s all I had. Thanks a lot.

Operator

Your next question comes from the line of Yaron Werber with Citi. Please proceed.

Yaron Werber – Citi

Yeah, hi. Thanks for taking my question. So I have two questions. One, just for Ron, give us a sense as to the patent in Europe. How long do you think it’s going to last until? When the expiration? And any sense as to when you might be expecting to get approval? And then second, can you give us any sense at all, what do you think is a – what should we use as a good baseline for demand in Q2 or Q3 for Ampyra, so we can really try and figure out what to x-out from the inventory stocking? If you look at the NRX in the first four weeks of Q4, they’re down about 39% from Q3, so is that a good run – we’re just trying to get a sense as to what you think is a good run rate.

Ron Cohen

Okay, we’re not projecting any run rate. I guess you have a few questions in there, so let’s try and take them in sequence. With respect to the EU approval, we expect that patent to go 20 years from filing, which would be into 2025. So that’s – I think that was your first question. With respect to the EU application, that’s something that, by mutual agreement, we’re letting Biogen comment on. Biogen Idec is responsible for XUS, so we’re letting them comment on that. In respect to – I’m not sure I caught fully your question on Q2 Q3 baseline in future. We’re not projecting future demand.

We can tell you that inventories are tight. They’re average of two weeks at this point, and contractually, just to make sure everyone grasps this, by contract, our specialty pharmacies are not allowed to have more than 30 days on hand, and in fact, by end of Q3, they had about two weeks average on hand. So we think the inventory management is quite tight, and at this point, in terms of demand, we are coming off the back end of that initial, very large bolus. We have a new base and we’re going to build from there.

Yaron Werber – Citi

But does that mean that they have to keep 30 days, or it can be under 30 days? Are you expecting inventory build up again?

Ron Cohen

Yaron, let me try and be more clear. As of September 30th we actually checked specifically with all our SPs. They had an average of two weeks, not 30 days. Two weeks, about two weeks, of demand on hand in inventory. They are not permitted to have more than 30 days, so if they choose to get, to stock up, they can’t go beyond 30 days. But at this point, they are actually at half of that, approximately, at two weeks.

Yaron Werber – Citi

Okay, great. Thanks Ron.

Operator

Your next question comes from the line of Geoff Meacham with JPMorgan Please proceed.

Geoff Meacham – JPMorgan

Hey, thanks. Congrats on the quarter, and thanks for taking my question. Question here on managed care. So what is your sense as to the managed care organizations that actually use United Health as a benchmark, and then what is your benchmark of MCOs that haven’t yet reviewed Ampyra, and what’s the timing there? And I have one followup.

Ron Cohen

Yeah, you know, we can’t really comment on, we really don’t know about how many other plans would use United Health as a benchmark. I will tell you that when our team goes out, we certainly consider it more helpful that not that United Health made that decision, and that we can refer to that. But in terms of quantifying it, that’s quite challenging. In terms of plans that have not yet reviewed Ampyra, at this point that would be a small minority, a very small number of plans, so really the great majority of plans have already reviewed it and come to decisions.

Now, with the understanding that particularly in the current environment, plans review their formularies all the time, so periodically you expect that they will re-review and re-visit, in six months or a year, or whatever. So we’re constantly engaged with the plans, working with them, so that for those that ultimately make a decision to review their formularies, we’re still there, still educating them, still giving them the latest information on what Ampyra’s doing out there, the benefits and so on. And then in addition, as I think you heard on the presentation earlier, we’re still very much engaging with those plans that have made decisions that have more restrictive PAs.

There’s still a lot of education to be done there, and as we get more experience in the market place, and generate data that is useful to the plans in term of actual usage and appropriate usage, we take that back to the plans and show that to them, in an effort to have them revisit their original decision, and make their PAs less restrictive. So the message overall, from us, on managed care is, seven months into the launch, we are very pleased that 75% of covered lines, at this point, have minimum or light PAs. Excuse me, no or light PAs. The ones that have more restrictive PAs we continue to work on, but overall what we are viewing now is that the managed care situation is encouraging and that it is rarely blocking people, or very infrequently blocking people from getting drugs. The most it is doing is slowing it down, in some cases.

Geoff Meacham – JPMorgan

Okay, thanks for that. And then just on the EU patent, so what does the communication tell you about prior art in Europe and would prior art be any different in the US versus Europe?

Ron Cohen

You know, it’s very difficult for us to comment on those issues. What we can tell you is that the European patent system is independent, it’s different from the US system, and that’s all we can say. So we are guiding that nobody should infer, from Europe, anything in particular about the US. We’re delighted to have the US grant, obviously, I’m sorry, the EU grant, and we’re still working on the US.

Geoff Meacham – JPMorgan

Got you. Okay, thanks.

Operator

Your next question comes from the line of David Amsellem with Piper Jaffray. Please proceed.

David Amsellem – Piper Jaffray

Thanks, just a couple of quick ones. I just want to clarify something on the expanded Doctor target list, going to 10,000 Docs, does that contemplate any expansion in the sales force headcount, and is there any plan to bump up the size of the sales force in 2011?

Lauren Sabella

Yeah, hi. No, when we first put the sales force in place, there were plans that we would go beyond the original 5500 targets, and the sales force was sized appropriately to get to the additional target universe. We also look at metrics to see what our share of voices in the marketplace compared to the other companies that are promoting in MS, and we feel confident at this point in time that we’re in a good place as far as sales force sizing and our sales voice.

David Amsellem – Piper Jaffray

Okay. and then on the once daily formulation that you alluded to, Ron, have you identified a lead candidate, and when do you expect to be in a position to move a once daily into studies?

Ron Cohen

Well, it’s not so much identifying a once a day candidate, as it is actually formulating it. So we are in the process of working with outside groups to do that. I’m sorry, if some of you are hearing a buzz, it seems that a fire alarm was just triggered outside in the building, I don’t believe we actually have a fire, so we’re just going to continue. Does that answer your question, David?

David Amsellem – Piper Jaffray

Yes, so just to be clear, you have yet to identify a lead formulation? You’re in the process of formulating?

Ron Cohen

We’re in the process of working with outside groups to actually formulate and develop a GNP once a day formulation to our specifications.

David Amsellem – Piper Jaffray

Okay, and then timing on when that may go into the clinic? Do you have a sense?

Ron Cohen

No update on that yet.

David Amsellem – Piper Jaffray

Okay, thanks.

Operator

Your next question comes from the line of Chris Raymond with Robert Baird. Please proceed.

Chris Raymond – Robert Baird

Thanks. Two questions, and I understand you’re definitely not looking to project Q4 numbers, and I won’t ask you that, but I haven’t heard anybody ask so I’m just going to throw this out. Is there any way you could quantify the bolus that you incurred in Q3? Sort of filling the backlog? and then the second question is we sort of picked up with our work a lot of evidence that the source of patients is primarily folks that are naive to 4AP, can you maybe talk about number one, verify that or counter that, and maybe talk about plans to get at those patients? and part of that, too, is your targeting expansion to the 10,000 physicians. Is that part of that plan? Thanks.

Ron Cohen

Okay, so first of all, in terms of quantifying the backlog, I would refer you to the TRX numbers that we just provided today, and as of the end of Q3 about 31,000 patients had tried the drug, and you can see in the TRX number sort of the build. Now, what that doesn’t particularly get at is when those TRXs came in. But I can tell you that a lot of the ones that were filled in Q2 and even Q3 had come in during Q1, and then ditto, the ones that had come in Q2, because it took us time to ramp up, those wound up being backlogged, and being filled in Q3, so we wound up having an augmentation in Q3 based on prescriptions that had actually come in earlier and were backlogged. I can’t quantify it for you more than that, except to say that by early September we had worked through the entire backlog and following that what you see is what you get. It’s much more – it’s reflective of real time demand, as opposed to real time plus the augmentation that we saw before.

Chris Raymond – Robert Baird

So just to clarify, should we look at NRX in September as the run rate that’s most appropriate?

Ron Cohen

I’m not sure what – how you would be using that. You’ve got to use a combination of NRX versus discontinuations, at which we don’t know yet, with great specificity, so we’re going to have to see as we go along. With respect to the patients who are naive to 4AP or not, we have always said, from the beginning of the launch, way before the beginning of the launch, when people would ask about compounded 4AP, that the numbers are very difficult if not impossible to get at. There’s no data bases where you can look and say how many patients are on compounded 4AP.

The best estimates were a pretty wide range back then, of anywhere at the low 3 to 4000 patients with MS, all the way up to maybe about 10,000. But in any case, still a very small minority of the total number of MS patients, and also a small minority of physicians who actually were prescribing compounded 4AP. It was not a massive effort out there, or massive practice out there. So at this point, we certainly are aware anecdotally of physicians who have large numbers of compounded 4AP patients, who have been switching patients over, but there’s really no way to quantify that. I think the reality is that from the beginning of the launch, and also currently, the vast majority of the business is people who are, as you say, naive to 4AP. So that has not changed, throughout the course of the launch.

With respect to the 10,000 call list, bear in mind that a call list doesn’t mean that every single doctor on that call list gets called with equal frequency, and that our hundred or so sales people are out there calling on every single one every month. As with any call list, it’s prioritized, depending on the size of the practice, the appropriate practice for the drug, so that obviously once the sales force has visited their doctors, gotten a sense of what the practice is like, they are much more likely to emphasize those practices that have the most patients. So that’s really how you segment it. So by expanding the list, we expand the opportunity to identify those practices, identify those doctors, and address a larger percentage of the available MS population who can qualify for the drug.

Chris Raymond – Robert Baird

Thank you.

Operator

Your next question comes from the line of Phil Nadeau with Cowen and Company. Please proceed.

Phil Nadeau – Cowen and Company

Good morning, Ron, thanks for taking my questions, and let me add my congratulations to you on the quarter. First, just a brief follow up to the comment you just made. Do you know what the approximate MS patient is, that was represented by the first 55 physicians that you called on, and how that number is going to increase with the 10,000 physician calls?

Ron Cohen

I don’t think we have that number, Phil. Yeah, we don’t. Sorry.

Phil Nadeau – Cowen and Company

Okay, fair enough. And then second, on some of the prescription data that you mentioned in your prepared remarks. Do you have a sense for what the duration of prescriptions is? And when you measure a discontinuation, how do you know that patient’s discontinued, and not simply somewhat tardy in getting their new prescription?

Lauren Sabella

Yeah, hi. For that question, I need to ask you what you mean by length of therapy? Are you talking about the size of the prescription, or the prescription with the number of refills?

Phil Nadeau – Cowen and Company

I guess both.

Lauren Sabella

Okay. So what we can tell you is the size of the prescription. It looks about, right now, that at 85 to 90% of all prescriptions are one month in duration, and about 10 to 15% are actually getting a first prescription for three months in duration. What we don’t have any information on is the number of refills that are actually written on the prescription form. We don’t capture that metric.

Phil Nadeau – Cowen and Company

Okay. And when a patient gets a refill on the initial scrip, it’s recorded as a total scrip, but not a new scrip, is that correct?

Lauren Sabella

That’s absolutely correct. In our system, the way it works is they only receive a new prescription once, when they get logged into the system for APSS. Every prescription after that would be considered a refill, and a TRX, with the exception if a patient changes health plans. Now this is different from what you’re going to see with external organizations that provide data. When they have a new RX, what you’re going to find is, for instance, if Mrs. Jones went to the doctor and got a prescription for a one month supply of a drug with four refills, she would be counted as a new prescription, and then every refill she got after that would be part of the total prescription. If she stayed on drug after that point in time, she’d have to go back to her doctor and get another new prescription, and that would count as a new RX, even though she was not a new, unique patient. So in our system, we’re really capturing, for the most part, unique patients to therapy, and not unique, new prescriptions.

Ron Cohen

And let me add that even within our system, it gets more different as you go forward, because as you get to the end of any calendar year, that’s when you see patients switching insurance plans so that as of the end of the year, even we will have more difficulty tracking unique patients, because when they switch to a new plan, as Lauren said, that’s going to come in as an NRX, even though the patient may have been on drug for a year before that. So it will be progressively harder for us to identify accurately the unique new patients, and that’s something that everyone should realize.

Phil Nadeau – Cowen and Company

Okay, and one final question if I may, and Ron, I know I’m going to risk annoying you with this question, but I’ll ask it anyway. Looking at the IMS prescription data from this week, I do acknowledge that new scrips are down about 40% quarter over quarter, according to the IMS prescription data, again for this week, total scrips are still up somewhere around 10% quarter over quarter. So it seems to me like in most drugs, total prescriptions correlate more with quarter over quarter sales growth than new prescriptions. So the fact that we’re a third of the way through Q4, your total scrips are still up modestly quarter over quarter, would suggest to me that it’s unlikely that you’re going to have a dramatically down Q4, so I guess my question is are the IMS total scrips so far off that’s still possible, or is there some other factor that we should be considering? Totally acknowledging that there was a bolus in your prescriptions early on, but just continuing patients do still seem to be up quarter over quarter.

Ron Cohen

So I’m reminded of a comment from one of my favorite TV serials that occurred many years ago, which most people never saw, but the comment is “You might say so, but I’m afraid I couldn’t possibly comment”, and I’m going to leave it at that. We just can’t comment, as you know, but thank you for a very well articulated question.

Phil Nadeau – Cowen and Company

Well thanks for taking it.

Operator

Your next question comes from the line of Mark Schoenebaum with ISI Group. Please proceed.

Mark Schoenebaum -- ISI Group

Hey guys, thanks. So this has been, Chris kind of asked around this, maybe I’ll just ask it in a more direct way, so that you can evade it again. Is there any way, when you just look at September, you gave us a lot of detail, you gave us new patients starts, and you gave us the TRXs. Is there any way you can tell us what the new patient starts were, if you were to take out what you believe the backlog to be?

Ron Cohen

No.

Mark Schoenebaum -- ISI Group

Okay, I figured, but I had to ask. And also, is there any way you can tell us how many patients, total, were on Ampyra at the end of Q3?

Lauren Sabella

That would be –

Ron Cohen

I think he’s saying how many are actually still on. Oh, no, we can’t.

Mark Schoenebaum -- ISI Group

Okay, I’m 0 for 2. One more, and I’m automatically disconnected. I also heard you say on the call, or maybe I misheard, which is why I’m asking, Ron, did you say you worked through the backlog in early September, in answer to a question? Or did I mishear?

Ron Cohen

Yes. By early September the backlog was completely gone, so the actual filled prescriptions were no longer reflecting the augmentation from previously pent up backlog.

Mark Schoenebaum -- ISI Group

So, in other words, the September numbers you have given us have some impact of backlog, but perhaps not dramatic.

Ron Cohen

Early September would have been the trailing end of it.

Mark Schoenebaum -- ISI Group

Okay. But September is as close as we can get to a normalized month. And then, finally, and Joel asked about this, but I think I missed part of the answer. He asked it in a different way, but you guys put up a profit this quarter, which is impressive. Is that something that you think is sustainable? I mean on a non-GAAP basis, at least?

Ron Cohen

You know, the World Series is still going on, and there’s your third one. Wow. We’re not commenting or projecting on profitability. What we can say, as I think we said in the presentation, we are focused on growth, we are focused on investing in expansions of the – an extension of the Ampyra franchise of our pre-clinical products, some of which we think are quite exciting, particularly the GGF2 program. So we are focused on investing growth in the company, but we can’t comment on how that’s going to factor in to profitability moving forward.

Mark Schoenebaum -- ISI Group

Okay. I promise this is the last one. In your Q2 press release, there’s a statement here that’s been confusing to a couple of people. In your Q2 press release, you said “the prescription request backlog on Ampyra patient services experienced early in launch has been cleared based on process improvements and staffing adjustments.” Can you tell me the difference in that and what you’re saying now?

Ron Cohen

Yeah, absolutely. That was referring to the actual prescription requests that were coming in to APSS. Let me review for a second what actually happens in this system, this closed SVP system. When a doctor writes a prescription, it’s actually called a service request form, but we won’t get into jargon. It’s a requested prescription. That’s faxed in to APSS, which is our central clearing house. Now, when it comes in, several things have to happen. It has to be logged in, with all the appropriate data logged in to the computer and a file created for that patient, and assigned a unique tracking number. It has to then be triaged for benefits investigation, so what kind of insurance do they have, do they have insurance, what are the PA requirements for that, what are the copay requirements, and then depending on that, it’s then triaged to one of several places.

If there’s a copay mitigation requirement, so the copay is more than $40, and we want to pay it down to less than $40, it goes to our copay mitigation group. If it is someone who has no insurance and may qualify for our physician assistance program, it gets triaged there. If it’s someone who has insurance, you get through the copay mitigation, then you have to triage it to a specialty pharmacy, one of the dozens that we have, who’s actually going to fill the prescription. And the way it works now, actually, is after APSS does the early, sort of initial take, they’ll farm it out to the SPPs, the specialty pharmacy, who will compete the benefits investigation, and so on. And then in addition to that, if there are prior authorizations, they have to inform the doctor’s office if those have not been fulfilled, that they need to fulfill those. So there’s a lot that needs to get done when one of these prescriptions comes in.

So, okay, I’m being told, I’m sorry – we had a fire – that’s not true? I’m sorry. It had to do with that fire alarm, but someone is investigating that. Let me go back to my train of thought. So there’s a lot that needs to be done, obviously. What happened in, what we report in Q2 is that we had an initial backlog of prescription requests, which is what it says. So the prescription request, which means that they were flooding in to APSS, and they weren’t even being logged in. They were just piled up on a desk, if you will, somewhere, because there weren’t enough people even to handle that load. So no benefits investigations were even started, no copay mitigation was started. None of that was even started, and the patients weren’t even being logged in. So it took us a few months to staff up to the point where they could actually log in all of those requests, and begin the process of getting them to the point where you could fill the prescription or not, depending on the request.

So by the end of Q2, what we reported is that we had cleared the backlog of requests, meaning that they were in the system, they were being processed, and triaged for eventual resolution. What we’re telling you now is that of all of those prescriptions that were in the system at that point, by early September, they had all been fully processed, and filled or dispensed with. so putting it another way, the impact on actual filled prescriptions was being felt extensively in Q3, because all of those prescriptions that we finally logged in during Q2 were winding their way through and ultimately getting resolved and filled.

Mark Schoenebaum -- ISI Group

Got it. Thank you very much for taking all of my questions, and good luck with the fire.

Operator

Ladies and gentlemen, that concludes the question and answer session. I would now like to turn the call over to Mr. Ron Cohen for closing remarks.

Ron Cohen

My closing remarks are that this concludes our call today. Thank you everyone for tuning in.

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