Horizon Pharma's (HZNP) CEO Tim Walbert on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Horizon Pharma (HZNP)

Horizon Pharma (NASDAQ:HZNP)

Q2 2014 Earnings Conference Call

August 07, 2014 08:00 AM ET

Executives

Bob De Vaere - EVP and CFO

Tim Walbert - Chairman, President and CEO

Todd Smith - EVP and CFO

Analyst

Annabel Samimy - Stifel, Nicolaus & Company

Ken Cacciatore - Cowen and Company

Louise Chen - Guggenheim

Difei Yang - R.F. Lafferty

Operator

Good morning ladies and gentlemen and welcome to the Horizon Pharma Inc. Second Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. As a reminder, today's conference call is being recorded.

I would now like to introduce and turn the conference over to your host Mr. Bob De Vaere, Executive Vice-President and Chief Financial Officer. Please go ahead sir.

Bob De Vaere

Thank you. Good morning and welcome to Horizon Pharma's second quarter earnings call. This morning we issued a press release providing the details of the company's financial results for the second quarter ended June 30, 2014, and recent business highlights. The press release is available on our website at www.horizonpharma.com.

Leading the call today will be Tim Walbert, our Chairman, President and Chief Executive Officer who'll provide a corporate update; Todd Smith, Executive Vice President and Chief Commercial Officer, who will provide an overview on the commercial performance of DUEXIS, VIMOVO and RAYOS. And I will provide an overview of the financial highlights from the second quarter before turning the call back over to Tim.

Also on the call are Bob Carey, Executive Vice President and Chief Business Officer; Jeff Sherman, Executive Vice President and Chief Medical Officer; Paul Hoelscher, Executive Vice President Finance and Chris Murphy, Vice President Business Development.

As a reminder, during today's call we will be making certain forward-looking statements including financial projections and the expected timing and impact of future events. These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2013 subsequent quarterly reports on Form 10-Q and our current report on Form 8-K that we filed this morning. You are cautioned not to place undue reliance on these forward-looking statements and Horizon disclaims any obligation to update such statements.

Further we will also discuss non-GAAP financial measures during this call to help you understand our underlying business performance. Reconciliations of these non-GAAP financial measures to the equivalent GAAP measures are provided in the press release which has been posted on our corporate website.

I’ll now turn the call over to Tim.

Tim Walbert

Thank you, Bob and good morning everyone and thank you for joining us today. We are very pleased with the continued acceleration of our base business in the second quarter. Our performance continues to demonstrate our ability to drive prescriptions of our promoted products DUEXIS, VIMOVO and RAYOS. Total net sales for the second quarter of 2014 increased [indiscernible] versus the second quarter of 2013 to 66.1 million and quarter over quarter sequential net sales growth was approximately 27% compared to the first quarter of 2014. Adjusted EBITDA for the second quarter was 23.8 million and adjusted non-GAAP net income was 20.7 million or $0.21 non-GAAP diluted earnings per share.

We closed the second quarter with 128.9 million in cash and cash equivalents and on an adjusted basis excluding the cash impact of the Vidara transaction we drove 20.1 million in cash flow from operating activities in the quarter.

Total prescriptions for VIMOVO, DUEXIS and RAYOS increased by 11%, 18% and 12% respectively in the second quarter of 2014 versus the first quarter of 2014.

Total net sales for DUEXIS in the second quarter of 2014 were 17.8 million versus 13.9 million in the first quarter of 2014. Total net sales of VIMOVO in the second quarter of 2014 were 42.4 million versus 34 million in the first quarter of 2014 and total net sales of RAYOS increased to 3.9 million in the second quarter of 2014 versus 3.3 million in the first quarter of 2014.

We announced earlier this week that the US Patent and Trademark Office two additional notice of allowance covering VIMOVO. These two patents along with the eight patents already covering VIMOVO of expiration date into 2022, these claims included in these notices of allowances further bolster the already robust VIMOVO patent estate we believe puts us in an even stronger position to protect VIMOVO in the United States.

We also announced in April that the US Patent and Trademark Office issued an additional notice of allowance covering RAYOS. Once issued this patent will be the sixth US patent to be listed in the orange book for RAYOS and will expire in 2024.

We announced in April the appointment of Tom Watkins to our Board of Directors, most recently Tom was Director, President and Chief Executive Officer of Human Genome Sciences from 2004 until its acquisition by Glaxo in 2012. In addition we announced the appointment of Paul Hoelscher to Executive Vice President Finance and he will assume the chief financial role effective October 1 following the retirement of Bob De Vaere. We’d like to thank Bob for his guidance, leadership and expertise which is instrumental to the company’s success during his six years as our Chief Financial Officer. Bob will begin a one year consulting term with us at the time of his retirement on September 30 to support the integration of Vidara following the closing of that transaction and to provide general business supporting guidance as we continue our growth and expansion.

Paul joins Horizon from Office Max where he was most recently senior Vice President Finance collating the integration plan activities for its recent merger with Office Depot. Part of that spend was 19 years at Alberto Culver and Unilever and seven years with KPMG. We’re excited that Paul joined us at this crucial time in our growth as we continue to build our organization both organically and through acquisitions and in licensing opportunities.

At this time I’ll now turn the call over to Todd to review our commercial highlights for the second quarter and then I’ll come back and talk to our plans for 2015.

Todd Smith

Thanks Tim and good morning everyone. Let me reiterate Tim's comments that Horizon’s record results for the second quarter are testimony to the execution on our base business and a continued performance of our commercial organization. Total prescriptions for DUEXIS increased by 18% in the second quarter of 2014 to 63,088 scripts versus 53,368 scripts in the first quarter of 2014. Our sales force is aggressively working accelerating number of physician targets prescribing DUEXIS. Leading to a 13% increase in the number of unique prescribers and 19% increase in number of unique adopters in the second quarter.

Our unique adopters are those physicians that write five or more prescriptions in a week for DUEXIS, and there was a 19% increase in the second quarter. IMS Health shows that we have averaged over 188 new prescribers for DUEXIS every week since launch and that the adoption of DUEXIS continues to grow week over week and month over month. Total prescriptions for VIMOVO in the second quarter of 2014 were 77,099 scripts. This is a growth of 11% versus the first quarter of 2014.

Since acquiring VIMOVO in November we’ve increased monthly prescriptions by 50% through June. That trend has continued in July with a 4.1% increase in new prescriptions for the most recent week ending July 25th. We are also seeing an average of 241 new prescribers for VIMOVO, each week since January.

As we have with DUEXIS our sales forces accelerated number of physicians target prescribing VIMOVO leading to a 7% increase in the number of unique prescribers and a 9% increase in the number of unique adopters in the second quarter.

We’re extremely pleased with the outperformance of VIMOVO against our original expectations in the first half of this year. We continued adoption of prescriptions made easy or the PME program further reinforces our focus on improving the prescribing experiences in both the physician and the patient. Those who may not be aware of the PME program this program allows us to mitigate managed care of PBM obstacles that can be encountered when [indiscernible] still a prescription.

At the end of the second quarter 39% of DUEXIS prescriptions were filled through the PME program. As I mentioned in the last earnings call, we have also integrated both VIMOVO and RAYOS into the PME program and are pleased with the update of VIMOVO with approximately 14% of their prescriptions being filled through the PME program by the end of the second quarter. Additionally we have recently focused on accelerating adoption of PME within our sales force and the percentage of prescriptions built through PME has already increased 45% and 22% as of July 25th for DUEXIS and VIMOVO respectively.

So in addition our comprehensive copay program ensures patients receive our products at the lowest possible cost with over 90% of patients paying zero out of pocket for our products. The move to a zero dollar copay for our commercial insured patients allows our sales force to focus on communicating the clinical value of our products to physicians ensuring that patients will get the lowest possible cost and reducing the risk of a patient not getting the product for which the prescription was written.

Moving on to RAYOS, total prescriptions for RAYOS in the second quarter of 2014 were 3,285 scripts. This is a 12% growth versus the first quarter of 2014. Following our most recent June sales meeting we have seen an increase of 10% on weekly prescriptions for RAYOS scripts early in the third quarter as we continue to focus on execution and script growth for this product.

For the execution and performance of our commercial team in Q2 gives me great confidence as we drive growth through the end of the year and growing our business going forward.

Again thank you for your time and I’ll now turn the call back over to Bob.

Bob De Vaere

Thanks Todd. Before I discuss the second quarter results, I want to mention a change in the reporting that we have implemented effective this quarter. Consistent with industry practice we will no longer report gross sales or gross to net discounts and we’ll be reporting only net sales. Total net sales in the second quarter of 2014 were 66.1 million compared with 11.1 million in the second quarter of 2013 representing 495% year-over-year growth.

Quarter-over-quarter sequential net sales growth was approximately 27% compared with the first quarter of 2014. Gross profit margins were 62% of net sales in the second quarter of 2014 compared with 78% of net sales in the second quarter of 2013. And where 94% of net sales on each of the second quarter of 2014 and ’13 after excluding depreciation in intangible amortization and expenses associated with the change in estimate of VIMOVO royalty liability in accretion of the VIMOVO royalties.

So want to say a couple of words regarding the VIMOVO royalty liability. At the time of our acquisition of the U.S. rights to VIMOVO, we estimated the fair value of contingent royalties payable propose and using an income approach under the discounted cash flow method which included revenue projections and other assumptions we made to determine the fair value.

If we were to significantly over perform or underperform against our original revenue projections or if it became necessary to make changes to our assumptions as a result of a triggering event, we would be required to reassess the fair value of the contingent royalties payable proposed and under applicable accounting standards.

Any adjustments to fair value would be recorded in the period such adjustment was made as either an increase or decrease to royalties payable with the corresponding increase or decrease in cost of goods sold in accordance with established accounting policies and this would impact the reporting results in the period the adjustment was made.

During the second quarter of 2014 based on higher sales of VIMOVO for the first six months of 2014 versus our original expectations and our adjusted expectations for future VIMOVO sales we recorded a charge of 13 million to cost of goods sold to increase the amount of the contingent royalties liability to reflect the updated estimate.

Total operating expenses were 48.4 million in the second quarter of 2014 compared to 24.5 million in the second quarter of 2013 and 42.7 million in the first quarter of 2014.

Second quarter 2014 operating expenses included 5.8 million related to the Vidara transaction. Of the 48.4 million in the second quarter operating expenses 3.5 million was for R&D, 27.1 million was for sales and marketing and 17.7 million was for G&A where the vast majority of the Vidara related expenses get charged.

On a GAAP basis net loss in the second quarter of 2014 was 27.8 million or $0.38 per share which includes Vidara acquisition related expenses of 10.1 million, the change in estimate of VIMOVO royalty liability of 13 million and a non-cash charge of 11 million related to the increase in fair value of the embedded derivative associated with our convertible senior notes due primarily to an increase in volatility in the market value of the Company’s common stock during the second quarter.

As of June 30, 2014 with the recent approval by the Company’s stockholders of issuing shares that would be required to convert the convertible senior notes in to common stock, the convertible notes are no longer required to be settled in cash and the Company has reclassified the total liability of 324.4 million in the equity and there will be no further adjustments of the derivative liability in future periods.

Adjusted non-GAAP net income was 20.7 million or $0.28 adjusted non-GAAP basic earnings per share and $0.21 adjusted non-GAAP diluted earnings per share.

Adjusted EBITDA was 23.8 million after excluding the impact of 10.1 million in Vidara acquisition related expenses, 13 million from the change in estimate of the mobile royalty liability, 11 million related to the increase in fair value of the embedded derivative associated with the convertible notes and other non-GAAP adjustments.

The Company has cash and cash equivalents of 128.9 million as of June 30, an increase of 25.5 million from March of 2014. During the second quarter of 2014, the Company generated 16.8 million in cash from operating activities or after excluding payments made in connection with Vidara acquisition expenses, 20.1 million in adjusted non-GAAP cash from operating activities.

I’ll briefly summarize, first half 2014 results. Total net sales in the first six months of 2014 were 118.0 million compared with 19.8 million in the first six months of 2013, representing 495% year-over-year growth; total net sales of VIMOVO, DUEXIS and RAYOS in the first six months of 2014 were 76.4 million, 31.7 million and 7.2 million respectively.

On a GAAP basis, net loss in the first six months of 2014 was 234 million or $3.34 per share which includes the non-cash charge of 215 million related to the increase in fair value of the embedded derivative associated with the Company’s convertible notes due primarily to an increase in the market value of the common stock during the first half of the year and 14.2 million of Vidara acquisition related expenses.

Adjusted non-GAAP net income in the first six months of 2014 was 31.7 million or $0.45 adjusted non-GAAP basic earnings per share and $0.34 adjusted non-GAAP diluted earnings per share.

Adjusted EBITDA in the first six months of 2014 was 35.9 million after excluding the impact of 14.2 million in Vidara acquisition related expenses.

I’ll now turn the call back over to Tim.

Tim Walbert

Thank you, Bob. I’d like to now address the PBM news that we announced on July 28 and provide an update on the status of the Vidara acquisition. As you know, we have verbally notified the two pharmacy benefit managers or PBMs Caremark Express Scripts plan to announce that DUEXIS and VIMOVO would no longer be on their formularies, with place on their exclusion effective January 1, 2015. These exclusion lists were subsequently published and included our products.

What has been lost in the debate regarding VIMOVO and DUEXIS placement on these lists is the value of our products delivered to patients, physicians and insurers. VIMOVO and DUEXIS both address an important unmet medical need which is then said induced catheter intestinal toxicity.

Ministration of events at a prescription level doses leads to approximately 107,000 hospitalizations each year and almost 17,000 deaths. Further complicating this for patients which we know from research is that 76% of the time doctors do not prescribe [indiscernible] GI protection and after three prescriptions over 60% of patients have stopped complying and taking their GI protective agent as it was prescribed.

This leads to the equivalent of over 85% of patients being unprotected with the approach these PBMs are trying to take which we believe puts patients at potential risk.

In two pivotal studies of VIMOVO in greater than 850 patients a statistically significant 70% greater reduction in gastric ulcers was deserved in the VIMOVO versus the naproxen arms.

In two pivotal studies DUEXIS in greater than 1,500 patients a statistically significant approximate 50% reduction in gastric and upper gastrointestinal ulcers was observed in the DUEXIS arms versus the ibuprofen arms. We strongly believe that clinical experience associated with VIMOVO and DUEXIS warrants broader patient access to our products which we believe Express Scripts and Caremark are choosing to ignore as a means of reducing cost and in our view potentially putting the patients at risk.

Exclusion lists are an annual listing by a small number of PBMs of drugs excluded from their formulae. They are new to the marketplace for the last few years and many [indiscernible] of employers reject exclusion lists in favor of patient choice.

Caremark established their first exclusion list in 2012 and Express Scripts began their first list in January of this year. Exclusion lists are tools these PBMs have deployed in attempt to lower drug costs for their customers and drive profit. Other PBMs as I will discuss have not followed this practice and continue to utilize existing tools such as step edit, [indiscernible] insurance and prior authorizations. We estimate based on our analysis that in 2015 less than half of the covered lives at Express Scripts and Caremark will be under plans that utilize exclusion lists which are proposed for 2015.

As we have stated 20-30% of prescriptions for VIMOVO and DUEXIS could potentially be affected by placement on these exclusion lists with any additional impact dependent on whether other healthcare plans adopt Caremark or ESI Express Scripts exclusion lists which they are not required to do.

We have done several analysis to estimate the impact for drug being placed on the exclusion list of Express Scripts or Caremark. In considering all the products that have been placed on exclusion lists with Express Scripts and Caremark in 2012 to 2014 our prescription analysis shows that the average reduction in prescriptions in the six month period subsequently placed and on these exclusion lists was about 13-15%.

This decrease was partially offset in these products by an increase in the average cost per prescription among these products. We’ve also analyzed the possible effect of placement on the exclusion list of Express Scripts or Caremark on the rejection rate of the remaining approximately 60 Pharmacy Benefit Managers.

For those products on either PBM exclusion list for 2014 there was only an increase in rejection rates from approximately 10% to 15-20% at the PBM which included the drug on their exclusion list.

Importantly there was minimal increase in rejection rate that the remaining PBMs post being put on these individual lists indicating they did not follow the exclusion list of Express Scripts and Caremark.

Also, while not well known, DUEXIS has been in a non-preferred list of United Healthcare since its launch in 2012 with approximately 50% of its prescriptions rejected. Prescription growth of DUEXIS within United has continued to grow despite this 50% rejection rate and it’s grown on a double digit basis.

Further RAYOS is placed on the exclusion list of Caremark in January of this year. Results of this action has not impacted our ability to drive double digit prescription growth and revenue growth for RAYOS in both the first and second quarter and our overall rejection rates for RAYOS have not changed in the first half versus prior.

In summary while placement on the exclusion list of one or more PBMs has been perceived to indicate dire consequences for future revenue from the expected product today the historical data tells a different and more optimistic story. We believe we have comprehensive plan to mitigate the effects of actions taken by these PBMs, we also believe we are well positioned and uniquely positioned to address this challenge.

We have invested significantly in the creation of alternative channel distribution and prescription fulfillments over the last 18 months with our Prescription Made Easy program or PME program.

As Todd touched on earlier, PME embodies our efforts to assist the physician to provide the optimal drugs to their patient while minimizing the hassles or demand constraints built into the pharmaceutical supply chain by PBMs, insurers and pharmacies over the last several years.

We are also looking at other opportunities to expand PME into the retail channel. The key with PME is that the PBM, the insurer, the physician and the patients see no difference in the experience except that the physician is enabled to write a prescription for the drug he or she believes is best for their patient without a PBM or insurer preventing him from doing so.

This also reduces the possibility of a patient not receiving a GI co-prescription agent and subsequently not taking it. Also the patient receives the drug at the lowest price possible. With PME the prescriptions are routed to one of our specialty pharmacies, the patient leaves the physician office most often with product samples, within a few hours the patient receives a call from the specialty pharmacy ensuring rapid delivery of our products directly to the patient’s home.

By deploying PME we mitigate or greatly reduce the amount of noise that often develops in a physician office associated with the potential increase in rejections and thereby preserve our positive relationship with physicians and patients. PME also eliminates the need for the physician’s office to complete prior authorization forms or similar paper work. In the first four months of 2014 we experienced a 71% increase in VIMOVO and DUEXIS prescriptions per physician and those physician’s offices that adopted PME, a 4.7 fold increase over those physicians not in the PME program. Our PME program should allow us to better manage our relationships with our physician target in the face of any new challenges will encounter especially those of these two PBMs.

In addition to PME we also plan to support the sales and marketing of VIMOVO and DUEXIS through retargeting healthcare providers with less concentrated Express Scripts and Caremark exposure. With DUEXIS approximately only 1% market share of total ibuprofen prescriptions and VIMOVO at approximately only a 2.5% market share of the [indiscernible] prescriptions, we have considerable flexibility to direct our reps to those areas of the market with highest probabilities of success in converting prescriptions.

In summary, we believe we have the plans in the place that will allow us to continue to execute growth in our assets and as a result this morning we announced preliminary guidance for 2015 of 380 million to 405 million in net sales and 150 million to 170 million in adjusted EBITDA. We expect to continue to review this guidance and we will update you in the first quarter of this year further.

Now I’ll update on the acquisition of Vidara therapeutics which we announced on March 19th. We expect it to close in September with shareholder meeting date of September 18th as noted in Vidara’s amended S-4 registration statement filed yesterday. We continue to make significant progress in the second quarter which regards to the acquisition of both the early termination of the Hart-Scott-Rodino waiting period in connection with the acquisition and the execution of the 300 million senior secured credit facility, $300 million agreement replace the previous 250 million loan commitment that company had received from Deerfield Management Company at the time we announced the transaction.

As we move forward to integration activities including the addition of ACTIMMUNE to our commercial portfolio we are finalizing our growth strategy for ACTIMMUNE. Our focus includes determining optimal pricing, increasing penetration rates and exploring new presentation and formulations of the product as well as the potential to evaluate this product and additional indications including [indiscernible] and cutaneous T-cell lymphoma. The addition of ACTIMMUNE broadly diversifies our commercial portfolio and we will keep you appraised of these developments in the coming weeks.

In closing we are pleased with our performance in the second quarter which demonstrate a continued progress in meeting our objective of achieving strong financial performance through our base business. We will continue to develop our strategies to offset any long term potential impact of being placed on these PBMs exclusion list and we will continue to accelerate our PME program to ensure that patients continue to receive our products in an affordable cost. We thank you for your continued interest and support of the company.

We’re now happy to open the call up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Annabel Samimy of Stifel. Your line is open.

Annabel Samimy - Stifel, Nicolaus & Company

Thanks for taking my questions and congratulations on the great quarter. I want to discuss the guidance with you. It’s a pretty it’s a number that inflows a lot of confidence for 2015 in line some of the changes in the exclusion list. I guess it’s predicated on your ability to drive PME and find those high value patients. So can you help us gain some comfort around how you direct your sales find those or direct it to sales force to find those geographies and those practices that do actually have a high value. What do you have in your ability to find those patients that others don’t? And then if I could follow up with some additional questions afterwards, that would be great.

Tim Walbert

Sure. So what gives us confidence is the continued existing performance of PME. As I mentioned, physicians who were in PME increased their prescription 71% so far in the first quarter and continued to accelerate almost five fold greater than physicians not in the PME program.

We are continuing to accelerate just as the end of the second quarter. We’ve accelerated DUEXIS to 45%, VIMOVO to 22% penetration. The other key thing is that on a regular basis we continued to target, when we talk about PME and we talk about our ability to target and access patients we are already in the key offices where the patients that need to be accessed, exist.

So for us it’s continuing to leverage PME to ensure there is not hassle or noise in the physician office. We also have the data which allows us to understand where Express Scripts and Caremark are focused and there are many reasons around the country where there is less of a focus and we will bolster that targeting effort in those particular regions.

But overall we believe that whether someone’s in Express Scripts, Caremark, any other insurer or PBM, with PME in place the physician, the insurer, the patient will not see or the pharmacy will only see a patient if they’re covered, being paid for at a very low copay as we mentioned. And secondly if they’re not covered, they are pulled out of the system we do the right thing for the patient and provide them the drug.

Annabel Samimy - Stifel, Nicolaus & Company

And maybe if I could just draw down a little bit further. On the guidance can you give us some idea on what is driving; most of it is it price, is it volume? And what kind of assumptions have you made in terms of what you think you are going to be subsidizing in terms of prescriptions for those patient who aren’t well covered.

Tim Walbert

So we’re not giving product level guidance…

Annabel Samimy - Stifel, Nicolaus & Company

Just the top -- just broad overview and not necessarily guidance.

Tim Walbert

Yes, so at this point we believe we will continue to drive prescriptions and take price increases, we've continued to do that this year, we’ve taken modest price increases so we’ll continue to evaluate that. That’s the extent I’ll get into it, but as we said on January or on the 28th of July that we expect to continue to grow the net sales of our products.

Annabel Samimy - Stifel, Nicolaus & Company

And if I can move over to Vidara, there has been a lot of questions regarding the weather with the delays in Vidara acquisition are and what still needs to be done other than the shareholders to close that transaction. Is there any reason to believe that there might be any renegotiation given the stock price? Thanks.

Tim Walbert

So we have signed transaction. So what drove the time from the March 19 announcement to the following in the S4 was simply the challenge in getting carve out financials from a number of different institutions we had to get our financials from AstraZeneca for VIMOVO, we had to get carve out financials from InterMune to the first 18 months of the three year period up until the announcement, it took us 90 days to receive those from InterMune. And so the delay was solely related to waiting for those carve out financials that are required by the SEC to put into the S4.

To answer your question about what’s remaining, as you saw in the announcement or the filing last night, we have a tentative shareholder date of September 18. We are waiting for that S4 to be declared effective, which will make them an official shareholder date and we expect the simultaneous shareholder vote and close. So that’s all that’s remaining in that transaction.

Operator

Your next question comes from the line of Ken Cacciatore of Cowen and Company. Your line is open.

Ken Cacciatore - Cowen and Company

Tim there has been some concerns that given there is no negative ramification for plans to restrict the access given they are still fill through PME. Why wouldn’t other managed care plans just keep restricting? You touched on it a bit, but since there is no negative feedback to managed care plans, some patients are clinicians and this is by design by you all. You are still going to filling prescriptions via PME. Why wouldn’t they get more aggressive folks want to kind of have a better understanding?

And then just following up on your first question, I don’t know if you clarified that Vidara is asking for anything different given some of the change in the share price? Thank you.

Tim Walbert

First on Vidara, we have a signed agreement and are moving to the shareholder meeting, there is nothing else to discuss. Relative to you are coming on the other PMEs following, there was -- if you look at rejection rates in the first six months and in the 18 months to two years following the Caremark exclusion list in 2012, 2013 and 2014. The Express Scripts exclusion list the overall change in all other PBMs was -- rejection rates was less than 5% in total. So what you’ve seen in total of 81 products no material increase in rejection rates, which means these plans do not follow, these PBMs have not followed in any of the cases the actions of Express Scripts and Caremark. What you typically have is all these PBMs are in a marketing period and they are not in a position where they just want to follow exclusion list, they also have the objective of working with employers and offering them plans that offer patient choice and patient satisfaction.

So there is no preference and the PBMs have not followed any products in the past that we’ve been able to uncover. And overall we haven’t seen a material increase in rejection rates by those PBMs which is a strong indication they have not followed. So we don’t expect that to occur. Also the important factor is these other PBMs don’t have exclusion list. There is a very small number that actually utilize the exclusion list and the others utilize the traditional tools of higher coinsurance stepped at it and the c blocks.

So they don’t even have the mechanisms in place to follow with the exclusion list beyond a small number of them. So based on their precedence and how they manage their plans we don’t expect any material increase in PBMs followed.

Operator

Thank you. Our next question comes from the line of Louise Chen of Guggenheim. Your line is open.

Louise Chen - Guggenheim

So first question I had was with respect to your preliminary guidance for 2014. I wondering if you could give a little bit more color on your expectations maybe broadly for prescription growth, pricing push back that in light of exclusion list maybe you can’t raise prices here. And then rebating what percent prescriptions will no longer be subject to rebating and what’s the financial impact of that?

Second question I had was with respect to CVS and Express Group, how did it happen or come to be that they out you on the exclusion list given the fact that your prescriptions are such a low percentage of the overall drug cost as you noted earlier in the call.

And then last question is with respect to business development, we received the question regarding post Vidara deal close, what you expect to do next and how you’ll finance that? Thank you.

Tim Walbert

I’ll start backwards. So business development, we believe that based on our $300 million note that will fund that close, we’ve got sufficient multiples that are allowed to continue to finance incremental transactions and we’re pursuing several of them as we speak.

Secondly relative to why we’re on the exclusion list, we don’t know specifically, we weren’t given an exact answer. There are 81 products that were on the list and it ranges from products priced at $100 a prescription to biologics that cost several thousand dollars per prescription.

So they -- at least the evidence is shown that as they select these products that go into individual categories and in the case of biologic they -- some of the plans we excluded [indiscernible] Pfizer that excluded Simponi and other products. And they have not disclosed how and why they choose products.

The fact is they have done it. When you look at our guidance as we said on July 28th, we expect to continue to grow the net revenue of our products, we’re not discussing specific price increases at this point in time. We expect to continue to grow our business, focus on PME to remove noise in the physicians. office and do the right thing for the patient and focus on growing our business in the other portions of 70% of the business that is open. And if you look at with RAYOS to being on the Caremark list we saw no increase in overall rejections for the product continued double-digit quarter-over-quarter growth. DUEXIS and United being restricted since launch and having 50% rejections in United, we continued to grow significantly double-digit growth in the second quarter and the first quarter. So we believe our plans are in place to continue to drive our business.

Operator

Thank you. Our next question comes from the line of Difei Yang, R.F. Lafferty. Your line is open.

Difei Yang - R.F. Lafferty

Just a couple of quick ones on the business development front. If we observe going from acquiring VIMOVO, basically it’s under promoted (me too) [ph] kind of product to --

Tim Walbert

Just to clear it’s not a (me too) [ph] product, that’s a misinterpretation of the clinical data and the benefit the product presents.

Difei Yang - R.F. Lafferty

Yes, agreed. And then moving on to ACTIMMUNE which is the high value often indication product. So how would you think about moving forward in evaluating additional deals? Are you looking for deals more towards like ACTIMMUNE product or any product that you think you can leverage by the platform?

Tim Walbert

Our focus is on differentiated products. As I mentioned in my remarks 70% reduction in serious stomach ulcers with VIMOVO and over a 50% or approximately 50% for DUEXIS. So highly differentiated clinical data versus standard of care with both of those products.

ACTIMMUNE has really been amazing drug and the Vidara team has done a fantastic job of really driving the majority of its use on label to chronic granulomatous disease and osteopetrosis. So we will focus on continuing to drive that business there.

As we look at future products we use the same approach, differentiated assets that are durable meaning in our case at least five years of patent protection and when it comes to looking at assets between the rare disease side and the VIMOVO like products, we will continue to look at assets in both of those markets and as the assets are available we will transact them, you really have to have a broader approach that we have differentiated assets durable from a patent protection standpoint, 20 million to 200 million in net revenues that we’re focusing on.

And then opportunistically it really depends on what’s for sale and whether that falls into the rare disease space first or other products that have been under marketed like VIMOVO and we can’t predict that we will get assets within our overall screen and focus them accordingly.

Difei Yang - R.F. Lafferty

Thank you. Well then moving on to the financing side, if we look at the latest term loan of about $300 million so that interest rate was LIBOR plus 8% and with the standing moving forward on the financing side we might be looking at somewhat more expenses which means a higher hurdle rate for a new deal?

Tim Walbert

Well actually we look at it the opposite way as we continue to drive significant growth in EBITDA, we believe that will increase our opportunity to get lower cost of capital, debt to finance future transactions.

Operator

Ladies and gentlemen, this does conclude the question-and-answer session for today. I would like to turn the call back over to Mr. Tim Walbert, Chairman, President and Chief Executive Officer for final remarks.

Tim Walbert

Thanks again everyone really appreciate taking the time this morning. As we went through, we feel great about significant growth in the second quarter versus the first quarter and versus 2013 as I walk through as well we feel very confident that we have the plans in place to work through these PBM plans as we have in the past with RAYOS and DUEXIS and look forward to continuing to execute on all of our plans and achieving our objectives and moving forward. Thanks for your time. Have a nice day.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Everyone have a wonderful day.

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Horizon Pharma (NASDAQ:HZNP): Q2 EPS of $0.21 beats by $0.12. Revenue of $66.1M (+495.5% Y/Y) beats by $7.75M.