Hyperion Therapeutics' (HPTX) CEO Don Santel on Q2 2014 Results - Earnings Call Transcript

Aug. 8.14 | About: Hyperion Therapeutics (HPTX)

Hyperion Therapeutics Inc. (NASDAQ:HPTX)

Q2 2014 Earnings Conference Call

August 7, 2014 4:30 PM ET

Executives

Myesha Edwards – Investor Relations

Donald J. Santel – Chief Executive Officer

Jeffrey S. Farrow – Chief Financial Officer

Bruce F. Scharschmidt – Chief Medical Officer

Christine A. Nash – Senior Vice President and Chief Commercial Officer

Analysts

Phil Nadeau – Cowen & Co.

Joseph P. Schwartz – Leerink Partners LLC

Operator

Good day, ladies and gentlemen, and welcome to the Hyperion Therapeutics Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Ms. Myesha Edwards, you may begin.

Myesha Edwards

Thank you, operator. Welcome to our second quarter 2014 financial results call. Leading today’s call is Don Santel, our President and Chief Executive Officer. Also joining us on the call today are Jeff Farrow, our Chief Financial Officer; Christine Nash, our Chief Commercial Officer; and Dr. Bruce Scharschmidt, our Chief Medical and Development Officer.

Before turning the call over to Don, I remind you that various remarks that we make on this call contain forward-looking statements, subject to risk, uncertainties and other factors that could cause actual results to differ materially from those expressed, or implied. Forward-looking statements made in this call may include among other statements related to our financial forecast, our commercial, clinical and regulatory timeline for launch of RAVICTI in Canada in Europe, our commercial expectations, including future orders from Sobi, increase in sales of RAVICTI in the U.S., the expected benefits of the acquisition of Andromeda and the expected timing of the completion of the DiaPep277 Phase 3 study.

References to what we expect, anticipate, believe, intend, plan, estimate or other statements referring to future events or results are intended to identify these statements as forward-looking. Hyperion undertakes no obligation to update or revise any forward-looking statements. We encourage you to review our press release and the risk factors in our most recent annual report on Form 10-K and our quarterly report on Form 10-Q filed on May 7, 2014 and our Form 10-Q we plan to file on August 8, 2014.

During this call, we will be discussing non-GAAP financial measures. We believe that the additional non-GAAP measures are useful to investors for the purpose of financial analysis. For reconciliation of these adjusted financial measures to the corresponding GAAP measures, please see today’s press release, which is posted on the Hyperion website at www.hyperiontx.com. We have not provided a GAAP reconciliation for certain of our forward-looking non-GAAP financial measures, such as our 2014 adjusted operating expenses, because such measures are not available without unreasonable effort.

With that, I will turn the call over to Don.

Donald J. Santel

Thanks, Myesha. Good afternoon, everyone, and thanks for joining us on the call today. Q2 was another strong quarter for our core business, providing important medications for the chronic treatment of patients with urea cycle disorders. Combined sales of RAVICTI and BUPHENYL were $37.1 million. Of note, during the second quarter, in accordance with U.S. GAAP, we made a transition from the sell-through method to the sell-in revenue recognition method for RAVICTI, compared purposes had we not made this transition, net revenues for the second quarter would have been $25.4 million, $19.9 million of which were from RAVICTI.

This represents approximately 30% quarter-over-quarter growth of total revenue. The financial strength and operational efficiencies of our commercial business are evident in our quarterly results. Our UCD business remains cash flow positive and this is the fourth consecutive quarter in which we’ve achieved profitability.

In the second quarter, we earned adjusted net income of $18.8 million. During the quarter, we also achieved several important corporate milestones. First, we filed regulatory approval applications for RAVICTI, which are now under review by Health Canada and the European Medicines Agency or EMA. You’ll hear more details on these applications and markets from both Bruce and Christine.

Second, we successfully completed the acquisition of Andromeda Biotech, making DiaPep277, an official part of our orphan drug pipeline. As a reminder, DiaPep277 is a potential first-in-class immunotherapy for new onset Type 1 diabetes in adults, which expands our product portfolio and fits our mission to address significant unmet medical needs in orphan diseases.

I’ll now turn the call over to Christine to provide further details on our commercial operations. Christine?

Christine A. Nash

Thanks, Don. When we launched RAVICTI last March, we believe its durable ammonia control and easier-to-take dosage form would result in improved care for UCD patients. Almost 18 months post-launch, the evidence of RAVICTI’s value and the impact of our team are clear. In Q2, we grew net revenue for RAVICTI shipped to patients to $19.9 million, a 28% increase over Q1. A bolus of referrals in April and a price increase, which began impacting sell-through revenue in early June, contributed to the increase.

More importantly however, strong Q2 sales and the ongoing health of the RAVICTI business are being driven by a compliance rate of greater than 90% and a discontinuation rate of less than 10%.

In addition, contrary to our expectations, the average daily dose of RAVICTI has remained high since launch and is currently at 9.8 milliliters per day. This can be attributed in part to increases in the body surface area of our growing pediatric population.

However, we believe RAVICTI’s palatability and tolerability benefits, coupled with the data we generated regarding the importance of tight ammonia control are also driving dose optimization that did not occur with BUPHENYL. Our sales and marketing efforts continue to positively impact product awareness and usage. We have at least one RAVICTI referral from 76 of our 90 target accounts.

Based on our field team’s experience and interactions with healthcare providers, we believe 95% of patients treated with phenylbutyrate based medications are cared for by physicians in these 76 accounts. While the primary source of RAVICTI uptake continues to be conversion of patients from sodium phenylbutyrate. Our efforts to grow the UCD market are paying dividends. In Q2, approximately 30% of UCD referrals came from phenylbutyrate naïve patients, a mix of patients newly diagnosed, previously untreated and converting form sodium benzoate.

Consistent with what we’ve highlighted on previous calls, our reimbursement team and patient support offerings continue to enable us to ensure that patient out-of-pocket costs remain low and no patient of whom we are aware goes without access to RAVICTI due to cost. We expect RAVICTI use to continue to increase at a steady pace through the remainder of 2014, and as Jeff will report, we will be increasing year-end revenue guidance in light of current momentum. As expected, the BUPHENYL contribution continues to diminish in the U.S. as RAVICTI uptake increases.

Total net sales in the first quarter were $5.7 million, $2.7 million of which came from the U.S. market. We continue to see no impact of generic sodium phenylbutyrate powder on the RAVICTI market, or on the BUPHENYL tablet market. Ex-U.S. sales of BUPHENYL remained strong in Q2. We recorded $1 million in sales from Canada. As anticipated, stocking orders from our European sales and marketing partner, Sobi, resulted in a revenue increased for their territory quarter-over-quarter.

Net revenues attributable to sales to Sobi were $1.9 million in Q2. We’re encouraged by the lack of impact to date from other products in the European market and are excited to be moving closer to the goal of making RAVICTI commercially available in both the European and Canadian markets.

While Bruce will provide background on the status of the regulatory filings and the data that support them, I wanted to share a few thoughts on our commercial readiness efforts in each region. Canada is a particularly, important market to us, given its concentrated UCD prescriber base, lack of any approved UCD treatment alternatives and local experience with RAVICTI in our clinical trials. We are building small team in Canada and based on our market research and KOL interactions, we expect the vast majority of Canadian patients will transition to RAVICTI over time if it is approved.

As you know, drug pricing is highly negotiated in Canada and it is not uncommon for full negotiations to take 18 to 24 months post launch. We’ve submitted our dossier to the Patented Medicines Review Board or PMPRB and are in the process of developing a private payor strategy. As a reminder, BUPHENYL has been made available in Canada via the special access program at a price similar to its U.S. price.

We believe the RAVICTI data set is strong, and should support a premium price to BUPHENYL, but we will not know for certain until centralized and individual provincial negotiations are complete. Unlike in the U.S., where widespread reimbursement was achieved quickly subsequent to approval, RAVICTI uptake in Canada will be slower and paced by the pricing and reimbursement negotiations just described.

We plan to leverage the pricing and reimbursement work we’re doing in Canada to build up our value story for the European market. Again, pricing is highly negotiated in this market, and there are currently two key competitors. AMMONAPS, which is sold at approximately one-third of the U.S. BUPHENYL price and Lucane Pharma’s taste-masked sodium phenylbutyrate powder, which is sold at a slight premium to AMMONAPS.

Given the current market dynamics, we anticipate RAVICTI earnings in Europe may be less than those in Canada. We have not made a decision regarding whether we’ll commercialize RAVICTI ourselves, or via a partner, but anticipate providing additional detail next year subsequent to our review of the DiaPep277 data.

Now, I would like to turn the call over to Bruce for development updates.

Bruce F. Scharschmidt

Thank you, Christine. As you’ve heard, we have made significant progress last quarter toward our mission of expanding RAVICTI availability to UCD patients outside of the U.S., with regulatory submissions in both Canada and Europe. We announced in June that Health Canada accepted our RAVICTI New Drug Submission with priority review. Priority review is granted to promising medicines that address life threatening or severely debilitated conditions, reducing the review time from the standard 18 months, or more to a shorter six months.

We also announced in June that the EMA completed its technical and content validation and accepted the filing of the Marketing Authorization Application for RAVICTI. Making reasonable assumptions about review time, we anticipate a decision in the third quarter of 2015. Both filings were supported by the results from 10 clinical trials and approximately 350 patients across three populations, including over 100 UCD patients in six clinical trials. As compared with our 2011 NDA submission, our Canadian and European submissions included 12 months of follow-up data on all pediatric patients, including those down to two months of age.

I am requesting approval down to two months in both jurisdictions. Most of the important clinical findings in these youngest patients were published in Molecular Genetics and Metabolism this past May. We’ve also reached agreement with FDA regarding the design of our two of our post-marketing studies in UCD patients. The first study for patients under two years of age will be conducted in the U.S. and is expected to begin enrolling later this year or early next, a study designed yield data that would enable FDA to expand the label to include patients under two years of age.

Beyond just regulatory objective, our investigators and we view it as a unique opportunity to understand drug dosing and ammonia control in infancy, when UCDs can present with catastrophic hyperammonemia that may result in lifelong impairment. The second study, which will examine RAVICTI dosing in patients previously untreated with sodium phenylbutyrate, would be conducted in Europe and is expected to begin enrolling in the first half of 2015. It’s designed to generate information on previously untreated patients who have the potential to benefit from RAVICTI.

The trial will also serve to introduce European investigators to the product. With respect to hepatic encephalopathy or HE, we’re continuing our dialog with FDA. We feel we have largely completed what we view as helpful and constructive dialog pertaining to the primary endpoint, that is the adjudication of HE events, enroll of caregivers and day-to-day screening for abnormalities.

We’ve now entered into the Special Protocol Assessment process and based on our most recent exchange with FDA, we have a type A meeting scheduled as a teleconference with review division later this month. Note that our type A meeting is intended to help resolve important issues, in our case, those raised by FDA in the correspondence. Although we typically don’t discuss the details of our regulatory interactions, one important topic for discussion will be the timing of the study in patients with renal compromise relative to the start of Phase 3.

Based on our dialog with FDA to date, our understanding has been that the renal compromise study could be conducted concurrently with Phase 3. FDA has now requested that the renal compromise study be conducted prior to Phase 3, which would delay enrollment until the second half of 2015. Given the extended nature of our regulatory dialogue, we no longer believe it will be feasible to begin enrollment in any case by the end of this year and we’ll update you at the end of September.

Finally, regarding DiaPep277, the Phase 3 trial, DIA-AID 2, is still projected to complete later this year and we anticipate showing results in the first quarter of 2015. As a reminder, it's a multi-center, randomized, double-blind placebo-controlled study, designed to establish the safety and efficacy of DiaPep277 in adults with Type 1 diabetes. The primary endpoint is preservation of beta cell function, assessed by glucagon-stimulated C-peptide secretion. Secondary clinical endpoints include hemoglobin A1c levels, hypoglycemic events and exogenous insulin use.

With that, I'll turn things over to Jeff for a financial update.

Jeffrey S. Farrow

Thanks, Bruce. Today, we reported net GAAP income of $17.5 million or net income of $0.81 per diluted share, compared with a net income of $25 million or $1.7 per diluted share for the same period of 2013.

As a reminder, the net income from the second quarter of last year was primarily due to a one-time gain the company recorded related to its purchase of the BUPHENYL product rights. Adjusted net income for the second quarter of 2014 was $21.1 million or net income per diluted share of $0.98 compared to adjusted net loss of $4.3 million or net loss of $0.21 per diluted share for the corresponding period in the prior year.

Our total second quarter 2014 GAAP net revenues were $37.1 million and included $31.6 million in net sales from RAVICTI, compared with net sales of $6.2 million in the second quarter of 2013. As Don mentioned, we transitioned to the sell-in revenue recognition method from the sell-through method for RAVICTI. Under the sell-in method, revenue is recognized when RAVICTI is received by the specialty distributor, whereas under the sell-through method, revenue is recognized when the patient receives RAVICTI from the specialty pharma.

Starting in the second quarter of 2014, we were better able to reasonably estimate sales reductions in as such in accordance with U.S. GAAP began recognizing RAVICTI revenue at the point of sale to the specialty distributor. This resulted in the recognition of an additional $11.7 million in net product revenues, primarily representing the difference of recognizing net product revenue on a sell-in method compared to a sell-through method during the quarter.

For comparative purposes, net product revenues for RAVICTI as recognized for the first quarter of 2014, under the sell-through method was $15.5 million and had we continued to use the sell-through method it would have been $19.9 million for the second quarter, which reflects the increase of 28%. Also included in total net revenues was $5.7 million in net sales from BUPHENYL. Net product revenues from RAVICTI and BUPHENYL for the three months ended June 30, 2014 was partially offset by 200,000 of co-payment systems, a program to reduce the financial burden for patients on both RAVICTI and BUPHENYL.

From an operating expense perspective, adjusted operating expense which is comprised of research and development expense, and selling, general and administration expenses, but excludes stock compensation and amortization of intangible asset, and the change in acquisition related contingencies, were $13.6 million for the second quarter of 2014, as compared to $10.5 million through the prior year quarter.

On a GAAP basis, operating expenses were $17.1 million for the second quarter of 2014 compared to $12.1 million for the same period in 2013. Adjusted R&D expenses were $3.8 million for the three months ended June 30, 2014 compared to $2.4 million for the comparable period. The increase in R&D expenses over the prior year was primarily due to an increase in employee-related costs, regulatory costs, and expenses incurred by Andromeda from the date of the close of the acquisition to the end of this quarter.

We do expect R&D expenses to increase quarter-over-quarter during the second half of 2014, as a result of the Andromeda acquisition, and as we move forward in HE. Adjusted SG&A expenses increased by $1.7 million to $9.8 million for the three months ended June 30, 2014 compared to $8.1 million for the three months ended June 30, 2013. The increase in expenses was primarily due to an increase in employee-related costs and other commercial and administration-related infrastructure expenses, and expenses incurred by Andromeda from the date of the close to the end of this quarter.

Cash, cash equivalents and investments for the end of the second quarter were $125.5 million an increase of $1 million from March 31, 2014. Included in this ending cash balance is approximately $10.9 million in cash consideration related to the Andromeda acquisition that was not paid until July 2014.

Turning now to the accounting for the acquisition of Andromeda. On June 12, Andromeda became a wholly owned subsidiary of Hyperion Therapeutics in exchange for $12.5 million in cash, less certain adjustment for expenses incurred in connection with the transaction, and approximately 313,000 shares of Hyperion common stock valued at $7.8 million as well as certain contingent consideration.

The acquisition was accounted for as a business combination in this quarter. Accordingly, the assets and liabilities acquired were recorded at their fair values. The contingent consideration, which includes potential regulatory and sales milestones, and royalty payments, as well as assumed contingent liabilities, were measured at fair value on the acquisition date. In subsequent quarterly reporting periods, the acquisition related contingencies will be remeasured at each reporting date with changes included in the P&L in the line item, changes and acquisition-related contingencies. As such, in the current quarter the company recorded a charge of 700,000 in this line item as a result of the remeasurement from the acquisition date to the end of this quarter.

Moving on to the outlook for 2014, based on the strong performance of our commercial business in the first half of this year, and as a result of the one-time increase in this quarter related to the change to the sell-in method of revenue recognition, we are now increasing our revenue guidance and anticipate net revenues to be in the range of $105 million to $110 million, with expected RAVICTI revenues to be between $89 million to $93 million, and BUPHENYL to be between $16 million to $17 million. We did see some BUPHENYL inventory stocking at our distributors at the end of June, which will likely result in decrease purchasing in Q3 2014, beyond what would be normally anticipated as a result of the natural trajectory of business.

Hyperion maintains its adjusted 2014 operating expense, R&D and SG&A guidance in the range of $66 million to $78 million, which excludes amortization expense, stock-based compensation expense, and change in acquisition-related contingencies related to the Andromeda acquisition. Hyperion continues to expect amortization expense and stock-based compensation expense to be approximately $4 million to $5 million and $7.5 million to $8.5 million respectively.

With that, I would now like to turn the call back over to Don for some closing remarks.

Donald J. Santel

Thanks, Jeff. It’s a very dynamic and exiting time for Hyperion. Our efforts to strengthen our position in the orphan disease space is bolstered by an exceptionally healthy UCD business, which provide not only strong cash flows, but important evidence of our ability to strategically develop and efficiently commercialize medications for orphan diseases. Looking ahead to near term milestones, we remain focused on the following priorities, increasing US sales of RAVICTI, securing regulatory approval for RAVICITI in Canada by late 2014, or early 2015, and in Europe by the third quarter of 2015.

Completing our discussion with FDA to allow for initiation of our pivotal Phase 3 program in HE. We’ll update you in the estimated start date of enrollment subsequent to our Type A meeting. Announcing results from the Phase 3 trial DiaPep277 in the first quarter of 2015, and we are going to continue our efforts to identify and acquire rights through additional assets that fit our core development and commercialization competencies in the orphan drug space.

Finally, we’ll host an Analyst Day and webcast starting at 9.00 AM Eastern Time in New York City on September 30, 2014. The agenda will include a corporate update and feature two experts in Type 1 diabetes. We will issue a press release with additional details and webcast information in coming months. We anticipate it will be a productive discussion and hope you all mark your calendars and join us in New York.

Operator, I’d now like to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) And I am showing our first question or comment comes from the line of Joseph Schwartz with Leerink Partners. Your line is now open, sir.

Donald J. Santel

Hi, Joe. Joe, are you there?

Operator

Pardon me, Joe, your line is on mute. Could you please unmute your phone?

Donald J. Santel

Operator, maybe we move on, we’ll take Joe just when he becomes available.

Operator

One moment please. Pardon me, Alan Carr your line is now open, you may go ahead with your question.

Unidentified Analyst

Hi, guys. This is actually Mark on for Alan. Hi, guys.

Donald J. Santel

Okay, great. Mark, how are you?

Unidentified Analyst

And you can hear me?

Donald J. Santel

Yes.

Unidentified Analyst

Okay. Seem like there is technical difficulties. So I wanted to just ask some philosophical questions about assets that you guys are looking to bring in. First is sort of a timing question, do you guys think that you'll be looking before or after Type 1 reads out? And the second question is, just a follow on to that is, are you guys be looking at rare disease only or are you going to look to complement what's going on right now, how are you guys thinking about that?

Donald J. Santel

Sure, Mark. Great couple of questions, one, we’ve never stopped including as we were working through the finalization and closing of the Andromeda acquisition, we’ve never stop looking, you really can’t, right? So, one just can’t. As far as we're concerned, really the time things so exquisitely and under the leadership of Natalie Holles who is doing just a great job for us, we continue to survey far and wide for assets and we certainly would not forgo doing a deal before the DiaPep study reads out, nor can we promise you we would have a deal either before or shortly after to talk about, but we're chronically surveilling.

As far as rare diseases, we look for adjacencies for where we are now, which means we're obviously – as many of our colleagues are doing, we are surveilling the metabolic disease space, but we see orphan writ large. Orphan is anything in the orphan disease space where we have commercial efficiencies, those are the sorts of things we're going to pursue. The only thing I would say that would be an exception to that would be obviously many indications within cancer or orphan and that's just not our bailiwick. But other than cancer, we are searching far and wide for additional orphan assets.

Unidentified Analyst

Great. Thanks very much for taking my questions.

Donald J. Santel

Thanks, Mark.

Operator

And our next question comes from the line of Mr. Phil Nadeau with Cowen & Co. Your line is now open sir.

Phil Nadeau – Cowen & Co.

Good afternoon and thanks for taking my questions.

Donald J. Santel

Sure, Phil.

Phil Nadeau – Cowen & Co.

Don, first on the money that you recognized this quarter with a change in accounting, would we be correct to interpret that you have about $11 million of RAVICTI in the channel or are there other things in there, like discounts going away or other accounting differences that make that not a correct interpretation?

Donald J. Santel

Let me let Jeff characterize it for you.

Jeffrey S. Farrow

Sure, yes. Phil, it’s primarily the amount that was in the channel, it is a one-time sort of true up, but there was also the price increase which you noted that one of your reports earlier that really took effect in June as well, so but the primary driver of that was the amount of inventory channel.

Phil Nadeau – Cowen & Co.

So it would seem like you have maybe six weeks or so of inventory in the channel. Is that where you expect inventory levels to stay, or is there a chance that there is going to be some destocking in future quarters?

Jeffrey S. Farrow

We do expect to have to see a little bit of destocking in future quarters; that’s a little bit of a high inventory for them than it’s what we typically see.

Phil Nadeau – Cowen & Co.

Okay. What would a typical level be? Is it like two weeks like we see with most products or is it more like a month, like we see with some orphan products?

Jeffrey S. Farrow

It has been hovering around 3 to 4 weeks, although it’s been a little bit higher than that or little bit lower than that, I would generally say 3 to 4 weeks of inventory.

Phil Nadeau – Cowen & Co.

Okay. That’s very helpful, thanks. And then, second on the HE trial, it sounds like you still think that there's a chance that you don't have to do the renal impairment study prior to Phase 3. Why would that be, if the FDA really wants it, is there a point that you feel like you can argue?

Donald J. Santel

Well, I'll have Bruce answer that with more depth, but certainly, in the past, they had communicated in meeting minutes and that's the way it would be handled. It would be done concurrently with the start of Phase 3 and then as certainly they have a right to do, they gave us a different point of view and I would still describe most importantly the town and relationship is exceptional with the GI division and they were kind to timely get us schedule for a Type A meeting. But let me have Bruce give you some color, since he was in each of those meetings.

Bruce F. Scharschmidt

Let me just key off the last comments and that is we a lot of good is come out of this if you've followed the Celtek story closely, remind that at the advisory panel meeting, the FDA was quite critical of the adjudication of the primary endpoints. So I think all the agreements we got in longer way pertaining to the adjudication of HE episodes is all very much to the good.

These are always a negotiation and discussion, Phil. More often than not renal compromise studies tend to be conducted in parallel with Phase 3 and that was our understanding based on earlier discussion and meeting minutes. So part of the discussion that we'll have will be to understand FDA's thinking, change in point of view and this specific information they want to get and what’s the best way to get it.

So for example, if FDA is particularly interested in detailed PK in patients with renal compromise that probably best comes from a dedicated study, which certainly could be done in parallel with the Phase 3. So these are always good discussions and it's been a good relationship we've had over the very first meeting I had since the beginning of 2009, so we’re looking forward to the meeting.

Phil Nadeau – Cowen & Co.

Okay, in the worst case, you think you should get that trial, if you needed to do it first, designed, enrolled and analyzed in time to begin HE trial in the second half of 2015?

Donald J. Santel

It’s our best guess at this point. Of course, we need a final protocol identification of typically a Phase 1 unit. We think that's a reasonable estimate at this point.

Phil Nadeau – Cowen & Co.

Okay, great. And then one last question on the comments you made on RAVICTI with compliance and the average dose. Those seem to be like very favorable trends. Is there any reason why those could reverse in the future, either the compliance go down or the average dose go down or do you think that you've now convinced the patients to remain inherent with their ammonia lowering therapies?

Jeffrey S. Farrow

Let me just say one thing and I want to hand it to Christine for the appropriate color. I think this has been a great coordinated effort both in terms of scientific discourse that ultimately reports up through Dr. Bruce Scharschmidt with our MSL Group, as well as just an exquisite commercial operation, so ably led by Christine. But I'll let her give you some additional color.

Christine A. Nash

Hi Phil, so let me start first on the topic of dose. Obviously, we feel very good about the average daily dose that we're at right now, which I will remind you at 9.8 milliliters per day. We do anticipate that that will dip slightly as we continue to bring on more children and in particular, hopefully with success in our under two trial when we bring that cohort in, in early 2018.

Still anticipating it would be above 9 milliliters per day at the blended average at that point and then start moving back up to the 9.8-ish or 10-ish range. As it relates to compliance, we’re working very hard on that front. Typically, medications, even one such as this that are life saving, will settle out at a compliance rate between 80% and 85%. I think as we move more into the cohort of patients who are treatment-naïve, there is certainly more of a possibility that we'll see diminutions in that compliance rate, but it’s a very, very strong focus for our team.

Donald J. Santel

Yes. I think the other thing Phil I just to add that is that we were delighted to see that the average revenue which we would have estimated with new, most recent price increase to be 330,000 per year is actually 350,000 per year, meaning that we’re which can't just be explained away by kids growing and require more on a weight basis, but our supposition all along was that they simply can't take an adequate amount of BUPHENYL and RAVICTI with its many advantages its certainly is encouraging for us to see that position seem to be, up dosing the some of these patients.

Phil Nadeau – Cowen & Co.

Great. Thanks for taking my questions.

Donald J. Santel

Thanks, Phil.

Operator

And our next question or comment comes from Mr. Joseph Schwartz with Leerink Partners. Your line is now open.

Joseph P. Schwartz – Leerink Partners LLC

Great. Hello, can you hear me out there.

Donald J. Santel

We hear you fine.

Joseph P. Schwartz – Leerink Partners LLC

Great. Thank you. I’m not sure what was going on I wasn’t muted here. But, I’m glad, you can – and nice quarter everyone. I was just wondering if you could just give us a little bit of insight into just prototypically what would you expect the renal impairment study to entail, and given your – it sounds like you've already made quite a bit of progress with the FDA on getting them comfortable with the adjudication of events and now you're going to be talking to them about the SPA. Does it make sense to actually start that now and then you can – you could potentially start your Phase 3 program closer to the original date, rather than second half of next year?

Donald J. Santel

I'm going to turn this over to Bruce. But just for the avoidance of doubt here, the SPA was submitted and that's where they brought up this issue of renal impairment. But Bruce has a lot of expertise in this area. And we knew it was going to have to happen, we thought it would be concurrent with the start of the trial. But let me let Bruce describe exactly how these studies are conducted.

Bruce F. Scharschmidt

Sure. I think just in terms, Joe, of starting at risk, the FDA meeting is not that far off, so I would want to make sure that we're in sink with what they are thinking about. But yes, we would start the wheels turning as quickly as possible. And inventory has been part of the plan, Joe, it's just a matter of timing. What these studies typically entail is some dedicated PK measurements in patients which renal compromise. So as you know, most drugs get cleared either by the kidney or the liver or by both. So in many cases, dosing needs to be altered in patients with hepatic or renal compromise.

I think just to remind you that what perhaps one special thing here is normally what comes out in the urine for most drugs is an inactive metabolite. What comes out in the urine in the case of RAVICTI, phenylacetylglutamine, is actually how the drug works. That’s how it gets rid of waste nitrogen in the form of phenylacetylglutamine. So renal function is particularly important here.

But there are typically retro prototypical studies here might involve a dozen to 15 patients or dose to study state to take a look at the PK in patients with renal impairment compared to those in a healthy population or at least a population without renal compromise.

Joseph P. Schwartz – Leerink Partners LLC

Okay, great. And I think I heard you say that around 30% of new patients are treatment-naive. If that's correct, so can you give us some more insight into what these patients are like? Are they relatively older patients? Do they typically consume more drugs? If that's the case, any color you can give us on those dynamics?

Christine A. Nash

So Joe, just to be clear, it was 30% of the referrals for Q2. We are still running program to date about 23% of our referrals coming from this category of patient. And it’s really a mix. Some of them are older patients who perhaps refused BUPHENYL in the past and are now willing to go onto treatment, given the important advantages that RAVICTI can provide. And some of them are newly diagnosed patients in childhood, who would be going on to long doses. So there is nothing I would take you to that group as a whole, there is nothing that is kind of scientifically different about their mean characteristics including dosing versus other segments.

Joseph P. Schwartz – Leerink Partners LLC

Okay. And I think I heard you also say that, Don mentioned that there is a greater or maybe it was you Christine, sorry, that there is a greater appreciation for ammonia control out there in the marketplace currently. What – is that translating into some physicians converting much of their practice over from BUPHENYL all at once, or how does that typically play out?

Donald J. Santel

I want to be very precise or careful of what I said. What I said is we cannot, we just had a recent look obviously, at the time we do the price increase, and we look at what people are consuming in terms of RAVICTI we apply the new price so we estimate, what the average patient will consume in a year and that’s how we got to the $330,000. When we noted $350,000 we make some gross estimation of how kids grow and then cannot explain the entire uptick on average simply from growth. That’s all we are saying on that. I think you might be giving us a bit too much credit for having penetrating views into exactly what might be going on, but I – Christian you want to add to that a little bit.

Christine A. Nash

Yes, the one other comment I will make, Joe, is anecdotally, from my sales team, I do know there are some physicians who are paying particular attention to some of the dosing administration guidance in our label and are using some of our biomarkers in order to determine if they got a little more head room to increase dosing for their patients in order to achieve tighter ammonia control. I wouldn’t say – I couldn’t say that’s happening all across the market, but I do know specific cases, where it’s happening. And obviously, the work Bruce and his team has done in making sure that all of that data is published and being actively discussed is invaluable I think in advancing the way these patients are care for.

Donald J. Santel

Yes. I mean, if you look at the results of the clinical trial and what we’ve learned about tight ammonia control, Bruce single-handedly made sure and took a number of teleconferences to be able to pull people in with their busy schedules, but across all twenty clinical sides. Bruce, presented those data over a several hour teleconference, repeated multiple times to make sure every one heard the message on the criticality of measuring a fasting ammonia, regardless of the follow-up schedule, and then doing one's best to control to half the upper limit normal. That’s were the real gains are conferred and I’d certainly like to believe that single monolithic message repeated on, and on, and on will over time yield some sort of benefit. We obviously, can’t say certainly at this point, that’s exactly what’s leading to that 20-K delta, but I think we’re approaching this the right way.

Joseph P. Schwartz – Leerink Partners LLC

Great. Sounds good, keep up the great work, thanks.

Donald J. Santel

Thanks Joe, I know it’s a busy day, thanks a lot.

Operator

(Operator Instructions) And our next question or comment comes from the lines of Ms. Liisa Bayco with JMP Securities. Your line is now open.

Donald J. Santel

Hi, Liisa.

Unidentified Analyst

Hi (indiscernible) on for Liisa actually, but I’ll pass along your salutation. I was wondering – you mentioned usually these renal studies are done concurrently, I am wondering, if you could point us to a coupe of examples where FDA has made this type of request to push the study ahead of phase 3?

Donald J. Santel

So the question is can we cite chapter and verse on examples of perhaps when they start concurrently and when they get moved up? That will be tough to answer I think, but Bruce?

Bruce F. Scharschmidt

Yes. Taking a look, for example, my past development experiences at Chiron, it was certainly the case. In some Phase 3 studies you may – not really went into detail, but in the case of the UCD program, there was actually no renal study required. Most clinically administered drugs do have a renal study, if you look at FDA guidance, is it somewhat vague on timing, but my experiences let say is often is not they tend to be – or more often than not tend to be conducted concurrently. And that was the agreement at the end of Phase 2 meeting and we’ll see what FDA has in mind going into the tie-back.

Unidentified Analyst

So then, one follow-up to that. If FDA does kind of soften their stands on this and you are able to do it concurrently, what would be the, I mean, key next things have to happen in the next 6 months or so to get you to that initial start of the trial?

Bruce F. Scharschmidt

You mean if FDA allows them to be done concurrently?

Unidentified Analyst

Yes, that’s what I meant.

Bruce F. Scharschmidt

So we would do that, we would get both of them underway as quickly as possible. It's a little, somewhat hypothetical to decide to indicate how that might turn out. One possibility might be to restrict enrollment in the pivotal study to patients who have a certain level of creatinine until we have the results or to focus little bit more in the patients with renal dysfunction during the trail from DSMB safety perspective. Those would be two potential alternatives.

Unidentified Analyst

Thank you.

Donald J. Santel

Sure.

Jeffrey S. Farrow

Sure.

Operator

And I’m showing no further questions or comments. So, I would now like to turn the conference back over to management for any further remarks.

Donald J. Santel

Thanks, I’d like to thank everyone for their time today. We hope to see you, for those of you who’ll be in New York next week, for the Wedbush Conference and at our upcoming Analyst Day also in New York on September 30. Thanks very much. Operator?

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program and you may now disconnect.

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