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Executives

Doug Sherk – Investor Relations, EVC Group

Don M. Bailey – President and Chief Executive Officer

Steve Cartt – Executive Vice President and Chief Business Officer

Michael H. Mulroy – Senior Vice President, Chief Financial Officer and General Counsel

Kirsten Fereday – Director, Business Analytics and Evaluation

David Young – Chief Scientific Officer

Kristi Engelke – Corporate Controller

Analysts

Chris Holterhoff – Oppenheimer & Co.

John Newman – Citadel Securities LLC

Yale Jen – Maxim Group

Dan Mendoza – Prospect Capital

Timothy Lynch – Stonepine Capital Management LLC

Patrick Lin – Primarius Capital

Questcor Pharmaceuticals, Inc. (QCOR) Q4 2010 Earnings Call February 23, 2011 4:30 PM ET

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Questcor 2010 financial results conference call. (Operator Instructions) This conference is being recorded today, Wednesday, February 23, 2011, and I would now like to turn the conference over to Doug Sherk of the EVC Group. Please go ahead, sir.

Doug Sherk

Thank you, operator, and good afternoon, everyone. Thank you for joining us today on the Questcor Pharmaceuticals conference call to discuss the 2010 financial results. This afternoon at market close, Questcor issued its earnings release, which is posted on the Company’s website at www.Questcor.com.

In addition, we’ve arranged for a tape replay of this call, which will be available approximately one hour after the call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of the call. The call is being broadcast live and an archived replay will also be available.

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

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

Don M. Bailey

Thanks, Doug, and good afternoon, everyone. With me today are six other members of our management team. Three have prepared remarks. Steve Cartt, our Chief Business Officer; Michael Mulroy, our CFO; and Kirsten Fereday, our Medicaid expert. This afternoon, we will review Questcor’s highlights for the fourth quarter and full year of 2010 and discuss recent business trends.

I will start with some summary comments about our business, Steve will provide some color regarding sales, and Mike will briefly discuss the financials. And while we have talked with many of you since the media coverage regarding our reserves for Medicaid rebates, we will walk through this issue. As we do every quarter, we have made a substantial effort in determining the reserves for Medicaid rebates and believe, as do our auditors and audit committee, that our reserves are appropriate. Afterward, we will open up your call to questions.

2010 was a year of many successes for Questcor. We consistently executed our straightforward strategy to sell more Acthar. We made significant progress towards our goal of growing the use of Acthar, especially in MS. Solid execution by our commercial team drove more than 100% growth in the number of Acthar prescriptions for MS in 2010, and that growth drove record net sales and profits for Acthar and Questcor.

Net sales for 2010 increased 30% year over year to $115 million. In addition, for the year 2010, we generated net income of $35 million, or $0.54 per diluted common share, up 32% and 35%, respectively, from 2009. We also generated significant returns for our shareholders during the course of the year. The increase in Questcor’s market capitalization has led to Questcor’s recent inclusion in the S&P Small Cap 600 Index.

Our number one focus in 2010, as it will be again in 2011, was the growth of MS prescriptions for Acthar. We had a strong finish to 2010, following the completion of our significant sales force expansion in the fourth quarter. Our newly expanded sales team started making sales calls on November 1, and this expanded sales team began to generate positive results late in the fourth quarter.

This is the fourth time that we have expanded our MS sales force, and each of the previous expansions resulted in significantly increased MS sales. Our prior successes with sales force expansions, combined with a large base of MS doctors we still need to educate on the benefits of Acthar, leads us to be optimistic that we will be able to continue to grow MS sales again in 2011.

Importantly, Acthar sales in the current quarter, that is the first quarter of 2011, are tracking slightly ahead of the fourth quarter of 2010 and well ahead of the first quarter of 2009, I’m sorry, 2010. So, slightly ahead of the fourth quarter and well ahead of the first quarter of 2010. We believe net sales in the MS market continue to be well over half of total Acthar net sales and are growing as a percentage of total Acthar sales.

Turning to IS, infantile spasms. In October, we received FDA approval for the IS indication, which resulted in Acthar receiving seven years of orphan drug exclusivity in this indication. After approval, we initiated our commercial launch for IS. With this FDA approval, we may generate modest increases in IS prescriptions over time. New paid Acthar prescriptions for IS in the fourth quarter of 2010 remained within its historic range. And so far in Q1, activity also is within the historic range for IS.

In addition to the strong execution by our commercial team, our regulatory team achieved the IS approval for Acthar. During this process, the FDA updated and modernized the product label for Acthar. The updated product label includes the strategically important indications of MS, IS, and nephrotic syndrome, or NS, plus 15 other indications where there is evidence or scientific rationale for Acthar and therapeutic value.

Importantly, this event clarifies the label for Acthar, which had not been changed in several decades. Moving on to NS, we have now hired our five-person dedicated nephrology sales team. This team has begun to educate nephrologists about Acthar, as well as learn what it will take to be successful in this market. One of our challenges is that there is relatively limited clinical data on the use of Acthar in treating nephrotic syndrome. To address this challenge, we are preparing to conduct a Phase IV clinical trial studying the efficacy and safety of Acthar for the on-label indication of treating NS in patients with membranous nephropathy. This kidney disorder has few therapeutic alternatives and significant unmet medical need.

In the meantime, we anticipate publication of a peer-reviewed paper in March. This should help the modest sales effort that we have just initiated. In addition, we are formulating plans for a Phase II dose-response clinical trial evaluating Acthar as a potential treatment for patients suffering from diabetic nephropathy. Diabetic nephropathy is another area of significant unmet medical need.

In summary, 2010 was a terrific year and 2011 is off to a good start, especially in our key focus market of MS. Now I would like to turn the call over to Steve Cartt. Steve?

Stephen L. Cartt

Thanks, Don. Our promotional activities directed to neurologists continued to grow Acthar prescriptions for MS during the fourth quarter of 2010. During the quarter, we shipped a record 354 paid Acthar prescriptions for MS. This was an increase of 66% over the year-ago period and 10% over the previous quarter, despite the disruptions related to our sales force expansion.

We believe the uptick in sales late in the fourth quarter, which appears to be carrying into the first quarter as well, indicates our expanded sales force is already generating positive results and sooner than we previously expected. As a reminder for our investors, we are promoting Acthar specifically for those MS relapse patients who don’t do particularly well on IV steroids, the first-line treatment for MS relapses. IV steroids seem to be effective and well tolerated by many relapse patients.

However, some patients don’t fully respond to this treatment, others experience problematic side effects, and still others have trouble using IV steroids due to poor veins. For these three types of patients, Acthar can be a valuable treatment alternative. Our efforts going forward will focus on helping doctors and nurses better identify patients who could benefit from Acthar as second-line therapy for MS relapse patients.

And with less than 500 neurologists prescribing Acthar out of a total of 8,000 neurologists, we have a lot of work still to do and a lot of room to grow. As Don mentioned, in October we successfully completed the doubling of our sales force to 77 sales reps and completed extensive training of our new personnel as well. Our full sales force began promoting in MS and IS on November 1. We are very pleased with the caliber and experience of the personnel we have been able to attract to Questcor.

We strongly believe that investing in this commercial expansion will result in much broader sales coverage and increased call frequency, and this should lead to the continued growth of Acthar prescriptions in MS. Let me discuss what we mean when we say the sales force increase was disruptive. The sales force expansion allowed us to create much smaller and more efficient sales territories. This involved the reassignment of many existing Acthar prescribers to new sales reps.

So, new relationships need to be established between the new reps and about half of the existing Acthar prescribing doctors. Meanwhile, our existing reps began calling on many new doctors, where they also need to establish new relationships. We know that establishing a positive rep/doctor relationship is a key element to our sales success.

So disrupting the existing relationships can have the potential to set back sales temporarily. We were expecting total MS prescriptions in Q4 to be flat or maybe even slightly down from Q3, due to this disruption. But instead, our revamped sales team was able to increase sales yet again in Q4, and this momentum is continuing into the first quarter. The investment in new personnel has allowed us to reduce territory sizes for our salespeople, which should lead to greater efficiency and productivity.

Our salespeople will now be spending more of their time educating doctors and office staff about Acthar and less time traveling to the doctor’s offices. With double the number of salespeople, we will now be able to call on more than double the number of neurologists, and with a higher frequency of calls for those MS doctors with a higher potential for prescribing. Based on our previous experience, a high frequency of calls is critical for impacting a neurologist’s prescribing behavior.

Importantly, we believe we have already made substantial progress with the issues related to the expansion and should fully complete this transition by the end of the second quarter. During the fourth quarter of 2010, commercial prescriptions for Acthar in infantile spasms remained in the historic range.

In IS, we may see modest growth in prescription volume in 2011 as we educate child neurologists and their office staff about Acthar’s availability and newly-approved IS indication, Acthar’s excellent insurance coverage, and our extensive patient support programs. Many doctors and nurses in child neurology are telling us that they find our new Acthar support materials, our new parent and caregiver educational materials, and our extensive patient support programs to be very helpful in their management of IS patients.

Now I will take a moment to discuss our progress in nephrology. We very recently completed hiring our five-person nephrotic syndrome sales team and will finish their training by the end of February. Of note, all five have significant previous experience selling in nephrology. Beginning in early March, this group will begin making exploratory sales calls on targeted nephrologists who treat nephrotic syndrome.

We expect that this dedicated selling effort over the next several months will help us develop our commercial strategies and selling approaches in this new market. As was the case when we began our initial exploration of the MS market for Acthar in 2008, we anticipate this incremental approach to the nephrology market gives us the best probability of success in the longer term.

So, let’s summarize. We expect continued growth for Acthar in MS during 2011. Our expanded Acthar salesforce is generating positive results in MS sooner than expected. The IS business remains stable and may have some potential to grow, and we are now stepping up efforts in nephrology with a sales effort that will help us more actively explore and better understand this new Acthar market. With that, let me turn the call over to our new CFO, Mike Mulroy. Mike?

Michael H. Mulroy

Thanks, Steve. For the full-year 2010, net sales increased 30.4% to a record $115.1 million from $88.3 million in 2009. Net sales increased 13.1% during the fourth quarter of 2010 to $29.3 million, versus $25.9 million in the fourth quarter of 2009. Gross profit margin remained stable in the 92% to 94% range.

As expected, due to the significant expansion of the Company’s MS salesforce and costs associated with several major conferences and meetings held during the fourth quarter, operating expenses were $4.6 million higher in the fourth quarter of 2010 than the third quarter of 2010.

Clearly, operating expenses will be higher in 2011 compared to 2010 to the full sales force expense, and our current plan is to increase R&D spend associated with clinical trials. Questcor’s GAAP financial results in the fourth-quarter and full-year 2010 were negatively affected by an unusual tax opportunity in California.

In 2011, we can take advantage of a new tax regulation in California, which will allow us to end up with de minimus state taxes. While this will save us money in 2011 and beyond, we will no longer be able to use our California NOLs. So we had to set up a valuation allowance in the fourth quarter of 2010 for those NOLs. This impacted our fourth-quarter and full-year 2010 net income by approximately $1 million.

We continue to generate strong free cash flows. As of February 18, 2011, Questcor’s cash, cash equivalents, and short-term investments totaled $127 million. We did not repurchase any shares during 2010. As of December 31, 2010, Questcor had 62.4 million shares of common stock outstanding. Now I’ll turn it over to Kirsten, who will provide a summary of our sales-related reserves, especially our Medicaid reserves. Kirsten?

Kirsten Fereday

Thank you, Mike. Medicaid rebate bills typically come in well after the end of each quarter. So we must estimate the amount of these bills and set up a reserve each quarter. This Medicaid reserve-setting process became more involved with the passage of national healthcare reform in March 2010 because Medicaid-managed care organizations, which we call MCO, became rebate eligible.

First, I will provide an overview of the reserve-setting process for the first group of Medicaid rebate bills, those that were due prior to the healthcare reform. Second, I will discuss how we establish reserves for this new expanded group of patients who became rebate eligible under the new laws, the Medicaid MCO rebates. We have a reliable predictive model for the first group of Medicaid prescriptions that were rebate eligible before the healthcare reform took effect.

For this group, we develop our Medicaid reserve provision through an extensive state-by-state analysis of our historic Medicaid-related Acthar prescription experience. We have leveraged this internal historic data to build our predictive model. During 2010, this predictive model accurately forecasted the rebate invoices for this first group.

Now, let me discuss the new group, the Medicaid MCO patients. The information we used to set the reserve for the first group is not yet reliably available for the new Medicaid MCO rebates. It’s important to note that although healthcare reform expanded the rebate to the Medicaid MCO population, it did not impact all 50 states. The reason for this is because of previous state-level regulatory action or the lack of use of managed care within some states.

We estimate that there is only new rebate liability in approximately 28 states for their managed care patients. Since we have less internal or historic data to work from, our predictive model combines the internal data that we do receive with national enrollment statistics by age group to estimate our liability for the Medicaid MCO reserve. The Company has reserved $8.2 million for this Medicaid MCO liability since March 23 of 2010, including $2.6 million in the quarter ended December 31, 2010.

We have received a limited number of bills for this new group of patients and expect the billings to pick up during the next several quarters. Overall, four factors had a significant effect on the percentage and the dollar amount of sales reserved in 2010. The first and most significant factor is the extension of the Medicaid rebate to the Medicaid managed-care patient that we just discussed. To repeat, this caused our reserves to be higher by $8.2 million in 2010.

However, the other three factors actually reduced our reserves as a percent of sales and/or on a dollar basis. The other three factors are the mix of MS versus IS sales, the rebate cap, and improved pricing with TRICARE. So the second factor was the mix of MS versus IS sales. Since we estimate that almost half of babies are eligible for Medicaid rebates, compared with approximately 10% of adults, our mix of sales has a big impact on the percentage of sales reserves.

An increase in MS prescriptions compared with IS prescriptions positively impacts the sales reserves percentage. The third factor was the cap on the Medicaid rebate amount. The Company’s sales reserves were positively impacted during 2010 by a reduction in the amount of rebate due to state Medicaid agencies from 110% to 100% of the average manufactured price of Acthar.

And the fourth factor was an improved price position for Acthar with the VA and TRICARE. This led to a reduction in the per-vial rebate due to TRICARE and the Veterans Administration. This also reduced our sales reserves as compared with 2009. These last two factors reduced our reserve by approximately $6.9 million in 2010, partially offsetting the $8.2 million increase, due to the expansion of Medicaid rebates to cover Medicaid MCO patients.

Don M. Bailey

Thanks, Kirsten. In summary, we remain very focused on the consistent execution of our sell-more-Acthar strategy. We completed the expansion of our Acthar MS salesforce in the fourth quarter and see early signs of increased sales that indicates our expanded selling effort is generating positive results in MS sooner than we expected.

In 2011, we look forward to driving further MS sales gains as a result of this newly expanded sales force. We continue to build awareness in the child neurology community regarding the need for early diagnosis of IS and for rapid and appropriate treatment with Acthar. And our small, dedicated nephrology sales team has initiated efforts to educate the market about the use of Acthar in this condition.

Operator, you may now open up the call for questions.

Question-and-Answer-Session

Operator

Thank you sir, we will now begin the question and answer session. (Operator Instructions) Our first question comes from the line of Chris Holterhoff with Oppenheimer & Co.

Chris Holterhoff – Oppenheimer & Co.

Hi guys, thanks for taking the question. Just wondering if you anticipate the temporary disruption from the addition of more reps that you saw in the fourth quarter, is that something that will continue into early 2011 or was that largely finished by the end of the year?

Don M. Bailey

Hi Chris, I’ll let Steve answer that question.

Stephen L. Cartt

Yes, Chris, the disruption is most acutely felt in the first few months after an expansion like this, where there’s new territories being assigned and new doctors with old reps and old doctors with new reps, et cetera, et cetera. So, I think fourth quarter, we saw it most acutely. We are still dealing with some of that in the first quarter, but I think if you look forward a little bit, by the end of second quarter, it should be completely resolved. And this is a typical pattern you see with significant expansions like this. So, even though we’re – we appear to be continuing to grow during this transition period, we are still feeling it a little bit, to some extent.

Chris Holterhoff – Oppenheimer & Co.

Okay. And then, regarding the NS opportunity, can you talk about how you might think about adding additional reps over the course of 2011 from the current fiber op level?

Don M. Bailey

Sure, Chris. We’ll just wait and see what happens, just like we did with MS. We would expect an evidence-based decision, to borrow a term from medicine. If we see evidence of growth I think that more sales people will bring in more sales, then that’s what we’ll do.

Chris Holterhoff – Oppenheimer & Co.

Okay. And regarding the Phase II studies that you’re going to start for diabetic nephropathy, can you talk about when you might start those studies and at what point we might see some data?

Don M. Bailey

Sure. Let me ask Dr. David Young to answer that question.

David Young

Right now, we’re evaluating what type of studies should be done, determining the designs, as well as discussing things with FDA on the designs. Our anticipation is we’ll have that strategy completed sometime in the second half of the year with the FDA, and so then we’ll be moving forward some time in the last half of the year with the study.

Chris Holterhoff – Oppenheimer & Co.

Okay, and just final question, can you talk about any shares that were repurchased in the fourth quarter and if you continue to expect to use your free cash flow to buy back shares in 2011?

Don M. Bailey

Sure, Chris. We did not buy back any shares in the fourth quarter. But the program remains active, and to date we have spent – our estimate is 42% of the free cash flow we’ve generated since we changed the Acthar strategy to buy back shares. So, it’s still a very viable program, and we look forward to being able to buy back some more shares.

Chris Holterhoff – Oppenheimer & Co.

Thanks a lot for taking the questions, and congrats on the continued progress.

Operator

Thank you. Our next question comes from the line of John Newman with Citadel Securities.

John Newman – Citadel Securities LLC

Hi guys. Thanks for taking the question. Don, I just wondered, on the expense front in 2011, should we assume that the run rate that we see in the fourth quarter is a good approximator for 2011, both on the SG&A side and the R&D side? I know you talked about a slight increase in R&D, but I’m just curious as to what we should expect for expenses this year.

Don M. Bailey

Good question, John. The run rate for sales and marketing SG&A is probably a decent run rate as a starter because we had the full sales force for all of fourth quarter. So it should be approximately – it might grow a little bit because marketing has to grow somewhat to support the increased sales force, but it’s a good first approximation. However, with R&D, we should see a significant increase in the sale – in expenses for R&D over the year, depending on the timing of the Phase IV trial that we want to get underway here soon on membranous nephropathy, and then the timing of the Phase II trial that David just talked about. So, we could see a significant increase in R&D of – well, we can’t really estimate the exact amount because it depends so much on the timing.

John Newman – Citadel Securities LLC

Okay, and in terms of the tax rate for 2011, I know that you talked about the change to California tax law. What should we expect in terms of a range for your effective tax rate in 2011? And what kind of potentially positive impact could we see from the changes that you’ve made with regard to California?

Don M. Bailey

I’m going to ask Kristi Engelke, our Controller, to answer that question.

Kristi Engelke

Hi, John. In terms of the effective tax rate for 2011, California plays into about two-percentage point to our ATR right now. As it relates to the single sales factor apportionment adjustment we’re going to have, we’re looking at about $1.5 million in P&L savings, about $0.02 per share next year.

John Newman – Citadel Securities LLC

And Don, on the Acthar orders, since Acthar is a pretty expensive drug on a per-vial basis, is there any chance that going forward you can maybe smooth out the order sizes a bit so that the quarterly sales are maybe just a tad bit more in line with the actual script demand?

Don M. Bailey

That would be nice. But unfortunately, I think we are at the mercy of our exclusive distributor and their ordering system. And we’re still trying to figure out what that algorithm is, but right now their ordering quantities are quite large, and if our sales grow, they are liable to get even larger. So we’ve seen a gradual increase in the order size and not a decrease over time.

John Newman – Citadel Securities LLC

Just one last question. On the previous sales force expansion, was the increase in the number of physicians that you called on also roughly a doubling, or was it slightly less or slightly more?

Don M. Bailey

Steve, can you answer that question?

Stephen L. Cartt

Yes. The previous expansion, we went from 30 to 38 reps. That was in late 2009. And this time, of course, we are going from 38 to 77, so this is literally slightly over a doubling. So we’re expecting not even just to have a doubling of the number of docs we’re calling on. Because of the efficiencies of the smaller territories, the fact that they’re spending more time making calls now than driving or flying, which they were doing a lot more before, we expect we’ll be able to call on at least double, probably more than double. And also, the frequency of calls is very important as well, as you are able to get, you know increase from a monthly call down to a call every couple of weeks that can have a significant impact on prescribing as well.

John Newman – Citadel Securities LLC

Okay great, thanks.

Operator

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

Yale Jen – Maxim Group

Good afternoon and thanks for taking the call. (Inaudible) quarters.

Don M. Bailey

Thanks Yale.

Yale Jen – Maxim Group

Could you give us a little bit breakdown on the revenue side in terms of the three indications, let’s say IS, MS, and let’s say the others, in terms of the revenue for the fourth quarter?

Don M. Bailey

Oh, for the fourth quarter. That’s a little difficult to do because of this order size issue and the shifting of demand. What we can tell you for the full year, so out of $115 million, probably MS was $65 million or maybe even $70 million. Call it $65 million. IS would’ve been about $40 million, and the remainder was about $10 million. So, probably $65 million, $40 million, and $10 million are very rough numbers. We don’t see every prescription, so we can’t tie every prescription out to orders. But that’s an approximate – that’s good within plus or minus 10%.

Yale Jen – Maxim Group

Okay, great. Thanks and very helpful. The second question is that could you remind us, giving that the increase of salesforce, what would be the anticipated – and the doctor number to reach for nephrologists, neurologists, as well as what kind of effort you will have for infantile spasm for the pediatric neurologists?

Don M. Bailey

So, just to be clear, are you talking about the number of neurologists and child neurologists that we might be calling on?

Yale Jen – Maxim Group

Yes.

Don M. Bailey

Steve, can you answer that?

Stephen L. Cartt

Sure. It sounded like, Yale, you maybe asked about nephrologists as well. Did I hear that right?

Yale Jen – Maxim Group

The nephrologists will be the – for the NS, I guess that’s a starting point. I don’t know what – and given that you are starting this process, I don’t know whether you have a top-end numbers or you want to work more on the sort of detailed methods to really be better penetrated in this population. So probably start within neurologists, both adult and the child. If you want to comment on the nephrologists, please do.

Stephen L. Cartt

Sure. We are going to be calling actively, how we define actively, on probably about 4,000 neurologists, whereas previously it was closer to 2,000, actually slightly under 2,000, and that’s, you know with the number of calls that we think could actually potentially have an impact on prescribing behavior over time. So, slightly more than doubling. If you look at other MS sales forces in the industry, they are anywhere from 100-plus up to 250 reps, and we are at about 77 now. Exactly 77, I should say. So we’re still a little on the smaller side as far as an MS salesforce goes, but we’re able to have a pretty dramatic effect on the number of doctors we’re able to call on with a high enough frequency to impact anything.

And then on IS, we are really starting with overall calling on all the child neurologists that we can get to, and there are about 1,300 child neurologists in total in the country, and not every one of those child neurologists actively treats IS. So, we’re having to kind of go through and figure out the ones that we’re going to want to have an ongoing call frequency with. I would guess it will probably be something around half of those, so maybe 600 to 700, we’ll be maintaining calls on over time. And as far as nephrology goes, as you noted we’re just getting going in that, but with five reps, we’re probably going to be calling on about 300, roughly, physicians, and again with a high enough call frequency that we can hopefully impact prescribing behavior, but this is going to be a learning process. It’s very similar to what we did in early 2008 with MS where we started making calls. We had some initial positioning, and then that positioning evolved over time really to where it is now.

Yale Jen – Maxim Group

Great. Thanks a lot. And the last question I have is for – I know there is a number of physician-sponsored studies for the NS. Could Don give any updates in terms of where some of those might be? Any potential data at least for this year and any sort of color on that? And thanks.

Don M. Bailey

Sure. So we have quite a few going on. Maybe Steve could just comment on the top two or three.

Stephen L. Cartt

Yes, sure. We have studies – a number of studies that are being funded, and these are external studies, usually at academic centers. Columbia University, for example, has a study that’s in resistant – treatment-resistant nephrotic syndrome, and that particular study will be one of the earlier ones to finish. So we would expect sometime in the second half of the year to have data available from that study. And there are several other studies as well, including some preclinical studies that are aimed at trying to elucidate better the mechanism of action of Acthar in various forms of kidney disease. So this year will be, you know we’ll have an initial report published in a peer-reviewed journal later this quarter, and then we’ll have flow from some of these other studies coming throughout the course of the year, really beginning probably second or third quarter and moving into fourth.

Yale Jen – Maxim Group

Okay, great, and thanks a lot and congrats on the good quarter.

Operator

Thank you. Our next question comes from the line of Dan Mendoza with Prospect Capital Advisors. Please go ahead.

Dan Mendoza – Prospect Capital

Hi guys. I’ve got a few. Just to follow up on the Phase IV trial, what would be the kind of cumulative cost of that over the course of 2011 and, I guess, potentially into 2012?

Don M. Bailey

David, can you provide some answers there?

David Young

Yes. The costs would be in the range of $5 million to $7 million. We are still finalizing the design, so we don’t know it 100%. That’s in the ballpark.

Dan Mendoza – Prospect Capital

And how about the ballpark for number of people being treated and when you’d have data?

David Young

In terms of the number of people being treated, we’re somewhere in the range of 75 to 135 or 140 patients. Again, the design is being finalized, so we don’t know the exact number. But the data will probably be coming sometime – the efficacy data would will be coming sometime in 2012. Because we’re treating for six months, so we won’t have the data until sometime in 2012.

Dan Mendoza – Prospect Capital

Okay. Can you do the same questions for the Phase II diabetic trial?

David Young

That’s a little bit harder because that’s a discussion we’re having with FDA right now. So, I can’t even put much color on that until we’ve further discussed it.

Dan Mendoza – Prospect Capital Advisors

Okay, I’ll hit you on that one maybe next quarter or the quarter after. That is helpful. And then, I guess, any thoughts to maybe giving a little bit more guidance than you guys normally do during this transition period with the sales force. I mean, you guys talked about how the quarter came in, and paid prescriptions came in better than you had expected, but unfortunately there hadn’t been guidance around that, so the self (Inaudible) kind of got it out there a little bit despite your calling out that it was going to be a transitional quarter. And again, kind of in the Q1, they’ve got revenues up 25% quarter to quarter. And you know, I understand the uncertainty with the distribution orders, but maybe giving paid RX is the way to do it, but any thoughts on more guidance during the transition?

Don M. Bailey

Dan, we’re very sympathetic and we understand why you would like that. And we have talked about this significantly internally. The problem we have is not so much the orders from our distributor. It is the actual traction that our sales force might get with sales. So predicting the actual number of MS prescriptions is very difficult, and we think there’s a high range of possible outcomes. If we gave you the full range, it would sound so wide as to be even not helpful at all. With IS, there’s always been a significant quarter-to-quarter variability, and NS is small numbers anyway. So, the real key would be MS, and we really would have a very difficult time. I might ask Steve Cartt to just comment on January and February just a little bit on how it’s going because that will give you a little bit of help, but it’s still not going to be quantitative.

Stephen L. Cartt

Sure. So, I’d be happy to do that. So, we’re actually, you know January was kind of in the range that we saw in Q4, and in February so far, we’ve had – we’ve been running at basically a record pace, which has been good to see, so now the key is can we continue that and even potentially accelerate off that. Only time will tell, but so far in February we are at a record pace in terms of paid and shipped MS referrals.

Dan Mendoza – Prospect Capital Advisors

Okay. I guess I was just hoping, I mean you talked about, Steve, earlier that you had expected paid to be flat to slightly down, and it ended up being up 10%. Some kind of either quantitative or qualitative guidance such as the flat to down that you had expected internally would be helpful.

Don M. Bailey

We expect it to be up slightly in Q1, and we’re running at that or a little bit better.

Dan Mendoza – Prospect Capital Advisors

Okay, that’s great. And then, lastly, just on the rebate issue, maybe to put that to bed, can you give a little bit of color on what your expectations are for 2011? It sounded like a couple of those positive factors that you had last year kind of might have been you don’t get a year-over-year benefit from them in terms of the rebate cap and the TRICARE pricing, but maybe you could just give a little bit of color on how that rebate number might grow in a lot of [this].

Don M. Bailey

Sure. Actually, none of the factors have a year-over-year impact because they are all pretty well fell for the entire year. I mean, we had the managed care hit for nine months of the year, so it will be – instead of $8 million that might run $10.5 million. But the $7 million benefit runs again this year. It’s not a year-over-year benefit, but it is a continuing benefit. So, comparing 2011 to 2010, it would only be a couple million-dollar difference. Not much at all. So, and we would anticipate that by the end of this next year, we’ll have very good visibility, much better visibility into how we did with our estimating the MCO.

Dan Mendoza – Prospect Capital Advisors

Okay. Great that’s helpful. Thanks.

Operator

Thank you. Our next question comes from the line of Tim Lynch with Stonepine Capital Management LLC.

Timothy Lynch – Stonepine Capital Management LLC

Hi, guys, just one question. And if you’re limited on what you can say here, I understand. So, no pressure. With the manufacturing of the drug, it’s been sole-sourced for quite a while now, and the drug is kind of getting to that level where it’s quite meaningful if you had a big disruption at a supplier. Can you give any color on your strategy or what opportunities there may or may not be to evolve away from a sole-source situation?

Don M. Bailey

With the volume of drug we’re talking about here, it’s not practical to have a second source. We’re dealing with very reputable vendors and we own all the equipment. We own all the processes. So, if there was a problem, we would be able to transition to new manufacturers within a timeframe that fits within the – in our inventory and within our contracts. We really don’t think it would be an issue.

Timothy Lynch – Stonepine Capital Management LLC

Okay, so the strategy is – lends itself more to inventory management than having a second source in case there ever was a disruption.

Don M. Bailey

Yes, we’ve done everything one could reasonably do to ensure that we’ll have an uninterrupted supply.

Timothy Lynch – Stonepine Capital Management LLC

Okay. Okay great. Thank you.

Operator

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

John Newman – Citadel Securities LLC

Hi guys. Thanks for taking a follow-up. In terms of the NS promotional effort with the five reps that you’ve got, that you have on board at this point, when should we expect to see some potential traction there, assuming that you have a publication for them to promote with in March? Are we talking about a potential impact in the second quarter or third quarter? And then, my second question is to Don. Don, could you remind us the conditions around your share buyback program in terms of when you’re allowed to buy shares versus when you’re not? Thanks.

Don M. Bailey

Okay. Let me let Steve answer the traction issue and I’ll answer the buyback.

Stephen L. Cartt

Sure, John. So, that’s part of what we’re going to learn here is how long is the selling process in nephrotic syndrome. Now if you remember back to the middle – it was actually second quarter, early third quarter of last year, we tested out a very small selling effort. It was a pilot effort with a few of our reps, just part-time, and we were able to generate a small number of prescriptions. Now, these prescriptions are very valuable, of course. They can be upwards of $200,000 if the patient completes therapy. So, we were able to see a little bit of traction there with that very small, limited effort, and time will tell. We have a group of five experienced nephrology reps now. The previous group didn’t have nephrology experience or contacts there. So, it will be very much a learning process as we go forward over the next few months here, but that’s part of what we’re trying to do is understand the selling cycle and how long it takes to get prescriptions generated and change prescribing behavior on the part of nephrologists. We have a lot of experience with neurologists, but nephrologists now are a different group.

Don M. Bailey

And John, to answer the share buyback question, we are blacked out from the 15th of the third month of the quarter until the earnings are announced, plus two days, so we’ll be back open on Monday. We’re then – also, we have to shut down any time we have any information that’s not public that might be viewed in hindsight as having been important or material. And it’s the hindsight question that grabs us frequently, so there is a wide range of topics that could cause us to have to shut down the window even though it was open with a – not closed for earnings reasons. So we do end up with a – with sometimes some very long time periods where we are shut out.

John Newman – Citadel Securities LLC

Great. Thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Patrick Lin with Primarius Capital. Please go ahead.

Patrick Lin – Primarius Capital

Hi guys. Just a couple of quick questions. Some of them have already been asked. But can you give a quick update in terms of your upcoming conferences and potentially cities that you might be doing investor meetings, please?

Don M. Bailey

Sure, Patrick. So next week, we are in New York City for three conferences, back to back to back, Collins Stewart, Citigroup, and RBC Capital. And I’m going to do the first two, and Steve is going to do the third one. Then, the following week in Boston, we’ll be doing the Cowan conference, and David Young and Mike Mulroy are going to do that conference. And then the week after that, we are at – in Miami at Barclays. So we have those five conferences in March, so we’ll – you guys will be sick of us by the end of March.

Patrick Lin – Primarius Capital

Okay, great. No, not the sick part. But that we’ll be able to hook up on one of those cities.

The other question I had as a follow-up was, you know I know you were constrained for probably close to the entire year last year on the buyback. But just in terms of your confidence level, looking at 2011, versus the prior few years in terms of visibility and your confidence level in terms of executing the strategy, can you just give us a little color on what’s kind of going through your mind as you look at this year versus the prior years?

Don M. Bailey

That’s a great question, Patrick. Thanks for asking it. We should’ve asked somebody to ask that question. So number one, a major thing happened in October with the approval and revamped Acthar label. This was a significant de-risking event because we had a very old label that was subject to FDA review. That review has come and gone. We now have some confidence in the indications that we can pursue from a promotional effort and from further expiration on the R&D side. So, that’s number one. Number two, we feel very good about where we’re sitting with this MS market. Clearly, Acthar is very helpful to the relapsed patients who – for whom steroids are not suitable. And we think we have a lot of headroom there. We’ve only gotten less than 1% of the MS patients, and as you can see from Steve’s numbers, we’re just scratching the surface on the number of doctors. The third point is that there’s just a number of other opportunities, whether we are talking about nephrotic syndrome or other on-label indications or even some off-label opportunities – off-label indications. And we’re going to focus on Acthar. We may even start to explore looking at partnering some of these opportunities, so that’s where we are, Patrick.

Patrick Lin – Primarius Capital

Great, thank you.

Operator

Thank you, and I’m showing no further questions in the queue at this time. I would like to turn the call back to management for any closing remarks.

Don M. Bailey

Thank you all for attending, and we’ll talk to you in late April.

Operator

Thank you. Ladies and gentlemen, this concludes the Questcor 2010 financial results conference call. This conference will be available for replay after 7:30 PM Eastern Standard Time today through March 9, 2011, at midnight Eastern Standard Time. You may access the replay system at any time by dialing 303-590-3030 or 1-800-406-7325, and entering the access code of 4408313 followed by the pound sign. We thank you for your participation. You may now disconnect.

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