Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR)

Q2 2011 Earnings Conference Call

July 26, 2011 16:30 ET

Executives

Doug Sherk – Investor Relations

Don Bailey – President and Chief Executive Officer

Steve Cartt – Chief Business Officer

Dr. David Young – Chief Scientific Officer

Mike Mulroy – Chief Financial Officer

Analysts

Mario Corso – Caris & Company

Tim Chiang – CRT Capital Group

John Newman – Citadel Securites

Chris Holterhoff – Oppenheimer & Company

Yale Jen – Maxim Group

Biren Amin – Jefferies & Company

Patrick Glenn – Primarius Capital

Operator

Welcome to the Questcor Second Quarter Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions)

This conference is being recorded today Tuesday, July 26, 2011. I would now like to turn the conference over to Mr. Doug Sherk. 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 second quarter 2011 financial results. This afternoon at the market close, Questcor issued its second quarter earnings release, which is posted on the company’s website at www.questcor.com. The call is being broadcast live via webcast with an accompanying slides presentation a new feature today and archive of both will also be available at the Questcor’s website.

To access the webcast including the presentation slides and the archive go to Questcor’s website at www.questcor.com in the investor relations section under events and presentation. If you are listening via telephone to view the company’s presentation slides, navigate to the live webcast is noted and choose the no audio slides-only option to view the slides in conjunction with the live conference call. There will be a taped replay of this call, which will be available approximately one hour after the call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of today’s call.

Before we get started, I would 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 me turn the call over to Don Bailey, President and Chief Executive Officer of Questcor Pharmaceuticals.

Don Bailey

Thanks, Doug. Good afternoon, everyone. With me today are several other members of our management team. Three of them will be making prepared remarks, Steve Cartt, our Chief Business Officer; Dr. David Young, Chief Scientific Officer and Mike Mulroy, our CFO.

If you have access to the slides accompanying our remarks today, please note that the headlines from this afternoon new release are highlighted on the screen. The headline demonstrates the Questcor had a terrific quarter. Our straightforward strategy to sell more Acthar is delivering exceptional growth. 140 year-over-year growth for Acthar in the MS market is leading the parade. At the same time, our native nephrotic syndrome selling effort had a superb full quarter.

Our first full quarter selling Acthar for NS – because that effort just started in March of this year. As a result of this success in NS, we are immediately and substantially expanding our nephrology selling effort without decreasing our resources or focus on MS. By substantially we mean that the selling effort for nephritic syndrome will be increased by over seven times, once the added sales representative are hired and trained.

The exceptional MS and NS sales growth along with the very good IS sales quarter naturally led to a record Acthar vial shipped quarter, record sale and record earnings. In addition today, we are announcing the fourth vertical market, we aim develop for Acthar, which is lupus.

We have been steadily growing MS Acthar prescriptions for 14 consecutive quarters. Our key focus on expanding the use of Acthar and the treatment of MS exacerbation or relapses drove our year-over-year increase in the number paid Acthar prescriptions for MS. In the second quarter, we had 751 paid MS reps compared to 304 a year ago. The dramatic growth in MS prescriptions that emerged in March continued throughout the second quarter.

If you look at the green line on this chart, you can see the month MS sales levels during the second quarter. The major factor behind the increased prescriptions is the increased productivity of our MS sales force. The chart on your screen now illustrates the strong correlation between sales calls on neurologist and new prescriptions.

The drop in sales calls during June was due to our holding international meeting to discuss the nephrology expansion with our entire commercial team. We believe Acthar is MS sales performance is being driven by positive patient outcomes and the increase in productivity of our MS sales force.

If you annualize the second quarter prescription count, you get about 300,000 Acthar MS prescriptions annually. So, that’s 751 times four. While we do not have definitive data on the total number of MS relapse patients for whom steroids are not returning them to an acceptable quality of life, we can safely say that there appears to be ample room for growth for Acthar in this MS market, that are approximately 200,000 relapse new reps.

Turning our efforts to build the use of Acthar to treat nephrotic syndrome, we generated substantial increase in new prescriptions in the second quarter. Nephrotic syndrome or NS is a kidney disorder by characterized by high level of protein in the urine. These NS patients is not successfully treated are headed for end-stage renal disease and either dialysis or a kidney transplant. There is a significant unmet need in NS, no standard of care in treatment and the market size looks promising for Questcor.

While the prescriptions numbers are small, this is where we started with NS just three years ago. For NS, we only initiated our dedicated commercial effort in March. The efforts of our five person nephrology dedicated sales team generated 45 new prescriptions in Q2, up from 18 in Q1. Also for comparison we only received 31 scripts for NS in all of 2010. It is important to note that each NS script generates more net sales than IS or MS due to the higher number of vials needed to complete the treatment for nephrotic syndrome.

Today, we are announcing the launch of our next vertical markets for Acthar, systemic lupus erythematosus or SLE or just call it lupus. Importantly, Questcor selected SLE as the next target therapeutic and commercial market for Acthar, because of the high unmet need for additional treatments in this disease; THE serious and difficult to treat nature of SLE, the existence of three on-label SLE-related Acthar indications, and the sizable SLE patient population.

Now, I will turn the call over to Steve who will provide some color regarding sales and our choice of lupus, then Mike will briefly discuss our financial performance and David will discuss our expectations for the new Phase IV NS trial. Then I will provide a few final remarks and we will open up the call for your questions. Dave?

David Young

Thanks Don. For a moment I’d like to draw your attention back to the MS quarterly sales chart we referred to earlier and it’s now on your screen. Our specialty sales force has 77 representatives continue to achieve increased acceptance of Acthar among neurologists, the treatment of MS relapses during the second quarter.

During the quarter, we shipped a record 751 paid Acthar prescriptions for the treatment of MS relapses. This was an increase of 147% over the year ago period and 48% over the previous quarter. We believe this performance as a strong signal that the sales force continues to gain traction in the MS market at a faster rate than we expected. In addition to rapid growth, our trends in MS are all very good and indicate that we are building momentum in this key Acthar market.

In particular, we appeared to have a steadily growing number of both new and repeat prescribers as well as increasingly broad participation from doctors across the country. As a reminder, we are promoting Acthar specifically for those MS relapse patients who don’t experience optimal outcomes from IV steroids, the first-line experiment for MS relapses. Some patients don’t fully respond to steroids. Others experienced problematic side effects and still others have trouble using IV steroids due to poor vein. For these three types of patients, Acthar can be a valuable treatment alternative.

Our promotional efforts remain focused on two main goals. One, convincing and increasing number of prescribers about the benefits of using Acthar with their patients and two helping doctors, nurses, and others in their medical practice more effective at identifying the right patients for Acthar.

We expect that our increased Acthar sales call activity, further productivity gains by the sales force, and our increasingly effective marketing programs which include our initial direct-to-patient market efforts will together drive continued MS sales growth through 2011 and into 2012.

As Don mentioned, we believe we have addressed only a portion of the available MS market that could benefit from Acthar treatment. One statistic that clearly demonstrates this is the number of current Acthar prescribers compared to the total number of MS treating neurologists. The number of Acthar prescribers in MS is growing steadily, but it’s up still away about 500 given that we are now targeting over 4000 neurologists for Acthar sales calls, there are significant opportunities over time to move many more neurologists to the Acthar prescriber count.

As a potentially interesting frame of reference, certain other MS drugs that have been actively promoted for several years eventually reached a level 5000 or more doctors prescribing. So, based on this and other measures we believe we still have quite a bit of room to grow Acthar in the MS market.

Now, I’ll discuss our progress in the nephrology while referring to our NS sales chart now on the screen. For a second consecutive quarter, our five-person neurology sales team generated a record number of Acthar prescriptions in nephrotic syndrome. The 45 scripts in the second quarter compares to 18 in the first quarter of 2011 and only 7 in the fourth quarter of 2010. Importantly, there were 37 different nephrologists writing those 45 prescriptions. This compares to only 15 prescribers in the first quarter and 7 prescribers in the fourth quarter. Though it is very early stage, we are seeing a healthy increase in the number of doctors willing to try Acthar on their first patient or two. And keep in mind that these results were from the efforts of only five sales people in their first full quarter of selling activity.

We are hopeful that prescription activity in nephrology will follow the strong sales trends that we have seen in the MS market since 2008. Based on the strong early Acthar prescription activity, we are immediately expanding this sales team from 5 to 28 nephrology representatives. We have now appointed a National Sales Director for our nephrology sales force. All four nephrology regional sales managers have been hired and the filling of new sales physicians is well underway. We expect the entire nephrology sales force to be hired, strained, and actively promoting Acthar to the nephrologists by the end of September.

The slide now on your screen reviews our total sales organization that will be in place by the end of the third quarter. Importantly, the 77 reps in our specialty sales force will remain primarily focused on MS, continuing to spend about 80% of their time calling an MS specialist. However, IS is an entirely different story. Since Acthar is already considered by many child neurologists to the treatment of choice for IS, we now feel comfortable significantly reducing the overall number of sales calls to child neurologists.

During the first two quarters of this year, we have been periodically calling at about 800 child neurologists. Starting July 1, we began focusing our remaining IS selling efforts on only about 100 important children hospitals around the country, where we believe Acthar could potentially play a much bigger role in the treatment of children with IS. This reduction and time spend on IS sales calls will make time available for our specialty sales force to have a limited, but important supportive role in our nephrology sales effort. By expanding our nephrology sales force from 5 to 28 and by also giving a limited supportive selling role to our specialty sales force to the 77, we expect the total number of target nephrologists that we call on to sharply increase to over 3,000 by the end of the third quarter from less than 400 currently.

Importantly, this current quarter, the third quarter is being spent hiring and training our new nephrology managers and reps as well as reassigning some currently called on nephrologists to new sales reps. We are also completing basic nephrology training of our existing specialty sales force so that they can become productive calling on their small number of assigned nephrologists, which is a new physician audience for them.

So, much like the fourth quarter of 2010 was a transition quarter for us in MS, due to that sales force expansion, this current quarter is expected to be a transition quarter in nephrology for us as well. But clearly by the end of the third quarter, the number of sales calls in the nephrology is going to go up and go up very significantly. And if Acthar is promotion sensitive in nephrotic syndrome the same way it has been in MS, then sales and nephrology should go up too.

One important additional point to make related to NS is the expected flow of vials resulting from a typical nephrotic syndrome prescription. The currently recommended dosing period of six months during which time about 10 vials is needed and a full course of treatment is utilized. Overall, the average is currently about 7 vials total for patient. Not all these vials are shipped to the patient when the initial prescription is build, in fact, usually only one or two vials are initially shipped to the patient when the prescription is approved, the rest of the Acthar vials are shipped over the subsequent five or six months as the patient continues with their course of Acthar treatment. So for the 45 new NS prescriptions during the quarter, only a portion of the vials were actually shipped during that quarter. We would expect most of the vials from these 45 new prescriptions to actually be shipped in the third quarter and even into the fourth quarter of this year.

Over the course of the year, if we were to ship 45 NS prescriptions per quarter the way we did in the second quarter, we estimate that the total net sales related to those NS prescriptions once all vials were shipped will be approximately $30 million. Of course, with our dramatically expanded selling effort, we would expect to exceed that figure.

Turning briefly to infantile spasms, during the second quarter, there were a total of 106 commercially paid and shipped prescriptions for Acthar. This represents the highest quarterly prescription level reach for IS since the third quarter of 2008. This is encouraging, but it is also important to remind everyone that historically we have seen significant quarter-to-quarter variability and paid IS prescriptions due to significant quarter-to-quarter fluctuations in the incidence of this very rare disorder. As we noted on previous calls, we have been conducting an in-depth assessment of the other 15 approved Acthar indications.

We have now identified systemic lupus erythematosus or SLE as the next possible on-label commercial market for Acthar. We believe that this market has many of the same characteristics as our other three vertical markets for Acthar, MS, NS and IS. SLE commonly referred to simply as lupus is another difficult to treat condition with high unmet medical need, where we believe the Acthar has strong potential to bring therapeutic benefit to patients.

Lupus is chronic, autoimmune – is a chronic, autoimmune, and inflammatory disease affecting multiple parts of the body most commonly the joint, skin, kidneys, lungs, central nervous system, and blood vessels. The course of the disease is unpredictable. And like in MS, patients often experience a relapsing-remitting disease pattern. By this, I mean, that may patients with lupus have periods of time when the disease is in remission followed by times when the disease flares up again. These flare-ups or exacerbations can be severe, prolonged, and very debilitating.

Acthar currently has three FDA approved on-label indications associated with lupus. As with MS, Acthar is indicated for use during exacerbations associated with SLE. Unlike in MS, however, Acthar is also approved as a maintenance therapy in SLE. Further still, Acthar has approved for a third lupus related indication for the remission of proteinuria in nephrotic syndrome associated with lupus erythematosus.

Currently, lupus treatment options are limited or oral steroids often used chronically and in high doses are the most commonly employed therapeutic approach for both lupus exacerbations and maintenance therapy. Our discussions with lupus experts continuing to be in the field of rheumatology indicate that there is often significant patient resistance to going on high-dose steroid therapy due to highly problematic side effects. Based on discussions with lupus experts, we believe this creates a significant commercial opportunity for Acthar due to its on-label indication.

We believe the Acthar and lupus represents a substantial market opportunity. The Lupus Foundation of America estimates about 1.5 million American tab lupus with SLE specially accounting for approximately 70% of all cases. We are in the process of estimating the subset of this total patient population that is likely to be appropriate for possible Acthar a year.

So to review, we selected lupus as the next possible therapeutic and commercial target for Acthar, because of high unmet need for additional treatments in this disease, the serious and difficult to treat nature of lupus, the existence of multiple on-label SLE related Acthar indications, and the relatively large lupus patient population.

In addition, there are distinct parallels between the autoimmune disease processes involved with lupus and our emerging understanding of the multiple mechanisms of action associated with Acthar. Lupus is an autoimmune disease affecting multiple organs or parts of the body. Acthar as we have now come to understand and address autoimmune and inflammatory disorders in multiple parts of the body, the central nervous system and kidneys, for example.

So, Acthar could potentially be an ideal drug for disease like lupus. Our efforts are already underway to conduct an in-depth exploration of the use of Acthar to treat lupus. We continue to speak with rheumatology key opinion leaders to help further assess the opportunity, understand market positioning and determine key factors for commercial success. We are also speaking with lupus experts about how best to have these doctors gain first hand experience using Acthar in treating some of their patients much like we have done in nephrotic syndrome.

We are receiving encouraging feedback regarding the potential for Acthar from lupus experts that we have been meeting and are now exploring the possibility of conducting a clinical study in lupus which David will comment on in a few minutes. As we gather additional information, we will continue to refine our strategy for this newly identified Acthar market and look forward to updating you on next quarter’s call.

Let’s summarize, we are very pleased with the robust MS prescription growth during the quarter and expect continued growth during 2011 and into 2012 as a result of the continued sustained sales collectivity. Our early prescription trends in nephrology are surprisingly strong and we are quickly expanding our sales capability in NS which will result in a dramatic increase the number of nephrologists that we could call on at the end of the third quarter just about two months away.

The IS business remains stable and paid IS prescriptions in the second quarter were the highest level in nearly three years. And we have now identified lupus as our fourth key market. So with that, let me turn the call over to David Young, our Chief Scientific Officer. David?

David Young

Thank you, Steve. Good afternoon everybody. In parallel with the NS sales efforts expansion, we recently initiated a company-sponsored Phase IV trial for the Acthar and the treatment of NS associated with treatment-resistant idiopathic membranous nephropathy which is on label. This is a randomized, double-blind, dose-response study with two different doses of Acthar versus placebo. We are planning for about 84 patients in 35 centers with the endpoint being the reduction of proteinuria.

Our first patient to be screened within the next two or three weeks and we expect to have some results available by the end of 2012. We expect to generate clinical data from this trial that will further support our nephrology selling effort. In addition, we are exploring the design of lupus clinical trials with some of the top lupus experts as Steve commented. And we are also now working to better understand the biological sect of Acthar and the potential role of Acthar and the other on-label indications.

Now, I will turn this over to Mike Mulroy, our CFO. Mike?

Mike Mulroy

Thanks David. For the second quarter of 2011, we shipped 2,430 vials compared to 1,680 vials in the year ago period. Medicaid and other reserves in the period were the normal range and our historic period reserve continues to appear to be adequate.

Net sales increased 62% from the year ago period to a record $46 million. Gross profit margin in the second quarter was 94%. Operating expenses were $22.7 million, up $4.1 million from Q1 levels. Operating expenses in the second quarter increased as we expanded marketing programs for MS and began to incur expenses related to the Phase IV clinical in NS.

Non-GAAP net income was $15.2 million or $0.23 per diluted common share. On a GAAP basis, net income for the quarter rose 50% from the same period one year ago, the $13.9 million or $0.21 per share.

We continue to generate strong free cash flows. As of July 15, Questcor’s cash, cash equivalents and short-term investments totaled $144 million. Return on equity was 41.7% in the second quarter. We did not repurchase any shares in the second quarter, but remain committed to returning cash to shareholders. And note that we have returned $78.5 million through share repurchases since the beginning of 2008 representing approximately 48% of our operating cash flow over that period.

Now, I will turn the call back to Don.

Don Bailey

Thanks Mike. Our go-forward plan is extremely simple and remains to sell more Acthars, that is gross sales in each of our key markets, MS, NS, and IS and then expand our commercial effort into other Acthar on-label markets and try to generate Acthar usage in those markets.

In the second quarter, we continued our momentum and had increasing sales levels combined with strong profit margins and substantial free cash flow. We are continuing to focus on NS sales. The commercial team is highly motivated, high incentivized and high productive. Based on positive nephrotic syndrome strip are now increasing our focus on nephrotic syndrome sales and our expanding our NS selling effort. We are applying what we have learnt during our four MS sales force increases so that for nephrotic syndrome, we can accelerate the commercial team build out.

Now, we are adding fourth vertical market, lupus. Of course, we still have were a dozen additional on-label indications for Acthar that we have yet to analyze to determine their commercial potential.

In summary, based on our historical success and especially in light of our record second quarter, we remain excited about our growth prospects going forward. Thus far we had a grown sales and earnings at a high rate, while at the same time generating a large amount of free cash from operations. We believe that we are in a position to continue the strength.

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

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

Our first question is from the line of Mario Corso with Caris & Company. Please go ahead.

Mario Corso – Caris & Company

Yes, thanks for taking my question and congratulations on terrific quarter. A couple of things I wanted to ask about in MS. Do you have a sense of where business is repeat business versus new business in terms of prescription in the core?

And then also in terms of lupus, do you have a sense of timing at this point and in terms of starting a study or potentially getting underway with marketing. Am I accurate in thinking about the commercial potential, would you say that lupus commercial potential is on par with that of MS on a revenue basis? Thanks very much.

Don Bailey

Okay. So, MS we are getting very good distribution of MS scripts over doctor. So, we have a substantial number of new doctors in the most recent quarter. The distribution is just what you would hope for and just what you would expect.

And that distribution in each of the categories, so for example new prescribers, prescribers who are written two to four, five to seven, seven to 10. Each of those categories the numbers are growing. So, it’s exactly what you would expect. As far as lupus timing, I’m going to let Steve Cartt answer to that question.

Steve Cartt

Sure. Mario, good questions, I think helpful historical model look at might be what we have done in nephrotic syndrome. It’s been about three years, we initiated that effort. Now we are kicking off pretty substantial commercial selling effort in nephrotic syndrome now.

We went through the process in developing set of key opinion leaders. We are working with, getting them some experience with drug and then initiating a few small studies. And we would like to do the same type of approach with lupus here, I think it make hold a sense in the world. But we would like to compress that time line. We learned a lot in that three year period with nephrotic syndrome, when we hope to be able to accelerate that pretty significantly.

Operator

Thank you. And our next question is from the line of Tim Chiang with CRT Capital Group. Please go ahead.

Tim Chiang – CRT Capital Group

Hi, thanks. Maybe just a follow-up to that comment on lupus, is there anything you can tell us about how many vials would actually take to treat a lupus patient. Is it too early to come up with an answer that I mean is it similar to nephrotic syndrome, where you are using upto 10 vials?

Don Bailey

That’s an excellent question and there are a lot of other questions, which respect to lupus. That’s we are just too early to be able to answer. We have introduced lupus to all of you a little earlier than we introduced nephrotic syndrome. So, when we introduced nephrotic syndrome two years ago, we had some of the answers to the questions. But we don’t really have those answers at in lupus. But we thought it was important to notify the investment community of this potential because there is such a good looking market here for us.

Tim Chiang – CRT Capital Group

Maybe just a follow-up, is there any sort of run rate you can give us in terms of how you see SG&A expenses ramping in the second half of the year. What the expansion in the sales force?

Don Bailey

Yes, so I’m going to ask Mike Mulroy, our CFO to answer that question.

Mike Mulroy

Yes, thanks Don. Tim, we see OpEx growing in the second half, I’m not going to give specifics, but I will rough range of 10% sequential growth quarter-to-quarter. That would be 10% in Q3 and another 10% again in Q4. And we were $22 million in the $22.7 million, so $23 million in Q2. So, I don’t know there is $3 million in each quarter so. We are hiring another 2000 plus sales people.

Operator

Thank you. And your next question is from the line of John Newman with Citadel Securities. Please go ahead.

John Newman – Citadel Securities

Hi Don. Thanks a lot for taking the question, guys. I just wondered Don, if you could give us a sense of to what you are seeing in terms of the average vial count for MS players. And then in terms of the sales force expansion that’s you have planned for nephrotic syndrome, are those going to be 100% dedicated NS reps similar to what you already have? Thanks.

Don Bailey

Okay. I will answer your first question John and I will ask Eldon Mayer, our VP of Commercial Ops to answer the second question. So, on the vial count, we reported that MS vials per script are running in the 1.5 to 1.9 range roughly speaking and we didn’t see anything different in this quarter. So, we think it’s approximately stabilized.

What we are noticing is a lot of times that script or second vial or third vial if they are used or used, quite a time period after the first vials so they maybe as much as nine months latter. So, some of the large number of scripts in this quarter will show up with an additional vial later in the subsequent quarter. So, Eldon can you shed a little granularity on the sales force build up.

Eldon Mayer

Yes, I believe John the question was with the 28 reps that we will be hiring are they exclusively dedicated to nephrology is that the question?

John Newman – Citadel Securities

Yes. Similar I think the first five that’s your brought onboard were a lot of them had previous experience in nephrology field.

Eldon Mayer

Yes. That’s exactly right John. They will be 100% dedicated to nephrology and also we will be looking for similar profile with extensive experience, but also the type of individual we know lead that can us, so act ours we have learned over the years. I would also say that, the five reps were somewhat limited by what the size of their territory. They were spending quite a lot of time travelling around and would be expansion these 20 reps should be much more efficient because our territories over the course pretty much smaller.

John Newman – Citadel Securities

Great, thank you.

Operator

Thank you. And our next question is from the line of Chris Holterhoff with Oppenheimer & Company. Please go ahead.

Chris Holterhoff – Oppenheimer & Company

I guess thanks for taking the question. I hope you can give us a sense of what portion of your MS sales force is currently achieving their target sales force?

Don Bailey

That’s a good question and the numbers improved in the quarter and its now well over two-thirds. It’s actually over three quarters of the sales force net received, but all in the quarter.

Chris Holterhoff – Oppenheimer & Company

Okay. And that’s from about under half of your sales force achieving in the first quarter?

Don Bailey

The under half exceeded in the first quarter probably about 60% met or exceed. So, it’s definitely up with significant improvement. We want to give congrats to our sales force for achieving that.

Chris Holterhoff – Oppenheimer & Company

Okay, thanks. And then as a note, still kind of early in the process, but just wondering if you added any updated thoughts regarding conducting speaker series to promote sales kind of similar to what you did for MS.

Don Bailey

Yes, sure. Let me let Steve Cartt to answer that question.

Steve Cartt

Yes, Chris good question. I think that’s the thing, we are definitely very interested in, we earlier in the process than we are in MS of course that we have over the last three years developed a pretty sizable and active speaker program in Multiple Sclerosis. And as we have a smaller group of doctors very high quality, but a smaller group, we would look to expand that significantly going forward and now we planned to add doctors to it and increase the level of speaking activity.

Operator

Thank you. And our next question is from the line of Yale Jen with Maxim Group. Please go ahead.

Yale Jen – Maxim Group

Thanks for taking the questions and congratulations on the very good quarter.

Don Bailey

Thanks Yale.

Yale Jen – Maxim Group

Just two quick questions, the first one is could you give me some break down in terms of the revenue amount IS, MS and maybe some NS altogether?

Don Bailey

Sure. So, MS is probably now over 60% of our sales, IS remains in the 25% level and the rest is kind of split between NS and other. So NS is still fairly low because as Steve pointed out, most of the vials that are going to be issued and shipped with respect to MS will happen in the future. But we are creating a backlog for future business.

Yale Jen – Maxim Group

Okay, great. And just a quick follow-up in terms of how would you generally position the Acthar in the lupus versus let say, the same homogeneous science with recent drug. How would you see that at this moment?

Don Bailey

That just too early, it’s a excellent question. It just too early, but we would point out that Acthar is only drug that approved for both maintenance therapy and treatment of exacerbation other than steroid course.

Yale Jen – Maxim Group

Okay thanks. I’ll get back in the queue.

Operator

Thank you. Our next question is from the line of Biren Amin with Jefferies & Company. Please go ahead.

Biren Amin – Jefferies & Company

Yes. Thanks for taking my question. Congrats on the quarter Don. Can you maybe enlighten us on Acthar script trends for July?

Don Bailey

Yes sure. That’s an excellent question. I’m going to let Steve to take a crack on that one. There is nothing unusual going on in the quarter.

Steve Cartt

Yes, I think that’s right. What we historically seeing is when we have had sharp spikes in prescription activity in a particular quarter that’s generally been followed by in a more modest growth or even for the flatness. And what we didn’t see that in the second quarter, we somewhat expected to see after the big spike in Q1, we ended up having two back to back quarters of sharp growth. Now question is, would we see that sort of a more modest profile in Q3? We don’t know it’s possible, but like Don said there is nothing unusual. I think what we’re seeing in this quarter is generally consistent with Q2 and there is, certainly no surprises.

Biren Amin – Jefferies & Company

Okay. And your comment on the revenue mix makes where MS is borrowing 60% of the business, I have been calculating your average vial per prescription. And I believe it’s about 2.3 vials per prescription for this quarter and it came down sequentially from last quarter which was 2.7. So, I just wanted to figure out what you would attribute that to?

Steve Cartt

More MS sales, I mean, I think it’s pretty straightforward. If MS is a bigger portion of the mix, there is fewer. I mean, MS is going to have 1.5 vials to 2 vials for script and IS has four or five. And even NS in the quarter, the first prescription, when the prescription is first billed, this is one or two vials to go out. So, if we first had a prescription for NS approved and say June 1, you would expect 8 to 10 vials issued in June, one in June and one in July, one in August, one in and so forth all the way out through the end of the year. So, there is this tail or backlog or future business that’s been built by these – both especially NS first, but a little bit with MS. We don’t see that with IS, because the vials are all using it two-week period.

Biren Amin – Jefferies & Company

All right great. Thanks for taking my questions.

Steve Cartt

Sure.

Operator

Thank you. Our next question is from the line of Patrick Glenn with Primarius Capital. Please go ahead.

Patrick Glenn – Primarius Capital

Hi guys. I wanted to do just follow-up on the sales force discussion here. On the NS going from the next five or staff five to the 28, I think the press release said that many of these sales managers are already hired and then your sales force is underway as far as the hiring. Can you give us sort of backlog on what the recruiting process is like is it easier or more difficult as far as hiring new people and if you guys have now been hiring a lot of people the last couple of years and I am wondering if that’s getting people’s attention, is it you get more high profile now in terms of recruiting?

Don Bailey

Yeah, let me Eldon answer that, but I will tell you that your questions right on point. The phones are ringing also hook at this point with sales people and towards got now, but this is the good place to be for sales people. We are a sales company. We are commercially focused and there is that not many companies that have that orientation. Eldon?

Eldon Mayer

Yes, Patrick. As Don just mentioned the recruiting and hiring process for our sales managers went very quickly. I mean first of all our national director sales was moved over from a position in the neurology sales force as we previously called at. And so that’s a very obviously got happened very quickly and that’s a great a fit for us and leadership position knowing our systems and our product and having some experience with nephrology and also love the 5% nephrology effort.

Two of the other managers, one was promoted from the Neph 5 and he was tagged early on. So, that’s potential. The other was transferred over from our neurology. We thought it is important to have an incumbent into our systems reimbursement in particular. The other two are hired from different nephrology companies, who have many years in sales and sales management. I would say about 20 have extensive experiencing knowledge in nephrology in context with key opinion leaders.

So, the rest of the process is already gone very quickly, we’ve already hired a number of people all as I mentioned before with extensive experience in nephrology. We want to get a diverse team, but also people who are right fit for us. So, the word of doubt and a lot of people see us as an attractive company to join and a good opportunity in nephrology. So, we anticipate things will go pretty quickly.

Patrick Glenn – Primarius Capital

Great, thank you.

Operator

Thank you. (Operator Instructions) Our next question is a follow up from the line of Tim Chiang. Please go ahead.

Tim Chiang – CRT Capital Group

Hi, thanks. I wanted to go back to the lupus indication. You’ve talked a little bit about how it’s going to be a similar pathway as nephrotic syndrome and how important will it be to run pilot trials here. And is it I mean I know you talk about, it’s been too early to sort of segment, what sort of patient you’re looking at, but I would imagine it going to be patient that failed steroid treatment, is that that?

Don Bailey

Well, steroid treatment is the standard of care with lupus. So, I will let Steve again on our plans to get some data.

Steve Cartt

Tim that’s a great question it’s one that we’re sorting through ourselves at the moment. With the multiple indications in lupus, we need nearly think and make sure that we’re doing the right things to really develop this market for Acthar. And we see there is an enormous amount of steroid use in treating lupus patient both this maintenance, which is very different than we see in NS in maintenance in lupus and in players of lupus as well.

So, we’re looking at both of those potentials and there are probably multiple types of studies we can do, what we really need to sort through those possible opportunities and select the ones that are going to have the most commercial potential for us and once we are going to actually get done the fast this is well. So, we’re sorting through those questions right now. We see a number of avenues we can go down and we are still in the process of picking what would be the most effective and efficient.

Tim Chiang – CRT Capital Group

Okay, great. And I think you had said previously, I think last quarter that you’re going to start Phase II trial in diabetic nephropathy and I just wondering if that still going to happen?

Don Bailey

That’s great question and Dr. Young are you still on the line? Can you give us a little insight there?

Dr. David Young

Yes. Well, actually what’s going on is that as we said before, where our discussion with Food and Drug Administration as well as our KOL regarding diabetic nephropathy. And we’re still in the middle of the right now. It hopefully in the next few months or so we will be able to design better with the FDA once what our thought leader want to then make a decision if we are going to move forward from that point.

Tim Chiang – CRT Capital Group

Okay great. Thanks.

Operator

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

John Newman – Citadel Securities

Hi thanks for taking my follow-up question. I just wondered Dod, if you could remind us as a percentage of prescription how does NS compare in terms of the percent they goes through Medicaid versus MS players and IS. I also had just kind of a housekeeping question on your balance sheet, it looks like the accounts receivable is growing a little bit just curious as to whether or not there was any stocking or any other distributors, I know that that’s a little bit harder track, but just thought I would ask? Thanks.

Don Bailey

Okay, I’ll answer the first one. Let Mike answer the last one. So, the percentage of Medicaid patients in the DELL’s is typically around 10%, so that would apply both MS and NS. And then for, but the percentage of infants that are in Medicaid is much higher, it’s almost half, it’s like 45%. So, as our mix of business moves to a greater portion of adult population diseases, we would expect our sales reserves as a percent of gross sales to come down a little bit and indeed year-over-year, they drop from 27% to 23%. So, Mike can you answer the question about the accounts receivable?

Mike Mulroy

Yeah. Just a snapshot issue on the balance sheet, so point in time a lot of that is already flushed through, so really no story there.

John Newman – Citadel Securities

Great, thank you.

Don Bailey

So, you could see that in the difference the cash we put in the balance sheet, the cash we put in the press release versus the cash that shows up on the June 30, there is an increment of almost $15 million.

Operator

Thank you. And our next question is a follow-up from Yale Jen. Please go ahead.

Yale Jen – Maxim Group

Yes. Thanks for taking my follow-up questions. Just that the experience for the promoting the IS, I am sorry, MS versus the NS, is there new answers or new inside your gain since the last quarter has been doing very well and any of this experience is going to carry forward what some specifics might be? Thanks.

Don Bailey

Okay. So, your question is we are appeared to be doing a lot better than MS. So, what’s going on there, where is the productivity gains coming from and does that experience supply over to NS, is that kind of your question?

Yale Jen – Maxim Group

No, simply just that what is the differences in terms of your experience so far promoting to the NS versus to the MS at this moment and what those, I assume, those new insights you gain from MS could expanded to the new sales force and that will be helping to increase the revenue?

Don Bailey

Okay. I’ll let Steve answer that, so he is going to compare selling MS to selling NS a little bit.

Steve Cartt

Yeah, Yale, the big thing we have learned and this applies to both MS and NS, it’s not universally the case, but in general when we brought in people who are very experienced in one therapeutic area and they brought the relationships that were already established over to Acthar, it’s really helped with the acceleration of prescription uptick. So, we saw that with the sales force expansion in MS when we brought whole new group in very, very experience in MS in the fourth quarter and saw nice spike in Q1 and Q2 in prescriptions.

Well, we brought in some very experienced nephrology reps into the Neph 5 and they brought along quite a few good contacts, well-established understanding of this market and we saw the result in Q2 of this group of five. So, as Eldon mentioned earlier we are starting to understand the right kinds of people to bring in they can sell effectively in NS just like we did in MS. And so we are targeting experienced nephrology reps and we are getting a lot of interest. And so far we are ramping up that new sales force pretty quickly.

Yale Jen – Maxim Group

Thanks.

Operator

Thank you. And our next question is from the line of Mario Corso. Please go ahead.

Mario Corso – Caris & Company

Thanks for taking my follow-up. Just on the lupus side of things, not that you don’t have enough on your plate, but one thing I was thinking about, as you endeavor with rheumatologists on the lupus side, giving that rheumatoid arthritis is on the label as well, are you going to look at that peripherally, research that at all at the same time? And then for initial commercial sales in lupus, we will be thinking the 2013/14 kind of timeframe for modeling? Again, thanks a lot.

Don Bailey

Okay. So, the first question wireless tempting to try to take a look at rheumatoid arthritis at the same time. That’s not going to be our focus. We’re concerned if we do that will divert and dilute our progress on lupus. Now, I think if rheumatologists start using Acthar for lupus and have good results, you maybe some of them, it will be a short trip across the boulevard over to RA. So, I would say that as far as when your guess is as good as ours frankly because right now we are just at the very front edge of this. Certainly, we would hope to have some sales by the end of next year, but we just don’t have enough visibility. Right now, we want, we have a thesis that Acthar should work in lupus, but we need to get some clinical experience to find out what’s really going on there. So, it could take some time or it could happen quickly. We just don’t really know.

Operator

Thank you. And that does conclude the question-and-answer session. I would now like to turn the call back over to management for closing remarks.

Don Bailey

Thanks everybody for attending. We were excited about the quarter. And I look forward to speaking with you over the next several months. Bye-bye.

Operator

Ladies and gentlemen, that does conclude the Questcor’s second quarter conference call. If you would like to listen to a replay of today’s conference, please dial 1800-406-7325 or 303-590-3030 with the access code of 4455547. AT&T would like to thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Questcor Pharmaceuticals' CEO Discusses Q2 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts