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Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR)

Q4 2011 Earnings Call

February 22, 2012; 04:30pm ET

Executives

Don Bailey - President & Chief Executive Officer

Steve Cartt - Chief Operating Office

Dr. David Young - Chief Scientific Officer

Mike Mulroy - Chief Financial Officer

Doug Sherk - EVC Group

Analysts

Tim Chiang - CRT Capital

Steve Yoo - Leerink Swann

Yale Jen - Maxim Group

Chris Holterhoff - Oppenheimer & Co

Jim Molloy - ThinkEquity

Biren Amin - Jefferies & Co.

Mario Corso - Caris & Company

Patrick Glenn - Primarius Capital

Operator

Good day ladies and gentlemen, thank you for standing by. Welcome to the Questcor fourth quarter and fiscal year 2011 earnings 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)

And I would now like to turn the conference over to Doug Sherk, EVC Group. Please go ahead sir.

Doug Sherk

Well, thank you operator. Good afternoon everyone. Thank you for joining us today for the Questcor Pharmaceuticals conference call to discuss the fourth quarter and full year 2011 financial results and earnings.

This afternoon at the market close, Questcor issued its earnings release, which is posted on the company’s website at www.questcor.com. Today’s call is also being broadcast live via webcast, which is available at the Questcor website. A slide presentation will accompany today’s remarks by management. To access both the webcast and the presentation slides go to Questcor’s webstie at www.questcor.com, click the Inventor Relations link and then click on Events and Presentation.

If you are listening via telephone to today’s call, to review the accompanying presentation slides, navigate to the live webcast as I’ve just reviewed and choose the no audio slides-only option to review the slides in conjunction with the live conference call. That should be, choose the audio slides only option.

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’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. These factors include Questcor’s reliance on Acthar for substantially all of its net sales and profits.

During the question-and-answer session today, please keep your questions to two and then re-queue for any additional questions.

With those logistical items out of the way, let me turn the call over to now to Don Bailey, President and Chief Executive Officer of Questcor Pharmaceutical.

Don Bailey

Thanks Dough, good afternoon everyone. With me today are several other members of our management team, including Steve Cartt who has recently been promoted to Chief Operating Office of the company; Dr. David Young, Chief Scientific Officer and Mike Mulroy our Chief Financial Officer. Several other members of the Executive Team are available to answer questions.

During the fourth quarter our focus of helping more patients with unmet medical need led to record financial results. As an increasing number of nurologists and nephrologists believe that MS and NS patients benefit from Acthar. As a result pay prescriptions are rosining and as we reported last week, the favorable pay prescription growth trends have continued into January of this year. The growth in the number of patients using and benefiting from Acthar led to solid increases in shipment of Acthar, net sales, earnings and free cash generation.

As we look ahead to 2012 and beyond, we believe we can sustain and re-grow our business due to three key factors. First, Acthar provides benefits to many difficult-to-treat patients, not responding to other treatments. Second, our market penetration in terms of the total number of nurologist and nephrologist prescribing Acthar while growing remains relatively small and third, we have casemented and experienced commercial team to pursue our growth plan.

Our focus remains on helping patients with serious difficult-to-treat medical conditions. This focus includes continued support of our patient assistance programs. Since August 2007 this program has provided a $124 million of Acthar clear charge to uninsured or under insured patients. The program provided over $50 million in pre-Acthar to patients in need during 2011 alone.

Our financial performance is also enabling us to double our research and development budget for 2012, to further build our understating of the potential immune modulating properties of Acthar and study other inflammatory and autoimmune diseases such as lupus that are already on the Acthar label. David Young will provide an update on the studies we have underway in a few moments.

This increase in demand from nephrologists lead us to the decision in January to expend our nephrology sales force from 28 to 58 representatives. We plan on completing this effort during the second quarter of this year. We are also adding sales management, marketing and reimbursement and compliance staffing and programs. Implementation of this plan is well under way and the recruiting effort is ahead of plan.

A smaller expansion of the MS sales team is also planned and Steve will provide more detail on that plan in a few moments. To manage our continued sustainable growth plan, we recently made several well-deserved promotions. As I mentioned, Steve Cartt has been names COO and will work closely with me on all aspects of Questcor's growth strategy.

In addition to Steve’s promotion, David Medeiros has been promoted to Executive Vice President and Chief Technical Officer and Eldon Mayer who has worked alongside Steve for the past three plus years has been promoted to Senior Vice President, Commercial Operations.

Also Dr. Gary Hogge has been named Vice President of Medical Affairs and Ray Furey has been promoted to Vice President and Chief Compliance Officer. Ray will now report to me. In addition, Ray will have an open line of communication to a newly established Compliance Committee of our Board of Directors. This committee is comprised of three independent directors with compliance experience, who will provide focus board oversight of our compliance program.

The recent compliance review confirmed that our promotional programs and activities meet all applicable laws and regulations. With our outlook for sustained growth, this new committee is part of our effort to put the infrastructure in place to make sure we continue to build Questcor the right way, as we have been doing since the new management team was put in place in 2007.

I’d like to turn the call over to Steve Cartt, who will provide some more detail on our fourth quarter operating highlights and our plan for 2012.

Steve Cartt

Thanks Don and good afternoon everyone. Before providing a commercial update, I’d like to build on some of Don’s comments regarding Questcor's development. I joined Questcor in early 2005 after spending 17 years with other much larger pharmaceutical companies including Elan and Alza. At that time, Questcore was a struggling company with an great asset Acthar, but an unclear business strategy. We’ve certainly come a long way and we are a very different today. But one thing has remained constant throughout, our deep sense of caring for patients and our families and a real sense of stewardship over a unique pharmaceutical product, Acthar.

We often disclose the amount of free Acthar we provide, which in total is now up to $124 million and has recently surpassed about $5 million every month. Now this is a significant dollar amount. Our focus day-to-day is on serving patients, both children and adults and the families behind that number. This is just one of the many reasons that our employees, myself included are proud to be part of Questcore.

I’ll now provide a review of fourth quarter paid prescriptions for the three key markets we are focused on serving. The chart now on the screen shows MS prescription growth for Acthar on a quarterly basis. A key priority of ours continues to be educating both physicians and patients about how Acthar is a viable treatment option for MS exacerbation or relapses, particularly in those patients not well served by steroid, which are generally considered first line therapy by most neurologists. This focus drove our year-over-year increase in the number of paid Acthar prescriptions for MS.

In the fourth quarter of 2011, there were 945 paid and shipped Acthar MS prescriptions, up from 354 scripts in the fourth quarter of 2010. This a 167% year-over-year increase. There were several factors behind this growth; positive patient outcome, increasing awareness among neurologists about how best to incorporate Acthar into their practices, continued excellent Acthar insurance coverage for MS relapses and the increase in productivity of our MS commercial team, all combined to generate this growth.

On the next slide we show the same MS fee prescription data on a monthly basis. While some months are sequentially down and others are up, the overall trend shows a sustained growth rate over the last four years. As Don mentioned earlier, we believe our growth is sustainable since we are still in the early stages of penetrating the MS market, based on the estimated 200,000 relapses annually in the US and the annualized fourth quarter MS prescription account of about 4,000 Acthar MS prescriptions.

We believe we have only modestly penetrated this market so far. Clearly we have a lot of work to do. We are currently planning to modestly expand the neurology sales force, slighter than two-dozen or so representatives. We are clearly finalizing our exact numbers for this expansion.

As with our commercial effort in the nephrology, we are expanding the marketing, reimbursement and compliance programs for our neurology focused sales team. Because of the real benefit seen by MS patients and their doctors, that we hear about from doctors and patients themselves on a regular basis, we are optimistic that our expanded and increasingly productive MS sales team will generate healthy growth in 2012 and beyond and we are already off to a good start in 2012 with 338 paid MS prescriptions in January.

Lets now describe our substantial early progress in nephrology. At the end of the third quarter we completed the expansion of our dedicated nephrology sales force from five to 28 representatives. The nephrology commercial team performed extremely well during the fourth quarter, which was the first full quarter on territory for our nephrology sales force and 146 paid Acthar prescriptions were shipped to nephrotic syndrome patients during the quarter. Our nephrology sales force also got 2012 off to an excellent start with 72 paid prescriptions in January alone.

Insurance coverage for Acthar in MS continues to be very good, with over 85% of prescriptions covered. Our reimbursement team speaks with insurers multiple times daily and all indicators or their insurance coverage for Acthar in nephrotic syndrome should remain very strong. We believe this encouraging early growth is due to a more immediate recognition by nephrologists, regarding the need for additional treatment options in nephrotic syndrome patients, particularly those whose proteinuria is not responding adequately to first line treatment. As we have discussed with you in the past, our Acthar MS prescription generates more net sales than our other promoted on label indications due to the larger number of vials needed to complete a course in treatment.

With the early but encouraging success we are having in nephrology, we announced in early January that we would be expanding our nephrology sales force from the current 28 to 58 representatives during 2012. There has been significant interest in Questcore, expressed by potential new hires around the country and we continue to attract highly experienced, high caliber, pharmaceutical sales personnel. So we are moving quickly and are presently ahead of schedule to build out this team and we presently expect to complete hiring and training during the second quarter of this year.

As Don mentioned, in addition to the sales team, we are investing in the infrastructure that supports this team with new hires in marketing, reimbursement and compliance, so that we can continue to successfully grow the company from all perspectives. Our expanded nephrology sales force will continue to be 100% focused on the nephrology audience. Once the current expansion is complete, we will be able to dramatically increase the number of nephrologists that we count on regularly.

Turning now to infantile spasms, there’s a total of 128 paid prescriptions for Acthar in the fourth quarter of 2011. This represents the highest quarterly paid IS prescription level since our tracking began in the first quarter of 2008. While paid IS prescriptions can vary quarter-to-quarter over time, we are encouraged with the solid prescription levels we have seen during the past few quarters and in January this strength continued as 48 paid prescripts were shipped for IS.

Importantly, we continue to actively support IS research and education efforts and in helping children with IS and their parents. For example, over time we have steadily increased our financial support for important research and educational efforts by both, The Child Neurology Foundation and The Child Neurology Society.

As noted in our press release yesterday, Questcore was given an award for outstanding corporate responsibility and leadership this last Saturday by the Child Neurology Foundation, where our partnership effort in research and education with both of these important organizations. In addition to supporting important outside the research projects, we are also investing in our own research programs.

Bringing you up to date in our comprehensive efforts in research and development, I’d like to turn the call over to Dr. David Young, our Chief Scientific Officer. David.

David Young

Thanks Steve. Good afternoon everybody. Our scientific efforts and investments continue to expand. In addition to our ongoing research in Nephritic Syndrome and Multiple Sclerosis, we are planning new efforts to meet this and other on label indications, which have autoimmune and inflammatory components, as well as an unmet medical need.

In order to better understand how Acthar works in the many on label indication, we will continue to significantly expand our non-clinical pharmacology efforts. This includes investigating how Acthar’s biological activity differs from that of corticosteroids such as methylprednisone and prednisone. We’ve also received an IND from FDA to investigate the potential facts of Acthar in diabetic nephropathy and plan to start the Phase II (a) clinical study in the first half of this year.

Now, Mike Mulroy, our CFO will discuss the financial highlights. Mike.

Mike Mulroy

Thanks David. Net sales for the fourth quarter were $75.5 million, up from $29.3 million in the fourth quarter of 2010 with the increase driven primarily by increases as an acceptance of Acthar to treat serious difficult to treat medical conditions. In the fourth quarter of 2011 our government sales reserve rate, which primarily relates to Medicaid dropped to 12%. This decline was mostly due to two factors: First, infantile spasm, which is a higher Medicaid incidence rate continued to account for a smaller percentage of our overall business mix, as our MS in nephrotic syndrome market continued for a higher level of growth.

Second, a greater number of potential Medicaid vials were processed through our pre-drug program. As a reminder, we did not generate any net sales on Medicaid business with our 100% rebate position.

Our operating expenses grew significantly throughout 2011, due to the growth of both, our commercial operations and our research and development program, as well as an extended infrastructure to support a larger company. The growth in OpEx was more than offset by the growth in net sales. This resulted in an operating margin of 57% in the fourth quarter of 2011, up from 37% in the year ago period.

Turning to the bottom line, earnings per share for the quarter were $0.48 diluted, based on 66.6 million diluted shares outstanding. We gained $0.03 a share from a one-time tax credit. The tax adjustments are discussed in detail in our 10-K, which is being filed today.

I won’t take too much time on the annual results, but note that for 2011 operating expenses were up 74% from OpEx in 2010. This increased spending yielded greater than 90% growth in net sales, net income and EPS. We currently expect operating expenses to increase again in 2012, principally due to a planned doubling of R&D expenses and a planned growth in the number of Acthar representatives.

Our current estimate is that first quarter 2012 of OpEx will increase in the range of 20% to 25% over Q4 2011, increased again somewhat in Q2 and then level out for the remainder of 2012.

Operating cash flow during the fourth quarter was $31 million, driven primarily by net income of $31.6 million for the fourth quarter. As of February 21, Questcor's cash, cash equivalents and short-term investments totaled $224 million, and accounts receivable were $47 million.

Return on equity was 54.5% for the fourth quarter. We did not repurchase any shares in the fourth quarter, but remain committed to returning cash to shareholders. We have returned $78.5 million through share repurchases under this program since the beginning of 2008, representing approximately 32% of our operating cash flow over that same period.

Now, I’ll turn the call back to Don.

Don Bailey

Thanks Mike. So to summarize our fourth quarter and full year 2011, our focus on helping more patients with unmet medical need led to record financial performance for both the quarter and year. We believe that because Acthar provides real and substantial benefits to many patients, who would otherwise continue to suffer the effects of serious, difficult to treat disorders, our growth should be sustainable.

We are expanding the organization and associated infrastructure to address the significant growth opportunities in front of us. At the same time we are off to a good start to 2012 with January MS, NS and IS eight prescriptions, each having a good month.

Before providing a little overall perspective on the value drivers for Questcore, I wanted to briefly address some of the rumors that we are being told are being spread by members of the short selling community. First was the rumor that we cancelled the RBC conference due to bad news we did not want to share. Actually we canceled the RBC conference because we were doubled booked with for Citi conference. We presented at the Leerink conference last week and will present again next Monday, February 27 at the Citi conference.

The next rumor was the Questcore was the subject or soon will become a subject of one or more government investigations. In reality we have no knowledge of any government investigations. We have not been contacted by any government agency regarding an actual or potential investigation. Furthermore, our recent compliance review found no violations of policy, guidance or law.

The third rumor is that our success is due to just a couple of docs writing Acthar script. Actually as we continue to educate physicians on how Acthar works to treat serious medical conditions, the number of physicians prescribing Acthar continues to grow. This number has more than doubled year-over-year, resulting in almost 900 doctors writing almost 1800 Acthar prescriptions in the fourth quarter. The associated rumor is that only a few reps are making sales. Actually all MS reps generated scripts and three quarters of all Acthar MS reps met or exceeded the goal in Q4.

We’ve also heard the rumor that insurance companies are stopping their coverage of Acthar for Nephrotic Syndrome. As Steve reported, coverage of Acthar for Nephrotic Syndrome continues to be above 85%.

Same way we were asked about the rumor that our accounts receivable was up because payers have stopped approving Acthar. Accounts receivable are up mainly because sales are up. The day after the 8K with our Leerink Swann investor conference was filed; $13 million in checks were received and cleared payment. Payers do not pay us to directly, so insurance issues would not affect AR in any case.

There have been other rumors as well, but in the interest of time I will not attempt to cover all of them; I think you get the idea.

Before opening up for questions and answers, I think that it’s maybe helpful to investors, for me to put our current efforts in investment into the longer-term context of the history of Acthar, the science surrounding the drug and it’s ability to help patients. The reason I want to spend some time talking about this subject is that it explains the real value equation for Acthar and Questcore to investors.

When Questcore purchased Acthar in 2001, we were rescuing an old drug that was being abandoned by Big Pharma. The manufacture of Acthar was in the process of being discontinued. Literally it was ending. Its prior manufacturer was experiencing significant problems making Acthar and was loosing significant money trying to do so. The situation resulted in shortages that had severely affected the availability of Acthar for infants with Infantile Spasms and other patients. This was a serious public health concern to the FDA.

When Questcor acquired Acthar, we knew that we would have to spend million’s of dollars on transferring the manufacturing of the drug to contract manufacturers and that we might fail in doing so. We also knew that if were to create a valuable business from the drug, we would have to invest in commercial activities to grow the drug, go through a learning curve to make sure that those efforts work and also invest in a more modern scientific understanding of the drug. That scientific investment would of course include working with the FDA to modernize the drug’s label and add Infantile Spasms to the label.

Today I’m happy to say that all these efforts succeeded. Not to say that they all succeeded quickly or without serious set backs along the way, financial and otherwise. In mid-2007, after loosing tens of million dollars on Acthar for six years, Questcor was rapidly running out of cash. Even before that the manufacturing transfer process took years of work and significant financial investment to be successful. Also the efforts to work with the FDA to modernize the label and achieve approval of the infantile spasms indication failed twice before it was successful in 2010 and our commercial efforts encountered setbacks until 2008.

Over the last 10 years we have overcome all of these challenges, so that Acthar has remain available to patients and Questcor is now a successful company. Now we are investing back into the medical community to support important research and education.

We believe two very important things about Acthar. First, Acthar can have more patients than it has so far and second, Acthar has the potential to play a larger role in addressing the autoimmune and inflammatory processes in many serious diseases. A better understanding of these processes could lead to additional break-throughs in treatment over time.

In order to better understand this value driver, it is worth taking a minute to discuss the emerging science behind Acthar. Acthar was approved in 1952 during one of the most exciting periods of scientific advancement and biomedical research. In the 1940s to 1960s the developing understanding on hormones led to many important new pharmaceutical products, including hormone replacement therapies such as Premarin, Acthar; sex hormone products such as birth control pills and synthetic steroids like Prednisone.

Acthar was initially regarded as an important product, but after synthetic steroids were introduced, scientific and medical interest in Acthar waned. Much of the medical community mistakingly regarded Acthar as merely a different way of giving steroids, so R&D spending on Acthar stopped. But we now know that Acthar contains a very broad active hormone ACTH, as well as many other active subtypes, that immerging science indicates bind to a variety of receptors in the human body, including in the central nervous system, the kidney and certain immune cells.

For this reason, Acthar seems to be able to successfully treats some patients for which steroids fail. This is the core of our opportunity and also our challenge in rescuing and reviving an old drug. Acthar has been misunderstood and underestimated in what many physicians think they know about the drug is not up to date.

We have been addressing this opportunity and challenge in two ways. First, we have invested heavily in developing and experienced and well trained commercial team to educate physicians about our growth understanding of Acthar and it’s ability to help their patient.

Our average representative has 10 years of pharma of biotech sales experience and they are supported by a growing team of medical science liaisons, many of whom have PhDs, to interact with physicians, to answer their questions regarding the immerging science behind Acthar.

Second, we have been rapidly increasing our research and development spending, focus on the science of Acthar rather than on building a pipeline of unrelated products. In 2007 we spend less than $5 million on R&D, by 2011 we had tripled that spending. Today we announced the spending could double again in 2012. This represents very rapid growth from our spending for scientific, clinical and regulatory efforts.

So what is the potential for Acthar? Well, it is a bit different from the situation that most pharmaceutical companies have. We have an approved produce that’s been on the market for 60 years. So its safety is very well known and is supported by decades of clinical use. However we need more of modern efficacy data and more information of about Acthar works. So we have increased our R&D spending in these areas.

Unlike most pharmaceutical companies, Questcor is not conducting clinical trials of normal compounds to safety and efficacy of the human body are known. Rather we are working to better underhand a very complex biologic drug that has multiple active ingredients and multiple mechanism of actions, and through that understanding we expect to gain a better understanding of the potential of Acthar to treat certain disease in which those mechanisms of actions may be particularly important.

As you may know recent scientific papers via our academic collaborators have shown some important results in these areas. For example, one paper showed that the efficacy of Acthar in reducing proteinuria in Nephrotic Syndrome appears to relate to its ability to suppress production of antibodies for the PLA2 receptors. This is a brand new finding that was previously unknown.

Other scientific studies have indicated that there are still other methods of action that appear to impact various portions of the immune system involved in the autoimmune process, as well as other organ systems. These mechanisms are completely separate from Acthar’s stimulation of the adrenal gland and the cortisol.

This is the frontier of science. When Acthar was originally developed, only the most basic understanding of biochemistry had been achieved. So developers of Achtar thought they had nearly come up with a way of obtaining the ACTH hormones, which could then be used to make cortisol in the body. But it turns out that what they created was actually far more important, more complex and more promising.

With the tools of science today, we are in the process of unlocking the true nature of Acthar. These efforts may over time lead to a strong understating of how Acthar can help far more patients and address a far broader set of serious autoimmune and inflammatory diseases than we see today. They may also lead to development of new related products that could have even better safety and efficacy profiles in treatment of these diseases. We look forward to realizing this opportunity to help many patients who suffer from serious autoimmune and inflammatory diseases over the next decade.

Operator, we are not ready for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Tim Chiang with CRT Capital. Please go ahead.

Tim Chiang - CRT Capital

Hi, thanks. Don I wanted to ask you a little bit about the sales reserve. I think it was about 12% in the fourth quarter. So is that a number that you are comfortable with going forward?

Don Bailey

I’ll let Mike answer that question.

Mike Mulroy

Yes Tim, there’s several drivers for that and we filled it up from bottoms up every quarter. The trend line we would expect to continue to move directionally as the adult population that use Acthar continue to grow more rapidly than the infant population, but there will be volatility around that. So I wouldn’t take the 19% at a quarter ago and the 12% this quarter and it’s a straight line up from there. So again, the one driver will continue to move in our direction, but anything else we’d expect to see volatility from quarter-to-quarter.

Tim Chiang - CRT Capital

Okay great and may be Mike just want to follow up. You highlighted that our needed spending is probably going to double in 2012 from 2011. Is there any sort of target that you’re looking at for SG&A expenses in 2012?

Mike Mulroy

Yes, I mean that will grow as well. I don’t know if we are giving guidance on that particularly.

Don Bailey

But the overall operating expense or the total of all operating expense is what we expected to grow to 20% to 25% in Q1 and may be another 5% to 10% in Q2 and then roughly level in the rest of the year.

Tim Chiang - CRT Capital

Okay great. Thanks.

Mike Mulroy

Whatever that works out to, and we adjust that spending as we go, depending on how our sales are going.

Tim Chiang - CRT Capital

Okay, I’ll get back in queue. Thanks.

Operator

Thank you. Our next question comes from of the line Steve Yoo with Leerink Swann. Please go ahead.

Steve Yoo - Leerink Swann

Thanks for taking the question. I was wondering in the nephrotic syndrome sales, do you from your reps, do you get a sense that doctors have been warehousing patients. There’s a bit of a (inaudible) in the first couple of quarters.

Don Bailey

That’s an excellent question Steve, and I’ll let Steve Cartt answer that question.

Steve Cartt

Yes, hi Steve. Yes, there was clearly our patients that have understood currently and doctors in some cases know who those are, they are in their practice and they see them periodically. So there’s some patients who the doctors are aware of, there’s others that just come in as new patients. They are transferred from other practices, they have moved, etcetera, so there’s a little bit of that.

Its still very early in this whole process, the nephrotic syndrome, the feedback we are get from the docs in very, very positive. Overall I think we are helping a lot of patients who didn’t really have any treatment options previously. So all that’s good news and we are just scratching the surface in terms of the number of potential prescribes. So a lot of work still to do and going forward we are optimistic that we’ll be growing in 2012 and forward.

Steve Yoo - Leerink Swann

Okay, and could you remind me about the timing of the bio-shift for nephrotic syndrome. So when a prescription comes in, how many vials get shipped? At what time?

Steve Cartt

Its usually one or two vials shipped initially. Of course it’s a six-month course of treatment, sometimes longer, sometimes a little shorter but six is pretty typical. And so those vials are, its kind of a tail to NS and that there’s some vials shipped initially in the quarter when the script is written and approved, but there’s also vials that kind of flow in with the additional next one to two quarters, depending on when that script comes in. So yes, it’s not all shipped in a lump some, up front, if that’s what your question is.

Steve Yoo - Leerink Swann

Okay, so there’s pretty much one or two vials shipped at a time, is that how it works?

Steve Cartt

That’s usually how it works. It definitely varies by payer. Some will ship one, some will ship two, that’s pretty typically. You know those scenarios, which we virtually never see is there is 10, vials shipped up front or even five vials. The first couple of vials where the patient is on drug for the first month or so then continue the treatment from there and the additional vials will ship in the form of refill.

Steve Yoo - Leerink Swann

Thank you so much. Thank you very much for taking the question.

Steve Cartt

Sure

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Yale Jen with Maxim Group. Please go ahead.

Yale Jen - Maxim Group

Thanks for taking the question. Here we have two. The first one is, could you give us a little bit of a break down in the revenue for each of these indications, MS, IS and NS, as well as miscellaneous.

Mike Mulroy

Sure its roughly, very roughly speaking 65% MS, 25% NS, 15% IS and 5% miscellaneous.

Yale Jen - Maxim Group

Okay thanks. And the second question is that so far at this moment how many prescribing physicians, nephrologists, as well as neurologists for each of those indications you have a generator.

Mike Mulroy

Well, lets see, we had about 900 overall. I don’t have the breakdown in fort of me, but I’m going to guess it was probably almost 600 in MS, 150 in nephrology and 150 in IS, roughly speaking.

Yale Jen - Maxim Group

Okay great. Thanks a lot and congrats on the quarter.

Operator

Thank you. Our next question comes from the line of Chris Holterhoff with Oppenheimer & Co. Please go ahead.

Chris Holterhoff - Oppenheimer & Co

Hi guys, thanks for taking the question. Just on MS, I was wondering if you can talk about if you think additional sales growth will come primarily from new prescribes or you think you have a lot more room for growth just by adding new patients in doctors offices that you’re already in.

Don Bailey

That’s an excellent question Chris and I think the answer is all the above, but met me let Steve elaborate.

Steve Cartt

Yes Chris, the answer is all the above. We are continuing to generate incremental business from doctors who’ve already started to write and of course they are getting experienced with the drug, they are seeing the benefit in there patients and we are seeing incremental business from those doctors.

We are obviously constantly working on generating new prescribes from times that really takes a lot of time. Some docs we call on for 18 months, two years, 2.5 years before we get the first prescription generated from them and we see that type of pattern as continuing. So it’s a matter of generating incremental business from our existing prescribes and generating from new prescribes; that’s really what the reps are focused on.

Chris Holterhoff - Oppenheimer & Co

Okay, that’s helpful thanks. And then on nephrotic syndrome, now that you have a bit more experience selling there, I was just wondering what the latest data shows in terms of the average number of vials per script that are written. I know it’s historically been in the seven to eight ranges, I just wonder it its staying flat in that range.

Don Bailey

It’s probably dropped somewhat. I think that the last one that we gave was in the high sixes. You know we don’t really have any information to substantiate any number different than that, but we would expect that to drop a little bit over time initially due to the behavior from the payers, may be wanting a new script after a little while on a patient, but then we would expect it to increase, because we’ve hired a new adherence. We’ve started a new adherence program and maybe Steve if you could just briefly touch on that.

Steve Cartt

Yes, obviously it’s the best interest of the patient to complete the course of therapy. It gives them – well, it’s the greatest chance of seeing the therapeutic benefits from that and so we’re starting up a pilot program in conjunction with our re-imbursement hub and the specialty pharmacies that will help to support the patients, so they continue on their treatment.

Some patients think that if they skip doses, so they don’t complete a full course. This goes with any drug right, not just Acthar. Its very common in drugs that are used for a prolonged periods and looking at a six month course, its easy for patients to drop out, drop off treatment, not comply with the full dose regiment.

So we are working on a compliance program and patient appearance program that we’ll be in contact with the patients and help them understating the importance of continuing with their full course of therapy and we are optimist. When people talk, we are optimistic that it will provide some benefit and keep patients on the appropriate treatment regiment.

Chris Holterhoff - Oppenheimer & Co

Okay, perfect thanks. And may be if I can just sneak one last question here; can you just gives us a sense of what portion of your current NS reps are achieving their target.

Don Bailey

Yes, it’s still very early. Yes its still very early and we have a lot of them getting up to speed on the drug, but roughly half right now, we expect that to increase. Of course with the expansion we’ll add and a whole cohort of new reps, who’ve just gotten through training by the end of Q2. So we’ll have to get those reps up to speed and get them generating business well.

Chris Holterhoff - Oppenheimer & Co

Okay. Well, thanks a lot for taking the questions and congratulations on the progress.

Don Bailey

Great, thanks Chris.

Operator

Thank you. Our next question comes from the line of (Inaudible). Please go ahead. (inaudible) your line is open at this time. Please check to see if you have yourself on mute. And our next question comes from the line of Jim Molloy with ThinkEquity. Please go ahead.

Jim Molloy – ThinkEquity

Hey guys, thanks for taking the questions. I had a – just looking at the rebate numbers, percentage rebated, do you think it jumps around a little bit this quarter from last quarter and I know that number can’t move. Is there anything there with regards to particularly NS jumping up a bit and IS coming down. Are you using a free drug to program to it? Do you have a free drug program that’s impacting that or potentially, finding more Medicaid patients in the NS or the MS space?

Don Bailey

Sure. What happens, if a prescription comes in especially with infantile spasms and we think it’s the Medicaid and hub, our reimbursement support center, which we call the hub, thinks that is a Medicaid patient, they will check for Medicaid eligibility for that patient. Sometimes there is delay in getting the response for that inquiry.

So if that delay lasts more than just a little bit of time, you know a few hours, then that prescription is sent over to the free drug program since its very important to get these IS prescriptions filled quickly. Its basically concerned with a medical emergency. So if there is any delays in determining whether Medicaid’s going to cover the patient, then the prescription’s move over to the free drug program.

Any prescriptions filled from the free drug program just doesn’t show up in our financials, other than the cost of the product, of course is in the cost of goods sold. So the vial counts that we get out at the end of the quarter does not include those vials and of course there is nothing in growth sales or net sales associated with the free drug. Does that help to understand that Jim?

Jim Molloy – ThinkEquity

Sure, and then just, that’s a bit of a jump where 11% of scripts were rebated back is that something you fix as your going forward? Is that kind of an anomaly or still kind of sticks together in the space as you go?

Don Bailey

I think that’s, there is approximately 10% to 12% of adults are enrolled in Medicaid so that kind of matches just the adult population statistics for Medicaid. We would expect that to continue. This volatility around this is an average, that probably is about the right one.

Jim Molloy – ThinkEquity

And this is my last question. Looking at the number you guys reported, you pre released for January and just, its very simply applied by three to get the whole quarter and it’s four to get the whole years and at the price you guys have, it’s – I know you guys don’t give projections on the top line, but it looks like that’s a number that comes in well ahead of sort of street consensus estimate in the $400 million in the high $300 million with no growth. Is that – does my math seem correct on that or am I missing something that’s going to happen in 2012 to bring numbers down.

Don Bailey

With due respect, but I can’t answer that question and I think that’s a question for you and your colleagues to answer. We just run the business and try to generate sales for the members that fall out the way they fall out.

Jim Molloy – ThinkEquity

Thanks for taking the question guys.

Operator

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

Biren Amin - Jefferies & Co.

Thanks guys for taking my question. The company provided I guess strong January prescription numbers last week for IS, NS and I was just wondering if maybe you could proved trends over the last three weeks and whether you continue to observe sustained growth across the three indications.

Don Bailey

Well, it relates February numbers within the first 10 days of March, so we don’t want to get in the habit of giving out daily. So we are not going to provide any information on this call or at the Citi conference, but we will provide information sometime during the first 10 days of March in the 8-K.

Biren Amin - Jefferies & Co.

Okay and I was just looking through the press release. It seems over the last two weeks the company’s observed an increase in about $12 million in cash compared to I guess an increase of about $5 million over the previous of three weeks. So I just wanted to understand the lumpiness.

Don Bailey

I think the lumpiness just has to do with payments of payroll and taxes and the receipts of when our single customer pays it. So I wouldn’t read anything into that. It’s just a normal variations and cash received and cash payments.

In another case, another set of big checks that goes out periodically. So we receive big checks, we send out big checks, so…

Biren Amin - Jefferies & Co.

Okay, and then I guess one last question. The Diabetic Nephropathy study that’s about to get underway. Could you may be provide us with the study design?

Don Bailey

I don’t think we are ready to do that at this time until its published in clinicaltrails.gov, which I don’t think it is yet, so it has to wait until its published, but things can change during the last parts of negotiation.

Biren Amin - Jefferies & Co.

Great thanks.

Operator

Thank you. Our next question comes from the line of Mario Corso with Caris & Company. Please go ahead.

Mario Corso - Caris & Company

Hi, good evening. Thanks for taking my question. Congratulation on a good quarter and Don, thanks for going over some of the rumors and lightening us on the good things that are really going on.

A couple of things I wanted to ask; in terms of the additional quality reps, will any of them be in the field in the second quarter or will those all be entering the field beginning in the third quarter and then in terms of the share buy back you mentioned nothing in the quarter, but still committed to retuning cash to shareholders. So should we assume that that means that there is plans for buying back shares in the current quarter. Thanks very much.

Don Bailey

I’m going to ask Steve Cartt to answer the first question on the timing and expansion and Mike can answer the question on the buy back.

Steve Cartt

Yes Mario, this is Steve. We will probably start seeing reps in the field being trained towards the end of the second quarter. So yes, we would expect to have everybody up and running and making calls in their new territories for the full third quarters for sure. Then we’ll start seeing some impact from that late in the second quarter.

Don Bailey

Mike, on the buyback.

Mike Mulroy

Yes, on the buyback we are not going to comment on current activity. You know I think the statement on our commitment, I’ll read that as a long-term commitment. We’ll obviously report after the fact on a quarterly basis what we have done looking backwards, but that’s about as far as we’ll go in discussing it. We will see during the duration of this program, which is about a little under four yeas. We have bought back 20% of the outstanding shares. So when we jump in, we jump in pretty big usually.

Operator

Thank you. Our next question comes is a follow up question from the line of Tim Chiang with CRT Capital. Please go ahead.

Tim Chiang - CRT Capital

Hey Don, may be just a follow up to that question about the cash. Have you and the board ever considered possibly issuing a special dividend or something else to sort of reward shareholders, given the fact that you have considered to build cash at this point.

Don Bailey

Well, we certainly have discussed that topic and obviously we haven’t reached a conclusion to do so. So I think that’s all I can say on that, but it does get discussed and we get various opinions from investors to do it, not do it, how to do it and so forth.

Tim Chiang - CRT Capital

Maybe just one follow up on the Diabetic Nephropathy trail. Is there any sort of timeframes as to when you expect to have results from that trial.

Don Bailey

Well we expect to get the trail going fairly soon, sometime in the first half of this year, but past that, I don’t think we have any expectations that we can provide you at this time.

Operator

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

Patrick Glenn – Primarius Capital

Hi guys, thanks for taking my question. The first one is just a real quick update in terms of what can you guys have planed for either investment conferences or for potentially road shows in the various cities, just so I can kind of get an idea where we might be able to hook up.

Don Bailey

Well, we’ll be doing the Citi conference next week. We have signed up for the Maxim conference which I think is in late March. The BoA conference sometime in may and of course we have a regular program of non-diluted shares that generally we’ll be doing throughout the year, I don’t think I have that schedule in front of me, so we’ll be out and amongst the investors as we said, yes.

Patrick Glenn – Primarius Capital

Great. And Don, the explanation, the background you gave was very helpful. I was just curious if you could also just add a little color to after overcoming some of the challenges there, how does it feel sitting in your office looking at the dashboard now in terms of your confidence level and this ability for the business versus lets say a year ago and versus two years ago please.

Don Bailey

That’s an excellent question. It seems as we move along in time, the entire management team gets more and more enlightened about Acthar and the possibilities and hence gets more excited. Clearly Acthar is a drug that’s helping patients and if there are some broader uses here for helping autoimmune and inflammatory conditions, the future is very, very bright for Acthar and hence request for and there is hope for patients in all kind of diseases.

So it’s very exciting. We think we have an excellent team of people to execute on both the commercial front and scientific front as well as the manufacturing of this drug, which is very complex. So we feel good all around with our resources and our opportunity and it gets better all the time.

Patrick Glenn – Primarius Capital

Thank you very much.

Operator

Thank you. Ladies and gentleman we have time for two last questions 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 follow up question. Just about the lupus development, could you give us a little more color in terms of our potential base for the study as well as thinking about the marketing and other efforts for the year and may be to next year.

Don Bailey

Well, I’ll let Steve answer the second question. But briefly on the first question we are interested in obtaining some data with respect to Acthar and what that says in the most expeditious manner we can. So we are looking at both physicians sponsor studies and Phase IV studies and we are not ready to talk about those studies yet, but we’ve been spending quite a bit of time in looking at both of those topics, as well as trying to get the case series together. Steve, can you answer the second part that question?

Steve Cartt

Yale, was your question related to timing for commercial activities?

Yale Jen - Maxim Group

Well, commercial activity and what type of effort, at least at this are more than contemplated towards the end of the year or maybe next year.

Steve Cartt

Well, kind of looking at the same model – good question by the way. We are looking at the same model that we used in Nephrology a while back, which was to take out a group of experienced rheumatology reps and have a pilot selling effort with some initial sets of data.

So Don mentioned we are in the process of generating the data and we’ll be doing that over that next several months, getting some experience with the drug in lieu of patients and we are targeting somewhere towards the end of the year to start a pilot effort with maybe a half dozen of so reps. Similar to what we did in the fall and in fact those, well we can expand from there. So we are looking at a very, very similar to the models to what we did in nephrology.

Yale Jen - Maxim Group

Okay great, thanks guys for the color on this subject.

Operator

Thank you. Our least question is a follow up question from the line of Jim Molloy with ThinkEquity; please go ahead. And pardon me Mr. Molloy, your line is open. Please check to see if you’re on mute.

And there are no further questions in the queue at this time. I would like to turn the call back to management for any closing remarks.

Don Bailey

Thank you everybody for calling in and we look forward to be putting out our progress the next time at the end of the first quarter. Take care. Bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes the Questcor fourth quarter and fiscal year 2011 earnings conference call. If you would like to listen to a replay of today’s conference, please dial 303-590-3030 or 1800-406-7325 and enter the access code of 450-9827 followed by the pound sign. We thank you for your participation. You may now disconnect.

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