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Executive

Doug Sherk – Investor Relations

Don Bailey – President and Chief Executive Officer

Steve Cartt – Chief Operating Officer

David Young – Chief Scientific Officer

Michael Mulroy – Senior Vice President, Chief Financial Officer, General Counsel and Corporate Secretary

Analyst

David Amsellem – Piper Jaffray

Tim Chiang – CRT Capital Group

Mario Corso – Caris & Company

Yale Jen – Roth Capital

Steve Yoo – Leerink Swann

Christopher Holterhoff – Oppenheimer & Co

Biren Amin – Jefferies & Co

James Molloy – ThinkEquity LLC

Stephen Eubanks – Bank of America

Bernard Horn – Polaris Capital Management

Patrick Glenn – Primarius Capital

Questcor Pharmaceuticals, Inc. (QCOR) Q1 2012 Earnings Conference Call April 24, 2012 4:30 PM ET

Operator

Good day ladies and gentlemen and welcome to the Questcor Pharmaceuticals Inc Q1 2012 earnings call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Doug Sherk. Sir you may begin.

Doug Sherk

Thank you, operator and good afternoon everyone. Thank you for joining us today for the Questcor Pharmaceuticals conference call to discuss the first quarter 2012 financial results. This afternoon after market close, Questcor issued its first quarter earnings release, which is posted on the company’s website at www.questcor.com. Today’s call is also being broadcast live via the webcast, which is also 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 website at www.questcor.com, click the Inventor Relations link and then click on Events and Presentations.

If you are listening via telephone today to the call, to review the accompanying presentation slides, navigate to the live webcast at www.questcor.com choose the audio/slides only option to review 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 remained 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, management 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.

Now please let me turn the call over 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, Chief Operating Officer, Dr. David Young, Chief Scientific Officer and Mike Mulroy our Chief Financial Officer. They’ll all be making prepared remarks. Several other members of the executive team are also available to answer questions.

Questcor is unconventional, but simple business model continues to produce excellent financial results. Shift files, net sales and earnings will all up well over 100% year-over-year. We continued to expand nephrologist and neurologist awareness, our patient benefits from Acthar and as a result, pay prescriptions continue to increase.

Driving our growth in the first quarter was the strong increase in paid prescriptions written by nephrologist to treat patients with nephronic syndrome, a serious kidney ailment. After a successful pilot program, we stepped up our nephrology commercial effort last October. The expected revenues from nephrotic syndrome prescriptions are accelerating to the point that by our calculation, nephrotic syndrome script value now exceeds MS. This estimate includes not only the revenue in the first quarter for nephronic syndrome, but also the expected revenue in the next two quarters as Acthar in nephrotic syndrome prescriptions are filled over about a six months timeframe.

From a treatment perspective, the number of vials needed to treat a nephronic syndrome patient, averages over four times the number of vials needed to treat a MS patient. We expect this dynamic to continue as we more than double the size of the commercial effort for nephronic syndrome by early June and as results from various Acthar studies in nephronic syndrome become available. In fact the initial results from one study became available just as week and Steve will comment on this particular study shortly.

We believe our sales will continue to grow 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 nephrologists and neurologist prescribing Acthar while growing remains relatively small. Third, we have assembled in our expanding an excellent experience commercial team that successfully executing our straight forward growth plans.

In a few moments, Steve will review the development of that commercial team during the quarter as well as the team’s expansion plans for the remainder of 2012. The core focus of these expansion plans remains on helping patients with serious difficult-to-treat medical conditions. This quarter focus includes an emphasis on reimbursement support. While insurance coverage remains quite solid, Questcor also provides an important safety net for the needy, and has supplied $150 million of Acthar free of charge to uninsured and underinsured patients.

In addition, this core focus drives us to further build out our understanding of the potential immune modulating properties of Acthar and study other inflammatory and autoimmune diseases that are already on the Acthar label. David Young will provide an update on the 40 preclinical and clinical studies that are in various stages of progress in a few moments.

Finally, we used our stock buyback program to purchase approximately 800,000 shares in March. Now I’d like to turn the call over to Steve Cartt, our Chief Operating Officer, who'll provide some more detail on our first quarter operating highlights and the plan for the remainder of the year.

Steve Cartt

Thanks Don, and good afternoon everyone. Our first focus on quarterly paid prescriptions for the three key markets that we presently serve. The chart now on the screen shows nephrotic syndrome prescription growth for Acthar on a quarterly basis over the last two years. Some of you may recall that we initiated a pilot selling effort in nephrology, with five reps during the second quarter of 2011. As you may recall at the end of the third quarter of last year, we completed the expansion of our dedicated nephrology sales force from five to 28 representatives. That team performed extremely well during the fourth quarter as 146 paid Acthar prescriptions were shipped to nephrotic syndrome patients during the quarter.

In the first quarter, we built on that momentum as paid prescriptions increased to 238. We calculate the annualized value of this number of quarterly prescriptions to be about $175 million. Despite good progress, we’re still very early in this commercial effort, and believe there’s significant opportunity for growth ahead of us. There are many nephrologists that we have not yet called on. And this second expansion, the 58 reps will allow us to significantly increase the number of doctors we can reach.

Insurance reimbursements for Acthar and nephrotic syndrome continues to be very good with more than 85% of private insurance prescriptions covered. We attribute this continued strong coverage to the severity of the health outcome. If nephrotic syndrome is not adequately treated, coupled with the fact that Acthar is indicated and approved in this condition, and there are few other treatment options.

Further supporting both coverage and prescribing activity is the ongoing flow of positive results coming from the various studies we are funding. In fact data from one study at the University of Toronto is being presented just this week at the Canadian Nephrology Society Annual Meeting. This particular study found that about two thirds of patients with nephrotic syndrome due to idiopathic membranous nephropathy had their proteinuria drop by 50% or more due to Acthar treatment. Because of faster than expected Acthar prescription growth in nephrology, we told you back in February about our plans to further expand the nephrology sales force from 28 to 58 representatives during this year.

This expansion is well ahead of schedule and in fact the hiring has been completed training is taking place during and April and May and we expect 100% of the new hires will be in the field selling by early June. I’m also happy to report that we continue to be very fortunate with our recruiting efforts and are bringing the highest caliber sales personnel into our commercial organization.

Now, let’s turn our efforts to Multiple Sclerosis. During the first quarter with the same number of representatives as we had a year ago, we approximately double the number of paid MS prescriptions as we’re generated in the first quarter of last year. The chart now on the screens shows MS prescription growth for Acthar on a quarterly basis.

During the first quarter quarterly paid MS prescriptions hit 1,000. Our year-over-year growth in MS paid prescriptions is due to positive patient outcomes increasing awareness among neurologist and patients about how Acthar can help patients not fully benefitting from other therapies, continued excellent Acthar insurance coverage for MS relapses and the increasing productivity of our MS commercial team.

Our next chart shows the same MS paid prescription data on a monthly basis while some months are sequentially down and others up, the overall trend reflects steady growth over the last three years. Clearly, our approach in the MS relapse market is working. We continue to believe that our penetration of this market is modest at best with only 1,000 MS prescription in the quarter. We calculate the annualized value of this level of quarterly MS prescriptions to be about $170 million. There are as many as 200,000 MS relapses annually in the U.S.

In addition extensive MS patient survey data indicates that a significant percentage of MS patients report problems, when using first line steroid treatment for relapses. Given this we believe we still have a lot of room to grow in this market and that expanding our neurology sales force will enable us to further broaden physician awareness of the appropriate role for Acthar in MS relapse management.

Thus, we’re planning to add approximately 30 more neurology representatives to our team, bringing the total to about 110 reps in our neurology sales force. The expansion effort is now underway and we expect hiring and training to be completed some time in August again ahead of the prior schedule that we provided. Following this expansion, we will have an increased sales emphasis on key academic centers and major MS clinics around the country. Importantly, we are also investing in the infrastructure to support our two sales forces with new hires and marketing reimbursement and compliance so that we can continue to successfully support our rapid growth.

Turning briefly to infantile spasms, there were a total of 112 paid prescriptions for Acthar in the first quarter while paid IF prescriptions have varied quarter-to-quarter overtime, we encouraged with the solid prescription levels we have seen during the past three quarters. The growth in Acthar prescriptions have led to consistent growth in vial shift. We had set a new record for vial shift in the fourth quarter with 3,360 only to break this new record by a comfortable margin in the very next quarter. The first quarter of 2012 with 4,111 vials shipped. This of course has resulted in a significant growth in sales and earnings.

On a final commercial note during our last call we mentioned that we had preliminary plans to initiate a pilot selling effort in rheumatology late this year, much like the pilot effort we conducted in nephrology in 2011 that preceded the creation of our full nephrology sales force. We continue to plan for rheumatology selling effort later this year and look forward to providing further updates on this pilot in the coming months. Switching gears, we continue to support important outside research projects and invest in our own company’s sponsored research programs to bring you up to date on our comprehensive efforts in research and development.

I’ll now turn the call over to Dr. David Young, our Chief Scientific Officer. David?

David Young

Thanks, Steve. Good afternoon everyone. As noted by the newest research analyst to cover Questcor, Acthar can truly be considered a pipeline within a drug. While quite rare, there aren’t effect a few other successful examples of the type of product so there is Botox coming to mine for example. We have a significant opportunity with Acthar to expand use from our three existing markets that Steve just discussed to other markets that are part of the list of approved on label indications.

In addition as we’ve been learning more about the pharmacology of Acthar including how and why Acthar acts differently than steroids there are many other new indications with unmet medical needs where we and others believe Acthar can provide a significant clinical benefits.

Currently, we have approximately 20 companies sponsored preclinical and clinical studies ongoing and are supporting around 20 ongoing investigator initiative studies. Our present studies consist of those focused in three major areas. First, on pharmacology, which means better understanding of how Acthar works and how it is different from steroids or other melanocortin peptides. Second on producing additional supporting data for the commercial team for the 19 on label indications. And third on investigating new indications to support the potential future expansion of the label.

NS, MS, lupus are among the key on label indications. Questcor RND has ongoing research in. While the new indication research investigates the use of Acthar and such diseases as diabetic nephropathy and diseases are disorders where they are immune-modulating effect of Acthar may be of benefit.

Outside investigators are also doing research in many on label and off label areas, in the form of investigator initiated studies. The investigator initiated research includes on label areas such as NS, MS, IS, lupus, polymyositis as well as off label areas such as, MS maintenance treatment, autism, traumatic brain injury, ALS and migraine. We have additional R&D projects in the planning stages as we expand our scientific efforts. In the future, we will expand our efforts to investigate more on label and more new uses for Acthar.

As we learn more about how Acthar works, we are particularly intrigued by the parent immune-modulating effects of Acthar. That characteristic of course has a potential to provide significant benefits to many patients who are currently underserved by available therapies in a variety of auto immune and inflammatory diseases. We anticipate that our efforts will not only help those patients in need but also add significant value to Questcor.

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

Michael Mulroy

Thanks, David. Net sales for the first quarter were $96 million up 161% over the $36.8 million Questcor achieved in the first quarter of 2011 with the increase driven by increased physician acceptance of Acthar to treat serious difficult-to-treat medical conditions. While our operating expenses have grown significantly since the first quarter of 2011 due to the growth of both our commercial operation and our research and development program as well as an expanded infrastructure to support a larger company. This growth in OpEx has been more than offset by our growth in net sales. This has resulted in an operating margin of 60% in the first quarter of 2012, up from 44% in the year ago period.

In the first quarter of 2012, our sales reserve rate was 14% of gross sales as compared to 24% for the year ago period. Medicaid accounted for the lion’s share of our sales reserves in the first quarter. We see more Medicaid for patients with infantile spasms than we do for MS or nephrotic syndrome as such our shift in business mix due to the significant growth in MS and nephrotic syndrome since the first quarter of 2011 has driven this reduction in our overall sales reserve rate. As a reminder, we do not generate any net sales on Medicaid business due to our 100% rebate position.

Turning to the bottom line, GAAP earnings per share for the quarter were $0.58 diluted based on 66.5 million diluted shares outstanding up from $0.17 in the first quarter of last year, non-GAAP EPS were $0.61.

During the first quarter of 2012, Questcor shift 4,111 vials of Acthar up 105% compared to the year ago quarter. The companies quarterly vial shipments continue to be subject to significant variations due to the size and timing of individual orders received from Questcor’s distributor.

The timing of when these orders are received and filled, can significantly affect net sales, operating income and net income in any particular quarter. For example on the last day of the first quarter 2012, Questcor filled in order for 185 vials. This shipment favorably impacted net sales by approximately $4 million and earnings per share by approximately $0.04 for the period.

Due to this final order in the quarter, first quarter ending channel inventory appear to be higher than the level at the end of the fourth quarter 2011 and higher than the range of channel inventory over the past several quarters. This higher level of channel inventory resulted in an increase in our sales reserve rate over the prior sequential quarter. The company believes that investors should consider the company’s results over several quarters, when analyzing the company’s performance.

Operating cash flow during the first quarter was $40.9 million driven primarily by net income of $38.5 million for the first quarter ended March 31, 2012. As of April 20, Questcor’s cash, cash equivalents and short-term investments totaled $248 million and AR was $37 million. Return on equity was 68% for the first quarter. We returned approximately $29 million to shareholders in the quarter through our open market repurchase of $798,285 shares, at an average price of $36.31 per share. We have returned at $107.4 million through share repurchases under our repurchase program since the beginning of 2008, representing approximately 40% 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 we are off to a good start to 2012. Our focus on helping more patients with unmet medical needs led to another record financial performance for Questcor. We believe Acthar provides substantial benefits to many patients, who would otherwise continue to suffer the effects of serious, difficult to treat disorders.

We are expanding the organization and associated infrastructure to address the significant growth opportunities in front of us. We are continuing to focus on nephrotic syndromes and MS sales. And at the same time, we are investing in research and development to learn about the possible therapeutic applications of Acthar to treat other inflammatory and autoimmune diseases. Questcor’s future looks bright.

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

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes from David Amsellem from Piper Jaffray. Your line is open.

David Amsellem – Piper Jaffray

Thanks, just a couple. First on the inventory how should we think about the progression of inventory in the second quarter? Does that that $4 million number that you cited necessarily mean, point to a headwinds in recorded sales in 2Q?

Don Bailey

Unless Dan, Mike Mulroy will answer that question.

Mike Mulroy

Yeah, I think to some degree that’s right. As discussed in our press release we fill that order and as I just commented on. We fill that on the last date of quarter. In channel inventory at the end of the first quarter there, it increased over the prior quarter by about that same amount by about approximately 180 vials.

David Amsellem – Piper Jaffray

What is…

Don M. Bailey

Yeah, so David, so since that’s the case, we don’t know what will happen at the ending inventory for Q2, but if we return to normal then basically its like that 180 vial order 4 million sales was really shifted from Q1 to Q2 or Q2 to Q1.

David Amsellem – Piper Jaffray

Got it, okay. And then…

Don M. Bailey

Not a headwind per se but it’s just there. It was the fact.

David Amsellem – Piper Jaffray

Okay, that’s helpful. And then on the competitive landscape what’s your sense of how long it could take Novartis to bring its synthetic corticotropin to the U.S. market if that’s what they’re dealing and also to what extent is their usage of it right now in the U.S. and I guess on a compassionate basis? Thanks.

Don Bailey

We have no information that anybody is bringing anything to United States or that anybody started any program for competitive product. And we don’t know of any significant use for that drug in the United States stall. So I could turn the question over to David Young, he could probably give you a quick answer on what would it take to bring a new product to market in the United States.

David Young

Yes thanks. It really depends on what the profit is, they could try to bring a generic or biosimilar, which would be almost impossible given the guidance’s. If they try to bring in a different molecule like the Novartis product which is a completely different peptide then that also would be difficult because it would compete with us in terms of being equal to us. So we don’t have a great idea of anything coming in now but even if something was to come in soon, it would take many, many years before it gets approved.

Don Bailey

David all they would end up with is a very little exclusivity. In the particular case you mentioned, they would probably only get three years exclusivity so and they have to run trials.

David Young

That’s correct.

Don Bailey

We don't think that the business economics work at all.

David Amsellem – Piper Jaffray

One last quick one if I may, any update on the timing of results from your phase four study and idiopathic membranous nephropathy.

Don Bailey

David Young, do you want to take a shot there.

David Young

Sure, that study is going very slow and one there are couple reasons one is because patients who are eligible for the study would actually rather get a prescription than potentially go into study and get a placebos. So we’ve had a number of patients who do not want to be in the study because they can just get the prescription, which helps us in another area in terms of sales, but the also the other reason is because we have strict definitions of treatment resistant and inclusion, exclusion criteria. So it has been going slow we’re going to be loosening those up a little bit but still keep the integrity of your study so hopefully it will be up a little bit now.

David Amsellem – Piper Jaffray

All right. Thanks guys.

Operator

Thank you. Our next question comes from Tim Chiang from CRT Capital. Your line is open.

Tim Chiang – CRT Capital Group

Thanks, David can you talk a little bit about the sales force expansion? Do you expect there to be any sort of disruption in 2Q with the nephrotic syndrome sales force, new hires and also the MS sales force new hires.

Don Bailey

Dave you maybe, you should answer that question and just both in the nephrotic syndrome and MS.

David Young

Yeah very good questions, generally, the past when we’ve had sales force expansion we have talked about the disruption factor in those expansions and that is a real factor for example, you can have a sales rep who has been working on developing relationships with doctors and their territory, and then all of a sudden they lose a portion of their doctors that they have relationships with, and those doctors are moved to a new sales rep. So there can be some disruption. And we would expect to see some, we generally do, we try to keep that to a minimum and the variety of work ways to do that. But we would expect to see some we’ve had a number of promotions as we’ve expanded in nephrology for example. We’ve had people promoted into management positions. And so they are out recruiting for new hires. And no longer really making sales calls and we’ve also had some people promoted into sales training positions.

So yeah, disruption is definitely an important factor to keep in mind, it’s generally a very temporary. We’ve been pretty good and minimizing at the past. And that’s the plan this time, but we may see a little bit.

Tim Chiang – CRT Capital Group

And maybe one follow up since you guys talked about expanding the R&D effort, I mean how much additional cost do you think you will take on this year in R&D?

Don Bailey

That’s a good question Tim. Our expenses in Q1, were in R&D were pretty well flat to Q4, but we expect expenses in Q2, and R&D go up significantly, as many of these 40 studies kick-in.

Tim Chiang – CRT Capital Group

Don, I mean how many studies do you actually doing I guess on the critical side, I start from the Phase IV study you are doing and the Phase II study in diabetic nephropathy are there other clinical studies that you are going to initiate.

Don Bailey

Those are the only companies sponsored clinical studies that will be going on during Q2. But many of these other studies, I just share number of them are kicking in the higher gear by comparison six months ago we probably had 30 studies. So this is just a greater level of activity.

Operator

Thank you. Our next questions comes from Mario Corso from Caris & Company. Your line is open.

Mario Corso – Caris & Company

Yes. Thanks for taking my questions and congratulations on the good quarter. A couple of things I wanted to ask about. I assume there's nothing to report on the legal front in terms of any requests for information from any governmental bodies? Commercially, you are a little over year-end in nephrotic syndrome know. I’m wondering you know kind of what you’ve learned, or what you see at this point in terms of any trends in files or treatment trends when physicians treat and when they don’t treat. And then finally on lupus, can you talk about all what’s going on there, where you are in terms of kind of study planning or case series initiation. Thanks a lot.

Don Bailey

Okay let me, let Steve Cartt answer the question about what we’ve learned in nephrotic syndrome, I mean, basically the key thing we’re learning as the drug works. And that’s and it’s helping patients, an enough percentage of the drug is going to continue to be used, that’s probably the most important thing. Steve you want to elaborate?

Steve Cartt

Yeah, what we are constantly learning as we go forward about Acthar and as Don mentioned where we’ve had a lot of positive reports and it’s expanding beyond Idiopathic membranous nephropathy, we’ve definitely had quite a few positive reports of patients successes with, we have the FSGS and other underlying kidney diseases that’s resulted in the nephronic syndrome situation. So the drug definitely seems to be working. That’s borne out in this abstract that’s been presented this week at the Canadian Society of Nephrology Meeting that I mentioned.

Data looks good there as well. So all indications with drug is working, and we're seeing the typical course of treatment is about six months, eight units twice weekly. Although there can be some variation in that sometimes doctors will treat a little bit shorter period, sometimes they will treat a little bit longer period. So I think they are still feeling out a little bit, how they are using the drug in individual patients there might be a little bit of customization based on the patient situation.

In general, we’re seeing a six month course of treatment the doctors were employing. So everything looks positive from our standpoint, the insurance coverage is good, the docs in general are trying out Acthar in the first one or two patients and seeing how those patients do, of course it take some six months or so to see the results.

But at this point now that we’re in a two full quarters in to it, with our sales force of 28, we’re seeing some repaid prescribers and we expect to see that increase as we go forward. So no red flags from our standpoint everything looks quite encouraging.

Don Bailey

Mario it’s basically, the writers are writing, the payers are paying and everything’s good there. Lupus, we're making appropriate progress on all funds. Modern activity nothing specific to report, but we wouldn’t have expected to have anything specific to report. And I can confirm your statement that nothing has happened on the legal front (inaudible)

Operator

Thank you. Our next question comes from Yale Jen from Roth Capital. Your line is open.

Yale Jen – Roth Capital

Thanks for taking the question. All right gentlemen? Just further a brief question regarding the breakdown of the revenue or indifferent indications, could you give me some color on that?

Eldon Mayer

Yes, roughly its half MS, one third nephrotic syndrome and then the remainder is infantile spasms and other. Just so people aren’t confused since we’re saying that nephrotic syndrome is now generated scripts of the more valuable than MS that’s including the future value of the nephrotic syndrome scripts versus the future, the current and future value versus the current and future value of MS, the MS scripts are consumed almost in a very short time period like one way or as nephrotic syndrome scripts are consumed over six month period. But in the quarter MS was about half of the revenue.

Yale Jen – Roth Capital

Okay, great and just briefly on MS two questions here. Fist one is that is the speaker bureau program continued developing and do you see that continue to have value or you’ll have other thoughts in there.

Eldon Mayer

Steve you want to answer the question about the speaker program for nephrotic syndrome?

Steve Cartt

Yes, sure El, that’s obviously the important program for us as this for many drugs in our industry. So we’re continuing to work for top caliber speakers, our plan is to over time continue to improve the group of docs who are experienced with Acthar who are viewed as real spot leaders in the field and are interested in speaking for us promotionally and so we’re continuing to do that we expect that process will be ongoing for quite sometime in nephrology, we’re doing essentially the same thing or it’s much earlier at this point. And in nephrology we’re really focusing at this point at least purely on speaker programs that are geared towards physicians, whereas in MS we’ve been doing that for quite sometime, but we’re also now moving into speaker programs that are geared towards patients as well, to help educate patients about the possible benefit of Acthar and treating relapses and build awareness among the patient population in MS. So we’re not there yet for nephrotic syndrome. At some point we might get there, but definitely for both of the disease states we’re very focused on building out our speaker programs and helping to educate docs about Acthar.

Yale Jen – Roth Capital

And last question, and then (inaudible) how many nephrotic is there so far – has been in the prescribing physician for the last time?

Don Bailey

Yeah, we don’t have exact number here, Yale, but I would say of the prescriptions that were filled in the quarter, which includes Medicaid and free drug we’re probably about 200 doctors who wrote prescriptions that were filled in the quarter for nephrotic syndrome.

Yale Jen – Roth Capital

Hey great. Thanks a lot and congrats on beating the top and bottom lines for the quarter

Don Bailey

Well thanks.

Operator

Thank you our next question comes from Steve Yoo of Leerink Swann. Your line is open.

Steve Yoo – Leerink Swann

Thank you for taking the question, and congrats on the excellent quarter. I was wondering, can you tell me with the current rates for nephrotic syndrome how many doctors can you address and how many nephrologists could you address after you grow as a sales force 58 reps

Don Bailey

Dave?

David Young

Yeah we’re looking at in nephrotic syndrome. The ultimate target is to probably get up to 4,000, it covering about 4,000 doctors. We don’t think we can even quite do that yet with 58, but where there is really right now we are looking at close to 3,000 as a target audience for our expanded group of 58, which is about roughly double, little bit more than double what we are actively calling on right now.

Steve Yoo – Leerink Swann

Okay. And I was wondering, for the lupus program, I know you are going to be telling us little more data later, but I know when you launches in nephrotic syndrome you had found that series the 21 patients in nephrotic syndrome. Will you have similar data that you are in the process of generating to launch into that indication?

Don Bailey

Well we probably won't have something quite that robust, but we are working on something that will be useful to the rheumatology reps when we get them out there. Steve you want to add a little color?

Steve Cartt

Yeah I think you know right now we are in the process of gaining some patient experience similar to what we went through on the nephrology side. So yeah I think that you know like nephrology, the nephrotic syndrome indication the doctors appear to be open at least once we have been talking, appear to be open to relatively very small data sets, particularly in patients who are really underserved by the current treatments they are kind of scrambling for additional treatment options, and have something like Acthar. If they appeared to be open to considering it based on relatively small data sets.

Don Bailey

Just one difference for investors to understand is that, with nephrology, we had been working with doctors, for three years before we started the commercial effort, and with lupus it’s been more like six months. So we’re initiating the commercial effort much sooner in rheumatology. Because we realize in behind sight we probably could have done so in nephrology.

Steve Yoo – Leerink Swann

All right, thank you for taking my questions.

Operator

Thank you. Our next question comes from Chris Holterhoff from Oppenheimer. Your line is open.

Christopher Holterhoff – Oppenheimer & Co

Hi, thanks. Just first on MS, I was hoping you give us an update on the number of unique prescribers, just a rough number and then kind of talk about that’s in line with your expectations?

Don Bailey

Yeah, it is, that’s roughly 500 in a quarter and certainly in line with our past experience, all the numbers look good. No matter how you slices and dice it, with as in nephrology we don’t see any particular red flags, everything looks up, especially when you look at it year-over-year, but even sequentially it seems look quite normal.

Christopher Holterhoff – Oppenheimer & Co

Okay. And then you know it looks like your sales declined about 14% of growth. And you are just wondering where you think this could kind of trend overtime in kind of what where we could expect, at steady state.

Don Bailey

Well just to give some color on that, I will ask Mike Mulroy to add a little bit more color, but the over the last five quarters, those percentage have been 24%, 19%, 15%, 12% and 14%. So, with that backdrop, do you want to take a crack at entering in.

Michael Mulroy

Yeah, I guess I’d give some remarks, that I think we’ve given on prior calls, there is a longer-term trend that we expect to continue to see, as our adult population disease stage that we cover, continue to growth MS and nephrotic syndrome. And you know potentially other indications in the future, relative to and essentially, on a relative basis its flatter or flat IS business. And that should lead our overall Medicaid reserve rate to decline, because the incidence rate in Medicaid for babies it’s higher than it is for adults. So we should continue to see that though there will be volatility around that. And so this quarter as an example of that, we had this late order, which caused a bit of jump. That is also other items if cost period-to-period volatility. And so it’s hard kind of straight line it down or draw a regression line I think you’ll get there. It’s hard to know where it will bottom. But the overall trend should be continuing downward subject to again to that volatility.

Christopher Holterhoff – Oppenheimer & Co

Okay.

Don Bailey

I think 10% of adults are in Medicaid. It would be tough to seat go much below 10%

Christopher Holterhoff – Oppenheimer & Co

Right.

Don Bailey

Plus there’s 1% or 2% of non-Medicaid items in the sales.

Christopher Holterhoff – Oppenheimer & Co

Right, okay. And then just wondering if you dose the first patient in the Phase 2a study in diabetic nephropathy. I think that was first half and sometime in the first half of this year. And then just maybe remind us when we might see data from that study.

Don Bailey

Okay, David Young can you give a brief update on the Phase II diabetic nephropathy trial?

David Young

Sure. We have a kick of meeting with investigators very soon. And very soon will be putting the study on clintrial.gov. They can look at there. We hope in the very near future will be dosing, but the exact date I can’t say when exactly it’s going to happen depends when they can enrolling and going to things in terms of the recruitment. So, we would hope, we expected to continue to progress as we said before and lot of patients definitely for this year, but when exactly the first patient if think that you right now.

Christopher Holterhoff – Oppenheimer & Co

Okay, fair enough. And then just lastly wondering if you like to make any comments on what we’re seeing so far in terms of April script trends

Don Bailey

Well, now we’re going hold off on April until we get to our usual numbers at beginning of May. There is nothing overly remarkable one way or the other. We’ll provide you with that color as we have been traditionally on the first ten business days of month.

Christopher Holterhoff – Oppenheimer & Co

Okay, thanks a lot for taking the questions and congrats on all progress.

Don Bailey

Thanks Chris.

Operator

Thank you. Our next question comes from Biren Amin from Jefferies. Your line is open.

Biren Amin – Jefferies & Co

Yes, hi guys. Thanks for taking my question. I was wondering if we might be expecting any data at the NKF meeting in a few weeks?

Don Bailey

Steve, you have any color there?

Steve Cartt

Yes, there actually will be some new data NKF on Acthar so you should keep your eyes out for that.

Biren Amin – Jefferies & Co

Okay, and is it specifically around IMN or diabetic nephropathy? Can you elaborate a little bit on that?

Steve Cartt

Yes, this data is specific to FSGS.

Biren Amin – Jefferies & Co

Okay and then also in regards to this Mayo Clinic study that you cited Steve at this Canadian meeting. Do you have any patients of the 16 that enrolled were randomized for the 80 twice weekly dose versus the 40 twice weekly. And also what’s your assessment of the treatment period given patients are treated for 120 days which means its about a four months treatment which is a much shorter than a normal six month treatment for us?

Steve Cartt

Yes, that study was actually designed we’re still kind of in the learning phase which in general we still are with the drug in nephrotic syndrome. So I don’t have the breakdown of 80 versus 40 but we don’t have any conclusions over related to which one is, which one might be the end of dosing regimen, but right now it’s really 80 units. What the investigator in that study was part of his conclusion is that 80 units looks more effective. But the numbers are small, so it’s hard to conclude anything right now.

Biren Amin – Jefferies & Co

Okay. And is there a risk that as a result of the study that prescribers could start to prescribe 80 with the four-month course which would equate to about seven vials versus the current 10 vials?

Steve Cartt

Well, what we’re seeing in practices is that a fair number of patients do require more than four months, six months even some times longer. So I’m not sure that this size of a study would really dramatically impact the treatment period. Like I’ve said that study was designed early on it was a little bit shorter some of the more recently started studies. If you look at some of the European data on the synthetic version of ACTH dose, those studies are six months minimum, and some of them have got up to 12 months. So that seems to be what’s driving the treatment period and we’ll see I mean we have, we have data from that, we have some other studies will be coming out later was longer treatment period. So, it’s going to be probably somewhere in that six months period for treatment and some docs may use a little bit less and some little bit more.

Michael Mulroy

Biren, the initial goal of therapy is a reduction of 50%, but the real goal is a reduction of 90% in proteinuria. So, in already get the 90% the doctor (Inaudible) patients on the drug longer. And most for more we’re seeing in practice if the patient’s proteinuria is coming down and the most recent month. Most doctors are asking for another month, even when they get a month six, the patients approaching area went down between month five and month six, but hasn’t reached that 90%. Many doctors are prescribing a month seven, so we’re seeing that. And I wanted to comment for those on the call, who might not be all that familiar with nephrotic syndrome. So idiopathic membranous nephropathy and FSGS are subsets of the on-label portion of the reduction approaching areas associated with nephrotic syndrome for Acthar, diabetic nephropathy is not on-label. So that’s why, that’s a Phase II study. Operator?

Operator

Thank you. Your next question comes from Jim Molloy from ThinkEquity. Your line is open.

James Molloy – ThinkEquity LLC

Hey guys, thanks for taking my question. One of the questions that often comes up is, (inaudible) riders and sort of five percentage or the doctors being in the top 70 percentage. Can you talk a little about how many top 10% docs or how many are in there and how many docs with read it once in NS and they’re coming back and write it again, you have the data?

Steve Cartt

We don’t have all that data here. But what I can tell you is that all of the patterns and distributions whether we look at it by riders or reps or geography, and no matter how we slice that new versus repeat, everything looks normal to us, so quite pleased. There is not a great portion of heavy riders that there are some and there is a growing number in each category where there’s first time riders or second time riders or four time riders, so all the data works pretty good.

James Molloy – ThinkEquity LLC

Is the way to look at totally at the first time rider and the getting that rider back to a second one, I know it takes a while to run through it (inaudible) that?

Steve Cartt

We don’t have that level of fidelity in our information at this point.

James Molloy – ThinkEquity LLC

Fair enough. And then any thoughts on the pushback from managed care, if you do get pushback and what sort of the biggest hurdles your managed care group faces as ability to address those are getting harder, you just stand outside.

Don Bailey

Well the big thing we have going forward here is I will let Steve comment on this little further. But the big thing we have won for sale is Acthar is generally being used for medical conditions that are devastating. And there are no other therapy either on label or other therapies have failed. So that’s the main thing investors need to squarely understand. But with that is always a battle to get any prescription occurred. Steve you want to add more color.

Steve Cartt

Yeah really the key is to get educate at the office not only the doctor, but the staff to get the right kind of paper work and documentation into the reimbursement hub. If the staff is able to do that and do it in a timely manner, we generally have very, very high success rates. If they’re slower or they don’t have the staffing in the particular practice to follow up on prior organization forms, for example, then our success rate is lower. So the constant effort to have the reps, informed about the status of the prescriptions by our reimbursement team and then have the reps in there making sure the staff and the doctor are following up with whatever needs to be done in order to get the prescription approved. And generally success rates are very high when we get the right kind of prescriptions and if the patients like in MS, for example, who have a history of problematic side effects with steroids, and the doctor is able to document that and our coverage rates are close to a 100%, where the officers may be not quite as buttoned up with their documentation and it’s a bit more of a struggle.

That’s really our biggest challenges to constantly work with the officers to get the reimbursement hub what they need to lock in coverage.

James Molloy – ThinkEquity LLC

Thanks for taking the questions.

Steve Cartt

Sure.

Operator

Thank you. Our next question comes from Steve Eubanks from Bank of America, your line is open.

Stephen Eubanks – Bank of America

Hi, just wanted to ask about the target number of reps you have roughly twice as many neurology reps nephrology reps is that logical based on the market opportunity or target number of docs?

Don Bailey

That’s a good question, Steve and we’re trailing of growth with controlling our culture and trying to do a really good job with training compliance, messaging and so forth. So as Steve Cartt says, we might want to go to more than 58 in nephrology eventually, but we felt like doubling is a much where you long to take on just kind (max) of we want to take on here, the lot more neurologists and nephrologists and so we will need more MS reps than nephrology reps and I think as Steve Cartt may be comment on this I think the MS selling effort may be and required little bit more interaction with the office in the nephrology

Steve Cartt

Yeah it tends to – it tends to be a higher sense of urgency, with a MS player than and say an idiopathic membranous patient you had that condition for many, many years, and now they are trying Acthar out. So you see that with the turnaround times in the prescriptions for MS it’s a two, three four days in nephrology it can be a couple of weeks, so having the reps with a relatively small territory in MS as they can be end of those office very quickly where they need to be plus there is a much higher level of noise promotional noise in the MS offices, with all the large MS sales forces, we have to compete with that, we are not selling against those products. But we have to compete for attention with the doctors and the staff. So having a higher rep to physician ratio, in MS makes a lot more sense. As Don said, we stepped up from 28 to 58, nephrology and we made, eventually go higher but Acthar is a very complex cell, because that how we position it. And because of the premium pricing that we have in the level of reimbursement support our reps need to provide. There is a turn of training that goes into that and it takes a while for new reps, even very experienced reps to fully get up to speed, so there is only so much, we can kind of digest at one time, when doing expansion

Stephen Eubanks – Bank of America

Thank you. It’s very helpful.

Operator

Thank you. Our next question comes from Bernard Horn from Polaris capital. Your line is open.

Bernard Horn – Polaris Capital Management

Yes, good afternoon and certainly satisfying to see the hard work overall these years, start to really bear some fruits, so congratulations to all the staff that’s worked so hard to get there. Just a question on nephrotic syndrome, so with respect to this disease, the proteinuria can get can lead to the end stage renal disease as you noted in the slide. And is there any experience yet to indicate whether the onset of SRD is being delayed or changed and also is there any usage during dialysis treatment or otherwise, with the charts being used in those indications.

Don Bailey

Okay, it’s a really good question. I will let Steve Cartt can answer the first question, I do know on your second part of that question with respect to patients on dialysis. We did have one patient, who was in an early stage dialysis and the doctor provided Acthar to that patient and the patient came off dialysis and their kidney condition improved but I don’t know, I not to answer that first part of question. Steve Cartt do you have an answer?

Steve Cartt

Yeah, it’s a great question it’s kind of the $64,000 question, as can we delay progression to ESRD and we haven’t done any studies to look at that. But these tend to be patients who are fairly advanced cases of nephrotic syndrome. And proteinuria is a key marker of kidney function. So if you put to and two together if you are improving on the proteinuria and their kidney function seems to be getting better than maybe we would have a shot at the ESRD we haven’t done the studies we can’t really commented definitively on that but there is reason to believe that that could be the case in some patients.

Bernard Horn – Polaris Capital Management

So you haven’t really, has there been any contact yet with some of the large dialysis company I mean clearly they have especially with respect to the changes that we’re seeing in the payment system for dialysis treatments so it would be interesting to see if they would have any interest in using it in their course of treatments to either reduce their cost or get better outcomes but has there been any contact on that…

Steve Cartt

We haven’t done anything in that area and that’s an excellent idea that we’ll have to click that around.

Bernard Horn – Polaris Capital Management

All right, thanks a lot. That’s all I had.

Operator

Thank you. Our next question comes from Patrick Glenn with Primarius Capital. Your line is open.

Patrick Glenn – Primarius Capital

Hi, guys I just have a couple of quick questions. The first is, can you share with us maybe some of the upcoming conferences, investment conference that you might be at? And then the second question is you guys have been doing a great job in terms of sharing with investors what’s going on? Can you shed some light on what your confidence and visibility is currently versus as compared to a year ago or two years ago in terms of how the growth is progressing, the execution is as well as the strategy please?

Don Bailey

Okay, so we have Bank of America coming up conference on May 15 or 17, I don’t think we have an exact date or may be we do at 16. And then we have the Jefferies conference in early June, June 4 to 7 in New York City, so Bank of America is in Las Vegas. Well Patrick I would say that we are if you were to ask us a year ago where we thought we would be today and we would of course we never will answer this question. But as we answer that question it wouldn’t have been anywhere close to, we’re doing so much better than we’re expected. The business is basically, every stat looks like as it doubled year-over-year and of course that’s wonderful growth. And some of our biggest problems are just in managing the growth and trying to keep pace with all the infrastructure which again it’s a wonderful problem.

Our prospects look excellent we’re in the nascent stages of big markets, where we have a position for our product which basically has no direct competition where I have an excellent group of people who are working everyday to make sure that our messaging is consistent and that were playing within the rolls that are we’re getting good reimbursement and that we’re providing good return to shareholders. So we’re extremely pleased with the progress and we’re very excited about the prospects for the future. Acthar is its own pipeline and I think that’s not well understood and we expect overtime for more and more people to start to understand that and see that there is many, many more uses for this drug.

Patrick Glenn – Primarius Capital

Great, thank you very much.

Operator

Thank you. I show no further questions at this time and we’d like to turn the conference back to management for further remarks.

Doug Sherk

All right, thanks everybody for attending and we look forward to speaking with you along the way. Take care. Bye, bye.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect at this time.

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