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Questcor Pharmaceuticals, Inc. (NASDAQ:QCOR)

Initial Commercialization Plans for Acthar Rheumatology Indications Conference Call

June 14, 2012 04:30 pm ET

Executives

Doug Sherk - EVC Group, Inc.

Don Bailey - President & CEO

Steve Cartt - COO

Dr. Todd Levine - Co-Director Neurophysiology Department, Banner Good Samaritan Medical Center, Assistant Professor, University of Arizona in Neurology & Member of Phoenix Neurological Associates.

Analysts

David Amsellem - Piper Jaffray

Mario Corso - Caris & Company

Chris Holterhoff - Oppenheimer

Tim Chiang - CRT Capital

Yale Jen - ROTH Capital

Biren Amin - Jefferies

Jim Molloy - ThinkEquity

Steve Yoo - Leerink Swann

Bernard Horn - Polaris Capital

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to Questcor Rheumatology Commercial Plan conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (Operator Instructions) This conference is being recorded today Thursday, June 14, 2012.

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

Doug Sherk

Thank you, operator and good afternoon everyone. Thank you for joining us today for the Questcor Pharmaceuticals’ conference call to discuss Questcor’s Initial Commercialization Plans for Acthar’s Rheumatology Indications. This afternoon after the market closed, Questcor issued a news release outlining these launch plans. The release 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 to the call today via telephone, to review the accompanying presentation slides, navigate to the live webcast at www.questcor.com, then choose the audio/slides only option to review the slides in conjunction with the live conference call. There will be a replay of this call which will be available approximately one hour after call’s conclusion and will remain available for seven days. The operator will provide the replay instructions at the end of today’s call.

Before we get started, I would like to remind you that during the course of this conference call the management will be making some forward-looking statements and 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 Form’s 10Q and 10K which identify the specific factors that may cause actual results or events to differ materially from those described in these forward-looking statements.

I would like to note that the information included in today’s news release and on this call are from a case theory of five patients and not from a randomized controlled clinical trial.

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

Now please let me turn the call over to Don Bailey, President and Chief Executive Officer of Questcor Pharmaceuticals.

Don Bailey

Thanks Doug and good afternoon everyone. With me today are members of our management team, including Steve Cartt, Chief Operating Officer. We are very pleased to have a guest speaker with us today, Dr. Todd Levine; Dr. Levine is the author of the peer review paper published earlier this week on the clinical use of Acthar in the treatment of polymyositis and dermatomyositis. As many of you may know polymyositis and dermatomyositis are both FDA approved on-label indications of our main product Acthar. After our prepared remarks, we will take your questions.

As you likely know, Acthar has stable sales in infantile spasms and increasing sales in both nephrotic syndrome and multiple sclerosis. These three indications are among the 19 indications on the FDA approved label for Acthar.

We believe that many of the other on-label indications offer the potential for Acthar to help an increasing number of patients, the serious difficult to treat autoimmune and inflammatory disorders and we believe that these markets together form a several billion dollar market opportunity.

Our strategy is straight forward; grow sales in nephrotic syndrome, MS and IS while exploring the commercial potential of these other on-label indications. So today like we did last year with nephrotic syndrome, we are presenting our initial plan to pursue the commercial opportunity for Acthar in multiple on-label rheumatology indications for Acthar. We will be focusing on five key Acthar rheumatology indications that are of particular interest.

As noted in today’s press release, Acthar’s rheumatology indications include the use of Acthar as adjunctive therapy and psoriatic arthritis, the rheumatoid arthritis, juvenile rheumatoid arthritis and ankylosing spondylitis. Acthar is also approved by the FDA as acute or maintenance therapy in selective cases of systemic lupus erythematosus and a condition called systemic dermatomyositis or polymyositis.

Rheumatology is an area of medicine having very high unmet need. Each of these conditions can be difficult to treat and if not treated successfully, serious health issues can develop. And each of these indications we believe Acthar has the potential to help patients who do not respond adequately to or experience problematic side effects from current treatments.

Each of these conditions has a significant patient population and we believe the entire rheumatology opportunity for Acthar represents a multibillion dollar opportunity. The chart on your screen shows the estimated US patient population and our estimated target patient populations for Acthar in each of these indications.

With the planned launch of our pilot selling effort in mid-July, our rheumatology sales force will focus on educating rheumatologists on the potential for Acthar to help patients who suffer from polymyositis and dermatomyositis. With the publication of Dr. Levine's article in the journal, drug design, development and therapy, we now have some information on patient experience in these conditions that we can share with doctors.

Going forward, we expect to fold in promotional efforts on Acthar's other rheumatology related indications as we are able to collect data in each of them. Because they are the initial focus of our pilot selling activities on rheumatology, polymyositis and dermatomyositis or PM-DM will be the principal topic for today's call.

Steve Cartt will review our commercial plans in more detail shortly, but first, I would like to introduce a special guest and the author of the publication that came out earlier this week on Acthar in the treatment of PM-DM, Dr. Todd Levine.

Dr. Levine is Co-Director of the Neurophysiology Department at Banner Good Samaritan Medical Center, Assistant Professor at the University of Arizona in Neurology and a Member of Phoenix Neurological Associates.

Dr. Levine conducted the retrospect of case review of Acthar treatment in five patients who had previously failed multiple steroid and immunosuppressant treatment regimens. He has graciously agreed to take time out of his very busy neurology practice today to help educate all of us a bit on these two rare neuromuscular disorders and talk about his experience using Acthar in the treatment of DM and PM.

During the latter part of the call today there will be ample time to ask Dr. Levine questions that you may have. But we ask that following the call you respect the fact that Dr. Levine is extremely busy so please do not call or email him for one-on-one discussions; if you have further questions please contact us.

With that brief introduction, I’ll turn the call over to Dr. Levine. Go ahead.

Dr. Todd Levine

I want to thank all of you for joining me today and I’ll try to go over a little bit of information about both dermatomyositis and polymyositis. These are both somewhat rare neuromuscular diseases, but they are still diseases that most neurologists and most rheumatologists will see throughout a given week or throughout a given month. These are autoimmune diseases; which means that a patient’s immune system rather than fighting bacteria and viruses actually starts to attack their muscles.

In polymyositis that attack is primarily constrained just to the muscles alone, but in dermatomyositis patients can have other organ systems involved, so typically they get a very severe skin rash as well. They can also have involvement of the lungs and the gastrointestinal tract causing problems with their colon and digestion.

These patients are really treated by one of two groups; they can be treated by rheumatologists or neurologists and are about equally split; most of the neurologists like myself that treat myositis patients are really the neurologists that specialize in nerve and muscle diseases and then most general rheumatologists or specialists in rheumatology will also treat these diseases.

These are very difficult diseases to treat in a large percentage of the patients and as they cause progressive weakness, the patients can become wheelchair dependent, can start to impact their ability to perform their activities of daily living and their quality of life and in severe cases could even lead to death of the patient.

Currently the mainstay treatment for these patients is to begin with some form of Corticosteroids and I would estimate about 50% of patients will have a good response to Corticosteroids although some of those patients will have varying tolerant side effects. And the half of patients who don't have enough of response to Corticosteroids we really have a lack of other options to treat these patients with. So other than Corticosteroids and Acthar there are no FDA indicated drugs to treat this disease.

Therefore, we tend to rely on our clinical experience which involves a combination of immunosuppressive drugs many of which can have severe and in some cases life threatening side effects. We use a lot of Intravenous Gamma Globulin which is very expensive and lately people have begun to use a monoclonal antibody called Rituximab.

Even with all those therapies many of these patients are still refractory and do not get back to a normal strength level. And at the moment there are no absolute studies to compare any of the therapies to know which has better efficacy.

So I became interested as somebody who treats a large number of myositis patients in a small subset of patients that were very refractory to therapies. And as we start to go through the different options of immunosuppressant, (inaudible), steroids, Rituximab and so forth, even with all of those therapies I had a number of patients that were still refractory and over the past two, three years I was able to treat several of these patients with Acthar and had very promising results.

So the paper that was just published reports five cases of refractory of dermato or polymyositis that I treated with Acthar. All these patients definitely are categorized as very refractory patients and they either had difficulty tolerating their therapies or their therapies were not enough to achieve enough of a remission.

All of the patients that had muscle biopsies that confirmed the diagnosis of dermato or polymyositis and prior to starting Acthar all of the patients had been stable for 60 days so that the effects that I saw hopefully was due to the Acthar alone and not to a cumulative effect of their other medications.

And one of the things that’s really important about treating this disease again is the disease primarily causes muscle weakness. So although there are a lot of outcome measures what I really was looking for was whether or not we improved patient’s muscle strength. That was [opposed] to something called manual muscle testing and then also just making sure that it really made a difference in terms of the patient’s quality of life, so that they could walk better, stand better, use their arms better.

So when you see the results of these patients its really relatively straightforward. We are not really just looking for a subjective improvement. Prior to this paper, there was no clear evidence on how the drug should be dosed. So I would love to tell you that I had really good scientific evidence as to how I dosed it but basically I tried to use what has been used in some of the MS Literature before but the difference with these patients compared to using Acthar for MS is that these patients are going to need the therapy for much longer.

So in these patients I dosed 80 units of Acthar, in most of the patients twice a week and in one patient once a week and the initial outcome was affected 12 weeks. So the idea was after 12 weeks of therapy the patients either should have improved or not. Two of the patients actually remained on their therapy beyond the 12 weeks, so that they were approving and one patient actually now has been on therapy for nine months and done very well with that therapy.

All five of the patients that are reported in the paper showed significant clinical improvement and again what I am trying to get at here is not so much just a little subject of improvement but actually that their muscle strength improved. Three of the patients that had dermatomyositis had skin involvement and those patients with the skin involvement with this disease got better which meant rash and in some cases even getting so severe to have ulcers on their [digits] and those improved.

Their activities of daily living improved, three of the patients who required some assistance meaning cane or walker with walking were able to ambulate independently after treatment and then one patient who actually couldn’t walk was able to return to work after the three months of therapy.

One of the nice things about the therapy so far in the patients I have seen is it there really were no significant side effects, so unlike treating with corticosteroids or immunosuppressants I have not seen any change in the hemoglobin A1C in these patients and all the patients actually reported an improved quality of life as opposed to having significant side effects from the medication.

These patients were not done as part of the randomized, double blind; placebo controlled trial and because Acthar has the indication for poly and dermatomyositis it actually has been very straight forward in terms of just getting the drug approved through the regular insurance company and has not reported anything special in terms of doing that.

So I thought what I would do is just take you briefly through one of the cases that was reported in the paper so you would have a sense of what this disease does for patients. This is a patient that I began treating in 2004, she initially presented with evidence of muscle weakness and was initially treated with a combination of IVIG, cyclosporine and Rituximab and then from 2006 to 2007 she was maintained on IVIG and cyclosporine and then did well.

At that point she was having a little more weakness and so we added Imuran or Azathioprine to her treatment regimen and to be sure that her treatment was still or her disease was still active, we did an MRI scan of the leg that showed active inflammation. At that point, she was re-challenged with her Rituximab because of the progressive weakness but she did not show any improvement.

At that point, the patient was started on Acthar, the 80 units twice a week for 12 weeks. I didn’t have any ramping up or titration off. So, once the patient was done within 12 weeks that was stopped. The patient did very well with the Acthar therapy. It was given in conjunction with IVIG and the Imuran and after 12 weeks, she had a significant improvement in her strength.

So her strength went from a three out of five in many muscle groups, which means that she could barely go against gravity, to four plus out of five, which means almost normal, five out of five being normal. Her muscles enzymes which were elevated and are evidence of active muscle disease went from again being elevated at 800, down to normal at 100. So she had a very nice response to the Acthar.

Six months after that, she again began to experience muscle weakness. So during that six months, she was maintained on the IVIG and Imuran but I used the Acthar only for three months. I then tried another immunosuppressive agent called Tacrolimus for a six month period, but she had no improvement with that and if those of you are familiar with that drug, that’s a drug that has very severe side effects. So we stopped after six months.

The patient was then given a second course of Acthar therapy, this time 80 units once a week. After 12 weeks, the patient said she clearly felt better and her muscle strength was improved but she actually said herself, I just don’t feel as good as I did when I was taking the medication twice a week.

And therefore I increased the medication to 80 units twice a week. She is now been on that for I think at this point, nine months and basically back to normal strength. She has just a mild degree of weakness in her proximal leg. But she’s back to work; she is walking normally and doing all of her activities of daily living. We followed monthly hemoglobin A1Cs on here and those have not changed at all. In fact they’ve they are very normal and her muscle enzymes have remained normal and again she's back to walking independently.

Don Bailey

Thank you Dr. Levine. I think that your review will be very helpful to our investors. I will now turn the call over to Steve Cartt, our Chief Operating Officer to talk about our current thinking regarding the potential commercial opportunity for Acthar and rheumatology as well as our initial commercial plans in this important new market. Then we will turn the call over to questions and Steve will moderate the Q&A session.

Steve Cartt

Thanks Don. Well, dermatomyositis and polymyositis are rather orphan neuromuscular disorders. The market opportunity for Acthar in DM, PM is significant due to the high unmet need that exists for additional treatments. It is estimated that there are about 66,000 DM and PM patients in the US. This is based upon the published prevalence rate of 21.5 cases per 100,000 population for all subtypes of dermatomyositis and polymyositis which is found in the key epidemiological study in DM, PM.

Findings from a separate survey that we commissioned involving 192 physicians that rate DM and PM support this estimate. Patients diagnosed with DM or PM are frequently treated with steroids but are often treated with other therapies such as cytotoxic agents, CellCept or Rituxan.

Our survey findings indicate that around 26,000 of the 66,000 total patients or about 40% either don't adequately respond to this currently used treatments or experience problematic side effects from these treatments or both. In this 40% of DM, PM patients, Acthar may represent a helpful additional treatment option based on the most frequently used dosing regimen at 80 units twice per week for 12 weeks; in Dr. Levine’s case series, we estimate approximately five vials of Acthar will be the typical requirement per patient. In Dr. Levine’s experience some patients may even require a longer treatment regimen.

Now I’ll discuss our initial commercialization plans for rheumatology. We’re going to initiate a pilot effort in rheumatology similar to the pilot programs that we conducted in MS in 2008 and in nephrology just last year. We plan to start the pilot rheumatology selling effort in mid-July with an initial focus on DM and PM. We have now hired a National Sales Director and two Regional Sales Managers and we are progressing rapidly in the hiring of 12 high caliber sales reps with significant rheumatology experience.

This dedicated team will educate rheumatologists about Acthar as well as go through the process of learning replicate for us to be successful with Acthar in this market. Just like the pilot effort with five sales reps in nephrology last year, this pilot effort in rheumatology is designed to assess the level on demand and to fine-tune our sales messages and overall commercial plans. We will evaluate the results from this pilot effort over two to three quarters and then consider the potential to build a full rheumatology sales force for DM-PM and our other rheumatology indications.

While this pilot clearly has similarities to last year’s nephrology pilot selling effort which succeeded very quickly, there are important differences. With nephrology, we have been working with doctors for nearly three years before we began the pilot commercial effort. In rheumatology, it’s only been a few months so far, so we are at a much earlier stage of developing this market.

In addition of the pilot rheumatology selling effort, over the coming months we will be evaluating the potential rollout in late 2012 of a DM-PM selling effort by Questcor’s current neurology sales force to 1,000 neurologists specializing in neuromuscular disease. It is worth noting that our neurology reps already call on some of the same neurology practices.

Furthermore, Questcor will support creation of a patient registry to help fill the database of experience for Acthar in the treatment of DM-PM. And we are also actively working to help gather clinical data with Acthar in the other on-label rheumatology indications including lupus rheumatoid arthritis and psoriatic arthritis.

While DM-PM will be the initial focus of our pilot rheumatology sales force, we believe that with Acthar also being FDA approved for the treatment of lupus RA and psoriatic arthritis a total of five Acthar indications related to rheumatology could become commercially viable within the next 24 months as we gather data and gain experience selling in the rheumatology market. Each of these five FDA approved on-label Acthar indications appear to have strong revenue potential due to high unmet medical need. The commercialization of each of these indications has the potential to make a meaningful financial contribution to Questcor and add to shareholder value.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from David Amsellem of Piper Jaffray. Your line is now open.

David Amsellem - Piper Jaffray

Thanks. I have a couple of questions, one for Dr. Levine and one for Don; I’ll start with my question for Dr. Levine. You mentioned in the case you were discussing that (inaudible) as immunosuppressant that you used. I was wondering if you had experience with other immunosuppressants like CellCept and in fact (inaudible) in this setting and are those agents effective at all; what kind of toxicity profile do those agents have; in other words are there other immunosuppressants you haven’t tried that could be used ahead of Acthar? Thanks.

Dr. Todd Levine

Sure. The answer is that because there isn’t a really a go-to drug after typical corticosteroids that the rheumatology and neurology community use every immunosuppressant that we have available. And what’s really lacking is some type of good treatment algorithm from where to start. So yes, I absolutely use Imuran, CellCept, Cyclosporine basically anything you could name, we all tend to use. It’s difficult again, because we just don’t really know which is better or worse.

Most of the immunosuppressants do weaken the person’s immune system and so you have a risk of infection and other complications from that; most of them get metabolized through the kidney and the liver, so drugs like Cyclosporine you have to follow blood test very frequently to make sure that you are not getting a patient toxic on it.

If patients have preexisting kidney or liver disease then they are not medications that you can use in that setting. But yes, we do use basically the host of immunosuppressant drugs at times and I think what’s missing is really trying to understand which is the most effective and what order they should be used in.

David Amsellem - Piper Jaffray

My question for Don is you talked about lupus in the past; you didn’t really mention it prominently here. I guess the question here is can you comment more on your plan on lupus going forward and I guess more specifically, given the growing use of nephrotics in nephrotic syndrome does it stand to reason that you would explore lupus nephritis as a core expansion opportunity especially if there is evidence that emerges, more evidence that emerges at Acthar you know could have a kidney protective effect; what are your thoughts there?

Don Bailey

Well, we definitely still view lupus as a high potential opportunity for Acthar and we’ll be pursuing that and I’ll let Steve give a little bit more color in just a second and the same with lupus nephritis. That’s definitely square, again at crosshairs of our activity. So Steve, can you give just a little more color on what this is?

Steve Cartt

Yeah so, we’re definitely interested as Don said in lupus, and we’re in the process of working together data there. But as we’re involved and working to do so, we came across Dr. Levine, we’re talking to him about some other things. And at that point he mentioned then using Acthar with nice success in DM-PM and had data in there.

So that was very and we really hadn’t initially been looking at as closely, but when he shared his findings from his case series with this a few months ago, we got very, very excited and effectively DM-PM has leapfrogged over lupus. Lupus is still very interesting to us. We’re still actively working to gather data, but this has just moved the timeline up given that we actually had some data on hand that we just didn’t know it yet in DM-PM.

Don Bailey

So this pilot sales force, this 12 people, they would be pursuing PM-DM and lupus and any of the other on-label conditions.

Operator

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

Mario Corso - Caris & Company

Yeah, thanks very much for taking my question. I also have one for Dr. Levine and then one for either Don or Steve. In terms of the myositis question for Dr. Levine, now kind of having a body of data in a handful of patients and when you think about rheumatologists out there, how do you see them using Acthar in an algorithm now; is it something that you think they will be trying you know post to the initial steroid regimen? And I guess interestingly also, maybe you are surprised by the fact that Acthar was effective on top of a maintenance regimen of steroids.

And then secondarily for either Don or Steve, so when we think about other indications, do you have a sense of what will be next after myositis, is it lupus, is it RA, just wondering if you have a good kind of time order sequence of things right now? And then the 12 reps, I assume will be marketing from myositis and as well will they be actively mentioning the label and lupus and rheumatoid arthritis at the outset? Thanks a lot.

Don Bailey

Yeah thanks Mario. Let me answer kind of commercial questions then I’ll hand it over to Dr. Levine to comment. So as far as other indications, what's next step in DM-PM, you know we have lupus, RA and psoriatic arthritis really clearly in our crosshairs. There are all of course FDA approved on-label indications for Acthar right now. We are in the process, like in lupus we are in the process with RA and psoriatic arthritis to land a plan and pull some data together to actually gather some patient experience with Acthar in those conditions and specifically in the target top type of patient population in each of those where we think Acthar can really play an important role.

So those three are really next DM, PM we have a small set of data. We will be looking to collect more data through support of the patient registry for Acthar and DM and PM and so I would expect like I mentioned earlier on the call over the next couple of years, we are going to be collecting data in all four or actually all five of these indications and as we get data and some experience in the clinic we'll be rolling them out one by one to our sales force.

Dr. Todd Levine

Yeah and this is Todd Levine again. So I think the algorithm is an excellent question actually both of your questions are excellent questions. I think that everyone will start with corticosteroids, so there is the indication for corticosteroids that’s what we have done traditionally for decades now. So I think that Acthar certainly doesn’t come before the use of traditional corticosteroids.

I think the question that comes after that where does it fall is it second, third or fourth and you know like with most new therapies and like with the patients that I published in the paper, we have something new intend to start fourth or fifth down the list but then as people become more familiar with it and more comfortable with it, it starts to move forward.

I think one of the things that is interesting to me is just as we have begun to talk to some of the doctors around the country, everybody has a few of these very refractory patients sitting around and they just don’t have anything really to offer them, and so that’s what we really want to capture in the registries.

So I think as those patients are treated and if the data bears out what the few patients have shown and it’s effective I think it will slowly move up in the order. The other nice thing obviously is that it has physicians become aware of the fact that Acthar has the indication for PM and DM, it’s also a lot easier to get it covered by insurance companies and some of these other equally expensive therapies like IVIG.

And then the second part of your question is very interesting and I think it speaks to the fact that several of these patients were on corticosteroids and still responded to Acthar and what that really kind of starts to speak to is the fact that there may be mechanisms that are anti-inflammatory in the Acthar product that are separate from just promoting corticosteroid production in the patients.

So either the other products contained in there like [MSH] or maybe other anti-inflammatory mechanisms that we are not quite aware of but it does speak to the fact that even in traditional corticosteroids resistant patients Acthar still showed the benefits.

Operator

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

Chris Holterhoff - Oppenheimer

Just a couple of commercial questions on my end; just wondering how many of the 26,000 DM,PM patients that you state are potential candidates for Acthar that you think you can reach with your pilot effort and what sort of metrics you will be looking at to decide whether or not to expand the rheumatology sales force?

Steve Cartt

Well, this is definitely going to be a learning exercise much like the nephrotic syndrome, pilot effort was learning exercise in the first half of last year. So part of what we will be learning is to know how many reps we will actually need to cover the target audience in DM-PM and we‘ll get some feel for that with this first group of 12 so hard to tell upfront how many of those DM-PM patients, 12 reps and the doctors that treat them will be able to cover overall.

We are planning to learn that as we go. It’s going to be a relatively small portion obviously, 12 people across the entire country will leave, you know the vast majority of the doctors uncovered by our sales force but we will learn a lot in the pilot and if we do reach a point over the first two or three quarters that we think based on the revenue generation of these 12 reps that we want to expand, we are very confident based on our past history in MS and NS we can do that pretty quickly.

Chris Holterhoff - Oppenheimer

Okay. And then just as a follow-up just wondering what your preliminary thoughts on how many reps you might move from the MS effort to the rheumatology effort and then if we should read anything into this about your thoughts on your ongoing effort in MS?

Steve Cartt

Yeah, I doubt we would move any MS reps over to a pure rheumatology effort you know we had one or two reps moved to nephrology from MS but the vast majority stayed on MS. We may have one or two moved from MS eventually if we do expand and build a full sales force but we will be hiring new rheumatology experienced reps.

If we do expand and build a full rheumatology sales force now having said that we've identified that there are probably about a 1,000 neuromuscular specialists in neurology and our reps are currently calling in a lot of those same offices you know there's clearly going to be a few 100 that they are not currently calling on. So we would expect if things go well in this pilot over the next few quarters that we could roll out that 1,000 neurologist target audience to our current neurology sales force pretty easily.

Chris Holterhoff - Oppenheimer

So there wouldn't be any diminution of the MS effort. It would just be as long as the reps in that office call on the neuromuscular people too?

Steve Cartt

There's some overlap between MS and neuromuscular specialist so Dr. Levine is an example of that and then you see other practices where one of the doctors may be the physician in the group that specializing in that and then his colleague down the hall could be specialist in neuromuscular disease. So getting to those offices with our current neurology sales force really well will it take much of anytime away from the MS effort since they are already in the same local.

Operator

Our next question comes from Tim Chiang of CRT Capital. Your line is now open.

Tim Chiang - CRT Capital

Dr. Levine, I had a question for you certainly the case report looks very compelling. I wanted to ask you given all the different treatments that you have been using how much does cost play a role in what you decide to treat these DM, PM patients? What do you think insurers will give physicians any sort of resistance given the fact where Acthar sort of is priced at today?

Dr. Todd Levine

Yeah, so you always try to balance obviously the cost with the efficacy and then with the side effects. So, in the extreme Prednisone is they are cheap, Acthar is very expensive so that’s an extreme example of the difference between those two, but I think really you are talking about that population of patients that don’t respond to corticosteroids.

Once you are past that population a very typical standard option for people to use these days is intravenous gamma globulin and if you look at kind of the yearly expense of keeping somebody on IVIG with the yearly expense of keeping somebody on Acthar, it’s really about the same ballpark.

And then second part has been somewhat surprising to me, so I would certainly had that concern and wondered whether insurance companies would really bulk at the idea of me putting these requests through. I think now I’ve either treated seven or eight and all of them go through incredibly simply. So the fact that you have a drug in Acthar that has the FDA indication and the fact that you go to the insurance company after they failed couple or three different treatment options has actually made it very straightforward to get it approved, and in terms of patient co-pays, I’ve heard no complaints.

So I think that that’s going very well too. So I don’t think the cost is out of the ballpark of what they would get if they got IVIG or a year-long course of (inaudible) or something like that with all the infusion expenses.

Tim Chiang - CRT Capital

That’s really helpful doctor, maybe just one follow-up. How difficult is it to diagnose these patients with DM, PM would you say? I know the company is basically given a target, estimated target population around 26,000 patients in the US. Is this some very well understood disease by rheumatologists would you say?

Dr. Todd Levine

Well, there are certainly misdiagnosis, and I am sort of a referral center here in Phoenix and I certainly see a number of patients that are misdiagnosed, you know, not diagnosed or over diagnosed when they don’t really have it.

One of the nice things about these two diseases is that in essence, outside of the progressive weakness and the blood test that we use, you really do a muscle biopsy and the muscle biopsy is the way we make the diagnosis. So if you got a patient with progressive weakness, in most hand, in most neurology and rheumatology, the patient will end up having a muscle biopsy. The muscle biopsy will be evaluated and say, this is PM or this is DM and therefore you have the diagnosis.

So it’s not that misdiagnosis can’t happen but you got a relatively straightforward test in the muscle biopsy that allows you to know that that’s what a patient has. So, it’s not a big problem and I think most of these patients are identified.

Operator

Thank you. Our next question comes from Yale Jen of ROTH Capital. Your line is now open.

Yale Jen - ROTH Capital

Thank you for taking the questions and again I have two for each Dr. Levine and then Don. For Dr. Levine I would just like to get a sense of the other four patients that you published in the article that could you give a little bit summary in terms of the overall compared to the case you presented this afternoon?

Dr. Todd Levine

Yeah, so in essence it's pretty representative; so most of the patients have the disease for several years. And one of the things that happens with this disease and we’ll be interesting to see what happens with Acthar is that patients can be relatively stable for a year or two and then have kind of an exacerbation where things get worse.

So the majority of the patients were patients that had gotten several different treatment options almost all got corticosteroids or intolerant of corticosteroids. A majority got IVIG; the majority got some other immunosuppressive agent like the CellCept, or cyclosporine or Imuran. So really the patients were very refractory patients.

And then in all of the patients again, because we were trying something that's a little different, the patients really had significant weakness that was making it difficult to walk or do their normal activities and in all five of the patients they really had marked improvement. In most of the patients, so this patient is the only one that's gotten really extended therapy. So in four of the five patients, after the 12 week the disease was able to be treated with what they were on beforehand.

So basically we kind of suppressed the remission, got the disease back under control and then they were able to coast on their previous therapy. This one patient who is a very difficult one coasted for about six months and got worse again and then when we gave her the Acthar again she actually liked it so much really she was the one that said she wanted to stay on it and although I was a little concerned about it, we followed her closely and she has done fantastic now for nine months and I don’t really have any plans to stop it as long as she continues to do well.

Yale Jen - ROTH Capital

Okay, great thank you. And a question for Don is that, was there any other study ongoing at this moment regarding DM-PM as well as other indication studies you may talk about?

Don Bailey

Well, the main key here with DM-PM is going to be the registry; Steve, you want to talk about just briefly a couple of times about the registry?

Steve Cartt

Yeah, so Yale, this will be basically capturing data from physicians that begin treating patients with either DM-PM as we go forward and then we’ll build that database of experience and it’s likely like most registries to be a variety of patients you know probably a lot of them on the dosage form that Dr. Levine has used, but other doctors may experiment; want to see how that overall how that goes and the data we collect overtime we would expect to do some analysis as we go on these registries going forward and collect data overtime from a variety of docs.

Now we have had not just Dr. Levine, but several other physicians who are experts in this field involved to our Advisory Board in developing the registry and designing of that and that’s something that we’ll actively supporting going forward.

As far as the other conditions, at the moment we are not planning an additional DM-PM study; we are just looking at the registry. In lupus, we moved quite far along and we are in a process of getting a study in lupus, where it’s going and we are just at the very beginning in RA and psoriatic arthritis to get something similar. So fortunately these are not going to be long-term multiyear trials or treatment of flare situations in each of these diseases. And we are going to be looking at collecting data over the next 18 months. Hopefully, we can get the lupus one enrolling quickly and complete it as fast as we can.

Operator

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

Biren Amin - Jefferies

I guess first for Dr. Levine; I read through the K series study that you published and I see that two of your patients were refused reimbursement; one specifically for methylprednisolone and other for Rituxan. Can you discuss I guess the reasons why insurers denied reimbursement for both of these patients?

Dr. Todd Levine

So I mean it’s actually kind of a funny story. The reason is that Rituximab and solumedrol don't have an FDA indication. So actually I had a patient who was doing well on post solumedrol and was a Medicare patient and even though post solumedrol is pretty darn cheap they actually denied payment for the solumedrol.

And since again I had a sense that Acthar was working in these patients and had the indication, I actually wrote to them and said Acthar is going to cost you a lot more money unless you approve the solumedrol and they didn't want to approve it and so we were able to get the patients on Acthar and she had done actually better than she was doing on the solumedrol. I just saw her this week actually.

And the same goes for Rituximab; so I was involved in the very large Rituximab study which unfortunately is not published yet, but has been presented already and although most of us that do a lot of poly and dermatomyositis feel that Rituximab is a good treatment option for these patient as you can tell because I used it so often on these patients. The study did not show that it was any better than placebo; and my concern and a lot of people’s concern is that with that the insurance company is actually going to make it more difficult to get Rituximab pay for it.

And then, in the last two years we used to use a lot of intravenous gamma globulin for these patients both with poly and dermatomyositis, but two years ago Medicare actually removed polymyositis as a covered indication for IVIG, so they still allow it for dermatomyositis, but not for polymyositis. So I think again speaking to Steve and Don’s point there is a real big unmet need and as we know the insurance companies all rely on a labeled indication to make it easy for us to prescribe these drugs and so it’s been nice with that as far as it does have the label.

Biren Amin - Jefferies

And I guess as a follow-up to your comments, do you believe that insurers may at some point push back on your Acthar prescribing given that although it does have on-label indication, there is a very limited clinical data available?

Steve Cartt

Biren, this is Steve, let me take that one. It’s hard to kind of speculate going forward, but what we can base some speculation of what we have seen in our other areas in MS and the product syndrome, with MS overtime we have seen increased requirements with prescribing; we’ve seen a little bit higher PA rate; sometimes you require letters of medical necessity and that kind of thing. But as they add some additional scrutiny overtime, we tend to get better and better in providing the documentation as needed.

In the product syndrome, because there are so few treatment options we haven’t really seen that yet, we got very good insurance coverage; the fact that it’s on-label is really helping; it’s very, very hard for the insurance company to mandate use of an off-label drug prior to use of an available on-label drug. So haven’t really seen any issue there. So we can only base what might happen with DM-PM and what we’ve seen in the past and worst case, we get a little bit more scrutiny and we just have to provide additional documentation, but we’re not sure that may not even happen.

Biren Amin - Jefferies

And I guess a question for Don; you conducted a survey across a 192 physicians. Could you maybe share with us how many patients are treated by these 192 physicians and did you receive feedback on how Acthar would be perceived versus other therapies in the survey?

Don Bailey

Yeah Biren, it’s a good question. I don’t know at the top of my head those specific, the 192 docs, we would have to go back and do a calculation for you. But when we extrapolated to the full audience of rheumatologists and neurologists, then we came up with a number of 26,000 which is roughly 40% of the total patient population.

Biren Amin - Jefferies

These were then doctors that prescribed Acthar; just as doctors are prescribing, so you really want to know what portion of the market did those 192 represents?

Don Bailey

Yeah, I don’t have an answer for it. We can go back and calculate it. We haven’t done that.

Operator

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

Jim Molloy - ThinkEquity

Dr. Levine I had a question for you. I mean, can you talk a little bit about your experience in coming around to Acthar, the drug has been around for a while and it has indications for a while. Can you talk about how you came around to using it to the hurdles you had to get over and how that might apply to your colleagues as you go out and talking to?

Dr. Todd Levine

So my initial exposure to it obviously was in the multiple sclerosis arena; so I treat a fair number of MS patients and have used Acthar in those patients. Actually, my first experience outside of MS was treating a condition called vasculitis and that's another autoimmune disease, it was a patient that had not done well with solumedrol where I was looking for an alternative treatment and sort of had the analogy that I took from MS which was these patients don't respond to solumedrol, some of the patients respond to Acthar and tried it in that patients and patient did very well and was impressed with really the lack of side effects in that patient.

Once I have kind of taken into vasculitis then as I start to see a couple of these difficult patients with polymyositis and dermatomyositis it seems like a reasonable thing to try and you know the surprising thing to me and I think what will be the surprising thing as a sales force goes out there is that the drug has indication.

So it's kind of an interesting thing to see people say no, it doesn't and you know when you show them the label and it does. I think that there is a really good acceptance in the people that we have talked to so far and Steve mentioned the registry which I am helping kind of organize because we want to be in national registry, I really reached out to other doctors.

So we have got you know rheumatologists, the UCLA and neurologists at Harvard, the neurologists in San Francisco, the rheumatologists in Kansas all in major academic centers that are interested enough in trying to understand how Acthar works in these patients to really come on board as the steering committee for that registry.

So I think people obviously would like to see more data. I think the registry is a great way to get more data and we need to do that but again people are looking for better and better tolerated immunosuppressive drugs for his patients.

Steve Cartt

Jim, one thing its important here is that Dr. Levine decided to use Acthar without any input from us. In fact when that first prescription came in we had to really go look it up. Because we really, we were so focused on another things on the label and now that nephrotic syndrome and MS at the time we didn’t really, hadn’t really focused on it.

Jim Molloy - ThinkEquity

Perfect. Well my follow-up question that would be great, do you guys have you know the case studies to go or we just have the article to hand out as you go to the doctors trying to say here is your new options to try in refractory patients?

Steve Cartt

Well that -- I mean that the key is we will have obviously the package insert with the label indication on them and now we have some experience in actual live patients in a publication and that will give the reps something to really work with. It's very analogous to what we did in nephrotic syndrome early on.

Operator

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

Steve Yoo - Leerink Swann

Thanks for taking my question. One thing, the 26,000 patients that you point as the dreadful population, do they represent the really refractory patients that are similar to the five patients in the case study or is it just, those patients that don't respond to steroids?

Steve Cartt

Well I think in those patients in the case study, you probably characterize into some extent as train wreck fail basically everything. You know what we have seen in nephrotic syndrome is an analogy is that early on those of the types of patients who were treated with Acthar as time has gone on we have seen you know Acthar being moved up to earlier and earlier in the treatment spectrum that now we are seeing a lot of cases where that's been used in second lined or third lined is as opposed to fourth or fifth.

So those are particularly challenging patients that Dr. Levine treated and given the fact we saw some good results there, it could be used there initially and then moved up as time goes on. I would expect that will be the whole, how this scenario plays out overtime.

Don Bailey

The other thing that will happen, at least it has happened in MS because in MS steroids are used and in polymyositis, dermatomyositis steroids are used. You will have patients that are partial responders and in the beginning we generally see acceptance for those patients that have no response and gradually overtime the partial responders will get the drug and as Dr. Levine noted it’s not either or he was using the drugs together.

Steve Cartt

And the other thing to keep in mind with this condition is unlike MS who use IV steroids for three to five days in this particular condition there are on long-term steroid treatment for months or often for a lifetime so those side effects can build up and Dr. Levine you might want to comment what you see there too.

Dr. Todd Levine

Yeah, I think that’s a big difference between the poly and dermatomyositis patients from the MS patients is that in MS patients when you treat the relapse you do it just for five days, maybe sometimes 10 days. These patients require lifetime immunosuppression once they get poly and dermatomyositis. And so the balance that you have to run in terms of limiting their side effects and all the weight gain inducing diabetes and osteoporosis that patients get from corticosteroids becomes a long challenge to kind of managing these patients.

So I think even though the four of the five patients that I treated initially really only got the therapy for three months and then did better and I was able to kind of minimize their therapy, I think the question will be once this is rolled out in larger numbers and doctors start to use it how patients do want it for the long-term and whether you can get rid of some of their other immunosuppressive drugs with those side effects.

Steve Yoo - Leerink Swann

And I was also wondering how often you give these patients drugs; did these patients come in like once every three months, six months, just fixed kind of (inaudible) for that?

Steve Cartt

You mean like how often do they present for the first time that will see them as a new patients?

Steve Yoo - Leerink Swann

As follow-up, because I am just wondering not that this is available and people are thinking about using it, do these patients come in frequently because having all these adverse and for prior reasons or do they just come in on a maintenance basis very infrequently?

Dr. Todd Levine

I think unless somebody is doing particularly poorly most of them are usually seen about every three months so again because of the drugs that they are on, they require quite a lot of monitoring in terms of side effects both blood tests and physical exams and blood pressure and blood glucose and those kind of things.

So I think probably the furthest out they would be seen is about every three months. Obviously if the patient is doing worse then you may see them a little bit more frequently. One of the other interesting points about what I’ve seen with Acthar in these patients is that the response was relatively quick. So when you think about treating with drugs like CellCept, Imuran, cyclosporine, when I start patients on those drugs, I tell them it will take six to 12 months before we know if the drug is going to work.

Corticosteroids and IVIG1 tend to work very quickly and Acthar really seems to fall again in the initial patients anyway, it seems to fall within that very quick range. So they know they are better in four to six weeks. You can see them back at 12 weeks and they are clearly better and then you kind of move on from there.

Operator

Thank you. At this time we have only time for one more question from Bernard Horn of Polaris Capital. Your line is now open.

Bernard Horn - Polaris Capital

Yes, Dr. Levine just a couple of quick questions. I think one of them actually have been answered but just maybe you could comment on the peer review process and I guess I was curious if any other physicians who are peer reviewers actually had a chance to use this but it sounds like there was, that yours may have been the first prescription for this indication. And then I am just wondering if you've used ACTH on its own as kind of a first line treatment or without any of these other backup therapies?

Dr. Todd Levine

So the answer to the second question is I have not used Acthar by itself in any of the patients that I have treated so far. The peer review process you never get to know actually who the people are that review the paper, so the answer is I don’t know whether they have used it or not. My guess is as you have said that probably not.

I think through the company I heard that there are now some other doctors that are prescribing it other than myself so I am not now the only one. My fine little story about the peer review process is that the first time the paper was submitted one of the reviewers actually wrote back and said that clearly I was misleading the public because I said that Acthar had the indication for poly and dermatomyositis and he knew that it didn’t, which absolutely cracks me up and I had to actually send back the package and send to the reviewer and said I would really like you to educate your reviewer and it took me 30 seconds to Google indications for Acthar and find out that might this drug does have the indication and rather than imputing my integrity it would have been nice if he did a little bit of research.

So it’s interesting again, I think that there is a huge educational opportunity because even the so called experts are reviewing my paper don’t know this drug has the indication. So they are not really thinking about it yet and I think as the word gets out again there will be both educational and hopefully insightful as we collect the data as part of the registry.

Bernard Horn - Polaris Capital

So any comments on whether you think ACTH might work on its own?

Dr. Todd Levine

I don’t know is a good answer. As we kind of heard before I think the earlier you use any drug in the treatment algorithm, the more likely it is to work. So, if this was the first drug used before corticosteroids my impression is yes they would probably work better than if its eighth drug used.

But when you start on a new therapy it’s going to fall later in that course and then I think as Don pointed out you go from treating the complete non-responders to the partial responders and then maybe even early in the treatment options. So, it’s completely speculative but I think it would work by itself. I think it will just take a little while before physicians will start to use it that way.

Don Bailey

Thanks, everybody for calling in. It’s been very helpful to have Dr. Todd Levine here. I want to thank him for taking time to answer your questions. We will be certainly eager to report you our progress although we would just to set expectations. We would expect to ramp up here in rheumatology to go much slower than we did in either MS or nephrology because we’re entering the commercial environment much sooner than we get in this case. So, but we will as we have been, with the other, with everything else we do. We will be transparent; we’ll tell you how it’s going. Thank you very much and good bye.

Operator

Ladies and gentlemen, this conference will be available for replay after 7:30 Eastern Standard Time today through June 24, 2012. You may access the replay by dialing 1855-859-2056 or 404-537-3406 and entering the access code, 88310576. Thank you for participating in today’s conference. This concludes today’s program and you may all disconnect. Everyone have a great day.

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