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Executives

Louis Ferrari – President and Chief Executive Officer

Richard Crowley – EVP, Biopharmaceutical Operations

Philip Yachmetz – SVP, General Counsel

Kenneth Bahrt – SVP, Chief Medical Officer

David Gionco – Chief Accounting Officer

Analysts

Eric Schmidt – Cowen and Company

Cory Kasimov – JP Morgan

Katherine Xu – William Blair

David Krempa – Morning Star

Tazeen Ahmad – Bank of America

Rahul Jasuja – Noble Financial

Carol Werther – Summer Street Research

Heather Behanna – JMP Securities

Savient Pharmaceuticals, Inc. (SVNT) Q2 2012 Earnings Call August 8, 2012 9:00 AM ET

Operator

Good day ladies and gentlemen, and thank you for standing by. Welcome to the Savient Pharmaceuticals second quarter 2012 financial results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder this conference will be recorded.

I would now like to introduce your host for today, Mr. Philip Yachmetz, Senior Vice President and General Counsel for Savient Pharmaceuticals. Sir, please begin.

Philip Yachmetz

Thank you and good morning. Welcome to Savient Pharmaceuticals second quarter 2012 financial results conference call. This morning we issued a press release providing financial results and highlights for the second quarter of 2012. The press release is available on our website at www.savient.com.

Before today’s call, I would like to read our Safe Harbor statement. Comments made during this conference call will contain forward-looking statements that involve risks and uncertainties regarding the operations and future results of Savient Pharmaceuticals.

In particular, we need to stress that when we discuss information regarding the status of our KRYSTEXXA and marketing efforts, and additional plans related there too, market demand and reimbursement for KRYSTEXXA, our review of the refractory chronic gout or RCG market size, our beliefs with respect to the ability to gain and maintain market acceptance of KRYSTEXXA by physicians, patients, healthcare payers and others in the medical community, our marketing authorization application or MAA pending before the European medicines agency and our intended pursuit of expanded clinical utility for KRYSTEXXA. No inference of overall success of these matters can be implied as they are subject to a number of risks and uncertainties.

We encourage you to review our press release dated August 8, 2012 and our company’s filings with the Securities and Exchange Commission including without limitation, our Form 10-Q which will be filed on or before November 9, 2012. Each of these contains important factors that may cause actual results or events to differ materially from those described in the forward-looking statements.

Furthermore, the contents of this conference call contains time sensitive information that is accurate only as of the date of this live broadcast August 8, 2012. We undertake no obligation to revise or update our statements to reflect events or circumstances that occur after the date and time of this call.

Joining me on the call this morning with prepared remarks are Lou Ferrari, our President and Chief Executive Officer, Ken Bahrt, our Senior Vice President and Chief Medical Officer, and David Gionco, Group Vice President and Chief Accounting Officer.

At this time I would like to turn the call over to Lou Ferrari.

Louis Ferrari

Thank you, Philip, and thank you for joining us this morning. On today’s call, we will discuss our second quarter 2012 financial results and share some important steps we have taken this quarter to ensure the future success of KRYSTEXXA both in the US and globally.

As many of you know, I’ve been working with the board and our management team on executing our plans to position the company for future growth. I am pleased with our recent progress. For the sixth consecutive quarter we achieved sequential sales growth for KRYSTEXXA.

I believe the results achieved this quarter which include a 30% increase in KRYSTEXXA sales from the previous quarter illustrate that our strategy is taking hold. We’ve build the solid foundation for KRYSTEXXA and we are continuing to execute on our main objectives to drive sustainable results and build long term shareholder value through our targeted approach for growing new accounts and building upon existing accounts.

The success of our KPIP program. Our continued focus on communicating the benefits of KRYSTEXXA as a one of a kind treatment for the RCG population, and our successful execution of our clinical development plan to highlight significant clinical data and pursue publication opportunities.

We are similarly focused in Europe, where we continue to work with the European regulatory bodies to achieve approval in the EU and engage in an active process with potential partners to market prospects in the EU and rest of the world.

Now, I would like to go through the specifics of the results of the quarter.

In the second quarter, we continue to make steady progress in the commercialization of KRYSTEXXA and build on the momentum that we established at the end of the first quarter. During the second quarter, we achieved $4 million in net trade sales of KRYSTEXXA which represented a 30% growth compared to last quarter.

We also added 143 new accounts in the quarter, bringing the total number of accounts that have bought KRYSTEXXA to 677. Shortly after the quarter ended, we announced a companywide reorganization plan that will reduce our workforce by approximately 35% effective in early September of this year.

We have taken steps to right size our field sales organization to a team of 38 key account managers and three region business directors, all of whom are highly experienced with KRYSTEXXA and are now able to handle manage care and reimbursement increase.

Given what we know about the market and based on 17 months of experience, we believe that this is an appropriately sized structure for our field organization. With the majority of our patients being treated by rheumatologists and nephrologists, our value structure allows us to continue to maintain our presence in a more efficient manner in these critical markets without sacrificing frequency and service to our key customers.

We have placed a strong emphasis this year on educating physicians about KRYSTEXXA. Our speaker programs now total more than 350 programs, a 104 of which were conducted during the second quarter, reaching approximately 3300 healthcare professionals to-date. These speaker programs continue to address our most important priorities, which are educating physicians about RCG and KRYSTEXXA, continuing to raise awareness about the condition, helping physicians identify where to incorporate KRYSTEXXA into the treatment paradigm.

Based on these efforts, our market research shows that our educational programs are paying off and awareness has grown. In fact, our research indicates awareness of KRYSTEXXA among rheumatologists has nearly doubled from levels we saw one year ago. The KRYSTEXXA Patient Initiation Program or KPIP continues to be an important tool in helping drive the patient and physician experience. This important program offers first time patients the first two doses for free. Through this program we have seen at least 50% of these patients convert to commercial product by the third dose. Given its strong acceptance rate and success, we are continuing to take this program as part of an ongoing commercial strategy.

We also remain committed to our Check Out Your Gout campaign, which continues to raise awareness of RCG and drive patient flow. During the second quarter, the total number of institutions where KRYSTEXXA is either on formulary or stocked including the VA grew to 97, representing 14% growth in the number of institutions from the first quarter.

KRYSTEXXA is also pending review at five additional institutions and we will continue to remain focused on this important market segment.

In keeping with our strategy to increase the breadth and depth of our presence in institutions and accounts where KRYSTEXXA is already available, we are increasing our activities which are focused on patient education and driving patients into the rheumatologist office.

Given our experience in the market over the last 17 months, we have better insight into where RCG patients are being diagnosed and treated. The vast majority of these patients are treated by rheumatologists, while a smaller but significant patient population is also treated by nephrologists. We will continue to serve primary care physicians who we know refer patients to rheumatologists for the treatment with KRYSTEXXA.

I would now like to turn the call over to David Gionco who will go through our financial results in more detail, David?

David Gionco

Thank you Lou and good morning everyone. I would like to spend a few minutes reviewing our second quarter 2012 results. I will focus my comments only on our quarter-over-quarter results. Total revenue for the second quarter grew 30% to $4.6 million compared to $3.5 million in the previous quarter. As Lou discussed, KRYSTEXXA sales increased to $4 million as compared to $3.1 million in the previous quarter as a result of the continued sales momentum of KRYSTEXXA.

We expect KRYSTEXXA sales to increase in future periods as we further our marketing and promotion efforts associated with the commercialization of KRYSTEXXA.

Cost of goods sold expense increased $5.7 million to $6.7 million from $1 million in the previous quarter. During the second quarter we recorded a $4.9 million non-cash charge against operations primarily related to raw material and KRYSTEXXA in process in finished goods inventory that we do not believe we will be able to sell through prior to expiration.

We did not have a similar charge in the first quarter of 2012. We expect cost of goods sold as a percentage of sales to trend down to approximately 20% or lower over time. Research and development expenses decreased $500,000 or 7% to $6.7 million from $7.2 million in the previous quarter.

The decrease is primarily due to the timing of expenses associated with our post FDA approval clinical studies for KRYSTEXXA. We are unable to provide guidance on our future research and development expenditure. However, our spending will be driven by the execution of our clinical development program, which Dr. Bahrt will be discussing shortly.

Selling, general and administrative expenses increased by $1.9 million or 8% to $26.2 million for the quarter ended June 30, 2012 primarily due to increased selling and marketing expenses associated with our marketing and commercialization efforts for KRYSTEXXA.

On a forward-looking basis we expect our selling, general and administrative costs will trend lower for the remainder of the year. Interest expense for the quarter was $5.6 million which represents cash interest of $2.6 million on our 2018 convertible notes and new 2019 notes. With the remaining of the expense representing non-cash accretion related to the notes.

We ended the quarter with approximately a $142 million in cash and short term investments compared with a $131 million in the prior quarter, an increase of $11 million. As you know early in the second quarter we entered into definitive financing and debt restructuring agreements with referred holders of our 2018 convertible notes. Under the terms of these agreements we received approximately $43 million in net cash proceeds. We also recorded a non-cash gain of approximately $21.8 million during the second quarter as a result of exchanging a significant portion of our 2018 convertible notes for 2019 notes that were issued at a discount.

With our current cash levels and our cost containment activities, we believe that our cash and short term investments are sufficient to fund our operations for at least the next two years.

On July 9, 2012 we initiated a reorganization plan to better align our operations and budget. This plan includes organizational changes designed to improve our operational efficiencies while ensuring continued focus on the commercialization of KRYSTEXXA and the advancement of our clinical programs. As part of this initiative we decreased our work force by approximately 35%.

Our reorganization plan is expected to save approximately $54 million in annual operating expenses by 2013 as compared to our actual annualized June year-to-date 2012 operating expenses if you exclude the $4.9 million non-cash charge to cost of goods sold recorded in the second quarter.

After implementing this plan we expect an improvement in our cash run rate in the future and we will continue to look at additional options to reduce our cost structure to contain expenses on a go forward basis.

Now, I would like to turn the call over to Ken Bahrt, our Chief Medical Officer. Ken?

Kenneth Bahrt

Thank you David and good morning. I’d like to provide you with an update on the significant progress that has been made on the clinical front over the past quarter. First I would like to update you on one of our key strategic pillars, the clinical development plan or CDP that I presented earlier this year.

The study of KRYSTEXXA in dialysis patients is very close to starting and we continue to expect study completion and data availability by the second half of 2013. A significant amount of preliminary work has been accomplished on the induction maintenance study and we continue to expect this study to start in the first quarter of next year. To remind everyone the induction maintenance study looks to expand the use of KRYSTEXXA beyond the RCG population into the estimated 500,000 to 700,000 severe gout patients who have a significant tophus burden which may negatively impact their activities of daily living.

Many of these patients have lost the ability to do even the most basic of activities such as buttoning their shirt, grasping a fork or spoon, or even getting out of a chair to walk. While the use of current conventional and future gout therapy they reduce their serum uric acid. It would most likely take a significant amount of time, potentially years, to achieve a clinical outcome that would result in a reduction of tophus burden enough for them to gain meaningful improvement in their physical functioning.

KRYSTEXXA with its rapid effect on uric acid elimination would conceivably lower the tophus burden more rapidly thereby improving the patient’s physical functioning in a much shorter period of time. Also, by normalizing the serum uric acid and significantly reducing the tophus burden with a KRYSTEXXA induction, maintenance of these parameters with conventional oral ULTs can be more readily accomplished.

We also continue to work closely with outside immunology experts on the immunogenicity project which looks to lessen the immunogenicity of the molecule. We are on track to start a study early next year have been administrative method that may induce a state of tolerance to the molecule thereby potentially lowering antibody formation and lessening the likelihood of infusion reactions all the while improving response rates.

Savient had a significant presence at the European Union League Against Rheumatism or EULAR meeting this past June in Berlin. We had seven abstracts expected including one as an oral presentation. That oral presentation showed that RCG patients who also suffered from chronic renal diseases in stage 1 through 4 responded to treatment with KRYSTEXXA. We believe that this is an important finding as there are currently limited treatment options available for gout patients with significant renal disease.

Savient also expects to have a significant presence at this year’s American College of Rheumatology or ACR meeting in November in Washington DC. Last year, we were able to present new data highlighting the safety profile of KRYSTEXXA and the impact of inadequately controlled gout.

We look forward to capitalizing on this opportunity again this year. We have submitted a number of abstracts on KRYSTEXXA clinical data including data on the safety of KRYSTEXXA in a post marketing setting.

Significant progress has been made over the past quarter in the implementation of the new and aggressive publication plan. In April a review article on RCG and the use of Pegloticase was published in the International Journal of Rheumatology. More recently an appraisal of the role of Pegloticase in a management of gout was published on June 27 in an online publication Open Access Rheumatology research and review.

This paper is important as it is the first paper authored by a key European gout [inaudible]. Another key manuscript was published in the July issue of the Journal of Rheumatology demonstrating that patients treated with billion-weekly KRYSTEXXA experienced statistically significant and clinically meaningful improvements in health related quality of life. This is critical data for unlikely objective [inaudible] clinical trial KRYSTEXXA such as the lowering of serum uric acid.

The health, really a quality of life measurement look at the more subjective aspects such as reduction in pain or improvement in the patient’s quality of life. By discussing the benefits of KRYSTEXXA in this way, we are able to relate more directly with patients who are often more concerned with quality of life improvements than in the scientific benefits of the drug.

As I reported last quarter, we submitted the manuscript on the open label extension study to a major rheumatology journal. We have heard back from the reviewers of that journal, and we are hopeful for acceptance in the near future.

This will be the first time that this important data has been published and we look forward to highlighting this data which we believe will help expand the clinical applicability of KRYSTEXXA.

In Europe where there is no currently approved therapy for RCG. Our five regional medical scientists continue to call on RCG opinion leaders, and have now called on more than 100 of these leaders many of them on multiple occasions.

Since we last updated you, we have continued to [inaudible] update in the main patient program that we instituted in March, which we see as a strong indicator of the EU physicians growing interest in KRYSTEXXA.

In July, we decided to provide KRYSTEXXA free of charge to patients and physicians participating in this program, and we have seen an enthusiastic response. Finally, regarding EU approval our timeline hasn’t change. We will keep you updated as we receive more information from the CHMP.

I would now like to turn the call back over to Lou for closing remarks.

Louis Ferrari

Thanks Ken. As you can see we are confident that we have the right focus and strategy in place that will lead to the success of KRYSTEXXA and Savient in the future. We will continue to be focused on our key priorities. The continued commercialization of KRYSTEXXA in the US, the approval in the European community, A successful partnership to support the commercialization of KRYSTEXXA outside of the US, and the continued expansion of the clinical utility of KRYSTEXXA.

To support these objectives, we have implemented our reorganization plan and put cost control initiatives in place. These include a right sized sales force that will more efficiently and effectively reach physicians we treat patients afflicted by the severely debilitating condition, continue to advance in the EU regulatory review process, actively engaged in a process for potential partnering opportunities in Europe and the rest of the world, highlighting our commitment to the development and execution of our clinical development plan.

As we look out into the second half of 2012 we are very excited about our future and know that our priorities are squarely aligned with the pathway towards success and enhanced shareholder value.

We look forward to discussing our progress and future milestones with you which include the publication of additional significant data. The start of new clinical trials focused on expanding the utility of KRYSTEXXA, our EU approval and partnership opportunities. I want to thank you all again for taking the time to join us today and at this time I will open the call for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from Eric Schmidt from Cowen and Company.

Eric Schmidt – Cowen and Company

Good morning. Thanks for taking my questions. First on Europe, I think you have guided in the past to approval on the second half of the year. I don’t think there is a CHMT meetings scheduled for August, so it would seem likely that for you to make that time line you’d have to get a positive review in September, is that your expectation?

Louis Ferrari

I think we are still on track for the second half of the year approval, you’re right, but there is no meaning in August. We are looking forward to seeing what the scheduled meeting is with the CHMT. But at this point, we’re still on track for yearend approval. The only caveat I’ll put on that is that we’re working with a regulatory agency, and as you said as example they are not having meetings in August. So we still are on track for possible approval by the end of this year. And we’ll let you know, we’ll keep you informed as we hear anything new that comes up. But right now while you can never predict what these regulatory agencies will or will not do or how quickly they do them, I think that right now we have no reason to think that we won’t see an approval by the end of 2012.

Eric Schmidt – Cowen and Company

Okay. Thanks Lou. And is it your expectation you’d probably need the approval in order to just structure the ideal partnership.

Louis Ferrari

My opinion on that is not necessarily. I mean, you can structure your partnership with potential partners and of course, it could all be contingent upon the fact that you receive approval. So, I will say that we’ve had a number of interested parties that have come forward and are doing their due diligence, and we remain very active in the discussion part with these different parties.

Eric Schmidt – Cowen and Company

Okay. And then different line of questioning on R&D spending. Looks like about to start several new trials of KRYSTEXXA. Obviously you’re watching across carefully and you’ve just gone through what I am sure is a fairly painful restructure internally. Can you just outline for us a little bit more as to how you have been thinking about further investments in R&D which presumably have a longer term pay off versus your current cash burn rate and balance sheet strength.

David Gionco

Well, I mean I think the thing that I would reinforce here is that any of these savings as we mentioned in the call was approximately a $500,000 reduction in R&D costs. They do not influence as to when we would start the maintenance or the induction study. And it’s not influencing how quickly we will move forward with the dialysis, and of course the induction maintenance trial is a long term and will probably show results further down the line. But we would not be holding back on any of our spent as far as those very important if you will, and our immunogenicity trial also. We would not be holding back on any of those going forward. So I’ll let Ken Bahrt, if he wants to comment on any of that at this point we can jump in.

Kenneth Bahrt

No, I think we just took a very strategic and very targeted approach as to what trials we’re going to do and when we’re going to start, and how they’re going to pay off over time. So, we feel comfortable that we are going to have the resources to invest in the clinical development of this compound going forward.

Eric Schmidt – Cowen and Company

Okay. Last question just on inventory management, I guess you’ve had a couple of write downs historically is – obviously KRYSTEXXA haven’t been where you had hoped. What steps have you taken to right size the production side of the equation? Have you been able to renegotiate some of these supply agreements if you reduced through output.

Louis Ferrari

I’ll let Rick Crowley who is in charge of our manufacturing and regulatory speak on that for a moment.

Richard Crowley

So we’ve been working with our suppliers to right size our forward production plans to meet the demand. As you see in the financials we did have a write-down of some inventory that we have had build up over the past several years, but at this point moving forward we feel that correction we have to right size production and write agreements together to continued supply in the market.

Eric Schmidt – Cowen and Company

Thanks a lot.

Operator

Thank you. Your next question comes from Cory Kasimov from JP Morgan.

Cory Kasimov – JP Morgan

Just wondering if you had to identify one issue as being the main issue that’s perhaps preventing traction of the drug in the market. Would it be reimbursement dynamics, infusion reactions maybe pushback on price, locating patients I guess which variable do you think is the most preventing traction of the drug in the market.

David Gionco

Here is what I’ll say. On reimbursement, reimbursement has not been and continues to be a very favorable for KRYSTEXXA in the marketplace. Price is something that we continue to explore, I’ve said on previous calls that we believe there is elasticity to the price of KRYSTEXXA and we continue to look at that as to how we move forward. I don’t believe that there is – I think what you’re referring to is once the single biggest factor that’s influencing the traction, I have to go back and say that I believe that we are seeing some good steady growth with the product. The fact that we had 30% growth quarter-over-quarter if you were to compare that to many of the products that are on the market I think high double digit growth quarter-over-quarter is a good sign that we are seeing, good steady progress on the product.

I think that it’s actually going in the right direction right now. So, there is nothing on the safety of the product that we’ve seen that is outside of the label and we are publishing some information that shows that the drug is behaving and performing very well, when it’s come to the safety of the product there’ve been no surprises at all on the product. I think that the biggest issue that we continue to deal with is the education and awareness of the opportunity to treat this debilitating condition with these patients, I think the educational piece is something that we have to continue to focus on and continue to create the awareness of the product in the marketplace.

Cory Kasimov – JP Morgan

Okay. And then in terms of an inflection point in sales, I know I guess at one point in time that was identified to be now, the second quarter. Is there a new point in time that you would point to in the future that may be you think that would be kind of an inflection in the sales rather than steady growth?

David Gionco

Well I think we have said this a number of times, and that is that we believe in steady growth and that there will never be a hockey stick type of moment with the product. I think it’s steady growth that we have to continue to go forward with as what we would expect for the future sales of the product. I would also say that we are very encouraged to see that we had a 30% growth from $3.1 million net sales in Q1 to a $4 million sale in Q2, and we expect to see that type of growth continue because we are seeing all of the strategy and all of the pieces starting to take hold.

Cory Kasimov – JP Morgan

Okay. And then last question, just on the peer to peer education, I think that’s been identified in the past as a key aspect of raising awareness of the drug and the disease. Maybe I missed it in the introductory comments but could you provide an update just on how those programs are coming along and how important you still think they may be?

Louis Ferrari

Yes, actually we did mention it in the call. We have now reached 3300 healthcare professionals. We have conducted I think in the second quarter alone an additional 104 speaker programs, and to-date we’ve done probably 350 or a little bit more than 350 speaker programs. We think that it’s still key to be able to have other rheumatologists come out and have discussions with other rheumatologists and other healthcare professionals about the product. So we continue to do that. I think that that’s something that we believe has paid off very well for us when it’s come to the education and awareness of the product.

Operator

Thank you. Our next question comes from Katherine Xu from William Blair.

Katherine Xu – William Blair

Hi, good morning. So I'm just wondering about the trends that you are seeing in the field, is the sale growth primarily driven by increasing of accounts or you see increase of same-store sales at this moment?

Louis Ferrari

That’s a really good question. Actually it’s both. One of the things we have continued to focus on is breadth and depth. So we continue to expand our new accounts meaning – and that’s a very good sign we believe, because it shows that there are new physicians and new accounts that are signing on, and we consider a new account an account that is actually ordered and put a patient on the product.

So that’s very encouraging for us. We think that the KPIP program has paid off very well for us and that we are seeing 50 % of the patients that wind up to go on KPIP actually convert over to commercial product. So it is both, it’s breadth and depth, and what we have also seen in the marketplace is that once physicians see the result of the product on their patient, they are more apt to continue to find more patients and to put more patients on the product. So it’s breadth and depth, it’s not one or the other. We need these to be both.

Katherine Xu – William Blair

Right. And with regard to the 50% that did not convert on the KPIP, I'm just wondering, do you know what the reasons are? Do they already have antibodies by their second dose or they have some problems on safety or other aspects that they are not continuing?

Louis Ferrari

I mean, look if you even look at our label or if you even look at the phase III trial, you find that approximately half of those patients, let's say if they have a serum uric acid that’s been over six in the second consecutive blood test if you will, then that patient we recommend not go on KRYSTEXXA and we have actually found that with those guidelines implemented that the safety of the product is performing very well. So in all honesty it is part and parcel as to what could be expected in accordance with the label and the phase-3 trial.

Katherine Xu – William Blair

Okay. And what is the observed duration of treatment in practice now that you are a year and a half on the market? Do you have a sense?

Louis Ferrari

Well what we are seeing is that pretty much it’s behaving as we saw in the phase III trials, that it’s in that sort of range where we look at – we look at patients individually, and the reason why it’s a little difficult for us is because physicians pretty much treat to a goal they are not treating to a number of months. So if it takes longer to take someone’s tophus burden away, it could. It could be that patients are on it a little bit less. We will in future calls elaborate on that a little bit more as to what we think how long patients are actually staying on the product.

The other issue that we deal with is, there are some patients as you said earlier that go on and off the product fairly quickly, meaning they are non-responders. So it’s hard to – we have to pull those out before we can make a very clear call on exactly how long patients are staying on the product who are responders.

Katherine Xu – William Blair

Okay. Could you just give us a sense on what kind of breakeven point that you are looking at in terms of sales? When you get to a run rate of a certain number and I know you think you will start to breakeven – I mean that number.

David Gionco

Hi Katherine, this is David. Typically as you know we do not provide forward looking guidance on a issue like this. So we really cannot comment on this at this point.

Katherine Xu – William Blair

All right. And lastly on the pricing strategy, Lou you said previously may be this could be an interesting kind of pricing case, and you say you are going to look at the market again. What are the thoughts there on the detailed strategy that you are going to take going forward, just looking at the pricing and also U.S. versus Europe?

Louis Ferrari

Well, couple of things I will take a couple of pieces of the question. As you know on May 7th we took a 12% price increase, was received rather well in the market place. We continue to look at where that price can go on the future. Of course there are a lot of factors that go into what’s making a decision on price and the reimbursement is certainly one of them that we continue to look at. I can tell you that it is something that we monitor very closely and that we are continuing to evaluate going forward in the future.

The 12% price increase I would just say, if you look at what price increases look like in the industry it was probably in the neighborhood of about 3-4 times which you see is a normal price increase. So we just took that on May 7th and so as we monitored the market we will continue to look at that and see what elasticity is in the market place for us going forward.

As far as Europe goes actually the price in the United States versus the price in Europe, they rarely will ever take the price of the U.S. into consideration in terms of what they are going to look for and negotiate for, for the price in Europe. So actually there is probably little correlation as to what they are going to look at to negotiate with the price regardless of what we tried for the product here in the United States. I think that’s a separate negotiation. And we won't be able to comment on that until of course after we have approval and we have a price in Europe with nice. But I think it’s safe to say that that will be a separate negotiation and that determination will be made by the authorities in Europe. I can't speculate on what they might come back with the price here at this point.

Operator

Thank you. Our next question comes from David Krempa from Morning Star.

David Krempa – Morning Star

Hi. Thanks for taking the question. First one, if you look at that 677 accounts, even if each counts as one patient that should be producing about $10 million a quarter. Would you say the discrepancy is because of a lot of those kinds of discontinued treatment or just the high discounting with all the payments, plans, and what not.

Louis Ferrari

Well, what we do as we have taken our price increase, actually we protect the in-office infusion site from the price increase, because otherwise they would be on the water. The other thing I don’t know when your model is, how long you are predicting patients that are on or off the product and how many are staying on the product or continuing so. I couldn’t comment on the number that you are looking at on a quarter-to-quarter basis, but it would be impossible for me to do that.

David Krempa – Morning Star

Okay. I was just assuming you know $2200 in treatment and six treatments a quarter for those 677. But second question how confident are you that this growth can continue with the new and lower sales force?

Louis Ferrari

What we actually have been able to do as I mentioned in the call, we believe that the sales force is right sized. Obviously after 17 months of being on the market we know who the key accounts are. We know where the – if you will, geographically, the biggest utilization of KRYSTEXXA is. So actually what we expect there will be no fall off in terms of what we are seeing in terms of the sales of KRYSTEXXA. And the reason for that is that we have the people placed where they need to be placed.

Of course if you could realize there are parts in the country and there are parts that we have been calling on that in our opinion were non productive. So by reducing the size and – I think it’s also important to know that the cut back was not just in the field, it was across the entire company. And the fact that we have 38 cells represented in the field will not detract on the people that need to be seen for the product and I think we are well positioned now going forward in terms of a more focused effort. You could also imagine that after 17 months of being out on the market we know more or less who the accounts or physicians are that will or will not use the product.

David Krempa – Morning Star

Okay. And then would you be able to comment on how many of those 677 accounts are still currently have a patient on the treatment?

Louis Ferrari

There is no way I would comment on that or no there is no way I would know that right now.

David Krempa – Morning Star

Okay. Thanks for your answers.

Operator

Thank you. Now our next question comes from Tazeen Ahmad from Bank of America.

Tazeen Ahmad – Bank of America

Thanks for taking the question. Can you give us an idea of how the establishment of the permanent J Code affected the current quarter sales growth for you guys? And second question is, your initial market research indicated that there is probably a 170,000 or so patients that you think would be right for KRYSTEXXA treatments in the 17 months since it’s been on the market. Do you think that number is still the same or do you think that it could be smaller than that?

And then the last question is given your right sizing of your sales force, does that mean you have also changed your targeted doctors that you want your market to I think initially your numbers were about 4500 rheumatologists and about a 1000 nephrologists. Have those numbers changed?

Louis Ferrari

Okay. So I will take the first part first which was the J code. We believe the J code has had some influence on the uptake of the product because it alleviated any reimbursement concerns that physicians may have. I think that that certainly played a role in more acceptance or if you will in the increase in sales. I think that’s something that we continue to expect as people become more comfortable. It allays any fears that there will be reimburse for the product. Our market research recorded a number of a 170,000, a number that we have always put out in the field has been a 120,000.

We don’t have any reason to believe that that total number has changed, and where we believe those patient sit about the same amount sit in rheumatology and nephrology and of course there is a large amount that sit in primary care. But we don’t expect that that number of a 120,000 has changed at all.

As far as the sales force is concerned, our targets on rheumatology and nephrology remain the same. I think what you heard me say this morning is that what we will not do is we will not be distracted by other, if you will, specialty. So for a while we were calling on primary care physicians. We right now know which physicians are the referrers of RCG patients of that 1000 to rheumatologists. So obviously we have cut down on the number of primary care physicians that what will be calling on in the future. It’s probably a very small number. But we continue to maintain that our rheumatologists and nephrologists audience right now remains the same.

However, what we do know now and what we will be doing in the future is keep continuing to look. And we should be calling on in terms of those approximately 10,000 physicians. So there are approximately 4000 to 5000 or 4500 rheumatologists that we call on. And there were approximately 5000, not 1000, nephrologists that we call on. Obviously now that we have the experience we know who is more worthwhile calling on or not. And we continue to evaluate that on a weekly basis in the core plan. But right now the number still remains at 4500 and 5000. 4500 rooms and 5000 [inaudible].

Tazeen Ahmad – Bank of America

So can you give us a break down of – as far as sales so far from KRYSTEXXA what percentage come from rheumatologists and what percent from nephrologists?

David Gionco

I think it’s safe to say that the vast majority of sales comes from rheumatologists at this point.

Tazeen Ahmad – Bank of America

And do you plan on increasing your focus on nephrologists if that’s the case?

David Gionco

I think as more data comes out, but right now we are calling on what we feel is a fairly large number of nephrologists. I think in the United States you have somewhere in the neighborhood of 10,000 or 11,000 nephrologists. We are calling on about 50% of them that we know prescribe drugs or urate lowering therapy drugs. And that’s where we focus. Of course we look at that going forward and if there is any adjustments to be made on that called on universal we will be making it.

Operator

Thank you. Our next question come from Rahul Jasuja from Noble Financial.

Rahul Jasuja – Noble Financial

Good morning guys. A few questions here. Could you guys add a little more color on gout patients with renal disease. I think it was Ken who talked about that being a potential opportunity. Are these patients that have got sort of severe kidney disease or they have kidney stones, could you sort of add to that?

Louis Ferrari

I’ll let Ken talk about that. I’ll just say a couple of things. In our Phase III trials there were patients that had the CKD anywhere between Stages III and V that were on the trial and I will let him may be give you more of the percentages. They do suffer from RCG and the benefit with KRYSTEXXA is in those patients that at least we have some data to show where allopurinol cannot be used or cannot be used at a very effective dose that KRYSTEXXA can be used in and can be used to treat RCG in those patients. I will turn that over to Ken Bahrt and let him comment a little more on that.

Kenneth Bahrt

Yeah, so in our clinical trials over 50% of the patients had stage III or stage IV renal disease. So there is a significant amount of renal disease in patients with gout especially in the RCG population and the problem with the renal disease is that it’s difficult to give a dose of allopurinol that is effective at lowering serum uric acid and reducing the tophus burden and not interfering with renal function. It’s a very – very tight you know toxicity curve there that has to be monitored very – very closely and quite frankly a lot of rheumatologists don’t like to use at fuller dose of allopurinol if they possibly could in patients with renal disease. So it’s clearly an unmarked that’s either under treated or has significant treatment issues with the use of the conventional uric lowering therapies out there. KRYSTEXXA because it’s an enzyme and not necessarily interferes at all with renal function could be seen as a way of at least treating those patients so that we don’t get into issues with allopurinol toxicity or addressing allopurinol doses.

Analyst

Yes. So my question is relating to the fact or another fact. Are the potential for non RCG patients who have renal disease and who may be prescribed Febuxostat or allopurinol or maybe a uric specific agent who would then be not appropriate for that therapy. Is there a patient population that is not appropriate for that therapy that is amenable to KRYSTEXXA?

Kenneth Bahrt

Well, that’s an issue that we need to look at going forward in the future. But the first thing that we want to be able to show is that KRYSTEXXA is effective in those patients with higher stages of renal disease and especially those patients in stage five, which is dialysis, which is the current stage. Once we have that data available and shows that it does and is effective in those patient populations, then we can make the determination whether we want to go forward with future clinical trials looking specifically head-to-head versus Allopurinol and Febuxostat in a renal compromised population.

Rahul Jasuja – Noble Financial

And then Ken you mentioned about induced state of tolerance. Can you elaborate on that aspect? Would this mean some sort of a modification or some sort of an adjunct treatment?

Kenneth Bahrt

Basically we would try to induce a high zone tolerance where you give more of the agent and therefore prevent the trough levels from falling below a certain level where antibody formation would occur. And if you could do that and are successful, you would potentially blunt the antibody formation and potentially block it to a significant degree, which would also decrease the number of infusion reactions since the infusion reactions are tied to loss of response which is due to antibody formation. But also you could theoretically increase the response rate from the 42% that we saw on the clinical trials to a much higher number. So we feel that the tolerization and if we can show that tolerization works, that we can both improve the safety profile, but also improve the efficacy profile of the drug without doing anything else to the molecule.

Rahul Jasuja – Noble Financial

So by increasing the amount of KRYSTEXXA you can induce a safe tolerance of B cells in producing KRYSTEXXA directed antibodies?

Kenneth Bahrt

Well antibodies against anti-Pegloticase or [inaudible] part of it. But yes if you can induce a zone of – a high zone tolerance you would be able to reduce antibody formation.

Rahul Jasuja – Noble Financial

Okay. And then finally, assuming that – I'm not sure if you are going to be living and dying by KRYSTEXXA but is there any plan on the BD side looking at opportunity, is that the sales force can synergize within terms of licensing something?

Louis Ferrari

That’s a really good question because what we do is, that door is open all the time. I don’t think that that’s ever been a situation that we haven't looked at, or that we continue to remain open to. So if there is an opportunity going forward where something could be worked out, we would certainly look to do it and we keep that – that window is always open.

Operator

Thank you. Our next question comes from Carol Werther from Summer Street Research.

Carol Werther – Summer Street Research

With the shareholders right plan and the restructuring of the debt, could you just go over with me what the potential dilution on the share count is? Thank you.

Phillip Yackmetz

Well the dilution on – and this is Phillip Yachmetz Carol. The dilution on the shareholder rights plan is really not to remain. I mean, that would only happen when and if there was a potential hospital situation. And then the dilution on the new debt, the warrants are how many?

Louis Ferrari

There is 4 million shares related to the new warrant. So the dilution is around 5 % approximately if they were to be exercised.

Carol Werther – Summer Street Research

Okay. Thank you.

Operator

Thank you. And our next question comes from Heather Behanna from JMP Securities.

Heather Behanna – JMP Securities

Hi, thanks for taking my question. I just have a couple, one just a little bit more color on the current sales. If you could tell us what percent are in institutions or what percent are out and if you think that sort of arrived at a steady state?

Louis Ferrari

Okay. Institutions right now probably make up approximately 35% to 40% of our overall sales in the marketplace right now. And actually if you look at any of the drugs in rheumatology, any of the anti-TNF drugs and so on, you sort of come out to a stage that sits somewhere around that 60-40 range. We believe we are pretty much there right now. Over the last quarter we really haven't seen any major shift, maybe up a 1% or down a 1 but it’s pretty much in that world, of the 60-40 world and we are behaving as other drugs do in that marketplace right now.

Heather Behanna – JMP Securities

Great. And as far as the clinical development plan, if you could just talk a little bit about sort of the timeline that some of these things might get on the label as far as the label expansion and the size of the trials that you are running?

Louis Ferrari

I will let Ken Bahrt talk a little bit about that. I think it’s safe to say that the maintenance induction trial is certainly something that would be down the road, but I will let him talk more about the options…

Kenneth Bahrt

Yeah, the induction maintenance trial is something that we are looking to start next year but there is still development work upon sizing the trial and the timelines that are involved. But it would not be too offline to say that it will happen within the next five years, that we would be able to submit this to the FDA for potential inclusion in the label. And that doesn’t necessarily mean that we won’t have data that we can highlight in scientific meetings but actual effect on the label from an induction maintenance is probably in the range of four, five years down the road.

The other studies will show a much shorter time period, and again as far as the tolerizing study is concerned starting early next year, we are putting the final touches on what that study design would look like and the estimation is there. And the dialysis study as I said is due to start within the next few weeks and we should have data available for that study in the second half of next year.

Heather Behanna – JMP Securities

Gross, thank you very much.

Operator

Thank you. Our next question comes from Dan Chung [ph] from Jefferies.

Unidentified Analyst

Just a quick technical question for David. Is there an update on the status of continued listing on the NASDAQ?

Philip Yachmetz

This is Phil, Dan. As you saw with the AK, we did receive a delisting – potentially delisting letter from NASDAQ. We have 180 days to resolve that. Yesterday we received a second letter from them pertaining to our market capitalization side. So it’s a separate 180 day period pertaining to that listing requirement. We are confident that prior to the 180 day period we will be able to cure the issue.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. I'm showing no further questions at this time. Ladies and gentlemen thank you for participating in today’s conference. This concludes our program. You may all disconnect and have a wonderful day.

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