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Executives

Vincent J. Milano - Chairman, Chief Executive Officer and President

John Peter Wolf - Vice President, General Counsel and Secretary

Charles A. Rowland - Chief Financial Officer and Vice President

Daniel B. Soland - Chief Operating Officer, Chief Commercial Officer and Vice President

Robert Clayton Fletcher - Vice President of Business Development & Project Management

Thomas E. Reinckens - Chairman, Chief Executive Officer and President

Analysts

Robyn Karnauskas - Deutsche Bank AG, Research Division

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Liisa A. Bayko - JMP Securities LLC, Research Division

Brian Skorney - Brean Murray, Carret & Co., LLC, Research Division

Philip Nadeau - Cowen and Company, LLC, Research Division

Thomas Wei - Jefferies & Company, Inc., Research Division

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

ViroPharma (VPHM) Q3 2012 Earnings Call October 25, 2012 9:00 AM ET

Operator

Good morning, and welcome, everyone to the ViroPharma Third Quarter 2012 Results Conference Call. Today's call is being recorded and is expected to last one hour. At this time, I will now turn the call over to ViroPharma Chief Executive Officer Vin Milano. Please go ahead.

Vincent J. Milano

Thank you, operator. Good morning, everyone, and welcome to joining us on this call to discuss our performance for the third quarter of 2012. I am joined by some members of the ViroPharma management team, as well as John Kirby, Will Roberts and Bob Doody. Before we proceed, Pete Wolf, our General Counsel, will apprize you of our potential to make forward-looking statements. Pete?

John Peter Wolf

Thanks, Vin. During this call, we will make forward-looking statements. Certain statements such as those regarding our expectations for future financial results including guidance and tax rate; defining and potential outcomes of clinical studies; changes in channel inventory; our commercial launch of the Cinryze, Plenadren and Buccolam in Europe; our ability to continue to identify additional Cinryze patients; and our expectations for 2013 are examples of such forward-looking statements. As you know, forward-looking statements are subject to factors that may cause our results and plans to materially differ from those expected. Please refer to the press release issued this morning and to our filings with the SEC for more information regarding the risk and uncertainties that could cause future results to differ materially from the expectations expressed in this conference call. In this call, we will also discuss some non-GAAP measures in talking about our company's performance and you can find the reconciliation of those measures to GAAP measures in our press release issued this morning. I'll now turn the call back over to Vin.

Vincent J. Milano

Thanks, Pete. Once again, good morning to each of you and thanks for tuning in for our third quarter financial results discussion. We will be more brief today than normal as we just held the analyst day event last month and covered a substantial amount of ground in terms of new and updated information related to our growth and trajectory. For today's call, I will provide a few remarks on the quarter itself and a few notable updates that have occurred since last month's event. And then Charlie will provide an update on the financial performance of the company and I will return for some closing comments before turning to take your questions.

Overall, this past quarter was one of tremendous progress throughout our company. The August approval of industrial-scale manufacturing was a major breakthrough, which enables us to continue to grow Cinryze to new levels within the HAE space as well as provide for further investigations of C1 Inhibitor in other complement-mediated diseases, such as the one we discussed last month, autoimmune hemolytic anemia, PNH and NMO. Specifically, in the area of hereditary angioedema, the third quarter of 2012 was one of the strongest periods of growth we've experienced to date. This occurring in our fourth year of the launch. Our team generated over 85 new prescriptions during the third quarter, which was the second largest period of new demand in 3 years. Also from a net new patient add perspective, this was also one of our strongest periods since the launch of Cinryze.

The data points that we provided you in the past continue to remain consistent with roughly 50% of our new patients coming on after having previously tried anabolic steroids and roughly half of the new patients this year have been diagnosed in the last 3 years. Another important data point is that around 30% of our new patients coming on to Cinryze therapy have done so after trying one of the available acute HAE therapies. So in contrast to the theories that the acute HAE therapies would be drawing patients away from prophylaxis, the totality of the data actually suggests that prevention of attack is a preference for many people with HAE.

As it relates to which physicians are prescribing new patients onto Cinryze, we are seeing an increasing trend of first-time prescribers. In fact in Q3, nearly 60% of our new prescriptions are coming from physicians who have never prescribed Cinryze before. Also interesting to note is the fact that many of these first-time prescribers are coming from specialties outside of allergy. This data suggests that the educational efforts of our team as well as others in the marketplace are continuing to make significant progress in the overall recognition of HAE and the available therapeutic options.

As it stands right now, we are projecting to end this year with over 900 patients on Cinryze. And we will provide you with an update on where we ultimately arrive in the beginning of next year. What that suggests, however, is that in 2012, we will have added at least 150 net new patients on to Cinryze therapy, with close to 100 of those net new patient adds having occurred in the second half of 2012. The bottom line message is that in the United States, Cinryze growth is not only strong and steady but even trending upwards. And as we shared with you at our Analyst Day, we'll repeat today, we believe there is still significantly more growth potential in front of us.

Switching gears to our efforts overseas. The launches of Cinryze, Buccolam and Plenadren, continue to make good progress. Overall, with any product launch, one of the most significant hurdles in Europe is achieving your desired targeted pricing and reimbursement levels. In the case of all 3 of the products and in the countries in which we've ventured so far, we have been successful in achieving our target pricing and reimbursement. The ability to achieve appropriate pricing is mission-critical to the success of a product launch as many of you have witnessed over the few 3 years with other EU product launches.

Overall, as the team noted last month, the Cinryze and Buccolam launches are beginning to build some traction and we are clearly encouraged by the future prospects. The medical need for these products is clear. The desire to use them by both physicians and patients is increasing and our team is poised to continue clearing any hurdles to pave the way for these products to be the answer to their needs.

As it relates Plenadren, the timing of the launch has exceeded our initial plans. You may recall that our initial goal was to be in a position to launch Plenadren in 1 country by the end of this year. Today, we can say that we've recently launched Plenadren in 4 countries: Germany, U.K., Denmark and Norway, along with our Named Patient Program in both Italy and Spain. We have been successful in our pricing negotiations in each of these territories and already have patients now receiving Plenadren to manage their adrenal insufficiency. As for Plenadren in the United States, we are engaged with the FDA and maybe in a position to share with you our future plans on the Plenadren topic for the United States in early 2013.

And finally, on clinical development. I will be brief here as there isn't much new today compared to the wealth of information and data we shared with you a few weeks ago. I can, today, however, reiterate that we will be initiating the Cinryze PH20 combination Phase II study in the EU site shortly, and we'll be phasing in the U.S. sites as quickly as we can. We plan to complete this study and believe we'll have data available in 2013 which, of course, we'll inform our plans moving forward.

With that, I'm now going to pass the call over to Charlie to review the financial aspects of the quarter and then I will return for a few final comments. Charlie?

Charles A. Rowland

Thanks, Vin, and good morning, everyone. Driving right into financial results, sales of Cinryze for the third quarter were a record $85.3 million compared to $65.4 million in the prior year. For the 9-month period, sales were $230 million representing a 25% increase over the $184.5 million reported last year. Sales of Cinryze were reflective of one of the strongest periods of demand to date, as Vin noted earlier, and continued consistent patient dosing rates. The $84 million of U.S. Cinryze sales generated in the quarter were comprised of patient demand of approximately $82 million, along with roughly $2 million increase in channel inventory as we begin the process of rebuilding the channel, which is still below normal levels.

During the third quarter, we shipped roughly 21,000 doses to specialty pharmacies and specialty distributors. Also in relationship to Cinryze, just as a reminder, that during Q3, we made a payment to former Lev shareholders as a result of reaching the cumulative sales milestone. The total cash payments were approximately $92 million, $91 million of which was paid in Q3, included the CVR and other deal-associated expenses. We also received a related tax benefit of approximately $6 million as goodwill was increased by the net amount of $86 million as these items did not flow through the P&L.

Our oral vancomycin franchise revenues for the quarter were $4 million, declining by 95% from the same period in 2011. As you can no doubt see the results we released this morning, the erosion of our branded banks and business due to generic entrants has been extremely rapid. The $4 million in net sales is solely representative of our portion of the profits from the authorized and [ph]direct sales as the growth revenues from branded sales were offset in the quarter by sales deductions. Looking forward, we do not Vancocin to be a material contributor to our company's future revenues.

Cost of sales excluding amortization of product rights for the third quarter was approximately $22 million, compared to approximately $20 million for the prior-year period. For the 9-month period, cost of sales grew by $18 million over the prior year period to $78 million. Product mix drove the increase period over period. We continue to anticipate our U.S. Cinryze margins, excluding amortization, to remain over 70%.

Next, regarding our operating expenses. Our combined SG&A and R&D expenses were $61 million for the third quarter, compared to $54 million for the same period in 2011. For the 9-month period, our combined expenses were $172 million compared to $146 million in 2011. Our selling, general and administrative expenses for the quarter were approximately $44 million compared to $31 million in last year's third quarter. This increase was driven primarily by launch-related cost for Cinryze, Buccolam and Plenadren.

Research and development cost decreased in the third quarter of 2012 compared to the same period in 2011. The 3-month period in 2011 included license payments of $6.5 million and $3 million to Intellect Neurosciences and Halozyme, respectively. After adjusting for these onetime items, our R&D spending increase was driven by investments in our core development programs of Cinryze, maribavir, and Plenadren.

Additionally, the 9-month period of 2011 also reflecting a $9 million upfront payment made to Halozyme. During the 3 months we incurred an operating loss of $4 million compared to an operating profit of $50 million in the 2011 quarter. And for the 9-month period, we reported operating income of $39 million compared to $153 million for the prior year. The primary driver for the decrease is the decline of branded Vancocin revenues. We had GAAP net loss of $5 million for the third quarter compared to non-GAAP net income of $28 million in 2011. For the 9-month period, we had a GAAP net income of $11 million compared to $87 million in the 2011.

We expect our effective tax rate for year to be approximately 52%, which is reflective of lower Vancocin in revenues and its impact on U.S. taxable income, along with losses in foreign jurisdictions where the tax rate is less than U.S. statutory rate. As we noted during our Analyst Day event, we expect that our tax rate will improve over time, primarily driven by our European operations becoming profitable.

From there we arrive at a GAAP diluted EPS loss of $0.07 for the third quarter, compared to a GAAP diluted EPS of $0.35 for the same period in 2011. For the 9-month period, we had a GAAP diluted EPS of $0.16 compared to $1.04 in the prior year. Our non-GAAP for adjusted measures exclude noncash and or nonrecurring items and adjusted net income was $7.5 million for the third quarter compared to $48 million in the third quarter of 2011. This represents adjusted diluted [ph] EPS of $0.10 for the quarter, compared to $0.56 for the period in 2011. For the 9-month period, we adjusted net income of $45 million compared to $131 million in the prior year's period.

Regarding our capital structure, we ended the quarter with $304 million of cash, cash equivalents and short-term investments, despite having paid out $91 million to left [ph] shareholders and continued execution of our stock buyback program. During the quarter, we acquired approximately 3.1 million shares of our outstanding shares at a cost of $80 million.

And finally, on our annual guidance. As a result of these items discussed earlier on the call, our U.S. Cinryze net sales guidance remains $320 million to $335 million and as noted earlier, we are just beginning to build Cinryze channel inventories as a result of our approval of industrial-scale manufacturing. And knowing that we'll will most likely are rebuilding the channel over the next 2 quarters, as opposed to trying to get it all done in the fourth quarter, there is a likelihood that we may end up closer to the lower end of our provided guidance range. For total net product sales as a result of the rapid erosion of Vancocin, we are adjusting the range down to $425 million to $435 million and we are reiterating our R&D and SG&A guidance of between $215 million to $235 million.

To wrap up, Cinryze continues to be the engine driving our U.S. growth. Cinryze, Buccolam, Plenadren represent significant opportunity for growth in Europe, our pipeline continues to advance and we've improved our capital structure through our share repurchase program.

With that, I will turn back to Vin for some closing comments. Vin?

Vincent J. Milano

Thanks, Charlie. I am quite proud of the efforts of the entire ViroPharma team this year. The team has made remarkable progress on numerous fronts in the face of some pretty significant challenges. The fact that our company is in the position we are today, is a testament to their unrelenting passion to continue to provide hope and solutions to more and more patients. That remarkable progress that we've made in 2012 sets the stage for a very exciting catalyst-rich 2013, which could launch ViroPharma to new heights.

In addition to the continued growth of our commercial products, we are anticipating clinical data from several development programs in 2013: maribavir, Cinryze, sub-Q and AMR, and VP-20621, as well as any potential data that may evolve from our IIS programs. Overall, we're driven to continue our strong momentum throughout the rest of this year and are very excited about the possibilities that 2013 can bring.

This concludes our prepared remarks today. Now let's move on to your question. Operator? Are there any questions for the team?

Question-and-Answer Session

Operator

[Operator Instructions] Our next question comes from the line of Robyn Karnauskas with Deutsche Bank.

Robyn Karnauskas - Deutsche Bank AG, Research Division

Actually, 2 quick things. So number 1, inventory build impacts -- like, help us understand maybe a little bit better how much inventory impact do you expect in the fourth quarter versus the first quarter? Second, Plenadren launch strategy, like how -- what is your strategy for launching Plenadren in Europe? And maybe you can get some color as far as your initial feedback on reimbursement and pricing and how that launch is going? And lastly, is there any risk to Germany referenced, like [ph] going back into a different reference division?

Vincent J. Milano

So Robyn, just to make sure we're keeping score on the questions, one question is around color regarding the channel build over the next couple of quarters for Cinryze in the United States. The second question is sort of a broader topic of how we see Plenadren. And then the third is sort of dive down on, specifically into Germany on -- IQWiG question , if I think I got them right. So on the inventory question, maybe, Charlie, I can just start and you can add. But I think generally speaking here, this is a demand story. And demand continues to be very strong for Cinryze. When we received the approval of the industrial scale, our intent and plan has always been that it would take us 1 or 2 quarters to build up that inventory in the channel. And we're actually not going to comment on the breakdown. I think Charlie made an interesting point today in the guidance topic that to the extent that more of it falls in the fourth quarter, we would be towards the higher end of our guidance range for the year, if some of it falls in the first quarter it would actually be at the lower end of the guidance range. But we put the patients first and foremost, so it's all about demand and what they need. But we're not going to necessarily split the quarters up at this point, Robyn. And part of the reason is that it depends on what our ST's/SD's [ph] at this quarter, right? We know that they're interested in building up their inventory after having spent enough time with tight inventory. Now Dan, if you could on the Plenadren front, maybe some macro points about how we see the launch evolving, obviously today. We've launched in 4 countries and have been MVP [ph] in 2.

Daniel B. Soland

So, Robyn, great question by the way. Launch of Plenadren in Europe is off to a very good start. It's actually exceeded our expectation. Vin, he mentioned in the script that we have a launched in 4 countries. I won't repeat those, but 2 of those were part of the big 5, both Germany and the U.K. Also, by the way, in southern Europe where the economic strain seems to be more serious, we do have a Name Patient Program in place in both Spain and Italy. And early interest level at the patient level and physician level is very high. And we've been able to achieve, thus far, pricing that we had initially targeted and we're off to a very good start. Now, in particular, Robyn, I think you were wanting to talk about the IQWiG potential to fall into that category in Germany. And there a number of different characteristics or reasons why a product would fall into that category. One, is that if it's a new active ingredient, another is if it's a new mode of action. And there are others. But this product, the active ingredient there has been around for 50 years, it's just how we deliver that and how the active ingredient is delivered over time, is what both physicians and patients are interested in. There are different points in the launch in Germany where you could get pushed into this category. One is when pricing is established and we were not -- but I cannot -- we cannot rule out the fact that we could get pushed into that category over time. So I hope that gives you the color that you were looking for, Robyn.

Charles A. Rowland

And Robyn, just one sort of follow-up. This is Charlie on the inventory. On the Investor Day, I did say that we build back between $10 million to $20 million worth of inventory. And what we will do is, on each of the quarterly calls, we'll give you a breakout of how much of our revenue is based on demand and how much of that is channel-building. We'll give you updates so that you understand when we put the inventory all back.

Operator

Our next question comes from the line of Joseph Schwartz with Leerink Swann.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

I was wondering if you could update us on what you described in the last quarterly call about the difference between the gross and the net patient adds and what you were doing with regards to a database cleanout of patients that were'nt taking Cinryze as chronically? It seems like there's still a big difference. But you did comment then that those numbers between gross and net patient adds would start to move closer over time.

Vincent J. Milano

So Joe, thanks for your question. So maybe without regard to referring back, I think what we can say is, we put in some business rules in evaluating each patient that's in our database, if you will, that at one point or time another took Cinryze. And during the second quarter, the business rules had us identify a number of patients who frankly, actually weren't prophylactic patient. We'll continue to apply those business rules. And as we do them on a quarterly basis, we don't expect the impact to be significant to the net patient [indiscernible] calculation. Because I do want to point out, which we did say on the call, and we did say in Analyst Day is, it's no more than 5% of patients who have ever taken Cinryze with the intention of being truly prophylactic who have discontinued. So going forward, we'll provide, on an annual basis, what those specific numbers are. And again, it's probably helpful to you and other analysts and investors sitting out there, telling you today what we think the target is that we'll end the year with.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

And the gross margin of Cinryze in the quarter looked like it was around 75% versus 70% previously. And I thought I heard you say once that you wouldn't expect that to step up after industrial was -- manufacturing was approved because Sanquin would get the benefit. So what's going on there?

Charles A. Rowland

It's Charlie again. So there's a couple of things. One is, we have a 2-tier pricing, and we're in the higher tier, where we enjoy [ph] the lower price. But any savings on an industrial scale, you expect -- and what we said before where that would go on to Sanquin. And we do experience from time to time some write-offs and things going through the manufacturing process and then results from the impact of FX. And so everything just sort of went our way this quarter in terms of margins.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

So should we think then that it probably reverts back to what you were at historically?

Charles A. Rowland

So we -- our guidance is that we're going to be north of 70%. We're not going to get anymore granular than that, Jeff.

Operator

Our next question comes from the line of Geoff Meacham with JPMorgan.

Unknown Analyst

Actually, this is John Shy [ph] in for Geoff Meacham. Just a quick question about cash and the strategy here on forward. Is the plan to do more buybacks or are you looking to kind of do smaller deals to fill up the pipeline even more?

Vincent J. Milano

The strategy remains consistent, we constantly evaluate business development opportunities, versus internal opportunities, versus the opportunity to further improve our capital structure with buyback. So I would say that today, our strategy remains the same as it has been. We'll continue to consider all of those things and deploy the capital at the times we see fit, that way we see fit. So nothing's changed. Maybe more specifically on the business development question, we have a very robust pipeline. As I think we had a chance to at least share a reasonable portion of that with the investment community on the 21st of September. So we're not necessarily thinking only about filling the pipeline, we're still interested in other commercial product, specifically in the United States, would be good. As you know, our team in Europe is extremely busy launching 3 products. But we're not exclusively looking one way or the other. We're actually continuing to look it all.

Operator

Our next question comes from line of Liisa Bayko with JMP Securities.

Liisa A. Bayko - JMP Securities LLC, Research Division

Small numbers, I know, but is it possible just to breakout Buccolam and Plenadren at this point?

Vincent J. Milano

I'll take the hard one, Plenadren was 0 at the end of the quarter. We just launched -- we literally launched it in Norway and Denmark in the last week of September. So Charlie, can you provide more specifics on the European revenue number?

Charles A. Rowland

So Buccolam was $1.2 million.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay. And then just I've always been curious about the tax rate sort of going above what seems to be statutory levels. And then could you just explain in simple terms why that is, and then how rapidly we're going to get down to the 32% that's targeted for 2015?

Vincent J. Milano

So Lisa, what it basically is, is just sort of simple math in terms of, if you have taxable income in the United States at say 41%, and then in Europe you have losses, at some other statutory rates that's lower. Net-net, when you come to the total company, we're actually paying at a higher effective rate because of the loss bringing down your profits. So when you look at it, you get this anomaly where we're actually paying from an affected tax rate standpoint, a higher than what you would have from a statutory rate in the U.S. That will start to reverse itself as our losses in Europe go down. And then when we turn profitable, the rate will actually drop pretty quickly. So our guidance is, by 2015, we'll be down around that 32% range. And we haven't really given guidance for next year yet and maybe we'll put some color on that when we give guidance sometime next year.

Operator

Our next question comes from the line of Brian Skorney with Brean Capital.

Brian Skorney - Brean Murray, Carret & Co., LLC, Research Division

I just want to kind of go over, you said that there were 85 new prescriptions written in third quarter? And I know you guys have had some control over the amount of time that patients are kind of in the funnel that we talked about in Cinryze Solutions queue before actually getting drugs. So I just want to see if there's any growth that you feel was due to an acceleration through this process as supply's really no longer been an issue. So I guess the question is, how many patients did you actually have going into the funnel in this quarter?

Vincent J. Milano

So Brian, thank you for making sure we make this clear. The 85 is actually the top of the funnel. So that's the new [indiscernible] go into the top of the funnel and into the point about getting patients on the therapy once they're in the top of the funnel. Our team continues to an excellent job. I think Dan we're somewhere in the 28-day range turn [ph], 25 to 30 days it takes us from when a patient comes in on average to get them therapy delivered to their homes or their place of choice. So that is the top of the funnel.

Brian Skorney - Brean Murray, Carret & Co., LLC, Research Division

And then just a quick housekeeping question for Charlie. Is there any balance sheet valuation for Vancomycin that you see may be need -- taken as a write down in the future?

Charles A. Rowland

Yes. So if you look at our intangible schedule in our Q that will be filed later today, there's about $115 million on our balance sheet related to Vanco. And from accounting perspective, we have a model that projects out what we think Vancocin will be selling over future years. And on an undiscounted basis, that still supports that value that's on our book. So there's no impairment in the near term. But there is always a chance depending what happens with the product. At some point, we'll fail that test, and at that point, we'd take a write-off.

Operator

Our next question comes from the line of Phil Nadeau from Cowen and Company.

Philip Nadeau - Cowen and Company, LLC, Research Division

First one on Buccolam, if my model's correct, it looks like it declined quarter-over-quarter, was that -- is there seasonality there or was there some sort of stocking effects in Europe? Just kind of wondering about the trajectory of that launch.

Vincent J. Milano

Dan, great question. I don't know the answer to that. Remember that we launched in the U.K. at the end of last year, the beginning of this year. And Germany really came online in the sort of April timeframe. But I don't...

Charles A. Rowland

John, do you know if it went down quarter-over-quarter?

Vincent J. Milano

We'll look, Phil, and come back to it.

Philip Nadeau - Cowen and Company, LLC, Research Division

And then second, on Cinryze in Europe, it sounds like there's about $1 million in sales on the quarter. What do you guys think is key to accelerating that or getting that to grow? Is it geographic expansion or more education of the market?

Vincent J. Milano

So I'll let Charlie answer the actual sales dollars here in just a minute. But remember that we launched Cinryze in Europe in the U.K. and in Germany in the beginning of the year and it's been a pretty tough but steady add of patients here from the beginning. There's been a significant change in physician and patient attitude over the last 2 years and I think that's probably due to the success that we've had in the United States, if you went 2 or 3 years ago back to Europe, you'd have learned that there wasn't a whole lot of interest in prophylaxis. But I think the benefits that the patients have realized in the U.S. And I think the thought leaders from the U.S. being at the same meetings as the Europeans has started to change that attitude. And also, please remember that we had intended to launch Cinryze in France, Spain and Italy in September. And in those 3 countries, launch has been put back due to the overall economic situation and our ability to gain reimbursement. We do plan to be able to launch in France and in Spain Cinryze before the end of the year, and it's likely that Italy will get launched some time in the beginning of 2013. So Charlie, do you have a comment on the sales number?

Charles A. Rowland

So going back to Buccolam, it does look -- if you just look at the numbers, it looks relatively flat quarter-to-quarter. But you got to realize when we launch the product, you have some initial stocking that takes place. So what we don't have visibility into in the European market, as well as we do in the U.S. market is how much of that has ended up at the patient level to the extent that we get, some visibility into that on future calls we'll give you some insights.

Philip Nadeau - Cowen and Company, LLC, Research Division

Okay, great. And then just one last question, a follow up to a question that was asked earlier on capital allocation. I just wanted to ask again about the stock buybacks, and I guess, the reason why I'm curious is, it doesn't seem like for the next couple of years, your stock's going to be valued on an EPS basis, it's more on top line and top line growth. So given the space that you're in today, what is the benefit that you see doing a stock buyback? Why not keep the cash on the balance sheet to allow greater flexibility if there's any deals that come up opportunistically in the future?

Vincent J. Milano

So Phil, we appreciate the provocative statement about how we'll be valued and it's a thought that we actually consider. So your point is a good one. I think if you look at it mathematically, you're right. The earnings power drives the technical rationale for why you'd buy back your stock, if you think it's undervalued. But again, we -- our business may be better than we expect and we may become a higher-gross earnings company sooner than we have targeted. So all we're really saying is that we're open to evaluate that continuously. And the fact that you raise is certainly a factor in the equation.

Operator

Our next question comes from the line of Tommy Wei with Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I want to, I guess, follow up on something you said in the prepared remarks on Cinryze. Can you tell us which specialties beyond the typical allergy docs are contributing the most in new prescribers and in patients who are trying other key therapies before coming on to Cinryze, which therapies are they trying? Is it [indiscernible]?

Vincent J. Milano

So maybe I could take the first cut Dan. So the answer to your second -- first of all, good morning, Tommy, thank you for your question. The first point on the acute therapy is it's all the acute therapies of more between Berinert and [indiscernible]. Those are the 2 more so than Kalbitor, I would say. So we're seeing a lot of -- it's an evolution for these patients. They might try acute therapy first, find out that it's not working for them, and prefer, again, as Cinryze provides them an alternative to prevent their attacks and take control of their life, it's a very different mindset. But it is each product, and it's probably equally split mostly between Berinert and [indiscernible]. Dan, you want to comment on the other?

Daniel B. Soland

Sure. So interestingly, of these first time prescribers, I guess, allergens is part of that, that you would normally expect. But it's also GIs and family practice are the other 2 key physician groups that we're seeing newly diagnosed patients for HAE.

Vincent J. Milano

So Tommy, just to put some color on that, because I imagine a follow-up question would be is, do you need to change the construct of the organization? Clearly, we'll tell you that, very simply put, we have some very valuable proprietary ways of marketing. And as we mentioned in the Analyst Day, we are going through an analysis on whether or not some additional HAE specialists in the country would be valuable to the patient population and to us and to the shareholders. We haven't taken that decision fully at this point. But it's going to be a very targeted approach because of the way we have the ability to find patients and then find the physicians who treat those patients. So all those new patients are coming from the same HAE specialists that we have on board since we started.

Thomas Wei - Jefferies & Company, Inc., Research Division

And then I'd like to follow up on Cinryze in the U.S. again. The color -- can you give us some color in the quarter, specifically on the discontinuation rate? And then I remember you said that, from the Analyst Day, that about 1/3 of current patients on Cinryze were diagnosed in the last 3 years. Could you put that into some context versus previous quarters and what's going on with steroid switching rate now?

Vincent J. Milano

So with regards to the diagnoses rate and the steroid switching rate, I think we would say that for the third quarter, we continue to see a very consistent trend to what we've seen in, frankly, probably the last 6 quarters, so it's very consistent. And again, it's a testament to the tremendous amount of work that the HAE is doing, as well as the companies in the marketplace serving these patient population. This is just more awareness, more education, faster diagnosis leads to -- evaluation of options leads to essentially rising tides for all of the patients and the companies providing different solutions to their patients. With regard to the discontinuation that we're not providing specifics, we can say that the discontinuation rate is still low, very low. And to reiterate a point of, again, the -- since we've launched this product, it's less than 5% of the true prophylactic patients. That's from the beginning of time. Nothing unusual in the third quarter that we would highlight today.

Thomas Wei - Jefferies & Company, Inc., Research Division

That's helpful as well. And if I could just ask one more on, to follow up on Phil's question about Cinryze in Europe on that number. Can I interpret the earlier answer that a major challenge if not the main challenge in the quarter maybe going forward near term is still changing physicians attitudes, about using prophylactic therapy?

Vincent J. Milano

I think it's an ongoing process. But we're surprised that some of the diehard thought leaders in Europe who now think that 5% or 10% of their patients should be on prophylaxis.

Daniel B. Soland

Yes, I think that -- another way to think about to answer that question, Tommy, is that I think the way Phil posed the question, is it more geographic expansion or changing mindset, if you will? Our view is that it's a little bit of both, right? There are definitely certain physicians who are slower to adopt, but that's not an unusual characteristic, right? And our team's working diligently to do that and we're just being very transparent with you, that it's not 100% of the physicians who 100% on board, our work is still in front of us to continue to do that.

Operator

Our next question comes from the line of Dee Fei Yang [ph] with Wallace Trust [ph].

Unknown Analyst

A couple quick ones. Could you remind us what is the pricing for Cinryze on the per vial basis, currently? And if you are seeing gross to the net adjustment being fairly stable for the past several quarters?

Vincent J. Milano

Dan, you want to --

Daniel B. Soland

So on a per dose basis, the gross selling price in the U.S. is a little over $4,400 per dose. And if my memory was better, I could probably give you the actual dollars, but it's over $4,400 per dose.

Vincent J. Milano

And Dee Fei [ph], I think you used the word vial, I just want to make sure we're answering your question accurately. There are 2 vials per dose.

Unknown Analyst

Yes. And gross to net-wise, are you seeing a change?

Charles A. Rowland

This is Charlie. No gross nets on Cinryze remain fairly consistent.

Operator

Our next question is from Bryan Abrahams with Wells Fargo.

Unknown Analyst

This is Shin [ph] sitting in for Bryan. I believe my question upon pricing negotiation in Germany and France was answered earlier, so I'll move on to a Cinryze question. Thinking about Cinryze indications beyond HAE, could you share any pre- or clinical data on dosing or formulation of Cinryze or C1 esterase inhibitors that could, that targeting this pathway adequately suppressed relevant compliment mediated pathway in some of the additional indications you're exploring? And quick follow-up question is, as Shire [ph] this morning reported that [indiscernible] is the effective in treating ACE-induced angioedema. Using your scientific rationale that C1 esterase inhibitor could be used to treat this disease, and if so, is this an area that you might be interested in pursuing?

Vincent J. Milano

So Shin, your questions on this go around are much more challenging than the ones you asked first. So this is for everyone's knowledge. Colin Broom and Bob Pietrusko both are traveling out of the country, they're at a very important ad board meeting for Plenadren. So the scientific questions are being handled today by Clayton Fletcher. So Clayton, the 2 questions, I think, on the table are around the possible [ph] uses for C1 inhibitor. One around specific data on what we're doing and then the second is, I guess, just a theoretical discussion on whether or not C1 inhibitor can play a role in age-induced angioedema.

Robert Clayton Fletcher

Right. So on the first point, I think that in September, Jeff Dayno gave a pretty robust update on our new indications in early stage work in terms of new areas where we might work in. There was some discussion about the mechanism regarding directly through the classical pathway, the Lectin pathway and the alternative pathway. And I think updated everyone on the fact that we were exploring each of those. And then specifically, in terms of things that we're pursuing in the near term, in terms of indications or at least through the IISs, our NMO as well as hemolytic, autoimmune anemia. And further to that, there maybe an exploration of PNH refractory patients, which would be sort of the last piece that we would get to. Second question, in terms of --

Vincent J. Milano

Other forms of angioedema.

Robert Clayton Fletcher

We do intend to continue to explore acquired HAE angioedema attacks. It is not the most near-term effort that we have on the books. It's more hospital-based and a little bit outside of our distribution channel we're pursuing [ph] at this time. But it is one of those things under consideration.

Unknown Analyst

Okay. A quick follow up on clarification Plenadren negotiation in Germany. My understanding of the Adnog [ph] law is that you have free pricing for a year and then you have negotiated price at the end of that negotiation period. In this alternative pathway that you're pursuing, is the price that's published in Germany the final price, or should we expect that to vary in the future time point?

Vincent J. Milano

Great question. And by the way, it is the final price until someone decides to challenge it. So we don't want to leave you with the feeling that since the price has been published, that it's locked into stone here or written into stone. So we could be challenged over time, and there are various ways that we can be challenged. But it's a very positive indication of early success here, with this price being published and not being challenged yet.

Unknown Analyst

And should we be expecting a hearing or assessment through France's transparency committee, or are you pursuing a similar path, a kind of alternative path to the IQWig and GBA process in France as well?

Vincent J. Milano

So I think we've made considerable progress in France. And I think that we did mention earlier that we do expect to be able to launch Cinryze before the end of the year. And it's likely that we'll be able to launch Buccolam before the end of the year in France. We had originally planed for September, we have been pushed back but we still plan to launch before the end of the year.

Unknown Analyst

But do you have to go in front of the transparency committee in France?

Vincent J. Milano

There's been various negotiations and we do have various committees that we have to sit in front of.

Operator

Our next question comes from the line of Stephen Willey with Stifel, Nicolaus.

Stephen Willey - Stifel, Nicolaus & Co., Inc., Research Division

I just had a quick question with respect to a previous question that was brought up, I know it's been a discussion topic before. But just with respect to the patient numbers, and I appreciate the visibility that you guys do give on this metric. But I know the end of the year patient number that was thrown out there, I think it was around 900, would imply, I guess, based on the previous year end number we got in 2011, I think it was 720 of about 180 kind of gross patient adds. And I think that you are kind of implying that you would expect to see at least up 150. So I know that there's a delta there between kind of the gross and the net capture rate. I know you guys are kind of still cleaning out your database. But does that delta remain the same here going forward until you actually change what you qualify as a chronic patient?

Vincent J. Milano

Yes, so Stephen, again, thank you for asking a clarifying -- what turns out to be clarifying question. I believe that in the beginning of 2012, we said that we ended 2011 with 760 patients. So I don't know if that changes the way you're thinking about the math, but it was, I think, it was 760 patients that we ended the year with. And then at end of Q2, we were at 820 and we're saying that it's at least 900 by the end of the year. But in so now, that's [indiscernible]levels that "facts" here. With regards to your question around our business rules, right now, our business rules are that evaluate these patients regularly with a 9-month period. If they change, we'll tell you. At this point, that's what we apply. And when we went through this exercise in the second quarter, we had what we would refer to as a clean up, we don't anticipate that we have another clean up in front of us but time will tell.

Operator

Our next question comes from the line of Joseph Schwartz with Leerink Swann.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

I wanted to ask a couple on Plenadren, if I could. And specifically, what do you think the pair system will require in Europe for patients and physicians to demonstrate before they can receive Plenadren, given there might be cheaper alternatives like hydrocortisone as it's traditionally been formulated?

Vincent J. Milano

So they're going to expect to see pharmaco-economic data, what is the benefit. And I think, especially in the countries that require to have pricing in place before you can launch.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

So on a patient level, they're not going to require anything but just, once you get your pricing, you think that every patient can get this drug. They won't need to document whether they haven't benefited on older formulations or anything?

Vincent J. Milano

So to be clear on the 4 countries that we've launched, there is no sort of effort that the patient has to undergo outside of the physicians prescribing the drug. And in Spain and Italy where the Name Patient Program is in place, there's no special requirement that the physician has to document before being put on the drug. And we don't expect that either in France, once the pricing has been established.

Charles A. Rowland

I think the other point is that as Derek laid out on the Analyst Day, Joe, that the first patients are likely going to be the ones who are uncontrolled on the existing products.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Right. That that kind of leads into my second question, then. How does prescription data for drugs like hydrocortisone traditionally, traditional formulations of that compared to prevalence data?

Vincent J. Milano

I don't know the correlation there, Joe. It's something we'll have to take a look at.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Do you have a prescription data for hydrocortisone? I know it to be used in other things, but do you have that data just within the adrenal insufficiency?

Vincent J. Milano

It's -- not that I'm aware of that it's separated out just for adrenal insufficiency, Joe. Also, remember, there are other drugs like prednisolone that are also being used, and it's used for so many different indications. It's very difficult to separate it out adrenal insufficiency.

Operator

Our next question comes from the line of Ted Tenthoff with Piper Jaffrey.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

I got disconnected a little bit earlier too, but following along this strain with of questions with Plenadren, can you just review sort of what your plans are in the United States and kind of how that opportunity may compare to what's taking place over in Europe?

Vincent J. Milano

Well, the short answer is no, we can't do that today. But the little bit longer answer is, is that there is a lot of enthusiasm for Plenadren by the the key opinion leaders and the treating physicians here in the United States. We've had an ad board here in the United States they've given us some great counsel and we're currently engaging with the FDA to discuss what possible plan forward is. We would love to be in a position today to tell you where this is going to end up but we can't so we won't. We hope to be in the position in early 2013 to do so. Obviously, when we did the deal of acquiring DuoCort, it didn't actually have a lot of value built in to U.S. market or other markets [ph]. Dan, you want to make some comments?

Daniel B. Soland

I think more on the market's interest in the product, we know that the KOLs are definitely interested. They want this product, they haven't had anything new for the last 50 years. And we've also got some preliminary market research to say that average practicing endocrinologist wants the drug also. And the patient organization also wants the product here in the U.S.

Edward A. Tenthoff - Piper Jaffray Companies, Research Division

Great, I look for an update. And I apologize if you mentioned or didn't mentioned it, but what were Buccolam and Plenadren sales in the quarter? Did you break out that granularity?

Charles A. Rowland

So we answered the question, 0 for Plenadren. Remember we just launched in Denmark and Norway, the last week of September. And $1.2 million for Buccolam.

Operator

Our next question comes from the line Tommy Wei with Jefferies.

Thomas Wei - Jefferies & Company, Inc., Research Division

I think, Dan, I believe, in response to someone's question, you referred to "various ways the Plenadren pricing in Europe could be challenged after the final, the so-called final pricing?" Can you elaborate on that? Is this process -- is it really initiated by payors or can competitors also lobby there?

Vincent J. Milano

It was usually be by payors, Tommy, and then that's a very good question.

Operator

Our last question comes from the line of Liisa Bayko with JMP Securities.

Liisa A. Bayko - JMP Securities LLC, Research Division

Could you just describe what, for PNH, what information we're going to get next year, specifically from the studies that you're going to start?

Thomas E. Reinckens

Clayton?

Robert Clayton Fletcher

So there's a particular investigator. As you probably know, the patients currently on therapy are not fully -- about 50% of the patients are not fully -- do not fully become independent of transfusions. And so the idea is to work with a particular investigator and I apologize because I don't believe we've mentioned the name. But so I'll leave it at that. That we'll be working with that investigator into a look at those patients who do not achieve transfusion independence.

Charles A. Rowland

So I think it's another important point Liisa. Simply put, is that the timing of getting data out of an investigator-initiated study is not within the control of the company. So we hope that we'll have these data and get some information, as Clayton described. But as we get rolling and find out where we stand, we can provide more color on a later call.

Liisa A. Bayko - JMP Securities LLC, Research Division

Okay, and just a quick follow up, how do -- I mean, so it seems like you going try to get some indications efficacy there and how do you think about dose?

Vincent J. Milano

I think it's premature for us to answer that question, Lisa. We'll again, we'll provide some more color on this topic in a later call.

Ladies and gentlemen, thank you very much for your time today. We're very excited about our future. We look forward to seeing you, probably in the weeks ahead and months ahead, at conferences. But certainly, look forward to seeing you soon and look forward to giving you an update on how we end the year and project 2013. Thank you, very much. And have a fantastic day.

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