Aegerion Pharmaceuticals' (AEGR) CEO Marc Beer on Q1 2014 Results - Earnings Call Transcript

| About: Novelion Therapeutics, (NVLN)
This article is now exclusive for PRO subscribers.

Aegerion Pharmaceuticals (AEGR) Q1 2014 Earnings Call May 6, 2014 5:00 PM ET

Executives

Mark J. Fitzpatrick - Chief Financial Officer and Principal Accounting Officer

Marc D. Beer - Chief Executive Officer and Director

Craig E. Fraser - President of U.S. & International Commercial & Global Manufacturing and Supply Chain

Mark Sumeray - Chief Medical Officer

Analysts

Nicholas Bishop - Cowen and Company, LLC, Research Division

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Tazeen Ahmad - BofA Merrill Lynch, Research Division

Eileen Flowers - Jefferies LLC, Research Division

Mohit Bansal - Deutsche Bank AG, Research Division

Joseph P. Schwartz - Leerink Swann LLC, Research Division

Kimberly Lee - Janney Montgomery Scott LLC, Research Division

William Tanner - FBR Capital Markets & Co., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Aegerion Pharmaceuticals First Quarter 2014 Earnings Call. [Operator Instructions] I would now like to turn the call over to your host Mark Fitzpatrick, Chief Financial Officer. Please go ahead.

Mark J. Fitzpatrick

Good afternoon, everyone. Thank you for joining us today on our call to review Aegerion's financial results for the first quarter and to provide a business update on our progress during the quarter. I would like to introduce the members of Aegerion's management team today on the call: Marc Beer, Chief Executive Officer; Martha Carter, Chief Regulatory Officer; Mark Sumeray, Chief Medical Officer; Anne Marie Cook, Senior Vice President and General Counsel; and Craig Fraser, President, U.S. and International Commercial and Global Manufacturing and Supply.

At the conclusion of the prepared remarks, we will open up the call for questions. Please note that we have slides posted in conjunction with the webcast that supplement some of the information we will be discussing during today's call. These slides can be found on the Investor Relations section of our website under the Events and Presentations tab. If you are following along, please turn to Slide 2.

Before we begin, please remember, we will be making certain forward-looking statements on today's call, which may include our statements, forecasts and expectations regarding the commercial potential and growth opportunity for lomitapide; the estimated market size; our forecasted future financial and operating results; the potential timing and outcome of pricing and reimbursement decisions; the timing and ramp of potential revenues in countries outside the U.S., including from named patient sales; the potential for future approvals; the potential impact of competitive products; the potential impact of timing and outcome of government investigations; and our planned commercial, regulatory and clinical activities and anticipated impacts and results of such activities, as well as other statements, which relate to future events.

These statements are based on the beliefs and expectations of management as of today. Our actual results may differ materially from our expectations. Investors should read carefully the risks and uncertainties described in our earnings release and in our reports filed with the SEC, including the Risk Factors section of our Form 10-K filed on March 3, 2014, available on the SEC's website at www.sec.gov.

We assume no obligation to revise or update forward-looking statements whether as a result of new information, future events or otherwise. Also, during this call, we will discuss non-GAAP operating expense results and guidance. The difference between GAAP and non-GAAP operating expense results and guidance is addressed in today's earnings release.

At this time, it's my pleasure to turn the call over to Aegerion's Chief Executive Officer, Marc Beer.

Marc D. Beer

Thank you, Mark. And thanks to everyone for joining us on Aegerion's first quarter conference call. I will be providing an update on our business activity and then I'll ask Craig Fraser, President and Head of Commercial Operations for the U.S. and International, to provide additional detail on our U.S. launch experience to date. And Dr. Mark Sumeray, Chief Medical Officer, will provide a clinical update. Mark Fitzpatrick, our CFO, will then provide an analysis and insight into our first quarter financial results, and our 2014 revenue and operating guidance. Martha Carter, Head of Regulatory; Anne Marie Cook, Head of Legal, will also be here for the Q&A portion of the call.

Now, I'll ask you to turn to Slide 3. We continue to make strong progress in laying the tracks for global commercialization of JUXTAPID and the treatment of HoFH. Still in relative early days of commercial launch, we continue to refine our operational strategy. We believe the fundamentals of our business are strong as we approach expected cash flow positivity in operations later this year. We believe near-term challenges are both temporary and resolvable, and we are confidence in our ability to manage them successfully.

In Q1, we experienced 24% quarter-over-quarter growth in the U.S. business, with steady growth in the number of U.S. prescriptions written. We continue to see solid demand in the HoFH market in key countries x U.S., where we are able to sell on a named-patient basis including in Brazil. However, we have previously indicated x U.S. named patient sales can fluctuate significantly by quarter, and we felt the impact of this dynamic in the first quarter, when our x U.S. product sales were down 70% from previous quarters. This decrease in U.S. sales was a result of longer turnaround times between price quotation and order at the federal level in Brazil and delays in receipt of government orders in São Paulo, Brazil, including as a result of the ongoing São Paulo government investigation, which is looking into activities specifically in São Paulo to determine whether there has been any corruption related to JUXTAPID prescriptions written in that state. These types of investigations are not unusual in Brazil. In the case of orphan diseases being sold on a named-patient basis where the price tends to be high. While the course of these types of investigations is generally slow, we do not believe based on what we know to date, that there has been any corruption in our case. Our understanding is there is no legal basis for suspending orders while the investigation is ongoing but there have been delays and the duration of these delays is uncertain. 5 quarters in the commercial launch, our focus remains centered on optimizing our commercial strategy and execution, specifically U.S. sales force expansion and scaling our patient services. It was clear to us in 2013, JUXTAPID prescriptions growth outpaced the capacity of our patient service infrastructure, as evidenced by patient non-starts and by increasing drop rates towards the end of the year. It became more apparent by year end, that the meaningful changes -- that meaningful changes were necessary in order to fully meet the need for more rapid prescription conversion and patient retention. We believe patient elected non-starts and drop-outs are directly correlated to the thoroughness and the timeliness of comprehensive patient education of HoFH patients and the importance of the diet in taking JUXTAPID along with it, along with strong physician involvement in the patient education process. Q1 represented an important period of optimization in investment as illustrated by the magnitude of our increase in operating expenses, in Q1 versus Q1 of last year. When a company goes through this kind of infrastructure growth, it creates a significant amount of disruption. However, with broader reach and reinforced patient support, we expect to gain increased traction in our launch trajectory. I'd like to highlight a few points, in areas of focus that we're focused on.

First, we have built a solid business around lomitapide as a treatment for HoFH based on strong clinical data. We also educate physicians and patients fully on safety and tolerability. With respect to tolerability, we find that when patients are properly educated in compliant with the low-fat diet, the impact of GI side effects are minimized. Second, we continue to have confidence in our estimate of the total addressable adult HoFH market. We believe HoFH, while still rare, is under diagnosed. And the significant number of HoFH patients globally are in need of therapy. This belief is shared by an increasing number of experts in the medical community, and in peer and new publications. We believe the global HoFH population represents a significant commercial opportunity.

Finally, our efforts to optimize the scale of our business, which continued during the start of 2014, are just beginning to bear fruit. Although we do not expect to see top line impact until the second half of 2014, we feel confident that the increased commercial reach has the potential to result in meaningful growth. In our view, resource allocation and execution are the gating factors in JUXTAPID capturing maximum share of the HoFH market on a global basis. Importantly, we believe we're on the threshold of cash-flow-positive operations, expected in the second half of this year, which would be an important achievement for the company and our shareholders within the first 2 years of JUXTAPID's launch.

With that as an overview, I'd like to turn it over to Craig to provide additional color on the operational dynamics we experienced in Q1. Craig?

Craig E. Fraser

Thanks, Marc. Turning to Slide 4. The first quarter represents a pivotal period for the U.S. sales force expansion and for the continuing to strengthen our commercial strategy and execution. We remain confident in JUXTAPID's addressable global opportunity, as a treatment for HoFH and are taking necessary steps to maximize long-term fundamentals. In mid- to late January, we trained and then deployed our expanded U.S. sales team into new territories. As with any sales force realignment, there is a period of downtime for redeployment and training. Also, a particularly long harsh winter resulted in delays in outbound physician calls and a slowdown for patient onboarding. These factors contributed to the year beginning with a flatter script trend and thus, we had fewer new patient starts in the first quarter than expected. However, we see early positive traction behind the sales force expansion. We saw a meaningful uptick in scripts and new patient starts in the later half of the first quarter. And observed these recent trends continue into the early part of the second quarter. We continue to stress how important it is that patients gain a full understanding of HoFH, and education about the optimal diet for success with JUXTAPID. In an effort to further enhance our patient-focused commercialization strategy, we have established a new patient engagement team, which includes a new nurse educator group. These nurse educators have begun to assist with patient and nurse education about HoFH and JUXTAPID use with strong emphasis during the crucial onboarding phase. We believe the nurse educators will assist with HoFH patients in their efforts to successfully manage their transition to JUXTAPID therapy. Also important, as a result of the nurse educators in the field, sales representatives previously responsible for onboarding patients, can now focus primarily on identifying new physicians with HoFH patients needing JUXTAPID therapy. We are receiving early encouraging feedback that nurse educators are having a positive impact in the field. However, we are still scaling this team and it's too early to meaningfully quantify the potential impact on reducing patient-elected non-starts. We also expect nurse educators to have the potential for a positive impact on dropout rates, with patients beginning therapy in an educated and committed way, and nurses helping to support them. Managing patient-elected non-starts and dropouts remain integral to the long-term success of our business. We believe the recent announcements [ph] made in our commercial team were the right investments, given the insights we learned from both the field and patients and we expect these investments to impact those metrics in a positive way. As Marc previously indicated, we believe the management of appropriate resource allocation and execution remain critical factors to our growth within the HoFH market opportunity. We continue to believe more HoFH patients reside within cardiology practices. We believe there is growth potential in this segment, as well as with lipidologists. We are just beginning to see traction in our newly expanded sales force and believe our timing to extend our sales force reach was appropriate.

We are seeing more activity with new doctors. In the first quarter, the majority of recorded calls were on new doctors. We also saw the portion of our total scripts, which come from new writers, increased by nearly 50% this quarter versus last quarter, creating a broader prescribing base. We believe there are still more cardiologists and other physicians who have HoFH patients, which we have yet to reach. However, with the expanded team we are making meaningful gains to do so. With strengthen processes and teams, we believe strong execution in the coming quarter will lead to solid growth. Reimbursement continues to be on track. While payers continue to scrutinize the work and drug category including JUXTAPID, we believe we continue to be diligent in our access efforts.

Turning briefly to our international business. Our progress for global expansion with lomitapide also continues in other markets. As we have previously discussed, named patient sales from our international markets can be difficult to predict, and can fluctuate significantly on a quarterly basis. We had a meaningful number of price quotations requested from government authorities in Brazil for which, we expected to receive orders in the first quarter, but did not receive the orders as a result of longer turnaround times between price quotations given and the actual government orders received than we had experienced in the past. Brazil also has been challenging on the regulatory front. We are in the process of appealing a rejection of the registration of JUXTAPID by ANVISA. We believe we have strong arguments to overcome the rejection, but we can't be certain of the outcome at this time. Importantly, we do not expect ANVISA's decision on our appeal to affect named patient sales in Brazil. And we expect named patient sales there to grow in the long-term, given the number of HoFH patients in the country, and the level of interest among physicians. Additionally, we have the opportunity for possible named patient sales in the future in Argentina, Columbia, Taiwan, Italy, and Turkey. Based upon our recent marketing approvals, we also expect some contribution to new [ph] product sales from Mexico and Canada in the second of this year. I'm excited about the long-term potential for some of these markets, particularly Brazil, Mexico and Canada, which are important markets with good potential for reimbursement. Management is fully focused on bringing JUXTAPID and LOJUXTA to as many adult HoFH patients in need as possible worldwide. We believe proper physician education and patient support will serve as the path to that success.

With that, I'll turn it back to Marc for an update on the EMEA business.

Marc D. Beer

Thanks, Craig. Moving now to Slide 5. Our efforts in the EU, to bring LOJUXTA to the market, are tracking slowly but in line with our conservative expectations in this region. We have submitted global dossiers to the necessary authorities in key market according to our prioritized plan, which are required prior to the reimbursement discussions.

In Germany, the G-BA issued a draft decision for LOJUXTA of no additional benefit based on technical deficiencies with our dossier, which resulted in the dossier being found to be incomplete. With our technical deficiencies in the dossier under German law, by the definition, the drug under review is automatically put into a certain category called no additional benefit, without a complete review of the clinical merits. As a result of the technical deficiencies, the LOJUXTA dossier was not fully reviewed. We have submitted our written response and participated in the oral hearing to attempt to remedy these deficiencies and expect the G-BA to issue a final opinion in Q2. We have been advised, however, that it is probable that even after a written response and an oral hearing, the G-BA will still deem dossier technically incomplete, given the mandate of the German process. This would impact our ability to establish an acceptable price in Germany. If that occurs, we would expect to file a new dossier in 12 months, the timeline established on the G-BA regulations, which we believe would enable a full review by the G-BA on the clinical merits. We continue to anticipate pricing and reimbursement decisions in our EU countries commencing in the second half of 2014. And as we've said, while Europe is an important market, with long-term potential, it remains a challenging market for establishing reimbursement. Our strategy is to keep European operating expenses low until we have received reimbursement and pricing approvals in each country. We believe that the majority of our revenue in 2014 will still come from the U.S., and to a lesser extent from non-European x U.S. markets, primarily Brazil.

Now let me turn briefly to Dr. Mark for an update on our clinical development activities and plans. Dr. Mark?

Mark Sumeray

Thank you, Marc. We are pleased to have initiated a therapeutic working study of lomitapide in Japanese adults HoFH patients. This study is intended to generate data to support a planned filing for marketing authorization in Japan. The Japanese regulatory authorities have indicated they will allow the new drug application to be filed following completion of the 26-week efficacy phase, and our goal is to submit our Japanese NDA as early as mid-2015. The Phase III open-label trial in Japan is similar in design to the completed Phase III trial in the United States and other countries. Estimated enrollments between 5 and 10 adult HoFH patients, who are receiving concomitant lipid-lowering therapies, including, in some cases, apheresis. The primary endpoint is the mean percent change in LDL cholesterol levels from baseline to week 26. Secondary endpoint includes the mean percent change in lipid parameters, long-term safety, and changes in hepatic fat from baseline to week 56.

Regarding our pediatric initiative, we continue to work with the FDA and the Pediatric Development Committee of the EMA, on a unified protocol for a clinical trial of lomitapide in the treatment of pediatric HoFH patients. Assuming we're able to gain alignment with the agencies, our goal continues to be to initiate that study late this year.

As part of our post-marketing commitments to both the FDA and the EMA, we initiated an observational cohort study in the first quarter to generate additional data on the long-term safety profile of lomitapide, the patents used in compliance and the long-term effectiveness of lomitapide in controlling LDL cholesterol levels.

I'd like to note that we have continued to monitor the progress of potential therapeutic candidates to treat familial chylomicronemia or FC. FC is a rare genetic disorder, resulting in impaired function of lipoprotein lipids and can manifest as acute pancreatitis due to severe elevation of triglyceride levels. As you may recall, we have FC patients who've been treated with lomitapide by compassionate use, one of whom has been on therapy for 14 years. However, given the early encouraging data from the PCAT-1 inhibitors, we choose to de-emphasize our focus on an FC program in 2012. We are currently reassessing the competitive landscape, and the feasibility of initiating an FC development program with lomitapide, dependent on the PCAT-1 inhibitor base for this indication, as well as other market considerations. We will keep you appraised of our evolving plans for this program as they develop.

Finally, in light of recent news regarding the PCSK9 inhibitor candidates, I would like to reiterate our view of this drug class. The data reported to date are encouraging, and if approved, we believe there will be an important treatment option including the hypercholesterolemic patients, who are not in treatment goal due to statin resistance or intolerance. As you may know, inhibition of PCSK9, works by increasing hepatic cell surface levels of the LDL receptor. And while drops in LDL cholesterol comparable to the efficacy of statins in the general population are likely to be observed, we wouldn't expect them to be adequately effective in HoFH patients with defective or absent LDL receptors, nor to bring these patients to go.

In addition, we believe the increased potential on FH maybe a benefit to HoFH patients, many of whom may be unaware they're living with this genetic disease. We continue to believe that JUXTAPID remain an important therapy to help HoFH patients reduce their LDL cholesterol level, even when and if PCSK9 inhibitors are in the marketplace.

I'll now turn the call to Mark Fitzpatrick to review the financials. Mark?

Mark J. Fitzpatrick

Thank you, Mark. Turning to review of our financials on Slide 7, net product sales of JUXTAPID were $27 million in the first quarter of 2014, compared to $1.2 million in the first quarter of 2013. We now expect the trajectory of revenue in 2014 to be more weighted towards the second half of the year, when we expect our realigned commercial organization to begin to show increased traction. 96% of net product sales in the first quarter came from prescriptions written for U.S. patients, and 4% were from prescriptions written for x U.S. patients. Products shipped fill named patient orders outside the U.S., is often for multiple months of therapy, and as discussed earlier, order quantities can fluctuate significantly from quarter-to-quarter.

Total operating expenses were $39.7 million for the first quarter ended March 31, 2014, including $31.8 million for SG&A and $7.9 million for research and development. This compares with operating expenses of $19 million, including $13.2 million in SG&A and $5.8 million for research and development in the first quarter of 2013. Operating expenses for the first quarter of 2014 contained $8.5 million of stock compensation expense compared with $3.6 million for the first quarter of 2013. We had a GAAP net loss of $15.8 million or $0.54 per share for the first quarter of 2014 compared with a GAAP net loss of $18.1 million or $0.64 per share for the first quarter of 2013. Non-GAAP net loss was $7.3 million or $0.25 per share for the first quarter of 2014 compared with a non-GAAP net loss of $14.6 million or $0.51 per share for the first quarter of 2013. The increases in selling, general and administrative expenses in the first quarter of 2014 over the comparable period in 2013 were primarily related to the increased headcount in both selling and administrative functions, as well as outside services required to support the commercial launch of JUXTAPID in the U.S. and our global expansion and the increased legal fees. The increase in research and development expenses for the first quarter of 2014 over the comparable period in 2013 was primarily related to increased employee costs related to the company's medical affairs and international regulatory activities, as well as increased clinical development expenses associated with the development program for the pediatric HoFH indication.

Turning to the balance sheet, we ended the quarter with $116.8 million in cash, cash equivalents and marketable securities as compared to $126.2 million as of December 31, 2013. Our cash used in operating activities was approximately $9.3 million for the first quarter of 2014. We continue to believe that we will achieve cash-flow-positive operations in the second half of this year.

As we noted in today's press release, we have revised our expectations for global lomitapide net product sales in 2014 to between $180 million and $200 million from the prior range of $190 million to $210 million. This change in guidance was made primarily as a result of longer turnaround times and in some cases, delays in receipt of government orders in Brazil. While we believe there is significant HoFH market opportunity in Brazil, we do not know the exact scope of these delays or for how long they will persist. As a result, despite our belief that the government will ultimately determine that there has not been a violation of the Brazilian Anti-Corruption Laws, we have adjusted our 2014 net product sales guidance, accordingly.

We expect total operating expenses, excluding stock-based compensation expense, to be between $145 million and $155 million in 2014. Including stock-based compensation expenses, we expect total operating expenses to be between $185 million and $195 million in 2014. Based upon our current forecasts, we believe the upfront investments we've made have optimized our U.S. commercial operations to a scale that we expect will support our U.S. growth in the next 3 years while we will continually asses our size and investments related the U.S. HoFH market opportunity. We expect to see substantial leverage from these investments beginning in 2015.

Now, I'd like to turn it back over to Marc Beer. Marc?

Marc D. Beer

Thanks, Mark. We are still in the early days of our global launch, and look forward to seeing the impact of the significant optimization and calibration we recently undertook. HoFH is a newly developing global market and we believe we are paving the way for anticipated long-term growth. We have achieved significant accomplishments in a short time since the approval of our first product, just less than 1.5 years ago. We are focused on driving the cash-flow-positive operations in the second half of this year. We have confidence in our ability to navigate through the challenges inherent in building a global organization. We see the opportunity for continued value creation based on global commercial expansion, our focus to bring JUXTAPID to the HoFH market in Japan, a market which we anticipate can be 1 of our top 3 among U.S. and Brazil. And a potential unique product launch to the pediatric HoFH patient population. We're confident in our ability to execute on these plans to capture the full market potential of HoFH and to grow our business.

Operator, I'd like to now turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Nicholas Bishop with Cowen and Company.

Nicholas Bishop - Cowen and Company, LLC, Research Division

My question is kind of around the U.S. sales in the first quarter. If you just kind of take the patients that were on drug at the end of the year, and project the revenue I expect from those, it kind of seems to imply that there was sort of no net addition of patients in the quarter. So, first, is that accurate? And secondly, maybe you could talk a little bit about exactly what you expect to accelerate that so much in third and fourth quarter to get to your new guidance.

Marc D. Beer

So Nick, thanks for the question. I want to characterize Q1 accurately. So let me make a couple of cover comments on this and then I'll ask Craig to add any additional characterization in Q1. We significantly invested in a couple areas that we believe are paying off. We're seeing early signs of that, both in field sales people, and I want to emphasize, we realigned territories. So we took the existing individuals out of their current territories to a large degree, because when you increase at the size that we increased, you shuffle territories. And majority of our calls where on new physicians, and we had a large percentage of our scripts coming from previous non-writers that we weren't calling on. So all that optimization was happening in the quarter, now let me characterize the quarter. The first half of the quarter was lighter on scripts than we expected in the back half, couple last 6 weeks of that quarter, we saw a really nice uptick in scripts. And we've seen that early. We've got 1 month into the quarter in Q2, so we're seeing that trend continue. So the expansion caused lighter scripts over the whole quarter because of the first half-ers in the second half of the quarter. We're not going to comment on net patients by quarter. We'd like to get away from that and maybe trust the guidance. But I do want to tell you that taking a business from $48 million to the previous guidance of $192 million to $210 million is a significant uptick in growth, and the $10 million -- call it the $10 million adjustment in the top line and the bottom line of that range was due to the slowing of orders in Brazil, not to the U.S. business. So, we see the U.S. business growing nicely. It wasn't for the slowing of business in orders of Brazil. And that is not a reflection. Let me be clear on Brazil, of the demand, the patients identified, and the cardiologists excitement about the product, it truly is pulling those orders through the government even after when a court case because named patient sales going to court case, and then, you get the order from the government. So it's slowing at the government, not at that demand or interest. So coming back to the U.S., I was pleased with how we've executed the expansion and what I'm seeing in new writers and the trends that I see out of the U.S. market. Craig, do you want to add anything to the Nick's question.

Craig E. Fraser

No, the only thing that I would say, Marc, is that, yes, we had growth in this quarter in the U.S. to your point, and with the -- I mentioned the slower script starts and the reasons for that early in the year, new patient starts lag the scripts as we've discussed in the past as well. So while we finished with that uptick in the second half of -- the latter half of the quarter, you have a time delay before the new patient start as well. So that was a factor related to new patients starts but there was certainly growth in the quarter, quarter-on-quarter.

Operator

Our next question comes from Cory Kasimov of JPMorgan.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

I guess, my main question is why there was not a pre-announcement here. If you had issues with Brazil, the weather in the U.S. and some disruption with your commercial sales force impacting 1Q, isn't that something you could have communicated before now, and along these same lines, I appreciate you publicly reiterating your confidence in the long-term outlook for JUXTAPID, but was the stock now off roughly with a 60% from its highs, what does it take to trigger insider buying?

Marc D. Beer

So, So, Cory, I'm going to comment on early beliefs, and then I'll ask Fitz to comment on it. I have not been asked that question previously, but, when I consider early release, I think about the risk of not getting our numbers absolutely right in a company of our size, where we have revenue coming out of multiple countries. So I am very careful about ever committing internally to an early release than having revenue understood by country, being the size company we are. I do think it's easier for larger companies and that may be challenged by certain individuals but I actually think that a company of our size, the early release, you better make sure you understand all that revenue coming out of different countries, and it's difficult in our size companies. So we may do that in the future when I feel more confident, we've got the numbers absolutely right in the early release, but that's the risk of early releasing and I think releasing on time, like we have, is much better to do that accurately than risk a restatement, which I just hope we're not in that situation ever. Mark, would you add anything to the early release question, that's not one that I've previously gotten.

Mark J. Fitzpatrick

Yes, no, Marc. Every ounce of revenue here at the company is material and essentially going through the U.S. business patient by patient, payer by payer, whether they are government patient and Medicaid or Medicare, whether we've got to compute rebates, have our auditors go through the review, get it before our audit committee. It's a process. And I know every company goes through that, but it's a process that takes time. Our Brazil revenue is via a distributor, we have a very conservative revenue recognition policy there, that revenue is both on a sell-through basis, that is, when our Brazilian distributor receives those orders, that's when we count that as revenue, not when we ship that product to our distributor. So we take disclosures seriously as we can, near possibly can. And we have set up this date and just stuck with it, Cory. So that's my response.

Marc D. Beer

Let me comment on your second part of the question, Cory, which is when are you going to see insider buying, and I think, the net category focus should be on operating executives personally, including myself. And, I was not eligible because of the short swing of buying until May 1. And there is a policy that posts our release that I can't buy until 1 full day of trading. So just so you understand, if you see in the future me buying, I will always be supersensitive of what I can and what I can't. So I'll leave it there. The first eligible time that I can buy will be Thursday of this week, just to give you the technical answer. Obviously, I can't give you any intent but I just want to give you the factual answer that I obviously have been in the blackout period, that blackout period releases, as I release the financials, with 1 caveat, 1 full day of trading and then I'm eligible on Thursday. I hope that answers your question.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

Yes. And is a corporate stock buyback something you guys would ever consider or do you need to save the cash for other uses?

Marc D. Beer

I am very excited about where we can put that cash in our global expansion, in our clinical development, even though, we're going to break new cash flow positivity in the back half of the year with a healthy balance sheet, I still think it's responsible for us now. We do consider it. I do get asked by investors about that. And Mark and I, we analyze it with our financial advisors, and we socialize it with the board, but at this stage, I don't think it makes sense for us at the corporate -- different form the insider buying question, at the corporate level. I don't think -- our balance sheet and our growth potential in the future, at this stage, I don't think it makes sense corporately.

Operator

Our next question comes from Steve Byrne with Bank of America.

Tazeen Ahmad - BofA Merrill Lynch, Research Division

It's actually Tazeen Ahmad for Steve. Just a couple of questions on things that we talked about maybe in the last quarter. The first one is, have you seen any success in converting some of the patient non-starts that you talked about a little bit in the last quarter. I know that you've increased your sales force and you've made some commentary about that, having some good impact. But I was just wondering, whether you can elaborate that. And also, are you providing an update on your current number of field reps?

Marc D. Beer

Tazeen, let me answer both, starting with the non-starts and I think, we will see a direct correlation in the future of our performance on non-starts and dropouts because, from our studying of why we had non-starts and dropouts, it comes down to education of the disease, by both us and by the physician. We recently conducted a large market research study. Craig did this study with his staff -- of patients in 2013, to better understand why we have non-starts and dropouts. And that's why we put the medical educational organization in these nurse educators. And we, as Craig talked about in our prepared comments, we've seen early signs of success there. So we're really excited about the full course of 2014 on the script trends in the U.S. combined with this nurse educating group, to affect -- positively affect the non-starts and the dropouts. It's too early and the numbers are too small and the numbers of individuals we have out there, and the number of people who have been educated on that, for me to make a quantified or qualified comment, but we've seen early trends that I think make it encouraging about that layer that we put in place. We're not public about the number of sales reps because we have competition in the U.S. with Genzyme organization. But I think you can look directly at our operating expenses increase in the order of magnitude will be clear to you on how many scale of expansions we did. And I want to emphasize something, that was not because we felt like territories were being exhausted, it was just, when you look at who is writing for, who's identifying the HoFH patients, and then you look at the number of physicians that are out there, that we can potentially call on. We go through a very methodical model of how many sales reps you should put in place to optimize the top line growth. And it's because of that, that we did the expansion. It was the opportunity we saw on the number of patients in front of us versus exhaustion of any individual territories. Craig, would you add anything to those 2 questions?

Craig E. Fraser

No, Marc, I think, we're doing the right things that from our understanding of the best practices that are involved with patients coming on to this therapy, also forming the entire patient engagement team that the nurse educators are part of with patient ambassadors, and peer-to-peer programming and so forth, will also be, I think, an important ingredient to round out the picture with the nurse educators. So we put those that into place and, as Mark mentioned, starting to see some early signs but we're still in the process of scaling up those operations including increasing the number of registered dieticians and so forth based on these understandings of what works and what's needed.

Tazeen Ahmad - BofA Merrill Lynch, Research Division

And how long do you think it'll be before your sales force becomes fully productive? I know you mentioned that there was a period where you would expect some downtime?

Craig E. Fraser

Yes, I mentioned that we see the early signs, in fact, of the sales force as we ended the quarter in the latter part of the quarter, and in the early signs that we're seeing in the second quarter. The downtime is really, as I've mentioned, for new hires to come on in a month, in the latter part of January, the training, the global meeting and so forth and really getting out into the field in February, and then really understanding the job and beginning to make impact, and we're seeing those signs as we ended the quarter and began the second quarter. Right now, we have a team totally focused on making sure that, things like performance consistency and training and coaching across the entire team of all the new individuals is matched with all the learnings of the previous representatives that we have that we started this year. As we go on the year, we'll continue to see increasing traction from that investment, from those new representatives with it most meaning -- being meaningful in the second half of the year.

Tazeen Ahmad - BofA Merrill Lynch, Research Division

Okay. And then, just a general question on discontinuation rates. I know you're not providing exact numbers anymore, but directionally, I think you ended the year with about 15% or so. How was it looking in so far this year? And I would imagine you've had some patients on drug now for about a year. And are you seeing in at least some of those patients that have been taking it for a longer amount of time, any kind of drug holidays?

Marc D. Beer

Yes, Tazeen, as Craig indicated, at the end of our Q4 call, we'd like to get away from quarterly quantification or qualitative statements around dropout compliance or non-patient starts. But really focusing on the revenue guidance and growth and the predictors around that business. We did say in the Q4 call, though, on an annual basis, we'll pick the most meaningful ones that can give you the clearest view of the business, so we'd like to do that more in an annual basis. Not any one metric, in particular, but focused on what is relevant at that time. I do believe, though, that we've got a POA meeting that Craig just concluded. So we had the whole sales force together for the last 2 days. And I was there yesterday and my observation is that Craig is focused on absolutely the right investments and the right direction, to positively impact those and to show that over the course of this year, but I think, my view is that Craig is totally focusing his organization on the right things that have positive impact on both patient non-starts and dropout.

Operator

Our next question comes from Eun Yang with Jefferies.

Eileen Flowers - Jefferies LLC, Research Division

It's actually Eileen Flowers in for Eun Yang. What's your current growth in that discount for JUXTAPID?

Mark J. Fitzpatrick

On a global gross to net is running at 5%.

Eileen Flowers - Jefferies LLC, Research Division

Great, and then can you give us a script conversion rate from Rx to patients?

Marc D. Beer

Say Eileen, could you ask that question again?

Eileen Flowers - Jefferies LLC, Research Division

The script conversion rate from Rx to patients?

Mark J. Fitzpatrick

We haven't given that metric, Eileen. [indiscernible] given in the past [ph], Marc, you have?

Marc D. Beer

Never.

Mark J. Fitzpatrick

Yes, That's not a number that, frankly, I have in front of you right now, but it's also not a metric we've given in the past.

Operator

Our next question comes from Robyn Karnauskas with Deutsche Bank.

Mohit Bansal - Deutsche Bank AG, Research Division

This is Mohit for Robyn. My question is regarding your guidance. Looking at your first quarter sales in U.S. increased [ph] by 22%, if you're seeing a 24% growth for the remainder of the year, you get $247 million number. Adding that, and then I mean -- how confident are you to have the kind of sales in the U.S. [indiscernible] And then [indiscernible] amount of sales in the [indiscernible]?

Marc D. Beer

Mohit, this is Marc. I can't understand your question. But I think it's because of the phone you're calling in on. Can I ask you...

Mohit Bansal - Deutsche Bank AG, Research Division

[indiscernible]

Marc D. Beer

If you can call on another phone. We'll go to next question. If you can call in on a phone, we'll ask the operator to look for your call, and we'll put you in the front of the queue.

Operator

Our next question comes from Joseph Schwartz from Leerink Partners.

Joseph P. Schwartz - Leerink Swann LLC, Research Division

You mentioned some precedent for Brazilian investigations in the past. I was wondering, if you could walk us through what happened. Any situations we would recognize in retrospect? And then when we've done checks, we've heard that cost has been a factor for some patients. And so I was wondering if you could give us some brackets around what it's costing for patients to receive JUXTAPID.

Marc D. Beer

So, Joe, I'm going to take on the question around Brazil. And then, I will ask Craig to comment about the cost per patient. I assume, your question on cost is more of a U.S. question because our Brazilian patients, they don't experience cost, their government pays all of it. So, let me answer the Brazil question, then I'll have Craig answer the cost in the U.S. I'm glad you're asking this so I can elaborate a little bit on this because, in Brazil, the question is not a on-label or off-label typically. Their concerns when they see a named patient drug gain traction, the expense of it, they want to make sure that, along your supply chain, it's not always an employee, it can be employee, maybe it's not an employee, but they want to make sure that there's no corruption either in the judicial level, at the physician level or at the patient level. So they go through a investigation to make sure the patients are real, the physicians have written a prescription, so they want to talk to the physicians. And that there's no corruption along their supply chain. In Q1, Dr. Mark and I made a trip out about 6 weeks ago, to Brazil, and, we started out with our distributor, and met with the distributor, and in essence, that was the whole supply chain, and we also had several government official meetings, where we went and educated on the disease, on the drug, on the prevalence of this disease in Brazil, so they know what's coming, and these are things that we're going to more proactively do in Mexico, in Canada, in Japan as we launch into those markets. These are not in common. We have several employees from other orphan companies that work for us, that have seen these investigations and in the industry, companies have seen these investigations specifically in Brazil, making sure there's not corruption. There have been no allegations made towards the company, just so you know that, but it is an investigation to make sure there's no corruption along the entire supply chain in how we do business in Brazil. I have great comfort that we've got experienced leadership team, our country manager in Brazil was a long-standing good executive at Genzyme and Alexion. She's a very talented Brazilian leader. She now runs all of Latin North America for us. And our President -- our Head of International is a long-standing 17-plus year executive from Genzyme who has a lot of history in Latin America. So we've got great leadership over that region. I feel totally comfortable with this investigation going on. But the one thing I'll emphasize is that these are common, but the one thing that from our experience and our advisers in Brazil is that it's not a basis for holding up or slowing down orders. Now that may be budgetary, maybe investigation-driven, maybe a combination of both. But the investigation should not be slowing our orders down, but it is. I'll be going back down in Q2. I got a lot of experience of building business in Brazil, and I will be going back down with Dr. Mark and others to continue to build the relationships at the government affairs level. And our message to Brazil, from a government affairs standpoint, is broad. We're not just putting medical affairs in sales and marketing people in Brazil, in cash and revenue. We're going to invest back into Brazil, we're QC-ing sites right now for the pediatric trial for example. So we've plan on doing clinical development, investing back into that country. So we have a good story to tell, we just have to spend more time on government affairs to tell that story. Let me transition over to Craig for the cost question. Craig?

Craig E. Fraser

Thanks, Marc. To answer the question is, the cost per patient varies, of course, by patient and by the type of plan that they're on, and whether it's co-pay, or coinsurance, or what have you. But as we've looked at it, this was obviously a common issue, typical issue with high-priced drugs, certainly the rare disease products and the cost to the patients have been in line with what we've expected from launch through this time frame. There are resources available to the patient and, in fact, we give some support to those types of resources, those resources are independent, nonprofit entities, who obviously look at a patient's need, based on need, they make an independent decision, what they can do with regard to financial assistance. So this is something that we monitor and watch and it's been about in line with expectations.

Operator

Our next question comes from Robyn Karnauskas with Deutsche Bank.

Mohit Bansal - Deutsche Bank AG, Research Division

This is Mohit. I am sorry about the bad line. So my question is regarding your guidance. I mean looking at your U.S. sales growth in this quarter, if you assume a 24% growth for the remainder of the year every quarter, you get to only $147 million in sales. And then, you mentioned that you're not assuming [indiscernible] from next year and this year, how confident are you given that you need a steep curve from here, how confident are you in your guidance and then where would you get [indiscernible] from?

Marc D. Beer

Mark, why don't I transition that over to you on how comfortable we are on guidance. And then, Amanda, if you could help me with the second question. Go ahead.

Mark J. Fitzpatrick

So, Mohit, we provided the guidance update as adjusted for Brazil, as I outlined in my discussion during the call. So we came into this year with a plan knowing fully well there was realignment of the sales force and training, and deployment in mid-January, taking place. So we believe we properly weighted our revenue growth throughout the course of the year, primarily in the U.S. where the majority of our revenue is from and secondarily from Brazil, which is the second-largest country in which we have revenue. Now we've got to make modification here, with the guidance that we provided you today as we've had to take a much harder look at the Brazil orders. Our Brazil orders are coming in, in the federal level. We have orders just recently as this past week, in the month of May. So they are coming in. They're just coming in at a slower pace. So we've had to bring that to the model to be able to provide the revisions that we're comfortable then going back on the line with the investor audience and saying, we're comfortable with our $180 million to $200 million guidance based upon our analysis.

Marc D. Beer

Yes, I would just reiterate what Mark's saying that the delta of $10 million on the upper end of the range and lower end of the range was tied to our slower order production out of Brazil. We plan on spending a lot of time there and hopefully, we'll be able to impact that. We wanted to take the slowness in the order production out of Brazil. Again, it does not reflect the demand and desire of Brazil, but it does reflect the reality because we don't put the revenue. We have a conservative revenue recognition -- definition here in the U.S. It's tied to each patient, formally signing off on receipt of the bottle, and, in Brazil, we had that order in hand. So we don't collect the revenue just when we ship it and stock it at a distributor. We have to have confirmation of orders. So we have a very conservative revenue model, which I like, and if that order trend slows down, regardless of the demand of the country, we're going to feel it, and that's what we felt it in Q1. And we tried to reflect that in our model by bringing down the guidance by $10 million on the upper side of the range and the lower side of the range.

Operator

Our next question comes from Kim Lee from Janney Capital.

Kimberly Lee - Janney Montgomery Scott LLC, Research Division

So, as you look at -- you stated that second half of the year we'll see a boost up in revenue, what gives you the confidence given the timing of the Brazil investigation remains unknown as to conclusion of that? What gives you confidence that revenue will accelerate in the second half of that year and how should we look at getting to your range of guidance.

Marc D. Beer

So Kim, good question. My comfort is around the early trends of the expansion. So we look very closely. Craig has how many scripts and patients on therapy that we have with the previous size of our sales force. And then, how does that production per rep look coming out of the first quarter with an expanded sales force and how do we take those trends to the business for the rest of the year. And we have a very defined model in the U.S. The majority of our revenue this year, even with the growth of international, is going to be the U.S. So obviously, we've got to get the U.S. right, and we feel good about what that's going to produce in the next 3 quarters. And then when you go to international, the course correction we made in our guidance was tied directly to our second-largest market, Brazil. If we're successful, I think, with government affairs and having an appreciation at the government level, the severity of this disease and the importance of not keeping these patients off of therapy, I think that there's an opportunity for our Brazil business to be stronger but we wanted to take what we're seeing in Q1 right to the model. That's what we did in pulling down our guidance. And then, the one thing I want to emphasize when you asked a question about the impact of pulling it down in Brazil is that the investigation is going on, it's isolated to a certain geography that is in São Paulo. So we've got a lot of business outside of São Paulo in Brazil that we continue to do orders. Those orders again are coming in slower, but we get those orders. So I think, the Brazil government is on a broad basis, managing their budget and this is a new therapy so we're feeling some of that. But I think with good execution in government affairs, we can have a positive impact on that. So I feel good about the guidance, and I believe we'll see the growth that we're forecasting in our model, and maybe get a good understanding of the trend and different metrics. So the $180 million to $200 million, I feel good about that guidance. Do you have a follow-on, Kim?

Kimberly Lee - Janney Montgomery Scott LLC, Research Division

Yes, and as far as -- you had mentioned that seeing the new patient starts that you've seen from -- in first quarter from last quarter, it would help to know what percentage of growth you're seeing there and how you think that will continue going forward into the second quarter and so forth?

Marc D. Beer

Well, I think that we're seeing some...

Kimberly Lee - Janney Montgomery Scott LLC, Research Division

Yes, can you give us some color on how big that growth, what percentage of growth that is in new patient starts and then if you're seeing still the effects there of non-conversions of scripts to patients getting on drug?

Marc D. Beer

So the leading indicator for us, and Craig tried to cover this, I think, in his cover comments, the leading indicator for us, obviously, is scripts. And the trend in the back half of Q1 and the early trend in Q2, we've got 1 month behind us in Q2, has been that the expansion's working. So those scripts have to go through an approval process for payment and then ship. So the vast majority of the increase we're going to see in the back half, so we're trying to get real clarity and transparency around when you're going to see it in top line growth, but the early indication for us is that we trained the sales force in late January, third and fourth week of January. So they got about 2 months in the field. The first month's difficult, because they're just coming up to speed. But we did see traction in the last 6 weeks of the first quarter and we saw it in the first quarter of the -- the first month of the second quarter in the expansion. So you won't see a lot of that top line growth in Q2 out of the U.S. expansion. You'll see the majority of the firepower delivering in top line revenue in the back half but it's just a timing issue of hiring them, training them, giving them optimal, and then the script production we're seeing, so we'd like to see the trends on the scripts, but it takes a couple of months for the scripts to generate revenue. That's why you won't see the revenue until the back half. On the expansion specifically, you'll see it overall, but you won't see it on the expansion.

Operator

The last question comes from Bill Tanner with FBR Capital Markets.

William Tanner - FBR Capital Markets & Co., Research Division

Marc, just on the back on the G-BA assessment, I don't know if you want to characterize what the technical deficiencies were and why they actually occurred, but I would just to be curious as to your thoughts then on how -- whether this might impact the approval in other countries. And then just getting back to Germany, what would you anticipate potentially this assessment doing as it relates to the ability to price the drug, or how you price the drug. It seems like it wouldn't be completely decoupled.

Marc D. Beer

Yes. Bill, this is a good question. And the one that I thought I'd probably get in the orphan space very well, so I understand why you're asking it. I don't think the Germany technical glitch in our reimbursement dossier will affect our ability in other countries. I think we're having good progress in other countries. As we previously communicated, we're expecting 9 to 15 months depending on European countries, when we'll get the read on pricing, but we're in discussions with other countries, and we feel like those discussions are going the right direction in different countries. So I don't think that technical glitch in this with Germany is going to affect other countries. Now, that said, I know I will emphasize that the German impact is not going to significantly affect our financials in 2014 because we didn't expect a lot of sales out of Germany in 2014. So when we adjusted our guidance, it was tied really to the slower orders in Brazil and nothing to do with this glitch in Germany. It's just -- we thought even if we succeeded on reimbursement in Germany, the European market is going to be a slower-growing market. They just have, I think, a governor on the growth of orphan products across Europe because of the financial situation in Europe and we had forecasted. That's why we're investing slower and more carefully in all European countries until we get these reimbursements approved. So it is going to most likely be a delay in Germany. We will have the final answer. We'll get it this quarter, we hear. I think the hearing that we had went well, but they also communicated that it's not typical for us to turn this ruling around. So I'm not counting on the ruling being turned around to be clear. But we will definitively the outcome of this glitch in our dossier in Q2. And then we'll comment on that in the future. But I don't think it's going to affect our financials drastically in 2014. But it will create a delay in Germany. But as we hear the outcome in the different European countries, we'll give you the feedback in France and Italy, and the other European countries as we learn what the outcome is, but I don't think there's going to be a crossover, given the communication in these different countries. I don't think we're going to feel that outcome because it wasn't a full assessment of the clinical merits of our product. It was a glitch. So I don't think that, that will impact us in different countries.

William Tanner - FBR Capital Markets & Co., Research Division

But what you're seeing over there or in any of these countries, does that change your aspirations as it relates to pricing? I mean, I don't think you've ever actually come out and said what you expect. But I'm under the impression that you guys were thinking that pricing in Europe would be not that dissimilar from the U.S., anything that you're encountering. Even if you would delay or not, that makes you think that, well, maybe, it's not going to be priced at that level anymore, potentially?

Marc D. Beer

No, but I think one of the things that -- so what I said in the past on this topic is that, we won't go into a country, if we can't get an acceptable price because precedent pricing is very important. And the named patient sales in different countries, they make it clear to us that precedent pricing will impact us adversely if we choose to go into a market with a significant discount. So that's the most important global pricing philosophy is that, you just can't drop price significantly in one country, just because that's all you can do in that one country because that will affect you broadly. But I do believe, we'll hold, relatively hold the net price to the company on a global basis. And in certain countries, we may have to cap patients by certain number of years. So there's different things you can do to help countries handle the budget. So we're prepared to do that if we have to in certain countries because, I think, we have a good handle on the patient tracker and how many patients are in those countries. So if we have to cap a certain number of patients to keep the price at an acceptable level, then we will. We don't have any evidence of that yet but those discussions, eventually, will probably come to fruition in certain countries. And that's how you keep the price at an acceptable level, and you allow it not to impact precedent pricing in other countries.

Operator

Thank you. This ends our Q&A. I'll turn it back to Marc Beer for closing remarks.

Marc D. Beer

Okay. So I would like to make a couple of closing remarks. First, thanks everybody for getting on. We've had about 3.5 year build from IPO to approval to initial launch, and we've had several quarters of just great execution on gaining approval in the U.S. and in the EU. And then the launch last year exceeded our expectations and outpaced what we can handle from an internal patient processing and scripts, et cetera. But these are growing pains on a global basis. I believe they're temporary and the most important thing that I'd point you back to are the fundamentals of the business, the physician feedback on JUXTAPID, in general, is very positive. That's a global observation. Dr. Mark and I met with physicians in Brazil that represent approximately 50% of our patients in Brazil and the feedback was very favorable and their understanding of the disease, understanding of our product, both from an efficacy and a risk standpoint, and the feedback on the impact on the patients. So the physician feedback on JUXTAPID, is one of the fundamentals we'll look at very closely and the number of patients that we see out in front of us is one of the things that we look at fundamentally. So some of the challenges we're undertaking at this point in time, I believe, are temporary. We'll work through them and focus on building long-term value.

I look forward to reporting Q2 results at the end of Q2. Thanks for joining us tonight.

Operator

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!