Horizon Therapeutics PLC (HZNP) 2014 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Horizon Pharma plc third quarter 2014 earnings call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference call is being recorded. I will now introduce and turn the conference over to Elizabeth Higashi, Vice President, Investor Relations.

Thank you, Nicole. Good morning, everyone. We issued a press release earlier this morning, which provides the details of Horizon Pharma plc's financial results for the third quarter and nine months ended September 30, 2014 as well as a summary of our updated net sales and adjusted EBITDA guidance for 2014 and 2015. The press release we will reference on today's call is available on the Investor Relations Events section of our website at www.horizonpharma.com. Leading the call today will be Tim Walbert; our Chairman, President, and Chief Executive Officer; who will provide a corporate overview, an update of the commercial performance of ACTIMMUNE, DUEXIS, RAYOS, and VIMOVO as well as our recent acquisition of the US rights to PENNSAID 2%.

Paul Hoelscher, our Executive Vice President and Chief Financial Officer, will discuss the financial highlights from the third quarter before turning the call back over to Tim for Q&A. Also on the call this morning are Bob Carey, Executive Vice President and Chief Business Officer; Jeff Sherman, Executive Vice President, Research and Development and Chief Medical Officer; Brian Andersen, Group Vice President and General Manager of our Orphan Business Unit; Terry Evans, Senior Vice President, Managed Care and Trade and General Manager, Primary Care business; and Ben Bove, Senior Vice President, Commercial Strategy and our Prescriptions Made Easy organization. As a reminder, during today's call we will be making certain forward-looking statements including financial projections and the expected timing and impact of future events.

These statements are subject to various risks that are described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2013, subsequent quarterly reports on Form 10-Q, and our current report on Form 8-K that was filed this morning. You are cautioned not to place undue reliance on these forward-looking statements and Horizon disclaims any obligation to update such statements. Further, we will also discuss non-GAAP financial measures during this call to help you understand our underlying business performance. Reconciliations of these non-GAAP financial measures to the equivalent GAAP measures are provided in the press release, which has been posted on our corporate website.

I will now turn the call over to Tim.

Thank you, Elizabeth. And good morning and we're here in our new corporate headquarters in Dublin so good afternoon anyone over here. For us, the third quarter was transformational for the Company. As you know on September 19, the Company completed the acquisition of Vidara Therapeutics International plc and completed the resulting formation of Horizon Pharma plc headquartered here in Dublin. The Vidara acquisition was transformational for the Company to prepare us to optimally execute our corporate strategy of continuing to drive organic growth as well as aggressively pursuing the acquisition of incremental products and/or companies. We restructured our commercial organization into three business units; the primary care, specialty, and orphan business units; and we appointed three experienced commercial leaders to head each of these businesses.

This allows us to continue to drive growth of our base business as well as integrate acquired products into each business unit without disrupting the other groups. In the quarter we also announced that our Board elected Liam Daniel, the former Corporate Secretary of Elan and Virinder Nohria, the former President of Vidara to the Company's Board of Directors following the closing of the transaction. This morning we also announced that John Kody will join us in late November as our new Executive Vice President and Chief Commercial Officer. I've known John for years and we worked together at Abbott in the past. I'm very excited to have John join us and lead our commercial organization. He was most recently President of Leica Biosystems Richmond Inc., which is a subsidiary of the multi-billion dollar Danaher Corporation.

His role there included full P&L responsibility and the leadership and integration of multiple global acquisitions in the United States and Europe. Prior to this, John held senior management positions at Baxter, Abbott, and Lilly. We believe his extensive executive general management and commercial experience as well as leading and integrating global healthcare businesses throughout his career will be a great benefit as we continue to grow our Company both organically and through acquisitions. At this point, I'll walk through the third quarter results. The third quarter 2014 was another record quarter for the Company. We announced sales of $75.1 million, three times the $24.1 million in the third quarter of 2013 and approximately 14% higher than the second quarter of 2014. Adjusted EBITDA increased to $28.1 million in the quarter compared with just $571,000 in Q3 of last year.

In the third quarter for the first time, we reported positive GAAP net income in the amount of $2.1 million. Adjusted non-GAAP net income was $25.3 million versus a loss of $2.1 million last year. Reported income of $0.32 per basic share versus a loss of $0.03 in the prior year quarter and diluted income per share of $0.24 versus a loss of $0.03 last year quarter as well. Net sales for our products continued to grow in the quarter, in aggregate show an increase of 212% versus the third quarter of 2013. With ACTIMMUNE, which recorded sales for the period of essentially one week, September 19 to September 30, we accounted for $2.7 million in net sales for the quarter. DUEXIS net sales in the quarter were $22.8 million, up 6% versus Q3 of 2013. And RAYOS net sales were $5.6 million, up 200% versus Q3 of 2013. Net sales for VIMOVO in the third quarter were $43.2 million.

With VIMOVO, which we acquired on November 19 of 2013 for $35 million from AstraZeneca, we have recorded $119.6 million in net sales for the nine-month period to the third quarter, which significantly demonstrates our ability to rapidly integrate acquisitions and drive revenue. DUEXIS, RAYOS, and VIMOVO sequentially increased net sales versus the second quarter of 2014 by 28%, 44%, and 2% respectively. On a prescription basis, we also saw continued growth. DUEXIS prescription increased to 69,563 versus 47,200 in the third quarter of 2013, an increase of 47% and increased 10% versus the second quarter of 2014. RAYOS prescriptions increased to 3,867 versus a little over 2,300 in the third quarter of 2013, an increase of 67% and also increased 18% versus the second quarter of 2014. VIMOVO prescriptions in the third quarter were 80,254, which was an increase of 4% versus the second quarter of 2014.

As many of you may know, there was an understatement of prescriptions by IMS in the third quarter, which has continued into the month of October. Total prescriptions from two of our specialty pharmacies were not captured by IMS. We have heard from IMS and expect them to restate these numbers over the next several weeks. When we add back the missed prescriptions by IMS, we estimate prescriptions for DUEXIS, RAYOS, and VIMOVO versus the second quarter of 2014 increased 12%, 19%, and 5% respectively. Our products were understated in the retail channel for the October 2014 data month again due to the similar data issue where we had a miscapturing of several of our specialty pharmacies. For the November data month and data week ending November 7, 2014 we hope to have this resolved. For the month of October, we estimate the impact for DUEXIS prescriptions is 15% to 20%, for RAYOS 5% to 10%, and for VIMOVO 8% to 10%.

So we hope this restatement comes through soon by IMS, but certainly been an underreporting of actual prescriptions by our respective products. As we have reviewed in the past beginning in January of 2015, DUEXIS and VIMOVO will be on exclusion lists of Caremark and Express Scripts. Being on exclusion lists is not new to us as we've stated many times in the past. RAYOS has in fact been on Caremark's exclusion list since January of this year yet we've seen three consecutive quarters this year of double-digit sales and prescription increases with the product. We've completed a substantial amount of analysis on the effect of these exclusion lists on prescription volumes subsequent to being placed on the exclusion list based on past practices of 81 products over the last three years, which started in 2012 with Caremark and added in 2014 Express Scripts.

For the first six months after placement on this exclusion list or any of them, we found that there was an average decline of prescriptions of approximately 15%. We also found that approximately half of the revenue decline as a result of this loss in prescriptions was offset by price increases for those respective products. There are several factors that give us confidence in our ability to manage through this situation. First, while we may experience a decline in prescriptions reimbursed by Express Scripts and Caremark is only for those patients covered by plans that adopt their exclusion list formulary, which are those choice of drugs on formulary that are controlled by either Express Scripts or Caremark. We've also seen a situation where the estimated number of controlled lives by some of these PBMs is not as they had forecast so less of an impact than we had originally expected.

Based on recent information released by Express Scripts, in 2015 approximately 23 million of their 75 million covered lives are under plans that have adopted this exclusion list. Now this is considerably less than what Express Scripts communicated previously, which is that adoption of the exclusion list could be 30 million to 35 million covered lives in 2015. Approximately 57% of our total prescriptions are expected to be adjudicated by Caremark and Express Scripts. We expect that we may experience a decline in prescriptions reimbursed by these two PBMs solely in their controlled formularies, but in their non-managed or non-controlled lives we expect prescriptions for DUEXIS and VIMOVO will continue to be reimbursed at a full WAC cost with no rebates. Additionally, we now have pricing flexibility given we no longer will have price protection contracts in place at these PBMs.

The biggest issue we believe exists relative to these exclusion lists is not the impact of the exclusion list, but the impact of the noise associated with the PBMs at preventing first of all DUEXIS and VIMOVO being prescribed by physicians, but more importantly physicians who often prescribe to their most restricted formulary and often people follow that across their typical prescribing patterns. And because of this, our focus is to manage this what we call noise and we believe we're uniquely prepared to handle this noise issue through our comprehensive Prescriptions Made Easy program or PME. The goal of our PME program is to ensure patients receive the prescription their physician intended them to receive at the lowest out of pocket cost possible as well as minimize the hassle factor physicians and their office staff face when managed care and PBMs deploy prior authorizations, step edits, and exclusion lists; which creates substantial administrative work both to the physician and their staff.

Our PME program continues to progress in an increasing percentage of our total prescriptions. As evidence of the benefit the program offers to physicians ensuring their patients get the drug they prescribe and eliminating an administrative burden, our data shows that physicians who participate in our PME program prescribe our products almost 13 times the rate of physicians who aren't in the program. We are making continued progress on increasing the penetration of PME among our target physicians. Currently approximately 53% of DUEXIS prescriptions are processed through PME, over 30% of VIMOVO prescriptions, and over 26% of RAYOS prescriptions. Our goal and expectation is to have greater than 60% of our prescriptions go through PME in 2015. We're also excited by a new program we have created, which we're calling our Retail PME program, which allows for much broader benefit to physicians and patients with our products by extending many of the benefits of our PME program into retail pharmacies throughout the United States.

We believe this additional layer of protection should go a long way toward mitigating managed care rejections for prescriptions that are processed in retail pharmacies, which typically would fall outside of our PME pharmacy network. With the close of the acquisition of Vidara Therapeutics on September 19, we began recording sales for ACTIMMUNE. As I mentioned for the period from September 19 through September 30, ACTIMMUNE generated $2.7 million in sales. Our original guidance had us recording ACTIMMUNE for the full quarter of 2013. We completed the deal with one week in the quarter so we're pleased to achieve $2.7 million for that short period. We currently have 270 CGD and SMO patients receiving ACTIMMUNE and in the third quarter 26 new patients initiated therapy with ACTIMMUNE exceeding our internal forecast.

On October 3, the FDA granted Orphan Drug Designation for ACTIMMUNE for the treatment of Friedreich's ataxia, a rare genetic disease for which there are currently no approved treatments. Orphan Designation qualifies sponsor of the drug for various development incentives including tax credits for qualified clinical testing. The marketing application for a prescription that has received Orphan Drug Designation is not subject to the PDUFA fees. The designation may provide ACTIMMUNE, if approved, seven years of market exclusivity for this indication. For those of you who attended the CHOP, Children's Hospital of Philadelphia 7th Annual Symposium for Friedreich's ataxia and our FA Analyst Day on October 13, for us it was a moving experience to meet these FA patients and see the encouraging ACTIMMUNE Phase II clinical study results that were presented.

FA is a debilitating, life shortening, degenerative, neuromuscular disorder that affects about 1 in 50,000 people in the United States with an estimated 4,000 to 5,000 individuals in the US and over 15,000 worldwide according to the Friedreich's Ataxia Research Alliance or FARA. There is no currently FDA approved treatment for Friedreich's ataxia. Importantly, FARA is currently adding approximately 200 patients per year to its registry and now has approximately 2,400 FA patients registered. To recap the Phase II results of ACTIMMUNE, changes in frataxin protein levels for primary endpoint were statistically significant in red blood cells, white blood cells, and platelets while the magnitude of change observed was small and varied between the tissues. This predominantly because of where the samples were taken.

The clinical outcome measure, the FARA score or Friedreich's ataxia rating scale score, a clinically validated measurement of patient performance showed a strong efficacy signal with mean improvement by an amount equivalent to approximately two years of disease progression, which was highly statistically significant at p=0.008 level. We recently received feedback from the FDA in our Phase III trial design. We found the comments to be very thoughtful and we view them as very positive. We're working with David Lynch from Children's Hospital of Philadelphia and Jen Farmer of the Ataxia Research Alliance to incorporate the feedback and recommendations into our final protocol. We estimate that ACTIMMUNE could potentially achieve $500 million or greater in peak annual net sales opportunity if approved by the FDA for Friedreich's ataxia along with increased penetration in our currently approved indications in CGD and SMO.

We're also validating additional potential indications for ACTIMMUNE including infectious complications of severe atopic dermatitis, including eczema herpeticum and methicillin resistant staphylococcus aureus, cutaneous t-cell lymphoma, as well as autosomal dominant osteopetrosis. Since our last call, we have received three additional patents from the US Patent and Trademark Office with claims covering VIMOVO and patent terms through 2022. In addition, we received Notice of Allowance for patent application covering VIMOVO in treating a patient at risk for developing an NSAID-associated ulcer, which when issued would have a patent term out to 2030. Importantly, this is a new family of patents. We also received an additional Notice of Allowance with claims covering RAYOS out to 2027. Now, I would like to review our recent acquisition of PENNSAID.

On October 17 we announced we acquired the US rights for $45 million one-time cash payment along with an eight-year exclusive manufacturing agreement, announced that we plan to sell the product in early January of 2015. PENNSAID 2% is indicated for the treatment of pain of osteoarthritis of the knees, was launched into the US last year with annualized net sales of approximately 16% based on second quarter this year. Similarly to our VIMOVO experience, we believe there is an unrealized opportunity for PENNSAID 2%, which is an ideal complement to VIMOVO, DUEXIS, and our primary care organization. Our primary care sales force will now be selling all three NSAID products. We believe PENNSAID 2%'s delivery solution is considerably simpler to use than competing topical diclofenac products in the market. The dosage is measured through a pump action meter dose dispenser that we believe is the easiest to use of the topical products in the market.

Further PENNSAID 2% is a twice per day administration versus current market leader, which is four times per day. We expect to price PENNSAID 2% at a similar level to do DUEXIS and VIMOVO. We also announced that we'd be hiring an additional 75 primary care representatives this quarter. We expect to have the expanded commercial organization hired, trained, and selling by January of 2015. Based on our strong year-to-date performance and our expectations for ACTIMMUNE and PENNSAID 2%, we are raising our guidance for both 2014 and 2015. 2014 net sales guidance is increased to a range of $280 million to $290 million and adjusted EBITDA guidance is increased to $90 million to $100 million. For 2015, we are raising our net sales guidance to $425 million to $450 million and adjusted EBITDA guidance to $160 million to $180 million.

At this point, I'll turn it over to Paul to review the third quarter financial results. Paul?

Thank you, Tim, and good morning, everyone. As Tim outlined, our third quarter net sales improved threefold to $75.1 million compared to last year's $24.1 million and we generated net income of $2.1 million, a milestone for us compared with a loss of $5.5 million last year. On a GAAP basis net income per basic share was $0.03 and $0.02 on a diluted basis. On an adjusted basis for the third quarter, adjusted non-GAAP net income was $25.3 million versus a loss of $2.1 million last year. Adjusted EBITDA increased to $28.1 million in the quarter compared with just $571,000 in the third quarter of last year. Adjusted non-GAAP income per share was $0.32 basic versus a loss of $0.03 in the prior year with diluted adjusted non-GAAP income per share at $0.24 versus a loss of $0.03 last year. Weighted average shares outstanding for the third quarter were 78.4 million for basic compared to 64.6 million shares last year.

Please keep in mind that the basic weighted average shares outstanding for the third quarter only reflects the 31.35 million shares issued in the Vidara transaction for 12 days. Diluted weighted average shares for the third quarter were 85.7 million. As of November 3, 2014 our ordinary shares outstanding were 118.9 million reflecting both the 31.35 million shares issued in the Vidara transaction and the 12.9 million shares issued in October in connection with the induced conversion of a portion of our convertible senior notes. If we include all the ordinary shares that could be issued upon the exercise of outstanding stock options and warrants, the vesting of outstanding RSUs, and the conversion of the remaining convertible senior notes; there would be approximately 150 million ordinary shares outstanding.

Since Tim has already covered net sales by product, I'll focus now on the rest of our financial highlights for the quarter. Gross profit margins were 81.8% compared to 86.7% last year. Excluding depreciation, intangible amortization, amortization of inventory step-up from ACTIMMUNE, and royalty accretion; non-GAAP gross margins were 95.7% versus 92.7% last year. Total third quarter operating expenses in 2014 were $73.4 million versus $23.6 million last year. Sales and marketing expenses increased $15.5 million to $31.1 million this year. The largest portion of the increase was related to salaries and benefits, which increased nearly $9 million due to the expansion of our sales force. You may recall that our sales organization has more than doubled from what it was at this time last year as we had not yet acquired VIMOVO.

We also incurred about $5 million of additional marketing and commercialization expenses in the quarter, again primarily related to VIMOVO. General and administrative expenses increased $32.2 million compared with the third quarter of 2013 primarily due to $28.3 million of transaction expenses related to the Vidara acquisition as well as increased salaries and benefits resulting from additional support staff. Interest expense increased $1.6 million to $5.2 million during the third quarter compared with $3.6 million last year primarily due to higher debt balances in the current year. Foreign exchange loss was $2.8 million compared to a foreign exchange gain of $1.1 million in last year's third quarter. This was primarily attributable to a weakening of the euro against the US dollar during the current quarter. Our Horizon Pharma AG subsidiary has intercompany balances and intercompany transactions that are denominated in US dollars.

We also recorded a bargain purchase gain of $22.2 million in the quarter representing the excess of the estimated fair value of the net assets acquired over the acquisition price of Vidara. Other expenses were $3.2 million during the quarter and representing commitment fees were incurred prior to the funding of the senior secured credit facility on September 19. We recorded a benefit for income taxes of $3 million in the third quarter compared to an expense last year of $265,000. This was attributable to a reduction in our net deferred tax asset position during the quarter. The inclusion of additional deferred tax liabilities in connection with our merger with Vidara resulted in our ability to reduce our existing deferred tax valuation allowance. We generated $1.5 million in cash from operating activities for the third quarter.

On an adjusted basis after excluding cash payments related to Vidara acquisition cost of $20 million and the post-closing payment of certain Vidara transaction costs that we assumed in the merger of $14 million, non-GAAP cash provided by operating activities was $35.6 million for the third quarter. During the third quarter, we also paid out $179.2 million in cash net of the cash required for the acquisition of Vidara. We funded the acquisition by drawing $300 million on our senior secured credit facility at an interest rate of 9%. We ended the quarter with $248.8 million of cash and cash equivalents and net debt of $165 million. These September 30 balances do not reflect approximately $60 million of cash outflows in October related to two transactions.

As Tim mentioned earlier, on October 17 we paid $45 million in cash for the US rights to PENNSAID 2%. In addition, in late October we induced holders of an aggregate principal amount of $69.4 million of our convertible senior notes to convert issuing 12.9 million ordinary shares and making an aggregate cash payment of $14.6 million. The aggregate principal amount of the convertible senior notes remaining after these transactions is $80.6 million. Tim outlined our guidance for 2014 and 2015. Again, we are raising our guidance on net sales for 2014 to $280 million to $290 million and adjusted EBITDA to $90 million to $100 million. For 2015, our revised guidance is for net sales of $425 million to $450 million and adjusted EBITDA of $160 million to $180 million.

Regarding income taxes, in addition to utilizing a portion of our net operating loss carry-forwards, we also expect to benefit from lower tax rates in subsidiaries outside the United States in the fourth quarter and next year due to our new legal structure following the Vidara transaction. As a result, we are estimating an effective tax rate in the low single-digits for both the fourth quarter of 2014 and full-year 2015. We estimate weighted average shares outstanding of 84 million for basic and 106 million for diluted for the full-year 2014 and 121 million for basic and 143 million for diluted for 2015. These share estimates include the impact of the shares issued for the Vidara transaction and the induced conversion of a portion of the convertible senior notes in October, but assume no other issuances of shares in the future other than the estimated ordinary course issuances and exercises of outstanding equity grants.

Now, I'd like to pass the call back to TIm.

Thanks, Paul. We continued to make progress in executing our strategy in the third quarter. We had strong organic growth of our base business and continued our business development strategy with the acquisitions of Vidara and PENNSAID. Our pursuit of new products continues unabated. Our PENNSAID 2% transaction is a direct result of our strategy to identify interesting opportunities which complement our business and are attractively valued. We're engaged in the pursuit of multiple additional product acquisitions and our emphasis remains a product within each of our three business units. Our strategy of layering growth through acquisitions on top of our attractive organic growth is successfully advancing the development of our commercial critical mass and establishment with ACTIMMUNE of a late stage product development product pipeline. We moved from two commercial products one year ago to five products as of January of 2015 and soon to be initiated Phase III program in the large unaddressed market opportunity of Friedreich's ataxia with ACTIMMUNE. We have aspirations to grow our commercial product portfolio significantly and judiciously explore development of additional indications for ACTIMMUNE.

Thank you for your time and I'll now open it up to questions.

(Operator Instructions) Annabel Samimy, Stifel.

Congratulations on a great quarter. I wanted to talk to you about some of your strategies to deal with the exclusion list. One of the strategies you mentioned was that you were going to focus your PME plan on finding the high access patients. So I guess I'm curious how is that going because I think you probably would have started that strategy by now and how much of a sense do you have that you could actually target these patients? Maybe you can give us a little bit of color on that and then I have a follow-up on ACTIMMUNE. Thanks.

We don't have a strategy to target high access patients. Our strategy is to target the physicians who treat those patients by significantly increasing our penetration of PME. And our PME organization has begun this month an activation program on a district by district basis to continue to add new target physicians who are overweighted towards seeing patients who have cover through the two PBMs that we're referencing. The way we, outside of our traditional PME program, are able to offset a potential impact of the exclusion list is through our new PME program that we're rolling out on a retail basis, which allows a patient who has not been seeing a physician who is in the PME program happens to go to a pharmacy, processes their prescription, and if it were to be rejected by one of the PBMs will automatically be processed as if we were processing it through our traditional PME program, which would entail that patient getting the product at a very low out of pocket co-pay and the physician, the pharmacists, and everyone involved to see that the patient in fact was reimbursed for the product.

Okay. So of the increased penetration you have with PME in your respective products, do you feel that the weighting to those physician practices and geographies is what you're intending?

It's tracking right at our expectations and the retail PME program is really one that covers physicians and patients who fall outside of our direct PME program.

Okay, great. And then on ACTIMMUNE, it looks like there were 26 patients in the quarter is what you said, which seems a pretty nice clip and that essentially was still one week in your hands. So what do you think you can do in terms of adding patients for ACTIMMUNE once it's in sort of your system and in your hands? Do you have sort of an idea of the number of patient adds or the rate that you can add it at now that you've got it in your hands? Thanks.

Thank you, Annabel, for the question. Our target has been to average roughly seven to eight patients and we're on track with that and we expect that rate to continue. One of the things we love about Friedreich's ataxia is that you've got 2,400 patients in a registry. What you don't have for CGD is when you look at those 1,600 patients, we have 270 on drug, there isn't a well-formed advocacy group similar to FARA to provide a registry to access them. So, the real work is at a grassroots advocacy level to help identify physicians who see these patients, help identify patients through various non-personal programs like website and other avenues as the Vidara team and Brian Andersen's organization has been executing against.

So with CGD and SMO, our target is to continue to add seven to eight patients per month. We exceeded our expectations in the third quarter on a full-quarter pro forma basis and we continue to expect that with incremental upside coming obviously as we move through the process with Friedreich's ataxia. We did take a recent price increase on October 16, which we think moves the pricing of ACTIMMUNE more similar to its peers relative to incidence and prevalence. So with the combination, we feel confident that we can continue drive growth in the brand.

Okay. And one more on ACTIMMUNE if I may. How should we think about the off-label sales? I think last time we saw, the 270 patients represented about 65% of unit sales. So could you help us think about how we should sort of factor in these 35% off-label sales? Is it the same volume use or maybe you can give us a little bit of guidance on that?

So, we see about the same percentage so 270 on-label with CGD and SMO. We don't obviously market the product and we don't have a lot of transparency into the off-label aspect of it. We see it across a number of different diseases. We don't forecast it at this point. We basically apply the patients times our typical compliance, which is in the 70% range, and it's hard to focus beyond there. One thing we do expect is that percentage of on-label to continue to increase as we drive these incremental patients on-label with CGD and SMO.

Great. Thank you.

Ken Cacciatore, Cowen & Company.

Just wanted to ask about when do you plan on having your end of Phase II meeting on ACTIMMUNE and give us maybe a tighter sense of when the Phase III will start. And the second question is when we ask some companies are they open to transformational transactions, clearly depending on the market cap, the options can be limited. But in your situation at your current cap, first are you open to transformational type transactions? What would it ideally look like if you saw one and how many of them exist? Can you give us some sense or quantification of the opportunities that may be out there? Thank you.

I'll answer the first and for fun, I'll let Bob answer the second. On the first, we've already gotten the feedback on our Phase II program from FDA. We reported that in my comments where basically everything we had asked for, we felt very comfortable with. We are working through final details now with the Friedreich's Ataxia Research Alliance Jen Farmer as well as with David Lynch from CHOP who we expect to be the PI the study. And so based on the feedback we've gotten and our continued discussions, our guidance continues for the second quarter of next year to initiate that trial. I'll comment on the first part of your second question that is are we open to transformational deals. I think our history has evidenced that we are so the answer is yes. As far as availability of them, Bob?

Ken, we continue to see good opportunities whether it's bolt-on acquisitions like we just executed with PENNSAID 2% or looking at larger interesting transactions that may be a little bit outside the box. So we've got several of those in the pipeline that we are working on, but as we all know, there's no way to predict what the outcome will be on any one of those.

So, we're open to them if they are there and we'll aggressively pursue them as we have in the past. And the third quarter is really representative of that where we had one transformational acquisition with Vidara ACTIMMUNE and a bolt-on with PENNSAID. So, it will be fair to look at that as what we're trying to do on a go-forward basis.

Thank you.

Donald Ellis, Avondale Partners.

Quick follow-up on Friedreich's ataxia and ACTIMMUNE. After the Phase II meeting with the FDA, do you have any additional color on roughly the number of patients you're going to need for that trial and the length that trial is expected to take?

I think based on our feedback, it's similar to what we guided; less than 100 patients in a six -month period to accurately assess the drug working in the patients. Our initial trial was in three months and we think that six months is appropriate in less than 100 patients and that guidance continues.

But the conversations with the FDA continues so there's nothing that's been agreed to at this point, Don.

Okay. Do you think you guys have seen any off-label use in FA to-date?.

I think we do have some patients. I actually have no idea how many, I don't even look. So I think there are some, but it's not something we look at or measure.

Great. Thank you very much.

Louise Chen, Guggenheim Securities.

So when you talk about PME, can you talk us through the profitability for you prescriptions? There's some pushback that the CVS expects patients that are on exclusion [pushed] back to PME and those scripts are not profitable? And then after that if you can quantify the capacity of deals you can do post the close of Vidara? Thank you.

So the first question was profitability, you saw in aggregate about 40% of our prescriptions currently going through if you aggregate all products and highly profitable quarter with $28 million adjusted EBITDA on $75 million. So as we move into the program, we expect to see an increase in our net revenue per prescription as we move forward on a quarter-over-quarter basis and roughly similar ranges, we may see a increased gross to net as a result of incremental capturing those patients that would have been rejected and that's offset by increased price in prescriptions. Bob, the second question?

Well, I think on that also, Louise, it's the interplay between price per script and the volume of scripts that are out there so giving up or no longer having to pay the rebate and then also having free scripts. Even with both of those trends in place, we expect to see an increase in the net sales per script. So we talk about profitability, we see it as our profitability on a per script basis going up as opposed to going down.

And then relative to our appetite and availability to finance incremental acquisitions, there's two pieces that we look at is our existing accelerating adjusted EBITDA coupled with the EBITDA of the assets we acquired. And with our current debt of $300 million plus, about $370 million total debt; we have an accordion feature built in that allows us to go in secured debt I think 4.5 times and unsecured up to 5.5 times. So, we believe that with our growing adjusted EBITDA along with acquired adjusted EBITDA that we have flexibility to do the size of deals we're contemplating.

And one last question is have you talked about your pricing strategy for PENNSAID, how you think the market is and then what sort of price arbitrage you can kind of take for that product?

We expect to price it in line with our other NSAIDs.

Thank you.

Oren Livnat, JMP Securities.

I know you don't want to get bogged down in gross to net conversations, but obviously there's a lot of moving parts here and you talked about sort of the net result going up. I guess my first question is if that can happen immediately, are these rebates and contracts gone as of them telling you that you're excluded or does that kick in in January so are we going to get that sooner than later that impact? And also I guess are you hearing any comments on just in general aside from exclusion just changes in the trends on co-pays and co-insurance rates from your other partners? Because for example I know that personally that I now need to pay the difference between a branded drug and a generic all out of pocket if there is in fact a generic alternative, which I know there isn't explicitly for your products.

Can you just talk about the overall trends of the pushback you're seeing? And then just separately, I noticed in your 2015 guidance you raised revenue $45 million, EBIT only $10 million at the midpoint and I'm just wondering if there is any intentional implication of lower EBITDA margins on maybe the incremental PENNSAID business or overall or if this is just ranges are ranges and your current EBITDA margins should apply going forward?

So, I'll start with the last so we expect our current EBITDA margins to continue. I'd recommend you get different insurance. But besides that, Oren, I think what we've seen on a year-over-year basis is an increase of 4%, 5%, 6% of increased co-insurance to patients, an increase in the average rebate to patients. We don't expect a material amount to impact us relative to when these things go into effect. In January, we would expect that the impact of the exclusion lists occurs immediately and the impact of the rebates occurs immediately.

Have your wholesalers mentioned anything about destocking or anything like that ahead of expected lower volumes in Q1 of next year?

If we expected significant volumes, we would expect something from wholesalers and that's not the case.

Thank you.

David Amsellem, Piper Jaffray.

So a business development question. I know you've talked a lot about adding primary care focused assets that leverage the sales organization, but given how much fragmentation we see in pain and neuro CNS broadly, is that an area you could want to focus on as well in terms of biz dev? How do you think about that? Thanks.

Certainly from a business development standpoint even with our base business, we now have three NSAIDs covering the osteoarthritis and rheumatoid arthritis and some other indications making up a substantial portion of our business. So, we're definitely focused on that area and with RAYOS incrementally to that. So if we see products that are in the pain and the neuro space that fit alongside what we're doing, then we'll definitely leverage that. But I think as we've said all along, we're looking for assets that fit into any of our three business units; the orphan, the primary care, or the specialty. So we're looking to fit within those, but ultimately if transformational opportunities exist to add an additional business unit or a geographic expansion opportunistically, then we'll pursue it.

And then just switching gears on ACTIMMUNE, I know you had the pricing action recently. Can you talk about the extent to which you can continue to take price on that product?

I think as we look at it, David, the price right now on an annualized patient basis, it's approximately $395,000. As you look at other products with similar incidence and prevalence, it ranges from our price up to a little over $600,000 with Soliris. So, there is a broad range and we're priced at that $395,000 and comfortable with where that is and we'll evaluate that over time.

Thank you.

(Operator Instructions) Difei Yang, RF Lafferty.

I have to ask one question on the business development. So now that you guys are going to (inaudible) the Company and even the disconnect on some of the assets between the European products versus the US products, are you interested in potentially acquiring something in Europe and build up a sales force there?

The question was what is our appetite for geographic expansion. We're not actively pursuing geographic expansion as you've seen that with a number of our specialty pharma peers. We're focused on really putting products into our existing business units or adding business units in the US. Opportunistically if there's an opportunity for a platform in Europe or Latin America or other markets, we'll certainly look at that, but it's not our primary focus.

Thank you. And then the next one is easy one, just a data issue. So would you recommend, I've looked at the ACTIMMUNE data that was captured on Bloomberg, it's clearly not correlated with the [CNS] sales so how should I think about that?

Well, I think what you saw on Bloomberg is a disconnect between when we gave our $270 million to $280 million guidance, that was assuming we close the transaction by July 1. We closed it 10 weeks later so we had one week of revenues, which was $2.7 million and for the last month and for the quarter we had exceeded our internal expectations for patients. So, any difference between that is just inaccuracy in the updated models to reflect the time the deal closed.

That and also to say that the services, IMS and others, really don't capture the per script data for ACTIMMUNE. So, it's opaque to the outside world what is happening on a week-to-week basis.

Okay. So we should just --.

It will catch up in the next quarter when people have full quarter numbers and because the product is through specialty pharmacies, IMS retail is not going to estimate our revenues.

Okay. Thank you.

Thank you. I would now like to turn the call back over to Tim Walbert, Chairman, President, and Chief Executive Officer for any final remarks.

Just wanted to thank everyone again for joining us this afternoon here in Dublin or back in the US. A great quarter for the Company and excited about the business moving forward in the rest of this year and into 2015. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, you may all disconnect. Have a great day, everyone.