Horizon Therapeutics PLC (HZNP) 2015 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Horizon Pharma plc fourth quarter 2015 earnings call. As a reminder, today's conference call is being recorded. I would now like to introduce and turn the call over to John Thomas, Executive Vice President, Strategy and Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone, and thanks for joining us. On the call with me today are Tim Walbert, Chairman, President and Chief Executive Officer; Paul Hoelscher, Executive Vice President, Chief Financial Officer; Dr. Jeff Sherman, Executive Vice President, Research and Development and Chief Medical Officer; George Hampton, Executive Vice President, Orphan and Primary Care Business Units and International Operations; and Bob Carey, Executive Vice President, Chief Business Officer.

Tim will provide a high level review of our record fourth quarter and full year 2015 performance, as well as an update on our business. Paul will provide additional detail on our financial performance, and Jeff Sherman will provide an overview of our clinical development programs for our orphan medicines, before we turn the call back over to Tim for some closing remarks. After our prepared remarks, we'll take any questions you might have.

As a reminder, during today's call, we'll be making certain forward-looking statements, including financial projections, our business strategy, and the expected timing and impact of future events. These statements are based on management's current expectations and assumptions, and 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, 2015 which is being filed this morning, subsequent quarterly reports on Form 10-Q, and our earnings release, which was issued this morning. You are cautioned not to place undue reliance on these forward-looking statements, and Horizon disclaims any obligation to update such statements.

In addition, on today's conference call, non-GAAP financial measures will be used to help investors understand Horizon's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release, and regulatory filings from today, which are available on our investor website at www.horizonpharma.com.

With that, I'll now turn the call over to Tim. Tim?

Thank you, John, and good morning, everyone. I am pleased to report that we delivered another year of exceptional record-breaking financial performance for our shareholders.

Without question, we exceeded expectations across the board, as we continue to build a sustainable global biopharmaceutical company committed to increasing patient access and affordability.

Our full year 2015 net sales of $750 million more than doubled from the prior year, and our adjusted EBITDA of $362 million more than quadrupled from 2014.

We also generated very strong adjusted operating cash of $154 million in the fourth quarter, our third consecutive quarter of more than $100 million in adjusted cash flow generation.

We also confirmed our full year 2016 net sales and adjusted EBITDA guidance this morning of $1.025 billion to $1.05 billion, and $505 million to $520 million, respectively, which as a reminder includes the acquisition of Crealta, specifically, KRYSTEXXA.

This would represent 37% net sales growth, and 41% adjusted EBITDA growth at the midpoint of our ranges.

Through superior commercial execution and aggressive disciplined M&A activity, we continue to strengthen and diversify Horizon Pharma in new ways that we believe will deliver robust operating cash flows, substantial adjusted earnings growth, and strong sales growth for years to come.

In addition, we remain on track with the transformation of our Company into a majority orphan business by 2020.

To that end, we completed three significantly accretive acquisitions of orphan medicines in the last 18 months. We expanded and further diversified our current portfolio to nine medicines, advanced ACTIMMUNE into Phase 3 clinical development for Friedreich's ataxia, and began clinical development of ACTIMMUNE in select cancers.

I am extremely proud of our dedicated employees for helping us achieve these results, and I'm equally proud to know that we achieved them by putting patients first.

As I have discussed many times in the past, patients are at the core of everything we do at Horizon Pharma. I don't believe there is a single company in our industry that does a better job than we do to ensure patients have access to the medicines their physicians prescribe.

In fact, in 2015 alone, we provided more than $1 billion in patient access through our HorizonCares program, an amount more than most companies much, much larger than we are.

Our belief is that when patients in need have access to medicines that improve their lives, the stakeholders with whom we partner see a commensurate return.

Achieving this balance is critical to our Company culture and values, and we intend to maintain this commitment to patients moving forward.

Looking back on 2015, it was an extremely productive year for Horizon. We executed on our main strategic goals and management priorities, and this has positioned us well for 2016 and beyond.

In addition to exceeding our financial goals, we made significant progress over the last year, in advancing our targeted clinical development and regulatory priorities.

In June, we initiated the Phase 3 trial for ACTIMMUNE in Friedreich's ataxia where enrollment is now 70% completed. We expect a read-out for this FA trial in December of this year, potentially resulting in a transformational new medicine for the 3,700 FA patients in the United States for whom there is no current FDA-approved treatment.

If this data proves positive, we believe it will be a transformational opportunity for our Company as well, and a major catalyst for our shareholders with potential sales for ACTIMMUNE in FA alone of $500 million to $1 billion annually.

In this positive scenario, we would plan to submit a supplemental BLA in the first quarter of 2017. With Fast Track status and a request for priority review, which if granted would -- it ultimately result in a six month review cycle, which could potentially see a third quarter 2017 approval.

Most importantly, it would have the potential to dramatically improve the lives of thousands of new FA patients, most of whom are children and young adults.

In December, we began an investigator initiated Phase 1 trial of ACTIMMUNE in combination with the PD-1 checkpoint inhibitor OPDIVO in both kidney and bladder cancer, and we've begun to enroll patients.

In November, we received approval for RAVICTI in Europe for a broader indication than we have in the United States as an adjunctive therapy for six subtypes of Urea Cycle Disorders in patients two months of age and older.

We see the European opportunity as a 2017 and beyond, as we work to establish pricing and reimbursement on a country by country basis. We are also looking to acquire profitable companies or medicines to jumpstart our European presence.

In the US, we are on track to submit a Supplemental New Drug Application in the second quarter of this year to expand the RAVICTI indication to children who are two months to two years of age, which importantly would allow a physician to start a patient on RAVICTI instead of BUPHENYL as is necessary today.

And just a week ago, we announced that RAVICTI received data protection in Canada, which means the review process in Canada will continue, and we would expect a regulatory decision, and if approved, a subsequent launch mid this year.

Throughout 2015, our business development efforts remained aggressive, as we continue to expand and diversify our growth platforms through significant new acquisitions that complement our existing rare disease medicine portfolios.

In May, we completed the acquisition of Hyperion, adding two more medicines to our orphan portfolio with RAVICTI and BUPHENYL. And in January, we closed on our acquisition of Crealta, which secured another orphan biologic medicine, KRYSTEXXA, for the treatment of chronic refractory gout.

Both acquisitions met or exceeded our disciplined M&A criteria. They are immediately accretive, net present value positive. They added clinically differentiated medicines with durable intellectual property, and bolstered our growing portfolio of orphan medicines.

Now looking at the fourth quarter of 2015, we reported net sales of approximately $245 million representing year-over-year growth of 135%.

Our fourth quarter adjusted EBITDA of $123 million reflects a year-over-year growth of more than 250%. Strong net sales growth across all three of our business units contributed to our record results, and reflects our objective over the last several years to aggressively build and diversify our sources of revenue, earnings and operating cash flow.

Since 2013 we have significantly strengthened our business from only two medicines to a diverse portfolio of nine medicines today. Over that same time period, we've generated a compounded annual net sales growth of approximately 220%.

Now let me spend a few moments reviewing results by each business unit.

Our orphan business unit performed strongly, and longer term with the clinical development programs that I've reviewed, our goal is to be a majority orphan medicine business by 2020. Orphan net revenues increased more than 200% in the fourth quarter.

Sales of our primary care business unit increased more than 125% in the fourth quarter, where our patented clinically differentiated medicines addressed important unmet needs for hundreds of thousands of patients in the United States.

Every year, there are over 100,000 hospitalizations related to serious GI complications and more than 16,500 associated deaths that result from patients taking unprotected NSAIDs. DUEXIS and VIMOVO significantly reduce these NSAID-caused ulcers.

PENNSAID 2% is indicated for osteoarthritis of the knee, which according to the CDC may develop in nearly one out of every two people by the age of 85. Growth of DUEXIS, VIMOVO and PENNSAID 2% were driven by differentiated clinical benefits and strong sales and marketing execution.

We expanded our primary care sales force beginning in December of last year, and expect it to total 375 in this quarter. Importantly, over the last two years, our growth has been driven primarily by 198% increase in volume versus 4% price.

Lastly, sales of RAYOS, our delayed release prednisone medicine in our rheumatology business unit increased 82% in the fourth quarter, and more than doubled for the full year 2015.

Looking forward in rheumatology, we added the biologic orphan medicine KRYSTEXXA in January of this year I'd like to spend a moment outlining the commercial strategy for KRYSTEXXA, now that we've completed the acquisition.

KRYSTEXXA is a highly effective biologic medicine that is the right product for a very distinct orphan population of between 40,000 and 50,000 patients.

As you know, it's been through several owners, and as a result not yet optimally managed to benefit those patients which can help the most. As a result, it's a medicine that has been somewhat misunderstood in the marketplace.

First of all, KRYSTEXXA is the first and only FDA approved treatment that rapidly reverses disease progression, and has substantial efficacy when used in the right patient, in the right way.

In Phase 3 trials KRYSTEXXA demonstrated 42% reduction in tophi at six months in a severely refractory population that had no other options.

This medicine works. We are executing plans to not only correct that misperception, but we will drive growth of KRYSTEXXA by expanding, clarifying the true efficacy and safety in appropriate patients, adding significantly increased promotion in expanding the clinical profile, by addressing the immunogenicity issue known for years with KRYSTEXXA.

We see a meaningful and exciting opportunity ahead for patients who suffer from painful chronic refractory gout and the related tophi that often develop.

We're expanding the commercial efforts behind KRYSTEXXA more than five-fold, from the legacy KRYSTEXXA account management team of 15, to a team of roughly 85 by early in the second quarter, which including -- includes adding new specialty account managers, as well as our previously existing 40 person rheumatology sales force.

We'll also have 10 regional medical directors to educate physicians about the product's clinical benefits, and help communicate further advances in understanding of our immunogenicity.

In summary, we see the potential for KRYSTEXXA peak sales to exceed $250 million. As we get more comfortable with our long-term outlook, we will keep you updated on our peak sales estimates.

Crealta is the most recent example of our business development efforts, but certainly not the last. Our goal continues to be announcing multiple acquisitions in 2016.

We have significant cash on the balance sheet post-Crealta. We continue to generate significant cash flow, and we have available leverage capacity, providing the means to complete transactions moving forward.

With that, let me now turn the call over to Paul to review our financial results in more detail, followed by Jeff Sherman. Paul?

Thanks, Tim. Before I begin, as John referenced, this morning we provided information in our fourth quarter earnings news release, and on the investor portion of our website that reconciles our GAAP results to certain non-GAAP financial measures.

Therefore my comments will mainly focus on our non-GAAP or adjusted results, which provide investors with a better perspective of our ongoing business performance.

Today we reported fourth-quarter net sales of $244.5 million, an increase of 135% versus the fourth quarter of 2014, and an increase of 8% sequentially versus the third quarter of 2015.

Sales growth was driven by strong performance across all three business units, orphan, primary care and rheumatology.

Adjusted EBITDA in the fourth quarter was $122.5 million, or 50.1% of sales. This was a substantial improvement from the fourth quarter of 2014, when our adjusted EBITDA margin was approximately 33.5% of sales.

Full year 2015 net sales were $757 million, more than double our full year 2014 net sales of $297 million. And full year 2015 adjusted EBITDA was $362.1 million, or 47.8% of sales exceeding our full-year guidance range, and more than quadrupling our full year 2014 adjusted EBITDA of $87.1 million.

In fact, let me provide you with some perspective on how far we've come, and how fast we've grown as a Company.

Just two years ago, our full year 2013 net sales were $74 million, and we weren't yet generating earnings. Contrast that with our full year 2016 net sales and adjusted EBITDA guidance that we are confirming this morning.

Our full year 2016 net sales guidance is for $1.025 billion to $1.05 billion, and our full year adjusted EBITDA guidance is for $505 million to $520 million.

Using the midpoint of the ranges, this would represent a year-over-year increase in net sales of approximately 37% versus 2015, and a year-over-year increase in adjusted EBITDA of approximately 41% versus 2015.

On a percentage of sales basis, our adjusted EBITDA is expected to be approximately 49.4% of sales at the midpoint, which would represent an increase of more than 150 basis points versus the full year 2015.

And as we indicated at our Investor meeting in November, our intent based on our long-range plan is to continue to expand adjusted EBITDA to approximately 60% of sales by 2020, as we shift our sales mix to predominantly orphan medicines over that time.

Let's now walk down the operating section of the income statement in more detail. As a reminder, results in this discussion will refer to non-GAAP or adjusted results.

The fourth quarter adjusted gross profit margin was 91.6% of sales, and we expect our adjusted gross profit margin for the full year 2016 to continue to be in the range of 91% to 92%.

Total adjusted operating expenses were $101 million, or 41.4% of sales in the fourth quarter.

Adjusted R&D expense in the fourth quarter was $10.9 million, or 4.5% of sales, and reflects our continued investment in our Phase 3 trial for ACTIMMUNE in FA.

In addition, in December in collaboration with the Fox Chase Cancer Center, we initiated a Phase 1 clinical trial of ACTIMMUNE in combination with OPDIVO in cancer.

As both ACTIMMUNE trials progress, as well as multiple other clinical development programs, including our label expansion studies for RAVICTI, and our recently initiated triple study with KRYSTEXXA, we continue to expect full year 2016 adjusted R&D expense to be in the mid single-digits as a percentage of sales.

Adjusted sales and marketing expenses in the fourth quarter were $55.7 million or 22.8% of sales, and adjusted G&A expense was $34.4 million or 14.1% of sales.

As we mentioned at our Investor Day, in late 2015, we began expansion of our primary care sales force by 50 to total 375 by the end of this year's first quarter.

In addition, following the acquisition of Crealta, we are in process of adding approximately 25 new specialty account managers, and approximately five new regional medical directors to our rheumatology organization.

Our expanded sales and marketing efforts are expected to continue to drive prescription growth of our medicines.

Adjusted net income in the fourth quarter of 2015 was $102.4 million, and adjusted diluted earnings per share were $0.63, representing an increase of 215% compared to the fourth quarter of 2014.

The weighted average diluted shares outstanding used to calculate adjusted diluted earnings per share in the fourth quarter were 163.8 million shares.

This diluted share amount was somewhat lower than previously estimated, as the share average varies based on our share price. For 2016, we expect our weighted average diluted shares outstanding for the full year to be approximately 180 million shares.

Now let's turn to taxes. On a non-GAAP or adjusted basis, the tax rate in the fourth quarter was 5.2%, reflecting the cash taxes that we estimate that we will pay.

For the full year 2015, our adjusted cash tax rate was 2%, in line with our low single-digit guidance for the year. For modeling purposes, we suggest that you assume an adjusted cash tax rate in the low single-digits for 2016.

Longer-term, we expect our tax rate to be in the low teens in the 2017 through 2020 time frame. We continue to be aggressive in our pursuit of M&A.

To that end, as we have previously stated, future acquisitions may impact these expected cash tax rates, so we will update our guidance as appropriate when that happens.

Before I move on to our balance sheet and cash flows, let me briefly comment on expectations for the first quarter of 2016.

As we've discussed in the past, we expect a sequential decline in net sales from the fourth quarter to the first quarter in the high single-digit range, given normal annual managed care plan changes, and higher patient deductibles at the beginning of the year.

Similar to prior years for us and similar to other biopharma companies, we experience this type of seasonality every year. However, this year we'll have a partial quarter of KRYSTEXXA sales, that will somewhat offset the seasonality.

Given this dynamic and the increase early in the year in sales and marketing expenses that we discussed this morning, we would also expect the first quarter to have the highest operating expenses as a percentage of sales for the year, with leverage building as we move throughout the year.

This will result in a lower adjusted EBITDA margin in the first quarter, which we would expect to sequentially increase as we move through the year.

And lastly, let me provide a few high level comments on our strong cash flow and balance sheet as of December 31, 2015.

Regarding cash flow, for the fourth quarter of 2015 we generated $135 million of operating cash flow on a GAAP basis. After adjusted operating cash flow for acquisition-related payments, our adjusted operating cash flow was $154 million.

Cash and cash equivalents were approximately $860 million as of December 31.

The total principal amount of debt outstanding was $1.273 billion as of the end of the year, which was comprised of $475 million in our 6 5/8% senior notes due in 2023, $398 million in senior secured term loans, with a current interest rate of 4.5% due 2021, and $400 million of 2.5% exchangeable senior notes due in 2022.

This capital structure results in a weighted average cash interest rate of approximately 4.7%.

As of December 31, our net debt to the last 12 months adjusted EBITDA leverage ratio was strong at 1.1 times.

In January, we completed the acquisition of Crealta for approximately $510 million in cash, which puts our net debt at roughly $900 million following that acquisition.

So based on net debt of approximately $900 million, and our 2016 EBITDA guidance of roughly $500 million, our net debt leverage ratio would be less than 2 times.

In summary, Horizon Pharma delivered another year of very strong growth in 2015, and we believe we are well-positioned for another year of record performance in 2016.

With that, I would like to turn the call over to Jeff

Thanks, Paul, and good morning, everyone. I will provide a brief update on our clinical development program to potentially expand the use of our medicines.

As Horizon continues to grow and become more diversified, with a stronger commercial and financial foundation, as we discussed at our Investor Day in November of last year, we have been able to invest even more in our targeted clinical development program.

To date, we have multiple programs underway, ranging from smaller scale opportunity, to potentially larger ones such as ACTIMMUNE in Friedreich's ataxia or FA.

We are working on programs that we believe have potentially compelling clinical outcomes, with benefit risk profiles that we expect to facilitate regulatory approval and clinical use.

Given the many challenges that exist in the drug development process, we are very focused on efficiently spending our development dollars where we have the best opportunity and the highest likelihood of success.

I'll begin with an update on ACTIMMUNE, or Interferon gamma-1b, our orphan medicine indicated for chronic granulomatous disease or CGD, and severe malignant osteopetrosis or SMO, two rare genetic disorders.

We are also evaluating ACTIMMUNE for other new indications, including the treatment of FA which is in Phase 3 development. FA is a debilitating, life-shortening, unremitting genetic disorder.

Our decision to move forward with a Phase 3 trial to evaluate ACTIMMUNE in FA was based on the preclinical and clinical research completed to date.

This includes a highly statistically significant improvement in neurologic function in the open label Phase 2 trial as measured by the FARS score, or Friedreich's Ataxia Rating Scale score.

In the Phase 3 trial called STEADFAST, the primary endpoint is an improvement in the modified FARS score, a straightforward, objective, validated measure that assesses functional parameters, such as upper and lower body extremity coordination from baseline.

This modified endpoint removes components viewed by the FDA to be more subjective, which in this case is the peripheral nerve assessment.

In addition, we brought additional rigor to the Phase 3 trial design based on learnings from the Phase 2 trial, and have been working closely with the Friedreich's Ataxia Research Alliance, or FARA, to further strengthen the study.

We increased the number of patients in the Phase 3 trial to 90, and randomized them one to one versus placebo. These patients are enrolling at four of the top FA centers across the country.

Working with FARA, we rigorously trained the physicians conducting efficacy and safety assessments, so that there is high consistency in evaluation across the sites in the study.

The physicians who conduct efficacy assessments do not conduct the safety assessment. This helps to reduce potential bias in the study.

We increased the ACTIMMUNE dose from up to 100 micrograms three times per week in the Phase 2 trial, to up to 200 micrograms three times per week in the Phase 3 trial, based in part on patient reports from overseas of improvement in treatment effect with higher doses in FA.

We also titrated the dose to minimize the possibility of injection-related reaction. We increased the length of the trial from three months to six months to diminish the possibility of a placebo effect, and patients have the opportunity to cross over from placebo to ACTIMMUNE following the six month endpoint to enhance patient enrollment into the study.

So we, along with the expert investigators allowed -- involved in this study, are confident about the trial design.

In addition, patient enrollment in the study is tracking right in line with our expectations. 70% of patients are now enrolled in the trial, and it's on track to complete enrollment before midyear.

We also have FDA Fast Track designation for ACTIMMUNE for FA, which allows us to submit sections of our dossier on a rolling basis, and to be considered for Priority Review at the time of submission.

We expect to have data in hand by the end of 2016, and are targeting a first quarter 2017 SBLA submission. If we receive Priority Review, we could potentially have approval by the third quarter of 2017.

In addition to this Phase 3 registration trial, we initiated a Phase 1 trial to evaluate ACTIMMUNE in combination with Bristol-Myers Squibb's OPDIVO, a PD-1 inhibitor approved in various forms of cancer, and in this study we will be looking at bladder and kidney cancer as well as others.

Preclinical research has indicated that Interferon gamma could potentially enhance the effect, of not only PD-1 but PD-L1 inhibitors, thus potentially improving cancer patient outcomes.

Through a research collaboration with the Fox Chase Cancer Center, we hope to gain a better understanding of this combination.

We are also making progress with RAVICTI, which is approved and marketed in the United States for a rare genetic disease called urea cycle disorders, or UCDs.

In November, we received European marketing authorization as well. In Europe, RAVICTI covers a broader range of UCDs compared to currently marketed medicine, and will also be available for patients greater than two months of age.

In the US, RAVICTI is available for patients greater than two years of age, and we are targeting a second quarter 2016 SNDA submission to expand the indication to patients greater than two months of age.

Let me also provide an update on our newly-acquired medicine, KRYSTEXXA. As we do with each of our medicines we acquire, we plan to pursue future development opportunities for this medicine as well.

KRYSTEXXA is an orphan biologic medicine that is indicated for the treatment of gout in adult patients refractory to conventional therapy.

And chronic gout is associated with repeated episodes of pain and inflammation, often resulting in very painful tophi which are the hard uric acid deposits under the skin that occur near joints, particularly in the foot and hand, and can cause bone and cartilage destruction.

KRYSTEXXA has a unique mechanism of action, which can break down tophi by converting uric acid to allantoin, a water-soluble protein, which can then be cleared by the body in urine.

KRYSTEXXA clinical trial data have shown that within 24 hours following the first dose, patients saw a 93% reduction in mean serum uric acid levels.

In addition, 45% of patients taking KRYSTEXXA saw at least one of their tophi disappear, with no new or growing tophi, compared to only 8% of placebo. So a highly effective medicine.

Similar to other biologics, patients can develop antibodies to the drug. A study has been initiated to evaluate, and potentially improve the immunogenicity profile of KRYSTEXXA.

Called the TRIPLE trial, it's is being conducted in collaboration with Dr. Peter Lipsky, a preeminent immunologist and rheumatologist who is the former director of the Intramural Research Program, and the autoimmunity branch of the National Institute of Arthritis and Musculoskeletal and Skin diseases, or NIAMS, at the National Institutes of Health.

In the study, we are increasing the frequency of the dosing, from every other week to every week for the first three weeks of treatment, with the intent to reduce immunogenicity.

We have treated five patients in this open label trial so far, with promising results to date. We look forward to seeing some initial data presented at a rheumatology conference later this year.

I look forward to sharing more with you about this program, and our other clinical development programs as they advance.

I'll now turn the call back over to Tim.

Thank you, Jeff. In summary, I am very pleased with the team's overall performance throughout 2015 in every aspect of our business, from our commercial performance to the advancement of our clinical program.

In 2016, we are pleased so far with our progress across our businesses, with no unexpected issues, and we look forward to updating you as the year progresses.

We are delivering on our core principles, strong commercial execution, aggressive and disciplined acquisitions, the clinical development of medicines for patients at need, and expanding patient access while increasing affordability across our medicines.

Moving forward, we will continue to drive and motivate our growing organization, with a goal of delivering exceptional financial performance that creates market-leading shareholder value.

We can't control the ups and downs in the market, but we're going to stay focused on what we can control, execution in the performance of our business. The rest of it will take care of itself in due time.

Thank you very much for the time, and I'll pass it over to John.

All right. Abigail, do you want to open up the call for questions, please?

Certainly.

(Operator Instructions)

Ken Cacciatore, Cowen and Company.

Good morning, guys, and congratulations.

Hi, Ken.

Good morning. Congrats on all the progress.

Just a question on KRYSTEXXA -- you discussed some of the marketing changes, and it sounds interesting.

Maybe you could talk about the productivity of the sales force as you had it? It sounds like we're putting more in place, going to change and nuance the way they proceed, when you put the more in, in terms of education.

And then, the TRIPLE trial looks like it could help, in terms of changing some of the perception.

So, could you help maybe nuance the different message? And then maybe discuss, if the TRIPLE trial turns out the way you want it, how that would impact some of the perceptions here, in terms of safety and how it's used?

So, just a little bit more nuance on the educational effort, and what we should be thinking about, in terms of the productivity that will come out of this new change, and growth in the sales force? Thank you.

Sure, Ken. Thanks.

So, on the sales force, we had about 40 rheumatology specialists selling RAYOS and PENNSAID. Their primary goal will be to leverage those relationships, and refer potential KRYSTEXXA physicians and patients to our specialty account managers who -- or more representatives who have buy-and-bill experience.

And their job is to provide customer service, and help move the physician through the treatment of their patients with KRYSTEXXA.

So, that group was -- they had 19 territories at Crealta, which 15 were filled. We're expanding that group to a little over 40 representatives, and that will be the primary group responsible for selling KRYSTEXXA, supported by the rheumatology specialists.

So, really, we coin it from ID to IV. So, the identification and broader reach by the RAYOS representatives, and really putting them to the customer service approach with the specialty account managers, to move them through to treatment.

When you look at the TRIPLE trial -- this is one that should have been done right away. It's very standard. When you look at biologics that you have anti-drug antibodies, or ADAs. And there's antibodies to the peg of pegloticase.

So, when you look at that, it's a pretty straightforward trial. And the ways to deal with this are to either increase the dose, or increase the frequency of dose.

One of the things that we put in place with the TRIPLE trial is an infusion once a week for three weeks, followed by every other week dosing.

We've got about 25% of that trial enrolled, and results are promising so far. When we look at that, really the key is getting patients to overcome that anti-drug antibody response, and increase the overall response.

The other thing that we saw from early data is that you had a certain percentage of patients who are obese or overweight. So, for patients over 250, they may actually need more amount of dose, and we're looking at that as a potential additional trial that we conduct.

So, for us, we think this will have a dramatic -- with positive results and signals from this -- a dramatic change in the potential response for KRYSTEXXA.

And assuming we get in this open label trial the right signal, then we would look to designing a label trial that can really expand things further.

So, when you look at 40%-plus of patients not responding, we see this as something that could significantly change the trajectory of KRYSTEXXA.

Okay. Great. Thank you.

Thank you. Abigail?

Annabel Samimy, Stifel.

Hi, thanks for taking my question, and congratulations on a strong quarter.

Thanks.

I just wanted to talk about -- on ACTIMMUNE. I guess there have been several who have been resistant to giving you credit for the potential expansion of ACTIMMUNE into Friedreich's ataxia.

So, what is the most meaningful fact about the Phase 2b results in the pre-clinical data that leads you to believe that this treatment has a greater than 50% chance of generating a successful outcome for these patients?

Jeff?

So, on the pre-clinical model -- really showed clinical efficacy, in terms of improvement in the function in the mice.

But the key thing on the Phase 2 study is the highly statistically significant result in clinical results that, quite frankly, couldn't have occurred by chance alone.

If you look at that specific -- the probability of that result occurring by chance alone was less than 1%.

That, coupled with visible clinical improvement in these individuals, in terms of their ability to improve their upper and lower extremity coordination, gait, et cetera.

Again, this is a progressive, unremitting disease, unlike, let's say, multiple sclerosis. So, what you would really expect to see over a period of time is progressive deterioration, not improvement in their function.

Okay. And the modifications you've made from the Phase 2b to the Phase 3, just if only for the duration -- the longer duration -- we would expect the clinical improvement to move beyond just the upper extremity, or is six months still too short to see any kind of lower extremity improvement?

No, you'd really expect, over a longer period of time, one, in the placebo group to see a further deterioration, and then in the ACTIMMUNE group to see more improvement over time across a variety of the parameters.

So, and then upper versus lower extremity?

Yes, you would expect to see some of that as well. Again, you have to remember, in this disease, it's not as if there may be a consistent involvement in various neurons. It could be a -- somewhat of a spotty involvement, but still it's a progressive disease.

I mean, these are patients who have multi-organ system disease. They develop scoliosis because of different effects on skeletal muscles. They can develop cardiomyopathy, vision changes, and other things as well.

Okay, great. Thank you.

Thanks, Annabel.

Marc Goodman, UBS.

Good morning -- two questions. First, on ACTIMMUNE and RAVICTI, can you give us a flavor of number of patients, average price per patient in the third quarter, and how that progressed to the fourth quarter?

And what you're seeing so far in the first half of this year -- of the quarter?

And then, second, on spending, just give us a sense of what the run rates are in the fourth quarter? What's in there, what's not in there, so we can think about the titration of the quarters throughout the year in 2016? Thanks.

I will handle the first, and Paul can handle the second.

With ACTIMMUNE, we estimated there are about 300 patients in the fourth quarter, versus about 295.

So, we had the expected number of new patients added to ACTIMMUNE. We saw a slight increase number of discretionary patients withdraw, but we still were about our expected range. The same thing with RAVICTI -- about a little over 360 versus 355.

And we also see the mid-year approval in Canada as a potential $8 million to $10 million a year opportunity. And that would -- is progressing now with eight years of exclusivity.

As far as the average price per quarter, I don't know if, Paul, if you have that in front of you -- we'd probably have to check on that. But Paul can address the point on spend fourth quarter, and where we see it.

I will make one note is that we began the expansion of our primary care sales force by 50 in the December time frame. So, you only had one of three months there, or not even a full month for those folks.

And, Paul?

Yes. So, I mean, as I said earlier on the call, Marc, the fourth quarter I don't think there was anything unusual in those numbers.

But first quarter, we expect that the operating expenses will be the highest of the quarter, as a percentage of sales. And they would leverage down throughout the rest of the year.

We saw the same thing last year.

Right. And we'll continue to see -- we still have a few quarters to go on the ACTIMMUNE FA trial, so that will be hitting us through the several quarters. We're ramping up some of the other clinical development programs.

And so, I think the R&D side, we will be probably higher than we were in 2015, each quarter, as a percentage of sales.

First quarter is always high on our sales and marketing, just because of the decrease in sales we get in the first quarter versus the fourth, but the costs are still there.

So, you always see the first quarter being higher as a percentage of sales, on the sales and marketing side.

And then the other ones -- on the G&A, as we continue to grow, we should continue to get more leverage there. The dollars would go up, but we should continue to leverage on the G&A side.

Okay. Marc, are you done?

Yes, thanks.

Okay.

David Amsellem, Piper Jaffray.

Okay, thanks -- just a couple.

So, you may have given this, but apologize if I missed this. Can you just talk about net patient adds on both ACTIMMUNE and RAVICTI, and how many patients are currently on product?

And on RAVICTI, what portion of the BUPHENYL market have you converted to date?

And then lastly on RAVICTI, maybe some color on how we should think about pricing in Europe? Thanks.

All right. So, when we looked at 2015, for the fourth quarter, we achieved our objective of 2 to 3 per month. We averaged two across both ACTIMMUNE and RAVICTI -- about 300 for ACTIMMUNE; about 360 for RAVICTI.

We have continued to see the BUPHENYL patients move over. And we would estimate that the majority of those patients are now being managed by our hub, and going through the process to transition.

And we have seen, so far this year, some strong signals in new patient adds. So, we're very pleased so far.

Relative to Europe and pricing, we're just beginning that process, so, don't have any guidance at this point in time.

Okay, that's helpful.

And then, just want to sneak in a follow-up question on KRYSTEXXA. Just looking backwards, is it safe to say that immunogenicity is the bigger issue, in terms of driving more adoption, or is it both immunogenicity and also worries about anaphylaxis?

And to the extent that it is anaphylaxis or anaphylactic risk, can you talk about what the commercial organization is doing to help get practices more comfortable with that?

They are related, David. So, when we look at the issue in the office, originally that -- what occurred is there was not an accurate description of -- first of all, what patients, and then to start on, and then how to best treat a patient, and when to stop the patient.

So, there wasn't a good explanation of -- and requirement put onto physicians to measure uric acid levels, and if you see them above a certain level, to stop the patient. And what we have seen is, below 6, you saw very minimal immunogenicity issues or response issues or anaphylactic issues.

So, our estimate or analysis of the situation is that the immunogenicity, and to a much greater extent, the anaphylaxis can be well managed, from the standpoint of defining the right patient, having the physicians regularly measure uric acid levels.

And in doing so, they're able to stop a patient if a level goes above 6. And at that point, we've seen a very strong ability to get strong response in patients who have responded, and stop patients who have not responded.

And when we talk about the patients that have not responded, that's where our TRIPLE trial we believe will address that.

And if you look at the data from the Phase 3 trials in patients that were stopped, and who had levels below 6, there was very minimal anaphylaxis seen.

So, we believe, with the proper education of what patients, what are the stopping rules, and then ultimately, in dealing with immunogenicity through the TRIPLE trial, we think we will be able to make a real difference in the treatment of these patients.

All right, David?

Yes, thanks.

Okay, thank you.

David Steinberg, Jefferies.

Thanks, and good morning. I wondered if you could comment on the current M&A environment as you see it? Given the dislocation in equity values starting last summer, have -- from what you're seeing, have seller expectations been reset? And I ask that for both public and private companies.

And then, finally, what types of assets do you currently find most appealing? Are you pretty agnostic [as opposed to] therapy or class, or are you continuing to focus more narrowly on rare diseases? Thanks.

Thanks, David. It's Bob Carey.

So, the environment continues to evolve at this point. We are seeing some opportunities arise, primarily as a result of some companies hitting the need to raise additional capital.

So, if that's going to be an external catalyst, it does start to change perceptions of value.

And so, we're evaluating situations in that realm, and attempting to make some things happen there.

As to expectations overall, if there isn't some external catalyst, they're going to delay that recognition of what the new environment is.

As to assets that we are looking at, as we have said, we continue to look very aggressively for additional orphan assets, and we're seeing some opportunities that are interesting.

And then beyond that, we're very interested in other specialty applications, specialty assets.

And then lastly, every once in a while we see something in the primary care space that has a compelling value associated with it. And if we can find those, we may execute on those, but it's a net level of priority. It's orphan, specialty, and then primary care.

Okay, thanks.

Louise Chen, Guggenheim.

Hi, it is Brandon Folkes on for Louise.

You're not Louise (laughter).

I've got a cold (laughter).

Good one. Well played.

Thanks. Firstly, how should we think about organic growth for Horizon? And how much organic growth did you assume in your 2016 guidance?

And then secondly, could you just give us any color around the subpoena disclosed in the 10-K? Thanks very much.

Sure. So, on organic growth, as we stated in our guidance, 37% at the mid-point on the top line, and 41% on the bottom line.

And relative -- and as we described in the 10-K relative to the subpoena, we received it from the Southern District of New York.

And as expected, this inquiry relates primarily to our patient assistance programs and interactions with specialty pharmacies. As you know that there's been a lot of noise and confusion in the marketplace.

There are no specific allegations against the Company. We're providing them, very transparently, as much information as they request.

But we've built and maintain a robust comprehensive compliance program, which oversees all of our patient support programs, including HorizonCares.

We monitor this. We audit it with internal resources, with external independent resources and, where appropriate, modify these programs. But based on these audits, we have no plans to modify our programs, and feel confident in our programs.

Okay?

Great. Thanks very much.

All right.

Irina Koffler, Mizuho.

Good morning. Thanks for the question. I just wanted to follow up on your gross to net rebates -- just wanted to check if the expectation into 2016 is still the 65% to 75% range, or if you are expecting any changes there?

And then, the second question is, is maybe in broad view, how do you view your relationship with payers, and are you taking any initiatives to improve optics from where they were this past year? Thanks

Thanks, Irina.

So, if we look at 2015 for the full year, DUEXIS was 71%, VIMOVO and PENNSAID were 69%, and RAYOS just under 60%. For the fourth quarter, DUEXIS was 72%, VIMOVO 71%, and PENNSAID 68%. So, on average, for the full year and the fourth quarter, about 70%.

We believe the range will stay in that 70% to 75% range, based on the information we have today. And always, in the beginning of the year, with patients resetting deductibles, switching plans -- we make sure all patients have access to the drugs.

So, we expect that to be higher initially, and then we'll monitor it over time. But nothing so far this year has indicated that we're going to see anything different than we've seen in the past.

Prescriptions are tracking well. We look at a rolling 13-week and a rolling 14-week basis -- or a 13-week and a rolling 4-week basis.

And when you look at DUEXIS, VIMOVO and PENNSAID ranging from 4% to 8% increase in TRx's. On a rolling four-week basis, significantly higher than the rolling 13 weeks.

So, we are seeing solid momentum coming out of the first month of the year, where you always see an impact; so, feeling good about where the business is.

And then from a payer standpoint, we're always working with payers, having discussions, and open to having a dialogue with them about different arrangements, whether that be contracting or otherwise.

So, we will continue dialogue. And if there is an opportunity to do something different or contract with a PBM, and not be on an exclusion list, we're going to be open to that, and maintain that dialogue, and look for opportunities to continue to ensure access for patients receiving the medicines that their physicians prescribed.

So, we're going to be focused on that moving forward.

Thank you.

Okay.

Donald Ellis, JMP Securities.

Thank you. Good morning, guys.

Good morning.

First question, I just wanted some clarification on the changes in the Phase 3 trial, the 100 micrograms, the 200 micrograms in the 3 months to 6 months.

Are those changes from the Phase 2 trial to the Phase 3?

Correct.

Okay, great. And then, last question, if it hasn't already been answered, it looks like inventory -- wholesale inventory levels declined a little bit in the quarter. Is that correct?

Right. Usually we always stay in the range of 17 to 22, 23 days. On an average quarter, we're generally flat. It was probably slightly down in the fourth quarter.

But it just gives a further [heightened] into the strong prescription growth. I think we saw overall 91% prescription growth for the year, and 107% for the fourth quarter.

So, strong prescription growth, and a slight decline in inventory. So, strong signals there.

Great. Thank you very much.

David Risinger, Morgan Stanley.

Good morning. This is [Ana Satz] on the call for Dave. Thank you for taking the questions. We have two questions.

One, for KRYSTEXXA, was there revenue in 2015, and what is your expectation for 2016 RAM?

And the second question is, could you give the outlook for [formulary] actions in 2016, specifically around (multiple speakers) to watch?

Outlook for what?

For PBM, formulary action.

So, for KRYSTEXXA?

Yes. Oh, no, no, I mean, in general.

Okay. So, we don't have yet final sales from Crealta for KRYSTEXXA for 2015. We have provided guidance of $70 million to $80 million for 2016, and $45 million to $50 million in adjusted EBITDA.

For the outlook with payers, it's the same as what I just mentioned. We will continue to have dialogues.

When we looked at the impact in the first quarter, we saw about an 8% to 9% increase in control, which was slightly higher than the prior year, but in line with our expectations.

And our prescription growth has accelerated on a rolling four-week basis from 4% for VIMOVO, to 8% on PENNSAID, and DUEXIS at 6.5%.

So, we're seeing strong prescription growth accelerating, coming out of a slower January, which you expect.

So, we're feeling good about the progress, and the payer environment has had a slightly increased impact versus the prior year, and within our expected range. Thank you.

Okay, thanks. Abigail, do we have anyone else?

I am showing no further questions at this time. I would like to turn the call back to management for closing remarks.

Yes. Thanks, Abigail.

That concludes our call this morning. A replay of the call, as always, will be available in approximately two hours by calling 1-855-859-2056, and the pass code for this replay is 39817228.

In addition, we hope to see all of you at numerous upcoming investor events we will be participating in, in the coming weeks, including next week when Tim will be presenting at the Cowen conference in Boston, which obviously will be available via webcast on our investor relations section of our website, at the date and time of the event, 2 o'clock Eastern Time in Boston.

Thank you for your interest in Horizon Pharma, and thanks for joining us today.

Ladies and gentlemen, thank you for your participation. You may all disconnect. Everyone, have a great day.