Horizon Therapeutics PLC (HZNP) 2016 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Horizon Pharma PLC first-quarter 2016 earnings call. As a reminder, today's conference call is being recorded. I would now like to introduce your host and turn the conference over to John Thomas, Executive Vice President, Strategy and Investor Relations. Please go ahead, sir.

Thank you, Abigail, and 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 the first quarter and an update on the 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 including an update on our ACTIMMUNE Phase 3 clinical trial, STEADFAST, which completed patient enrollment last week. Tim will then provide some closing remarks and then we will take your questions.

As a reminder, during today's call we will be making certain forward-looking statements including financial projections and the expected timing, outcomes 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, 2015, subsequent quarterly reports on Form 10-Q and our earnings news release which we 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.

So with that I will turn the call over to Tim for his remarks. Tim?

Thank you, John, and good morning, everyone. Today we reported first-quarter 2016 net sales of $205 million representing year-over-year growth of 81% and adjusted EBITDA of $72 million representing year-over-year growth of 122%. Importantly, our orphan medicines, RAVICTI, ACTIMMUNE, [RESPEXA] and BUPHENYL represented 40% of total net sales in the quarter. These results were in line with the first-quarter guidance we provided on April 12.

We also today reconfirmed our full-year 2016 net sales and adjusted EBITDA guidance of $1.025 billion to $1.05 billion and $505 million to $520 million respectively. This would represent 37% net sales growth and 41% adjusted EBITDA growth at the midpoint of our guidance ranges.

Also today we announce that are Board of Directors authorized a share repurchase program of up to 5 million shares. While strategic M&A remains our highest priority for capital allocation, this authorization gives us the flexibility to buy back Horizon Pharma stock in the open market.

As of March 31, our net debt of $886 million to our last 12 month's adjusted EBITDA leverage ratio was 2.2 times which gives us significant flexibility as we look to future acquisitions.

Through our continued focus on expanding the use of our medicine and our disciplined M&A activity, we continue to strengthen and diversify the Company. On May 5, we completed enrollment in our Phase 3 clinical trial for ACTIMMUNE for the ultra orphan neurologic disease Friedreich's ataxia. Assuming positive data at the end of this year, we would be in a position to submit our supplemental BLA for ACTIMMUNE in Friedreich's ataxia in the first quarter of 2017. Jeff Sherman will provide more details on this trial later in the call.

We continue to see ACTIMMUNE in FA as a significant potential opportunity with potential net sales of $500 million to $1 billion annually in the FA indication alone.

Also the first quarter we closed the acquisition of Crealta, securing another orphan biologic medicine, KRYSTEXXA, which is indicated for chronic refractory gout. This acquisition added a clinically differentiated medicine with durable intellectual property that bolstered our growing portfolio of orphan medicines and was immediately accretive.

We are pleased with the initial phase of KRYSTEXXA commercialization.

Over the period we were expanding the commercial organization and continued to develop the clinical and commercial relaunch plans and Jeff again will get into some of those later in the remarks.

In March we received Canadian approval for our ultra-orphan medicine RAVICTI for urea cycle disorders and plan to launch it in Canada mid this year. Further we expect to submit a supplemental NBA in the second quarter to the US FDA to expand the US RAVICTI indication to children who are two months to two years of age versus the current indication which is two years and beyond. I will discuss these Company highlights as I walk through our first quarter in more detail.

Our 81% first-quarter net sales growth was driven by each of our business units' orphan rheumatology and primary care. With our orphan business unit which includes ACTIMMUNE, RAVICTI and BUPHENYL, sales increased 167% year-over-year. As I mentioned we are very pleased to have completed enrollment in our Phase 3 trial for ACTIMMUNE in FA on our expected timeline. If the data proves positive we believe it will be a transformational opportunity for the estimated 3700 people with FA in the United States for whom there are currently no FDA approved treatment options. It also could be transformative for our Company as we estimate peak US sales of $500 million to $1 billion annually.

ACTIMMUNE is also being evaluated in combination with the PD checkpoint inhibitor OPDIVO in both kidney and bladder cancer. The first cohort of six patients now has been enrolled in this investigator initiative Phase 1 trial. After data assessment in mid-May, the next steps in the trial are to continue dose ranging among these patients.

As I mentioned earlier, we expect to launch RAVICTI in Canada this summer and anticipating launching the medicine in Europe in 2017 as we work this year to establish pricing reimbursement and determine our go-to-market strategy in a country-by-country basis.

Next in our rheumatology business unit, which now includes KRYSTEXXA as well as RAYOS, our delayed release prednisone medicine, RAYOS net sales increased 46% year-over-year and KRYSTEXXA generated $16 million in sales for partial first quarter with the closing of the Crealta acquisition on January 13. KRYSTEXXA is a highly effective orphan biologic medicine indicated for a population between of 40,000 and 50,000 patients with chronic refractory gout. It is the first and only FDA approved treatment that rapidly reverses disease progression for these patients.

Clinical trial demonstrated that within 24 hours following the first dose patients see a 93% reduction in mean serum uric acid levels. This data also showed a 42% reduction in painful tophi at six months in the severe refractory patient population.

We are further educating the market about both the efficacy and safety of KRYSTEXXA with significantly increasing promotions and working to expand the clinical profile by studying ways to reduce immunogenicity from KRYSTEXXA therapy. In the first quarter we completed the addition of approximately 25 new specialty account managers with a total now of more than 40. All told we expanded the commercial efforts behind KRYSTEXXA more than fivefold from the legacy KRYSTEXXA account management team.

We now have a team of roughly 85 which includes our previously existing rheumatology salesforce of more than 40. In addition, we have 10 medical science liaisons now in place to better communicate the original pivotal clinical trial results of KRYSTEXXA as well engage key opinion leaders at expanding the clinical profile.

This new rheumatology team now has completed training and was fully operational for the first time beginning last week. We see a meaningful and exciting opportunity ahead to treat patients who suffer from painful chronic refractory gout. We expect to see accelerated volume growth in the second half of this year for KRYSTEXXA as a result of these expanded commercial efforts. As I've said before, we see the potential for KRYSTEXXA peak sales to exceed $250 million annually.

Additionally, we are looking at ways to improve the clinical response by reducing the immunogenicity associated with the initiation of KRYSTEXXA therapy. Jeff will discuss the investigator initiated study called the TRIPLE trial in more detail shortly. It is well underway to assess reduction in immunogenicity following an increase in the frequency of dosing versus the original clinical program.

Finally, in our primary care business unit, first-quarter sales increased 39% year-over-year. This business unit includes DUEXIS, VIMOVO and PENNSAID 2%, our topical NSAID medicine which is sold by both our primary care and rheumatology sales forces. Sales of PENNSAID 2% were $55 million in the quarter tripling our first-quarter 2015 sales driven by rapidly accelerating year-over-year total prescription growth of 233% in the first quarter. Prescription trends remain strong with the most recent four-week over four week total prescription growth rate of 9% for PENNSAID 2%.

As we noted in our 8-K filing in April, we anticipate a higher gross net percentage across our primary care medicines for the full year in the range of 75% to 80% with the aggregate percentage in the first quarter of 79%.

Finally, let me discuss our capital allocation priorities. Our goal continues to be delivering on multiple acquisitions in 2016 to expand and diversify our growth platforms. Since 2013, we have significantly strengthened our business from only two medicines to a diverse portfolio of nine medicines and it is our intent to continue to broaden our mix of business best evidenced by the 40% of our net sales in the first quarter being from our orphan medicine.

We have significant cash on the balance sheet post these acquisitions and we will also continue to generate strong cash flow. We believe we have available leverage capacity providing the means to complete additional transactions going forward.

At the same time given current market conditions, we announced today that our Board has authorized a share repurchase program of up to 5 million shares following the approval by our shareholders at our annual meeting last week. This provides us with the flexibility to execute share repurchases in the open market and reflects our confidence in the Company's long-term outlook.

With that let me turn the call over to Paul to review our financial results for the quarter in more detail. Then he will be followed by Jeff Sherman.

Thanks, Tim. Before I begin as John referenced, this morning we provided information in our first-quarter earnings release that reconciles our GAAP results to certain non-GAAP financial measures. My comments will mainly focus on our non-GAAP or adjusted results which we believe provide investors with an additional perspective of our ongoing business performance.

As Tim mentioned, today we reported first-quarter net sales in adjusted EBITDA in line with the first-quarter guidance we provided on April 12. Net sales were $205 million, an increase of 81% versus the first quarter of 2015. Net sales this quarter included a partial quarter of KRYSTEXXA sales of $16 million. Adjusted EBITDA in the first quarter was $72 million or 35.2% of sales, an increase of 650 basis points compared to the first quarter of 2015.

We also confirmed our full-year 2016 net sales in adjusted EBITDA guidance this morning. Our full-year 2016 net sales guidance remains $1.025 billion to $1.050 billion and our full-year adjusted EBITDA guidance remains at $505 million to $520 million. Using the midpoint of these ranges, this guidance represents a year-over-year increase in net sales of approximately 37% and a year-over-year increase in adjusted EBITDA of approximately 41% versus 2015. On a percent of sales basis, our adjusted EBITDA guidance will represent approximately 49.4% of sales at the midpoint, an increase of more than 150 basis points versus 2015.

Now let's walk down the income statement in more detail. As a reminder, results in this discussion will refer to non-GAAP or adjusted results and reconciliations of these results to our equivalent GAAP results are provided in our earnings release today.

The first-quarter adjusted gross profit margin was 90.6% 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 $113.2 million or 55.3% of sales in the quarter. Adjusted R&D expense in the first quarter was $8.6 million and reflects our continued investment in our Phase 3 trial for ACTIMMUNE in FA, the Phase 1 dosing trial of ACTIMMUNE in combination with OPDIVO in cancer, our ongoing work expanding the indicated patient population for RAVICTI and our investment in the KRYSTEXXA TRIPLE trial. We expect this to continue to increase as we expand the potential use of ACTIMMUNE in oncology along with ongoing work with KRYSTEXXA.

Adjusted sales and marketing expenses in the quarter were $69.7 million or 34% of sales and adjusted G&A expense was $34.9 million or 17% of sales. The higher percentage of sales and marketing reflects our commercial expansion across our business units. We expect that our expanded sales and marketing efforts in rheumatology in primary care will continue to drive prescription growth of our medicines.

We expect both sales and marketing and G&A expense as a percentage of sales to leverage down as we progress through the year.

Adjusted net income for the first quarter of 2016 was $55.4 million and adjusted diluted earnings per share were $0.34 representing an increase of 89% compared to the first quarter of 2015. The weighted average diluted shares outstanding used to calculate adjusted diluted earnings per share in the first quarter of 2016 were 163.7 million shares. For the full-year 2016, we are now estimating our diluted share count to be approximately 170 million shares outstanding.

Turning now to taxes on a non-GAAP or adjusted basis, our tax rate in the first quarter was 3% reflecting the cash taxes we estimate that we will pay as a percentage of the non-GAAP pretax earnings. 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 cash tax rate to be in the low teens in the 2017 to 2020 timeframe.

As we have said before, as we continue to be aggressive in our pursuit of M&A with a goal of multiple transactions per year, to that and as we previously stated, future acquisitions may impact these forecasted rates but we will update our guidance as appropriate.

Before I move on to our balance sheet and cash flows, let me briefly comment on the second-quarter guidance provided on April 12 and confirmed today. We expect net sales in the second quarter to be approximately 22% to 23% of our full-year 2016 net sales guidance midpoint and adjusted EBITDA to be approximately 21% to 22% of our full-year 2016 adjusted EBITDA guidance midpoint. As we have seen in past years, we anticipate a sequential improvement in net sales in adjusted EBITDA as we move through the year.

Now let me provide a few high-level comments on our cash flow and balance sheet as of March 31. Regarding cash flow for the first quarter of 2016, we generated $54.2 million of operating cash flow on a GAAP basis. After adjusting primarily for acquisition related payments, adjusted operating cash flow was $67.9 million for the first quarter, a significant increase of $131 million over the first quarter of 2015 which was impacted by some one-time operating cash outflows.

Cash and cash equivalents were $385.9 million as of March 31, down approximately $474 million from December 31 primarily due to the payment of approximately $550 million for the acquisition of Crealta in January.

The total principal amount of debt outstanding was $1.272 billion as of March 31 which is comprised of $397 million in senior secured term loans with current interest rate of 4.5% due in 2021; $475 million and 6 5/8% senior notes due in 2023; 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 March 31, the leverage ratio of our net debt of $886 million to our last 12 months adjusted EBITDA was 2.2 times. Looking forward based on this net debt of $886 million and our 2016 adjusted EBITDA guidance of roughly $500 million, our net leverage would be less than two times.

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

Thanks, Paul, and good morning everyone. We continued to make good progress in the first quarter advancing our clinical development program and we look forward to the upcoming milestones that could meaningfully expand the breadth of our existing medicine. Most importantly, we have the opportunity to dramatically improve the lives of thousands of new patients.

As we have grown as an organization, we have also been able to allocate more investment dollars in clinical development. We currently have multiple programs underway ranging from smaller scale opportunities to potentially much larger ones.

Let me begin with ACTIMMUNE, our interferon gamma 1B which today is indicated for chronic granulomatous disease or CGD and severe malignant osteonecrosis or SMO, two rare genetic diseases totaling under 2000 patients. Our Phase 3 clinical trial evaluating ACTIMMUNE for the treatment of Friedrich's ataxia, or FA, continues to meet our expectations. FA is a debilitating, life-shortening, ultra-orphan neurologic disease with no FDA approved treatment.

As we announced on May 5, we completed the target enrollment of 90 patients in the steadfast Phase 3 trial. As a reminder, the Phase 3 trial design includes 90 patients randomized 1-to-1 versus placebo. These patients have enrolled at four top FA centers across the country. The primary endpoint agreed to with the FDA is an improvement in the modified Friedrich's ataxia rating scale or FARS score at six months, an objective clinically validated measure that assesses functional parameters such as upper and lower body extremity coordination. This modified score removes components of the total FARS score viewed by the FDA to be more subjective such as peripheral nerve assessment.

Working with the Friedrich's Ataxia Research Alliance, or FARA, we rigorously train the physicians conducting efficacy and safety assessment with a goal of achieving high consistency in evaluation across the sites and the study. The physicians who conduct efficacy assessments do not conduct safety assessments. This helps to reduce potential bias in the trial. So we along with the expert investigators involved in the study are confident in the design of the Phase 3 trial.

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 from the trial by the end of this year 2016 and provided the data are positive, we are targeting a first-quarter 2017 sBLA submission. Assuming priority review is granted, 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 in various forms of cancer including bladder and kidney cancer. The first six patients are now enrolled in the first cohorts of the trial. Preclinical research has indicated that interferon gamma could potentially enhance the efficacy of PD-1 and PDL-1 inhibitors plus 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 from the Phase 1 study. Next steps in this trial are to assess data from the first cohort in mid-May and continue dose ranging in this trial.

Last quarter we also updated you on our ongoing progress with RAVICTI and we are pleased with developments that expand our reach with RAVICTI into Canada. In March, we received approval in Canada for RAVICTI for patients two years of age and older with urea cycle disorders or UCD. We also received data protection in Canada for a term of up to eight years. In the US, RAVICTI is available for patients greater than two years of age and we are targeting a second quarter 2016 SNDA submission seeking approval for the use of RAVICTI in patients greater than two months of age.

Let me also provide an update on our newest medicine, KRYSTEXXA in the TRIPLE trial as Tim mentioned. As we do with each of our medicines we acquire, we pursue clinical development opportunities with the goal to expand our medicine to more patients. Similar to other biologics, patients can develop an immune response to KRYSTEXXA. The TRIPLE trial has been initiated to evaluate and potentially improve the immunogenicity profile of KRYSTEXXA and therefore to demonstrate improved clinical response to treatment for patients with chronic gout refractory to conventional therapy.

The trial is being conducted in collaboration with Dr. Peter Lipsky, a preeminent immunologist and rheumatologist. In this study we are increasing the frequency of dosing from every other week to every week for the first three weeks of treatment with the intent to reduce the incidence of an immune reaction occurring with KRYSTEXXA therapy.

We expect to submit an initial data from the study for presentation at the American College of Rheumatology or ACAR Conference in November of this year. I look forward to sharing more with you about this program and our other clinical development programs as they advance.

With that, I will turn the call back over to Tim.

Thank you, Jeff. We continue to track toward our full-year 2016 net sales and adjusted EBITDA guidance. We are delivering on our core principles, strong commercial execution, an aggressive and disciplined acquisition strategy with clinical development of medicine for patients in need and expanding patient access while ensuring affordability of our medicines.

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

With that I will now open the call up for questions.

(Operator Instructions). Tyler Van Buren, Cowen and Company.

Good morning and thanks for taking my question. With respect to KRYSTEXXA and the commercialization in the partial quarter, can we get any sense of how much of the quarter those sales accounted for? And more importantly, a couple of questions just on the actual launch. Just curious to hear a little bit more about some of the sales reps that you all hired to expand your sales force. Where did they come from? What is their background and as well as for the commercialization, what are some of the early learnings and the feedback that you are hearing from the salesforce in the launch? Just curious to hear a little bit more about that.

Sure. So the sales for the first quarter represent January 13 through the remainder of the quarter so that is the full period we recorded from close and beyond. As far as the sales reps that we have hired, all of the 43 account managers have prior biologic or buy and bill experience selling medicines like Remicade or agents for lupus or rheumatoid arthritis so very experienced biologic reps along with our existing rheumatology salesforce.

As far as what we have heard to date, I think it is several key items. The first is when the product was originally launched, there was a misperception of efficacy driven by not having an appropriate identification of where to use patients but also where not to use patients. So the focus has been primarily on educating and informing around efficacy and that is defining where do you stop using the medicine. And when you look at the clinical trial data that is focused on serum uric acid levels above six, so if it goes above six we educate patients or physicians that they should be stopping patients at that point in time and by doing so the clinical trial data has evidence that it will reduce the infusion reactions and potential reduction of some of the safety issues seen in the Phase 3 program.

The other thing that we are focusing on is really completing the TRIPLE trial and then educating physicians around that protocol of weekly infusions for the first three weeks and then continuing every other week. The rheumatologists certainly understand this. This is how they have used other biologics so it has really been an education around how this trial is designed and when to look for the results and education on safety and the feedback has been very positive so far. As a reminder, the salesforce just went out in full effect last week so we are very early in the process.

That sounds great. Thank you so much.

Louise Chen, Guggenheim Securities.

Hi, it is Brandon Folkes on for Louise. With respect to business development, what is your capacity to do more deals in 2016 and what is your view on the debt markets and how you would fund larger deals? Thank you.

So our capacity is we believe we've got the capacity to execute on multiple transactions throughout 2016. Our expectation is they will be smaller, maybe there will be some that are larger. From a debt capital markets perspective, we see the capital markets being stable to slightly improving. In conversations that we have had with various advisors that we talk with about this, they continue to commit to us that we've got access to the debt capital markets.

Our leverage on an EBITDA leverage basis is at 3.2. On a net leverage basis, is at 2.2 so we believe we've got plenty of additional capacity to borrow in the event that that is what we choose to do.

Going to 4.5, I think in prior times we had guided that we would go over five in the past but we are comfortable with where we are.

David Amsellem, Piper Jaffray.

Thanks. So on the primary care business, can you give us some color on why you think gross to nets will stabilize or moderate as the year progresses? Just like to get some granularity on why you believe that will be the case.

Secondly, can you talk about the potential for you guys to reengage with the big PBMs, mainly CVS, Caremark or Express Scripts? And given what we have seen in terms of gross to nets and given what we've seen just across the landscape, did you think that that is something that is a plausible possibility down the road? Thanks.

Thanks, David. As far as stability and looking at gross to nets, we have already seen a moderation of the buy down amounts and the coinsurance levels. Typically we see that stabilize as we get through to the end of the first quarter so we have seen the stabilization of amounts fully bought down, stabilization of the coinsurance amounts which means some patients are already hitting their deductibles. And as we saw last year, this is a period where we do expect to see those rates stabilize.

The majority of the actions that were taken by payers went into effect in the beginning of the year. While there are some that occur throughout the year and we saw as we looked at last year, the majority of those actions have been taken and we don't see any major plans taking any actions that would have a material impact on our primary care business this year. So we feel that we are at stable gross to nets in that 75% to 80% and then it is all about driving volume. We had strong growth on a year-over-year basis looking at the first quarter but importantly the primary care business in aggregate was up 6% on a rolling four-week basis and 9% for PENNSAID.

Relative to looking at payers and PBMs and ability to contract with them, it is certainly something that we are looking at. Our goal is looking at the average net realized price versus the WACC price and that gives us flexibility and discussions with both payers and PBMs. So our goal if there is an ability to create access for patients and stabilize the business long-term, we will continue those discussions and hopefully move the business that way. So we are in discussions with various different PBMs and payers and we expect to get contracts in place with some of them and that is an ongoing process.

Tim, if I may, do you have any interest in adding additional primary care assets or is it safe to say that the focus in terms of M&A right now particularly given what we have seen from pricing and payer pressures and primary care assets, is the focus primarily orphan and rare diseases at this point?

It is, David. Four out of the last five medicines we have acquired have been orphaned medicines and that has been our stated and executed focus and we expect it to continue.

Thank you.

Annabel Samimy, Stifel.

Thanks for taking my questions. So I want to ask about the guidance I guess. We heard from investors of course there's a lot of skepticism on how you can maintain your guidance given the first quarter and obviously some of that has to do with the attenuation of gross to net. But what do you see as the biggest drivers of revenues going forward given some of the slowdown in your bigger primary care products, DUEXIS and VIMOVO.

Also in terms of orphan drug, we saw I guess a little bit of the same pattern attenuation from fourth quarter to the first quarter. Is that the same deductible issue that you saw for primary care?

Then if I can ask on R&D, it seems to have come down a little bit from the fourth quarter which I guess I was surprised about given that you were in full steam ahead with ACTIMMUNE, I guess adding some other programs, so can you just give us a little bit of color there? Thanks a lot.

Sure, first on the orphan, RAVICTI, we saw sequential growth from the fourth quarter. I think it was about 35 in the fourth quarter and grew to a little over $35 million to $37 million. So we continue to see strong new patient growth. With ACTIMMUNE, we saw continued new patient growth but we did see greater than expected discontinuation in the discretionary or off label business. So when we looked at on label for chronic granulomatous disease, we did see continued growth in patients and we expect that to continue as the year plays out. And as the discretionary becomes a smaller and smaller piece of the business, we will break through that trend with ACTIMMUNE.

When we look at our guidance and the growth drivers for the remainder of the year, it continues to be strong growth with PENNSAID and continued growth with DUEXIS and VIMOVO. KRYSTEXXA, as I mentioned, just the organization was in full force beginning last week and we expect to see a continued acceleration there. And with RAVICTI, we continue to see strong new patient adds continuing throughout the year. Paul can comment to the R&D expense question.

I think it is difficult to compare one quarter to another. I mean we did have the ACTIMMUNE trial for FA hitting both the fourth quarter and first quarter. I think maybe one change was I think some of the RAVICTI expenses kind of rolled off because right now we are working on the data to submit the supplemental SNDA for the RAVICTI, for the patients over two months of age and so a lot of that trial work was done prior to the start of the quarter.

Okay, great. Thanks.

Irina Koffler, Mizuho.

Thanks for taking the call. Nice quarter. I was just wondering how high can gross to net discounts creep with the Company still remaining profitable on those brands? And also you mentioned that you are starting to look at contracting. I mean can you characterize, have you always been looking at contracting or this is more of a new position for the company taking an increased look at the contracting?

And then finally, KRYSTEXXA was pretty strong and just wondering if the prior guidance of about $80 million for the year is a little light? Thanks.

So with our primary care business in gross to nets, really the focus for us is average net realized price and that in aggregate was -- if you look at our primary care business. And RAYOS was $411 in the first quarter so we continue to see strong net pricing for that business and with significantly growing volume as we have seen especially over the last four weeks, we are very pleased with the ability to move that business forward in a very profitable manner.

When we look at contracting, I think what we have seen is the primary change in the beginning of this year has not been any material change to the PBMs, it has been changes on individual payer levels. And we are based on those actions beginning to have a number of discussions with various payers and also with PBMs. So some of it is related to actions that have occurred over the last three to six months.

And then relative to KRYSTEXXA, we are very pleased with the strong performance especially given that we are just ramping up the commercial organization over the last few weeks but we don't give individual product guidance at this point in time.

Thank you.

(Operator Instructions). Donald Ellis, JMP Securities.

Thank you for taking the questions and good morning, guys. First question is for Bob. Obviously there has been a major correction or a reset of valuations for you guys as well as those that you might be in talks to acquire. Have you seen the management teams of companies here (inaudible) acquiring have they realized that the valuations today are the new normal or are they still looking in their rearview mirror looking for what they were worth a year ago?

The next question is regarding the Friedrich's ataxia ACTIMMUNE program. You said you enrolled the last patient May 5 but the results are not coming until the end of year. Can you give us an idea what is happening between May 5 and the end of the year that takes six months before we can see the data.

The last quick question, sequential sales decline fourth quarter versus the first quarter, which is the same for everybody else but accounts receivable ticked up just a little bit. Can you give us an idea where your wholesale inventory levels are at? That is it. Thanks.

Sure. I will comment quick on wholesale inventories. They were overall roughly flat on a quarter-over-quarter basis. We saw a slight decrease in inventory in the primary care and maybe with an average of about 20 that we typically, see slightly more in the orphan business but nothing else outside of normal.

And then on the FA program if you look at the last patient going in now, you have six months of treatment which takes you into November. That patient then needs to do follow-up visits and you have to have all the data aggregated so we will get data in the December timeframe.

And then on your question regarding valuation expectations, it is a mixed bag. In some situations we are seeing the change in approach but in many others we aren't. So it just depends on what external forces are at play in each one of these opportunities. If there is a capital need obviously then the realities of the capital market quickly adjust people's expectations. If not, then there is a hesitancy to accept the valuations that have settled in here over the last nine months. So it is a case-by-case basis.

Thank you. That is helpful and thanks a lot for the quarter.

Difei Yang, Brean Capital.

Good morning. Thanks for taking my questions. So if we look at two products, ACTIMMUNE and RAVICTI, clearly the growth trajectory is sort of going on a different trend between the products. I'm wondering if you can go down to maybe the pricing level, maybe the inventory, maybe a portion of the split of the business in government versus commercial business to help us understand how we should think about these two brands moving forward?

With both brands, we continue to see expected month-over-month new patient growth so we had strong growth for RAVICTI on both a growth of new patients and net patients because there was much less withdrawals than we saw with ACTIMMUNE. ACTIMMUNE in chronic granulomatous disease or CGD, we continue to see new patient growth. The historic business of ACTIMMUNE had when the product was originally acquired by Vidara had only about 30% on label. It is about 70+% on label now. But that discretionary piece of about 30% has seen for the last two quarters a greater than expected discontinuation rate that is outside of our control. So where we do control the business we see strong and expected continued sequential patient growth and new patient adds and the key thing is that will continue to be discretionary, will continue to be a smaller portion of the business and that impact will dissipate over time. So both brands are strong, we are just seeing a net differential impact on ACTIMMUNE due to the discretionary uncontrolled piece.

If I could just follow up with a quick question on the RAVICTI so if my calculation is correct, RAVICTI has already had a very high market share so moving forward, where do we see additional growth coming from?

It has a very low relative market share. In fact there is about 300 patients on drug for these urea cycle disorder in patients over two years versus a market opportunity of 2100 patients. So with that very low relative penetration, it is continuing to get incrementally more each month that net two to three new patients per month and growing that from 300 to much closer to the 2100 patients. So low relative market share and we expect to grow it.

Okay, thank you.

David Risinger, Morgan Stanley.

Good morning. This is (inaudible) on the call for today. Thank you for taking the questions. We have three questions please. One regarding your private care franchise. Are there opportunities to raise price later this year and how do you expect that to translate into net price and how are these opportunities incorporated in your current guidance?

Two, are there any primary care formulary risks that we should be aware of heading into the summer?

And three, just to follow-up on Annabel's question on the driver of the high ramp up from first half to second half, are you saying that the step up will come mainly from the orphan franchise versus the primary care franchise? Thank you.

Sure. Thanks for the questions. We don't give guidance on what our pricing is going to be, it is factored into our guidance. And in our primary care business, we don't look at net price increases. We look at maintaining the average net realized price which was about 450 in the fourth quarter and about 411 in the first quarter. And if you look at the last eight quarter we have had 147% volume growth with a negative 12 net price. So our goal is to continue to maintain the net realized price, not increase the net realized price.

As far as formulary risk, we have looked across the business and believe that any expected changes are factored into our guidance. And then as far as we move the business forward in the second half, the actual percentage of net sales and adjusted EBITDA guidance in the second quarter and the second half of the year are similar to what we have seen over the last two years. So no greater expectation as far as a percentage of the business in respective quarters versus prior years.

So when we look at the drivers of that, we see continued growth with PENNSAID occurring and we have had on a rolling four-week basis 9% prescription growth of PENNSAID, 6% across primary care which has about 5% for DUEXIS. And we expect to see continued growth for RAVICTI and KRYSTEXXA now that we have a full organization up and running. So continued growth in the business across the year.

As far as a contribution second quarter and second half, that is similar to prior year's expectation.

Okay. Abigail, I want to be respectful of other people's time because I know there is a number of different calls going on this morning. So I think that will conclude our call for today. The replay will be available in approximately 2 hours by calling 1-855-859-2056 and the passcode for that replay is 87519901.

In addition, we hope that we will see some of you at the upcoming investor events that we have this month. On May 11, we will be presenting at the Bank of America Healthcare Conference at 4:20 PM Pacific time in Las Vegas if you are there. On May 25, we will present at the UBS Global Healthcare conference at 11 AM Eastern time in New York. Each of these presentations and audio webcasts will be available on our investor relations site on the website.

And with that we thank you for joining us today and please call us if you have any follow-up questions.

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