Horizon Therapeutics Public Limited Company
Q1 2016 Earnings Call Transcript

Published: 10 May 2016

[Operator:]

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, the Executive Vice President, Strategy and Investor Relations. Please go ahead, sir.

[John B. Thomas:]

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 III clinical trial STEADFAST, which completed patient enrollment last week. Tim will then provide some closing remarks and then, we'll take your questions. As a reminder, during today's call, we'll be making certain forward-looking statements, including financial projections and the expected timing, outcomes and the 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're 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?

[Timothy P. Walbert:]

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, KRYSTEXXA, 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 will represent 37% net sales growth and 41% adjusted EBITDA growth at the midpoint of our guidance ranges. Also today, we announced that our 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 months 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 medicines and our disciplined M&A activity, we continue to strengthen and diversify the company. On May 5, we completed enrollment in our Phase III 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 the significant potential opportunity with potential net sales of $500 million to $1 billion annually in the FA indication alone. Also in 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. It 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 continue 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 NDA in the second quarter to the U.S. FDA to expand the U.S. 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. 81% first quarter net sales growth was driven by each of our business units

[Paul W. Hoelscher:]

Thanks, Tim. Before I begin, as John referenced, this morning we provided information on 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 and 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 and 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 the 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 for 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 III trial for ACTIMMUNE in FA, the Phase I 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 and 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 pre-tax 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. And as we've said before, as we continue to be aggressive in our pursuit of M&A with a goal of multiple transactions per year. To that end, as we've previously stated, future acquisitions may impact these forecasted rates so 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 confirm 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've 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 in the first quarter, a significant increase of $131 million over the first quarter of 2015 which was impacted by some onetime 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 $515 million for the acquisition of Crealta in January. The total principal amount of debt outstanding was $1.272 billion as of March 31, which was comprised of $397 million in senior secured term loans with current interest rate of 4.5% due in 2021, $475 million and 6.625% 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-month 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'd like to turn the call over to Jeff.

[Jeffrey W. Sherman:]

Thanks, Paul, and good morning, everyone. We continue 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 medicines. 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 opportunity to potentially much larger one. Let me begin with ACTIMMUNE, or interferon gamma-1b, which today is indicated for chronic granulomatous disease or CGD, and severe, malignant osteopetrosis, or SMO, two rare genetic diseases totaling under 2,000 patients. Our Phase III trial clinical trial evaluating ACTIMMUNE for the treatment of Friedreich's ataxia or FA continues to meet our expectation. 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 enrolment of 90 patients in the STEADFAST Phase III trial. As a reminder, the Phase III trial design includes 90 patients randomized one-to-one 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 Friedreich'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 the peripheral nerve assessment. Working with the Friedreich's Ataxia Research Alliance or FARA, we rigorously train the physicians conducting efficacy and safety assessments with the goal of achieving high consistency in evaluation across the sites in 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 III 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 the Phase III registration trial, we initiated a Phase I 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 cohort of the trial. Preclinical research is indicated and interferon gamma could potentially enhance the efficacy of PD-1 and PD-L1 inhibitors, thus potentially improving cancer patient outcome. Research collaboration with the Fox Chase Cancer Center, we hope to gain a better understanding of this combination from the Phase I 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 year. In the U.S., 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, and 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 medicines 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 incidents of an immune reaction occurring with KRYSTEXXA therapy. We expect to submit initial data from the study for presentation at the American College of Rheumatology or ACR 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.

[Timothy P. Walbert:]

Thank you, Jeff. We continue to track towards our full year 2016 net sales and adjusted EBITDA guidance. We're delivering on our core principles, strong commercial execution, and aggressive and disciplined acquisition strategy, the clinical development of medicines for patients in need and expanding patient access while ensuring affordability of our medicine. Moving forward, we'll continue to drive and motivate our growing organization with the goal of delivering exceptional financial performance that creates leading shareholder value. With that, I'll now open the call up for questions.

[John B. Thomas:]

Abigail, go ahead.

[Operator:]

Thank you. Our first question comes from Tyler Van Buren with Cowen & Company. Your line is open.

[Tyler Van Buren:]

Hi. 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, couple of questions just on more of the – 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 in the feedback that you're hearing from the sales force in the launch, just curious to hear a little bit more about that?

[Timothy P. Walbert:]

Sure. So, the sales for the first quarter represent January 13, through the remainder of the quarter. So, that's the full period we recorded from close and beyond. As far as the sales reps that we've 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 sales force. As far as what we've heard to-date, I think it's several key items. First is when the product was organically 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 trials data that's 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 you will reduce the infusion reactions and potential reduction of some of the safety issues seen in the Phase III program. The other thing that we're 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've used other biologics, so it's 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. And as a reminder, the sales force just went out in full effect last week, so we're very early in the process.

[Tyler Van Buren:]

That sounds great. Thanks so much.

[Timothy P. Walbert:]

Thanks, Tyler.

[John B. Thomas:]

Thank you.

[Operator:]

Thank you. Our next question comes from Louise Chen with Guggenheim Securities. Your line is open.

[Brandon Folkes:]

Hi. It's 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.

[Paul W. Hoelscher:]

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'll 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've had with various advisors that we talked with about this. They continue to commit to us that we've got access to the debt capital markets. Our leverage on a EBITDA – leverage basis is at 3.2. On a net leverage basis, it's at 2.2. So, we believe we got plenty of additional capacity to borrow in the event that that's what we choose to do.

[Timothy P. Walbert:]

(30

[Operator:]

Thank you. Our next question comes from David Amsellem with Piper Jaffray. Your line is open.

[David A. Amsellem:]

Thanks. So on the Primary Care business, can you give us some color on why you think gross to net will stabilize or moderate as the year progresses? Just like to get some granularity on why you believe that that will be the case. And then secondly, can you talk about the potential for you guys to reengage with the big PBMs namely CVS, Caremark or Express Scripts? And given what we've seen in terms of gross to net and given what we've seen just across the landscape, do you think that that is something that is a plausible possibility down the road? Thanks.

[Timothy P. Walbert:]

Thanks, David. As far as stability and looking at gross to nets, we've already seen a moderation of the buy-down amount and the co-insurance levels. So typically, we see that stabilizes as we get through to the end of the first quarter. So, we've seen the stabilization of amount fully bought down, stabilization of the co-insurance amounts, which means some patients are already hitting their deductibles. And as we saw last year, this is the 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 occurs throughout the year as we look 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're at stable gross to net to net 75% to 80% and then, it's 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 the payers and PBMs and ability to contract with them, it's 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 in discussions with both payers and PBMs. So our goal, if there's 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's an ongoing process.

[David A. Amsellem:]

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've seen in terms of pricing and payer pressures in Primary Care assets, is the focus primarily orphan rare diseases at this point?

[Timothy P. Walbert:]

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

[David A. Amsellem:]

Thank you.

[Operator:]

Thank you. Our next question comes from Annabel Samimy with Stifel. Your line is open.

[Annabel Samimy:]

Hi, guys. Thanks for taking my question.

[Timothy P. Walbert:]

Hi, Annabel.

[Annabel Samimy:]

Hi. So, I wanted to ask about the guidance, I guess. We heard from investors, of course, there's lot of skepticism on how you can maintain your guidance given the first quarter and, obviously, some of that has to do with attenuation of gross to net. But what do you see as the biggest drivers of revenues going forward given I guess some of the slowdown and your bigger Primary Care products, DUEXIS and VIMOVO? And also in terms of orphan drug, we saw I guess a little bit of the same pattern, attenuation from fourth quarter to 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.

[Timothy P. Walbert:]

Sure. First on the orphan. RAVICTI, we saw sequential growth from the fourth quarter. I think it was about $35 million in the fourth quarter and grew to a little over $35 million to $37 million, so we continue to see strong, a new patient growth. With ACTIMMUNE, we saw continued new patient growth, but we did see greater-than-expected discontinuations in the discretionary or off-label business. So, when we look at on-labels 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.

[Paul W. Hoelscher:]

Yeah. I think it's difficult to compare one quarter to another. I mean, we did have the ACTIMMUNE trial for FA hitting both 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're working on the data to submit the supplemental sNDA for 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.

[Annabel Samimy:]

Okay. Great. Thanks.

[Timothy P. Walbert:]

Thank you.

[Paul W. Hoelscher:]

Thank you, Annabel.

[Operator:]

Thank you. Our next question comes from Irina Koffler with Mizuho. Your line is open.

[Irina R. Koffler:]

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're 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.

[Timothy P. Walbert:]

So, with our Primary Care business and gross to net, really the focus for us is average net realized price and debt in aggregate was – if you look at our Primary Care business in 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've seen especially over the last four weeks, we're very pleased with the ability to move that business forward in the right profitable manner. When we look at contracting, I think what we've seen is the primary change in the beginning of this year, there's not been any material changes in PBMs, it's 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're very pleased with the strong performance especially given that we're just ramping up the commercial organization over the last few weeks but we don't give individual product guidance at this point in time.

[Irina R. Koffler:]

Thank you.

[John B. Thomas:]

Thanks.

[Timothy P. Walbert:]

Thanks, Irina.

[Operator:]

Thank you. Our next question comes from Donald Ellis with JMP Securities. Your line is open.

[Donald Bruce Ellis:]

Thank you for taking the questions and good morning, guys.

[Timothy P. Walbert:]

Good morning, Don.

[Paul W. Hoelscher:]

Hi Don.

[Donald Bruce Ellis:]

First question is for Bob. Obviously, there's been a major correction, 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 the companies you're considering acquiring? Have they realized that the valuations today are the new normal or are they still looking in the rearview mirror what they were worth a year ago? And then, the next question is regarding the Friedreich's ataxia ACTIMMUNE program. You said you enrolled the last patient May 5, but results are not coming till the end of the year. Can you give us an idea what's happening between May 5 and the end of the year that takes six months before we can see the data? And the last quick question, sequential sales declined fourth quarter versus first quarter which is the same for everybody else, but accounts receivables ticked up just a little bit. Can you give us an idea where your wholesale inventory levels are at? And that's it, thanks.

[Timothy P. Walbert:]

Sure. I'll comment quick on wholesale inventories. They were overall roughly flat on a quarter-over-quarter basis. We saw slight decrease in inventory in the Primary Care and maybe with an average about 20 that we typically see or slightly more in the Orphan business but nothing else out 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 have follow-up visits and you have to have all the data aggregated, so we will get data in the December timeframe.

[Robert F. Carey:]

And then, Don, on your question regarding valuation expectations. It's a mixed bag. In some situations, we are seeing the change in approach, but in many others, we aren't. And 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 markets quickly adjust peoples' expectations. If not, then there's a hesitancy to accept the valuations that have settled in here over the last nine months. So, it's a case-by-case basis.

[Donald Bruce Ellis:]

Thank you. It's helpful and thanks a lot for the quarter.

[Robert F. Carey:]

Yeah. Thanks, Don.

[Operator:]

Thank you our next question comes from Difei Yang with Brean Capital. Your line is open.

[Difei Yang:]

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

[Timothy P. Walbert:]

Well, with both brands, we continue to see expected month-over-month new patient growth, so we had strong growth for RAVICTI on both the gross 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's about 70-plus percent on-label now but that discretionary piece of about 30% has seen, for the last two quarters, a greater-than-expected discontinuation rate that's 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, the discretionary will continue to be a smaller portion of the business and that impact will dissipate over time. So, both brands are strong. We're just seeing a net differential impact on ACTIMMUNE due to the discretionary uncontrolled piece.

[Difei Yang:]

Yeah. 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?

[Timothy P. Walbert:]

Well, it has a very low relative market share. In fact, there is about 300 patients on drug for the urea cycle disorder in patients over two years versus a market opportunity of 2,100 patients. So, with that very low relative penetration, it's continuing to get incrementally more each month at net two to three new patients per month and getting, and growing that from 300 to much closer to the 2,100 patient. So, low relative market share and we expect to grow it.

[Difei Yang:]

Yeah. Thank you.

[John B. Thomas:]

Thank you. One more question, operator?

[Operator:]

Yes. Our next question comes from David Risinger with Morgan Stanley. Your line is open.

[Onusa Chantanapongwanij:]

Hi. Good morning. This is Onusa on the call for Dave. Thank you for taking the questions. We have three questions, please. One regarding your Primary Care franchise. Are there opportunities to raise risk price later this year and how do you expect that to translate into net price and how are these opportunity incorporated in your current guidance? Two, are there any Primary Care formulary risk that and which we should be aware of heading into the summer? And three, just to follow up on Annabel question on the driver behind the 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.

[Timothy P. Walbert:]

Sure. Thanks for the question. 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 our 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 quarters, we got 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've seen over the last two years, so no greater expectation as far as percentage of the business in respective quarters versus prior year. So, when we look at the drivers of that, we see continued growth with PENNSAID occurring and we've had on a rolling four-week basis, a 9% prescription growth of PENNSAID, 6% across Primary Care, which has about 5% for DUEXIS. And we expect to see continued growth with RAVICTI and KRYSTEXXA now that we have a full organization up and running. So, continued growth in the business across the year, and as far as a contribution of the second quarter and second half, that's similar to prior year's expectations.

[John B. Thomas:]

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. A replay will be available in approximately two hours by calling 1-855-859-2056, and the pass code for that replay is 87519901. In addition, we hope that we'll see some of you at the upcoming investor events that we have this month on May 11. We'll be presenting at the Bank of America Healthcare Conference at 4

[Operator:]

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