Mar 13, 2014
Executives
Jack Khattar – President, Chief Executive Officer Gregory Patrick – Chief Financial Officer
Analysts
Ken Cacciatore – Cowen & Co. Annabel Samimy – Stifel Nicolaus David Amsellem – Piper Jaffray Bill Tanner – FBR Capital Markets Jonathan Eckard – Citigroup
Operator
Good day ladies and gentlemen and welcome to Supernus Pharmaceuticals Fourth Quarter 2013 Earnings conference call. At this time, all participants are in a listen-only mode.
Later we will conduct a question and answer session and instructions will be given at that time. If anyone should require operator assistance during the conference call, please press star then zero on your touchtone telephone.
As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr.
Rich Cockrell. Sir, you may begin.
Richard Cockrell
Good morning and thank you for joining us today for Supernus’ fourth quarter and full-year 2013 financial results call. Results discussed today are for the period ending December 31, 2013.
Yesterday the company issued a press release announcing fourth quarter and full-year 2013 financial results. On the call today are Supernus’ Chief Executive Officer, Jack Khattar and Chief Financial Officer, Greg Patrick.
Today’s call is being made available to a wider audience via the company’s Investor Relation section of the company’s website at www.ir.supernus.com. Following remarks by management, we will open your call to questions.
We expect the duration of the call to be approximately one hour. During the course of this call, management may make certain forward-looking statements regarding future events and the company’s future performance.
These forward-looking statements reflect Supernus’ current perspective on existing trends and information, and can be identified by such words as expect, plan, will, may, anticipate, believe, should, intend, and words of other similar meaning. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in the Risk Factors section of our annual report on Form 10-K, to be filed later this month.
Actual results may differ materially from those projected in these forward-looking statements. For the benefit of those of you who may be listening to the replay, this call is being held and recorded on March 13, 2014 at approximately 9:00 am Eastern time.
Since then, the company may have made additional announcements related to the topics discussed. Please reference the company’s most recent press releases and current filings with the SEC.
Supernus declines any obligation to update these forward-looking statements except as may be required by applicable securities laws. With that, I’d like to turn the call over to Jack.
Go ahead, Jack.
Jack Khattar
Thank you, Rich, and good morning everyone. Thank you for joining us today as we discuss our fourth quarter and full-year results.
2013 was a momentous year filled with milestones that have begun to define Supernus as a leading CNS company. We began the year with the launch of our first extended release epilepsy product, Oxtellar XR, and in the third quarter launched our second epilepsy product, Trokendi XR.
We’re very proud of such a remarkable achievement of launching two products in one year. Oxtellar XR has been growing steadily since its commercial launch in February to reach over 9,800 IMS prescriptions in the fourth quarter.
This represents 37% growth over the third quarter prescriptions of 7,200. The company was able to achieve such growth despite simultaneously launching Trokendi XR during that period, and to date we continue to receive positive feedback from patients and the physician community about their experience with the use of the product.
Over 2,200 physicians have prescribed Oxtellar XR, which is considerably higher than then 1,600 physicians that we reported during the third quarter. Also, Oxtellar XR continues to have good managed care coverage with over 146 million lives covered.
Trokendi XR is off to a strong start, surpassing 11,000 prescriptions filled only in one quarter after its launch. After a few months on the market, over 2,200 physicians have prescribed Trokendi XR and similar to Oxtellar XR, patient and physician feedback has been positive on the product.
Furthermore, managed care coverage for Trokendi XR continues to grow with over 129 million lives that are now covered. Combined, Oxtellar XR and Trokendi XR reached 9,000 prescriptions in January 2014.
Since the launch of both products, prescriptions have grown at an average of 1,300 prescriptions per month. This is a solid step for us and a sure step in achieving our goal of approximately 30,000 prescriptions per month by year-end.
We continue to see that our products are very promotion sensitive with increasing share strongly correlated with call frequency. As a result, we are expanding our sales force from 110 representatives at year-end 2013 to more than 150 representatives by mid-2014.
Our sales force continues to be successful in increasing the number of calls on target physicians, delivering over 10,000 calls in January 2014, a record number for the company. We also continue to place great importance on protecting our intellectual to ensure the sustainability and longevity of our products.
The recent issuance of two new patents, one on Trokendi XR and another on Oxtellar XR, provides us with a broad and proprietary position with respect to both products. We currently have patent protection on Oxtellar XR and Trokendi XR through three issued U.S.
patents each and are focused on further expanding such protection. Our product candidates currently in development: SPN-810 for impulsive aggression in patients with ADHD, and SPN-812 for the treatment of ADHD are progressing on schedule.
SPN-810 is being developed in close cooperation with the FDA so it would be a first-in-class product for an indication with a significant unmet clinical need. We have initiated formulation scale-up and technology transfer to a commercial manufacturing facility.
SPN-810 is scheduled to enter Phase III development in 2014 with patient dosing starting in 2015. SPN-812 formulation development is also progressing with an extended release formulation to be selected during this year.
Finally, we’re very excited about the potential U.S. launch of Orenitram in 2014 as a novel oral treatment for pulmonary arterial hypertension by our partner, United Therapeutics.
This in combination with Oxtellar XR and Trokendi XR represents yet another validation of our expertise and proven track record of developing novel products. I will now turn the call over to Greg Patrick, our CFO, to discuss our year-end financial results.
Gregory Patrick
Thanks Jack. As I review our financial results, I’d like to remind our listeners to refer to the fourth quarter earnings press release issued yesterday.
Total revenues for the fourth quarter 2013 increased to approximately $10.3 million and approximately $12 million for the full year. Revenues from Oxtellar XR totaled $11 million for the year, surpassing our guidance of $8.5 million by 25%.
As of the fourth quarter of 2013, Oxtellar XR revenue is reported based on shipments to wholesalers rather than on prescriptions filled at the pharmacy level on a quarter lag basis. Consequently, reported revenues for Oxtellar XR for the fourth quarter includes prescriptions filled at the pharmacy level during the third and fourth quarters as well as products held in the wholesale pipeline as of December 31, 2013.
As a result of this change, the deferred revenue balance for Oxtellar XR has been expunged as of year-end. Trokendi XR revenues continue to be reported on a quarter lag basis; therefore, revenue from the more than 11,000 prescriptions filled in the fourth quarter will be reported in the first quarter 2014 financial results.
You may have noticed that the company has recorded net deferred product revenue on its balance sheet as of December 31 in the amount of $7.9 million. This represents Trokendi XR, which has been sold to wholesalers but not filled as prescriptions as of September 30, 2013.
The total representing approximately 20,000 prescriptions can be separated into two constituent parts: first, approximately 55% or 11,000 prescriptions represents scripts filled at the pharmacy level in the fourth quarter. As I mentioned just a moment ago, we expect this amount to be recorded as product revenue in the first quarter.
The second component, approximately 45% or 9,000 prescriptions, represents product sold to wholesalers and which was in their distribution channel as of December 31, 2013. The two pieces, comprising $7.9 million in total, are recorded on the balance sheet as of December 31 as net deferred product revenue.
Gross profit for the quarter was $9.2 million and $10.5 million for the year. Gross margin for the quarter and the year was 89.6% and 90.4% respectively.
Product loss was affected by one-time non-repeating expenditures in the fourth quarter. Going forward, we continue to expect product gross margins to exceed 90%.
Selling, general and administrative expenses for the fourth quarter and full-year 2013 were $15.2 million and $55.6 million respectively as compared to $8.7 million and $20.1 million in 2012. Year-over-year growth in cost is primarily attributable to launch and commercialization activities for Trokendi XR and Oxtellar XR.
Research and development expenses during the fourth quarter and full-year 2013 were $5.4 million and $17.2 million respectively as compared to $5.2 million and $23.5 million in 2012. The year-over-year decrease was due in large part to the completion of the company’s Phase IIb study for SPN-810 in 2012.
Reported net loss for the fourth quarter and full-year 2013 were $22.4 million and $92.3 million respectively as compared to $13.5 million and $46.3 million in 2012. The higher loss in 2013 reflects increased expenses associated with the launch and commercialization activities of Oxtellar XR and Trokendi XR.
The net loss for the fourth quarter and full-year 2013 was $0.65 and $2.90 per share respectively as compared to $0.51 and $2.72 per share in 2012. The weighted average common shares outstanding in the fourth quarter and year-end 2013 were approximately 34.6 million and 31.8 million respectively as compared to $26.6 million and $17.4 million in 2012.
As of December 31, 2013, 40.5 million of the company’s six-year notes bearing interest at 7.5% per annum had been converted to common stock. Excluding non-cash charges for changes in fair value of derivative liabilities, $13.4 million, and loss on extinguishment of debt consequent to conversion of the company’s notes, $9.6 million, non-GAAP net loss for full-year 2013 was $69.4 million.
On March 12, 2014, an additional $9.5 million of the company’s notes were converted into shares of common stock for a total of $50 million of the company’s notes converted to common stock to date. As of December 31, 2013, the company has had $90.9 million in cash, cash equivalents, marketable securities, and long-term investments compared to $88.5 million as of December 31, 2012.
We believe these funds are sufficient to finance the company through the end of 2014, by which time the company projects to be cash flow break-even. We project that this will occur at a prescription run rate of approximately 30,000 prescriptions per month.
Cash burn for full-year 2014 is forecast to range from $35 million to $45 million with year-end cash balance projected to range from $35 million to $45 million. Finally, during 2014 we project that revenue reported for Trokendi XR will transition from prescriptions filled at the pharmacy level on a quarter lag basis to contemporaneous revenue recognition based on shipments to wholesalers.
Assuming this occurs, our reported total revenue for calendar year 2014 is expected to range from $75 million to $85 million. I’d now like to open the call to questions.
Operator
Thank you. [Operator instructions] Our first question comes from Ken Cacciatore from Cowen.
Your line is open. Please go ahead, sir.
Ken Cacciatore – Cowen & Co.
Hey guys, congratulations to date on all the progress. Just wanted to better understand – when we expand the sales reps, where do we take that clinician prescribing base to?
How many more are we broadening out, and if you can give us a little bit of better understanding about the prescriber base in terms of decile that we’ll be reaching, what we’re reaching now and what we’ll be going down to in terms of prescribing habits of those additional clinicians; and then also, can you just talk about how we’re going to position the product, Trokendi versus the Upsher product, and maybe how that may have some implications in the market. Thank you.
Jack Khattar
Yes, sure Ken. This is Jack.
Regarding the expansion of the sales force, we have been focusing, as we’ve said, in the past 12 months or so—actually 15 months or so on both products on the decile 10, 9 and 8, so the expansion of the sales force will get us more reach obviously within these deciles as well as will get us into the decile 7, so that’s really what we’re targeting to get with these 150 reps, or slightly more than 150 reps, on both products combined. As far as the Upsher-Smith product, if you don’t mind, I’m sure you’ll appreciate I will refrain from making any specific comments as to how we position our product versus theirs and so forth for competitive reasons.
The comment I would make regarding that specific topic is the fact that topiramate market in 2013 grew by 10%, which was really remarkable growth in prescriptions, now amounting to about 12 million prescriptions a year. So we maintain and we continue to say that we believe this market is fairly big enough for two players in the marketplace.
Again, there has been an example historically where two products fairly similar – extended release carbamazepine for example, Carbatrol and Tegretol XR – were both in the market together in a generic market, and both by Year 5, for example, achieved a penetration of about 33, 35% of that market being converted to extended release. So we clearly see a huge opportunity here for us, and even with another competitor in the marketplace, perhaps even a faster conversion of immediate release products into extended release products.
When you have two companies promoting the benefits of extended release in this market, we believe there is even an advantage to that as well.
Ken Cacciatore – Cowen & Co.
Thank you.
Operator
Thank you, and our next question comes from Annabel Samimy from Stifel. Your line is open.
Please go ahead.
Annabel Samimy – Stifel Nicolaus
Hi, thanks for taking my questions. I wanted to just get some more color around the reimbursement coverage.
You guys have done a great job on the commercial side. Is the Medicare side still lacking, and is it creating any kind of hindrance to any further adoption?
That’s my first question.
Jack Khattar
Yes, on the Medicare side, basically first of all the Medicare side is about 10% of the prescriptions of oxcarbazepine, and I believe it’s around the same number, slightly different, with topiramate. So certainly it is a portion of the business but it’s not the bulk of the business, so from a priority point of view we are focused and really prioritizing our efforts into the Medicaid side.
If you remember, we had mentioned on oxcarbazepine about 25 to 26% of the prescriptions on oxcarbazepine are actually Medicaid, so we’ve been really putting a lot of effort in that area, and that’s why you’ll notice, as we said in our press release, we really made a lot of inroads in that space on Oxtellar XR as well as Trokendi XR. Now, that doesn’t mean we are not pursuing the Medicare portion.
We are pursuing that in parallel, but from a priority point of view, we pushed a little bit more and put more emphasis on Medicaid initially, but the other piece will come in later.
Annabel Samimy – Stifel Nicolaus
Okay, I apologize – I actually did mean Medicaid. So in terms of the inroads, do you feel that with the current coverage on the commercial side and doctors trying to prescribe, is Medicaid not being covered still a hindrance to some physicians, I guess is what I’m saying.
Jack Khattar
Yes, on Medicaid we still have a lot of room to add, certainly. For example, on Oxtellar XR, we have about 20 million lives on Medicaid, and Trokendi XR after only a few months 15 million.
So on Medicaid, we still have a lot of room to run on both products, and the continued effort is on that on a state-by-state basis.
Annabel Samimy – Stifel Nicolaus
Okay, great. And just on the accounting, if you can possibly help us out – can you just quantify the extent to which it was a—Oxtellar sales were from the actual shipments to wholesalers versus the roll-forward of the third and fourth quarter?
Just to sort of get the sense of which part is actual sales to wholesalers versus the accounting.
Gregory Patrick
Yes Annabel, I’ll be glad to walk through the precise math with you offline, but if you take the scripts in the third quarter and the fourth quarter and you attribute a WAC price somewhere in the range of $400 to $450 at a gross-to-net, as we’ve been saying, of around a 25% reduction, that will let you dollarize those third and fourth quarter scripts pretty reliably, and the residual then is what sits at the wholesaler level. Again, in terms of the precise number, I don’t have that in front of me right now.
I can work through that with you offline. It’s in the range of, I think, somewhere in the range of about $1.5 million to $2 million, something like that.
Annabel Samimy – Stifel Nicolaus
Okay, and what’s the deciding factor to move Trokendi over to the similar type of accounting, given that the prescription—I mean, is it based on prescriptions, because the prescription is much—you know, growth is much faster than Oxtellar or (indiscernible).
Gregory Patrick
No, it’s not. This is a question I love to answer.
It is based on our seeing a repeatable pattern in all the gross-to-net rebates allowances and deductions. What this essentially requires is for us to line up at least two quarters where we’re looking at the percentage of prescriptions which are subject to co-pay, to Medicare, to Medicaid, to commercial rebates and allowances, prompt pay discounts and all that – there’s quite a panoply of those rebates, allowances and discounts – and see a repeatable pattern quarter to quarter.
The key word is repeatable, because what we then will do on a go-forward basis, as we’re doing with Oxtellar right now, is using that history to estimate what those rebates and allowances will be on a go-forward basis. The reason it’s two quarters is you need at least two quarters to be able to compare two data points for each of those individual elements to say, yes, we have a consistency with respect to how many, what percentage of prescriptions are associated with co-pay, we have a consistent pattern with respect to what percentage is subject to Medicaid, we have a consistent pattern with respect to the prompt pay discounts, the wholesaler allowances, and the like.
So we need at least two data points; it would be very difficult to do this without two. There are some similarities between Oxtellar XR and Trokendi XR which may allow us to use one data set to sort of support the other; but really, Trokendi XR has to stand on its own, and it’s really got to be two full quarters, so that really means the fourth quarter of 2013 and the first quarter of 2014.
I have to see what all those rebates, allowances, et cetera are. We have to see that they’re consistent, and at that point in time we’ll be able to make a judgment as to whether we can then flip over to contemporaneous revenue recognition.
Annabel Samimy – Stifel Nicolaus
Okay, great. One last question on—
Gregory Patrick
(Talkover), but that’s the extent of it.
Annabel Samimy – Stifel Nicolaus
Okay, great. Just one last question on the pipeline.
I guess you’ve got some good traction with your currently marketed products. First of all, are you going to focus a little bit more on the pipeline, and with 810, you mentioned that you would start this in patients in the beginning of 2015.
What’s the delay between—you know, over the course of this year? Have you had your meeting with the FDA to discuss whether you can go straight into Phase III, or is there any other additional work that you have to do before you can move into Phase III?
Jack Khattar
Yes, basically Annabel what we said on the technology transfer and scale-up, that is activities that will take several months where we have to do demonstration batches, trials and experiments on that commercial scale, and then once we are comfortable with the transfer of the technology from our labs to the commercial manufacturing facility, then we can produce actual product for the pivotal trial. So that’s one thing which is a time element that we have to go through on the critical path to getting to the Phase III.
The second piece of it is we are going through the special protocol assessment process with the FDA, so we need the time to finalize the protocol, the design of the study and so forth, so that will take time. After that is decided, we will need to start actually lining up the study itself, meaning signing up the sites, the clinical sites and so forth, and setting up the study.
So all of that we will need to do in 2014 until we start dosing the first patient in 2015. We’re hoping to get a little bit more clarity as when in 2015, and we will try to be as specific as possible; but all these activities have to occur.
Same thing on the API – we’re standing up the API and validating the API also, so all these activities are going in parallel.
Annabel Samimy – Stifel Nicolaus
Okay, but can you at least confirm that FDA is philosophically on the same page in terms of being able to move into Phase III, based on the Phase II data?
Jack Khattar
Yes, and we will be doing an end of Phase II meeting sometime this year with that FDA process, yes.
Annabel Samimy – Stifel Nicolaus
Okay, great. Thank you.
Operator
Thank you. Our next question comes from David Amsellem from Piper Jaffray.
Your line is open. Please go ahead.
David Amsellem – Piper Jaffray
Okay, thanks. So just on Trokendi, could you give us a sense of the extent to which you’re seeing off-label usage in migraine or bipolar or other conditions?
I know it may be difficult to have that data, but if you can try to give us a sense of how that’s shaking out. The second question is on the sales force, the expanded sales organization.
I realize that you’re burning through most of your cash this year, but that being said, what is the extent to which you’re opportunistically looking at other assets, commercial steady assets where you can leverage the sales organization, and how much is that a priority for you? And then a longer term question on the ADHD pipeline – let’s assume that 810 bears fruit and reaches market.
What is the extent to which you’re going to need to further expand the sales organization to support that, once you do reach market with the product? Thanks.
Jack Khattar
Okay. Regarding Trokendi XR, David, obviously our focus has been in neurology on epilepsy, and that’s how we’re promoting the product.
We think that the product is probably mimicking what the marketplace is as far as usage across the board, all uses and so forth, so depending on how physicians are using it. But basically, we are pushing it for epilepsy and for the benefit of once-a-day and compliance in epilepsy.
As far as the sales force and the utility of the sales force and taking advantage of the fact that we have built a fairly strong commercial infrastructure in neurology, from a strategic point of view, absolutely we’re always open and keep our eyes open on opportunities that could come up from a corporate development point of view. We have looked at assets in the past and we continue to look at assets that can be very incremental in improving our business and moving up Supernus to the next level, so that’s always an ongoing process.
But we have to be selective in what we bring into the mix here. Also, we’ve got to be mindful of the fact that we just launched these two products, so we also don’t want to do it too quick, too early, distracting from the actual launch of Trokendi XR.
The product hasn’t been even on the market for even a full year, so we’ve got to be careful how we bring in a third product. If we do, we don’t want to bring it too prematurely and distract from really establishing Trokendi XR and Oxtellar XR, given that they’re still very, very early in their growth phase.
And then finally, I believe your last question regarding 810, as that product approaches approval or launch and so forth, as we get closer to that time frame, from a physician audience point of view it will be a very different physician audience than in neurology. Clearly, it’s more psychiatry-based, specifically if we end up expanding also the indication later on for impulsive aggression in schizophrenia or impulsive aggression in bipolar, and even with ADHD.
So clearly we would be looking at expanding our sales force at that time or setting up a separate sales force, depending where we are in the neurology portfolio at that point. But that would be our vision at this point as to set up the sales force separately for 810 and 812, and that’s the beauty of having two products in the psychiatry space – it allows us to do the same thing as we did with Trokendi XR and Oxtellar XR.
David Amsellem – Piper Jaffray
I just want to follow up on that, if I may. So how many reps would you need to build a psychiatry sales organization?
And then just back to the off-label use on Trokendi, just remind us what portion of the prescriptions for the underlying topiramate market are for migraine and for bipolar. Thanks.
Jack Khattar
Yes, for migraine we’ve seen numbers on topiramate market somewhere in the 50 to 60% of the market. It depends on which snapshot of the market you take at what point in time as IMS reports it.
As far as the sales force for psychiatry, from our experience in ADHD and from our trial days, we know you can actually market the product fairly well with somewhere in the 200 to 250 sales reps. You could start with that kind of a sales force initially to promote these products.
David Amsellem – Piper Jaffray
Okay, thanks Jack.
Jack Khattar
Sure.
Operator
Thank you. Our next question comes from Bill Tanner from FBR Capital Markets.
Your line is open. Please go ahead.
Bill Tanner – FBR Capital Markets
Jack, first on the sales expansion. You said, I think in the prepared remarks, at least 150, so wondering if you’re contemplating expanding it; but also maybe just touch a little bit on how the new sales force has been trained, if you’ve been pulling some guys out of the field.
I mean, certainly the prescription trends look like there really hasn’t been any impact, and then when you think the newly trained folks – and I’m assuming they’re probably all on board and trained by now, if you could confirm that – when you think they’ll really begin to make a contribution. And I have a pipeline question – thanks.
Jack Khattar
Overall regarding the sales force, let me back up a little bit. Certainly the reason we have decided to be aggressive, and we’re very excited about the expansion of the sales force although we have been saying that—you guys may remember we said in the last 12, 18 months that ultimately we see a sales force around 140 reps promoting both products.
So we’re going a little bit north of that because we have seen a very strong correlation between the effort of our sales force, the call frequency per rep, and the market share that we are able to achieve in these doctors’ offices when we get to certain frequency levels. So because of that, the data is very strong in support of expanding the reps, and really these reps will pay basically for the investment that we will be putting behind the expansion.
As far as the exact timing when these reps will be on board and so forth, we’re trying to bring—the only thing I would say is bring them on board as early as we can during the year. Obviously we want to get the full benefit of the expansion for 2014 as early as possible and for the largest amount of time during the year, so clearly the effort is to bring them on board as early and as soon as possible.
So we will probably start seeing the big impact of that expansion, I would say, somewhere mid-this year as far as real big impact of the expansion.
Bill Tanner – FBR Capital Markets
Okay, and then as it relates to 810, in the initial development—or how do you think about this being used ultimately if you develop it for impulse aggression in ADHD and think about opportunities in impulse aggression in other conditions? What’s the thought on how you actually do the initial clinical testing with the label (indiscernible) and then potential label expansion, what you need to do there?
Jack Khattar
Yes, sure. The Phase IIb study, if you remember, we basically were looking at positioning this product as an add-on therapy, so as an ADHD patient or schizophrenic patient, or whichever patient population we end up getting in the end, basically you are being treated for your current condition, whether it’s schizophrenia or bipolar or ADHD or autism, and then we will add base SPN-810 to that therapy to treat the impulsive aggressive behavior component of your behavior that is still not treated.
Again, because a lot of these ADHD patients, although they are treated for ADHD, they still have that aggressive behavior for which there is nothing today approved to treat that component of that behavior, and similarly autistic kids and bipolar patients and so forth. So this would be an add-on therapy to their existing stimulant or non-stimulant medication, whatever they’re using for their ADHD treatment, and that’s how we’re really trying to position it.
Back to Annabel’s previous question, some of the things we’re trying to iron with the FDA is if we want to get a broad label or as broad as possible and we’re trying to define what really the strategy is here, the best strategy for the product to get it to the market as soon as we can, do we need to do two Phase III studies in ADHD and then we’ll do a third Phase III in schizophrenia and then we get a broad indication across all therapeutic areas, or do we do three Phase III studies, one in each area. So these are some of the things we’re discussing and we will be discussing with the FDA to really fine-tune the Phase III program.
But overall, it will be an add-on therapy, regardless of which area it will be used in.
Bill Tanner – FBR Capital Markets
Okay, thanks.
Operator
Thank you. We have time for one more question, and the following question comes from Jonathan Eckard from Citi.
Your line is open. Please go ahead, sir.
Jonathan Eckard – Citigroup
Yes, thanks for taking my questions. So I just wanted to—and maybe I missed it.
The 30,000—I think you said 30,000 scripts per month would equate to a break-even point, and that’s—can we use the assumption of the same 25% gross-to-net and greater than 90% gross margins for that? And I’m also assuming that near year-end, that’s with the full 150 sales reps on board if we’re looking from the expense side of it on a break-even point.
Are all those assumptions correct, or if not, do you mind just pointing us in the right direction on how to look at what that break-even point is and how it goes on the expense side as well as the revenue side?
Gregory Patrick
Jonathan, I think those assumptions are certainly right down the middle of the fairway – 30,000 prescriptions. You didn’t talk about WAC pricing, but I mentioned that earlier in the context of responding to Annabel’s question, so WAC price both products together somewhere around $425, maybe a little bit more than that.
And gross-to-net, 25% is good, could do a little bit better than that; and product gross margins north of 90% I think will get you to a product gross margin contribution. Then expenses have to be subsumed underneath that, and a bit of an allowance for some working capital of course.
We’ve been talking in terms of cash flow break-even, which means not only positive on the bottom line but also positive from a—or neutral at least from the standpoint of absorbing the working capital impacts. And yes, that does include sales force somewhere in the 150 or a little bit more in terms of size of sales force.
Jonathan Eckard – Citigroup
Okay, great. Thank you very much.
Gregory Patrick
My pleasure.
Operator
Thank you. I’m showing no further questions at this time.
I’d like to hand the conference back over for any closing remarks.
Jack Khattar
We would like to thank everyone for joining us on the call this morning. We are very excited about the ongoing commercial success of Oxtellar XR and Trokendi XR, as well as the continued development of our pipeline products.
2014 will be an exciting year for us and we’re looking forward to speaking with you all again in a few months when we update everyone on the results of the first quarter of 2014. Thank you.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. This concludes our program.
You may all disconnect and have a wonderful day.