Aerie Pharmaceuticals, Inc.

Good afternoon. Thank you for standing by and welcome to the Every Pharmaceuticals Fourth Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Any instructions will follow at that time. Today's conference call will be recorded. It is now my pleasure to turn the floor over to ARIES Director of Investor Relations, Ami Wawishi. Please go ahead, Ami.

Thank you, Jerome. Good afternoon, and thank you for joining us. With us today are Vincent Ito, ARIES Chairman and Chief Executive Officer, Tom Mitro, ARIES President and Chief Operating Officer, Rich Rubino, ARIES Chief Financial Officer, David Hollander, ARIES Chief Research and Development Officer, Casey Kopczynski, ARIES Chief Scientific Officer, and John LaRocca, ARIES General Counsel. Today's call is also being webcast live on our website, investors.arypharma.com, and it will be available for replay as indicated in our press release. Now for forward-looking statements and non-GAAP financial measures. On this call, we will make certain forward-looking statements, including statements, forecasts, and observations regarding our future financial and operating performance, impacts of the COVID-19 pandemic, including our observations regarding ongoing operating expenses and net revenue per bottle. These statements will include observations associated associated with our commercialization of Verpressa and Roclatan in the United States, our collaboration in Japan, and prospects for a potential collaboration in Europe. They will also include plans and expectations regarding the success, timing, and cost of our clinical trials. Additionally, we will discuss progress regarding maintaining, requesting, or obtaining approvals from regulatory agencies of our products and product candidates, including our strategies and plans with respect to a newly introduced preclinical pipeline candidate. Finally, we will address our manufacturing activities and capabilities, our financial liquidity, and other statements related to future events. These statements are based on the beliefs and expectations of management as of today. Our actual results may differ materially from our expectations. Investors should carefully read the risk and uncertainties described in today's press release, as well as the risk factors included in our filings with the SEC. We assume no obligation to revise or update forward-looking statements, whether as the result of new information, future events, or otherwise. Please note that we expect to file our 10-K tomorrow. In addition, during this call, we will be discussing certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please see today's press release, which is posted on the investor relations section of our website. Lastly, as we indicated in our earnings release, we have posted to our website a new deck addressing our new preclinical sustained release retinal implant, AR14034, and Vince will be discussing this latest addition to our pipeline during his remarks. With that, I will turn the call over to Vince.

Thanks, Ami, and good afternoon, everybody, and thanks for joining us today. We have quite a bit of good news to cover today, including our strong fourth quarter results, a positive outlook across our global strategy, and excellent progress with our pipeline, including a brand-new preclinical implant that may once again demonstrate the value of our sustained release implant platform we call PRINT. Let me start with the fourth quarter performance. Our glaucoma franchise showed strong positive momentum in the fourth quarter, with unit sales in the wholesalers, as you know, that's really the ones that I look at the most, which are the basis of our recorded revenues increasing to 307,000 units in the fourth quarter. This represents an 18% increase over the 261,000 units in the third quarter of 2020, an increase of almost 50% from the fourth quarter of the prior year, 2019. Our full year 2020 net revenues of 83.1 million are up to shy of 20% over prior year, and our volume certainly helped with significant gains in pay year coverage in 2020, along with increased awareness of our product profile, and as I've mentioned before, stabilization of our net prices. The net revenues of $24.7 million for the fourth quarter increased nearly 23% compared to the $20.1 million in Q3 of last year as we further penetrated Our formulary contracts have garnered further increases in the number of regular prescribers we have for our products, and Tom will be discussing that a little bit later. On our third quarter earnings call last November, we called out our expectations regarding the future stability of our net revenue per bottle. In fact, fourth quarter net revenues per bottle was $80, $3 per bottle higher than in Q3, and and consistent with Medicare Part D share. As we discussed previously, our strategy to increase the net revenue per bottle over time, including renegotiating wholesaler agreements and refining some of our managed care formulary contracts, and along with modest price increases, would help us get to that stability and eventually start seeing a net price increase over time. At this point, the new wholesaler agreements are in place, and the price increases have been implemented, managed care formulary contracts have been refined, and we're going to continue to do that throughout 2021. And some of these contracts that we are reestablishing won't actually impact our revenues or our net price until 2022. As we've said, the revision of the wholesaler agreements would have the largest beneficial impact on our net revenue per bottle going forward. The benefits primarily started during the Q1 of 2021, and we expect a gain of about 5% or so to our net revenues per bottle for the full year of 2021. So, obviously, we're very happy with the fourth quarter of this last year with our net revenues, which exceeded expectations, and we are looking forward to potential continued volume gains and increases in net revenues per bottle, as I just mentioned. Now, looking forward, we do remain somewhat cautious regarding the COVID effects on eye care professional practices over the next few months, and certainly a And we see the majority of the states, the rates are declining and the incidences are declining. Offices appear to be doing well, but certainly we're not in full recovery yet. And it's a very difficult environment to predict. And as a result, we will not be providing specific 2021 guidance at this point. Now, on top of COVID, the recent winter weather issues have hampered our product shipments across the nation, not just for us, but for many pharmaceutical products. Well, this is obviously a temporary situation. We may have lost a week or more volumes thus far in 2021 as a result of what we were facing, especially in the central part of the United States. This week appears to be rebounding quite a bit, and our distributors are talking about relieving a lot of the back orders and things like that. So we're hoping to gain some stability this week or at least stabilization this week. and get back to normal thereafter. However, we can say that based on the volume growth we're experiencing in the fourth quarter, along with the net revenue per bottle trajectory we expect, we are comfortable with consensus analyst estimates for the year, which are approximately $112 million. You should not expect any significant increases in our operating expenses in 2021. The fact that our volumes have grown sequentially each quarter in 2020 through the pandemic certainly gives us optimism that we can continue to grow and ultimately grow even faster rate once the physician's offices are back up to pre-COVID patient volume levels. Now I'll turn over the call to Tom Mitro to provide a further update on the glaucoma franchise here in the U.S. And after that, I'll cover important highlights on our global and our pipeline fronts.

Tom? Well, thank you, Vince. Our glaucoma franchise continues to outperform the glaucoma market and all other branded glaucoma products. our fourth quarter 2020 franchise prescriptions were up 25%, or 32,000 prescriptions over fourth quarter of 2019, while the glaucoma market was down 3%, or down 261,000 prescriptions for the same period. Looking at full year of 2020, our franchise grew by 180,000 prescriptions, or 45%, over 2019, while the glaucoma market declined 2%, or over 780,000 prescriptions. Further reflecting on our full year of 2020, IQVIA data suggests that approximately 600,000 ophthalmology patient diagnosis visits were lost in the U.S. due to COVID for all well-understood reasons such as office closings and patients' reluctance to go into physicians' offices. Obviously, the reduction in diagnosis visits has a direct effect on prescription volumes, yet our franchise still demonstrated excellent growth. Now, narrowing the analysis down to this past January, IQVIA monthly prescription data show, once again, that glaucoma market prescriptions were down in January 2021 by 6% compared to January 2020, primarily reflecting the COVID effect. Yet, very importantly, our franchise prescriptions were up 17% comparing this January to January of 2020, so we continue to outperform the market. And some of our franchise prescription volumes grew more than any other branded glaucoma product, looking at both the fourth quarter and full year of 2020, and we far outperformed the broader glaucoma market. As you may have seen from our recent corporate deck, our sales out to pharmacies reached a record 104,000 franchise units in the month of December alone. Further, our total prescriber count is now over 17,500, and we now have nearly 10,000 physicians who prescribe an airy glaucoma product routinely each month. Currently, half of those monthly prescribers have been writing on a weekly basis as well. The highest or most frequent prescribers of glaucoma products, the decile 10 and 9 prescribers, write more than one and a half airy glaucoma product prescriptions on an average day. Our sales force is performing quite well, detailing physicians largely in person, but there are certain regions of the country where in-person detailing has been curtailed. And in those cases, we are fully equipped for virtual detailing. Importantly, we're getting our samples to the doctor's offices for their patient starts. Also, our contract sales organization and telesales groups are performing very well, showing consistent market share gains within their respective customer sets. Our area sales team calls on the 10,400 highest prescribers of glaucoma products. On top of that, in July of 2020, Our contract sales force began calling on the next 1,400 highest prescribers, and the telesales team, which we added in June of 2020, calls on the next 4,400 highest prescribers. We believe that this approach represents an effective and efficient way to gain access and market share with as many physicians as possible. Now, we're still observing that about 85% of the physician offices are open, they saw prior to the pandemic. Of course, we can't predict the future effects of COVID, but we're certainly happy with our continual growth throughout the pandemic. Now, as Vince mentioned, we've made excellent progress increasing our net revenue per bottle. In the first quarter of 2021, new rates are in effect for our three major wholesalers. We implemented a price increase in January of 2021, and we continue to fine tune our managed care rebate agreements. Our coverage level for commercial plans are at approximately 90% for the franchise, and in Medicare Part D, repressive coverage is at 89%, while Roquatan is over 70%, when the low-income subsidy or LIS patients of approximately 15% are included. With this excellent coverage, we've remained keenly focused on pull-through strategies. Essentially, that means gaining share within our base of covered lives by bringing a focused and tailored message to specific physicians, within a specific managed care plan. As an example, you'll recall that in May of 2020, we gained formulary coverage in one of the largest Medicare Part D plans in the nation. And since that time, our franchise units within that plan have doubled, and our share has grown considerably as a result of our reps showing the new coverage information with the targeted physicians, which is exactly the performance we need to see. So in summary, and before I turn the call back over to Vince, We're certainly capitalizing on momentum we established prior to COVID. Our glaucoma products are clearly capturing the imaginations and prescriptions of many eye care practitioners. With our excellent managed care coverage levels, our strategy to move monthly prescribers to weekly prescribers, our additional share of voice initiatives, and our formulary pull-through focus, we believe even more success will follow. Vince?

Thanks, Tom. Shifting to our international expansion, our Santen collaboration in Japan is moving forward on schedule, and the first of the Phase III trials there is well underway. We do plan to read out the top-line results for this trial later on this year. We believe Santen will be an excellent partner in Japan and ultimately some of the other Asian markets like South Korea and Thailand and Vietnam as well. On the heels of the full regulatory approval for our Cloma franchise in Europe, along with a positive response top-line Mercury III data, we are seeing meaningful inbound interest from sizable collaborators, potential collaborators in the region, folks that are interested in licensing the products and the commercializing force in Europe. While these discussions continue, we are proceeding on our own to begin the process to obtain pricing in Germany, such that no time is lost. Now, this is consistent with what we did in Japan, whereby we negotiated with the PMDA As a reminder, that's the FDA in Japan on the Phase III pathway there before we signed with a partner, again, to ensure continuous forward momentum. As we've said before, the glaucoma market in the top five European nations alone totaled over 100 million bottles in 2019 compared to about 55 million bottles in the U.S. We believe the volumes from Europe would represent an excellent opportunity to further utilize our Irish plant, which is already growing in volumes, through the production for the U.S. market. We ultimately anticipate producing for the Japan market as well. Turning to our pipeline, in October of 2020, we initiated a Phase IIb trial for our dry eye product candidate, AR15512. Our Phase IIb trial, named Comet-1, is powered as a Phase III and is testing two different concentrations of the product compared to placebo, totaled about 360 patients for 90 days. The active ingredient, 512, is a potent selective agonist of the trypamate ion channel, which is a cold-sensing and osmolarity-sensing receptor in the eye and regulates tear production and blink rate. Interestingly, activating the trypamate receptor may reduce ocular discomfort by promoting a cooling sensation. We believe the systematic benefit could ultimately be quite a differentiator for this product candidate. 30 million some patients, about two to three million of them are treated. Every patient out there believes that it's symptoms that need to be improved for their health of their eyes. And so the fact that we have a product that could be able to do that is a big deal for us. The primary endpoints for comment one are ocular discomfort, a symptom and a tear production, and tear production, which is a sign. We've also added several secondary endpoints to the trial design that said we can learn as much as possible about the drug's performance. With, as I mentioned, 30 million dry eye sufferers in the U.S. who are experiencing solid enrollment in the program, and we're on track to read out top-line data in Q3 of this year. Now, turning to our retina pipeline, we are in the process of finalizing discussions with the various regulatory authorities in both the U.S. and Europe to determine the most efficient and effective Phase III pathway for our dexamethasone sustained release implant that we call AR1105. We do expect to have the phase three plan pretty well determined as we enter the second half of this year. The phase two study top line we released last July indicated up to six months of sustained efficacy in retinal vein occlusion for this product candidate, which is a very, very different profile in terms of efficacy period over other injectable steroids in the market, such as Osiridex, which right now generates over 400 million in revenues in the U.S. and Europe. What is very interesting is how the preclinical models predicted the Phase II results for 1105. This points to the advantage of our print technology platform, which is a platform that has provided predictability and flexibility in our development programs. We can potentially customize drug elution rates and create various blends of bioerodible polymers allow longer treatment duration and thus reduce injection frequency, and open up the opportunities to a greater diversity of drug targets using small molecules. Let me reiterate before I discuss our new potential pipeline candidate. Our print technology is a very exciting platform for future innovation, as provided such high levels of flexibility and predictability, ultimately shortening target and molecule selection and potentially helping determine probability to clinical success earlier in a development cycle. Further, from a cost perspective, the cost to achieve proof of principle for all of our retinal inserts using PRINT is typically in the range of five to six million, which we have, and therefore we do believe we have a very efficient development platform. So to say it again, the five to six million cost is what it took to get 1105 to the point where it is today, which is phase three ready. Now that leads us to our new entrant in our pipeline, AR14034. We just posted today a new slide deck on our website that outlines the features of this exciting new sustained release and plannable candidate. I don't plan on walking you through the slides in detail at this point. Let me address some of the key points you will see in the presentation. For 14-034, it is a preclinical intravitreal implant that combines a small molecule, pan-VEGF inhibitor, excitinib, the proprietary blend of bioerodible polymers to provide controlled drug release with the potential to treat wet AMD or DME patients for up to 12 months with a single injection. 0-034 is a prime example of how the flexibility of our print platform and the blending of of custom polymers allow us to create the right formulation and right environment to control the delivery of active ingredients selected. In this case, it's Exitinib. Exitinib is a pan-VEGF inhibitor, meaning it inhibits signaling from all isoforms, all four isoforms of VEGF, unlike any of the currently marketed VEGF inhibitors. Plus, it has a higher efficacy and less off-target activity than other small molecule VEGF inhibitors. As you may know, it's a known molecule. It's a tyrosine kinase inhibitor approved in 2012 for a systemic use in the treatment of renal cell carcinoma. Now, if successful, this preclinical implant may provide significant benefits to the total cost of healthcare for wet AMD and DME patients. As I mentioned earlier, you will see in our slide that, based on the preclinical data, there is potential for this implant that it would only require one injection to treat a patient for up to one year. With less frequent injections enabled by the continuous release of potent small molecule active agent, there's potentially substantial benefit for both physicians and patients alike. The economics here are important consideration when you consider the worldwide anti-VEGF market expected to grow to $22 billion by 2025 according to market scope. So the next steps on the development of 14034 are toxicology work and other preparatory activities as we plan for an IND filing later this year. As a reminder, we can utilize our print technology to manufacture these small stain release implants at a rate of about half a million units per year in our 1,000 square foot facility in our corporate headquarters in North Carolina. We believe the efficiency of our manufacturing process and processes may also contribute to sizable margin opportunities for product candidates when and if they are approved and commercialized, while again driving overall economic value for both the patients and the physicians. Lastly, we are still making progress with our safety trial for AR13503 for wet AMD and DME. Remember, this is a protein kinase inhibitor. I'm sorry, it's a real kinase inhibitor that we're developing using our insert technology as well. And as soon as we get the safety done, we'll evaluate its prospects as we gain more information. We are still evaluating different formulations of this early-stage product candidate and do not expect to provide any clinical data this year. At this point, I'd like to turn over the call to Rich to cover the financials.

Rich? Thanks, Vince. As Vince discussed, our combined Repressa and Rockland 10 revenues in the fourth quarter of 2020 totaled $24.7 million. Our normalized gross margin for the fourth quarter was 92 percent. That's consistent with previous quarters. In addition, layered on top of cost of sales is approximately $4.6 million in Athlone plant overhead associated with startup commercial production. Since we are in the early stages of production, that idle capacity number will fluctuate depending on the number of batches produced in a quarter. But it is expected to trend downward as we continue to add volumes to the Athlone plant. While we aren't providing specific guidance for 21, we do expect a reduction in rental capacity expenses for 2021 as compared to 2020. Our fourth quarter 2020 gap net loss was $46.1 million, or $1 per share. When excluding the $9.6 million of stock-based compensation expense, our total adjusted net loss was $36.5 million, or 79 cents per share. For the fourth quarter of 2020, adjusted cost of goods sold was $5.9 million, and adjusted total operating expenses were $44.8 million, with adjusted selling general and administrative expenses of $28.4 million, and adjusted research and development expenses of $16.5 million. For the fourth quarter of 2020, our net cash provided, that is provided, by operating activities was $22.4 million, and we had $240.4 million in cash, cash equivalents, and investments as of December 31, 2020. The net cash provided by operating activities in the fourth quarter of 2020 of $22.4 million includes the upfront payment of $50 million from Santan, from which we netted $45 million after withholding taxes. The Santan payment turned our net cash flow to the positive for the fourth quarter. So we ended the year with a solid cash balance with 2021 prospects including growth in net revenue, continued controlled expenses, and a potential European collaboration, all positive elements to preserve cash. Shares outstanding at quarter end totaled 46.8 million. For additional information regarding our fourth quarter and full year results and prior period comparisons, Please refer to today's earnings release in our form 10-K, which we will file tomorrow. One side note on our 10-K, it will have new and very useful disclosures on human capital and ESG, which covers the degree to which ARRI has and will continue to incorporate environmental, social, and governance attributes into our operations. We take ESG matters very seriously, and I believe you will find our new disclosure helpful in gaining further insight into our ESG posture. And now I would like to turn the call over to the operator for questions. Jerome?

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star, then run your telephone keypad. Your first question comes from the line of Annabelle Semini from State of Fall. Your line is now open. Annabelle Samimi, if your line is on mute, please unmute.

Hi. Sorry about that. Thanks for taking my questions and a great end to the year. I've got a few questions. I almost don't know where to start. But maybe we can start with expectations for Revenue for prescriptions going forward, obviously you've given some nice color on that and you've gotten some benefit from wholesale agreements and the mandatory contract improvements. Should we assume the same trends? I guess a more challenging first quarter now and improving net pricing over the year is the trend we should assume. I think in the past years it's been different based on the mix, but maybe you can help us on that. And I've got some follow-ups also.

So, hi, Annabelle, and thanks. You know, we do think that obviously the first quarter is always pretty challenging, right? So, you know, if you take a look at sort of what's been going on and, you know, we've got more and more Medicare business that we now have under contract, et cetera. You know, typically Q1 is a little bit soft only because of what's going on with the deductibles having to be met, et cetera. And And right now, certainly over the last week or 10 days, the weather certainly hasn't helped because we've seen a real slowdown in terms of the shipments out from wholesale to retail and shipments into the wholesalers themselves. But I think there's plenty of inventory. So what we're seeing is after that 10-day period, a pretty good rebound. And so I think we'll be in pretty good shape certainly as we look at this week. It looks pretty strong. And we expect that that's now going to continue. So, yeah, I think the – Overall trend is very, very positive. You know, we've got quite a bit of information relative to our pull-through and some major plans, the one we signed up in May of last year. You know, we went from, you know, just a real small market share there, about 0.8 or something like that, and we were able to drive that and almost double the market share there, and it just – that more than pays for the rebates. And so – The sales organization, I think, has hit a stride and is now focused on pull-through, as Tom said, and it's beginning to show up. So we expect our units to continue to grow. We do expect our price is now stabilized and will continue to grow as we see the impact of the renegotiations or the negotiations that we had with wholesalers and some of the plans. And so we like the position that we're in at this point.

Okay. And then... Maybe we can talk about your new program, the Exitinib program. Obviously, your big point of differentiation is the potential 12-month duration. There are a number of other development programs that are, you know, sort of slightly ahead of you, so I'm stating the obvious here. But outside of the duration, is there anything different about your Exitinib program? And swinging over to 13503, I'm seeing that there's going to be no data readout this year, so are you deprioritizing that program in any way? I see that you need to do a little bit more work on the formulation from what you're, based on your comments.

Sure. I'm going to give you a general answer, and if we end up having to get more specific over time, we have both Casey as well as David on the call, so we can call on them, but the On Exitinib, you're right. It is for 12 months delivery, and that certainly sets us apart from just about everybody else out there that's working in this category where they're focusing on six months. I think the big thing there is you have to understand that Exitinib has a very specific environment in which it has to live, if you will, in order for one to control the release of that product from any formulation and certainly our inserts. And so what's really different about what we can do is that we have access to an array of proprietary polymers. And in this particular situation, the team actually mixed and matched a number of different polymers to see which ones and in which concentrations we need to put them together to create the right environment to make Exitinib soluble enough so that we can control its release. Because there's plenty of data available that indicates what level of dilution rates we needed to have for the product. So what concentrations we needed to have in the eye to see the effect. And that's how we built the inserts. And that's why not only can we get enough juice in there, meaning enough active in order to see the effect, but we know that we can maintain it with the inserts and this blend of polymers out over 12 months. So it's two things combined. the flexibility of the technology to allow us to deliver it over 12 months, along with the formulation capabilities of having multiple polymers in there that give us the differentiation we're looking for.

Got it. And just the 13503, if you could just give us a little clarity there.

So, yeah, on 503, so it's really interesting. So, We know, based on all the work that we've now done with 1105, that the print technology works because we knew what concentrations of dexamethasone we needed to get into the eye to get the six-month effect that we were shooting for. In the case of 503, so we now have proven print, but now we have to prove that we understand what the right concentration is of 503 to get the kind of effect in the back of the eye that that retina physicians are expecting to see for conditions like wet AMD and DME, et cetera. And we just haven't found that yet. We're looking at right now using the original insert and inserting more than one as a way of fluctuating the concentrations to see where that gets us and see whether that's an indicator of what the right concentration is. And so as soon as we finish this next set of patients, which is, again, a very, very small trial, but as soon as we get the next set of patients, we're hoping that will give us the clue as to what the right concentration is for 503, and then we'll be able to, you know, sort of kick that program into high gear.

Okay. And if I may ask one more question since I've got the clinical guys here. I wanted to ask about the Trypamate Agnes program. So we know that the work that you've done or the work that's been done showed bigger effect in a more severe population. That's where you saw some P values that were acceptable. So you're moving probably, you're probably moving forward obviously in this more severe population so you can get those effects. But it seems like you've been always angling to try to get a broader population including mild patients. or mild to moderate patients because of the cooling effect and the symptom effect. So how do you sort of reconcile the focus on the severe population, the clinical trials, and then the marketing angle of it to a more mild population? Thanks.

So I'm going to have David actually get a little bit into the details on the clinical trial design that will help us answer the questions that you're looking for. But just needless to say, In this Phase 2B trial, you may remember that I used the words, we backed up the truck for all secondary signs and symptoms that we can think of and all sorts of different ways of studying for dry eye because we wanted to make sure that we used this particular Phase 2B trial, which, again, is powered as a three, as the biggest data-gathering study that we could possibly design. And so that's what the team was able to do. We're doing it both environmentally as well as in a chamber and things like that. And so we think that we'll be able to gather a huge amount of information that will help us not only further characterize the molecule, certainly design the next set of trials, but give us a leg up in terms of understanding how best to tell the story as we get in, when we eventually commercialize this product, if approved, with managed care agencies or authorities. So, David, you want to talk a little bit about the clinical trial design and answer Annabelle's original question?

Sure. So great question. Obviously, we're focusing on ocular discomfort and tear production as our primary endpoints for symptom and sign. But we've built in a series of different endpoints, both environmental as well as using the controlled adverse environment, otherwise known as the chamber, and looking at a series of endpoints over the course of three months. Just to touch on your original question, as you well know and as doctors and patients have experienced, signs and symptoms don't always correlate. And what we saw in the Phase IIa trial was actually very nice tear production across the entire patient base. There was also nice improvement in symptoms across all the patients. The p-value was noted in just the more symptomatic patients. What we have represented in our phase 2b trial is actually a fairly broad dry eye population across most signs. They just happen to be a little bit more symptomatic. The other thing we've added in that wasn't part of the Phase 2a is all patients will be run in on vehicle. And if they have an improvement on vehicle, which is basically an improvement on artificial tears, they're not going to be included in the study. So we're particularly focusing on the symptomatic patients with a broad array of signs. who do not improve on vehicle, and those are the patients we're testing. And at the end of the day, that should very well represent a broad array of the dry eye patient population out there.

Great. Thank you. Great. Thanks.

Thank you. Your next question comes from the line of Ken Kakshaturi from Cohen and Company. Your line is now open.

Hey, guys. Good evening. Great to see the momentum moving in your favor here. Just a couple questions first. Just wondering, as you have a lot more experience now and obviously parity and coverage between Repressa and Rocklatan, or at least we're getting there, can you talk about the sales force and the refinement of the message as we've worked now deeper last year into this year? Are you positioning one product over the other? Is this more of a focus on Repressa and Rocklatan compliments? Is there any good learnings you can tell us that have been maybe helping with this momentum? Second question I have is just on potential magnitude of the European agreement. I know you don't want to negotiate against yourself here on the line, but can you give us a sense in terms of maybe structure vis-a-vis what you were able to secure on the Japan agreement? And then lastly, Ben, I just want to clarify the IND timing for 14034, if you could just repeat what it was that you said on the call. Thank you so much.

Sure. Ken, I'm going to take care of both the EU as well as the IND answer, and then I'm going to have Tom talk a little bit more about what we're doing from a messaging point of view out in the field. Related to the agreement that we have and the interest that we have in doing partnerships for Europe, needless to say, we have an awful lot of interest, as I mentioned. We have an awful lot of folks who have a lot of experience marketing ophthalmic products in Europe that are interested. The thing that we're looking at is we've got everything from somebody who's looking at not only Europe but wants to add other territories like, for example, China or Latin America or the Middle East, et cetera, et cetera, all the way down to Europe only. And so that's going to dictate an awful lot of what we're trying to do or what we're able to do relative to the pricing point of view or the negotiation point of view. We think that the upfront that we got in Japan was exceptional, and certainly we think that that's a reasonable starting point for looking at a European deal, as well as additional milestones and royalties and stuff like that, which are more in market dynamics. So in the mid-teens or so, I'm sorry, in the mid-teens to mid-20s and things like that, But more importantly to us, or just as important to us, is the manufacturing part of it. Because, you know, obviously we've got the plant in Ireland. We know how to make repress in Rakuten. We've got capacity there that we can do that. And just like for Japan, where we're going to be manufacturing for that market, we do want to make sure that as part of this agreement for Europe and other territories that we get to manufacture, because I think that's an important component for the future of our company. And we can put a dollar value on that because, again, the more of that capacity in AF11 we use, the better our overall gross margin looks in CERV. It's pretty easy from a financial point of view to see what that impact is. So hopefully that helps on the EU partnering side. On the IND side, we'd be filing that later on this calendar year as we gather some additional information. So we think that we'll be able to move that forward. And so let me now turn it over to Tom to talk about messaging in the U.S.,

Thanks, Ken. So here's how things have changed over the last years. Up until the majority of last year, what our reps really did was sell physicians on getting them to do prior authorizations because we didn't have the managed care coverage that we have now that we received last year. So they had to talk physicians into doing it because, Ken, as you probably realize, there's a lot of pain and time that it takes for a physician to to be able to do those prior authorizations, but our representatives kept saying, keep doing them, keep doing it, and sooner or later, managed care will respond. And by the way, they did. You may remember the numbers, Ken, but through our launch, physicians submitted over 150,000 prior authorizations for our products to managed care, so it shows you we were successful in that. And again, the end result is we have the very good coverage that we have. Now our positioning is back to a more classical positioning, meaning we're talking about benefits of patients and what patients to use it on, right? So normally when we talk about Roquitin, we mention two things. One, it's a great drug to consolidate medications. Many patients are on more than one medication, as you well know. They're on two or three. They're using your prostaglandin and something else. We can say you can get rid of that. Get rid of two bottles and just go down to one bottle. So consolidation, along with efficacy, is a real driver for that. Of course, the other one we're looking for, the other type of patient, is a patient that is using a prostaglandin and needing a second drop. So instead of adding another drop, it's going to make the regimen more complex, harder to follow, adding additional copay, those sorts of things. We can say go to one copay, the simplest drug, and the most powerful drug you can use, and that's Roquatans. Ropressa is an easy one as well, too, because what we talk about with Ropressa is either initial therapy for those people who don't want to use a prostaglandin because of the AEs that are associated with prostaglandins, and that's not a big market. But the other way we're doing it is an additive drug to a prostaglandin. Now, commonly patients would be using something like Travitan or an Alcon product or Lumigam, the Allergan product, and they would be willing to add that in there because they may just be fans of those products and not necessarily the Tanoprost. So we take the easier route and just say add Ropressa into that regimen. And as you know from our previous calls, the data that we have to support that, of course, is our most phase four trial, which is highly compelling information to show the additive effect of Ropressa is outstanding, especially compared to their experience with other additive medications.

Hey, Ken. Thanks so much. Yep. Let me correct something. I think I ended up misspoke relative to the IND for 14034. The IND is expected to be filed later next year, so in the second half of 2022. Great.

Thank you so much. Thank you. Your next question comes from the line of Serge Bellinger from Needham & Company. Your line is now open.

Hey, good afternoon. A few questions for me. First one for Tom. Can you just – it's about marketing and the pulse strategy. I think you've had a couple quarters now where you've used a contract sales force and tele-sales team to kind of expand your marketing reach. Can you just tell us a little bit about how that has resulted and whether you will keep those two activities going?

Yeah, first off, we're really happy with the Pulse strategy and the results we're seeing already, which is very early. When we look at our three sales forces, we look at our area sales force. You remember they call them the 10,400 physicians. We gained over half a market share point in their call-out audience last year. And by the way, that is a lot because this market is huge. So that translates into a nice increase in net sales. If you go to the contract sales organization, they gained .2 market share points, even though they just started calling on doctors in July. And again, that is not an insignificant amount. .2 doesn't sound like much to stand up and cheer for, but it is when you convert that to bottles and to sales. And then our telesales team gained .15 market share points, knowing that they didn't start calling on physicians until June. So the point that we get excited about is look back and see all three of our sales arms gained market share and considerable market share in a very short period of time, so we're quite happy with the strategy overall. And remember, the whole strategy was designed around increasing the number of presentations and hits that we can get to those positions, and that's why we set this up, and it's working so far.

Okay. One quick one for Rich. On the price increase taken in the first half of January, I forget if it was 5% or 10%, but how much of that do you expect to realize and when? Thanks.

Well, you start realizing it as soon as you take it. So it was effective January 12th, and it was a 4% to 5% increase for Repressa and Roquitam. So you'll start seeing that certainly in the first quarter, and you'll see it through the rest of the year as well. As you know, as I've said before, that has to – that increase is at a gross level, right? So that increase is taken at wholesale acquisition cost. You don't yield all that as you funnel your way through the various rebate agreements. But it will contribute to the stability and growth in our net revenue per bottle, as Vince mentioned, during the course of this year.

Thanks. Thank you. Your next question comes from the line of Dana Thunders from Guggenheim. Your line is now open.

Great. Thank you very much for the questions, and congratulations on all the progress. I just had actually two questions on your new preclinical program, if I could. Maybe first, can you just speak to your views on what you think kind of market acceptance will be for 12 months duration versus six. You know, I imagine that'll be a bit of a function of kind of the rescue rate you end up seeing in your studies. But I know at least initially, you know, that's kind of one of the reasons some of your competitors are, you know, not going after 12. So I'm wondering if you could just kind of comment on that. And then secondly, you know, other polymer programs have seen some particle aggregation issues. It sounds like you're still working on formulation, but can you just speak to your polymer blend and technology and how you expect to avoid particle aggregation? Thank you.

Sure. So I'm going to take those questions backwards. Actually, what I'm going to do is I'm going to pass the second part of your question relative to the polymer aggregation, et cetera, and sort of where we are from a formulation point of view to Casey Kopchinsky. You may remember Casey was the original founder of the company. and was the main driver for the acquisition of Invisia. And then I'm going to have, after he's completed answering, then I'm going to turn it over to David to talk a little bit more about the patient acceptance, physician acceptance of 12 months versus six. So, Casey?

Yeah, so the particle aggregation issue that has arisen in and some other formulations is something we were very aware of at the very start in terms of our formulation work. So, you know, we did everything to make sure that would not be an issue with our blend. I can say that the blend is not identical to, but it's similar to what we have in the 503 implant. So we are gaining clinical safety data from those studies, but so far we We have no evidence for any issues with respect to particles being produced that migrate to the front of the eye, and we would not expect it based on how our formulation differs from formulations where that's an issue.

David?

Yeah, just to touch on the goals of this program, A, it is about duration and hoping to achieve that 12-month duration. The other thing we're hoping to achieve here that will separate itself is we're not looking for there to be loading doses. So if you've watched a lot of the competitive products in the pipeline, it's been sort of a steady gradual of, you know, you get three loading doses and then you eke out a three months, and then maybe you eke out four, and maybe you eke out five. We're actually looking to try and, you know, really deliver on what we believe the doctors and patients will want, which is, you know, not to have those loading doses and to have that sustained duration. As you said, we will see in that first clinical study exactly the retreatment rate. We've been very impressed with Our R&D folks and their ability to predict, the 1105 is a great example of being able to predict the duration of effect, and we expect to have a similar success with that prediction. But we will be looking closely at everything from month six on, but we do believe that the future really will be about duration, and the market will be very much looking forward to something well beyond six months in the coming years.

Thank you. Thank you. Your next question comes from the line of Louise Chen from Cantor Fitzgerald. Your line is now open.

Hi, thanks so much for taking our questions. This is Jennifer Kim on for Louise. I have two questions here. The first one, I know earlier it's been asked about how we should think about net revenues per bottle, but I was just wondering if you could get a bit more specific on how you think it'll shape up over the course of 2021 and whether or not it can continue to grow beyond 2021. So I think the average net revenue per bottle this past year was around $81. Where do you think it can go in 2021? My second question is, on the ExitNib-based product, have you or could you disclose the doses you used in your rabbit data that was in the presentation? Or should we expect publication of the detailed preclinical data sometime in the near future?

Sure. So on the net pricing side, you may remember that for the calendar year, you're right, we ended up with a number that you mentioned, but on the other hand, it was driven by a pretty good-sized number at the beginning of the year. We got down into the high 70s, and we called that a stabilization of the pricing, and so it's been trickling up ever since. And so we do think that the negotiations that have already taken place that are kicking in this year will allow us to get to as I mentioned during my prepared remarks, about a 5% increase from our exit. So, you know, again, just the 5% over the exit of about $80 or so per bottle. And so we think that that's going to move forward on a timely basis and really start on this first quarter. Now, in terms of future expectations, we do have some contracts that will actually kick in in 2022. And so we do expect to see a continuation there. But then we're also looking at continually all the contracts, not only the new ones that we're signing, but some of the old ones that are coming up for renegotiations. And so, again, you'll start seeing some of those kinds of activities. We think using the model that we talked about back in May when we signed that last deal, which is that was with the largest Medicare Part D provider in the country. So using that model going forward basis in terms of not only being careful about the rebates that we provide, but in terms of how we position the product within the formularies, et cetera, but more importantly, focusing on the pull-through and making sure that the sales force has all the data on a timely basis so that they can generate the pull-through is the key to our success. So we do expect net pricing to continue to move forward, upwards. and we expect that we're going to be able to continue that on an ongoing basis. On the existent of information, what you have right now is all that we're planning on providing. The actual information that could provide some more inkling in terms of what we can do, et cetera. We take a hard look at some of that. Some of the issues, for example, like on the actual blending of our polymers, et cetera, that's proprietary. We're not going to be releasing any of that. But the actual data relative to citinib itself is pretty well known. So you can look it up and see sort of what concentrations are required in the back of the eye to be effective. And what we can tell you is, based on the information that we've been able to generate, that we are delivering that amount into the eye over a sustained period of time. And again, as David said, and we're eliminating the need for loading doses, et cetera. So this is with just one injection. So that's been the target. And so far, the guys believe, based on everything we see, that that's what we're delivering.

Okay, great. Thank you.

Thank you. Your next question comes from the line of Greg Fraser from Truvi Securities. Your line is now open.

Good afternoon, folks. Thanks for taking the questions. My first question is on the Europe opportunity. When do you expect a decision on pricing in Germany, and is the pricing decision important with respect to discussions with potential partners for Europe?

So we haven't actually started talking directly to the pricing authorities yet with our ideas, et cetera, et cetera. What I can tell you is that Ganforth is the highest price combination product, and it sells for in the mid-20s up there in the European market. So we do expect that because of our non-inferiority study, our results from our Mercury 3 data, that we're going to be able to get somewhere in that ballpark. And so Germany will be first. But we do expect to start the negotiations for price, but we do expect that As we are doing that, we should be able to sign up a partnering agreement before we actually have the final price set.

Got it. Okay.

By the way, the potential partners are aware that we're moving forward with the pricing negotiations, so they're all aware that that's not going to be something that slows us down.

Got it. Okay. Okay. And on expenses, you said to not expect any significant increases in OpEx this year. Are you holding a line on spending due to the pandemic, or should we think about the current cost structure as right size for the longer term?

So if I take you back two or three years ago, we've had about the same OpEx for quite a while now. And a lot of that had to do with the decisions that we made that we were going to generate data on all of our pipeline projects and make decisions based on getting that data, but we wouldn't start any major new trials until after we had data on all the programs. And so, as you've seen, we've been able to control expenses now for almost three years. Part of that was driven by, we finished up getting Ireland up to speed, and so now it's all moving into COGS, and so that's helped tremendously. We did get a lot of our studies completed, including not only the original Phase II study in Japan, but the Mercury III one. 1105 was done last year, and the last one in the batch that we're waiting for is 512, that dry-eye asset, which we will get that data later on in Q3 of this year. We won't start any additional trials until we get all that data and then kind of put it in front of us and decide how we want to move forward with further pipeline expenditures. We are taking all the necessary steps, for example, 1105, to move that into Phase III trials, but we're going to wait until we get the 512 data before we execute on that because, again, we don't expect any big spike in R&D expenditures this calendar year. uh 22 will be different but we'll tell you up front where we're going to be spending the money and why and um that that's more of a 22 issue than 21. got it thanks for the color thank you your next question comes from line of francois bruce boys from up and hyper your lines now open

Hey, thanks for taking the question. A lot was answered here, but I just was wondering, can you touch on a little bit more on the market? Just compare and contrast Asia, Europe, and the U.S. for glaucoma. Obviously, you touched on pricing with Gantor, but can you talk about pricing potentially in Asia and just the competition there?

Sure, so I'm going to focus on the Japan market because that's the one that's most relevant right now. We look at that market as being just shy of a billion dollars in total dollars. It has many of the same kinds of products that are available elsewhere. There are a lot of homegrown Japanese-centric glaucoma products as well. But we have one payer there only, and obviously it's the Japanese government, and so the payer system is very specific. And so what we do know is that they do value innovation. And so having a new class of products there is very important. The fact that they already have a rokinase inhibitor there, some folks would look at that and say, well, that's a negative, but in our case we think it's a positive because it's That has a price already set, and so that's going to be somewhat helpful. But more specifically, our first phase three trial that we started prior to signing up the Japanese deal is a head-to-head trial with the product that is currently available in Japan. And again, we think that we're going to be superior in terms of both efficacy and the adverse event profile based on what we know. We are dosed once daily. We're dosed twice daily. We do know that they work primarily on higher pressures, which are not particularly relevant in Japan, and we work pretty much across the board, but we're very, very strong in dropping pressures when the patient's starting pressure is already kind of low, and that's a hallmark of many of the eyes in Asia where not only do they suffer more glaucoma, but their pressures tend to be relatively low, and they still get glaucoma. And so we think that our drug, based on all the work that we've done with the KOLs in Japan, is tailor-made for that particular market. So we think that the market dynamics are going to be in our favor. To help you put it in perspective, on the billion-dollar market there, the product that we're going to be going up against has been on the market now for, I believe, three years. And they have just over 5% market share already. And so we think that obviously that's a great target for us. And again, because of the once a day better efficacy and a cleaner adverse event profile, we should be able to beat them in a market, especially given who our partner is. Santan is the largest ophthalmic pharmaceutical company in Japan. And so they have a huge amount of firepower and presence in the market. that will help us move our products forward.

Okay, thank you. That's it for me, and congrats on the progress. Yes, sir.

Thank you. Your next question comes from the line of Elliot Wilbur from Raymond James. Your line is now open.

Hey, good afternoon. So I want to ask a question, a couple of questions around some revenue assumptions. I guess first, specifically, a lot of questions on pricing. But just thinking about bottles per RX trends, you know, that number seems to have kind of a persistent upward bias to it. I think year-end, you're up maybe about 10% on a relative basis versus where you were at the beginning, and that number has turned it up for, you know, really since the launch of the products. But how do I think about that overall? the longer term. Is there some point where that just hits a ceiling and flatlines, or is there always some sort of modest upward bias to that number, referring specifically to bottles per Rx and not wholesale versus retail?

No, no, I understand. No, no, I got it. Yeah, you just want to make your life more difficult for yourself doing it that way, but that's okay.

Wouldn't happen any other way.

No, no, yeah. So we got a nice jump on bottles per script as we entered COVID back in March of last year. We saw a real big jump on 90-day supplies, and obviously people were worried about getting to their pharmacy and running out of product, et cetera, et cetera. So that trend for us has continued. Tom Mitra was telling me when I saw him in California earlier this week that he We're now sitting right around 1.44 or so bottles per script somewhere in that ballpark. And so that's, again, a huge jump from where we've been because we've been in the 1.3s for a while. And so it's awfully hard to get that similar data on competitors, but because we've worked for a lot of those competitors, we think that the competitive data for other glaucoma products is sitting about 1.5 bottles per script. And some of those products have been on the market for quite a while. Now, what you need to understand is we're in a different environment. And so with the folks really more now accustomed to what's been going on and not going to the pharmacy and moving more and more towards mail order and God only knows what impact Amazon entering the market is going to have on us, we think that that number, while if you would have asked me the same question a year ago, I'd say we'd have a ceiling of you know, roughly 1.5 bottles per script. But at this point, given the dynamics and what we've all lived through over the last year, I'm not sure that that's true anymore. But, again, for now, that's what we have.

Okay. And then just an additional follow-up question on net pricing. It sounds like the renegotiation with respect to wholesaler agreements was the primary reason behind the sequential increase increase in the number. And just, you know, curious if those wholesaler distribution agreements, are those based on, are those percentage numbers based off of WAC pricing, or is it just a... Yeah, it's off of our gross pricing. It's off of gross pricing. So it's, in theory, then potentially a large number relative to net for even a small percentage. And Maybe there's some additional leverage there as the franchise grows. Is that kind of a fair comment?

Yeah, I think that there's that, and also the way that we negotiated some of these agreements, they don't all kick in immediately. Some of them are staggered somewhat and things like that. So I think that that's there. And then, obviously, as we continue to grow, we'll continue to strive towards getting those fees down as often as possible.

Okay. Then a question for yourself, answer for Tom. Just, you know, thinking about renegotiating some of your, you know, larger managed care contracts going forward and, you know, you've highlighted several times the data from the MOST trial in terms of the, you know, the relative benefit of the product sort of regardless of where it's used in the therapeutic spectrum. Just wondering, have you guys considered some form of paper performance incentives in your contract? Is that something that would even be possible in the glaucoma market?

Hey, Tom, you want to take a stab at that one?

Sure, I'll be happy to. We don't really do those, or they don't really do those that often now anymore. You're talking pretty much, to get your question right, like a market share agreement. It's If the market share goes from X to Y, we will pay, you know, give you X amount of rebate. If it goes from X to Z, we'll pay you a different amount, right?

No, I apologize. Specifically thinking about the efficacy of the product. You know, if you deliver some sort of, you know, net reduction in IOP relative to competitors, then, you know, you can basically, you know, command a higher price point.

Yeah, we talked a little bit initially to the payers about concepts like that. The problem is these bottles aren't very expensive. you know, compared to a much larger different class of drugs. They're really not interested in that in ophthalmology, and we would be because our product performs well, but they just don't want the time and the hassle of the reporting and then coming back to do it for something that just isn't that, you know, big from a dollars and cents standpoint or a unit standpoint.

Okay, and then last question, probably for yourself, Tom, as well is, Just in thinking about some of the numbers that you guys have talked about, some of the data we look at, basically looks like between the closing of physician offices and the reduction in patient counts going through offices, patient volumes are something around 60 to 65% of what we consider to be normal. But if you look at trends in some of the earlier script metrics, such as new therapy starts and new to brand-like, those actually have been pretty good over the last couple of quarters. You had a dip in the second quarter, but they bounced back pretty quickly. It seems like the lag is more in refills and patients who have been on scripts for a longer period of time. So I'm trying to Not sure what that necessarily means when we return to normal. Does it just suggest a quicker bounce back, or is there some way to potentially capitalize on that from a commercial perspective?

Yeah, well, certainly we look at the data. It's a little bit different than how you look at it, Elliot, just to give you a sense for it. But in ophthalmology, we know that QVS says the new-to-brand last 52 weeks over the previous 52 were down about 14%. where the TRX or total prescriptions are only down 8%. So the refills is, by the way, Nudibrand hurts the acute. This is all of ophthalmology. So acute care products got hurt a lot more, as you might guess, and the glaucoma products like ours got hurt a lot less. So that's what we see there. But really I think the thing that we try to do with physicians is make sure that they know that they're supported. Like for commercial plans, we have copay cards and those sorts of things that keep people in the game and keep people refilling their prescriptions and sort of keep that T-Rex up where they have been and continue to keep them growing.

Okay, thanks. Those are my questions.

Thank you. Your next question comes from the line of D.J. Young from Missoula Securities. Your line is now open.

Hi, thank you. This is Dan Clark on for Deep Day. Was pricing in the quarter impacted at all by the Medicare coverage gap?

Oh, yes. It always is, and we try to estimate it as best as we can, and it's always a nail-biter at the end when we finally get the bill, but I think Rich and his team that handle that have done a great job this year, and It came in within the allotted amount for our expectations, and so we do account for it, and then hopefully we don't see a huge surprise, but I think now that we've got a few years under our belt, we're getting very, very good at estimating those rebates, and we do also take into account any new Medicare Part D plans that we sign up during the year like we did last year in 2020, where we signed up the largest Medicare Part D provider in the country. So we did take that into account, and we were able to estimate that one pretty well as a result. So I think we're in pretty good shape relative to that. But net-net, the answer is, yeah, it was impacted.

Okay. Thank you. And then I appreciated the color on the percentage of doctor's offices that are currently open. Roughly, how does that percentage apply to your top decile prescribers?

Tom? Yeah, we don't really break it up by deciles, but just to let you know, that number we gave you are the deciles we call on. So I can't tell you 10 and 9, but we go down to decile 4 as a good example. So those numbers I gave you really were through decile 4. Okay, great. Thank you.

Yep.

Thank you. No more further questions. I would now like to turn the call over to Vince Anita, Chairman and CEO, for final remarks.

Thanks, Jerome. Thank everybody for joining us today. Obviously, we're very excited about the way we exited 2020, looking forward to 2021, and we'll provide and maintain our usual transparency as we progress through the year. We do think that we are hitting on all cylinders at this point. We are growing revenues in the U.S. on both products, and as I mentioned, both the unit as well as the net price increase there is helping us quite a bit. We are making an awful lot of progress on our pipeline, moving that forward so that we can make major decisions about the company's future and continue to add products to our pipeline as a result, as you saw with our newest entry using print technology. We are expanding our reach outside the United States with partnerships, and Santon was a big one this last year. Hopefully, it'll have a huge impact on us, as will completing a European deal and for other extended territories later on this year. And we finally did get control over our own destiny relative to manufacturing by getting our Irish facility in Athlone approved for the manufacture of Rakuten and Repress in the U.S. And we're now supplying patients with product that we're making. And obviously, as Rich has told many of you, we ended up a year in a very, very strong cash position, which we expect to continue to move that forward especially as we close on a European deal. So, again, I want to thank everybody for joining us tonight. Have a good evening.

This concludes tonight's conference call. You may now disconnect.