Aerie Pharmaceuticals, Inc.

Thank you, Operator. Good afternoon, and thank you for joining us. With us today are Vince Inito, ARI's Chairman and Chief Executive Officer, Tom Mitro, ARI's President and Chief Operating Officer, David Hollander, ARI's Chief Research and Development Officer, Casey Kopczynski, ARI's Chief Scientific Officer, John LaRocca, ARI's General Counsel, and Chris Dayton, ARI's Interim Chief Financial Officer. Today's call is also being webcast live on our website, investors.aripharma.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 with our commercialization of Repressa and Miraclatant in the United States, our collaboration in Japan, and prospects for 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, along with the associated business strategies regarding these products and product candidates. Finally, we will address our financial liquidity and other statements related to these 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 risks 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-Q tomorrow. In addition, during this call, we will discuss certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including a 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. With that, I will turn the call over to Vince.

Hi, thanks, Elmi, and good afternoon, everybody. Thanks for joining us today. We have a number of things that we're going to cover today, including our second quarter results, continued progress with our growing pipeline, and additional perspective on our global strategy. Before we start, however, I do want to welcome Chris Dayton, who has been named our interim CFO. Chris has been with the company since 2015 as our VP of Finance. I work very, very closely with Rich Rubino, who you may remember his last day was at the end of July. And so we do welcome Chris to the call. Our Garcoma franchise unit sales into wholesalers, which are the basis of our recorded revenues, amounted to 306,000 units in Q2 of 2021. This represents a 31% increase over the second quarter of 2020. It is important to note that our wholesaler volumes in Q2 of 2021 are consistent with what we generated in the fourth quarter of 2020. Now, I view this as very solid performance for Q2, considering that the fourth quarter of last year was a record increase And in the fourth quarter is typically our strongest quarter of the year. Now, despite the impact of COVID, when I compare Q2 of 21 versus Q2 in 20, we had 23% growth in the Garcoma franchise in terms of market prescriptions in the United States. And the market itself only grew a 2.8%. Again, we think that that's very, very solid performance as we move forward through the COVID environment. Now, I understand that there's frustration when you look at the weekly numbers, and certainly it's kind of tough even when you add them up to get to the kind of growth rates that I just described. Unfortunately, the weekly prescriptions give you an incomplete picture in terms of what's really happening, and that's why we publish our shipments out from wholesaler retail and why we provide you with information like we just did in our slide decks, in our corporate slide decks, where we look at the entire market over a longer period of time, which, again, provides a much more complete picture. In comparing Q2 of 21 to the first quarter of 21, our wholesaler volumes increased by 19%. We expect volumes in the second half of the year to continue to increase over the first half, provided the impact of COVID-19 on the industry continues to decline. As Tom Mitra will discuss in a few minutes, our recent volumes in terms of sales out to pharmacies and IQV prescriptions continue to trend very positively. Our second quarter 21 net revenues of $27.2 million are up 51% over last year and up 18% compared to Q1 of this year. Our June 30th year-to-date revenues of $50.2 million are up 31% over the comparable period of 2020. With half the year behind us, you can see why we remain comfortable with the analyst consensus for full year 2021. However, we're still not providing any specific 2021 guidance. While we see continued signs of recovery, it remains a difficult environment to predict as the COVID situation remains not only dynamic but really unpredictable, especially at the state level. As you saw in our earnings release, net revenue per bottle remained stable at $89 for the second quarter of 2021. This compares quite favorably to the 78 net revenue per bottle we experienced in Q2 last of last year and represents almost a 15 percent growth year-over-year. We have previously talked about our expectations regarding the stability of our net revenue per bottle. Aside from negotiating wholesale agreements and modest price increases, we continue to refine our rebate agreements to preserve our net revenue per bottle as well as maintain and grow the volumes of our glaucoma franchise. As we stated in our press release, Commercial coverage shows a decline due to the unemployment remaining higher than the pre-pandemic levels, as well as commercial payers seeking, as they've always done, as many money savings opportunities, so as an example, moving to generic only formulary configurations. It is important to note that our commercial business accounted for 24% of our total revenues for Q2 and has consistently decreased since we've launched our products. Our strategy continues to remain the same as far as refining our rebate agreements. Minimize the rebate burden while optimizing our net revenues. Tom will speak further about how our team has mitigated the decline in commercial coverage and where our coverage stands for the Glaucoma franchise as a whole. As we look ahead at the rest of 2021, we expect a continued increase in selling at G&A expenses to pre-COVID-19 levels. due to an increase in sales and marketing expenses as well as travel expenses. However, as we said previously, we do not expect an increase in spending to have a material impact on net cash used in operations. And Chris will cover that in a little bit more detail during his prepared remarks. Now I'll turn the call over to Tom to provide a further update on the U.S. glaucoma franchise, and after that I'll cover the highlights on the pipeline and the global fronts. Tom?

Well, thank you, Vince. Well, just as we reported in our previous calls, our glaucoma franchise continued to far outperform the glaucoma market and all other branded glaucoma products. Our second quarter 2021 total prescriptions for our franchise, based on IQVIA data, were up 23% or 31,000 prescriptions over the second quarter of 2020, while the glaucoma market was up just 2.8% or 230,000 prescriptions for the same period. Now, new prescriptions for our franchise were up an impressive 41%. in the second quarter of 2021 compared to the second quarter of 2020, far outpacing the market growth of 11%. The robust growth in new prescriptions speaks well for the future growth of our franchise. Patients will need to get their prescriptions obviously refilled. I'm looking at the last 12 months ending June of 2021, so to be clear, that's July of 2020 through June of 2021. Our franchise grew by 119,000 prescriptions, or 23%. with that glaucoma market declined by 2.6% or 911,000 prescriptions when compared to the previous 12 months. But before I go on talking about performance, I wanted to mention a short note on the prescription data. So as Vince mentioned, some of you may get frustrated when you try to match the weekly IQVIA data with the monthly IQVIA data. Now, the primary confusion stems from the monthly start and stop dates. For example, looking at June, June 1st was a Wednesday. So Monday and Tuesday of that week were May prescriptions, with the rest of the week obviously being June prescriptions. This is called a split week, and it's a common occurrence for the first and last week in nearly all months. But the weekly data always ends on a Friday. So the week had both May and June prescriptions. Now, that's the primary reason why adding up the weekly data usually does not match with the monthly data. Okay, now back to performance. Our sales out data, which is a reminder, reports bottles of our products that are shipped from wholesalers into pharmacies was also very positive. Our second quarter 2021 sales out units were up more than 33% or 77,000 units compared to the same quarter a year ago, with units in the month of June 2021 alone exceeding 112,000 bottles. Our sales out in the month of June 2021 we're up more than 38% compared to June of 2020, indicating another strong sign of recovery. Now, that's a big rebound from where we were this time last year, and this quarter's numbers are more than 30% higher than our pre-COVID levels in the first quarter of 2020. Our sales team, like the physicians, are eager to return to pre-COVID normalcy. As COVID continues to decline, our call activity continues to increase. With our year-to-date June 2021 call volume up 97% compared to the same period last year. The primary driver of our continued growth is the increasing number of offices that are open, with the vast majority of physicians' offices now open. Now, we're also pleased to see that ophthalmic medical meetings have started to return to in-person settings. In the past few months, we've had the opportunity to connect with physicians at both the Hawaii meeting and the American Society of Cataract and Refractive Surgeons meeting, which just wrapped up last week in Las Vegas. Physicians at these meetings were very eager to engage in discussions and to get back to pre-COVID normal behavior, and we look forward to meeting again in November at the American Academy of Ophthalmology meeting in New Orleans. Our Salesforce strategy continues to remain unchanged, with our Aerie sales team calling on the approximately 10,500 highest prescribers of glaucoma products. Last July, our contract sales force began calling on the next 1,500 highest prescribers, and the telesales team, which we added in June, began calling on the next 4,100 highest prescribers. Now, some of you may notice that these numbers changed a little from our previous calls as some physicians were moved from one audience to another for various reasons. Now, consistent with our previous reports, our market share has continued to grow in each of these three audiences. Our total prescriber count now exceeds 18,600. We currently have nearly 10,000 physicians who prescribe an area glaucoma product routinely each month, and approximately half of those monthly prescribers have been writing on a weekly basis. The highest prescribers of our glaucoma products, which is a reminder of what we call docile 9 and 10 prescribers, have maintained their prescribing frequency, writing more than 30 prescriptions per month. Now, Ropressa commercial coverage represents 77% of covered lives, while Roquatant commercial coverage represents 75% of commercial lives. As Vince mentioned, our commercial coverage shows a decline due to the unemployment remaining higher on pre-pandemic levels, as well as payers seeking money-saving opportunities like moving to generic only formulary configurations. In proactively addressing the situation, we had our sales force identify and work closely with the plan's specific prescribers to ensure they understood and were prepared to address the situation with the effective plan with tools like prior authorization forms and additional copay cards. Early results saw very high approval rates for our prior authorizations, ranging from 84% to 93%. Now shifting to Medicare Part D coverage, where Presto's coverage is at 92% while Roklatan is at 84% when the low-income subsidy or LIS patients of approximately 10% are included. These numbers include recent additional Medicare Part D coverage gains for both products. So once again, our franchise prescriptions volumes grew significantly looking at both the second quarter of this year and the last 12 months, and we continue to significantly outperform the broader glaucoma market. So in summary, and before I turn the call back over to Vince, We continue to capitalize on the momentum we established prior to COVID. Our glaucoma products are increasingly being prescribed by many eye care practitioners, and with our current managed care coverage levels, our strategy to move monthly prescribers to weekly prescribers, our share of voice initiatives, and our improvement in net revenue per bottle, we continue to see the associated benefits. Vince, back to you.

Thanks, Tom. Now, moving to our R&D efforts, last October we initiated a Phase 2B trial for our dry eye product candidate, AR15512. We announced in April of this year that that particular trial, which we call Comet 1, was fully enrolled with 369 patients, which is, if not the largest, certainly among the largest trials ever done in a Phase 2B for dry eye. As we said before, this trial was powered as a Phase 3 and tested two different concentrations of our product candidate compared to vehicle. The primary endpoints are ocular discomfort, which is a symptom, and tear production, a sign, and both of those at four weeks. We also added multiple secondary endpoints as well as time points to the trial so that we can learn as much as possible about the drug's performance. The COMET-1 trial is for 90 days in duration with a primary endpoint for signs and symptoms at day 28. The time frame, which shows the greatest separation through the 90-day measurement period, will ultimately help us design any future Phase III trials. The measure of success for the COMET-1 will be statistically significant difference in signs compared to vehicle, as well as statistical significant difference in symptoms compared to vehicle. Now, there's been an awful lot of interest in speculation and projections about what will be needed to call this trial a success. It is simply statistical significance of one of the concentrations over vehicle. It's not specific numbers or measures. It's just purely stat thing. As we've said before, safety and efficacy will need to be demonstrated in at least two well-controlled trials. Efficacy for signs and symptoms do not need to be shown in the same trial, but both must be shown in multiple trials. As a reminder, our COMET-1 trial is powered as a Phase III So if successful, it will count as a pivotal trial. We will expect to report top-line results for Comet 1 later this quarter. Many of you have asked how we'll release the data. Just as we did with the ROPRESS and ROCOTAN trials in the early days of our company, we will host a conference call with slides to review the data and do not plan on waiting for a medical meeting to release the results. Now, turning to our retina pipeline, we continue to have our discussions with both the U.S. and European regulatory authorities to finalize the most efficient and effective Phase III pathway for our dexamethasone sustained release implant known as AR1105 and expect to start the Phase III trials by the end of this year. Last July, we released the Phase II study top-line data for 1105, which indicated up to six months of sustained efficacy in retinal vein occlusion. This is a very different profile in terms of efficacy period some of the other injectable steroids in the market, such as Ozerdex, which generates about $400 million in revenues in the U.S. and Europe combined. Based on the current market dynamics, the commercial potential for 1105 will be greater in Europe than in the U.S., with Europe being threefold the U.S. based on current market data. You may recall that we originally expected to present the data from the Phase II study at an ophthalmology meeting last fall. However, the presentations were canceled. due to COVID. We are pleased that the abstract has recently been accepted for presentation at the American Society of Retina Specialists meeting, which will be held in October of this year in San Antonio, Texas. We have previously discussed the advantages of our print technology platforms as it relates to our retinal pipeline candidates. As a reminder, this is a platform that provides predictability and flexibility and allows us to customize drug elution rates and create various blends of bioerodible polymers. This allows for longer treatment duration as well as reduced injection frequency, which were reflected in the Phase II results of 1105. Now, we do have a number of other programs that are in our pipeline which continue to make progress. We're not going to be talking about those today, but certainly you've seen us report on those over the last few calls as well as various press releases. Now let's shift to our globalization activities. First, our Santen collaboration in Japan continues to progress forward. We announced in June that the first Phase III trial in Japan is now fully enrolled with 245 patients. This trial is expected to be completed by the end of 2021. The top-line results are expected to be reported shortly thereafter. As a reminder, AIRI is conducting this first Phase III trial and is being supported by Santen. Following the top-line readout of this trial, San10 will oversee the rest of the development of Repressa in Japan. With regulatory approval of our Coma franchise in Europe, we continue to have discussions with potential collaborators in that region. As I said before, some have expressed interest beyond Europe and include other parts of the world, such as China, the Middle East, and even South American countries. We still believe that we will be able to complete a collaboration agreement before the end of this calendar year. We believe the volumes from Europe for the glaucoma market in the top five European nations alone totaled 98 million bottles sold in 2020, compared obviously pretty favorably, it's far greater, than the 55 million bottles that have been used in the U.S. during the same period of time. It does represent an excellent opportunity to further utilize our Irish facility in Athlone which is already growing in volumes due to production from the U.S. market, and we ultimately anticipate producing for the Japanese market from there as well. Now, I'd like to turn the call over to Chris to cover the financials.

Thanks, Vince. As Vince discussed, our combined Ropressa and Rakuten net revenues in the second quarter of 2021 totaled $27.2 million. Our normalized gross margin for the second quarter was 92%. which is consistent with previous quarters. In addition, layered on top of cost of sales is approximately $3.9 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 quarterly depending on the number of batches produced in a quarter, whether for commercial or clinical supply, but we expect it to trend downward on an annual basis as we continue to add volumes to the Athlone plant. Our second quarter 2021 gap net loss was $38.7 million or 84 cents per share. When excluding the $8 million of stock-based compensation expense, our total adjusted net loss was $30.7 million or 67 cents per share. For the second quarter 2021, adjusted cost of goods sold was $5.7 million and adjusted total operating expenses were $44.9 million with adjusted selling, general, and administrative expenses of $28.9 million and adjusted research and development expenses of $16 million. For the second quarter of 2021, our net cash used in operating activities was $20.1 million, and we had $188.3 million in cash, cash equivalents, and investments as of June 30th, 2021. The net cash used in operating activities of $20.1 million in the second quarter of 2021 is further improved from the second quarter of 2020, for which we reported $22.9 million in net cash used. This improvement is a reflection of revenue growth and continued expense controls. Shares outstanding at quarter end total 47.0 million. For additional information regarding our first quarter and prior period comparisons, please refer to today's earnings release and our Form 10-Q, which we expect to file tomorrow. And now, I would like to turn the call over to the operator for questions. Operator?

Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star 1 on your telephone's keypad. If you'd like to withdraw your questions, please press the pound key. We'll be having our first question coming from the line of Annabel Samimi with us. Your line is open.

Hi, everyone. Thanks for taking my question, and congratulations on some solid recovery. I just want to clarify with you a couple points. First, on the commercial versus Medicare coverage. So can you just review those once again? You said them really fast, and I just – I gather that you – increased your Medicare coverage for Roglatan. Maybe I heard that incorrectly, but it seems like it's now up to 84%, and I just wanted to confirm if that is true and if in what plan joined, and clearly it doesn't seem like it's having impact on your net price. So that's the first question. The second question has to do with AR-15512. Hopefully I got that number right. The COMET trial, just to be clear, for your study to be considered pivotal, do you need statistical significance for both signs and symptoms or just one of them? And if that's the case, if you only need statistical significance for one endpoint, how many additional trials would you have to conduct? I apologize if I'm a little confused there, but Again, I just want to make sure that we understand that. Thank you.

All right. So I'm going to go ahead and cover the 512 question, and then, Tom, I'll turn it over to you to just give the highlights on the commercial versus Medicare components. So on 512, we're using ocular discomfort as our symptom and tear production as our sign. And so if we hit both of those, statistically significant results at week four, which is not only these are the primary endpoints, but also the primary time point, then this trial will count in all likelihood as a phase three trial. We'll have to talk to the FDA about it, but we had predetermined that endpoint to be, and those time points to be, again, ocular discomfort as well as tear production at week four for this trial. So if we hit those, then all we really need to do is one more trial that covers both that sign and a symptom, and if we hit it the second time, then we're done with the development of the program other than having to complete safety. Now, it could happen that maybe we hit one versus the other, and then we get additional information that maybe says that instead of week four, the one or the other improves and continues to improve, and then there's a better separation at day 90. And so then we'll see sort of where we stand there, and so we'll have to do yet another trial at the 90-day time points. There's an awful lot of variability and various options that we've built into the design of 512. And so when we release the data, we'll walk everybody through exactly what we found and what the path forward is. But again, You have to hit STAT-SIG on both a sign and a symptom at some time point in order to get the drug approved. So I hope that helps, Annabelle. And then I'm going to turn it over to Tom for your question on commercial and Medicare.

Sure. Thank you for the question, Annabelle. Here's where we are now. Repressa commercial coverage, coverage 77% of the lives. Y-roclatan is at 75%. So the way we look at that, we net that to about 76%. of all lives. If you go to Part D, Ropressus coverage is 92%, and Roklatan is at 84%. So that nets to about an 88% of all covered lives. And by the way, you're right, that is an improvement over our last call by about 8% in the Part D area. So we're really happy with that. We did get a couple of new accounts. I won't say what those names are just for competitive reasons. We try to keep that Obviously, out of the competitive hands, but, yes, we did crack a couple more accounts, and we're very happy with our coverage at this point.

And you don't expect – obviously, if you accepted those Medicare accounts, you're not expecting it at a hit to your net price.

Not a significant hit or a material hit, no. We've got a number of things that will help, and so we don't think it's going to drop. That won't be the primary reason why our net dollars per bottle would drop, no.

Okay, great. Thank you.

And our next question will be coming from the line of Serge Ballinger with Needham & Company. Your line is open.

Hey, good afternoon. Thanks for taking my questions. I guess the first one for Vince or Tom, can you just talk about your outlook for the second half of 2021 here? where we are coming out of the second quarter, and if there's any pent-up demand out of the glaucoma patient population that could accelerate sales growth for Repressin and Rokotan.

Well, we think that the continued rebound that we've seen post-COVID hopefully will continue, and we won't see any further lockdowns and things like that. They could impact... patient access to the doctors. Now, we do see, as we noted, that the market either has decreased, as Tom mentioned, for the entire sort of one-year period, or quarter to quarter, the market has only grown a couple of percentage points here and there, whereas we've been up 20% and 30% across the board. And so we like the prospects for the way that the products are moving, We do like the fact that as long as the doctors are there seeing patients, that our reps are getting in, and we find that the noise level associated with what Tom and his team are doing is certainly helping us, especially in an environment where some of the other competitors are maybe scaling back a little bit or not seeing success. We do publish, and we'll publish again our corporate slide deck, and you'll see who the winners and losers are relative to the market And you'll see some pretty good-sized franchises that are continuing to lose market share in this environment where we're gaining. So we do expect that whole trend to continue.

Okay. And on the improving net price per bottle, I think you expect some additional incremental improvements for the remainder of 2021. Just curious if there will be other opportunities for improvements when we get to 2022?

So the answer is yes, we do expect that we'll continue to execute on the plans that we put in place that are paying off relative to both looking at the wholesaler fees, as well as looking at every plan that comes due for renewal and making sure that we're getting out of those contracts where we really need. This is a reminder, what we talked about is And we got to the roughly $89, $90 net bottle with a lot of the work coming, or a lot of that coming from the wholesale renegotiations that we did on their fees. A big chunk of that was front load. It started at the beginning of the year, has continued, and so we expect some level of stability. It'll be plus or minus a few bucks here and there off of the $89 per Q3. But we do expect the... the rest of the wholesaler fee reductions to kick in mainly in Q4. So, you know, hopefully we'll see some upward trending of pricing as we go in through Q4 as a result of that. But, again, every contract that we have, as soon as we get a chance to renegotiate, we do. We take a hard look at that and see whether it makes sense to continue giving up the rebates at the level that we're giving them up. And when it doesn't make sense, we pull back. And likewise with wholesaler fees, the bigger the product gets, the more we can influence the fee structures.

Got it.

Thank you.

And our next question will be coming from the line of Louise Chen with Tantor Fitzgerald. Your line is open.

Hi, thanks so much for taking our questions. This is Jen Kim on for Louise. I wanted to follow up on the previous question. So I guess, is it correct to say that it could go below $89 per bottle in the next quarter? But then, like, you expect a jump up in Q4. And then also in the fourth quarter, I guess the last time we saw a big jump from the wholesaler impact, the improvement was fairly substantial. I think it went from like $80 per bottle to $89 per bottle. Could we see something to that level of improvement in the fourth quarter. And then my second question is just on getting an update on your progress in finding an EU collaborator for your franchise. I think last quarter you gave a lot of helpful color on what factors you're considering. Since then, have you sort of refined and made decisions around those factors, or are there any key considerations that you're still thinking over? Thanks.

All right. I'll try to remember all that. So I've got it down to three questions. One of them is on the stability of prices in the third quarter. We will see sort of bouncing around. The reason we hedge a little bit is only because, you know, again, we see the unemployment rates continue to be sky high. You saw some of the hiring reports today were about half of what was expected and things like that. The commercial part of the business is usually where we get our highest price. And so whenever there's a little bit of instability there. It gives us some reason for pause. But again, we don't think it's going to be hugely dramatic, but it could bounce around just a little bit. And Q3, we think that the further impact we'll see in Q4 from the additional reduction in the wholesaler fees certainly will provide not only the bounce back if we need to, but also maybe a little bit upward pressure on the price, which is always nice. But it won't be to the same level that we saw at the beginning of the year. Again, like we said, when we reported Q1, that was a pretty dramatic jump, and that was mainly because we got all the benefit from one of the top three wholesalers right out of the gate. And the other one sort of trickled in in part, so we'll get the balance of that trickling in in Q4. So it won't be as dramatic. Relative to the EU contract, I think we're in pretty good shape relative to understanding what we're looking for from a partner. One of the big challenges here is not only that we have to get the agreement done once we get everything taken care of, but we're looking at launches with one of the potential partners of multiple countries, not only in Europe but around the world. And as part of the agreements, we also have to negotiate sort of how they're going to go into those markets and the impact of those markets and how we're going to be able to support their efforts and things like that. And so, you know, while it's not, it's basically blocking and tackling from a commercial point of view, just getting all that on paper takes quite a while. And so we think that that's really the reason why we're just simply saying we think it's going to be done by the end of the calendar year.

Okay, super helpful. Just one quick follow-up on the EU collaboration. Say that deal gets done near the end of the year. Is it fair to say that, I guess, commercialization of those products are more of a 2022 event?

So we're staggering sort of the emphasis that we're putting on what we want so that we can actually get, especially in Europe, because that's the one that is more relevant, we're trying to get it set up so that we launch those products sometime in the second half of 2022. Because whoever it is we pick has to train their sales force, and we've got to provide product with the right labels for the countries, et cetera, et cetera, et cetera. So we think that that's a second half of next year event.

Okay. That's very helpful. Thanks, everyone, and congrats again.

Yes, ma'am. Thank you.

And our next question will be coming from the line of Georgi Yordanov with Cowan. Your line is open.

Hey, thank you so much for taking our questions and congratulations on all the progress. So I guess first on our end would be, with the greater coverage around Roflatan, do we expect that the sales reps are starting to or are going to start to push on switching from repressive to Roflatan? And then Kind of related to that and the reimbursement, could you discuss your current patient affordability programs and whether we should be expecting any additional optimization of those given the higher coverage you're having?

Yeah, before I have Tom answer it, I just want to remind you, surgery, that we don't really care which drug the doctor uses, right, as long as it's a repressor, Roccatan, and, you know, in some cases it's a lot easier for them just simply to add repressor to whatever it is they're using, and then once they've get to that point, then they find a home for not only that, but also find a home for Rocklatan because they can get everything that they want out of one eyedrop. With that said, let me just have Tom answer a little bit more specifically your question.

Yeah, sure. On the coverage, just to let you know, the last data we saw indicated that only about 7% of Ropressa's business went to Rocklatan. That's all that was cannibalized. We don't see that changing a lot. Certainly, Physicians are interested and highly interested in both products now, especially because we have such good coverage. It's sort of removed that as a barrier to them using it. So as has been said, there's pretty nice spacing between the two products for how they're both used in the practice, and many of our physicians are using both of them for various reasons. So that's how I'd answer that. And the second part about affordability, the biggest one we have, of course, is our copay cards, which we hand out. As a reminder, those are only usable by commercial patients. And what that does is it just helps, quote, buy down a little bit on the copay if their copay for the patient is too high or if the patient doesn't have any insurance at all. And those are administered through our copay card at the pharmacy level.

Great. And just one on the pipeline. Maybe if you could just remind us of what are the remaining gating items for the dexamethasone trial in terms of your discussions with regulatory agencies.

Right, so we've had an opportunity to meet both with EMA as well as the FDA, and not surprisingly, they have very different requirements. And so what we're trying to do is come up with a protocol that sort of bridges the two. And it's very possible that what may end up happening, in fact, likely what may end up happening is we'll have to make some choices about how best to do that. We do have David Hollander on the call, who is our Vice President of Clinical as well as the Director the research side, so let me just have him give you a little bit more color on how we're thinking about bridging that gap.

Thank you, Vince. Yes, we have had a good opportunity to meet with both regulatory bodies. We're looking at a single protocol that probably has a different statistical plan. that would meet the EMA requirements as well as a different plan that meets the FDA requirements. A lot of this just comes down to the timing of endpoints as well as the endpoint itself. We'll collect all the data, but the two regulatory agencies have some different thoughts on what they're looking for and when they want to see it. But we should be able to have a harmonized program for both regions.

That's great. Thank you so much for all the answers and congratulations on the long progress. Thank you.

Our next question will be coming from the line of Frank Bracewell with Oppenheimer. Your line is open.

Hi, thanks for taking the questions. Not to dwell too much on this again, but just to double, triple check, can you have on the dry ice side, can you have one endpoint, whether let's say it's sign, hit at 90 days and another endpoint hit at four weeks. And would that be okay with the FDA or does it have to be the same timeframe for both sign and symptom?

Yeah, they can be different, Frank. And if that were to happen, let's say like the example that I gave where we hit, let's say symptoms we hit at week four and then for the sign, our tear production, we hit at day 90. Let's say that that were to occur. So what would happen is we could use this particular trial in all likelihood as a pivotal for the symptom because we pre-called that out and then that would happen at week four. But for the sign, we would miss on that quote primary endpoint that we established because we said it would be week four and instead it's going to be at week 90. So then we would have to just duplicate the study and set it up so that we get the symptom improvement at week four, and that would be the primary. But the sign improvement would become the primary, the co-primary, but it would be at day 90. And the FDA is perfectly okay with that. They don't really care what the timeline or the time points are. They just need to make sure it's repeatable.

Okay, excellent. And in terms of... You know, I guess, do you need both to get approval? Or if you just got one, is it that you just need to hit on one of them a lot more than if you hit on both sign and symptoms?

Yeah, so if you miss the stat sig on both, then, you know, the FDA has all sorts of other barriers to approval. And so if you only want to get a sign, let's say, with tear production, you've got to hit a certain, you know, amount of tearing or increase in tearing over a vehicle and things like that. that you have to hit or you can use central coronary staining and you have to get the complete clearance. And so it's pretty onerous if you only go after just to get a symptom as opposed to just simply stat sig. So it is doable, but then it also limits your label to only that function. And so that's why we think given the mechanism, we have a pretty good chance of doing both signs and symptoms.

Understood. Okay. And then just, I guess, last one on the dry eye side. Based on the data so far, there's not that much that's been shared, but it seems that, you know, maybe signs that there's, you know, greater N number, less of a kind of a post hoc, so it seems like signs might be easier. Is it fair to say that in general, it would be very rare to hit symptoms and not hit signs? Is that fair? Yeah.

Well, you know, we all have, certainly in the history of development of dry eye products, they hit signs more often because of the mechanism, and they don't really improve the patient outcome with symptoms. But let me just have David just give you his perspective on our mechanism and why we think that we've got a pretty darn good shot at hitting the symptom improvement as well as the signs.

Yeah, certainly as a cold thermoreceptor agonist, we believe we will have patients experience that cooling sensation, which is why we have ocular discomfort as our symptom. As you say, in the past, there's only a single product that's ever achieved both signs and symptoms, and that was actually over multiple studies. And we also have a mechanism that improves basal tear production. So we do, from a mechanism of action perspective, believe in both the symptom and the sign. And the nice thing about hitting the symptom, which we actually are optimistic about just based on the MLA, you only need stat sig on the sign, whereas others have had to, you know, achieve different endpoints on signs based on their not hitting symptoms. So we remain confident based on our MOA of both signs and symptoms.

Understood. And then on the AR1105, is there any thought of, I know you're looking at EMA and FDA, and there's all the complexities there in unifying them in terms of the endpoints, but is there any thought here? Are you possibly just waiting to start that to see what happens with dry eye, or is this really completely independent?

So two things. Number one, back a couple years ago when we started off in developing the pipeline, we told you that we were going to wait for all development, regardless of when we got the data, for any continuation of that until we had all of the assets reading out so that we can then make choices about what to move forward and how fast. And so this isn't anything new. It just so happens that These discussions with the agencies relative to 1105 have taken a little bit longer and the like, and so we're going to wait until the end of the year. The earliest we could do it is the end of the year, but we call that out up front. So it shouldn't come as a surprise that we're waiting until by the time any of these studies start, we will have read them all out and we will have made choices based on what the outcomes were.

Okay, great. Makes a lot of sense. Thank you very much.

Thank you, Frank.

Our next question will be coming from the line of Greg Fraser with Truist Securities. Your line is open.

Good afternoon, folks. Thanks for taking the questions. I wanted to just follow up on the net sales per bottle. How much more room for improvement is there just from negotiating lower wholesaler fees as the business gets larger over time?

You know, I think people were surprised that we were able to get the reductions that we got, and it was pretty significant. And so, like I said, we haven't seen the total of that yet, and so you'll see that as the year finishes. We do think that, again, when we talk to you guys and we look at the size of our business, we look at it from a net sales perspective. The wholesalers are looking at it from a gross sales perspective. And so it's a significantly bigger number as a result. And so we think that as we, there's all sorts of, not only distribution services we get from them, but all sorts of other things. And so as we think about us continuing to grow, and again, from a gross sales and a net sales point of view, we become a bigger chunk of their totals, then we'll just continue pressing the envelope as much as we possibly can. Because, you know, again, we still have I think if you look at major companies, they're down to probably low single digits in terms of their wholesaler fees. And so ultimately, as we get bigger, that's our target. There are still ways to go. Got it.

Okay. Is the average number of bottles per prescription still increasing? And if so, where do you see that average going to over time?

You know, it's kind of interesting. So we had a great bump when we exited, I'm sorry, when COVID hit, and we started moving more towards 90-day prescriptions. And so we see a little bit of discrepancy between the number of prescriptions, I'm sorry, number of bottles per script for Roccatan, which is around 1.46 or 1.47 per script, and Repressa is a little bit lighter than that. And so, but again, both of them are up quite a bit from where the pre-COVID numbers. And so, I think once people get to that, you know, get used to getting their drugs in the mail versus going down to the local pharmacy, they kind of like that. So, the industry average in glaucoma is probably in that 145 to 1.5 range, somewhere in there. So, With Roquetan, we're already there. Repressive has got a little bit of ways to go. But on a blended basis, you know, we're sort of now almost average, where before a year ago we were below that. And so it's a good thing.

Got it. Okay. And then my last question is just on the mix between commercial and Medicare in terms of revenue. How do you see the mix evolving over time or when you get to sort of steady state?

Do you want to tell me what you think about the unemployment rate? Because that's really going to swing it, right? So if we can get folks back to work again and they start going back on commercial plans, maybe we'll slow a little bit of that erosion rate down. But until that happens, it's kind of hard to make that call. So all we can do is what we're doing, which is fight pretty hard for every prescription that You know, if it's commercial, we've got a number of other tools that we can use to help the patients get access to them. But it's just too hard to call at this point. Okay.

Thank you.

Next question will be coming from the line of Yagal Mochanovitz with Citi. Your line is open.

Hi, this is Carly on for you, Gal. Thanks for taking our questions. To follow up on the expansion in Medicare Part D coverage for Roqlatan, when did that increase go into effect? And what's your expectation at this point for when Roqlatan Part D coverage could sort of trend up to the 90% plus level that you've achieved for Repressa?

All right. Carly, I'm going to have you repeat the second half of your question in just a second. But for the first half, I'm going to have Chris Dayton actually give you the answer to that.

Yeah, on the Medicare Part D, the new coverage was effective June 1st.

Okay, great. That's helpful. The second part was just sort of how you see that percentage trending over time and when Roklatan Part D coverage could reach sort of the 90% plus level that you've achieved for Repressa.

You know, one of the shifts that we ended up making in our thinking about doing managed care contracting was that we quit trying to hit numbers in terms of percent coverage. What we wanted to do was make decisions around what were the profitable contracts we needed to reach because, you know, again, you know, giving up a lot in rebates and bringing that net price down certainly didn't get us to where we wanted to go, and we certainly started getting the win at our back as soon as we started taking a little tougher stance and in terms of how we negotiated those contracts. So I don't really have a plan in place to get to, say, 90% Medicare Part D coverage, because we'll get there if we can sign the contracts in a way that make the most sense to us without destroying our net price. And so if we get there because we're able to do that and we put enough pressure on the system using prior authorizations and things like that and encouraging that kind of utilization. And that brings some of these plans to the table like we did, and I talked about it a year ago, when we got the largest plan in the country. It took us two years, but we got the contract done. But again, we're in no rush to get to any particular coverage number. It's all going to be based on what makes the most sense from a profitability point for us.

Okay, got it. That's helpful. Thank you. And then just, you know, you have a number of programs in the pipeline as well as some additional IND filings expected next year. So was curious if you could comment on your level of interest in partnering or out licensing some of these assets and kind of at what point in the course of development you see as sort of the optimal time to partner.

So traditionally, the partnering activities start somewhere around phase two, depending on sort of what the product is in the market and all those other kinds of things. You know, certainly we are open to partnering. You know, certainly we're doing that for Europe as well as we've already done it for Japan. You know, if we get excited about the dry eye data and as we talk to folks about it, there's – some rationale for us to do that, whether it's a geographic deal or a broader deal than that. And, you know, we certainly, you know, have to be open to that. And just like we have to be open to, you know, as we start going down the path of doing the retina trials, there's a lot of folks that are interested in retina. So we may find ourselves in a situation where we get approached about partnering there. So we are open. You know, we view that as a good way of continuing to build a pipeline and utilize our resources in the best possible manner. And the nice thing about that all is that it also adds cash to the balance sheet, which is not a bad thing either. So we are, so bottom line is we are open. It's not necessarily a, you know, putting out a sign that says, you know, wide open to give these things away, but selectively we'll do that.

Okay, great. Thank you so much.

Yes, ma'am.

And our last question will be coming from the line of DeFay Young with Mizuho Securities. Your line is open.

Yes, hi. Thank you. This is Dan Clark on for DeFay. Sorry. Dan, how are you? Good. How are you? Just two questions for us. One, will we see week one data from the trial? And then of the secondary endpoints that were added to the study, are there any ones in particular that you believe have the most commercial relevance?

So we will give you, like we did with Ropressin-Roccatan. I'm going to answer the first part of that, and then I'm going to have David talk a little bit more about sort of the mechanism and what some of the other endpoints that could be attractive. Just like we did on Repressin-Rocotan, where we showed you all the time points, we will be sharing that data. Because, for example, one of the things that could happen is we get the greatest degree of separation between one of the concentrations and the vehicle at week one. And so that certainly would make the next study for that particular endpoint pretty short, because all we have to do is duplicate that, right? And so we plan on sharing all that when we release the data. So, David, on the second part?

Yeah, just to add to that, there are a number of secondary endpoints that people will find of interest. In addition to ocular discomfort, we're also looking at ocular pain, which for similar reasons to the MOA may prove interesting. Sandy, which was the primary of the Phase IIa conducted by Avizurex, will also be part of the secondary endpoints we're looking at. Ultimately, we tested both environmental conditions as well as using a controlled adverse environment or the dry eye chamber, so we will be looking at changes both outside the chamber and within. So we will have a number of other endpoints in addition to the standard endpoints that everyone's used to of, you know, scanning into your break of time, et cetera. Hopefully that answers your question.

It does. Thank you.

All right. And I would now like to turn the call over back to Vince Anito, ARIES Chairman and CEO, for final remarks.

Thank you. I want to thank everybody for joining us, Carl. I know that you've got a very, very busy week in front of you, and I do hope that you share the enthusiasm that we have for what we've been able to accomplish despite of the COVID environment. And certainly from the commercial point of view, we think we're doing some great things there. And Tom and the sales and commercial team are doing a terrific job in making sure that we continue growing despite all the challenges that we've been facing. And certainly for David and Casey, we've built a great pipeline and And now we're moving that forward into the clinic, and we are very excited about the readout that's coming up here and just the balance towards the back end of this quarter. So that will be the next time we get a chance to talk to each other. So, again, thank you for joining us, and have a good evening.

And with that, this concludes today's conference call. Thank you, everyone, for your participation, and you may now disconnect.