BioDelivery Sciences International, Inc.

Greetings and welcome to Biodelivery Sciences' third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Terry Coelho, Chief Financial Officer. Thank you. You may begin.

Thank you and good morning, everyone. Welcome to our third quarter 2020 earnings conference call. Leading the call today is Jeff Bailey, Chief Executive Officer. We are joined by Scott Plescia, President and Chief Commercial Officer. Following our prepared remarks, we will conduct a question and answer session. Earlier today, Biodelivery Sciences issued a press release announcing its financial results for the third quarter of 2020. A copy of the release can be found on the investor relations page of the company's website. Before we begin, I would like to remind everyone that certain statements may be made during this call, which may contain forward-looking statements. Such forward-looking statements are based upon current expectations, and there can be no assurances that the results contemplated in these statements will be realized. Actual results may differ materially from such statements due to a number of factors and risks, some of which are identified in our press release and our annual, quarterly, and other reports filed with the SEC. These forward-looking statements are based on information available to BDSI today, November 5, 2020, and the company assumes no obligation to update statements as circumstances change. An audio recording and broadcast replay for today's conference call will also be available online in the Investors section of the company's website. With that, I'd like to turn the call over to Jeff Bailey, our new CEO. Jeff?

Thank you very much, Terry, and welcome everyone to our company's third quarter 2020 earnings call. I'm very pleased to be speaking with you as the permanent CEO of BDSI. I've had the chance for the past six months as interim CEO to evaluate the team and craft the growth strategy going forward. I decided to take the job permanently as I have seen that the business opportunity is attractive with a strong team, differentiated products, that make an impact in patient lives and growing revenues, even in the difficult COVID-19 pandemic. The core business fundamentals are incredibly strong, demonstrated by our top line growth, tremendous profitability, and cash generation. We have a seasoned management team and a board that are confident and very committed to driving shareholder value. This confidence is underscored by the board's authorization to buy back up to $25 million of shares. This was announced yesterday. There are three main takeaways that I would like you to have from today's call. First, I'm happy to report that Biodelivery Sciences is on an extremely solid footing. While the COVID pandemic has disrupted the delivery of healthcare in the United States, we're seeing strong growth return to our new-to-brand prescriptions, an uptick in prescribers, and we continue to grow our market share and volume to all-time highs within the long-acting opioid category. Second, I am truly honored and pleased to be stepping into the role of permanent CEO and have a highly optimistic outlook of our company's future. And third, our management team is fully aligned on our corporate strategy, and our execution is already underway as we are delivering impressive brand growth, a promising new commercial outreach program to drive results, and very importantly, a strong balance sheet that positions us well for the future. I want to share a few key updates about our business. Belbuco rebounded in third quarter, with our momentum and script growth continuing into October. The third quarter Belbuco performance marks an all-time high in TRX volume and market share. The big positive for Belbuco is that we outperformed the TRX long-acting opioid market nicely by growing Belbuco TRX volume by 6.9% over Q2, while the market was essentially flat. Additionally, Belbuco TRX market share hit another all-time high by growing to over 4.1% in Q3 compared to 3.8% in Q2. This growth highlights the momentum for the brand, which was reflected in the 31% year-over-year revenue growth. Belbuca new-to-brand scripts were down in Q2 and have rebounded in the third quarter and remained strong in recent weeks. We believe that physician offices will generally remain open for the foreseeable future, in spite of pandemic-related fluctuations. We've developed a new program for onboarding first-time patients. This innovative program, called First Start, has been successful in boosting NBRX scripts for Belbuca in the past quarter and was recently rolled out nationally. Scott will give you more details on this program shortly. We also saw some growth in an all-time high for TRX volume and market share in the Paramora class, resulting in net revenue growth of 59% over the third quarter of 2018. These results reflect our outstanding execution. Moreover, I want to say that our team has been extremely active evaluating business development and investment opportunities. We want to assure everyone that we will thoughtfully seek to optimize shareholder value through this process. Our balance sheet has never looked better, with $100 million in cash. At the same time, you can see that we are spending judiciously during this disruptive time, prioritizing spend to preserve and grow our customer base and position our brands for long-term success. Our balance sheet gives us significant optionality to seek complementary opportunities at the right time and invest in our business. To conclude, I'm very pleased by the success of the third quarter and the resilience and dedication of our organization. We've differentiated products, a strong balance sheet, and a focused senior management team. We are driven by our vision of helping patients with chronic diseases as well as long-term sustained growth and our ambition to increase shareholder value. With that, I will turn the call over to Scott to provide more details of our performance during the third quarter. Scott.

Thank you, Jeff. As Jeff mentioned, during Q3, Belbuco prescriptions grew by 7,400 to a new high of more than 114,500 retail, mail order, and long-term care TRXs combined. This represents a 25% increase in Belbuco TRXs compared to the third quarter of 2019 and a 6.9% increase over the second quarter of 2020. It also represents the largest quarter-over-quarter TRX growth we have achieved since Q3 of 2019. This was accomplished despite the overall long-acting opiate market essentially being flat from the second quarter to the third quarter. We were pleased with Belbuco's continued growth that led to its Q3 TRX market share increasing to over 4.1% from 3.8% in the second quarter of 2020. During the third quarter, Belbuca's new-to-brand market share of 7.4% grew from 7.2% in the second quarter, significantly above its TRX share of 4.1%, which means there is still a meaningful opportunity to grow total prescription share as these metrics can historically converge. New-to-brand prescriptions rebounded from the second quarter to the third quarter as clinics reopened. We believe that to accelerate current and future growth, it is important that we have more robust NBRX growth. As Jeff mentioned, to accomplish this, we initiated our first START NBRX program with a diverse pilot group of territories in early August. The program allows healthcare providers, or HCPs, to prescribe Albuquerque to appropriate commercial patients for the first time without a financial outlay and provides convenient access to Bell Buca while the office staff is securing prior authorization approval. Analysis from the pilot group suggests a meaningful increase in MBRXs, as well as first-time prescribers, and provided us with confidence to expand the program across all territories on October 20th. We believe that this program is contributing to the improved MBRX share of 7.9% for the most recent four weeks. We are pleased to report the Valbucus prescriber base grew in the third quarter after declining slightly in Q2. We reached an all-time high of over 7,800 total unique prescribers in the quarter, up from the second quarter. It's encouraging to see that more physician offices have now adapted during the pandemic on a remaining open. As a reminder, our entire sales force has been making in-person visits in addition to their continued virtual interactions since early July. Our market access with Belbuca has improved greatly over time and has been important to our success. Belbuca currently enjoys strong commercial coverage with approximately 94% of lives covered, of which almost 60% are covered at a preferred level. While in Medicare, Belbuca has covered in 30% of lives with 21% of them being at the preferred level. I'm pleased to announce that as of January 1, 2021, Belbuca's coverage within up to 1 million Medicare Part D lives of EnvisionRx, a national PBM, will improve from non-formulary, not covered, to a preferred exclusive position. We continue to be committed to improving payer access to Belbuca and believe our current level of coverage provides a significant opportunity for growth, which is supported by our consistent success across all payer types. Simproic Q3 prescriptions reached a new high of over 18,100, representing a solid 12.1% increase year-over-year compared to Q3 2019 and a 3.1% increase over Q2 2020. During Q3 2020, we generated a 13.2 NRX share and a 12.5 TRX share, representing the highest market shares to date. We expect continued growth in revenues and total prescriptions for Semproic as its NRX share has consistently exceeded total Rx share since May 2019 when BDSI began active promotion. In the third quarter, our prescriber count for Semproic remained relatively steady from the second quarter at over 4,800 physicians, though productivity per prescriber was slightly higher. We view Semproic as a highly complimentary brand of Belbuco and continue to believe our early 2020 market access wins with Prime Therapeutics and CVS will be catalysts for growth for the remainder of 2020 and beyond. The BDSL Salesforce has done an outstanding job taking advantage of these wins as TRX has improved within Prime Therapeutics by approximately 158% from Q3 2019 to Q3 2020. We've also seen consistent growth within CVS where our market share in the Pomora class has increased from 14.4% in Q2 to 15.2% during Q3 2020. We believe that the BDSI commercial team will be able to pull through these winds and build upon the brand's momentum. Our commercial team continued to deliver impressive results during Q3 and by now have successfully adapted to the pandemic environment. We are encouraged by the steady increase in patient visits and MBRXs, which has been a trend that we will continue to monitor in the fourth quarter. We remain focused on supporting patients and HCPs by providing them with additional resources during this challenging time. We are still providing enhanced copay coverage for Belbuca and prior authorization assistance for both Belbuca and Semproic. As a reminder, our sales team is equipped with the tools that facilitate effective discussions around the clinical values of our products. This includes a virtual customer engagement platform, a dedicated email portal, as well as the ability to ship samples and other resources directly to offices. We are planning to further increase our digital presence going forward to promote our products effectively and compliantly to HCPs and patients in a changing landscape. Our strong Q3 results reflects the effectiveness of our commercial team, and more importantly, the clinical value that our products provide to patients and health care providers. We remain in a bold position for growth for the remainder of 2020 and beyond, and I am confident that the BDSI team will continue to successfully execute. Lastly, I am proud of the focus and execution that our entire organization has exhibited during these difficult times. With that, I'll turn the call over to Terri to provide an update on the financials. Terri?

Thank you, Scott. As Jeff and Scott discussed, we are excited to report our third quarter results, which have remained strong despite the COVID-19 pandemic. Total net revenue for the third quarter of 2020 was a record $39.4 million, an increase of 30% compared to $30.3 million in the third quarter of 2019. Net revenue for the nine months ended September 30th, 2020 of $114.3 million grew 43% compared to the same period in 2019, driven by strong Belbuca growth and the full period impact of the Centroic acquisition, partially offset by lower sales of BunaVale. Belbuca net sales in the third quarter were $34.8 million, an increase of 31% compared to $26.5 million in the third quarter of 2019. Year-to-date Bell Buca net sales through September 30, 2020, of $100.6 million grew 45% compared to the same period in 2019. While gross-to-net deductions did increase in the third quarter as expected, based primarily on typical increases seen for the Medicare coverage gap, often referred to as the donut hole, along with increased Medicaid costs, those increases were favorably impacted by updates to our channel estimates reflected in the third quarter. Full-year gross-to-net deductions for Belbuca are expected to average just over 50%. Net sales for Semproic in the third quarter of 2020 were $3.5 million, which reflects 59% growth year-over-year. Year-to-date Semproic net sales through September 30, 2020, of $11 million, grew 107% compared to the same period in 2019, reflecting volume growth coupled with the additional quarter of sales in Q1 of 2020 relative to 2019 due to the timing of the Q2 2019 acquisition. Univail net revenue for the third quarter was $600,000 compared to net sales of $900,000 in the third quarter of 2019, with the 2020 Q3 revenue reflecting the release of certain returns reserves taken in Q4 2019. As a reminder, in March of this year, the company announced the discontinuation of marketing of Univail in 2020. Royalty revenues for ex-US sales of Painkill and Braykill totaled $658,000 for the third quarter. Total gross margin for the quarter was an attractive 86% as compared to 82% in the third quarter of 2019 and slightly above the 85% margin during the second quarter of 2020. largely due to the favorable growth to NETs in the third quarter. Total operating expenses in the third quarter of 2020 were $22.5 million compared to $23.4 million in the third quarter of 2019 and $28.2 million in the second quarter of 2020. The quarter-over-quarter decrease is primarily driven by the one-time costs associated with the CEO transition in the second quarter of 2020. In addition, during the third quarter, we shifted some spend into customer-facing resources to support investments in sales and marketing. Gap net income for the third quarter was $9.4 million, or 9 cents per share, compared to a gap net income of $400,000 in the third quarter of 2019 and gap net income of $1.2 million in the second quarter of 2020. The year-over-year improvement in GAAP net income of $9 million is primarily driven by the continued growth of our top line, improved gross margins, and a decrease in overall operating expenses. On a year-to-date basis, GAAP net income through September 30, 2020, was $15.5 million, an increase of $30.1 million compared to the same period in 2019. EBITDA in the third quarter of 2020 was $13.4 million, or 34% of net sales, compared with $3.5 million, or 11.7% of net sales in the third quarter of 2019, and $5.1 million, or 13.9% of net sales in the second quarter of 2020. This quarter marks the seventh consecutive quarter of positive EBITDA for BDSI. Year-to-date EBITDA through September 30th of 2020 is $26.2 million or 23% of net sales, compared with $8.4 million or 11% of net sales for the same period in 2019. Non-GAAP net income for the third quarter was $12.7 million, an increase of $9.2 million compared to the third quarter of 2019. with both periods reflecting GAAP net income excluding stock-based compensation and non-cash amortization of intangible assets. The third quarter result compares to non-GAAP net income of $9.6 million in the second quarter of 2020, which excluded stock-based compensation, non-cash amortization of intangible assets, the non-recurring financial impact of the Buena Vale discontinuation, and the one-time expenses related to the CEO transition incurred in the second quarter. For the nine months ended September 30, 2020, non-GAAP net income was $30.6 million compared to $6.8 million for the same period in 2019, an increase of $23.8 million year over year. The company has a strong balance sheet with cash and cash equivalents as of September 30, 2020 of $100.2 million as compared to $63.9 million on December 31, 2019. The combination of continued strong revenue and attractive gross margins, together with prudent spend management and working capital improvements, resulted in positive operating cash flow of $9 million in the third quarter and $14 million year to date through September 30, 2020. The overall $36.3 million increase in the total cash position year to date reflects our positive operating cash flow, in addition to the net proceeds of $19.6 million from the drawdown in May 2020 from our existing debt facility. The company's total long-term debt position as of September 30, 2020, remains at $80 million. We are very pleased with our year-to-date business and financial performance, having delivered 43% year-over-year revenue growth, continued profitability reflected in our 23% EBITDA margins year-to-date, and a strong balance sheet. With six months of the COVID-19 pandemic under our belts and following a solid Q3, we anticipate continuing share and volume growth in the fourth quarter and expect to deliver total net revenue in the range of $149 to $153 million for the full year, assuming continuation of current market trends and conditions. I will now turn the call back to Jeff for some concluding remarks before we open the call up for Q&A. Jeff?

Thank you, Terry. Before concluding, I want to mention that the date of the Paragraph 4 challenge case against the Albigen and Chemo defendants has been moved from November 9, 2020, to March 1, 2021. We remain extremely confident about BUCA's intellectual property. That said, as you know, we cannot comment further on ongoing litigation. Importantly, we announced yesterday that the Board of Directors has authorized the repurchase of up to $25 million of company shares of common stock. This program reflects our confidence in a long-term outlook for the company, including our ability to generate strong cash flow. The timing and amount of any shares purchased on the open market will be determined based on the company's evaluation of market conditions, share price, and other factors. The company plans to utilize existing cash on hand to fund the share repurchase program. This program reflects our confidence focus on balancing our disciplined approach to capital allocation against growth opportunities available to BDSI, including continue to invest in the organic growth of our portfolio, along with pursuing strategic acquisitions to drive long-term shareholder value. BDSI is very well positioned for the future, with strong profitability, which bodes well as we continue to drive revenue growth to create long-term shareholder value. Lastly, I really need to take a moment to say that I am very impressed with BDSI employees' hard work, enthusiasm, and continued motivation to serve our patients and customers during the unprecedented conditions in the face of COVID-19 pandemic. I wish to thank all of our employees for their perseverance as we pursue the execution of our top priorities and corporate strategy. We'd now like to take your questions. Operator?

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Brandon Fultz with Cancer for Cheryl. You may proceed with your question.

Hi, thanks for taking my question, and congratulations on another very good quarter. So maybe, you know, I know you provided a lot of data about new to brand and new patients and so on, but, you know, is there any additional color you can give just in terms of how tough that environment remains? You know, you do continue to outperform there, but any color on chronic pain patients patient visits, maybe comparatively to this time last year or anything you are seeing there. And then following on from that, maybe, you know, Jeff, obviously congratulations on the permanent appointment. How do you view your Salesforce size, the productivity and areas that you're going to look to invest behind in 2020? And then lastly, I know you did say you can't talk too much about this, but on that paragraph for litigation, you know, Jeff, you've just accepted the permanent CEO role. You just put in a share buyback. So it obviously portrays a lot of confidence in the IP situation. But should we still think about all options being on the table for that litigation, including settlements? Thank you.

Brandon, first of all, thanks for your questions. And let me get started first. Then I'm going to turn over to Scott for a little bit of input there as well. So with the three topics there, First of all, on P4, that part of the world, yeah, we remain confident in our strength of our patent protection for Belbuca. That's really clear. And it's one where we can't really comment further on that particular piece. The main thing we just wanted to make sure everybody was aware of was that the date went back. On Salesforce size, I've really gone deep on this with Scott and the team, and it's one where we are about the right size. That's really clear to us. I think the one thing that Terry mentioned was we allocated some resources within the organization to really focus on customer-facing, commercial muscle. Look at the environment changed when it came to the world when it came to COVID, and when it comes to the digital world, the virtual world, in combination with the face-to-face going on, I think that that's something that's really helped us, which then leads into your question on NBRX and the challenges we see there. And Scott is going to elaborate a bit more on that in just a second. But I think the thing that we recognized early on that you probably remember in the COVID world, we really stepped back back in March and put together the COVID internal committee to really make sure we had our finger on the pulse of what's going on in the marketplace. And that's really helped us a heck of a lot because it's one where just intuitively you'd see that the MDRX would have some challenges that part of the market based on patients not going into the office, especially in the earlier part of the pandemic. And just by stepping back and two things, I think that really helped us there. One is that as the pandemic's gone on, we're starting to see patients return back to the office. So that trend is very helpful to us. The second thing is very much, that, you know, we really tried to stay a step ahead as far as innovative programs, and the first SART program was one that really helped us out an awful lot with the MBRX world there as well. So some good stuff happening there, but I think it really aided us that we made sure early in the pandemic that we anticipated this. And really something really good about our product, there's stickiness between our patients and, you know, when making sure that they are, when it comes to chronic pain, that our product is one that really connects well with the patient. So it's a good thing on that front. So Scott, I know you have some more color that you can provide relative to what we're seeing with NBRX going on and some of the things that the team's really been doing that's really made a difference here in a positive way.

Yeah, thanks, Jeff. And Brandon, thanks for the question. So first off, The COVID environment really, the MBRX count actually took its biggest hit really in the kind of April, May timeframe. We started to see it come back a little bit in June. What we're really encouraged by is when we look at quarter over quarter now from Q2 to Q3, Bell Buca is up about 8% and MBRX's market's only up 5.3%, so we're outperforming the market there. As far as visits go coming in, we still think it's suppressed somewhat. It's down definitely over where it was. If you look at all the data across all specialties, we're probably somewhere in the 90% to 92% of visits. That's even if you put in telemedicine into the mix. And, you know, this time it looks like telemedicine isn't as robust to MBRXs, basically, so people aren't as open to switching visits. therapies, HGPs aren't, healthcare providers don't, you know, make those switches over telemedicine as much. But we've seen telemedicine kind of drop down to only about 8% to 10% of all the visits, and more return to the offices. You know, I touched on it, and Jeff touched on it. We felt we needed to do something to stimulate MBRXs, and that's why we're excited about the MBRX First Start program that we spoke to. And when we looked at our pilot group, What was very encouraging about that group is we saw MBRX levels that were going back to kind of pre-COVID levels, almost getting us back to that within about an eight-week period of time. So we're encouraged. We just rolled that out to the entire sales force on October 20th. The other group had been doing it since August, the initial pilot group. So we do think you know, with our MBRX trends right now being about as strong as they've been since back in March. We're actually hitting our four-week rolling was the highest it's been since March 27th. And then our MBRX share is up around 7.9% for those four weeks. So again, that's the highest four weeks we put together in a very long time. So we're encouraged. And I think you know, we weren't going to sit back and just wait for patients to return. We needed to get a bigger portion of the ones that were there, and that's why we put this program in place. So I hope that's helpful.

Very helpful. Thank you very much.

Our next question comes from the line of Scott Henry with Roth Capital. You may proceed with your question.

Thank you. Congratulations, Jeff, and good morning. A couple questions, and I did miss a couple minutes of the prepared remarks, so I apologize if you commented on it. First, spending in the quarter was a lot lower. How should we think about spending levels going forward relative to Q3 and when we'd expect to see normalization of typical expenses?

Terry, do you want to go ahead and jump in on that one first? Terry, I think you might be on mute.

Sorry about that. Yes, so in terms of our expense base, I think you've seen more of a stabilization as we came into this quarter. Last quarter had some extra costs, as we had talked about previously. So what I would say is the range we're in is about an average range. However, there will be fluctuations from quarter to quarter. You'll see us gearing up and investing for the beginning of the year. A lot of initiatives on the marketing side, some new digital. It's very typical for us to have a little bit higher investments in the beginning of the year. But on average, I think we're in about the range that we would expect to be going forward.

Okay. And from a sales rep size, where are you currently as far as number of reps relative to where you were kind of pre-COVID?

Scott, why don't you go first, please? Okay. Scott, I appreciate the question. You know, we're always evaluating and looking to optimize Salesforce size. And Jeff mentioned we're really confident we're in the neighborhood where we need to be going forward. We always look to make some tweaks here and there. We were at 121 as we entered COVID. We've done a lot of analysis lately, and we've backed that down to about 118 right now, so not a huge change. And that was really going back and looking at impact of MBRXs in certain territories and whether we can consolidate a few. And we decided to do that during this time. So we'll continue to evaluate that.

Okay. And then the final question with regards to the IP situation. and the P4. And it's been a while since I've went through one of these cases like this. But if I recall, you do have a first filer already against the Belbuca patent. Now, in that case, I believe that a future paragraph four challenge in order to launch would not only have to win the case once, but they would also have to prevail against any appeals. Is that correct? that they would have to win an appeal before they could do a generic launch.

Scott, what we're doing is really, for today, and going into details around the litigation and the format, we're just going to comment further on litigation. That's just our policy as far as not to comment further about process and how things can sequence and to be able to play it out. So I I apologize for that, but you can probably understand that not to go any deeper from that angle. We just want to make sure you're aware that the timing had been adjusted.

Okay, fair enough. Well, thank you for taking the questions. Scott, thank you very much.

Our next question comes from the line of Tim Chang with Northland Capital. You may proceed with your question.

Hi, thanks. Congrats, Jeff, on that. becoming the permanent CEO, I sort of wanted to ask you, you know, now that you're the permanent head guy at BDSI, sort of how does that change your priorities looking forward, especially on the BD front? Do you think that BD will become more and more important for the company heading into 2021?

Well, first of all, thanks, Tim. And Yeah, you know, something is that, first of all, just stepping back, and I've been really fortunate to have been in the interim role first. And when you take a look at it, it's given me the opportunity to really look under the hood at BDSI and even have greater confidence in really seeing the fact that we have very much growing products that are clearly differentiated. outstanding executive team, and we have tremendous opportunities in front of us when it comes to BDSI that really played out well. And also, I just want to comment on, you know, when you take a look at, you know, part of, you know, my view of the world was, you know, to be able to be in the interim role first was quite helpful to roll up the sleeves, understand where we are. We're doing some things that are really important right now, the commercial excellence, the execution there, and keep our eye on the ball there. We have that momentum. That priority is front and center for us. Just keep executing, keep growing this great brand that we have. And really, it's a differentiated situation. So just love that. It's one where the market dynamics are good for us and just to keep building on that. As far as BD goes, it's one where, yeah, we're just going to continue to be opportunistic in what we're looking at and making sure we really have our finger on the pulse with with the landscape there, that everything we can do to leverage our commercial infrastructure with everything we're looking at and all that as far as the different therapeutic areas, looking for things with unmet medical need. It's really something that focuses, if anything, just continues to be the focus. So it's not really a change in strategy. It's just a matter of making sure that we're wired the right way to look for opportunities on that front And the bottom line is this. We are so focused on bringing shareholder value and that everything we do, everything we're focused on is really all about, Tim, just shareholder value. And that really is something that, as we look at BD opportunities, will continue to be our guiding light that we focus on. So, Tim, hopefully that answers your question.

Yeah, certainly that does help. You know, obviously BD, I think you guys have done a great job with Bill Bucca. You're starting to ramp up some PROEC. I do get quite a few questions about what might be the third product that you might add to the top line.

Anything that we bring there is going to make sure that we have unmet medical needs that come to a product that's differentiated and all that stuff. So those filters are so important. Those questions you're getting are ones that, you know, at the right time with the right asset to bring shareholder value, that's what it's all about. So we'll keep that focus, that's for sure. Okay, great. Thanks, Jeff. Thank you, Tim.

Our next question comes from the line of David Antelam with Piper Sandler. You may proceed with your question.

Hi, this is Zach Satchar on for David. Thank you for taking my questions. One question on Semproic. I had some just generally, what steps are you guys taking as a team taking to continue to gain share in the OIC market, particularly versus Movantic? And then if you could comment quickly on what you think gross to net might be for 2021, that would be great too. Thank you.

Scott, do you want to take the first part with Semproic?

Sure, Jeff. Thanks, Zach. This is Scott. First off on Semproic, I think crucial, and we shared a slide today, we had some important wins this year where with Prime Therapeutics, we were moved to a preferred exclusive position. And that doesn't always guarantee the product gets prescribed. It isn't forced always. So we still have to pull that through. And We shared a slide today of our growth there, and there's still a lot of growth to be had. I mean, we still only have a little bit over half the market within Prime. And then CVS is where we're in kind of a co-preferred position with Movantic. We've been gaining share. We're up almost 50% since the win was announced. But sitting under 15%, around 15%. leaves us a lot of headway. So it's really about pulling through some of these recent wins and capitalizing on those going forward. There's just a lot of room for us there. So I think I'm confident that we can grow the share going forward. And then, Terry, do you want to handle the gross net question?

Yeah. So in terms of the gross nets, as I shared during my prepared remarks, We did see, you know, pretty steady actually gross to nets in the Q3, which is not what we had indicated would happen. So we saw the typical kind of increases that we normally see with the donut hole or coverage gap. We saw Medicaid increases and so on. But we were, they were offset largely by some updates to our channel estimates, which then brought the gross to nets more in line with the prior quarter. I would anticipate going into the fourth quarter that it will go back to being the kind of higher gross to net that we see associated with those same factors. And as I shared as well, you know, on average for the year, I still expect that we'll end, you know, just over 50% on the gross to nets for Belbuca. In terms of going forward, you know, there's always – you know, some fluctuation from quarter to quarter, as I've often talked about, but that range of, you know, the low 50s, low to mid 50s max is more or less where we see ourselves moving forward.

Okay, great. That makes sense. Thank you. Thanks, Zach.

Our next question comes from the line of Tim Lugo with William Blair. You may proceed with your question.

Thanks for taking the question and congratulations on the permanent position, Jeff. Maybe just following up, Terry, on the growth to net. Going forward, is the current kind of runway of growth to net and the focus on low 50s, does that really suggest that maybe contracting will not be as much of a growth driver in the future, or I guess maybe just an update on your contracting strategy and how that plays into GTN?

Yeah, so I'm going to let Scott probably comment on the contracting strategy, and then maybe I can circle back on the implications on GTN gross to net. Scott, do you want to take that?

Yeah, just quickly on that. So first off, we believe very strong coverage. And as we look at it, especially on the commercial side, when we benchmark where top brands have been in the past, we're literally up there in direct comparison, kind of best in class to what anybody's ever really achieved on the commercial side. There's some room there on the Medicare side, but what we're encouraged by is very high approval rates. Even at those coverage levels, we have 85% to 90% of the prior approvals are actually getting approved as they go through. And there's just a lot of headroom there. So what we don't talk about all the time is that we are also constantly working on improving terms within the current contracts we have. So if we can improve the price protection clauses that we're able to take, maybe even improving our – you know, the step process, things like that. But we're going to continue to be opportunistic going forward. But between us, Jeff, Terry, myself, my national account team, we have a lot of experience in contracting and modeling these things. And we're going to be judicious and make sure that financially they make sense to do contracts. But I think the bottom line is we will see wins going forward, but they've got to make sense financially, number one. And we're still very confident. You know, we presented a slide today where, in fact, even Medicare grew this quarter year over year more than commercial did, even with the current coverage levels. So we still feel like we'll have robust growth no matter what we do going forward. So, you know, I think the future is bright whether we add more contracts or not. So then, Terry, do you want to follow up with that, please?

Actually, before I turn to Tara, I just want to reinforce a couple things that Scott said that while I've been in the interim role That's something that Scott Terry and I spent a lot of time on. And, you know, Scott is spot on as far as the fact that we're on solid position right now where we have contracts. And really, really important here is that comment that Scott made about we have so much headroom to grow within the contracts we have. So just good execution, commercial excellence, you know, as far as, you know, the right customer, the right message, right frequency, just to grow within the contracts we have. We have a tremendous opportunity there. But, But part of that also, between the three of us, we have just a ton of experience with contracting, and we want to make sure that we're very diligent in the way that we're looking at the opportunities there. So that's something where I just wanted to kind of put, I guess, a punctuation a bit on what Scott said, that it's something that we're very focused on. But, boy, we have a really nice set of opportunities. of headroom in front of us here to really grow where we are, but we're continuing to be opportunistic where it makes sense and where the math makes sense. So, and Terry, let me turn it over to you.

Yeah, so just to circle back on what both Scott and Jeff brought up, you know, when you take into account everything they said and that balancing and the nice level, you know, first of all, on the commercial side, we already have, you know, over 90%, well over 90% coverage. So, you know, you're not going to see, you know, you see Scott's team, you know, chopping away at some of the smaller ones, but that's not going to have a big impact on our gross to nets and the mix of that. I think, you know, the Medicare side, we're going to be very judicious and balance the fact that, you know, we get already a very high approval rate. So, you know, trying to contract and, you know, you're not just contracting for new wins, you'd have to cut, you know, you'd have to pay for all the lives that are already covered. So, In general, I think, you know, it's the gross to net shouldn't, or I'm not expecting that they would change dramatically at this point in time based on where we are with our contracting today and what we know is ahead of us.

Okay. Thank you for all that clarity.

I was going to add one more thing. Yeah, just one last point, I think, also. I think, importantly, as we grow our brand as well, our ability to negotiate things our fees through wholesalers, also we gain leverage there too. And so we, while, you know, if we do contract, obviously that could impact gross to nuts, but we also have some positives as we grow as well that could help us on the gross to nuts side as well.

Okay. Thank you for all the clarity.

Thanks, Tim.

Thanks, Tim. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Ladies and gentlemen, we have reached the end of today's question and answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great rest of your evening.