Verrica Pharmaceuticals Inc.

Good morning, ladies and gentlemen, and welcome to the Verica Pharmaceuticals fourth quarter and year-end 2023 corporate update and earnings conference call. As a reminder, this conference is being recorded. I'll now turn the call over to our host, Kevin Gardner of LifeSci Advisors. You may begin your conference.

Thank you, operator. Hello, everyone, and welcome to Verica Pharmaceuticals fourth quarter and year-end 2023 Corporate Update and Earnings Conference Call. With me on the line this morning are Ted White, President and Chief Executive Officer of Verica Pharmaceuticals, Joe Bonaccorso, Chief Commercial Officer, Terry Kohler, Chief Financial Officer, Dr. Gary Goldenberg, Verica's Chief Medical Officer, and Chris Hayes, Verica's Chief Legal Officer. As a reminder during today's call, management will make forward-looking statements. These statements may include expectations related to the launch and commercialization of YCANT for the treatment of molluscum contagiosum in the United States, regulatory development, the development of Verica's product candidate, our expected cash runway, as well as overall business strategy and planned operations. These forward-looking statements are based on the company's current expectations and involve inherent risks and uncertainties. And based on those risks and uncertainties, Verica's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verica's SEC filings for important risk factors. Verica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in expectations. In addition, during today's call, we will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures versus their closest GAAP equivalents. Our earnings release that we issued today includes GAAP to non-GAAP reconciliations for these measures and is also available on the investor relations section of our website. I'll now turn the call over to Verica's President and CEO, Ted White. Ted?

Thank you, Kevin. And good morning, everyone. And thank you for joining us for our fourth quarter and year-end 2023 earnings call. I'd like to begin today's call by providing an update on Verica's commercial launch since our last quarterly earnings call back in November. I'll then ask our Chief Commercial Officer, Joe Bonacorso, to provide a more detailed review of our commercial activities and why can't launch. Following Joe's remarks, our Chief Financial Officer, Terry Kohler, will review our fourth quarter and year-end financial results. We'll then open up the call to take your questions. First and foremost, the organization continues to be focused on our top priority, the launch of YCAMP, which is the first and only commercially available FDA-approved treatment for molluscum contagiosum. With our first full quarter of commercial operations now complete, we're beginning to see traction in many of our targeted dermatology and institutional accounts as we execute our launch plan. Our fourth quarter execution resulted in $1.9 million in YCAMP net revenue, which we believe demonstrates our continued progress in driving adoption and reflects growing confidence in our prescriber base as we work to expand coverage of YCAMP to over 200 million commercial and Medicaid lives at the end of the year. As a further update on covered lives, in December, we agreed to terms and coverage under the medical benefit with two of the largest PBMs, We're working to finalize those agreements. However, coverage under those medical plans became effective on January 1, 2024. In addition to expanding our lives covered, on January 29th, we announced that the CMS issued a permanent J-code, J7354, for YCAMP, which is under the Healthcare Common Procedure Coding System process. We expect that the J-code for YCAMP will become fully published on April 1st, Securing that J-code for YCAMP represents a critical milestone in our commercial strategy, as the J-code enables providers to use the same code across all payers for reimbursement. We believe the J-code will help grow YCAMP utilization among the U.S. Medicaid patient populations and increase overall buy and bill account utilization by simplifying the billing and reimbursement process for YCAMP. In the fourth quarter, Verica also expanded our Weikamp product distribution capabilities when we entered into an agreement with Walgreens to distribute Weikamp through its specialty pharmacy. Walgreens joins Verica's existing specialty pharmacy, New Factor, who continues to be instrumental in helping the company distribute Weikamp among institutions, dermatology, and pediatric medical practices. The Walgreens partnership is exciting as we look forward to the opportunity to grow that relationship and leverage Walgreens' physical footprint and existing relationships with DERM on call to build community awareness and grow treatment rates. On February 1st, we executed a distribution agreement with DMS Pharmaceutical, a prime vendor to the U.S. Department of Defense, to provide WICAN to U.S. military installations around the world. The DMS relationship was in direct response to outreach from the US military treatment facilities requesting information on how to procure Y-CANTH for military personnel. As the fourth quarter came to a close, we transitioned into the first quarter. We saw wins on the institutional side of our business with major IDNs and hospitals adding Y-CANTH to formulary and placing orders. We expect these wins to continue as we see more success in our efforts to combat unapproved compounded contheritin, along with the anticipated publishing of the J-code on April 1st. Now I'd like to give you an update on our efforts to eliminate the amount of contheritin being improperly compounded for the treatment of molluscum. As you know, we have consistently taken the position that we intend to fully exercise our legal rights and execute on our multi-pronged strategy to clear the market of significant suppliers who are unlawfully compounding contheritin. At the same time, we've cautioned you that we may not see the results of our efforts immediately. Rather, we have said that as the cumulative effects of our plan started to take effect, we'd expect to see noticeable reduction in the availability of compounded contheritin within a 12-month period of time. Well, we believe we're on track and well on our way to hit our timeline. For example, The last 503B pharmacy in the United States on the FDA's Outsourcing Facility Product Report to report compounding cantharidin has discontinued compounding cantharidin and informed its over 400 institutional customers of the availability of Y-CAMP. In addition, a number of large national licensed 503A pharmacies have also agreed to discontinue compounding cantharidin. Consistent with this reduction in the supply of compounding cantharidin, we are regularly hearing in the market about the lack of availability of compounded contheridine and receiving inbound requests for Y-can from providers who are also informing us that they can no longer obtain compounded contheridine. As we've witnessed the available supply of compounded contheridine in the United States significantly decrease, we are further escalating our efforts to ban the illegal importation of compounded contheridine from Canada. and specifically the illegal importation of non-FDA-approved cantharidin products from dormer labs in Canada. Similar to the actionable results we saw from our efforts with the 503A and 503B pharmacies, we believe that as we continue to execute and escalate our intended strategies, the illegal importation of cantharidin from Canada will be discontinued. I'd now like to provide an update on our pipeline. On January 5th, we announced that the last patient has been dosed in part two of the company's phase two trial for VP315, a potential first-in-class oncolytic peptide for the treatment of basal cell carcinoma, or BCC. VP315 is a peptide that has been engineered to provide more targeted delivery to stimulate the patient's immune system and destroy cancer cells. We remain excited about the opportunity for this asset, which we view as either a potential non-surgical alternative to Mohs surgery or as a neoadjuvant chemotherapeutic for larger basal cell carcinomas, including advanced tumors or non-resectable basal cell. The ongoing Phase II trial is a two-part, open-label, multi-center, dose escalation, proof-of-concept study with a safety run-in designed to assess the safety, pharmacokinetics, and efficacy of BP315 when administered intratumorally with adults with biopsy proven BCC. The study enrolled 92 adult subjects with a histological diagnosis of basal cell carcinoma and at least one eligible target lesion. Our interpretation of the data from the study will focus on complete clearance as well as overall tumor shrinkage on patients who may have residual tumors. We expect initial results from the study in the first half of 2024. From an ex-U.S. perspective, in December, we announced that Verica's development and commercialization partner, Torrey Pharmaceuticals, reported positive top-line results from its Phase III trial of TO208, which is marketed as Y-CANTH in the United States, for the treatment of molluscum in Japan. The top-line results showed that the proportion of subjects achieving complete clearance of all treatable molluscum lesions at the completion of the confirmatory study, the primary endpoint of efficacy was statistically significant versus placebo. T0208 demonstrated similar results to WICANTS Phase III program and was well-tolerated during the study. Tori intends to submit a manufacturing and marketing application for the product in Japan based on the results of the Phase III trial and other studies currently being conducted. In addition to molluscum, as we disclosed on January 4th, we announced alignment with the FDA with respect to the Phase III clinical development plan for Y-CANTH for the treatment of common warts following our Type C meeting. More specifically, we reached agreement with the FDA on the overall design components of a pivotal Phase III study for WICAMP that would support an efficacy supplement for the proposed indication of common warts. We will be seeking additional FDA feedback on our updated clinical design in the second quarter of this year. I'll now turn the call over to Joe Bonacorso to review our commercial progress. Joe?

Thanks very much, Ted. As Ted mentioned, we had our first full quarter of commercial operations, and we are gaining increasing traction among dermatology practices, pediatricians, and institutions. There is significant and growing interest in prescribing and adopting YCAMP among physicians and broad acceptance on the payer side. We also feel our agreement with DMS and the opportunity with the DOD will further accelerate adoption. Since our last call, insurance coverage of YCAMP has grown significantly. We have increased our number of covered lives from approximately 112 million to now over 200 million in both commercial and Medicaid. Our coverage includes major PBMs such as CVS, ESI, and Optum. I'm pleased to say that our coverage metric has exceeded our internal expectations, and we believe this will ultimately translate into an acceleration in prescription growth of YCAMP over the next several months. In addition to our market access work, our Salesforce reach has expanded over the last five months. With over 4,000 healthcare professionals trained, we are seeing major integrated delivery networks adopt YCAMP with both the Mayo Clinic and Kaiser Permanente beginning to order products through our distribution partner, Triple F. We're also continuing to work to gain adoption with private equity-backed dermatology and pediatrician group practices. In support of our field efforts, we have expanded our sales footprint to 53 territories from 50 at launch. We're also adding two additional hospital reps as we continue to focus on driving adoption on the institutional side. With HCPs at major IDNs beginning to adopt and with several other significant formulary wins, the incremental hospital reps will be critical in driving demand, pulling through orders, and maximizing the market opportunity. We're also working towards adding two major hospital GPOs and utilize their support to drive further adoption. In addition, we're adding 14 pediatric reps in the first quarter, and so we plan to have a total of 20 pediatric reps in the field by the end of the quarter. Our focus on the pediatric footprint is fueled by encouraging inbound traffic, which is consistent with our internal market assessment of molluscum diagnosis from pediatric practices across the country. Due to the size of the pediatric market, our plan is designed to be efficient around major MSAs, and we will continue to work in coordination with our physician buying group partner, Main Street Vaccines, and pediatric-focused GPOs. I also wanted to touch again on the J code. To echo Ted's earlier comments, the receipt of the J code is expected to be a significant driver of adoption among dermatologists for Y camp. We believe that the J-code, which is expected to be published on April 1st, will streamline reimbursement, accelerate benefit verifications, and provide consistent reimbursement, which is more challenging with the miscellaneous J-code. We have received supportive feedback from practitioners since we announced our J-code receipt, and we are working hard to educate the market and prepare for our code becoming effective on April 1st of this year. I'll now pass it to Terry. to review our fourth quarter and year-end financial results. Barry?

Thanks, Joe. YCAMP revenues were $1.9 million in the fourth quarter of 2023, with total 2023 revenue for YCAMP of $4.7 million. This revenue represents the continued fulfillment of ex-factory orders to our distribution partner, FFF Enterprises, as we continue to build awareness, drive adoption, and expand insurance coverage and formulary access. In addition, the Q4 units were partially in support of our expanded distribution footprint with the addition of Walgreens as a second specialty pharmacy partner.

We also recognized collaboration revenues of $122,000 in the fourth quarter of 2023 and $466,000 for the full year 2023 related to the clinical supply agreement with Torrey Pharmaceuticals. Gross product margins for the full year 2023 were 94%, which continued to benefit from certain components of standard costs of goods sold, including bulk production and assembly of applicators from our registration batches, having been expensed as R&D prior to approval. Research and development expenses of $5.3 million in the fourth quarter of 2023 declined versus the third quarter of 2023 by $1.2 million, primarily driven by reduced stock compensation expenses. For full year 2023, R&D expenses increased to $20.3 million from $12.2 million in 2022, driven by increased CMC costs related to the pre-approval activity, increased clinical trial costs for VP315, as well as an increase in stock-based compensation expense. Selling general and administrative expenses of $17 million in the fourth quarter of 2023 declined versus the third quarter of 2023 by $3 million, driven primarily by a reduction in stock-based compensation expense. For full year 2023, selling general and administrative expenses increased to $47.3 million from $17.4 million for the full year 2022. The incremental spend was primarily driven by the approval and launch of YCAF during 2023 and an increase in stock-based compensation expense. Gap net loss was $67 million, or $1.48 per share, for fiscal 2023, compared to a gap net loss of $24.5 million, or $0.72 per share, for the prior year. On a non-GAAP basis, which excludes stock-based compensation and non-cash interest expense, the full year 2023 net loss was $51.8 million, or $1.14 per share, compared to a net loss of $17.4 million, or $0.51 per share, in full year 2022. And finally, as of December 31, 2023, VERIC had aggregate cash and cash equivalents of $69.5 million. The company expects that its cash and cash equivalents as of December 31, 2023, will be sufficient to fund operations into the second quarter of 2025. I will now turn the call back to Ted for closing remarks.

Thanks, Terry. I'm very pleased with the productivity that Barrick continues to make across its commercial efforts and our pipeline. We are executing across our entire business, and we believe our success is translating into growing awareness and utilization of Y-CAMP as the first FDA-approved therapy indicated for molluscum and the only commercially available FDA-approved treatment. We continue to forge excellent relationships with dermatology and pediatrician practices, and we believe that our efforts to increase lives under coverage is laying the foundation for the expansive coverage needed to maximize the commercial opportunity for Wycanth. At the same time, we're taking steps to ensure that patients have access to a safe, FDA-approved product. That concludes our formal remarks, and I'll now turn the call over to the operator for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then 2 if you would like to remove the question from the queue. For participants using speak equipment, it may be necessary to pick up the handset before pressing the star keys. This is from Stacey Koo of TB Cohen. Please go ahead.

Thanks for taking our questions, and congratulations on all the nice progress. So we had a few questions. So first, can you provide a little bit more detail around the IDN contribution and any insights into additional institutions that are pending or you've added recently, just some metrics around that and whether you have a goalpost in mind of additions by year end? Seems like some easy kind of low-hanging fruit to really understand it takes a little bit of time to kind of Establish the infrastructure, but any details would be really appreciated. That's the first question. And then the second question is, can you provide any type of commentary around how clinicians are using Why Can't at this point to just provide the most updated current split between specialty pharmacy white bag service versus buy and bill? So that's the second question. And then the third is just very early. I know it's very early, but are you getting a sense of how the adopters are using the product? Are they treating to clear? Thanks so much.

Thanks for the question, Stacey. I'll turn that over to Joe Bonacorso.

Good morning, Stacey. To answer your first question around the IDNs, we have a, you know, obviously a full implemented strategy. It's a great opportunity for YCAMP. We have Kaiser Permanente and Mayo currently ordering, and we got several other IDNs close to, I would say, close to the finish line with formulary approval and expected first orders sometime in quarter two. We'll continue to look at the, and prioritize by the largest opportunity. And then there's other strategies around some of the smaller IDN and health systems throughout the country, hence the expansion in the institutional field force to help drive that even more. Second question around, I believe it was around how the dermatology, or the split between specialty pharmacy and buy and build That's, as you would expect, with a miscellaneous J code to start. It's been leaning more towards white bag specialty pharmacy with about 80% of the volume going through there and 20% buy and build. And that's a compilation of physician offices in our health systems as well. We expect the buy and build component of this launch to grow with the permanent J code expected to be published on April 1. And then the last question, I believe, was around treat to clear. You know, we're seeing dermatologists following that algorithm to want to treat the patient to clearance. Everything we've seen so far and the anecdotal feedback we've gotten from our customers is pointing in that direction, that they want to get through a full course of therapy with the patient. And obviously, they're assessed when they think the patient is cleared and doesn't need anything else.

Okay. That's helpful. And if I could ask just a quick follow-up on the IDN contribution. These seem to be kind of bulk orders, so how should we think about the percentage of this type of contribution in 2024 versus some of the, as we think about guidance of consensus of 2024, around $20 million for the year? Thanks so much.

Yeah, so I think when you look at our hospital opportunity and you look at these facilities as best you can on a on a per patient per month opportunity. So we would think about, you know, 30% of our volume should be coming from the institutional side of the business, I would say approximately. That's what we're kind of thinking through right now. That may accelerate more as we continue to adopt on the J-code. And, you know, you also got to look at this, Stacy, as a binary event, right? Once we get a facility up and running and committed to using and adopting Y-CAN for your patients, we should be able to count on that repeat business month over month.

Very helpful. Thank you. You're welcome. The next question we have is from Gregory Rainza of RBC Capital Markets.

Please go ahead.

Hi, guys. It's Anish on for Greg. Congrats on the quarter, and thanks for taking my questions. Just a couple for me. How should we be thinking about the current molluscum TAM that remains occupied by treatments such as curatage and cryotherapy? And at what pace on a relative or even absolute basis do you anticipate conversion to Y-CANTH? And then just really quickly, how should we be thinking about sampling of Y-CANTH through 4Q and any residual into 2024? Thanks again.

So I'm sorry, I missed a little bit of your question in the middle there, but I believe you were asking how should we think about curatage and cryosurgery still being used versus Y-CANTH. You know, when we got into this market, it was understood that Curatash was probably used about 10% to 15% of the time at most, and cryosurgery was somewhere in that 30% mark of the source of business. So we're continuing to think about it as, you know, physicians don't like using cryosurgery, especially on small children. It's very painful. It's technique dependent. And, you know, we think we can continue to take from that piece of the pie as well as continue to convert on the compound that can dart in peace in the market, and also get new doctors off the sideline that have not treated without an FDA-approved product at their ready.

Great. Thank you so much. And then just real quick on the Y-CAN sampling, if there was any through 4Q and any into 2024, just for some clarity there.

Sampling you were asking about?

Yes.

Yes. So we do continue to sample as needed. Sometimes it's just a function of getting our coverage finalized with, you know, whoever the insurance company may be for that doctor. We didn't have the permanent J code. As that comes on board now, we expect more and more same-day treatment, so that'll continue to drive the use of samples down and convert to real-time prescription. So, you know, it's a very efficiently managed program by us, and we're very judicious in how we go about doing it.

Great. Thank you so much.

You're welcome. Thank you for the question.

The next question we have is from Oren Livnat of HC Rain White. Please go ahead.

Thanks. I just want to better understand the state of play with coverage, maybe as it relates to the new J-code. You talked about dramatically expanding covered lives numbers, I think, to over 200 from nearly doubling quarter over quarter. What does that really mean on the ground? What is coverage versus headline coverage versus pull through at the office level? Does a J code in April mean that it'll be really easy for patients or in physicians, or are there still prior offs potentially necessary and other friction?

Warren, thanks for the question. You know, as you know, as we're ramping coverage up, right, we have over 200 million lives now, which is exceptional for a product this young in its life cycle. It's a medical benefit-driven product, so you typically see less prior authorizations than you would on the pharmacy benefit side. You'll still have occasionally a prior authorization, which will be the label, just the doctor having to put in their notes the patient was two years of age and older. But to your question now, when you have a J-code assigned, right, that's streamlining the reimbursement portion of it. And if your coverage is, you know, clean, i.e., no prior authorization, that's going to facilitate same-day treatment for that patient under that insurance company. If there's a prior authorization, they've got to just get that cleared and treat. So they've just got to submit the paperwork around it. But having both, having this 200 million lives and the JCO now working in simpatico, if you will, should really help accelerate the adoption of YCAMP even more.

And just timing there. So you mentioned it being published April 1st. I guess, are there a couple steps after that with regards to still getting that propagated through EMRs, or is that how that happens automatically on April 1st? And then when that's there, how much education effort is there still to make offices aware that there has been a material change and their life has presumably gotten easier? And so, you know, maybe when should we see an acceleration through the year of sales as a result?

Yeah, so just to point you back, we were awarded the J code in January of So we have started already working through a fully baked communication plan with the insurance community and letting them know that the J code was awarded and we're tracking now to see who's starting to publish it, okay? So that's been going on since January. We're also working now to work with customers who are either currently buying a bill with the miscellaneous J code or who have expressed interest in coming on board to buy a bill when the J code was final And we're working to get those offices set up ahead of April 1. And then as we continue to track towards April 1, we got several more communication blasts going to the payer community. Post-April 1, we'll continue to do that just to make sure we have our top 150 payers squared away. And it's always boots on the ground, right? So we have our sales team out there, and they're going to continue to make sure that the office is aware of the J code itself, the J code number. making sure that they have checked their insurance contracts to what their reimbursement will look like on the ASP plus side of it. And, you know, that's always a, you know, this is an account management drug, right? There's always that reinforcement of education and knowledge that we share with customers every time we're in the office, in addition to our clinical cell.

Okay. And just to pivot real quickly to follow up on earlier question about, you know, how docs are using it. What do we, I know it's quite early, but what do we know about, so far about re-treatment rates, because I know some patients have experienced clearance on one re-treatment. So what are you seeing trend-wise as we try to think about how to model this in terms of average number of treatments per patient? And on the insurance side, do you have any reason to believe that re-treatments will be treated any differently from a friction and payer perspective?

Yeah, so let me take your last question first. We don't see any impact on insurance reimbursement is what you're asking on retreatment, right? When they approved our product, they knew it could be up to two applicators per treatment, and they knew it was four treatments over 12 weeks, and we haven't seen any real hard cap on the end of the four treatments if somebody needed a fifth treatment, let's say, right? So, no, we don't anticipate friction there from the payer community. Right now, it's early, but what we're seeing is typically two applicators per patient plus, you know, we're also early on using samples there, right, starter doses to get them going as we were building coverage. So, you know, the two plus the sample is a pretty good spot to be in, and we're tracking towards, you know, how we modeled our thoughts around, you know, driving demand and what it would look like on a per patient level as far as the applicator goes.

Okay. I'll get back in the queue if there's questions behind me. Thanks.

Okay, thank you.

The next question we have is from John Serger of Needham Company. Please go ahead.

Hi, everyone. This is John on for Serger. Congrats on your progress, and thank you for taking our question. So regarding the upcoming Type C meeting for YCAMP label expansion and condom warts, Would you be able to provide any color on the potential design of this trial and whether or not additional trials would be conducted in external general awards? This includes the investment required and any potential market opportunity for each of these indications. And second, can you provide any insight on how your partnerships with Walgreens is structured and whether we'll see any additional specialty pharmacy partnerships in the future? Thanks.

So John, thanks for the question. But first, I'll turn it over to Gary Goldenberg, our Chief Medical Officer.

Thanks, Ted. For the Type C meeting follow-up regarding common parts with the agency, I think the way that you could think about it is it would be a typical Phase III program that you would expect the agency to ask a sponsor to run. We are still in communications. and look forward to seeing more as we continue to finalize the details of the trial design.

Yeah, and then the second, I think the other two questions you had was regarding Walgreens. So Walgreens, the partnership with Walgreens is accelerating nicely, just to recall why we went to that. that gave us an opportunity to further expand our insurance network within the specialty pharmacy world, right, adding a second pharmacy. Walgreens also has 300 community health system stores, and we're working towards getting those stores stocked with Y Camp, and that'll give us a presence across 50 states when that initiative is complete, and we're gonna start doing that sometime later this quarter into the second quarter. And we're always looking at our model, right? So what we really want to do here is be operationally efficient, and we want to think about ways to continue to ramp acceleration. So your other question regarding potentially adding another specialty pharmacy, we'll continue to assess that and see if there's a need to further strengthen our footprint and help accelerate business. So that's constantly under review by us.

The next question we have is from Kim Dolliver of Brookline Capital Markets.

Please go ahead.

Great. Thank you, and good morning. So two questions. First, what's the model for the pediatric sales force? I think I've seen it various times. We're going to have, I think, a part-time pediatric sales force, and then I think I've also seen that this maybe has evolved to where it's a, you know, these are full-time hires with probably a compensation model that looks like the dermatology team.

Yeah, so great question. You know, we were looking at a variety of models in pediatrics, knowing that we had to get there, but based on the inbound traffic we continue to get to the office and what we're hearing on the ground, we made the decision to staff that with a full-time compensated field force. So we'll be building that team out to 20 representatives, and they will be hitting the ground in full April 1st. We think there's a strong market opportunity with pediatricians, and we've decided to make that a full effort to go after it.

Okay, that's very helpful. And the second question relates to sampling and just when you look at the sell-through data from Triple F, how much of that volume is sampling and how much of that so far is reimbursed business?

So when we look at sampling, that's in a different lane for us, right? We're not looking at that as our pull-through from 3F. So sampling has just been on an as-needed basis, you know, based on the opportunity with the physician. If they were looking to treat the same day while, you know, while we were getting our insurance coverage built out or they're using the white bag specialty pharmacy, that has no bearing on what we're doing at 3F as far as our revenue drive.

Okay, but just as a percent, just looking at the overall activity, you know, Are we looking at 80%, 90% sampling at this stage or a lower number?

I'm sorry, I didn't catch the last end of your question.

Oh, well, let me rephrase it. What percentage of the volume so far is sampling?

So what we typically do is, and I'll try, I don't have an approximate percent for you, But what I would say to you, the samples have been tapering down significantly since we first launched the product in September, October, right? So meaning that September we were probably at our highest trying to get some trial use, and then now we're bringing that down. So I would say it's roughly maybe 5%, 6% of our activity out there is driven by sampling.

That's perfect. Thank you. Okay.

The next question we have is a follow-up question from Aaron Livnett of HC Wainwright. Please go ahead.

Thanks. Just a couple. I'll squeeze in. I guess to Bill and Kem's question, maybe a different way to look at it, and maybe what he's getting at is, can you comment on gross to net? Ultimately, you know, you've talked about Medicaid as an important part of this business and new specialty pharmacy numbers. Where should that shake out now and going forward?

Morning. Thanks, Oren. So gross and net to date have been very consistent with our expectations pre-launch. So going forward, we continue to expect that net sales as a percentage of gross sales is going to be in that 45% to 50% range. There might be some lumpiness in that number throughout the year, just depending on where patients are and their deductibles, but very consistent with what we thought pre-launch.

And do you expect that to improve as coverage and contracting comes on through the year? And, you know, what's the sort of terminal – sustainable gross net in your mind?

Yeah, we would expect that to improve both as coverage comes on and we have, you know, less impact to our copay program for insured not covered, as well as we transition more business to buy and build, which is favorability from a distribution standpoint. So, you know, you're probably closer to that 50% to higher end of that range that I gave you once we get to a normal state.

Okay. And Lastly, are you expecting significant response from the FDA in March to the citizen petition? You know, how big a deal is this imported business now? And do you think they're going to just kick the can on this 180-day response? Or are you expecting something material? And what might be the next steps?

Yeah, Warren, we don't expect them to kick the can. You know, their response is due in April. We continue to have outreach. with the FDA regarding our concerns, and we fully expect a response from them.

Right, but do you think they'll actually do anything, or are they going to acknowledge your concerns and leave it at that, do you think?

If I knew that, I'd win the lottery. We think we made a very strong argument in our citizen's petition. There is precedent for what we're asking for, and we hope that the FDA rules in our favor. But obviously, I can't predict what they're going to do. But we're confident that we will be successful one way or the other.

Okay. Thanks so much. Good luck.

There are no further questions at this time. I would like to turn the floor back over to Ted White for closing comments.

Thank you, Operator. So I'd like to thank all of you for joining us this morning. We're obviously very pleased with the significant accomplishments in 2023 and the progress we expect to make in 2024. And we look forward to providing another update on our first quarter earnings call in May. Thank you very much.

That concludes today's conference. Thank you for joining us. You may now disconnect your lines.