Aerie Pharmaceuticals, Inc.
Q4 2017 Earnings Call Transcript

Published: 1 Mar 2018

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Aerie Pharmaceuticals Fourth Quarter and Full Year 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Today's conference call will be recorded. It is now my pleasure to turn the floor over to Aerie's Chief Financial Officer, Rich Rubino. Please go ahead sir.

[Rich Rubino:]

Thank you, Andrew. Good afternoon and thank you for joining us today. With me today are Vince Anido, Aerie's Chairman and Chief Executive Officer; Tom Mitro, Aerie's President and Chief Operating Officer and John LaRocca, Aerie’s newly named General Counsel. Welcome, John. Today's call is also being webcast live on our website, investors.aeriepharma.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 guidance regarding our future financial and operating performance. These statements will include projections associated with our commercial launch of Rhopressa, including net revenue expectations and cash burn. They will also include expectations regarding the success, timing and cost of our clinical trials, the timing of and our ability to request, obtain and maintain FDA or other regulatory approval of, as applicable, Rhopressa and Roclatan, including our efforts on international expansion. Further, we will address the timing and cost of our manufacturing activities and the potential of our preclinical research findings, as well as other statements related to future events. These statements are based on the beliefs and expectations of management as of today. Our actual results may differ materially from our expectations. Investors should read carefully 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 a result of new information, future events or otherwise. Please note that we will file our 10-K tomorrow. In addition, during this call, we will be discussing certain adjusted or non-GAAP financial measures. For additional disclosures relating to these non-GAAP financial measures, including a reconciliation to the most directly comparable GAAP measures, please see today's press release which is posted on our website. As a quick financial update, our fourth quarter 2017 GAAP net loss was $58.5 million or $1.60 per share. The net loss for the fourth quarter 2017 includes non-cash stock-based compensation expense of $8.0 million. When excluding the non-cash stock-based compensation expense, our total adjusted net loss was $50.5 million or $1.38 per share. As I guided on our third quarter call, the fourth quarter includes $24.8 million of R&D expense, resulting from the acquisition of assets from Envisia in the fourth quarter of 2017. For additional information regarding our fourth quarter 2017 results, full year results and prior period comparisons, please refer to today's press release and tomorrow's Form 10-K filing. Our 2017 full year cash burn was just under $120 million, in line with our previous guidance. We ended 2017 with $250 million of cash, cash equivalents and investments. When you add the net proceeds yielded from our January financing activity, the pro forma cash, cash equivalents and investments balance is $386 million. Also note that our year end share count was 36.9 million shares and this has since grown to 39.3 million shares as a result of the January financing activity. With that, I will turn the call over to Vince.

[Vince Anido:]

Hi. Thanks, Rich and good afternoon, everybody. Thanks for joining us today. It’s really the first time that I'm talking to you since we received the early FDA approval for Rhopressa and it's certainly an extraordinary time for our company. It's been anything but a straight line in terms of our growth that we're excited as to where we've ended up so far. We've been preparing for the Rhopressa launch for quite some time and we're confident in our ability to launch by the middle of the second quarter of this year, as we have expected and we've guided and with what we believe will be a very, very well trained sales force, more than ample product supply and certainly an excellent trajectory towards preferred formulary coverage. As you saw in our press release, we've already hired about a third of our sales -- of our 100% sales force and we’re extremely pleased with the sales talent we're bringing in across the board from our four regional sales directors to our 14 district managers to our sales reps, which we call territory managers. I must say, it's been quite surprising, but we've garnered quite a bit of interest when we posted 100 territory managers jobs, we ended up with over 4500 applicants. That's quite a talent pool to select from. This week, we're currently at the -- in New York City for the American Glaucoma Society meeting and we continue to be delighted by the level of awareness Rhopressa has gained, in fact, in a recent awareness study, Rhopressa was recalled without an aided prompt by over 60% of the glaucoma specialists surveyed. I think this is quite a feat, given that the product is just recently approved and we certainly look forward to discussing Rhopressa, along with Roclatan as we go through the next couple of days at the American Glaucoma Society meeting. Regarding market access, we've been in front of the key players long before we received our early approval and based on feedback from them, we expect to obtain preferred formulary coverage on the majority of commercial plans by late 2018. We also expect to obtain preferred positioning for most of the Medicare Part D plans in January of 2019, so there will be a lag for the Medicare portion of the market. Now, moving on to Roclatan, our programs remain on track and we do plan to submit our NDA in the second quarter of 2018 and we do expect about a 12-month review period. Remember, the gating item for the April or for the second quarter submission was that we're waiting for the 12 month stability data on our three registration batches before we could actually cement. The level of excitement among physicians about Roclatan is also very high and I'm sure you'll see quite a bit of that here at AGS this week. And looking forward to our potential Roclatan approval next year, please note that we plan to use the same sales force for Roclatan as we will use for the Rhopressa launch and there's no need for a separate sales force or a larger sales force. Now, turning to our initiatives outside the United States in addition to the European Phase 3 trial, named Mercury 3, which is underway in Europe for Roclatan. We've also commenced our Phase 2 trials for Rhopressa, enrolling Japanese and Japanese Americans in the US as a precursor to conducting Phase 3 trials in Japan. With these trials in process, our global expansion strategy remains on track. As a reminder, towards the end of last year, we discussed that we would be maintaining European rights for commercialization of our products and we do plan on setting up our own commercial operations and sales force in Europe when the time is right. Looking to earlier stage pipeline, we are charging ahead with our two preclinical product candidates for the retina market. They are AR-13503, which is an active -- the most active metabolite for a product we called AR-13154 and so we’ll be moving that Rho kinase inhibitor plus kinase C inhibitor, which has a potential for treating both diabetic macular edema or DME and wet age-related macular degeneration or wet AMD. We believe this is a completely new pathway for treating these diseases and AR-13503 has shown in preclinical experiments to provide additive efficacy as an adjunct to market leading Eylea, while being very efficacious on its own right. We're also advancing AR-1105, a dexamethasone steroid implant for the treatment of DME, which is part of the asset we acquired under the Envisia acquisition. Preclinical activities are ongoing for both AR-13503 and AR-1105 and we are enthusiastic about each of the molecule’s product candidate potential. The capabilities we now have through our DSM collaboration provide an excellent opportunity to gain long-term sustained release for small molecules such as 503. Now, on top of that, we also have manufacturing platforms that makes ocular implants at precise shapes and sizes through our exclusive ophthalmic rights to the PRINT implant manufacturing technology again that we acquired through the Envisia acquisition last year. We do expect to file an AND for AR-1105 later on this year and about six months later, we’ll file the IND for 503. As you know, we own a sizable library of Rho kinase molecules that we have made over the year, each with the unique features and attributes that ultimately may address additional diseases beyond the eye. Rho kinase inhibitors are known to be very effective anti-inflammatory, anti-infective product agents and have other attributes as well. We’ve already partnered with several academic institutions as we evaluate our molecular library for additional indications where Rho kinase inhibition may provide a benefit beyond ophthalmology. The list of potential indications is long, but those that are the initial focus includes certain pulmonary diseases, dermatology indications and cancers among several others. Now as this as a teaser, a couple of years ago, when we embarked on part of this effort, we ended up studying what is now Rhopressa, at that time, we’ve designated it AR-13324 and we were able to study in as mouse models where the outcome that we were searching for was, could we open up a compressor restricted pathway. And what we found in 324 was that we actually got great results from that and peritoneal injection and that certainly led us to believe that we could use our molecular library for diseases outside of Ophthalmology. We will report back to you as we may continue progress in this area. And now, I’m going to turn it back over to Rich to discuss the 2018 full year guidance.

[Rich Rubino:]

Thanks, Vince. As you saw in our press release, we are guiding to full year 2018 net revenues for Rhopressa in the range of $20 million to $30 million. You remember that approximately half of the covered market is commercial and half Medicare Part D, which is on a calendar schedule. We expect Medicare Part D coverage to commence in January of 2019. Regarding commercial coverage, we expect to exit 2018 with the majority of our coverage in preferred brand status. Since we're launching mid second quarter, you should assume the revenues will be earned in the back end of the year. Looking at 2018 from a quarterly perspective, with the mid second quarter loss, you should expect the second quarter to reflect primarily sampling activity with commercial revenues commencing in the third quarter and increasing sequentially in the fourth quarter, as we obtain more preferred formulary coverage and the sales curve continues to ramp up. We are guiding to 2018 cash burn of $200 million to $210 million, which includes adjusted operating expenses in the range of $155 million to $160 million, excluding stock-based compensation and capital and inventory build in the range of $45 million to $50 million. The operating expenses reflect the Rhopressa launch, including sales force expenses along with the ongoing clinical trials for potential regulatory approval in Europe and Japan, expanded pre-clinical research related to the development of our retina program and Roclatan inventory build, which is expensed, given Roclatan is not yet approved. Since stock-based compensation expense is not included in the information I just provided, and you will need it for your GAAP expense projections, we're guiding to full year 2018 stock compensation expense of approximately $45 million to be included in GAAP operating expense. The capital expenditures are primarily associated with the construction of our manufacturing plant in Ireland and the inventory build relates to Rhopressa product that will be recorded on our balance sheet as inventory now that Rhopressa is approved. Note that the cash burn guidance is presented on a gross basis. It is not offset by any accounts receivable collections associated with our revenue generation. And now, I would like to turn the call over to questions. Andrew?

[Vince Anido:]

Andrew, we're turning the call over to questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Adnan Butt with Guggenheim Securities.

[Adnan Butt:]

Thanks and congrats on the progress. First, on the sampling program, can you give us a bit more about the size and scope of the sampling program and how does that factor into the guidance that you're getting?

[Vince Anido:]

Well, as you can imagine, sampling plays a big role in certainly chronic therapies and glaucoma specifically and the fact that we haven't had a new chemical entity launch in the United States in quite a few years, we know that we're going to have to provide quite a bit and Rich has provided you guidance in terms of sort of sequentially what to expect, but let me turn it over to Tom for a little further details here.

[Tom Mitro:]

Adnan, it’s good to hear from you again. So overall, what happens in glaucoma market is that the vast majority of starts, patients start with a sample and then they return to the physicians’ office usually two weeks to three weeks or four weeks later to see if their patient has in fact responded to the medication and tolerates it well. So we're going to do that same plan, just make it very easy for what the physician does and we're going to fit it into the normal course of practice.

[Adnan Butt:]

So the samples that are given, would they captured by prescription data? Let me first ask actually would Rhopressa be trackable to third-party prescription data?

[Vince Anido:]

The answer is yes. You'll be able to track prescription data and the answer is no, samples are not included in the prescription numbers.

[Adnan Butt:]

And just one more on the guidance in this case, Rich, is it fair to assume that R&D should, given the fourth quarter run rates, R&D should be coming down a bit, while the SG&A ramps up?

[Rich Rubino:]

Well, yes, certainly SG&A is going to be ramping up, nothing wrong with assuming our all-in R&D expense for ’17 is representative of what you should expect in ’18. So the net growth in adjusted OpEx is driven by commercialization expenses in SG&A. One other point that I want to make is and I addressed it in my prepared remarks before a product is approved, as in before Rhopressa was approved, all of our inventory build for commercial sale as well as for samples were expensed. So therefore, as we enter into this year, there is no incremental expense for the samples that we use, because they've already been expensed previously. You'll also see a relatively high gross margin this year on Rhopressa sales for the same reason.

[Operator:]

Thank you. And our next question comes from the line of Annabel Samimy with Stifel.

[Annabel Samimy:]

Thanks for taking my question. Just to follow on Adnan’s question with the sampling, I’m interested more about any kind of co-pay programs or co-pay assistance you're going to be providing for these patients, given that you will have possibly preferential access for the majority of your plans or for the majority of covered lives. So, can you tell us -- can you help us frame just how we should think about any kind of gross to net adjustments you might have to make or net pricing that we should assume going forward?

[Vince Anido:]

Well, let’s talk a little bit first sort of at a higher level, remember, what we talked about earlier, which is about half the market is commercial and half the market is Medicare Part D. We don't expect coverage in Medicare Part D till January of 2019. We're not allowed to provide any inducements for Medicare Part D patients. We can't give them a co-pay card and things like that. So really we just can't help them out much, we can work very hard to manage access folks to try to get on Medicare plans early and maybe we'll have some luck there, but certainly, we can’t help them with cards. So everything we do is going to be, from a Medicare card -- from a co-pay card point of view is going to be on the commercial side. So let me just have Tom talk you through how we plan on doing that.

[Tom Mitro:]

Hi, Annabel. We do plan on having co-pay cards for the commercial audience. So we'll really use them in two areas. One is, if there is an account that blocks us, like some commercial plans do that now, they have a, so to speak, mandatory block for six months or so until they see the activity for the truck or that's a great place for these co-pay cards that will reduce the co-pay for the patients and make those products accessible. The other one is we do have some plans that have excessive co-pays and those be able to use our cards for those as well. So, it'll help tremendously in those commercial accounts that patients really need some assistance with the co-pay and this is what we will be using it for.

[Rich Rubino:]

And if you think about it from a gross to net perspective, what will happen in the beginning where we don't have all preferred coverage, the rebate levels will be less and therefore your net will be higher by definition but that will be partly offset by the coupon effect, but at the end of the day, regardless of what's in the gross to net, whether it's a rebate component or a coupon component, we are guiding, as we've always said, that our net prices will be at least $100 per month per bottle.

[Annabel Samimy:]

And then, it’s not that I want to have you throw anyone under a bus or anything, but I just want to understand, I’ve asked this question many times before, but now you've got two decades of not having -- had anything new in glaucoma now, you’ve got new entrants coming in the market. And so I want to think about market dynamics and how that may shape up? Do you expect, given that you're – you and Vyzulta are being launched to sort of two different areas of the market, one more in first line I guess, another one you're more as an adjunct. How do you think that dynamic is going to play out? Do you see that there's a potential delay before they try Rhopressa, maybe using Vyzulta as a next prostaglandin first or is it possible you're going to see a lot more experimentation with both of them, maybe helping both of you go forward? I just -- what have you been hearing from the physician community essentially?

[Vince Anido:]

They've been pretty consistent for a number of years. If you take a look at the three branded products that are available at any one time, which were Xalatan, which is now latanoprost, which is now pretty much generic as well as, then you’ve got Lumigan and Travatan, if you look at the clinical history of those, they all were slightly different and so you've got historical clinical trials, Lumigan showing that it was slightly better than latanoprost and maybe even Travatan, although there was some question about that. We hardly ever saw a real switch from one prostate gland into the other. It was typically -- the assumption was always that all the prostaglandins were roughly about the same way and therefore, if a patient was all of a sudden found to be not responsive any longer to prostaglandin, so their pressure started going up a little bit, which we know occurs in about 50% of the patients, then they would simply move to some other way of -- or some other pathway for treating the disease and bringing the pressure down even further and as far as they would go to an alpha blocker or beta blocker or carbonic anhydrase inhibitor. So, we think the dynamics in the marketplace will be somewhat isolated. I think, in our case, being a new chemical entity that is totally different mechanism from anything that’s out there, that puts it in a totally different light relative to the marketplace whereas when you've got Vyzulta because it is prostaglandin, they'll have to fight with the other prostaglandins for share.

[Annabel Samimy:]

And then maybe just to clarify on the R&D issue. So you expect the same level of R&D from 2017, because primarily of the inventory build for Roclatan, because it seems kind of high given that you're coming out of two or three Phase 3 trials and you’re really moving into just one -- you have one Phase 3 in Europe and then a Phase 2, so I just wanted to make sure that that coverage is primarily -- the extra is primarily from inventory build?

[Rich Rubino:]

Let me clarify. The inventory that's expensed is included in SG&A, not R&D. So I mentioned that R&D will be flat year to year and of course for ’17, you saw on an adjusted basis, it was $66 million. Now recognizing that that includes the 25 million or so from the Envisia acquisition in the fourth quarter, but I'm guiding again to a number closer to that 66. Why is that? Because to your question, you would have expected it to go down year-to-year. There is a couple of things. So certainly, the Rhopressa and Roclatan clinical development associated with the US is down, however, that's more than offset by the European and Japanese clinical trials that are ongoing that essentially just started. In addition, in R&D is medical affairs and as we've pointed to all along, the medical affairs group is growing as you would expect as a result of getting ready for commercialization. The last component is really the pre-clinical work we're doing this year on our retina program that Vince discussed in his prepared remarks, in addition to growth in our research team, as we continue to screen our library of Rho kinase inhibitors.

[Annabel Samimy:]

Okay. So you're saying – so it should be -- and the trajectory for the year should be relatively smooth in building towards the back half?

[Rich Rubino:]

Generally, yes. By the way another component that I failed to mention was the NDA filing fee, which we’ll be paying in full this round. We did not pay in full for Rhopressa because it was our first filing, but you should expect -- with regard to overall expenses, the first quarter will likely be the lightest of the quarters because obviously we're hiring quite a bit of the sales force as we speak. So, you will have a little burden of the sales force in second quarter. The NDA filing fee will be around that as well and then certainly in the back half of the year, we'll be running with fully loaded expenses.

[Operator:]

And our next question comes from the line of Dewey Steadman with Canaccord.

[Dewey Steadman:]

Not to beat a dead horse on inventory, but obviously post approval, any inventory build is a cash flow item. And can you give us some color on the 45 to 50 inventory building CapEx. How much of that is expected to be inventory build and how much is CapEx and sort of the phasing of those cash outflows throughout the year? And then how much left is needed to fit out the Irish facility?

[Rich Rubino:]

So, thanks, Dewey. That’s a good question. So, the guidance of 45 million to 50 million, you won't be too far off if you assume half of it is for the Ireland plant and half of it is for inventory build. The inventory build will be fairly even in the course of the year. The capital expenditures for Ireland will be probably weighted more toward the last three quarters of the year. This is the last year of heavy capital lifting for the Ireland plant and as we get into next year, right now, we disclose this in our 10-K that will be issued tomorrow, but we expect single digit millions and we’ll be wrapping it up from a capital perspective.

[Dewey Steadman:]

Okay. And how far does the current cash runway take the company? Is this recent rate is pretty much the last that you think you'll need? And then on tax, how should we approach the recent tax law changes in modeling long-term tax for Aerie?

[Rich Rubino:]

Right. So if you do your math with regard to the estimated cash balance at the end of 2018, you can do the math yourself, but you're probably going to come up with a number pretty close to $200 million, which is a very good place to be. So we're very happy with how well financed we are today. And remember, if all goes well, next year, we'll be launching Roclatan. So, hopefully that all will bode very well and minimize any future financing needs for ongoing operations. I never guarantee that we won’t be doing another for sure. With regard to the changes in the US tax laws, they do benefit us. So you might remember, a couple of years ago, we migrated our ex-North American IP offshore, but our US based IP is onshore. We will be full US taxpayers. So with that, we will fully benefit from the reduction in the corporate rate from 35% to 21% and looking at our strategic plan, I don't expect our all-in corporate effective tax rate to go beyond 20%.

[Dewey Steadman:]

And then I guess, congratulations, John on joining the team, not to put you under the spotlight too quickly, but I’ve noticed that there's four Orange Book patents for Rhopressa plus the NCE exclusivity, are there anymore patents out there that could be added to the Orange Book over time.

[John LaRocca:]

We continue to work on our IP and more likely, yes, they will.

[Rich Rubino:]

And Dewey, just one other point for you and it’s something I would say when I talk about taxes is that, we've accumulated very significant levels of NOLs over the years and with that, I don't expect us to be full tax payers until 2022 or so.

[Operator:]

And our next question comes from the line of Serge Belanger with Needham and Company.

[Serge Belanger:]

First on commercial payer formulary coverage. I think Vince mentioned he expects preferred positioning. I assume that’s tier 2, maybe tier 3, do you have a certain commercial lives target level by year end for that positioning?

[Vince Anido:]

We actually -- we do have internal targets in terms of working with the top ten plans and how many of those we want to be on and extend it down to the next level plan to maybe a top 20 or 25 or so, but those are the kinds of things that from a competitive point of view, we're not going to make public.

[Serge Belanger:]

Okay. And then from your initial conversations with these commercial payers, do you still expect or what do you expect in terms of step throughs or step edits?

[Vince Anido:]

We don't really see -- nothing has changed since we started doing these discussions, the market research that we did with managed care, which started back even before we got here in, right around 2012 or so, which is basically because of where we're pricing it and we took a lot of feedback from them in terms of how to price not only Rhopressa, but the expectations for how to price Roclatan, we don't expect any real significant pushback in terms of step edits or prior authorizations. I think, there will be an awful lot of noise in the system for the first couple of quarters or so and by the time we get to fourth quarter on the commercial side, we should be in pretty good shape and then that will tee us up well, because in January of next year, we expect to be on the majority of the Part D formularies. And so, again a lot of noise for the first couple of quarters of launch, normalizing towards the back end of the year and then really normalizing with the Medicare component as we enter 2019.

[Tom Mitro:]

And when we use the term preferred, Serge, we’re referring to tier 2.

[Serge Belanger:]

And then I guess a question for Rich on the Ireland manufacturing plant. Can you just give us timelines and when you think that will come online and should we see a significant improvement in gross margins when that happens?

[Rich Rubino:]

Yeah. We've pointed all along to an assumption for 2020. So, we expect it to have commercial output in 2020 and the cost of sales benefit by manufacturing on our own is about 40% or so off of getting the pricing from third parties that we get today. So our gross margins will already be very high, right, because our cost of sales relative to our revenue is quite low, but they will get even better once we are experiencing output from our own plant in 2020.

[Operator:]

And our next question comes from the line of Elemer Piros with Cantor.

[Elemer Piros:]

Thanks for taking my questions, some of which have been already answered. Maybe one question on the Japanese study or study in Japanese patients, when do you see that mature and produce results?

[Vince Anido:]

So we expect that we're going to see some results towards the end of next year. Certainly making sure that we have as much possible, we've already conducted some Phase 1 studies here in the US on Japanese and Japanese Americans and now we've moved into phase 2 and just making sure that it's not an easy screening for us, because the PMDA which is the Japanese equivalent of the FDA is very strict about their definition for the kinds of patients, how many generations removed and whether their grandparents are both Japanese or not, et cetera, et cetera, et cetera that are used for these. And so again, we're expecting results towards the end of next year. And then quickly move into discussions with PMDA, while we've had great discussions already with them and have pretty good idea of what the Phase 3 trials will look like, we just -- once we have the data, we’ll be able to tweak those and solidify that and move into Phase 3 trials in Japan shortly after that. So, call it back end of ’19 or so, we should be done with that.

[Elemer Piros:]

And just one, refining my understanding of your cash burn guidance, so do you expect to actually recognize the revenue that you project $20 million to $30 million this year and what sort of an impact that revenue has on the cash burn guidance.

[Rich Rubino:]

Very good question. So, the $20 million to $30 million is net revenue that we expect to gain on a GAAP basis. So it's not an adjusted measurement, it is a pure GAAP perspective on revenue. And I mentioned in my prepared remarks, Elemer, the guidance I gave is -- on cash burn is gross cash burn. It does not include the offset from accounts receivable collections associated with our revenue.

[Operator:]

And our next question comes from the line of Difei Yang with Mizuho.

[Unidentified Analyst:]

It’s actually Alex on for Difei. So some of my questions have been answered, but I do have one. Wanted to ask about your earlier stage programs, specifically AR-13154. I think one of the indications there is AMD. And I wanted to ask if maybe you could talk a little bit about how that’s differentiated from the current standard of care and I'm thinking about, maybe you can speak about injection frequency and things like that?

[Vince Anido:]

Yeah. That's great. So again, I want to clarify that AR-13154, while we did study that had great results and clearly what we found was that it's active metabolite or the most active metabolite, which is designated now with 503. So, AR-13503 is the molecule that we're going to be moving forward with and actually speaking about from now on. And so we have put that molecule into the DSM polymer and then we’ll be manufacturing that into sustained delivery system that will allow us to inject our drug, which is small molecule into the back of the eye and we do expect delivery and activity out of that molecule for roughly about a 6-month period. So, we're looking at basically the need for two injections a month with 503. Now, and obviously that's quite a bit better in terms of delivery that what you see with on label many of the VEGF inhibitors. We think that there's been, obviously, last year was a real tough year for adjunctive therapy or additive therapy to VEGF inhibition and VEGF to actually work very, very well in wet AMD patients, et cetera and so it's -- we think that in part many of the failures that we saw in that category were due to the fact that many of those drugs were down similar pathways to VEGF inhibition. And so the VEGF inhibitors are so good at what they do, they mute the effect of some of these other molecules. And so, we think that by having our drug, Rho kinase inhibitor and also one, protein kinase, it's a totally different pathway. We're looking at anti-inflammatory activity here and things like that and so we think that it will be -- that's what will make it a better adjunct. And also we think that the drug works not only as adjunctive therapy to Eylea, but also works basically on its own quite well. And again, as a reminder, we are looking at basically two injections per year with our insert 503 versus what we've seen with others in the past.

[Operator:]

And our next question comes from the line of Oren Livnat with H.C. Wainwright.

[Oren Livnat:]

If I just ask about the revenue recognition again, I don't think anyone specifically asked you your methodology, this $20 million to $30 million that I guess was mostly booked in the second half of this year, is that going to assume any recognition of channel fill or is it going to be pull through demand such that it’s that say the number of prescriptions times 100 something dollars equals that $20 million to $30 million?

[Rich Rubino:]

It will include some channel as well, a couple of weeks to four weeks of demand. The accounting rule is ASU 2014-09, which most companies are implementing 1/1 of 18. So it is a sell-in approach and we’ve recognized revenue when control is transferred and with that, we accrue for estimated returns and obviously all the other gross to net adjustments.

[Operator:]

Thank you. That concludes our Q&A session for today. I would now like to turn the conference back over to Vince Anido for closing remarks.

[Vince Anido:]

Thanks, operator and thanks all of you for joining the call today. We do look forward to everything we're doing here at Aerie, not only the Rhopressa launch, but also getting ready for filing Roclatan, building up our pipeline and then extending our reach on a global basis to Europe and Japan. We’re especially excited about being in New York this week for the American Glaucoma Society meeting. We have an awful lot of events that are planned and for those of you who are based here, if you’re some way or other can sneak in at the Marriott Marquis and you can attend some, if not portions of that conference. At the same time, we're also going to be recognizing our original founder, David Epstein who unfortunately passed away a number of years ago. He was the Chair of Ophthalmology at Duke and without his forward thinking and preliminary efforts to get Aerie started, none of us would be here today. So again, I want to thank everybody for joining us tonight and have a great evening.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.